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August 23 2021

Commentary by Eoin Treacy

World's biggest wind turbine shows the disproportionate power of scale

This article from NewAtlas may be of interest to subscribers.

China's MingYang Smart Energy has announced an offshore wind turbine even bigger than GE's monstrous Haliade-X. The MySE 16.0-242 is a 16-megawatt, 242-meter-tall (794-ft) behemoth capable of powering 20,000 homes per unit over a 25-year service life.

The stats on these renewable-energy colossi are getting pretty crazy. When MingYang's new turbine first spins up in prototype form next year, its three 118-m (387-ft) blades will sweep a 46,000-sq-m (495,140-sq-ft) area bigger than six soccer fields.

Every year, each one expected to generate 80 GWh of electricity. That's 45 percent more than the company's MySE 11.0-203, from just a 19 percent increase in diameter. No wonder these things keep getting bigger; the bigger they get, the better they seem to work, and the fewer expensive installation projects need to be undertaken to develop the same capacity.

The overall result should be a drop in offshore wind energy production prices – a sorely needed drop, too. Current levelized costs of energy, as estimated by the US Energy Information Administration for new energy generation assets going live in 2026, place offshore wind as the most expensive way of generating a megawatt-hour right now, at US$120.52, where ultra-supercritical coal is more like $72.78 and standalone solar is around $32.78 before subsidies.

Obviously, wind fills in gaps that solar can't, and it'll be a crucial part of the energy mix going forward. Scaling the industry up with these mammoth turbines is the key reason why industry experts are predicting that the cost of offshore wind will drop by between 37 and 49 percent by 2050, as reported by Renew Economy.

MingYang says the MySE 16.0-242 is just the start of its "new 15MW+ offshore product platform," and that it's capable of operating installed to the sea floor or on a floating base. The full prototype will be built in 2022, installed and into operation by 2023. Commercial production is slated to begin in the first half of 2024.

Eoin Treacy's view -

The challenge for the wind sector is that many of the best locations have been taken up by turbines that are not nearly as powerful as the models currently being marketed. In many respects the wind sector is suffering from the same dilemma as the oil sector. How do you introduce new technology to an area where you have already sunk significant resources?



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August 20 2021

Commentary by Eoin Treacy

August 20 2021

Commentary by Eoin Treacy

Money Managers Race to Launch First U.S. Bitcoin ETF After SEC Signal

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

 

Asset managers have been trying to persuade regulators to green-light bitcoin ETFs for nearly 10 years. So far, the SEC has rejected or delayed a decision on the funds. The regulator has taken a cautious approach to regulating the volatile crypto market. The digital assets have boomed in popularity with amateur traders and a growing number of professional money managers.

Speaking at the Aspen Security Forum, Mr. Gensler said issuers who structure ETFs under the Investment Company Act of 1940 would help protect investors from illicit activities. The decades-old law is a more stringent set of guidelines that usually apply to mutual funds. For example, it requires an independent board and gives a fund the ability to stop accepting new money -- something most ETFs can't do.

"I look forward to the staff's review of such filings, particularly if those are limited to these CME-traded bitcoin futures," Mr. Gensler added. CME Group Inc.'s bitcoin futures contracts started trading in late 2017.

Unlike crypto exchanges, trading venues such as CME have agreements with the SEC, giving the regulator greater oversight.

Despite the additional safeguards, investors in such funds would have to deal with issues associated with trading futures, as well as the risks around cryptocurrencies.

Todd Rosenbluth, head of ETF and mutual-fund research at CFRA, warned that futures-based ETFs rarely replicate the performance of the underlying market they track. The reason is pricing fluctuations between futures contracts and the spot market, especially if demand for the asset or commodity is expected to change significantly in the future. There are also costs associated with rolling over contracts when they expire.

"It's likely that some of the investors who gravitate toward these products will either be disappointed in the performance or unaware of the risks they are taking," Mr. Rosenbluth said.

Eoin Treacy's view -

Futures based ETFs do not typically adopt sophisticated measures to tackle control roll costs. That leaves them open to be exploited by short sellers when the predictable contract expiries occur and contributes to their underperforming the market. The US Oil Fund’s dismal performance relative to the oil prices is a good example of this tendency.



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August 20 2021

Commentary by Eoin Treacy

Delta Impact on Consumer Behavior Will Delay Tapering Announcement

This note from Guggenheim may be of interest to subscribers. Here is a section:

Expectations are mounting for a September announcement of tapering plans by the Federal Reserve (Fed), prompted by the strength of the economy and comments from more hawkish members of the FOMC, particularly Boston Fed President Eric Rosengren.

We don’t see that happening. The Delta variant is throwing a wrench into the forward progress of the economy. Although Fed Chair Powell believes that “it’s not yet clear whether the Delta strain will have important effects on the economy,” our read of the latest data suggests that it is already having a negative impact on consumer behavior.

After a large downside miss to July retail sales, spending on COVID sensitive activities such as restaurants, air travel, and hotels has weakened further in August. High frequency indicators of broader consumer activity such as daily credit card spending also show softening over the past few weeks.

Eoin Treacy's view -

This sounds like a common-sense conclusion. Everywhere I look around I see evidence of changed plans and lower economic activity. It seems obvious that will feed through into a weaker set of statistics by the time the 3rd quarter ends.



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August 20 2021

Commentary by Eoin Treacy

A Tsunami of Disability Is Coming as a Result of âLong COVIDʼ

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

Consider the numbers we know. At least 34 million Americans (and probably many more) have already contracted COVID. An increasing number of studies find that greater than one fourth of patients have developed some form of long COVID. (In one study from China, three quarters of patients had at least one ongoing symptom six months after hospital discharge, and in another report more than half of infected health care workers had symptoms seven to eight months later.) Initial indications suggest that the likelihood of developing persistent symptoms may not be related to the severity of the initial illness; it is even conceivable that infections that were initially asymptomatic could later cause persistent problems.

Common long-term symptoms include fatigue; respiratory problems; “brain fog”; cardiac, renal and gastrointestinal issues; and loss of smell and taste. Surprising manifestations continue to emerge, such as the recent realization that infection may precipitate diabetes.

For some, symptoms have now continued for many months with no apparent end in sight, with many survivors fearing that they will simply have to adjust to a “new normal.” More and more sufferers have not been able to return to work, even months after their initial illness. While the number of patients with persistent illness remains undetermined this early in the pandemic, estimates suggest that millions of Americans may enter the ranks of the permanently disabled

Eoin Treacy's view -

The big question for policy makers everywhere is what do these figures mean for the projected size of the future workforce and dependency ratios. No one has a good handle on is how long lingering symptoms last. That data will take years to compile and not least because there is no set barometer against which to measure individual experience.



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August 19 2021

Commentary by Eoin Treacy

Video commentary for August 19th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Japan weak and defensives outperforming, Australian resources stocks decline in line with commodities and tech shares bounce, China continues to lean on leveraged portions of the economy, Dollar strong, gold steady, Chinese renminbi weak, 



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August 19 2021

Commentary by Eoin Treacy

Amazon steps closer to modern Sears

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

Amazon.com (AMZN.O) became a $1.6 trillion behemoth in part by using e-ecommerce to put brick-and-mortar retailers out of business. Jeff Bezos’ company, originally online only, already opened small physical stores, and may now add a department store format, according to the Wall Street Journal.

That’s sadly ironic, with names like J.C. Penney and Neiman Marcus going bust in recent years. Yet it underlines how Amazon is, in some ways, a 21st-century Sears, Roebuck & Co. The storied U.S. group – another recent casualty of bankruptcy after years with investor Eddie Lampert in charge – produced the first of its famous mail-order catalogs in 1893, with a first retail store following in 1925. In a foreshadowing of today’s buy-now-pay-later enthusiasm read more , Sears even launched a credit program in 1940.

Amazon can get more from stores by making them multitask as showrooms, instant gratification for customers unwilling to wait for delivery, and mini warehouses helping with challenging last-mile logistics. Still, it’s a reminder that what’s old can be new again. 

Eoin Treacy's view -

The good news for retail is Amazon agrees that the future is likely to be a hybrid online/physical model. The bad news is Amazon is likely to be a major competitor for any of the remaining physical store dependent brands. The big question for Amazon investors is if the big new idea is expensive low efficiency physical stores does that justify a yearend estimated P/E of 60.



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August 19 2021

Commentary by Eoin Treacy

Evergrande Slumps as Investors See No Bailout After Huarong

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

Huarong’s bailout was reassuring for investors who went through months of agony guessing just how determined the Chinese government was in combating moral hazard. But even with $300 billion in liabilities that could roil banks, suppliers and home buyers, junk-rated Evergrande is seen as a separate case as authorities crack down on excessive leverage in the property sector. 

Investor concerns grew Thursday evening after Chinese regulators demanded Evergrande resolve its debt risks and refrain from spreading untrue information. People’s Bank of China and banking watchdog officials summoned the company’s executives, telling them to maintain operations and protect the stability of financial and property markets, according to a joint statement.  

“The Chinese government’s stance to prioritize social harmony and equality over corporate profit is becoming increasingly clear,” said Anthony Leung, head of fixed income at Metropoly Capital HK. “Evergrande is completely different in the sense that it is the poster child of an industrywide reckless risk-taking culture.”

Eoin Treacy's view -

China Evergrande has been investing in a wide number of non-core businesses for years and will likely be forced to sell all of its appreciated assets in order to avoid bankruptcy. That position as a forced seller leaves it in a weak position to get fair value. Therefore, the only conclusion is the company’s management are been punished for taking on excessive leverage and favoured companies will have the opportunity to pick up renewable energy, batter manufacturing and other positions at a discount.



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August 19 2021

Commentary by Eoin Treacy

It's Not Just Poppies

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

Plus, it would be many years before any mines would be developed, even if (as now seems possible) the Chinese are allowed by the Taliban to bring their can-do attitude to the task.

China has been cosying up to the Taliban (some of their leaders were on a Beijing visit a few weeks ago) and the Chinese government made it clear this week they had "maintained contact and communication" in recent days with the bearded ones now in charge in Kabul.

China has also said it wishes to help the "reconstruction and development" of Afghanistan.

Clearly, Beijing wishes to draw Afghanistan into its Belt and Road Initiative (BRI). It is a telling detail that the 76km-long border between the two countries includes a pass that was a route on the old Silk Road, the template for the new BRI. Expect to see a highway and rail line this time rather than horses and camels.

China may be able to achieve what others have failed to do: make Afghanistan a vassal state. In that case, they will have under their control Afghanistan's mineral wealth.

The British Raj failed to subdue the Afghans — it's famous retreat from Kabul in 1842 ended with the entire 16,000-man army dying or being killed. Then the Soviet invasion came a cropper in more recent years.

And now the Americans have been humiliated.

Rare earths would be uppermost on Beijing's mind when it comes to mineral resources.

The USGS estimated that rare earths in Helmand province could contain up to 1.4 million tonnes of rare earth elements, which would dwarf what Australia could potentially supply to the world. China's control of those resources, as well as their downstream processing capabilities, would enable Beijing to maintain its stranglehold on those vital critical metals.

And presumably the Chinese would like to get their hands on the iron ore.

Eoin Treacy's view -

The mineral wealth of Afghanistan will inevitably be developed by whoever wins the looming civil war. China has a clear interest in furthering its political encirclement of India and will be eager to develop mining opportunities to fuel the high-tech sector. It is debatable how amenable the Taliban will be to China overtures when Xinjiang is only over the border from Afghanistan.



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August 18 2021

Commentary by Eoin Treacy

Video commentary for August 18th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Discussion of how inflation measures are calculated and what might affect the overall reading. luxury goods and some semiconductor stocks lead the way lower, oil weak, gold steady, copper back testing the pyschological $4. China Evergrande back on its lows. 



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August 18 2021

Commentary by Eoin Treacy

Luxury Stocks Sink as China's Comments on Wealth Cause Jitters

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

Luxury stocks sink in Europe, dragging the Stoxx 600 Index lower, after Chinese state media said President Xi Jinping offered an outline for “common prosperity” that includes income regulation and redistribution, putting China’s wealthiest citizens on notice. 

LVMH -4.3%, Burberry -4%, Kering -3.5%, Hermes -3%, Richemont -2.2%

“This is a rather nervous market reaction to leadership statements in China about the ‘third wealth redistribution,’” Bernstein analyst Luca Solca says in an email

“I am not sure there is necessarily a lot to fear from that,” he adds. “Time will tell”

NOTE: Since Xi took office in 2012, the ruling party has made it a priority to end poverty and build a moderately prosperous society, goals that the party sees as central to promoting well-being and strengthening its governance

Income inequality in the country is wide -- the richest 20% earn more than 10 times poorest 20% -- and hasn’t budged since 2015

Eoin Treacy's view -

Bernard Arnault is now the wealthiest individual in the world. That’s a significant achievement considering the products his companies sell haven’t exactly changed the world. Instead, the world has changed so there are enough nouveau riche to purchase the products amid the illusion of supply inelasticity.



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August 18 2021

Commentary by Eoin Treacy

Chip Crisis Shows Signs of Easing, But There's a Catch

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

Still, it’s probably too soon to declare an end to the shortage. Outbreaks of the delta variant of Covid-19 and the long-term efficacy of vaccines make predictions even harder than usual. Some chip analysts have said that reports of weakness are primarily seasonal and that sales will pick up through next year.

Shortages also vary by part. So even if you can walk into a store and find plenty of laptops, you’ll still struggle to get a new car or a video game console. In some cases, chip delivery times are longer than 20 weeks, the longest wait in at least four years.

But as I wrote last month, the pandemic rush to computers and printers won’t repeat itself. Once a worker or student buys a laptop, they don’t need another one for several years. Retailers are offering extensive discounts on nearly every PC-related category, with the exception of graphics cards. (It’s still a good time to be in the games business.)

Eoin Treacy's view -

Semiconductors have an outsized impact on inflationary measures these days because of the reliance of the automotive sector on microcontrollers. Transportation represents 15.7% of the CPI figure and 9.8% of the PCE figure.



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August 18 2021

Commentary by Eoin Treacy

Shipping bottlenecks set to prolong supply chain turmoil

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

The disruptions started in the second half of last year after demand for goods sank when the pandemic struck and carriers cut sailings, but locked-down consumers then ordered products online at an unprecedented rate.

Shipping companies’ efforts to catch up have been set back by the Suez Canal blockage in March and the Yantian terminal closure, as well as border restrictions and port worker absences.

An indefinite partial shutdown at Ningbo-Zhoushan is the latest problem that could deepen the strain on global logistics. Shipping lines have already started to omit calling at the Chinese port near Shanghai.

About 350 containerships capable of carrying almost 2.4m 20ft boxes are waiting off ports globally, according to VesselsValue. The congestion has been getting worse with idle capacity reaching 4.6 per cent of the global fleet, up from 3.5 per cent last month, data from Clarksons Platou Securities shows.

Lars Mikael Jensen, head of global ocean network at Maersk, the world’s largest container shipping group, agreed that the situation had shown no signs of improvement since the Delta variant of Covid emerged.

“It’s not getting any better on aggregate,” he said, adding that maritime transport networks are “still super stretched — it only takes a small thing then you’re back to square one or square one minus”.

Eoin Treacy's view -

The influence of the pandemic has resulted in sustained pressure on global supply chains. The primary difficulty for ports is ships have been one of the primary vectors through which the virus has spread internationally and many ports are having difficulty maintaining staffing levels because of infections among workers.  



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August 17 2021

Commentary by Eoin Treacy

Video commentary for August 17th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: risk of stagflation as growth ebbs and inflation mounts, stocks continue to bounce from intraday lows, bonds yields possibly post higher reaction lows, oil eases, palladium possibly leading, copper weak led lower by China. bitcoin soft, gold susceptible to some consolidation. 



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August 17 2021

Commentary by Eoin Treacy

Inflation Tempers Americans' Enthusiasm About Red-Hot Economy

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

By global standards, the U.S. has bounced back fast. But as data on the recovery continue to pour in, there’s plenty to support the suspicion that the glass is still half-empty.

Consumer sentiment fell in early August to the lowest level in nearly a decade by one measure and U.S. retail sales fell in July by more than forecast.

The following charts help explain why Americans still aren’t clear how impressed they should be.

Eoin Treacy's view -

I was at a wholesale furniture warehouse this morning that does not deal with retail customers. The two things that employees related to me were that business was booming in the 1st and 2nd quarters, but over the last two months sales have been way down. The second was there was a big whiteboard on the wall with their monthly minimum sales target of $950,000. As of this morning they were at $431,000.



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August 17 2021

Commentary by Eoin Treacy

BHP Bets on Lower-Carbon World With Petroleum Exit, $5.7 Billion Potash Project

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

BHP and Woodside said the business would be one of the world's 10 largest producers of liquefied natural gas. Combining the businesses is expected to generate more than $400 million in annual savings, the companies said in a joint statement. They expect the deal to be completed by July next year.

Selling the petroleum business will lead to BHP focusing on mined commodities: iron ore, metallurgical coal, copper and nickel. On Tuesday, BHP confirmed that potash is on that list by approving the first stage of its Jansen project in Canada's Saskatchewan province. The operation is expected to start production in 2027, with an annual capacity of 4.35 million metric tons of potash.

Potash is one of three major fertilizer ingredients, alongside nitrogen and phosphate. BHP believes demand for potash could as much as double by the late 2040s to become a $50 billion market. Mr. Henry said mining at Jansen could last about 100 years.

"Under our 1.5-degree scenario, potash stands to be a winner, with increased biofuel production and intensified competition for land due to afforestation," Huw McKay, BHP's chief economist, said in June. Potash also doesn't generate some of the negative environmental impacts that other fertilizer nutrients do, especially the release of greenhouse gases during application, he said.

Potash is seen by farmers as an attractive resource because it tends to boost yields, aid in drought tolerance and improve crop quality.

Eoin Treacy's view -

Divesting of oil assets in the name of providing investors with a pure mining play is the opposite logic to what was used when those assets were originally acquired. Back then, it was viewed as prescient to acquire shale assets because investors would have a one stop shop to participate in the oil and iron-ore led commodity bull market.



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August 17 2021

Commentary by Eoin Treacy

Beijing Tightens Grip on ByteDance With Rare China Board Seat

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

But the fact that the industry regulator can designate someone to the board of a prominent sector player may unsettle investors worried about the broader ramifications of Beijing’s clampdown. Even before Xi’s administration tightened its grip on the tech sector, ByteDance had grappled with American lawmakers’ accusations that TikTok in particular threatens national security and could aid Beijing in espionage efforts. In May, the month after the Chinese regulator took its stake, founder Zhang Yiming relinquished day-to-day control of his company to its closest lieutenant, a decision regarded as an attempt to distance himself from the growing turbulence at home and abroad.

“It intensifies worries about the government’s intentions for China’s internet sector and the concessions private firms may have to make,” said Michael Norris at consultancy AgencyChina. “It gives new context to Zhang Yiming’s decision to step down from his position as ByteDance’s CEO.”

Eoin Treacy's view -

It seems like the world is finally waking up to overt Communist Party control of Chinese corporations.  This has been going on for years. In 2019 the government placed party disciplinary officials in more than 100 large companies, including both Alibaba and Tencent. At the time that was viewed as an acceleration of the already existing trend. Here is a link to Comment of the Day on September 23rd 2019



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August 16 2021

Commentary by Eoin Treacy

Video commentary for August 16th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street reverses earlier decline to post new highs, Delta variant beginning to take a toll on consumer behaviour, gold firm, bitcoin wobbles, oil recovers from intraday low, carbon credits breaking out. 

 



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August 16 2021

Commentary by Eoin Treacy

Strong Earnings vs Mid Cycle De-Rating

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

Eoin Treacy's view -

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

The big question for investors is how to attribute responsibility for the strong earnings growth in the 2nd quarter. There is a good argument that much of the surge in earnings was due to pent up demand and outsized liquidity provision. As the economy opened up and confidence built around the protection offered by vaccinations there was a surge of economic activity. In order for the pace of the recovery to be self-sustaining, consumer confidence has to continue to recover and liquidity needs to remain abundant.



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August 16 2021

Commentary by Eoin Treacy

Cost to Bury Carbon Near Tipping Point as Emissions Price Soars

This article by Rachel Morison and Samuel Etienne for Bloomberg may be of interest to subscribers. Here is a section:

“We need to see higher carbon prices to make those projects profitable,” said Anders Opedal, chief executive officer of Equinor ASA, which is developing CCS in the U.K., Norway, Germany and the Netherlands. “It actually needs to be more expensive to pollute than actually capture and store.”

Britain has the most ambitious climate goals of the G-20 nations, targeting a 78% reduction in emissions by 2035. The nation has committed to helping fund two industrial hubs, where heavy industry and power generation can use carbon capture and storage by 2025, with another two by the end of the decade.

The aim is to scrub as much as 10 million tons of carbon dioxide from the atmosphere every year. Details on how the funding will be allocated are due before December. At today’s power prices, the U.K.’s largest planned project at Drax Group Plc’s biomass station in north England already would be profitable using carbon-capture technology, according to Credit Suisse.

“We need to be sure we could get those prices over a long time period, but we’re getting pretty close,” CEO Will Gardiner said in an interview on Bloomberg Radio. Drax’s project will start in 2027, and by 2030 it will capture and store 8 million tons of carbon dioxide a year.

In 2019, the world emitted about 33 gigatons of carbon. Operational projects are capturing just a fraction of that, about 40 million tons, according to Wood Mackenzie. There are 19 large-scale CCS facilities in operation today and another 32 in development, according to Credit Suisse. If these all come online, they could store 100 million tons – a slightly bigger fraction.

There’s also a chance the technology might not be as effective as promised. The world’s biggest project, at Chevron Corp.’s $54 billion liquefied natural gas plant in Australia, has fallen short of its target to capture 80% of emissions from the plant, burying just 30% over five years.

“The tech isn’t there yet for large-scale adoption, but our industry has to start changing how we operate,” said Andrew Gardner, chairman of Ineos Grangemouth Ltd., which is working with Royal Dutch Shell Plc on the Acorn project in Scotland that’s scheduled to start in 2027.

The system developed by Oslo-based Aker Carbon Capture ASA costs between 60 euros and 120 euros per ton, CEO Valborg Lundegaard said. That means CCS could be nearing a crossover point.

Eoin Treacy's view -

The fundamentals of carbon prices focus on the outlook for the economy and how much emissions will be created to achieve the anticipated growth rate. The reality, however, is that this is a politically motivated rate. The European Commission has said on regular occasions that it wants to see prices trade up to €100 and nothing has happened to question that view.



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August 16 2021

Commentary by Eoin Treacy

Dictatorship of Xi Jinping threatens the Chinese state itself

Thanks to a subscriber for this article by George Soros which appeared in the Wall Street Journal. Here is a section:

Mr Xi is engaged in a systematic campaign to remove or neutralise people who have amassed a fortune. His latest victim is Sun Dawu, a billionaire pig farmer. Mr Sun has been sentenced to 18 years in prison and persuaded to “donate” the bulk of his wealth to charity.

This campaign threatens to destroy the geese that lay the golden eggs. Mr Xi is determined to bring the creators of wealth under the control of the one-party state. He has reintroduced a dual-management structure into large privately owned companies that had largely lapsed during the reform era of Deng. Now private and state-owned companies are being run not only by their management but also a party representative who ranks higher than the company president. This creates a perverse incentive not to innovate but to await instructions from higher authorities.

China’s largest, highly leveraged real-estate company, Evergrande, has recently run into difficulties servicing its debt. The real-estate market, which has been a driver of the economic recovery, is in disarray. The authorities have always been flexible enough to deal with any crisis, but they are losing their flexibility. To illustrate, a state-owned company produced a Covid-19 vaccine, Sinopharm, which has been widely exported all over the world, but its performance is inferior to all other widely marketed vaccines. Sinopharm won’t win any friends for China.

To prevail in 2022, Mr Xi has turned himself into a dictator. Instead of allowing the party to tell him what policies to adopt, he dictates the policies he wants it to follow. State media is now broadcasting a stunning scene in which Mr Xi leads the Standing Committee of the Politburo in slavishly repeating after him an oath of loyalty to the party and to him personally. This must be a humiliating experience, and it is liable to turn against Mr Xi even those who had previously accepted him.

In other words, he has turned them into his own yes-men, abolishing the legacy of Deng’s consensual rule. With Mr Xi there is little room for checks and balances. He will find it difficult to adjust his policies to a changing reality, because he rules by intimidation. His underlings are afraid to tell him how reality has changed for fear of triggering his anger. This dynamic endangers the future of China’s one-party state.

Eoin Treacy's view -

Governance is everything but it is not an absolute designation. The most important think about standards of governance is the trend. As we look around the world the trend is not encouraging in many countries but it is accelerating lower in China.



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August 13 2021

Commentary by Eoin Treacy

August 13 2021

Commentary by Eoin Treacy

Bitcoin's Surge Lacks Extreme Leverage That Powered Past Rallies

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

“Typically we look at that as more of a strong-handed rally, which implies that the leverage portion of the rally comes later,” Ouellette, FRNT’s co-founder and chief executive officer, said on Bloomberg’s “QuickTake Stock” streaming program. “If that is the case, those $100,000 targets are very reasonable, I’d suggest. The last time we saw a move of this little leverage, we were pointing towards $20,000, and we didn’t really see the leverage come into the market in an aggressive way until we got to $40,000, which took us to $65,000.”

Eoin Treacy's view -

This is how all bull markets evolve. When prices are just breaking out there is no evidence that the price is about to multiply so few people are invested. As evidence becomes apparent more people are willing to commit funds. By the time prices accelerate people are jockeying to buy as much as they can because there is already so much evidence to support the bull market hypothesis. That final stage is usually when the most leverage is present.



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August 13 2021

Commentary by Eoin Treacy

China coronavirus infection closes shipping terminal at massive Ningbo-Zhoushan Port as container rates soar

This article from the China Morning Post may be of interest to subscribers. Here is a section:

Nair was referring to massive delays at Shenzhen's Yantian port in May and June. Weeks of containment efforts following outbreaks of Covid-19 among dockworkers in China's Pearl River Delta caused global shipping delays, supply-chain disruptions and surging freight costs. The problems have not been fully resolved.

Lars Jensen, CEO of liner consultancy Vespucci Maritime, also said the Meishan terminal closure could have a similar impact on the Ningbo-Zhoushan Port that Yantian experienced when it was closed for more than three weeks.

"Significant problems, both for export cargo as well as for the movement of empty containers into the region, would then ensue," he wrote in a LinkedIn post on Wednesday.

With its zero-tolerance approach to the coronavirus, China is currently carrying out mass testing to contain the spread of the highly infectious Delta variant, which Ningbo authorities said the Meishan worker tested positive for.

However, the deputy director of the Ningbo Centre for Disease Control and Prevention, Yi Bo, said the worker may have contracted the virus from his interactions with foreign crewmembers of cargo freighters that he had boarded at the port. Video surveillance showed he had close contact with crews.

Meishan is one of the busiest terminals at the Ningbo-Zhoushan Port, servicing main trade destinations in North America and Europe. In 2020, it handled 5,440,400 TEUs of container throughput, or around 20 per cent of the total container throughput at the Ningbo-Zhoushan Port, according to official statistics.

Eoin Treacy's view -

Shipping rates from China to the USA and Europe are up 400% in the last year. A good part of the reason for that jump is because ports are having difficulty managing the volume of traffic. That’s both a function of outsized demand during the pandemic and the infection rates among dock workers.



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August 13 2021

Commentary by Eoin Treacy

Rand Gains as South Africa Finance Head Pledges Fiscal Restraint

South Africa’s new finance minister, Enoch Godongwana, has a difficult job ahead: convincing investors that he can help Africa’s most industrialized economy reduce debt while boosting economic growth.

He took the first step in an investor call Friday, when said there would be no changes to the fiscal framework for Africa’s most industrialized economy. The rand gained and bond yields fell after he spoke.

“I don’t see much changing in that fiscal framework,” Godongwana said on the call. “There is commitment from myself as the minister of finance and I would imagine from government.”

The rand reversed losses against the dollar, and strengthened 0.2% to 14.7576 per U.S. dollar by 4:13 p.m. in Johannesburg. Yields on the most-liquid 2026 government fell three basis points to 7.39%.

Eoin Treacy's view -

Europe adopted fiscal austerity after the global financial crisis and its sovereign wealth crisis. The result was the surge in populism and widespread disaffection with the European project. On this occasion they have resolved not to make that mistake again. In fact, it could be argued the pandemic has been the perfect excuse to ditch the failed austerity program.



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August 12 2021

Commentary by Eoin Treacy

Video commentary for August 12th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: delta cases following a predictable pattern, gold steady, iron-ore showing increasing topping action, India continues to outperform, Vietnames dong trending higher, Mexican Peso at decision point, Wall Street continues to firm on expectations of additional stimulus. 



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August 12 2021

Commentary by Eoin Treacy

TransDigm Enters Bidding for U.K. Defense Supplier Meggitt

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

The potential transaction is the latest example of U.S. buyers eyeing U.K. aerospace. Cobham Ltd., the U.K. defense contractor that was acquired by U.S. private equity firm Advent International Corp. in early 2020, has made a 2.6 billion-pound buyout approach for Ultra Electronics Holding Plc. The government scrutinized the first Cobham deal and said it would do the same for the Ultra proposal. TransDigm completed the acquisition of Cobham’s communications and navigation division in January, after competing with buyout funds for the unit.

The company’s balance sheet could support a deal of around $10 billion, analyst Sheila Kahyaoglu of Jefferies, told clients Wednesday. The deal could be funded in the debt market, but leaves a tight window and may require $1 billion of equity, she wrote in a report, adding: “This could have been one reason for an over the top bid if financing was not arranged yet.”

Eoin Treacy's view -

The UK has a world class aeronautics industry that is trading at fire sale prices because of the massive decline in civilian plane traffic. The pandemic has created a dislocation on par with 9/11 but has lasted for 18 months instead of 2 months. That’s forced companies to trim growth expectations and to sell off non-core assets in an effort to survive. That’s creating an opportunity for better capitalised longer-term investors.



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August 12 2021

Commentary by Eoin Treacy

Rio Dumped After Massive Dividend

This note from the Sydney Morning Herald may be of interest to subscribers. 

Rio Tinto stock dropped as much as 7 per cent yesterday after the mining giant's shares traded ex-dividend.

The $190 billion company fell to a near seven-week low of $120.15 a week after it reported a record first-half profit and a massive $5.61 dividend per share.

The stock closed 6.9 per cent lower at $120.26.

The mining giant has now shed 10.8 per cent of its value since hitting a record high $134.665 late last month as the outlook for iron ore demand continues to weaken amid Chinese government restrictions on steel output and a slowing housing market. Iron ore prices recovered slightly overnight, rising 1.9 per cent to $US165.48 a tonne.

Eoin Treacy's view -

Iron-ore prices surged during the pandemic and not least because China remained a bastion of uninterrupted economic activity while most other countries experienced a more difficult time with the first round of COVID. That helped boost demand while supply growth was contained.



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August 12 2021

Commentary by Eoin Treacy

Email of the day on the delta variant

40 minutes but really good (essential) analysis of where we are now with the virus. Martenson has been an excellent guide throughout. One for the collective perhaps. 

Eoin Treacy's view -

Thank you for this informative video. The primary points are that the delta variant is much more transmissible that previous versions of the novel coronavirus but it is less deadly. That stands up to logic. If the transmissibility is indeed anything approaching that of chickpox, everyone will be exposed to the delta variant in a short period of time. The UK’s high case count but low death count confirm it is less deadly. India’s experience, as the country where delta evolved, suggests a rapid flare up of cases and equally rapid decline as something approaching herd immunity is reached.



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August 12 2021

Commentary by Eoin Treacy

August 11 2021

Commentary by Eoin Treacy

Video commentary for August 11th 2021

August 11 2021

Commentary by Eoin Treacy

Hackers Return Funds From Likely Record DeFi Crypto Attack

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

Hackers returned about half of the $610 million or so they pilfered Tuesday in what was likely one of the biggest cryptocurrency thefts on record in the burgeoning DeFi sector. 

In an unusual twist, the online thieves pledged to return the entire amount stole from a decentralized finance, or DeFi, a protocol known as PolyNetwork that lets users swap tokens across multiple blockchains. 

In a message the unidentified hackers said that they “just dumped all the assets,” adding, “hacking for good, I did save the project.” About $258 million has been returned so far, according to Tom Robinson, co-founder of blockchain forensics firm Elliptic.

Even more brazen, the hackers are asking for donations as a reward for returning the funds. So far, they’ve garnered $200, Robinson said.

The hackers also posted a Q&A online, explaining motivations for the attack as “for fun:).” The online pirates said they took the funds “to keep it safe” after spotting a bug. The hackers ended the missive saying they will be impossible to trace. “I prefer to stay in the dark and save the world.” 

Elliptic, as well as scores of cryptocurrency exchanges and trackers, have been on the hunt for the hackers. Thousands of people were affected by the attack, PolyNetwork said in a letter posted Tuesday on Twitter.

“This demonstrates that even if you can steal crypto assets, laundering them and cashing out is extremely difficult, due to the transparency of the blockchain and the use of blockchain analytics,” Robinson said. “In this case the hacker concluded that the safest option was just to return the stolen assets.”

DeFi apps -- which let people lend, borrow and trade coins without using intermediaries -- have become frequent targets of attacks lately, as they gain in popularity. Some $156 million was netted from DeFi-related hacks in the first five months of the year, surpassing the $129 million stolen in such attacks through all of 2020, according to crypto security firm CipherTrace.

Eoin Treacy's view -

The risk of having one’s tokens stolen while they are sitting on an exchange is never zero. The fact these hackers are willing to give the money back is novel but it also helps to highlight the risks. The big difference on this occasion is this kind of news seems to have lost its ability to heavily influence the price of cryptocurrencies.



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August 11 2021

Commentary by Eoin Treacy

Gold Gains as More Moderate U.S. Inflation Eases Taper Fears

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

“There were fears of another hot print on inflation, so there is a relief rally,” said Jay Hatfield, chief executive officer of Infrastructure Capital Advisors in New York. Expectations of the Fed tapering “won’t get worse, that was feared.”

Spot gold added 0.8% to $1,742.65 an ounce by 10:33 a.m. in New York, snapping a four-day drop. Palladium slumped, while silver and platinum rose. The Bloomberg Dollar Spot Index fell 0.1%, erasing an earlier gain.

Officials including Chairman Jerome Powell have said they see price pressures eventually easing, though remain wary of the potential for excessive inflation. Chicago Fed President Charles Evans became the latest official to discuss the prospect, saying he expects substantial progress later this year on tapering intentions.

Eoin Treacy's view -

The big question for gold investors is whether a sound money, balance budgets, controlled spending movement akin to the Tea Party movement is going to evolve any time soon. Without it there is room for gold to continue trend higher over the medium term.



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August 11 2021

Commentary by Eoin Treacy

Email of the day - on hydrogen

I wondered if you had come across HydrogenOne. The Investment Trust came to market on 30 July.  The trust has not yet invested in any assets but its website outlines what it sees as its worldwide "investable universe" of assets and also describes in outline how it will identify potential investments. Sir Jim Ratcliffe and INEOS have a stake.

What I found particularly interesting and enlightening is that they have produced a "bluffers guide" to hydrogen which is attached (and is also on their website). Subscribers might also find this useful.

https://hydrogenonecapital.com/ and 
https://hydrogenonecapitalgrowthplc.com/ (for investor info)

Eoin Treacy's view -

Thank you for this informative email which I’m sure will be of interest to the Collective. I have added HydrogenOne Capital Growth Plc to the Chart Library.

Here is a section from the report:

We expect material green hydrogen manufacturing to commence, particularly in around the high-quality wind resources in the North Sea (UK, Netherlands, Denmark), the wind and solar resources of Southern Europe, Middle East and Australia. We expect many of these activities to be clustered around industrial zones and ports, with off-takers in incumbent hydrogen[1]consuming sectors and centralised bus and truck fleets.

Hydrogen fuel cells have been deployed at commercial scale in selective transport applications, such as fork lift, city buses, and portable power generators. We expect to see rapid build out of these applications to continue, particularly in the multiple countries and cities that have committed to early phase out of ICE transport. Much of this hydrogen will be derived from dedicated hydrogen hubs, which will have offtake agreements and supply logistics configured to specific transport fleets, industrial sites and other customers.

2025-2030.
In this timeframe, we expect to see the emergence of larger clean hydrogen manufacturing sites, with a more rapid pace in growth in green hydrogen ahead of other sources, at 500MW or larger scale. As intermittent and seasonal renewable energy grows in the overall mix, the requirement for energy storage for system buffering will be met by geological storage of hydrogen and Compresses Air Energy Storage (CAES). Blending technologies and mandates to distribute hydrogen via modified natural gas infrastructure will become widespread.

Hydrogen should be more widely available to short term contracted and spot market customers at this time.

We expect to see the deployment at scale of hydrogen used for building-scale heat and power (“CHP”), and hydrogen burned in modified turbines at large scale power plants, which are in the pilot stage today. A wider uptake of hydrogen in trucks, trains and shipping will come alongside the buildout of HRS. We expect to see hydrogen introduced more widely by blending with natural gas in modified natural gas grids.

2030 and beyond.
In the longer term, once single hydrogen production projects have been scaled up to 1GW and beyond, and distributed projects have been successfully built-in industrial centers and ports, we expect that hydrogen use will move into the public consumer areas. At this point fuel cells could be economic for passenger vehicles, particularly heavy applications such as SUVs. Hydrogen will likely have been rigorously tested in the aerospace industry and hydrogen powered aircraft could be in mainstream use, either in fuel cells for turboprop, or via synthetic fuels in jets.



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August 10 2021

Commentary by Eoin Treacy

Video commentary for August 10th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: bubbly versus non bubbly sectors. potential rotation back to value from growth. US Treasury yields and the Dollar continue to firm, Wall Street looking tired. gold steady, oil firm, bitcoin eases from intraday peak. 



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August 10 2021

Commentary by Eoin Treacy

U.S. Sanctions on Belarus Potash Leave Out Its Sole Seller

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

“The penalties against Belaruskali add negative sentiments for the global potash market, but the fact that BPC is not the subject of the sanctions may ease the situation,” said Elena Sakhnova, an analyst at VTB Capital.

BCS Global Markets analyst Kirill Chuyko also said it may be safe to continue dealings with BPC, as long as it’s not added to the sanctions list.

BPC is studying the situation and it’s difficult to estimate what impact the sanctions will have, the company told RIA Novosti. The trader said it will make every effort to fulfill its contractual obligations, adding that the sanctions will lead to higher potash prices and less availability on the world market.

Eoin Treacy's view -

The announcement of sanctions against Belarus made headlines but the substance of the measures suggest more of a warning than a shutdown of activity. Nevertheless, the measures have introduced a measure of uncertainty to the agricultural chemicals sector, of which potash is a major constituent.



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August 10 2021

Commentary by Eoin Treacy

Predicting Equity Returns with Inflation

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

In this article, we document that two derived US inflation variables—inflation cycles and inflation surprises—have been robust predictors of US equity returns. We demonstrate that this predictability translates into new sources of alpha that investors can seek to harvest. In particular, we highlight the signals’ ability to perform during the worst times in the stock market without missing upside opportunities.

The tail-hedging properties derived from inflation signals are particularly desirable. Hedging positive inflation shocks can be costly when inflation is low.9 For example, strategic allocations to alternative assets, such as commodities, or absolute return strategies as a way to protect against inflation have not all fared well in recent years, with commodity indices down more than 30% versus their 2011 levels. As a result, many asset owners may not be able to stay the course if inflation fails to materialize in the medium term. We find that inflation signals can provide a new tool for investors who wish to hedge their portfolios against inflationary and deflationary risks.

“The tail-hedging properties derived from inflation signals are particularly desirable.”

Eoin Treacy's view -

For forty years inflation is the dog that refused to bite. There have been several occasions when it looked inevitable profligate spending, overly generous social programs, supply disruptions, commodity and property booms and busts would break the trend of disinflation but they never did.



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August 10 2021

Commentary by Eoin Treacy

COVID: 90% of patients treated with new Israeli drug discharged in 5 days

Thanks to a subscriber for this article from the Jerusalem Post may be of interest to subscribers. Here is a section:

Arber and his team, including Dr. Shiran Shapira, developed the drug based on a molecule that the professor has been studying for 25 years called CD24, which is naturally present in the body.

and

Arber noted that another breakthrough element of this treatment is its delivery.

“We are employing exosomes, very small vesicles derived from the membrane of the cells which are responsible for the exchange of information between them,” he said.

“By managing to deliver them exactly where they are needed, we avoid many side effects,” he added.

The team is now ready to launch the last phase of the study.

“As promising as the findings of the first phases of a treatment can be, no one can be sure of anything until results are compared to the ones of patients who receive a placebo,” he said.

Some 155 coronavirus patients will take part in the study. Two-thirds of them will be administered the drug, and one-third a placebo.

The study will be conducted in Israel and it might be also carried out in other places if the number of patients in the country will not suffice.

“We hope to complete it by the end of the year,” Arber said.

If the results are confirmed, he vowed that the treatment can be made available relatively quickly and at a low cost.

“In addition, a success could pave the wave to treat many other diseases,” he concluded.

Eoin Treacy's view -

Many doctors have stated that using wartime phraseology to talk about the efforts to treat the coronavirus are unhelpful. However, there is one important crossover worth considering. Wars tend to result in significant technological acceleration.



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August 09 2021

Commentary by Eoin Treacy

Video commentary for August 9th 2021

August 09 2021

Commentary by Eoin Treacy

Scientists Reach 'Unequivocal' Consensus on Human-Caused Warming

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

Humanity will have about a 50% chance of staying below the 1.5°C threshold called for by the Paris Agreement if CO₂ emissions from 2020 onwards remain below 500 billion tons. At the current rate of emissions, that carbon budget would be used up in about 13 years. If the rate doesn’t come down, the planet will warm more than 1.5°C.

“Our opportunity to avoid even more catastrophic impacts has an expiration date,” said Helen Mountford, vice president of climate and economics at the World Resources Institute. “The report implies that this decade is truly our last chance to take the actions necessary to limit temperature rise to 1.5°C. If we collectively fail to rapidly curb greenhouse gas emissions in the 2020s, that goal will slip out of reach.”

The new publication lands in the middle of the ramp-up to COP26, to be held in Glasgow in November. A global deal to pursue faster emission cuts would depend on poor countries securing $100 billion a year in climate finance from rich countries, something envisioned in previous climate agreements
but not yet achieved. National governments would also need to agree to rules governing the trading of emissions permits, to ensure those moving faster towards cuts are rewarded for doing
so.

Eoin Treacy's view -

The amplification of worries about the trajectory of the “climate emergency” has been building well in advance of the publication of this report. There is a clear set of policies being adopted to ensure much of the existing industrial base is going to have to fund the construction of alternative infrastructure.



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August 09 2021

Commentary by Eoin Treacy

Gold Claws Back Some Ground After Early Morning Flash Crash

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

The recent slump highlights a worsening outlook for the bullion on fears that the strong rebound in the U.S. labor market could see the Fed pull back stimulus sooner than expected. Dallas Fed President Robert Kaplan’s said that the central bank should start tapering asset purchases sooner rather
than later.

Bullion was down 1% at $1,745.31 an ounce by 12:20 p.m. in London, after earlier touching the lowest since March, and coming close to its lowest in more than a year. In the futures market, over 3,000 contracts changed hands in a one-minute window -- equivalent to over $500 million notional value -- as
activity surged in a typically quiet trading period.

Gold “recovered in the course of trading as bargain hunters took advantage of the low price to enter the market,” said Falkmar Butgereit, a senior trader at refiner Heraeus Metals Germany GmbH & Co. KG. Still, “many investors now fear that the Fed will soon start tapering bond purchases, raising expectations of interest rate hikes in 2022/2023.”

Attention will turn to fresh economic data later this week to gauge the health of the recovery from coronavirus, as well as inflation. The consumer price index due Wednesday is expected to show a smaller increase than the previous month as pressures on supply chains caused by reopenings ease. That may lend support to the view held by the Fed that inflationary pressures will prove transitory.

Also key to the outlook is the rise of the delta variant in the U.S., which could complicate the country’s economic rebound. New Covid-19 cases have jumped to more than 100,000 a day on average, returning to the levels of the winter surge six months ago.

Eoin Treacy's view -

The primary argument for buying gold is centred on negative real interest rates and the repercussions for the purchasing power of fiat currencies. Central banks made a lot of comments a year ago about the need to ensure an economic recovery and their willingness to tolerate higher inflation to get there. That boosted gold to new all-time highs. As fears the global economy would be terminally damaged ebbed gold moved into a medium-term correction.



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August 09 2021

Commentary by Eoin Treacy

China's Covid-Zero Strategy Risks Leaving It Isolated for Years

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

In the short term, Chinese leaders have an incentive to maintain strict controls at least through next year: They don’t want any major outbreaks derailing the Winter Olympics or clouding a once-in-five-year Party Congress at which President Xi Jinping is expected to get a third term in office. The problem, however, is the rising economic and political costs in maintaining that policy indefinitely, particularly as the virus spawns new variants that can breach restrictions more easily.

“China will have to pivot from its containment strategy, sooner or later -- you can stay Covid Zero for a while, but you can’t stay Covid Zero forever, because the virus swoops in before you know it,” said Chen Zhengming, an epidemiology professor at the University of Oxford. “My worry is that they won’t actively pursue a tactic change as Covid Zero has become an entrenched mentality. Especially when you hold officials accountable, no one dares to go easy on the outbreak.”

Right now it’s nearly taboo in China to even suggest a different approach. In a commentary published over the weekend by a health news app run by the official People’s Daily newspaper, former health minister Gao Qiang called for stronger measures to keep the virus out of China while blasting the U.S.,
U.K. and other countries for easing too early.

“Their sole reliance on vaccination and pursuit of the so-called ‘co-existence with the virus’ have led to a resurgence of the virus,” he wrote. “This is a misstep in Covid decision-making caused by the deficiencies in their political mechanism and the result of upholding individualism.”

Eoin Treacy's view -

China’s spreading lockdowns are already having an economic impact as coastal manufacturing centres deal with a sudden shortage of workers. The longer lockdown orders remain in place the greater the potential the government will need to provide additional monetary assistance.



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August 06 2021

Commentary by Eoin Treacy

August 06 2021

Commentary by Eoin Treacy

Secular Themes Review August 6th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

We are 17 months on from the panic low in 2020. At this stage it is quite normal to marvel at the speed of the advance and worry that the pace can’t possibly be sustained. The abiding sentiment is something like “surely, the world is not nearly as good as it was before the pandemic and therefore how on earth can prices be so high?”.

The world is not as good as it was before, millions of people have been deeply inconvenienced and many are traumatized by the events of the last 17 months. The counter argument is the quantity of money in circulation has only been matched during wartime and that has helped to inflate the price of everything. That’s the key to the argument. Having spent so much to achieve this recovery does anyone really believe central banks are going to endanger it? So where do we go from here?



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August 06 2021

Commentary by Eoin Treacy

August 05 2021

Commentary by Eoin Treacy

Video commentary for August 5th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: ethereum rallies following hard fork, bitcoin reverses earlier decline, stock rally increasingly dependent on megacap success, BoE talks about tapering supports the Pound, Thai baht and Philippine Peso weak, oil prices steady amid speculation shale production is peaking.



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August 05 2021

Commentary by Eoin Treacy

The IEA Ushers In The Coming Oil Crisis

Thanks to a subscriber for this report from Goehring & Rozencwajg which may be of interest. Here is a section on natural gas: 

While supply has been challenged, demand remains extremely strong. Global demand for LNG is robust as weather events and strong economic demand from China and others has led to surging prices and tight markets. Notably, high temperatures across Asia have led to strong demand for electricity to power air conditioning in Bangladesh and India (a sign of the S-Curve). At the same time, Brazilian drought conditions have resulted in lower-than normal hydro availability. Global spot LNG prices averaged $14 per mmbtu, the highest levels since 2013 and above oil-linked parity. Exported US LNG has clearly had no problem being absorbed in the global market, despite having grown from nothing as recently as 2017 to an incredible 10 bcf/d today — up 3 bcf/d in the past year alone. We have long argued that global demand for LNG was much greater than anyone believed possible. As emerging countries become wealthier, they seek cleaner forms of power of which natural gas is the most effective. Gas bears have long argued that excess natural gas supply will eventually break the linkage between global LNG prices and oil prices that has long been central to long-term LNG contracts. The fact that spot LNG today trades above its oil-linked parity suggests to us the market remains very tight. We continue to believe that the global seaborn gas market will continue to absorb new capacity from the US going forward.

The main challenge faced by US natural gas has been the unrelenting growth of the Marcellus and Permian. If we are correct and both plays are entering the early stages of exhaustion, then a new gas bull market has likely started. Production data seems to suggest we are correct and now anecdotal evidence among the producers points that way as well. Inventories are now beginning to get tight relative to seasonal averages and the US will likely enter the withdrawal season vulnerable to any bout of colder-than-normal weather. The great bull market in natural gas has begun.

Eoin Treacy's view -

The team at Goehring & Rozencwajg have been steadfast in their belief that the biggest shale regions in the USA are peaking. They first floated the idea more than a year ago and are now coming back with data to support the claim. It’s an incredibly important assertion since so much non-OPEC supply growth has been dependent on the unconventional sector’s success over the last decade. David and I were among the first to forecast the USA would become energy independent. A peak in shale production would endanger that condition.



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August 05 2021

Commentary by Eoin Treacy

Investors Are Ignoring a Dangerous Crackdown on Press Freedom

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

Adding press freedom to the list may benefit those seeking investment too. When a newspaper closes, the local government’s borrowing costs rise because diminished scrutiny makes investors less comfortable, a 2019 report published in the Journal of Financial Economics found. 

Press freedom “is a very foundational thing that needs to be in place before you can have meaningful ESG metrics,” said Perth Tolle, founder of Life + Liberty Indexes, which invests in countries based on third-party rankings of various freedoms. The Freedom 100 Emerging Markets ETF, which tracks Tolle’s index, has no holdings in Turkey or China and also reduced its position in Poland in recent years as concerns have mounted over the country’s erosion of the rule of law. The benchmark MSCI Emerging Markets Index — which Tolle’s index has outperformed this year — has exposure to all three nations. ​

Most investors simply don’t factor in human rights concerns when it comes to allocating capital, Tolle added.

“The metrics are out there, the problem with Wall Street is that they don’t make any money out of those, and they don’t like it,” said Tolle, who was born in China and now lives in Texas. “In places that have no press freedom, do you think they’ll have freedom for stock or bond analysts?

Eoin Treacy's view -

Governance is Everything has been a central theme of this service for decades. It really is as simple as knowing that when you have a grievance, you will have recourse to a system of justice. In order for that to be possible you need property rights and respect for minority shareholder interests. You need an independent judiciary, so your case can get a free hearing. Then you need a free press to help publicise corruption and political overreach so they system can be sustained.



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August 05 2021

Commentary by Eoin Treacy

Philippine Peso Drops Most Since 2013 Ahead of Manila Lockdown

This article by Lilian Karunungan and Masaki Kondo for Bloomberg may be of interest to subscribers. Here is a section:

The Philippine peso posted its biggest intra-day decline since 2013 as investors turned cautious ahead
of a two-week strict lockdown in the Manila capital region starting Friday.

The peso slid as much as 1.2% to 50.37 against the dollar to become Asia’s worst performing currency on Thursday. Local stocks also declined after rising for three straight days. The peso’s drop comes after Bangko Sentral ng Pilipinas said on Wednesday that a reserve requirement ratio cut could be on the
table. The central bank is set announce its policy decision on Aug. 12.

The peso may have weakened on “some positioning ahead of the imposition of the tighter restrictions starting tomorrow,” said Nicholas Mapa, an economist in Manila at ING Groep NV. There’s also “some chatter now also about the RRR reduction from BSP as the central bank appears to have run out of policy rate cuts for now.”

Eoin Treacy's view -

It’s well understood that there is no one fundamental metric that dictates how currencies trade. From one year to the next traders will focus on interest rate differentials or forward rates, money supply growth, or economic development. Over the last 12 months, the primary focus has been on how well any individual country is faring against the pandemic. At present ASEAN is taking the epicentre of rising numbers of cases so that is weighing on regional currencies.



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August 05 2021

Commentary by Eoin Treacy

August 04 2021

Commentary by Eoin Treacy

Video commentary for August 4th 2021

Eoin Treacy's view -

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

Some of the topics discusesd include: cryptocurrencies firm, bonds volatile on the threat of tapering, Dollar firm, gold fails to hold intraday rally, oil weak, India led higher by banks so was Australia, S&P500 remains inert, VIX lower, climate change narrative accelerating. 



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August 04 2021

Commentary by Eoin Treacy

Miners and Dividends

Eoin Treacy's view -

Gold prices have been ranging between $1700 and $1900 since November. That’s allowed gold miners to sell production at a consistently higher price. That margin boost has allowed a significant number of companies to pay down debt.

That’s a major achievement for the sector. Many miners were saddled with large debt piles when the last bull market peaked in 2011. They had borrowed heavily on the expectation that prices only go up. It has taken the survivors a decade to erode that burden.

An increasing number have no debt at all. When miners have no debt and increasing cash on their balance sheets, they have two choices. They either spend the money on exploration/expansion or they boost/introduce dividends or buy back stock. Often they do both.



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August 04 2021

Commentary by Eoin Treacy

The ethereum upgrade that will destroy coins is happening August 5. Here are 4 things you need to know

This article from Markets Insider may be of interest. Here is a section:

EIP-1559 has excited people because it will destroy or "burn" ether - the cryptocurrency of the network.

Miners do not receive the base fee; otherwise, they could artificially congest the network to keep the fee high. It's destroyed instead.

Some investors believe the fact that the supply of ether will be limited by burning could cause explosive price growth.

But the influence on price is far from certain, developers say. It also depends on things like transaction volumes, which determine how big gas fees are and so how much ether is destroyed.

"Until it's deployed, we don't know exactly what the effect will be in terms of ether burned," Ben Edgington, an ethereum developer at ConsenSys, said.

Eoin Treacy's view -

Reducing supply is beneficial for the price provided there is sufficient demand. The actions being taken to reduce uncertainty about transaction fees are a small step towards building confidence in the network.



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August 04 2021

Commentary by Eoin Treacy

Trend Compendium 2050: Six MegaTrends that will shape the world

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

Manmade global temperature increases can only be limited to 2°C if significant additional efforts are undertaken to become carbon-free in 2100

Is the limit of 2°C enough? To keep the global warming below 2°C had long been regarded as the right target measure to limit the most dangerous risks. More recently, 1.5°C has been considered safer, which requires rapid, far-reaching, and unprecedented changes across all aspects of society.

Eoin Treacy's view -

I posted a podcast featuring Jeremy Grantham a few weeks ago. He is a very vocal advocate for decarbonisation but he also echoed this prediction that limiting emissions to 2% was nowhere near enough. He also opined that the trend of climate change is irreversible anyway. Those are two extremely important considerations. 



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August 03 2021

Commentary by Eoin Treacy

Video commentary for August 3rd 2021

August 03 2021

Commentary by Eoin Treacy

Email of the day on crackpot epidemiology versus crackpot epistemology:

less crackpot epidemiology, more market analysis please

Eoin Treacy's view -

Thank you for this email. I have never considered myself a crackpot but who does? The reality today is there is a war going on for the hearts and minds of the global population. A connected world has not allowed every voice to be heard, only the loudest and best funded. The raw appeal of emotional rhetoric animates the online mob in the same way as it has always done for crowds of agitated people.

I agree there is crackpot epidemiology everywhere but there is far less commentary on crackpot epistemology. The basis of reason and thought are under outright attack today and the other side is winning.

Anyone who questions the prescribed narrative on the response to the virus, environment, race, entitlement, sexuality and any of a host of topics is vilified, cancelled and/or doxed. Crowds are powerful discriminatory and are vicious towards doubters. That hasn’t changed but the crowds are bigger today and physical proximity is not a limiting factor.

In this service my role is to lay out what I believe are relevant considerations for a rational investor as we act as judges at an international beauty competition.



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August 03 2021

Commentary by Eoin Treacy

Email of the day - on investing for the long term.

Would be very interested in your thoughts for positioning an investment portfolio (retirement monies) at this point in time. It is increasingly difficult for me to envision what could spark a leg up in the US equity markets in the near term. A leg down at some point feels more probable, yet I am not one for market timing. Nevertheless, increased uncertainty and volatility look to be on the menu for an extended period of time as the markets and Fed wrestle with the curtailing of the liquidity which has fueled the market's run. Is simply pruning equity positions and building cash the most reasonable course of action?

The FullerTreacy service is outstanding and all the more valuable at times like these. Thank you for your thoughts.

Eoin Treacy's view -

Thank you for this question and I am delighted you are enjoying the service. I write a long form summary of my views on the first Friday of every month so I will take this topic up again there.

The big question for investors is how long will the steady rise in the stock market persist? It’s easy to be derailed by valuations and predictions of imminent doom. Instead, let’s focus on consistency and money flows.



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August 03 2021

Commentary by Eoin Treacy

Gaming? China's Big Crackdown Is on Big Capital

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

China may have questioned the ethics of for-profit tutoring companies in the past. But it did not really act until the enterprises were flooded with speculative venture capital money.

The government saw that as investors hijacking its state-dominant education sector with huge amounts of capital. And so it put a stop to that liquidity train. 

The market-oriented Chicago school of economics acknowledges that a benevolent dictatorship — with the assistance of cumbersome bureaucracy — can be as efficient for social and economic development as a well-ordered competitive marketplace. China — which sees itself as a benevolent authoritarian regime — has tried to maintain efficient capital markets. Now, it’s having second thoughts. In Beijing’s view, hot money is not heading where officials want it to go. Indeed, it was on the point of creating competing power centers that could rival the central government. 

So what can be read from these tea leaves? Stay away from where the hot money is going. Sooner or later, China will curb that enthusiasm and send the sectors into a crash landing. 

Eoin Treacy's view -

The primary aim of an authoritarian regime is to sustain single party rule. Everything else comes after that. China’s administration understands that online forums of any kind represent a point where state control can end. They are also keen to ensure that capital flows only to favoured sectors. Absolute control and the micromanagement it engenders, were some of the primary arguments against the potential success of communist regimes. It remains to be seen how far this trend of increasing authoritarianism will go.



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August 02 2021

Commentary by Eoin Treacy

Video commentary for August 2nd 2021

August 02 2021

Commentary by Eoin Treacy

More Derating as Revision Breadth Rolls

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

To summarize, we have characterized the current economic situation as the transition from early to mid cycle, the time of the expansion where we are past the peak rate of change and therefore maximum monetary accommodation. With the NBER recently declaring the end to the COVID-19 recession as far back as May 2020, our timing of this mid cycle transition starting back in March seems spot on. Years associated with prior mid cycle transitions include1994,2004, and 2011. In all cases, US equity markets were characterized by the following features: Falling P/E, narrowing leadership, a skew towards quality and a 10-20% correction in the major indices.

This year has been no different, but looks incomplete in our view. More specifically, there has been an extreme narrowing in leadership and shift towards quality; and while we have seen a de-rating in equity valuations, it's been more modest than prior mid cycle transitions which has allowed the major averages absent of a 10%+ correction, at least so far. We think the primary missing ingredient for that correction is Fed's slower than normal withdrawal of monetary accommodation given how much progress has already been made. This delay in removing accommodation has kept long term interest rates much lower than the economic fundamentals would suggest. Given the very high quality nature of the S&P 500 and Nasdaq 100, these indices have remained very resilient even as the average stock has fared quite poorly since March. For example 44% of the Russell 2000 small cap index has experienced a 20%+ drawdown this year.

Eoin Treacy's view -

This is a liquidity fuelled rally. As long as central banks are willing to continue to engage in quantitative easing and governments are running large deficits, asset prices will enjoy a tailwind more often than not.



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August 02 2021

Commentary by Eoin Treacy

Virus Flares in Wuhan as Delta Challenges China's Defenses

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

It’s the biggest challenge to China’s strategy since the virus was first detected in Wuhan, the central Chinese city that saw the world’s first lethal outbreak. The country’s strict anti-virus measures, which include mass testing as soon as a case appears, aggressive contact tracing, widespread use of quarantines and targeted lockdowns, have crushed more than 30 previous flareups over the past year.

The arrival of the more infectious delta variant, however, is testing even that approach. The new strain may be exploiting an easing off in masking and social distancing in some places, since much of the country has been Covid-free for months. That, along with increased travel for summer vacation, created an environment where delta could gain a foothold.

China reported 99 infections on Monday, including 44 who tested positive but have no symptoms. Later in the day, seven more people were found to be infected in Wuhan, plus another in Beijing. By number of cases, it’s the biggest outbreak since a flareup in Hebei province in northern China in January, when
2,000 people were infected.

The broad spread is even more concerning, given the rise of cases in the highly protected capital and in Wuhan, whose virus- free status has been a source of pride in China. The seven new cases there are the first since China brought its original wave under control by locking down the city of some 11 million and
the surrounding Hubei province.

Eoin Treacy's view -

China’s stringency in locking down areas where infections are found and testing everyone is likely to keep the current spate of infections from getting out of control. However, the ease with which the Delta variant spreads represents a significant challenge because an increasingly large proportion of the country will need to be locked down. The biggest challenge is the Sinovac vaccine is considerably less effective than MRNA versions, so China will need to double down on its vaccination program before a long-lasting return to normal can be achieved.



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August 02 2021

Commentary by Eoin Treacy

Crypto Game Axie Infinity Has Generated $84.9M in One Month

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

Axie Infinity is tapping into the growing play-to-earn trend, which essentially means making money to play games. But instead of high-fidelity esports tournaments and multi-million-dollar Twitch live streams, the economics of Axie is built into the game. 

Each Axie, for example, is worth real money. Same for the AXS token and the Smooth Love Potion (SLP) token, which you also need to breed more Axies. Essentially, every in-game earnable can be resold for cash, and all you need to do to pick up said earnables is simply play the game. 

The money earned is sometimes enough to pay the bills too, with many players in the Philippines effectively able to make a living wage from playing the game. And as the protocol’s mounting treasury shows, these same players are also keeping Axie Infinity afloat during this summer’s bearish crypto slump. 

Eoin Treacy's view -

I pay attention to computer gaming business models because they represent a window into how the emerging sector sees value creation. The free to play model has been around for a while not and sale of downloadable content and “skins” has exploded. Axie Infinity is a significant iteration of that model.



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July 30 2021

Commentary by Eoin Treacy

July 30 2021

Commentary by Eoin Treacy

Lucid Motors kicks off market debut with EV factory expansion plans

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

The company is also planning on bringing more of the component production in-house, including major pieces such as the body panel stampings, the spokesman added. These parts were being handled by an external supplier.

The Casa Grande City Council approved the plans to expand the nearly 1 million-square-foot space in March. The first phase of the factory, which cost around $700 million to construct, went up in a record 12 months after breaking ground. Lucid has said that it wants to expand production capacity from around 30,000 vehicles per year to up to 400,000.

Lucid has had a long, sometimes tenuous road to the public market. The company first set its sights on bringing an electric sedan to production as early as 2018, but it quickly hit funding challenges that pushed this timeline further and further back. Lucid received major funding in 2018 with a $1 billion investment from Saudi Arabia’s sovereign wealth fund, which continued to be its largest shareholder throughout Lucid’s merger with special purpose acquisition company Churchill Capital IV Corp.

That merger hit a bit of a hiccup last week when the company failed to garner a sufficient number of votes on a key proposal — likely due to the rise of retail traders and malfunctioning spam filters, executives said in an investor call.

Eoin Treacy's view -

The adage that imitation is the sincerest form of flattery is particularly true for the electric car market. Tesla’s success in both creating a product people want and monopolising the sale of carbon credits, often directly to is competitors, has bred a large number of imitators.



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July 30 2021

Commentary by Eoin Treacy

Exxon and Chevron Profits Rebound to Pre-Pandemic Levels

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

Exxon Mobil Corp. and Chevron Corp. swung to their biggest profits since pre-pandemic days amid surging demand and prices for plastics and energy.

Exxon reported $4.69 billion in profit, the best quarter since late 2019, as its chemical division turned in a record performance. Chevron’s $3.1 billion second-quarter net income was its strongest showing since the start of 2020 and prompted the driller to revive share buybacks that were suspended more than a year ago.

The companies’ combined cash flow from operations approached $17 billion, signaling an across-the-broad recovery after the dark days of 2020 that saw the titans of American oil incur massive financial losses.

Chevron’s share repurchases will begin during the current quarter and range between $2 billion and $3 billion a year, around half the amount it devoted to the program before it was suspended in early 2020. Chevron’s move followed similar steps by Royal Dutch Shell Plc, TotalEnergies SE and Eni SpA, all of which have reinstated buybacks this week.

“It says we’re confident in the future,” Chief Financial Officer Pierre Breber said in an interview. The level of buybacks was chosen because “it really is a range that allows us to also continue to pay down debt.”

Eoin Treacy's view -

Exxon’s board have been clear they are more interested in rebuilding their balance sheet than buying back shares. Most energy companies have to face up to the reality they will need war chests to weather the threat from aggressive regulatory regimes all over the world. There is a growing trend of legislation against single use plastics. That’s a major business for the large oil companies. Demand ramped higher in 2020 but that only increases the visibility of the sector and bolsters the argument for alternatives.



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July 30 2021

Commentary by Eoin Treacy

Why COVID cases are now falling in the UK - and what could happen next

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

This lack of long-term protection against infection means that herd immunity is probably impossible and that the virus will become endemic and continue to circulate in human populations. If this happens and the disease then stabilises, such that case numbers are constant across the population, neither increasing nor decreasing, it will have reached what’s called an “endemic equilibrium”.

So is this what we’re now witnessing? Possibly. One of the basic models of how infectious disease cases change over time is called an SIR model, which looks at how many people are susceptible to a disease, infectious with it or have recovered from it (and so are immune) at any one time.

With this model, cases increase rapidly at the start of an epidemic as lots of people are susceptible, become infected, and go on to infect other susceptible people. But as infections mount, over time fewer people are susceptible and more have recovered. The rate of growth therefore decelerates, the epidemic reaches its peak, and then case numbers decline to an endemic equilibrium point, where they remain roughly stable.

Eoin Treacy's view -

A leaked CDC document has been circulating today with a claim that the Delta variant is as contagious as chickenpox. That news is enough to make anyone worried. The fact that this variant is also more likely to result in acute sickness is doubly worrying. With 110,000 confirmed breakthrough cases in the USA there is a palpable sense of worry that news is about to get worse. Meanwhile, the UK’s number of cases has peaked and is falling quickly. That should act as at least a partial salve to those worries.



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July 30 2021

Commentary by Eoin Treacy

July 29 2021

Commentary by Eoin Treacy

Video commentary for July 29th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Gold and silver rebound, bond yields rise and stocks steady, Amazon misses estimates so a failed upside break is an increasing risk, Chinese shares rebounded impressively but property developers remain under pressure. 



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July 29 2021

Commentary by Eoin Treacy

What growing avocados in Sicily tells us about climate change and the future of food

This article from the Financial times may be of interest to subscribers. Here is a section:

Two countries — Canada and Russia — account for more than half of new global agricultural frontiers, according to a study published by the Public Library of Science, a non-profit publisher.

“Agriculture has been limited by climate but we’ll see a huge expansion over the next century,” says Lee Hannah, lead author of the paper and a senior researcher at the environmental NGO Conservation International. “Agriculture is going to be shifting across the face of the world . . . The big change is expansion in Russia and Canada.”

Growing crops in these areas will increase global food production, important given that some experts calculate that the world will need 70 per cent more by 2050 to feed a population expected to increase by 2bn over the next 30 years. But, Hannah warns, it could also unleash a “climate bomb” with the release of additional greenhouse gases from the previously untouched peaty soil. The impact on water and biodiversity will also be devastating, he adds.

Hannah, who has been researching the climate change impact on crops such as coffee and wine as well as bees, which are crucial to agriculture, says the emissions impact will come down to Russia and Canada. “You only have to get policies right in two places. Stop seeing these northern areas as wastelands that need to be subsidised to be developed,” he says.

Eoin Treacy's view -

50-year predictions are guesses at best. However, the trend of farmers migrating in Russia to newly improved growing climates and the fact that champagne grapes grow well in the south of England point to significant changes that will necessitate significant investment in new agricultural transportation infrastructure.



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July 29 2021

Commentary by Eoin Treacy

SpaceX to be Tokenized

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

They further explain if the market reaches the higher end, a new market could be opened with a new range, so making this effectively price discovery for non publicly traded companies, including McLaren, Reddit, SpaceX or OpenSea, Zapper, dYdX.

This hasn’t quite launched yet, with it to be seen what it will look like exactly once it is in hard code, but the idea is that once the company goes public, then the prePO price is settled at the company’s opening price on the first day of trading.

So in theory and perhaps even in practice this can allow for betting on startups even at the very early stages as well as mature companies that will probably go public at some point with the investor benefiting from the price appreciation that does finally settle once the company goes public.

“When the asset goes public, you can exit your position at a final settlement price, based on the price at the end of the first day of public trading for stocks, or on a time-weighted average price for tokens,” they say.

Eoin Treacy's view -

Every major bull market comes up with a way for investors to believe they have an edge over everyone else. In the 1990s that was characterised by buying IPOs. During the housing bubble it was liar loans and zero down mortgages. Today, the tokenization of everything from art to companies is allowing private investors an opportunity to invest in private markets like never before.



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July 29 2021

Commentary by Eoin Treacy

We Are Entering a Time of Financial Repression

Thanks to a subscriber for this article inteviewing Russell Napier from market.ch may be of interest to subscribers. Here is a section:

And your case is that politicians won’t let it go again?
Exactly. Let me give you an example: In the UK, usually the longest-term fixed mortgage you could normally get was five years. Boris Johnson has now created a 25-year fixed mortgage for first-time buyers, offered by banks, guaranteed by the government. Nobody can pretend that this has anything to do with Covid, and in fact when Johnson announced it, his stated aim was to give young people access onto the housing ladder. This is a good example of how the magic money tree was discovered for Purpose A, i.e. Covid, and is being used for Purpose B, furthering social justice.

Don’t you see a possibility that politicians will return to being fiscally responsible?
Of course it’s possible that politicians, having discovered the easy route to re-election, decide not to use it. I’m betting against it. The introduction of the income tax in the UK was an emergency measure in 1798. It’s still in effect today. Many emergency measures, such as Regulation Q introduced by the US government to control deposit rates in the 1930s, lasted for decades.

Eoin Treacy's view -

Buying votes is about as old a practice as democracy itself. Arguably it is how democracies ensure that the interests of regions and some minorities are well served. Therefore, with the purse strings open and fiscal hawks banished, there is ample scope for continued outsized spending measures to placate restive populations. That’s as true of the UK as it is of the USA, Australia and just about everywhere else.



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July 28 2021

Commentary by Eoin Treacy

Video commentary for July 28th 2021

July 28 2021

Commentary by Eoin Treacy

Geithner Panel Warns of More Treasuries Meltdowns Without Reform

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

“Capital allocated to market-making by bank-affiliated dealers has not kept pace with the very rapid growth of marketable Treasury debt outstanding,” the group’s report found. That, in turn, is due in part to leverage requirements that discourage banks from allocating capital to market making, the report said.

The group’s recommendations included:

Creation of a standing repo facility by the Fed, with terms that “discourage use of the facility in normal market conditions without stigmatizing its use under stress”
All trades of Treasury securities executed on electronic inter-dealer trading platforms that offer anonymous trading should be centrally cleared
Treasury repos should be centrally cleared
The Treasury Department should lead a review of the design and operation of the Fixed Income Clearing Corporation, the only central clearinghouse for Treasuries
Banking regulators should review rules with a view to modifying those that discourage market intermediation
The TRACE reporting system should be expanded to capture all transactions in Treasury securities and Treasury repos
The Treasury should lead an inter-agency study to re-examine all exemptions of Treasury securities from U.S. securities laws, and prepare annual reports on Treasury market functioning

Geithner served as chair of the working group. The project director was Patrick Parkinson, a former Fed official who’s now at the Bank Policy Institute. Parkinson co-wrote a paper last year with Nellie Liang, now the Treasury undersecretary of domestic finance, on enhancing liquidity in Treasuries. Panel members included former heads of the central banks of the U.K., Japan, Germany, Brazil and Mexico along with other ex-senior Fed officials.

Eoin Treacy's view -

It is amazing how policy tends to move in cycles. After the credit crisis, the consensus conclusion was that bank balance sheets were too large. Regulators were worried that trading off the back of deposits and high leverage ratios posed systemic risks. The partial fix was to separate trading from banking operations. The result was that banks had to reduce leverage and a lot of market making moved to private operations like Citadel.



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July 28 2021

Commentary by Eoin Treacy

China Convenes Banks in Bid to Restore Calm After Stock Rout

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

The hastily arranged call, which included attendees from several major international banks, was led by China Securities Regulatory Commission Vice Chairman Fang Xinghai, people familiar with the matter said, asking not to be named discussing private information. Some bankers left with the message that the education policies were targeted and not intended to hurt companies in other industries, the people said.

It’s the latest sign that Chinese authorities have become uncomfortable with a selloff that sent the nation’s key stock indexes to the brink of a bear market on Wednesday morning. State-run media have published a series of articles suggesting the rout is overdone, while some analysts have speculated government-linked funds have begun intervening to prop up the market.

Eoin Treacy's view -

The actions taken against the tutoring sector might be well intentioned but to say it is an isolated incident is a step too far. The war on the private sector has been waged for more than a year already. The message is clear. There is now a clear limit on how large companies can grow. We might argue about the merits of this move from a societal perspective, but it makes a nonsense of growth-based valuations. That’s something all investors have to come to terms with.



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July 28 2021

Commentary by Eoin Treacy

Pfizer Boosts Forecast for Vaccine Sales to $33.5 Billion

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

 

A resurgence of virus infections thanks to the delta variant is likely to mean sustained demand for vaccines around the world. Further, it is widely expected that many people could require booster shoots to bolster the immunity gained in the initial round of immunizations.

Pfizer said in a presentation accompanying its earnings release that emerging real-world data “suggests immunity against infection and symptomatic disease may wane,” underscoring the need for boosters.

The company said regulators will determine “whether, and which, populations to recommend booster,” and that they will likely first focus on those with compromised immune systems and older adults.

Eoin Treacy's view -

The ideal business model for any pharmaceutical company is to develop a treatment for an unmet but dire chronic condition. Diabetes is the perfect example. There is no cure and treatments are both necessary and tend to increase in magnitude as the disease progresses. Each patient represents a growing cashflow for as long as they live following a diagnosis. Viagra was also a blockbuster because it catered to an unmet need but did not cure it. 



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July 27 2021

Commentary by Eoin Treacy

July 27 2021

Commentary by Eoin Treacy

July 27 2021

Commentary by Eoin Treacy

Short Recession Confirms Hotter but Shorter Expansion

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

NBER confirms the shortest recession in history at just 2 months. From the day the recession began last year, we've been ahead of the consensus with the progression of this new cycle staring with the v-shaped recovery. It's all happening faster than normal and that means rotations and changing leadership is happening faster too. Our mid cycle transition starting back in March should now make more sense with historical comparisons as it typically begins about 9- 12 months after the recession ends.

Eoin Treacy's view -

The response to the pandemic by central banks was a break from the norm. They looked at a developing situation and anticipated trouble ahead. That succeeded in preventing a crash and eased the significant pressure from a cessation of economic activity. The V-shaped recovery now raises a significant question for central banks. How long will they allow the economy to run ahead before withdrawing liquidity.



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July 27 2021

Commentary by Eoin Treacy

Apple Warns That Growth Will Slow After Record-Setting Sales

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

Apple Inc. slipped as much as 2.9% in late trading after warning that sales growth may be slowing and supplies are getting tight, putting a damper on investor excitement following a record-setting third quarter.

The company said on a conference call Tuesday that supply constraints will affect the iPhone and iPad in the current quarter. Decelerating demand for services also will drive the slowdown. Apple declined to provide specific revenue forecasts, a practice it adopted during the pandemic.

The cautious remarks followed a sales gain of 36% in the third quarter, with revenue of $81.4 billion shattering Wall Street’s $73.8 billion estimate. But investors are sticking to a wait-and-see attitude. The parts shortages and a patchwork of Covid restrictions will continue to weigh on Apple’s business this year.

Eoin Treacy's view -

It’s not that surprising that companies are coming through with lower sales forecasts. It was never going to be possible to sustain the pace of sales growth in non-single use items. People do not buy new phones or computers every quarter. The question for investors is at what level sales will settle as we come out of the worst of the pandemic.



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July 27 2021

Commentary by Eoin Treacy

Email of the day on futures trading in Australia

July 26 2021

Commentary by Eoin Treacy

Video commentary for July 26th 2021

July 26 2021

Commentary by Eoin Treacy

Big US implications from Israel

This video from Dr. John Campbell may be of interest to subscribers.

July 26 2021

Commentary by Eoin Treacy

New Oriental Frogs

Thanks to Iain Little for this edition of his Global Thematic Investors’ Diary. Here is a section:

One of our HK analysts wrote this week: “the USA government has issued a joint advisory on the risks of conducting business, studying, and investing in HK, in a direct response to the June 2020 National Security Law (NSL)…which effectively crushed the autonomous region’s special freedoms. Certain multinationals in Hong Kong now face two-way political risk as the U.S.-China decoupling continues…Businesses will be forced to pick a side: adhere to U.S. sanctions and be penalized by China or potentially violate U.S. sanctions to maintain access to Chinese markets. Airlines will need to provide passenger information to authorities before flights depart…to prevent…political dissidents from leaving HK. The NSL allows authorities to conduct wiretaps or electronic surveillance, search and seize electronic devices, requires internet service providers to produce corporate or consumer data. The NSL has dissolved freedom of press in HK. The city’s public radio station is also now under tight censorship...all media based in HK now reflects the political agenda of Beijing. The U.S. has placed sanctions on several individuals and entities within HK, barring U.S. businesses and nationals from transacting with them.”

It is clear that under President-For-Life Xi, the primary condition for portfolio investment in China –the safety of one’s capital in a free system under a Rule of Law- does not, indeed cannot, exist.

This brings us back to the frog. The human tendency to cling onto hope and the status quo can be admirable, but it can also be a pathway to the poorhouse in investment. The destructive forces of late 1930s Germany were foreshadowed a decade before; “Mein Kampf” was published in 1925.

Why not invest in sectors that are actively encouraged by the Chinese state, such as semi-conductors, or which lie outside the ambit of state interference? For institutional investors tied to a global equity index, this is indeed an option, though the tendrils of the Chinese state reach everywhere. For private investors who have no compulsion to invest in China, and who see the world of investment as a “global beauty contest” it may be considered a risk too far. Other more beautiful shores, those that feel the radiation effect of a booming China, may offer more attractive prospects. ASEAN and the free-thinking members of the Trans Pacific Partnership spring to mind.

Eoin Treacy's view -

Sometimes investing is about the return of your money rather than return on it. That’s the challenge for investors in Chinese equities at present. It’s a big question because Chinese stocks represent significant weightings in the broad emerging markets universe. That’s true for both equities and bonds.



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July 26 2021

Commentary by Eoin Treacy

Email of the day on deep learning

This week the British company Deep Minds, owned by Google, announced an important breakthrough on the knowledge of proteins. The company's CEO said that they are working on various projects including nuclear fusion. If they are successful in this venture, it will transform the demand for uranium and lithium.

Eoin Treacy's view -

Thank you for this email and this article from the MIT Technology Review may also be of interest. Here is a section:

In the new version of AlphaFold, predictions come with a confidence score that the tool uses to flag how close it thinks each predicted shape is to the real thing. Using this measure, DeepMind found that AlphaFold predicted shapes for 36% of human proteins with an accuracy that is correct down to the level of individual atoms. This is good enough for drug development, says Hassabis.   

Previously, after decades of work, only 17% of the proteins in the human body have had their structures identified in the lab. If AlphaFold’s predictions are as accurate as DeepMind says, the tool has more than doubled this number in just a few weeks.

Even predictions that are not fully accurate at the atomic level are still useful. For more than half of the proteins in the human body, AlphaFold has predicted a shape that should be good enough for researchers to figure out the protein’s function. The rest of AlphaFold’s current predictions are either incorrect, or are for the third of proteins in the human body that don’t have a structure at all until they bind with others. “They’re floppy,” says Hassabis.

“The fact that it can be applied at this level of quality is an impressive thing,” says Mohammed AlQuraish, a systems biologist at Columbia University who has developed his own software for predicting protein structure. He also points out that having structures for most of the proteins in an organism will make it possible to study how these proteins work as a system, not just in isolation. “That’s what I think is most exciting,” he says.

How much of medicine discovery is about trial and error and how much is about tailored solutions? That’s the delineation between the new era of genetics and everything that came before. With knowledge of how proteins interact and how they are made, it is increasingly possible to design targeted solutions to everything in the materials sciences.



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July 26 2021

Commentary by Eoin Treacy

Bitcoin Rises Above $40,000 as Shorts, Amazon Job Ad Fuel Rally

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

Bitcoin rose above $40,000 for the first time since June as a flurry of short-covering intensified a rally apparently sparked by speculation over Amazon.com Inc.’s involvement in the crypto industry.

A job posting from the retail giant seeking an executive to develop the company’s “digital currency and blockchain strategy” stirred questions among analysts over whether the move could eventually lead to Amazon accepting Bitcoin as a method of payment.

As the largest digital token gained on the speculation, investors rushing to cover bearish bets fueled the rally, with the coin at one point up more than 17% on Monday to $40,545, its highest since June 15. More than $950 million of crypto shorts were liquidated on Monday, the most since May 19, according to data from Bybt.com.

“The extent of the jump was probably driven by over-leveraged shorts,” said Vijay Ayyar, head of Asia Pacific at crypto exchange Luno in Singapore, while adding the rumors over Amazon likely had a role to play, too.

Eoin Treacy's view -

This weekend produced a bevy of crypto pundits who turned out to lend the ailing market a helping hand. Elon Musk, Cathie Wood and Jack Dorsey all provided arguments for why prices should rise. The CEO of MicroStrategy has also been progressively more vocal about his bullish position. The potential for Amazon to become more active in the sector has already encouraged even more participation. 



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July 23 2021

Commentary by Eoin Treacy

July 23 2021

Commentary by Eoin Treacy

Nike, Adidas Output Snarled as Covid Wave Shuts Asian Factories

This article by Michelle Jamrisko for Bloomberg may be of interest. Here is a section:

“It’s going to be worse before it gets better,” with shutdowns and staff disruptions increasing in Asia, said Deborah Elms, executive director of the Singapore-based Asian Trade Centre. “Places like Vietnam that largely avoided locking down cannot maintain an open posture. With vaccinations painfully slow, I assume more shutdowns in factories, with the ripple effects felt elsewhere.”

Trade in goods has been a rare buffer for the Covid-ravaged global economy -- especially for export-heavy Asian countries -- but the latest reports show cracks in this growth pillar. The delta variant-driven surge has hit Southeast Asia especially hard, underscoring the delicate choices for policy makers who are balancing vaccination drives and mobility restrictions while trying to keep their economies afloat.

The manufacturing pain is especially acute in Vietnam, where officials have taken drastic steps to ensure factories can continue operating. In some instances, electronics and tech companies have had workers sleep overnight on-site.

The garment industry, with lower profits and more workers, hasn’t been able to replicate that effort. Feng Tay Enterprise Co., Pou Chen Corp. and Sports Gear Co. are among manufacturers that have suspended some operations in Vietnam.

Eoin Treacy's view -

My 13-year-old informed Mrs. Treacy yesterday last night that they had to go to the Nike store because the shoes she wants for school were sold out online. Her rationale was most people begin shopping for school in August so now was the time to make the purchase. They dutifully made the journey and secured the shoes while witnessing numerous kids making Snapchat videos with their purchases.



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July 23 2021

Commentary by Eoin Treacy

China Said to Mull Turning Tutoring Firms Into Non-Profits

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

China is considering asking companies that offer tutoring on the school curriculum to go non-profit,
according to people familiar with the matter, as part of a sweeping set of constraints that could decimate the country’s $100 billion education tech industry. Shares sank.

In rules currently being mulled, the platforms will likely no longer be allowed to raise capital or go public, the people said, asking to not be identified because the information is not public. Listed firms will also probably no longer be allowed to invest in or acquire education firms teaching school subjects while foreign capital will also be barred from the sector, one of the people said.

Eoin Treacy's view -

Capitalism with Chinese characteristics is rapidly morphing into a “heads I win, tails you lose” mentality. If a company is successful, they had better have strong central government sponsorship or they are likely to fall foul of heavy-handed regulation.



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July 23 2021

Commentary by Eoin Treacy

Zomato Soars 80% in Debut of India's New Tech Generation

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

For many others, the potential outweighs the downsides. With almost half its 1.3 billion people accessing the internet via smartphones, a bet on Zomato represents optimism that India’s tech upstarts could go the way of the U.S. or China, particularly as India’s internet infrastructure remains nascent and consumers are just getting used to buying online.

“This is how it is supposed to work. Nine out of 10 will fail,” Goyal, who is barred from commenting in the run-up to the listing, said in an earlier interview. “But the one that thrives will be a spectacular success.”

Fund-Raising Blitz
In previous conversations, Goyal recounted how he first got the idea for an online service when, as a math and computer science student at the Indian Institute of Technology, he was particularly frustrated with a pizza order. His resolve strengthened after he graduated and joined Bain, where he saw colleagues in the company cafeteria skimming the limited menu and talking longingly about food at nearby restaurants.

Goyal and Chaddah started uploading menus of neighborhood cafes and restaurants onto the company intranet, with phone numbers. That was a huge hit with coworkers, driving a weekend venture they christened foodiebay.com. After his wife got a teaching job at Delhi University, Goyal quit to pursue
entrepreneurship full-time, shrugging off the onset of the global financial crisis.

In the India of a decade ago, entrepreneurship was frowned upon and Goyal didn’t tell his parents -- both teachers -- until much later. In the first year, the startup began by listing thousands of restaurants in India’s six biggest cities. Then came an email from entrepreneur-turned-investor Sanjeev Bikhchandani, who invested $1 million through his Info Edge India Ltd.

Eoin Treacy's view -

4G is having the same effect on the Indian economy as it has had everywhere else. The spectrum of online services available has increased significantly which is benefitting the banking, entertainment and nascent social sectors. Food delivery services have sprung up everywhere mobile broadband access becomes available. India is no different.



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July 23 2021

Commentary by Eoin Treacy

U.K. School Trial Shows Daily Covid Tests Could Ease 'Pingdemic'

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

The study found that daily testing saw 4% fewer infections, and scientists believe this figure could have been as high as 14% if all staff and students participated. In the group that continued to self-isolate, 1.8% of school days were affected, compared with 1.5% in those that tested daily.

Using testing rather than quarantines for contacts reduces the stigma on those who test positive, the researchers said, because an infected student’s friends don’t have to stay home automatically. That leads to people being more transparent about their Covid-19 status, said Bernadette Young, clinical lecturer in infectious diseases at Oxford.

“We know that quarantine comes along with ill effects and potential harm for those forced to do so,” Young said. “The consequence of testing positive is that all your friends need to isolate. If you have less of a penalty, you are going to be more upfront.”

Eoin Treacy's view -

Anyone fancy listening to the science?



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July 22 2021

Commentary by Eoin Treacy

July 22 2021

Commentary by Eoin Treacy

ECB Revamps Guidance in Push to Hit Higher Inflation Goal

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

The key change to the guidance means that even if inflation is at the target at the end of the ECB’s three-year forecast horizon, officials won’t be forced to respond with tighter policy. The ECB currently foresees price growth averaging just 1.4% in 2023, which suggests any rate hike is years away.

Markets were little changed, with only around 5 basis points of hikes priced in by mid-2023 and about 10 basis points a year later.

The ECB’s promise of continued ultra-loose policy sets it apart from some of the world’s biggest central banks. In the U.S., where inflation is running above 5%, Federal Reserve officials are already discussing when to start tapering their stimulus. Some policy makers at the Bank of England have said a reduction in bond buying should be considered soon.

Eoin Treacy's view -

When the ECB was originally conceived the framers were primarily concerned with containing inflation because that was the direction all their personal experience pointed them in. They never considered deflationary forces would consume most discussions after the first decade of the currency’s existence. Unfavourable demographics, the aftershocks from the sovereign wealth crisis and now the hit from the pandemic mean the inflation mandate is not nearly as relevant as it was twenty years ago.



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July 22 2021

Commentary by Eoin Treacy

Variants and Volatility but Fundamentals Intact

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

July 22 2021

Commentary by Eoin Treacy

Brazil's Frost May Kill Young Coffee Trees, Hurt Crops for Years

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

The freeze will have the greatest impact on coffee trees under 4 years old. Because of their fragile root systems, trees younger than two usually need be eliminated, while trees between 2 and 4 years old often have to be drastically trimmed and won’t produce the following crop year, said Regis Ricco, a director at Minas Gerais-based RR Consultoria Rural.

The consulting firm has been providing technical loss reports to growers who are going to seek debt renegotiations due to the frost damage. In some regions, farmers lost everything they had.

“Some farmers will have a difficult situation as they got loans from banks to fund irrigation systems, plantings and machinery,” Ricco said. “The impact is stunning.”

Eoin Treacy's view -

Frost in Brazil is a rare occurrence and it has had a significant impact on coffee prices. The price spent most of 2018 through 2020 ranging around $1. It completed the base formation in April and a sustained move back below $150 would be required to question medium-term scope for continued upside.



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July 21 2021

Commentary by Eoin Treacy

Video commentary for July 21st 2021

Eoin Treacy's view -

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

Some of the topics discussed include: risk-on resumes after another very brief hiatus, Dollar downside key reversal, bonds recoil from the region of the trend mean, tech stocks surge, will China Evergrande be bailed out?. bitcoin bounces



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July 21 2021

Commentary by Eoin Treacy

ASML's Record Order Levels Show Chipmakers Are Stocking Up

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

Chief Executive Officer Peter Wennink said that trend, which he called “technological sovereignty,” will also boost orders. The company has historically underestimated how quickly the industry would grow in the past 15 years and Wennink said it’s working to boost manufacturing to keep up.

“Clearly we’ve seen in 2021, the reaction of the industry at large, the electronic industry, to the Covid year,” he said, predicting that “the catch up effect that will stretch into 2022.”

ASML is also discussing ways of increasing supply capacity of both its new and older machines, including increasing headcount and floorspace. Longer term, demand will be driven by advanced chips needed to run artificial intelligence and high-powered computing as well as the proliferation of sensors needed for gadgets like connected home appliances.

The shares rose as much as 4.6% to 609.40 euros in Amsterdam. The stock has jumped 51% this year. That compares with a 20% gain on the Stoxx 600 Technology Index.

New technologies that will rely on faster 5G networks in devices from laptops to cars to home appliances will drive 35% growth in the company’s logic business this year, as the less advanced chips that help run sensors in these devices see higher demand, Wennink said.

Eoin Treacy's view -

ASML has a monopoly in the production of chip manufacturing technology. That puts the company in a special position to benefit from increasing demand. With that kind of advantage one might reasonably ask what can go wrong?



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July 21 2021

Commentary by Eoin Treacy

Enel installs 6.1 MWh vanadium redox flow battery in Spain

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

Canada-based vanadium mining company Largo Resources has announced that its U.S.-based unit Largo Clean Energy has signed its first supply agreement for its VCHARGE ± vanadium redox flow battery system, with Enel Green Power Spain, a unit of Italian renewable energy company Enel Green Power, which is itself part of the Enel group. Under the terms of the deal, Largo Clean Energy will provide a five-hour, 6.1 MWh system for a project in Spain whose start-up is scheduled for the third quarter of 2022.

The company's VPURE and VPURE + vanadium products come from one of the three largest vanadium mines in the world, the company's Maracás Menchen mine, located in Brazil. These compounds are used to develop's Largo's  VCHARGE ± vanadium redox flow battery technology.

Largo Clean Energy began, last year, the development of its vanadium redox flow battery (VRFB) technology based on 12 patent families previously owned by U.S. storage specialist VionX Energy, whose assets it acquired for $3.8 million.

Eoin Treacy's view -

Vanadium surged in 2018 on expectations that the world would adopt redox flow batteries for utility-scale energy storage. The uptake was less enthusiastic than many expected and the price of the metal collapsed.



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July 21 2021

Commentary by Eoin Treacy

Bitcoin extends gain after retaking closely watched $30,000 mark

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

Bitcoin, the largest digital currency, rose as much as 5.8% and was holding at about $31,450 as of 7:23 a.m. in New York on Wednesday. Other cryptos advanced too, including Ether and Dogecoin 

Bitcoin extended gains after breaking above the $30,000 mark that some cryptocurrency traders view as a key support level.

The largest digital currency rose as much as 5.8% and was holding at about $31,450 as of 7:23 a.m. in New York on Wednesday. Other cryptos advanced too, including Ether and Dogecoin, while the Bloomberg Galaxy Crypto Index was also in the green.

Eoin Treacy's view -

Bitcoin dropped briefly below $30,000 yesterday and bounced back emphatically today. This is a clear upward dynamic and signals a return of demand in the region of the lows over the last couple of months. That supports the potential for at least a short-term bounce.



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July 20 2021

Commentary by Eoin Treacy

July 20 2021

Commentary by Eoin Treacy

Stock Traders Buy the Dip as Cyclicals Drive Rally

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

“We have a ways to go on the cyclical recovery here,” Levine, head of equities at the firm, said on Bloomberg TV and Radio. The U.S. has exhibited “an exceptionalism in the amount of fiscal policy, the amount of monetary stimulus and also in the way we vaccinated the population. And because of that I actually am very bullish,” she added.

For Bill Callahan, an investment strategist at Schroders, “equities just make sense right now,” and dip buyers will be rewarded as the market continues to grind higher.

On the economic front, data showed U.S. housing starts increased in June by more than forecast, suggesting residential construction is stabilizing despite lingering supply-chain constraints and labor shortages.

Eoin Treacy's view -

The compression in yields makes the argument for investing equities more compelling because it reduces speculation that monetary accommodation is about to be removed.



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