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March 15 2022

Commentary by Eoin Treacy

Powering Up

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

For the grid to work, supply must match demand – all the time. “There are already times when we produce so much green electricity, we don’t know what to do with it,” says Hartman. “That can be in the middle of the day when the sun is shining, or in the middle of the night when we are not using so much electricity, but we are producing a lot from wind turbines.” At certain times, energy goes to waste; producers are paid to take capacity offline.

On the other hand, the vagaries of the weather mean generation can fall short of expectations as well. For instance, on rare occasions both Germany and the UK have experienced ‘not much sun’ and ‘not much wind’, so respective energy outputs slumped at the same time. Hence the hive of research activity around energy storage. Behind it is a key idea: if storage can be made cheap enough, dense enough and extensive enough, it becomes viable to operate an energy mix with a much higher percentage of renewables.

This is driving deployment of grid-scale storage; something companies like Tesla, LG Chem and Samsung are anticipating as they construct battery megafactories around the world15 (see Figure 4). Combining renewables with large, preassembled battery units to store excess power, with energy fed back into the grid when demand requires it, has taken off.

The relative attractiveness of this has shifted “seismically” recently, according to energy consultancy Wood MacKenzie.17 Producing energy using solar and wind power already undercuts natural gas on a levelised cost basis (see Figure 5) and recent discoveries suggest further efficiency gains are possible.

Henry Snaith, professor of physics at the University of Oxford, describes solar “being in 1965 in silicon technology terms,” for example, with “lots of room to improve”. (In Search of Wild Solutions has more details.) Now battery costs have fallen rapidly as well, so ‘solar PV + large-scale battery storage’ are cheaper than ‘solar PV + natural gas’ as back-up to meet peak demand.

Eoin Treacy's view -

Large numbers of battery factories are under construction. When they come on line, it will represent a voracious appetite for everything from copper, nickel, manganese and lithium to steel and aluminium. Between now and then there is still time to argue about the extent of the bull market.



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March 14 2022

Commentary by Eoin Treacy

Video commentary for March 14th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar firms as stocks, bonds and commodities fall together. Angst at the prospect of the Fed ignoring the market signal and raising rates aggressively is weighing on risk appetite. China leads on the downside as its locks down Shenzhen. 



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March 14 2022

Commentary by Eoin Treacy

Email of the day on how many interest hikes are likely

I and probably many others will be intrigued in your contrarian view that the Fed will hike once and be "done". Whereas as per enclose Bloomberg article others expect seven rate hikes this year.

If only one rate hike does that mean USA stock markets will revert to their bull run?

Eoin Treacy's view -

12-month yields are at 1.19% and climbing. That implies four hikes within the year. The Fed will hike this week, so that implies three additional hikes. I have been of the opinion the Fed will have an extraordinarily difficult time raising rates. If the Fed raises 7 times a recession is inevitable. With three more hikes the chances of a recession are better than even. One and done sounds about right to me. 
 



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March 14 2022

Commentary by Eoin Treacy

ESG in practice: assessing Food and Beverage companies' externalities

This report from the Candriam Academy may be of interest. Here is a section:

The market of protein foods is witnessing two key developments. The first is the efficiency drive, through new technology, among existing producers of animal protein food, such as milk, meat, fish or eggs. Better efficiency comes with smaller carbon footprint; indeed, the top 10% best performing farming businesses reduce theirs by double digits by adopting new innovative solutions.

Even more good news for companies: because most of the innovations work alongside existing production systems, their implementation will not require additional capital expenditure. There are also some products that target specific issues, such as cows belching methane – a greenhouse gas more potent in causing global warming than carbon dioxide. We now have a remarkable innovative food supplement that can suppress the production of methane by 30% in dairy cattle, and up to 90% in beef.

The second type of innovations is about finding new sources of non-animal proteins. Everything from using canola to single cell proteins. Recent study reported that “considerable progress has been made towards the development and production of meat alternatives, including cultured meat, plant-based meat alternatives, microbial protein, edible fungi, microalgae, and insect protein.”

We expect a combination of advanced scientific expertise and investment will be required in the years to come not only to develop new sources of proteins but also test how safe they are for human health and well-being. In the meantime, the diet is not the only factor that impacts our climate and other sustainability factors, it is also the operation of the supply chains themselves.

Eoin Treacy's view -

Arguably, the ESG movement found its first target in Nestle. For years activists lobbied the public to stop consuming Nestle products because of labour and business practices they found distasteful and often with good reason. Today’s the carbon footprint of the food sector is under scrutiny and the ESG model is part of every corporate communication.



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March 14 2022

Commentary by Eoin Treacy

Apple Supplier Foxconn in Talks to Build $9 Billion Factory in Saudi Arabia

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

The Saudis are conducting due diligence and benchmarking the offer against others that Foxconn has made for similar projects globally, one of the people said.

Besides Saudi Arabia, Foxconn is also talking with the United Arab Emirates about potentially siting the project there, one of the people said.

The Taiwan-based company has looked to diversify its manufacturing sites amid rising tensions between China and the U.S. that put it in a potentially vulnerable spot.

Riyadh wants the company to guarantee that it would direct at least two-thirds of the foundry's production into Foxconn's existing supply chain, one of the people said, to ensure there are buyers for its products and the project is ultimately profitable.

Foxconn is seeking large incentives including financing, tax holidays and subsidies for power and water in exchange for helping set up a high-tech manufacturing sector in the kingdom, the people said, as Saudi Arabia seeks to diversify its economy away from oil.

The Saudis could offer direct equity co-investment, industrial development loans, low-interest debt from local banks and export credits to compete with other jurisdictions that Foxconn might consider, said another person familiar with the talks.

Saudi authorities and Foxconn didn't respond to requests for comment.

Eoin Treacy's view -

Pandemic exiles leaving Hong Kong brought COVID-19 with them to Shenzhen. The city and its environs have been locked down which is impacting the ability of component suppliers to perform at peak capacity.



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March 12 2022

Commentary by Eoin Treacy

March 12 2022

Commentary by Eoin Treacy

Biden's Demands for Oil Collide With Drillers Reining In Output

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

U.S. shale producers expect the oil price spike to be short-term, and shareholders don’t want companies investing capital in robust drilling programs delivering new production in 18 months, Pioneer Natural Resources Co. Chief Executive Officer Scott Sheffield said Wednesday. Oil futures indicate companies would get lower prices for crude that begins flowing in 12 to 18 months. 

The administration’s approach assumes oil producers will turn on a dime in response to pleas from the same people “telling everybody that they are going to be obsolete in 30 or 40 years,” said Benjamin Salisbury, director of research at Height Capital Markets. 

Investors in shale also have brushed aside arguments that drillers should crank up production because it’s their patriotic duty. Many still bear scars from the last boom-and-bust cycle, when companies chased production growth, ultimately contributing to a glut that drive down prices. 

“The upstream industry is not a public service industry,” said Ben Dell, founder of Kimmeridge Energy Management. “For 10 years we made no money. The industry is profitable for two months, and the argument is that we’re supposed to price down the product or give away margins to support the consumer.”

Eoin Treacy's view -

Shale drilling is capital intensive. The days when money would be thrown at the sector with little concern for profitability are over. Investors now demand returns. Unconventional wells require constant drilling to sustain production. Within months of the cessation of drilling, volumes shrink. That means these kinds of wells are price sensitive. It is possible to ramp up production provided future production can be hedged at attractive prices.  



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March 12 2022

Commentary by Eoin Treacy

Cathie Wood's ARKK Lures Almost $1 Billion Even as ETF Sells Off

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

But for some investors, “it’s opportunistic investing,” said Chris Gaffney, president of world markets at TIAA Bank. “Maybe it’s an opportunity to rebalance and buy some of these big-name, good companies that have been in this correction and the prices are cheaper.”

The S&P 500 is on pace to notch its second consecutive week lower, but retail traders haven’t been deterred by the volatility. They’ve become a reliable support pillar for the market, plowing cash toward stocks for nine straight weeks.

Partly, it’s a habit developed during the Covid-19 crash -- and one that’s proving stickier than many expected. Back then, buying during the March lows proved very profitable, including
for ARKK enthusiasts. 

Gaffney says there’s a swath of investors who are wary of missing out on any other potential big run-ups in prices. “You always get some people who feel like, ‘I missed out on the last big run, and I’m not going to miss that again, so I’m going to get in now when prices are cheap.’”
 

Eoin Treacy's view -

In a secular bull market buying the dip always works. It becomes engrained as the go-to strategy for investors to get a position at a discount. As interest returns, the assets leading the secular trend break higher, the decision is vindicated and buying the next dip becomes an even easier decision. One way to know that a bull market is over, is the buy-the-dip trade fails.



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March 12 2022

Commentary by Eoin Treacy

A New World Energy Order Is Emerging From Putin's War on Ukraine

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

“The U.S. can try to make Saudi Arabia increase production, but why would they accept a break in the alliance, which is key for them?” said Paolo Scaroni, former chief executive officer of Italian oil company Eni SpA. 

There’s a political dynamic at play to explain the kingdom’s fidelity to Moscow beyond the gusher of oil revenue. 

Where Donald Trump cultivated a particularly friendly relationship with Saudi Arabia — making his first foreign trip as U.S. president to Riyadh — ties have turned colder under President Joe Biden. On the campaign trail, Biden pledged to make the kingdom a “pariah,” in part because of the killing of columnist Jamal Khashoggi. He will only deal with the elderly King Salman, relegating Mohammed bin Salman to interact with more lowly officials despite being the kingdom’s defacto ruler. 

By contrast, Riyadh’s OPEC+ partnership with Moscow calmed years of distrust between the two oil rivals, and saved the kingdom from relying exclusively on Washington.

“Saudi Arabia doesn’t want to switch horses mid-race when they do not know if the other horse is actually going to show up,” said Helima Croft, chief commodities strategist at RBC Capital Markets. 

Eoin Treacy's view -

The USA going cap in hand to countries like Iran, Venezuela and Saudi Arabia this week, with the request to boost oil supplies must have been both humbling and galling for the Biden administration. For the all the talk of a more enlightened foreign policy the arrogance, even so-called allies, have been treated with is pretty astounding. International rulers will be told not to take it seriously. Afterall they were working in service to the higher cause of abating climate change.



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March 10 2022

Commentary by Eoin Treacy

Video commentary for March 10th 2022

March 10 2022

Commentary by Eoin Treacy

Fund Manager's Diary March 9th 2022

Thanks to Iain Little for his latest note which may be of interest. Here is a section:

Third, fixed income markets, largely reward-free risk pre-Ukraine, now face a further knock-out blow. The pressure for rate rises justified by existing 5%+ inflation will be ramped up by the commodity scarcity from sanctions on 12% of the world’s oil production and much of its strategic metals. Add a negative credit effect on bond yields derived from civil unrest in countries relying on imported wheat to feed youthful, volatile populations; Ukraine, at 30% of global total, is the world’s largest supplier. The only cure is a lighter hand on the rate rise tiller from central banks now wary of recession 12-18 months from now. This contradiction is negative for long rates.

Eoin Treacy's view -

With a supply shock, the only way to control inflationary pressures is by either quickly solving it or cutting demand. Companies are pulling out of Russia every day. The Russian government is putting together plans to take over abandoned positions in domestic companies. Russian billionaires are being both sanctioned and censured in almost every OECD market. We are not going back to normal anytime soon; if ever. The repercussions of this economic, financial, business, and social unwind are only beginning to be felt.



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March 10 2022

Commentary by Eoin Treacy

Israel's tortured choice on Russia

This article from the Jerusalem Post may be of interest. Here is a section:

So, perhaps Jerusalem is right to walk a fine line with Moscow and prioritize strategic over moral concerns. Perhaps, but it’s distressingly difficult to watch. In essence, Israel has muted its voice as Russia slaughters Ukrainian innocents, while threatening the liberal order from which Israel greatly benefits.

Strategically, Israel is heavily dependent on Russia in at least two ways. First, Russia controls most of the airspace over Syria, and has permitted Israel to strike targets there, including Iranian weapons facilities, as well as weapons convoys designed for Lebanon’s Hezbollah terrorist group, which is positioned just over Israel’s northern border.

Second, Russia is one of five permanent UN Security Council members and, as such, is participating in negotiations in Vienna over reviving the 2015 global nuclear deal with Iran. While Washington seeks to resuscitate the deal in hopes of restraining Iran’s nuclear progress, Jerusalem fears that a new deal will pose the same problems as the original one – including sunset dates for restrictions on Iranian nuclear activities, a weak international regime for inspecting Iranian nuclear sites, and no curbs on Iran’s related and growing ballistic missile program.   

Eoin Treacy's view -

Most of the financial market commentary has focused on the strategic resources and oil exports Russia represented. That tends to ignore the fact Russia is a geopolitical heavyweight with stakes in most of the world’s pressure points for strife. Cutting it off from the financial and economic world will exacerbate its appetite to cause trouble in the geopolitical theatre.



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March 10 2022

Commentary by Eoin Treacy

Volatility Grips Chinese Tech Shares Again as Traders On Edde

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

Chinese tech giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. in the past year. Beijing’s clampdown on private enterprise appeared to intensify in recent weeks after authorities required food delivery platforms to cut fees they charge restaurants and warned of risks in investing in products
linked to the metaverse.

Since its February 2021 peak, the China tech gauge has slumped nearly 60%. Adding to the fragile sentiment are concerns about a potential interest rate hike from the U.S. Federal Reserve next week and elevated commodity prices fueled by the war in Ukraine.
 
“Investors may be looking to sell growth names into the brief rallies to reduce their risk exposure, given multiple headwinds including Russia and the upcoming rate hikes,” said Vey-Sern Ling, a senior analyst at Union Bancaire Privee.

Eoin Treacy's view -

JD.com reported strong 2021 earnings but guidance was the share’s downfall today. This is a trend which troubled many US growth companies during earnings season as well. Keeping up pandemic era growth when liquidity is less available, and the real world is competing for attention versus screens, is a tall order. JD.com broke lower on the news.



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March 09 2022

Commentary by Eoin Treacy

Video commentary for March 9th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: relief rally underway across stock markets, oil, gold and wheat pullback to unwind short-term overbought conditions. Bund yields surge and Euro strengthens on speculation around ECB tightening, 



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March 09 2022

Commentary by Eoin Treacy

Ukraine Open to Neutrality But Won't Yield Territory, Aide Says

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

Ukraine is open to discussing Russia’s demand of neutrality as long as it’s given security guarantees, though it won’t surrender a “single inch” of territory, a top foreign policy aide to President Volodymyr Zelenskiy said.

“Surely, we are ready for a diplomatic solution,” Ihor Zhovkva, Zelenskiy’s deputy chief of staff, said in an interview with Bloomberg Television on Wednesday. 

The aide reinforced Ukraine’s demand for security guarantees “from the U.S., from Great Britain, from Germany” and others -- “only security guarantees from Russia will not be enough,” though he declined to spell out what those measures would entail. 

Preconditions for talks with Russian President Vladimir Putin would be a cease-fire and the withdrawal of Russian troops, Zhovka said.

Eoin Treacy's view -

When the war is over, Ukraine is most likely to follow a Finland-type solution. They may apply for membership of the EU, but not NATO. They will receive security guarantees from their neighbours, but will need to retain a significant military and constant vigilance nonetheless. Relations with Russia will be irrevocably damaged and portions of Ukraine will likely become part of Russian territory. However, the fact remains many of Russia’s pipelines flow through Ukraine’s territory. Trading relationships will be necessary.



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March 09 2022

Commentary by Eoin Treacy

Might Have a Russian Titanium Problem

This article from Barron’s may be of interest to subscribers. Here is a section:

There is a lot of lightweight, ultrastrong titanium metal in modern jet planes. Titanium cuts weight and improves fuel efficiency. That’s the good news.

The bad news is that Russia is a big supplier of titanium. That might become an issue for Boeing (ticker: BA) shares depending on how long the Russia-Ukraine conflict rages, how long sanctions are in place against Russia, and how long it takes other titanium suppliers to ramp up production.

Monday, The Wall Street Journal reported that while Boeing has suspended parts of its business in Russia, Boeing’s relationship with titanium supplier VSMPO AVISMA remains up in the air. Boeing didn’t immediately respond to a request for comment about its VSMPO relationship.

Eoin Treacy's view -

Gold mine investors are familiar with the arguments for sourcing supply from politically stable parts of the world. Everyone else is waking up to the reality of political volatility now. This is going to be a consideration for every shovel ready project going forward. Russia’s supply is integral to the smooth functioning of the global economy and sourcing fresh sources from outside the country is going to take both time and money. That’s a recipe for volatility, both up and down, over the coming years.

I had the pleasure of meeting Philip Andrews, CEO of Resource 500 in Riyadh in January. He is raising capital to develop a high grade, vanadium/titanium resource in Greenland. At the time he was pitching it to the Saudi government. My understanding is the company is primarily interested in finding a partner to help develop the asset, and is not picky about where the ore will eventually be processed. Here is a link to the pitch deck.

China is the primary supplier of titanium so it is one more industry they have control over.



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March 09 2022

Commentary by Eoin Treacy

President Biden to Sign Executive Order on Ensuring Responsible Development of Digital Assets

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

Explore a U.S. Central Bank Digital Currency (CBDC) by placing urgency on research and development of a potential United States CBDC, should issuance be deemed in the national interest. The Order directs the U.S. Government to assess the technological infrastructure and capacity needs for a potential U.S. CBDC in a manner that protects Americans’ interests. The Order also encourages the Federal Reserve to continue its research, development, and assessment efforts for a U.S. CBDC, including development of a plan for broader U.S. Government action in support of their work. This effort prioritizes U.S. participation in multi-country experimentation, and ensures U.S. leadership internationally to promote CBDC development that is consistent with U.S. priorities and democratic values.

Eoin Treacy's view -

This announcement does not propose anything new. The Federal Reserve has been investigating the merit of a central bank digital currency for years already. The reason the crypto sector responded favourably to this announcement is because of its enthusiasm about the future of digital assets. 



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March 08 2022

Commentary by Eoin Treacy

March 08 2022

Commentary by Eoin Treacy

Bretton Woods III

Thanks to a subscriber for this report from Zoltan Pozsar for Credit Suisse. Here is a section:

March 08 2022

Commentary by Eoin Treacy

Biden Says U.S. Will Ban Russian Fuels to Pressure Putin on War

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

President Joe Biden said the U.S. will ban imports of Russian fossil fuels including oil, a major escalation of Western efforts to hobble Russia’s economy that will further strain global crude markets.

“We’re banning all imports of Russian oil and gas and energy,” Biden said Tuesday at the White House. “We will not be part of subsidizing Putin’s war.”

The U.S. move will be matched in part by the U.K., which will announce a ban on Russian oil imports on Tuesday, though it will continue to allow natural gas and coal from the country. Other European nations that rely more heavily on Russian fuels will not participate. The scope of Biden’s action was not immediately clear, including exceptions and the impact on shipments already in transit.

Biden’s move is a significant step in his sanctions campaign against Russia after its invasion of Ukraine. While so-called self-sanctioning by the oil industry has limited some purchases of Russian barrels, an outright U.S. ban would further weigh on the market and increase volatility.

Eoin Treacy's view -

If sanctions are to work, they need to hit the target where it hurts. If Russia is to be chastened, more of the world needs to stop buying its products. That’s going to come with massive dislocations to the global economy. It’s a necessary sacrifice because appeasement does not work.



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March 08 2022

Commentary by Eoin Treacy

Satellite outage knocks out thousands of Enercon's wind turbines

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

Germany's Enercon on Monday said a "massive disruption" of satellite connections in Europe was affecting the operations of 5,800 wind turbines in central Europe.

It said the satellite connections stopped working on Thursday, knocking out remote monitoring and control of the wind turbines, which have a total capacity of 11 gigawatt (GW).

"The exact cause of the disruption is not yet known. The communication services failed almost simultaneously with the start of the Russian invasion of Ukraine," Enercon said in a statement.

The company said it had no further information on who or what may have caused the disruption.

Enercon has informed Germany's cybersecurity watchdog BSI and is working with the relevant providers of the satellite communication networks to resolve the disruption, which it said affected around 30,000 satellite terminals used by companies and organisations from various sectors across Europe.

Eoin Treacy's view -

Priorities change. When prices are low consumers value choice and comfort. When prices are high, they value efficiency. When supply is threatened, they will value resiliency.



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March 07 2022

Commentary by Eoin Treacy

Video commentary for March 7th 2021

March 07 2022

Commentary by Eoin Treacy

Oil Shocks and Recessions

Eoin Treacy's view -

The two things anyone seeking to predict future trouble in the stock market looks at are the yield curve spread and oil prices.

The spread the 10-year and the 2-year is down to 23 basis points, from 120 in October. At the current pace of compression, it could be negative by the end of the week.

The 10-year - 3-month has generally moved ahead of the 10-2 spread but is not doing so on this occasion. That is because bond funds are focusing on short duration bonds because inflationary pressures take a bigger toll on long-dated issues.



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March 07 2022

Commentary by Eoin Treacy

Email of the day on lithium and rare earths

Just renewed my subscription for another year. Keep up the good work!

Reference your commentary on 25 Feb re Iain Little’s article on the effects of the Ukraine conflict and commodity supply, you may be interested in the attached research note by Maquarie on the growing strength of the lithium and rare earths supply/demand fundamentals.

Eoin Treacy's view -

Thank you for this insightful report and your long support of the service. Here is a section:

We estimate that 80% of the EVs used motors that contained rare earths, while 100% of PHEV used motors that contained rare earths. Our demand forecasts for rare earths assume one standard passenger PHEV consumes 4-6kg of rare earth magnets while a pure EV uses 5-10kg of rare earth magnets for its motors.

The demand for rare earth magnets would be supported by growth in accelerating offshore wind power capacity installation and higher penetration of inverter air conditioners, as the world is moving towards its climate change goals. We have forecast rare earth magnets intensity of 0.67 tons per MW for direct drive wind turbines and 0.1kg per unit for inverter air conditioners.

A widening deficit remains our base case in the medium-term, with the speed at which new entrants can enter the market presenting a key risk to our base case. In the longer-term the market deficit starts to widen significantly from 2027, suggesting that more new sources of supply will be required to meet the shortfall.



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March 07 2022

Commentary by Eoin Treacy

China's Ambitious GDP Goal a Boost to Slowing World Economy

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

“What China publishes as a target and what they actually aim to achieve are two separate things,” said Freya Beamish, head of macro research at TS Lombard. “The actual number will be published close to the target. But the reality could be significantly weaker.”

China’s economic links with Russia and Ukraine are a small part of its overall foreign trade and investment, so Beijing may calculate that it can largely insulate its economy from global instability, as it did during the global financial crisis and coronavirus pandemic.

“China has tended to capture larger shares of global trade when there are global problems,” Huang said. “They may have been lulled into a feeling that the Ukraine situation won’t hurt them.”

Beijing has pledged to accelerate fiscal spending without increasing debt by using unspent funds from previous years and state-owned enterprise profits. The funding from such sources mean the stimulus will be relatively small-scale.

“The government’s growth target is probably the upper edge of what China can reasonably achieve without large-scale stimulus,” said Adam Wolfe, an economist at Absolute Strategy Research in London. “It’s much more of a stretch target than last year’s.”

Eoin Treacy's view -

China’s growth target will need to be supplemented by liquidity provision if it is to be achieved. That’s particularly true given the macro background of undefinable ripple effects from cutting Russia off from Swift.



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March 04 2022

Commentary by Eoin Treacy

March 04 2022

Commentary by Eoin Treacy

Secular Themes Review March 4th 2022

Eoin Treacy's view -

In 2020 I began a series of reviews of longer-term themes which will be updated going forward on the first Friday of every month. These reviews can be found via the search bar using the term “Secular Themes Review”.

When Wall Street indices were breaking out to new highs in 2012/13 the world looked to be on the cusp of a golden era of globalisation, co-operation, and the inevitable rise of the middle class. Higher living standards would breed a more tolerant society with greater respect for the environment and for our fellow global citizens.

In predicting a secular bull market, we were correct about the market call. Wall Street and the FANGMANT stocks have outperformed global indices by a wide margin over the last decade. It was also correct to expect oil to underperform because of the bounty arising from shale oil and gas. Predicting a decade ago that the USA would become energy independent was seen as maverick. Today it’s a fact.

The social upheaval that began with the monetary and regulatory response to the credit crisis represents a significant threat to the utopian ideal of the everyman. Exporting job security in return for cheap products has hollowed out the middle class in most developed countries. The evolution of the subscription business model has also reduced individuals to cash flows; where ownership of hard assets is marketed as an outdated concept. This has contributed to significant social upheaval and the response to the coronavirus pandemic amplified it.  

At the same time, the trend of geopolitical tension continues to rise. The concentration of wealth in the hands of a small number of people, companies and countries is creating greater competition. China is much more active in staking its claim to global trade than in the past and Russia’s current invasion of Ukraine is reflective of a desperate need for both security and relevance in a world that is actively working to use less of its primary export; oil.



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March 03 2022

Commentary by Eoin Treacy

Video commentary for March 3rd 2022

March 03 2022

Commentary by Eoin Treacy

India Plans To Tap Smaller Russian Banks As Sanctions Hit Local Exporters' Payments

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

The Indian government is exploring ways to reach out to smaller Russian banks that have not been sanctioned, according to an official in the Ministry of Commerce. One of the routes being considered is via smaller Russian banks that are outside the ambit of sanctions, said the official, who isn't authorised to disclose details and spoke on the condition of anonymity.

An alternative method of setting up a rupee mechanism has also been discussed, the official said. In looking for a solution, India may look to a system it had established nearly a decade ago for payments to Iran. Caught in the regulatory crossfire, Indian exporters are also worried that their shipments might be left unattended at Russian ports with no insurance.

"Earlier, we came to know that the Export Credit Guarantee Corp. of India has removed its umbrella insurance cover for Russian exports. Now, we hear there is going to be a case-by-case evaluation," said Rahul Singh, an exporter of engineering goods, including electrical machinery, to Russia.

To complicate matters, large amounts of engineering goods have already been shipped, said Singh. He has now reached out to the government regarding this. "Even if we receive payments, there will be a significant delay.

Eoin Treacy's view -

India is just one example of how trade settlement has been upended by sanctions on Russia. Getting paid for goods already sent is a major headache but who in their right mind would send more without having some security that future payments will be forthcoming. This is going to have a significant knockon effect for both the Russia and wider emerging markets sector.



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March 03 2022

Commentary by Eoin Treacy

JPMorgan Says $185 Oil in View If Russian Supply Hit Persists

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

Brent crude could end the year at $185 a barrel if Russian supply continues to be disrupted, JPMorgan Chase & Co. wrote in a note Thursday. 

Oil prices have skyrocketed, with Brent crude approaching $120 earlier Thursday as traders shun Russian oil after Moscow invaded Ukraine. U.S. President Joe Biden is facing calls to ban Russian imports of energy but so far has not imposed full blown sanctions on oil.  

Currently, 66% of Russian oil is struggling to find buyers, JP Morgan analysts including Natasha Kaneva said in the note. 

In the short term, the scale of the supply shock is so large that oil prices need to reach and stay at $120 a barrel for months to incentivize demand destruction, the analysts said, assuming there would be no immediate return of Iranian crude barrels.

Eoin Treacy's view -

We are starting to see significant upgrades to forecasts for future potential. In an accelerating trend that is generally a better reflection of how long the investment crowd is rather than being a good predictor of where prices are going.



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March 03 2022

Commentary by Eoin Treacy

Hacktivists Are Piercing Russia's Propaganda Bubble

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

 

Moscow users of Google Maps were greeted earlier this week with something they rarely see: photos of horrific scenes from Ukraine, including bombed out homes and injured civilians, and of captured Russian soldiers. The images showed up in the “latest photos” tab of landmarks on the app until Google blocked new photos from its maps of the region this week.  

While a blockbuster cyber-attack from Russia has so far failed to materialize, hacktivists have waged dozens of digital skirmishes. The Ukrainian government has created a volunteer “IT Army,” attracting hundreds of thousands of people who have knocked major Russian websites offline and helped distribute an air raid siren app. Never before has a government crowdsourced hacktivists in this way, and in a country already teeming with expertise; Ukraine is one of the world’s biggest markets for remote software engineers, with an estimated 200,000 tech employees. 

Eoin Treacy's view -

Foreign citizens willing to sign up to the cause of freedom from oppression or the cause of standing up for their common values is as old as war itself. Legions of people all over Europe signed up to fight in the Spanish civil war, on both sides. ISIS successfully recruited adherents through YouTube videos.

In the digital age, the ability of individuals to harry countries is amplified by the skill sets of IT workers. Only two weeks ago there was the story of the IT professional who was waging war on the North Korea internet single-handedly. His efforts were in retribution for them hacking him and the FBI doing nothing to held.



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March 03 2022

Commentary by Eoin Treacy

Issues with accessing the subscriber's video via Vimeo

I received this information from Vimeo’s customer support team today:

As part of our initiative to keep our platform secure for users under the age of 16, we are now asking individuals to sign in when viewing mature content. Upon signing up for our platform, users are agreeing that they are above the age of 16. When viewing mature content while logged out, users will be blocked from viewing and asked to log in to confirm that they are of the appropriate age to be viewing such content. 

Eoin Treacy's view -

The solution is I have had to attach a maturity rating to all my videos. That should solve the issue people have been having with accessing them. I posted a YouTube video yesterday as well. It is much more time consuming to upload videos into YouTube than Vimeo. That’s the primary reason I use the Vimeo platform.



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March 02 2022

Commentary by Eoin Treacy

Video commentary for March 2nd 2022

March 02 2022

Commentary by Eoin Treacy

Global Money Dispatch February 27th 2022

Thanks to a subscriber for this report from Zoltan Pozsar for Credit Suisse. Here is a section:

We believe there is no difference between Lehman unable to pay back money funds because its tri-party clearing agent is unwilling to unwind o/n repo trades, and  banks unable to receive and make payments because they are out of SWIFT.

The Herstatt risk – settlement risk – owes its name to a mishap at a single bank. The risk in the current scenario involves an entire country’s banking system. Banks’ inability to make payments due to their exclusion from SWIFT is the same as Lehman’s inability to make payments due to its clearing bank’s unwillingness to send payments on its behalf. History does not repeat itself, but it rhymes…

The consequence of excluding banks from SWIFT is real, and so is the need for central banks to re-activate daily U.S. dollar funds supplying operations.

Excess reserves and o/n RRP balances won’t be enough.

And so the Fed’s balance sheet might expand again before it contracts via QT – and not just because of the swap lines. The FIMA repo facility is also there to turn collateral into dollars – anonymously, away from the prying eye of dealers, if a central bank becomes a friendly correspondent for a sanctioned central bank turning gold into cash. That, or an unforeseen call on unwanted reserves in the o/n RRP facility as the correspondents flood the repo market with collateral…

…before QT even began.

Eoin Treacy's view -

Congress today. His comments focused on the difficulty of tackling inflation when there are supply issues pushing prices up. He was also rather testy at the charge the Fed contributed to inflation by funding massive fiscal stimulus. His response was that demand is excessively high because of consumer activity in response to the pandemic. The Fed has repeatedly skipped over the question where did people get the money to fund the demand?



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March 02 2022

Commentary by Eoin Treacy

Email of the day on The Chart Seminar and a uranium ETF

hello Eoin 1) could you please suggest a trustworthy ETF on Uran, with a well balance geopolitical profile 2) I would very much welcome a chart seminar, I hope you will be able to organize one in the not too distant future.

Eoin Treacy's view -

We are currently looking at June 6th and 7th for The Chart Seminar in London. Sarah is in the process of securing a venue at present and as soon as the location is confirmed we will begin taking bookings. I am very much looking forward to meeting subscribers in person after an internval that has been far to lengthy. 



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March 02 2022

Commentary by Eoin Treacy

China Moves to Secure Commodities Rocked by Ukraine War

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

China is heading into peak demand season for many commodities, and the risk of supply disruptions because of Russia’s invasion of Ukraine will exacerbate rising prices of everything from metals to fertilizers. 

Buyers are already looking beyond Russia and Ukraine for supplies as disruptions set in. With Belarus’ potash sector under U.S. and European sanctions, China is now paying 139% more than what it did a year ago to secure imports from Canada and Israel.

In energy, Chinese power plants and steelmakers are seeking alternatives to Russian coal after some domestic banks suggested they avoid purchases due to the mounting sanctions being imposed on Moscow. Russia is China’s second-biggest source of overseas coal after Indonesia. 

Russia, which vies with Saudi Arabia as China’s biggest seller of oil, has strengthened trade ties with Beijing over the past decade. China has doubled purchases of energy products from its neighbor over the last five years, to nearly $60 billion.

Eoin Treacy's view -

China has deep pockets and is not about to let food prices get out of control in a year when Xi Jinping is looking to cement his hold on lifelong power. That suggests they will be aggressively buying in size to ensure they meet domestic demand. No that the Winter Olympics is over, China’s metal bashing industries will be eager to get back to business as usual.



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March 02 2022

Commentary by Eoin Treacy

The Changing World Order: Focusing on External Conflict and the Russia-Ukraine-NATO Situation

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

1.Trade/economic wars
2.Technology wars
3.Geopolitical wars
4.Capital wars
5.Military wars  

These competitions or wars reward the winners and penalize the losers, which reinforce their strengthenings or their weakenings. They vary in severity from healthy competitions to all-out wars. The progression tends to be from the first one on the list (trade/economic wars) toward the last one on the list (military wars), with each growing in intensity. Then, when a military hot war begins, all four of the other types of wars are applied full-on and weaponized. For these reasons, by monitoring the progression and intensities of the conflicts one can pretty well anticipate what is likely to come next.

To be a leading world power one must be strong in most of the major ways. For example, the United States and China are now strong in all of these ways but Russia is not. For that reason Russia needs to align itself with a leading power (China) to win wars.

Eoin Treacy's view -

I believe it is an accurate characterization that Russia will have difficulty winning and cementing victory without some form of support from China. Whether that is through commodity purchases, increased use of the electronic renminbi or continued intolerance for security council measures at the UN, Russia needs China to help to support its economy as sanctions are amplified in line with is aggression in Ukraine



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March 01 2022

Commentary by Eoin Treacy

Video commentary for March 1st 2022

Eoin Treacy's view -

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

Some of the topics covered include: crude oil surges, wheat, corn, sugar and palm oil follow suit, bond futures surge, banks pull back sharply, gold extends its breakout and gold shares firm, stock markets pull back but recoup about half the original loss on speculation interest rates will not rise as quickly as feared only a week ago. 



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March 01 2022

Commentary by Eoin Treacy

Kyiv TV Tower Hit as Russia Targets the Capital

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

Russia said it would press forward with its invasion of Ukraine until its goals are met, as troops were seen moving in a large convoy toward the capital, Kyiv. In the country’s second-largest city, Kharkiv, the mayor said residential areas were being bombed in what he called “a war to destroy the Ukrainian people.”

Eoin Treacy's view -

Hitting the TV tower is aimed at attempting to put Ukraine’s ability to appeal directly to Russia’s population out of commission. The impassioned broadcasts from Ukraine’s president must be particularly annoying for the Russian aggressors. Unfortunately, the success of the initial resistance means Russia is doubling down on the bombardment.



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March 01 2022

Commentary by Eoin Treacy

RBA Highlights Ukraine War Risks to Outlook as Key Rate Held

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

The Reserve Bank of Australia said it will remain “patient” as it assesses risks stemming from Russia’s invasion of Ukraine and the resulting jolt to energy prices.

The central bank -- as expected -- kept its cash rate at a record low 0.1% on Tuesday, Governor Philip Lowe said in a post-meeting statement. He reiterated that while inflation has picked up, it’s “too early to conclude” that it’s sustainably within the RBA’s 2-3% target.

“The war in Ukraine is a major new source of uncertainty,” Lowe said. “Inflation in parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of strong demand.”

Eoin Treacy's view -

The RBA is the first central bank to cite the war in Ukraine as a rationale for holding off on raising rates. The market was not expecting a rise this month in any case but the thorny issue of the war is likely to play a role in future decisions. The RBA is unlikely to be the only central bank faced with this conundrum. We will hear from Jay Powell twice this week when he testifies before Congress. The ECB is a lot closer to the action, and European businesses do a lot more trade with Russia than the USA or Australia.



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March 01 2022

Commentary by Eoin Treacy

Chevron Doubles Buyback as Spending Cap Helps Lift Cash Flow

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

As a result, operational cash flow per share, a key metric watched by analysts, will grow 10% every year through 2026 with Brent crude at $60 a barrel, Chevron said. The international oil benchmark rose as much as 5.4% to $103.22 a barrel on Tuesday.

Chevron’s plans will mean repurchasing shares at elevated price levels. The stock touched a record high Monday after Russia’s invasion of Ukraine sent crude surging. Chief Executive Officer Mike Wirth has said the company will maintain the buyback even if oil prices dip. It’s part of his pledge for shareholders to reap the benefits of $100 oil in contrast to previous upturns a decade ago when spending on mega-projects to grow production was the priority.

Chevron is also using its rising cash flow to invest in the energy transition. It announced the $3.1 billion purchase of biofuel maker Renewable Energy Group this week, a deal that will make it one of North America’s biggest producers of renewable fuels.

But that’s doesn’t mean Chevron is moving away from fossil fuels. It expects oil and gas production to grow to more than 3.5 million barrels a day by 2026, about 13% higher than last year, the company said Tuesday. Most of that growth will come from shale production in the Permian Basin and the giant Tengiz development in Kazakhstan.

Eoin Treacy's view -

The largest independent energy producers have put spending caps on their production. They are focusing instead on repaying investors who have continued to support them despite the lashing legacy energy producers have taken in the press.



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March 01 2022

Commentary by Eoin Treacy

Email of the day on issues with Vimeo

March 01 2022

Commentary by Eoin Treacy

The Chart Seminar 2022

With global vaccination rates rising, the prospect of anti-COVID pills on the horizon and the promise of travel restrictions being dropped, it is time to start thinking about venues for The Chart Seminar in 2022.

Please drop [email protected] a line if you would be interested in attending an event next year, as well as your preferred location. 

At present I am looking at a late May date for a London seminar and I am open to other times and locations subject to demand.

February 28 2022

Commentary by Eoin Treacy

Video commentary for March 28th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: tit for tat sanctions between the West and Russia create volatility, initial opening values not held in either direction. Bitcoin surges, gold stable, oil and renewables firm, bond yields contracting. 



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February 28 2022

Commentary by Eoin Treacy

West Uses Russia's Central Bank Against Putin

This article from Bloomberg may be of interest to subscribers. Here is a section on where Russia’s gold is:

But here’s the rub: Most of Russia’s reserves are in institutions outside of the country. As my Bloomberg News colleagues have charted, 78% of that $630 billion is held in China, France, Japan, Germany, the U.S., the U.K. and elsewhere. And the West just told Russia that it plans to block its central bank’s access to those funds. Think about that. The West is attempting to disarm Russia by crippling its financial autonomy. It’s a move Putin may not have anticipated and should give him pause.

And

Bloomberg News estimates that in a worst-case scenario, Russia will retain access to only $230 billion of its $630 billion hoard. Does that give Putin enough firepower to continue waging financial warfare while he vandalizes and terrorizes Ukraine? Yes, it does, particularly as Russia continues to haul in revenue from oil and gas sales. But, at a minimum, it drastically shortens how long Putin can continue marauding without economic and political consequences at home.

Eoin Treacy's view -

The West, to use the collective term, is using the most powerful non-military weapon at its disposal. Depriving Russia of the financial architecture it relies on to conduct daily operations is a major step forward. I was wondering in Friday’s big picture video what it was going to take to get Europe to rally around the idea of cutting Russia out of SWIFT. It turns out it was just a matter of time.



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February 28 2022

Commentary by Eoin Treacy

Joe Biden Has Days to Avoid Being Jimmy Carter

This article from Niall Ferguson may also be of interest. Here is a section:

No sanctions — not even the most stringent currently under discussion — can avert this outcome, any more than sanctions reversed the Iranian Revolution or forced the Soviets out of Afghanistan in 1979-80. In that sense, the current debate about the SWIFT global messaging and payment system is really a distraction. No amount of financial pain, whether it is inflicted on Putin personally, the Russian banks, the Russian central bank or the entire Russian population, can stop the bombardment of Kyiv. Even a ban on Western imports of Russian oil and natural gas — which remains highly unlikely, given the difficulty and cost of swiftly replacing those source of energy — would not deter Putin from pursuing his war by all means necessary to secure victory.

Putin is a student of history. He knows the fate that awaits Russian leaders who lose wars. We all recall what befell the last Romanov tsar, Nicholas II, who not only suffered defeat in World War I, but also lost the Russo-Japanese War in 1905, a defeat that triggered the first of two Russian Revolutions.

But another sobering case that Putin must ponder is the wretched fate of Nicholas I, who went to war with the Ottoman Empire in 1853 only to find Russia isolated and faced with an Anglo-French expedition to Crimea that culminated in the fall of Sevastopol. Though he died of pneumonia in 1855, it was said that the tsar refused treatment as the ignominy of losing the Crimean War was intolerable to him. 

Eoin Treacy's view -

The gamble of starting any war is you risk losing more than you gain. Russia’s best hope is for a neutral Ukraine with an administration that is reasonably friendly to Moscow. If the blitzkrieg approach does not work, a protracted messy Chechnya-style ground offensive is hardly likely to create the lasting solution he seeks.

Both Georgia and Chechnya are far away from the EU’s heartland. Ukraine is next door. There will be a steady supply weaponry to fuel a guerrilla war in Ukraine for as long as it is required. It is entirely possible Putin will not survive long enough to see victory, however pyrrhic.



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February 28 2022

Commentary by Eoin Treacy

Ukraine tweeted it was "now accepting cryptocurrency donations." In two days, $12 million worth of Bitcoin, Ethereum, and USDT poured in

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

On Saturday, the official Twitter account of Ukraine tweeted that the country was “now accepting cryptocurrency donations” as it urged people to “stand with Ukraine,” and provided links to two crypto wallets. According to the tweet, Ukraine is accepting donations in Bitcoin, Ether, and USDT—the last one a so-called stablecoin pegged to the U.S. dollar.

By Sunday, Ukraine’s two official crypto wallets had accrued over $12 million worth of donations, according to analytics firm Elliptic, with one of the single largest donations worth $1.86 million. That generous contribution was donated by a group that had raised money through an auction of non-fungible tokens (NFTs). The auction, which took place weeks before Russia invaded Ukraine, was originally a fundraiser for covering the legal fees of WikiLeaks founder Julian Assange.

Eoin Treacy's view -

The big argument against bitcoin is it has no real-world application. The use cases proposed by many of the most ardent bulls often rely on an unlikely set of conditions to align before crypto become essential. A foreign aggressor invading is one of the significant events bitcoin was created to cater to.



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February 28 2022

Commentary by Eoin Treacy

February 25 2022

Commentary by Eoin Treacy

February 25 2022

Commentary by Eoin Treacy

China Boosts Liquidity by Most Since 2020 Amid Ukraine Conflict

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

“The injection is in response to tighter liquidity condition at month-end and also to send a reminder that the easing cycle is still under way,” said Ken Cheung, chief Asia FX strategist at Mizuho Bank Ltd. “The geopolitical tensions posed mounting uncertainties and banks may have preference to keep extra liquidity.”

China’s seven-day repo rate had risen to its highest in nearly a month on Thursday, signaling cash tightness in the financial system. The demand for cash typically increases toward the end of the month as corporates borrow to pay taxes and banks hoard funds for regulatory checks.

The PBOC made net injections of 190 billion yuan each into the banking system in the previous two sessions to alleviate the cash crunch. It had been draining liquidity in the last two weeks, which is what it tends to do after the Lunar New Year holiday.

Eoin Treacy's view -

The post Lunar New Year period is traditionally when China makes liquidity available. This year it has the added need to support the ailing property sector and the wider economy from the uncertainty of war in Europe. Alibaba’s weak guidance also suggests the Chinese consumer is becoming more risk averse. That puts China’s growth target in jeopardy and suggests more liquidity will be made available than usual.



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February 25 2022

Commentary by Eoin Treacy

Solar Stocks Rally as Tariff Expiration Nears With No Decision

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

Solar stocks rally Monday, with Enphase Energy and SolarEdge among the 10 best performers on the S&P 500 Index amid a broader rebound in growth stocks.

“The solar industry faces short-term volatility as political pressure mounts around the expiration of U.S. solar duties on Feb. 6,” writes Bloomberg Intelligence analyst Clelia Imperiali

It’s likely that President Joe Biden will renew the tariffs, which would support the domestic upstream solar industry but penalize downstream players that import solar cells and modules, she writes in a note

A key impact of the tariffs has been to ease competition for domestic producers like First Solar (up 4% on Monday)

* The Invesco Solar ETF (TAN) is up 4.3% at 10:33 a.m. in New York, with the top gainers including Shoals Technologies +12%, Canadian Solar +9.3%, Daqo New Energy +7.6%, Array Technologies +7.2%, Beam Global +7.2%, Enphase +7.1%

Eoin Treacy's view -

The solar sector is split between residential and commercial operators and then between those that offer utility scale electricity generation and those providing residential rooftop services. The efficiency of these products is good enough for commercial reality. It can get more efficient and/or durable but the products available today are fit for purpose.



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February 25 2022

Commentary by Eoin Treacy

Where do Ukrainian economics matter, or is it 'matter' that matters?

Thanks to Iain Little for this edition of his Global Thematic Investors’ Diary. Here is a section: 

The proximate global economic effect will be on commodity supply (the complacent West taking much of the blame). Much has been made of Ukraine and Russia as the largest (30%) breadbasket in the world and the Russian Nord Stream 2 gas pipeline dilemma facing the EU/ Germany. But few would have predicted this week’s announcement by a Democrat President to expand domestic mining in strategic metals (lithium, graphite, rare earths, cobalt, rhodium, nickel, zinc etc). This points to a supply chain challenge where ESG objections now take 2nd place. The USA is dependent on Russia for much of its strategic supply chain: C4F6 gas and neon for chips, palladium for sensors, plating material and computer memory (MRAM), titanium for engines, fans, fighter jet disks, missiles, satellites. Russia needs high end chips, where the USA has edge, but where Russia is said to be able to obstruct the USA’s chip supply chain. These squeezes, offsets and stand-offs occur at a time when inflation is already above 5% for major economies.

Eoin Treacy's view -

It currently takes 7-10 years to get a mine permitted in the USA. In Canada and Australia, the average is 2. For the last forty years, outsourcing supply of raw materials, other than oil and gas, has been the de facto position of successive US administrations.



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February 24 2022

Commentary by Eoin Treacy

Video commentary for February 24th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Russia invades Ukraine, US/EU sanctions underwhelm so iniital prices spikes are reversed, oil release from the strategic reserve negative for energy, gold steadies near $1900 but susceptible to consolidation, stocks rebound, bonds firm, Ruble steadies from its low, dollar eases from its high, 



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February 24 2022

Commentary by Eoin Treacy

The Invasion of Ukraine Is a Tragic Sin

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

I have met Putin, and I have watched him as a journalist since before he became president. My analysis of his actions was always based on the assumption of his rationality. There was always something to gain, a manageable risk of losing. Perhaps I was wrong from the start. Perhaps Putin has changed in recent years as his close circle narrowed and negative selection expelled people with a broader vision from the ranks of his advisors. Quite likely, Ukraine has long constituted an exception from Putin’s rationality, as most of its people time and time again chose the Western path, away from Putin’s vision of the Russian World.

I left Russia after the Crimea annexation because I couldn’t accept it and felt it was a great historical wrong — both for Ukraine and for Russia. But I ended up returning to that assumption of rationality. I analyzed Putin’s moves from a cost and benefit perspective. I have a lot of rethinking to do.

The invasion is an irrational move. It makes any further negotiations with Putin and his clique pointless: There is, quite clearly, nothing he won't do, no line he won’t cross, no matter what he says or what deal he makes. From this point on, autarky is the only feasible economic choice for Russia, and a retreat into isolation is the only remaining cultural and political choice. At the same time, Russia's dependence on China, which has grown in recent years, is no longer a matter of choice. Any security benefits from turning Ukraine — and neighboring Belarus, from whose territory Putin also attacked — into a buffer state are illusory since Russia also borders actual NATO member states, which now will arm themselves as heavily as possible. 

Eoin Treacy's view -

I was not expecting a full-scale invasion, but my positions benefitted anyway. I agree we are now in a new environment and it will be years before Russia’s relationship with most of its biggest trading partners is repaired.



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February 24 2022

Commentary by Eoin Treacy

February 24 2022

Commentary by Eoin Treacy

Petrobras Revenue Hits Record as It Resists Cheap Fuel Calls

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

Political pressure for Petrobras to make fuel cheaper for Brazilians is mounting ahead of presidential elections in October, but the giant oil producer has instead focused on taking advantage of the windfall from crude’s rally to shore up its finances and reward investors.  

Once the world’s most indebted oil producer, Petrobras last year managed to reduce its debt below $60 billion ahead of schedule, thanks also to the sale of refineries. 

Meanwhile on the campaign trail, former president Luiz Inacio Lula da Silva is leading the polls and calling for fuel price relief and more investments in refining. This has put Bolsonaro on the defensive, though a recent rally in the local currency has helped mitigate the impact of higher international oil prices.

Under Lula’s Workers’ Party, Petrobras lost an estimated $40 billion during the 2012-2014 oil price boom because of policies to make gasoline and diesel cheaper. Since the party lost power in 2016, two pro-business administrations have transformed Petrobras into a leaner, more profitable outfit. 

Eoin Treacy's view -

Cordial relations with much of the rest of the world favour Brazilian exports of raw commodities. That’s particularly true of its oil and iron-ore exports as geopolitical tensions with Russia are amplified.



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February 24 2022

Commentary by Eoin Treacy

EMs' Vulnerability to Rising Food Prices and Political Instability

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

Using these variables, our findings show that Kazakhstan and the Philippines are the most vulnerable credits in the IG universe.1 The massive protests that broke out in Kazakhstan earlier this year in response to soaring commodity prices serve as confirmation of our analysis, and it bears watching what happens in the Philippines as the May elections approach.  On the least vulnerable side, higher-income countries, including Hungary and Uruguay, unsurprisingly fare better. Meanwhile, HY credits are much more dispersed. Kenya and Nigeria appear to be the most vulnerable, and the months leading up to the Kenyan general election in August could be a volatile period, as they have in past elections. The least vulnerable HYs, from Serbia to Sri Lanka, are very diversified from a geographical point of view. It is somewhat reassuring that Brazil, a continental giant holding elections in October, is not in the most vulnerable group. We will continue to monitor these vulnerabilities closely as part of our credit selection process.

Eoin Treacy's view -

Nothing contributes to more social stress than surging food prices. The risks to food supplies remain skewed to the upside over the medium term. However, the initial surges for food commodities were not sustained today. That suggests we are likely to see at least some unwinding of short-term overbought conditions.



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February 23 2022

Commentary by Eoin Treacy

Video commentary for February 23rd 2022

February 23 2022

Commentary by Eoin Treacy

Email of the day on Ukraine

I wondered this morning what you meant when you said on commentary, as regards Ukraine, that, "all other factors aside, these are reasonable demands from a geopolitical perspective".

This comes across as appearing to justify Putin's move. I am sure what you meant to say was that the move might be considered reasonable from Putin's perspective.

That might be true but that doesn't make it right morally: every sovereign nation should be able to decide what their future looks like, not an outsider.

Eoin Treacy's view -

Thank you for this email which raises some important points. First off, I am in no way saying that moving troops into another country is ever morally correct. What I said was the demands are reasonable. The methods used to achieve them are not. The reality is geopolitics seldom has anything to do with morality.



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February 23 2022

Commentary by Eoin Treacy

Saudi Al Dawaa Sees Profit Surge After IPO Draws Strong Demand

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

Saudi Arabian companies raised almost $9.3 billion from share offerings last year, making Riyadh the most active IPO market in the Middle East and Africa behind Israel, according to data compiled by Bloomberg.

The most recent IPO wave has already seen a digital security firm owned by the kingdom’s wealth fund draw about $57 billion in orders from institutional investors. Al Dawaa’s IPO attracted demand of more than $25 billion ahead of its retail offering.

The firm operates a network of pharmacies with over 800 outlets across 130 cities in Saudi Arabia. It posted a revenue of about 5 billion riyals ($1.3 billion) and profit of 246 million riyals in 2020 compared with 4 billion riyals and 233 million riyals year ago, respectively.

More from the CEO:

Estimates Al Dawaa’s profit to rise by “not less than 15-20% a year” after 2022
“Will continue paying dividends of around 50%-60% of profit on a continuous basis”

 

Eoin Treacy's view -

One of the defining characteristics of Middle Eastern stock markets is companies are only allowed to list when they have three-years of continuous profits. When global interest rates are low and investors chase momentum in growth stocks, that’s not especially appealing. On the other hand, when rates rise and a premium is put on the predictability of cashflows, those characteristics make some emerging markets more appealing.



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February 23 2022

Commentary by Eoin Treacy

Intel Chip Challenges Reign of China's Bitcoin-Mining Firms

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

Bitcoin mining, which is earning rewards in Bitcoin by using computers to secure the cryptocurrency’s network, has become a lucrative business amid the surge in the price of Bitcoin in recent years, enriching the rig makers along the way. The mining industry raked in $15 billion in revenue in 2021, more than double the previous year, according to research from The Block. 

Intel’s entry could weaken the Chinese manufacturers’ pricing power and offer better maintenance services given the company’s close proximity to the miners in North America, industry participants said. The region dethroned China as the world’s Bitcoin mining hub as Beijing banned crypto mining last May.

“Having a U.S.-based manufacturer with the size, scale and credibility like Intel is fantastic for the entire crypto industry,” said Dave Perrill, chief executive of Eden Prairie, Minnesota-based Compute North, which provides Bitcoin miners with data centers to operate their machines. “Competition is a good thing.”      

Eoin Treacy's view -

NVidia has prospered because GPUs are deployed in mining cryptocurrencies. That has been one of the primary factors in supporting the outsized valuation for the company despite the fact its primary business is in gaming and datacentres. Intel directly exploring the market for crypto mining, as well as launching its own suite of GPUs last month is an attempt to steal market share.



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February 23 2022

Commentary by Eoin Treacy

February 22 2022

Commentary by Eoin Treacy

Video commentary for February 22nd 2022

February 22 2022

Commentary by Eoin Treacy

Stocks Plunge, Oil Prices Surge After Putin Orders Troops Into Eastern Ukraine

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

Stocks tanked amid rising tensions between Russia and Ukraine: The Dow Jones Industrial Average was down 1.3%, over 400 points, while the S&P 500 lost 1% and the tech-heavy Nasdaq Composite 1.4%.

Global stock markets took a hit after Russian President Vladimir Putin decided to recognize the separatist states of Donetsk and Luhansk in eastern Ukraine, ordering Russian troops to move into the region in order to “maintain peace.”

The move was widely condemned by the West, with the European Union and United Kingdom both unveiling economic sanctions against Russia on Tuesday, while the United States will reportedly release a new round of sanctions later in the day.

Many western officials continued to warn that Russian troops moving into eastern Ukraine to keep the “peace” could be a not so subtle pretext for a full invasion, with U.K. Health Minister Sajid Javid saying on Tuesday that “the invasion of Ukraine has begun.” 

Oil prices surged on the news, with Brent crude rising to more than $94 per barrel amid concerns that Russia’s energy exports could be disrupted.

Eoin Treacy's view -

Granting official recognition to, and moving troops into a region that has been ruled independently of Ukraine since 2014 is an escalation of tensions. However, it still falls into the brinksmanship category regardless of claims to the contrary. Russia appears to be serious about their demands that Ukraine not join NATO. They are also adamant that missile batteries not be placed within its neighborhood. 



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February 22 2022

Commentary by Eoin Treacy

Currency Speculators Shun Usual Havens Despite Ukraine Tensions

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

Leveraged funds’ net short positioning in the yen has increased in seven out of the last nine weeks and sits at its most bearish since November, according to Commodity Futures Trading Commission data released Friday. Net positioning in the Swiss franc, another preferred haven asset for currency traders, has been short since September, though it did grow less bearish in last week’s CFTC data. 

The pullback from havens was evident in the spot market on Tuesday, when the Japanese and Swiss currencies retreated while other major counterparts gained against the U.S. dollar. The moves signal that the market is comfortable with where the Russia situation is going, Brad Bechtel, a strategist at Jefferies LLC in New York, said in a Tuesday note. 

“No real downside momentum in the JPY crosses on any of these recent Russia headlines the past few weeks,” he wrote. 

“Even now, as we are on the brink of the conflict, we still do not see JPY perform. Same with the USD and CHF,” he wrote, referring to the Swiss franc.

Eoin Treacy's view -

The news flow from Ukraine is exciting but the trajectory of interest rates is much more important for markets. The defining characteristic of this earnings season was companies reporting better than expected figures for Q4 but disappointing on guidance. Home Depot was the latest example today. Markets are looking at slower growth and higher rates first and the wider geopolitical tension is a secondary concern.



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February 22 2022

Commentary by Eoin Treacy

Deadly Nigerian Oil-Blast Ship Has Peers All Over the World

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

The American Bureau of Shipping, which classifies vessels for their operating safety, last year raised the need to address safety issues such as structural integrity and maintenance challenges around the global fleet of FPSOs, with over 50 of them reaching the end of their design life in the next five years. More than half are over 30 years old and a quarter over 40 years old. 

Eoin Treacy's view -

Aging infrastructure is rarely the top priority for producers. The oil sector is reluctant to commit capital at present because there is a lot of uncertainty about how those investments will be viewed by both investors and the media.



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February 21 2022

Commentary by Eoin Treacy

Video commentary for February 21st 2022

February 21 2022

Commentary by Eoin Treacy

February 21 2022

Commentary by Eoin Treacy

Tencent Quashes Talk of New Crackdown as Tech Wipeout Deepens

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

Chinese technology shares had their worst two-day drop since July due to renewed fears Beijing may roll out more restrictions for private enterprise. Traders pointed to everything from regulatory warnings over the weekend about scams in the metaverse -- a virtual-reality based social media concept -- to unsubstantiated talk about more curbs on the gaming industry. Tencent is a leader in metaverse development.

On Monday, a screenshot detailing the alleged new gaming curbs made waves on China’s internet. But Wang Guanran, an analyst with Citic Securities, clarified that the content was originally posted by him last year when regulators hosted study sessions on gaming regulations.

“I didn’t post anything today,” he said on his WeChat. The screenshot flagged more oversight of violent genres and concepts like anime and religion and limits on player spending on loot boxes.

Eoin Treacy's view -

Protestations that Tencent does not expect additional curbs on its primary business lines would be more convincing if the government were not asking banks to disclose their relationships with Alibaba’s ANT Financial. 



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February 21 2022

Commentary by Eoin Treacy

Google Search Is Dying

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

Appendix 3: Seriously, what are you talking about? My search results are perfect.

If you think your search results are perfect (without appending reddit), then you're probably right. If every single person agreed that Google search results were trash, then Google would already be bankrupt.

Perhaps it is more likely that 80% of people think Google is good enough, and 20% think Google sucks.

I do suspect that the 20% will be growing in number though.

Appendix 4: *Yawn*, this is the 87th time someone has claimed that Google search is dying in the last 20 years. This is a big meme in the SEO world.

"The reports of my death are greatly exaggerated" - Google, probably

You're right, there's been a new article bashing Google every few months for the last 20 years straight. It's probably nothing.

Still, it is a bit interesting that this short and simple post is now one of the most upvoted things of all time on Hacker News. There must be a lot of people who resonate with it this time around.

Hard to tell if something significant has changed.

Appendix 5: Random redditor explains it succinctly

u/a_latvian_potato:

I think I understand what this article is trying to say. It's not saying that Google's search technology is worse or that people don't use Google to search. It's saying that people trust less of the results Google shows compared to seeing discussions of it on Reddit.

For instance, if I'm looking to see reviews of the Honda Civic 2022 or whatever, I do find myself typing "Honda Civic review reddit" instead of "Honda Civic review". This is because I want to see what real people and enthusiasts (on r/cars or whatever) are talking about the car, rather than the top results at Google which are basically just paid reviews advertising the car anyway.

Even though I kinda know people in Reddit are just as capable of spouting BS that are completely wrong, I find the discussions more authentic anyway than the corporate speak the "big websites" have on their articles that Google shows me.

Eoin Treacy's view -

I have also noticed the quality of search results on Google has deteriorated. A great deal of scrolling is required to get past ads. That’s particularly true for commercial search terms.



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February 18 2022

Commentary by Eoin Treacy

February 18 2022

Commentary by Eoin Treacy

China's Challenges

This article from Project Syndicate by George Soros may be of interest to subscribers. Here is a section:

The Winter Games are of course Xi’s prestige project, so the administration is going to incredible lengths to make the event a success. While the competitors will be isolated from the local population, continuing the effort after the Games are over makes little sense. City-wide lockdowns are unlikely to work against a variant as infectious as Omicron. This is evident in Hong Kong, where the outbreak looks increasingly serious. Yet the cost of zero-COVID is rising every day as the city is cut off from the rest of the world, and even from China.

Hong Kong highlights the wider challenge Omicron represents for Xi. He tried to impose total control but failed. As Omicron spreads, opposition within the CPC will grow stronger. Xi’s carefully choreographed elevation to the level of Mao and Deng may never occur.

It is to be hoped that Xi may be replaced by someone less repressive at home and more peaceful abroad. This would remove the greatest threat that open societies face today. Their task is to do everything within their power to encourage China to move in the desired direction.

Eoin Treacy's view -

When state media is under total government control, nothing we hear about happens by mistake. It is worth remembering that when we assess what signals are being sent by China’s media.



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February 18 2022

Commentary by Eoin Treacy

Lithium Stock Livent Is Soaring. Strong Earnings and Guidance Looked 'Easy

This article from Barron’s may be of interest to subscribers. Here is a section:

Looking ahead for 2022, Livent expects to generate about $180 million in Ebitda, short for earnings before interest, taxes, depreciation, and amortization, on about $570 million in sales. Analysts were projecting closer to $160 million in Ebitda on $515 million in sales.

“Sometimes it’s really that easy,” wrote Evercore ISI analyst Stephen Richardson in a Thursday report. He was referring to the relatively clean quarter Livent just reported.

Albemarle’s quarter wasn’t as easy to digest. Richardson wrote earlier on Thursday that Albemarle’s volume and earnings guidance was better than he expected, but that the company’s guidance for costs and capital spending would be a drag on 2022 cash flow.

He is staying positive on both stocks. He rates Albemarle stock at Buy with a $295 price target. He didn’t adjust he price target after the company’s quarterly hiccup. Richardson actually put Albemarle stock on his “tactical outperform list” Friday.

“The confusion from [Albemarle] investors came largely on the cost line which lead some to believe this was a structural step-up in costs [and] lower margins, and was a new permanent aspect of the business,” wrote the analyst. “We think none of this is indeed true.”

Eoin Treacy's view -

The lithium price has been accelerating higher. It’s a classic supply inelasticity meets rising demand market. Growing demand for electric vehicles and energy storage solutions is bumping up against a slow supply response.



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February 18 2022

Commentary by Eoin Treacy

Beware PayPal's New Fees for $100 Crypto Trades

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

Got some pocket change you want to throw at crypto? It won’t go as far on Venmo.

Venmo and its parent PayPal Holdings Inc. alerted their users earlier this week that they’re changing their fees for crypto transactions under $200. While the companies said the pricing adjustments were just an effort to provide investors with more transparency, a closer look shows any customer making transactions of $100 or less will be a lot worse off.

The online payment platforms started offering customers the ability to buy, sell and hold four cryptocurrencies (Bitcoin, Ethereum, Litecoin and Bitcoin Cash) last year. Since then, Venmo’s cryptocurrency wallet has nabbed 18% of global market share for active wallets with payment features, making it the third most popular site as of late last year. PayPal was No. 1.

Eoin Treacy's view -

How many crypto trading venues will ultimately survive is an open question but it is certainly likely to be fewer than exist today. One thing is certain, raising fees isn’t likely to encourage users to use the platform, much less find new customers. That’s doubly true in a troubled pricing environment for the sector.



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February 17 2022

Commentary by Eoin Treacy

Video commentary for February 17th 2022

February 17 2022

Commentary by Eoin Treacy

Gold Fields Bet on Giant Mine Pays Off After Years of Losses

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

Gold Fields Ltd. said a turnaround at its giant mine in South Africa is starting to pay off after more than a decade of losses that’s weighed on the Johannesburg-based company.

South Deep, which sits on the third-biggest known body of gold-bearing ore, almost tripled the net cash it generated to $97 million in 2021 as production rose and the rand strengthened. Output at Gold Fields’ last South African mine is expected to climb a further 30% over the next three to four years. 

That will complete a turnaround after years of financial bleeding that was compounded by power shortages, labor unrest and regulatory uncertainty in South Africa. It vindicates the management’s decision to restructure the mine after investors pressured Gold Fields to either end the losses or sell the asset.

“I am absolutely convinced this was the right thing to do,” Chief Executive Officer Chris Griffith said in an interview. “Already in one year we have made up probably what people would have paid for the asset, so I think it absolutely makes sense to stay in the asset.”

Eoin Treacy's view -

Gold miners have had a very difficult time over the last decade. Capital has been hard to come by because they were tarred with the “capital destroyer” brush and, with falling commodity prices, investors fled the sector. The fact that South Deep can generate more revenue in a year than the company could have sold the mine for at the bottom of the cycle is a testament to just how low valuations were.



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February 17 2022

Commentary by Eoin Treacy

Margin-Growth Fatigue a New Pressure Point for S&P: Taking Stock

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

Analysts have cut their profit-margin expectations for 75% of industries and about half of companies in the S&P 500 for the first and second quarters, data compiled by Bloomberg Intelligence show. Companies’ wherewithal to defend profitability amid mounting pricing pressures is becoming a growing issue at a time when the hottest inflation in four decades and higher borrowing costs threaten to crimp growth.

Anxiety about a faster-than-expected wind-down to the Federal Reserve’s asset-buying program and a quicker pace of rate hikes has pushed sell-side analysts to cut their first-quarter profit growth expectations to 5.4% last week from 6.7% in the first week of January. That figure, too, looks set to drop further to 3.5%, according to a Bloomberg Intelligence model that tracks the correlation between analysts’ pre-season forecasts and actual profit growth in the past two years.

“Negative revision momentum may remain a weight on stocks in the weeks ahead,” said Gina Martin Adams, chief equity strategist at Bloomberg Intelligence. “Improving top-line growth views are still offset by inflation pressure.”

More than 70% of S&P 500 companies are done with their earnings announcements. Among those that have already reported, 76% have outpaced analysts’ profit estimates, the lowest rate of beats since the first quarter of 2020.

Eoin Treacy's view -

Over the last few quarters companies have been comfortable passing on costs to consumers. Many have also taken the opportunity to increase margins at the same time. Politicians taking to social media and blaming inflation on record high corporate profits strikes a chord with the personal experience of many consumers. It suggests companies have seen the easy part of raising prices, continuing from here is going to be more difficult.



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February 17 2022

Commentary by Eoin Treacy

The rise of private markets

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

External financing is increasingly intermediated outside traditional channels. Banks and other institutions active in public capital markets, such as equity and corporate bond mutual funds, remain key financing sources for large and mature corporates. That said, “alternative asset managers” (AAMs) have become pivotal for smaller firms globally, including in emerging market economies (EMEs). Many AAMs were established as private equity firms that later expanded into credit, thus turning themselves into one-stop capital providers for firms less able or willing to access traditional sources.

Private markets have three features that distinguish them from public markets. First, there is limited liquidity transformation because investors commit capital for extended periods. Second, these investors tend to be large and sophisticated entities such as pension funds, whose focus on long-term returns enables target companies to confront significant earnings volatility. Third, the regulation of private market investment vehicles is relatively light, partly reflecting the lesser degree of liquidity mismatches and also the limited presence of retail investors.

Eoin Treacy's view -

The lack of regulation in the private markets is seen by many investors as a positive aspect. The challenge for the future is large pension funds are highly active in the sector. They might have long-term liabilities but they also have a long-term need for yield. The private sector has been particularly attractive because they have gained both portfolio diversification and higher returns. 



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February 16 2022

Commentary by Eoin Treacy

February 16 2022

Commentary by Eoin Treacy

Gold Steadies as West Cautious on Russian Claims of Pullback

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

Gold has firmed in the opening weeks of this year as investors sought a haven from elevated inflation and the geopolitical crisis in Europe. The precious metal’s climb has been aided by renewed inflows into bullion-backed exchange-traded funds, which are on track for a second monthly gain.

That support comes even as traders up their bets on a more aggressive approach from the Federal Reserve, pushing up inflation-adjusted Treasury yields and putting pressure on gold. The latest Fed minutes, due later Wednesday, may influence views on its policy path.

“We believe investors have attached a greater emphasis to hedging geopolitics,” strategists at UBS Group AG including Wayne Gordon wrote in a note. “A break in the negative correlation between gold and U.S. real rates never really endures, and this time is no different.” 

The UBS strategists still expect gold to hit $1,650 an ounce by the end of this year.

Eoin Treacy's view -

The primary argument being made by the UBS team is that negative real rates are tightening so the logical support for gold is less compelling. They argue that in a positive real rate environment there is no way gold can hold the current higher levels.

There are a couple of issues with relying only on a real rates argument. The first is that real rates were positive and averaged about 200 basis points between 2003 and 2009. Then after the credit crisis real rates trended lower to deeply negative rates until early 2013. Gold rallied meaningfully during positive real rates and peaked even though real rates were still contracting after 2011.



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February 16 2022

Commentary by Eoin Treacy

Email of the day on electricity generation and carbon emissions

Electricity is not an energy source in itself, but a means of getting energy from source to where it is required. Until all the energy sources of a country (or, at least, of an electricity grid) are clean, with clean energy to spare, the electricity required for EV's will have to come from fossil fuel sources. True, this will all be mixed together on the one grid - making the whole grid slightly less clean. But the outcome will be the same as if all the energy supplied to EV batteries was unclean. Thus, for the foreseeable future EV owners will not be reducing their carbon footprint, even though exhaust emissions will be zero. This is no doubt why the government is pushing for extra nuclear plants at Sizewell and Hinckley Point.

Eoin Treacy's view -

Thank you for this email. I totally agree. Transportation will not be carbon free until the electricity used to charge batteries is generated without using fossil fuels or some form of carbon capture is deployed. If we are to be fully correct, the carbon used in the production of the components of vehicles should also be incorporated in the calculation of intensity. I also agree that substituting reliance on coal, natural gas and oil is not practical without additional nuclear capacity.



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February 16 2022

Commentary by Eoin Treacy

Shopify Plummets Most Since 2020 on Slowing Growth Outlook

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

Shopify Inc. plunged the most in almost two years after giving a weaker outlook for growth this year, as online spending resets after the Covid-19 induced boom and consumers face higher inflation. 

“The Covid-triggered acceleration of ecommerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022,” the Canadian ecommerce giant said in a statement on Wednesday. “There is caution around inflation and consumer spend near term, for the full year.”

As a result, Shopify said full year revenue growth will be lower than the 57% increase in 2021. The U.S.-traded shares tumbled as much as 16% as the market opened in New York. It was the biggest intraday decline since March 2020. 

Shopify, which provides software and other services that underpin the websites of many small businesses, grew dramatically during the early stages of the pandemic, with sales jumping 86% in 2020. Investors, however, fear the company can’t sustain its growth as shoppers return to more normal buying patterns. Those concerns intensified last month when Shopify said it had terminated contracts with several warehouse and fulfillment partners, sending shares to a 16-month low. 

Eoin Treacy's view -

The justification for Shopify’s heady valuation was that it would become a true competitor for Amazon. The folly of that has been exposed by the pullback from fulfilment centres. From a broader perspective the big question is about a central hub versus distributed model.



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February 15 2022

Commentary by Eoin Treacy

Video commentary for February 15th 2022

February 15 2022

Commentary by Eoin Treacy

PBOC Pumps in More Liquidity, Spurring Gains in Chinese Stocks

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

The People’s Bank of China is catching its breath after it cut the one-year medium-term lending facility rate last month -- the pause won’t last long. The central bank has signaled it’s ready to deliver more support to prop up growth. We expect the next cut as soon as the second quarter, and see the PBOC delivering another one in 3Q -- part of a broader array of easing measures to counter the slowdown.--David Qu and Chang Shu, China economists

Despite the decision to hold the one-year policy loan rate steady Tuesday, the PBOC’s easing stance has set it apart from other major central banks including the Federal Reserve, which are tightening monetary policy to tame soaring inflation. The possibility that the Fed will accelerate the pace of rate hikes could restrict China’s room for further easing later this year as it could accelerate outflows. 

Global demand for Chinese bonds has already slipped amid their shrinking yield premium. The yield gap on China’s 10-year sovereign bonds over similar-maturity Treasuries narrowed to 73 basis points last week, the least since 2019.

Eoin Treacy's view -

China wishes to put an end to the pattern of booming asset prices every time it eases policy. The kneejerk reaction of Chinese investors has always been to rush into property when liquidity eases. It has been the best performing asset, but prices are now also very high and affordability is an issue.



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February 15 2022

Commentary by Eoin Treacy

Tech Questions for 2022

This article by Benedict Evans may be of interest to subscribers. I found the summary of the outlook for electric and autonomous vehicles to be about the best I’ve seen recently:

The car industry is shifting to electric, and that changes a lot of what a car is - there’s an order of magnitude fewer moving parts, a very different supplier base, and much of the sophistication moves to software. We go from complex cars with simple software to simple cars with complex software. 

Seen from tech, this looks a lot like the smartphone take-over of mobile phones, and there’s a lot of pattern recognition, right down to the dumb old industrial companies that think software is easy and they can just hire some developers. But it’s not yet entirely clear whether this really is disruption. An electric car is a better car but an iPhone is not a better Blackberry - it’s an entirely different thing that happens to be roughly the same size. So how much does electric really rewrite car manufacturing? Bulls think Tesla is a software company (and lots of other things), but bears think that no, it’s still a car company. 

Autonomy is potentially much more profound and disruptive, and really does change what a car is - a car with no steering wheel is not really a car anymore. That raises as many questions as cars themselves did (it was much easier to predict mass car-ownership than to predict Walmart), and the tech itself remains full of questions. Can Tesla boot-strap its way through to something that works well enough? Will Waymo get there first going top-down? Are there winner-takes-all effects?

But more importantly, we don’t know when, how or where any of this will work. There was a period of euphoria a few years ago when AVs looked imminent, but it may now be that autonomy is like the old joke that AI is anything that doesn’t work yet. ‘Full’ autonomy may be as many decades away as ‘general AI’ (indeed it might require general AI!) but we’ll get all sorts of much more limited automation in the meantime. 

Eoin Treacy's view -

The reason Tesla has achieved a $1 trillion valuation is because it is a favoured trading vehicle (pardon the pun) for options traders. That has created synthetic demand for the shares and supported the valuation. Nevertheless, promise of “full self-driving” keeps being pushed back. The company’s autonomy day was nearly 3 years ago



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February 15 2022

Commentary by Eoin Treacy

Coinbase Swears This All Isn't Like the Dotcom Bubble After Super Bowl Ad SNAFU

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

Coinbase, in one ad named WAGMI (“we're all going to make it”), crafted an advertisement that bounced a QR code around the screen, changing colors each time it hit the edge like an old-school DVD menu. Scanning the QR code―which immediately forfeits your right to enter heaven―takes the user to this page, where Coinbase offers $15 in Bitcoin for signing up as well as a chance to enter a contest to win one of three prizes for $1 million worth of Bitcoin.

The linked webpage went down almost immediately thanks to the increased traffic from the ad, and ridicule at the idea of paying millions of dollars to send millions of viewers to a down site poured in from around the web.  “Coinbase spending $16,000,000 on a Superbowl ad to direct people to their website and $0 to make sure that website doesn't crash 10 seconds after the ad starts is so very internet,” tweeted Edward Snowden amid the outage.

To Coinbase, though, the ad was a success. In a blog post congratulating itself on the advertisement and interviewing Coinbase Chief Marketing Officer Kate Rouch about why the ad was so good, the company revealed it saw "20M+ hits on our landing page in one minute" which "led to us temporarily throttling our systems." Chief executive Brian Armstrong took to Twitter to gloat about the ad: ranked #1 by AdWeek and peaking at #2 in the Apple App Store, just ahead of apps for the Pepsi Super Bowl Halftime Show and the NFL.

Eoin Treacy's view -

The offer was still live today when I visited it and offers $15 in bitcoin for signing up. For anyone looking for why bitcoin popped on the upside yesterday, despite stocks falling, we don’t have to look much further than the Superbowl ad.



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February 14 2022

Commentary by Eoin Treacy

Video commentary for February 14th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: oil and gold firm, bond yields pause near 2% and Wall Street choppy in the region of the trend mean. Mosty commodity currencies have base formations. Japanese yields testing resolve of the BoJ's yield curve control, Chinese stocks remain lacklustre.  



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February 14 2022

Commentary by Eoin Treacy

CPI Is Old News; Focus on Growth

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. 

Q4 earning from the major cloud companies impressed but guidance was much less enthusiastic. Shares of Amazon, Google and Microsoft initially bounced on that their earnings and subsequently gave up much of their advances. They are now steadying once more.



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February 14 2022

Commentary by Eoin Treacy

Precious Appraisal

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

For ICE vehicles, Euro 7 could mean more PGM demand to meet tighter emissions limits, but the risk is that it could also become too expensive to make ICE cars that meet the new emissions standards. Most automakers’ new model announcements make it clear that they intend to continue to develop ICE platforms compliant with Euro 7 rather than abandoning the ICE. Extensive hybridisation is likely to be used. Nissan has said Euro 7 will raise the costs of developing ICEs to unsustainable levels and has stopped gasoline engine development for the European market.

Potential PGM demand upside could be considerable. Assuming a similar jump in autocatalyst loadings as for earlier tightening of standards, European PGM demand could increase by several hundred thousand ounces. The BEV market share is growing rapidly, reaching 9.1% in 2021 (source: ACEA), and that additional demand takes account of BEVs potentially exceeding 20% of light-vehicle sales in 2025.

Palladium and rhodium would benefit the most, as the majority of cars will still be gasoline or gasoline hybrids. Diesel cars’ share of the market may be only 12% in 2025. Platinum demand would also receive a boost from its use in gasoline autocatalysts and commercial vehicles, which will still be mostly diesel. This year, automotive palladium demand from Western Europe is forecast to be ~1.5 moz as vehicle production is predicted to recover from the semiconductor chip shortage. The global recovery could move the palladium and rhodium markets into deficit. With ICE vehicle production forecast to grow further by 2025, the introduction of Euro 7 could keep the palladium and rhodium markets tighter for longer, supporting prices

Eoin Treacy's view -

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

Carbon emissions hit an all-time high last week near €97 and are now consolidating. The stated EU objective has been to get the price to €100. That price was deemed necessary to enable new carbon free solutions, like hydrogen, to be economic. We are now at that point so it is a good time to think about the future of both legacy and future energy solutions.



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February 14 2022

Commentary by Eoin Treacy

Goldman Sees 'Reverse Currency Wars' as Inflation Gathers Pace

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

Mounting inflationary pressures are likely to make central banks more sensitive about weakness in their currencies, which could add fuel to the global tightening cycle, Goldman Sachs strategists George Cole and Michael Cahill wrote in a client note Monday.

This scenario is a regime shift from the competitive depreciation seen over the past decade as central banks acted to protect the appeal of their export markets
To offset a single percentage point weakening in the currency, G-10 policy rates would need to rise 10bps on average, Goldman analysis using a financial-conditions framework showed

Implication is higher G-10 policy rates as each central bank pressures the others, as well as “higher rate volatility relative to FX volatility”

NOTE: Rates volatility reflected in the ICE BofA MOVE Index is the highest since March 2020, while currency vol on JPMorgan’s benchmark index is the highest since late December

Japan’s policy “bears watching” as the central bank’s tolerance of yen weakness has been a key anchor for global yields, Goldman said

Eoin Treacy's view -

Amid rising energy and commodity prices, a weak currency becomes a liability for importers. One of the few tools they have is to allow their currencies to appreciate versus the Dollar.

The Dollar Index is currently appreciating because the general consensus is the Fed will raise rates quicker than either the ECB or BoJ. Since both of those central banks experienced a great deal of difficulty in getting off the zero bound ahead of the pandemic, they are likely to have similar difficulty now. That’s true even if Germany is experienced surging inflation.



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February 11 2022

Commentary by Eoin Treacy

February 11 2022

Commentary by Eoin Treacy

Gold Set for Best Week Since May on Inflation Hedge Appeal

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

Gold surged, heading for its best week in more than three months as concerns over red-hot inflation boosted demand for the metal as a store of value.

A surprise jump in U.S. inflation sparked rate-hike speculation that the Federal Reserve may act more aggressively to contain rising prices. Gold extended gains Friday as U.S. stocks fell to session lows and Treasuries rose after the U.K. told its citizens in Ukraine to leave the country, adding to worries over long-simmering tensions with Russia. The Kremlin has repeatedly denied that it plans to attack Ukraine.

Bullion’s appeal as an inflation hedge is outweighing worries that rising interest rates will erode demand for the metal, which doesn’t offer a yield.

Gold’s ability to defy gravity amid rising U.S. yields is driven by its credentials as “an inflation hedge as well as a defensive asset during a period of elevated stock and bond market volatility as the market adjusts to a rising interest rate environment,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. 

Hansen sees inflation to remain elevated with rising input costs, wages and rentals being a few components that may not be lowered by rising interest rates.  This helps gold as a hedge against the view that central banks will be successful in bringing down inflation, according to him.

Spot gold gained 1.7% to $1,858.41 an ounce by 1:57 p.m. in New York, the highest intraday level since Nov. 19.  Prices are up 2.8% this week, heading for the best week since May 7. The Bloomberg Dollar Spot Index fell 0.1%. Silver and palladium also rose, while platinum was little changed.

Eoin Treacy's view -

Gold is unloved and if recent subscriber emails are any guide, even the faithful have given up hope. That’s usually an indication that leverage has been squeezed out of the market. When that kind of action occurs and prices don’t give up their gains, it suggests a willingness by other investors to buy dips and keep on accumulating regardless of volatility.



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February 11 2022

Commentary by Eoin Treacy

Ted Spread Anomalies

Eoin Treacy's view -

Heading into the credit crisis, the TED spread and the OIS spread took on almost legendary status as predictors of future troubles in the financial sector.

The Ted spread is the difference between 3-month LIBOR and 3-month Treasury yields. Since LIBOR is a measure of what rate banks are willing to lend to one another, when the spread widens it is viewed as a measure of perceived risk in the sector.

The LIBOR-OIS spread is the difference between 3-month LIBOR and 3-month Overnight Index Swap. It’s another measure of health in the financial system.

Both spreads jumped higher in 2007 and spiked in 2008. Two things are worthy of consideration at present.



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February 11 2022

Commentary by Eoin Treacy

OPEC+ Supply Shortfall May Push Oil Price Higher, IEA Warns

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

“If the persistent gap between OPEC+ output and its target levels continues, supply tensions will rise, increasing the likelihood of more volatility and upward pressure on price,” the Paris-based agency said in its monthly report.

Still, the economic shock could be averted if those members of the Organization of Petroleum Exporting Countries that possess extra reserves deploy them.

“These risks, which have broad economic implications, could be reduced if producers in the Middle East with spare capacity were to compensate for those running out,” the agency said.

Saudi Arabia, OPEC’s de facto leader, holds the bulk of the group’s spare capacity. It has so far resisted the idea of tapping those reserves more quickly, contending that the individual quotas set by the OPEC+ agreement should be respected. 

Despite the IEA’s warnings, its forecasts still indicate that world oil markets will tip back into surplus for the rest of this year as supplies outside of OPEC+ pick up. The agency revised up its forecast for U.S. oil supply growth in 2022 by 240,000 barrels a day to 1.2 million barrels a day.

The agency also made substantial increases to its historic demand estimates for the past few years, with an upgrade of 1 million barrels a day for 2021. The revision helps account for a discrepancy between the IEA’s theoretical estimate of changes in stockpiles and what could be detected.

Eoin Treacy's view -

Major oil producers appear to be in no hurry to increase supply. That’s particularly true when the announcement of any plan to expand production is greeted by media coverage akin to the murder of innocents. What is perhaps more important is governments are increasingly walking back their commitments to an energy transition agreed to at COP26. This is one more example of incompatible trends. The world cannot both use more oil and gas, and produce less.



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February 10 2022

Commentary by Eoin Treacy

Video commentary for February 10th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: bonds yields surge, TED spread negative when SOFR incorporated, risk-off reappearing as resistance encountered at the lower side of overhead trading ranges, gold, oil and copper pause. Singapore, Malaysia and Vietnam strong but will likely pause if Wall Street follows through on the downside, Dollar mixed, Yen weak



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February 10 2022

Commentary by Eoin Treacy

Goldman Commodity Veteran Says He's Never Seen a Market Like It

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

Jeff Currie, the closely-followed head of commodities research at Goldman Sachs Group Inc., says he’s never seen commodity markets pricing in the shortages they are right now.

“I’ve been doing this 30 years and I’ve never seen markets like this,” Currie said in a Bloomberg TV interview. “This is a molecule crisis. We’re out of everything, I don’t care if it’s oil, gas, coal, copper, aluminum, you name it we’re out of it.”

Futures curves in several markets are trading in super-backwardation -- a structure that indicates traders are paying bumper premiums for immediate supply. The downward sloping shape in prices is generally taken to mean commodities are severely undersupplied.

Eoin Treacy's view -

This is the time in the cycle where there is a vociferous argument between whether the strength in commodity prices is cyclical or secular in nature. If it is cyclical then we are in a repeat of the post global financial crisis episode where commodity prices surged to new highs and subsequently gave up most of the advance. On the hand, if this is the beginning of a new secular theme, we can expect the breakouts to hold and prices to multiply several times over the next decade.



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February 10 2022

Commentary by Eoin Treacy

Insurance executive says death rates among working-age people up 40 percent

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

“We’re seeing right now the highest death rates we’ve ever seen in the history of this business,” said Scott Davison, the CEO of OneAmerica, a $100 billion life insurance and retirement company headquartered in Indianapolis.

“The data is consistent across every player in the business.”

Davison said death rates among working age people – those 18 to 64-years-old – are up 40 percent in the third and fourth quarter of 2021 over pre-pandemic levels.

“Just to give you an idea of how bad that is, a three sigma or 200-year catastrophe would be a 10 percent increase over pre-pandemic levels,” Davison said. “So, 40 percent is just unheard of.”

He said the data shows COVID deaths are greatly understated among working age Americans.

Davison says OneAmerica expects to pay out more than $100 million in short- and long-term disability claims due to the pandemic.

“Whether it’s long COVID or whether it’s because people haven’t been able to get the health care they need because the hospitals are overrun, we’re seeing those claims start to tick up as well,” he said.

Because of this, insurance companies are beginning to add premium increases on employers in counties with low vaccination rates to cover the benefit payouts.

Eoin Treacy's view -

Middle aged people have been dying at an increasing rate in the USA over the last decade. Poor lifestyle habits, suicide, and an opioid epidemic contributed to that condition. Now the pandemic has resulted in an acceleration of the trend.



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February 10 2022

Commentary by Eoin Treacy

U.S. Inflation Charges Higher With Larger-Than-Forecast Gain

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

The data reinforce the Fed’s intentions to begin raising rates next month to combat broad-based inflationary pressures and could lead markets to expect even more aggressive action from the central bank. The steady run-up in prices has eroded recent wage gains and diminished American families’ purchasing power, sucking much of the air out of what has been an exceptional bounceback in the U.S. economy.

Leading up to the Fed’s March 15-16 meeting, policy makers will also have the February CPI and employment reports in hand.

Investors boosted their expectations for a a half-point increase in the federal funds target rate in March following the report. While most economists expect a more gradual approach to liftoff -- as has been telegraphed by several Fed officials -- the acceleration of inflation on the heels of rapid wage gains will keep the possibility of a half-point hike on the table.

Eoin Treacy's view -

The Federal Reserve has already signalled what their plans are. They aim to end purchases next month and simultaneously begin to raise rates. The market is well on its way to pricing in a 50-basis point hike. Reducing the size of the balance sheet is expected to begin sometime later this year. That’s where the big differences between this tightening cycle and last begin.

The process of running off debt is expected to take a different trajectory from the last time around. Jay Powell signalled they will be focusing on reducing mortgage debt holdings. The Fed is probably worried about the spiralling cost of shelter. By reducing their holdings of mortgage bonds, they are potentially aiming at property prices.



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February 09 2022

Commentary by Eoin Treacy

Video commentary for February 9th 2022

February 09 2022

Commentary by Eoin Treacy

Ryanair CEO O'Leary Sees 'Dramatic' Jump in Ticket Sales

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

Ryanair Holdings Plc has seen a “dramatic recovery” in bookings over the past two weeks as the easing of pandemic travel curbs across Europe encourages people to fly again.

The Irish low-cost carrier’s planes are flying about 75% full and could reach 90% of capacity by the peak of the summer high season, Chief Executive Officer Michael O’Leary said at a briefing in Milan Wednesday.

Ryanair expects fares to remain “very low” through May before rising for summer, by which point it’s possible that a combination of strong demand and limited capacity could see them climb above pre-coronavirus levels, O’Leary said. Trends for next winter are difficult to predict, he said.

Eoin Treacy's view -

Most people are hungering for a traditional vacation. I know I am. As the omicron variant flares out, demand for travel and other opening-up sectors is likely to continue to improve. There have been several times when it looked like a full recovery was possible, only for a new variant to pop up and create delays. The good news is the last one was much less serious, albeit much more transmissible, than its forerunners. That suggests the bounce back in demand will be stronger this time.



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