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June 28 2021

Commentary by Eoin Treacy

India Shifts 50,000 Troops to China Border in Historic Move

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

"The current situation on the border between China and India is generally stable, and the two sides are negotiating to resolve relevant border issues," Chinese Foreign Ministry spokesman Wang Wenbin told a regular press briefing in Beijing Monday in response to a question about troop deployment. "In this context, the words, deeds and military deployments of relevant military and political leaders should help ease the situation and increase mutual trust between the two sides, not the other way around."

The fear now is that a miscalculation could lead to an even deadlier conflict. Several recent rounds of military-diplomatic talks with China have made minimal progress toward a return to the quiet status quo that had prevailed along the border for decades.

“Having so many soldiers on either side is risky when border management protocols have broken down,” said D. S. Hooda, a lieutenant general and former Northern Army commander in India. “Both sides are likely to patrol the disputed border aggressively. A small local incident could spiral out of control with unintended consequences.”

The northern region of Ladakh — where India and China clashed several times last year — has seen the largest increase in troop levels, three of the people said, with an estimated 20,000 soldiers including those once engaged in anti-terrorism operations against Pakistan now deployed in the area. The reorientation means India at all times will have more troops acclimatized to fight in the high-altitude Himalayans, while the number of troops solely earmarked for the western border with Pakistan will be reduced.

Eoin Treacy's view -

India is a front-line country and NATO+ hope it will act as a counterweight to China in the region. That means it is likely to be afforded a helping hand in the form of aid, regulatory laxity and technology transfers to ensure it is capable of resisting Chinese adventurism.



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June 28 2021

Commentary by Eoin Treacy

The IPO Market Has Never Been Hotter Than It Is Right Now

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

When the rush for IPOs kicked off last year, stay-at-home technology dominated the scene, seizing on investor interest in anything digital, while special-purpose acquisition companies also flooded the market. This year, with stocks continuing to push skyward, the trend has broadened to include renewable-energy companies and online retailers.

Everyone from Swedish oat-milk company Oatly Group AB to bootmaker Dr. Martens Plc sold shares in 2021. Still, tech accounts for a big chunk of the deals. Didi Global Inc. will rank among the biggest U.S. IPOs of the past decade if the Chinese ride-hailing giant carries through with plans to sell as
much as $4 billion in stock.

“The markets from New York to Hong Kong were on fire in the first half of this year and have left even the late 90s dotcom boom era in the rearview mirror,” said Aaron Arth, head of the financing group at Goldman Sachs Group Inc. in Asia ex-Japan.

The boom has been fueled by a torrent of cash that central banks have pumped into the economy and the rise of individual investors, who are eager to buy a piece of their favorite companies.

It’s delivered a windfall for investment banks around the world, who reap the rewards from underwriting and advisory fees. Goldman and Citigroup Inc. rank Nos. 1 and 2 in the global
league tables for IPOs this year.

With so many companies rushing to market, the industry is starting to look saturated. Investors say they can afford to be picky and are increasingly reluctant to pay steep valuations demanded by the fast-growing companies that populate the IPO market.

As a result, a number of high-profile stocks have stumbled in their trading debuts this year and some companies are getting spooked. Food-delivery startup Deliveroo Plc plunged 26% on its first day of trading in London, while Oscar Health Inc., the insurance startup co-founded by Josh Kushner, has fallen 40% since joining the New York market.

Eoin Treacy's view -

The best time to sell your company is when you think you can get more for it than you believe it is worth. This is a good time to sell. Valuations are high, credit is abundant and fears about inflationary pressures create urgency to get a deal done. The additional point is that many upstart companies eschewed IPOs in the decade after the credit crisis. They didn’t need to raise money in the public markets because credit was free and venture companies were eager to pursue growth.



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June 25 2021

Commentary by Eoin Treacy

June 25 2021

Commentary by Eoin Treacy

World's first lab-grown-meat factory opens in Israel

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

The first lab-grown burgers cost more than US$300,000 apiece to produce back in 2013. Bit by bit, however, we're seeing progress in driving these costs down to the point where mainstream outfits like KFC are getting in on the action. Future Meat Technologies says it is the only company to be able to produce cultured chicken breasts for $3.90 a pop and, as it continues to scale up its operations, it expects those costs to fall even further.

"After demonstrating that cultured meat can reach cost parity faster than the market anticipated, this production facility is the real game-changer," says Yaakov Nahmias, founder and chief scientific officer of Future Meat Technologies. "This facility demonstrates our proprietary media rejuvenation technology in scale, allowing us to reach production densities 10-times higher than the industrial standard. Our goal is to make cultured meat affordable for everyone, while ensuring we produce delicious food that is both healthy and sustainable, helping to secure the future of coming generations."

Eoin Treacy's view -

Plant based burger patties, like Beyond Meat, taste nothing like the real thing in my experience. Beyond virtue signalling and the trend towards vegetarianism, I can’t see they will displace demand for meat products. Lab-grown meat on the other hand has all the physical characteristics of animal tissue but is grown from the atomic level to the finished product. That’s a very different prospect.



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June 25 2021

Commentary by Eoin Treacy

China Banks Stockpile Record $1 Trillion of Foreign Exchange

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

Some officials “may see the foreign-exchange liquidity as a feather in China’s cap, and some may worry that the surge is flighty,” said George Magnus, a research associate at Oxford University’s China Centre. “It’s fine when the flows are coming in, but a big problem for financial stability when they try and go the other way.”

For Magnus, the increase in dollar deposits is “random and most likely temporary,” and will slow when other nations recover from the pandemic.

While it lasts though, the situation offers an opportunity for China to implement reforms and loosen its grip over its tightly controlled capital borders.

“China will take the chance of flush dollar liquidity to make its cross-border flows more balanced,” said Becky Liu, head of China macro strategy at Standard Chartered Plc in Hong Kong. “Policy makers in the coming two to three years will keep widening channels for funds to leave the country.”

Eoin Treacy's view -

China’s accumulation of Dollars as a result of the relative strength of the economy during the pandemic should naturally put upward pressure on the currency. The rally over the last year is at least a partial reflection of that. The big question is how do they loosen capital controls while also discouraging capital flight?



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June 25 2021

Commentary by Eoin Treacy

The Gold Digger

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

The mining clock, is a concept originally introduced by Lion Securities and adopted by Investec. The clock on the right, gives us a sense of where we are in the mining cycle based on various liquidity indicators.

In our opinion, the clock was positioned at 6:30 as of September 2020.
Mining is one of the most cyclical industries on the planet, gains are very large on the upside, and losses are also magnified on the downside.

Why is it important?
We cover the Investec Mining Clock because it is crucial to know where we are in the mining cycle so we can properly plan for reaping the rewards the mining sector can give. Without a logic based system, investors end up doing the investment round trip making sizable money on paper only to see it vanish when the cycle turns.

You can see that there are times to look, times to buy, and times to sell. Unfortunately, most investors sell when they should be looking, look when they should be buying, and buy when they should be selling. Bull markets create bear markets, and bear markets create bull markets. The ways you look at the market must change depending on whether a primary bull market or a primary bear market is at hand.

Eoin Treacy's view -

The gold mining sector is still scarred from the previous bear market. They are not aggressively engaging in new exploration. That’s a limiting factor in how quickly supply can be increased.

Instead, they are deploying the same business development strategy deployed by pharmaceutical companies. That involves watching junior miners and acquiring promising projects as feasibility studies are completed and reserves are proofed up.



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June 24 2021

Commentary by Eoin Treacy

Video commentary for June 24th 2021

Eoin Treacy's view -

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

Some of the topics disccused include: $559 billion in new stimulus gets green light, Wall Street hits new highs, gold eases, bond yields rise, copper steady, materials stocks firm, bitcoin steadies, Tesla firms, value outperforms again. 



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June 24 2021

Commentary by Eoin Treacy

Copper/Gold ratio

Eoin Treacy's view -

This ratio is often looked at in the bond markets because it can be a lead indicator for yields. The logic is simple enough. Dr. Copper gives us some perspective on the health of the global economy and gold is the ultimate bond so it reflects demand for a safe haven.

At the low in 2020 the ratio tested the lows from 1986/87. The global economy had shut down so demand for commodities collapsed and safe haven surged. Since then, the ratio has trended back up to test the highs of the last decade; with copper floating higher on a tide of abundant liquidity.



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June 24 2021

Commentary by Eoin Treacy

BOE Warns Against Tightening Too Soon as Inflation Surges

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

“Today’s decision reinforces our belief that the committee will continue providing monetary support through the economic restart,” said Vivek Paul, U.K. chief investment strategist at BlackRock Investment Institute.

Officials led by Governor Andrew Bailey voted unanimously to keep the benchmark lending rate at 0.1% and by 8-1 to maintain the pace of its bond purchases, targeting a cumulative 895 billion pounds ($1.2 trillion) by the end of this year. Chief Economist Andy Haldane, who steps down from the nine-member Monetary Policy Committee this month, pressed for a reduction in the stimulus.

The pound dipped against the dollar and euro after the decision, and U.K. stocks ticked higher. The yield on U.K. government 10-year bonds fell after the decision. Money-market bets on the BOE raising interest rates were also pushed back by two months to August 2022.

“Financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory,” the BOE said in a statement on Thursday.

Eoin Treacy's view -

That transitory word is becoming progressively more common in the statements of central banks globally. The question in my mind is do central banks create inflation. That is another way of thinking about the monetarist view of the topic.



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June 24 2021

Commentary by Eoin Treacy

Tilting The Odds In Your Favour

This promotional piece from Baillie Gifford may be of interest to subscribers. Here is a section:

It may come as a surprise to learn that Tel Aviv (Israel), Vilnius (Lithuania), and Tallinn (Estonia) all rank in the top 50 cities in the world in Fintech. You may not yet have heard of many of their leading companies, but I’ll wager you will in the coming decade. Lithuania ranks number one in the world in terms of broadband speed and in the top five countries for Fintech innovation. Investment in the right infrastructure has given that country a head start it is not wasting.

Access to capital and need for less of it in today’s capital-lite, ‘free money’ world means more and more entrepreneurs, the geniuses who will lead the exceptional companies of tomorrow, no longer feel anchored to the US. 20 years ago, fewer than 15 per cent of Chinese students studying abroad felt compelled to return home, filled with ideas but lacking the capital to fund their ambitions. Today closer to 80 per cent see a much more favourable environment in which to put their western education to profitable use domestically.

Adding to the earlier comments on the popularity of the Hong Kong stock market, companies are increasingly eschewing an ADR listing entirely, preferring a Hong Kong local listing, with exchange regulators encouragingly supportive. For the Chinese company of the future, a dual listing may well mean H-shares (HK) and A-shares (mainland China).

In a world obsessed with buybacks (at the wrong time) and cost-cutting (at the wrong time), we look for investment and expansion. Here, the US is no longer the world leader it once was.

Eoin Treacy's view -

There is an exceptional amount of competition for attention in today’s market. The wall of money printed in the last year has refocused attention on relative performance of assets. Interest rates and currency movements play a big part in how well international assets fare versus US assets. That’s particularly relevant for large pools of US capital that have mostly stayed at home over the last decade.



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June 23 2021

Commentary by Eoin Treacy

June 23 2021

Commentary by Eoin Treacy

The monumental challenge of trying to hit climate targets

Thanks to a subscriber for this report from National Bank of Canada. Here is a section:

Eoin Treacy's view -

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

When numbers in excess of $100 trillion are bandied about most people’s eyes glaze over. The global annual GDP in 2020 was $93 trillion. That suggests to achieve the stated aim of containing temperature rises to 1.5% by 2050, we need to made big assumptions. The most important is that if we go ahead and make the sacrifices and spend the money, that it will work.



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June 23 2021

Commentary by Eoin Treacy

South African Brothers Vanish, and So Does $3.6 Billion in Bitcoin

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

We were immediately suspicious as the announcement implored investors not to take legal action,” Hanekom Attorneys said in response to emailed questions. “Africrypt employees lost access to the back-end platforms seven days before the alleged hack.”

The firm’s investigation found Africrypt’s pooled funds were transferred from its South African accounts and client wallets, and the coins went through tumblers and mixers -- or to other large pools of bitcoin -- to make them essentially untraceable.

South Africa Plans to Regulate Crypto Trading in Phased Manner

Calls to a mobile number for Cajee were immediately directed to a voicemail service. He and his brother, Raees, 20, set up Africrypt in 2019 and it provided bumper returns for investors. Calls to Raees also went straight to voicemail. The company website is down.

The saga is unfolding after last year’s collapse of another South African Bitcoin trader, Mirror Trading International. The losses there, involving about 23,000 digital coins, totaled about $1.2 billion in what was called the biggest crypto scam of 2020, according to a report by Chainalysis. Africrypt investors stand to lose three times as much.

Eoin Treacy's view -

This is not confidence inducing and suggests the potential rebound for bitcoin will be contained as investors weigh the risks from various exchanges.



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June 23 2021

Commentary by Eoin Treacy

India to Spend $9.1 Billion on Free Rice and Wheat for the Poor

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

India’s cabinet approved Wednesday an earlier proposal to distribute 20.4 million tons of free rice and wheat to people covered under the nation’s food program for five months ending November, according to a government statement.

* Govt will spend 672.7 billion rupees ($9.1 billion) as subsidy for distribution of food grains to as many as 813.5 million people

* The beneficiaries will get 5kg of rice or wheat per person per
month: statement

** NOTE: The free allocation is in addition to the sale of same amount of subsidized food grain each month

* NOTE: The announcement was made by Prime Minister Narendra Modi on June 7, before a formal approval by the nation’s cabinet on June 23

 

Eoin Treacy's view -

India has experienced some significant challenges in tackling its coronavirus outbreak and measures to support the poor are to be welcomed. Targeting the staple food sector also suggests Narendra Modi is working towards success in the 2022 interim and 2024 general elections.



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June 22 2021

Commentary by Eoin Treacy

June 22 2021

Commentary by Eoin Treacy

Email of the day on China Evergrande's debt issues

Is China Evergrande an isolated problem or should we be concerned that this is a common problem throughout the Chinese economy (and thus much more to be concerned about)?

Eoin Treacy's view -

Thank you for this relevant question and this link to Grant’s free newsletter. Here is a section:

The unfolding Evergrande saga is taking a toll on the Chinese offshore bond market, as yields on the ICE BofA Asian Dollar High Yield Corporate China Index rose to 9.93% on Friday, up from 8.5% as recently as May 26 and far above the 4.65% on offer for the equivalent U.S. gauge. That 536 basis point spread marks a near-decade high, apart from a brief spasm during the March 2020 liquidation. Yet, that rough price action hasnʼt derailed insatiable investor appetite for yield: Chinese developers sold $20.3 billion in dollar bonds through June 2 per Refinitiv, up 16% from last yearʼs pace and running “completely contrary” to investor expectations for subsiding deal flow, Owen Gallimore, head of credit-trading strategy at ANZ, commented to The Wall Street Journal.

More broadly, as a debt-fueled fixed asset investment and a bloated financial system (featuring $50.3 trillion in banking assets as of March 31, more than half the $84.5 trillion in global GDP last year) stand as the centerpieces of the Chinese economic miracle, a brisk pace of economic growth is paramount for avoiding trouble.

Yet on that score, recent data are less than encouraging, as total social financing (i.e., aggregate credit and liquidity flows) came to RMB 1.92 trillion in May, light of the RMB 2 trillion consensus estimate to mark the third straight negative surprise. Similarly, M2 money supply growth registered at 8.3% year-over-year in May, down from 10.1% three months earlier and near the lowest level since at least 1996, while the credit impulse (or growth in borrowing as a percentage of GDP) slipped to 25.6% last month, down from 31% in February and the lowest reading since early 2020.

Quid pro quo is a dangerous mix when it comes to debt markets because one of the easiest ways to raise funds is to boost leverage through convenient relationships. If I need more funds, it is easy for me to buy a portion of your bank in return for your boosting leverage to invest in my company. The challenge is this is a simple transaction but the underlying web of interconnectedness across the developer/bank/materials/local and national government level is probably impossible to clearly identify.



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June 22 2021

Commentary by Eoin Treacy

'Value' Label Haunting Japanese Shares Again: Taking Stock

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

As a key “value” market, Japan’s shares have gotten rolled up in the reversal of the reflation trade sparked by the Fed’s hawkish turn last week. The market capitalization of traditional value sectors financials, industrials, energy and materials is about 36% of the MSCI Japan Index, versus around 24% for the U.S. equivalent, according to data compiled by Bloomberg.

With stocks trading higher Tuesday, after a value share rally in the U.S. overnight, it would seem the path for Japanese shares -- at least in the short-term -- is linked to the fate of global reflation bets.

Back at home, the slow vaccination rollout is still a risk especially with the Olympics looming. Only about 6% of Japan’s population have been fully vaccinated, a sharp contrast to other Asian markets like Singapore and Hong Kong, where 35% and 17% of the population have received two doses, according to data compiled by Bloomberg.

“The vaccine rollout is picking up, but risks of a resurgence will increase as Japan lifts the state of emergency and welcomes thousands of Olympic athletes and officials,” wrote Barclays Plc’s Tetsufumi Yamakawa and Kazuma Maeda in a note Friday.

Eoin Treacy's view -

It would be nice to think that Japan’s growing success in vaccinating the population and fighting the pandemic is behind renewed demand in the stock market. Instead, the more likely scenario is there is a swarm of hot money lurching from one asset class to another as perceptions about growth and inflation ebb and flow.



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June 22 2021

Commentary by Eoin Treacy

Billionaire caught in 'world first' crypto bloodbath

Thanks to a subscriber for this article from 9news.au which may be of interest. Here is a section: 

In a blog post four days ago, Iron Finance blamed the start of the avalanche on "some whales" removing liquidity.

"We never thought it would happen, but it just did," the company said.

"We just experienced the world's first large-scale crypto bank run."

It has been a tough few days for cryptocurrencies.

Eoin Treacy's view -

Stable coins, at least partially backed by some national currency, are supposed to be less volatile. That is their primary attraction. The demise of Titan coin highlights how large investors in illiquid markets can have outsized effects. This exact same process has been playing out in Frontier markets for years, it just that everything happens quicker in cryptos.



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June 21 2021

Commentary by Eoin Treacy

June 21 2021

Commentary by Eoin Treacy

Raisi Victory Will Delay Return of Iran's Oil, Analysts Say

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

The election of a conservative cleric as Iran’s president will probably hold up the lifting of U.S. sanctions on the Islamic Republic’s energy exports, said analysts including Sara Vakhshouri, president of SVB Energy International LLC.

“The election of a hard-liner delays the expectation of a rapid return of Iranian oil,” she said.

Eoin Treacy's view -

The absence of Iranian oil from the international market has helped to support prices. It is also worth considering that the absence of 8 million barrels of oil from OPEC+ has been an even bigger tailwind for the price.

The spread between Brent and WTI crude has almost closed. The compression should be encouraging more onshore domestic supply into the market. However, the big question for the sustainability of the oil price rally is when will the supply discipline of OPEC+ end?



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June 21 2021

Commentary by Eoin Treacy

Bitcoin Drops as Hashrate Declines With China Mining Crackdown

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

Cryptocurrencies have been enduring a lull recently. Bitcoin is trading at about half its record high of nearly $65,000 reached in mid-April. The market value of all cryptocurrencies is about $1.45 trillion, as measured by CoinGecko, versus a high around $2.6 trillion last month.

One of the factors cited has been concern about China clamping down on mining amid concerns about energy usage, and in the wake of deadly coal accidents.

The city of Ya’an in the southwestern region of Sichuan has promised the provincial authorities to root out all Bitcoin and Ether mining operations within one year, said a person with knowledge of the situation. According to a report in the Communist Party-backed Global Times, the closure of many Bitcoin mines in the province has resulted in more than 90% of China’s Bitcoin mining capacity being shuttered.

About 65% of the world’s Bitcoin mining took place in China as of April 2020, according to an estimate by the University of Cambridge.

Eoin Treacy's view -

The big question for bitcoin’s rapacious demand for electricity is where do they go now that China’s energy loophole has been closed? In Texas, there is speculation they will set up next to drilling wells and harvest the flared gas.



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June 21 2021

Commentary by Eoin Treacy

China's tech workers pushed to limits by surveillance software

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

In China, technology adoption promises its swelling middle classes an easier, more productive life. But as companies bring productivity-enhancing tools into everyday office life, their efficiency is being channeled, not into leisure time, but into squeezing ever more value from employees.

Just as algorithms have come to govern the workdays of blue-collar warehouse workers at Alibaba Group Holding and food delivery riders for Meituan, elsewhere, white-collar workers are becoming affected by the creep of software-driven management and monitoring into their professional lives.

This is particularly the case in China's tech industry, where rapid technological development, paired with poor labor regulations, has created a potential for labor abuse. The big tech companies themselves, locked in cutthroat competition for new business opportunities, are pioneering these technologies and tools in their own operations. From hiring and goal-setting to appraisal and layoff, productivity-enhancing technologies look to quantify workers' behavior by collecting and analyzing extensive amounts of personal data.

Some scholars warn that some practices can be unethical, invading employees' privacy and burdening them with greater workload and mental stress. Others draw parallels to the fatigue faced by factory laborers during industrial revolutions, where workers chased the pace of machines.

"I felt that I was getting busier and having less time for myself," said the engineer Wang, looking back on his five years at Chinese internet companies.

Eoin Treacy's view -

Asian work culture is not something many in the West are familiar with. Long hours, arriving before the boss and leaving after him are normal work practices. Not taking holiday, an expectation to do whatever is asked and the assumption of absolute loyalty are common characteristics of working in Japan, China, South Korea and elsewhere. When a Japanese newspaper talks about potentially overworking individuals it is worth paying attention. Afterall Japan has a word for being worked to death. (karoshi - death by overwork).



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June 18 2021

Commentary by Eoin Treacy

June 18 2021

Commentary by Eoin Treacy

Luxury Boom Helps Birkin Bag Maker Overtake a Beer Giant

This note from Bloomberg highlights an interesting development.

Hermes International, best known for its silk scarves and $10,000 Birkin handbags, is becoming one of the world’s hottest luxury stocks. The shares hit a fresh record on Friday, giving the company a market capitalization of about 130 billion euros ($155 billion) and nudging it above beer giant Anheuser-Busch InBev NV. Hermes, which only joined France’s CAC 40 Index three years ago, has benefited from a boom in demand for luxury goods that showed no sign of abating during lockdowns, while closed bars and restaurants weighed on AB InBev and other brewers.

Eoin Treacy's view -

Hermes’ most popular products are in limited supply by design. That helps to create an aura of exclusivity and keeps demand high. It is also a recipe for low growth as price rises are implemented in an orderly manner against a background of deliberately controlled sales. Why then would the share accelerate?

There are two primary reasons. The first is only the name bags are in limited supply and everything else is produced at greater scale. The second is that massive money supply growth inflates the ability of consumer to afford luxury goods. That suggests the accelerating trend is a product of stimulus and is just as subject to the outlook for global money growth as growth stocks.



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June 18 2021

Commentary by Eoin Treacy

June 18 2021

Commentary by Eoin Treacy

As good as it gets, for now

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

Eoin Treacy's view -

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

The beginning of any new bull market creates a wide dispersion of views about future potential. The most important are between the cyclical versus secular camps. Cycle bull markets are powerful but short lived while secular bull markets surprise in their persistence over years.

There is likely to be a lot more dispersion in the commodity complex on this occasion that there was at the beginning of the big bull market that began in the early 2000s. The biggest difference is there is no secular shortage of oil.



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June 18 2021

Commentary by Eoin Treacy

"Mosquito smoothies" streamline production of promising malaria vaccine

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

This new process, spearheaded by scientists at Imperial College London, could make the process far more efficient. The method involves the batch processing of whole mosquitoes, which are reduced to a slurry that is then filtered by size, density and electrical charge. This process of making "mosquito smoothies" leaves behind the necessary sporozoite products for vaccination.

“Creating whole-parasites vaccines in large enough volumes and in a timely and cost-effective way has been a major roadblock for advancing malaria vaccinology, unless you can employ an army of skilled mosquito dissectors," says lead researcher Professor Jake Baum, from Imperial College London. "Our new method presents a way to radically cheapen, speed up and improve vaccine production.”

In addition to making the process faster and cheaper, the technique can also make the vaccine more potent. Traditional extraction of sporozoites brings with it contaminants such as unwanted proteins and other debris, which can affect the infectivity of the sporozoites and possibly the immune system response, compromising the efficacy of the whole parasite vaccine. Conversely, the mosquito smoothies result in pure uncontaminated samples.

Eoin Treacy's view -

The promise of a vaccine against malaria is a significant piece of the missing puzzle to economic development in Africa. Malaria is a wasting disease that strikes people in their prime. It reduces productivity and requires other people to care for the invalid, which only compounds the effect. It is one of the biggest taxes on productivity on the continent. If malaria is solved, it frees up resources and productive capacity for significant evolution of human potential.



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June 17 2021

Commentary by Eoin Treacy

June 17 2021

Commentary by Eoin Treacy

Seaborg plans to rapidly mass-produce cheap, floating nuclear reactors

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

Seaborg's solution is to use another molten salt – sodium hydroxide – as a liquid moderator. Thus, the core design places the fuel salt tube inside a larger tube filled with sodium hydroxide, creating a first-of-its-kind all-liquid reactor that's remarkably compact. But sodium hydroxide itself is a powerfully caustic base, often used as oven cleaner or drain cleaner; the Seaborg design has to deal with this added corrosive agent too.

And on top of all that, there's the freaky phenomenon of "grain-boundary corrosion" to boot, caused by the presence of tellurium as a fission by-product in the fuel salt stream. Tellurium atoms can merrily penetrate through metals, and swap positions with other elements, leading to embrittlement of the metals at their weakest points.

The company is well aware of its key challenges here. "Seaborg’s core IP is based on corrosion control in the moderator salt, and applying the lessons learned since the 1950s," says Pettersen. "But it is not just a question of corrosion, it is also how easy it is to put these things together. Hands-on experience is important. They need to be welded, tested, inspected, maintained. We are working towards having perhaps 20 or 30 test loops in Copenhagen, with the experiments designed, set up and executed. The conceptual design is already done; we are now working on the basic design and in that way we are working up towards a full-scale prototype."

Eoin Treacy's view -

Here is a link to the presentation Seaborg’s CEO gave at the Singapore Week of Innovation & Technology earlier this year. 

To my mind creating a nuclear energy solution that accepts that accidents do happen as the primary starting point is a significant development. The primary attraction of molten salt is it does not present a massive dispersion or bomb threat. After that everything else comes down to economies of scale.



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June 17 2021

Commentary by Eoin Treacy

Lifting the mask

 This initial article by Edward Snowden for his new letter may be of interest to subscribers. Here is a section:

One history of the Internet — and I'd argue a rather significant one — is the history of the individual's disempowerment, as governments and businesses both sought to monitor and profit from what had fundamentally been a user-to-user or peer-to-peer relationship. The result was the centralization and consolidation of the Internet — the true y2k tragedy. This tragedy unfolded in stages, a gradual infringement of rights: users had to first be made transparent to their internet service providers, and then they were made transparent to the internet services they used, and finally they were made transparent to one another. The intimate linking of users' online personas with their offline legal identity was an iniquitous squandering of liberty and technology that has resulted in today's atmosphere of accountability for the citizen and impunity for the state. Gone were the days of self-reinvention, imagination, and flexibility, and a new era emerged — a new eternal era — where our pasts were held against us. Forever.

Everything we do now lasts forever... The Internet's synonymizing of digital presence and physical existence ensures fidelity to memory, identitarian consistency, and ideological conformity. Be honest: if one of your opinions provokes the hordes on social media, you're less likely to ditch your account and start a new one than you are to apologize and grovel, or dig in and harden yourself ideologically. Neither of those "solutions" is one that fosters change, or intellectual and emotional growth.

The forced identicality of online and offline lives, and the permanency of the Internet's record, augur against forgiveness, and advise against all mercy. Technological omniscence, and the ease of accessibility, promulgate a climate of censorship that in the so-called free world instantiates as self-censorship: people are afraid to speak and so they speak the party's words... or people are afraid to speak and so they speak no words at all...

Even the most ardent practitioners of cancel culture — which I've always read as an imperative: Cancel culture! — must admit that cancellation is a form of surveillance borne of the same technological capacities used to oppress the vulnerable by patriachal, racist, and downright unkind governments the world over. The intents and outcomes might be different — cancelled people are not sent to camps — but the modus is the same: a constant monitoring, and a rush to judgment.

Eoin Treacy's view -

Censorship is not something I thought I would ever write about and yet today we are surrounded by it. It is not so much that the law has changed, but that we find ourselves in a position where speaking one’s mind comes with consequences that can stretch into a lifetime. Most people’s default is to play along to get along so self-censorship is an easy answer. That’s a challenge and it is not easily overcome.

The chasm between tribes who believe in the rightness of their opposite positions is a recipe for continued political polarisation. Politicians continue to contort themselves so they can appeal both to the fringe and the core, so they can win elections.



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June 17 2021

Commentary by Eoin Treacy

Xi Taps Top Deputy to Lead China's Chip Battle Against U.S

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

The task of coordinating that sprawling program now falls to Liu, who has to keep track of the relevant resources and drive the national strategy to help China achieve chip independence.

“For our country, technology and innovation is not just a matter of growth,” Liu told a three-story auditorium packed with China’s top scientists in a separate meeting in May. “It’s also a matter of survival.”

Xi is counting on his lieutenant to help China fend off growing threats from the U.S., which is seeking to take back chip industry supremacy. Under the Trump administration, sanctions were slapped on Chinese giants from Huawei to SMIC, cutting off their access to American technology and equipment crucial to designing and making advanced logic chips. President Joe Biden has also laid out a $52 billion plan to bolster domestic chip manufacturing, while calling on allies to join export controls aimed at curbing Beijing’s drive toward technology self-sufficiency.

Rival powerhouse nations like South Korea and leading corporations such as Taiwan Semiconductor Manufacturing Co. have also responded with their own spending plans, fueling the race to take the lead in the sector.

With traditional chipmaking facing a series of challenges from technology development to heavy capital investment, third-generation chips -- which use compounds such as gallium nitride and silicon carbide to significantly improve the performance of semiconductors that power a wide range of industries and products -- may offer China its best chance to overcome rivals, senior academic Mao Junfa told an industry event in Nanjing earlier this month.

“China couldn’t buy chips, even with cash in hand,” he said, referring to Washington’s sanctions on Chinese tech companies including Huawei. “The compound chip technologies could help China surpass rivals in the post-Moore’s Law era.”

Eoin Treacy's view -

A decade ago, China needed a domestic demand led recovery so social media, ecommerce and mass consumerism were promoted. That allowed Alibaba, Tencent etc to become some of the largest companies in the world. Their economic function has been realised and now efforts are underway to curtail their growth, lest they become a challenge to the political status quo. The opening of an antitrust investigation of Didi ahead of its IPO is one more example of how the growth of the most successful companies is being curtailed. 



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June 17 2021

Commentary by Eoin Treacy

June 16 2021

Commentary by Eoin Treacy

Video commentary for June 16th 2021

June 16 2021

Commentary by Eoin Treacy

FOMC Dots Offer Up a Hawkish Shocker

This note from Bloomberg was the representative of the initial response to the Federal Reserve’s announcement today.

The Fed announcement is out! Salient features include the following, with the super-hawkish dot plot showing up as the main feature. Lower asset prices is an obvious response:

Dot plot: The 2023 median dot was higher -- a lot higher! Only five members had rates unchanged, and the median is now 0.625% -- higher than anyone was reasonably expecting.
Tapering: The statement retained the reference to substantial further progress
Forecasts: The unemployment rate was forecast at 4.5 in 2021, 3.8 in 2022, and 3.5 in 2023 from 4.5, 3.9, and 3.5 respectively. Core PCE was forecast at 3.0 in 2021, 2.1 in 2022 and 2.1 in 2023 from 2.2, 2.0, and 2.1. The big news here is probably the lower unemployment rate forecast next year, as the PCE forecast adjustment is basically a mark-to-market.
IOER: There was a five basis point hike to 0.15%

Eoin Treacy's view -

Here is a link to the side-by-side comparison to the statement made in April. Raising rates twice in the next 30 months is now considered a shocking development. That conclusion can only be reached if one believed they would never again attempt to normalize policy.



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June 16 2021

Commentary by Eoin Treacy

China's Campaign to Control Commodities Goes Into Overdrive

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

It’s also unclear what could have triggered Sasac’s latest order on overseas positions. The regulator hasn’t ruled out further measures, including those that target specific companies under its control, the people said. A fax to Sasac seeking comment didn’t receive a reply.

The government had already asked domestic firms, including steel mills, commodities merchants and brokerages, to reduce bullish bets on local futures markets for highly volatile raw materials like iron ore and coal.

The expansion of oversight suggests Beijing is now seeking to exert a measure of control over the international benchmarks that influence commodities prices in China, as well as deterring speculation more generally among state-owned companies.

Eoin Treacy's view -

Historically, exchanges have been the primary deciders of whether ebullient sentiment in futures contracts constitutes a threat to the market. Their solution is simple. They raise margin rates and make it much more expensive to hold positions. That has almost universally succeeded in bringing prices back down.



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June 16 2021

Commentary by Eoin Treacy

Top Oil Traders Say Emissions Market Could Challenge Crude

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

Oil traders including Vitol and Trafigura, as well as a host of hedge funds have been building up trading desks to profit from one of the hottest commodities trades of the year. Traders are bracing for tighter supplies as the European Union is preparing for the markets biggest reform to date to align emissions trading with a stricter climate goal for the next decade.

“Carbon is already the largest commodity in the world, with the potential to be 10 times the size of the global crude markets,” Hauman said the FT Commodities Global Summit on Wednesday. “We see a massive potential here.”

Eoin Treacy's view -

Carbon emissions are a growing market as the willingness to enact legislation to tax fossil fuel usage goes global. That is limiting the supply response of large companies because they are unwilling to make the investments necessary to replace reserves. The global economic recovery and OPEC+’s supply discipline continue to support oil prices as a result.



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June 15 2021

Commentary by Eoin Treacy

June 15 2021

Commentary by Eoin Treacy

Copper's Supercharged Rally Creaks on Signs of Softer Demand

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

“We’re at a point where a lot of the cyclical tailwinds, if they haven’t blown themselves out, are past their peak,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said by phone. “That fear that things are just going to go higher and higher and higher -- that’s come out of the market now.”

Copper has been one of the standout performers in a year-long rally seen across commodities markets as a surge in demand coincided with bottlenecks that have wreaked havoc on global supply chains. The key questions for investors across asset classes are whether the rally would prove transitory, and whether the inflationary impact on consumers would prove short-lived.

 

Eoin Treacy's view -

China wants lower commodity prices because of the upward trend of prices at the factory gate. They have a lot more ability to manipulate copper prices because they have such large stockpiles. That's not quite the same for metallurgical coal or iron ore.



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June 15 2021

Commentary by Eoin Treacy

Zombies Are on the March in Post-Covid Markets

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

Recessions are supposed to lead to more bankruptcies, and make it harder for companies to borrow. Rises in debt outstanding, all else equal, should increase the risk of bankruptcies down the line. So what has happened in the last 12 months virtually surpasses understanding. French bankruptcies had steadily declined since the brief recession caused by the sovereign debt crisis, while companies took advantage of the dirt-cheap credit that had been engineered to save the euro to refinance and take on more leverage. When the crisis hit, they were then able to borrow far more, while bankruptcies tumbled.

Logic might dictate that an increase in bankruptcies lies ahead. This should mean that debt investors demand a higher yield to compensate them for the greater risk of defaults. In the U.S., this is exactly what has not happened. The spread between the yield on “high-yield” bonds (which might need to be renamed) over five-year Treasury bonds hasn’t been this low since the summer of 2007. And we know what happened after that:

Eoin Treacy's view -

Interest expense is seldom the reason for companies to get into trouble. It’s when large portions of a company’s debt approaches maturity and needs to be refinanced that the potential for trouble increases.



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June 15 2021

Commentary by Eoin Treacy

Email of the day on cybersecurity

I found your comments on autonomous vehicles today very well written and enlightening, thanks a lot. On a different note, do you think cyber security has a big potential for the next decade. And if so, do you have any suggestions for how to invest in this theme. Any potential companies and/or ETFs would be greatly appreciated. Thanks again for a very nice service.

Eoin Treacy's view -

Thank you for your kind words and I am delighted you are enjoying the service. There has undoubtedly been a bull market in ransomware attacks which has made abundantly clear how inept cyber controls are. The recent hack of Electronic Arts is a case in point. Here is a section from an article on Vice.com:

A representative for the hackers told Motherboard in an online chat that the process started by purchasing stolen cookies being sold online for $10 and using those to gain access to a Slack channel used by EA. Cookies can save the login details of particular users, and potentially let hackers log into services as that person. In this case, the hackers were able to get into EA's Slack using the stolen cookie. (Although not necessarily connected, in February 2020 Motherboard reported that a group of researchers discovered an ex-engineer had left a list of the names of EA Slack channels in a public facing code repository).

"Once inside the chat, we messaged a IT Support members we explain to them we lost our phone at a party last night," the representative said.

The hackers then requested a multifactor authentication token from EA IT support to gain access to EA's corporate network. The representative said this was successful two times.

The bigger the company the greater the threat. The primary challenge for any company is securing access to intellectual property that can be used by a competitor and customer data which carries costs if lost. They are not that worried about everything else.



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June 15 2021

Commentary by Eoin Treacy

June 14 2021

Commentary by Eoin Treacy

Video commentary for June 14th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: differring sources of inflation and how they are perceived, gold and silver rebound from intraday lows, stocks close higher, bonds ease, oil steady, quiet markets ahead of the Wednesday Fed meeting, discussion of ESG investing



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June 14 2021

Commentary by Eoin Treacy

Peak Rate of Change on Growth and Inflation?

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

Eoin Treacy's view -

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

The theory that growth and inflation are likely to moderate in coming quarters, following the blowout moves in the 1st quarter, is reflected in the bond market where yields have been locked in a range for the last three months.

The challenge for investors is there is the inflation that economists and central banks monitor and the inflation we feel on a day-to-day basis.



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June 14 2021

Commentary by Eoin Treacy

The Impact of the NSFR on the Precious Metals Market

This letter sent by the London Bullion Market Association (LMBA) and the World Gold Council to the Bank of England for the attention of the Bank of International Settlements may be of interest to subscribers. Here is a section:

An 85% RSF charge would:

• Undermine clearing and settlement – The required stable funding for short-term assets would significantly increase costs for LPMCL clearing banks to the point that some would be forced to exit the clearing and settlement system, which may even be at risk of collapsing completely.

• Drain liquidity – The required stable funding would dramatically increase costs for remaining LPMCL members taking gold on deposit to be held as unallocated metal relative to the cost of providing custody of allocated metal. This would prevent LPMCL clearing banks from holding unallocated metal and drain essential liquidity from the clearing and settlement system. These unallocated balances are the only material source of liquidity in the clearing and transaction financing systems. Without this liquidity, there would be a material deleterious effect on the global precious metals market.

• Dramatically increase financing costs – The required stable funding would penalise LBMA members who hold unallocated balances of precious metals. This would increase the cost of short-term precious metals financing transactions as stable funding costs are passed through to non-bank market participants. Such cost increases would impact miners, restrict refining and raise the costs of an inelastic key input to industrial and consumer goods. This includes some essential medical equipment and technologies required to reduce pollutants (such as catalytic converters).

• Curtail central bank operations – Fewer LPMCL clearing banks may curtail central bank deposit, lending and swaps in precious metals. These operations are essential to offset the costs of storing gold reserves and generating income. In addition, this provides important liquidity to the market. The effects of an 85% RSF charge would not just be limited to the London OTC market, but would be felt globally across the entire gold value chain. While London acts as the default settlement location for most global OTC spot transactions, the precious metals market is international. An undermining of the clearing and settlement system, reduced market liquidity, significantly increased financing costs and curtailed central bank activity would fundamentally alter the structure and attractiveness of this market.

Eoin Treacy's view -

Most gold is trading is through fungible non allocated bars. Reducing liquidity in this over-the- counter market, while also elevating gold to a tier 1 asset could have the potential to create demand while reducing supply. That’s the recipe for a bull market; assuming the Basel III rules as they are currently envisaged pass into effect this month.



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June 14 2021

Commentary by Eoin Treacy

China's Amazon for Autonomous Driving Data: Hyperdrive Daily

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

Thanks to e-commerce, the world has gotten used to buying all sorts of daily necessities online. Automakers in China will soon be afforded the same convenience, with the ability to purchase must-have autonomous driving data from a central repository.

For that, credit must go the China Association of Automobile Manufacturers, which has been working on a Vehicle Data Platform with industry players for the past three years. Its launch is expected any day.
China, a pioneer in the promotion of electric cars, is exploring a credible and efficient way of storing, sharing and utilizing data to help automakers speed up their efforts in making autonomous driving a reality. In the intelligent and connected car space, data is as important to vehicles as crude oil is to internal combustion engine cars.

The issue is scale. Thousands upon thousands of terabytes of sensory data must be collected, analyzed and interpreted to produce the technology that ultimately allows cars to navigate roads, highways and obstacles themselves.

Currently, this valuable information is in the hands of individual companies, which are trying their best to use it to “train” the brains of intelligent vehicles as humankind races to that point where we can take our hands off the steering wheel altogether.

Eoin Treacy's view -

Tesla was welcomed into China with open arms. The company’s factory outside Shanghai was built in record time and every effort was made to remove regulatory roadblocks to begin production. Sales naturally followed and the move looked like a success. Then there was an accident and a loud public (orchestrated) outcry, with protestors standing on cars at a media junket. Now, a reservoir of self-driving data is being created and all companies active in the space will be expected to contribute what they have.



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June 11 2021

Commentary by Eoin Treacy

June 11 2021

Commentary by Eoin Treacy

Email of the day on inflationary pressures

It has been a while since our last meeting in London. Gillian and I are spending the little time that may be left for us in Lugano.

Since early this year I am in discussion with our banker friends about the risk of inflation and all that goes with it. Being closer to 90 than 80 I have seen and felt what inflation does to people’s savings and the social structure of the countries affected.

Debt levels around the world are at catastrophic heights and some of my friends in the banking world are of the opinion that debt will never be paid back - utter nonsense in my mind. The Federal Reserve Banks of the world are no longer controlled by the people in charge but by politicians who, if they have any knowledge of economics and finance, are scared stiff. Rolling over is the motto of present days because what would happen if interest rates would rise to normal levels is too terrible to imagine.

The G7 15% min. tax is not solving the problem but at least it’s indicating that some people are aware of the enormity of the debt and try to do something about it.

The U.S. inflation figure for May 2021 has been commented by John Authers today - see attachment -; what are your thoughts?

The other and much bigger problem for everything that lives on our planet - I call it ‘spaceship earth’ - is also very much on my radar but we leave that for another day.

Wishing you a pleasant weekend.

Eoin Treacy's view -

Thank you for attached report and article. I hope you are both enjoying the contemplative life in the beauty of Lugano. I’ve been saying for months that we all have to take the economic figures of the 2nd and 3rd quarters with a degree of scepticism. Year over year comparisons are effectively useless when last year represented a shutdown of the entire global economy.



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June 11 2021

Commentary by Eoin Treacy

Email of the day - on supply inelasticity in chip supply

Should I prefer longs in the European chip companies including machine manufacturing companies like ASML (almost a monopolist), ASML and Besi and chip producing companies like INFINEON or STM or the US companies like NVDIA, INTEL, AMD, QUALCOMM?

Should we consider the expected weakening usd while comparing? Especially chip machine producing companies should have a very bright future when both the US and Europe want to produce more chips themselves with a shortage of machines and chips for the foreseeable future it is unlikely any price discounts will be given interesting isn't it? kind regards

Looking forward as always to your long-term video have a nice weekend

Eoin Treacy's view -

Thank you for this kind email and I am delighted you are enjoying the videos. Semiconductors have become a nationalist priority as a result of the current shortage, the drought in Taiwan which questions the ability to increase supply, and geopolitical tensions. These factors have highlighted short-term thinking that was behind the migration of domestic European manufacturing to Asia, over the last couple of decades.



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June 11 2021

Commentary by Eoin Treacy

Update: Bitcoin, Crypto and Digital Currencies

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

Eoin Treacy's view -

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

Leverage is a major component in any momentum move. It also tends to trend higher in line with prices as paper gains collateralise additional new position sizes. That inevitably raises the average purchase price and greatly increases the sensitivity of traders to even modest setbacks. The net result is that leverage trends higher but can just as easily evaporate as prices decline.



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June 11 2021

Commentary by Eoin Treacy

A year of disruption in the private markets

This report from McKinsey may be of interest to subscribers. Here is a section:

Dry powder Private equity dry powder stands at $1.4 trillion (60 percent of the private markets total) and has grown 16.6 percent annually since 2015. Dry powder stocks are best viewed in the context of deal volume, and as a multiple of average annual equity investments over the prior three years, PE buyout dry powder inventories have crept higher, growing 11.9 percent since 2017. However, normalizing for abnormally high deal volatility in 2020, PE dry powder as a multiple of deal volume remained largely in line with historical averages (Exhibit 21). Dry powder growth reflects fundraising in excess of capital deployment. Its continued growth in 2020 highlights a common misperception among industry participants and pundits: the belief that stocks of dry powder can be deployed quickly in a market correction. While fundraising fell sharply in the first half of 2020 (–22.8 percent relative to the first half of 2019), so too did deal volume (–22.5 percent). Despite the sharp (and short-lived) decline in mark-to-market valuations in the first half of 2020, PE investors were largely unable to take advantage, as private owners exercised a key feature of PE—the right to hold. Without willing sellers, dry powder stocks rose once again, piling pressure on deal multiples, which once again reached all-time highs in 2020.

Eoin Treacy's view -

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

Private Equity is one of the primary destinations for liquidity and the fact that dry powder stands at $1.4 trillion with no easily accessible opportunities or willing sellers is a testament to just how high valuations are.



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June 10 2021

Commentary by Eoin Treacy

Video commentary for June 10th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Loopy year over comparisons exaggerate inflation while bonds continue to rally, Asian export prices increases are where inflation is most obvious, commodities continue to trend higher, stocks steady, oil rebounds from intraday low, banks ease and tech rebounds. 



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June 10 2021

Commentary by Eoin Treacy

ECB Renews Pledge on Faster Buying to Ensure Crisis Rebound

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

While Lagarde also unveiled forecasts that showed faster growth and inflation both this year and next, she insisted that price pressures in the economy “remain subdued.”

The ECB’s continued emergency easing is likely to presage a similar move by the Federal Reserve next week not to start winding down stimulus, in a two-pronged policy push to ensure recoveries from the pandemic can be assured.

ECB purchases have been conducted at a pace of roughly 19 billion euros a week since March, up from 14 billion euros earlier in the year. Thursday’s decision suggests they are likely to continue at or close to that higher clip until the recovery firms. Most economists don’t expect a reduction until September.

Eoin Treacy's view -

Amid all the talk of tapering over the last couple of weeks, there has been no mention of how deleterious higher yields are to government finances. We have already seen meaningful moves higher in yields this year. That has stoked inflationary fears but ultimately, the move was about supply and demand. The US Treasury has been issuing bonds at a quick pace to fund the latest round of stimulus and the bond market has experienced indigestion so bond yields rose.



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June 10 2021

Commentary by Eoin Treacy

Green Aviation - A Primer

This report from Bank of America may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

Electric plane designs are being commercialised for hopper flights but medium to long-range aspirations depend on innovations in battery technology which have not yet been solved. Hydrogen is a promising potential alternative for jet fuel but it requires a total redesign of aircraft. Both these solutions depend on massive investment in new infrastructure and supply chains. They will also depend on high carbon trading costs to drive the transition for at least the next decade.



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June 10 2021

Commentary by Eoin Treacy

'U' got the love - upgrading our uranium price deck

This report from Canaccord Genuity may be of interest to subscribers. Here is a section:

Government policy support has improved dramatically...Growth from non-OECD nations has always been the bedrock of our positive demand outlook, and this view has only strengthened following the release of China's 14th Five-Year Plan, which called for an ~40% expansion in its nuclear fleet to 70GWe by 2025, with an additional 50GWe under construction. Adding to this is a more constructive view around North American and European demand in the wake of (1) bipartisan support for nuclear energy in the US for the first time in 48 years, the US rejoining the Paris Agreement, and clear support for nuclear energy in the "American Jobs Plan" and (2) the European Commission announcing that it will potentially include nuclear energy in the European Union's sustainable financing taxonomy.

...and we have upgraded our demand forecasts accordingly. The acknowledgement of nuclear's critical role in providing cost-effective emissions-free baseload power has been slow in coming, but has now gained momentum. This has reduced the risk of accelerated plant closures in OECD nations and continues to drive growth in developing nations. Accordingly, we increase our demand growth to 2.6%pa to 2035 (2.3% prior), a forecast which excludes any potential positive impact from small modular reactors (>300MW), which are garnering increased attention globally.

Mine closures and unscheduled curtailments. Primary supply remains under significant pressure, a situation which has only been compounded by the shutdown of Ranger in January (produced 3.5Mlb in 2020) and Cominak in April (approximate capacity 3.9Mlb). While the re-start of Cigar Lake (18Mlb) should provide some welcome near-term relief, we continue to expect a supply deficit of ~25Mlb in the 2021 uranium market, which follows on from a 25Mlb deficit in 2020 (CGe). We estimate that over the last five years mine capacity has been reduced by ~45Mlb/year, and this is before any consideration of COVID-19 related disruptions.    

Eoin Treacy's view -

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

Nuclear energy is a proven reliable zero-carbon producer of electricity. The one thing that every zero-carbon solution being proposed today shares is a significant increase in demand for electricity. Against that background there is room for the nuclear industry to continue to provide base load power in a wide number of jurisdictions.



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June 09 2021

Commentary by Eoin Treacy

June 09 2021

Commentary by Eoin Treacy

Inflation: The defining macro story of this decade

This is a thought-provoking report from Deutsche Bank’s new What’s in the tails? series of reports. Here is a section:

The Fed’s move away from pre-emptive action in its new policy framework is the most important factor raising the risk that it will fall well behind the curve and be too late to deal effectively with an inflation problem without a major disruption to activity. Monetary policy operates with long and variable lags, and as we have noted, it will also take time to recognize that inflation has actually overshot excessively and persistently. As inflation rises sustainably above target, forward looking expectations are likely to become unanchored and drift higher, adding momentum to the process.

By this point, the Fed will likely be moved to act, and when it does the impact will be highly disruptive to the markets and the economy. In the past, the Fed has not been able to reverse a sustained run-up in inflation without causing a recession and potentially large increase in unemployment. Being behind the curve when it starts will make the event that much more painful. Rising interest rates will also cause havoc in a debt-heavy world, leading to financial crises especially in emerging markets. If the Fed lets up and reverses rate increases in response to rising unemployment and other economic pain as occurred during the 1970s, inflation could back up again, leading to a repeat of the stop-go economic cycles that occurred during that period.

Depending on the timing of this potential inflation scenario, the 2022 midterm elections could be crucial. A surprisingly strong showing on the Democratic side could even pave the way for modifying the Federal Reserve Act to raise the inflation objective. This discussion has been brewing in academic circles for some time, not the least as a way to enhance the Fed’s power to move interest rates into negative territory when needed. But such a move could damage the Fed’s inflation fighting credibility. It could also lead to still higher inflation over time and ultimately intensifying the kind of boom-bust cycle experienced during the 1970s.

In brief, the easy policy decisions of the disinflationary 1980-2020 period appear to be behind us.

Eoin Treacy's view -

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

The response to the credit crisis resulted in massive asset price inflation which exacerbated inequality across society in most countries. The response to the pandemic is aimed at reversing that trend and providing greater opportunity to the people left behind by the last recovery. That implies massive money printing, spending and social programs.



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June 09 2021

Commentary by Eoin Treacy

Nornickel Resumes Ore Mining at Taimyrsky Mine

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

World’s largest producer of palladium and high-grade nickel and a major producer of platinum and copper Nornickel announced that on June 1 the company began to gradually restart ore mining at the Taimyrsky underground mine and plans to advance mine’s operations to full capacity in the near future. Currently, the mine has reached a daily mined volume of 5 kt, which is about 40% of the design capacity. The final stage of recovery operations at the Taimyrsky mine of 4.3 million tonne per annum of ore is expected to be fully completed by the end of June.

Norilsk Nickel Senior Vice President Mr Nikolay Utkin said “Water from the horizons of the Taimyrsky mine has been pumped out. Today, our main goal is to reinforce the underground workings to ensure the safety of our employees. We will be gradually scaling up mining as we take these measures. The mine is expected to reach its design capacity of 12,1 kt per day by the end of June 2021.”

Eoin Treacy's view -

The flooding of the Taimyrsky mine was a major support for palladium prices over the last six months. It helped the price reverse a reversion to the mean and trade out to all-time new highs. The recovery in demand from the automotive sector has been an additional factor which allowed the price to steady.



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June 09 2021

Commentary by Eoin Treacy

Warner-Discovery, French Deal 'Dramatically' Push M&A Up European TV Agenda

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

While European broadcasters are still profitable, “and some very much so,” Godard highlighted, “savvy investors believe this is looking suspiciously like the high earnings of printed newspapers circa 2007, or a Wile E. Coyote run over the edge of the cliff. Broadcasters are capturing a declining share of total video audiences and their capacity to finance attractive content is shrinking as talent is bid up by SVOD operators.”

The analyst then outlined two consolidation options that have emerged in Europe.

“The first path — heralded by Bertelsmann RTL Group — would aim at creating national broadcasters with the content scale to operate compelling online platforms” via domestic acquisitions, Godard said, calling this the “possibly more defensive but also more realistic” option.

The second path is “more ambitious but lacking a credible backer,” he argued. It targets “the never achieved idea of pan-European synergies, leveraging increased international appetite for non-English language content” by merging assets across borders, something that the likes of Italy’s Mediaset and Vivendi have talked about. “But its champion, Italy’s Mediaset, lacks capacity to deliver,” Godard concluded.

“The group is already the biggest broadcaster in Italy and Spain and has built a 24 percent stake in Germany’s ProSieben, with the remaining shareholding fragmented,” he explained. “The problem is, if the cross-border strategy is sound, Mediaset may be its worst possible proponent. Besides bringing in strong leadership to its Spanish division, Mediaset never extracted significant synergies from its two Mediterranean units, despite their cultural affinity.”

Eoin Treacy's view -

National broadcasters survive because they have state backing and a captive audience. The value proposition they represent is tied to continued support from governments because they provide domestic language content. That does not transfer well internationally. This map of the 12 most spoken languages in the world suggest the biggest opportunities are in the Chinese, English, Spanish, Hindu-Urdu and Arabic speaking parts of the world. 



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June 08 2021

Commentary by Eoin Treacy

Video commentary for June 8th 2021

June 08 2021

Commentary by Eoin Treacy

Colonial Pipeline's Bitcoin Ransom Mostly Recouped by U.S.

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

The action signals U.S. law enforcement’s ability, in some cases at least, to track cryptocurrency, identify digital wallets and seize funds, a potentially powerful tool in combating ransomware attacks in particular. The operation also reveals how quickly hacking operations can be identified by the FBI, which Abbate said has been investigating DarkSide since last year.

The FBI was able to find the Bitcoin by uncovering the digital addresses the hackers used to transfer the funds, according to an eight-page seizure warrant released by the Justice Department on Monday.

Eoin Treacy's view -

Blockchains are public ledgers by design. Treating ransomware as if it is terrorism is a major escalation in the fight against this revenue model. It suggests the ability to transact secretly in bitcoin is about to garner a lot more scrutiny and most particularly from the tax authorities.



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June 08 2021

Commentary by Eoin Treacy

Man Group-Oxford Quants Say Their AI Can Predict Stock Moves

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

Multi-horizon forecast models using statistical analysis have been around for years now, channeling market variables into predictions about how a stock will move over different time periods. The machine-learning techniques introduced in this research will increase the amount of data that can be processed and the potential accuracy of the predictions over longer time periods.

But to make it work, the AI has to be able to process a huge amount of data quickly. The researchers turned to Bristol, England-based Graphcore’s Intelligence Processing Unit, a pizza box-sized chip
designed specifically to handle the demands of an AI program. In the trials, Graphcore’s chip performed about 10-times faster than GPUs.

While the research and the Graphcore chips that make the model possible are the “logical next step” in the high-speed computations that Man Group is interested in, the fund hasn’t committed to rolling it out, Ledford said.

Meanwhile, not every firm would be able to deploy this kind of strategy. “You would not try this model if you did not have access to fast computation,” said Zohren, who worked with Oxford-Man Institute research associate Zihao Zhang on the research.

 

Eoin Treacy's view -

Traders built some of the fastest telecommunications equipment anywhere, to get prices quickly between New York and Chicago. They pioneered colocation and the transition of exchanges into data centres. It is inevitable they will invest heavily in super computers if they believe they can gain an edge in short-term trading.



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June 08 2021

Commentary by Eoin Treacy

Where to Frack Next: La La Land

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

The exploration and production sector just reported its “best organic free cash flow since shale began,” according to an analysis of first-quarter results by Bob Brackett at Bernstein Research.

Most notably, less than half of cash flow from operations was swallowed up in capital expenditure. This not-spending-everything approach may seem like finance 101 but is actually pretty radical stuff for the shale business. Look at 2012 to 2016 on that chart. Such profligacy led investors to abandon the sector, finally forcing some discipline.

Eoin Treacy's view -

Secular bull markets in commodities are about the rising cost of marginal production. Decades of little investment in new supply in the energy sector created conditions that required a decade of overinvestment in new supply to compensate for rising demand. Ahead of the bull market in the early 2000s, the marginal cost of production was somewhere around $20, today that level is closer to $40.



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June 07 2021

Commentary by Eoin Treacy

June 07 2021

Commentary by Eoin Treacy

The Hot New Vision for Crypto Is Wildly Different From Bitcoin

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

Let’s zoom out for a second. All blockchain-based systems share two basic ideas. The first is that for the first time you can have a thing online that can be probably yours. A coin, a token, an NFT… whatever it is. You have it and control it and no third party has any say. Alice can own something and then send it to Bob. Alice doesn't have it anymore and Charlie can't interfere. The other core idea is that part of achieving this involves a sufficiently decentralized network of computers, such that no individual, company, or government has a say in what goes on.

But this is where the fork in the road emerges. The Bitcoin vision is to create a new form of money outside the authority of any central issuer. The DeFi vision inverts this, and takes the money creation part for granted. After all, you can spend a dollar on the Ethereum network using a USD-backed stablecoin, so why reinvent the wheel? Instead, the DeFi-based vision is to build unstoppable blockchain-based software and services that then do something with this money.

A couple weeks ago, I wrote that Wall Streeters are increasingly getting ETH-pilled and the above is why. There’s a certain concreteness to the value proposition. If a decentralized network of computers can match borrowers and lenders in some powerful and novel way, then the software and the tokens that power it should be valuable. And in general, this vision jibes much more with the Silicon Valley ethos. Trying to create a new form of money? That’s not really a thing you learn about at Stanford. Writing software to disrupt traditional financial services? That they get. Furthermore, Bitcoin frustrates many people in tech because of the community’s move slow and don’t break things approach.

All this being said, all these different factions and visions… they remain something of an inside game. It’s not clear how much your average crypto investor is paying attention to any of these different modes and models. If you look at the coins, you’ll mostly see a high degree of correlation. Either they’re all going up at the same time or down at the same time. This includes Bitcoin and Ethereum and Solana, but also a bunch of other coins that don’t map to a trendy narrative. (For example, Litecoin is still one of the world’s biggest coins despite its founder having peaced out from the project in 2017, and neither has a store-of-value narrative nor a DeFi narrative or anything else really.)

Here’s a chart of Ethereum, Bitcoin, and Litecoin going back to the summer of 2017. You can see, everything just kind of rises and falls at the same time.

The market strongly gives off a vibe of people wanting to get into crypto and then placing their chips on a bunch of different squares without too much thought. Maybe they buy a few that they’ve heard of, maybe they buy a few with a low nominal coin price because it’s fun to have a lot of coins and maybe they buy a few that just seem interesting. That still seems to be how flows work in the space. And as long as this is all the case, we’ll probably still have these generalized boom-bust cycles where coins rise and fall together along with the animal spirits of investors and traders.

Eoin Treacy's view -

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June 07 2021

Commentary by Eoin Treacy

Peru Riven in Two With Presidential Election Too Close to Call

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

Peru’s currency and stocks tumbled after incomplete results of Sunday’s presidential runoff showed the leftist candidate gaining momentum even as he trailed by a thin margin in the count.

The sol headed to its biggest drop in more than a decade at one point and the S&P/BVL Peru General Index fell as much as 6.8%, the most since November, with mining companies and financial firms among the hardest hit. Overseas bonds edged lower in light trading while the cost to insure against a default climbed.

Analysts were left to scour incomplete vote tallies for hints at who had the advantage, after investor favorite Keiko Fujimori saw her early lead over leftist opponent Pedro Castillo fade overnight and in the early morning. With almost 93% of votes counted, Fujimori had 50.1% support to 49.9% for Castillo, a former school teacher turned union organizer from the Peruvian highlands.

“The country is pretty much split down the middle,” said Alfredo Torres, director of Ipsos Peru. An unofficial quick count published earlier by Ipsos gave Castillo a 0.4 percentage point advantage over Fujimori, within the margin of error, while an Ipsos exit poll after Sunday’s voting showed Fujimori with a slight lead.

Fujimori, who is under investigation for corruption and campaigned while out on bail, gets more of her support from urban centers, while Castillo has the advantage in the countryside. She has vowed to save the country from “communism” by preserving a liberal economic model and boosting cash payments to families affected by the pandemic. The daughter of a jailed former president, it’s her third attempt at the top office.

Castillo, who launched his political bid with a Marxist party and was virtually unknown at the start of the year, ran on a platform of extracting more taxes from multinational miners and oil drillers to increase outlays on education and health. He blames the country’s inequality on the ruling elite whom he says have long been content to run Peru from Lima while ignoring swathes of the country.

Eoin Treacy's view -

The gulf between populist left and right-wing parties conspires to create volatility in all manner of financial assets prices. However, the reality of governing has been less revolutionary because most left-wing populists have achieved victory by slim margins which has curtailed their ability to implement their policy goals.



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June 07 2021

Commentary by Eoin Treacy

Biogen Alzheimer's Drug Approved in Disease Landmark

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

The FDA said in a statement on Monday that it was allowing the drug on the market because it reduces amyloid, a sticky, harmful protein that clogs the brains of Alzheimer’s patients. Amyloid’s role in Alzheimer’s is debated, but numerous other drugs that target it are being developed by pharmaceutical companies.

Biogen plans to sell the therapy under the brand name Aduhelm. It will cost $56,000 a year, the Cambridge, Massachusetts-based biotechnology company and its Tokyo-based partner, Eisai Co. Ltd., said in a statement.

U.S.-traded shares of Eisai leapt 60% to $118.73.

In an interview, Biogen Chief Executive Officer Michel Vounatsos said that the company had already produced millions of vials of the drug and that it would hit the market within 10 days to two weeks, once the company had done things like printed labels.

Over 900 infusion sites in the U.S. are prepared to administer the drugs, he said.

By giving the treatment a broad label allowing it to be used for a wide swath of Alzheimer’s patients, and not just the very early-stage patients the drug was mostly studied on, “the FDA is basically empowering the physician to make the decision,” who it is most appropriate for, Vounatsos said.

Eoin Treacy's view -

Until today, there has been no treatment for Alzheimer’s. There is an argument about how effective the drug is, and some of the concerns about efficacy are very significant. Nevertheless, many patients will be prescribed it on a “something is better than nothing” basis.



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June 04 2021

Commentary by Eoin Treacy

June 04 2021

Commentary by Eoin Treacy

Secular Themes Review June 4th 2021

Eoin Treacy's view -

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

The pandemic panic is now one year in the rear-view mirror. It seems to have lost its ability to scare us so that begs the question what happens next? That’s the big conundrum

Some still believe that technology will solve all our problems and that the largest companies in the world will continue get even larger. Others believe that the inflation genie has been releases so it is inevitable that bonds will collapse in value. Others believe that we are in for a long grind of subpar growth because the debt is so large, it will sap the will to live out of every speculative asset. Others believe we are in a stock, commodity and property market bubble that could pop at any moment. Still other believe that cryptocurrencies are the solution, though no one is exactly sure what the problem is. So how do we make sense of these divergent views?

Personally, I have a strong feeling of déjà vu. In late 1999 and early 2000 I was selling Optus cable connections door to door in Melbourne. When I tired of backpacking, I went to London and within three weeks had started at Bloomberg. I was amazed at the speed of the Royal Mail. I saw an ad in The Times on a Wednesday for European sales people. I posted my CV that afternoon and had a reply back from Bloomberg delivered the next day. I had an interview on Monday and started on Tuesday. To say they were desperate for sales people is a gross understatement. I was in Belgium, visiting private banks, 10 days later. That was the top of the market and it was evidence of a true mania in the TMT (Telecoms, Media and Technology) sectors.

By the end of the Nasdaq bear market in 2003 the number of Bloomberg terminals being sold to mortgage bankers was surging. I was even offered a job by one. The Dollar was pulling back, there were fears about financial repression, China’s demand for commodities was only beginning, emerging markets were breaking out and gold was completing its base formation. A year later oil broke out.



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June 03 2021

Commentary by Eoin Treacy

Video commentary for June 3rd 2021

Eoin Treacy's view -

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

Some of the topics discussed include: gold pulls back from the psychological $1900 level. Dollar steady on Fed selling of LQD, Tech shares continue to underperform and are led lower by Tesla while Ford surges, bitcoin continues to pause below $40,000. 



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June 03 2021

Commentary by Eoin Treacy

The Fed's Small Unwind May Have Big Implications for Credit

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

Record low junk yields, the tightest spreads since 2007 on high-grade debt, rapidly evaporating distress -- the Fed’s fingerprints are all over credit markets. Central bank purchases ended up being marginal but the psychological boost can’t be overstated, leaving spreads vulnerable to widening now it’s backing out.

“The Fed has your back” was the constant refrain from investors piling into corporate credit over the last 14 months, even after valuations overshot pre-pandemic levels and high-grade losses accumulated. The program technically only extended to the very best quality junk, but it squeezed yields all the way down to CCC, arguably keeping a lot of zombies walking.

Of course, now they’ve been used once, it’ll be tough to leave those tools sitting idle next time there’s a blowup, so some investors will keep faith. And there’s still too much cash chasing returns in an asset class that could be seen as offering relative value. But removing the Fed crutch may force buyers to look a little harder at credit fundamentals amid razor-thin valuations.

Eoin Treacy's view -

The Fed is still buying $120 billion of Treasuries and mortgages every month. That hasn’t changed and it will be a while before they begin to chip away at that rate of purchases. The decision to unwind credit holdings is timely since spreads are so tight, but it also shows some awareness of how big a step it was to buy them in the first place. Central banks do not see themselves as white knights for markets even if that is the function they fulfil in practice.



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June 03 2021

Commentary by Eoin Treacy

Global Food Prices Surge to Near Decade High, UN Says

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

Drought in key Brazilian growing regions is crippling crops from corn to coffee, and vegetable oil production growth has slowed in Southeast Asia. That’s boosting costs for livestock producers and risks further straining global grain stockpiles that have been depleted by soaring Chinese demand. The surge has stirred memories of 2008 and 2011, when price spikes led to food riots in more than 30 nations.

“We have very little room for any production shock. We have very little room for any unexpected surge in demand in any country,” Abdolreza Abbassian, senior economist at the UN’s Food and Agriculture Organization, said by phone. “Any of those things could push prices up further than they are now, and then we could start getting worried.”

The prolonged gains across the staple commodities are trickling through to store shelves, with countries from Kenya to Mexico reporting higher food costs. The pain could be particularly pronounced in some of the poorest import-dependent nations, which have limited purchasing power and social safety nets as they grapple with the pandemic.

The UN’s index is treading at its highest since September 2011, with last month’s gain of 4.8% being the biggest in more than 10 years. All five components of the index rose during the month, with the advance led by pricier vegetable oils, grain and sugar.

Eoin Treacy's view -

Farmers that survive the pandemic disruptions will want to plant as much acreage as possible for their next growing season in every agricultural zone in the world. High prices are all the incentive they need. That’s particularly true for the grains and beans where production is possible in multiple different geographically diverse regions.



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June 03 2021

Commentary by Eoin Treacy

Email of the day on post pandemic recovery candidates

Dear Eoin I hope that your move went well. The chart of Carnival (CUK in the USA) is making an interesting breakout. It is a classic example of a company that suffered greatly from Covid and that has a great recovery potential.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. Thanks also for the well wishes. We are settling in nicely. Cruises were either the bargain of the year or a boondoggle for consumers in December. I had brochures arriving at my home offering buy one get one free and thousands in onboard credits and shore excursion for sailings into 2022. I thought of it as a value proposition. The rest of the family were not so keen.



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June 02 2021

Commentary by Eoin Treacy

Video commentary for June 2nd 2021

June 02 2021

Commentary by Eoin Treacy

Australia's Economy Powers On, Recouping Pandemic Losses

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

Australia’s rapid rebound has been underpinned by its ability to limit Covid-19 outbreaks, boosting consumer and business confidence. A massive fiscal-monetary injection strengthened the financial position of households and firms during the lockdown, and consumers are spending and companies hiring.

“Australia is in rare company here -- only five other countries can boast an economy that’s larger now than before the pandemic,” said Kristian Kolding, a partner at Deloitte Access Economics. “Maintaining this trajectory is now the task at hand -- the lockdowns in Victoria are a stark reminder that the pandemic is far from over.”

Deloitte noted that on average, economies in the Organisation for Economic Cooperation and Development are 2.7% smaller than they were before the pandemic. The U.K. is almost 9% smaller, the European Union is 5% smaller and the U.S. has shrunk 1%, it said.

Yet a potential risk to the outlook is the sluggish rollout of a Covid vaccine. This has been magnified by a renewed outbreak of the virus in Melbourne that prompted a lockdown in the nation’s second-largest city, and has now been extended for another week.

Eoin Treacy's view -

Victoria is back in lockdown but the number of cases is comparatively low and the rest of the country is reasonably unaffected. Investors are taking the news in their stride. After more than a decade of liquidity infusions the reality remains liquidity beats most other factors most of the time. Central bankers also understand that logic and must feel vindicated in their actions. Every time there is a problem, they boost money supply and act to depress yields and the economy rebounds. They are unlikely to do anything different until that policy stops working.



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June 02 2021

Commentary by Eoin Treacy

South African rand rallies to highest in more than 2 years, stocks hit new high

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

The South African rand rallied to its highest in more than two years against the dollar on Wednesday, as investors cheered the latest evidence of a sustained rebound in global economies and as U.S. Treasury yields pulled back.

At 1525 GMT, the rand was 1.27% firmer at 13.5900 against the dollar, trading at its firmest since early February 2019.

With the local economy remaining weak and facing power cuts, the rand's recent rally has been mainly on the back of global factors, including higher commodity prices which benefit resource-rich South Africa and expectations U.S. lending rates will stay lower for longer.

Riskier currencies, such as the rand, thrive on U.S. interest rates remaining low because they benefit from the interest rate differential that increases their appeal for carry trade.

Investors waited for crucial U.S. jobs data on Friday to assess what the increasing evidence of a faster-than-expected economic recovery would mean for central bank policy in the United States.

"This figure could also give markets some short-term guidance as to the economy in the U.S. which is likely to have a systemic effect across financial markets," said DailyFX analyst Warren Venketas.

Eoin Treacy's view -

South Africa is a commodity exporter so its balance of payments is likely to improve considerably as the price of agricultural and industrial resources trends higher. The standards of governance in South Africa leave a lot to be desired. However, from an investor’s perspective the question is whether the corruption situation is getting worse or the status quo is being sustained. In the event it were ever to improve, South Africa would become a highly attractive investment destination. Doing what is necessary to ensure reliable electricity supply would be a big step forward.



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June 02 2021

Commentary by Eoin Treacy

Vietnam Stocks Set to Rally Further Despite Virus Resurgence

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

Local investors have continued to snap up stocks despite a domestic coronavirus surge, with more than 4,000 local virus cases reported since the end of April - three times more than new cases last year. Last month, the index gained more than 7%, the most in the region.

That compares to a 25% slump in March last year as the global pandemic erupted, and a decline of about 4% in January when another wave hit the country.

Stocks have remained resilient in part due to efforts by the government to contain the outbreak and demand from the Vietnamese making the most of low interest rates. Trading value for Vietnamese stocks climbed to all-time high Monday-- at more than $1 billion, as retail traders poured funds into the market.

On Tuesday, the main bourse halted trading in the afternoon as turnover surged. The VN Index is trading at about 15 times estimated earnings for the next year, compared with more than 16 times on the MSCI Asia Pacific Index.

Eoin Treacy's view -

Vietnam has been dealing with new case loads from the coronavirus but the broader success of the economy in keeping factories and businesses open is more important to investors.



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June 01 2021

Commentary by Eoin Treacy

June 01 2021

Commentary by Eoin Treacy

In Gold We Trust Q2 2021

Thanks to a subscriber for this edition of Ronald-Peter Stoeferle and Mark Valek’s heavyweight report on gold with a spattering of crypto analysis. Here is a section:

Silver’s rally is likely to continue for the rest of the decade. We could be moving into an inflationary politician-led era of universal basic income, modern monetary theory, and government-guaranteed bank loan schemes. These trends will put upward pressure on the silver price.

Silver is far and away the most heavily leveraged exchange-traded commodity. An August 2020 report by Macquarie put the ratio of derivatives to physical market at 193 for silver, compared to 86 for nickel and 74 for gold. This creates potential for a GameStop-style short squeeze on silver.

The consensus opinion of professional silver analysts is that the world will broadly go back to the way it was before 2020. They are forecasting falling investment demand and lower silver prices for 2021–25, but we think they are mistaken.

We believe the ‘go back to the way things were’ assumption will be proven wrong. The virus may have had little impact on silver sources, but it has had a profound impact on government and society.

Eoin Treacy's view -

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

Silver is both a precious and industrial metal. The growth of the solar cell industry has been one of the key industrial demand drivers over the last decade and that is likely to continue even as the marginal cost compression of solar cells moderates.

 



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June 01 2021

Commentary by Eoin Treacy

U.S. says ransomware attack on meatpacker JBS likely from Russia

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

The company, which has its North American operations headquartered in Greeley, Colorado, controls about 20% of the slaughtering capacity for U.S. cattle and hogs, according to industry estimates.

U.S. beef and pork prices are already rising as China increases imports, animal feed costs rise and slaughterhouses face a dearth of workers.

The cyberattack on JBS could push U.S. beef prices even higher by tightening supplies, said Brad Lyle, chief financial officer for consultancy Partners for Production Agriculture.

Any impact on consumers would depend on how long production is down, said Matthew Wiegand, a risk management consultant and commodity broker at FuturesOne in Nebraska.

"If it lingers for multiple days, you see some food service shortages," Wiegand added.

Two kill and fabrication shifts were canceled at JBS's beef plant in Greeley due to the cyberattack, representatives of the United Food and Commercial Workers International Union Local 7 said in an email. JBS Beef in Cactus, Texas, also said on Facebook it would not run on Tuesday.

JBS Canada said in a Facebook post that shifts had been canceled at its plant in Brooks, Alberta, on Monday and one shift so far had been canceled on Tuesday.

 

Eoin Treacy's view -

Piracy on the high seas is policed by both nation states and international organisations. A zero tolerance policy is taken to any threat to international trade and significant military and diplomatic resources are deployed to contain any threat that appears. Doing the same for cyber pirates is a lot more difficult.



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June 01 2021

Commentary by Eoin Treacy

Mudrick Said to Sell AMC Stake, Calling Shares Overvalued

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

AMC said Tuesday it sold stock to Mudrick with plans to “go on offense” for acquisitions. The agreement with New York-based Mudrick was for 8.5 million shares of common stock at $27.12 apiece. The stock purchase came with the assurance that the shares would be “freely tradable,” meaning the firm could sell the shares at any point or in any amount it chose.

Debt holders have also benefited from the recent equity rally. Some of its junk-rated second lien bonds due 2026 that were trading as low as 5 cents on the dollar in November are now close to face value, and quotes on its senior subordinated notes maturing in 2027 jumped about 4.5 cents Tuesday to almost 80 cents.

Mudrick has made big bets on AMC in the past, helping the movie theater chain as it pushed through the pandemic. In January, the firm agreed to buy $100 million of new secured bonds in exchange for a commitment fee equal to about 8 million AMC shares. The agreement also called for Mudrick to exchange $100 million of AMC bonds due 2026 for about 13.7 million shares.

Eoin Treacy's view -

Kudos to AMC’s management for making ample use of its shelf listing to milk investors for additional capital. Quite what going on the offensive means is another question entirely. Content creators are increasingly choosing to go straight to streaming. When they do choose to show movies in theatres the interval before streaming is shorter. Cinema might be a shrinking market but the company will at least survive long enough to increase market share.



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May 28 2021

Commentary by Eoin Treacy

May 28 2021

Commentary by Eoin Treacy

May 28 2021

Commentary by Eoin Treacy

First named storm of hurricane season comes early because of warming seas

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

"The system is considered a subtropical cyclone rather than a tropical cyclone since it is still entangled with an upper-level low as evident in water vapor satellite images, but it does have some tropical characteristics as well," according to the National Hurricane Center.

There have been pre-season named storms in the past six years, but Ana’s addition to the group is distinct for another reason. Storms in May normally form near the eastern Gulf of Mexico, the western Caribbean Sea or the Southeastern coast of the United States, CNN reported. But subtropical storm Ana is distinct because it formed in the Atlantic. 

The National Oceanic and Atmospheric Administration (NOAA) recorded a record-breaking 30 named storms in 2020. NOAA reported that 2020 was the fifth consecutive year with an “above-normal” hurricane season. There have been 18 “above-normal” seasons out of the last 26. 

“As we correctly predicted, an interrelated set of atmospheric and oceanic conditions linked to the warm AMO were again present this year. These included warmer-than-average Atlantic sea surface temperatures and a stronger west African monsoon, along with much weaker vertical wind shear and wind patterns coming off of Africa that were more favorable for storm development. These conditions, combined with La Nina, helped make this record-breaking, extremely active hurricane season possible,” said Gerry Bell, lead seasonal hurricane forecaster at NOAA’s Climate Prediction Center. 

Eoin Treacy's view -

La Nina has dissipated and we are now in the lull before a new El Nino forms. How long that takes is likely to have an impact on how storms form over the summer months. Seven years in a row for an early hurricane season is not an aberration but looks more like a trend.



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May 28 2021

Commentary by Eoin Treacy

Fed Reverse Repo Primed to Top Record Demand Level at Month-End

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

Volume at the Federal Reserve’s facility for overnight reverse repurchase agreements is poised to climb on the last trading day of the month, surpassing Thursday’s record, as global banks pull back on their balance sheet activity for regulatory purposes.

Wrightson ICAP said it’s likely demand for the Fed’s RRP moves above $500 billion level, but will be looking for some pullback in activity on June -- though any dip may be temporary

RRP usage surged to $485.3 billion Thursday, a record since the facility started in September 2013 and up from $450 billion in the prior session

The rate on overnight GC repo opened at -0.01%, according to Oxford Economics. Treasury bills out to September are yielding less than 1.5bp. On the unsecured side, three-month Libor dropped to a fresh record low of 0.13138% from 0.13463% in the previous session

The glut at the front-end has been spurred by the central bank’s ongoing asset-purchase program, commonly referred to as quantitative easing, as well the drawdown of the Treasury’s general account. The latter has been driven by the looming debt-ceiling reinstatement, which is due to take place at the end of July, and the flow of pandemic stimulus funds to taxpayers

Federal relief payments to state and local municipalities are also adding to the oversupply, and that’s being exacerbated as regulatory constraints encourage banks to turn away deposits, directing that cash into money-market funds

Eoin Treacy's view -

There was a lot of concern at the prospect of banks turning away deposits and the impact that would have on money market funds a couple of months ago. Since then, the Fed has acted to support banking operations. Additional supports are now going to be required to ensure money market funds do not see negative yields. That may require stepping up asset purchases in an effort to mop up excess liquidity.



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May 28 2021

Commentary by Eoin Treacy

ECB Expected to Keep Its Higher Bond-Buying Pace Through Summer

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

The pandemic purchases were ramped up in March when the U.S. rebound was fueling a global rise in borrowing costs while the euro zone was in a double-dip recession. The ECB will unveil new economic projections that should confirm a far brighter outlook as vaccinations pick up.

A European Commission report on Friday showed economic confidence in May at the highest level in more than three years as restaurants, hotels and shops across the region start to reopen.

Yet in a sign that the recovery remains fragile, French data on Friday came in much weaker than expected. Consumer spending fell 8.3% in April from the previous month, more than twice as much as forecast, and first-quarter gross domestic product was revised to show a decline. Finland also posted an unexpected contraction.

Eoin Treacy's view -

Over the past few decades there have seldom been times when European equities outperformed the S&P500. The equity cult in the USA is much stronger than elsewhere which creates demand for domestic growth stories. The presence of strong consumer brands, companies with long histories of paying and increasing dividends, the ready supply of new exciting stories from Silicon Valley and the largest consumer base in the world means Wall Street has tended to outperform.



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May 27 2021

Commentary by Eoin Treacy

May 27 2021

Commentary by Eoin Treacy

Advance your thinking on 10 critical themes

Thanks to a subscriber for this report from UBS which may be of interest. Here is a section on new materials:

Eoin Treacy's view -

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

Biodegradable plastic is a major growth theme if costs can be brought in line with existing manufacturing techniques. The modern world is built on hydrocarbons because the chemical sector has been so versatile in developing products from them. The challenge is these types of products last for seemingly interminable lengths of time and find their way into every facet of the global ecosystem. As awareness of the dangers of microplastics increases, demand for degradable alternatives will increase.



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May 27 2021

Commentary by Eoin Treacy

Bank of England likely to raise rates at some point in 2022

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

“In that scenario, the first rise in Bank Rate is likely to become appropriate only well into next year, with some modest further tightening thereafter,” he added.

The government’s furlough programme, which pays the wages of more than 2 million workers, does not expire until Sept. 30 and Vlieghe said it would take time for the true health of the economy until early in 2022.

If unemployment in the first quarter of 2021 was low and upward pressure on wages stronger then than the BoE expected, “a rise in Bank Rate could be appropriate soon after, along a slightly steeper path than in my central case,” Vlieghe said.

However, if concerns about COVID infection risks persist - possibly as a result of new variants of the disease - higher unemployment could prove persistent and the economy might need more BoE stimulus. (Reporting by David Milliken and Andy Bruce)

Eoin Treacy's view -

Dominic Cummings and his lengthy testimony in front of Parliament are making headlines today but crowds have short memories.

Psychologically, we tend to remember a whole experience by how we feel at the end. Christmas is a good example. All of the preparation, decoration and rushing around are worth it because of the positive experience at the climax of the festival.



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May 26 2021

Commentary by Eoin Treacy

Video commentary for May 26th 2021

May 26 2021

Commentary by Eoin Treacy

Email of the day - on platinum

Dear Eoin, What is happening with Platinum please? Many thanks,

Eoin Treacy's view -

The platinum miners have been among the biggest supporters of the hydrogen fuel cycle because platinum is essential to how hydrogen fuel cells function. The loss of diesel engine demand left a hole in the market and they have been struggling to find new customers. The new energy revolution, being supported by politicians all over the world, is great news for the sector.



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May 26 2021

Commentary by Eoin Treacy

Email of the day on emissions trading

Eoin Hope you are well and settled in your new home. In your comments, you refer to companies having to purchase carbon credits and how Tesla has profited at the expense of others. Could you kindly share some more color on this or direct us to articles you may have posted. Also, could you please shed some light on carbon futures, and where they trade? Thanks much and stay safe Regards

Eoin Treacy's view -

Thank you for this timely email. Royal Dutch Shell’s failure to avoid censure in the Netherlands brings the issue of how emissions are priced into sharper focus.

Here is a section from a relevant article:

“Companies have an independent responsibility, aside from what states do,” Alwin said in her decision. “Even if states do nothing or only a little, companies have the responsibility to respect human rights.”

There are currently 1,800 lawsuits related to climate change being fought in courtrooms around the world, according to the climatecasechart.com database. The Shell verdict could have a powerful ripple effect, not least among its European peers including BP Plc and Total SE. Those companies have set similar emissions targets, which have also been criticized by campaigners for not going far enough.

Court Wins
The courts have become an increasingly successful arena for campaigners to hold governments and countries to account over pollution and climate change. This is the second time in quick succession that a Dutch court has ruled that Shell’s parent company in The Hague is liable for environmental damages in other jurisdictions.

In January, a court of appeals said that Hague-headquartered Shell had a duty of care to prevent leaks in Nigeria. The German government fell foul of a judge over its climate targets when its top court ruled that Chancellor Angela Merkel’s climate-protection efforts were falling short in April.

“Urgent action is needed on climate change which is why we have accelerated our efforts to become a net-zero emissions energy company by 2050,” a Shell spokesperson said. “We are investing billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables and biofuels.”



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May 26 2021

Commentary by Eoin Treacy

EU May Sanction Belarus's Potash Industry by This Summer

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

The EU measures will need to name specific sectors and be clearly defined so as to withstand potential legal proceedings and win the backing of all member states. Forging unanimity between EU governments has proved tricky lately, with several countries keen to avoid hurting their economies or dent controversial political alliances.

“A lot will depend of what type of sanctions are implemented,” said Elena Sakhnova, an analyst at VTB Capital. “If those are just sectoral penalties, such as limiting Belarus potash industry’s ability to get financing in European banks, this won’t cause disruption on the market as Belarus uses alternative sources of funding anyway.”

Potential Impact
More meaningful penalties would prevent European companies from trading with the Belarusian potash industry, though Belarus would still be able to divert from Europe to other markets,
mostly to Asia Sakhnova said.

That may cause a short-term increase in potash prices in Europe, as Belarus supplies about 25% of the region’s demand, though the situation should normalize fairly quickly, she said. Producers like Russia’s Uralkali PJSC may replace Belarusian volumes in Europe, she said.

Eoin Treacy's view -

A big outstanding question is how powerful is the EU’s farm lobby? Potash is an essential crop nutrient and is impossible to replace. Supply is concentrated in Belarus, Russia and Canada. Farmers have plenty of experience with exaggerated pricing for agricultural nutrients so achieving unanimity on sanctioning Belarus’ potash exports will be difficult to achieve. A further deterioration in relations would probably be required to spur action.



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May 25 2021

Commentary by Eoin Treacy

May 25 2021

Commentary by Eoin Treacy

China Stocks Jump Most Since July Amid Record Foreign Purchases

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

Beijing’s efforts to talk down commodity prices and impose more control over financial markets have sent investors into more defensive assets such as consumer stocks with steady cash flows. Liquor giant Kweichow Moutai Co., mainland’s biggest stock, rose 6% after Chinese media outlets reported its parent company aimed to double revenue by 2025.


“Beijing’s crackdown on commodity prices has forced more funds to seek shelter,” said Zhang Gang, a Central China Securities strategist. “Stocks such as Moutai are attractive given its stable earnings outlook and relatively reasonable valuation following this year’s correction.”

Eoin Treacy's view -

Two pieces of news on China hit the headlines today. The first is that Goldman Sachs and ICBC have formed a joint venture for wealth management clients. The second is the central bank is at least comfortable with the current strength of the Renminbi and may be inclined to allow it to appreciate further. Both are positive for asset prices.



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May 25 2021

Commentary by Eoin Treacy

Email of the day on the value/growth ratio

Eoin, congrats for your most recent calls on crypto etc. well done! You were showing a chart re value over growth outperformance and that it could go on a little longer. What in your view is the best way to play it? iShares ETF value long and short iShares growth? Tkx a lot and keep, up your good work! Dani

Eoin Treacy's view -

Thank you for your kind words and the general pattern of outperformance in value is certainly noteworthy. Low interest rates favour growth at the expense of value because expectations for future potential are stretched to the point of incredulity the longer an easy money regime persists. When interest rates change direction the enthusiastic outlook for valuations is harder to justify and the relative attraction of reliable earnings is burnished.



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May 25 2021

Commentary by Eoin Treacy

Email of the day - on tops versus medium-term corrections

Dear Eoin, I hope you are keeping well. A very (very) general query, but I've found myself struggling to distinguish between mean reversion in ongoing trends and type 2 / type 3 trend endings. Can we overlay some (subjective) fundamental analysis to gain some clues at this point, or do we have to "wait for the charts to show us"? Or is it about trend consistency? I accept the uncertainty present in markets and that one man's mean reversion is another man's top / bottom, but as this has been playing on my mind, I thought I'd ask the question. Please feel free to answer this in the context of examples as they come up if that's easier! Sincere thanks for the unique and invaluable service.

Eoin Treacy's view -

Distinguishing A top from THE top is a big question and requires us to have an appreciation for what the motivating factor behind a move is. The most pressing point is that every secular bull market is punctuated by several medium-term corrections. Market trends are endlessly fractal so we see evidence of acceleration, massive reactions against the trend and massive congestions areas on occasion.



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May 24 2021

Commentary by Eoin Treacy

May 24 2021

Commentary by Eoin Treacy

How China Avoided Being Like Russia: The New Economy Saturday

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

Weber: What puzzles me about the idea that the problem lies in Chinese “state capitalism” or China’s active state participation in the market is that this is not unique to China. Other states also have historically had quite extensive industrial policy and state engagement. It seems that the tensions between China and the West have been mounting since China moved from being the workshop for companies headquartered in the West toward trying to establish its own companies that can reach the technological frontier. That of course required the state, as China was starting from a position of relative technological under-development.

Browne: Local experimentation accounts for much of China’s early economic success. But these days, the approach is more top-down. Is that a problem?

Weber: First of all, I think we have to recognize that the 1980s is really this moment of great openness before a new paradigm has settled. This is a little bit like what we might be observing right now in the U.S. context, where suddenly all of the premises that we used to have in economics, especially in economic policymaking, seem to be up for debate. Obviously, this moment of openness cannot last forever. Eventually the mist settles, and you get a new, more consolidated system.

Eoin Treacy's view -

China is a country populated by large numbers of industrious, inventive people who are ruled by an autocratic regime that is terrified of the peasant revolts that have toppled many previous dynasties. The only way for them to ensure control is maintained is clamp down on any form of protest while simultaneously attempting to sustain productivity growth. It’s a tall order and will require continued political evolution if they are to succeed.



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May 24 2021

Commentary by Eoin Treacy

Cars Are About to Get a Lot More Expensive

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

Consider a car manufacturer with $100 billion in sales. A 10% decline in sales volume would push earnings before interest and tax down by 40%, the Boston Consulting Group has estimated. That's an optimistic scenario — and this analysis assumed the company could eliminate all variable costs such as raw materials and labor. In the current situation, that’s not quite possible.

No doubt, carmakers could digest the rising cost of production a bit longer by reducing incentives and discounts they’ve used to lure buyers. But that's already been happening in the world’s largest auto markets, the U.S. and China, and you can’t trim back enticements forever. 

Companies have few options to offset creeping manufacturing expenses. With prices already high, consumers aren’t going to be as liberal with their wallets. So far, they have been willing to
accept a 12% premium, or around $5,000 over the sticker price, according to Kelley Blue Book and Cox Automotive. But a U.S. vehicle affordability index has started ticking down, signaling people are beginning to think twice before splashing out. Almost 40% of those who were going to buy cars have now put off their purchases. 

Eoin Treacy's view -

The challenge for consumers is prices rarely go down after they go up because companies pocket margin. That’s as true of cars as it is of every other product. The additional premium companies are no enjoying will help as they redeploy resources towards developing electric replacements for their biggest sellers. That was going to happen anyway so in many regards the current go-slow on production is being welcomed by manufacturers.



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May 24 2021

Commentary by Eoin Treacy

Solar Power's Decade of Falling Costs Is Thrown Into Reverse

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

For the solar industry, the timing couldn’t be worse. Renewable energy finally has a champion in the White House and ambitious climate goals have been announced across Europe and Asia.

At the center of the crisis is polysilicon, an ultra-refined form of silicon, one of the most abundant materials on Earth that’s commonly found in beach sand. As the solar industry geared up to meet an expected surge in demand for modules, makers of polysilicon were unable to keep up. Prices for the purified metalloid have touched $25.88 a kilogram, from $6.19 less than a year ago, according to PVInsights.

Polysilicon prices are expected to remain strong through the end of 2022, according to Roth Capital Partners analysts including Philip Shen. 

And the problem isn’t limited to polysilicon. The solar industry is facing “pervasive upstream supply-chain cost challenges,” panel manufacturer Maxeon Solar Technologies Ltd. said in April.

Eoin Treacy's view -

This is just one more sector facing medium-term supply disruption. The clear conclusion is when we look around the world there is too much money chasing too many goods and services. The big question is how long will it take for this inflationary bias to become anchored in the minds of consumers?



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