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November 05 2019

Commentary by Eoin Treacy

Abe, Moon Break Ice After Worst Japan-South Korea Fight in Years

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

Moon and Abe shared the view that the relationship between South Korea and Japan is important and re-affirmed in principle that issues between the two nations should be resolved via dialogue, the presidential office said in a text message. Abe conveyed Japan’s “basic stance” on bilateral issues in his exchange with Moon, the Tokyo-based Kyodo News agency said separately, citing the Japanese foreign ministry.

The brief, 11-minute meeting at the Association of Southeast Asian Nations summit in Bangkok came as a long-simmering feud escalated into a trade-and-security dispute, leading to boycotts of Japanese imports and the decision to scrap an intelligence-sharing pact. The encounter followed a break-through meeting last month between Abe and South Korean Prime Minister Lee Nak-yon.

Moon proposed high-level talks, if needed while Abe said every effort should be made to resolve the feud, Moon’s office said. Abe last met Moon in September 2018 and passed up a chance to meet him for formal talks during Group of 20 events in Osaka in June.

The remarks were the most positive yet since South Korean courts issued a series of rulings last year backing the claims of Koreans forced to work for Japanese companies during the country’s 1910-45 occupation of the Korean Peninsula.

Eoin Treacy's view -

Six weeks ago sentiment was skewing rather negatively towards the opinion that acrimonious disputes between neighbours like Japan and South Korea, the UK and EU and competitors like China and the USA were going to get worse, a lot worse. Today peace seems to be breaking out globally and that is removing a risk premium from markets.



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November 05 2019

Commentary by Eoin Treacy

2020 Vision: An Early Guide to the US Election

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

Divided government outcomes tend toward legislative gridlock. And though divided governments could still influence the outlook through regulatory reinterpretations and resulting impacts to business sentiment, they are unlikely to deliver transformative policy in a macro sense. Hence, divided government is unlikely to deliver policy that counteracts the current late-cycle economic condition.

A more surprising observation might be that we see some symmetry to the potential direction of the macro impact in both unified government scenarios. While far from assured, both open the possibility of fiscal expansion, fueled in part by messaging driven implicitly by ideas such as the Laffer Curve and MMT.

This conclusion appears to cut against investor expectations, at least as it pertains to the "Blue Wave" scenario. Our survey suggests investors see a Democratic White House as both less likely to pursue cycle-extending policies like fiscal stimulus and more likely to coincide with risk-asset weakness. Perhaps it is because investors also see Democrats as more likely to pursue policies that will challenge profitability in key sectors, such as prescription drugs and health insurance.

Eoin Treacy's view -

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

The one thing I see around my neighbourhood in west Los Angeles is the houses that were posting Bernie Sanders signs in 2012 are now supporting Elizabeth Warren. The big question is whether the Democrat’s administrative body will favour anointed conventional candidates like Joe Biden over the progressive wing of the party in the same way it did for Hilary Clinton versus Bernie Sanders.



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November 05 2019

Commentary by Eoin Treacy

One-Shot Drug for Sicily's Rare Blood Disease Costs $2 Million

This article by James Paton and Chiara Albanese for Bloomberg may be of interest to subscribers. Here is a section:

Dozens of gene therapies for a range of devastating illnesses are on their way. These single-dose drugs, tailored to each patient, can potentially deliver a lifetime of benefits.

But that’s reflected in their prices, which are likely to increase pressure on already stretched budgets. To make it easier for government payers to digest Zynteglo, Bluebird plans to spread out the cost over five years, with payments contingent on its success.

As a one-time therapy, Zynteglo could save governments money in the long run by cutting the need for expensive ongoing care. Treating one beta thalassemia patient today can cost as much as €60,000 a year, says Aurelio Maggio, a blood-disease specialist at the Palermo center. That’s €3 million over five decades. With multiple wonder drugs for other conditions set to reach the market soon, the upfront bill could take a heavy toll on Italy’s finances. The price tag for the therapy is twice the $900,000 that SVB Leerink analyst Mani Foroohar expected. Given the large number of patients in the country with the ailment, “the stakes are much higher,” he says.
 

Eoin Treacy's view -

One-shot therapies to genetic conditions represent incredibly exciting solutions to many previously untreatable diseases. The reason we are seeing the kinds of therapies appear for relatively unknown ailments is because they can get accelerated approvals from the FDA because they are treating orphan diseases. The bigger prize is to treat diseases which represent some of the biggest chronic conditions in the market today.



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November 04 2019

Commentary by Eoin Treacy

Video commentary for November 4th 2019

November 04 2019

Commentary by Eoin Treacy

Rates Could Soar or Go Negative as Fed Pause Divides Wall Street

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

The message from the Fed, combined with solid U.S. job creation last month and optimism about U.S.-China trade talks, has pushed expectations for the next rate cut well into 2020. Fed fund futures aren’t penciling in a full quarter point cut until about September.

The yield move London-based Panigirtzoglou envisions would mirror what happened when the Fed engineered a similar three-quarter-point cut in a counter cycle maneuver in 1995. JPMorgan’s U.S.-based rates team is more sanguine, lifting its Treasury yield forecasts to 1.65% for year-end 2019 and 1.85% for mid-2020. That would be little changed from around 1.79% Monday.

Panigirtzoglou did add some big caveats to his bolder prediction. It assumes that the U.S. macro picture remains consistent with a mid-cycle adjustment, with resilience in employment and consumer confidence, as well as a rebound in manufacturing.

Eoin Treacy's view -

These two views are not mutually exclusive. The outlook for rates is quite capable of fulfilling both scenarios, just not at the same time. Right now, the case for a mid-cycle slowdown, like what was seen in the mid ‘90s, is looking increasingly credible as stock markets push new highs and cyclicals return to outperformance. The argument for even lower yields is looking like an increasingly distant possibility.



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November 04 2019

Commentary by Eoin Treacy

Consistency Characteristics

Eoin Treacy's view -

“A consistent trend is a trend in motion” is one of the most important adages from The Chart Seminar. David’s words “If a trend has further to go now, it will sustain the upward break” are ringing in my ears as the primary Wall Street indices and an increasingly number of European indices break out.



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November 04 2019

Commentary by Eoin Treacy

Germany Hopes for Positive Outcome for EU-U.S. Trade Talks

This note by Birgit Jennen for Bloomberg may be of interest: 

Germany is hopeful for a positive outcome in trade talks between the U.S. and the EU, Economy Ministry spokeswoman Katharina Grave says Monday in a regular government press briefing.

“We need less, not more tariffs,” she said
The government has taken note of comments from U.S. Commerce Secretary Wilbur Ross that tariffs may not be levied on autos imported from the EU
NOTE, Nov. 3: U.S. May Not Need to Put Tariffs on European Cars, Ross Says

Eoin Treacy's view -

Europe has been depending on its export sector to soften the impact of fiscal austerity for much of the last decade. That hasn’t worked so well over the last couple of years, with globalisation under threat from the trend towards nationalism and isolationism evident in an increasing number of countries. The prospect of the trade war winding down, at least for now, has the potential to act as a catalyst for investors to take a second look at the region.



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November 01 2019

Commentary by Eoin Treacy

November 01 2019

Commentary by Eoin Treacy

5 Things You Should Know About Trends Investing

This report from Robeco champions the idea of thematic investing and betting on leaders. Here is a section on intangible assets:

Among the business models that are gaining in prominence are the ones that rely on intangible assets – such as intellectual property or reputation – and such models are valued the most by the market. This stands in stark contrast to firms than mostly own tangible assets – whether these are machinery, buildings or land. If we look at the S&P 500’s market value, we see that the share of intangible components in company value has grown from 17% in 1975 to 84% in 2015.

Of the intangible assets, the ones with intellectual capital and consumer trust take center stage as the most valuable. The ability to offer customized and even personalized products and services is becoming a more important way to gain a competitive advantage. Companies that have access to intellectual property such as patents, copyrights and trademarks, as well as software source codes, are well positioned. This is typical for sectors such as biotech, technology and pharmaceuticals.

Networked businesses such as digital networks and digital marketplaces are well positioned, too. This is because a business model involving value networks – those that facilitate commercial and/or social interaction – has proven to be the most disruptive. Examples are virtual marketplaces and peer-to-peer networks and those that rely on the collaborative use of assets as agents of the ‘sharing economy’. These value networks are found primarily in asset-light, information-heavy industries: information technology, financials, media and retailing. These business models have already been successfully rolled out – Skype in telecommunications, PayPal in financial services, Amazon in retailing, Airbnb in lodging and Uber in transportation. And, they have disrupted the existing industries.

Networked businesses and other ventures with intangible and digital assets tend to have a winning business model. Industries with physical assets – buildings, machinery or land – that can either be digitized, digitally knit together into a network or both, are vulnerable to disruption.

Eoin Treacy's view -

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

Thematic investing, identifying leadership and deploying a trending identification and trending running strategy is what this service is dedicated to It has been a niche area of the study for decades but is increasingly gaining traction with investors. The evolution of the most successful companies in the world is clearly based upon their technological prowess and dominance of the benefits delivered from connectivity and data management. That has occurred despite their dominance of different sectors of the market. The only way to explain that is through using themes as a narrative.



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November 01 2019

Commentary by Eoin Treacy

Gold Dips After Traders Weigh Hiring Resilience, Factories Flub

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

“The jobs data was not really inflationary but very good for the stock market,” George Gero, a managing director at RBC Wealth Management, said by phone Friday. “On the other hand, you don’t see any kind of a sell-off because of all the global worries. So now it’s a waiting game to see what will happen with interest rates and the stock market and all the worries.”

Eoin Treacy's view -

I like that expression “all the worries”. It implies the only reason gold can rally is because of worry about something else. There is some accuracy to that statement but the bigger point is a hedge is a risk mitigation strategy. If you are not worried about something as an investor, it is really time to take a close look at one’s portfolio. The best definition of bravery I have heard is “feel the fear and do it anyway”. That’s about as close to the best maxim for investing I have ever seen. When we worry about nothing, and are supremely confident in our convictions, it is usually when we are at most risk.



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November 01 2019

Commentary by Eoin Treacy

State of AI Report 2019

Thanks to a subscriber for this report for stateof.ai which may be of interest. Here is a brief section on robotics:

Certain Chinese industrial companies have automated away 40% of their human workforce over the past 3 years. This could be due in part to China’s annual robot install-base growing 500% since 2012 (vs. 112% in Europe). However, it’s unclear to what extent AI software runs these installed robots or has contributed to their proliferation.

Eoin Treacy's view -

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

The drive to automate manufacturing is one of the most challenging for any company but is also a major consideration in which countries benefit from manufacturing as a large, relatively well-paying employer. Many low-tech businesses have already migrated away from China while higher value-added businesses are under increasingly pressure to increase productivity by adopting technological solutions.



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October 31 2019

Commentary by Eoin Treacy

Video commentary for October 31st 2019

Eoin Treacy's view -

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

Some of the topics discussed include: stocks pause on the last day on the month, Apple reverses earlier decline, Dollar eases, Yen strong, Rand and Chilean Peso weaken, gold firm,  bonds firm, high yield spreads still tight, Ted spread expands.



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October 31 2019

Commentary by Eoin Treacy

China Bans Anti-Blockchain Sentiment As It Prepares For Launch of State Cryptocurrency

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

It is understood that the new law will precede the launch of China's state-backed cryptocurrency, which is expected to be unveiled early next year. No specific dates have been given but in August a senior official at China's central bank said it was "close to being out".

China's interest in the space appears to have had a positive impact on already established cryptocurrencies like bitcoin, which some say add legitimacy to the cryptocurrency industry.

China's plans were accredited for bitcoin's recent price surge that saw its value rise from below $7,500 to above $10,000 in the space of just a few hours. 

“This is a clear signal that the leader of the world’s second-largest economy is moving towards embracing the technology – in which Bitcoin plays a vital part – and therefore taken as a positive boost for the whole digital currencies sector," Nigel Green, CEO of financial advisory firm deVere Group, told The Independent.

“Perhaps quite sensibly, investors could not ignore the comments and sentiment expressed by President Xi and reacted by increasing exposure to bitcoin. It also comes as China is said to be developing its own national digital currency, which is further proof that in some form or another, digital currency is the future."

Eoin Treacy's view -

China is well on the road to completely dispensing with cash. It is now increasingly difficult to use cash in stores and an increasing proportion of business is transacted online. The benefits for a sovereign, of creating a digital currency where it has full control over the issuance, supply and availability but enforces the use, flow and acceptability of transactions are obvious. Quite whether it is beneficial for investors and consumers is an altogether different question.



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October 31 2019

Commentary by Eoin Treacy

Yes Bank Gets Binding Offer for $1.2 Billion Stake Sale

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

“If they are able to raise this capital then it will sustain Yes Bank’s growth for next one year,” said Kranthi Bathini, director at Wealthmills Securities Pvt. “But we need to know the name of the investor, timing of the capital infusion and the Reserve Bank of India’s comfort with this proposal.” Gill said in an interview earlier this month that the share sale will happen “much sooner than the market expects.” The company has been in talks with private equity investors,
technology companies and family offices.

Eoin Treacy's view -

The liquidity crisis in India’s housing finance sector has resulted in many related shares trading down in excess of 80% from their peak values a couple of years ago.  Issues relating to overvaluation of luxury properties and corruption within the boards of companies has come to light over the last year which has been very deleterious to sentiment. The challenge the sector has had was in raising fresh capital to plug holes in balance sheets left by write-offs. 



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October 31 2019

Commentary by Eoin Treacy

Shell Shares Continue Slide After Tense Call With Analysts

This article by Kelly Gilblom and Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

At one point, van Beurden quipped that the buyback program would be cheaper now because the shares were falling, which invited a terse response from an analyst who said: “I agree.”
“Please help me with my confused state,” said Christopher Kuplent, an analyst at Bank of America Corp., before asking the penultimate question on the call about whether they are
disclosing information in the right way.

Van Beurden responded that they could have avoided the cautionary note about the buybacks completely. He said that people could have done the math that lower oil prices make life more financially challenging for Shell, however, he said it was better to acknowledge a likely stormy year ahead to the market.

Then he offered another mind-bending answer as shares slipped further. “That macro does actually have an effect on our cash flow is obviously a statement of the obvious. So we could also have said: ‘Well that’s hopefully all understood isn’t it?”’ he added. “But not making a statement of the obvious it is also making a statement.”

Eoin Treacy's view -

When CEOs are candid and state the obvious it tends to have unintended consequences. Royal Dutch Shell’s management just told the market they may not have the money to buy back as many shares next year because oil prices are low and are likely to stay that way for the next 12 months. That’s not exactly what investors were expecting to hear.



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October 30 2019

Commentary by Eoin Treacy

October 30 2019

Commentary by Eoin Treacy

Fed Cuts Rates by Quarter Point, Hints It May Be Done for Now

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

Federal Reserve officials reduced interest rates by a quarter-percentage point for the third time this year and hinted they may be done loosening monetary policy, at least for one meeting.

The Federal Open Market Committee altered language in its statement following the two-day meeting Wednesday, dropping its pledge to “act as appropriate to sustain the expansion,” while adding a promise to monitor data as it “assesses the appropriate path of the target range for the federal funds rate.”

As with the September statement, the FOMC cited the implications of global developments in deciding to lower the target range for the central bank’s benchmark rate to 1.5% to 1.75%.

Treasuries weakened on the Fed’s announcement, pushing the 10-year yield up briefly to 1.81% from 1.80%. Stocks were little changed and the U.S. dollar gained. Traders also pared wagers on a fourth consecutive rate cut in December.

Eoin Treacy's view -

The Fed has been of the opinion we are in the midst of a mid-cycle slowdown. I think we can think of that as a best-case scenario which is why there is so much uncertainty about the outlook for rates amid the surge in bond prices. Let’s see what the charts tell us.



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October 30 2019

Commentary by Eoin Treacy

GE Soars as Another Boost to Cash Forecast Buoys Turnaround

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

General Electric Co. surged the most in eight months after the manufacturer raised its 2019 cash-flow forecast for the second straight quarter, giving Chief Executive Officer Larry Culp’s turnaround effort a much-needed boost.

The industrial businesses will generate as much as $2 billion in free cash this year, GE said Wednesday as it reported third-quarter earnings. The company previously projected no more than $1 billion in cash flow.

The revised forecast bolsters “another quarter of progress” as GE also works to improve operations and bring down debt, Culp said. That came despite headwinds from tariffs and a cash strain on the jet-engine business from the grounding of Boeing Co.’s 737 Max.

“There’s still a lot to do, it is a reset year,” he said in an interview. “But net-net, we’re pretty encouraged.”

Eoin Treacy's view -

The story of GE’s demise from bluest of blue chips to near bankruptcy will likely be studied at business schools for generations to come. The hubris of management, selling off the most productive assets to plug holes in the balance sheet, focusing on the industrial sector at the beginning of the trade war and coming to terms with the overvaluation of intangible assets will all be considered in retrospect as huge mistakes but what does the outlook for the future look like?



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October 30 2019

Commentary by Eoin Treacy

U.K.'s Election Battle Begins as Johnson and Corbyn Test Slogans

This article by Jessica Shankleman and Greg Ritchie for Bloomberg may be of interest to subscribes. Here is a section:

Offering a taste of the Conservative Party’s likely message to voters, Johnson launched into an attack on the opposition Labour leader on Wednesday during what’s likely to be their final question session in the Commons before Parliament breaks up for the election.

Johnson accused Corbyn of plotting to ruin what should be a “glorious” year in 2020 with another referendum on Brexit.

“It’s time to differentiate between the politics of protest and the politics of leadership,” Johnson said. He claimed Corbyn would deliver an “economic catastrophe” for Britain. “The time for protest is over.”

Johnson outlined his priorities of delivering Brexit and supporting the police service, health and the economy.

Corbyn hit back, attacking the premier’s record on the country’s beloved National Health Service, accusing him of cutting funds and planning to privatize the institution by offering it up in a future trade deal with the U.S.

“This government is preparing to sell out our NHS,” Corbyn said. “Our health service is in more danger than in any other time in its glorious history because of his government, his attitude and the trade deals he wants to strike.”

Labour’s campaign is expected to continue to focus on the impact of a decade of austerity to the country, while offering a renegotiation of Brexit followed by a second referendum.

Eoin Treacy's view -

Slogans capture the imagination and Labour looks to be going for class warfare in its “people before privilege” catchphrase. They obviously thought that would be more appealing to their base than alternatives like “people before profits”, “people before politicians”, “people before pundits” or “people before pandering to polls”. I wonder how long it will take the “Leninist before Lords” meme to catch on?



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October 29 2019

Commentary by Eoin Treacy

October 29 2019

Commentary by Eoin Treacy

If History Were A Perfect Guide, Stocks Would Be in A World of Trouble Here

Thanks to a subscriber for this report from UBS 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. 

We are at a particularly interesting period in history. First off, no one knows how much of a distortion to historical norms negative rates and negative yielding bonds represent. Second is the fear being expressed by investors as stock markets hit new all-time highs, and not just on Wall Street. Third is censorship by both Google and Facebook precludes anyone who wishes to express a sharply bearish view from acquiring advertising space. 



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October 29 2019

Commentary by Eoin Treacy

Branson's Virgin Galactic Space Venture Jumps in NYSE Debut -

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

Virgin Galactic is one of a trio of billionaire-backed space startups, each tapping different technologies. Branson is using an aircraft to carry a spaceship to high altitudes, where it blasts away. Blue Origin, controlled by Amazon.com Inc. founder Bezos, relies on more-conventional rockets. Musk’s Space Exploration Technologies Corp. deploys reusable launchers.

While transporting satellites has been a focus for SpaceX, Branson is chasing the tourism market, planning a first commercial flight next year. Blue Origin plans to take payloads and tourists to the edge of space on an 11-minute flight, while Musk has pledged to send passengers to the moon, Mars and beyond.

Branson said last week that Virgin Galactic also is interested in developing hypersonic airline flights after Boeing Co.’s future-technologies arm pledged $20 million for a minority stake. That could mean linking U.S. cities in a matter of minutes and, ultimately, the U.S. and U.K. with Australia in just a few hours.

Eoin Treacy's view -

Launch costs are trending lower and that is allowing room for a range of competing business cases to exploit the opportunity represented by the final frontier. If Elon Musk is to believe the jump to space is but a gateway to a myriad of possibilities on the moon and Mars. The only we can be sure of is the confluence of technological innovation and access to abundant cheap credit has made possible ventures that were mere fantasy a decade ago.



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October 29 2019

Commentary by Eoin Treacy

Email of the day on Japanese growth stocks

Several weeks ago, I had the same feeling as you on Japan. For investment purposes I decided to concentrate on Japanese 5G related companies. Ignoring the major telecom co's, I then came up with the following list of companies involved in parts related to the 5G area:

Eoin Treacy's view -

Thank you for this insightful email. One of the factors I believe that is attracting investors to Japan is the fact it has a such a deep pool of companies that provide invaluable components for the growth of the wider global technology sector. The fact they have been underappreciated for so long is justification for investor interest, particularly if global growth is primed for recovery.



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October 28 2019

Commentary by Eoin Treacy

Video commentary for October 28th 2019

October 28 2019

Commentary by Eoin Treacy

Saut Strategy October 28th 2019

Eoin Treacy's view -

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

Deteriorating sentiment about how much of a drag on global growth the trade war has represented has been one of the primary reasons investors have stuck to cash over the last couple of years. The volatility in the last quarter of 2018 and the even faster rebound unsettled a lot of investors with the result a wait and see attitude has been adopted. The big question they will now be raising is whether the breakout can be sustained before jumping back in.



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October 28 2019

Commentary by Eoin Treacy

Email of the day - on celiac disease treatments:

Your commentary on Celiac is of interest as I sufferer from this problem. Do you know who is doing the research, and can I find out any more information please

Eoin Treacy's view -

Thank you for this question which highlights the acute need for a solution to an issue which represents a grave discomfort and inconvenience for large numbers of people. The original company to come up with the treatment is Cour Pharma which I believe is headquartered in Illinois.    



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October 28 2019

Commentary by Eoin Treacy

Yeah, It's Still Water

This article by Ben Hunt for Epsilon Theory may be of interest to subscribers. Here is a section:

Over that same time span, Texas Instruments sold 90.8 million shares to management and board members as they exercised options and restricted stock grants, for a total of $2.5 billion. That works out to an average sale price of $27.51.

The difference in average purchase price and average sale price, multiplied by the number of shares so affected, is the direct monetary benefit for management. This is true whether or not management sells their new shares into the buyback or holds them. That amount works out to be $3.6 billion.

In other words, 40% of TXN’s stock buybacks over this five-year period were used to sterilize stock issuance to senior management and the board of directors.

In other words, senior management and the board of directors received $3.6 BILLION in direct value from these stock buybacks.

But wait, there’s more …As of December 31, 2018, there were still 40 million shares outstanding in the form of options and restricted stock grants to management and directors, at an average weighted exercise price of $55.

At today’s stock price, that means there is an additional $2.6 BILLION in stock-based compensation already awarded to TXN’s executives and directors.

Eoin Treacy's view -

This point about the quantity of shares not declining even through share buybacks have been going on for more than a decade is a topic which is getting increased airplay since Yardeni Research first highlighted it in March. 



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October 28 2019

Commentary by Eoin Treacy

Treasury Prepares Another Debt Deluge as Fed Wades Into Market

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

 

The wild card is how Treasury may address the elephant in the room. Dealers expect comment on last month’s turmoil in funding markets. And to some extent, the Treasury’s borrowing plans this fiscal year will be viewed, and traded, in light of the Fed’s T-bill purchases to replenish bank reserves. The central bank embarked on the program this month, saying it will run “at least into the second quarter” of 2020 at an initial monthly pace of about $60 billion.

 “They’re taking about half of net issuance next year,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities.

Some say the Treasury’s relentless debt sales have contributed to a shortage of reserves in the financial system, which last month forced the Fed to resort to a money-market operation it hadn’t deployed since the financial crisis.

Treasury Secretary Steven Mnuchin has rejected that notion, saying this month that the September upheaval had “nothing to do with our issuance.” But the department is clearly curious about how dealers are coping with growing supply. It sought comment in this month’s survey on “the interaction between primary dealer positions, auction participation, and recent repo market variability.”

Eoin Treacy's view -

The lack of liquidity in the repo market is an anomaly. Whether it is because banks no longer have the liquidity to take advantage of arbitrage opportunities, or because the Treasury’s voracious appetite for funds is soaking up available liquidity, the fact remains there are not enough funds to meet the requirements of the market. That pretty much forces the Fed to step in and provide as much liquidity as required to ensure orderly markets.



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October 25 2019

Commentary by Eoin Treacy

October 25 2019

Commentary by Eoin Treacy

Microsoft Rallies as Results Beat "Virtually Every Metric"

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

Growth in commercial bookings highlight “an impressive start” to the year. The results also featured a strong second-quarter earnings outlook, operating margins that “significantly outperformed,” and “solid” growth with Azure. “Microsoft remains the best positioned name in tech for the emerging Hybrid Cloud architecture, with improving margins sustaining a durable mid-teens total return profile.” Overweight rating, price target raised to $157 from $155.

Bernstein, Mark Moerdler
The company “beat virtually every metric driven by strength in Cloud, Sever & Tools, and Windows Pro.” Outperform rating, price target raised to $167 from $162. The analysts “remain positive & like buying” the stock.

RBC Capital Markets, Alex Zukin
This was “a strong start” to the year, “with bookings strength across the board” and “no macro weakness.” The revenue outlook “was lower than expected but with stronger margins, as gaming is expected to be weak.” Outperform rating, price target raised to $163 from $160.

Eoin Treacy's view -

Microsoft has transformed itself from a software maker to a software as a service company (SaaS). In the process it has transformed its lumpy cyclical cashflows into a steady revenue stream which is much more easily modellable. That allows analysts a much higher degree of comfort with the balance sheet and that generally commands a higher multiple. This subscription business model affords Microsoft and other companies growth rate and margins of a tech company but with the cashflows of a consumer staples company.



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October 25 2019

Commentary by Eoin Treacy

ECB Restarting QE Will Need More Purchase of Private Debt

This note by David Powell for Bloomberg may be of interest.

The European Central Bank is running low on sovereign bonds to buy -- that undermines the credibility of its pledge to keep going until inflation picks up. If inflation takes two years to firm, the ECB could face a shortage of about 60 billion euros ($67 billion) in debt during the next phase of its asset-purchase program. At the present pace, the central bank could run out of bonds in little over a year, according to calculations by Bloomberg Economics. The best way out is to shift the composition of purchases: BE estimates the markets for corporate and covered bonds could easily bridge the gap.

Eoin Treacy's view -

The ECB has self-imposed limits of how many bonds from each sovereign it can buy which are based on the relative size of the bloc’s economies.



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October 25 2019

Commentary by Eoin Treacy

Nanoparticle tech reverses celiac disease in promising human trials

This article by Rich Hardy for newatlas.com may be of interest to subscribers. Here is a section:

This Phase 2 trial is small, involving only 34 patients, but it offers the first evidence of efficacy in human subjects. The prospective treatment involves two intravenous administrations of the nanoparticles, one week apart. Seven days after the second treatment the subjects were challenged with 12 grams (0.4 oz) of gluten per day for three days, and then six grams (0.2 oz) of gluten each day for the next 11 days. The majority of the subjects tolerated the gluten challenge following the nanoparticle treatment, showing an impressive 90 percent reduction in inflammatory markers compared to an untreated control group.

Eoin Treacy's view -

The evolving understanding of the microbiome and its role in both regulating and affecting everything from digestion to immune responses to brain activity and mood is a massive growth field. From an investment perspective it holds the potential to tap into markets that are completely unserved by medicine today.



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October 24 2019

Commentary by Eoin Treacy

Video commentary for October 24th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: precious metals firming within their respecitve ranges, Dollar steady, commodities testing resistance, oil steady Europe firm, Wall Street quiet, bonds susceptible to additional selling pressure. Amazon earnings disappoint.



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October 24 2019

Commentary by Eoin Treacy

Email of the day on Cryptocurrencies and quantum computing from one of Iain Little's clients:

Yep very well thanks, I'd say the Google quantum computing is all FUD, i.e. see here:

Even if quantum came anywhere close to being able to break SHA256's cryptographic hash function, which actually “can’t” happen without a mathematical insight that makes it possible (because it requires too much work or too much luck), then the majority of those running the nodes would just vote for a hard fork by the devs to a stronger format like SHA-3  there would be consequences for old coins that weren't moved but bitcoin would adapt and survive. Also, all current banking, military etc. use this same SHA256 as far as I know so the world would have way more to worry about than bitcoin if it was ever broken.

Here's some more stuff going on if reasons for the current drop in bitcoin's price were needed:

But it could just as easily be normal market volatility, the price is still about double that of the start of the year and bitcoin likes to have these big corrections after making huge and rapid gains.

I'd expect it's a combination of things but still normal market movements and nothing has fundamentally changed that would prevent bitcoin becoming gold2 as it is just better than gold and as people see this it's volatility will decrease as it's market cap increases, I'd imagine.

Though I very much like both asset classes and feel much relieved to have taken so much off the table and into property, art & collectables etc.

Eoin Treacy's view -

Thanks for this instructive email. The time for developers to begin to plan for a security upgrade is now. The pace of innovation in quantum computing is not something that can simply be dismissed. It is not a challenge in the short term but it is something that will become a progressively more important consideration the more successful cryptocurrencies become and not least if a true commercial use case is developed.



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October 24 2019

Commentary by Eoin Treacy

Pence Criticizes China But Seeks Balance as Trade Talks Continue

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

Pence’s speech comes at a crucial time in the U.S.-China relationship as the two countries remain locked in a trade war and jostle for military and commercial dominance in the Pacific. White House officials have debated for weeks how critical Pence should be, underscoring the stakes of his remarks, which come just a day before negotiators talk about progress toward agreeing on a phase one agreement over trade.

The vice president was careful to balance his criticism with an olive branch. Rather than “decoupling” the two countries, the U.S. “seeks engagement with China and China’s engagement with the wider world,” he said. “Despite the great power competition that is underway and America’s growing strength, we want better for China.”

Pence’s most stinging criticism of China was indirect, in remarks targeting Nike Inc. and the NBA.

“Nike promotes itself as a so-called ‘social-justice champion,’ but when it comes to Hong Kong, it prefers checking its social conscience at the door,” Pence said.

He accused the NBA of “siding with the Chinese Communist Party and silencing free speech.” The league apologized after an executive of the Houston Rocketsissued a tweet supportive of Hong Kong protesters, outraging Chinese authorities and many NBA fans in the country.

“The NBA is acting like a wholly owned subsidiary of the authoritarian regime,” Pence said.

Eoin Treacy's view -

The reasonably balanced nature of Mike Pence’s speech which was originally slated for June and was expected to be much more explosive is a positive for the trade situation and suggests the USA foreign policy hawks are willing to negotiate. The question of whether a Phase 1 deal will in fact be signed in a few weeks at the Santiago conference remains a source of near-term uncertainty.



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October 24 2019

Commentary by Eoin Treacy

Tesla's Surprise Looks Strangely Familiar

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

Tesla’s free cash flow, meanwhile, was positive for the second quarter in a row, at $371 million. Again, that is positive. Again, the number was flattered by Tesla underspending on its capex budget. Guidance for the year was $1.5 billion to $2 billion. Based on the low spending in the first half, the mid-point of Tesla’s range implied it spending an average of $610 million in the third and fourth quarters. Capex came in $225 million below that level, equivalent to 61% of the free cash flow. Tesla’s capex continues to come in lower than its depreciation expense, which is striking for a company with such expansive ambitions. The company puts this down to rising efficiency.

There is something ludicrous about the stock of a company already priced at $46 billion, or 422 times the 2020 GAAP earnings forecast, surging because it reported a small net profit rather than a small net loss (the consensus estimate was a negative $234 million). Ditto for a few hundred million of free cash flow largely explained by below-guidance capex. Tesla’s own forecast points to positive profits and free cash flow continuing, but which may suffer “temporary exceptions, particularly around the launch and ramp of new products.”

Eoin Treacy's view -

There is no doubt that Tesla is an expensive share but it’s ability to occasionally turn a profit confounds the highly vocal bearish community who point to the company as representing nothing more than a house of cards. At its most basic the company is producing vehicles many people aspire to own which is a positive. The very big question is whether it can continue to do so and make money at the same time.



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October 23 2019

Commentary by Eoin Treacy

Video commentary for October 23rd 2019

Eoin Treacy's view -

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

Some of the topics discussed include: quantum supremacy, bitcoin pulls back, Stocks steady, Dollar eases back gold steady, oil firm, Continuous Commodity Index on the cusp of breaking out, Shenzhen B-Shares weak, India steady, Pound steadies. 
 



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October 23 2019

Commentary by Eoin Treacy

Google Says Quantum Computer Beat 10,000-Year Task in Minutes

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

Alphabet Inc.’s Google said it’s built a computer that’s reached “quantum supremacy,” performing a computation in 200 seconds that would take the fastest supercomputers about 10,000 years.

The results of Google’s tests, which were conducted using a quantum chip it developed in-house, were published Wednesday in the scientific journal Nature.

“This achievement is the result of years of research and the dedication of many people,” Google engineering director Hartmut Neven said in a blogpost. “It’s also the beginning of a new journey: figuring out how to put this technology to work. We’re working with the research community and have open-sourced tools to enable others to work alongside us to identify new applications.”

Eoin Treacy's view -

The question is not whether Google has achieved quantum supremacy or whether IBM will get there first. Rather the point is quantum mechanics has gone from philosophy to practicality in less than a century. Consider that the Greeks hypothesised the existence of the atom thousands of years ago but the nuclear age did not start until about 75 years ago. This is a clear example of the exponential pace of technological innovation.



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October 23 2019

Commentary by Eoin Treacy

California's Gasoline Panic

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

But about 95% of gas stations with convenience stores are independently owned, which includes mom-and-pops that license brand names. Some consumers will pay more for brand-name gas as they will for Prada purses or Starbucks lattes. As gas prices rise, consumers may also burn more money than they save driving in search of the cheapest stations.

Notably, the commission ignores that retail margins include labor costs, utilities, rent and taxes. In 2012 the state increased taxes on high earners, which hit many small businesses. California’s minimum wage has increased by 50% since 2013. According to the Bureau of Labor Statistics, worker wages at California gas stations over the last five years have increased 50% more than nationwide.

Mr. Newsom has threatened legal action against oil companies to “protect the public.” But liberals have long wanted higher gas prices so folks will ditch gas-powered cars. The Governor last month ordered revenue to be redirected from the last gas tax hike, which was supposed to fund highway construction, to projects that “reverse the trend of increased fuel consumption and reduce greenhouse gas emissions.”

So Californians in the future can look forward to paying more to drive on deteriorating roads as they head to homes without electricity due to blackouts. How long will it take California voters to figure out that these are problems made in Sacramento by politicians?

Eoin Treacy's view -

Spikes in crude oil prices are associated with recessions because they represent a tax on consumption. It’s not coincidence that one of the reasons Europe’s economies have subpar growth is because they tax economic output through regulation and carbon trading with the express aim of increasing costs. California is well on the way to achieving the same outcomes.



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October 23 2019

Commentary by Eoin Treacy

Bitcoin Tumbles to 5-Month Low as Libra Hit by U.S. Backlash

This article by Claire Ballentine and Olga Kharif for Bloomberg may be of interest to subscribers. Here is a section:

“The biggest thing behind this is that volumes have been very very low,” said Josh Lim, head of trading strategy at Galaxy Digital in New York. “On the sentiment side of things, the fact that the Libra coalition has faced some major challenges and the Telegram launch was halted by the SEC, it really curtailed investor appetite for crypto broadly.”

Potentially adding to concern is the news that Alphabet Inc.’s Google has built a computer that’s reached “quantum supremacy,” performing a computation in 200 seconds that would take the fastest supercomputers about 10,000 years. Skeptics of cryptocurrencies have noted that advances in computing could make the slower proof of work system used by Bitcoin and other tokens obsolete.

Eoin Treacy's view -

The launch of bitcoin settled futures on the same day that the first whiff of Google’s quantum supremacy news broke in September was responsible for the dynamic break below $10,000. The Congressional debate about Facebook’s Libra project and confirmation of the quantum supremacy story were catalysts for selling pressure today.



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October 22 2019

Commentary by Eoin Treacy

Video commentary for October 22nd 2019

October 22 2019

Commentary by Eoin Treacy

Pound Drops as U.K. Lawmakers Back Brexit Deal, Reject Timetable

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

The pound weakened after U.K. lawmakers rejected Prime Minister Boris Johnson’s plan to fast-track his Brexit accord through parliament.

Britain’s currency dropped against all of its major counterparts, but the losses were contained after the government won an initial vote on the deal. Johnson opened the door to a short extension to his Oct. 31 deadline, saying he would pause legislation and go back to the European Union, after earlier threatening to throw out the deal if lawmakers rejected his plans.

“For now it seems the market is still generally expecting this is a setback, but not a fatal setback, to a negotiated Brexit,” said Jeremy Stretch, head of G-10 currency strategy at Canadian Imperial Bank of Commerce. “There hasn’t been a rapid uptick in no-deal pricing at this point,” he said, referring to a scenario where the U.K. would leave the EU with no divorce deal.

The U.K. currency had rallied more than 8% from September’s low as Johnson secured an agreement with the EU and then lawmakers then forced him to request an extension to the Oct. 31 deadline, reducing that no-deal risk.

Sterling dropped as much as 0.7% after the votes to $1.2869, after rallying Monday to touch $1.3013, the strongest level since May. Against the euro, it fell 0.4% to 86.39 pence.

Eoin Treacy's view -

Parliament today supported the deal which, as expected, excises Northern Ireland economically from the UK. That is not going to be received well by loyalist communities in North Ireland. However, it is likely to be positive for the region’s economy since it will have a toe hold between the UK and the EU and subject to corporate taxes could attract inward investment.



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October 22 2019

Commentary by Eoin Treacy

Normal Yield Curve Doesn't Mean Everything's Normal

This article by Mohamed A. El-Erian for Bloomberg may be of interest to subscribers. Here is a section:

The more that markets internalize this shifting monetary policy sentiment inside central banks, the more that they will unwind the policy expectations that fueled several forces acting to invert the U.S. yield curve, including indirect ones such as the enormous pressure on foreign investors to flee negative yields in Europe and Japan and go into longer-dated U.S. bonds. Look for this phenomenon to also maintain the yield spread between German and U.S. bonds at its current lower range despite what will continue to be relative economic outperformance by the U.S.

Just as I argued in March that it was unwise to react to the inversion of the Treasury yield curve with extreme anxiety about a U.S. recession, it would be premature to celebrate the recent partial reversion as an indicator of significant strengthening of U.S. economic prospects. Instead, both are reminders of the extent to which traditional economic signals have been distorted by a prolonged period of extraordinary central bank policies. And they should also been seen as just one of the unusual consequences of a monetary stance that, imposed for several years on central banks by the lack of proper policy action elsewhere, will now see the hoped-for benefits give way to a broadening and deepening recognition of the unintended consequences and collateral risks.  

Eoin Treacy's view -

An inverted yield curve has been one of the most readily available lead indicators for a US recession for decades. There is always an argument that this time is different and that it only works for the USA’s economy. It is also worth remembering that no US recession has occurred without an inverted yield curve first but is a very small number of false positives. When considering the history of the measure anyone who is willing to buck the historical trend is betting on the signal giving a false positive.



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October 22 2019

Commentary by Eoin Treacy

Chile Unrest Has a Worrisome Message for the World

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

The first is inequality. The Chicago Boys’ agenda delivered reasonably strong and stable aggregate growth, but Chile remains one of the most unequal countries on earth. It ranks as one of the leaders in inequality among members of the Organization for Economic Cooperation and Development, and, according to the World Bank, remains more unequal than either of its very different neighbors, Argentina and Peru. People are far angrier about a rising cost of living if it comes with a sense of injustice. 

Second, the catalyst was a proposal to raise public transport fares and energy bills. There is ample evidence from across the world that these will incite rebellion like nothing else — a point that those who hope to reduce greenhouse-gas emissions via a carbon tax should bear in mind. The violent protests of the Gilets Jaunes in France were over higher gasoline taxes, which were seen as penalizing car-dependent people in the provinces while favoring metropolitan elites. Mexico in 2017 saw riots and protests against what was known as the “gasolinazo,” a 20% rise in fuel prices that was a part of the government’s partial privatization of Pemex, the  monopoly state oil company. Last year, Brazil was rocked by protests and a strike by truck drivers in response to fuel shortages and a sharp increase in the price of diesel.

Third, Chile lacks a populist movement, or a canny populist caudillo politician. Such a figure might have been able to use public anger for their own purposes, but would also have had a better chance to control it. For example, Mexico’s left-wing populist president Andres Manuel Lopez Obrador frequently led public protests, but successfully persuaded his followers not to resort to violence. In Chile, where conventional politics lacks a party or a personality to channel their grievances, protesters have resorted to self-destructive vandalism. Which is to say, while charismatic Latin American populists understandably tend to make western leaders nervous, Chile shows that they can perform a vital function. 

Eoin Treacy's view -

The Arab Spring originated in Tunisia in a protest over the price of bread. The unrest in Lebanon last week was a response to the proposed tax on WhatsApp users. The Hong Kong unrest probably has its roots in the rising cost of living. Chile’s protests are equally about the cost of living. Does that suggest, within a decade the world has gone from worrying about bread to bigger ticket purchases? The surge in asset price inflation against a background of largely stagnant wages is at least partly to blame for this deterioration in the political status quo.



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October 21 2019

Commentary by Eoin Treacy

October 21 2019

Commentary by Eoin Treacy

Leveraged loans: how much do credit ratings understate the risks?

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

Two of the main arguments against higher loan defaults are lower rates and lack of covenants. On lower rates, we believe the transmission mechanism of lower rates to leveraged loans is comparatively weak. Our recent work has shown that LL yields are little changed year-over-year, in part because wider spreads have offset modest declines in LIBOR rates. Looking ahead, 4 rate cuts in 2020 could help loan issuers but there are likely offsetting factors. One is that this assumes loan spreads do not widen, which we think is unlikely, particularly heading into 1H20 with US GDP growth slowing to 0.3-0.5% in 1H20. Two is if rating agency downgrades persist (as we expect) the future cost of new funding for issuers increases substantially with each rating notch; our analysis shows the current spread differential between a B- and a CCC+ loan is c300bp. Three is that the Fed has less room to stimulate: only 38-52% of the rate relief provided in the last two cycles. 

On lack of covenants, the key driver of defaults historically is not covenant violations but insolvency and illiquidity. One of the more holistic papers compares these factors in triggering defaults and argues that low market asset value to debt is the key driver while, on average, covenants add limited additional information4. We believe lack of covenants will change the event of default, with more distressed exchanges likely. But it is not clear this is a good outcome. Covenants had weakened leading up to the '15-16 energy default cycle, yet default rates were elevated (peak 22%) and many distressed exchanges failed with roughly half of firms re-defaulting. While loan downgrades to CCCs have been lagging those to B-, we are starting to see more evidence of downgrades to CCC. These decisions are primarily driven by weak operating performance, negative cash flow and capital structure unsustainability (even as issuers do not have maturities until 202022). Once a firm is downgraded to CCC, we believe the re-pricing in loan yields makes distressed exchanges likely, particularly in more stressed markets.

Eoin Treacy's view -

The race to secure a competitive yield has resulted in large quantities of debt being issued and the quality of issuers declining relative to the yield on offer. If a rising tide lifts all boats then the potential for shipwrecks to be revealed when the tide goes out is also a risk. Warren Buffett’s swimming naked remark comes to mind.

 



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October 21 2019

Commentary by Eoin Treacy

China Braces for Sub-6% Economic Growth in Key Policy Meetings

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

“They measure the policy scope by looking at the overall debt, by looking at how much risk there is in shadow banking, in the housing sector and in inflation,” Yao said. “Looking at all these things, they judge they actually don’t have much scope from a long-term perspective. So they’re very careful about how to use it and when to use it.”

With few major monetary policy moves in the past month, the Loan Prime Rate, a market gauge of borrowing costs, remained unchanged in October, according to a PBOC release Monday.

In his statement to the IMF’s steering committee at the meetings, Yi said that growth had been stable this year and the “main economic indicators kept within an appropriate range.” While keeping credit growing, the bank should also pay attention to “maintaining a stabilized leverage ratio,” he said.

Yi won support for China’s approach from the IMF, which otherwise has been urging more action to support the global economy. Kenneth Kang, deputy director of the fund’s Asia and Pacific Department, said any support to prop up the Chinese economy should be “contained, calibrated to the shock, it should be temporary in nature and it should be focusing on re-balancing growth down the road.”

Eoin Treacy's view -

China’s administration is worried about the debt mountain which has been accrued over the last decade and are therefore reluctant to pull on the traditional levers for growth in the housing and infrastructure sectors. That is weighing on demand for just about all industrial commodities.



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October 21 2019

Commentary by Eoin Treacy

US military report recommends giving AI autonomous authority to launch nuclear weapons

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

In other words, they want to give an AI the nuclear codes. And yes, as the authors admit, it sure sounds a lot like the “Doomsday Machine” from Stanley Kubrick’s 1964 satire “Dr. Strangelove.”

The “Dead Hand” referenced in the title refers to the Soviet Union’s automated system that would have launched nuclear weapons if certain conditions were met, including the death of the Union’s leader.

This time, though, the AI-powered system suggested by Lowther and McGiffin wouldn’t even wait for a first strike against the US to occur — it would know what to do ahead of time.

“[I]t may be necessary to develop a system based on artificial intelligence, with predetermined response decisions, that detects, decides, and directs strategic forces with such speed that the attack-time compression challenge does not place the United States in an impossible position,” they wrote.

The attack-time compression is the phenomenon that modern technologies, including highly sensitive radar and near instantaneous communication, drastically reduced the time between detection and decision time. The challenge: modern weapon technologies, particularly hypersonic cruise missiles and aircraft, cut the window even further.

Eoin Treacy's view -

The advent of first strike weapons like hypersonic missiles and artificial intelligence “dead man’s switches” represent significant amplification of geopolitical stress.

 



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October 21 2019

Commentary by Eoin Treacy

These Are the World's Best (and Worst) Pension Systems

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

The study comes as policy makers grapple with more people entering retirement, living longer and needing a steady flow of income on which to survive. Almost one-fifth of the world’s
population is forecast to be of retirement age by 2070, up from about 9% this year, United Nations data show.

“Systems around the world are facing unprecedented life expectancy and rising pressure on public resources to support the health and welfare of older citizens,” said David Knox, the report’s author and senior partner at Mercer. “It’s imperative that policy makers reflect on the strengths and weaknesses of their systems to ensure stronger long-term outcomes for the
retirees of the future.”

Eoin Treacy's view -

Raising the age at which citizens become eligible for pension makes economic sense but is one of the thorniest issues to put before voters. Japan obviously has a vital need to urgently replace aging workers and while immigration is now allowed, the program needs to be vastly expanded.



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October 18 2019

Commentary by Eoin Treacy

October 18 2019

Commentary by Eoin Treacy

Mysterious

Thanks to a subscriber for this memo from Howard Marks 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. 

I suspect the changes in how the time value of money is considered, resulting from negative interest rates, is one of the most interesting topics in the market today. We are accustomed to thinking about how money loses value through devaluation and inflation but never give any thought to the value of time. Futures and options traders need to consider the time value of money because their contracts pressing maturity profiles. However, when there is no maturity, such as with property, art, collectibles or private equity the time value of money takes on a completely different meaning.



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October 18 2019

Commentary by Eoin Treacy

Cloud Set to Drive a New "Roaring 20s" Defined by Big Productivity Improvements

Thanks to a subscriber for this report from Oppenheimer 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. 

I received a service call from Bloomberg this morning while I was reading this report and it occurred to me that I worked for a cloud company all those years ago and didn’t even know it. Back in the early 2000s Bloomberg insisted on dedicated lines before they would install a terminal. The system required the bandwidth to pump real-time prices and calculations through to the end user. Those calculators sat on the company’s servers rather than the desktop which is effectively what cloud computing is.



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October 18 2019

Commentary by Eoin Treacy

Chinese Nuclear Stockpile Clouds Prospects for U.S.-Russia Deal

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

Russian officials say they want the current agreement extended for the allowed five years beyond its 2021 expiration. Foreign Minister Sergey Lavrov told reporters last month that that the U.S. continues to insist China be brought into negotiations, a message he said Secretary of State Michael Pompeo delivered to him at the annual United Nations General Assembly meetings.

But Moscow says time is running out. Negotiations for a new deal would typically take as long as a year. Even settling on an extension would be lengthy.

“We urge our American colleagues not to lose time anymore,” Russian Deputy Foreign Minister Sergei Ryabkov said in an interview with Russia’s International Affairs journal. “There’s almost none left. Simply letting this treaty die would be unforgivable. This will be perceived by the international community as neglecting one of the key pillars of international security.”

Despite American efforts, Beijing has so far balked at trilateral talks, arguing it is far behind Moscow and Washington, which together hold more than 90% of the world’s nuclear weapons.

“China has no interest in participating in a nuclear-arms-reduction negotiation with the U.S. or Russia, given the huge gap between China’s nuclear arsenal and those of the U.S. and Russia,” said Fu Cong, director general of the foreign ministry’s Arms Control Department. “The U.S. and Russia, as the countries possessing the largest and most advanced nuclear arsenals, bear special and primary responsibilities on nuclear disarmament.”

Eoin Treacy's view -

There is a Chinese expression to the effect “when the stork and the clam fight, the fisherman wins”. China is content for the USA and Russia to face off against one another in mutual agreements to curtail development of even more powerful nuclear weapons. Meanwhile the hypersonic missiles it is developing and showing off to the world in parades are an alternative first strike weapon where there are no treaties on containment.



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October 17 2019

Commentary by Eoin Treacy

Video commentary for October 17th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: major markets continue to pause at big round numbers but the relative strength of megacaps is a postive development, Dollar eases which is positive for emerging markets, gold and silver steady, nickel weak, India resurgent. 



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October 17 2019

Commentary by Eoin Treacy

Monthly Economic Bulletin

Thanks to a subscriber for this report from Krungsri Research focusing on South East Asia. Here is a section:

Vietnam’s economy expanded 7.3% YoY in 3Q19, the strongest growth in three quarters. In the nine months to September 2019, the economy expanded 7.0%.

In addition, the central bank recently cut policy interest rate by 25bps to 6.0%, the first cut since October 2017. This would reduce cost of funds, increase liquidity, and support growth in consumption and investment—which together account for around 100% of GDP.

For the rest of the year, the economy will face challenges from a high-base GDP growth rate and rising external pressures from slowing global trade and the US-China trade war. However, Vietnam has resilient domestic demand and authorities have helped to support demand by cutting key interest rates. Hence, we forecast Vietnam’s economic growth at 6.6-6.8% for this year.

Eoin Treacy's view -

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

The trade war between the USA and China represents a clear signal that China is quickly pricing out of the low-end manufacturing sector. This is a trend which has been underway for some time but it is now gathering pace as the both the cost of doing business and the geopolitical risk increase.



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October 17 2019

Commentary by Eoin Treacy

Has Arlene Foster Finally Overplayed Her Hand?

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

The Brexit ultras in Johnson’s party, known as the Spartans, may be unionists, but their interests and those of the DUP have never been fully aligned. The Spartans want the hardest Brexit possible, and that’s their ultimate priority, rather than the exact form of customs arrangements between the mainland U.K. and Northern Ireland and how exactly consent is given for that by the DUP.

Johnson’s deal doesn’t look like it crosses any of the Spartans’ red lines. They haven’t said so far whether they’ll back him, but some of the noises ahead of the deal’s announcement were positive. They realize if a deal doesn’t pass now, there’s a chance Brexit may never happen. Secure their support, and it’s possible Johnson could win enough votes to pass his deal, as Bloomberg’s Rob Hutton outlined on Wednesday.

Much depends too on whether Brexit-supporting Labour MPs back a deal.

It may seem hard to imagine what the DUP gains from its opposition, other than burnishing its own Braveheart reputation by holding out. But the DUP plays a long game. They’re asking themselves whether the new arrangements, which include customs and regulatory checks on the Irish Sea border, will over time make it easier for Northern Ireland to drift toward unification with Ireland. They’re thinking about how unionist voters will regard their support for a deal that doesn’t give them an effective veto over the new arrangements, as Johnson’s original proposal did. 

Eoin Treacy's view -

It is going to be a monumental task to get Boris Johnson’s deal through parliament without the assistance of the DUP. Unfortunately, the machinations of who votes in favour of the deal are unlikely to be purely in the national interest. Everyone knows an election is coming and parliamentarians are keenly aware that how they vote in this weekend’s question will probably come back to haunt them later.



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October 17 2019

Commentary by Eoin Treacy

Traders Are Rushing Nickel Out of China to Capture LME Profits

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

China’s Tsingshan Holding Group Co. was one of the main forces behind a record drawdown in LME nickel inventories in early October, according to people familiar with the matter. Tsingshan is working with financing banks including JPMorgan Chase & Co. to take the metal off the exchange, the people said. Estimates for how much they bought range from 30,000 to 80,000 tons.

The nickel supply squeeze could signal a “Hamanaka moment,” according to Citigroup Inc. analysts including Oliver Nugent. That’s a reference to the Sumitomo Corp. trader who hoarded copper, driving up prices before the market collapsed in the 1990s.

The Citigroup report highlighted the disconnect between futures and physical markets. The LME nickel contract is signaling an extreme shortage, while conditions in the physical market are looser. That represents a “major downside risk” to prices given that global growth is starting to weaken, the bank said.

Eoin Treacy's view -

The fact that there is enough inventory to move metal around to close arbitrages which have resulted from the Indonesian ban on exports is not great news for the nickel price. Nickel is a significant component in battery chemistries and with the evolution of 8:1:1 formats, demand is likely to rise over the medium term. The challenge in the short term is global demand for automobiles of all kinds is falling.



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October 16 2019

Commentary by Eoin Treacy

October 16 2019

Commentary by Eoin Treacy

Blueprint For Thinking About The Future

Thanks to Bernard Tan for this essay 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. 

China’s people are its greatest resource. Education has historically been the single greatest enabler of individual and familial success in most countries and China is no exception. The success of overseas Chinese populations all over the world is in large part tied to their commitment to the education of their children and commitment to a frugal existence, work ethic and investment in property. It’s natural that the same cultural affinity should apply in China.

 



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October 16 2019

Commentary by Eoin Treacy

Norway's Krone Hits Weakest on Record Amid Trade Turmoil

This article by Sveinung Sleire for Bloomberg may be of interest to subscribers.

Norway’s krone hit the weakest on record against the euro, surpassing the previous record set during the 2008 financial crisis.

The krone touched 10.1641 per euro at 2:45 pm in Oslo, according to Bloomberg data, amid pressure from global tensions and weakening oil prices.

Norway is Western Europe’s biggest producer of petroleum products and gets almost half its goods exports from oil and natural gas.

Norges Bank has been puzzled by the weakening currency, a move that has allowed it to raise interest rates four times since September 2018. The central bank has increased its estimate on the currency’s equilibrium exchange rate, meaning that it now sees the weakening currency as a structural shift.

Eoin Treacy's view -

Crude oil prices are close to breakeven levels for shale drillers, are challenging the profitability of newer offshore sites and are well below the fiscal breakevens for much of OPEC. That is putting downward pressure on the currencies of oil producers.



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October 16 2019

Commentary by Eoin Treacy

Back to Reality; Trade "Truce" Changes Very Little; Overpaying for Growth Still the Biggest Risk

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 fiscal impetus from the Trump tax cuts is expiring but the boost from the commitment to increase government spending agreed in the summer remains an important factor. Nevertheless, even that is expected to fade in 2020. That suggests the turn to easier monetary policy at the Fed can’t happen quickly enough.



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October 15 2019

Commentary by Eoin Treacy

Video commentary for October 15th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: safe haven demand wanes, Treasuries at particular risk of pulling back, gold in Pounds retreats on Brexit opptimism, Wall Street led higher by semiconductors, Brazilian real weak, Australian Dollar eases but Dollar Index also eases. 



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October 15 2019

Commentary by Eoin Treacy

Johnson Has a Big Brexit Problem: His Northern Irish Friends

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

“None of our 10 members will vote for a border in the Irish Sea,” Ian Paisley, son of the party founder and one of its MPs, said in a RTE interview late on Monday, accusing the Irish government of stirring the “sleeping giant” of unionism.

At the same time, he said “we can all be happy -- this doesn’t have to be quid pro quo where if we gain, the Republic of Irish loses.”

Under Johnson’s original plan, Northern Ireland -- the region the DUP draws its lawmakers from -- would leave the EU’s customs union and Stormont, the local power-sharing assembly, will have a veto over the future arrangements with the EU.

Customs Compromise

That plan was shot down by EU officials and the Irish government. Instead Johnson has offered to loosen the Stormont veto and has proposed a complex compromise solution on customs.

This would see Northern Ireland leave the EU’s customs union but still adhere to its rules. Crucially, the rest of the U.K. will leave the customs union and be free to adopt completely new rules after Brexit. That disparity between the freedom that would be available to mainland Britain and the shackles that Northern Ireland would be bound by is unacceptable to the DUP.

Eoin Treacy's view -

Theresa May hamstrung the Brexit negotiations when she failed to gain a larger majority in the snap election she called, which forced her into a coalition with the DUP. The founding principle on which the DUP runs is unwavering commitment to union with the rest of the UK. Visceral objection to any dilution of that link and suspicion of the intentions of every other party is the abiding attitude within the party.



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October 15 2019

Commentary by Eoin Treacy

Email of the day - on gold in different currencies.

“Can you please give me the key to charting gold bullion in GBPs from your chart library. Many thanks in advance”

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. Gold tends to do best in a negative real interest rate environment and when it is appreciating against most currencies.

There are a number of charts for gold in various currencies in the Chart Library. The easy way to find them is using the ticker code for gold as a currency which is XAU. Using XAU as the search term you will find charts for Gold in South African Rand, Indian Rupee, Swiss Franc, Brazilian Real, New Zealand Dollars, Swedish Krona, Singapore Dollars, Japanese Yen, Turkish Lira, Chinese Renminbi, Euro, British Pounds and Australian Dollars.



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October 15 2019

Commentary by Eoin Treacy

Why Didn't Dimon Step In on Repo? Just Ask Fed

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

There’s no indication that the Fed will consider loosening its requirements on banks to shore up the repo market. Instead, the central bank appears to prefer to do everything itself, abruptly reversing course on the size of its balance sheet and increasing the amount of reserves. St. Louis Fed President James Bullard said on Tuesday that a standing repo facility would be a sensible “endgame” to prevent more bouts of extreme volatility in funding markets.

Eoin Treacy's view -

A standing repo facility at the Fed opens its balance sheet to potentially unlimited liability. That is the primary reason it has relied on the banking sector to provide liquidity historically and it is a testament to just how far the Fed is willing to go in deploying extraordinary liquidity measures.   



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October 15 2019

Commentary by Eoin Treacy

Inside a Brazen Scheme to Woo China: Gifts, Golf and a $4,254 Wine

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

The bank gave a Chinese president a crystal tiger and a Bang & Olufsen sound system, together worth $18,000. A premier received a $15,000 crystal horse, his Chinese zodiac animal, and his son got $10,000 in golf outings and a trip to Las Vegas. A top state banking official, a son of one of China’s founding fathers, accepted a $4,254 bottle of French wine — Château Lafite Rothschild, vintage 1945, the year he was born.

Millions of dollars were paid out to Chinese consultants, including a business partner of the premier’s family and a firm that secured a meeting for the bank’s chief executive with the president. And more than 100 relatives of the Communist Party’s ruling elite were hired for jobs at the bank, even though it had deemed many unqualified.

This was all part of Deutsche Bank’s strategy to become a major player in China, beginning nearly two decades ago when it had virtually no presence there. And it worked. By 2011, the German company would be ranked by Bloomberg as the top bank for managing initial public offerings in China and elsewhere in Asia, outside Japan.

Eoin Treacy's view -

If anyone knows of an alternative route to building a business in China, I’d like to hear it.



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October 14 2019

Commentary by Eoin Treacy

Video commentary for October 14th 2019

Eoin Treacy's view -

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

Some of the topics discusesd include: Pound pauses, Wall Street quiet, Japan and China steady, tanker rates surge, carbon credits steady, oil weak, gold steady, copper firms, commodities potentially primed for outperformance, Treasuries susceptible to profit taking. 



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October 14 2019

Commentary by Eoin Treacy

Game Changer

Thanks to a subscriber for this report by Ed Hyman and team at Evercore which makes a bullish case. It’s loaded with interesting graphics and I commend it to subscribers. 

Eoin Treacy's view -

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

There are a couple of big points that stick out to me. The first is you can’t have a recession without unemployment rising. The second is oil price spikes have a causal factor in recessions over the last thirty years but we need to consider when they are a necessary cause. The third is recessions generally occur following a bubble in something. That sector represents the epicentre of risk and is most likely to collapse when the music stops.



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October 14 2019

Commentary by Eoin Treacy

Elizabeth Warren's potential Presidential candidacy

Thanks to a subscriber for this snippet of an article by Niall Ferguson for the Sunday times.

Eoin Treacy's view -

Medicare for all is a laudable aspiration, but has the potential to be murderously difficult to implement. The healthcare sector employs millions of people and accounts for 18% of the US economy. Every doctor and dentist’s office in America have at least one person handling insurance claims, collecting co-pays, sending out bills etc. With a fully public option most of these administrative staff would be surplus to requirement. In other words, the clear risk from a fully public healthcare option would be recession even if the long-term benefit of cutting back on waste is a net positive.



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October 14 2019

Commentary by Eoin Treacy

Oil Shipping Costs Soar to Highest Levels in 11 Years

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

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

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

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

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

Eoin Treacy's view -

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



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October 11 2019

Commentary by Eoin Treacy

October 11 2019

Commentary by Eoin Treacy

Midcap British Stocks Soar On Move Toward Brexit Talks

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

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

Eoin Treacy's view -

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



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October 11 2019

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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October 11 2019

Commentary by Eoin Treacy

Japanese Stocks Post First Weekly Gain in Three on Trade Hopes

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

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

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

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

Eoin Treacy's view -

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



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October 11 2019

Commentary by Eoin Treacy

Melting Ice Redraws the World Map and Starts a Power Struggle

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

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

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

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

Eoin Treacy's view -

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



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October 11 2019

Commentary by Eoin Treacy

October 10 2019

Commentary by Eoin Treacy

October 10 2019

Commentary by Eoin Treacy

Market Internals

Eoin Treacy's view -

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

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



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October 10 2019

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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October 10 2019

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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



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October 09 2019

Commentary by Eoin Treacy

Video commentary for October 9th 2019

October 09 2019

Commentary by Eoin Treacy

Fed to Increase Supply of Bank Reserves

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

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

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

Eoin Treacy's view -

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



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October 09 2019

Commentary by Eoin Treacy

Email of the day - on trading precious metals.

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

Eoin Treacy's view -

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



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October 09 2019

Commentary by Eoin Treacy

Tesla Can't Perfect Autopilot Without a Few Deadly Crashes

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

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

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

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

Eoin Treacy's view -

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



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October 08 2019

Commentary by Eoin Treacy

October 08 2019

Commentary by Eoin Treacy

New Kind of Recession Threat Presents Problem for Powell and Fed

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

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

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

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

Eoin Treacy's view -

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



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October 08 2019

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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



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October 08 2019

Commentary by Eoin Treacy

US has fewer listed public companies than China

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

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

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

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

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

Eoin Treacy's view -

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



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October 07 2019

Commentary by Eoin Treacy

October 07 2019

Commentary by Eoin Treacy

The Bond Market is the Biggest Bubble of our Lifetime

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

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

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

Eoin Treacy's view -

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



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October 07 2019

Commentary by Eoin Treacy

Email of the day - on trading discipline

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

Eoin Treacy's view -

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

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

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



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October 07 2019

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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October 04 2019

Commentary by Eoin Treacy

LPO Memorial Concert in David Fuller's honour

Eoin Treacy's view -

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

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

The concert is due to begin at 7:30 PM

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



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October 04 2019

Commentary by Eoin Treacy

October 04 2019

Commentary by Eoin Treacy

California Dreamin'

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

Eoin Treacy's view -

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

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



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October 04 2019

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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



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October 04 2019

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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

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



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October 03 2019

Commentary by Eoin Treacy

October 03 2019

Commentary by Eoin Treacy

The Global Internet Phenomena Report

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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October 03 2019

Commentary by Eoin Treacy

At Least 70 Countries Have Had Disinformation Campaigns, Study Finds

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

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

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

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

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

Eoin Treacy's view -

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



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