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November 18 2022

Commentary by Eoin Treacy

November 18 2022

Commentary by Eoin Treacy

Euro-Zone Banks Return 296 Billion in Cheap ECB Funding

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

Banks will return €296.3 billion ($308 billion) of cheap loans to the European Central Bank after their terms were toughened to help the battle against record inflation. 

The repayment represents just under 15% of the total outstanding amount of so-called TLTRO loans, which were used during the pandemic to keep credit flowing to households and businesses. The median forecast in a Bloomberg poll this month was for €600 billion to be given back. The projections ranged from €200 billion to €1.5 trillion.

German two-year bonds erased losses and outperformed equivalent interest-rate swaps after the data. The spread between yields and swap rates widened two basis points to around 84 basis points.

Eoin Treacy's view -

Christine Lagarde was very clear in stating today that the ECB is recommitting to their sole official mandate of getting inflation back to target and avoiding “secondary effects”. The threat of inflation becoming entrenched is non-trivial because the solutions to the region’s energy crisis all imply paying more than before the crisis. That means killing demand is the only way to get inflation under control and it is not yet clear the ECB has the stomach for that kind of action.



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November 18 2022

Commentary by Eoin Treacy

Old Tankers Get a Second Life at Russian Ports as Sanctions Near

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

Traders are increasingly turning to near-obsolete oil tankers to transport cargoes of Russian crude as sanctions targeting the nation’s petroleum revenues draw ever closer.

Since June, a total 17 crude cargoes have been collected from Russian ports by tankers that are at least 20 years old.

That’s an age when they reach the end of their normal working lives and owners consider selling them for scrap. It’s more than double the number of such shipments during the same period in 2021, according to data compiled by Bloomberg from Vortexa Ltd. The market is preparing for sanctions from Dec. 5 that will make shipping Russian crude trickier for owners, and insurance harder to obtain. There has been uncertainty about how the country will get its barrels to market, with an increase in
second-hand vessel transactions thought to be earmarked for the trade.
 

Eoin Treacy's view -

The retirement plan for old tankers always means scraping them because the metal was often worth more than the ship. Today retirement means be sold to a Russian friendly company and extending the life of the vessel past its serviceable date.



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November 18 2022

Commentary by Eoin Treacy

FTX Latest: Bitcoin Weathers Gloom; Bankman-Fried Faces Grilling

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

Bitcoin is up about 3% this week, topping global stocks and bucking the chaos sparked by FTX’s chaotic bankruptcy.  

Democratic lawmakers who received millions of dollars in campaign donations from Sam Bankman-Fried say they will be ready to grill the former FTX CEO about the exchange’s collapse. 

Liquidators appointed by a Bahamian court to take over FTX Digital Markets Ltd.’s affairs said there’s “significant” concern that FTX management lacked authority to put the crypto businesses into bankruptcy in the US.

The embattled cryptocurrency mogul and two other top FTX executives received massive loans from affiliated trading arm, Alameda Research. Advisers overseeing the bankruptcy of FTX Group are struggling to locate the company’s cash and crypto, citing poor internal controls and record keeping. 

Eoin Treacy's view -

The collapse of FTX is revealing a web of activity that will eventually be made into a movie. However the broader point is the collapse of this crypto exchange is a symptom of the broader tightening of liquidity in the international capital markets.



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November 18 2022

Commentary by Eoin Treacy

The Chart Seminar London November 21st and 22nd 2022

Eoin Treacy's view -

We are living through fast moving markets so the next venue for The Chart Seminar will be November 21st and 22nd this year in London.

In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at [email protected] 

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Annual subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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November 17 2022

Commentary by Eoin Treacy

Video commentary for November 17th 2022

Eoin Treacy's view -

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

Some of the topics covered include: Chinese stocks reverse declines, Vietnam follows through on the upside, Brazilian Real pulls back, UK budget supports bonds, weighs on Pound, US retail sales positive but oil, copper and nickel continue to pullback. Rail worker's strike could be seriously inflationary so worth monitoring. 



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November 17 2022

Commentary by Eoin Treacy

Autumn Statement: What the UK's New Budget Means for Your Money

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

On the income side, if you earn more than £100,000, you really should be looking at how to put as much of your salary as you can above that amount into a pension via salary sacrifice. Why’s that? Because contrary to what you might think, you’re not paying a 40% marginal tax rate. As the team at tax advisors Blick Rothenberg point out, your marginal tax rate is in fact closer to 60%, because £100,000 is the point at which your personal allowance starts to get whittled away. (This is also why the 45% rate was cut to £125,140 rather than £125,000 — so that it aligns with the point at which your personal allowance is all gone.)

As a result, any money you can shield from this rate is doing a great deal more work than any other pound you save. That said, given that your mortgage is probably going up, and your heating bill is through the roof, it’s quite possible that you are already doing as much as you can on that front without causing a major liquidity crisis in your household.

On the investment side, falling squarely into the “be thankful for small mercies” category, at least the chancellor didn’t mess around with the annual allowances for tax-efficient “wrappers” — you can still put up to £20,000 a year into an individual savings account, and up to £40,000 a year into a pension (assuming you earn that much each year). The latter of course is still subject to the (frozen) lifetime allowance, so do be careful if you’re in danger of breaching that £1.073 million lifetime cap.  

So if you have grown a bit sloppy with your admin, and you are holding any shares outside a tax wrapper (i.e. an Individual Savings Account or a pension), then now is the time to get a handle on that and move them. At least then you’ll be shielded from dividend or capital gains taxes. If you have already exhausted these allowances, you might want to start looking at venture capital trusts or enterprise investment schemes, though those are a topic for another day. 

Eoin Treacy's view -

Government rules tend to change investor behaviour. The perversion, that is the tax system, means the incentive to make a lot of money from working is actively under attack. Instead one is being encouraged to invest as much as possible to shield assets from the tax regime. That basically means outsourcing the job of making money to companies rather than individuals. That’s not great news for hard workers, but it certainly benefits the asset management sector.



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November 17 2022

Commentary by Eoin Treacy

LNG Is Proving a Pricey Alternative to Russian Gas Supplies

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

The disruption to oil flows caused by Moscow’s missile attack on Ukraine underscored the need for Europe to find alternative sources of energy. But the LNG that the continent is seeking as a long-term replacement for Russian natural gas won’t come cheap.

There’s already a shortage of vessels to deliver liquefied natural gas due to a surge in demand, and a cold snap would increase global competition for tankers. Traders are paying at least 50% more to secure the ships, meaning higher costs for importing nations. Some of the newest, energy-efficient vessels are reportedly fetching up to $200,000 a day - almost double current rates.

A record 40 LNG tankers are now at sea, waiting for European prices to increase once winter sets in, according to shipowner Flex LNG Ltd. There are already bottlenecks at some ports, mainly in the UK and the Netherlands. That’s due to a limited number of facilities to handle the influx and storage tanks that remain near full with mild weather muting demand.

This congestion has caused ships to be tied up in floating storage, removing tankers from the spot market, Flex LNG Chief Executive Officer Oystein Kalleklev said.

Germany is one step closer to providing some relief for the continent. On Tuesday officials said work was complete on the first jetty for a floating terminal near Wilhelmshaven on the North Sea. Firms including energy giant Uniper SE are now doing additional construction, with the idea of having the terminal operational this winter.

Still, supply could be tight during the coming months, just when Europe needs it most. The continent has relied on the US for much of its imports, and the return of Freeport LNG facility in Texas - following an explosion in June - was set to provide some relief. Now, it looks like the facility will remain offline as repairs continue and it awaits regulatory approvals to restart.

An extended outage at an LNG complex in Malaysia could further tighten the market, increasing spot cargo demand from North Asia. Spot LNG prices in the region surged Wednesday on higher freight costs.

Eoin Treacy's view -

Replacing reliable pipelines supplies with ship borne cargoes is far from ideal but it is a necessity for most of Europe. Even if the war in Ukraine ended tomorrow, politicians have learned their lesson, overreliance on a single suppler is ill advised. That ensures LNG will be a well-supported market in Europe regardless of any other events over the next decade.



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November 17 2022

Commentary by Eoin Treacy

China Asks Banks to Report on Liquidity After Bond Slump

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

Bank of China said it would contain losses and actively pursue relatively secure investments. Industrial Bank Co. and China Zheshang Bank Co. also sent similar posts on their official WeChat accounts, encouraging investors to “buy at lows” and position for longer-term return after the sharp losses in bond market.

The PBOC injected a net 123 billion yuan ($17.3 billion) of seven-day liquidity via its open-market operations on Wednesday. The central bank said in a statement earlier this week that injections topped 1 trillion yuan this month, through a combination of short-, medium- and long-term policy tools. 

The yield on China’s one-year government bond was little changed at 2.17% on Thursday, ending a seven-day climb that took it to highest since January. The yield on the 10-year note fell 3 basis point to 2.80%, after jumping 10 basis points earlier this week in its worst drop since 2016. The CSI 300 Index of stocks fell 0.4%.

Banks’ wealth management products have drawn increased scrutiny from regulators in past few years, amid concern about a host of risks from implicit guarantees and leverage, to duration mismatches and a lack of transparency around where the money is invested.

Eoin Treacy's view -

There is nothing quite like the government telling investors to buy the dip to initiate a wave of buying. The fact that the bond market is seeing outflows because retail investors are so eager to buy stocks suggests the message has been received. It’s OK to speculate in the markets again.



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November 16 2022

Commentary by Eoin Treacy

Video commentary for November 16th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: yield curves continue to contract putting pressure on liquidity plays, Wall Street pauses, bonds advance, Vietnam government support, China pauses, India steady, Brazil in danger of rolling over. 



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November 16 2022

Commentary by Eoin Treacy

How Conditions Today Compare to Past Equity Market Bottoms

Thanks to a subscriber for this report from Bridgewater 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 yield curve spread is about the easiest way to monitor the progression of the bearish cycle. Whether one looks at the 10-year-2-year or the 10-year – 3-month is less important than the fact that contracting yields curves imply liquidity is becoming progressively less accommodative.



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November 16 2022

Commentary by Eoin Treacy

Vietnam strengthens local stock market following strong fluctuations

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

Vietnam's State Securities Commission (SSC) has carried out measures to strengthen the local stock market following strong fluctuations triggered by investors' cautious sentiment and global stock market, local media reported on Wednesday.

The recent market corrections were caused by investors' cautious sentiment while facing uncertainties and less positive prospects in the world economy and politics, local newspaper Vietnam News reported.

As part of an effort to ensure a stable, sustainable and transparent development of the Vietnamese stock market, the SSC has strengthened inspection and supervision to address violations on the stock market, the newspaper said.

It has also proposed amending regulations regarding private offering and trading of corporate bonds in the domestic and international markets to improve the management mechanism for the private placement of corporate bonds.

In the short term, domestic investor sentiment is still strongly influenced by information, wrong handling of enterprises, and fluctuation in the corporate bonds market.

However, given Vietnam's long-term macroeconomic growth and the profit gains of listed companies, long-term investment opportunities will appear quite clearly, investment strategist Thai Huu Cong told local newspaper Saigon Investment.

Eoin Treacy's view -

The Dong tends to be the Vietnamese government’s first recourse in attempting to stimulate the economy. The currency has been falling all year and only began to steady over the last couple of weeks.



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November 16 2022

Commentary by Eoin Treacy

Investor-Darling Brazil Faces Key Test as Lula Optimism Dims

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

Lula said that he won’t give any details on his cabinet before returning from an international trip to attend COP27 in Egypt.

“The stakes are high in terms of fiscal uncertainty, in terms of cabinet composition, in terms of key appointments in the economic team,” said Joel Virgen Rojano, director for Latin America strategy at TD Securities. “All of that for now has a really big question mark and the markets are becoming impatient.” 

Emerging-market investors from Neuberger Berman LLC to Franklin Templeton had bet on the South American nation ahead of the election as they saw little distinction between Lula and President Jair Bolsonaro’s fiscal agenda. Neuberger wasn’t immediately available to comment on its current recommendations in Brazil.

“Markets tend to hate uncertainty,” Dina Ting, head of global index portfolio management for Franklin Templeton exchange-traded funds, wrote in an emailed response to questions. “From a long-term perspective, the fundamentals and macro factors have not changed. Brazil is still trading at a discount to historical averages and helped by both elevated commodity prices and favorable demographics, including its young workforce.”

Eoin Treacy's view -

Brazil faces many of the same issues as everywhere else. There is a clear need to enact some type of fiscal control but the population are already impatient with the pace of economic recovery. Those are two opposing perspectives and the new administration will need to tread very carefully if the currency is to remain stable.



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November 15 2022

Commentary by Eoin Treacy

Video commentary for November 15th 2022

November 15 2022

Commentary by Eoin Treacy

Email of the day on bond investing:

Interested in your investment purchase of DoubleLine Income Solutions Fund. as a long term subscriber I’ve now moved into another investment age whereby I am now an income & growth investor and the timing of your purchase appears to be potentially beneficial.

I have checked with a number of UK online investment portals and they do not appear to offer access to this closed end fund and therefore my question is whether you accessed this via a US trading platform or direct?

Any help will be appreciated.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. Growing up in Ireland in the last 1970s and early 1980s interest rates were very high. My grandmother used to buy national savings certs for all her grandchildren. They automatically rolled over the interest at maturity. As a teenager, I cashed them in and found they had risen by over 300%. That taught me the simple lesson. Buying bonds when rates are high and before inflation peaks is very attractive.



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November 15 2022

Commentary by Eoin Treacy

Xi's Crackdowns Drive Chinese Billionaires to Booming Singapore

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

Singapore doesn’t provide detailed statistics about where its wealthy immigrants come from. But the explosive rise in family offices are symptomatic of the attraction for Chinese tycoons. The number of these offices almost doubled to about 700 at the end of 2021 from the previous year. While China’s wealthy aren’t the only drivers of the growth, some service providers say they are by far the largest market.

Michael Marquardt, whose firm IQ-EQ Asia helps set up family offices, said the number of inquiries from Chinese clients jumped about 25% to 50% just before and after the Party Congress. Vikna Rajah, head of tax and trust at law firm Rajah and Tann Singapore LLP, said in June that more than 30% of the clients he’s helped apply for family office tax exemptions are from Greater China, including Hong Kong.

“There’s definitely been an increase in interest,” Marquardt said. “Entrepreneurs who have done well and taken their companies public are interested in parking their international wealth in a place like Singapore.”

Eoin Treacy's view -

The natural comparison is between Singapore and Hong Kong because they are both in Asia with majority Chinese populations. However, the better comparison for Singapore is with Switzerland and Luxembourg. The city state’s economy is much more focused  wealth management and the buy side than the sell side/capital markets expertise of Hong Kong.



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November 15 2022

Commentary by Eoin Treacy

British Families Are Being Hit by Stealth Taxes

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

For lower-earning families unaffected by the child benefit clawback, but perhaps struggling even more, it is usually possible to transfer £1,260 of a non-working spouse’s personal income tax allowance to the working partner. This can potentially save £252 a year. Again though, this is not automatic, it must be claimed.

And these are far from the only tax anomalies. Since 2009, those earning more than £100,000 a year have had their personal income tax allowances clawed back at the rate of £1 for every £2 earned above the threshold. Worse still, the threshold has been unchanged for more than 13 years. Anyone earning £125,140 or more loses the entirety of their personal income tax allowance. 

Here again, making additional pension contributions is a good option for reducing your taxable income — and for those earning more than £100,000, it might be a more realistic option. The sweetener is that the effective tax relief for those affected can be up to 60%. For these people, the government effectively contributes £60 for every £40 they pay into their pensions.

Stealth taxes make things more complicated for everyone. Many lower-earners end up paying far more tax than necessary, or not receiving a benefit to which they might otherwise be entitled, often both.

Unfortunately, especially during periods of rapid inflation, such tax strategies are the gift that keeps on giving for governments, raising additional revenue without having to increase tax rates. .

As an old ad for Morgan Stanley once claimed, “You must pay taxes. But there’s no law that says you have to leave a tip.”

Eoin Treacy's view -

I saw this chart from Eurostat yesterday and it surprised me that the European aggregate tax haul had risen so much ahead of the pandemic.

With the overwhelming spending patterns of the pandemic and the resulting inflation, there is clear need to fiscal consolidation. At present that is focusing on tax hikes but the ultimate nettle that needs to be grasped is spending cuts. That’s not just true of the UK, it’s an issue most European countries and the USA have to deal with eventually.



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November 14 2022

Commentary by Eoin Treacy

Video commentary for November 14th 2022

November 14 2022

Commentary by Eoin Treacy

Cryptocurrencies Stem Losses on Binance's Recovery Fund Plan

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

Even though markets gained on Zhao’s tweet, such a fund may not be best for the industry, said Quantum Economics founder and Chief Executive Officer Mati Greenspan. Binance already has too much control in a decentralized market, he said.

“That sort of concentration of power makes me uncomfortable,” said Greenspan. “It’s the kind of thing crypto was designed to avoid and one of the lessons we should have learned from last week.”

Meanwhile, Elon Musk’s tweet that Bitcoin “will make it” also gave crypto markets a boost, said Greenspan. Dogecoin, a token the Tesla CEO has touted in the past, gained as much as 7.9%.

Eoin Treacy's view -

This is yet another example of the paradox of decentralized finance. It’s appealing in theory but the benefits of centralized control become evident during crises. A truly decentralized system does not have a buffer against bank runs. It is looking likely Binance will come through this crisis with a dominant position in the “decentralized” finance market.



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November 14 2022

Commentary by Eoin Treacy

Email of the day on Chinese property developer US Dollar bonds

Thanks a lot for another very informative Friday video. Could you please kindly comment on the Chinese Construction Companies’ default situation. How serious and general are the defaults of their international bonds. Thanks in advance.

Eoin Treacy's view -

Thank you for this topical question which may be of interest to the Collective. This Reuters article, dated September 2nd, included a table of the biggest bond defaults up to that point in 2022.
 



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November 14 2022

Commentary by Eoin Treacy

The Age of Social Media Is Ending

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

That was a terrible idea. As I’ve written before on this subject, people just aren’t meant to talk to one another this much. They shouldn’t have that much to say, they shouldn’t expect to receive such a large audience for that expression, and they shouldn’t suppose a right to comment or rejoinder for every thought or notion either. From being asked to review every product you buy to believing that every tweet or Instagram image warrants likes or comments or follows, social media produced a positively unhinged, sociopathic rendition of human sociality. That’s no surprise, I guess, given that the model was forged in the fires of Big Tech companies such as Facebook, where sociopathy is a design philosophy.

Eoin Treacy's view -

Dancing on the grave of social media has begun but it seems to me that the rumours of the sector’s death are greatly exaggerated. There is no doubt social media has issues that range from content moderation to promoting social anxiety and depression among teenagers. However, that does not detract from the reality billions of people spend several hours a day perusing social media forums.



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November 11 2022

Commentary by Eoin Treacy

November 11 2022

Commentary by Eoin Treacy

Euphoria Sweeps China Stocks as Signs of Covid Zero Pivot Emerge

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

Traders who have for long been seeking clear signals of a pivot away from the staunch Covid Zero policy cheered the slew of changes announced on Friday, which included a cut in the amount of time travelers and close contacts must spend in quarantine, and a pullback on testing. The decisions by the National Health Commission followed a meeting by the nation’s top leaders on Thursday, where a more targeted approach was encouraged to tackle outbreaks.

“This is a huge positive for the market,” said Wang Yugang, a fund manager at Beijing Axe Asset Management Co. “Of course how much efficacy these measures have for the economy we will need to observe.”

In a display of broad market optimism, every stock on the 50-member Hang Sang China gauge was up on Friday. On the mainland, the CSI 300 Index ended 2.8% higher.

Eoin Treacy's view -

The Chinese government is wrestling with the opposing challenges of rising cases and the slowdown in the economy. The reality is quarantines cannot stop the spread, only slow it down, when COVID is endemic everywhere else. At some stage China will have to grasp the nettle and tolerate higher numbers of infections for longer. How willing they will be to tolerate millions of cases a day remains an open question. Of course the answer, supplied by India’s experience, would be to simply stop counting.



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November 11 2022

Commentary by Eoin Treacy

Binance Reserves Show Almost Half of Holdings Are Its Own Tokens

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

Binance holds $74.7 billion worth of tokens of which around 40% are in its own stablecoin and native coin, according data shared by Nansen.  

The world’s largest exchange released the information after its co-founder Changpeng Zhao announced earlier this week that Binance would provide proof-of-reserves to be more transparent.

The demise of Sam Bankman-Fried’s FTX.com, has raised concerns over the opacity of exchange balance sheets and is prompting companies increase disclosures. Crypto.com has also publicly shared its reserves pool on Friday.

Of the $74.6 billion termed as net worth, about $23 billion was in its own stablecoin BUSD and $6.4 billion in its Binance Coin, according to Nansen. 

The exchange has also allocated 10.5% of its holdings in Bitcoin and 9.8% in Ether, Nansen data shows. 

Binance is the first unlisted crypto exchange to come out with the details, since FTX collapsed, the latest in a series of crypto businesses to go bust this year. Crypto exchanges including OKX, KuCoin, Poloniex, Huobi this week vowed to increase transparency and provide greater clarity on their holdings. 

Eoin Treacy's view -

The promise of the fintech revolution is decentralized finance. That implies no further need for intermediaries. The ambition is consumers, businesses, creditors, and borrowers will be able to transact with one another over the network at will. That will be facilitated by whatever token is relevant to the network as a medium of exchange.



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November 11 2022

Commentary by Eoin Treacy

ASML Shrugs Off China Chip Curbs Amid Strong Demand Elsewhere

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

ASML hasn’t been able to sell its most advanced extreme ultraviolet lithography machines to China as the Dutch government refused to give it a license to do so, but the company has been able to sell its other machinery to the country. The Dutch company sees the total indirect impact from the new US measures to be about 5% of its backlog, it said on a call with investors in October. 

Meanwhile, major governments around the world have come up with subsidies and incentives to expand chip production capacities at home to avoid another round of semiconductor shortages that shaved off hundreds of billions from their economies during the pandemic. 

Even though the global chip industry is now facing a severe downturn, countries including the US and Japan have not slowed their pace in readying new plants to prepare for the next boom cycle. Taiwan Semiconductor Manufacturing Co. is even considering adding another advanced facility next to a $12 billion dollar plant that’s under construction in the US state of Arizona. 

Efforts by governments to build chip plants at home have just started and will accelerate, Wennink said Friday. “The drive for technological sovereignty is going to be very important driver for our business going forward.”

Eoin Treacy's view -

The one thing everyone learned during the pandemic is the global supply chain is lot more fragile than previously believed. That is truer of the semiconductor sector than anything else and not least because many countries gave up domestic manufacturing capacity in favour of cheaper overseas production. Reversing that trend is both expensive and time consuming.



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November 10 2022

Commentary by Eoin Treacy

Video commentary for November 10th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: 10yr-3-month spread sharply inverts on lower inflation, stocks, gold, copper, bonds rebound emphatically to break near-term downtrends. Dollar rolls over which should boost emerging markets tomorrow, last hurrah rally now beginning before a recession next year. 



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November 10 2022

Commentary by Eoin Treacy

US Inflation Finally Offers Relief, But There's a Long Way to Go

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

A cooling in US consumer prices offered cheer to households, investors and Federal Reserve officials, but there’s still a long way before high inflation becomes history. 

At 7.7%, annual inflation in October was the slowest since January -- before the start of Russia’s war in Ukraine that triggered a worldwide surge in commodities and pump prices. Even more importantly for the Fed, a closely watched measure that excludes food and energy decelerated by more than economists anticipated.

With slowdowns across categories including food, apparel and used cars, the report suggests that the fastest price increases in decades may finally be starting to ebb in the world’s largest economy. And it probably gives the US central bank enough assurance to moderate its aggressive interest-rate hikes if the trend is sustained.

Eoin Treacy's view -

Inflation is rolling over as predicted and it will continue to do so. The pace of tightening this year has been historic in nature and most particularly, the peak in money supply growth was in February 2021. There is a significant lag between money supply growth and tightening conditions and when they show up in the economy. That is now at hand.



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November 10 2022

Commentary by Eoin Treacy

Treasury Yields Plunge as Traders Run With 'Good News' on CPI

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

Yields in the world’s biggest bond market spiraled downward as traders slashed their outlook for just how high the Federal Reserve will need to hoist its policy rate after consumer-price pressures slowed more than estimated last month.

Swaps traders downgraded the odds of another three-quarter-point rate increase in December almost to nil, while continuing to price in a half-point hike. On the prospect of a slower tightening trajectory the five-year yield tumbled as much as 31 basis points, putting it on track for its biggest one-day drop since 2009. The benchmark 10-year yield fell as much as 27 basis points to 3.82%. US stocks soared and the Bloomberg dollar index plunged.

The so-called terminal rate, or the expected peak for the Fed’s policy rate, was cut to under 4.9%, sometime around May. Before the latest CPI readings the peak rate in swaps referencing the central bank’s policy meetings was around 5.09%.

“Markets are reacting aggressively to the CPI release,” said Gregory Faranello, head of US rates trading and strategy at AmeriVet Securities. “After a year like we’ve had, people are very anxious for some good news.”

Eoin Treacy's view -

The convexity of bonds (their sensitivity to interest rates) declines the higher yields move. The reason yields surged earlier this year was because prices were high, yields were low and the market was especially sensitive to interest rates hikes. The higher yields go, the more attractive they become. Obviously 4% is more attractive than 0.5% and compounds at a much more impressive rate.



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November 10 2022

Commentary by Eoin Treacy

IBM releases Osprey, the world's most powerful quantum computer

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

As impressive as this year’s updates are, IBM is looking to next year as the real turning point. The company’s roadmap says that next year’s quantum processor, the Condor, will boast a stunning 1,121 qubits. Also on the cards is a modular processor called the Heron, which can stack multiple 133-qubit units together to make more powerful quantum processors.

And finally, the IBM Quantum System Two will be released towards the end of 2023. This modular system will form the framework of the company’s quantum supercomputers, housing multiple processors with communication links between them. These are all stepping stones on the path towards IBM’s plans of building a quantum system with over 4,000 qubits by 2025.

Eoin Treacy's view -

Alphabet’s Hartmut Neven, claimed a few years ago was that quantum computing was progressing at a double exponent pace. To put that in context an exponential pace is 1,2,4,8,16,32. An exponential exponential pace is 1.2,4,16, 256, 65,536.  



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November 09 2022

Commentary by Eoin Treacy

Video commentary for November 9th 2022

November 09 2022

Commentary by Eoin Treacy

Lucid Stock Is Falling as Reservations for Cars Drop

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

The EV maker Lucid turned in respectable third-quarter earnings and stuck with its forecast for vehicle shipments this year, but the stock is dropping. Reservations are the issue.

Tuesday evening, Lucid (ticker: LCID) reported a per-share loss of 40 cents from $195 million in sales. Wall Street was looking for a 31-cent loss from $209 million in sales., but earnings and sales don't matter much at this point.

The company is just ramping up production of its first model, the Lucid Air. Importantly, the company didn't change its full-year guidance for vehicle shipments from the 6,000 to 7,000 cars it told investors to expect back in August. The prior guidance, given in May, was for 12,000 to 14,000 units.

What seems to be raising investors' eyebrows is that management says Lucid has 34,000 reservations for its vehicles. The number given in August was 37,000.

Shares were down 3% in after-hours trading.

Lucid delivered 1,398 vehicles in the third quarter, up from 679 in the second quarter of 2022. Lucid produced 2,282 vehicles in the third quarter, which was more than triple the second-quarter production, according to the company.

The company also ended the quarter with almost $4 billion in cash.

Management scheduled a conference call for 5:30 p.m. Eastern time to discuss the results. Investors and analysts will be interested in the reservation number and whatever management has to say about demand for Lucid vehicles.

Through Tuesday trading, Lucid stock was off more than 60% so far this year, while the S&P 500 and Dow Jones Industrial Average had dropped about 20% and 9%, respectively.

Lucid stock has been hit harder than most. The cut to the forecast for deliveries didn't help. Rising interest rates, which reduce the current, discounted value of earnings expected to arrive in coming years, are an additional problem.

Eoin Treacy's view -

Flashy ads and attentional grabbing statistics, like the longest range and best battery, encouraged consumers to pay trivial down payments to secure a spot in delivery queues. Now, the question whether one does in fact have the resources to spend six figures on a car are more pressing. For Lucid it represents a significant issue because they are quite a ways from delivering a more affordable model. The share continues to trend lower.



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November 09 2022

Commentary by Eoin Treacy

Jeffrey Gundlach with David Rosenberg 10-11-22 Podcast

This video is a little outdated, particularly with regard to crypto, but it does highlight the fact bond investors finally have a yield they can base a total return strategy on. 

November 09 2022

Commentary by Eoin Treacy

NHS Nurses Vote for Biggest Strike in Over a Century Over Pay

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

The strikes could start before the end of this year and last until May 2023, the RCN said in a statement. The historic ballot came after nurses were unhappy when the government offered them a package in July that would see the average nurse’s pay increasing 4%.

Strikes are currently sweeping across the UK from rail to ports as the worst inflation in four decades is eroding workers’ real income and living conditions. Workers in the country’s health sector are under particular pressure as the Covid-19 pandemic enters its third year and with many hospitals struggling to cope with long waiting lists of patients needing treatment and packed Accident & Emergency departments. 

Industrial action will only take place in health-care settings that met the relevant legal requirements but the majority of NHS employers will be affected, the RCN said. 

“Anger has become action - our members are saying enough is enough,” said Pat Cullen, RCN General Secretary & Chief Executive. “Our members will no longer tolerate a financial knife-edge at home and a raw deal at work.” 

Unison is currently balloting 350,000 other NHS employees across England, Wales and Northern Ireland to strike over pay. The Royal College of Midwives and the Chartered Society of Physiotherapy are also organizing ballots for their members in November, raising the possibility of the UK facing coordinated strikes across different health unions.

Eoin Treacy's view -

Strike action from the NHS was inevitable. It’s a large worker group with strong union representation in a vital sector. That means workers are in a better position to pressure the government into concessions than other interest groups which is all the incentive required to push the issue. 



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November 09 2022

Commentary by Eoin Treacy

November 08 2022

Commentary by Eoin Treacy

Video commentary for November 8th 2022

November 08 2022

Commentary by Eoin Treacy

Gold Hits One-Month High as Dollar Slide Brings in Fresh Buying

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

“A million ounces of gold was bought in under two minutes moving the price nearly a percent - this suggests fresh buying,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York. “Gold holding above the 50-day moving average for the first time since August added to the positive sentiment.”

Aggressive Federal Reserve monetary tightening aimed at cooling inflation has weighed on metal prices this year by driving up the greenback and hurting demand prospects. Higher interest rates tend to diminish the investor appeal of commodities, which bear no interest.

Traders are eyeing the upcoming US inflation reading due Thursday, after the core consumer price index rose more than forecast to a 40-year high in September. Another hot print could further curb hopes of an impending slowdown in the Fed’s monetary tightening.

Eoin Treacy's view -

It is often said that the only hard fundamental in currency markets is the interest rate differential. In raw terms, the interest rate differential between the USA and the Eurozone exceeded 250 basis points in the late 1990s. Since then, spread peaked at 250 basis points in 2006 and 2019 and is now testing the 200 basis point level. It is reasonable to question whether it is likely move much beyond the current band in this cycle as the ECB plays catch up with tightening policy.



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November 08 2022

Commentary by Eoin Treacy

401(k) Plans Now Let Workers Put Retirement Money Into Cryptocurrency

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

Retirement-plan providers have moved ahead, and some of the 24,500 401(k) plans that Fidelity Investments administers began offering bitcoin in their investment menus this fall, the company said. ForUsAll Inc., a San Francisco-based 401(k) provider that caters to small companies and has $1.4 billion in retirement-plan assets, says 50 of its 550 clients began allowing workers to invest some of their retirement savings in cryptocurrency, including bitcoin and ether, about eight weeks ago.

The 401(k) companies are launching their crypto offerings amid a bear market that has caused steep selloffs in many cryptocurrencies. Since hitting a high of more than $66,000 in November 2021, bitcoin has fallen to $20,092.

The U.S. Labor Department, which regulates company-sponsored retirement plans, earlier this year cautioned employers to "exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu," guidance that has had a chilling effect on some employers and providers.

Fidelity, the nation's largest 401(k) plan provider -- with $3.3 trillion in the plans it administers -- declined to provide details about companies offering its cryptocurrency option. It announced the offering earlier this year, citing demand from employers and workers.

Eoin Treacy's view -

My first reaction is what could go wrong? Afterall, we are talking about what amounts to the most volatile asset class in history. Fidelity has led the market by offering custody services for cryptocurrencies. In opening up pension assets for investment in bitcoin, a significantly larger pool of potential buyers is now exposed to an exceptionally volatile asset class. It is to be hoped positions are sized accordingly, though that is seldom the case for individual investors.



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November 08 2022

Commentary by Eoin Treacy

JPMorgan, Citigroup Maintaining Some Russia Ties Due To U.S. Government Instructions

This note from Dow Jones may be of interest to subscribers.

JPMorgan Chase & Co. and Citigroup Inc. are maintaining some ties with Russian companies for strategic reasons on directives behind the scenes from the U.S. State Department and Treasury Department, Bloomberg reported on Monday. The country's biggest banks are caught between Congress, which is pushing for strict sanctions against Russia for its invasion of Ukraine, and the Biden administration, which has urged banks to continue doing business with strategic Russian companies, Bloomberg reported, citing people familiar with the situation. Nnedinma Ifudu Nweke, a lawyer at Akin Gump Strauss Hauer & Feld LLP who specializes in economic sanctions, told Bloomberg that some pockets of business are still allowed with Russia, particularly in the humanitarian space as well as facets of the financial system that would pose a systemic risk. A spokesperson from the Treasury Department told Bloomberg that it has issued guidelines to banks to assure that humanitarian aid, energy and agriculture activities continue.

Eoin Treacy's view -

This would be a news grabber on its own but when it comes in tandem with the story that the USA asked Ukraine to at least act like they are open to negotiations with Russia it is potentially even more significant. 



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November 07 2022

Commentary by Eoin Treacy

Video commentary for November 7th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: global money supply contracting, Dollar at risk of breaking down, bond yields continue to march higher and stocks recovery rally remains in force, oil pauses at $100 and platinum breaks higher. 



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November 07 2022

Commentary by Eoin Treacy

Billions in Capital Calls Threaten Forced Sales of Stocks, Bonds

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

Capital calls are not the only problem for investors in private markets. Even their successes are creating headaches.

As many alternative assets outperformed public markets in recent years, institutions have broken past fixed limits on the proportion of their portfolios that can be allocated to private markets.
 
While this so-called denominator effect may be exaggerated -- because there is a lag in revaluing private assets to reflect the very latest market conditions -- it does have the potential to trigger increased selling at a time when it is least wanted.

And the sums involved could be huge. A significant amount of the easy money pumped into the financial system by central banks during the pandemic found its way into unlisted assets, which grew to $10 trillion globally by September 2021, a fivefold increase from 2007, according to figures from investment data firm Preqin.

“There’s a regime change of sorts in the macro world and in markets that we need to take hold of,” Stephen Klar, president and managing partner of Wellington Management Co., said at the Global Financial Leaders’ Investment Summit in Hong Kong on Nov. 3. “We’re working with our clients on thinking through how to really get that asset allocation back to a more diversified and rebalanced manner.”
 

Eoin Treacy's view -

There are two separate issues affecting the private asset/alternatives markets. The first is tightening liquidity. As global money supply growth contracts the weight of money argument for supporting private asset prices is much less compelling. The second is the technical issue described above.



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November 07 2022

Commentary by Eoin Treacy

Debt Limit Will Complicate Bill Supply Normalization, BofA Says

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

Treasury bill supply could rise by $1 trillion by the end of 2023, but the impending debt ceiling episode will complicate the timing, according to Bank of America strategists. 

Strategists Mark Cabana and Katie Craig estimate Treasury will issue about $193 billion of bills in 4Q 2022 and $257 billion in 1Q 2023, with particularly strong months of supply in November, February and March because they are typically heavy deficit months that require additional issuance to sustain the cash balance

However, bill supply projections and the associated market impact are complicated by uncertainty around the timing of the debt limit, another round of money-market reform and the Federal Reserve’s quantitative tightening

Positive quarters of bill supply should help cheapen bills relative to overnight index swaps, and strategists estimate spreads should narrow by 10 basis points or more

Still, the monthly path of bill issuance is “much less clear” because of the debt ceiling, which could become constraining as early as December 2022

At that point Treasury would enter a debt issuance suspension period, which would restrict their ability to issue debt -- likely cutting bills to keep coupon sizes unchanged

Strategists project the potential default, or x-date, would be in August or September 2023. After that, there would be a surge of bill supply to replenish the cash balance

Eoin Treacy's view -

The big question for anyone issuing debt is whether there is a sufficiently large pool of willing buyers to support the market. The Bank of Japan has been buying bonds for so long that it has largely crowded out the domestic market. Liquidity in the 10-yeasr is at an all time low. This condition raises important questions for the US government because $1 trillion deficits appear to be the norm.



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November 07 2022

Commentary by Eoin Treacy

China reopening playbook

Thanks to a subscriber for the report from Goldman Sachs which may be of interest. Here is a section:

The light at the end of the tunnel?
China’s Zero-Covid Policy (ZCP) has kept Covid cases at low absolute levels but at rising economic costs as the virus becomes more transmissible. Reported cases are rising but more signs of Covid policy relaxation have been made available post the Party Congress, and our economists expect China could start to reopen in 2Q23 on political and public health considerations.

China could rally 20% on (and before) reopening
Cross-country empirical analysis shows that equity markets tend to pre-trade reopening (as defined by the peak of activity disruptions) about a month in advance and the positive momentum typically lasts for 2-3 months. We estimate that a full reopening could drive 20% upside for Chinese stocks based on empirical, top-down, and historical sensitivity analyses. Importantly, equity markets usually react more positively to local policy relaxation than to international reopening, with Domestic Cyclicals and Consumer sectors outperforming.

Eoin Treacy's view -

The prospect of China opening up has enlivened risk appetites among traders who are tempted by the low absolute valuations on Chinese stocks listed in Hong Kong. The Beijing marathon went ahead as planned over the weekend and is being taken as evidence of some easing of COVID restrictions. It will be interesting to see if the Shanghai and Chengdu marathons pass off as planned later this month.  



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November 04 2022

Commentary by Eoin Treacy

November 04 2022

Commentary by Eoin Treacy

China Said to Prepare Plan to End Covid Flight Suspensions

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

The focus now appears to have moved to step two, with senior leaders recently asking regulators to draw up a game plan for easing the circuit breaker rule. The third step would be facilitating a full return to normal aviation traffic, the people said. It’s unclear what the timeline is for the implementation of these two steps.

The State Council and CAAC didn’t immediately respond to requests for comment. Evidence China is even considering changes that would ease its global isolation would be scrutinized by investors, with Chinese equities near multi-year lows because of the economic damage wrought by Covid Zero’s snap lockdowns, testing drives and border restrictions. 

Shares of airlines, including China Eastern and China Southern, extended gains in Hong Kong on the flight ban news, while the yuan climbed in offshore trading. 

An unverified screenshot circulating on social media claiming a broad reopening plan was being considered sparked a $450 billion speculative rally in stock markets this week. Soon after, China’s top health body reaffirmed its commitment to the zero-tolerance virus approach. 

Eoin Treacy's view -

Investors are interpreting the commitment to ZERO-COVID as “zero-covid” or at least they really want to reach that conclusion. Valuations are so attractive that people are latching onto any sign of reopening to repeat the rebounds seen in Western assets post March 2020. That’s particularly true of Hong Kong shares where the acceleration lower is giving way to a short covering rally.



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November 04 2022

Commentary by Eoin Treacy

Bond king Jeffrey Gundlach says any year-end stock market rally is going to be derailed by intense tax-loss selling

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

So most investors, whether they own stocks or bonds, should have plenty of opportunities to harvest losses between now and the end of the year. And that means there will be more selling pressure ahead.

"There will be pretty high tax loss selling I would think. I even got a white paper from somebody saying this was the greatest tax loss selling opportunity of a generation. I would say it might be two generations," Gundlach said.

Tax-loss selling is a tax optimization strategy that investors and financial advisors often take advantage of in taxable accounts heading into year-end. The strategy involves realizing losses by selling out of losing positions, and then buying back those portfolio positions 31 days later to avoid the tax wash-sale rule.

The strategy allows investors to realize losses that can offset future realized gains, ultimately helping reduce tax liabilities in the long term.

Eoin Treacy's view -

In a year where most people were unprepared for the severity of declines in popular shares like the mega-caps and the innovation sector, investors will be eager to preserve what benefit they can. Realising a loss reduces the tax payable on gains and stores up losses to write off on gains in the future too.



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November 04 2022

Commentary by Eoin Treacy

The Metals for Your EV Are Stuck in a 30-Mile Traffic Jam

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

Zambia, too, has ambitious expansion plans. The region could add nearly 1 million tons of annual copper production over the next decade, according to Adam Khan, copper supply analyst at CRU Group, and others are more optimistic still.

“Copper is the new oil,” Zambian Finance Minister Situmbeko Musokotwane said in an interview. “This is a very good opportunity for us.”

There’s no doubt that the region’s copper will be needed. To meet the global target of net-zero by 2050, the world may need to double supplies of what S&P Global calls “the metal of electrification.” “The green-energy transition is the biggest purchase order in history for the commodities industry,” said Benedikt Sobotka, chief executive officer of miner Eurasian Resources Group.

To be sure, logistics are not the only impediment. Corruption is rife, and disputes with governments are common. One of the largest copper and cobalt mines, Tenke Fungurume, hasn’t been allowed to export any material since July because of a dispute between its owner CMOC Group and Congolese state mining company Gecamines.

Eoin Treacy's view -

The COP27 Conference opened in Egypt today and the number of articles highlighting the plight of climate affected populations both domestically and internationally has increased significantly over the last week. The above article focuses on the supply issues of transporting resources to the coast and the additional challenge posed by the plans to increase supply before infrastructure has been built. Meanwhile Glencore was fined £281 million for bribing officials in Africa. Never mind that it is impossible to do business in the region without local partners.



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November 03 2022

Commentary by Eoin Treacy

November 03 2022

Commentary by Eoin Treacy

BOE Tells Investors to Rein In Expectations for Rate Hikes

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

But in an usually blunt comment on investors’ outlook for future hikes, it stressed the peak in rates will be “lower than priced into financial markets.”

Staying on the market path used in the forecasts, which peaks at around 5.25% next year, would knock 3% off GDP and ultimately push inflation to zero, the BOE said. An outlook based on rates staying at their current 3% level implies a shorter, shallower recession and sees inflation fall close to target in two years’ time.

“We think bank rate will have to go up less than what’s currently priced into financial markets,” BOE Governor Andrew Bailey said at a press conference. “That is important because, for instance, it means that the rates of new fixed-term mortgages should not need to rise as they have done.”

The remarks mark a sharp contrast with Federal Reserve Chair Jerome Powell, who said Wednesday that US rates will probably go higher than people are thinking. UK government bonds and the pound fell after the BOE’s decision. Investors had already tempered their view for UK rates, suggesting a peak around 4.75%.

Eoin Treacy's view -

The Bank of England has no choice than to attempt a lengthier glide path to bring inflation down because of the unique attributes of the UK economy. 2 million mortgage fixes roll over next year. That’s going to be a significant shock to the economy at current interest rates never mind if they are higher six months from now.



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November 03 2022

Commentary by Eoin Treacy

Why This Is India's Decade

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

In the post-Covid environment, global CEOs appear more comfortable with both work from home and work from India. The emergence of distributed delivery models, along with tighter labor markets globally, has accelerated outsourcing to India. The number of global in-house captive centers that opened in India over the last two years was almost double that of the prior four years. During the two pandemic years, the number of people employed in this industry in India rose from 4.3 million to 5.1mn,and the country's share of global services trade rose 60bps to 4.3%. In the coming decade, the number of people employed in India for jobs outside the country is likely to at least double to over 11mn,and we estimate global spending on outsourcing could rise from US$180bn per year to around US$500bn by 2030. This will have significant effects on both commercial and residential real estate demand.

If India is already the 'office to the world', it is increasingly becoming its factory as well. We anticipate a wave of manufacturing capex owing to government policies aimed at lifting corporate profits' share of GDP via tax cuts and hard dollars for investing in specific sectors, and we note that performance-linked incentive (PLI) schemes now total US$33bn across 14 sectors. Multinationals are more optimistic than ever about investing in India, as the all-time high on our MNC Sentiment Index shows (Exhibit 39),and the government is encouraging investment by both building infrastructure and supplying land for factories. The trends outlined in Morgan Stanley’s multipolar world thesis and cheap labor add to the mix. We estimate that manufacturing's share of GDP will rise from 15.6% currently to 21% by 2031, which implies nominal output jumping from US$447bn to about US$1.49trn.

 

Eoin Treacy's view -

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

Apple got a bad shock this week when its most significant iPhone production facility was shut down as part of a COVID lockdown in China. For a company that prides itself on forcing suppliers to compete with one another, that was a significant hiccup. Apple has already been building more products in India and that trend is likely to accelerate over the next decade.



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November 03 2022

Commentary by Eoin Treacy

Brazil Has So Much Fertilizer That Cargo Is Being Rerouted

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

“With prices at record levels, farmers decided to reduce applications to protect their margins,” Marina Cavalcante, an analyst at Bloomberg’s Green Markets said. Farmers are able to skip application of phosphate fertilizers without compromising yields since the soil can retain this nutrient for more than a year, she said.

Eoin Treacy's view -

Nutrien reported disappointing earnings today amid “demand destruction”. That highlights some of the same issues that occurred with high fertilizer prices in 2007. Farmers rebelled and food insecurity killed off the market of biodiesel.



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November 03 2022

Commentary by Eoin Treacy

November 02 2022

Commentary by Eoin Treacy

November 02 2022

Commentary by Eoin Treacy

Wall Street Sees 'Devil's Bargain' in Powell's Rate Comments

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

“This is a devil’s bargain,” said Steve Chiavarone, senior portfolio manager at Federated Hermes. “Size of rate hikes will likely fall, but terminal rate is likely higher -- the implication is a greater number of smaller rate hikes. That is not dovish.” 

Eoin Treacy's view -

Jay Powell said in plain English it is better to overtighten, and cut later, than to under tighten and risk allowing inflation to become entrenched. That’s about as hawkish as it gets. The Fed wants a recession and they will keep going until they kill demand.



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November 02 2022

Commentary by Eoin Treacy

Central banks haven't bought this much gold since 1967

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

Turkey was the biggest buyer of gold during the quarter, followed by Uzbekistan (26.13 tons) and India (17.46 tons). Not all countries report their gold purchases regularly, so it’s difficult to know how much, for example, China and Russia bought during this same period.

India is also shoring up its gold reserves.

Indian consumers habitually purchase gold jewelry ahead of the festive season every October. But that aside, the Reserve Bank of India (RBI) bought 13 tons of gold in July and 4 tons in September, pushing its reserves to 785 tons, according to the WGC.

Eoin Treacy's view -

Any foreign exchange and gold reserves Russia had overseas have been confiscated. That’s a big lesson for every country that is suspicious of NATO’s motives now and in the future. It is therefore reasonable for countries to favour gold over holding foreign currency because at least the gold is a physical entity that can be held internally. Nuclear weapons are now also a must have to defend against invasion for any country that holds opposing views to NATO.



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November 02 2022

Commentary by Eoin Treacy

NASCAR driver stuns racing world with a move learned from Nintendo GameCube

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

To understand the advantage of Chastain's move, a little knowledge of racing physics comes in handy. Typically, when taking a tight turn on a racetrack, drivers brake to counteract forces that push their cars toward the outside of the track. This braking action dramatically slows them down on the turn. This time, instead of slowing down for the turn, Chastain kept his car in fifth gear, hugged the wall, let go of the wheel, and allowed the wall to hold his car in place—no brakes necessary. That's how he passed five cars and set a 75-year lap record.

Eoin Treacy's view -

I have all kinds of admiration for a guy who knew of a winning strategy from a computer game as a child and was willing to test the theory in real life at the potential cost of his own life.



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November 01 2022

Commentary by Eoin Treacy

Video commentary for November 1st 2022

Eoin Treacy's view -

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

Some of the topics discussed include: unfounded speculation China will ease COVID-zero rules sparks rebound in resources, UK begins to run down the balance sheet, Fed meeting tomorrow which I expect to be hawkish, Amazon breaks lower. 



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November 01 2022

Commentary by Eoin Treacy

Brazil Markets Rally on Signs of Peaceful Transition of Power

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

Brazil’s stocks and its currency rallied on signs that President Jair Bolsonaro’s administration is preparing for a peaceful transfer of power after losing Sunday’s election to Luiz Inacio Lula da Silva.

The president’s communications chief said that Bolsonaro won’t contest the election, according to Reuters. Meanwhile, a press official for Lula’s Worker’s Party said Bolsonaro’s top aide, Ciro Nogueira, offered a meeting place for transition teams from the outgoing and incoming presidents. 

That would be a relief for investors who have been waiting for the incumbent, who had cast doubt on the integrity of the election during campaigning, to concede defeat. 

Eoin Treacy's view -

It is looking increasingly likely that Jair Bolsonaro will move into a vigorous opposition rather than contest the election result. Unruly trucker protests notwithstanding, this is a clear positive for the trajectory of governance, although the bar for what constitutes good governance has been lowered significantly over the last decade.



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November 01 2022

Commentary by Eoin Treacy

China's Last Offshore Property Bond Havens Are Crumbling

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

The latest moves have dragged even more junk dollar notes from Chinese property companies into distress, with 94% now trading below 70 cents on the dollar. That market was until just years ago one of the most lucrative bond trades globally. But it all began to unravel after a nationwide clampdown started in 2020 on leverage and real estate speculation, and has snowballed into record defaults by developers including China Evergrande Group. 

The contagion is even reaching property giants that still have investment-grade ratings including China Vanke Co., the nation’s second biggest developer by sales. Its note due 2027, which was trading above 80 cents just a month ago, fell 4 cents Tuesday in the worst two-day drop ever to an all time-low of 40.3 cents.

“Now with some presumably better-off developers getting into trouble, people start to worry about a contagion to non-state developers,” said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities. “It’s not just a confidence issue, and developers’ liquidity conditions are only getting tighter in the future given sales have been slower than expected.”

And

As refinancing costs surge in global debt markets, China’s property sector has at least $292 billion of onshore and offshore borrowings coming due through the end of 2023, raising the specter of even worse payment pressure to come. There’s $53.7 billion borrowings still due the rest of 2022, followed by $72.3 billion of maturities in the first quarter of next year. 

“We have seen no improvement in terms of the funding for private-sector developers,” Bank of America Corp. economist Helen Qiao said on Bloomberg Television Tuesday. “The stimulus was not strong enough to get them out of the current liquidity trap, and therefore how exactly they can really survive raises many questions.”

Eoin Treacy's view -

It is reasonable to expect that most of the property debt issued through Hong Kong in US Dollars will be defaulted on. Any stimulative measures designed to prop up the property market and local developers will be aimed exclusively at domestic investors. Foreign investors are way down the line in terms of priorities for China. 



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November 01 2022

Commentary by Eoin Treacy

US Job Openings Post Surprise Increase, Keeping Pressure on Fed

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

The surprise pickup in vacancies highlights unrelenting demand for workers despite mounting economic headwinds. The persistent imbalance between labor supply and demand continues to underpin robust wage growth, adding to widespread price pressures and reinforcing expectations for yet another large rate hike on Wednesday.

The latest increase in openings erased much of August’s slide, which, at the time, had suggested a notable moderation in labor demand.

“After the shock of last month’s report, the September JOLTS data is returning to a familiar story: demand for workers remains robust,” Nick Bunker, head of economic research at Indeed Hiring Lab, said in a note. “By all the key metrics in this report, the labor market is resilient.”

Eoin Treacy's view -

There is no easy way to address a shortage of workers because someone is going to be upset by whatever solution is suggested. Immigration is the most expedient but it comes with significant political pitfalls and will invariably change the culture of wherever migrants congregate most.



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November 01 2022

Commentary by Eoin Treacy

Email of the day on institutional versus retail volume

Eoin - does the source of daily volume in the stock market (buying or selling) influence your opinion of market strength or weakness at any point in time? Are there particular data sources you review which help you determine if institutional buyers/sellers are especially active? Does the trade-off between retail and institutional demand matter?

I always look forward to reviewing your insights on where markets may be heading in the near term...particularly in this ongoing era of excessive central bank intervention and manipulation.

Thank you.

Eoin Treacy's view -

Thank you for your kind words and this email which may be of interest to the Collective. I don’t look at specific volume data but part of my mental process is to think about the market from the perspective of as many market participants as possible.



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November 01 2022

Commentary by Eoin Treacy

October 31 2022

Commentary by Eoin Treacy

Video commentary for October 31st 2022

October 31 2022

Commentary by Eoin Treacy

GameStop, Getty Images Surge as Meme and De-SPAC Frenzy Returns

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

“The first thing you have to realize with these stocks is there’s no rhyme or reason,” said Keith Lerner, chief market strategist at Truist Advisory Services Inc. “They don’t trade based on the big macro trends normally. They trade on speculation and liquidity.”

A basket of so-called meme stocks tracked by Bloomberg rose 1.4%, while the De-SPAC index is lower by about 0.2%. Both gauges have plunged this year as concerns about a possible US recession diminished investor demand for shares of riskier assets.

The sudden resurgence in interest for the group comes ahead of what is likely to be a bumpy two weeks for the stock market. A Federal Reserve rate decision on Wednesday will kick off a span of seven trading sessions that will feature four major events including a key jobs report, mid-term elections and inflation data for October.

Eoin Treacy's view -

Let’s set rationale aside for the present and think instead about what kind of message this spike in speculative activity says about how much liquidity is still in the market. In nominal terms, consumer spending is way above trend. Adjusted for inflation it is back on trend.



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October 31 2022

Commentary by Eoin Treacy

Wheat Surges as Russia Warns on Ship Safety After Ditching Deal

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

Crop traders have been focused for weeks on the approaching deadline of Nov. 19 for renewing the grain-corridor agreement, particularly as senior Russian officials repeatedly criticized the deal, suggesting that any extension would require difficult negotiations. Exports have also been slowed by a swelling backlog of vessels waiting to be inspected as part of the agreement -- Ukrainian President Volodymyr Zelenskiy said some ships had been waiting for three weeks. 

Vessel and insurance rates to Ukraine stand to rise, said Michael Magdovitz, a senior commodity analyst at Rabobank. New deals from the country had already been drying up as traders didn’t want to risk getting caught short of the deal’s deadline, said Matt Ammermann, commodity risk manager at StoneX. 

Russia, which leads global wheat exports, stands to offset some of the lost sales. Still, it will be key to watch how shipping costs across the entire Black Sea region are affected by the latest developments, Ammermann said.

Eoin Treacy's view -

At best this is a fresh example of brinksmanship by Russia in seeking to extract maximum benefit from the uncertainty around secure supply of wheat. At worst it is a prelude to intensifying the unconventional war effort by holding the world hostage with food insecurity.



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October 31 2022

Commentary by Eoin Treacy

China's Inward Turn

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

In some ways this represents an important generational change in the way China will interact with the rest of the world. As far as we know, the term “international circulation” originated in 1988 when a government researcher, Wang Jian, made the case that China should adopt an export-led growth strategy, making use of its huge surplus labor to plug the economy into the international manufacturing process. In that sense, the de-emphasis of international circulation is an important historical shift. In a People’s Daily article in November 2020, Vice Premier Liu He set out a number of objectives relating to the DCS including: (1) the priority of upgrading of China’s technological capacity, including an enhancement of China’s supply chain resilience (though referred to in this article as “optimizing the structure of supply”); (2) the need for finance to serve the needs of the real economy; and (3) the promotion of further urbanization. Any mention of external demand comes last

Eoin Treacy's view -

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

China’s stock markets are accelerating lower so that is a trend ending signal. The big question for all investors is at what point will the risk premium be fully priced in? The USA’s more aggressive attitude towards China is about the only bipartisan topic in the current administration. In fact the two parties seem to be competing for the mantle of biggest China hawk. China’s response to more activist counterparty risk is to look inwards and many people fear a repeat of the Cultural Revolution is already in play.



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October 28 2022

Commentary by Eoin Treacy

October 28 2022

Commentary by Eoin Treacy

Email of the day on the rationale for China's COVID-zero

Dear Eoin, I am one of your long term subscribers from Singapore from back when David started the service. I have been shared this hypothesis regarding the reason why China is keeping to the zero covid measures and it is less to do with the disease but something else. Firstly with the reason for covid, they have managed to track the movement of all individuals in China with the Green Code, which coupled with their country wide camera surveillance, allow the state to monitor constantly all citizens. This is especially important in the fight against corruption. Secondly and more importantly, China is still trying to deflate their large property bubble which is 30-40% of the countries economy. Besides Evergrande, there are systemic risk to the over investment in real estate which is a huge Ponzi scheme. Fortunately most of the debt are on-shore, and China needs to keep its borders closed. This is because if re-opened, the increased spending from in-bound and outbound tourism will cause inflation, and this will force The Central bank to raise interest rates. China Central Bank wants inflation to still be low so that the economy can be stimulated and the growth in local jobs help keep the confidence for the population to invest in the property market. If inflation rises, then interest rates have to increase and it will delay the clean up of the property market which has so far been very well controlled. China is doing far more in the real estate cleanup then the US did with Sub-Prime Crisis in 2007-2008. Due to the trade offs, the real estate recovery is more important that the risk to public health although China could simply mandate all citizens especially the elderly to be vaccinated which they have not. It cannot be due to the lack of vaccines or preparation for the hospital and ICU beds capacity as China could have allowed Moderna and Pfizer to be registered locally without asking for the IP to be disclosed. Hope to hear from you. Thanks 

Eoin Treacy's view -

Thank you for this informative email and your long-term patronage of the Service. At a time when many consumers are taking a hard look at expenses, I want to give special thanks to every one of our subscribers.

I have discussed this exact issue in the big picture long-term videos on several occasions, most recently last Friday. Let’s address it from first principals. China’s is a single party state, so they have the luxury of equating the Party with the country. Whatever is good for the Party is therefore considered good for the country.



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October 28 2022

Commentary by Eoin Treacy

Yen Weakens as BOJ Sticks With Ultra-Low Rates Policy Path

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

In September, a sharp slide in the yen following the policy statement and dovish comments by Kuroda prompted Finance Minister Shunichi Suzuki to order Japan’s first entry into markets to prop up the currency in 24 years. While the governor moved the market again during Friday’s briefing, his tone was more cautious and his remarks weren’t preceded by falls in the currency like the previous month. 

Kuroda continues to hold firm as the last anchor of low global rates just a day after the European Central Bank went ahead with another jumbo rate hike. But the governor is walking on a tightrope as his stance risks putting further downward pressure on the yen despite billions of dollars spent by the government to support the currency.  

“The likelihood of the BOJ pivoting toward tightening is still small as Japan’s inflation is not broad based at all and is only rising about a third of the pace seen in Europe and US,” said Kyohei Morita, chief Japan economist at Nomura Securities.

Eoin Treacy's view -

The speed of the Yen’s decline since March has alarmed politicians and not least because the price of oil is in the region of the 2008 peak when redenominated into the currency. The Bank of Japan’s challenge is much of the inflation is imported. Domestic demand needs a cultural change and that will not be achieved by transient price pressures.



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October 28 2022

Commentary by Eoin Treacy

Gilead, fueled by latest approval, sees CAR-T sales takes off

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

Shares of Gilead Sciences ticked up Friday morning after the company’s latest earnings report exceeded Wall Street’s expectations.

The results were, in part, tied to growing sales from Gilead’s cell therapy business, which consists of the marketed cancer drugs Yescarta and Tecartus. Together, sales from the two drugs totaled $398 million in the third quarter, a nearly 80% increase from the same three-month period a year prior.

Gilead’s work in cell therapy, catalyzed by the $12 billion acquisition of Kite Pharma in 2017, hasn’t always sat well with investors. Early sales from Yescarta were slower than some had hoped, and Gilead ultimately acknowledged that some assets from the Kite deal were overvalued.

But in recent months, the company’s cell therapy business has ballooned. Third quarter sales of Tecartus were up 72% year over year, reaching $81 million, while those for Yescarta rose 81% to $317 million. Gilead cited the approval of Yescarta as a “second-line” therapy for a type of hard-to-treat lymphoma, which happened in April, as a main reason for the uptick.

Eoin Treacy's view -

Immunoncology involves re-educating the immune system to target cancers which typically avoid detection by the body’s defenses. Related stocks blossomed in 2015 with a huge rally. They had a brief second coming in 2018 but subsequently collapsed as the route to commercialization proved to be anything but easy.



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October 27 2022

Commentary by Eoin Treacy

Video commentary for October 27th 2022

Eoin Treacy's view -

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

Some of the topics discussed includes: total addressable market assumptions are proving illusory for cloud, advertising and retail, bonds yields compress, dollar firms, supply inelasticity misrepresents inflation whereas the liquidity-fuelled demand surge explains it better.  



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October 27 2022

Commentary by Eoin Treacy

Meta Plummets as Capex Plans Spur Downgrades

This note may be of interest to subscribers. Here are some relevant quotes:

Jefferies (buy, PT $200)
There are “no signs of expense discipline,” and this is “going against what investors want”

Vital Knowledge
The expense outlook is “the big negative” of the report; “investors were hoping for mgmt. to aggressively slash costs, but it doesn’t seem like that’s happening”

The results and outlook “weren’t great, but neither was any worse than SNAP or GOOGL”

Truist Securities (buy, PT $240)
The revenue outlook is “still decent all things considered,” but the guidance for total expenses is “materially higher than our estimate”

Eoin Treacy's view -

There is only so much money available to be spent on advertising. Over the last decade, the number of companies seeking to suckle on the ad spend of the corporate sector has grown considerably. The net effect today is many new companies are basing their business models on offering advertising space.



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October 27 2022

Commentary by Eoin Treacy

Tesla, Ford and VW Sound the Death Knell for Driverless Car Hype

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

Tesla is the subject of two defect investigations by the National Highway Traffic Safety Administration and headed for the first of several potential trials over crashes blamed on Autopilot, its driver-assistance system. California accused the company in August of misleading consumers, and a Golden State resident who sued last month is proposing class-action status for his claims that Musk has been stringing the public along with perpetual promises that the company is on the cusp of perfecting the technology.

Fans of the world’s richest man have gotten accustomed to frequent posts from the soon-to-be Twitter owner about new iterations of FSD beta software beaming to their vehicles. After Musk tweeted recently about a next major release coming this week, one follower replied with relief, writing that he’d been hesitant to use the latest version of FSD after his Tesla veered toward an oncoming car.

Eoin Treacy's view -

Elon Musk very publicly moved his company out of California and built his latest gigafactory in Texas. In all the time Tesla was headquartered in California, there was very little talk of policing the company’s claims to have delivered autonomous driving. The company moved to Texas 11 months ago and the number of lawsuits is growing by the day.



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October 27 2022

Commentary by Eoin Treacy

Shell Hasn't Been Paying UK Windfall Tax as Profits Double

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

doubled to $9.45 billion, because it was making big investments in North Sea fields. 

The fact that Shell wasn’t liable for the levy, which was designed to allow companies to reduce their payments if they invest in new production, nevertheless threatens to amplify the controversy about record oil-company earnings at a time when most people are struggling with soaring energy bills. 

There are growing calls for British Prime Minister Rishi Sunak, who imposed the windfall tax in May when he was Chancellor of the Exchequer, to hit the sector with additional levies as he tries to fill a £35 billion hole in the country’s finances. Even Shell’s boss acknowledged the possibility of further government intervention. 

“They will be looking at companies like us, who benefit of course from the volatility and the prices that we see, to fund the programs that they are rolling out,” Chief Executive Officer Ben van Beurden said on a call with reporters Thursday morning. “We have to accept it and we have to embrace that.”

Eoin Treacy's view -

One of the first measures Rishi Sunak took when he became prime minister was to reimpose the ban on fracking. That’s putting more focus on boosting oil and gas supply from the North Sea. Shell expects to spend £23-27 billion on capital expenditure this year which is at least 20% more than last year and on par with years like 2018 and 2019.



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October 27 2022

Commentary by Eoin Treacy

October 26 2022

Commentary by Eoin Treacy

Video commentary for October 26th 2022

October 26 2022

Commentary by Eoin Treacy

Fed's Yield-Curve Barometer Starts Flashing Recession Risk

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

Inversions of this segment of the Treasury curve typically occur late in Fed tightening cycles as three-month bills track the policy rate while longer-term borrowing costs reflect expectations for economic growth and inflation. While other widely-watched yield curve segments such as the two- to 10-year and five- to 30-year have been deeply inverted for much of this year, the Fed follows this one more closely.

“We are certainly in territory with the Fed’s official barometer of the yield curve that will raise concerns,” said Gregory Faranello, head of US rates trading and strategy at AmeriVet Securities. “The Fed will definitely watch this, and there is a sense in the bond market that they will soon throttle back the pace of rate hikes and take a step back.”

Eoin Treacy's view -

The 10-year – 3-month spread spent part of today inverted following an 11.65 basis-point contraction. The spread was at 223 basis points in May so this tightening has been the fastest in decades. The fact there was such a wide divergence between the 10-year – 2-year and the 10-year – 3-month was regarded as an oddity but reflected the stresses in the bond market.



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October 26 2022

Commentary by Eoin Treacy

Tech's Big Day Tarnished as Microsoft, Google, TI Disappoint

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

The demand outlook was particularly dire in the semiconductor industry, which had been one of the hottest sectors during the pandemic. Texas Instruments, whose chips go into everything from home appliances to missiles, saw shares tumble after its weak forecast signaled that the chip slump is spreading beyond computing and phones into other businesses. The stock lost 5%, while Analog Devices Inc., ON Semiconductor Corp., and Marvell Technology Inc. also dipped.

South Korean chipmaker SK Hynix Inc. reported a 60% decline in profit and said it would cut capital expenditures by more than half. It warned of “an unprecedented deterioration in market conditions.” Hynix is joining fellow memory makers Micron Technology Inc. and Kioxia Holdings Corp. in slashing production plans as chip prices tumble. 

The silver lining for investors is that the eventual pullback in supply may ultimately prove beneficial for profits -- and stock prices. Hynix shares, which have lost 28% this year, were up as much as 2.1%. Samsung Electronics Co. climbed 3%, while Taiwan Semiconductor Manufacturing Co. added 1.4%.

“Inventory will decrease accordingly and demand will rise again,” said Greg Roh, head of technology research at HMC Investment & Securities.

Eoin Treacy's view -

At the NAAIM conference yesterday the manager of a commodity ETF quoted the statistic that there have been more backwardations in commodities this year than ever before. The point I think most people are missing is the monetary and fiscal response boosted demand for everything. New homes, stocks, bonds, commodities, semiconductors, toilet paper and a host of other products saw demand balloon between April 2020 and early 2022.



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October 26 2022

Commentary by Eoin Treacy

Copper Buyers Want Longer-Term Deals on Supply Concerns, Codelco Says

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

Copper buyers are so worried about future availability of the metal that they’re seeking to secure longer-term deals than normal, according to top miner Codelco. 

The Chilean state-owned company recently signed some contracts for three to five years with customers in Europe, in contrast to the more standard annual deals, Chairman Maximo Pacheco said in an interview. 

Eoin Treacy's view -

With battery metal prices like lithium still making new highs, the question of where to source affordable component materials is a pressing concern for many companies. Signing long-term offtake agreements is desirable from that perspective but it also represents hedging on behalf of the miners. That’s not a bad idea at this stage since prices are falling and the global economic outlook is uncertain, particularly with China slowing down.



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October 26 2022

Commentary by Eoin Treacy

October 25 2022

Commentary by Eoin Treacy

Video commentary for October 25th 2022

October 25 2022

Commentary by Eoin Treacy

How We Think About Recession Risk

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

The US economy does not appear to be on the brink of recession at the moment. In thinking about the odds of a recession next year, we break the risks into three categories: (1) the risk that a recession will prove necessary to bring inflation down, (2) the risk that the Fed will cause a recession that is not necessary, and (3) the risk that something else will cause a recession.

The odds that a recession will prove necessary have fallen a little because the first two steps of the required adjustment—slowing GDP growth to a below-potential pace and rebalancing supply and demand in the labor market— have gone remarkably well so far. But it would be premature to say that this risk has fallen too much until we see consistent evidence that labor market rebalancing is slowing wage growth and breaking the wage-price feedback loop.

The odds that the Fed will cause a recession that is not necessary have likely risen somewhat. It is increasingly clear that shelter and health care inflation— and by extension commonly used measures of the underlying inflation trend such as trimmed-mean inflation—are likely to remain uncomfortably high throughout 2023 and would even if the labor market rebalanced tomorrow. While it is not our base case, we see some risk that too great a focus on lagging indicators, too little patience, or tightening too quickly to gauge the impact on the economy could result in a recession that is not necessary.

Eoin Treacy's view -

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

I used this slide in my IFTA conference slide deck a year ago. At the time, worry about inflation was not urgent even through the 5-year has broken highs and had first step above the base characteristics.

As I thought about what to talk about at the NAAIM conference today, I thought it would be time to update my chart. In the last year, yields have surged and instead of the illusory dragon, today Jay Powell is being tasked with slaying the inflation dragon.



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October 25 2022

Commentary by Eoin Treacy

Mexico's Economy Surprises With Fastest Expansion in Over a Year

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

The result was “solid” and leaves Mexico’s economic growth at a pace of 2.2% for the year, according to Alberto Ramos, Goldman Sachs Group Inc.’s chief Latin America economist. 

“The economy still has room to grow, and we expect it to expand in coming quarters supported by firm terms of trade and further normalization of activity among a number of still lagging sectors, particularly services,” he wrote in a research note Friday. 

Eoin Treacy's view -

Not only is China slowing down, but its relationship with the biggest buyers of its exports is deteriorating. Large global companies are not making decisions about how much manufacturing they want to do in China. Within the next decade, manufacturing in China by foreigner will focus on the domestic market while exports are likely to face greater competition from other economies.



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October 25 2022

Commentary by Eoin Treacy

GM Rides Full-Size Pickups, Luxury SUVs to Big Earnings Beat

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

“We’re delivering on our commitments and affirming our full-year guidance despite a challenging environment because demand continues to be strong for GM products and we are actively managing the headwinds we face,” GM Chief Executive Officer Mary Barra said in a letter to shareholders.

Shares of the carmaker rose 2% to $36.45 as of 9:35 a.m. in New York. The stock is down about 38% this year. 

GM reported adjusted profit of $2.25 a share on Tuesday, surpassing analysts’ projection for $1.89 a share. It also maintained guidance for full-year adjusted earnings before interest and taxes of $13 billion to $15 billion, or $6.50 to $7.50 a share. 

“GM yet again affirmed the strong and until now mostly disbelieved full-year total company EBIT outlook it has maintained since introduction in February,” J.P. Morgan analyst Ryan Brinkman said in a research note. “GM is now well on the path to achieving its full year goals, despite the tougher consumer and cost backdrop.”

Eoin Treacy's view -

Auto manufacturers talk a good game of expanding EV production with stated expectations of massive increases in the number of electric vehicles manufactured. However, they continue to sell SUVs and pickup trucks. Companies like GM and Ford don’t sell large numbers of sedans so the commitment to selling EVs is moot.



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October 24 2022

Commentary by Eoin Treacy

October 24 2022

Commentary by Eoin Treacy

BOE Says Markets 'Remain Febrile' But UK Regaining Credibility

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

“Credibility is hard won and easily lost,” Ramsden said. “That credibility is being recovered. That has to be followed through. A return to the kind of stability around policy making and around the framing of fiscal events will be really important.”

He said the issue with the Sept. 23 statement was that “it had one side of the fiscal arithmetic in it” and that the decision to include forecasts from the Office for Budget Responsibility will help underpin the confidence investors have in assessing the UK budget due out next week.

“What we are going to get on Oct. 31 will be very important,” Ramsden said. “My sense is that will take account of all the statements on both the revenue and on the spending side.”

 

Eoin Treacy's view -

The bond market has become relevant in politics again for the first time in decades. Liz Truss was unfortunate to find that out in real time. Donald Trump demonstrated that you could engage in procyclical policies and manufacture a swifter expansion. Now most politicians think they can do the same thing. The problem is he did that before inflation took off. Now, the quantity of debt has multiplied, inflation is problematic and fiscal austerity is back on the menu.



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October 24 2022

Commentary by Eoin Treacy

China's Plunging Market Has Become a High-Risk Bet on Xi Jinping

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

Chinese stocks tumbled by the most since 2008 in Hong Kong and the yuan hit a 14-year-low after Sunday’s confirmation that Xi’s policies of stronger state control over the economy and markets will continue unchallenged for years.

Unlike in places like the US or UK -- where dramatic market reactions can force policy pivots or even overthrow entire governments -- it’s becoming apparent that investors are only an afterthought for Xi. That narrative was reinforced by Beijing’s move to delay the release of a raft of economic data without explanation, and risks further alienating money managers who are already leery of Chinese assets.

Investors have to decide if Xi’s policy objectives -- such as common prosperity and dual circulation -- are palatable, according to Hao Hong, chief economist at Grow Investment Group. “One has to examine whether these new sets of values align with your own” investment goals in the years ahead, he told Bloomberg TV on Monday.

Monday’s market reaction -- especially offshore -- suggests international investors are becoming increasingly leery of Xi, who has implemented tough curbs on one-time market favorites from Alibaba Group Holding Ltd. to education firms. With a new leadership team packed with his allies, analysts also expect little dissent against Xi’s Covid Zero strategy.

Eoin Treacy's view -

The ejection of Hu Jintao from the Party Congress over the weekend has been much discussed. The headline is that he was experiencing health issues. That’s reasonable from an octogenarian. However, there is an eerie historical comparison.



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October 24 2022

Commentary by Eoin Treacy

Texas Natural Gas Prices Drop Toward Zero as Supplies Boom

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

Insufficient pipeline capacity has actually been a long-term problem that has dogged Permian Basin gas producers for years. The choke points worsen when pipeline operators must perform repairs and preventative maintenance work that forces temporary reduction in pressure or halts to shipping. 

Permian pipeline constraints “have never been relieved,” making the region more susceptible to sudden gluts and price volatility, said Campbell Faulkner, chief data analyst at OTC Global Holdings LP.

Eoin Treacy's view -

The world is not running out of natural gas. What we are dealing with at present is a supply bottleneck. These kinds of problem can be solved. It would be a lot worse if there was a genuine shortage of global natural gas supply. However, to bring prices back to acceptable levels significant investment in pipeline, LNG import and export facilities, and shipping will be required.



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October 21 2022

Commentary by Eoin Treacy

October 21 2022

Commentary by Eoin Treacy

Sluggish CLO Markets Hit by Departure of Major Japanese Investor

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

Nochu dominated the CLO market until 2019, when it exited amid regulatory and political scrutiny. The Japanese bank would buy all the top-rated securities in a deal. It returned to the US market in late 2021 and to Europe in recent months, but it was buying far fewer securities. 

But with Nochu backing out again, a critical buyer is gone, potentially slowing down CLO sales, money managers said. And others are buying existing deals in the secondary market.

“In a tight CLO liability market the loss of any buyer makes a difference,” said Dagmara Michalczuk, an investor at Tetragon Financial, in an interview. CLO issuance for the remainder of the year is likely to be more uneven than in the last quarter of 2021, she said.

Eoin Treacy's view -

Big institutional buyers will buy every day as long as they are making money. When a favoured strategy stops working it causes a crisis of confidence. Whole business lines have been developed to thrive from the trade. When it stops making money the best performing sector becomes an internal problem that requires a remedy.



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October 21 2022

Commentary by Eoin Treacy

Swiss Banks Seek Most Dollars Since 2008 in Bid for Easy Profit

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

Banks in Switzerland sought the most dollars since 2008 using an emergency dollar swap facility provided by the Federal Reserve in what is likely to be a bid for easy profits.

In Wednesday’s auction conducted by the Swiss National Bank, 17 institutions took up $11.09 billion. That’s the most since October 2008, when the Global Financial Crisis was raging in the wake of Lehman Brothers’ collapse. 

This is the fourth week in a row when banks have accessed the facility. Last Wednesday, 15 banks took up $6.27 billion in funds. 

According to economists at Credit Suisse, Swiss banks swap the dollars into francs in order to generate a profit. The lenders can even sell the cash back to the SNB using its reverse repo auctions, or deposit it at the institution to benefit from a positive interest rate.

“We do not believe that the increased demand for US dollar liquidity by domestic banks reflects any liquidity issues in the Swiss banking system”, Credit Suisse economist Maxime Botteron wrote in a report last week.

The dollar swap facility was created during the crisis that began in 2007 as a lifeline to provide safe access to Greenback liquidity, while the SNB’s cash-taking repo auctions are designed to drain excess liquidity from the market. 

It’s not clear that Swiss officials are likely to act to stop banks from taking advantage of the facility. Conditions of the dollar auctions are controlled by the Fed, and the reverse repos are a core instrument in the SNB’s current tightening of monetary policy.

All Swiss and foreign banks which have a branch in Switzerland or are registered with Swiss authorities are entitled to participate in the dollar auctions. Credit Suisse expects predominantly smaller banks to take advantage of the profit play.

Eoin Treacy's view -

The world is dealing with falling supply of Dollars as rates rise and money supply shrinks. Tapping swap lines to source dollars which can then be sold for a profit is a handy money making exercise for banks. 



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October 21 2022

Commentary by Eoin Treacy

'Strikingly Tight' Copper Market Belies Price Drop, Miner Says

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

It’s “striking how negative financial markets feel about this market and yet the physical market is so tight,” said Richard Adkerson, chief executive officer of Freeport-McMoRan Inc.

“We’re not seeing customers scaling back orders. Customers are really fighting to get products,” Adkerson said Thursday during a conference call with analysts after the miner reported adjusted third-quarter per-share profit that exceeded estimates. 

The decline in copper prices this year reflects investor concerns about the global economy, weak economic data from top consumer China, the European energy crisis and a strong dollar, he added.

Such a pricing environment will defer new copper projects and mine expansions just when the world’s epic shift to electrification requires a massive amount of the metal, according to Adkerson.

Eoin Treacy's view -

The mining sector is expecting demand from the electrification sector to explode over the coming decade with the result that copper demand will double. That goal is impossible to achieve with investment in new mining infrastructure on a massive scale.



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October 20 2022

Commentary by Eoin Treacy

Video commentary for October 20th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Yen carry trade doesn't work when yields are rising this fast. On the other hand lets remember that everything is priced off the 10-year. The discount rate all investments are compared against continues to rise.



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October 20 2022

Commentary by Eoin Treacy

Stocks Pare Gains Amid Hawkish Fedspeak, Earnings

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

A rally in the S&P 500 faded after Philadelphia Fed President Patrick Harker said officials are likely to raise interest rates to “well above” 4% this year and hold them at restrictive levels to combat inflation, while leaving the door open to doing more if needed.

Traders also sifted through a mixed bag of corporate earnings, with Tesla Inc.’s sales disappointing and International Business Machines Corp. surging on a bullish forecast. Several market observers remarked that the bar has been lowered quite a bit ahead of the current earnings season, boosting the odds of upside surprises. It’s also worth pointing out that there’s been no shortage of warning signals about the economy when it comes to corporate outlooks.

Alcoa Corp. -- which is a dependable barometer of US economic health across industries including construction, automotive, aerospace and consumer packaging -- said demand for the world’s heavy industries is falling. Union Pacific Corp., the largest US freight railroad, cut its forecast for volume growth to reflect a “challenging year.”

As traders wade through corporate results, “with an extra eye on guidance, expect volatility to remain elevated,” said Mike Loewengart at Morgan Stanley Global Investment Office

Eoin Treacy's view -

Earnings are holding up but guidance is being lowered. CEOs are at their most bearish in years but investors have cash to burn and are eager to salvage a dire year for their performance. Appetite for buying the dip following upside key day reversals for mega-cap stocks last week is still evident.



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October 20 2022

Commentary by Eoin Treacy

Indonesia Raises Key Rate by Half-Point Again to Aid Rupiah

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

The central bank will defend the rupiah in line with fundamentals, Warjiyo said. It will monitor forex supply, and strengthen the currency stabilization policy, he added.

“The hike reflects less concern of inflation but more on the need to anchor FX stability,” said Wellian Wiranto, economist at Oversea-Chinese Banking Corp. in Singapore, who now sees a terminal rate of 5.25%. “Going forward, downside risks to growth will gain more prominence.”

A weakened rupiah threatens to fan imported inflation, adding to the risk posed by higher fuel costs that’s sent consumer price gains to a fresh seven-year high of 5.95%. Bank Indonesia expects inflation to climb further to 6.3% at the year-end before returning to its 2%-4% target next year.

The central bank retained its 2022 growth forecast for the economy, expecting it to be at the upper end of its 4.5%-5.3% target, while flagging risks from a slowing global recovery. For now, it expects to end the year with a current account surplus of 0.4%-1.2% of gross domestic product -- better than its previously estimated 0.5% of GDP.

Eoin Treacy's view -

The Indonesian Rupiah spent most of 2021 in a tight range relative to the Dollar but broke down in May and is now trending lower. The pass through of inflationary pressures from the developed world into ASEAN didn’t pick up until early this year. Many ASEAN countries did not engage in the same degree of monetary stimulus so effect was delayed. However, the surge in energy prices is increasing the cost of fuel subsidies and putting downward pressure on regional currencies.



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October 20 2022

Commentary by Eoin Treacy

Lula Losing Brazil' Biggest State Forces Urgent Campaign Rejig

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

Inside Lula’s campaign, the result in Brazil’s most populous state — the birthplace of his political career, and containing about 25% of the entire electorate — was compared to a plane crash, where a confluence of small factors leads to catastrophe. At his team’s first post-election meeting, the talk was of frustration and failure. 

Edinho Silva, the former president’s campaign coordinator, may have had an inkling of what was to come, saying in an interview on the eve of polling that Sao Paulo had become a center of hard-core support for Bolsonaro’s brand of right-wing identity politics. 

“We have a percentage of Brazilian society that, unfortunately, is racist, homophobic, sexist, xenophobic, and doesn’t accept the social ascent of the lower classes,” he said. “And a significant part of Brazil that thinks in this way lives in Sao Paulo.”

Eoin Treacy's view -

Here is a novel idea. Perhaps Brazilian voters are not prepared to install a man who squandered the bounty from the last commodity boom on vanity projects. As if that were not enough, he  led an administration that was the most corrupt in the country’s history, and that is saying something. Lula was jailed for corruption and was only allowed to run because he was offered a politically motivated dispensation.



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October 19 2022

Commentary by Eoin Treacy

Video commentary for October 19th 2022

October 19 2022

Commentary by Eoin Treacy

Battered Safe Credit Is Now a 'Screaming Buy' After Yield Jump

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

After historic losses this year, high-quality corporate debt has flipped the script to become one of the hottest asset classes in the market.

Investors are increasing allocations to investment-grade corporate bonds as the yield they can get just by holding the debt to maturity has reached its highest level since the global financial crisis. At 5.6%, global high-grade yields now exceed where junk-rated debt was trading at the start of the year, according to Bloomberg indexes.

It’s a major shift for the $10 trillion global high-grade market, which has suffered massive losses this year amid aggressive central bank rate hikes. The steep losses in investment-grade bonds, despite their near-zero probability of default, has created one of the most favorable entry points in years for some investors.

“High quality is a screaming buy,” said Eric Vanraes, head of fixed income investments at Banque Eric Sturdza SA. “The big difference between high yield and investment-grade is that in high yield you have to cope with default rates.”

Eoin Treacy's view -

There is a point where higher yields will be a good buying opportunity in fixed income. To buy at today’s levels is certainly preferable to paying all-time highs and many investment managers have a mandate to hold some fixed income so they don’t have much choice.



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October 19 2022

Commentary by Eoin Treacy

FBI misled judge who signed warrant for Beverly Hills seizure of $86 million in cash

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

Eighteen months later, newly unsealed court documents show that the FBI and U.S. attorney’s office in Los Angeles got their warrant for that raid by misleading the judge who approved it.

They omitted from their warrant request a central part of the FBI’s plan: Permanent confiscation of everything inside every box containing at least $5,000 in cash or goods, a senior FBI agent recently testified.

The FBI’s justification for the dragnet forfeiture was its presumption that hundreds of unknown box holders were all storing assets somehow tied to unknown crimes, court records show.

It took five days for scores of agents to fill their evidence bags with the bounty: More than $86 million in cash and a bonanza of gold, silver, rare coins, gem-studded jewelry and enough Rolex and Cartier watches to stock a boutique.

The U.S. attorney’s office has tried to block public disclosure of court papers that laid bare the government’s deception, but a judge rejected its request to keep them under seal.

The failure to disclose the confiscation plan in the warrant request came to light in FBI documents and depositions of agents in a class-action lawsuit by box holders who say the raid violated their rights.

Eoin Treacy's view -

The war on cash is an ongoing program by governments to control and tax every Dollar, Euro, Pound, Yen, Renminbi and Rupee in existence. The Reaganism “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” It is as true today as ever. In an effort to further that aim, governments want to know exactly where every unit of currency resides and to control how it moves. 



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October 19 2022

Commentary by Eoin Treacy

Work From Home And The Office Real Estate Apocalypse

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

We study the impact of remote work on the commercial office sector. We document large shifts in lease revenues, office occupancy, lease renewal rates, lease durations, and market rents as firms shifted to remote work in the wake of the Covid-19 pandemic. We show that the pandemic has had large effects on both current and expected future cash flows for office buildings. Remote work also changes the risk premium on office real estate. We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 45% decline in office values in 2020 and 39% in the longer-run, the latter representing a $453 billion value destruction. Higher quality office buildings were somewhat buffered against these trends due to a flight to quality, while lower quality office buildings see much more dramatic swings. These valuation changes have repercussions for local public finances and financial sector stability.

Eoin Treacy's view -

San Francisco commercial real estate occupancy is below 40% while New York and Los Angeles are just higher than that figure. This is a looming issue for the owners of vacant properties, many of whom are pension funds and other private investors. 



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October 18 2022

Commentary by Eoin Treacy

Video commentary for October 18th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: alternative assets under pressure from rising rates and escalating yields, 10-yr-3mth spread close to inverting, pricing in a recession. dollar eases, gold stable, bitcoin inertia will not last. 



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