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October 14 2019

Commentary by Eoin Treacy

Oil Shipping Costs Soar to Highest Levels in 11 Years

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

“There is a lot of confusion and uncertainty out there,” said Paolo d’Amico, head of Intertanko, a trade body representing tanker owners. “Everyone is afraid of being hit by the U.S., sanctions, rendering about 50 VLCCs untouchable.”

U.S. oil exports to Europe, which usually move in smaller tankers, hit a record 1.8 million barrels a day for the week ending Oct. 7, according to Kpler, an energy market intelligence company. The figure is double the 924,000 barrels in the previous week. But shipments to Asia, which are typically done on VLCCs, were reduced almost in half to 508,000 barrels.

A Singapore broker said rates for some VLCC cargoes on sailings from the U.S. Gulf Coast to the Far East were more than $120,000 on Thursday. Average earnings for supertankers picking up cargoes from around the world hit $94,124 a day, up from $18,284 on Sept. 25, when Washington blacklisted the Cosco fleet.

“VLCCs to Asia are a rare commodity, the market is red hot and will stay that way while the U.S. sanctions on Cosco ships are in place,” said the broker, who asked not to be named because he isn’t authorized to talk to the media.

Eoin Treacy's view -

The Baltic Dirty Tanker Index broke out on the upside last week, to trade above 1500 for the first time since 2008. That follows the breakout in the Baltic Dry Index in August. The latter’s move has not been as pronounced but does highlight the additional pressure on the shipping sector from the impending implementation of the IMO2020 rules on ship emissions.



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October 11 2019

Commentary by Eoin Treacy

October 11 2019

Commentary by Eoin Treacy

Midcap British Stocks Soar On Move Toward Brexit Talks

This article by Steve Goldstein for MarketWatch may be of interest to subscribers. Here it is in full:

The midcap FTSE 250 rose 3.5%, its best single-day percentage gain in more than three years, as European leaders indicated there was progress toward reaching an agreed deal with the U.K. on leaving the European Union. The European Union says it has agreed with the United Kingdom to "intensify" Brexit negotiations in a belated attempt to reach a divorce deal ahead of Oct. 31. A number of FTSE 250 components sported double-digit gains, including bank CYBG, building materials distributor Grafton Group and home improvement retailer Travis Perkins. The FTSE 100 however saw much smaller gains, of just 0.7%, because many of those components record revenue in dollars.

Eoin Treacy's view -

The Pound has staged one its largest two-day rallies in years and that is pressuring the shares of companies that rely on overseas earnings. The divergence in performance between the FTSE-100 and the FTSE-250 highlights the benefit to domestically oriented companies from a resolution of the Brexit conundrum.



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October 11 2019

Commentary by Eoin Treacy

U.S., China Said to Reach Partial Deal, Could Set Up Trade Truce

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

The U.S. and China reached a partial agreement Friday that would broker a truce in the trade war and lay the groundwork for a broader deal that Presidents Donald Trump and Xi Jinping could sign later this year, according to people familiar with the matter.

As part of the deal, China would agree to some agricultural concessions and the U.S. would provide some tariff relief. The pact is tentative and subject to change as Trump prepares to sit down with China’s Vice Premier Liu He later Friday.

Stocks jumped Friday after the news. Equities had advanced globally earlier in the day amid growing conviction that the U.S. and China would negotiate a trade truce. Trump tweeted earlier Friday that “good things” were happening in the meetings -- and that if the countries did reach an agreement, he would be able to sign it without a lengthy congressional approval process.

On Thursday and earlier Friday, Liu and U.S. Trade Representative Robert Lighthizer held the first senior-level discussions between Washington and Beijing since a previous agreement fell apart in May and tariffs were raised in the months after. The world’s two biggest economies have been trying for the past year and a half to settle their trade dispute.

Eoin Treacy's view -

The words from Bill Clinton’s early ‘90s election campaign must be ringing in President Trump’s ears, “It’s the economy, stupid”. There is a clear rationale for pressuring China on trade but is it worth losing the election for? The hardest hit parts of the US economy just about all voted for President Trump in the last election and have been specifically targeted by Chinese tariffs. Little wonder then that agricultural imports are front and centre in whatever deal is to be announced. With the election less than 13 months away it’s time to at least put the trade war on hold and let animal spirits loose. 



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October 11 2019

Commentary by Eoin Treacy

Japanese Stocks Post First Weekly Gain in Three on Trade Hopes

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

Seeing how the two countries split off back in July, markets may not have had high expectations for this round of talks,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui DS Asset Management. “But a partial agreement now seems probable, with topics like subsidies being shelved for next year.”

Investors are breathing a sigh of relief as they anticipate a partial deal to come after 18 months of negotiations. An earlier report said the White House was looking to implement a currency pact as part of a preliminary deal that could see the scheduled tariff increase next week suspended. China has also said the country was open to a partial deal with the U.S., with plans to offer non-core concessions like purchases of commodities.

“There was a risk that negotiations would be cut short,” said Nobuhiko Kuramochi, the head of investment information at Mizuho Securities Co. in Tokyo. “But with both sides continuing the talks, there’s an expectation that some sort of a mini-deal will come out in the end.”

Eoin Treacy's view -

In many respects Japan is a high beta play on the trade war. As a major exporter it obviously has an interest in a benign international trading environment which allows the free passage of goods. On the other hand, the Yen tends to rally during periods of uncertainty because of its safe have status. That acts as a headwind to the export sector and the nominal price of the stock market.



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October 11 2019

Commentary by Eoin Treacy

Melting Ice Redraws the World Map and Starts a Power Struggle

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

Shawn Bennett, deputy assistant secretary for oil and natural gas at the Department of Energy, said the U.S. was not concerned about competition. Growth projections for natural gas demand in India and other Asian countries are so high, and the need for supply diversification in Europe so acute that there’s little risk of a glut, he told Bloomberg. “Global demand for LNG is just going to grow,” he said.

The U.S. may be pushing back in more concrete ways. On September 30, the Department of the Treasury imposed sanctions on units of China’s Cosco Shipping Corp., over alleged breaches of U.S. sanctions against Iran. The move immediately hit the Yamal project’s LNG tanker routes because of Cosco’s share in one of the main shipping companies involved.

Still, for those who have been working in the Arctic for a long time, much of the geopolitical discussion sounds a little breathless. Last year, Russia’s Northern Sea Route carried 29 million tons of cargo, with projections rising to 90 million. The Suez Canal carries about 1 billion tons.

Eoin Treacy's view -

David and I predicted more than a decade ago that the USA would become energy independent that that represented a gamechanger for the energy sector that was completely underappreciated by markets. This chart suggests that reality, long promised, is now upon us.



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October 11 2019

Commentary by Eoin Treacy

October 10 2019

Commentary by Eoin Treacy

October 10 2019

Commentary by Eoin Treacy

Market Internals

Eoin Treacy's view -

I have to admit I don’t look at the internals of the market all that often because it is the trend rather than the day to day moves which lend some insight into the health of the market. I thought it might be useful to look at some of the most common measures to discern if any clues to market direction are evident.

The Total Number of New 52 Week Highs on the NYSE Index is coming back down towards the lows December 2018 and towards the end of 2015. The significant spike on the upside in late 2017 was an anomaly suggesting a period of underperformance ahead, but generally lows are better predictors of market bottoms than spikes are of tops.



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October 10 2019

Commentary by Eoin Treacy

Treasury 30-Year Bond Auction Draws Record Low Yield of 2.17%

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

Dramatically wider U.S. federal budget deficits, which stoked concerns about lower Treasury prices and higher yields as the supply of debt increased, are having the opposite effect, Williams said.

“You increase debt, and you’d think you’d increase yields in a dramatic way, but you’ve pulled forward growth from the future,” Williams said.

The longest-maturity Treasuries also have benefited from the government’s reliance mainly on shorter-maturity sectors to finance bigger deficits. Net issuance totaled $1.045 trillion in fiscal 2019, an increase of 31% from 2016. But while net bond sales increased by 33%, issuance of notes maturing in two- to 10-years doubled to $696 billion.
 

Eoin Treacy's view -

The deflationary consensus is pervasive and ensured the Treasury did not suffer another failed bond auction this afternoon. Nevertheless, just because $1 trillion deficits are not awakening investors to the risks of wholesale currency devaluation that does not mean the situation will persist indefinitely.



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October 10 2019

Commentary by Eoin Treacy

Johnson and Varadkar See 'Pathway' to a Possible Brexit Deal

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

Afterward they issued a joint statement saying they had identified the potential for a route to an agreement during the course of a “detailed and constructive discussion.”

Both leaders “continue to believe that a deal is in everybody’s interest,” they said in the statement. “They agreed that they could see a pathway to a possible deal.”

Eoin Treacy's view -

Boris Johnson has every incentive to make a deal since he gets to blame Theresa May for any of the unsavoury bits which are lumped in get it over the line. Meanwhile, he has to hold fast to his exit deadline to lend urgency to the negotiations. Every time optimism about a successful resolution improves the Pound rallies.



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October 09 2019

Commentary by Eoin Treacy

Video commentary for October 9th 2019

October 09 2019

Commentary by Eoin Treacy

Fed to Increase Supply of Bank Reserves

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

Rather than purchase longer-dated securities, Mr. Powell said officials are now contemplating buying shorter-dated Treasury bills. Officials believe holding long-term securities boosts the economy and financial markets by lowering long-term rates and driving investors into stocks and bonds. They think a portfolio weighted toward shorter-term securities provides less or no stimulus.

The Fed’s plan hasn’t been finalized, but Mr. Powell suggested would be ready by or before officials’ Oct. 29-30 policy meeting. The goal would be to rebuild the level of reserves in the system sufficiently above the low point of less than $1.4 trillion reached last month.

Eoin Treacy's view -

The demise of institutional prop trading and the requirement on banks to hold “Tier 1 capital”/government bonds mean there is no additional liquidity to contain spikes beyond the upper setting for repo rates. The Fed has no choice but to supply that liquidity.



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October 09 2019

Commentary by Eoin Treacy

Email of the day - on trading precious metals.

I would like to get inside your thinking about PMs and silver in particular. As I recall from your seminar, this chart demonstrates (somewhat bearish) lower highs and lower lows since early Sep, similar to say Feb_Mar. How far does it have to pull back to tell you "now is the time to buy"? 16 looks like a major area of support - is that your target? Could you sell at say 18-18.5, then buy back, or do you prefer to accumulate? Where do you look for clues on timing?

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The one thing I have learned in nearly 20 years of education in the markets is when trading precious metals, one needs to be prepared to be surprised. Let’s took at the technical picture in silver.



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October 09 2019

Commentary by Eoin Treacy

Tesla Can't Perfect Autopilot Without a Few Deadly Crashes

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

Key to her argument is an insight about how cars learn. We’re accustomed to thinking of code as a series of instructions written by a human programmer. That’s how most computers work, but not the ones that Tesla and other driverless-car developers are using. Recognizing a bicycle and then anticipating which way it’s going to go is just too complicated to boil down to a series of instructions. Instead, programmers use machine learning to train their software. They might show it thousands of photographs of different bikes, from various angles and in many contexts. They might also show it some motorcycles or unicycles, so it learns the difference. Over time, the machine works out its own rules for interpreting what it sees.

The more experiences they have, the smarter these machines get. That’s part of the problem, Kalra argues, with keeping autonomous cars in a lab until they’re perfect. If we really wanted to maximize total lives saved, she says, we might even put autonomous cars on the road while they’re still more dangerous than humans, to speed up their education.

Even if we build a perfect driverless car, how will we know it? The only way to be certain would be to put it on the road. But since fatal accidents are statistically rare—in the U.S., about one for every 86 million miles traveled—the amount of necessary testing would be mind-boggling. In another Rand paper, Kalra estimates an autonomous car would have to travel 275 million failure-free miles to prove itself no more deadly than a human driver, a distance that would take 100 test cars more than 12 years of nonstop driving to cover.

Eoin Treacy's view -

At a Berkshire Hathaway annual meeting a few years ago Warren Buffett stated the relentless upward trajectory of insurance premiums was partly driven by texting while driving. As the pungent aroma of cannabis wafts its way through the streets of California, and other US states, I would opine driving while high is another hazard that is likely to further increase actuarial calculations of risk.



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October 08 2019

Commentary by Eoin Treacy

October 08 2019

Commentary by Eoin Treacy

New Kind of Recession Threat Presents Problem for Powell and Fed

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

The unusual nature of the forces at play -- and the fact that many of them are geopolitical and emanate from abroad -- makes it more difficult for policy makers to decide how far to go in easing credit.

There’s even a question of how effective rate cuts will be in an economy where business executives fear such dire developments as the breakup of global supply chains.

Powell is expected to deliver his latest thinking on the outlook when he speaks to the National Association for Business Economics in Denver at 2:30 p.m. U.S. East Coast time on Tuesday. He said last week that despite some risks, the U.S. economy is in a “good place,’’ and that the Fed’s job is “to keep it there.’’

Eoin Treacy's view -

Mrs. Treacy’s containers arrived from China over the last few days and I spent most of this morning at Los Angeles port. I have been going to down to the customs warehouses twice a year for four years to help out in the business but also to get a feel for what activity is like at one of the country’s busiest ports of entry.



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October 08 2019

Commentary by Eoin Treacy

Markets Don't Want to Hear Goldman's Happy Talk

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

Multiple surveys show that traders and investors see the U.S.-China trade war as the biggest risk facing markets. Bank of America Merrill Lynch’s latest monthly poll of global fund managers, released in mid-September, revealed that the number of respondents who said trade tensions were the biggest danger outstripped by far those who cited ineffective monetary policy and the potential bursting of the bond bubble. In her first major address as head of the International Monetary Fund, Kristalina Georgieva said Tuesday that the global economy is in a synchronized slowdown, in part due to trade uncertainty. Also on Tuesday, the National Federation of Independent Business said its small-business sentiment index fell to near the lowest level of Donald Trump’s presidency. Even more notable was that the part of the index measuring “uncertainty” plunged to its lowest since February 2016.  “More owners are unable to make a statement confidently, good or bad, about the future of economic conditions,” the group said, with 30% of respondents reporting “negative effects” from tariffs. To cut to the chase, if businesses can’t forecast with any confidence, how can investors or strategists?

U.S. and China trade negotiators are scheduled to meet on Thursday to resume talks. What’s discouraging is that instead of making conciliatory comments, each side seems to be hardening their stances. Chinese officials said Monday that what isn’t on the table from China’s perspective — and never will be — are changes to its laws to protect foreign intellectual property. Later that day, the U.S. placed eight of China’s technology giants on a blacklist over alleged human rights violations against Muslim minorities. In response, China hinted that it might retaliate. Then the news broke that the Trump administration is moving ahead with discussions around possible restrictions on portfolio flows into China. None of this sounds like either side is ready to make a deal.

Eoin Treacy's view -

Political rhetoric amplifying ahead of the start of negotiations have been a trend that has evolved over the last year. Each of the other occasions has ended in disappointment and the market is now pricing in a similar conclusion to the upcoming talks.



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October 08 2019

Commentary by Eoin Treacy

US has fewer listed public companies than China

Thanks to a subscriber for this article by Robin Wigglesworth for the Financial Times. Here is a section:

Chalk one up for Beijing in its long battle with Washington: the US now has fewer listed public companies than China.

A spate of shelved and fizzling initial public offerings has recently cast a pall over the US equity market, with WeWork scrapping plans to sell shares after investors balked at its valuation and corporate governance structures.

Yet the number of listed US companies has been shrinking for more than two decades, as private equity firms and acquisitive companies have gobbled up many public groups. At the same time, ample venture capital and buoyant debt markets have allowed other fast-growing groups to stay private for much longer than in the past.

That has crimped the number of public American companies from a peak of more than 8,000 in 1996 to about 4,400 currently, according to data compiled by JPMorgan Asset Management.

Eoin Treacy's view -

Ultralow interest rates, abundant liquidity and increasingly onerous reporting requirements mean it is much less attractive to be a public company today in the USA than it used to be. For China it is more a story of trying to create additional funding avenues for companies beyond the government and state-owned banks.



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October 07 2019

Commentary by Eoin Treacy

October 07 2019

Commentary by Eoin Treacy

The Bond Market is the Biggest Bubble of our Lifetime

Thanks to a subscriber for this interview of Louis-Vincent Gave which appeared in themarket.ch. Here is a section:

On a global level, bonds with a value of about $15 trillion currently trade with a negative yield. What’s going on here?

For every investor today, the starting point must be the bond market. Just a few weeks ago, we had $17 trillion of negative yielding debt. We’re now down to about 15, but even that is way too much. This is investment money that is guaranteed to produce a loss of capital. These extreme levels in today’s bond market can only have three possible explanations. One, the world faces an economic meltdown of epic proportions. Two, the bond market is the biggest bubble we have ever witnessed, and three, we have just experienced a massive buying panic in bonds.

Eoin Treacy's view -

I agree with all three of these points so we then need to address the question of what will happen to deflate the bubble. The answer is inflation which is like kryptonite for the bond market. The only way anyone can justify buying bonds with a negative yield is if they believe the deflationary argument is self-fulfilling. 



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October 07 2019

Commentary by Eoin Treacy

Email of the day - on trading discipline

I have been in and out of this site since just before I was caned by GFC. I ought to feel bitter about loss of savings, however if I added up all of the suboptimal decisions in life, they might exceed a few spectacular dumb decisions 2005-2012 with a few too many zero's for comfort. I am fortunate that I have a great day job, so maybe I might get away with being a bit stupid. I have read some sad stories on this site - that speak to the difficulty of successful trading, and the high rate of failure amongst amateurs like me. I wondered what happened to the authors - did they just walk away? I value learning - have been to the chart seminar twice, and thought it very considered. The best bits for me were the insights into price behaviour, and that price/time only appears to be random; it’s just very hard to predict. 7 years ago, a subscriber asked on this site what was meant by trading discipline. I am sure you and many of your reader know; obviously I am still learning. I won't say what I think it means, but I now understand the value of a trading plan, and understanding market mechanisms. I haven't found the perfect trading guide, but I came across one recently that has helped me understand more about currency markets (and therefore all markets with leverage). It is well written, measured, not biographical but benefits from the author's market experience. So, I thought I would share it with you and your readers: it is a good read, and useful beyond a scope suggested by the title. Brent Donnelly. The Art of Currency Trading. I would be interested in what other subscribers think of its content, and any other recommendations that have had practical and positive effect on trading outcomes.

Eoin Treacy's view -

Thank you for this email and I am sorry to hear your trading record has not met your expectations.

In case there is any confusion, whenever I speak about trading discipline, the most important aspect is position sizing. Investors tend to be most bullish at major peaks and most bearish at lows. The best time to take profits, partial or otherwise, is when prices are widely overextended relative to a trend mean on the upside. The best time to think about initiating longs is following periods of weakness when there is evidence of support being found.

Thematic investing, where you can identify a compelling narrative and fundamental rationale, tends to deliver reasonably consistent trends where this kind of positioning is most attractive and likely to deliver investing success.



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October 07 2019

Commentary by Eoin Treacy

China Is Breeding Giant Pigs That Are as Heavy as Polar Bears

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

High pork prices in the northeastern province of Jilin is prompting farmers to raise pigs to reach an average weight of 175 kilograms to 200 kilograms, higher than the normal weight of 125 kilograms. They want to raise them “as big as possible,” said Zhao Hailin, a hog farmer in the region.

The trend isn’t limited to small farms either. Major protein producers in China, including Wens Foodstuffs Group Co, the country’s top pig breeder, Cofco Meat Holdings Ltd. And Beijing Dabeinong Technology Group Co. say they are trying to increase the average weight of their pigs. Big farms are focusing on boosting the heft by at least 14%, said Lin Guofa, a senior analyst with consulting firm Bric Agriculture Group.

The average weight of pigs at slaughter at some large-scale farms has climbed to as much as 140 kilograms, compared with about 110 kilograms normally, Lin said. That could boost profits by more than 30%, he said.

The large swine are being bred during a desperate time for China. With African swine fever decimating the nation’s hog herd -- in half, by some estimates -- prices of pork have soared to record levels, leading the government to urge farmers to boost production to temper inflation. Wholesale pork prices in China have surged more than 70% this year.

Eoin Treacy's view -

There is no cure of African Swine Flu and it is almost always fatal for pigs that contract the disease. That spread of the disease in China has put upward pressure on the price of pork and rebuilding the national herd is going to take at least a few years. That is assuming the necessary sanitation measures are taken to insulate the supply chain from cross contamination, which represents a significant additional cost.



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October 04 2019

Commentary by Eoin Treacy

LPO Memorial Concert in David Fuller's honour

Eoin Treacy's view -

A memorial will be held for David in the Level five function room, green side, at the Royal Festival Hall on Saturday October 5th, beginning at 5:30pm.

There will be about 20 minutes for everyone to gather and each of the people who have volunteered to speak will have about 4 minutes to do so.

The concert is due to begin at 7:30 PM

I do not believe it is necessary to have a ticket for the concert to attend the memorial. 



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October 04 2019

Commentary by Eoin Treacy

October 04 2019

Commentary by Eoin Treacy

California Dreamin'

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

Eoin Treacy's view -

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

The one thing we know is the consensus’ in markets seldom reach the worst or best predictions of investors. The rationale for MMT is compelling. The US government is already running a $1 trillion deficit in a boom and needs to pay for that with a large issuance of bonds. Since this is occurring before a crisis, investors logically conclude that trend has to continue in a linear manner. However, we have ample evidence of outcomes eventually working out much differently in reality.



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October 04 2019

Commentary by Eoin Treacy

Stocks Rally on Fed Bets as Jobs Calm Growth Fears: Markets Wrap

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

“This one comes in pretty close to neutral in terms of the slowdown. It’s not encouraging, it doesn’t look like a re-acceleration in growth, but it also probably puts at bay some of the fears that have come in around the ISM manufacturing and ISM services numbers,” said Luke Tilley, chief economist at money manager Wilmington Trust Corp. in Delaware. “This should make people and investors comfortable that we still have enough job growth to keep consumer spending on the positive side.”

Today’s job numbers followed a string of disappointing economic data this week that had fueled concerns a slowdown in manufacturing could spread to the consumer, and in turn ratcheted up bets that the Fed will reduce rates this month. The burst of rate-cut optimism helped snap a two-day losing streak that reached 3% in the S&P 500 Index Thursday.

Eoin Treacy's view -

The Nasdaq-100 posted a small upside key reversal yesterday from the region of the trend mean and followed through on the upside today. The primary Wall Street indices have been ranging between their trend means and their all-time peaks for much of the last four months and despite a great deal of negativity the potential for a breakout to new highs remains the base case.



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October 04 2019

Commentary by Eoin Treacy

Rare Earths Review Erbium: The Secret Sauce in 5G Networks?

Thanks to a subscriber for this report from Hallgarten & Company which may be of interest. Here is a section from the conclusion:

We sense that China’s Rare Earth advantage has been made vulnerable due to massive overexploitation over the last 30 years and the ONLY remedy is to cut back exports and start stockpiling material before the country becomes as dependent upon fickle outside forces in REEs as it is in Cobalt. This potentially sets the scene for a supply crunch outside China and no amount of WTO whining and appeals will stop the Chinese halting exports if it is deemed to be in the national interest.

We have previously called the Great Dysprosium Crisis of 2020, and now we add the Great Erbium Dilemma of 2021-24. These linked supply crunches will come as a “surprise” to the powers that be, both in China and outside. And yet the warning signs are there for everyone to see. The Adamas report on Dysprosium was a red flag, and now the more sotto voce alarm bells of Erbium are largely going unheeded as well. For those countries wanting to be players, or at least control their destiny, in 5G the hunt for Erbium must now be powered up.

Eoin Treacy's view -

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

It is reasonable, at least in my view to argue that China was able to export large quantities of rare earth metals when it was technologically backward but will have to consume more of its own supply as the technological capability of its economy improves. At a minimum it suggests the demand for rare earth elements is likely to remain on a growth trajectory.



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October 03 2019

Commentary by Eoin Treacy

October 03 2019

Commentary by Eoin Treacy

The Global Internet Phenomena Report

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

Google (Alphabet): YouTube, Google Cloud, Google Play, Google Search, Google Docs, Google Drive, DoubleClick, Gmail, and Crashlytics
Netflix: Netflix Video
Facebook: Facebook, Instagram, Facebook Video, WhatsApp, Facebook Messenger, Oculus Rift Microsoft: Xbox Live, Windows Update, Skype, Outlook 365, Office 365, SharePoint, OneDrive, Windows Store, LinkedIn
Apple: iTunes, iCloud, Apple Software Update, FaceTime, Apple Music, Apple.com, iCloud Photo Stream, Mac App Store

The brands with video traffic have a significant advantage on the downstream. Google (YouTube), Netflix, Facebook, and Amazon (Amazon Prime) have strong video offerings. Apple soon will, and Microsoft’s entry into gaming streaming (Mixer) will likely move them up this list if they can continue to recruit high profile gamers.

As shown in the chart, Google is #1 overall and on the upstream. The combination of YouTube, Google Search, and Google Cloud are the biggest contributors to the upstream traffic, as they are an integral part of any Android device’s experience.

Netflix is the #1 on the downstream and #2 overall as the only pure play in the bunch. As we mentioned last year, if Netflix was not the most efficient streamer at every resolution, their total could easily be twice what it is today, and they continue to excel in video codec work and efficiency in resolution downshifts and upshifts.

Google is also #1 on connections. This is a much more collaborative effort among Google apps. YouTube, Google Cloud Messaging, Google Search, Crashlytics, DoubleClick, and even Nest are the biggest contributors to Google connections per device.

Amazon: Amazon Prime, Twitch, Amazon.com, Alexa, Amazon Glacier, Amazon Music

When combined, these brands took up over 43% of all traffic volume on the internet: The details are interesting. Overall, Google edged out Netflix as the top consumer of bandwidth on the internet (as well as upstream) and dominated in the percentage of connections. Unsurprisingly, Netflix was the single largest consumer of traffic downstream, but Google was not far behind. This is confirmation that brands can build synergies, expand their business, and succeed. The obvious outlier in this case is Netflix, which does one thing and does it exceedingly well, albeit at very high volume. With new streaming services coming out from Facebook and Apple, with 4K and live streaming taking hold, these numbers might climb even higher next year.

Eoin Treacy's view -

The companies that dominate the internet have almost all adopted some form of the subscription business model. Their success in capturing the attention of hundreds of millions of consumers and the ad revenue and spending power that goes with it represent powerful cashflows. Their success also encourages competition and the evolution of new streaming services is a challenge to the early hegemony of some companies.



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October 03 2019

Commentary by Eoin Treacy

At Least 70 Countries Have Had Disinformation Campaigns, Study Finds

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

“The danger is the proliferation” of the techniques, he said. “Anybody who wants to influence the 2020 election may be tempted to copy what the Russian operation did in 2016.”

China’s emergence as a powerful force in global disinformation is one of the most significant developments of the past year, researchers said. The country has long used propaganda domestically, but the protests this year in Hong Kong brought evidence that it was expanding its efforts. In August, Facebook, Twitter and YouTube suspended accounts linked to Beijing that were spreading disinformation about the protests.

Philip N. Howard, director of the Oxford Internet Institute and one of the authors of the report, said that such online disinformation campaigns can no longer be understood to be the work of “lone hackers, or individual activists, or teenagers in the basement doing things for clickbait.”

There is a new professionalism to the activity, with formal organizations that use hiring plans, performance bonuses and receptionists, he said.

Eoin Treacy's view -

Social media became one of the primary venues for consuming news by accident and it has allowed a great many people find a voice. Unfortunately, it has also afforded governments the ability to shape public opinion both at home and abroad.



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October 03 2019

Commentary by Eoin Treacy

Pound Gets Boost From Thaw in Parliament Tensions

This note by Charlotte Ryan for Bloomberg may be of interest to subscribers. Here it is in full:

The pound rose to its highest level in over a week, with the currency getting a boost as Boris Johnson appeared to win the backing of Conservatives on both sides of the Brexit debate, according to strategists.

Sterling gains as much as 0.7% to $1.2388, after earlier dropping as much as 0.3%

“Sterling is as happy as Parliament seems calm today,” said CIBC head of G-10 currency strategy Jeremy Stretch. “On the basis of the talk in Parliament if the EU were to agree to the latest proposals that of course is more than a big if, then it would appear that Parliament would vote in favor”

Speaking with market participants, it seems “they sense the red lines are shifting,” said Neil Jones, head of currency sales for financial institutions at Mizuho Bank. “It’s a more upbeat tone from Boris Johnson and the EU added to some reference the ERG may agree whatever Johnson comes back with,” he added, referring to the group of Conservative euroskeptics

Eoin Treacy's view -

The UK’s parliament has voted repeatedly that they will not allow the government to push through a no deal Brexit. The only deal on the table is the one negotiated by Theresa May. Regardless of the fact that it represents membership of the EU in all but name, it still represents the most likely solution that has a chance of passing a vote in Parliament. If Boris Johnson can secure a deal of the Irish border it is likely to pass a vote in Parliament.



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October 02 2019

Commentary by Eoin Treacy

October 02 2019

Commentary by Eoin Treacy

Stocks Tumble, Bonds Climb as Slowdown Fears Mount

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

The hiring numbers pushed the 10-year Treasury yield lower for a fifth straight day as it pushed below 1.6%. The yen rose versus the dollar and gold spiked above $1,500. The equity rout spread to Europe, where the Stoxx 600 saw its biggest slide in 10 months and the FTSE 100 dropped the most since 2016. Oil fell below $53 a barrel after a report showed U.S. crude inventories increased.

The disappointing data out of the U.S. and Europe, as well as weak earnings reports from automakers this week, is forcing investors to reconsider their strategies. The most recent economic numbers are driving concerns that a slowdown, which had been mostly confined to manufacturing, may be spreading to the consumer amid the U.S.-China trade war. Those fears also increased bets that the Federal Reserve will cut rates this month. Focus now turns to services PMI data on Thursday and the nonfarm payrolls data on Friday.

Eoin Treacy's view -

The fear many people have is the debt issue which macro investors have been talking about over the last 18 months is eventually going to result in a problem where investors revolt at paltry yields relative to the risk.

The failure of bond auctions in Germany, Japan and US over the last couple of months, while glossed over the in press, suggest there is liquidity risk in the bond market. The spiking of repo rates and the requirement for the Fed to introduce, what is effectively, a standing repo facility also highlights illiquidity.



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October 02 2019

Commentary by Eoin Treacy

German Fiscal Stimulus Already Creeping In, Whatever Merkel Says

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

The government considers it’s still not clear whether Germany will plunge into a full-blown recession and, as a result, the full array of remedies may not need to be deployed.

Germany’s five leading research institutes slashed their forecasts for economic growth this year and next, citing trade tensions and Brexit weighing on German industry. GDP is to grow 1.1% in 2020 from a previous forecast of 1.8%, and 0.5% this year from an earlier prediction of 0.8%.

Traditionally, Germany shifts to high alert whenever the global economy looks to be slowing -- the country’s dependence on exports means that it tends to head south with the rest of the world. But with the domestic market still relatively robust and the ECB renewing monetary stimulus, Merkel’s economic team judges that this time the path toward recession is less certain.

On the down side, a prolonged trade war could eventually lead to a much bigger fallout than expected, according to another scenario being considered. That spurred the government to gradually increase investments and bolster the labor market as a preemptive and precautionary measure.

Finance Minister Scholz told ARD TV on Wednesday that economic forecasts are pointing toward a recovery and that there is currently no need for a stimulus program.

“We are well prepared because we have good financial resources and can react, should it really come to an economic crisis but so far it’s just slower growth,” Scholz said.

Eoin Treacy's view -

The bond market has been signallng for a while that all is not well in the global economy. The fact that just about all of Germany’s sovereign debt is trading with a negative yield is as much about the outlook for global growth as it is about the ECB’s negative interest rate policy. The Eurozone has been relying on the strength of the export sector to pull growth higher but the slowdown is exposing the absence of a clear domestic demand story to offset the slowdown in demand.

While clear signalling for the end of the austerity program remains unlikely, there is evidence of fiscal laxity creeping in all over the continent. Italy, France and Spain are already engaged in fiscal stimulus and it is only a matter of time before Germany deploys its balance sheet to support the economy.



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October 02 2019

Commentary by Eoin Treacy

The Seven-Year Auto Loan: America's Middle Class Can't Afford Its Cars

This article by Ben Eisen and Adrienne Roberts for the Wall Street Journal may be of interest to subscribers. Here is a section:

Just 18% of U.S. households had enough liquid assets to cover the cost of a new car, according to a Wall Street Journal analysis of 2016 data from the Fed’s triennial Survey of Consumer Finances, a proportion that hasn’t changed much in recent years.

Even a conservative car loan often won’t do it. The median-income U.S. household with a four-year loan, 20% down and a payment under 10% of gross income—a standard budget—could afford a car worth $18,390, excluding taxes, according to an analysis by personal-finance website Bankrate.com.

Eoin Treacy's view -

Tesla is likely to introduce a car with a battery capable of lasting for one million miles of driving. Having a car for long enough to come close to even a fraction of that distance could justify taking out a seven-year loan to fund the purchase but that misses the point. The aim is for those batteries to go into autonomous vehicles.



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October 02 2019

Commentary by Eoin Treacy

2019: The 50th year of The Chart Seminar

Eoin Treacy's view -

The London Philharmonic Orchestra is holding a concert in David’s memory on October 5th October at the Royal Festival Hall. There is a reception between 5.30 and 6.45 in the Foyle Pavilion, Level 3, Green Side and subscribers are well to join David’s family there for light refreshments. Following the reception, we will move to the Beecham Bar, Blue Side, Level 5 for a short talk by Tim Walker, Chairman of the LPO. 

If you wish to attend the concert as well, which includes a performance of Elgar’s Cello Concerto by the Young Musician of the Year, it begins at 7.30 and you may book tickets (£67) by telephone on 020 7840 4242 quoting the code Fuller Concert.

Since this is the 50th year of The Chart Seminar we will be conducting the event on October 3rd and 4th to coincide with the memorial on the Saturday.

In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Annual subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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October 01 2019

Commentary by Eoin Treacy

Video commentary for October 1st 2019

Eoin Treacy's view -

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

Some of the topics covered include: Renminbi weakens, US factory data disappoints but that increases potential for additional stimulus, Dollar eases, gold rebounds, oil weakens further, DAX downside key reversal, Brexit disillusionment potentially leads to opportunity 



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October 01 2019

Commentary by Eoin Treacy

Xi Says China's Rise Unstoppable in Face of Protests, Trade War

This article by Annie Lee, Peter Martin and James Mayger for Bloomberg may be of interest to subscribers. Here is a section:

President Xi Jinping declared that no force could stop China’s rise, exuding confidence during a key
anniversary as he faced unprecedented challenges from protesters in Hong Kong and Donald Trump’s trade war.

Speaking at the start of grand parade marking 70 years since the founding of the People’s Republic, Xi called for stability in Hong Kong, unity among Chinese ethnic groups, and the “complete unification” of the country. Xi delivered the remarks at the site where late Communist Party patriarch Mao Zedong proclaimed the nation’s founding on Oct. 1, 1949.

“Today, a socialist China is standing in the east of the world and there is no force that can shake the foundation of this great nation,” Xi told a crowd of carefully vetted guests under smoggy skies in the center of the capital. “No force can stop the Chinese people and the Chinese nation forging ahead.”
Xi’s rallying cry came before an hours-long pageant showcasing China’s industrial and scientific achievements, including sophisticated weaponry such as DF-17 ballistic missiles believed capable of circumventing U.S. defense systems.

The closely scripted proceedings sought to reinforce the strength of a party facing multiple threats, from the slowest economic growth in decades to violent unrest in one of Asia’s top financial hubs.

Eoin Treacy's view -

Sometimes I feel like a broken record always repeating the same point about China, but governance is everything. The ranks of apologists for tyranny continue to advocate strongly for China despite its record on human rights, the environment, intellectual property, corruption, censorship and a host of additional factors.

The one thing China has going for it, is its economic expansion. Investors will be willing to give it the benefit of the doubt provided the expansion persists. It will an entirely different narrative if China has a recession.



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October 01 2019

Commentary by Eoin Treacy

Australia Cuts Key Rate as Global Threats, Unemployment Rise

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

“Forward-looking indicators of labor demand indicate that employment growth is likely to slow from its recent fast rate,” Lowe said. “The economy still has spare capacity and lower interest rates will help make inroads into that.”

Meanwhile, the clouds gathering offshore are increasingly menacing: Global growth is slowing, dragged down by the protracted U.S.-China trade conflict; financial hub Hong Kong is racked by protests; key trading partners Japan and South Korea are locked in confrontation; Brexit is looming; and to cap it all, President Donald Trump could face impeachment proceedings.

Against that backdrop, Lowe wants to stoke the local economy hard to try to ensure its resilience. At 0.75%, the cash rate is close to the lower bound that he and Deputy Governor Guy Debelle estimate is around 0.25%-0.5%. Both have previously said they don’t expect to have to turn to bond buying and other alternative measures, as they wait and gauge the success of existing stimulus.

“The Reserve Bank is likely to cut again early next year,” said Callam Pickering, economist at global jobs site Indeed. “Bank officials are reluctant to discuss quantitative easing but it becomes a real possibility the closer we come to a cash rate of 0%.”

Eoin Treacy's view -

The Australian government is one of the only AAA rated sovereigns left and that financial firepower is quite likely to be utilised in further fiscal and monetary stimulus to blunt the effects of global tensions on the domestic economy. The challenge of high consumer debt and elevated property prices compounds the issue.



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October 01 2019

Commentary by Eoin Treacy

Bunging the EU billions of pounds for free shows the toxic ineptitude at the heart of May's Brexit deal

This article by Robert Rowland (MEP for the Brexit Party) for the Telegraph may be of interest to subscribers. Here is a section:

If you owned 16.1pc of the European Investment Bank (EIB) would you give it away free to the other wealthy members as you leave the EU? 

That’s what Philip Hammond, the former chancellor and his team of civil servants have done.
Hidden in Theresa May’s discredited Withdrawal Treaty, ex-Chancellor Philip Hammond (then also on the Board of Governors of the EIB) gifted it €7.5bn of taxpayer's money for no concessions.  He then accepted a 12-year repayment of €3.5bn with no interest, from a bank making €5bn profits in just the last two years.

The ultra-Remain ex-chancellor was prepared to leave the UK credit card open over a decade to ensure the EIB can continue to lend on non-commercial terms to the EU 27 at UK taxpayer risk.

The UK is also treaty-bound for another €36bn of “callable capital”.  This is money we will pay to underpin the EIB if the eurozone collapses. Additional toxic risk exposure comes through the EU Budget which guarantees €500bn of EIB loan note risk that we would be exposed to during any “transition”. It is a truly toxic trick, conjured up by Hammond and his team. 

But how did this happen?
Under May’s Withdrawal Treaty, the UK’s initial EIB capital contributions, mostly given in 1973, of €3.5bn – in today’s money roughly €35bn – can be repaid in 12 instalments of around €300m a year. 

Eoin Treacy's view -

This article provides a good example of the reasons why a substantial number of people believe the deal negotiated by Theresa May’s government is untenable. It gives up all of the UK’s primary negotiating points without demonstrating what concessions, if any were won in return.



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September 30 2019

Commentary by Eoin Treacy

September 30 2019

Commentary by Eoin Treacy

DRAM Production Growth Could Be Less Than Previously Forecast

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

When asked about the factors driving Micron's hiking of its calendar 2019 outlook for NAND demand growth -- Micron now expects industry-wide NAND bit demand to grow by a low-to-mid 40s percentage, up from prior guidance for mid-30s growth -- Zinser was quick to note the impact of rising smartphone storage capacities in the wake of healthy price declines.

And in line with earnings call comments made by CEO Sanjay Mehrotra, Zinser noted that lower NAND prices are lifting solid-state drive capacities and (in what's a negative for hard drive suppliers) attach rates. He indicated the data center is an area where price elasticity is especially boosting NAND demand.

In addition to hiking its NAND demand guidance, Micron cut its NAND industry supply (output) guidance amid ongoing capital spending cuts, forecasting NAND bit supply will only grow by about 30% this year. For 2020, Micron is guiding for NAND bit demand to grow by a high-20s to low-30s percentage, and for supply growth to be "somewhat below" demand growth.

Eoin Treacy's view -

The disappointing guidance Micron gave at its earnings call resulted in a sharp retracement of its overextension relative to the trend mean. However, that decline is occurring against the background of underperformance this year which has seen the share recoup less than half of last year’s decline.



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September 30 2019

Commentary by Eoin Treacy

The good news is the same as the bad news: This market looks just like 1998

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

A yield curve inversion? International weakness triggering a broad manufacturing slowdown? A potentially overconfident consumer and a Federal Reserve caught up in a brief interest-rate cutting cycle, regardless of steady GDP growth? And, of course, an impeachment inquiry.

Does this sound like a recipe for a strong fourth-quarter rally?

Well, in 1998, it sure was, says BTIG strategist Julian Emanuel, who points out the similarities between then and now are “too striking” to ignore.

In our call of the day, he suggests the pent-up caution that’s “bordering on pessimism” due to mounting political tensions at home and abroad could lead to an end-of-year run should outcomes prove more positive than expected.

“Similar to 1998, where stocks rallied for 18 months (advancing 68%) from the cyclical low to the point of maximum public bullishness, the 3/2000 ‘Tech Bubble Top,’” Emanuel explained in a note, “we expect the current four-month S&P 500 trading range to resolve with new all-time highs as the prospect of higher interest rates... results in fund flows to stocks and the public’s eventual embracing of the ‘most hated bull market of all-time.’”

Eoin Treacy's view -

The central banks of the world are sufficiently scared of a recession that they are willing to do whatever is necessary to sustain the current expansion. We already have a bubble in sovereign bonds and it is quite likely this cycle will eventually climax with a bubble in equities as well.



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September 30 2019

Commentary by Eoin Treacy

Gold Slumps to an Eight-Week Low as Dollar, U.S. Stocks Rall

This article by Yvonne Yue Li for Bloomberg may be of interest to subscribers. Here is a section:

A strengthening dollar and the rally in equities is spoiling the party for gold bulls. Gold futures tumbled to the lowest in almost eight weeks after the Trump administration partially refuted a report that it would target Chinese capital market. Speculation is mounting that Washington issued the statement to encourage Beijing to move closer to signing a deal with Washington, a strategist at R.J. O’Brien & Associates said.

Monday’s slump trimmed the precious metal’s fourth straight quarterly gain, the longest winning streak in eight years. Bulls are retreating after taking their net-long position in gold to the highest in government data going back to 2006.

The strength in the greenback “is the biggest headwind for gold right now,” Phil Streible of RJO said by phone from Chicago.
 

Eoin Treacy's view -

The point I find most interesting about the move we are seeing in gold is how similar it is in magnitude to what occurred in the early 2000s. The initial spike occurred in 1999 but it took about two and half years for the price to breakout to new highs. It subsequently rallied 18% from the breakout point and retraced the whole move, to test the upper side of the base, before trending higher in an impressive manner for the next nine years.



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September 27 2019

Commentary by Eoin Treacy

September 27 2019

Commentary by Eoin Treacy

Japan's Topix Set to Beat S&P 500 for First Time in Two Years

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

“Japanese stocks underperformed for a long time and their valuations were left as very cheap,” Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management Ltd. in Tokyo. “A correction in cheaper valuation stocks have occurred globally and Japanese stocks are the most prominent example for that.”

September has been good to the Topix, which is set for its best month since October 2015. Up until late August, the gauge was one of this year’s worst-performers among the 24 developed markets tracked by Bloomberg.

Norihiro Fujito, the chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, says Japan’s market is enjoying a “a typical return reversal.” Foreign investors may be taking profit on U.S. equities, while covering short positions on Japanese shares, he said.

Foreigners net bought 937 billion yen ($8.7 billion) of cash equities and futures in the week ended Sept. 13, according to Japan Exchange Group data. That was the fourth consecutive week of net buying.

Eoin Treacy's view -

The Topix Index (2.43%) currently yields more than the S&P500 (1.93%) which is both reflective of the compression in US yields but also the relatively high historical payout by Japanese firms.



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September 27 2019

Commentary by Eoin Treacy

White House Weighs Limits on U.S. Portfolio Flows Into China

This article by Jenny Leonard and Shawn Donnan for Bloomberg may be of interest to subscribers. Here is a section:

The arguments for action inside the Trump team vary from simply enforcing U.S. transparency laws and creating a level of reciprocity, to raising national-security concerns with some of the Chinese companies that American pension funds are exposed to, according to people familiar with the conversations.

Some of those companies are firms that the U.S. government has identified as bad actors or has imposed sanctions against. The argument continues that Americans would unlikely want to invest in those companies if they had the choice.

The market capitalization of the 156 Chinese companies, including at least 11 state-owned firms, listed on the three-largest U.S. exchanges — the NASDAQ, New York Stock Exchange and NYSE American — stood at a collective $1.2 trillion as of late February, according to a report by the U.S.-China Economic and Security Review Commission.

China earlier this month removed a $300 billion cap on overseas purchases of Chinese stocks and bonds meaning global funds no longer need to apply to purchase quotas to buy the assets. The move is designed to lure more foreign capital into Chinese markets.

Eoin Treacy's view -

The removal of the cap on QFII investments was largely moot since only about a third of the allocation was being used anyway. The point I have been making for years is the only incentive China has to open up its financial sector is to diversify its risk. Today’s most of the risk resides domestically. The only way China can expect to receive assistance from the rest of the world during a crisis is if that risk is shared. That is the only reason for opening up to the financial sector to overseas investment. Risk pooling is the most basic factor in insurance planning and that is what China is doing. It therefore makes logical sense to question whether it is wise to buy what they are now so desperate to sell?



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September 27 2019

Commentary by Eoin Treacy

13.5 tons of gold found in Chinese Ex Mayor's Basement

This article from crimerussia.com may be of interest to subscribers.

Police of the PRC searched the house of Zhang Qi, 57, the former mayor of Danzhou and found a large amount of cash, as well as 13.5 tons of gold in ingots in a secret basement of his home, reported local media.

In addition to the mayor’s post, the official held others, such as the Secretary of the Communist Party. According to unofficial reports, in addition to the gold, cash worth 268 billion yuan was discovered.

Luxurious real estate with a total area of ​​several thousand square meters, which the former city manager had been hiding for a long time, became the cherry on the cake for the Chinese Anti-Corruption Committee.

Eoin Treacy's view -

One of the most memorable quotes I’ve heard in China was back in 2011 when the communist official from a small town a couple of hours north of Beijing said to me “I’m only a small guy so I’m only a little corrupt”. His boss was the county head and the gift to attend his daughter’s wedding was a stack of CNY100 notes six inches tall. They were counting the money in cubic metres. Then think about the head of the head of a province like Hainan which is being developed as “China’s Hawaii”. From that perspective the monopoly money sums are still huge but do help to highlight just how engrained corruption is.



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September 27 2019

Commentary by Eoin Treacy

September 26 2019

Commentary by Eoin Treacy

September 26th 2019

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 steady, Dollar Index at new closing high, Euro weak, Treasuries steady, Peloton IPO flops, Saudi Aramco IPO in less than a month, China weak and commodity currencies extend downtrends, India steady, oil steady.



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September 26 2019

Commentary by Eoin Treacy

Chinese Tech Companies Turn to Financial Services

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

Hao Jianyu, 26, who works at Google in Beijing and owns a Xiaomi phone, says he holds credit cards from China’s four biggest banks but prefers taking out loans from Xiaomi Finance to fund his daily spending. He says daily interest on what he borrows is 0.065%, an annualized rate of 23.4%. That’s higher than the interest rate on his credit cards, Mr. Hao says, but he has been able to increase his credit limit much faster with Xiaomi. The more often he uses Xiaomi’s short-term loans and repays on time, the bigger his credit line, which now exceeds the limits on his credit cards. He says his credit limit from Xiaomi has increased to 60,000 yuan from a few thousand yuan over two years.

In a stock-exchange filing last year before Xiaomi went public, the Beijing-headquartered company said its finance business had a “highly advanced and customized credit assessment and risk management approach” that was built on its big database of users. The company said its proprietary risk-assessment model is used to preapprove individuals for certain amounts of credit. Xiaomi said in reporting its results for the second quarter of this year that revenue from its fintech business grew 63% from a year earlier to 792 million yuan ($112 million) in the three months through June.

Eoin Treacy's view -

China is attempting to implement countercyclical monetary policy. There is a bubble in the housing market and 50 million homes are vacant. Their consumer sector, particularly younger upwardly mobile generations have taken to credit like just about all new consumers in other countries before them.



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September 26 2019

Commentary by Eoin Treacy

The Navy Says Those UFO Videos Are Real

This article by Kyle Mizokami for popular Mechanics may be of interest. Here is a section:

That terminology is important. "Unidentified Aerial Phenomena" provides "the basic descriptor for the sightings/observations of unauthorized/unidentified aircraft/objects that have been observed entering/operating in the airspace of various military-controlled training ranges," Gradisher told The Black Vault.

In other words, the Pentagon says the aerial objects in the videos are simply unidentified, and for now, unexplained. The Navy is pointedly not saying the objects are flying saucers or otherwise controlled by aliens.

Earlier this year, the Department of Defense told The Black Vault that the videos were unclassified, but never cleared for public release, and that there had been no review process within the Pentagon for releasing them.

Eoin Treacy's view -

This is either a big piece of technological news or one of the best pieces of counter intelligence in recent times.



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September 26 2019

Commentary by Eoin Treacy

Peloton Deepens IPO Slump in 3rd-Worst Unicorn Debut Since '08

This article by Crystal Tse and Hailey Waller for Bloomberg may be of interest to subscribers. Here is a section:

Peloton Interactive Inc. fell as much as 9.5% Thursday after raising $1.16 billion in its U.S. initial public offering, becoming the latest unprofitable startup to fail to win over investors in its trading debut.

Peloton’s shares opened at $27 and were down 7.2% to $26.90 at 12:38 p.m. in New York trading, giving the company a value $7.5 billion. The fitness startup sold 40 million shares for $29 each on Wednesday, after marketing them for $26 to $29.

It marks the third-worst trading debut in 10 years in the U.S. for companies that have raised at least $1 billion, according to data compiled by Bloomberg. The IPO also comes as investors have been rattled by the sudden disintegration of WeWork’s plan to go public in September.

Peloton Chief Executive Officer John Foley said in an interview with Bloomberg Television that he had “some disappointment” about the reception but was confident in his company’s prospects.

Eoin Treacy's view -

The one point that seemed to get very little commentary in the lead up to this IPO was just how fad-prone the fitness industry is. Soul Cycle and spinning are all the rage at the moment. I personally go to at least two, if not three, hybrid cycling and toning classes a week. After 18 months of these classes I am starting to find them monotonous and that is a big challenge for a company that is trying to sell a range of workouts via phone or its enormously overpriced pieces of equipment. I just can’t see why someone would pay $40 to Peloton for online classes when they can pay the same or less at an LAFitness without the capital expense and space requirement of the exercise equipment.



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September 25 2019

Commentary by Eoin Treacy

September 25 2019

Commentary by Eoin Treacy

Machine Learning's "Amazing" Ability to Predict Chaos

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

“This is really very good,” Holger Kantz, a chaos theorist at the Max Planck Institute for the Physics of Complex Systems in Dresden, Germany, said of the eight-Lyapunov-time prediction. “The machine-learning technique is almost as good as knowing the truth, so to say.”

The algorithm knows nothing about the Kuramoto-Sivashinsky equation itself; it only sees data recorded about the evolving solution to the equation. This makes the machine-learning approach powerful; in many cases, the equations describing a chaotic system aren’t known, crippling dynamicists’ efforts to model and predict them. Ott and company’s results suggest you don’t need the equations — only data. “This paper suggests that one day we might be able perhaps to predict weather by machine-learning algorithms and not by sophisticated models of the atmosphere,” Kantz said.

Besides weather forecasting, experts say the machine-learning technique could help with monitoring cardiac arrhythmias for signs of impending heart attacks and monitoring neuronal firing patterns in the brain for signs of neuron spikes. More speculatively, it might also help with predicting rogue waves, which endanger ships, and possibly even earthquakes.

Eoin Treacy's view -

The trajectory of human development has largely been focused on the occasional appearance of a particularly gifted individual. Someone theorises what will be achievable in future and develops a mathematical formula which will take time to prove with physical experiments. The intervening period between the theory and reality has often been counted in centuries.

The advent of machine learning and artificial intelligence greatly accelerated that intellectual evolution. It represents a wonderful example of an enabling technology which will create productivity gains and new technology sectors out of nowhere.   



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September 25 2019

Commentary by Eoin Treacy

Blitzscale and Hope: Unicorns, IPOs and the Fear of Repeating the Late 1990s

Thanks to a subscriber for this report Epoch Investment Management Here is a section:

Eoin Treacy's view -

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

I share some sympathy with the view that there are some private companies that have the majority of their growth in their future and not in the past. There is a rational argument that most successful companies in the stock market today was a private company once upon a time so there are obviously going to be some successes.

However, what I find particularly interesting is the agonising over the lack of covenants in the debt markets and the surge in leveraged loans, yet there is has been precious little commentary on the growth in dual class shares and the diminution of minority shareholder interests.  



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September 25 2019

Commentary by Eoin Treacy

The History and Future of Debt

This report by Jim Reid for Deutsche Bank may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

Germany failed to sell a 2 billion zero coupon bond in August which was a precursor to the reversionary move seen in bond prices. However, the economy is recession and there is no prospect of the ECB raising rates. Instead quantitative easing will further increase the ECB’s holdings of regional sovereigns.

Richard Russell used to say “print or die” and that is exactly what the central banks of the world are going to do. What I find particularly interesting is the comparison with debt levels only being approximating current levels during wartime. That must mean we are in a war but this time it is with ourselves and the contention is about the ability to pay unfunded liabilities.



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September 24 2019

Commentary by Eoin Treacy

Video commentary for September 24th 2019

September 24 2019

Commentary by Eoin Treacy

How are the original leaders in this cycle doing?

Eoin Treacy's view -

Abundant, almost free capital, means there is money for just about every speculative venture. There have been a number of companies that would not ordinarily have been able to raise capital for their ideas but were able to do so because there was so much available capital. The companies that IPOed early are now some of the largest in the world while those that are still private are having difficulty going public.



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September 24 2019

Commentary by Eoin Treacy

Eoin's personal portfolio update

Eoin Treacy's view -

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



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September 24 2019

Commentary by Eoin Treacy

Financial Services Exports

I found this graphic from howmuch.net to be particularly interesting. The obvious point is the UK’s financial services is a major component of the global sector; second only to the USA.

September 24 2019

Commentary by Eoin Treacy

How We Should Bust an Investing Myth

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

According to PitchBook Data, 66 companies valued at $1 billion or more have done initial public offerings from 2011 through mid-September 2019. A third of those IPOs came at prices below the value set in the companies’ last round of private funding. Bloom Energy Corp. , Cloudera Inc., Domo Inc., Reata Pharmaceuticals Inc., and Zynga Inc. all launched IPOs priced at least 40% lower than the valuation in their final private-funding round, according to PitchBook.

Perhaps that’s because conventional valuation methods may overstate what private funds’ venture holdings are worth. Often, several share classes are valued equally even though they aren’t all entitled to the same payoffs.

Or perhaps the brilliance of the private market is overstated. Consider a recent survey of nearly 900 venture capitalists.

Asked whether they “often make a gut decision to invest” in a fledgling company rather than relying on analysis, 44% of venture-fund executives said yes.

Which financial metrics do they use to analyze investments? “None,” admitted 9% of respondents. Only 11% quantitatively analyze past investment performance. A similar survey of private-equity executives found that they “do not frequently use” the methods that are standard among public investors for discounting the future cash their holdings might generate.

Eoin Treacy's view -

The “vision thing” as Bill Clinton was wont to say is not a topic that submits readily to discounted cashflows. That is particularly true of angel investing where one is taking bets on companies with no earnings not to mind profits. However, an investor that is investing in a company with billions in earnings and still running billion-dollar losses has to know they are not in the same game as an angel investor. After the first or second round of funding, the only rationale for investing is the wish to sell to a bigger fool later unless one is luck enough to latch onto a lottery scale winner.



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September 24 2019

Commentary by Eoin Treacy

China Gives New Waivers for Tariff-Free U.S. Soybean Purchases

This article from Bloomberg News may be of interest to subscribers. Here it is in full:

The Chinese government has given new waivers to several domestic state and private companies to buy U.S. soybeans without being subject to retaliatory tariffs, according to people familiar with the situation.

The companies received tariff waivers for between 2 million to 3 million tons of American soy, said the people, who asked not to be identified as the information is private. Some firms have already bought at least 20 cargoes, or about 1.2 million tons, of the commodity from the U.S. Pacific North West on Monday, the people said.

Among the companies are state-owned buyers Cofco and Sinograin as well as five other crushers, the people said. China’s commerce ministry didn’t respond to a fax seeking comment.

Eoin Treacy's view -

China has a food price inflation problem which is not easily fixable because the plagues and pestilence which affected the tillage and animal husbandry sectors are chronic in nature. There have been efforts to try and source soybeans in particular from Brazil but there are just not enough to go around. As predicted in last night’s subscriber’s audio this action to buy more American agricultural exports was inevitable.



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September 23 2019

Commentary by Eoin Treacy

Video commentary for September 23rd 2019

Eoin Treacy's view -

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

Some of the topics discussed include: India cuts corporate taxes which boosts stocks, China imposes Communist officials in its companies which has the opposite effect, Germany heading to recession which increases fiscal stimulus potential, Silver surges, platinum and gold rally. oil and bonds steady, 



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September 23 2019

Commentary by Eoin Treacy

As Gold Prices Heat Up, Miners Play It Cool

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

Despite that optimism, gold miners say they aren’t planning the same sort of megaprojects and acquisition sprees that characterized the last ramp up in prices in the years ahead of 2011. Instead, wary of volatile prices, they plan to pay down debt and return money to shareholders.

Many companies, including the world’s largest gold miner, Newmont Goldcorp Corp., say they will only approve new projects if they can make money with gold at $1,200, about 20% below where the metal currently trades. Gold prices also have spent the majority of the eight years since 2011’s bust trading above that level, underscoring how conservative companies have become.

“We won’t push ahead with investments that would struggle to sustain themselves if the gold price trades lower,” said Kelvin Dushnisky, chief executive of AngloGold Ashanti Ltd. “This was a common mistake for many gold producers in the previous upcycle.” The South African miner, whose share price has risen 62% in the year to date, is among the companies sticking by the $1,200 threshold for new projects.

Eoin Treacy's view -

In the early part of a mining investment cycle, miners have been so scarred by the depth of the bear market that they run tight ships and eschew debt. However, the higher prices rise and the more pressure they come under to replace reserves and increase supply, the lure of debt, mergers and exploration increases leverage ratios.



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September 23 2019

Commentary by Eoin Treacy

Indian Stocks Jump for Second Day on Corporate Tax Cut Boost

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

Indian stocks rose for a second day on expectations that the government’s surprise $20 billion company tax cut will revive economic growth and boost company earnings. The S&P BSE Sensex jumped 2.8% to 39,909.03 at the 3:30 p.m. close in Mumbai, while the NSE Nifty 50 Index advanced 2.9%. Both gauges surged 5.3% on Friday, marking their biggest gain since May 2009, after the corporate tax rate was lowered to 22% from 30%.

Analysts increased earnings estimates for both measures by as much as 10% to factor in the lower tax burden. The government’s move follows a series of other measures unveiled over the past month aimed at boosting consumer demand and attracting investment.

Eoin Treacy's view -

Investors buy stocks rather than countries and a significant cut to corporate taxes is likely to provide the same boost to Indian shares as it did for US shares. The move brings India’s corporate tax rate into line with the Asian average rate and represents a clear fiscal stimulus for the wider economy.



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September 23 2019

Commentary by Eoin Treacy

China to place government officials inside 100 private companies, including Alibaba

Thanks to a subscriber for this article by Chloe Taylor for CNBC may be of interest to subscribers. Here is a section:

State media reported over the weekend that the Hangzhou Municipal Government would transfer 100 representatives to “key enterprises such as Alibaba, Geely Holdings and Wahaha.”

A full list of the 100 companies included in the initiative was not released.

The directive, which media said was part of the Hangzhou government’s “New Manufacturing Plan,” is reportedly an attempt to boost manufacturing and bolster the local economy in the eastern province of Zhejiang.

It is the latest strategy signalling the Chinese government’s efforts to transform the country’s economy. Its core strategy, Made in China 2025, aims to catch China up with its economic rivals in high-value industries such as robotics and aerospace.

Eoin Treacy's view -

This is not exactly new news. The trend of overt government involvement in the management and strategic thinking of the Chinese private sector has been underway for at least the couple of years.



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September 20 2019

Commentary by Eoin Treacy

September 20 2019

Commentary by Eoin Treacy

Round numbers and indecision

Eoin Treacy's view -

One would be forgiven for concluding that algorithms have been programed with round numbers in mind. Roundophobia has been a topic of conversation at The Chart Seminar for decades but it is particularly relevant now because so many instruments have paused in the region of big round numbers. I’m greatly looking forward to the next event which will be in London on October 3rd and 4th.



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September 20 2019

Commentary by Eoin Treacy

Design Options for an o/n Repo Facility

This note by Zolltan Pozsar for Credit Suisse may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

The Credit Suisse short-term interest rates (STIR) team have been way out in front of the Fed’s dilemma in needing to support the repo market while also being reluctant to expend its balance sheet. The clear risk is the Fed will have to settle for lower quality assets in order to control the size of its balance sheet.



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September 20 2019

Commentary by Eoin Treacy

Your Parents' Financial Advice Is (Kind Of) Wrong

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

The typical U.S. home now sells for more than four times the median U.S. income, according to the Joint Center for Housing Studies at Harvard University. Between 1980 and 1999, home prices were closer to three times household income.

• Given the savings rates of the millennial generation born between 1981 and 1996, rental-listing company Apartment List estimates that two-thirds of millennial renters would require at least two decades to save enough for a 20% down payment on a median-priced condo in their market. Just 11% would be able to amass a 20% down payment within the next five years.

• The upshot: Millennial households had an average net worth of about $92,000 in 2016, nearly 40% less than Gen X households (people born between 1965 and 1980) had in 2001, adjusted for inflation, and about 20% less than baby boomer households (born from 1946 to 1964) had in 1989, according to data from the Federal Reserve.

So it’s time to kill the idea that student-loan debt is always “good debt,” to admit that buying a house isn’t always the right move, and to refashion these old expectations. It’s time for a new playbook.

Eoin Treacy's view -

Student debt and the promise of progressive candidates to cancel it are potential election winners as the millennial demographic becomes more influential in US elections.



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September 19 2019

Commentary by Eoin Treacy

Video commentary for September 19th 2019

Eoin Treacy's view -

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

Some of the topics covered included: Brexit resolution increases chances of UK valuation arbitrage closing. Nikkei eases with Yen strength, Wall Street steady, Australian Dollar eases but market steady, Hong Kong weak, gold stable, 



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September 19 2019

Commentary by Eoin Treacy

EU's Juncker Thinks Brexit Deal Can Be Reached by Oct. 31

This note by Nathan Crooks for Bloomberg may be of interest to subscribers. Here is a section:

European Commission President Jean-Claude Juncker thinks a Brexit deal can be reached by Oct. 31, Sky News reported, citing an interview to be broadcast on Sunday.

Juncker warned that a no-deal Brexit would be “catastrophic” for Britain and the EU

“I’m doing everything to have a deal, because I don’t like the idea no deal,” he said, declining to specify if the chance of reaching a deal was above or below 50%

“If the objectives are met, all of them, then we don’t need the backstop”

Eoin Treacy's view -

The only way to get close to what you want in a negotiation is to make your counterparty believe you are willing to walk away. It is still uncertain whether Boris Johnson has achieved that goal but the odds are looking up.



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September 19 2019

Commentary by Eoin Treacy

Bank of Japan Hints at Possible Action in October

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

“If I am asked if I feel more favorably about additional easing compared with the previous meeting [in July], my answer is yes,” Mr. Kuroda said at a news conference. “There is no sign of recovery in overseas economies.”

He added, “Even if we consider additional easing, I don’t think it’s necessary to change the current framework” of monetary policy, which includes setting a target yield for 10-year government bonds—currently zero—and buying riskier assets such as stocks.

Inflation has been running below 1% recently, short of the BOJ’s 2% target. The BOJ said in its policy statement that it needs to pay closer attention to “the possibility that momentum toward achieving the price stability target will be lost.”

“It is sort of a notice that the bank is going to take additional easing action,” said Hiroshi Ugai, an economist at JPMorgan in Tokyo and a former BOJ official.

Mr. Ugai said the BOJ would likely move next month, but might hold off if markets are calm or if it is having trouble assessing the impact of an Oct. 1 increase in the national sales tax to 10% from 8%.

Eoin Treacy's view -

The Yen has been weakening since hitting a new rally high in August but today’s announcement and the subsequent market reaction suggests some disappointment at the tepid response of the Bank of Japan. Investors remain of the opinion that the Japanese economy needs a weaker currency to drive competitiveness and are unlikely to support a short Yen/long equity play until they have clear evidence of how large a central bank assistance program will be.



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September 19 2019

Commentary by Eoin Treacy

Examining Inequality: How Geography And Gender Stack The Deck For (Or Against) You

This report from the Bill & Melinda Gates Foundation may be of interest to subscribers. Here is a section on India:

There is yet another way that policies designed around the JAM trinity are empowering the poor—by making government more accountable. For example, with the new cooking gas subsidy, government officials in 640 Indian districts receive daily progress reports on PAHAL, including enrollment, cash transfer, and error rates, so they can identify and address problems as soon as they arise.

Various states are also experimenting with ways to proactively solicit citizens’ input whenever they interact with government. In one state, for example, beneficiaries receive an automated call soliciting feedback on the quality of the service: Was the customer treated courteously? Did she receive the benefits she expected? Did she receive them without having to pay a bribe? Negative responses roll over into a human system to generate formal complaints.

On its own, the JAM trinity doesn’t do much. It needs to be paired with smart, pro-poor policies and services built around digital technology. Even then, digitally powered policies and services by themselves won’t end poverty and gender inequality. They need to be accompanied by analog reforms like changing discriminatory laws and policies. When all these pieces come together, though, the status quo can change fast.

Eoin Treacy's view -

Inequality is likely to be the defining debate of the next decade. For one group the discussion is about equality of opportunity and allowing each individual the freedom to pursue their creativity to further human development.

For another group it is about protecting the rights of the downtrodden from the overzealous oppressive protectionism of the elite. For this group the only answer is redistribution of rewards so everyone can start at a similar level.  



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September 18 2019

Commentary by Eoin Treacy

Video commentary for September 18th 2019

September 18 2019

Commentary by Eoin Treacy

Traders Still See Another Quarter-Point Fed Rate Cut by Year-End

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

Futures traders still see about another quarter-point of easing from the Federal Reserve this year, after the central bank cut rates on Wednesday and said it will “act as appropriate” to sustain the economic expansion.

The rate on the January 2020 fed funds futures contract was about 1.63% after the central bank’s announcement. The dot plot accompanying the statement shows policy makers’ median projections are for interest rates to remain on hold this year and next, but the balance of views has shifted more dovishly.

Judging by this level, traders still expect one more cut in either of the Fed’s two remaining decisions this year -- on Oct. 30 and Dec. 11. This estimate of the market’s pricing assumes that the effective funds rate moves toward the middle of the Fed’s new target range of 1.75% to 2%.

Eoin Treacy's view -

The Fed’s balance sheet is belatedly started to expand once more as the liquidity demands of the economy and Treasury market pressure the central bank to provide the funds necessary to ensure an orderly market. That is the most basic requirement for central banks, but the requirement has been exaggerated by the shrinking of investment and commercial bank balance sheets over the last decade. That suggests even without quantitative easing there is a clear need for the Fed to expand its balance sheet.
 



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September 18 2019

Commentary by Eoin Treacy

Ethereum, XRP, and Litecoin Lead Alt Season 2.0

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

But as the saying goes, this time may be different. Altcoins are bouncing from long-term support, and the rallies are showing exceptional strength, and are even continuing to rally while Bitcoin struggles with overhead resistance – something not seen for much of 2019.

Ethereum has been leading the charge, with as much as 20% growth. XRP , one of the worst-performing crypto assets of 2019, has also gained around 20% even as sentiment surrounding the altcoin hits an all-time low.  EOS and Dash are also up by a similar margin.

Litecoin, Cardano, Tron, Tezos and IOTA, and others from the top 20 crypto assets by market cap are also up by about 10% or more. Stellar, which has plummeted further and further throughout the bear market spiked by 40%.

The boom in altcoins is due to extremely oversold conditions, and a breakdown in Bitcoin dominance – a metric that weights the king of crypto against the rest of the market. But depending on the type of formation that BTC dominance is in, it could spike back up, wiping out any gains altcoins have seen during this rally.

Eoin Treacy's view -

Historically, when silver rallied it was a good lead indicator for what one might expect from gold. That did not prove the case on this occasion not least because there was such widespread disillusionment with the precious metals sector. Gold rallied first and silver played catchup. In the cryptocurrency markets bitcoin has tended to be the go-to market. When it rallies impressively, speculation on which alt-coin will play catchup tends to stoke demand for the smaller markets. The opposite appears to be happening on this occasion.



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September 18 2019

Commentary by Eoin Treacy

FedEx Plunges After Slashing Forecast on Trade War, Slowdown

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

“In reality, FedEx’s release is largely the result of many management missteps over the years, including overspending on aircraft despite weaker returns in Express over the long-term, and acquisition debacles,” he said in note to investors.

Trade-War Impact
The U.S.-China trade war has weighed on manufacturers, disrupting a key market for FedEx. A surge in industrial jobs seen in the first two years of Trump’s presidency has reversed in parts of the country, and there’s evidence that some corners of the U.S. economy are sliding toward recession. Companies have slowed business investment and capital expenditures as uncertainty over trade policies has clouded the outlook for future growth.

For FedEx, the weaker outlook underscored the hurdles as the company introduces costly changes to its ground network to handle surging e-commerce deliveries while contending with rising competition from Amazon.

Eoin Treacy's view -

Amazon is now a larger shipper of items than either UPS or Fedex within the US market, from a standing start a couple of year ago. UPS still ships items for Amazon but that business is declining while Fedex is attempting to forge relationships with upstarts in the warehousing sector like Deliverr and Shopify. If the share price is any guide that latter strategy is in its infancy at best. Meanwhile it has been my experience that Fedex is successfully. competing on price for international bulk shipping business to Amazon’s European warehouses.



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September 17 2019

Commentary by Eoin Treacy

Video commentary for September 17th 2019

Eoin Treacy's view -

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

Some of the topics discusesd include: Fed had to intervene to provide liquidity in the report market, expansion of the balance sheet is no longer a choice, stock markets steady, oil pulls back, precious metals steady gold shares rally, China weak, Europe steady, UK mid caps break out, Pound firm, Dollar eases. 



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September 17 2019

Commentary by Eoin Treacy

Unhinged Money Markets Trigger Fed Action to Alleviate Stress

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

“There’s been a sea change in markets, and it’s one the Fed needed to respond to,” said Lou Crandall of Wrightson ICAP. “In the current market environment, there is just not enough elasticity in the repo market to handle the big seasonal swings of the banking system. The Fed needed to come in now and alleviate the immediate problem, while it is also working on long-term solutions.”

The Fed has considered introducing a new tool, an overnight repo facility, that could be utilized when needed to reduce pressure on key money market rates, but no decisions have been announced.

The New York Fed declined to comment on the events of this week.

Actions like the Fed took Tuesday were once commonplace, but stopped being so when the central bank expanded its balance sheet and started using a range of rates to implement its policy in the aftermath of Lehman Brothers’ 2008 collapse.

Securities eligible for collateral in the Fed operation include Treasuries, agency debt and mortgage-backed securities. In an overnight system repo, the Fed lends cash to primary dealers against Treasury securities or other collateral.

Eoin Treacy's view -

Bank balance sheets are not what they used to be. One of the primary results of the heavier regulations imposed on the sector since the financial crisis has been to cut the primary investment banks out of risk taking. That is impeding their ability to provide liquidity when the market needs it and is likely to result in the Federal Reserve intervening more often to assist.



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September 17 2019

Commentary by Eoin Treacy

Wall Street May Get $40 Billion Reprieve From Trump Regulators

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

The margin demand, implemented in 2015, has tied up $39.4 billion, according to industry estimates. That’s prompted major swap dealers, such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc., to make the rule’s elimination a lobbying priority.

It would likely be months before regulators scrap the margin requirement. That’s because once the FDIC and other agencies issue their proposals, the public will have an opportunity to submit comments before a final rule could be put in place.

Republican lawmakers have supported banks on the issue. Some House Democrats have also backed the change, telling regulators in a June letter that they should allow lenders to free up the “large and increasing amount of unusable, locked-up collateral.”

Eoin Treacy's view -

In the aftermath of a crisis, regulations are tightening because of the vindictive wish to punish wrong doing but also to ensure the same mistakes are not repeated. However, the result is less risk taking. That does not have much of an effect in the early stages of a recovery because opportunities are plentiful. However, as an expansion matures it depends on the availability of ever more capital and credit to sustain itself. That leads to quite reasonable requests to relax strictures that are now deemed to be overly onerous. Leverage therefore increases, greater risks are taken and the trend persists for a while longer.



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September 17 2019

Commentary by Eoin Treacy

China Stocks Fall, Yuan Weakens as Central Bank Holds Loan Rate

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

China’s central bank drained funds from the financial system and kept the one-year rate on medium-term loans steady on Tuesday morning, a move analysts said shows it’s sticking with its prudent approach to stimulus. That’s even after data Monday signaled the economy slowed in August, with industrial output, retail sales and fixed-asset investment rising less than anticipated.

“Investors now realize the central bank won’t ease its monetary policy as aggressively,” Zhang Gang, a strategist with Central China Securities Co. “The market was due for a pullback after the Shanghai index climbed above 3,000-point level. Turnover failed to keep up.”

Eoin Treacy's view -

China’s government is more worried about a property bubble than a growth slowdown. it would be tempting to think they have reached the conclusion that massive money printing only helps to inflate asset prices and does not deliver quality growth which is capable of sustaining the economy during tough times. On the other hand perhaps they have an inflationary problem and don't want to exacerbate it. 



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September 16 2019

Commentary by Eoin Treacy

Video commentary for September 16th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: fallout from the Saudi Oil refinery attack, Crude oil jumps, oil services and producers rally, defense sector rallies, cyclicals remain on a recovery trajectory, Treasuries stable, Wall Street quiet, Dollar firm, Japan steady, China steady



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September 16 2019

Commentary by Eoin Treacy

Aramco Said to Face Weeks Without Majority of Abqaiq Output

This article by Anthony DiPaola, Will Kennedy and Javier Blas for Bloomberg may be of interest to subscribers. Here it is in full:

Saudi Aramco faces weeks or months before the majority of supply from the giant Abqaiq plant is restored after this weekend’s devastating aerial attack, according to people familiar with matter.

Aramco is still assessing the state of the plant and the scope of repairs, but the state oil company currently believes less than half of the the plant’s capacity can be restored quickly, the people said, asking not to be identified before an official announcement. It’s a more pessimistic outlook than Aramco had immediately after the incident, they said.

All eyes are on how fast the kingdom can recover from the weekend’s devastating strike, which knocked out roughly 5% of global supply and triggered a record surge in oil prices. The loss of Abqaiq, which handles 5.7 million barrels of oil a day, or about half of Saudi production, is the single worst sudden disruption to the oil market.

Aramco, the world’s largest exporter, is currently supplying customers from its stockpiles, but is asking some buyers to accept different grades. President Trump has said he’s ready to release oil from the U.S. Strategic Petroleum Reserve to ensure ample supply.

Saudi Arabia is also starting idle offshore fields to replace some of the lost production.

Eoin Treacy's view -

Let’s lay out the questions. The first is just how much geopolitical risk is present and has that been under appreciated by markets? The second is the Khurais field is about equidistant from the border with Iraq and Yemen so how did these drones penetrate air space without being intercepted. The third is what is likely to do well as a result of these events?



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September 16 2019

Commentary by Eoin Treacy

China's Economy Slows Again, Adding Pressure for Policy Action

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

Industrial output rose 4.4% from a year earlier in August, the lowest for a single month since 2002, while retail sales came in below expectations. Fixed-asset investment slowed to 5.5% in the first eight months, with the private sector lagging state investment for the 6th month.

The data add support to the argument that policy makers’ efforts to brake the slowing economy aren’t sufficient as the nation grapples with structural downward pressure at home, the risk of yet-higher tariffs on exports to the U.S. and now surging oil prices. Nomura International Ltd. said this all raises the likelihood that the People’s Bank of China will cut its medium-term lending rate on Tuesday.

Eoin Treacy's view -

China’s monetary and fiscal policy arms are walking a tight wire between overstimulating the property market, which already has bubbly characteristics, versus trying to support flagging growth in the industrial sector which is hurting from the global slowdown and the trade war. The devaluation of the Renminbi is a partial solution but there is a clear need for more conclusive action to support the economy not least because a weaker currency stokes inflation for such a large commodity importer.



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September 16 2019

Commentary by Eoin Treacy

Fast Strike Against GM Breaks Years of UAW Negotiating Tradition

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

“I think that they were just very impatient in this round of negotiations,” said Marick Masters, a management professor and the director of Wayne State University’s labor studies program.

But there’s a flurry of complicating factors in ongoing negotiations. Union leadership is under increased scrutiny as federal prosecutors continue to unravel a sprawling culture of corruption among former UAW leaders and negotiators.

There also was a strong sense inside and outside the union that a strike was likely, Masters said. Such an outlook could have contributed to the speed with which the strike was called, according to the professor.

“It’s hard to say how far apart they are,” Masters said of the UAW and GM. “But I get the feeling that they are pretty far apart. So you hope that they come to their senses pretty soon. But it certainly has the makings to go on for a very long time with the caveat that when reality sets in, they’re probably going to want to sit down and see what they can do to bring things back together.”

Eoin Treacy's view -

Workers are increasingly agitating for a bigger piece of the pie as stocks close in on all-time new highs and the cost of living increases. That is contributing to the potential for inflationary pressures to reappear despite the widespread fear of deflation that has pervaded sovereign bond markets this year.



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September 13 2019

Commentary by Eoin Treacy

September 13 2019

Commentary by Eoin Treacy

Crops Surge as China Moves to Increase U.S. Farm Purchases

This article by Millie Munshi and Michael Hirtzer for Bloomberg may be of interest to subscribes. Here is a section:

China is encouraging companies to buy U.S. farm products, and will exclude them from added tariffs. Many crop prices are heading for their best week since at least June on optimism that Beijing and Washington are inching toward a deal. The year-long trade spat has undercut farmer profits and boosted debt levels in the U.S. as Chinese demand fell off.

There was evidence of fresh Chinese buying Friday as the U.S. government reported 204,000 tons of soybeans sold to the Asian nation, the first such announcement in more than two
months.

“We are hopeful that this apparent gesture of goodwill by China leads not only to more sales of U.S. pork, but that it contributes to a resolution of U.S.-China trade restrictions,” said David Herring, a North Carolina hog farmer and president of trade group National Pork Producers Council.

Eoin Treacy's view -

The balance of the trade war hangs in how much domestic damage can be tolerated versus damage inflicted on an adversary. Food price inflation for China may be of a more urgent dilemma than the trade war at present. China is nowhere near being self sufficient in soy and the scourge of African swine flu has destroyed the domestic pig industry. Since pork is the staple protein for a significant proportion of the population that represents an issue not least as prices surge.



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September 13 2019

Commentary by Eoin Treacy

Sturdy Sales, Confidence Show U.S. Consumer Holds Up as Pillar

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

Spurred by a resilient labor market and income gains, the consumer remains the chief source of firepower for economic growth that’s slowed amid fragile global demand, uncertainty surrounding trade policy and lackluster factory output. The report suggests another solid quarter of household consumption, which grew in the April-June period at the fastest pace since 2014.

“At a time when recession risk dominates most economic discussions, the strength of the U.S. consumer is among the more compelling examples of an economy that is still firing on all cylinders,” Tim Quinlan, senior economist at Wells Fargo Securities LLC, said in a report.

Eoin Treacy's view -

The consumer has been largely shielded from the inflationary pressures of the trade war by the lack of duties on imported apparel and some other manufactured goods. That is now changing with new tariffs on these goods being implemented and the wholly domestic factor of rising health insurance costs pushing inflation higher.



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September 13 2019

Commentary by Eoin Treacy

It's A Fish-Eat-Fish World Scientists Want To Change That

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

“If we take any more fish out of the ocean—what we call wild-caught—then literally the ecosystem could collapse,” said Alan Shaw, the chief executive of Calysta, a Menlo Park, Calif.-based startup that is among the first companies to use bacteria to convert natural gas into protein that can be used as an alternative fish feed. Calysta operates a factory in northeast England where its bacteria feed on methane producing single-cell proteins that are dried and packaged into pellets it calls FeedKind.

The company announced a $30 million investment from BP in June, which gave the British energy giant the right of first refusal to supply natural gas to Calysta’s future factories. It already had a partnership with Thai Union, an Asian seafood giant, which says trial shrimp grown on Calysta’s bacterial protein taste the same as those fed traditional diets that include fish.

Eoin Treacy's view -

Fish farming remains a growth business with leverage to both the growth of the global consumer and the need to substitute global fish stocks with additional supply in order to feed all those people. Additionally, the desire to consume more protein and more “heart healthy” fats is on a growth trajectory.



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September 13 2019

Commentary by Eoin Treacy

September 12 2019

Commentary by Eoin Treacy

Video commentary for September 12th 2019

September 12 2019

Commentary by Eoin Treacy

Draghi Faced Unprecedented ECB Revolt as Core Europe Resisted QE

This article by Jana Randow for Bloomberg may be of interest subscribers. Here is a section:

The unprecedented revolt took place during a fractious meeting where Bank of France Governor Francois Villeroy de Galhau joined more traditional hawks including his Dutch colleague Klaas Knot and Bundesbank President Jens Weidmann in pressing against an immediate resumption of bond purchases, the people said. They spoke on condition of anonymity, because such discussions are confidential.

Those three governors alone represent roughly half of the euro region as measured by economic output and population. Other dissenters included, but weren’t limited, to their colleagues from Austria and Estonia, as well as members on the ECB’s Executive Board including Sabine Lautenschlaeger and the markets chief, Benoit Coeure, the officials said.

Eoin Treacy's view -

The competition to influence the replacement of Mario Draghi as head of the ECB is heating up. Verbal opposition to the policies announced today came from a number of the countries who were contenders in the race for the top job. Proving your verbal commitment to monetary prudence is almost a pre-requisite in some countries, regardless of the reality once in office. 



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September 12 2019

Commentary by Eoin Treacy

Trump Advisers Considering Interim China Deal to Delay Tariffs

This article by Jenny Leonard and Shawn Donnan for Bloomberg may be of interest to subscribers. Here is a section:

The proposal also would be an interim deal, which would freeze the conflict, rather than bring a final resolution to a trade war that has cast a shadow over the global economy. U.S. stocks advanced on the news.

The plan reflects concerns within the White House over the recent escalation in tariffs and their economic impact on the U.S. going into an election year. Polls show the trade war is not popular with many voters and farmers are increasingly angry over depressed commodity prices.

Eoin Treacy's view -

The one thing any politician wants is to win re-election to prove that the first victory was not a mistake and to cement their legacy as a winner. If the USA enters a recession ahead of the election that greatly endangers President Trump’s re-election chances. The market has already reached that conclusion which is one of the primary reasons stocks have remained within striking distance of all-time highs over the summer.



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September 12 2019

Commentary by Eoin Treacy

A new study tracks the surge in Chinese loans to poor countries

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

Loan talks with Belarus; funding for bridges in Liberia; a possible gas project in Timor-Leste; accusations of exploitation in Tanzania; a corporate dispute in India; pledges to support the Rwandan private sector. And that was just the past few weeks. Such is the frenetic pace of China’s overseas lending that its outstanding loans have risen from almost nothing in 2000 to more than $700bn today. It is the world’s largest official creditor, more than twice as big as the World Bank and IMF combined. Yet tracking the money is hard because of limited transparency in its disclosures.

A new study by Sebastian Horn and Christoph Trebesch of the Kiel Institute for the World Economy and Carmen Reinhart of Harvard University offers the most comprehensive picture yet of China’s official credit flows (including state-owned banks). It adds to concern about whether China has sowed the seeds for debt problems abroad. They find that nearly half of China’s lending to developing countries is “hidden”, in that neither the World Bank nor the IMF has data on it.

Eoin Treacy's view -

Ken Griffin is still swooping on trophy properties. investors are bidding up the value of private assets to unimaginable levels but that has been less successful recently following the WeWork haircut and dismal performance of Uber and Lyft.  Classic car auctions were hitting all-time highs earlier this year but the latest total for the Monterey auctions was down 34% on last year.



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September 12 2019

Commentary by Eoin Treacy

Jeffrey Gundlach Says U.S. on Pre-Election 'Recession Watch''

This article by Suzy Waite and John Gittelsohn for Bloomberg may be of interest to subscribers. Here it is in full:

The likelihood of U.S. recession before the 2020 election has grown, based on changes in the Treasury yield curve, according to Jeffrey Gundlach, the billionaire money manager and chief executive officer of DoubleLine Capital.

“We should be on recession watch before the 2020 election,” Gundlach said Thursday in London. “We’re getting closer but we’re not there yet.”

The odds of a U.S. recession before the election are 75%, said Gundlach, whose Los Angeles-based firm oversees more than $140 billion, reiterating a prediction he made in August.

The best signal of a recession is not an inverted yield curve, the money manager said. “It’s the inversion occurring and then going away.”

Yields on 2-year Treasuries exceeded those on 10-years in August, forming an inversion, before flipping back this month.

In other comments, Gundlach said:

* He’s turned “neutral” on gold, one of his previously recommended investments. “It’s had a big run.”

* The U.S. and China are unlikely to reach a long-term trade pact before the presidential election.

* It’s a “terrible time” to bet on U.S. housing and homebuilder stocks because of high inventory and weak demand.

Eoin Treacy's view -

The US yield curve spread inverted in August and is now mildly positive. The peculiarity of the spread is it is a reliable lead indicator for US recessions, but the corresponding spread does not provide a reliable lead indicator for other markets even though the rationale for why it should lead is the same.



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September 11 2019

Commentary by Eoin Treacy

Video commentary for September 11th 2019

Eoin Treacy's view -

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

Some of the topics covered include: bonds continue to decline from deep overbought conditions,Wall Street firms, led by technology and other cyclicals, gold steadies, oil encounters resistance in the region of the trend mean. Euro weakens and Dollar Index rebounds impressively from intraday lows. ECB rate decision tomorrow.  



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September 11 2019

Commentary by Eoin Treacy

As the Ice Age turns bond yields deeply negative, what happens next?

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

Eoin Treacy's view -

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

The Federal Reserve in particular has stated it is aware of the risks to the economic expansion and is willing to do what is necessary to ensure it persists. This is quite different from what Alan Greenspan was saying in 1998 when he made his irrational exuberance speech.



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