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May 18 2021

Commentary by Eoin Treacy

Video commentary for May 18th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar testing the lows of a long-term range versus many currencies, Bund yields rise, accelerated trends unwinding overenthusiasm in all asset classes, gold steady, oil eases. ASEAN picking up interest. 



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May 18 2021

Commentary by Eoin Treacy

Eurozone in Double-dip Recession as Mediterranean Economies Risk Another Lost Summer

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

But Robert Alster at Close Brothers Asset Management warned of a divide between industrial economies in the north and tourist-reliant nations in the south, despite the start of UK tourism to Portugal. This could spark a return to the two-speed Europe which raised questions over the stability of the bloc after the financial crisis.

Mr Alster said: “The risk now is that the north/south divide continues to widen. Germany’s economic growth is not far behind the UK’s, with its vaccination programme set to overtake, whereas Spain’s economy has been hardest hit,” he said.

“The northern countries have benefited from strong manufacturing growth, with the US and China driving global demand, whereas the Southern countries are on tenterhooks to see whether the European tourism season can go ahead.”

Two consecutive quarters of contraction mean the currency area is officially in recession again, despite not fully recovering from the initial shock of Covid.

GDP remains more than 4pc below its pre-pandemic peak at the end of 2019.

Employment fell by 0.3pc in the first quarter of 2021, meaning the number of people in work is still almost 3.6m below its pre-Covid level.

Jack Allen-Reynolds at Capital Economics said the jobs market should soon start to recover too, but that the rebound in hiring will probably be quite slow.

He said: "Many firms will be able to raise output by increasing employees’ working hours before they start taking on more staff."

Eoin Treacy's view -

Europe and the USA adopted very different methods of supporting the economy during the pandemic. The USA favoured giving direct support to workers by boosting unemployment benefits. Europe favoured supporting companies so they would not fire large numbers of workers. Both sets of policies have resulted in unintended consequences.



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May 18 2021

Commentary by Eoin Treacy

Averting Climate Crisis Means No New Oil or Gas Fields, IEA Says

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

Reducing emissions to net zero -- the point at which greenhouse gases are removed from the atmosphere as quickly as they’re added -- is considered vital to limit the increase in average global temperatures to no more than 1.5 degrees Celsius. That’s seen as the critical threshold if the world is to avoid disastrous climate change.

But it’s a path that few are following. Government pledges to cut carbon emissions are insufficient to hit “net zero” in the next three decades and would result in an increase of 2.1 degrees Celsius by the end of the century, the IEA said.

“This gap between rhetoric and action needs to close if we are to have a fighting chance of reaching net zero by 2050,” the agency said. Only an “unprecedented transformation” of the world’s energy system can achieve the 1.5 degrees Celsius target.

The IEA’s road map appears to be at odds with climate plans laid out by Europe’s top three oil companies -- BP Plc, Royal Dutch Shell Plc and Total SA. They all have targets for net-zero emissions by 2050, but intend to keep on seeking out and developing new oil and gas fields for many years to come.

“No new oil and natural gas fields are needed in our pathway,” the IEA said. If the world were to follow that trajectory, oil prices would dwindle to just $25 a barrel by mid-century, from almost $70 now.

Eoin Treacy's view -

Many of the oil majors have significantly reduced plans for additional new supply already. That decision was as much about the price structure as it was about appeasing the increasingly powerful green lobby. Today, the European oil companies in particular are attempting to reorient towards becoming utilities to boost their green credentials.



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May 18 2021

Commentary by Eoin Treacy

SGD Gains as Stock Rally Outweighs Virus Fear

This note from Bloomberg may be of interest to subscribers.

The Singapore dollar gains as buoyant Asian equities outweigh concern over the spread of coronavirus infections in the city state.

USD/SGD falls 0.2% to 1.3335 after closing up 0.3% on Monday
MSCI AC Asia Pacific Index advances 1%
Govt bonds gained across the curve on Monday, with the 10-year yield down 2bps to 1.52%
HSBC sees more room for underperformance of SGD rates versus USD rates over the next few days, according to a note on Monday

FX swaps and front-end SGD rates have shifted higher as tighter social distancing measures reduced the odds that the Monetary Authority of Singapore would tighten its currency policy stance later this year

The highly transmissible strain of Covid-19 that surfaced in India has become more prominent among Singapore’s growing number of unlinked cases
An air travel bubble between Singapore and Hong Kong has been delayed
The World Economic Forum canceled the annual meeting it was planning to hold this August in Singapore

Eoin Treacy's view -

The US Dollar has been ranging against the Singapore Dollar for six years and is now testing the lower side. Meanwhile the Straits Times Index has also been ranging for a long time. The correlation between the two assets is hardly a coincidence. If the Dollar declines, the bank-heavy Singapore market with capacity for dividend growth and a 3% yield becomes more attractive.



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May 17 2021

Commentary by Eoin Treacy

Video commentary for May 17th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: cryptocurrencies had a tough weekend, gold resurgent, gold miners break their downtrend, mega cap stocks continue to underperform, Dollar on cusp of breaking lower which supports non-US assets, 



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May 17 2021

Commentary by Eoin Treacy

Square Halts Bitcoin Purchases After Loss, Financial News Says

This note from Bloomberg may be of interest to subscribers.

Jack Dorsey’s Square is not planning on buying more bitcoin for its corporate treasuries after losing
$20m on a $220m investment in the cryptocurrency last quarter, Financial News reports, citing CFO Amrita Ahuja.

* Bitcoin represents about 5% of Square’s cash on hand
* NOTE: Square Revenue More Than Triples, Driven by Bitcoin Sales
 

Eoin Treacy's view -

Fans of any asset will buy all day, all week and all month as long as they are making money. When they stop making money, they might think about selling, but they first stop buying. That action removes a significant source of demand from the market.



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May 17 2021

Commentary by Eoin Treacy

Gold Miners Rise With Prices on Weaker Dollar, Inflation Worry

This note from Bloomberg may be of interest to subscribers.

Earlier, gold was buoyed by signs that money managers and exchange-traded fund investors are turning more positive on the precious metal
Gold spot price was up as much as 1.3%, silver +2.8% intraday; U.S. Dollar Index (DXY) fell as much as 0.2%
Precious metal miners intraday gainers include HL which rose as much as 15%, EDR CN +11%, GGD CN +11%, CDE +8.9%, FR CN +7.4%, K CN +6.1%, FVI CN +6.5%
Goldman said in a note that “gold tends to perform well when realized inflation is elevated and rising, while the dollar suffers, especially as the Fed stays on hold”
Meanwhile, copper miners also got a boost as price climbed on Monday, lifted by concerns of supply disruptions in Chile and signs that Chinese demand is picking up
Some of the copper/base metals miner that gained intraday include TKO CN, FCX, FM CN
TECK also gained, which was partially helped by rise in coal equities on higher natgas prices

Eoin Treacy's view -

Negative real interest rates are the primary secular tailwind for gold prices. With inflationary measures ramping higher and central banks reluctant to raise rates, the negative real interest rate environment is being supported by that policy.



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May 17 2021

Commentary by Eoin Treacy

Email of the day on India's demographics

You say that India has a significant demographic tailwind, taking the consensus view that that is an investment plus; one that is embedded in so many analyses on India. For a challenge to this listen to the Meb Faber interview with Vikram Mansharamani, 50 minutes in for 5 minutes, on his take on India and why in fact the demographics are a head not a tail wind: https://www.youtube.com/watch?v=cM40JZ3NSNk&t=30s

Eoin Treacy's view -

Thank you for this link and the discussion raises a large number of questions. There are two that I think are particularly relevant. The first is on the assumed ubiquity of the bullish India story and the second is the continued dominance of capital over labour.



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May 14 2021

Commentary by Eoin Treacy

May 14 2021

Commentary by Eoin Treacy

McDonald's, Amazon Accelerate Push Toward Higher Minimum Wage

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

McDonald’s Corp. announced Thursday it will raise hourly wages by about 10%, bringing the average wage at its restaurants to more than $13 an hour. Chipotle Mexican Grill Inc. said earlier this week it will set hourly starting wages at $11 to $18. Target Corp. and Costco Wholesale Corp. have increased theirs to $15 and $16, respectively.

McDonald’s is hiring 10,000 new employees at its company-owned stores over the next three months alone, and Walmart Inc. brought half a million people on board last year. Chipotle is hiring 20,000 workers across the U.S., and Target needs workers for the 30 to 40 stores it will open this year.

Amazon.com Inc. also upped the labor market ante Thursday by announcing plans to hire 75,000 people in the U.S. and Canada at starting pay that will average more than $17 an hour. New employees will get hiring bonuses of $1,000 and those fully vaccinated for Covid-19 will get additional $100.

Eoin Treacy's view -

The year over year change in average hourly wage growth has been massively distorted by the pandemic. It surged in 2020 because fewer people were working, and those that were got pay rises. It then plummeted to historic lows because the current growth is on par with what was witnessed a year ago.



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May 14 2021

Commentary by Eoin Treacy

Email of the day on investment trust resources from Jonathan Davis

Knowing the interest that some of your subscribers have in investment trusts, they might be interested to know that in addition to publishing the Investment Trusts handbook each year (this year's out in December will be the fifth edition), I have been hosting a regular weekly podcast devoted to keeping up with all the news from the investment trust sector which has proved pretty popular - we are now up to 1400 listeners a week. I do it with Simon Elliott, one of the best and certainly the most articulate of the investment trust analysts in London. He is the head of investment trust research at Winterflood Securities. Oh and it is free of course!

More info at www.money-makers.co, where I also offer a modestly priced newsletter with a couple of model portfolios I report on that roughly mirror my own investing.

Hope all is well in your empire. Not sure how you fit it all in....!

Eoin Treacy's view -

Thank you for your kind words and this informative email. Your podcast is a trove of information on investment trusts and well worth the time to tune in. Investment trusts are certainly an interesting sector and not least because of the potential to buy attractive assets at a discount and to sell at a premium.



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May 14 2021

Commentary by Eoin Treacy

Email of the day on copycat crypto offerings

Excuse my ignorance but is Dogecoin the same animal as Shiba Inu crypto? Shiba is a breed of Japanese dog ("inu") but frankly, I'm more than a bit confused (despite Eoin's clear and enlightening description of the phenomenon) by the entire cryptocurrency story. To me it smells of...tulips.

Eoin Treacy's view -

Thank you for this question. Shiba Inu coin is a copycat coin for Dogecoin. They are not related projects. There are valid comparisons between cryptocurrencies and the tulip mania but perhaps not in the way people think.



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May 14 2021

Commentary by Eoin Treacy

Email of the day on the free daily email

“Appreciate your daily comments very much! But you know that we don’t get any email alerts anymore?"

Eoin Treacy's view -

Thank you for this email. Unfortunately, the server we used for the free daily email has crashed, potentially irretrievably, and we are currently working on fixing the problem. Getting the free daily email up and running again is a priority but it is not a simple fix.



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May 13 2021

Commentary by Eoin Treacy

Video commentary for May 13th 2021

May 13 2021

Commentary by Eoin Treacy

Bitcoin Falls Below $50,000 as Musk Calls Energy Use 'Insane'

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

“Surely he would have done his diligence prior to accepting Bitcoin?” said Nic Carter, founding partner at Castle Island Ventures, and a leading voice among defenders of Bitcoin’s energy use. “Very odd and confusing to see this quick reversal.”

Musk’s decision in February to buy $1.5 billion in Bitcoin and plan to accept it as a form of payment has been a major catalyst in the crypto bull market. In the eyes of analysts, it helped add legitimacy to the token and usher in new investors.

Musk’s crypto tweets have often been in jest, and his attention toward Dogecoin brought the joke token into the mainstream. He’s quipped about being the “Dogefather” in the past, and tweeted on Tuesday, “Do you want Tesla to accept Doge?”

Eoin Treacy's view -

The cognitive dissonance of a clean energy visionary also promoting one of the most carbon dependent endeavours has obviously begun to weigh on Elon Musk. It may also be convenient to argue against bitcoin if he is helping to promote alternatives which certainly appears to be the case with Dogecoin.



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May 13 2021

Commentary by Eoin Treacy

Email of the day - on China's growth potential

That some manufacturing will move to other parts of Asia makes sense (especially as Chinese labour costs rise)

But the comparison some make with Japan needs to take account of the facts that:

a) Even now only 60% of the Chinese population is urbanised (93% for Japan)

b) Output per capita must still be much lower than advanced countries so they can also catch up in that? Most developing countries have the constraint that they don't have the capital to invest for that but lack of capital is not China's constraint.

Eoin Treacy's view -

Thank you for this email which raises some important points. The base effect helps to spur economic growth for frontier markets because small improvements tend to have big effects on economic potential for poor countries. Obviously, the larger a country becomes, the greater the challenge to maintain high growth rates. That’s where China is today.



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May 13 2021

Commentary by Eoin Treacy

Over 700 Barges Stuck in Mississippi River From Bridge Crack

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

“The river is the jugular for the export market in the Midwest for both corn and beans,” said Colin Hulse, a senior risk management consultant at StoneX in Kansas City. “The length of the blockage is important. If they cannot quickly get movement, then it is a big deal. If it slows or restricts movement for a longer period it can be a big deal as well.”

The New Orleans Port Region moved 47% of waterborne agricultural exports in 2017, according to the U.S. Department of Agriculture. The majority of these exports were bulk grains and bulk grain products, such as corn, soybeans, animal feed and rice. The region also supports a significant amount of edible oil exports, such as soybean and corn oils and even attracted 13% of U.S. waterborne frozen poultry exports in 2017.

Eoin Treacy's view -

Cracks in pieces of critical regional infrastructure are not encouraging. It’s another example of how much need for infrastructure replacement there is. The massive infrastructure development in the post World War 2 era boosted economic growth for decades but many countries grew complacent to the need for constant renewal and maintenance. Large numbers of roads, railways, dams, power plants and pipelines are reaching the end of their anticipated lives.



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May 13 2021

Commentary by Eoin Treacy

May 12 2021

Commentary by Eoin Treacy

Video commentary for May 12th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: stocks and bonds fall together spurs volatility bets as inflationary fears are priced in. Semiconductors follow innovation stocks lower, bitcoin weak, gold eases back, oil stable.value outperforms growth amid risk-off sentiment.



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May 12 2021

Commentary by Eoin Treacy

The Days of Low Treasury Yields Are Numbered

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

Today, there’s ample reason to expect a positive term premium to return. For one, the Fed has a new, more patient monetary policy stance. As a result, inflation will be higher and more variable — a risk that must be compensated with higher long-term yields. Also, keeping inflation in check will require a higher peak fed funds rate, reducing the risk that the Fed will again get pinned at the zero lower bound. Beyond that, deficit financing is expanding the supply of government bonds: Treasury debt outstanding has quadrupled since 2007, and the Biden administration is seeking to add several trillion dollars more. Meanwhile, one big source of demand for the bonds is set to dwindle as the Fed phases out its asset purchases, most likely next year.

Putting the pieces together, one can expect a 10-year Treasury yield of at least 3%: The 2.5% floor set by the federal funds rate, plus a term premium of 0.5% or more. But that’s not all. The Fed says it wants inflation to exceed its 2% target for some time, to make up for previous shortfalls. This, in turn, could stoke inflationary fears and lead markets to expect a higher path for future short-term rates. As a result, the 10-year Treasury yield could more than double from the current 1.6%. And if persistent deficit financing prompts concern about growing U.S. debt, the yield could go to 4% or higher.

Anyone who has been in finance for less than a decade has rarely seen 10-year Treasury note yields above 3%. So what’s coming could, for many, be quite a shock. The secular bond bull market that began nearly 40 years ago is finally ending.

Eoin Treacy's view -

US job openings now far exceed the pre-pandemic peak. At the same time credit card balances are declining even as debt loads are increasing. Meanwhile the unemployment rate is holding at 6%.

The conclusion is simple. Households are buying capital goods like houses and cars, that do not require credit cards, because they are flush with cash. Companies are desperate for workers, but unemployed people are in no hurry to take up offers. The reality is the stimulus enacted in the first quarter was overly generous and has created economic disincentives. It exacerbated bottlenecks and enhanced consumer perceptions of rampant inflationary pressures.



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May 12 2021

Commentary by Eoin Treacy

May 12 2021

Commentary by Eoin Treacy

No Relief in Sight for World's Soy Supply Crunch, U.S. Says

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

“Something has to give,” Scott Irwin, a professor at the University of Illinois said by phone. “Either we have to find more planted acres, we have to get lucky with summer weather, or the price has to go high enough to ration usage lower than projected.”

Crop markets have skyrocketed amid record Chinese demand and rising consumption as economies recover from the pandemic. More evidence of China’s strong appetite for farm commodities emerged this week with further purchases of U.S. corn. Weather concerns persisting in major producers like Brazil also risk further straining global supplies.

The relentless rally across crop markets has stoked worries over rising food bills at a time when many consumers are still struggling from the fallout of the Covid-19 pandemic. The United Nation’s monthly gauge of global food prices has climbed for 11 straight months.

There is a scenario in which the supply crunch could see some relief.

“If we don’t see a major weather problem from September all the way through June of next year, then we should see maybe new crop prices remain below the average that we’ll probably realize for the current marketing year,” said Terry Reilly, senior commodities analyst at Futures International LLC in Chicago.

Eoin Treacy's view -

Soybean supply is dominated by the USA and Brazil. Demand is focused on Chinese consumption and cooking oil demand everywhere. The pandemic hit restaurant demand last year so there were fewer acres planted, and the surge in demand this year has resulted in a supply shortfall. US drought conditions eased over the last week which is good for crops but the Brazilian drought remains ongoing.



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May 12 2021

Commentary by Eoin Treacy

Romania Holds EU's Highest Rates as Economy Trumps Inflation

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

The central bank is switching to a “wait-and-see mode,” Commerzbank analyst Alexandra Bechtel said. “The rate-cut cycle is complete.”

The jump in inflation has brought to an end a run of four reductions in the benchmark during the pandemic.

That easing helped fuel an economic revival: Economic growth outshone the rest of the EU in the last quarter of 2020. The expansion has added to upward price pressures that are mainly being driven by higher global energy costs and the liberalization of the domestic electricity market.

With borrowing costs stable, central bank Governor Mugur Isarescu has said he may make the national currency’s exchange rate more flexible to keep inflation in check without choking the nascent economic recovery.

Eoin Treacy's view -

MSCI’s Eastern Europe ex-Russia index was last updated in 2016. Generally speaking, when esoteric benchmarks are abandoned, it is because investment demand has evaporated. The ETF issuance business is driven by fashion and momentum. The incremental cost of creating new funds is low and success is measured by the number of assets they attract. When a sector falls out of favour ways to invest in it disappear.



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May 11 2021

Commentary by Eoin Treacy

Video commentary for May 11th 2021

May 11 2021

Commentary by Eoin Treacy

China's Surging Factory Prices Add to Global Inflation Risks

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

The widening gap between CPI and PPI “suggests an uneven recovery of the economy,” said Raymond Yeung, chief China economist at Australia & New Zealand Banking Group Ltd. “Despite the commodity boom, the service sector has yet to catch up.” 

Wages are lagging and the central bank will likely keep its policy stance “largely neutral,” he said. The People’s Bank of China is seeking to scale back the stimulus it pumped into the economy during the pandemic last year, worried by the build up of debt. Economists expect policy makers to slow the pace of credit expansion rather than raise interest rates. The Communist Party’s Politburo, China’s top decision-making body, said last month there won’t be any sharp reversal of macroeconomic policies. China aims to keep consumer inflation at around 3% this year, but an NBS official said in a recent interview that the headline index is expected to be “significantly lower” than the official target in 2021.
 

Eoin Treacy's view -

China exported deflation to the world by producing goods at lower prices than anywhere else for years. The interconnectedness of the global economy means that if inflation does return as a trend, it will not only occur in one country but will be a global phenomenon. That suggests the world’s relationship with China and what happens inside China will have a strong bearing on the outlook for longer-term inflation.



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May 11 2021

Commentary by Eoin Treacy

Agronomics to raise GBP50 million to invest in "cultivated meat"

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

The net proceeds of the fundraising will be used to finance further investment into current portfolio companies and projects, investment in new opportunities within the "cultivated meat" sector and development and commercialisation of intellectual property where Agronomics holds an interest.

"Agronomics has expanded rapidly over the past two years, and this financing will further accelerate its growth," said Non-Executive Chair Richard Reed.

"We anticipate it will provide the full funding to support our existing portfolio companies through their next financing rounds, while also giving us sufficient capital to pursue acquisitions of new investments in this exciting field as it enters into what we expect will be a multi-decade growth phase," added Reed.

Eoin Treacy's view -

The renewable energy sector did spectacularly well in the run-up to the oil price and credit availability peaks in 2007. There was a great sales pitch that an energy revolution was underway and renewables would take over. However, at the time the inability of the companies to breakeven was a major headwind. The rationale for owning the sector was heavily influenced by the comparison with oil. When oil prices fell, the sector collapsed.



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May 11 2021

Commentary by Eoin Treacy

Coinbase Global

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

We want to make it clear upfront that our recommendation heavily rests on our long-term positive view toward the disruptive nature of crypto, particularly on cross-border money transfers, payments infrastructure and tokenization. That said we do recognize, based on the limited trading history of COIN on the public exchange, the stock could be quite volatile driven by bitcoin price and newsflow. In the near term, we don’t foresee this high volatility would disappear even though it could abate. Therefore, we believe COIN is well suited for long-term-oriented investors who could tolerate near-term volatility.

Based on our experience covering this space and talking to investors, some investors sell crypto stocks after, say a miserable five-day bear run. This is partly driven by the generally accepted notion that it is difficult to: 1) predict the revenue/earnings trajectory; and 2) estimate the valuation of the stock with high confidence, at least at this early stage of the crypto development. Note, we are not asking investors to hold crypto stocks after a bad run, rather we urge investors to exercise additional caution before investing in crypto names. Again, we reiterate that COIN is not a stock for everyone, in our view. Another observation dug from its limited trading history is COIN tends to slide along with a rapid drop in bitcoin price. While there is merit to question COIN’s long-term revenue outlook if bitcoin price continues to go down for a long time, we think it is more reasonable to assume that volatility of bitcoin and other crypto actually spurs trading volume, and in turn revenue growth for COIN.  

Eoin Treacy's view -

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

The cryptocurrency sector is wide and varied with a large number of competing offerings. As the sector gains popularity, the number of tokens available for trade increases in an exponential fashion; right along with speculative interest. That suggests cryptocurrency exchanges are a viable way to gain access to the sector without going through the technical education required to buy and hold tokens.



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May 11 2021

Commentary by Eoin Treacy

May 11 2021

Commentary by Eoin Treacy

May 10 2021

Commentary by Eoin Treacy

May 10 2021

Commentary by Eoin Treacy

Email of the day - on rising inflationary pressures

I am building a garage-workshop (2,200 sq ft) at my home in Arizona, in a mid-sized community (100,000 population spread out in 4 towns) which is experiencing the most rapid growth in its history, thanks to the socio-economic disaster in the state to our West (California). About 1,000 new homes are being constructed this year, with 9,000 additional already authorized by the county. Similar growth rates are happening in many other desirable parts of the country, like Austin, Texas and Boise, Idaho. 

My project is competing with this construction frenzy, and I am experiencing substantial delays in construction as high-quality contractors are beset with material delays and cost overruns, plus a labor market dramatically harmed by government handouts coupled with high labor demand. Real inflation should be measured using real facts and versus longer-term averages, not the current crap methods...

This article includes a letter from the CEO of a metal roofing manufacturing company - who does not mention (but maybe should have) how hard it is (read soon to be more expensive) to get and retain qualified employees... which I would add to the article to round out what it says...

[I believe the article can be freely republished with attribution.]

https://wolfstreet.com/2021/04/26/forget-2-inflation-with-margins-forcefully-squeezed-big-companies-are-raising-prices-and-point-at-massive-inflation-overshoot/

Eoin Treacy's view -

Lumber, iron ore and copper prices have accelerated higher as investors binged on supply inelasticity trades. Prices are now getting to points where substitution demand is evolving. I priced the cost of a new kitchen hood cover over the weekend. It is now only marginally more expensive to have it done in stone than wood.

I’m reminded of the craze for adorning London’s landmark buildings with pineapples in centuries past. Limited supply creates demand but also incentivises new supply to come to market.



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May 10 2021

Commentary by Eoin Treacy

Email of the day on shipping investment vehicles:

Further to your longer-term theme review on Fri., the Collective might want to consider this new shipping fund launch.

Eoin Treacy's view -

Thank you for this press release which may be of interest to subscribers. Here is a section:

The seed portfolio consists of 23 Handysize and Supramax ships, which are all fully operational and income-generating, and are expected to be purchased soon after the listing. According to the intention to float document published today, these classes of vessels have historically demonstrated average annual yields over 7%.

That will enable the investment company to target an initial dividend yield of 7% in its first year. Once fully invested, the fund managers will target a total return including dividends from the underlying portfolio of 10-12% per annum.

The seed assets have an estimated average remaining life of 17 years. Of the 23 ships, 17 are already under the commercial management of Taylor Maritime, while the rest are being sourced from vendors with established relationships with the managers. About $24m worth of the seed assets will be acquired in exchange for shares in the new fund, issued in consideration.



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May 10 2021

Commentary by Eoin Treacy

Pound Surges 1% as Risk of Imminent Scotland Referendum Recedes

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

Then there’s the prospect of another divisive campaign, and issues over Scotland’s future currency, the state of its finances, EU membership and the border with England coming to the fore again. That’s something many in Scotland remain unwilling to get into again.

“We haven’t demonstrated that we have the capability,” said Rachel Martin, 63, a bank worker in Glasgow, which as a city voted for independence seven years ago when the country as a whole rejected it. “I haven’t seen the politicians answer the questions that weren’t answered at the last referendum that we had.”

Sturgeon may need the political capital she’s been accruing since taking over as Scotland’s first minister and SNP leader following the 2014 vote to stay in the U.K.  

Eoin Treacy's view -

Scotland voted for the status quo in both the independence referendum and the Brexit referendum. The demise of the Labour Party is a bigger story than the success of the Scottish Nationalist Party in many respects. During a time of economic and political strain people favour revolutionaries because they offer change. Labour’s vision has calcified and that has left a political vacuum which the SNP has filled. However, that does not mean Scotland is ready to approve independence when so many questions about what the new country would look like remain unanswered.



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May 07 2021

Commentary by Eoin Treacy

May 07 2021

Commentary by Eoin Treacy

Secular Themes Review May 7th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

After a crash everyone is wary. We all seek to learn lessons from our most recent experience because it is the only way to help us emotionally move past the trauma. Coming out of the pandemic most investors wished they had sold everything at the first sight of virus news in early 2020 and bought everything back again following the crash. Today they are worried that there is another big shock waiting around the corner that will cause a repeat of pandemic panic.

The challenge for investors is less to learn from the most recent mistake but rather to know when to deploy the lessons learned. The best time to be wary about a massive decline is when no one is worried about it. The time to take precautionary action is when it seems like a waste of time and when you are most afraid of giving up on the potential for even better gains. That’s the best time to remember the experience of the crash but the interval of time and the positive reinforcement of experience in an uptrend make it difficult.



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May 06 2021

Commentary by Eoin Treacy

May 06 2021

Commentary by Eoin Treacy

Video commentary for May 6th 2021

May 06 2021

Commentary by Eoin Treacy

Kellogg Gains Amid Unexpected Organic Sales Growth in 1Q

Kellogg shares rose as much as 3.9% to $65.50 premarket, which would be the highest intraday level since November, after the packaged food company surprised analysts with positive organic sales growth in the first quarter, vs expectations for a decline.

“K impressed this morning, as another large-cap food name tops revenue and profit expectations, partially driven by positive shipment timing and emerging market strength,” Jefferies analyst Rob Dickerson writes

Eoin Treacy's view -

Commodities prices are running higher and that raises the question of how you can pass on higher costs to consumers. It’s the same old corn flakes or shredded wheat so you need to do something. Organics are a great way to do that. Fair trade is another rationale to charge more. Reusable packaging, different shaped packaging and substitution with additional ingredients all allow food producers to protect margins. During this bull market I fully except to see carbon footprint credentials printed on each individual box of food and that will be used as the rationale for price increases.



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May 06 2021

Commentary by Eoin Treacy

Americas May Lead World's Silver Mined-Supply Recovery

This note from Bloomberg may be of interest to subscribers.

Silver primary supply set to recover in 2021, following Covid-19 operational restrictions suffered last year. 2020 saw the silver mining industry's biggest fall of the last decade, down 6% to 784 million ounce, based on Metals Focus data. Mined-output may rise by 8% year-over-year to 849 million ounces in 2021, based on Metals Focus estimates. We believe the Americas, with a 58% of global supply share, will lead the recovery in 2021, thanks to higher output from Mexico, Peru and Bolivia. Mexico could stay as the world's No. 2 producer, with nearly 200 million ounces, up 12% based on BI's scenario analysis.

Fresnillo kept its crown as world's No. 1 silver producing company in 2020, followed by KGHM, Glencore, Newmont and Codelco. We calculated that these miners combined represented 23% of global mined supply.

Eoin Treacy's view -

Silver is mostly produced as a by-production of other mining activity and the majority of pureplay silver miners now concentrate on gold. Additionally, silver is more of an industrial resource than gold so it tends to elicit interest from many different sources. Those complicated supply and demand fundamentals mean significant new sources of supply or demand are required to meaningfully change the outlook for prices. The loss of photographic film demand was a major hit meanwhile the building boom in solar cells now accounts for 10% of total demand.  



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May 06 2021

Commentary by Eoin Treacy

The Chip Shortage Keeps Getting Worse. Why Can't We Just Make More?

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

Chip plants run 24 hours a day, seven days a week. They do that for one reason: cost. Building an entry-level factory that produces 50,000 wafers per month costs about $15 billion. Most of this is spent on specialized equipment—a market that exceeded $60 billion in sales for the first time in 2020.

Three companies—Intel, Samsung and TSMC—account for most of this investment. Their factories are more advanced and cost over $20 billion each. This year, TSMC will spend as much as $28 billion on new plants and equipment. Compare that to the U.S. government’s attempt to pass a bill supporting domestic chip production. This legislation would offer just $50 billion over five years.

Once you spend all that money building giant facilities, they become obsolete in five years or less. To avoid losing money, chipmakers must generate $3 billion in profit from each plant. But now only the biggest companies, in particular the top three that combined generated $188 billion in revenue last year, can afford to build multiple plants.

Eoin Treacy's view -

Semiconductor factories are largely automated so they were not particularly impacted by the global lockdowns. Demand for their products surged during the lockdowns. Factories running on thin margins and under constant threat from obsolescence do not operate with a lot of spare capacity. That is the primary reason we now have a semiconductor availability issue. The demand curve has accelerated well above the ability of supply to keep up. The increasing dependence of the automotive sector on chips has been building for a while and will contribute to the investment case for more supply. 



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May 05 2021

Commentary by Eoin Treacy

Video commentary for May 5th 2021

May 05 2021

Commentary by Eoin Treacy

Gold CEO Blasts 'Hysterical' Fund Managers Chasing Quick Cash

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

“I’m cautioning people not to become too obsessed with stripping the industry out of its cash, and not allowing strengthened balanced sheets to be built and investments in the future,” he said. “Whether it’s exploration or deal making, it’s got to create value and you can’t create value as a mining executive if you don’t have support from the fund managers.”

Eoin Treacy's view -

Investors have been conditioned to expect well-capitalised companies will buy back shares, pay special dividends and will not engage with capital intensive business lines. That sounds great for tech companies but it doesn’t work for miners. Mining executives that are not actively engaging with M&A targets are coming under profound pressure to distribute available cash. Meanwhile there is no tolerance for green field exploration among either large miners or investors. No one wants that kind of open-ended risk. The 10-month correction in the gold price will only have further damaged appetite for investment in new supply and particularly from banks which control the supply of liquidity. At a minimum it will require even better prospects than normal. That bolsters the limited supply argument over the medium term.



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May 05 2021

Commentary by Eoin Treacy

Colombia Coffee Exports Halted by Protests, Federation Says

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

Coffee isn’t moving to ports, including the main Buenaventura shipping hub, because of nationwide protests and road blockades, Roberto Velez, CEO at the Colombian Federation of Coffee Growers says by phone from Bogota.

The Colombian situation is fueling gains for prices in New York, which have reached the highest since 2017
Protests that started last week against a tax reform bill continued even after it was withdrawn, Velez says, adding any solution would have to come from the central government
There’s also concern that Covid-19 rates are increasing in coffee areas
Coffee pickers needed for the harvest are already on the farms
NOTE: Colombia Protests Slow Coffee Shipments to Ports, Importer Says
2021 Coffee Output Seen at 14M Bags: Trade Group

Eoin Treacy's view -

The Brazilian drought has been the primary tailwind for coffee prices over the last few months. A threat to the consistency of Colombian exports represents and additional tailwind for as long as it lasts. Coffee is one more commodity experiencing supply inelasticity. The year of lockdowns unset supply/demand fundamentals and left the commodity markets more susceptible to weather or political interruptions. The result is rising prices for just about everything.



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May 05 2021

Commentary by Eoin Treacy

Chinese vaccines sweep much of the world, despite concerns

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

China’s vaccine diplomacy campaign has been a surprising success: It has pledged roughly half a billion doses of its vaccines to more than 45 countries, according to a country-by-country tally by The Associated Press. With just four of China’s many vaccine makers claiming they are able to produce at least 2.6 billion doses this year, a large part of the world’s population will end up inoculated not with the fancy Western vaccines boasting headline-grabbing efficacy rates, but with China’s humble, traditionally made shots.

Amid a dearth of public data on China’s vaccines, hesitations over their efficacy and safety are still pervasive in the countries depending on them, along with concerns about what China might want in return for deliveries. Nonetheless, inoculations with Chinese vaccines already have begun in more than 25 countries, and the Chinese shots have been delivered to another 11, according to the AP tally, based on independent reporting in those countries along with government and company announcements.

Eoin Treacy's view -

This map of China’s vaccine exports is very impressive and highlights just how high global demand for any form of vaccine is. China’s commitment to export hundreds of millions of doses before inoculating its domestic population and the spotty efficacy data for its shots suggests there is more at work than meets the eye. 



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May 04 2021

Commentary by Eoin Treacy

Video commentary for May 4th 2021

May 04 2021

Commentary by Eoin Treacy

Yellen Says Spending May Spur 'Modest' Interest-Rate Increases

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

“It may be that interest rates will have to rise somewhat to make sure our economy doesn’t overheat,” Yellen, a former Federal Reserve chair, said in an interview with the Atlantic recorded Monday that was broadcast on the web on Tuesday. “It could cause some very modest increases in interest rates.”

Eoin Treacy's view -

Investors relying on momentum want to hear that the money will keep flowing and there is no risk the punchbowl will be taken away. Whenever that desire is fulfilled, we see the stock market climb to new highs. However, when it is even modestly questioned it is cause for profit taking.



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May 04 2021

Commentary by Eoin Treacy

Cautious German Savers Brave the Stock Market

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

Michael Schacht, 70 years old, is a typical German saver. Risk-averse, the clothing-shop owner kept the equivalent of $300,000 in a local bank in a small town near Hamburg.

Then, earlier this year, Mr. Schacht’s bank told him it wanted to charge him a negative 0.5% interest rate to hold his money.

Furious, Mr. Schacht did something he never considered: He put it all in the market. His portfolio includes investments in stocks and corporate bonds from Europe and elsewhere through funds, plus gold and silver.

“I don’t want to make lots of money, I just want a low-risk investment that provides a reasonable return on capital, like 2%, 4%,” Mr. Schacht said. “That has always been realistic in the past.”

Eoin Treacy's view -

This is an example of how investors are being forced to speculate. Negative interest rates are an obvious tax on savers so they have no choice but to buy riskier assets. It is a choice between guaranteed modest losses or potential gains with the added scope for bigger losses.  This is particularly acute in places like Germany where retail investors don’t generally invest in the stock market.



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May 04 2021

Commentary by Eoin Treacy

Email of the day on central bank digital currencies:

I have been a subscriber to your service for over 20 years, probably closer to 30 years. I am very satisfied with your service, and am one of your great admirers. I was surprised though how certain you sounded on the future of money and digital currency on Friday's audio. Do you really think that the current monetary system will change drastically and that digital currency will be the main currency in the future? What will be your guess as to how long will it take to have that kind of change? Once again thanks a lot for the excellent service. 

Eoin Treacy's view -

Thank you for your patronage over the decades and this question which may be of interest to the Collective. The world is awash in debt and the total continues to rise. Governments are running wartime-like deficits and spending plans continue to be revised upwards. Nothing has occurred to change the trajectory of policy. Whenever the next crisis occurs central bank balance sheets will multiply in size again.  



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April 30 2021

Commentary by Eoin Treacy

April 30 2021

Commentary by Eoin Treacy

April 30 2021

Commentary by Eoin Treacy

Copper Boom Is Just Beginning for the CEO of Biggest Gold Miner

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

Copper may be flirting with record highs but the metal is far from peaking as the energy transition revs up, according to Newmont Corp. Chief Executive Officer Tom Palmer.

Futures hit $10,000 a metric ton on Thursday for the first time since 2011 as mines struggle to keep up with surging demand. Newmont, the world’s largest gold producer, is increasing exposure to copper through several “mega projects,” Palmer said on an earnings call. Even if just one materializes, copper will account for 15-20% of the company’s total output by the end of the decade, he said.

“I’m pretty excited about having good exposure to copper at that time when the world is going through the energy transition,” Palmer said on an interview with Bloomberg TV following the earnings call. “Copper’s got a pretty good story in front of it. I think its day in the sun is more towards the end of this decade.”

The copper push doesn’t mean Palmer has a downbeat view on gold. He sees bullion prices holding their current “very healthy levels” or even moving higher given fiscal and monetary stimulus. India should remain one of the key sources of demand after the country recovers from the Covid-19 tragedy, Palmer said.

Eoin Treacy's view -

Mining executives have been slow to invest in new supply because they are still scarred from the negative experience of the last bear market. Green field mining is expensive and uncertain and they now wish to preserve their balance sheets and strong cash positions. Investors are certainly not complaining at the rising dividends either. There is a growing belief among gold mining CEOs that copper/gold deposits are the most attractive for new investment. That might also be considered a hangover from the mining bust because it hedges exposure to the gold price and diversifies income streams.  



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April 30 2021

Commentary by Eoin Treacy

Email of the day on the inevitability of bitcoin's multiplication

Hi, what would be your comment on the following report from these people who were right more frequently than not:
https://panteracapital.com/blockchain-letter/five-orders-of-magnitude/

Eoin Treacy's view -

Thank you for this article which may be of interest to the Collective. Here is a section:

For every million new users, the price of bitcoin rises $200.  It happened every time except for February 2016, when the price was slow to hit.   

The rise in the price has been amazingly constant.  I’ll leave it to some future Avogadro to figure out exactly why.  The important point is:  If this relationship holds, bitcoin will hit $200,000 in 2022.

I realize that sounds like a large caveat – but these relationships have held for a decade.  The compound annual growth rate (CAGR) of bitcoin has been 213% for more than ten years.  $200,000 a year from now would be exactly 213% higher than today.  It would be just normal trend growth.

The best time to buy bitcoin is around a year before the halving of the reward for mining (halvening). The last one was almost a year ago and the next will be in about three years. After the halving of the reward, the limited supply argument is burnished because it becomes twice as expensive to mine new coins so the need for additional resources increases while the value of coins already in existence inflates. That’s exactly what we have seen after every other halving and there is no reason to believe that will not persist.



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April 30 2021

Commentary by Eoin Treacy

Biden = Roosevelt: The Analogue

This side by side comparison by Ray Dalio may be of interest to subscribers. Here is a section on corporations:

Roosevelt, 1935: “We have established the principle of graduated taxation in respect to personal incomes, gifts, and estates. We should apply the same principle to corporations. Today the smallest corporation pays the same rate on its net profits as the corporation which is a thousand times its size.”

Biden, April 2021 Speech to Joint Session of Congress: “Recent studies show that 55 of the nation’s biggest corporations paid zero in federal income tax last year. No federal taxes on more than $40 billion in profits. A lot of companies also evade taxes through tax havens from Switzerland to Bermuda to the Cayman Islands. And they benefit from tax loopholes and deductions that allow for offshoring jobs and shifting profits overseas. That’s not right. We’re going to reform corporate taxes so they pay their fair share and help pay for the public investments their businesses will benefit from.”

Treasury Report on Biden Tax Plan, 2021: “The President’s Made in America tax plan is guided by [six principles, including] requiring all corporations to pay their fair share. To ensure that large, profitable companies pay a baseline amount of taxes, the President’s plan would impose a minimum tax on firms with large discrepancies between income reported to shareholders and that reported to the IRS. It would also provide the IRS with resources to pursue large corporations who do not meet their tax obligations, reversing a trend toward fewer corporate audits.”

Eoin Treacy's view -

When there are thousands of people on the street and parliament buildings are under siege, politicians tend to wake up to the public mood. The harrowing experience, many elderly politicians experienced in the USA during the Capitol riot, is likely to inform their decision making going forward. That’s true regardless of whether they are aware of it or not. Giving the people what they want, which is more money, is going to be high on the list of priorities.



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April 29 2021

Commentary by Eoin Treacy

April 29 2021

Commentary by Eoin Treacy

EBay Warns Pandemic Sales Boost Could Soon Fade; Shares Tumble

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

EBay Inc. warned investors that its sales boost tied to the pandemic and government stimulus checks may be coming to an end.

Shares tumbled as much as 7% in extended trading Wednesday after the online marketplace issued a revenue forecast for the current quarter suggesting spending on the site could recede as more people get vaccinated, businesses reopen and stimulus checks dry up.

Investors are watching to see which companies can build on their pandemic gains and which will fade. Google parent Alphabet Inc., Facebook Inc. and Shopify Inc. all hinted at lasting momentum in their earnings reports this week, sending their shares higher. EBay joined social media platform Pinterest Inc. as a potentially short-lived pandemic phenom.

“This is a relative challenge for EBay to not be able to fully hang on to the gains from the pandemic,” said Ygal Arounian, an analyst at Wedbush Securities Inc.

Eoin Treacy's view -

Rebounding consumer behaviour, renewed hiring and generous handouts have boosted earnings for all manner of consumer companies in the first quarter. That has been particularly true for the mega-caps with Apple, Google, Facebook and Microsoft all posting impressive results.

The fact that about half of people are better off unemployed than working has also helped to boost consumption of goods in particular. Those benefits will expire in September so there is still room for revenue support absent the spikes associated with stimulus cheques. 



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April 29 2021

Commentary by Eoin Treacy

Shale CEO Sees Producers Staying Disciplined at $70 Crude Oil

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

America’s shale producers will keep output in check even as global crude oil prices near $70 a barrel, Ovintiv Inc. Chief Executive Officer Doug Suttles said in an interview with Bloomberg Television.
Explorers are focused on low growth, strong operating performance and returning cash to shareholders, Suttles said. Ovintiv is prioritizing paying down debt and maintaining its dividend, he said.

Private operators’ ability to weigh on oil prices by ramping up production is limited after recent tie-ups with publicly traded companies, Suttles said. While closely held producers have more influence on the natural gas market, “it’s a little bit of a concern, not a big one,” he said.

Eoin Treacy's view -

European natural gas prices have bounced impressively from the region of the trend mean and are quickly approaching the highs of the last decade. That is likely to encourage more sea-borne gas into the market which is contributing the US prices bouncing impressively from the trend mean.



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April 29 2021

Commentary by Eoin Treacy

The new Chrysalis Network is Live!

This news release from iota.org may be of interest to subscribers. Here is a section:

The time has finally come. With Chrysalis, IOTA is now enterprise-ready and has entered a new era of adoption, serving as a base layer for the machine economy, the Internet of Things and beyond, enabling new use cases and setting standards in data and value transfer. All of this is achieved without fees and while maintaining a minimal environmental footprint.

Partners, academia, and developers can now start to build on the Tangle and plan for the future.  There will not be substantial changes on the way to IOTA 2.0, Coordicide, as the majority of the code-base including tools, libraries, and APIs already exists in Chrysalis. Projects built on today’s codebase will not require major refactoring later on.

With the work for Chrysalis complete, many of the Foundation's engineers are now able to fully focus on Coordicide, Digital Assets and Smart Contracts. The next major milestone to a fully decentralized IOTA 2.0 is around the corner, with the Nectar network launching in just a few weeks!

Nectar will be the first complete implementation of the major Coordicide modules, which will be followed by the launch of the incentivized testnet. The goal of this network is to discover any bugs and issues and make any refinements before a release candidate for the IOTA mainnet.

IOTA will become the first production-ready DLT network based on a fully decentralized leaderless consensus protocol that is scalable, feeless and secure. This is a tremendous pioneering achievement and milestone for the innovation of distributed ledger technology. All achieved without requiring any miners or wasting resources.

Eoin Treacy's view -

IOTA gets faster the more it is used which makes it ideal for scalability and it does not require millions of machines running in tandem to solve algorithms to do it. The challenge is that until now it has had to rely on central coordination to achieve these feats. The ambition of the teams supporting IOTA’s Tangle (its rough equivalent of the blockchain) has been to achieve coordicide. That would enhance independence and turn IOTA into a true decentralised network. Today’s announcement brings that moment much closer.



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April 28 2021

Commentary by Eoin Treacy

Video commentary for April 28th 2021

April 28 2021

Commentary by Eoin Treacy

India Stocks Advance as Nation Ramps Up Virus Control Steps

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

“We expect markets to look beyond the short term on cases peaking, vaccine approvals and expansion,” Amish Shah, an analyst at Bank of America Securities India said in a note on Tuesday. The stabilization of new cases in Maharashtra state, location of the financial capital Mumbai, could be a “precursor” to the virus curve flattening over one to two months, Shah said.

The U.S. this week said it will help India by sending items needed to manufacture vaccines as part of an aid package. European countries are also pledging support after the South Asian country saw record numbers of new cases. India today began registering people from 18 years of age to get inoculations from May 1.

Eoin Treacy's view -

The headlines regarding India and feedback from domestic sources all point towards dire conditions. The reality is the Indian authorities were probably a bit too sanguine about their success in avoiding the worst effects of the pandemic and are now paying for that laxity. The bigger question for investors is if this spike is the result of superspreading religious events or a new variant.



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April 28 2021

Commentary by Eoin Treacy

Hoisington Quarterly Review and Outlook

Thanks to a subscriber for report from Lacey Hunt which reiterates his long-term view that yields will continue to compress. Here is a section:

Before the pandemic, economic growth was decelerating as confirmed by a decline in world trade in 2019, one of the few yearly declines in the history of this series. While the huge debt financed programs were a response to the pandemic, the end result is that global nonfinancial debt increased to a record 282% of GDP in 2020. The 37% surge of debt relative to GDP was also a record. While this debt may be politically popular and socially necessary, it will weaken growth and inflation after a transitory spurt, which will lead to even more disappointing business conditions than existed prior to the pandemic.

The actual global debt situation may be worse than these numbers indicate because they include China, the world’s second largest economy. Scholarly forensic research indicates that Chinese GDP is overstated by at least 18%. Thus, the official Chinese debt to GDP ratio is suppressing the global numbers. A comparative analysis of money velocity confirms the suspicion about the Chinese figures. Money velocity in China in 2020 was 0.44 versus 1.19 in the U.S. Admittedly money and debt are not identical, but they are opposite sides of the balance sheet and the glaring gap is too much to be ignored.

Eoin Treacy's view -

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

Something that has been troubling me for a while is why has China chosen now as the time to clamp down on Alibaba and Ant Financial’s massive money market fund. The rationale that it was politically motivated and that the firm has become too big and powerful for the comfort of the Communist Party is tempting and probably holds some truth. However, the bigger question is whether the financial system needs to reabsorb the flows and be refortified because the debt overhang is much larger than investors are willing to give credence to?



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April 28 2021

Commentary by Eoin Treacy

What 175 years of data tell us about house price affordability in the UK

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

Houses have rarely been more expensive relative to earnings than they are today in more than 120 years. Prices are stretched everywhere but London and the south of England stand out. Things look even less affordable for women.

The last time there was a sustained decline in the house price-earnings multiple was the second half of the 19th century. Average house prices fell for more than 50 years thanks to substantial building of houses, many of which were smaller than existed before. At the same time earnings rose.

How likely or even desirable would that be today? The UK’s heavily mortgaged consumers would struggle to cope with 50 years of falling house prices. It would also be political suicide for whoever was deemed responsible. A shift towards the building of smaller houses would also seem unlikely  – research has found that houses are smaller today than at any point since at least the 1930s[1]. Hobbit homes cannot be ruled out entirely but I’m not sure how positive an outcome that would be.

Which leaves us with earnings. Earnings growth has been weak since the financial crisis but has recently picked up strongly – average earnings in the final quarter of 2020 were 4.7% higher than the same period of 2019. A period of stronger pay growth may represent the best hope of improving affordability (with the caveat that stronger earnings may result from a stronger economy which could result in a stronger housing market).

The elephant in the room here is interest rates. A Bank of England working paper[2] concluded that nearly all of the rise in average house prices relative to incomes between 1985 and 2018 can be seen as a result of “a sustained, dramatic, and consistently unexpected, decline in real interest rates as measured by the yield on medium-term index-linked gilts”[3]. The Bank doesn’t rule out other factors, but concludes that they have had more of a short-term impact. It furthermore concludes that: “An unexpected and persistent increase in the medium-term real interest rate of 1 percentage point from its level as at end 2018 could ultimately generate a fall in real house prices (over a period of many years) of just under 20%.”

However, depending on whether you are a current home owner or a prospective buyer, you are likely to be encouraged and discouraged in equal measure by the Bank of England’s scepticism that this is likely to materialise. Just because house prices are expensive relative to earnings does not mean there is a good reason to expect them to cheapen materially.

Eoin Treacy's view -

The view that property is a better investment than stocks has grown considerably in the UK because the FTSE-100 peaked in 2000 and has spent the last twenty years ranging in a volatile manner. Against that background investing in property has been the right decision regardless of the costs of maintenance and taxes. The big question for investors is whether that will continue to be the case.



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April 28 2021

Commentary by Eoin Treacy

April 27 2021

Commentary by Eoin Treacy

April 27 2021

Commentary by Eoin Treacy

OPEC+ Confirms Plan to Gently Hike Supply as Demand Recovers

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

The global oil market “is on the one hand positive, we see a recovery of demand and higher global GDP estimates,” Russia’s Deputy Prime Minister Alexander Novak told Rossiya 24 television after the OPEC+ committee’s conference call. Nevertheless, the group must keep monitoring the coronavirus situation across many regions, including Asia, he added.

“We see that some countries record higher coronavirus numbers, like in India and Latin America, which raises some concerns about further growth of demand,” Novak said.

Crude futures held gains after the OPEC+ gathering, trading 0.4% higher at almost $66 a barrel in London.

Strong Demand

It was the OPEC+ Joint Ministerial Monitoring Committee that initially recommended sticking to their planned output increase. Ministers from the panel then asked other OPEC+ members to cancel the full meeting scheduled for Wednesday, and instead they drafted Tuesday’s statement by exchanging diplomatic messages.

Eoin Treacy's view -

There is no shortage of oil and there is no mystery about where to find more if it is needed. The drop off in domestic US drilling and the combined efforts of OPEC+ to curtail supply have shaved at least 7 million barrels a day from the market. That has been instrumental in the rebound for oil prices.



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April 27 2021

Commentary by Eoin Treacy

'Like science fiction,' Seattle startup sends laser-equipped robots to zap weeds on farmland

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

Over the next decade, the Western Growers Association aims to automate half of the harvest of specialty crops, which include fruits, vegetables and nuts. A Florida company has been developing a strawberry-picking robot. At Washington State University Tri-Cities, scientists are working on an apple-picking robot — an idea some farmworker advocates met with skepticism. 

Edgar Franks, political director at the union Familias Unidas por La Justicia, based in Burlington, Washington, said that, generally speaking, the rise of automation is concerning. Farm work is grueling “because of the exploitation of labor,” he said.

“From our point of view, it’s all about labor control and cutting labor costs down…What’s going to happen to the workers who made the industry so profitable, all of a sudden to be kicked out?” Franks said.

Myers said it has become more difficult to hire people for work like weeding. This year, 80% of the migrant workers he planned to hire on temporary H-2A visas are delayed at the U.S.-Mexico border, he said.

“It’s harder to find people to do that work every single year,” he said. 

Mikesell declined to provide an exact cost of the robot, but said its price is in the hundreds of thousands of dollars, comparable to the cost of some tractors. 

The weeding robot, manufactured in Mukilteo, uses GPS technology to stay within a geofence at the edge of the field. Cameras underneath the robot scan the ground and artificial intelligence identifies the weeds among the crops. 

Then a carbon dioxide laser (the same kind used to cut metal) “targets the weeds for destruction,” in the words of the company’s website. The company says the machine can weed 15-20 acres per day. 

Developing the machine meant troubleshooting to ensure that the lasers and robot could withstand hot and freezing temperatures, plus rain, dust and lightning – to match the “general ruggedness of farm equipment,” Mikesell said.

Eoin Treacy's view -

Unskilled heavy labour is often performed by uneducated migrant workers. The necessity of this work has been a cornerstone of immigration policy in many parts of the world for a long time. If there is no longer a need for large numbers of people to tend crops the route to entry to many countries is likely to become tighter over time.



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April 27 2021

Commentary by Eoin Treacy

New malaria vaccine reports milestone 77 percent efficacy

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

There is still a long road ahead before this new vaccine comes close to large-scale use. A phase 3 trial is commencing now, spanning four African countries and enrolling close to 5,000 children.

However, the importance of developing an effective malaria vaccine cannot be understated. Over 400,000 people still die from malaria every year. Lynsey Bilsand, from vaccine research charity Wellcome, calls this new breakthrough “significant and exciting” in the ongoing battle against this major global health problem.

‘Despite global efforts against malaria, too many lives are still lost to this disease, especially babies and young children,” says Bilsand. “Vaccines could change this. This is an extremely promising result showing high efficacy of a safe, low-cost, scalable vaccine designed to reach the huge numbers of children who are most at risk of the devastating impact of Malaria.”

Eoin Treacy's view -

Malaria represents both a human tragedy and massive tax on productivity in tropical and many sub-tropical areas. The death rate is bad enough but knocking people out of the workforce and making them a burden on their families is one of the primary reasons economic compounding does not result in better outcomes in Africa. It is therefore reasonable to conclude that the introduction of a vaccine would have a massive impact on long-term growth potential for the SubSaharan African region.



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April 26 2021

Commentary by Eoin Treacy

Video commentary for April 26th 2021

April 26 2021

Commentary by Eoin Treacy

Email of the day - on the world after COVID:

In today's article on the long-term consequences of Covid no mention was made on the long-term impact of robotisation. In the short-term there may well be a shortage of workers in some areas but in the long term this will probably be offset by more mechanisation.

Eoin Treacy's view -

Thank you for this email which may be of interest to the Collective. Mechanisation is an inexorable trend and we have ample examples of how many labour-intensive jobs have been outsourced to robots. The challenge with this trend is it is accelerating and is something that the whole world will need to adjust to.



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April 26 2021

Commentary by Eoin Treacy

Container Shipping Insights The 'mega' trend to continue

Here is a section from a JPMorgan report focusing on shipping costs.

Global liners are stepping up de-carbonization efforts and experimenting with alternative fuels
To achieve the industry target, many global liners such as A.P. Moller Maersk (viewed an industry bellwether) are stepping up de-carbonization efforts, recently unveiled plans to fast-track its de-carbonization efforts, with a target to put the world’s first vessel powered by carbon-neutral fuel into operation in 2023, seven years ahead of its original schedule. Specifically, Maersk will install its smaller feeder vessels (capacity of around 2,000 TEUs) with dual fuel technology, power them using alternative fuels including methanol (produced from plant waste) while retaining the option to use VLSFO if necessary. Maersk is also currently experimenting with other alternative fuels including ammonia. Looking ahead, Maersk targets to operate more methanol-fueled vessels in the future and expects methanol and ammonia to emerge as more viable future fuel options.

Adoption of new technology and alternative fuels will take time to achieve commercial feasibility. There are inherent limitations towards adopting alternative fuels. Referencing remarks made by Mr. Morten Bo Christiansen (Maersk head of de-carbonization), methanol has the potential to reduce CO2 emissions by up to 15% vs conventional marine fuels while enjoying other advantages including having well-established infrastructure and manageable vessel retrofitting cost. Having said that, methanol has inherent limitations including low energy density and certain safety-related challenges. With respect to ammonia, Maersk expects ammonia to be an ideal replacement from a net zero carbon perspective, but overall technology capability remains at a nascent stage and no vessels today are equipped to utilize this fuel type. Maersk also takes a contrarian view compared to its peers and does not view Liquefied Natural Gas (LNG) as a viable alternative, given its upstream and onboard emissions.

Eoin Treacy's view -

The IMO 2020 regulations on emissions for the global shipping sector took more than a decade to agree and finally to implement. That was emblematic of an era when there was some commitment to reducing emissions but no real sense of urgency and where industry lobby groups were given priority. Today, the situation could not be more different. Shipping companies see the future of regulation and taxation and expect to be able to pass on green premiums to customers. That will put an additional cost on everything and represents an even bigger tax on global activity than an oil price spike because it is permanent in nature.



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April 26 2021

Commentary by Eoin Treacy

China Widens Internet Crackdown With Meituan Monopoly Probe

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

China’s government has expanded its antitrust crackdown beyond Jack Ma’s technology empire, launching an investigation into suspected monopolistic practices by food-delivery behemoth Meituan.

The State Administration for Market Regulation announced the investigation, which began recently, in a statement Monday. The antitrust watchdog is looking into alleged abuses including forced exclusivity arrangements known as “pick one of two.” The company said it will actively cooperate with the probe and step up efforts to comply with regulations. Its businesses are currently operating normally, it added in a statement.

Eoin Treacy's view -

Meituan has prospered by gamifying the online review and social media sector. They provide concrete rewards for participation with the app and that can include anything from being able to skip the line at popular restaurants to discounts. As a result, the company has been one of the primary leaders of the domestic Chinese tech scene and growth of the social media ecosystem. That success has now attracted the attention of the government which effectively limits its growth.



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April 23 2021

Commentary by Eoin Treacy

April 23 2021

Commentary by Eoin Treacy

Longer-Run Economic Consequences of Pandemics

This report from the San Francisco Fed may be of interest to subscribers. Here is the conclusion:

Summing up our findings, the great historical pandemics of the last millennium have typically been associated with subsequent low returns to assets, as far as the limited data allow us to conclude. These responses are huge. Smaller responses are found in real wages, but still statistically significant, and consistent with the baseline neoclassical model.

Measured by deviations in a benchmark economic statistic, the real natural rate of interest, these responses indicate that pandemics are followed by sustained periods—over multiple decades—with depressed investment opportunities, possibly due to excess capital per unit of surviving labor, and/or heightened desires to save, possibly due to an increase in precautionary saving or a rebuilding of depleted wealth. Either way, if the trends play out similarly in the wake of COVID-19 then the global economic trajectory will be very different than was expected only a few months ago.

Should we expect declines of 1.5%–2% in the real natural rate, however? There may be at least three factors that could possibly attenuate the decline of the natural rate predicted by our analysis, but their presence and magnitude is uncertain and unknowable until therapies to fight COVID-19 are more developed. First, the death toll of COVID-19 relative to the total population might be smaller than in the worst pandemics of the past, but we cannot know for sure at this point. Second, COVID-19 primarily affects the elderly, who are no longer in the labor force and tend to save relatively more than the young, so the demographic channels could be altered, although the recent pick up in infections is now affecting younger individuals. Third, aggressive counter-pandemic fiscal expansion will boost public debt further, reducing the national savings rate and this might put upward pressure on the natural rate, even though our analysis suggests that this expansion of public debt should be easier to sustain in the long-run.

Eoin Treacy's view -

This report has obviously helped to inform the view of the Fed in how they expect the path of interest rates to play out. They are worried that the rebound from the pandemic will not translate into a sustained path of outsized growth because of the damage done to the economy and animal spirits will take time to overcome.



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April 23 2021

Commentary by Eoin Treacy

A Chipmaker's Advice to the Auto Industry

This interview with the head of automotive at Global Foundries (ahead of the company’s IPO) may be of interest to subscribers.

Fixing The Chip Crisis
It’s been almost five months since the global chip shortage surfaced as a serious problem for the auto industry. Some experts say it could take a year before automakers emerge from this expensive supply-chain hell.

The consequences will last much longer as the pandemic forces car companies to rethink how they manage their supply chains. Lead times for automotive chips already were lengthening before Covid-19 lockdowns, as the auto industry became a bigger semiconductor customer than ever before. That's because systems that alert drivers when they drift out of a lane and better harness an EV battery require more data processing than yesterday’s power windows and car radios.

I recently spoke with Mike Hogan, the head of automotive at Global Foundries, a chipmaker that has plants in the U.S., Europe, and Asia. Since autos consume just 10% of global chip production, car companies usually buy consumer electronics chips off the shelf. Hogan says that with electrification and autonomy transforming vehicles, automakers have to look more deeply into their supplier networks.

Here are excerpts from our discussion, edited for length and clarity:
Where are we now, is this going to get worse? When will the shortage ease?
The first wave of help [for automakers] is probably a third-quarter thing.

It’s very hard to tell if there’s a shortage hiding behind a worse shortage. Because auto is so diverse, there are so many different kinds of semiconductors that go in there — if the auto guys don’t know what they need, how do they know they don’t need something else that they don’t see yet? That’s the real concern.

So I think it could be very lumpy trying to get out of this. Is that unique to the auto guys — versus someone who makes a smartphone or an iPad?

The folks who make smartphones, they don’t outsource the design to a bunch of people. They tightly control everything that goes in that smartphone. Even to the point where they say, ‘Look, Global Foundries, I want to make sure it’s there, so I’ll prepay for it, I will reserve the capacity. If I don’t take it on the day, you thought I was showing up, it doesn’t go anywhere because we’ve already pre-paid.’
People often talk about how making cars is such a low-margin business, it has to be done this way.

Do you think that’s true?
If you can’t build a $50,000 car and ship it and put all those people to work because you don’t have $15 worth of semiconductors...I think it’s time to shift that and say, ‘No, we’re the auto market, we have very unique needs, we need an architectural approach to building our cars, we don’t need to
buy retail off-the-shelf stuff.’ Then you have the real conversation ahead of time, versus, ‘Hey you don’t know me but I’m out of chips and it’s your fault buddy.’

Is that starting to happen?
There are a lot of good, smart people in auto that have seen this. This is the moment that gives that cohort within those companies the voice to say, ‘This is exactly why we needed to think different.’ I think you’ll see more of this direct relationship between autos and semiconductors.

Can chip factories in the U.S. compete with lower-cost producers in Asia?
We built a factory from the ground up in upstate New York. It cost billions, but there’s over 3,000 people working there. Are those 3,000 people getting paid a little more than the 3,000 people in Korea? Yeah, probably. But if you build enough wafers, it’s still very competitive. Part of this might be tilting some advantage for folks to use the domestic supply that we create, but that’s how it is everywhere in the world.

Eoin Treacy's view -

The global automotive sector is totally reliant on just in time sourcing of materials and components. They don’t hold inventory and are used to squeezing suppliers so they don’t have to. As they stray into the world of technology where there is competition for supply, they will have no choice but to compete. That means investing in additional supply and paying upfront.



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April 23 2021

Commentary by Eoin Treacy

Bitcoin's Big Selloff Was a Long Time Coming

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

Felix Dian, founder of crypto investment fund MVPQ Capital
“Looking at the previous bull cycle (2016/17), there have been quite a few occurrences when Bitcoin loses momentum and dips below the 100-day moving average. This one was overdue.

“We are actually seeing record subscriptions into our fund this month, from institutional family offices, with many willing to use this as an opportunity to add. Ultimately, strong hands buying will meet the lack of available liquid supply of Bitcoin, triggering a squeeze and further down the road a new retail FOMO wave.”

Jeffrey Halley, senior market analyst for Asia Pacific at OANDA
“The threat of regulation, either directly in developed markets or indirectly via the taxman, has always been crypto’s Achilles’s heel.

“Hopefully, we will hear as many ‘experts’ saying this is a sign of Bitcoin becoming a ‘maturing mainstream asset’ if it falls 10% this weekend, as we do when it rises, or a crypto-exchange chooses to IPO. In the meantime, don’t hate me for being bearish Bitcoin in the near term.”

Nikolaos Panitgirtzoglou, strategist at JPMorgan Chase & Co
“Institutional demand has indeed slowed. I’m not sure what could trigger a re-acceleration of institutional demand. You either need a big announcement like Tesla or simply a correction and clearing of retail froth to incentivise institutional investors to re-enter the market.”

Eoin Treacy's view -

With a market cap of more than $1 trillion a lot more active participation is required to fuel the rapid price advances crypto investors are accustomed to. The institutional adoption argument helped bitcoin rally from $4000 to $65000 in less than a year. The big question is where will the next trillion of liquidity come from to spur another doubling?



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April 23 2021

Commentary by Eoin Treacy

April 22 2021

Commentary by Eoin Treacy

April 22 2021

Commentary by Eoin Treacy

Stocks Drop on Biden Plan to Lift Capital-Gain Tax

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

“Sticker shock over some of these tax figures will be hard to shake off for some investors,” Edward Moya, senior market analyst at Oanda Corp, wrote in a note. “Some traders are looking for an excuse to lock in profits and they might choose to use this tax story as their catalyst.”

Eoin Treacy's view -

The rationale is clear. Do you want to sell now and pay 23% or later and pay 43%? Another way of asking that question is do you believe the stock market is going to rally another 36%, imminently, to compensate you for the additional tax you will pay on the higher future figure? That implies an S&P500 level of 5631 versus the current value of 4141.



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April 22 2021

Commentary by Eoin Treacy

ECB's Failure to Communicate Frustrates Markets

This note from Bloomberg may of interest to subscribers.

Frankfurt, we have a communication problem. And that could feed into a growing ECB credibility issue –- even as European bond markets are shrugging off details of today’s confab.

Markets crave clarity on pandemic bond buying, and instead are getting ambiguity. Madame Lagarde again warned against reading too much into weekly PEPP purchases. They are not the most relevant -- what matters more are the monthly numbers, she said, and accounting for redemptions, those reveal that “significant” increase pledged in March. They have “readily implemented” that ramp up as of March 16 -- and are continuing to do so clearly and without any wavering, according to Lagarde.

Except the data suggests otherwise looking at the recent run-rate. There is no “normal” pace of bond purchases given the need for flexibility and the ongoing pledge to preserve favorable financing conditions -- no wonder ECB-watchers are exasperated. Sure, risks to the outlook remain balanced in the medium-term and Europe remains an “economy on crutches” -– but so much for any clarity on the semantics around “significant” and what exactly front-loading means.

At least Lagarde confirmed that policy won’t be in tandem with the Fed. That much seemed obvious. As for significant PEPP purchases, guidance remains a case of constructive ambiguity -- let’s wait for those monthly numbers, and maybe more excitement in June.

Eoin Treacy's view -

The ECB has opted to talk their way through providing assistance rather than actually doing it. That’s the only signal we can gain from their unwillingness to put numbers of the purchases they are willing to make while at the same time saying they will be as large as needed.



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April 22 2021

Commentary by Eoin Treacy

China Blasts Australia's Decision to Cancel Belt and Road Deal

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

The Australian federal government scrapped both the memorandum of understanding and framework agreement signed between Victoria and China’s National Development and Reform Commission, Beijing’s top economic planning body, Foreign Minister Marise Payne said in an emailed statement Wednesday. She described the deals as “inconsistent with Australia’s foreign policy or adverse to our foreign relations.”

The step “is another unreasonable and provocative move taken by the Australian side against China,” the Chinese embassy in Canberra said in an emailed statement. “It further shows that the Australian government has no sincerity in improving China-Australia relations -- it is bound to bring further damage to bilateral relations, and will only end up hurting itself.”

Australia “basically fired the first major shot against China in trade and investment” conflicts, Chen Hong, director of the Australian Studies Center at East China Normal University in Shanghai, told the Communist Party-backed Global Times. “China will surely respond accordingly.”

China has lodged stern representations with Australia over the issue and reserved the right to take more action, Foreign Ministry spokesman Wang Wenbin said at a regular press briefing Thursday in Beijing.

Eoin Treacy's view -

China may successfully be able to cow smaller countries into submission by following a carrot and stick approach to infrastructure and trade development. Australia is a different story.



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April 22 2021

Commentary by Eoin Treacy

Corn, Soybeans, Wheat Surge on Chinese Demand, Weather Woes

This article by Bre Bradham and Megan Durisin for Bloomberg may be of interest to subscribers. Here is a section:

Corn jumped by the exchange limit and soybeans topped $15 a bushel for the first time since 2014 as China’s rampant demand and adverse weather around the world threaten to further tighten supply.

Brazil’s second-corn crop is suffering from drought, and U.S. planting has been slowed by a record cold snap that may also have damaged some winter wheat. Meanwhile, western Europe lacks moisture for early growth of the grain, helping push up wheat futures and adding to worries about global food-price inflation as consumers still contend with the coronavirus pandemic.

The weather concerns in major growers come amid signs of continued strong demand, particularly in China, which the U.S. Department of Agriculture expectsto import a record 28 million metric tons of corn. The country is already scooping up the next U.S. crop. Soybean oil futures jumped by the most allowed, amid growing demand for renewable diesel.

“It’s an incredible rally. It is primarily the weather and demand and low stocks that are really driving this thing, and the realization that Brazil could have a poor second corn crop,” said Jack Scoville, a vice president for Price Futures Group in Chicago. “There’s just nothing going on that says sell the market.”

Eoin Treacy's view -

The supply disruptions resulting from the pandemic continue to represent challenges for the global supply chain. That’s particularly true for the agriculture sector where weather is having an outsized influence after years of low prices and less investment in additional new supply.



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April 21 2021

Commentary by Eoin Treacy

Video commentary for April 21st 2021

April 21 2021

Commentary by Eoin Treacy

Netflix Falls After Pandemic Boom Reverses to Rare Weakness

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

Netflix has been warning for months that growth would slow after customers emerged from their Covid-19 hibernation, but few expected the company to stall so dramatically. The first quarter of 2020 was the strongest in its history, reeling in 15.8 million new customers, and Netflix’s pace was still brisk in the fourth quarter.

“We had those 10 years where we were growing smooth as silk,” Executive Chairman and co-Chief Executive Officer Reed Hastings said on a webcast for investors. “It’s a little wobbly right now.”

Netflix added 3.98 million subscribers in the first quarter, compared with an average analyst estimate of 6.29 million and its own forecast of 6 million. That marked the weakest start of a year since 2013, when Netflix added about 3 million customers. If the company’s forecast for the current quarter holds, it will be the worst three-month stretch for Netflix since the early days of its streaming service.

Netflix blamed a “Covid-19 pull-forward” effect, meaning the pandemic accelerated its growth in 2020 while everyone was stuck at home and needed something to watch. Now that surge is taking a toll on the company’s 2021 results.

“It really boils down to Covid,” Spencer Neumann, the company’s chief financial officer, said on the webcast.

Eoin Treacy's view -

Veteran subscribers will be aware I am not a fan of Netflix. It pioneered streaming but its content is a triumph of quantity over quality. That latter point matters as competition increases and that is particularly true as the established content creators enter the fray.



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April 21 2021

Commentary by Eoin Treacy

Canadian Dollar Gains as Traders Eye CPI With BOC Taper in Focus

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

The loonie edged slightly higher ahead of data forecast to show inflation ticked up. Investors will then turn their focus to the Bank of Canada’s policy decision in which policy makers are widely expected to announce the tapering of asset purchases.

USD/CAD +0.1% to 1.2601; fell as much as 0.2%; the loonie is stronger than most Group-of-10 peers

Scotiabank’s Shaun Osborne and Juan Manuel Herrera are watching whether policymakers opt to taper from the current CAD4bn/week to CAD3bn/week

Such a move should help support the loonie, they said, noting that they expect “the language of the policy statement and MPR to try and soften the impact” of a tapering decision

CIBC’s Bipan Rai said a convincing break of the 1.2650 level would be a possible signal of a new trading range, and recommends establishing longs there to target 1.30

Eoin Treacy's view -

The 2020 trend of unanimous global monetary and fiscal support is fraying as countries move to pursuing their individual priorities and as the pace of recovery diverges. Canada’s commodity and housing markets are firing on all cylinders so it is logical that they will begin to think about how to ease back from outsized assistance earlier than other countries.



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April 21 2021

Commentary by Eoin Treacy

Just Like Price of ETH, Ethereum Usage Is Seeing Consistent Growth

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

Much like the price, the network fundamentals are just as bullish, with the hash rate on the network on an uptrend ever since December 2019.

Unique addresses have also been only growing, now past 148.5 million. Daily transactions also hit a new ATH at 1.5 million this week versus 1.35 million on Jan. 4, 2018.

Average gas fees on the network continuously keep above 150 Gwei with several significant upticks along the way, which first gained momentum during DeFi summer, as per Etherscan.

While the high fees on the second-largest network continue to price out the smaller users due to high activity on the platform, it goes without saying people are still using it and paying the fees.

“You pay high fees now because it’s the most useful chain by far. The catalysts coming will be the most obvious in retrospect,” said Kyle Davies, co-founder of Three Arrows Capital.

The consistent growth in usage can further be seen in transactions settled by the Ethereum blockchain, which has reached $1.5 trillion in transactions in Q1 2021.

Eoin Treacy's view -

There has been a deal of interest in the alt-coins as bitcoin’s price has increased. That’s a normal response from investors who are drawn to the promise of quick gains. They look for catch-up potential as the primary asset rises and the cost of participating increases.



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April 21 2021

Commentary by Eoin Treacy

April 20 2021

Commentary by Eoin Treacy

April 20 2021

Commentary by Eoin Treacy

April 20 2021

Commentary by Eoin Treacy

Oatly Reveals Growing Losses, Revenue in U.S. IPO Filing

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

Oatly Group AB, the vegan food and drink maker, has filed for a U.S. initial public offering.
The Malmo, Sweden-based company, in a filing Monday with the U.S. Securities and Exchange Commission, listed an IPO size of $100 million, a placeholder that will likely change.

Oatly reported a $60 million loss on $421 million revenue in 2020, compared with a loss of $36 million on revenue of $204 million a year earlier.

The company counts Chinese conglomerate China Resources Co., Swedish private equity firm Verlinvest and Blackstone Group Inc. among its biggest shareholders, the filing showed. Morgan Stanley, JPMorgan Chase & Co. and Credit Suisse Group AG are leading the offering. Oatly plans to list on Nasdaq Global Select Market under the symbol OTLY.

Eoin Treacy's view -

Oatly has spent a great deal of money already on getting into supermarkets and cafes. That begs the question where the additional money from an IPO will be spent? Perhaps it will simply compensate the initial backers as they transfer ownership before it eventually goes bust. There is certainly an increasingly active health food market but Oatly does not own a patent on producing oat milk. Competition is inevitable and will be expensive to fend off.



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April 20 2021

Commentary by Eoin Treacy

Trafigura Bets on Green-Nickel Squeeze in Defiance of China Cure

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

 

Nickel is already one of the most carbon-intensive metals to produce. Now Tsingshan has come up with a way of using a type of low-grade ferronickel called nickel pig iron in its plants in Indonesia to produce metal suitable for batteries, offsetting the carbon intensity with renewable energy. Some analysts and investors, including Trafigura, have questioned whether the process will be accepted by increasingly eco-conscious automakers.

“The technology is definitely real, but does not meet ESG standards,” said Jon Lamb, portfolio manager at metals and mining investment firm Orion Resource Partners. “As consumers are focused on the lifecycle carbon intensity of their supply chains it is difficult to see how this production would earn a spot in these supply chains.”

But for Matt Fifield, managing partner at Pacific Road Capital, Tsingshan’s announcement means more players in the game.

“The game itself is actually how do we put nickel units into a growing nickel market,” he said. “There will be more Tsingshans, there’ll be more people with breakthrough technology that will be able to create battery-grade nickel feed.”

According to mining magnate Robert Friedland, there are a lot of “fantasies” about where battery-grade nickel is going to come from.

“The automobile industry is not going to nuke hundreds of thousands of acres of tropical jungle in Indonesia and dump the tailings in the ocean and try to convert ferronickel into batteries,” he said during an industry event last week. “That’s disinformation or whistling in the dark.”

Eoin Treacy's view -

Carbon hurdles are only going to grow higher for European businesses. The nickel market is a prime example. European automakers will be held to account for the carbon intensity of the materials they use. That’s particularly true as Germany’s Green Party looks set to benefit from a pandemic electoral upset for the CDU. It is very questionable whether Chinese producers will be held to the same high standard. That creates a significant cost of production disparity and particularly since China is the world’s largest car market. 



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April 20 2021

Commentary by Eoin Treacy

Chemical Maker Elementis Rejects Third Deal Offer in Five Months

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

U.K. specialty-chemical company Elementis Plc turned down a third acquisition offer in five months, a move that risks further irritating investors who have missed out on potential deals.

Rival Innospec Inc. said Tuesday it is no longer considering an acquisition of Elementis after the latter company’s board rejected a 160 pence per share offer made late last month. Elementis shares pared a gain of as much as 22% to trade up just 1% at 137 pence.

Elementis rebuffed two earlier offers that another U.S. foe, Minerals Technologies Inc., made in November of last year. J O Hambro Capital Management Ltd., a top investor in Elementis at the time, told Bloomberg News it had concerns about management’s strategy and the board’s refusal to enter into discussions with Minerals Technologies. Sky News first reported on Monday that Elementis had
received takeover interest from Innospec.

Eoin Treacy's view -

Refusing three takeover offers in the space of a year raises big questions for the current management team at Elementis. They are either going to have to come up with a plan to realise the value these suitors see or fire the CEO and accept an offer. Either way, significant corporate changes lie ahead.



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April 19 2021

Commentary by Eoin Treacy

April 19 2021

Commentary by Eoin Treacy

Why Is Bitcoin Tumbling and What Is the Outlook for Prices?

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

As digital assets make further inroads with both retail and institutional investors, regulators across the world are taking a closer interest.

On Friday, the Turkish central bank said it would ban their use as a form of payment from April 30 and would prohibit companies that handle payments and electronic fund transfers from processing transactions involving crypto platforms.

There was also online speculation over the weekend that the U.S. Treasury is poised to crack down on money laundering carried out through digital assets. The Treasury declined to
comment.

Other sources of regulatory pressure include central banks’ plans to create digital currencies such as China’s for the yuan, and the ban of cryptocurrency mining in Inner Mongolia, long an industry favorite because of its cheap power.

“We will see more regulation coming,” Eva Ados, chief investment strategist at asset manager ERShares, said on Bloomberg TV, warning investors to be “very careful.” “We think there is going to be even more volatility going forward.”

* Overexcitement
Any big rally offers potential for the market to get ahead of itself. That’s the view of Galaxy Digital founder and long-time crypto bull Michael Novogratz, who wrote on Twitter he sees the retreat as a healthy correction.

Mike Novogratz @novogratz
With hindsight it was inevitable????????. Markets got too excited around $Coin direct listing. Basis blowing out, coins like $BSV, $XRP and $DOGE pumping. All were signs that the market got too one way. We will be fine in the medium term as institutions coming to the space.
Sent via Twitter for iPhone.

* Idiosyncratic factors
Other things could be adding to the mix. Industry news site CoinDesk reported Saturday that power outages in parts of China had knocked out a significant amount of Bitcoin mining capacity, which reduced the overall processing power of the cryptocurrency’s network.

There’s also the timing.
“Bitcoin goes crazy on weekends because it’s one of the few markets open to trade in,” Kyle Rodda, a Melbourne-based market analyst at IG said. “And it’s lost some buying support.”
 

Eoin Treacy's view -

Direct listings put no limit on the quantity of stock that can be sold directly to the public on the first day of trading. In a normal IPO there is a defined quantity of stock than can be sold and there are lockups for insiders that prevent them from selling immediately. Direct listings don’t have those controls. One way to look at it is direct listings prevent dilution of existing shareholders ownership. Another is they afford insiders the ability to liquidate their positions in one fell swoop. It looks increasingly clear that Coinbase insiders sold $5 billion of shares on the first day of trading. 



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April 19 2021

Commentary by Eoin Treacy

How fintech companies are wrestling with commercial banks in Nigeria

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

Nevertheless, while banks have the customer base and staff numbers to tackle the disruptive potentials of fintech startups, their responses have been quite passive.

Fintech companies like Paystack, PiggyVest, Kuda Bank and others are innovating past traditional institutions by making digital financial services like lending, savings, or investing readily available to people. They have been able to recognize the pain points for users, which have not been addressed by commercial banks.

Other fintech startups have fueled the growth of alternative lenders which offer both higher yields to investors and faster, cheaper, more convenient loans for borrowers compared to traditional banks. Startups like Carbon and Branch offer lower loan rates than commercial banks and this is mostly because fintech companies are not subject to the operational costs involved in running a traditional bank with multiple branches.

In an exclusive interview with Nairametrics, Femi Oshinlaja, the COO of Cassava Fintech, a pan-African Fintech Group that enables digital financial services for Africa’s mobile consumers, explained why digital solutions are fast spreading across the African continent by stating;

“With the growth in smartphone penetration and greater pervasiveness of the internet, we see the convergence of the online channels with more consumers opting to use digital channels to send money home as they see the convenience of doing so from the comfort of their homes and not having to queue to make the transaction in addition to the affordability of the online option.”

Eoin Treacy's view -

Massive populations of young ambitious people represent outsized potential demand for banking and credit services. Since the vast majority of Africans have no experience of the traditional banking relationship, they represent fertile growth for the fintech sector. As a result, Africa is likely to where we see active efforts to introduce a blanket form of digital payments.



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April 19 2021

Commentary by Eoin Treacy

Midas Touch

Thanks to a subscriber for the report from Celtic Gold which may be of interest to subscribers. Here is a section on seasonality:

In the current year, the gold price seems to be running two months ahead of its seasonal pattern established over decades. The top on January 6th was followed by a clear wave down lasting almost three months until the end of March. This correction would actually have been more typical for the period March to June. With the double low reached at the end of March, the beginning of the usually strong summer phase would be conceivable from May or June this year. In the short term, seasonality continues to urge patience. At the very latest, the gold price should be able to take off again from the beginning of July.

Eoin Treacy's view -

The re-opening of the Chinese gold import window and the bottoming in demand from India represent examples of Asian buying looking to accumulate on weakness. Meanwhile, investment demand continues to moderate as ETF holdings remain under pressure. That suggests institutional buyers have been sufficiently chastened by the decline to want to wait of clear evidence of a bottom before recommitting.



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April 19 2021

Commentary by Eoin Treacy

Email of the day on pre-hospitalisation treatments for COVID-19

Yet another conspiracy theorist??? This cardiologist testifying to the Senate committee is worth listening to. If we believe what he is saying (and I do) we could have saved many a life in those aged care homes in Melbourne when these b/s medical officers were advising against alternative treatments to be given to the old folks who were dying like flies whilst waiting for the elusive jab. Makes my skin crawl with anger. Wake up people, something is very wrong. Please listen to this professional air his views.

Eoin Treacy's view -

The response to the novel coronavirus has been characterised by panic and that remains the case today. The only way to appeal to a panicky crowd is to trade in absolutes. The panacea offered by vaccines is an absolutism solution. That’s the primary reason for the championing of the vaccine solution.



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April 16 2021

Commentary by Eoin Treacy

April 16 2021

Commentary by Eoin Treacy

China opens its borders to billions of dollars of gold imports

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

 

About 150 tonnes of gold worth $8.5 billion at current prices is likely to be shipped following the green light from Beijing, four sources said. Two said the gold would be shipped in April and two said it would arrive over April and May.

The bulk of China's gold imports typically comes from Australia, South Africa and Switzerland.

The People's Bank of China (PBOC), the country's central bank, controls how much gold enters China through a system of quotas given to commercial banks. It usually allows metal in but sometimes restricts flows.

"We had no quotas for a while. Now we are getting them ... the most since 2019," said a source at one of the banks moving gold into China.

The size of the shipments signals China's dramatic return to the global bullion market. Since February 2020, the country has on average imported gold worth about $600 million a month, or roughly 10 tonnes, Chinese customs data show.

And
 
India's demand for bullion has also rebounded from a pandemic-induced slump, with record-breaking imports in March of 160 tonnes of gold, an Indian government source told Reuters this month.

Eoin Treacy's view -

India and China are the world’s largest consumers of gold. India’s demand collapsed in 2020 and China has been very quiet both about how much gold it holds and how much is imported. Those have been contributing factors in the decline of gold since the August peak.



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April 16 2021

Commentary by Eoin Treacy

Porsche's Electric Taycan Sales on Course to Eclipse Iconic 911

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

“Established models have supported this excellent result along with the latest additions to our product range, above all the new model variants of the all-electric Taycan,” Porsche sales chief Detlev von Platen said of the brand’s 36% first-quarter surge. “We can look back on a very positive start to the year.”

The Taycan, which Porsche recently flanked with a more spacious version, is a litmus test for the carmaker’s costly shift to electric vehicles. Boosting EV sales with Porsche will be key to maintaining healthy margins as the division is VW group’s biggest profit contributor by far.

Porsche’s total global deliveries rose to 71,986 vehicles in the first quarter, driven mainly by demand in China, its largest market. The compact Macan SUV was the brand’s best-selling model, ahead of the larger Cayenne. Porsche will launch a battery-powered version of the Macan next year that’s underpinned by a new platform for upscale electric cars co-developed with sister brand Audi.

Porsche remains optimistic about business prospects this year even as a global shortage of semiconductor parts disrupts production plans across the industry. Order books “continue to develop very well,” Von Platen said.

Eoin Treacy's view -

Introducing new technology at a high price point before filtering it down to cheaper models in subsequent years has been the go-to model for automakers. Nothing has changed. The positive reception the Taycan has received will fortify the mood at Volkswagen that they have made the correct decision to bet on electric vehicles.



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April 16 2021

Commentary by Eoin Treacy

U.S. Infrastructure Plan May Lift These Three Brazilian Stocks

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

Two weeks ago, Biden unveiled a $2.25 trillion plan to overhaul the country’s physical and technological infrastructure. He has said the plan needs to go far beyond bridges and roads and has called for investment in electric vehicles, renewable power and the electric grid.

Shares of Gerdau and Tupy are up 27% and 15% this year, respectively, while the benchmark Ibovespa index is down 0.6% and Weg is little changed.

“Limited geographical diversification puts a cap on Brazilian companies seizing this moment, but we can see some clear winners,” the analysts said. “Although we believe they have not gone unnoticed by the market, recent performance indicates that the impact is likely larger than what is currently priced in.”

Eoin Treacy's view -

Brazil is currently dealing with the challenge of rising pandemic case numbers and deaths. That’s a near-term challenge for the economic recovery and it might be a few months before the worst is over. 



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April 15 2021

Commentary by Eoin Treacy

Video commentary for April 15th 2021