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June 13 2018

Commentary by Eoin Treacy

Fed Raises Rates; Officials Lift Outlook to Four 2018 Hikes

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

Federal Reserve officials raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected.
The so-called “dot plot” released Wednesday showed eight Fed policy makers expected four or more quarter-point rate increases for the full year, compared with seven officials during the previous forecast round in March. The number viewing three or fewer hikes as appropriate fell to seven from eight.

The median estimate implied three increases in 2019 to put the rate above the level where officials see policy neither stimulating nor restraining the economy.

The Federal Open Market Committee indicated that even though it’s stepping up the pace of interest-rate hikes, economic growth should continue apace. “The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2 percent objective over the medium term,” according to its statement following a meeting in Washington.

The statement omitted previous language saying that the main rate would remain “for some time” below longer-run levels.

Other changes included referring to “further gradual increases” instead of “adjustments.” Officials also said that “indicators of longer-term inflation expectations are little changed.”

Previously, the statement made separate references to survey- based and market-based measures of such expectations.

Eoin Treacy's view -

Unemployment is at its lowest level in years, inflation is moderate but supply constraints are appearing in the economy. The St. Louis Fed is predicting growth well in excess of the consensus and Fed is obviously worried that will eventually spill over into an inflationary environment.



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June 13 2018

Commentary by Eoin Treacy

Email of the day on Total Known Holdings of Gold:

On Total Known ETF holdings of Gold. The charts are telling us that after a long period of ranging Gold and the precious metals are poised to break to the upside. I was rather alarmed therefore on the one- day plunge by about 7% of the above chart. Should I be, or is this some explainable aberration?

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The Total Known ETF holdings of Gold is reported with a one-day lag but it is also prone to spikes since the data is accumulated from so many sources. I checked this out with Bloomberg this morning and adjusted the chart to the up to date value. Unfortunately, while imperfect this index is about as accurate reflection as I can find of the interest investors express in holding gold-backed ETFs.



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June 13 2018

Commentary by Eoin Treacy

How Trump's Lumber Tariffs May Have Helped Increase Home Prices

This article by Peter Eavis for the New York Times may be of interest to subscribers. Here is a section:This article by Peter Eavis for the New York Times may be of interest to subscribers. Here is a section:

Want to better understand what may happen in the United States economy as President Trump pursues his combative trade policies?

Look no further than the lumber that goes into many houses in the United States.

Long before the sharp clash with Canada at the Group of 7 meeting this weekend, the Trump administration imposed tariffs on lumber imports from Canada, which American home builders use in large quantities. The United States Commerce Department contended that Canadian companies were selling lumber into the United States at unfair, subsidized prices.

Those tariffs, which took effect last year, combined with other factors to drive up the price of lumber in the United States. As a result, the anti-dumping and countervailing duties, as the tariffs are officially known, have added to the cost of housing in the United States at a time when homes are becoming less affordable. The Trump administration’s tariffs on steel and aluminum, and any others that follow, could also contribute to rising costs for businesses and consumers.

Eoin Treacy's view -

This article is representative of the narrative which has gripped the lumber market for most of the last 12 months but is also behind the CME’s decision to widen limits on a rolling basis to try and contain speculative fervour.



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June 12 2018

Commentary by Eoin Treacy

Video commentary for June 12th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: p&f figure chart reading for cobalt, oil and google, China steadies, Nasdaq testing its highs, industrial metals steady, trucking companies breaking out, food prices firming, while oil pauses below $80, all pointing to rising industrion pressures.



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June 12 2018

Commentary by Eoin Treacy

Musings From The Oil Patch June 12th 2018

Thanks to a subscriber for this report edition of Allen Brooks’ ever interesting report for PPHB. Here is a fascinating section on energy efficiency statistics over the last 50 years:

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area.

There is no doubt that battery efficiency is improving and new solar innovation is being revealed on almost a weekly basis. There are laudable reasons for seeking to reduce carbon and nitrogen oxide emissions in our cities all of us can support. However, the question many people are worried about is whether this is merely transferring a problem from cities to less populated areas.



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June 12 2018

Commentary by Eoin Treacy

WPM acquires cobalt stream

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

Eoin Treacy's view -

A link to the full report and section from it is posted in the Subscriber's Area.

Generally speaking streaming companies provide funding for struggling mines when prices are low. By historical standards cobalt prices are not low. Of course, if accepts the near mania of bullish prognostications, then cobalt is cheap.



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June 12 2018

Commentary by Eoin Treacy

Shadow Lending Slump Shows Deleveraging Picking Up

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

Looking at the details, the composition of lending continued to shift toward on-balance-sheet lending from off-balance sheet:

New bank loans denominated in yuan totaled 1.14 trillion, up slightly from 1.1 trillion in April. The 41.3 billion yuan rise was slightly below the average increase of 98.1 billion yuan recorded in the same month over the past five years.

The stock of shadow bank lending -- entrusted loans, trust loans, and back acceptances -- dropped across the board. The total fell 421.5 billion yuan, the steepest monthly drop in data available back to 2016.

Net financing of corporate bonds contracted by 43.4 billion yuan, after an increase of 377.6 billion yuan in April. Rising defaults have hit sentiment in the bond market. Equity financing was more stable, falling moderately to 43.8 billion yuan from 53.3 billion yuan.

Recent policy moves have been tilted toward support for bank lending. In April, the PBOC cut the reserve requirement ratio for banks. In June, it broadened the types of collateral that could be used against central bank loans.

Eoin Treacy's view -

The Fed is raising interest rates and reducing the size of its balance sheet, the ECB is approaching the end of QE while the Bank of Japan is now yet ready for that step. Against that background the PBoC is engaged in an attempt to bring the shadow banking system out of the shadows.



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June 12 2018

Commentary by Eoin Treacy

Truckers Protest High Gas Prices in Spotty Strikes Across China

This article by Te-Ping Chen for the Wall Street Journal may be of interest to subscribers. Here is a section:

While trucker protests in China have occurred in the past amid complaints of road tolls, fuel prices and excessive fees, Geoff Crothall, spokesman for the labor monitoring group, said he couldn’t recall trucker protests of a similar scale. He estimated thousands of truckers participated.

As they have the world over, gas prices have risen in China this year, by 8.6%, according to data from the Ministry of Commerce. Taxes and other fees generally make gas more expensive in China than the U.S., and on top of that the government sets the prices, lagging changes in international oil markets by 10 days or more.

China’s National Development and Reform Commission, which sets those prices, announced Friday that it would cut the retail price of gasoline and diesel by 130 yuan ($20.29) per ton for gasoline and 125 yuan per ton for diesel. The new prices, effective this past Saturday, reflect a recent retreat in global oil prices. In the central province of Anhui, a transportation hub where protests occurred, gasoline now costs $3.99 a gallon, and diesel $4.04 a gallon.

Rising fuel costs have elsewhere prompted worker frustrations to spill over, most notably in Brazil, where protesters blocked highways and halted shipments of food, fuel and medicine before the government called in the military to help end the strike. Other trucker protests have also recently broken out in Iran.

Eoin Treacy's view -

Trucking has been all over the news recently with strikes in China and Brazil over high fuel prices and low pay while the USA is in dire need of 50,000 drivers.  These trends point to the fact the USA is close to full employment so attracting workers is becoming an issue while all three countries share upward pressure on wages. Higher shipping rates are inflationary because it will put pressure on companies to cover the increasing costs by raising prices for the end customer.



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June 11 2018

Commentary by Eoin Treacy

Video commentary for June 11th 2018

June 11 2018

Commentary by Eoin Treacy

Brace for the World Economy's Most Important Week of the Year

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

Trump and North Korea leader Kim Jong Un convene in Singapore for their on-off summit, the first such meeting ever.

Trump last week predicted “great success” and said it’s possible he could sign an agreement with Kim to formally end the Korean War. Back in Washington, the government releases a monthly report on inflation that will be a key gauge of how hot -- or not -- the U.S. economy is getting.

Trump, Kim Said to Be Planning One-on-One Talk at Summit Start

These Are the Dealmakers Behind Trump and Kim

What a Trump-Kim Deal May Look Like

Eoin Treacy's view -

The Trump – Kim conference is going to be short with both planning to leave Singapore tomorrow afternoon Singapore time. That means an outcome, whether positive/negative will be available by the open on European markets Tuesday. It is in both their interests to appear strong but they both need to come away with a win so the most likely scenario is to agree to meet again.



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June 11 2018

Commentary by Eoin Treacy

How Fitbit is trying to transform healthcare, and itself

This article by Mark Sullivan for Fastcompany.com may be of interest to subscribers. Here is a section:

In the future, Fitbit hopes to leverage Google’s machine learning capabilities to draw even deeper insights from the combined data sets. For instance, machine learning algorithms might be able to see indications in the data that a user is at high risk for a certain disease, then proactively treat them for it.

The Google machine learning is just one of the deliverables in Fitbit’s recently-announced partnership with Google Cloud. The combined Fitbit and Twine Health services and data will be served up to healthcare providers via Google’s cloud and healthcare API. Google could also give Fitbit the scale it needs to integrate with large hospitals and insurers. It’ll also give Fitbit a HIPAA-compliant data repository that can connect with the electronic medical records (EMR) systems used by health providers.

Eoin Treacy's view -

Fitbit did not only fail to pick up on the evolution of smart watches but compromised on the quality of its products when it sought to reduce prices. That is why I personally dumped our family’s Fitbits and decamped for Garmin and Apple.



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June 11 2018

Commentary by Eoin Treacy

Bitcoin Tumbles Most in Three Months Amid South Korea

This article by Eric Lam and Jiyeun Lee for Bloomberg may be of interest to subscribers. Here it is in full:

Bitcoin extended losses for a third day, tumbling 12 percent Sunday as South Korean cryptocurrency exchange Coinrail said there was a "cyber intrusion" in its system.

The largest cryptocurrency declined to $6,749 as of 2 p.m. in New York, the biggest drop since March 14, according to data compiled by Bloomberg from Bitstamp pricing. That widens Bitcoin’s losses for the year to 53 percent. Peer cryptocurrencies Ethereum and Ripple fell 11 percent and 12 percent, respectively.

Coinrail said in a statement on its website that it’s reviewing its system due to hacking attempts. The exchange says it has managed to freeze all exposed NPXS, NPER and ATX coins, and that other cryptocurrencies are now being kept in a cold wallet. The statement is the only content available on the exchange’s homepage, and contact information could not immediately be located.

The exchange trades more than 50 different cryptocurrencies and was the 98th largest, with a 24-hour volume of about $2.65 million, according to data from Coinmarketcap.com.

Eoin Treacy's view -

Cryptocurrency exchanges are hacked with uncomfortable regularity with relatively large percentages of investors having had their portfolios stolen via hacking operations at exchanges or from plain old ransomware. Here is a section from an article on CNBC from last Friday:

Roughly $1.1 billion worth of cryptocurrency was stolen in the first half of 2018, and unfortunately for owners, it's pretty easy to do, according to cybersecurity company Carbon Black.

Criminals use what's known as the dark web to facilitate large-scale cryptocurrency theft. There are now an estimated 12,000 marketplaces and 34,000 offerings related to cryptotheft for hackers to choose from, the company said in a study released Thursday.

"It's surprising just how easy it is without any tech skill to commit cybercrimes like ransomware," Carbon Black Security strategist Rick McElroy told CNBC. "It's not always these large nefarious groups, it's in anybody's hands."

The necessary malware, which McElroy said even occasionally comes with customer service, costs an average of $224 and can be priced as low as $1.04. That marketplace has emerged as a $6.7 million economy, according to the study.



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June 11 2018

Commentary by Eoin Treacy

Biggest Electric-Vehicle Battery Maker Soars 44% on Debut

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

Shares of the world’s biggest maker of electric-vehicle batteries jumped on their trading debut as investors bet on rising demand for new-energy cars worldwide.

Contemporary Amperex Technology Ltd. rose by the maximum 44 percent to 36.20 yuan at 10:17 a.m. in Shenzhen, China, valuing the company at about $12.3 billion. The manufacturer sold a 10 percent stake at 25.14 yuan a share in its initial public offering on May 30.

Investors are confident that CATL, as the company is known, can fend off rivals including Panasonic Corp. and continue to win orders as automakers move toward electric vehicles. CATL, whose customers include Volkswagen AG, had reduced the size of its IPO by more than half compared with its original ambitions because of declining margins and a cap imposed by Chinese authorities on price-earnings ratios in IPOs.

 

Eoin Treacy's view -

CATL produces more batteries than Tesla and is likely to continue to do so well into the future considering the pace of factory building it has planned. China has every intention of dominating the battery sector both because it is the largest auto market but also because it has a clear aim to become globally competitive in auto exporting. Additionally, as an energy importer it has a clear reason to reduce imports of oil if at all possible. That suggests China will be investing heavily in batteries for the foreseeable future.



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June 08 2018

Commentary by Eoin Treacy

June 08 2018

Commentary by Eoin Treacy

The most expensive currencies in the world right now, in one chart

This article by David Scutt for business Insider may be of interest to subscribers. Here is a section:

It’s Deutsche Bank’s Cap-PPP currency valuation model, a visual indicator on what currencies it deems to be cheap or expensive right now based on capital and trade flows.

By combining its capital-based valuation and trade-based PPP (purchasing power parity) models together, Deutsche says it provides a more complete picture of valuations, using weights that reflect the relative importance of capital and trade flows for each currency.

It believes the model has “significant predictive power for FX, both in terms of directional accuracy and the magnitude of moves, especially over longer-term horizons”.

Eoin Treacy's view -

The strength of the Dollar and its effect on emerging markets, particularly those that have historically depended on Dollar funding, highlights how much of an influence the actions of the Federal Reserve have on other central banks. The USA was the first major economy to embark on tightening and is still the only one to be both raising rates and reducing the size of its balance concurrently. That is the primary reason for both the run-up in the Dollar and rising yields despite increasing supply of the latter.



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June 08 2018

Commentary by Eoin Treacy

Regulatory Concerns Dampen Bitcoin Volatility

This article by Charles Bovaird for Forbes.com may be of interest to subscribers. Here is a section:

 "It seems that a lot of activity has been suppressed," said Marshall Swatt, founder & president of Swatt Exchange, emphasizing that digital token sales are having the same experience. 

Leveraged trading appears to have declined lately, emphasized Mati Greenspan, senior market analyst for social trading platform eToro.

Marius Rupsys, a digital currency trader and investor, offered a slightly different take on the situation.

"Some traders and investors are waiting for clarity from regulators," he asserted.

However, Rupsys described both the statement made by U.S. Securities Exchange Commission (SEC) Chairman Jay Clayton that bitcoin is not a security and the government agency's decision to appoint a crypto czar as "very positive" developments.

Eoin Treacy's view -

The last week has seen volatility in the cryptocurrency markets disappear. The last time the bitcoin market, for example, has been this inert was back in June and July of last year when the price was a third of what it is today; even after the crash from the December peak.



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June 08 2018

Commentary by Eoin Treacy

Inmarsat Spurns EchoStar Takeover, Calling It Lowball Offer

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

Inmarsat Plc rebuffed a takeover proposal from EchoStar Corp., saying the bid undervalued the British satellite company and its outlook as an independent business.

The “highly preliminary” offer was turned down by the board after discussions with its advisers, Inmarsat said in a statement on Friday. “It very significantly undervalued Inmarsat and its stand-alone prospects. The board remains highly confident in the independent strategy and prospects of Inmarsat.”

EchoStar, founded by billionaire Charlie Ergen, has long been seen as a potential bidder for Inmarsat, along with SoftBank Group Corp.’s OneWeb. A stock slump at the London-based company has put it at the top of analysts’ lists of potential targets for consolidation in the satellite industry, which is becoming increasingly crowded with a rising number of rigs going up to support new services such as in-flight Wi-Fi and transmission of digital photos.

A representative for EchoStar didn’t immediately respond to a request for comment. The statement from Inmarsat followed a 13 percent surge in its shares on Friday, the most in a decade. The stock is still down by more than half over the past two years and has declined 3.4 percent so far in 2018.

Eoin Treacy's view -

The legacy satellite sector has collapsed over the last 18 months. There are two primary reasons for the decline. The first is the success of SpaceX and Blue Origin in deploying resuable rockets to increase the number of satellite launches. The second is the advent of nanosatellites which cost a fraction of what conventional satellites do and fly at much lower orbits.



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June 08 2018

Commentary by Eoin Treacy

Milestone claimed as experimental nuclear reactor reaches temperature of the Sun

This article by Nick Lavars for NewAtlas may be of interest to subscribers. Here is a section:

The pursuit of nuclear fusion is inspired by the collision of atomic nuclei in stars, which fuse together to form helium atoms and release huge amounts of energy in the process. If we can recreate this process we could have an inexhaustible supply of energy on our hands that brings no harmful by-products, such as carbon dioxide emissions or the radioactive waste generated at nuclear fission-based power plants like Fukushima and Chernobyl.

But to do that we need to create Sun-like conditions here on Earth, which calls to mind one requirement first and foremost – incredible amounts of heat. Tokamak Energy hopes to achieve this through what's known as merging compression, where running high currents through two symmetrical magnet coils generates two rings of plasma, or electrically charged gas, around them.

Eoin Treacy's view -

The ITER tokomak being constructed in the south of France is based on technology from the 1970s. It is coming at the problem of containing plasma by building a big containment unit which is costing upwards of $30 billion. Today, much stronger magnetic fields can be attained through the use of superconductors. That means experiments can be much smaller and cost a fraction of the ITER model.



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June 07 2018

Commentary by Eoin Treacy

Video commentary for June 7th 2018

June 07 2018

Commentary by Eoin Treacy

Brazil Joins Turkey With Stepped-Up Currency Defenses Amid Rout

This article by Tugce Ozsoy, Julia Leite and Ben Bartenstein for Bloomberg may be of interest to subscribers. Here is a section:

Turkey and Brazil intensified efforts to protect their currencies from speculative attacks by investors as emerging markets face their biggest test since the 2013 taper tantrum.

Turkey surprised analysts by tightening monetary policy Thursday for the third time in less than two months, while Brazil’s central bank sold extra foreign-exchange swap contracts for the second time this week, boosting investors’ protection again further declines in the currency. The lira surged and the real briefly pared losses after the actions.

Thursday’s actions are the latest in a series of efforts to shore up defenses in developing nations as policy makers from Argentina to India try to cope with higher U.S. interest rates, growing budget deficits, accelerating inflation and political instability. Emerging markets haven’t been in this precarious a position since five years ago, when concern the developed world was pulling back on monetary stimulus sparked a rout in stocks and currencies.

"The failure to act preemptively to address macro imbalances has forced those central banks to take desperate measures to stem the pressure on their currencies," said Delphine Arrighi, a money manager at Old Mutual in London. "The risk is a tightening of financial conditions in EM that could ultimately impact growth negatively."

Turkey raised its one-week repo rate by 1.25 percentage point to 17.75 percent, a bigger increase than any analyst surveyed by Bloomberg had predicted. The move signaled policy makers trying to clamp down on double-digit inflation are willing to stand up against political pressure to keep borrowing costs low.

“Is this the start of a new era of Turkish central bank policy -- actually moving ahead of the market? Let’s hope so,”

Eoin Treacy's view -

Generally speaking when a central bank intervenes to support its currency it has to persist in that policy until it achieves success, lest it be accused of wasting money. So far, Turkey’s efforts to stave off an additional near-term Lira decline have been successful and the currency has stabilized below TRY5 to the US Dollar.



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June 07 2018

Commentary by Eoin Treacy

Email of the day on Indian inflation

Hi Eoin Like most of your subscribers I avidly follow your video commentaries. In yesterday’s broadcast while discussing India I was a little surprised that you did not mention the effects of the Monsoon on the economy which is starting now. Latest predictions are for an above average monsoon which is of course highly significant for food prices and thus for inflation.

Eoin Treacy's view -

Thank you for this informative email which may also be of interest to the Collective. The RBI raised rates today for the first time since early 2015 signalling what appears to be the beginning of a new tightening cycle. It is to be hoped that the monsoon will in fact come in above par which would moderate inflation, but I believe the more pressing issue right now is the relative stability of the currency which as recently as mid-May was testing its all-time lows.



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June 07 2018

Commentary by Eoin Treacy

Email of the day on the first trillion-dollar company:

Apple market capitalization now is $950 billion and it seems, this time it may be able to hit $1 trillion in the foreseeable future. The stock seems to have broken up out of a six-month range and it has to rise just about 5% to reach $203.45 which will give it $1 trillion capitalization. (Though, Financial Times notes that "pinpointing the moment when Apple will officially become the first trillion-dollar public company is trickier than it may seem, largely because of the company’s mammoth stock buyback programme." $203.45 is based on Apple's latest official share count given in its quarterly filing on April 20.)

What do you think of this? I also attach recent FT article about Apple business, just in case you find it interesting.

And thank you once again for your valuable service.

Eoin Treacy's view -

Thank you for this question which may also be of interest to subscribers. Before I got a Global Entry card, when I went through passport control on the way back into the US, the border control agent would ask why I was awarded an EB-1 visa and I would tell them because I am a global strategist. Coming back from Ireland in April, the agent said “Oh really, which company do you think is going to get to a market cap of $1 billion first; Apple or Amazon?”



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June 07 2018

Commentary by Eoin Treacy

Requiem for a construction bubble

This article by Pete Wargent appeared in Livewire and may be of interest to subscribers. Here is a section:

Apartment construction to fall sharply
We have significant evidence to show that new apartment projects are struggling to get finance approved, and therefore total residential construction is expected to slow in H2 2018. Dwellings approved but not yet commenced have already increased to the highest level on record, driven by apartment project approvals

Apartment default rising
Liaison with industry contracts indicates that settlement defaults for some of the major developers have increased, particularly in relation to offshore buyers. The resale market is considered healthy enough at this juncture for most developers not to be materially impacted, however there is a strong likelihood that residential construction activity will now fall

Employment growth to fall
Construction now directly employs just under 1.2 million persons in Australia, recently capturing a record high in absolute terms and, at 9.6 per cent of employment, the construction sector is at its most bloated in approximately a century4.

About ¾ of construction jobs are accounted for by the residential sector5. There is significant potential for employment growth to slow sharply over the next 12 months

Eoin Treacy's view -

The Royal Commission has been a major source of uncertainty for the banking sector in Australia over the last year as rampant overcharging across a broad swathe of their businesses has ben brought to light.

The S&P/ASX 300 Banks Index hit all-time peak in 2015 and following a rebound has been trending lower since last year. It is now approaching the 2016 lows and while oversold in the short term a break in the progression of lower rally highs will be required to question supply dominance.



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June 06 2018

Commentary by Eoin Treacy

Video commentary for June 6th 2018

June 06 2018

Commentary by Eoin Treacy

Gold Investing Goes AWOL As Google Searches To 'Buy Gold' Hit 11-Year Low

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

The giant SPDR Gold Trust (NYSE Arca: GLD) shrank 4% across May, erasing the previous two months of share issuance growth with the heaviest 1-month outflow since August last year.

The US Mint meantime reports selling 24,000 ounces of American Eagle gold coins, up sharply from April's 10-year low as dealers re-stocked inventory but still barely half the last 5 years' average for May.

Here at BullionVault, last month saw the lowest number of new precious-metal investors since May 2014. Down 27.7% from the previous 12-month average, the number of people using our online gold, silver and platinum market for the first time totalled just 57.2% of the last 5 years' average monthly count of new customers.

Overall, the number of people starting or increasing their gold holdings rose 12.1% from April's 27-month low, but the number of gold sellers on BullionVault rose 22.8% to a 4-month high.

Eoin Treacy's view -

Some people buy gold because it is the “anti-Dollar”. Some people buy gold because it is a monetary metal. Some people buy gold because it is store of value. Some people buy gold because it is in relatively short supply. Some people buy gold because it is lasts forever and cannot be printed into existence.



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June 06 2018

Commentary by Eoin Treacy

Amazon vs. Alibaba: The Next Decade of Disruption

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

Eoin Treacy's view -

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

The footprint of ecommerce is only likely to expand if for no other reason than it is easy to shop and browse online. That doesn’t mean people will stop going to malls. We are after all a social species but the nature of shopping with definitely change.

The new Westfield mall that opened up the street from me a couple of months ago is focusing on food offerings with Eataly, Ding Tai Fung and Meizhou DongPo as well as upper middle class/luxury brands. That might be a function of its location sandwiched between the affluent neighbourhoods of Beverly Hills and Holmby Hills but equally speaks to the spending habits of Chinese shoppers.  



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June 06 2018

Commentary by Eoin Treacy

Email of the day on managing contango costs

Based on your very correct predictions, I am enjoying the run on the Nasdaq by owning futures on the Nasdaq 100.   It is time to roll and I notice there is a contango of about 23 on these contracts, giving an annual contango cost of 1.3%.  Small but annoying.

A very basic question to which I have never been able to find an answer - is there any way to optimize this, for instance by timing the rollover?  I can't find a chart of contangos anywhere.

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers and congratulations on your trading success. Generally speaking the contango reflects the interest rate. Since there is no prospect of a shortage of supply for synthetic contracts like index or interest rates futures I never looked at the contango chart before today. In fact, at only 1.3% one might think that the contango at present is a relative bargain considering the Fed Funds Rate is 1.75%.



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June 05 2018

Commentary by Eoin Treacy

Video commentary for June 5th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: even mild Dollar weakness is a boon for industrial resources, Italian yields rise and stock market under pressure. technology continues to lead higher, cobalt puts in a p&f top, China firms, oil and precious metals steady. 



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June 05 2018

Commentary by Eoin Treacy

Cobalt, Uranium, and The Four Horsemen of Opportunity

Thanks to a subscriber for this note from Polar Capital LLC which may be of interest. Here is a section:

In summary, world trade friction is growing.  More countries are beholden to the kindness of others for those commodities in high concentrations from nations that can employ them as weapons of response to adversarial tariffs.  What is that worth per pound of cobalt?  Nothing.  Until it is.  What is it worth that the DRC is a political quagmire and the country is about to be 75% of world production?  Nothing.  Until it is. What is it worth that China dominates cobalt chemical refining for batteries and western auto companies are still generally open on supply?  Nothing.  Until it is.  It is likely that spot prices are about to soften a bit after an ungodly strong, unabated run. We believe that weakness is merely prelude to new highs when the Fall “mating season” begins.  How do we play it?  Besides our relatively small physical positon, we own Cobalt 27 (KBLT CN) because they hold 3,000 metric tons of cobalt metal safely housed in western warehouses, and we believe they will further execute their business plan by acquiring a stream or streams before the end of the year and share that cash flow with shareholders in the form of a dividend.  We think cobalt prices can trade past the old high of $50 in 2008, a period during which battery demand from electric vehicles did not exist.

Eoin Treacy's view -

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

I’ll never forget the bull market in uranium that took place between 2003 and 2007. It was the easiest market in the world to monitor. The price only went up. It highlighted just how useful point and figure charts are in monitoring a runaway bull market. When the consistency of the advance changed the easy conclusion was that a peak of at least medium-term significance had been reached.



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June 05 2018

Commentary by Eoin Treacy

ECB bond buying under scrutiny from Rome

Thanks to a subscriber for this article from the Financial Times confirming the ECB has reduced purchases of BTPs following the Italian election. Here is a section:

The central bank purchased a net €3.6bn of Italian government debt under its long-running programme in May, new figures show. Although this is higher than the amount it bought in some recent months, such as March and January, it was smaller as an overall proportion of its net purchases.

The ECB insisted that the reduced Italian share had nothing to do with political events, and was purely linked to practical issues such as the need for the bank to reinvest in German bonds after a chunk of its holdings matured.

But the numbers were nonetheless seized on by members of Italy’s new governing parties, who have been arguing for weeks that the eurozone’s central bankers have been putting pressure on them to adopt more conventional economic policies.

Eoin Treacy's view -

Italy is understandably sensitive to the actions of the ECB. Not only has the ECB’s bond buying program contributed to Italy benefitting from negative yields on the short end of the curve but it has reduced borrowing costs right across the curve.



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June 05 2018

Commentary by Eoin Treacy

Milestone immunotherapy treatment cures terminal breast cancer patient

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

Despite this extraordinary case study it is still very early days for the treatment, with the current clinical trial due to run until at least 2023. After that, a Phase 3 trial will need to broaden the volume of patients treated to verify any positive results,. So, realistically a broad clinical application could be up to a decade away ... And that's assuming everything goes right.

An early form of adoptive immunotherapy, called CAR-T therapy, exhibited severe side effects across many of its clinical trials, including some deaths. The therapy also displayed some impressively positive response rates, promising at the very least an extra possibility for patients where pre-existing treatments have failed.

Last year, the first immunotherapy of this kind was approved for use by the FDA. The treatment's approval was undeniably a milestone for this new kind of therapy, but alongside the approval came a striking price tag. Kymriah, for young patients with a type of blood and bone marrow cancer, was initially costed at nearly half a million US dollars per treatment.

Eoin Treacy's view -

The progress of immuno-oncology research has resulted in a rapid pace of M&A activity within the biotechnology sector over the last 18 months and nothing has yet happened to change that trajectory.



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June 04 2018

Commentary by Eoin Treacy

Video commentary for June 4th 2018

June 04 2018

Commentary by Eoin Treacy

Email of the day on evidence of immigration in Japan:

I believe this does rather endorse your view. Also, my father in law a farmer in Shikoku has told me about many Chinese farmers on their Island!

Different subject, but I heard recently pearl exports this year are up in the region of 100%, your wife has obviously started a major new trend!

Eoin Treacy's view -

Thank you for this informative email and interesting article. My wife’s pearl business, my children’s love of anime and mange and my optimism about the recovering economy created a trifecta of reasons for our original trip and return visit in April.

The biggest takeaway for me is the number of foreign workers we have encountered. In one of the world’s few remaining mono cultural societies that was a true surprise. Here is a section from the Nikkei Asian review article

The demand for construction workers is intensifying before the 2020 Olympics, and Hoang is one of the 274,000 foreign workers in Japan on a government-backed trainee program that has become a back door for foreign unskilled workers who would otherwise not be allowed in. Started in 1993, the program has boomed in recent years -- and is one reason that the number of foreign workers in Japan has nearly quadrupled over the last decade.

Led by an influx of workers from China, Vietnam and the Philippines, Japan is in the midst of a quiet revolution when it comes to immigrant workers. Though the total number of foreign workers in Japan is small compared to the more than 3 million in the U.K. and Germany, it is catching up rapidly -- a remarkable shift for a nation famous for resistance to immigration.

Without fanfare, Prime Minister Shinzo Abe has steadily loosened Japan's once tightly controlled visa policy, resulting in an almost doubling of the number of foreign workers in Japan to 1.28 million over the last five years. In its latest move, Abe's government is expected to create a new class of five-year work permits for unskilled workers in hopes of attracting more than 500,000 new overseas workers by 2025. The new guidelines, to be finalized in June, will ease language requirements for foreign workers in construction, agriculture, elderly care and other sectors that are suffering the most serious labor shortages. It will also be possible for trainees to extend their stay for up to 10 years.



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June 04 2018

Commentary by Eoin Treacy

Cobalt price: Congo production surges

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

Supply risks for cobalt are centred on the Democratic Republic of the Congo which is responsible for two-thirds of world output. And the country’s share will only increase over the next five years as Chinese investment in new mines come on stream.

The central African nation's output of cobalt – as a byproduct of copper production – is already soaring as top producer Glencore's operations in the country ramps up again after a refurbishment period.

The DRC produced 296,717 tonnes of copper in the first quarter of 2018, up 8.2% over the same period last year, the central bank said in a report on Thursday. Cobalt production in the first quarter of 2018 rose 34.4% to 23,921 tonnes. Global production last year was around 117,000 tonnes.

Eoin Treacy's view -

The oldest adage from the commodity markets is the cure for high prices is high prices. Cobalt is up 400% already so on the supply side there is real pressure to increase supply. On the demand side consumers are investing heavily in coming up with new chemistries to reduce cobalt intensity.



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June 04 2018

Commentary by Eoin Treacy

Teens, Social Media & Technology 2018

This article by Monica Anderson and Jingjing Jiang for the Pew Research center may be of interest to subscribers. Here is a section:

Until recently, Facebook had dominated the social media landscape among America’s youth – but it is no longer the most popular online platform among teens, according to a new Pew Research Center survey. Today, roughly half (51%) of U.S. teens ages 13 to 17 say they use Facebook, notably lower than the shares who use YouTube, Instagram or Snapchat.

This shift in teens’ social media use is just one example of how the technology landscape for young people has evolved since the Center’s last survey of teens and technology use in 2014-2015. Most notably, smartphone ownership has become a nearly ubiquitous element of teen life: 95% of teens now report they have a smartphone or access to one. These mobile connections are in turn fueling more-persistent online activities: 45% of teens now say they are online on a near-constant basis.

Eoin Treacy's view -

Capturing the attention of teens is a never-ending challenge which is why Facebook’s acquisition of Instagram was such a coup. However, many kids are now using Kik and Telegram which is a sign that the metrics for measuring user engagement is a constantly moving feast.



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June 01 2018

Commentary by Eoin Treacy

June 01 2018

Commentary by Eoin Treacy

Multiyear Plan for Energy Sector Cybersecurity

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

Anticipating and reacting to the latest cyber threat is a ceaseless endeavor that requires ever more resources and manpower. This approach to cybersecurity is not efficient, effective, nor sustainable in light of escalating cyber threat capabilities. We must recognize today’s realities: resources are limited, and cyber threats continue to outpace our best defenses. To gain the upper hand, we need to pursue disruptive changes in cyber risk management practices.

DOE’s cyber strategy is two-fold: strengthen today’s energy delivery systems by working with our partners to address growing threats and promote continuous improvement, and develop game-changing solutions that will create inherently secure, resilient, and self-defending energy systems for tomorrow. 

Meaningful public-private partnership is foundational to DOE’s strategy. Facing an ever-evolving threat landscape requires a coordinated approach to improving risk management capabilities, information sharing, and incident response. The federal government has also historically funded innovative research, development, and demonstration (RD&D) that cannot be economically justified in private-sector markets. Today, this includes game-changing RD&D that will build cyber resilience into energy systems for tomorrow.

Eoin Treacy's view -

The increasingly connected nature of the global economy, together with the modernisation of IT structures in key pieces of industrial and utility infrastructure has introduced risk premia that never existed before. A decade ago no one would have given credence to the view that a hospital could be shut down remotely or that police departments could be held hostage, yet that is exactly what has happened in the last 18 months. Securing energy infrastructure is even more important now that the US is an exporter of oil and gas and because of rising geopolitical tensions.



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June 01 2018

Commentary by Eoin Treacy

Dollar Tantrums, Original Sin

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

The Original Sin index ranges from zero (“sinless”) to one (“sin-full” or fully dependent on foreign currency debt). We focus on sovereign and corporate bond issuance in ASEAN and India, and track how the index behaved during the Quantitative Easing periods and after the taper tantrums. 

We detect increases in “original sin” in Indonesia and the Philippines in recent years, but find no visible increase in Thailand, Malaysia or India (see Figures 4 to 9). 

Indonesia’s original sin index has been steadily rising, with a peak of 0.41 as of May 2018 (see Fig 5). This suggests that Indonesia corporations and the sovereign are borrowing more in foreign currencies in recent years, as the Fed normalizes policy rates. For Philippines, the original sin index rebounded in 2018 to 2009 levels after declining for the past two years (see Fig 7). This suggests that the financial stress is a more recent phenomenon, as investors are more worried about the peso risks (on higher inflation and widening current account deficit). 

On the other hand, Malaysia and India have seen a decline in their original sin index, suggesting a gradual reduction in their foreign currency exposure in recent years (see Figures 6 & 9). Thailand’s index has been very low since the early 2000s, barely reaching 0.1, reflecting its low interest rates and abundant domestic liquidity, given the massive current account surplus (see Fig 8).

Eoin Treacy's view -

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

The ASEAN sector has been under pressure of late but not nearly to the same extent as Turkey, Argentina and Brazil. The rising US Dollar has pressured many emerging markets because as interest rates appreciate and Wall Street remains in a reasonably stable bull market environment, the relative attraction of US assets improves. That has resulted in repatriation of carry trades.



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June 01 2018

Commentary by Eoin Treacy

U.S. Oil Poised for Weekly Loss as Record Output Weighs on Price

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

While hedge funds invested in U.S. oil are betting pipeline bottlenecks will make Texas crude even cheaper, trading giants are seeing an opportunity to export millions of barrels as shale output continues to surge. For now, American price moves have favored the financial players. Meanwhile, Brent climbed last month following President Donald Trump’s decision to reimpose sanctions on Iran, and as Venezuelan output plunged amid an economic crisis.

Also at the forefront of investors’ minds is OPEC and the allies’ next step on output cuts. Saudi Arabia and Russia said last week that they are considering boosting production to ease potential supply disruptions in Iran and Venezuela after a global surplus was eliminated. Most producers weren’t consulted about the proposal, and officials from several producers said they disapproved of raising output.

 

Eoin Treacy's view -

The spread between West Texas Intermediate and Brent Crude is currently at $8.50 which is beginning to make headlines but the gap between the two benchmarks has been rising steadily for the last couple of years and broke out this week. The difference has been as high as $12 and even $16 as recently at 2014 so the argument for boosting exports is likely to be a hot topic of conversation in the USA.

 



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May 31 2018

Commentary by Eoin Treacy

Video commentary for May 31st 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Italian yields compress somewhat, Euro fails to hold intraday high, GDPR favours large advertisers, differernce between crude oil pricing, gold steady, China and India begin to steady, Indonesia supporting the Rupiah.



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May 31 2018

Commentary by Eoin Treacy

In Gold We Trust

Thanks to a subscriber for this report from the team at Incrementum which may be of interest. Here is a section:

 

A

Also most relevant for the price of gold is the turning of the tide in terms of monetary policy. We find it quite remarkable that the gold price (in USD terms) bottomed out exactly at the beginning of the current rate hike cycle. When it became clear in 2015 that administered US interest rates would soon be raised, many market participants and observers sotto voce predicted a precipitous slump in the gold price. In the same year, we pointed out to our readers that rising interest rates could actually prove to be positive for the gold price. Market developments in recent years are testifying to the fact that this assessment was correct.

In addition to hiking interest rates since late 2015, the Fed began reducing the size of its balance sheet starting in Q4 2017, a process that has been dubbed “quantitative tightening” (QT). From our perspective, most market participants are currently massively underestimating the likely consequences of the QT process. The “everything bubble” which we discussed at length in last year’s In Gold we Trust report6 is at grave risk of bursting as more and more liquidity is withdrawn. The monthly contraction in Fed assets is gradually ratcheted up and will reach USD 50bn per month from October 2018 onward. In total, the balance sheet is to be reduced by USD 420bn in 2018 and by USD 600bn in 2019. However, we believe this monetary normalization plan is unlikely to survive a significant decline in even one, let alone several asset classes (equities, bonds, real estate). 

lso most relevant for the price of gold is the turning of the tide in terms of monetary policy. We find it quite remarkable that the gold price (in USD terms) bottomed out exactly at the beginning of the current rate hike cycle. When it became clear in 2015 that administered US interest rates would soon be raised, many market participants and observers sotto voce predicted a precipitous slump in the gold price. In the same year, we pointed out to our readers that rising interest rates could actually prove to be positive for the gold price. Market developments in recent years are testifying to the fact that this assessment was correct.

In addition to hiking interest rates since late 2015, the Fed began reducing the size of its balance sheet starting in Q4 2017, a process that has been dubbed “quantitative tightening” (QT). From our perspective, most market participants are currently massively underestimating the likely consequences of the QT process. The “everything bubble” which we discussed at length in last year’s In Gold we Trust report6 is at grave risk of bursting as more and more liquidity is withdrawn. The monthly contraction in Fed assets is gradually ratcheted up and will reach USD 50bn per month from October 2018 onward. In total, the balance sheet is to be reduced by USD 420bn in 2018 and by USD 600bn in 2019. However, we believe this monetary normalization plan is unlikely to survive a significant decline in even one, let alone several asset classes (equities, bonds, real estate). Also most relevant for the price of gold is the turning of the tide in terms of monetary policy. We find it quite remarkable that the gold price (in USD terms) bottomed out exactly at the beginning of the current rate hike cycle. When it became clear in 2015 that administered US interest rates would soon be raised, many market participants and observers sotto voce predicted a precipitous slump in the gold price. In the same year, we pointed out to our readers that rising interest rates could actually prove to be positive for the gold price. Market developments in recent years are testifying to the fact that this assessment was correct.

In addition to hiking interest rates since late 2015, the Fed began reducing the size of its balance sheet starting in Q4 2017, a process that has been dubbed “quantitative tightening” (QT). From our perspective, most market participants are currently massively underestimating the likely consequences of the QT process. The “everything bubble” which we discussed at length in last year’s In Gold we Trust report6 is at grave risk of bursting as more and more liquidity is withdrawn. The monthly contraction in Fed assets is gradually ratcheted up and will reach USD 50bn per month from October 2018 onward. In total, the balance sheet is to be reduced by USD 420bn in 2018 and by USD 600bn in 2019. However, we believe this monetary normalization plan is unlikely to survive a significant decline in even one, let alone several asset classes (equities, bonds, real estate). 

Also most relevant for the price of gold is the turning of the tide in terms of monetary policy. We find it quite remarkable that the gold price (in USD terms) bottomed out exactly at the beginning of the current rate hike cycle. When it became clear in 2015 that administered US interest rates would soon be raised, many market participants and observers sotto voce predicted a precipitous slump in the gold price. In the same year, we pointed out to our readers that rising interest rates could actually prove to be positive for the gold price. Market developments in recent years are testifying to the fact that this assessment was correct.

 

In addition to hiking interest rates since late 2015, the Fed began reducing the size of its balance sheet starting in Q4 2017, a process that has been dubbed “quantitative tightening” (QT). From our perspective, most market participants are currently massively underestimating the likely consequences of the QT process. The “everything bubble” which we discussed at length in last year’s In Gold we Trust report6 is at grave risk of bursting as more and more liquidity is withdrawn. The monthly contraction in Fed assets is gradually ratcheted up and will reach USD 50bn per month from October 2018 onward. In total, the balance sheet is to be reduced by USD 420bn in 2018 and by USD 600bn in 2019. However, we believe this monetary normalization plan is unlikely to survive a significant decline in even one, let alone several asset classes (equities, bonds, real estate). 

 

My view – Rather than think so much about a risk to the dollar’s position as the reserve currency, perhaps the bigger point is that China has a well-telegraphed decision intention to internationalise the renminbi. That holds out the long-term prospect of a true bi-polar world where competing economic bloc compete against one another.

 

If one were to think about a truly bullish case for gold that kind of scenario is definitely high in the realm of possibilities to drive investor demand. The gold price is currently holding in the region of $1300 but the medium-term pattern is one of a saucering pattern similar to the base put in during the early 2000s. However, a sustained move above $1400 will be required to confirm a return to medium-term demand dominance.

 
Eoin Treacy's view -

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

Rather than think so much about a risk to the dollar’s position as the reserve currency, perhaps the bigger point is that China has a well-telegraphed intention to internationalise the renminbi. That holds out the long-term prospect of a true bi-polar world where competing economic bloc compete against one another.



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May 31 2018

Commentary by Eoin Treacy

Email of the day on Italy

I have read with interest many comments regarding the difficult situation that has developed in Italy, and I feel I have to make a couple of points which I hope will help clarifying some aspects of it:

1/ of the 2 so called populist parties (Lega and M5S) only the former had an explicit anti-EU bias during the election campaign, while the latter had moved to a pro-EU stance; the alliance formed past the elections included a marked anti-EU stance (specifically through the appointment of an anti-Euro candidate to the Ministry of Finance); This is of course unacceptable (the coalition has no anti-EU mandate), hence the decision to appoint someone else with a short mandate to take the country to new elections where Italy's position in the EU is openly and explicitly debated. Was an anti-EU coalition to be elected of course they would be in power, there is no shadow of doubt about that. So, no democratic deficit here, in fact there is an extremely robust democratic process in place.

2/ There is no doubt the current events are an existential threat to the Euro area; it will be difficult to navigate, as a "quitaly" would have an extremely dramatic impact on the lives of many people in the country. I hope qualified majorities will be required to take the most important decisions, but given the pressure from financial market I doubt it will be possible; on the other hand, was a government to unilaterally pull the plug on the Euro and re-introduce the Lira, I think it would be nothing short of a coup.

With no further EU reforms, I think the spreads we have seen opening between BTPs and Bunds are deemed to stay. The ECB won't add additional risk to that already present into its balance sheet. However, I do not see how any reform could take place given the current anti EU climate. I am very pessimistic.

Finally, 2 interesting articles I wanted to share with you, one from the FT suggesting there is convenience for leaving the Euro (I share this view 100%, completely absurd), and another suggesting some reforms the EU could do. I hope they can be of interest.

Eoin Treacy's view -

Thanks for this educative email. I found the analysis of the competing desires of the League and Five Star Movement to be highly instructive. I agree there is an internal conflict between an openly Euro-sceptic party and one which wishes to remain inside the EU, but the Italian president is taking a serious risk in shooting down the proposed candidate for finance minister.



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May 31 2018

Commentary by Eoin Treacy

Euro-Area Inflation Picks Up to Fastest in More Than a Year

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

Euro-area inflation hit the fastest pace in more than year, some good news for European Central Bank officials debating the future policy path just as turmoil in Italy revives memories of the debt crisis.

The 1.9 percent rate, effectively in line with the ECB’s goal, was up from just 1.2 percent in April and above the 1.6 percent reading forecast by economists. The core measure rose to 1.1 percent, also better than anticipated.

Stronger-than-anticipated figures in Germany and Spain on Wednesday hinted at an upside surprise, with the rate in the former reaching a 15-month high. The euro stayed higher after the euro-zone data, and was up 0.1 percent to $1.1681 as of 12:24 p.m. Frankfurt time.

While higher oil prices played a part, the inflation pickup is welcome news for the ECB, which holds its next policy meeting in exactly two weeks’ time.

Eoin Treacy's view -

The ECB is very unlikely to raise rates before it has ended its QE program. The uptick for inflation, particularly in Germany, is going to influence the decision whether to in fact cease purchases in September while the uncertainty in Italy is also going to be a competing factor.



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May 31 2018

Commentary by Eoin Treacy

Nickel Poised for Best Month Since December as Supplies Tighten

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

Nickel’s rally has been underpinned by resilient demand from the traditional stainless-steel industry, as well as predictions that it stands to benefit from growing use in the emerging electric-vehicle sector. This month, Goldman Sachs Group Inc. gave the metal a ringing endorsement over the next half-decade, although the bank cautioned prices may retrace near term. Stockpiles tracked by the SHFE and the LME have slumped to multi-year lows.

“Stockpiles kept falling,” said Wu Xiangfeng, an analyst at Huatai Futures Ltd. in Shanghai, adding that environmental checks in China are also reducing the output of nickel pig iron, a low-grade alternative to refined metal. “Prices can only rise if there’s no new supply.”

The market will remain in deficit this year as destocking is seen in both Shanghai and London, Ricardo Ferreira, head of market research at the International Nickel Study Group, told a conference in Shanghai on Tuesday. Even after the recent rally, the metal’s yet to reach a price that’ll incentivize new investment in class 1 primary production, he said.

Eoin Treacy's view -

I found it almost amusing that in all the commentary about how Elon Musk called Wall Street analysts boring at the Tesla earnings meeting, no attention was paid to his statement that 8:1:1 battery chemistries are already in use in the Model 3.



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May 30 2018

Commentary by Eoin Treacy

Video commentary for May 30th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: China's markets deteriorating, Europe steadies but still at risk with German inflation picking up but periphery in need of stimulus, Amazon at new closing high, Russell 2000 extends breakout, Brazil trading below its mean, Indonesian central bank decision this week, gold steady, Dollar eases.



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May 30 2018

Commentary by Eoin Treacy

How to Save Europe

This transcript of a talk George Soros gave for Project Syndicate may be of interest to subscribers. Here is a section:

But since the financial crisis of 2008, the EU seems to have lost its way. It adopted a program of fiscal retrenchment, which led to the euro crisis and transformed the eurozone into a relationship between creditors and debtors. The creditors set the conditions that the debtors had to meet, yet could not meet. This created a relationship that was neither voluntary nor equal – the very opposite of the credo on which the EU was based.

As a result, many young people today regard the EU as an enemy that has deprived them of jobs and a secure and promising future. Populist politicians exploited the resentments and formed anti-European parties and movements.

Then came the refugee influx of 2015. At first, most people sympathized with the plight of refugees fleeing political repression or civil war, but they didn’t want their everyday lives disrupted by a breakdown in social services. And soon they became disillusioned by the failure of the authorities to cope with the crisis.

When that happened in Germany, the far-right Alternative für Deutschland (AfD) rapidly gained strength, making it the country’s largest opposition party. Italy has suffered from a similar experience recently, and the political repercussions have been even more disastrous: the anti-European Five Star Movement and League parties almost took over the government. The situation has been deteriorating ever since. Italy now faces elections in the midst of political chaos.1

Indeed, the whole of Europe has been disrupted by the refugee crisis. Unscrupulous leaders have exploited it even in countries that have accepted hardly any refugees. In Hungary, Prime Minister Viktor Orbán based his reelection campaign on falsely accusing me of planning to flood Europe, Hungary included, with Muslim refugees.

Eoin Treacy's view -

The expansion of social programs and rising debt commitments to help pay for them over the last thirty-five years resulted in a narrowing of political choice with parties in power bunching around conventional centrist policies.  The response of the status quo to the credit crisis was to double down on the policies they had employed over the last decades which was to massive increase debt and foist private sector responsibilities onto the sovereign.



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May 30 2018

Commentary by Eoin Treacy

Italy Bond Rout Driven by Liquidity Vacuum as Buyers Vanish

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

“This isn’t a deep liquid market anymore,” said Peter Tchir, the New York-based head of macro strategy at Academy Securities Inc. “Everyone was overweight, positioned long Italian debt and the price declines created a hot potato down in prices. The volatility was so insane that people’s risk managers likely just told them you have to cut these positions.”

Helping to escalate investor fear was the fact that the European Central Bank, the region’s most captive and price-insensitive buyer, may be stepping away from the market later this year, Tchir said.

BlackRock’s Scott Thiel, who has been short Italian bonds, or BTPs, since before Italy’s March 4 vote, on Tuesday cited poor trading volumes as being behind the “extraordinary” moves in the securities.

Eoin Treacy's view -

The slew of regulation that has curtailed proprietary trading at major investment banks while boosting the ranks of compliance officers means that banks are less well equipped to offer support during times of market stress when a big balance sheet is required to take the other side of a trade. Right now, the ECB is the buyer of last resort in the Eurozone.



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May 30 2018

Commentary by Eoin Treacy

They're Whispering the D-Word in Asia's Junk Market

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

Actually, it’s China’s fault: Non-investment-grade issuers from the mainland have already raised more than $30 billion, following a record $77 billion last year. China Inc. now has half the weighting of the Bloomberg Barclays Asia USD High-Yield Bond Index.

So if China sneezes, the rest of Asia gets sick. Global fund managers hesitate to deviate substantially from their benchmarks; the most likely action is fleeing the asset class altogether. Already, in the last month, global funds pulled more than $5 billion from emerging-market bonds, data provided by Jefferies Group show. 

And it looks like China may be catching something worse than a little cold: The feared D-word is being whispered. Beijing has already allowed China Energy Reserve & Chemicals Group Co. (which counts state oil behemoth China National Petroleum Corp. as a major stakeholder) to default, as well as a financing vehicle in Inner Mongolia. Will the authorities blink if private-sector enterprises miss their obligations? 

China is now on track to achieve an unhappy annual record. There have already been 19 bond defaults this year, totaling $3.1 billion.

Eoin Treacy's view -

China needs to allow defaults. The environment that existed previously where the government back stopped just about every form of egregious lending created an unsustainable level of risk in the shadow banking sector. Allowing defaults is a big part of trying to institute discipline in investors minds.



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May 30 2018

Commentary by Eoin Treacy

Salesforce Jumps on Rosy Revenue Forecast After Acquisitions

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

Chief Executive Officer Marc Benioff has expanded Salesforce’s ambitions beyond software for managing customer relationships, the business that made it an early leader in corporate cloud computing. The company bought MuleSoft Inc. for $6.5 billion -- its largest-ever purchase -- in May to chip away at Oracle Corp. in integration software that connects various systems. That deal, following forays into marketing and e- commerce products, is aimed at turning Salesforce into the top source of internet-based software for companies looking to replace all kinds of traditional programs once hosted in on-site servers.

The acquisitions have bolstered revenue, which Salesforce said climbed 25 percent to $3.01 billion in the fiscal first quarter. The company has promoted its expanding product portfolio to a bevy of new large and foreign clients in a bid to rival Oracle and Microsoft Corp. The result is Salesforce will reach its $20 billion sales goal “faster than imagined,” Benioff said on a conference call. The company has also spent rapidly on its international expansion, pledging to invest $2.2 billion in its French business and $2 billion in its Canadian operations over the next five years.

“We signed several deals, including the largest transaction in the history of the company, and the biggest public-sector deal,” Chief Operating Officer Keith Block said in an interview.

“The revenue for the quarter was over $3 billion. That’s twice the rate of the market. We’re obviously gaining share.” The public-sector customer is the U.S. Department of Agriculture, which uses the company’s Service Cloud to communicate with constituents, Block said on the call.

Eoin Treacy's view -

 I included Salesforce in the original cast of Autonomies because it had the potential to develop as a leader in the cloud computing sector. It was a leap of faith at the time because it did not meet the clear characteristics of an established global leader within its sector. Nevertheless, it was obvious in 2013 when I was writing Crowd Money that cloud computing was going to be a big sector and it was necessary to have some representation. 



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May 29 2018

Commentary by Eoin Treacy

Video commentary for May 29th 2018

May 29 2018

Commentary by Eoin Treacy

Italy's fresh election risks being referendum on euro

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

“The upcoming elections will not be political, but instead a real and true referendum ... between who wants Italy to be a free country and who wants it to be servile and enslaved,” League leader Matteo Salvini said on Monday.

“Today Italy is not free; it is occupied financially by Germans, French and eurocrats.”

The euro, bonds and stocks initially rallied on Monday after President Sergio Mattarella vetoed Savona’s nomination, but relief turned to fear over snap elections. The gap between Italian and German 10-year bond yields, a measure of Italian risk, widened to its highest in over four years.

“The election is going to resemble a referendum, de facto, on the European Union and the euro,” said Francesco Galietti, head of political risk consultancy Policy Sonar in Rome. “It’s an existential threat for the entire euro zone.”

Eoin Treacy's view -

The situation unfolding in Italy is another example of Europhile bureaucrats telling people what they should think. If one were to ask the simple question of whether governance is improving or deteriorating in the Eurozone the answer would have to be deteriorating. If a democratically elected coalition cannot take power after an election, then people will rightfully be asking what is the point of a plebiscite at all? This holds out of the prospect of another election which will be as much about the democratic process as it is about continued participation with the EU.



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May 29 2018

Commentary by Eoin Treacy

Musings from the Oil Patch May 29th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest. Here is a section:

 

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area. 

There is no argument that the goal of reducing carbon emissions is a laudable one. However, shuttering the nuclear industry in Germany, which has neither a history of seismic or tsunami activity, is another example of how blind adherence to ideals rather than reality on the ground results in less than optimal outcomes. This is another symptom of the wider problem inside the EU where observance of ideals is prioritized over the needs of the population.



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May 29 2018

Commentary by Eoin Treacy

Oil Slips After Saudi-Russian Revival Talk `Popped the Bubble'

 

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

 

“Clearly, the commentary from Russia and Saudi Arabia popped the bubble,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “There’s some legitimate skepticism about whether or not they will follow through. There is going to be nervousness right up until next month’s meeting.”

Eoin Treacy's view -

It is looking increasingly likely that a process of mean reversion is now underway for the oil price. The commitment to lower supply by both OPEC and Russia was one of the primary drivers behind the persistence of the advance over the last 18 months and that now appears to be over.



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May 25 2018

Commentary by Eoin Treacy

May 25 2018

Commentary by Eoin Treacy

May 25 2018

Commentary by Eoin Treacy

Saudis Signal Oil Output Boost, Offering Relief to Consumers

This article by Jack Farchy, Dina Khrennikova and Elena Mazneva for Bloomberg may be of interest to subscribers. Here is a section:

“Given current developments, with supply worries driving the price to $80, it would make perfect sense to remove the over-compliance by compensating for the shortfall from Venezuela,” said Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen.

Excess cuts amounted to about 740,000 barrels a day in April, according to estimates from the International Energy Agency. Without compensating supply from other members, this number looks likely to expand as the U.S. re-imposes sanctions on Iran and the collapse of Venezuela’s oil industry worsens.

Whether the size of the supply increase is ultimately "a million, more, or less, we’ll have to wait until June," when OPEC and its partners will meet, Al-Falih said. Novak echoed that, saying “it’s too early now to talk about some specific figure, we need to calculate it thoroughly.”

Typically, OPEC operates by consensus, meaning members that have little prospect of boosting production -- Venezuela, Iran and Angola -- would have to agree to the proposal.

Saudi Arabia has recently shown willingness to push prices higher to bankroll domestic economic reforms and underpin the valuation of its state oil company in a planned initial public offering. That appears to be changing, with the Aramco listing delayed until 2019 and Brent crude flirting with the kingdom’s desired price of about $80 for most of this month.

Eoin Treacy's view -

The USA has re-imposed sanctions on Iran and no one is likely happier about that than Saudi Arabia. That is also likely to have a played a role in the decision to help rebalance the oil market. Brent crude is no longer in backwardation between the first and second months suggesting some of the near-term pressure on supply is easing.



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May 25 2018

Commentary by Eoin Treacy

Renewable energy: A green light to Copper Demand

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

Eoin Treacy's view -

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

There is always a new demand led story in any bull market and renewables do represent such an opportunity. However, the success of that new idea is dependent on the conventional sources of demand remaining on a steady trajectory and it is in that regard that doubts tend to be raised about copper.



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May 25 2018

Commentary by Eoin Treacy

Tokyo Bitcoin Whale Strikes Again: Mt. Gox Bankruptcy Trustee to Blame for Latest Bitcoin Price Drop

This article from bitcoinist.com dated May 11th may be of interest to subscribers. Here is a section:

Tokyo Bitcoin Whale Strikes Again: Mt. Gox Bankruptcy Trustee to Blame for Latest Bitcoin Price Drop - This article from bitcoinist.com dated May 11th may be of interest to subscribers. Here is a section:

Several crypto monitors are accusing the Mt. Gox trustee of dumping the coins on the exchange market. These reports are still unconfirmed, but some commentators say it is a way of shorting the market. According to Cryptoground, the Mt. Gox bankruptcy trust still has a balance of 137, 891 BTC. Cryptoground is a website that monitors the cold wallet of the defunct platform’s bankruptcy trust. Kobayashi earlier said that he planned to sell the remaining Mt. Gox crypto holdings over the coming months.

Eoin Treacy's view -

Usually after a market crash there are people who still hold long positions bought at unattractive positions and who use occasional rallies to liquidate positions. Usually we do not know who the sellers are but on this occasion the Mt. Gox trustee is a guaranteed seller on rallies. That represents a significant headwind for the market until that substantial inventory is disposed of.



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May 25 2018

Commentary by Eoin Treacy

China to use cornerstones to help Alibaba, Xiaomi list in mainland: sources

This article by Julie Zhu and Shu Zhang for Reuters may be of interest to subscribers. Here is a section:

Beijing could also rip up its unwritten rules on pricing caps to make way for these blockbuster deals, said the sources who have direct knowledge of the matter, adding that Alibaba and Xiaomi were furthest along the CDR planning path.

Selling CDRs equivalent to say about 1 percent of Alibaba’s market capitalization would mean raising $5 billion in Shanghai or Shenzhen, marking what would be China’s largest share sale on the open market since 2009, according to Thomson Reuters data.

While such deals would allow mainland investors to benefit from any further share price rally, the securities regulator is worried they “will take up too much liquidity in the secondary market, which may lead to a drop in the main indices”, one of the sources told Reuters.

Eoin Treacy's view -

The Chinese mainland market is underperforming at present amid concerns about deteriorating standards of governance, trade wars and debt. However, the introduction of new sources of supply is a more pressing issue in the short-term.

Many mainland investors have felt left out by the success of domestic companies on overseas bourses without being given the opportunity to participate. If they get the chance to investor via the mainland market they are likely to take it in preference to other domestic shares.

The Shanghai A-Share Index pulled back from the region of the trend mean today to confirm this year’s downward bias.

Meanwhile Alibaba is testing the upper side of its six-month range.



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May 24 2018

Commentary by Eoin Treacy

Video commentary for May 24th 2018

May 24 2018

Commentary by Eoin Treacy

Email of the day on China's leverage

How serious a threat is China’s debt?  See attached speech by the Governor of the Reserve Bank of Australia.

Eoin Treacy's view -

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

“The deepening relationship has also benefited China in many ways,” the governor said. “We will of course have differences from time to time, but we will surely be better placed to deal with these if we understand one another well”.

The Reserve Bank now employs three staff full-time in Beijing to monitor Chinese economic and financial developments.

“The complex web that has developed in China is characterised by opaque risk transfers, implicit guarantees and complex connections,” the governor said. “The influence of the state and the incentives within financial institutions have almost surely distorted credit allocation and led to some poor lending decision” he added.

More than 3500 “shadow banks” have emerged in China, which provide an array of riskier financial products outside the state-controlled banking system.

“The extent that experience elsewhere in the world is any guide, it is difficult to escape the conclusion that this complex web in a highly indebted economy is a risky situation,” Dr Lowe said. Combined, shadow banks now make up 45 per cent of credit, up from 25 per cent a decade ago.

“The build-up of financial risks like those seen in China is almost always followed by a marked slowdown in GDP growth,” the governor said, stressing an economic collapse in China wasn’t inevitable.

I believe it is correct for Australian investors to keep a close eye on China. It was China’s unprecedented stimulus that helped Australia avoid recession during the global financial crisis because of its voracious appetite for commodities and if China eventually had a recession it will undoubtedly have a knock-on effect for Australia.



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May 24 2018

Commentary by Eoin Treacy

Petrobras Punished by Wall Street for Caving on Fuel Prices

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

The reaction was swift and severe. Petrobras Chief Executive Officer Pedro Parente woke up this morning to a wave of downgrades from the same Wall Street analysts who had been praising him since he took the helm of the state-controlled oil producer two years ago.

Bank of America Merrill Lynch, Morgan Stanley and Credit Suisse Group AG all cut their recommendations after Parente announced a 10 percent cut in wholesale diesel prices late Wednesday to help the government negotiate an end to a nationwide truckers strike that has wrought havoc on Latin America’s largest economy.

“The just announced diesel price reduction in response to truckers’ protest is likely to materially damage Petrobras’ perceived independence in a way that may be difficult to recover,” Frank McGann, an analyst at Merrill Lynch, wrote in a report where he cut his recommendation on the company’s American depositary receipts to neutral and his price objective to $17.

“We think that the investment case for Petrobras has been seriously damaged, and the risk profile has risen.”

While Parente said Petrobras isn’t bowing to pressure and that the temporary measure doesn’t mean a change in its pricing policy, shares extended losses in after hours trading to as low as $13.40 in late New York trading.

Eoin Treacy's view -

Petrobras is a major constituent in global high yield benchmarks so its decision to cut price against a rising oil price environment is not especially good news. Along with Turkey and Argentina, the risk in the high yield sector has increased this year.



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May 24 2018

Commentary by Eoin Treacy

In India, Facebook's WhatsApp Plays Central Role in Elections

This article by Vindu Goel for the New York Times may be of interest to subscribers. Here is a section:

WhatsApp has largely escaped that notice because it is used more heavily outside the United States, with people in countries like India, Brazil and Indonesia sending a total of 60 billion messages a day. And unlike Facebook and Instagram, where much of the activity is publicly visible online, WhatsApp’s messages are generally hidden because it began as a person-to-person communication tool.

Yet WhatsApp has several features that make it a potential tinderbox for misinformation and misuse. Users can remain anonymous, identified only by a phone number. Groups, which are capped at 256 members, are easy to set up by adding the phone numbers of contacts. People tend to belong to multiple groups, so they often get exposed to the same messages repeatedly. When messages are forwarded, there is no hint of where they originated. And everything is encrypted, making it impossible for law enforcement officials or even WhatsApp to view what’s being said without looking at the phone’s screen.

Govindraj Ethiraj, the founder of Boom and IndiaSpend, two sites that fact-check Indian political and governmental claims, called WhatsApp “insidious” for its role in spreading false information.

“You’re dealing with ghosts,” he said. Boom worked with Facebook during the Karnataka elections to flag fake news appearing on the social network.

Eoin Treacy's view -

There is no getting around the fact that social media is now part of the fabric of everyday life. It is the medium through which many people stay in contact with family, friends and acquaintances. It is also how companies, marketing firms and political parties maintain constant contact and attempt to influence our decisions.



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May 23 2018

Commentary by Eoin Treacy

Video commentary for May 23rd 2018

Eoin Treacy's view -

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

Some of the topics discussed include: buying opportunities arise when central banks intervene to support currencies, risk-off turns to risk-on intraday, dollar firm, stock markets steady, Brent crude oil pausing near $80, an increasing number of shares breaking out. 



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May 23 2018

Commentary by Eoin Treacy

Interesting charts May 23rd 2018

Eoin Treacy's view -

10-year Treasury yields fell back to test the psychological 3% today. The Fed’s Minutes highlighted less urgency to tackle the inflation rate coming in mildly ahead of target. That eased fears the yield would surge higher imminently. An overextension relative to the trend mean is evident, so there is scope for an additional pause in this area but a sustained move below 2.7% would be required to question supply dominance.



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May 23 2018

Commentary by Eoin Treacy

Turkey Central Bank Raises Interest Rates to Halt Lira's Slump

This article by Onur Ant and Benjamin Harvey for Bloomberg may be of interest to subscribers. Here is a section:

Turkey’s central bank raised interest rates to halt a slide in the lira that’s seen the currency post a series of record lows.

The central bank raised its late liquidity window rate by 300 basis points to 16.5 percent, after an extraordinary meeting of its monetary policy committee on Wednesday to “discuss recent developments.” It kept other rates unchanged, describing the move as a “powerful monetary tightening” and saying it’s ready to continue using all instruments.

The lira reversed Wednesday’s losses after the bank’s move. It was trading 0.7 percent stronger at 4.6367 per dollar as of 7:32 p.m. in Istanbul. The currency earlier fell as much as 5.5 percent.

The central bank acted after three weeks of turmoil on Turkey’s currency markets. Turkish President Recep Tayyip Erdogan, who’s seeking re-election next month, has publicly opposed any moves to raise interest rates, while investors and economists argued that was the only way to halt the rout.

Erdogan told Bloomberg in an interview this month that he’ll seek more control over monetary policy if he wins the vote.

The central bank’s rate-setting committee hadn’t been scheduled to meet until June 7. After news broke of its emergency session on Wednesday, Finance Minister Mehmet Simsek said on Twitter that it’s time to restore the credibility of Turkey’s monetary policy.

Eoin Treacy's view -

The Lira has been accelerating lower and dropped to test TRY5 to the US Dollar this morning, before the central bank finally intervened by raising the interest rate. 16.5% represents a substantial premium over anything available in Europe and is aimed squarely at stemming foreign capital flight.



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May 23 2018

Commentary by Eoin Treacy

Metals and mining rising to the challenges of EV revolution

Thanks to a subscriber for this report from Platts which may be of interest. Here is a section on the global steel market:

Eoin Treacy's view -

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

China’s steel industry demonstrates how quickly the country can ramp up supply when the central government makes a decision to champion a sector. It did exactly the same in solar and wind and it’s doing it today in artificial intelligence and battery manufacturing. Nevertheless, the extent to which it went to any lengths to build out steel capacity now represents a challenge as the infrastructure led boom transitions to focusing on services and domestic demand.



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May 23 2018

Commentary by Eoin Treacy

Tiffany Catapults to All-Time High as Sales Blow Away Estimates

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

The shares jumped as much as 17 percent to $119.60 in New York trading, an all-time intraday high and the biggest one-day leap in almost a decade.

The overhaul started by Chief Executive Officer Alessandro Bogliolo consolidated a rebound under way when he took over last year, with revenue growth last quarter at the highest since 2012. The former Diesel executive aims to woo a younger clientele with refreshed jewelry lines and generate hype for the 181-year-old brand. The revitalization attempt includes redesigned stores and back-end improvements in procurement and technology operations.

“We are particularly encouraged by the breadth of sales growth across most regions and all product categories,” Bogliolo said in a statement.

Global same-store sales climbed 7 percent, in the quarter ended April 30 when holding currency constant, compared with the 2.6 percent growth projected by analysts, according to Consensus Metrix.

On that basis, sales rose 9 percent in North America, Asia- Pacific and Japan, all beating analysts’ predictions. Asia was particularly strong in China and Korea. The weak spot was Europe, which saw a 9 percent decline due to reduced spending by overseas tourists, the New York-based company said.

Eoin Treacy's view -

There has been a high degree of commonality in the luxury goods sector this year as the Trump tax cuts unleashed some pent-up consumer demand. Front loading purchases of goods likely to rise in value in anticipation of inflation has also been a factor in the outperformance of the sector. Additionally, luxury goods manufacturers have been at pains to try and appeal to a younger demographic.



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May 22 2018

Commentary by Eoin Treacy

Video commentary for May 22nd 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Consumer Staples and the outlook for bond proxies, accelerating trends in lumber and luxury goods, stock markets steady, midcaps continue to outperform, bonds steady, Dollar eases slightly, oil pauses at $80. 



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May 22 2018

Commentary by Eoin Treacy

Campbell Soup May Be Downgraded by Moody's Amid CEO Departure

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

Moody’s Investors Service said it may cut Campbell Soup Co.’s credit rating after the company posted a steep drop in profitability and its chief executive officer suddenly stepped down.

All of the company’s ratings are under review, including its Baa2 senior unsecured rating, Moody’s said in a report Monday. That’s only two steps above speculative-grade. Moody’s did not say how many levels the downgrade could amount to.

Campbell Soup has short- and long-term debt of $9.84 billion and its leverage as measured by debt-to-Ebitda -- earnings before interest, tax, depreciation and amortization -- was about five times at the March closing of the Snyder’s-Lance Inc. acquisition. Moody’s says it’s now doubting that the company can meet its expectations to reduce that metric to below four times within two years via cash flow and cost savings.

“The sharp and unexpected decline in profitability in the third quarter casts serious doubt that Campbell will be able to meet its deleveraging plans following the Snyder’s-Lance acquisition,” Moody’s analyst Brian Weddington said in the report. “Additionally, the departure of the CEO adds further uncertainty about whether the company will respond successfully to its operating challenges in the near term.”

Eoin Treacy's view -

Campbell Foods is not a dividend aristocrat because there have been occasions in the last 30 years when it cut the dividend. On each of those occasions it stopped raising the payout before the decision to cut. That is at least part of the reason that the share has been falling over the last year but does not explain the fall from the peak in 2016.



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May 22 2018

Commentary by Eoin Treacy

Lumber falls limit 3 days in a row

Eoin Treacy's view -

The futures market is dictated by a set of rules that control trading. Two of these are margin rates and daily limits. When prices accelerate in either direction the exchange has the option to change either the limits or the margin rate in order to increase or decrease the cost of trading which then acts as a catalyst for reversal.



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May 22 2018

Commentary by Eoin Treacy

Italy's President in Spotlight as Government Quest Turns Chaotic

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

Italian President Sergio Mattarella takes center-stage as he weighs whether to give law professor Giuseppe Conte a chance to lead a populist government following a last- minute wobble over the candidate’s suitability for the post.

Mattarella is due to announce his decision as early as Wednesday after Conte, 53, was put forward by Luigi Di Maio of the anti-establishment Five Star Movement and Matteo Salvini of the anti-immigrant League. A flurry of reports in Italian media cast doubt on Conte’s premiership before it even began, prompting Five Star and the League to reaffirm Conte’s candidacy on Tuesday evening.

Eoin Treacy's view -

The marriage of two populist parties which are essentially from the two opposing extremes of the populist field i.e. cut taxes versus boost benefits, is proving more fraught with difficulty than might initially have been apparent. They are still likely to try and install a compromise candidate but there is no doubting that strong personalities are to the fore.



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May 21 2018

Commentary by Eoin Treacy

May 21 2018

Commentary by Eoin Treacy

Email of the day on valuations, Dow/Gold and anti-trust:

Thanks for your comments which are very interesting, especially your focus on technology and its potential to alter radically the investment landscape.

I have 2 points of my own to make. Using gold as the standard of value for stocks is interesting but I would think valuation metrics are more useful. As you know the Shiller PE, derived by comparing the S&P to the 10-year moving average of real corporate earnings- GAAP (not adjusted)- is at the highest level since the TMT bubble popped in 2000. The ratio of market value (the Wilshire 5000+) to GDP was at all-time highs in January. We have lived through a decade of extraordinary monetary policy (almost zero interest rates and QE), which is now being reversed. I think S&P market value to S&P sales may also be at all-time highs, but I may be wrong about that.

So the starting point is pretty rich. The PE is at 25 times 4 quarter GAAP earnings, implying a 4% earnings yield. The Moody's Baa 20-year bond yield is around 4.6% so the equity premium has been negative the last 5-6 years for the first time since 1961 when the Bloomberg series started. On average equity holders over this period have earned a premium of 1.62% to reward them for investing in the riskier part of the capital structure, but now they must pay for the privilege.

However, this does not address your major point about the enormous earning potential of companies involved in future technology. Now a standard criticism of your point is that competition between businesses will reduce the excess profits to "normal profits". What economists call "consumer surplus" consists of the extra value that is transferred from businesses to consumers for free due to the operation of the competitive market which eliminates excess profits.

This flows from the ideal world of independent competitive enterprises. Anti-trust laws in the USA have been around since 1890 (Sherman Anti-Trust Act) and were designed to cause real world behaviour to better approximate the theoretical. 

What I have found interesting is that Anti-Trust is no longer as big a deal as it was when I was a student. In fact, when Mark Zuckerberg testified he named 5 or 6 tech companies that are competitors of Facebook's. In this list he mentioned WhatsApp and another company (Telegram?) that he has already bought and perhaps one or two others. He also mentioned Skype, which Microsoft has bought. The big tech companies have the where with all to buy smaller rapidly growing companies and maintain tight oligopolies and thus earn outsize profits. I doubt whether many of these purchases would have passed muster from the Department of Justice's Anti-Trust division one or two generations ago.

So the key may be to watch politics and see whether the populists at some point turn their attention to Anti-Trust.

Eoin Treacy's view -

Thank you for this detailed email which has given me much food for thought. As you point out there is a tendency among the producers of widgets to encounter competition which reduces the price to often unprofitable levels. At that point some of the weaker producers go out of business and a process of consolidation unfolds. The competitive Amazon marketplaces is a good example of this where producers of widgets compete on price to gain market share only for many to disappear after a relatively short time to be replaced by lower cost producers.



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May 21 2018

Commentary by Eoin Treacy

Email of the day another email on the CAPE and the merits of cash

In your 30th April response to my email, you say as follows "The only problem I have with comparing the current environment to that which prevailed from the early 1960s is that the market spent 13 years ranging from 2000 to 2013 so it would be unusual to begin another similar range so soon after the last one ended"

My response:  Yes, it is true that it would be unusual to "commence a similar such range so soon after the last one ended."  However, in this circumstance, there are a range of other very unusual related circumstances.

In the last 10 years, we have had a unique period of historically extreme money printing with very little consumer prices inflation as measured by the official CPI number, but this extreme period of money printing has caused very high asset price inflation - pushing many sectors back up into fairly extreme valuations as measured by historical norms.

We can also look at this phenomena from another. If we look at Professor Robert Shiller’s cyclically adjusted price/earnings ratio series commencing 1880, we can see that secular bear markets have typically ended with a single digit CAPE - at the end of a secular bear market, the cyclically adjusted P/E has been in the range of 5-7 in 1982 and 1921.

By contrast, the January 2018 peak in the US cyclically adjusted P/E of 33 was the second highest instance since 1880 - only being surpassed by the dot com peak in 2000 but surpassing the 1929 peak by a small margin.

So, by this (Shiller CAPE) normally fairly reliable valuation measure, the US share market on broad averages is at a fairly extreme level. I think it is fair to say that if you buy expensive assets, you should expect poor to bad average real returns over the following 10 years or so.

One last point to you 30th April comments, to the section where you say "The stock market is a better hedge against inflation than bonds because companies have the ability to raise prices and therefore dividends while bond coupons are fixed."  In a period of rapidly rising inflation like the 1970s, all listed securities including shares and bonds tend to do poorly because of the rapidly rising discount that needs to be applied when valuing such assets. By contrast, in Australia at least, during the 1970s, cash and hard assets like gold and commercial property were better investments. 

Eoin Treacy's view -

Thank you for this riposte to my answer to your original question posted in Comment of the Day on April 30th.



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May 21 2018

Commentary by Eoin Treacy

Email of the day on trucking data

May 21 2018

Commentary by Eoin Treacy

Beyond the Dollar Everything's Just Noise for Emerging Markets

This article by Netty Ismail, Ben Bartenstein, Lilian Karunungan and Alex Nicholson for Bloomberg may be of interest to subscribers. Here is a section: 

The combination of higher debt levels and share of debt denominated in foreign currency means many emerging markets are now more exposed to dollar appreciation than in 2009, amid signs the robust growth in developing economies may be slowing, the Institute of International Finance said in a May 17 note.

While the U.S. Treasury will sell some of its largest offerings since 2010 this week, a slew of Fed speakers may reiterate plans for gradual rate increases.

The selloff in developing nation currencies is hurting other assets.

Emerging-market local-currency government bonds declined for a sixth week, the worst run since 2016. Developing-nation stocks retreated 2.3 percent last week.

Eoin Treacy's view -

The last time there was angst expressed at the impact a resurgent Dollar would have on emerging markets was in 2015. The same arguments are being made today and it appears that the figures for US Dollar denominated debt are even higher.



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May 18 2018

Commentary by Eoin Treacy

May 18 2018

Commentary by Eoin Treacy

Amgen's Just-Approved Migraine Drug Will Cost $6,900 a Year

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

“The payers recognize that there is a clear and longstanding unmet need in migraine,” said Tony Hooper, executive vice president of global commercial operations at Amgen, on a call with analysts Friday. Hooper said the company is in talks with pharmacy-benefit managers and insurers and “by and large, they are supportive of our price.”

Amgen and partner Novartis AG said that they will launch the drug within one week in the U.S. Hooper said that the company expects patients will take the drug if they have tried and failed on other migraine treatments.

The drug’s lower-than-expected price was met positively by analysts who said they expect it will win broad reimbursement from insurers.

“Overall, we think their pricing strategy fits well into the current reimbursement environment,” said Michael Yee, an analyst with Jefferies wrote in a note. Yee, who has a “buy”

rating on Amgen shares, said the lower price “sends a good message.”

But Baird analyst Brian Skorney said once rival treatments come to market, insurers and drug middlemen may pit drugs against each other to get the lowest possible price.

“If anything it just makes the eventual lowest net price that much lower once there are several on the market,” wrote Skorney, who rates Amgen shares “neutral.”

Eoin Treacy's view -

Drug pricing is now as much a political calculation as it is a business decision. Historically drug companies opened with a high price to try and recoup as much of the cost of development as possible in as short a period of time as possible. This was viable because they believed unmet need represented a potent source of capital that could be unlocked before competition resulted in price drops.



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May 18 2018

Commentary by Eoin Treacy

LSE Reveals London-Shanghai Stock Link, Sees 2018 Start

This article by Benjamin Robertson and Viren Vaghela for Bloomberg may be of interest. Here is a section:

The London-Shanghai Stock Connect will allow companies from China to sell global depository receipts in the U.K. and enable London-traded firms to list similar securities in Shanghai, according to an LSE presentation seen by Bloomberg News. Starting later this year, the securities issued by Chinese companies will appear on what LSE calls the Shanghai Board. A spokesman for LSE declined to comment.

The London link will be yet another step in China’s financial opening, which began in earnest with a stock connect to Hong Kong in 2014. For the LSE, the move will help the exchange offset a possible decline in activity with Russian companies after the step-up of U.S. sanctions.

“This is a real step in the integration of China’s financial markets,” said Karine Hirn, partner at East Capital Asset Management in Hong Kong. “What’s exciting about this project is that it’s Chinese money going into Western companies.”

Eoin Treacy's view -

200 of China’s mainland listed A-Shares will be added to the MSCI Emerging Markets basket on June 1st. The primary reason they are not already included along with overseas listed Chinese companies is because of issues with buying them. Even with the QFII program it is not a simple matter to buy, or indeed sell, mainland Chinese equities. Since the Chinese administration is intent on controlling capital flows, especially out of the country, dealing in equities is a strictly regulated enterprise. The introduction of depository receipts for the UK and other bourses is a positive step in further opening up the market.



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May 18 2018

Commentary by Eoin Treacy

Washington Policy: Banking Trifecta Set for Next Week

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

Bank regulatory team in place. McWilliams’ confirmation will be the last piece of the puzzle that puts into place President Trump’s bank regulatory team and continues the advance of the administration’s deregulatory agenda. Several deregulatory actions have emerged from the Fed under Vice Chair for Supervision Randal Quarles, and we expect bank regulatory relief actions and proposals to pick up in pace with the confirmation of McWilliams. We are monitoring the expected release of an inter-agency revised Volcker Rule proposal which could come within the next month following the confirmation.

FHA nomination. The focus with Montgomery’s nomination will be on whether he seeks to limit FHA lending, which could benefit private mortgage insurers. We think he will be incremental in his changes in the near-term and is unlikely to increase FHA premiums. He has held the position previously, serving as a non-controversial head. Overall, he is a likely positive for mortgage credit availability.

Eoin Treacy's view -

The banking sector has been labouring under increased scrutiny for much of the last decade with the number of compliance personnel increasing while traders have all but been eliminated in favour of computers.



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May 17 2018

Commentary by Eoin Treacy

May 17 2018

Commentary by Eoin Treacy

Global surge in air-conditioning set to stoke electricity demand

Thanks to a subscriber for this article by Ed Crooks for the Financial Times which may be of interest. Here is a section:

Over the next 30 years, air-conditioning could increase global demand for electricity by the entire capacity of the US, the EU and Japan combined, unless there are significant improvements in the efficiency of the equipment, the IEA warned.

In a report released on Tuesday, the agency urged governments to use regulations and incentives to improve the efficiency of air-conditioning units, to avoid a surge in demand that could put strains on energy supplies and increase greenhouse gas emissions.

Fatih Birol, the IEA's executive director, said: “This is one of the most critical blind spots in international energy policy.”

Air-conditioning has had an enormous effect on the quality of life in hot regions, but its use is unevenly distributed around the world. About 90 per cent of homes in the US and Japan have air-conditioning, compared with about 7 per cent in Indonesia and 5 per cent in India.

Electricity used for cooling in the US is almost as great as the entire demand for power in Africa.

Eoin Treacy's view -

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

There was a story a few years ago where world leaders were asked what the greatest invention of the 20th century was. Some said the electrical grid but the Prime Minister of Singapore said air conditioning. He opined that without it most people in the country would still be seeking shelter from the heat under the nearest tree.



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May 17 2018

Commentary by Eoin Treacy

Email of the day on the high cost of electric vehicle subsidies

I just returned from a very eye-opening trip to Arizona, visiting Scottsdale (in the Sonoran desert) and the mountains of Northwestern Arizona. We flew into Phoenix and drove a lot. We saw zero Teslas. I'm told there are a few around Phoenix. But with the poor performance of electric vehicles in both cold and hot environments, it probably should not be shocking.

Going to Arizona from California is like going from lala land, where the majority of people are drinking weird kool-aid, to the real world, where people work for a living, dislike taxes, and are really concerned about the massive influx of Californians who are oddly leaving their dream state.

Electric car enthusiasts here in CA get the pleasure of paying $0.38/kwh for their electricity, FAR above the advertised $0.12/kwh, thanks to tiered billing and some of the highest real electric rates in the nation. When an electric car is parked in every driveway, neighborhood power distribution systems will be grossly overloaded (recharging typically starts after 6pm and finishes before 8am, compressing the "average" load on power networks). So, these systems will have to be replaced at taxpayer or ratepayer expense, with lower income people getting no benefits but definitely sharing substantially in the costs.

All this means that one of the highest tax states in the Union will become far higher taxed, both in direct taxes and indirect taxes like state mandated burdens on electricity ratepayers. Meanwhile gas taxes remain some of the highest in the nation, and will only go higher, putting yet more burden on the lower income folks. 

Meanwhile, the exodus of retirees naturally accelerates.

Eoin Treacy's view -

Thank you for this illuminated article. Filling up in California right now is definitely resulting in sticker shock with premium at $3.67 at Costco and testing $4 on the westside of LA. Electric vehicles have come a long way in terms of both efficiency and range but still have a long way to go in order to fully displace the internal combustion engine. Thanks also for the educative report from Continental Economics which I’m sure will be appreciated by subscribers. Here is a section:



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May 17 2018

Commentary by Eoin Treacy

Tencent Gains $18 Billion as Record Profit Eases Margin Fear

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

Revenue from Value Added Services, which includes online games and messaging, rose 34 percent to 46.9 billion yuan. The company has however been leery of barraging its users with ads - on Wednesday, it declared it had raised the maximum number of ads that customers see on WeChat Moments, a function similar to Facebook’s newsfeed, to just two a day from one previously.

“The results were good even without the one-time gains, but the gains made it even better,” said Bhavtosh Vajpayee, a Hong Kong-based research analyst at Bernstein.

But overall costs surged 51 percent. Tencent executives have signaled a willingness to sacrifice margins in favor of longer term growth in new businesses, though that would depend on growing and engaging a massive user base now primarily confined to China.

Profit was also helped by one-time gains of almost 7.6 billion yuan from its investments in arenas like video and news.

“The reason why analysts had been modeling down was because they did mention about subsidies on payments and also continued investments in content costs,” Citigroup Global Markets’s Head of Pan-Asia Internet Research Alicia Yap told Bloomberg Television. “All these years of investments in digital content, for example music and video, actually started to show some leverage” this quarter.

Eoin Treacy's view -

Tencent is a heavy weight in the Hong Kong, any Chinese equity index as well as the MSCI Emerging Markets Index. It needed a good earnings report to signal to investors that the company’s best growth days are not already behind it.
 



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May 16 2018

Commentary by Eoin Treacy

May 16 2018

Commentary by Eoin Treacy

The Coming Scramble for Middle Distillates

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

Eoin Treacy's view -

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

The futures curves for crude oil, gasoline, gasoil and heating oil are all in backwardation which confirms there is a supply shortage. OPEC and Russia’s curtailment of supply coupled with the re-imposition of sanctions on Iran and Venezuela’s implosion at certainly part of the story. The surge in supply from unconventional supplies is also pulling pressure on refineries because of the differing grades from what they are set up to receive.



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May 16 2018

Commentary by Eoin Treacy

Italy Debt Write-Off Talk Weighs on Bonds as Yields Rise

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

Confirmation that Italy’s putative government is talking about asking the European Central Bank for debt forgiveness is weighing on the nation’s debt. The extra yield investors demand to hold 10-year Italian government bonds instead of German bunds, Europe’s benchmark, widened to the most since January. League lawmaker Armando Siri told La7 television that they are discussing a 250 billion-euro ($300 billion) write-off, confirming an earlier report by the Huffington Post.

Eoin Treacy's view -

Greece has now successfully pushed the maturity of its massive debt load out decades and that is an attractive proposition for other countries. Considering how much public debt Italy has something has to be done to get finances under control and clearly the population has had enough of belt tightening.



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May 15 2018

Commentary by Eoin Treacy

Video commentary for May 15th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Treasury yields break above 3%, TIPS yields on the cusp of breaking out, Dollar strong, emerging market currencies weak, Wall Street pares decline somewhat, gold breaks down, oil eases from $80. 



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May 15 2018

Commentary by Eoin Treacy

Hands Tied and Swords Bent, Emerging Markets Battle the Dollar

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

But that’s not the ominous undertone. It’s about how the traditional fortifications of emerging markets -- strong oil and commodity prices -- are failing to protect developing-nation currencies from the onslaught of a stronger dollar.

Look at the chart below. In January, developing-nation currencies and commodities fell together and rose back in tandem. But this time, while the Bloomberg Commodity Index is extending gains, currencies have collapsed. This divergence suggests that a strong U.S. dollar is more decisive for risk appetite than commodity prices.

That’s bad news for countries such as South Africa and Russia. The ruble, for instance, is now moving in the opposite direction to oil even though it’s the country’s biggest export earner. Their usual positive correlation was destroyed by a four-day decline in the currency in the wake of enhanced U.S. sanctions.

Eoin Treacy's view -

The Dollar’s rally is resuming with some of the most pressured emerging markets being forced to raise rates aggressively to stem declines. Argentina’s 40% repo rate is beginning to have the desired effect but it is one of a very small number of currencies that was able to squeeze out a rally against a resurgent Dollar today.



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May 15 2018

Commentary by Eoin Treacy

"Random Gleanings on a Trip to Traverse City"

Thanks to a subscriber for this note from Jeffrey Saut at Raymond James. Here is a section:

The rude crude rally has not gone unnoticed by the gasoline market where there is the potential for gasoline prices to spike this summer with prices at a four-year high amid record demand (prices).  So far such price increases have not bled into the inflation figures, but the truckers are seeing the pinch.  To wit (as reprised by David Lutz): Trucking companies increased leverage is applying added pressure to cargo costs as accelerating economic growth bolsters transportation demand and exacerbates driver scarcity.  With first-quarter trucking spot rates up 27 percent from a year earlier, according to Bloomberg Intelligence, freight expenses are crimping profits at companies.

To us, the creeping inflation, and marginally higher interest rates, suggests the economy is going to strengthen in the back half of 2018.  Certainly that is what the stock market is telegraphing as earnings continue to ramp-up.  As we write, the D-J Industrial Average has made it eight consecutive winning sessions, leaving the equity market very overbought in the short term.  Also worth consideration is that the Industrials rarely make it more than nine straight sessions in any one direction.  Consequently, there could be a pause in the upward onslaught or even an attempt to pull stocks back.  However, we think the S&P 500 (SPX/2730.13) should be well supported at the 2670-2685 level and that should contain any decline barring unexpected news.  Also waxing bullishly is the TD Ameritrade Investors Movement Index, which is back down to its 2015-2016 levels.  That means investors are not very optimistic currently and, therefore, not buying stocks.  Further, there was over $8 billion of money flows into prime money market funds last week.  These are not the kind of metrics one sees at stock market tops.  However, it’s May option expiration week, which has been bearish for the last nine years, and with stocks stretched for the aforementioned reason, look for some kind of pause/pullback that does not get very far.

Eoin Treacy's view -

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

As I spoke about in last night’s video/audio there is a risk of some consolidation following the impressive rally over the last couple of weeks.



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May 15 2018

Commentary by Eoin Treacy

Musings from the Oil Patch May 15th 2018

Thanks to a subscriber for this edition of Allen Brooks ever interesting report for PPHB. Here is a section:

Eoin Treacy's view -

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

If the USA’s increasingly powerful position as a swing producer of oil and gas is reducing the need for it to play the part of the global police force then what can we conclude from China launching its first domestically produced aircraft carrier this week?



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May 15 2018

Commentary by Eoin Treacy

Long-term themes review April 10th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:



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May 14 2018

Commentary by Eoin Treacy

May 14 2018

Commentary by Eoin Treacy

ECB's Villeroy Sees Rate Hike Quarters, Not Years, After QE

This article by Piotr Skolimowski, Jana Randow and Alessandro Speciale for Bloomberg may be of interest to subscribers. Here is a section:

European Central Bank policy maker Francois Villeroy de Galhau said the institution’s first interest-rate increase could come “at least some quarters, but not years” after policy makers end their bond-buying program.

In an interview in Paris, the French central banker played down concerns about the euro area’s first-quarter economic slowdown and signaled that the ECB is still likely to halt quantitative easing this year. He said inflation will resume its acceleration in coming months, with underlying price pressures set to strengthen as the bloc’s temporary weakness passes.

“We will probably give additional guidance for the end of the year for the timing of the rate hike and the contingencies,” Villeroy said in a Bloomberg TV interview with Francine Lacqua.

“We’ll see exactly how we formulate it. We’re predictable, and it’s a clear virtue of our gradual normalization path, but we are not precommitted.”

ECB policy makers have yet to formally discuss the future of their QE program. Purchases are currently scheduled to run until at least September, totaling more than 2.5 trillion euros ($3 trillion), and officials expect interest rates to stay at current record lows until “well past” the end of net buying. Maturing debt will be reinvested.

Eoin Treacy's view -

It could be argued Germany, Netherlands and maybe Austria are ready for higher interest rates. Since together they make up a substantial proportion of the Eurozone economy that is what the focus of ECB actions is likely to be.



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May 14 2018

Commentary by Eoin Treacy

Federal Sports-Wagering Ban Overturned by U.S. Supreme Court

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

The U.S. Supreme Court struck down the federal law that bars gambling on individual sporting events in most of the country, in a ruling likely to unleash a race among the states to attract billions of dollars in legal wagers.

Ruling in a New Jersey case, the court said the 1992 law unconstitutionally forced states to maintain laws that outlaw gambling. Nevada is the only state where single-game wagering is now legal.

Sports gambling could begin in a matter of weeks in casinos and racetracks in New Jersey, which instigated the legal fight by repealing its gambling prohibition. Mississippi, Pennsylvania, New York, Delaware and West Virginia could follow soon, and the number of states might reach double digits by the end of the year.

The vote was 6-3 to strike down the entirety of the federal prohibition. Americans place $150 billion a year in illegal sports bets, according to the casino-backed American Gaming Association. The research firm Eilers & Krejcik Gaming puts the number at $50 billion to $60 billion, not counting bets among friends.

The ruling starts a new era for the largest sports leagues, which fought New Jersey in court even while moving toward embracing legalized sports wagering. In January, a National Basketball Association executive told New York lawmakers the leagues should get 1 percent of all bets. The NBA says it would prefer a new federal law to set nationwide standards.

Eoin Treacy's view -

However one feels about investing in vice, there is no doubt that people like to gamble and the removal of the Federal prohibition will be a major benefit to casino. Since there was never a prohibition on online gambling this news is unlikely to be of particular interest to that segment while the biggest losers are likely to be Indian casinos which have been able to skirt the law for the last few decades.



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May 14 2018

Commentary by Eoin Treacy

RBC Electric Vehicle Forecast Through 2050 & Primer

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

Eoin Treacy's view -

The outlook for electric car adoption is a central theme in the outlook for lithium miners and other suppliers of the growing battery market. Going from 0.8% in 2017 to 7.5% in 2025 is not far of a 10X growth rate and while ambitious is realizable. There are massive construction projects underway, particularly in Asia to build out production capacity of batteries.



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May 14 2018

Commentary by Eoin Treacy

How the World's Biggest Companies Are Fine-Tuning the Robot Revolution

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

The big question surrounding automation has long been whether robots would compete with workers or help them. Initially, workers feared robots would destroy jobs across the economy. Scholarly research and real-life experience has eased that concern, although some types of workers and industries are ending up on the losing side.

Today, the question is more precise: In which industries does automation help both employer and employee?

The companies that may have cracked the code are those that can assign repetitive, precise tasks to robots, freeing human workers to undertake creative, problem-solving duties that machines aren’t very good at. That’s particularly relevant for manufacturing, the food sector and service sectors such as billing, where timetable spreadsheets can be automated, freeing up workers to do higher-value tasks.

With demand for Bosch-built steering controls high, the company has used automation to increase its output, leading it to hire more people to perform the type of checks Mr. Rösch conducts.

“We looked for 20,000 new hires last year,” a mix of new positions and replacement staff, said Stefan Assmann, one of the company’s chief engineers, to join Bosch’s total 400,000 employees. Bosch factories world-wide now make use of 140 robotic arms, up from zero in 2011. “We can’t see robots having a negative impact on our workforce,” Mr. Assmann said.

Eoin Treacy's view -

If robotics and automation are helping to improve productivity and leading to expanded employment then there must be another reason why factories have been closing and people losing their jobs. The answer is pretty simple when we hear of workers having to train their replacements from overseas before they are fired.



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May 11 2018

Commentary by Eoin Treacy

May 11 2018

Commentary by Eoin Treacy

Trump Gives Americans the Gift of High Lumber Prices

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

Lumber prices are really high right now! The Chicago Mercantile Exchange futures contract for the softwood two-by-fours used in framing houses closed at its highest price ever on Tuesday, in fact.

If one adjusts for inflation, current prices are no longer record-setting. But an interesting pattern does appear if one adds in a few other key data points.

It appears that every time the U.S. picks a fight with Canada over its alleged subsidies of softwood lumber — which comes from coniferous trees such as pines, firs and cedars — U.S. lumber prices go up. The match is likely even closer than the chart above indicates, given that threats of tariffs (“countervailing duties,” to be precise) and follow-up tariff increases also affected prices.

The U.S.-Canada softwood lumber war first flared up in the early 1980s. Imports of lumber from Canada had been on the rise as environmental restrictions cut back on logging in U.S. National Forests, and the U.S. timber industry began to complain that Canadian local, provincial and national governments, which own almost all of the country’s forest land, were charging such low prices for timber that it amounted to an unfair subsidy.

Eoin Treacy's view -

How long before the homebuilding lobby starts to complain about an inability to pass on higher input costs to the end consumer? So far, the rising real estate market has meant that hasn’t been an issue, but it is inevitable at some stage. When that happens the reduction in tariffs on Canadian timber will represent a significant headwind for lumber prices. After all, the oldest adage in the commodity markets is “the cure for high prices is high prices”.



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