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September 17 2020

Commentary by Eoin Treacy

Video commentary for September 17th 2020

September 17 2020

Commentary by Eoin Treacy

Guide to the 2020 Elections

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

We view the congressional contests as nearly as important in shaping the Washington power balance as the vote for the top post. The House of Representatives seems safely Democratic. The required net gain of 18 seats for a GOP majority appears out of reach.5

However, increasingly rare split tickets culminated in a clean sweep of all 34 Senate races by the winning party in the presidential election of 2016.6 A similar correlation is shaping up again for 2020. Presidential polls have moved toward Biden, and a recent Cook Report estimates that  1) 6 of the 23 Republican seats up for election are toss-ups and 1 leans toward the Democrats; and 2) no Democratic seats are toss-ups and just one of the 12 exposed Democratic seats leans Republican.7 These numbers could shift if President Trump regains the upper hand.

We expect only a muted market reaction to any delays in reporting due to voting by mail, much like the market’s limited reaction to post-election limbo in November and December 2000.8 Turnout remains tough to predict. Since 1960, a turnout of 56% or more of the eligible voters has coincided with one-party government (see Chart 2 below). Biden must balance his outreach to progressives during the final weeks of the campaign, to energize his campaign and to boost voter turnout, against alienating moderates inside and outside his party.

One factor to watch in 2021 will be whether the Senate votes to end the filibuster, a 60-vote procedural hurdle. We acknowledge the risk that the Senate may abolish the filibuster but still expect divisions between moderates and progressives within the Democratic Party to prevent policy swings to ideological extremes. Consequently, the most divisive proposals from the campaign trail seem unlikely to become laws.

Eoin Treacy's view -

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

Back in 2000 the world was mesmerized by the question of whether “hanging chads” should be counted as votes. In the end the Presidential election result hinged on only several hundred votes in Florida.

This year we are likely to see legal cases dominate races in a host of states. The question of mail-in voting is already topical. The US Postal Service is in no way prepared for the volume of mail it is going to be required to process over the coming seven weeks. Checking the identity and eligibility to vote of mail-in ballots is going to be time consuming at best. That is assuming most are valid and they arrive in time which is by no means guaranteed.



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September 17 2020

Commentary by Eoin Treacy

Australia Unemployment Drops as Half of Jobs Lost Recovered

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

The data’s strength was surprising because the period spanned Melbourne’s shift to Stage 4 restrictions and a curfew to contain a rapidly spreading outbreak, as well as nervousness in neighboring New South Wales that it was headed down the same path. The labor market’s ability to absorb this weakness and maintain its recovery is testament to the government’s signature JobKeeper employment subsidy -- that will extend into 2021 -- and central bank stimulus.

Self-employed workers drove the monthly jobs increase. As part-time jobs returned at twice the pace of full-time, the ubiquitous food delivery services, with its riders pedaling the streets of Australia’s cities, are expected to be responsible for much of this rise.

“The upshot is that the unemployment rate is now unlikely to climb to 8.5% over the coming months as we had anticipated, let alone the 10% predicted by the RBA and the Treasury,” said Marcel Thieliant, senior economist for Australia at Capital Economics. “Indeed, with restrictions in Victoria set to be loosened toward year-end, employment should continue to rise.”

The Reserve Bank of Australia, which has kept its benchmark interest rate near zero since March, when it began buying government bonds to ensure the yield on three-year remained around 0.25%, had predicted the jobless rate would climb to around 10% later this year.

Eoin Treacy's view -

Australia has successfully contained the coronavirus outbreak in Melbourne but the whole economy benefits from the monetary and fiscal stimulus to aid Victoria. With the RBA’s cash target rate at 0.25% Australia’s higher growth sectors that can benefit from access to abundant liquidity should continue to prosper.



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September 17 2020

Commentary by Eoin Treacy

GE Surges as Culp Predicts Positive Cash Flow in Second Half

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

Key markets are stabilizing and GE is making “good progress” in cutting costs by $2 billion and saving $3 billion in cash to contend with the coronavirus pandemic, Culp said. While the recovery will be gradual, results are improving and GE is poised for continued cash-flow gains through the end of the year, he
said.

“I sit here today feeling very confident about where we are and where we’re going despite all of the trials and tribulations that Covid has certainly thrown at us,” Culp said at a Morgan Stanley conference Wednesday.

The CEO’s optimistic tone marks a turnabout from late July, when he stopped short of saying GE would generate free cash flow in the second half. The pandemic has prompted an unprecedented collapse in air travel, gutting demand for the company’s jet engines and crimping sales of other products such as gas turbines and medical equipment.

Eoin Treacy's view -

Manufacturers of big pieces of equipment that require teams of people to operate were hit hard by COVID-19. However, a number had been trending lower for a long time before pandemic hit and rationalisation plans were already well underway. There is no doubt that the ill effects of the lockdown are non-trivial but valuations are much improved and a return to profitability is likely to be rewarded by investors.



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September 16 2020

Commentary by Eoin Treacy

Video commentary for September 16th 2020

September 16 2020

Commentary by Eoin Treacy

Fed Will Wait See the Whites of Inflation's Eyes

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

A brighter economic outlook was not paired with any pulling-forward of rate-hike projections -- in fact the opposite. The FOMC is signaling via projections and upgraded forward guidance that it does not expect to raise rates even if the jobless rate hits 4%. When unemployment hit that mark during the last expansion, the funds rate was already above 1% and steadily rising.

The Fed updated policy guidance after adopting its new inflation-targeting framework. New guidance entails achieving both inflation and the full employment targets.

The Fed’s assessment of “considerable risks” surrounding the economic outlook over the medium term remained in the statement, signaling that officials have not taken much comfort from recent better-than-expected activity and labor market data.

The Summary of Economic Projections, which extended forecasts into 2023, included an upgrade to GDP growth in 2020 and a downgrade to the unemployment rate throughout the horizon. The lack of action on the fiscal-aid front likely led to less optimistic projections for 2021 and 2022. The fed funds rate central tendency forecast indicates rates remaining at the zero-lower bound in 2023.

Assuming the economy rebounds by 28% annualized in the second quarter, as we project, U.S. GDP will need to grow by 3.4% in the fourth quarter to achieve the Fed’s forecast of -3.7% for the full year. This is slightly above our projections for growth of 2.5% in the fourth quarter and -4.0% for the year.

Eoin Treacy's view -

The Fed is hell bent on ensuring deflation does not become entrenched. That means interest rates are going nowhere for years. Vaccines are likely to be permissioned in October and will be widely available early next year. As the economy opens up, cash-rich consumers are going to make up for lost time and will leap back into social activities. That will boost velocity of money reading from the incredibly depressed level it is at right now.



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September 16 2020

Commentary by Eoin Treacy

12 frightful slides before Halloween: Stocks boil and bubble, investors toil and trouble

Thanks to a subscriber for this report from Stifel which contains a number of insightful charts and may be of interest. Here is a section:

Eoin Treacy's view -

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

The long-term charts contained in this report are helpful from the perspective of an investor either looking to monitor the potential for a bubble to evolve in the tech sector or the potential for cycles to rebound from depressed levels as a global recovery takes hold.



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September 16 2020

Commentary by Eoin Treacy

Bull Case for Chinese Commodities Enhanced by Stronger Yuan

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

Elsewhere, Shanghai is taking steps to promote hydrogen vehicles, with a plan to get 10,000 cars on the road by 2023. Just this week, Sinopec has flagged its intention to include hydrogen in retail fuel stations, while top vehicle-maker SAIC Motor said it’s accelerating its push into the alternative energy source.

And also in the news, Cargill has bought a new soy-processing plant in China as the nation’s pig herd recovers from the ravages of swine fever. Hog numbers expanded for the seventh consecutive month in August, signaling growing confidence among breeders, according to the farm ministry.

Eoin Treacy's view -

Hydrogen is the market which has long been promised but never really made it into commercial reality. The question today is whether all the good will in terms of investment in renewables and technological innovation can translate into reducing the cost of production to economic levels. The low price of natural gas is a big enabler but the green lobby won’t be happy until the process is fossil fuel free.

This report from Jeffries may be of interest. Here is a section:
 



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September 15 2020

Commentary by Eoin Treacy

Video commentary for September 15th 2020

September 15 2020

Commentary by Eoin Treacy

China Gives Markets Just Enough Support, Lets Yuan Strengthen

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

“The PBOC is sending a signal that it will not tighten monetary policy quickly, but also it’s less likely to use broad easing measures such as a reserve ratio cut,” said Xia Le, chief economist at PingAn Digital Economic Research Center. “This will benefit government bonds in the short term. But in the longer run, the performance of the debt is more dependent on China’s economy and the U.S. election.”

The yield on 10-year government bonds dropped 4 basis points to 3.11% as of 4:15 p.m. in Shanghai. The yuan last traded at 6.7815.

The PBOC offered 600 billion yuan ($88.1 billion) of one-year funding with the medium-term lending facility, according to a statement. That will more than offset the 200 billion yuan in loans that come due on Thursday, implying a net injection of 400 billion yuan, the largest monthly addition since July 2018. It kept the interest rate on the funds unchanged at 2.95%.

Chinese lenders -- the main buyers of government debt -- are compelled to buy 1.13 trillion yuan of new debt this month and repay 1.7 trillion yuan of short-term interbank debt. Financial institutions are also hoarding funds for quarter-end regulatory checks. Adding to the liquidity strain is the authorities’ crackdown on high-yielding financial products, which has limited their ability to attract deposits.
 

Eoin Treacy's view -

Chinese stimulus has taken a slightly different path to that followed by the Fed or ECB but it is certainly present. China’s steel and aluminium production are hitting new highs and Chinese demand for copper is the primary factor behind recent strong pricing. The clear message here is that China is pulling on the traditional levers for growth which is spurring infrastructure and industrial development. They clearly intend to come out of the pandemic in a stronger position than before they went in.



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September 15 2020

Commentary by Eoin Treacy

Industrials Conference: Strategy Sector Views + Analyst Stock Picks

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

Eoin Treacy's view -

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

Media commentary continues to focus on the number of new cases of COVID-19 but that is an irrelevant figure. The numbers of hospitalisations and deaths and the fear that healthcare systems would be overrun was the reason for locking down economies. The reality today is even in countries where the number of cases is increasing, the hospitalization rate has not increased because most newly infected people are younger. Obviously, there are risks that younger people will infect older people but that is a manageable risk compared to the financial stress of total cessation of economic activity.



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September 15 2020

Commentary by Eoin Treacy

Gilead and Merck's Billion Dollar Bets Face Tests as Ink Dries

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

The European Society for Medical Oncology meeting, which begins this week, will be headlined by results from Immunomedics Inc. -- which Gilead is buying for about $21 billion; and Seattle Genetics Inc., which drew more than $1 billion dollars in an investment and partnership from Merck.

The meeting will offer investors a peek into the blockbuster hopes for Immunomedics’ lead cancer drug and provide Merck holders added details on the effectiveness of a cancer drug the company has signed on to help bring it to patients.

Eoin Treacy's view -

Innovation in the healthcare sector has long been outsourced to biotechnology companies. Experimentation tends to be resource hungry and it is difficult to predict what will eventually become a commercial product. The answer has been to allow early stage investors take the start-up risk with the promise of the best solutions being eventually bought out at a substantial premium. That model ensures a robust pace of M&A activity work.



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September 14 2020

Commentary by Eoin Treacy

Video commentary for September 14th 2020

September 14 2020

Commentary by Eoin Treacy

The Age of Disorder

Thanks to a subscriber for this report by Jim Reid from Deutsche bank. Here is a section:

Eoin Treacy's view -

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

The fall of the Iron Curtain and ensuing spread of liberalism greatly enhanced the argument for globalisation and offshoring. The process lifted billions out of abject poverty and into the middle classes. Unfortunately, it also had a levelising effect which robbed lower middle class, less educated people in developed markets of their likelihoods.

The low-end service jobs that replaced manufacturing and mining do not offer the same compensation. That has hollowed out the middle class in much of the developed world. More reliance on social services and debt accumulation papered over some of the cracks but the credit crisis, housing busts and austerity have contributed to the rise of populism. That is a global phenomenon and is at its root a rebellion against the status quo.



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September 14 2020

Commentary by Eoin Treacy

Email of the day - on the summer or love versus Woodstock

You have recently, on a couple of occasions, referred to 1969 as the summer of love. This is incorrect; it was actually 1967. (I remember it well) The confusion arises over the famous Woodstock Festival which did occur in the summer of 1969.

Eoin Treacy's view -

Thank you for pointing out this error. Based on data from Wikipedia, the summer of love in 1967 attracted 100,000 people while Woodstock in 1969 attracted 400,000. In between, we had some of the most disruptive protests any one had seen in years.



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September 14 2020

Commentary by Eoin Treacy

Email of the day on moving averages on daily charts

I trust this message finds you hale and hearty.

Your recent article on moving averages (50 MA, 200MA) showed these on daily charts.

As a rule, I was under the impression that these MAs applied only to weekly charts, especially the 200MA to indicate the trend mean.

Eoin Treacy's view -

Thank you for this email and thank you for the well wishes. I’ve long admired and followed your regime of overdosing on fruits and vegetables which I am convinced has played a role in my resilience to illness over the decades. I’ve never had to take a day off for personal illness.

Unfortunately, the air quality in Los Angeles at present leaves a lot to be desired. The Bobcat fire is about 30 miles away and there has been very little wind. The October fires were only three miles away and the smoke blanketed us. These ones are not as bad, for me, but the air justifies wearing a mask outside regardless of the additional risk of coronavirus contagion.

Turning to moving averages. We have always focused on weekly charts because historical perspective offers valuable insight into the overall trend that is easily lost with daily charts. However, I posted daily charts last week to highlight where the levels are relative to the current prices. On our charts the calculation of where the moving average resides will be the same on a daily, weekly or monthly chart.



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September 14 2020

Commentary by Eoin Treacy

ARM: UK-based chip designer sold to US firm Nvidia

This article by Leo Kelion for the BBC may be of interest to subscribers. Here is a section:  

But experts say one risk Nvidia faces is that the takeover could encourage ARM's wider client list to shift focus to a rival type of chip technology, which lags behind in terms of adoption but has the benefit of not being controlled by one company.

"ARM is facing growing competition from RISC-V, an open-source architecture," wrote CCS Insight's Geoff Blaber in a recent research note.

"If its partners believed that ARM's integrity and independence was compromised, it would accelerate the growth of RISC-V and in the process devalue ARM."

Mr Blaber also suggested regulators might block the deal.

"This process will take months if not years with a high chance of failure," he told the BBC.

Mr Huang has said that he expects it to take more than a year to "educate" regulators and answer all their questions, but said he had "every confidence" they would ultimately approve the investment.

Eoin Treacy's view -

The big question is just how much trouble is the Vision Fund in? ARM Holdings was deemed to be central to Softbank’s ambitions of carving out of a dominant position in future technological innovation. The sale of this key asset signals trouble.



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September 11 2020

Commentary by Eoin Treacy

September 11 2020

Commentary by Eoin Treacy

Free Daily Email Outage

Eoin Treacy's view -

A number of subscribers have written in to report they have not received the free daily email since August 31st. We are aware of the issue and our IT people are working on the issue.

You can go read the latest abbreviated commentary on the website at any time. If you are a subscriber, please log in to access the full service at any time. The problem with the daily email does not affect your subscription.

I generally update the site around 10pm UK time except on Friday which generally takes longer to complete.

I do apologise for any inconvenience caused.
 



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September 11 2020

Commentary by Eoin Treacy

50-day Moving Averages

Eoin Treacy's view -

A moving average is a trend smoothing device that lags by definition. Two of the most commonly watched are the 200-day and the 50-day. The first is the rough average of a year of trading while the latter represents about a month of trading. Both represent potentially important psychological levels where investors reassess.

Nevertheless, markets tend to overshoot so looking at the region of the moving average is more fruitful than focusing on exact levels. That is particularly true since there are a number of different ways of calculating a moving average.

It’s an interesting time to think about the relevance of these moving averages. Generally, the 200-day is a useful barometer of the medium-term trend. However, during strong momentum moves, like we have seen since March, the 50-day is favoured. Part of the reason for that is because leveraged investors are incapable of tolerating deep pullbacks without liquidating positions.



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September 11 2020

Commentary by Eoin Treacy

A Legion of Day Traders Is Taking Over Korea's Stock Market

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

Known for their love of risk, individual investors appear to be changing the contours of South Korea’s broader market. They are the force behind the benchmark Kospi index’s 64% rebound from its March low -- the strongest performance in Asia in that period -- having bought a net 25.6 trillion won ($21.6
billion) worth of stocks since then even as foreign funds and institutional investors sold. In the U.S., the Robinhood craze means that retail investors now account for roughly 20% of equity trading, up from 15% historically, according to Bloomberg Intelligence analysis.

“Retail investors appear to be seeking short-term profits after hearing their next-door neighbors earned lots of money from stocks after the March selloff,” said You Seung-Min, chief strategist at Samsung Securities Co.

The activity of Korean short-term traders in September hasn’t been limited to typical darlings like preferred stocks or shares of healthcare firms. They have also dominated trading in blue-chip companies like Samsung Electronic Co., about 81% of value traded this month through Sept. 8, and SK Hynix Inc.,
almost 76%.

“Unlike previously, they are trading large-cap stocks as well because they believe some large-size firms may be able to make a huge profit amid the spread of the Covid-19,” You said.

Eoin Treacy's view -

The South Korea and Taiwanese markets are heavily oriented towards technology companies which has made them a natural destination for traders playing the stay-at-home momentum trade. South Korean retail traders were also highly active in the cryptocurrency markets in 2017. That experience may have emboldened them to be more aggressive in pursuing gains during this momentum move.



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September 11 2020

Commentary by Eoin Treacy

Hog Disease in Germany Means a Boost for Battered U.S. Farmers

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

The U.S. hog market had crashed in March, first as restaurants in the U.S. closed to slow the spread of the coronavirus and then as workers at meat plants started catching Covid-19. Absent employees and companies taking safety precautions forced pork plants to shut down, resulting in a nearly 40% reduction in output of the meat by early May.

Hog farmers left without a market euthanized animals and adjusted feed rations to slow the rate of weight gain in herds. While there is no official count of how many hogs were culled, CoBank estimated as many as 7 million. Now, months after plants reopened, pork plants were bidding up prices to buy hogs from farmers, even before the news out of Germany.

“We had all of that liquidation taking place and no one ever quantified that,” Dan Norcini, independent hog trader in Idaho, said by phone. “I’m starting to wonder if the impact of the liquidation is being felt and then the German news came, and it was like a one-two punch.”

Eoin Treacy's view -

2020 will probably be remembered as a year of plagues. Early this year there was the plague of locusts making its way across northeast Africa, India and China. Then we had the swine flu which ravaged herds in China, Next, the COVID-19 pandemic closed down the global economy for the first time ever. Fires have also been making headlines in Australia, Brazil and more recently in the USA. This year has lumped a decade’s worth of volatility inducing events into only a few months so it is reasonable to question whether this volatility will lead to short or long-term trend changes.



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September 10 2020

Commentary by Eoin Treacy

Video commentary for September 10th 2020

September 10 2020

Commentary by Eoin Treacy

Email of the day on investment trusts that invest in private equity from Jonathan Davis:

Private equity investment trusts are listed companies whose shares can be held in an ISA or SIPP, which is about as tax-efficient as you can get, in the UK at least.

Attached is a list of some of the largest - prices from the Association of Investment Companies as of yesterday morning. 

All bar a couple are trading at discounts, but note that they only publish NAVs at quarterly or six-monthly intervals, and often 2-3 months after the period end, so the estimated NAVs and the associated discount/premium to market price are always out of date and will not necessarily reflect recent market movements. Because of the virus the current published NAVs may be even more unreliable than usual, though a number have now published their Q2 valuations. There are industry valuation guidelines, which are generally widely followed and conservative, but different trusts do adopt somewhat different methods. Some are fund of funds, others invest directly. The basic approach is to apply public market multiples and/or realisation comparables.

Returns have mostly been good however over the last 10 years; until the Covid crisis, discounts have generally been coming in from the very wide discounts experienced during the global financial crisis, when many private equity trusts were heavily geared and suffered disproportionately (they are less so today). The current disparity in discounts partly also reflects the sectors that PE funds happen to favour: ones that focus on tech (such as HG Capital, the only PE trust I have owned) have naturally done better than some others. 

While ten year returns have been higher because of the big initial discounts, returns over five years have been broadly in line with the MSCI World index, so you have to decide whether that kind of return profile is worth paying for, given the higher fees, liquidity issues, gearing, discount volatility and relative lack of transparency compared to listed equity funds. Sometimes yes, sometimes not.

However, they are a diverse bunch and difficult to analyse/compare, so you really need to do your homework or take some specialist advice on which ones might be worth investing in today. Note that currencies in which they are traded are not uniform.

Does this help? Can provide some more granular detail if it helps. I do see some of the best brokers' research, but for regulatory reasons cannot unfortunately share it, least of all to the US market! Will be writing something about PE trusts and other alternative asset sectors in the next edition of the Investment Trusts Handbook out in December. 

All the best - keep up the good work.

Eoin Treacy's view -

Thanks very much to Jonathan Davis for sharing his expertise on this topic. Here is a link to the Investment Trust Handbook on Amazon but waiting for the 2021 version may be advisable if additional content will be included to reflect interest in private equity firms.



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September 10 2020

Commentary by Eoin Treacy

EU Considers Legal Action Over U.K. Plan for Brexit Breach

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

The EU may have a case to seek legal remedies under the Brexit Withdrawal Agreement even before controversial provisions in the U.K. internal-market bill are passed by Parliament, and would have a clear justification once the bill becomes law, according to the bloc’s preliminary analysis of the U.K. legislation.

Johnson is facing a backlash from the EU and from within his own ruling Conservative Party after his government said it is ready to break its commitments to the EU over the Irish border. With negotiations over a trade deal already deadlocked over state aid rules and fishing quotas, the controversy is fueling concern there may be no agreement by the year-end deadline, triggering tariffs between the U.K. and the world’s biggest single market.

“A no-deal is becoming more likely every day,” Manfred Weber, head of the main center-right group in the European Parliament, said Thursday in an interview with Germany’s DLF radio. “We have the feeling that Britain wants a hard Brexit for ideological reasons and as Europeans we need to prepare for the worst.”

Eoin Treacy's view -

There are three treaties or laws that are now in question and the UK looks like it is going to have to break one. The Act of Union created the UK. The Good Friday Agreement settled the Northern Ireland question and the Brexit agreement created a framework for the UK to trade with the EU post Brexit.



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September 10 2020

Commentary by Eoin Treacy

Desert Mountain Energy Announces Significant Helium Percentages in Two New Wells In Arizona

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

Based on normal accepted industry operation procedures, the company at this time and prior to further engineering and flow testing, would entertain a possible daily flow rate of between 4,100 and 5,600 MCFGPD based on aggregated production from both wells. The Company has compared these wells to the closest established and documented helium production located approximately 35 miles NE in the Pinta Dome Field.  Note: Desert Mountain Energy’s wells have been completed in members of the Pennsylvanian-aged Formations which are lower in depth than the helium productive Permian-aged Coconino Formation found at Pinta Dome (AZOGCC archives).  Production comparisons with a number of wells from the prolific Pinta Dome Field, specifically the Kerr-McGee Barfoot State#1, clearly shows that large artificial formation stimulation was not required to exceed the original projected calculated reserves by over 500%, over a 13-year production life (Olukoga 2016, AZOGCC Barfoot #1 well files).

Eoin Treacy's view -

There have been a number of articles over the last couple of years about the lack of new supply for helium, against a background of continued strong demand growth. Here is a link to an article from Forbes, dated April 2019, making a number of points about supply inelasticity meets rising demand. 



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September 09 2020

Commentary by Eoin Treacy

September 09 2020

Commentary by Eoin Treacy

Traders Are Getting Smarter About the Vaccine Race

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

It's not clear how big a deal this particular pause is. Trial halts aren’t uncommon or a sure sign of a significant problem. Health care news publication Stat reported Wednesday that the participant received the vaccine and not a placebo, but it's possible that the volunteer’s illness — reported to be a spine condition called transverse myelitis — is unrelated to the shot. They may have already had the condition, or this could simply prove to be a singular outlier. The range of possible outcomes includes everything from a quick restart to a longer delay that could create concern about vaccines that use similar technology, including an effort from Johnson & Johnson and Russia's already approved shot. With just one event, the former seems more likely than the latter, especially given the latest news from the FT on the trial’s possible quick resumption.

The pause may slow enrollment in AstraZeneca's trial if it restarts, and may affect other efforts. It may also incline companies and regulators to wait for a bit more safety data before approval. That's not such a bad thing if it builds confidence in the eventual result. Still, halting to track down an answer is the responsible move for volunteers, the company, and the vaccine race.

It’s clear that the world must proceed carefully in developing shots intended for millions. While approved vaccines are very safe and companies working on Covid-19 candidates have reported few red flags in small early tests, the human immune system is complicated and unusual reactions do occur. Only large-scale trials on a diverse population can determine whether a particular shot is safe for general use and differentiate outliers from deal-breakers. Big tests are especially crucial in a pandemic scenario with less time for early research.

Eoin Treacy's view -

There are over 150 candidates for COVID-19 vaccines and we only need one to work. This is a massive proof of concept exercise for genetic solutions. The reason it usually takes years to come up with a vaccine is because of the process of using dead virus or growing weakened samples.



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September 09 2020

Commentary by Eoin Treacy

ASEAN Strategy

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

Eoin Treacy's view -

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

One of the greatest advantages emerging markets have over developed markets is they get to skip stages of development. The rollout of remote working, more online services like shopping, entertainment and relocating business activities to the cloud is likely to have a much bigger impact on growth in developing countries because the leap in productivity gained is so much greater. That is likely to set up continued outsized growth for years to come.

 



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September 09 2020

Commentary by Eoin Treacy

India, China agree to hold Corps Commander level talks

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

In a detailed statement, the Army said on Tuesday that the Chinese troops were "attempting to close-in with one of our forward positions along the LAC and when dissuaded by own troops, PLA troops fired a few rounds in the air in an attempt to intimidate."

"It is the PLA that has been blatantly violating agreements and carrying out aggressive maneuvers, while engagement at the military, diplomatic and political level is in progress," the Indian Army said.

The Army's statement came after China claimed that Indian troops "illegally crossed" the LAC near Pangong Tso on Monday and accordingly Chinese troops were forced to take "countermeasures" to stabilise the situation.

It added that despite this provocation, the Indian troops exercised great restraint and behaved in a responsible manner.

"Indian Army is committed to maintaining peace and tranquility, however, it is also determined to protect national integrity and sovereignty at all costs," it further said and refuted the statement by the Western Theatre Command (one of the five commands of China's PLA) as an "attempt to mislead their domestic and international audience."

India recently outflanked China by taking control of strategic height near Pangong lake's southern bank. It thwarted an attempt by the Chinese army to transgress into Indian areas near the southern bank of Pangong Tso near Chushul in Ladakh.

India and China have been engaged in a standoff since April-May over the transgressions by the Chinese Army in multiple areas including the Finger area, Galwan Valley, Hot springs, and Kongrung Nala.

Eoin Treacy's view -

With the world focused on the chances of delivering a vaccine in the near term, it is worth remembering that the world keeps turning. For military planners the pandemic represents an opportunity to probe defences and the commitment of adversaries to continue with active resistance.



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September 09 2020

Commentary by Eoin Treacy

Email of the day - on investment trusts investing in private equity

I don't know if it would help your subscriber who asked about private equity, but I wondered if he was aware that some investment trusts in the UK offer some exposure. For example, Scottish Mortgage has about 20% of its assets in unlisted companies. 

There are probably others. Consult the Investment Trust handbook.

(I should say I own shares in Scottish Mortgage)

Eoin Treacy's view -

Thank you for this suggestion which I’m sure will be appreciated by other subscribers. I have also reached out to Jonathan Davis, one of the authors of the Investment Trust Handbook, and I will revert with whatever response he provides.



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September 08 2020

Commentary by Eoin Treacy

Video commentary for September 8th 2020

September 08 2020

Commentary by Eoin Treacy

Ep. 51 Brian Wesbury, Chief Economist, First Trust Portfolios

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

So the federal reserve by cutting interest rates to zero, pulling the 10-year treasury yield down to 0.5%, 0.6%, 0.7% that really boosts the value of a dollar's worth of earnings, and it allows PE ratios to be a lot higher. Now you can get to a place where the market is overvalued. People have worried for a very long time about quantitative easing, and they've called the market a sugar high, as a result of that, I've never, for the last 10 years, I did not buy into that because if you did that model, you take earnings and then discount them with the ten-year treasury, and then compare what you find to all of history. We kept seeing a market that was actually undervalued. it, it wasn't fully pricing in that low interest rate.

It wasn't ahead of itself on earnings. And that's still true today. my view is that the market as a whole, and I'm really talking about the U.S., but I bet this is the case, around the world, is not over-valued today. How could the market be at a record high with the economy hurting this bad, but it doesn't appear to me that we are overvalued today.

Partly because interest rates are as low as they are, but even if we use a higher interest rate, the market's still undervalued because profits just didn't get hit as hard as a lot of people feared early on. In fact, if you go back to the bottom. Of the market in March, April is really when we bottomed, the U S market was predicting an 80% decline in corporate profits. That's what we determined, back using that model, but then going backwards. and figuring out what the market was expecting, and that was way over done. They're going to end up falling maybe 20%, probably a little less than that this year, so the market was way oversold, in April, and that's one of the reasons why it bounced back so hard.

Eoin Treacy's view -

The discount rate is effectively zero so that means positive earnings have much greater value than when interest rates are high. In just the same way that low interest rates allow debt loads to increase, they also allow stock prices to increase. That puts a premium on growth because potential for higher earnings in future are more attractive than steady earnings today when interest rates are low.



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September 08 2020

Commentary by Eoin Treacy

Boris Johnson's Taste for Brexit Danger Could Doom EU Trade Deal

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

The prime minister could walk away this year and seek to re-open negotiations at a later date. “Our door will never be closed,” Johnson said. “We will of, course, always be ready to talk to our EU friends even in these circumstances.”

Crucially, though, Johnson is a politician who has shown himself to be flexible and often keeps people guessing until the last moment. He says he wants a deal. His officials insist he does, too, and there are still almost four months to go before the real deadline at the end of the year.

The leak of government plans to dilute parts of the Brexit withdrawal agreement sparked muted warnings from Brussels on Monday and private dismay from EU officials. There cannot be a trade deal if Johnson breaks his promises on the earlier divorce accord, the EU said.

In London, the premier’s team worked to contain the damage and play down any threat to the carefully crafted exit agreement.

After all, Johnson is a politician who loves to be loved. During a summer in which public pressure forced him to reverse plans repeatedly -- on issues including exam grading, wearing face masks, and local lockdowns -- Johnson has shown how much he cares about staying popular.

Opinion polls are studied closely in his Downing Street office. Currently they show only limited backing for leaving without a deal. Only a quarter of voters think that would be, as Johnson says, a “good outcome,” according to YouGov. Half say such a result would be “bad” or “very bad.”

How that sentiment shifts, or not, over the next four months may give the strongest clue to whether Johnson will change his mind.

Eoin Treacy's view -

It is very likely that the ambition of having an agreement in place by October was overly optimistic. As with most things in the EU, the negotiations are likely to come down to the wire in late December. Boris Johnson understands that you have to willing to walk away if you are to have any negotiating leverage. Holding out the prospect that the UK is willing to renege on treaties is part of the wider tapestry of brinksmanship.



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September 08 2020

Commentary by Eoin Treacy

Email of the day - on private equity growth opportunities

Recently Mr. Treacy mentioned that most of the growth and yield opportunities are currently in the Private Equity. I would appreciate Mr Treacy's view on UK tax efficient Venture Capital Trusts. I am considering them as they provide exposure to early stage companies and provide tax efficient investment. Does Mr. Treacy deem this a good vehicle or would he suggest any other investment instruments?

Eoin Treacy's view -

- Thank you for this email which may be of interest to subscribers. There are plenty of growth opportunities in the regular stock market. The success of the recent IPO market is a testament to that phenomenon.

However, there is a clear trend among institutional investors towards stuffing portfolios with “alternatives”. It’s an incredibly broad sector including everything from seed capital for new companies to timberland, real estate and gold.



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September 04 2020

Commentary by Eoin Treacy

September 04 2020

Commentary by Eoin Treacy

Margin trumps ounces as gold miners shine despite COVID-19

Thanks to a couple of different subscribers for this note from BakerSteel which may be of interest. Here is a section:

Eoin Treacy's view -

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

Value propositions have not been popular among investors who have had the pleasure of instant gratification in growth stocks for much of the last decade. A catalyst is required to spur interest and that is being delivered in the form of anxiety about the ramifications of the response to the coronavirus.



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September 04 2020

Commentary by Eoin Treacy

Tenth Annual Energy Paper

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

We expect some of the “base” decline from existing shale wells to be replaced by new wells; the harder question is by how much. Operating and development costs have declined, well productivity has improved and there are large sunk costs in Appalachia (i.e., lease agreement options) that may compel many producers to keep drilling irrespective of lifecycle economics. Furthermore, if the onshore shale boom fades, we might see a revival of US offshore oil & gas production in the Gulf of Mexico. US oil production is also very sensitive to price: $55-$65 oil prices could add 1-3 mm bpd to US production when compared with JP Morgan’s $40 base case WTI price forecast. Even so, the US may now be close to peak oil and natural gas production and peak energy independence given financial pressures on the shale industry, and environmental pressures discussed next.

Eoin Treacy's view -

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

This report is laden with interesting graphics and statistics which highlight the challenges of developing renewable as well conventional and unconventional energy solutions. The correlation between renewable stocks and oil prices broke down late last year. That was a meaningful event and suggested the market has moved on from thinking of renewables solely in terms of cost competition with oil. That implies an alternative set of metrics is now be used to value the sector.



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September 04 2020

Commentary by Eoin Treacy

Gold glitters, but other raw materials sparkle too

Thanks to a subscriber for this report from Bank of America Securities. Here is a section on aluminium: 

Eoin Treacy's view -

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

Considering the depth of the pullback on Wall Street yesterday and in the initial weakness today it would have been reasonable to expect a more pronounced impact on industrial resources today. In fact, the sector shrugged off tech sector volatility and a number of the industrial resources closed higher in a dynamic fashion.



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September 04 2020

Commentary by Eoin Treacy

September 03 2020

Commentary by Eoin Treacy

Video commentary for September 3rd 2020

September 03 2020

Commentary by Eoin Treacy

Stupid 'Rich' Skew in Apple, Greed Breaks Things

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

Jan $180 Strike Calls costs $4
Jan $80 Strike Puts costs $1

*Both options are $50 out of the money, approx data, BUT it is nearly 3x more expensive to buy upside risk in AAPL equity. Downside protection normally costs more than upside risk participation, NOT today. What does this mean? One large buyer has made a colossal splash in the market and the scent of greed has drawn thousands of other market participants into the dangerous game. Several clients in our institutional chat on Bloomberg have cited SoftBank as the original size buyer. We have NO IDEA if this is true, just that highly credible clients have made this reference several times over the last week. It’s a high-stakes game of musical chairs, the ultimate greater fool theory moment. The colossal call buyer has thrown meat in the water and drawn in the sharks, but unfortunately thousands of Robinhood minnows at the same time. When the large players’ exit, the little guy and gal will be left holding the bag.

Apple closed near $130, while the cost of speculative upside calls is weighted heavily against the buyer. Someone must have reached out to Buffett today because he can make a fortune in selling $AAPL upside calls.

Eoin Treacy's view -

Options volume has spiked higher over the last few months to hit multi-year highs. Options offer significant leverage to both the upside the downside and are among the primary vehicles for traders to take on outsized positions relative to their capital. The significant rebound in stay-at-home shares has resulted in an impressive momentum move which is not taking at least a breather. 



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September 03 2020

Commentary by Eoin Treacy

A Red-Hot Treasury Trade Starts to Unwind Every New York Morning

This article by Stephen Spratt and Edward Bolingbroke for Bloomberg may be of interest to subscribers. Here is a section:

One trader in New York, who asked not to be named as he isn’t authorized to speak publicly, said the buying earlier this week was dominated by accounts taking off bets against long-maturity debt, as popular so-called steepener trades are pared down. A flurry of Treasury futures action on Thursday offers further evidence that investors are unwinding these wagers or calling it quits.

Positioning for a steeper yield curve, where rates on long-dated debt rise more than those on shorter Treasuries, has been a hot strategy in bond markets in recent months on the expectation the Federal Reserve would take a more relaxed approach on inflation -- something that came to fruition at a virtual Jackson Hole confab on Aug. 27. Yet even as Wall Street strategists reiterated their “steepener” recommendations, 30-year yields have fallen more than 15 basis points to 1.35% Thursday, having risen from 1.22% at the start of April.

Eoin Treacy's view -

The yield curve spreads, whether one looks at the difference between the 10-year and the 2-year or the 10-year and the 3-month both share a key similarity following inversions. They have both surged higher to approach wides of between 250 to 300 basis points during recessions. That has not been possible on this occasion because central banks have not had room to cut interest rates by that much and bond yields are too low to create that wide a spread.



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September 03 2020

Commentary by Eoin Treacy

China Can Easily Cut Off More of Australia's Commodities Exports

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

Iron Ore
While the state-linked Global Times earlier this year raised the possibility that Australian iron ore supply could be targeted, it’s likely to be low on the list of possibilities. The country dominates China’s iron ore supply, accounting for more than 60% of its imports, with next-biggest supplier Brazil making up less than 20% so far this year.​

In fact, the trade is booming, with China importing a record amount of Australian iron ore in July. Still, investors will keep a close eye on any sign of tensions spilling over as even small moves to restrict the movement of Australia’s most valuable commodity -- worth about A$100 billion this fiscal year -- would send a powerful signal.

LNG
Australia has accounted for just less than half of China’s liquefied natural gas imports this year. The proportion has grown in recent years as new Australian projects came online, including two in Queensland in which Chinese oil majors are partners.

Those partnerships, along with long-term contracts that obligate Chinese buyers to purchase millions of tons of LNG a year from Australia well into the 2030s, make the trade flow a
more complicated candidate for disruption.

Eoin Treacy's view -

China’s demand for commodities is likely to remain robust for the foreseeable future but that will not deter the administration from using resources as a bargaining chip in trade talks. The reality, however, is rising living standards create demand growth for products and services. If China is going to succeed in its aims of creating a modestly wealthy society for its billion plus people that is going to entail continued imports. Obviously, it is more dependent on imports for some commodities than others.



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September 02 2020

Commentary by Eoin Treacy

September 02 2020

Commentary by Eoin Treacy

Fauci debunks theories of low CDC coronavirus death toll: "There are 180,000-plus deaths" in U.S.

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

“That does not mean that someone who has hypertension or diabetes who dies of Covid didn’t die of Covid-19. They did,” Fauci, director of the National Institute of Allergy and Infectious Diseases, told the program. “So, the numbers you’ve been hearing -- there are 180,000-plus deaths -- are real deaths from Covid-19. Let (there) not be any confusion about that.” 

“It’s not 9,000 deaths from Covid-19, it’s 180-plus-thousand deaths,” Fauci said. 

The CDC’s National Center for Health Statistics told CNBC in a statement that death certificates list all possible causes or conditions that lead to a person’s death, and there may be more than one listed.

There were more than 161,300 death certificates that listed Covid-19 among the possible causes of death as of Aug. 22, according to NCHS. About 6% of the certificates that mention Covid-19 list it as the sole cause on the death certificate. The remaining 94% included other causes alongside Covid-19. 

Eoin Treacy's view -

According to this table from the CDC’s website there have been 164,280 recorded deaths from COVID-19.

150,737 of those have been people over the age of 55.

That means 91.7% of deaths are from people over the age of 55. Of those, 94% had pre-existing conditions. There are 59 million over the age of 55 out of a total population of 281 million. 

The people most at risk are those who are already sick or have chronic conditions and who are over the age of 55. If you are younger than that and generally healthy, you have a lot less to worry about.



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September 02 2020

Commentary by Eoin Treacy

Bridgewater's Risk-Parity Shift Jolts a $400 Billion Quant Trade

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

“It is pretty obvious that with interest rates near zero and being held stable by central banks, bonds can provide neither returns nor risk reduction,” a team led by Co-Chief Investment Officer Bob Prince wrote in the July report.

Bridgewater’s famous All Weather portfolio has therefore been moving into gold and inflation-linked bonds, diversifying the countries it invests in and finding more stocks with stable cash flow.

The idea is to replicate the long-term positive returns typically generated by bonds while finding alternative ways to hedge a downturn in stocks, especially if higher inflation upends low-yielding nominal debt.

Risky Business
Bridgewater’s conviction that ultra-low yields are a game-changer for risk parity will resonate with many on Wall Street, who have also been fretting over the fate of traditional portfolios that allocate 60% to stocks and 40% to bonds.

According to the firm, about 80% of local-currency government bonds have been trading below 1%, which limits the room for such notes to rise in value during a bout of risk aversion since investors can simply hoard cash instead. That, combined with the potential for losses if yields jump from record lows, means that the world of government debt is potentially losing its function as a safety valve in portfolios.

Eoin Treacy's view -

Risk Parity is based on the correlation between rising stock prices and rising bond yields. The logic is that when investors are worried about stock market returns, they park excess cash in bonds. Over the years multiple strategies have evolved to size positions according to this correlation.



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September 02 2020

Commentary by Eoin Treacy

Email of the day on uranium pricing

Your ticker UXA1 COMB Comdty has not refreshed for a few days. Could you please look into this? Thanks

Eoin Treacy's view -

Thank you for this question. Here is the response I received from Bloomberg because it was not updating on their system either.

“There is no open interest on the current active contract, UXAU0 Comdty. The exchange only provides a daily settle price if there is open interest. Once there is a trade for the September contract, it will have open interest, and it will receive a daily settlement price.”

Reliable uranium pricing data is difficult to find. The 4th month continuation contract traded two contracts in September so far. I’m not going to change the ticker to address this because it would mess with the back history. The original uranium price ticker from Metals Bulletin, which had history back to 1996, stopped updating in 2017. That’s when I introduced the futures traded price. No other measure is reliable or up to date either because it is an extremely illiquid market.



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September 01 2020

Commentary by Eoin Treacy

Video commentary for September 1st 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar rebounds from intraday lows, gold and precious metals miners pause, stay at home stocks leap higher, Europe, UK ease, China firm, Indian rupee and Indian government bonds firm, lumber pauses. 



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September 01 2020

Commentary by Eoin Treacy

Shippers' ocean freight budgets 'about to explode' as rates hit new highs

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

Demand was strong enough to push rates up, even with cancelled sailings restored and carriers adding temporary and even new permanent services on the lane,” said Freightos CMO Eytan Buchman.

“With reports of rolled shipments and container shortages out of China indicating the extent of the demand rush, carriers will likely introduce another China-US GRI for September, which would be the sixth in just three months,” said Mr Buchman.

In his weekly US import update report, Jon Monroe, president of Jon Monroe Consulting and a representative for Worldwide Logistics, said the big US retailers were “experiencing a major surge in online orders”, and were converting many of their stores to fulfilment centres.

He said, however, that the substantial freight price hikes were taking their toll.

“Importers’ budgets are ballooning and, in some cases, about to explode from having to pay the extremely high cost of transport,” said Mr Monroe. “The record high rates will undoubtedly cause bankruptcies in the worst case, and major budget excesses in the best case, scenarios,” he warned.

Eoin Treacy's view -

There a couple of complimentary trends that have resulted in a significant bump in container shipping rates over the last month. The first is the surge in demand for new furniture as people flee the confined environment of the city for the space of the suburbs. Bigger houses need more tables, chairs, sofas, desks and TVs. These are bulky items so demand for 40ft containers has surged.

Shipping inventory has also declined because of the cost of compliance with IMO2020 regulations. The hit to demand during the lockdowns was likely a significant negative catalyst for what was already a highly pressured sector.



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September 01 2020

Commentary by Eoin Treacy

What to Watch in Commodities: Buffett, OPEC, Gold, Fed, La Nina

This article by Grant Smith, Anatoly Medetsky and Stephen Stapczynski for Bloomberg may be of interest to subscribers. Here is a section:

Less than a month after making waves with news of a move into Barrick Gold Corp., Buffett is again rocking the world of commodities. This time, Berkshire Hathaway disclosed stakes in five Japanese trading companies that dominate the nation’s energy and raw materials industries. The quintet are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp.

Berkshire’s stakes amount to a little more than 5%, but Buffett made clear that they could be increased. The trading houses are known as “sogo shosha” and have roots dating back hundreds of years. While they operate in areas like textiles and machinery, they derive much of their revenue from energy, metals and other commodities, supplying resource-poor Japan with essentials.
 

Eoin Treacy's view -

Following the commodity bust many investment banks closed trading desks. There were a number of leading commodity trading houses which went through very lean years and even today Noble Group is struggling to get out of bankruptcy. Many of the big commodity traders like Trafigura, Mercator, Cargill and Koch Industries are privately held. Picking up Japan’s big trading houses is a tangential way of playing in commodities for Berkshire Hathaway. It also speaks to the company’s familiarity with pricing the balance sheets of banks rather than commodity producers.



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September 01 2020

Commentary by Eoin Treacy

Rolls-Royce Disposal Raises Questions Over Balance Sheet

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

Rolls-Royce's GBP2 billion disposal announcement is materially more than what the market had in mind, and may imply a lower need for fresh equity to repair its balance sheet, Credit Suisse says. This raises questions as to whether the company was waiting for things to improve before a rights issue or taking the risk of seeing things get worse, the Swiss bank says. The lack of visibility on the balance sheet rebuild, persistent volatility in forecasts and the unattractiveness of the underlying investment case mean the stock remains unappealing for many investors, CS says. The bank has an underperform rating on the stock, and lowers the target price to 200 pence, from 210 pence. Shares are down 9% at 219.40 pence.   

Eoin Treacy's view -

As a major plane engine supplier Rolls Royce has been significantly negatively impacted by the Boeing 737 Max debacle. As if that were not enough the collapse in air traffic and cancellation of orders for new planes has been a double blow. The share is down more than 80% since early 2019 and made a new low today.



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August 28 2020

Commentary by Eoin Treacy

August 28 2020

Commentary by Eoin Treacy

August 28 2020

Commentary by Eoin Treacy

Wind Turbine Behemoth Plans for Future by Getting Into Hydrogen

This article by William Mathis and Laura Millan Lombrana for Bloomberg may be of interest to subscribers. Here is a section:

It could be a compelling model. Danish utility Orsted A/S is already exploring a number of hydrogen projects for its wind farms and Royal Dutch Shell Plc plans to produce the gas from a park it’s going to build off the Dutch coast. Making and selling hydrogen could provide a new source of revenue for wind projects that would offset the risk in the sometimes volatile electricity market.

No one before has used wind power alone, without a grid connection, to produce hydrogen, Nauen said. It’s a project that will provide insight that could be crucial to scaling up the technology to much larger turbines and wind farms both on land and at sea.

Earlier this year, Siemens Gamesa announced plans to build a 14-megawatt offshore turbine with a rotor diameter of 222 meters (728 feet), a few meters larger than the previous record.

The company expects to conduct testing at the hydrogen pilot from October to December and then start hydrogen production in January. A Danish hydrogen fuel company called Everfuel will distribute the gas for vehicles including taxis and buses to use in Copenhagen.

European governments aim to spend billions of dollars to help nurture domestic industries to produce hydrogen. The funding could help scale production and bring down costs.

Eoin Treacy's view -

Europe and Japan’s legacy automotive sector has been developing hydrogen fuel cells for decades with little to show for the investment. There was never a catalyst to spur the change from reliable internal combustion engines. The clean diesel scandal and competition from battery-driven alternatives has forced these companies to do something; anything. They don’t have experience with battery innovation but they have been developing hydrogen for a long time.



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August 28 2020

Commentary by Eoin Treacy

BOJ Is Said to See No Change in Policy Stance as Abe Quits

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

While the announcement of Abe’s resignation caused the yen to gain as much as 1% in the evening in Tokyo, the BOJ will continue to closely watch market developments, according to the people. The bank maintains its pledge that it will act without hesitation if necessary, the people said.

With the economy still healing from the biggest contraction in the post war era in the second quarter, an excessively strong yen will put pressure on the central bank to act if sustained. Abe came to power in 2012 pledging aggressive monetary easing and handpicked Kuroda to deliver it. Kuroda soon launched the “shock and awe” monetary bazooka, which increased asset purchases, leading the BOJ’s balance sheet to swell significantly larger than its global peers.

BOJ watchers will be closely monitoring who will replace Abe, because Kuroda is seen to have coordinated well with the government under the premier. The latest symbolic move was a joint statement between Kuroda and the government as the pandemic battered the economy.

Eoin Treacy's view -

Abe was driving force behind the global transition to simultaneous monetary and fiscal stimulus. His policies have been adopted at least in part by a host of countries as interest rates have trended towards zero.



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August 28 2020

Commentary by Eoin Treacy

Volatility Markets Brace for Election Drama Like Never Before

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

Traders across major asset classes are sending the same message: Prepare for what could be the most-contentious U.S. presidential elections in decades.

One measure of hedging in the stock market is higher than at any point in the past three presidential elections. In the interest-rates market, implied volatility is well above levels reached in 2016 or 2012. And three-month implied volatility in the dollar-yen pair -- a classic haven trade -- has risen above the two-month tenor by the most in two decades, signaling demand for protection from turbulence near Election Day.

Trades protecting against election-induced volatility have been around all year, with “unprecedented” levels of hedging seen as early as January. Yet the potential for drama has only grown since then as the coronavirus leaves the U.S. mired in a recession and President Donald Trump rages against mail-in voting, raising concerns about a prolonged dispute over vote tallies. That uncertainty is complicating more conventional topics, such as how the results will affect tax policy and the trade war with China.

“You have a global pandemic as your backdrop, which speaks for itself, and then you have a president that’s in a term, volatile, and you have the things going on with the Postal Service,” said Zachary Griffiths, a rates strategist at Wells Fargo. “All these factors that don’t typically play into an election are impacting things now and that’s clearly got people concerned. And vol has bid up tremendously in rates and equities.”

Eoin Treacy's view -

Veteran election watchers will remember the hanging chads of 2000 which were key to deciding the outcome of the Florida count and the US election. George W. Bush’s victory came down to 500 votes and it was possibly helpful that his brother was the state’s governor.

It is looking likely that a large number of people are preparing to vote by mail in 2020. The US Postal Service is in no way prepared to handle that volume of mail. Right now, they are short staffed. Whether that is through absenteeism or not, there are already long lines at post offices.



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August 28 2020

Commentary by Eoin Treacy

U.S. soy rises for 5th day; profit taking pressures corn, wheat

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

“The lack of rain in August - plus extended heat - clipped the top end of soybean production for many areas,” Bob Linneman, broker at Kluis Commodity Advisors said in a research note. “There are many operations that watched a potentially record crop turn to a hopeful average crop.”

Eoin Treacy's view -

The agriculture sector has been plagued by uncertainty over the last few years. Record crops, trade wars, currency devaluations and weather events have conspired to create a great deal of uncertainty. None of that has succeeded in lifting prices for more than a few weeks at a time. I wonder if this time is different.



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August 27 2020

Commentary by Eoin Treacy

August 27 2020

Commentary by Eoin Treacy

Powell Fed Shift Allows for Higher Employment and Inflation

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

The new strategy is being undertaken to tackle years of too-low inflation. It hands the central bank flexibility to let the job market run hotter and price pressures float higher before taking action as it may previously have done.

“They really, really, really are not going to be raising interest rates any time soon,” said James Knightley, chief international economist at ING Financial Markets. “The Fed is saying rates will be lower for longer, but don’t worry inflation is not going to be picking up.”

While it doesn’t target a specific rate of unemployment broadly or for certain demographic groups, the approach may help address other weaknesses in the economy.

During the longest U.S. economic expansion on record until the pandemic hit earlier this year, many groups benefited -- including minorities and women. With millions out of work and unrest flaring up across the U.S. over racial inequality, questions about how the Fed’s policy helps diverse communities have been raised.

Eoin Treacy's view -

The Fed is happy to run the economy hot. That begs the question what happens next? Will they attempt to support the Treasury market in what is already de facto yield curve control? As the economy responds to the trillions in new liquidity, how will the Fed react to the rise in the velocity of money? If they are willing to run the economy hot a somewhat steeper yield curve is desirable but stoking inflation can have many unintended consequences.



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August 27 2020

Commentary by Eoin Treacy

No One Wants to Buy Ships as Virus, IMO Rules Hit Demand Hard

This article by Krystal Chia and Annie Lee for Bloomberg may be of interest to Subscriber’s Area. Here is a section:

Shipowners are also lacking the finances to make purchases, according to Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co.

“Most shipping markets are coming from a relatively poor decade, 2009 to 2019, in terms of earnings so most shipowners do not have that much cash in their pockets,” he said. “External finance is also in short supply as banks are now largely steering clear off shipping after the defaults they suffered after 2008.”

Still, fewer orders and slower fleet growth will likely bolster shipping rates. Lines are likely to continue to keep capacity in check into 2021 to minimize the impact from slowing global trade, said IHS Markit’s Kapoor.

That’s already translating to increasing costs for transporting goods by ocean liner, with one benchmark of trans-Pacific container rates more than doubling since late-May to a record. Bulk-carrier costs have also rebounded from a four-year low. Maersk, which idled about 20% of its capacity in April before gradually reinstating it in subsequent months, saw earnings beat estimates in part due to improved freight rates.

Eoin Treacy's view -

When new regulation imposes new costs that are greater than the value of the original asset it raises important questions about the sustainability of businesses. Installing new engines in new ships is an ideal solution but its expensive. Meanwhile the lesser of two evils are scrubbers to the emissions but these often exceed the value of older ships. This is a recipe for a loss of supply from the global shipping fleet.



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August 27 2020

Commentary by Eoin Treacy

Equity Insights: EU's 'Hamilton Light' Recovery Plan Marks a Paradigm Shift, and Markets Cheered

This article by Anik Sen for PineBridge Investments may be of interest to subscribers. Here is a section:

The EC’s paradigm shift

By becoming the borrower through its issuance of €750 billion of debt, the EC sets a new precedent while becoming a major new force in the sovereign debt markets. It is also expected to demonstrate maximum flexibility in managing its debt to achieve the most favorable terms for the member states. The bonds are expected to be repaid through the EU budget through the end of 2058. New tax revenues have been proposed, such as a plastic levy, a digital tax, and a review of the EU Emissions Trading System.  

The recovery plan marks a significant moment in which EU Leaders recognized the need to create a new structure for raising funds under the auspices of the EC and funded by the EU budget. This structure has a strong likelihood of becoming a permanent funding mechanism at the EU level for emergency programs and other funding needs for the fiscally weak member states. They have also acted swiftly to stem the risks to the eurozone’s stability from alarmingly high fiscal deficits, and to front-load the raising of funds in order to plug the enormous fiscal gaps into the future. They have recognized the need to move away from the failed austerity approach of the past and to adopt a pro-growth policy through grants and loans on attractive terms with light conditionality – a major departure from the past.

‘Hamilton light’ plan is an auspicious beginning

The recovery plan could well become a permanent feature for the EU, serving to underpin the debt issued by the periphery member states. This has enormous significance for the EU banking industry, which has become reliant on the ECB’s QE programs for its stability and capital adequacy. If the fear of default is truly removed for any eurozone sovereign debt, without assuming intervention by the ECB, there could be broader implications for financial system integration within Europe, with cross-border mergers and acquisitions within the EU finally taking place. This is sorely needed to drive greater scale in a banking system that has poor profitability compared to that of the US.

The recovery fund may not be quite as far-reaching as Alexander Hamilton’s re-ordering of the financial system in the newly born United States. However, the progress made by EU leaders this summer points to a measured yet pivotal step toward very similar ends. 

Eoin Treacy's view -

Europe has just created Federal bonds which will be repaid from the bloc’s budget. New taxes are being proposed to increase the size of the budget and there are aspirations for the system to become permanent.



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August 26 2020

Commentary by Eoin Treacy

August 26 2020

Commentary by Eoin Treacy

Barnier Planning a Brexit Book After Four Years of Negotiations

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

In his speech, Barnier also hinted that negotiations over the EU and U.K.’s future relationship may stretch beyond a meeting of the bloc’s leaders scheduled for mid-October as the two sides struggle to reach an agreement.

“If we want to ensure the ratification of this new treaty at the end of the year, we need an agreement around Oct. 31,” Barnier said. “The clock is ticking.”

Eoin Treacy's view -

Brexit appears to have lost its ability to move markets. Perhaps investors have made their peace with the idea that the UK will leave the EU without a trade deal. It’s more likely that investors have concluded the border with the EU will be down the middle of the Irish Sea rather on the island of Ireland. In other words that a deal is inevitable.



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August 26 2020

Commentary by Eoin Treacy

Facebook Hits Record as Analysts See Opportunity From Shop

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

Facebook analysts were positive after the social-media company added a new shopping section, called Facebook Shop, to its main app, seeing strong e-commerce growth potential.

JMP Securities (market outperform, PT $305)

There are “multiple catalysts” for Facebook, and e-commerce “can be a significant opportunity”
There is “a clear line of sight to monetizing Shop”
While advertising should remain Facebook’s focus, the growth in e-commerce means Facebook “can generate greater product discovery” for small and mid-sized businesses relative to other channels

Stifel (buy, PT $290)

The accelerated roll-out of the service “suggests the benefits to growth could be evident as early as 2021,” and Facebook waiving selling fees in 2020 “could accelerate the adoption of these tools”
Over the long term, Facebook’s e-commerce opportunity “should come more from increased adoption of digital ads” by small and mid-sized businesses than transaction fees

Shares up as much as 2.86%, the stock has nearly doubled off a March low, and it is trading at a record

Eoin Treacy's view -

Companies like Alibaba and Tencent were quick to introduce payment platforms into their social media and ecommerce products. The impending IPO of Ant Financial represents the consumer finance crown jewel of Jack Ma’s empire. It is a revenue engine that was successful because it afforded Chinese consumer the opportunity to earn daily interest at rates which were significantly higher than from banks. That’s the kind of regulatory two-step Silicon Valley start-ups have been performing for years and, so far, the Chinese government has been willing to look the other way.



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August 26 2020

Commentary by Eoin Treacy

Email of the day on electric vehicles.

I really love your audio comments every day and I think they are very useful. Commenting on the EV mania that is on lately...I don't understand why people are so crazy about tesla enc... at the moment the batteries don't last for a long time and when an EV car catches fire, this fire is unstoppable, a safety problem where nobody ever talks about. On top of that, the power grid of older city centers are not equipped to charge an EV... so where is the point in buying one?

Eoin Treacy's view -

Thank you for this email and I am delighted you are enjoying the audios. The charging question is a big one in cities. I called around yesterday to get quotes to install a charging station. They ranged from $700 to $985 before labour. The majority of US houses run on 110 volts and an EV needs 220V to charge in a timely manner. That requires an additional breaker at the fuse box and running cables to where you wish to charge the vehicle. Besides the cost, that is not an option for people who live in apartments. It would require a big expensive communal decision to install chargers in an apartment building.



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August 26 2020

Commentary by Eoin Treacy

Email of the day on a layman's description of nuclear batteries.

I suddenly seem to be bombarding you with communications, after years in the wilderness.    Don't worry, this will only be a brief interlude, I am sure.

   I just wanted to comment on the extract on "nano-diamond self-charging batteries" that you publish today.

I read Loz Blain's whole article, and it seems a very important development indeed.   But in keeping with all articles on technology for the "layman", the story doesn't start at the beginning, but begins a bit down the down the road, and soon focusses on the applications alone.    This applies even more to your extract.

I feel that this patronises the reader unnecessarily.    The average reader should be able to understand a brief well-structured explanation that starts from the beginning.   (This objection applies even more to articles on Covid-19 -- but that is another story.   In that case, I don't believe any politicians, or even some of their scientific advisers, have any real grasp of the subject.)

Re. the batteries, we have to start from the energy source.   There are only 3 (or maybe 4) energy sources:-    Radiation (sunlight), Chemical energy (in fossil fuels, wood etc.) and Nuclear energy (stored in the nuclei of all atoms, and released from the unstable ones).    The 4th source would be Gravitational (hydro-electric power, tidal, possibly wave).
 

The source in nano-diamond is nuclear, but the products (nitrogen gas) are harmless, and the beta radiation is contained (or so they claim).    The beta radiation (carrying the nuclear energy as kinetic energy) then transfers its energy to electrons, and creates the voltage.

The prefix nano is jargon which could be avoided - it simply means "using minute quantities of material", or possibly "operating with minute quantities of material at a time (i.e. on a very small scale), within a larger structure".    (This is what is happening in living things, and thus in the cells of our bodies, 24/7.     Man has only just caught up with this technology, in a rudimentary manner.)
 

"Self-charging" is superfluous and confusing.     I suppose it means that electricity is being continually formed from the nuclear energy store.    But this is equally true of a conventional battery;  the energy in that case is chemical, and there is far less than in the carbon-14 nuclei in nano-diamond batteries.

The carbon-14 is nuclear waste - from the used graphite (graphite is a form of carbon) "moderator" blocks from the cores of nuclear power stations, of which there is a huge store apparently.

Well it seems to me that if just 10 or so lines from what I have given above were used, that would be understandable to the average reader, and give them a good working knowledge.     (You may be interested to know, or probably already suspected, that I tutor A level physics and chemistry.   My great passion is communicating these matters clearly.   Granted, it is a great help if the reader has some facility in handling spatial ideas, but that applies to so many technical areas.)

Eoin Treacy's view -

Thank you for this informative explanation which I’m sure will be of interest to the Collective. I’m sure your students benefit greatly from the clarity your provide.



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August 26 2020

Commentary by Eoin Treacy

Email of the day - on misquoting politicians

You mention in your commentary the 'vision thing' and ascribe it to Clinton; it was in fact Bush senior's bug bear.

Eoin Treacy's view -

Thank you for pointing this out. I apologise for the inaccuracy. Nevertheless, the increasing prevalence of aspirational and long-term vision projects is representative of increasing enthusiasm from investors for highly speculative ventures.



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August 25 2020

Commentary by Eoin Treacy

August 25 2020

Commentary by Eoin Treacy

Nano-diamond self-charging batteries could disrupt energy as we know it

This article by Loz Blain for NewAtlast.com may be of interest to subscribers. Here is a section:

And it can scale up to electric vehicle sizes and beyond, offering superb power density in a battery pack that is projected to last as long as 90 years in that application – something that could be pulled out of your old car and put into a new one. If part of a cell fails, the active nano diamond part can be recycled into another cell, and once they reach the end of their lifespan – which could be up to 28,000 years for a low-powered sensor that might, for example, be used on a satellite – they leave nothing but "harmless by-products."

In the words of Dr. John Shawe-Taylor, UNESCO Chair and University College London Professor: “NDB has the potential to solve the major global issue of carbon emissions in one stroke without the expensive infrastructure
projects, energy transportation costs, or negative environmental impacts associated with alternate solutions such as carbon capture at fossil fuel power stations, hydroelectric plants, turbines, or nuclear power stations. Their technology’s ability to deliver energy over very long periods of time without the need for recharging, refueling, or servicing puts them in an ideal position to tackle the world’s energy requirements through a distributed solution with close to zero environmental impact and energy transportation costs.”

Indeed, the NDB battery offers an outstanding 24-hour energy proposition for off-grid living, and the NDB team is adamant that it wishes to devote a percentage of its time to providing it to needy remote communities as a charity service with the support of some of the company's business customers.

Should the company chew right through the world's full supply of carbon-14 nuclear waste – a prospect that would take some extremely serious volume – NDB says it can create its own carbon-14 raw material simply and cost-effectively.

Eoin Treacy's view -

I don’t know if the promises being made by this start-up are realisable in the two-year timeframe they anticipate. However, we do need to pay attention to these kind of technological advances because of the productivity enhancement potential they represent. Secular bull markets are driven by productivity growth. Therefore, anything that has the potential to allow us to do more with less has to be given due consideration because of the growth opportunities they offer.



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August 25 2020

Commentary by Eoin Treacy

A Robot Tried to Fix Value Investing and Ended Up Buying Amazon

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

The top three holdings of the machine-guided fund in July were Amazon.com Inc., Alphabet Inc. and Facebook Inc. Those are far from the kind of undervalued stocks typically favored by a value strategy. But to Qraft, it’s just value 2.0.

“Intangible assets have become a more important factor in the actual value of the company due to the development of information technology,” founder Hyungsik Kim wrote in an email.

“It is easy to tell which of the following is more important in measuring the value of Amazon: warehouses (tangibles) or automated logistics systems (intangibles).”

It’s the rallying cry for many remaining proponents of value: The factor isn’t dead, it’s simply plagued by outdated accounting rules that treat intangible investments such as research as expenses rather than capital.

As a result, knowledge-intensive firms end up with much lower book values and higher costs, which make them look more expensive than they actually are.

The new ETF’s eye-catching backtests also speak to the variety of methods underlying even the best-known equity factors. One study estimated there are well over 3,000 different ways to define a value strategy.

Eoin Treacy's view -

Intangible values is a fascinating subject because it forms the basis for the investing in technology firms but is the reason to avoid legacy firms. The challenge in teaching an algorithm to know the difference means a great deal of labeling would be required to identify the differences.



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August 25 2020

Commentary by Eoin Treacy

Executive insights from the CEOs of AEM and WPM

Thanks to a subscriber for this report from Bank of American/Merrill Lynch which may be of interest. Here is a section:

Eoin Treacy's view -

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

Royalty streamers offer a solution to the age-old question of how to buy gold at a discount. That of course depends on a willingness and ability to buy when no one else is interested. Whatever about the success of companies in capturing streaming rights over the last few years, the window for closing on new ones is swiftly closing. Miners know they have in-demand assets and there have been an increasing number of stories about private placements being oversubscribed by multiples of the desired amount. That suggests prices for shovel ready projects are rising quickly as investors adapt to the new bull market environment.



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August 24 2020

Commentary by Eoin Treacy

Video commentary for August 24th 2020

August 24 2020

Commentary by Eoin Treacy

Email of the day - on gold versus tech

Some people think that technology shares and gold are correlated. Why would this be the case for such different asset classes?

Do you think if the Nasdaq drops that precious metals will as well?

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. On an historical basis there is little correlation between technology and gold. For instance, tech did very well in the 1990s while gold languished. When gold took off in the early 2000s, most tech shares spent most of the decade ranging. When gold peaked in 2011, many tech shares were on the cusp of completing those long base formations. So, what’s changed?



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August 24 2020

Commentary by Eoin Treacy

Tesla resale values

This graphic from Bloomberg may be of interest to subscribers:


It’s early, but there are signs Tesla Inc.’s Model 3 could be as exceptional in the used market as it has been in the new-car world. The sedan has sold at volumes no other electric vehicle has come close to reaching, turning Tesla into the most valuable auto company in the world. Car-shopping websites still have small sample sizes to work with, yet so far, the Model 3s are retaining much more of their value than their small luxury-vehicle peers and they’re selling quickly once owners list them for sale -- on average just 29.3 days from March through June -- according to iSeeCars.com.

Eoin Treacy's view -

I took a test drive of a Model 3 and a Model Y on Saturday. It’s a pleasant experience. The acceleration, as reported, leaves every petrol driven car in the dust. For that reason, Tesla makes a big point of differentiating it product offering based on 0-60 times. I can’t fathom how anyone can really tell the difference between 3 and 4 seconds to 60 miles an hour in a city like Los Angeles where speeds of 30 miles an hour are the norm outside of the lockdowns.



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August 24 2020

Commentary by Eoin Treacy

Laura expected to reach Category 2 strength; Marco continues to weaken

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

Tropical Storm Laura’s forecast has it at hurricane strength on Tuesday and Wednesday. Laura’s predicted path as of 5 a.m. Monday had it making landfall near the Louisiana-Texas border late Wednesday or early Thursday.

But by Friday, Laura was “expected to produce rainfall of 5 to 10 inches, with isolated maximum amounts of 15 inches across portions of the west-central U.S. Gulf Coast near the Texas and Louisiana border north into portions of the lower Mississippi Valley,” the National Hurricane Center said.

Both storm tracks are unusually close to each other. If and how the two storms will interact with each other are highly uncertain, forecasters said.

Eoin Treacy's view -

This year has set records for named storms and there is still a couple of months left in the hurricane season. 



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August 21 2020

Commentary by Eoin Treacy

August 21 2020

Commentary by Eoin Treacy

Email of the day on big numbers

UK National debt hits £2 trillion. As in astronomy, it is difficult to get one’s head around the numbers A financial journalist put this into some perspective this morning. Someone living in ancient Egypt at the time of the great pyramid spending a million pounds a day over the next 3000 years would still have money to spare today!

Eoin Treacy's view -

Thank you for this comparison. It is also a £30,000 ($39,240) debt for every one of the UK’s 66.5 million people. By comparison the debt per capita of the US is now $80,000 per person. As with so many items, the absolute level is often less important than the trend.



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August 21 2020

Commentary by Eoin Treacy

Lyft, Uber Shares Jump on Delay in California Driver Rule

This article by Jim Silver and Esha Dey for Bloomberg may be of interest to subscribers. Here is a section:

Lyft and Uber shares erased earlier losses to jump higher after the companies were spared from having to rapidly convert their California drivers to employees by a state appeals court

Shares of both companies had dropped earlier after Lyft said it will suspend its rideshare operation in California at 11:59 p.m. Pacific time today

“We don’t want to suspend operations. We are going to keep up the fight for a benefits model that works for all drivers and our riders,” Lyft said in statement

Lyft shares rose as much as 8.7%, Uber gained 7.8%

NOTE: Earlier, Former Uber Security Chief Charged With Obstruction of Justice

Eoin Treacy's view -

Tax codes generally favour business owners. It is in the public good to foster business creation because that improves the potential for new jobs to be created by entrepreneurs. The sole proprietor gains many of the benefits of business tax treatment, but also gives up the safety net provided by companies in the form of benefits. They lose access to unemployment benefits and the old age pension/social security benefits are also not as generous. In return sole proprietors generally pay less city, state and federal taxes than corporations do.



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August 21 2020

Commentary by Eoin Treacy

Email of the day - on risk appetites and the value of a subscription.

I am a pre-subscriber (financial constraints, exacerbated since Covid-19, make it impossible for me to become a full subscriber, I'm afraid, so I may not qualify for a reply. But David did reply to me on more than one occasion;  he was always so kind, and is greatly missed).

I remember your being on the panel at a money show in the conference centre in Westminster Square (I forget the name - possible Westminster Conference Centre) - it must have been about 2009 because I remember asking a question as to whether there were any "good" banks left that might be worth investing in.
  
Anyhow, in response to a question from another attendee about companies drilling for water in Australia, (or possibly into wind power or solar or even lithium miners (if it wasn't too early) - I forget exactly which), I remember you replying that you never favoured chasing these early-stage stories, and in general you have been proved right since.   

I still tend to class hydrogen fuel and battery power for vehicles in the same category, but perhaps you feel that times have changed sufficiently now?    Since I am only a pre-subscriber, and not able to read the full article, I appreciate that you may have said more on this there, or in previous Comments of the Day.
    
It seems to me that since hydrogen when mixed with oxygen is a very explosive mix (although this could also be said to a lesser extent of petrol vapour, I suppose), it would only take one careless mistake or faulty construction to cause a serious explosion.   But perhaps the design features are so tight that this would be impossible.   

At least I would trust an electric vehicle more than a self-driving one! In fact, I am a bit nervous by nature. I would never trust a Toyota now, after that stuck accelerator pedal caused a fatality. What the last minutes of those poor occupants were like I cannot face thinking about.

Whether it is possible to reply to this or not, many thanks Eoin for the comments that I am able to read daily. They give a very sane and reassuring perspective, especially in these difficult times.

Eoin Treacy's view -

David always saw value in conducting a public discourse with subscribers because it helped to educate us as much as the Collective. It also ensures we are covering topics of interest. I agree and one of the things I enjoy most is attempting to provide satisfactory answers to subscriber’ queries. However, as someone who has been familiar with the Service for at least 11 years, might I suggest you at least take a trial subscription?

If that is too much of a financial constraint it may be time to reassess your investment/trading ambitions. Investing involves a degree of risk. If you are uncomfortable with driving a Prius because of a fault corrected more than a decade ago, it might be time to conclude investing is not for you.

The response to this email continues in the Subscriber's Area. 



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August 21 2020

Commentary by Eoin Treacy

Gresham House Global Timber Outlook

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

Once countries have basic housing for the poor and an urban economy has installed the infrastructure to begin to grow, there is an increase in wealth, GDP and income per capita. This allows for a move from public housing to suburbanise into single unit family homes, something witnessed in many developed economies across the world. In the UK, the overall number of ‘housing starts’ has stayed largely flat since the 1970s, but the housing mix has changed from public to private homes. At the same time, timber consumption has increased as, on average, a single-family suburban home uses around three times the timber of a multi-family unit.

And

The result is that even when total new housing starts begin to level off, timber consumption increases again in the mature stage of an economy, leading to a third wave of timber construction. Not only is more timber used in single unit homes, the home improvements sector becomes a significant additional source of timber demand. In the US and developed world it contributes circa 35% of all consumption by the construction industry.

Eoin Treacy's view -

The big question for timber consumption in the medium-term is whether the trend of migration from cities to the suburbs will continue post COVID-19. The desire to exit population dense regions during the pandemic was understandable and not least because of the widespread public disobedience that characterised the lockdowns. The big question is whether that migration will be sticky. We do not yet know how long people will be happy working from home or whether they will miss the buzz of the city.



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August 21 2020

Commentary by Eoin Treacy

August 20 2020

Commentary by Eoin Treacy

Video commentary for August 20th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: moral hazard created by the Fed, gold and silver pause, bond yields contract, Nasdaq continues to lead on the upside, most other stock markets in negative territory, industrial resources firm,  



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August 20 2020

Commentary by Eoin Treacy

Fed Blog Says Debt Buying Aided Market Without Moral-Hazard Risk

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

The unprecedented speed and scale of the Federal Reserve’s buying of Treasuries and mortgage debt to aid a severely impaired bond market has accomplished that without raising the specter of moral hazard, Federal Reserve Bank of New York researchers wrote in a note.

Pandemic-sparked volatility in March caused liquidity in the world’s biggest bond market to plunge to its worst since the 2008 financial crisis. The Fed responded with purchases of Treasuries and mortgage securities that peaked at more than $100 billion a day combined.
It’s still soaking up about $80 billion of Treasuries and at least $40 billion of mortgage securities a month, and some bond veterans warn that the central bank’s involvement in the market could potentially be encouraging risky behavior, such as excessive borrowing. But a post Thursday in the New York Fed’s Liberty Street blog argued against that.

“The magnitude of the Desk’s purchase program in 2020 ‘to support the smooth functioning’ of the Treasury and agency MBS markets marked those purchases as highly unusual,” wrote Kenneth Garbade, a senior vice president in the New York Fed’s Research and Statistics Group, and Frank Keane, a senior policy advisor.

But they also say that the tool has been used before and “the infrequency of Federal Reserve intervention suggests that relying on the Fed on those rare occasions when markets are in extremis has not materially exacerbated moral hazard.”

Eoin Treacy's view -

Reading over the Fed minutes feels like an episode of the Twilight Zone. This quote in particular is relevant. “many participants judged that yield caps and targets were not warranted in the current environment but should remain an option.”. It doesn’t have to engage in yield curve control because the market is already behaving like it is a fact.



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August 20 2020

Commentary by Eoin Treacy

Email of the day on trading precious metals

According to other technical trading sites GOLD is a strong SELL and Silver is a BUY @ today's prices. You haven't mentioned Silver or Platinum for a number of days. I am tempted to start getting back into Silver ...... Keep up the good work,

Eoin Treacy's view -

Thank you for this insightful email. If all we did was look at short-term trading indicators, there would be no way to get a big picture perspective. I am very hesitant to ever short in a secular bull market. There will be times when taking a partial profit is opportune but the best way to play a big bull market is to be willing to buy on occasional bouts of weakness.



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August 20 2020

Commentary by Eoin Treacy

Ballard Power Gets Stock Upgrade as Hydrogen Vehicles Gain Steam

This article by Divya Baljifor Bloomberg may be of interest to subscribers. Here is a section: 

Ballard Power, one of Canada’s best-performing stocks this year, just got an analyst upgrade as
governments and vehicle manufacturers around the world push for the development of battery and hydrogen vehicles. BLDP fell as much as 9.5% intraday Thursday in Toronto.

* Stock raised to outperform from sector perform, PT increased to C$20 from C$18 by National Bank of Canada analyst Rupert Merer

* Ballard is in discussions with potential partners in Europe and could form a joint venture with a top-tier supplier; China could have a detailed hydrogen plan come soon, targeting one million hydrogen vehicles by 2030

* Merer sees a number of positive catalysts this year and the stock is still well priced compared with its peers

* Ballard is up more than 110% this year, making it the fourth best performing Canadian stock, vs the S&P/TSX Composite Index’s 2.7% decline

* NOTE: July 29, Fuel-Cell Firm Stages Comeback 20 Years Later With Help of China

Eoin Treacy's view -

I’ve created a reasonably complete list of companies from all over the world focusing on the hydrogen/fuel cell sector in the Chart Library.

Weichai Power has been extremely active in buying up rights to use and commercialise fuel cell technology developed in Europe and North America over the last few decades. The sector has never gotten off the ground because it was not economically feasible and there was not real incentive to try it out. That is now changing.

Some of the factors combining to support the trend include:  



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August 19 2020

Commentary by Eoin Treacy

August 19 2020

Commentary by Eoin Treacy

Email of the day on investing in 5G

good morning Eoin I enjoy every morning your briefing - thanks! could you guide me to an ETF which invests in the most promising companies benefitting from 5 G technology development? thanks, and greetings from Switzerland.

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. With an infrastructure build on the scale of what is necessary to get up and running with 5G the first moves were the infrastructure companies. South Korea was first to launch a nationwide network and China followed last year. Europe and the USA are lagging significantly. Latin America and Africa are even farther behind.



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August 19 2020

Commentary by Eoin Treacy

HSBC Tells Bank of England Now Is Not the Time for Optimism

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

Haldane has said Britain’s economic bounce back from the coronavirus-induced recession is looking V-shaped so far. Not all his colleagues on the Monetary Policy Committee seem comfortable with that view though -- Silvana Tenreyrohas warned of a likely flattening off later in the year and Governor Andrew Bailey has said there are a “lot of hard yards” ahead.

A compilation of forecasts published by the U.K. Treasury on Wednesday also showed a gloomy shift among economists. The average prediction for 2020 is now a 10% contraction, versus 9.2% in July.

Martins now reckons the British economy will shrink more than 10% this year, and still be almost 5% smaller than its pre-virus level by the end of next year. That’s somewhat more downbeat than the BOE’s projections.

Still, she’s not forecasting any more monetary easing by the BOE just yet, saying further fiscal stimulus from the government is more likely. If the BOE does need to act, as most economists believe, she predicts more bond-buying, easier loans for companies, and potentially another cut to the 0.1% benchmark interest rate.

Eoin Treacy's view -

The UK administration was caught flatfooted by the onset of the coronavirus. As with other late-acting countries, the early resistance to a lockdown contributed to widespread community spread. It means the recovery will be inhibited by the need to tackle large numbers of potential infection vectors. However, there will be a recovery. That will be achieved either by communities learning to live with the virus, a vaccine or community immunity.



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August 19 2020

Commentary by Eoin Treacy

The ecommerce surge

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

Both the UK and (today) the USA have given official statistics on how ecommerce and retail have changed during lockdown. The headline numbers are pretty dramatic. The UK went from 20% ecommerce penetration to over 30% in two months, and the USA from 17% to 22%.  

This spike partly reflects a shift in the denominator: digital increased while sales at most physical retail declined, except for groceries. This effect was much stronger in the UK, where lockdown was much deeper. Even so, absolute US ecommerce sales rose 32% in Q2. Interestingly, though, absolute UK ecommerce has continued to accelerate even as the lockdown has eased (the UK’s monthly ecommerce numbers make this visible, where the quarterly US reporting makes it harder to tell.

Eoin Treacy's view -

The lockdowns have been a golden opportunity for ecommerce brands to capture market share. It’s also likely that they will be able to hold that gain once consumers become accustomed to having their purchases delivered.

The primary concern is how much more they can grow beyond the current percentage of the market? There is no doubt that anyone who was thinking of buying online has now done so at least once. Being cooped up at home for months leads to all manner of experimentations and online shopping has certainly benefitted.



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August 18 2020

Commentary by Eoin Treacy

August 18 2020

Commentary by Eoin Treacy

Dollar Erases Trade-War Gains After Sinking to Lowest Since 2018

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

The dollar sank to its lowest level since May 2018 on concern that the world’s biggest economy will struggle to regain momentum amid a standoff over further virus relief and as infections continue to mount.

The greenback has now erased most of the gains it built on the back of U.S.-China trade tensions that started heating up around two years ago, fueling worries about global growth prospects. This time investors see the U.S. as the potential laggard amid questions over the government’s response to the pandemic. The euro climbed to a two-year high, extending its advance since last month’s landmark European Union stimulus package brightened the region’s prospects relative to the U.S.

The dollar has been on the defensive since mid-year, with U.S. lawmakers unable to agree on measures to support the economy’s recovery from the pandemic, and with the nation’s real yields dropping to multiyear lows. On top of all that, investors’ attention is turning to the November presidential election and the uncertainty that may bring.

Eoin Treacy's view -

The primary argument to support US Dollar strength over the last few years was supply related. The Federal Reserve was raising interest rates and simultaneously reducing the size of its balance sheet.

Never mind whether that was a contributing factor in the pop in high yield spreads at the end of 2018 or the freezing up of the repo market in the autumn of 2019. The supply deficit was a central factor in boosting the value of the Dollar simply because there were fewer of them around. The situation could not be more different today.



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August 18 2020

Commentary by Eoin Treacy

Accelerating AI Adoption in Bio-Pharma through Collaboration

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

In these trying times, we have seen many examples of digital technology and innovation flling in the gap. Among these, telemedicine and chatbots have been very helpful for frst-line triage and early-stage diagnosis. China’s AliHealth and JD Health both expanded their telemedicine services for distant consultation and preliminary diagnostics with physicians to prevent the spread of the virus. They also launched diferent versions of their chatbots (a basic form of AI) to disseminate COVID-19 related medical information, health recommendations as well as Q&As.

In the US, the CDC used Microsoft’s healthcare chatbot service to create a coronavirus symptom checker and Whatsapp (owned by Facebook) launched the WHO Health Alert to share critical information to millions of users worldwide. In India, Facebook also used its helpdesk bot to share news and answer user questions relating to the pandemic.

Closer to home, it was encouraging to see smaller European startups launch similar initiatives, such as the French startup Clevy which is among Early Metrics’ highly rated companies and has created Covid-bot.fr.

These speedy developments in response to the pandemic were a testament to the real value brought by these technologies and to the reactivity of young innovative companies. We hope they will inspire future considerations for public healthcare systems to welcome innovation from both tech giants and emerging innovators.

Eoin Treacy's view -

Crises force changes in behaviour. I know our family had never used telemedicine before the crisis. However, it was certainly helpful on a least two occasions over the seven months when we had questions that would normally have required a doctor’s visit. The fact the service is included in the price of our health insurance was also a bonus.



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August 18 2020

Commentary by Eoin Treacy

GM Shares Soar on Electric-Vehicle Spin-Off Speculation

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

GM does plan to sell more than 20 EV models around 2023. That business could be spun off for $20 billion and eventually be worth as much as $100 billion, Deutsche Bank’s Rosner said. GM’s core business selling gasoline-powered sport utility vehicles and pickup trucks is generating cash but viewed as being in long-term decline and is less exciting to investors than the company’s electric-car plans, he wrote.

Despite the share gains this week, the Detroit-based automaker’s stock is down about 17% so far this year while all-electric rival Tesla Inc.’s value is eight times that of GM. By spinning off its EV business, GM could get the kind of momentum enjoyed by Tesla and a handful of startups that have lured capital despite their having no vehicles on the market.

Battery-powered cars have caught the imagination of investors in recent weeks, sending shares of Tesla to successive record levels and boosting the value of electric startups such as Nikola Inc., Fisker Inc. and Lordstown Motors Corp., all of which took a fast track chasing public listings after being acquired by special purpose acquisition companies.

Eoin Treacy's view -

The entire automotive supply chain has concluded there is no future in internal combustion engines. Not only are battery costs coming down and efficiency improving but the regulatory environment continues to squeeze traditional manufacturers.



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August 17 2020

Commentary by Eoin Treacy

August 17 2020

Commentary by Eoin Treacy

Gold Miners Jump With Berkshire's Barrick Bet Fueling Outlook

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

Barrick Gold Corp. advanced the most since March, leading a surge in precious-metals miners after Warren Buffett’s Berkshire Hathaway Inc. added the company to its portfolio.

Barrick, the world’s second-largest miner of the metal, jumped as much as 12% and a Bloomberg Intelligence gauge of senior gold miners climbed after Berkshire on Friday reported a purchase of 20.9 million shares as of the end of the second quarter. Colorado-based Newmont Corp., the largest producer, also gained Monday, along with Kinross Gold Corp. and Harmony Gold Mining Co.

Gold miners are benefiting as near-record bullion prices boost profit margins and help them lure back generalists who fled the sector years ago. In the past, Buffett, the billionaire chairman of Berkshire, cautioned against investing in the metal because it’s not productive like a farm or a company. The filing shows moves made by Buffett or his two investing deputies, Todd Combs or Ted Weschler.

 

Eoin Treacy's view -

When the world’s most storied value/quality investor dumps banks and buys a gold miner it might not make a big difference to Berkshire’s bottom line but it sends an important message about where the company see’s opportunity. Investment in new greenfield mines has not been attractive for much of the last decade. Meanwhile demand is rising for a growing number of reasons, not the explosion in the supply of debt and competitive currency devaluation. That’s a recipe for a bull market.



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August 17 2020

Commentary by Eoin Treacy

PBOC Adds Cash to Ease Liquidity Stress With Rate Unchanged

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

China’s central bank supplied liquidity to commercial lenders on Monday to help them manage upcoming government bond sales, while leaving the price of the money unchanged as the economy recovers.

The People’s Bank of China added 700 billion yuan ($101 billion) of one-year funding via the medium-term lending facility. The central bank said Friday that today’s operation is meant to offset the 400 billion yuan in loans coming due Monday and another 150 billion yuan maturing on Aug. 26.

With the economy recovering slowly, the PBOC is trying to provide markets enough funding to purchase government bonds and make loans without fostering financial risks. In addition to Monday’s money, the central bank last week offered the most short-term funds since May, replenishing a banking system which needs about $500 billion this month.

The net injection indicates “a more accommodative stance on keeping liquidity levels ample” so that commercial banks can continue to support bond issuance and to stabilize credit growth, said Liu Peiqian, a China economist at Natwest Group Plc. in Singapore. The move is “a signal to ensure policy continuity and stability” rather than a reaction to a slower pace of economic recovery, she said.

The PBOC kept the interest rate on the funds unchanged at 2.95%. The yield on China’s 10-year government bonds fell 1 basis point to 2.93%.

“The MLF injection is larger than expected,” said Ming Ming, head of fixed-income research at Citic Securities Co. in Beijing. “The PBOC’s overall neutral monetary policy has an easing bias in August. I expect the 10-year government yield to drop to around 2.8%.”

Eoin Treacy's view -

The big unknown for the Chinese debt markets is where the natural default rate resides. It’s impossible to know since they never allowed defaults until quite recently. The current situation does not give an accurate picture either, since the aftershocks of the lockdowns are impossible to predict with any kind of accuracy. What we do know is the number of defaults is rising and has not stopped rising since the first were announced a couple of years ago.



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August 17 2020

Commentary by Eoin Treacy

Black silicon photodetector hits record-breaking 132% efficiency

This article by Michael Irving for NewAtlas may be of interest to subscribers.

Together, these advances made for a device with 130-percent external quantum efficiency. The team even had these results independently verified by the German National Metrology Institute, Physikalisch-Technische Bundesanstalt (PTB).

The researchers say that this record efficiency could improve the performance of basically any photodetector, including solar cells and other light sensors, and that the new detectors are already being manufactured for commercial use.

Eoin Treacy's view -

The efficiency of solar cells has been improving steadily for the last forty years. The capital poured into the renewables sector following the collapse in interest rates a decade ago, has been the catalyst to greatly enhance the speed with which efficiency gains are being delivered.



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August 14 2020

Commentary by Eoin Treacy

August 14 2020

Commentary by Eoin Treacy

BioMarin Transformative Gene Therapy Turns Goldman More Bullish

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

A deeper dive into the cost-effectiveness of BioMarin’s Roctavian, which is on track to become the first
approved gene therapy for Hemophilia A, and physician awareness left Goldman’s Salveen Richter more bullish on the prospects for the “transformative” therapy. * #

Boosts already Street-high PT to $218 from $172, as research suggests a two- to three-times larger prevalence pool than previously estimated

** Sees average gross price of $2m-$3m as cost-effective compared to prophylactic factor therapy or Roche’s Hemlibra

* “Majority of physicians plan to prescribe the drug upon approval to ~30% of their eligible patients and see utility across all severity levels”

* Expects rapid adoption with an industry specialist highlighting that recent announcements by various payors for coverage of gene therapies bodes well for Roctavian

* A decision from FDA is due Aug. 21 * BMRN shares are up 63% in the past year compared to a 30% gain for the Nasdaq Biotech Index

* NOTE: Aug. 4, BioMarin Second Quarter Loss Per Share Wider Than Estimates
 

Eoin Treacy's view -

The big difference between genetic solutions and pharmaceuticals is they provide solutions rather than treatments. Healthcare cashflows have been utility-like because of the predictable progression of a disease and the requirement for long-term chronic treatment. That ensured that every new patient represented a reasonably predictable set of cashflows with a well-defined time horizon.



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