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March 30 2022

Commentary by Eoin Treacy

Taliban eye investment by Chinese

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

But the project got tied up in logistical and contract problems, and it never got past some initial test shafts before it ground to a halt when Chinese staff left in 2014 because of continued violence.

Months after the Taliban seized Kabul in August, consolidating power over the country, the group’s newly installed acting Minister for Mining and Petroleum Shahbuddin Dilawar urged his staff to re-engage Chinese state-run companies.

Ziad Rashidi, the ministry’s director of foreign relations, approached the consortium made up by MCC, China Metallurgical Group Corporation and Jiangxi Copper Ltd. Dilawar has had two virtual meetings with MCC in the last six months, according to company and ministry officials. He urged them to return to the mine, terms unchanged from the 2008 contract.

A technical committee from MCC is due in Kabul in the coming weeks to address the remaining obstacles. Relocating the artifacts is key. But MCC is also seeking to renegotiate terms, particularly to reduce taxes and slash the 19.5% royalty rate by nearly half, the percentage owed to the government per ton of copper sold.

“Chinese companies see the current situation as ideal for them. There is a lack of international competitors and a lot of support from the government side,” Rashidi said.

China’s ambassador to Afghanistan has said talks are ongoing, but nothing more. Acquiring rare minerals is key for Beijing to maintain its standing as a global manufacturing powerhouse. While stopping short of recognizing the Taliban government, China has stood out from the international community by calling for the unfreezing of Afghan assets and has kept its diplomatic mission running in Kabul.

For Afghanistan, the contract at Mes Aynak could bring in $250 to $300 million per year to state revenues, a 17% increase, as well as $800 million in fees over the length of the contract, according to government and company officials. That’s a significant sum as the country grapples with widespread poverty, exacerbated by financial shortfalls after the Biden administration froze Afghan assets and international organizations halted donor funds. Some have since resumed.

Eoin Treacy's view -

The Taliban needs cash and China needs resources. That suggests there is room for an agreement. China’s treatment of the Uighur minority is unlikely to get in the way of real politik. China has the capital, market and will to do what is necessary to get projects done.



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March 30 2022

Commentary by Eoin Treacy

Tesla Dodges Nickel Crisis With Secret Deal to Get Supplies

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

“What Tesla has done with nickel is a hidden competitive advantage,” said Gene Munster, managing partner of Loup Ventures. “Tesla continues to be a couple of steps ahead of the rest.”

Musk has repeatedly flagged nickel supply as the company’s biggest concern as it boosts output, and the metal’s availability is a source of anxiety throughout the EV sector.

Battery-sector demand for nickel is expected to jump to about 1.5 million tons in 2030 from 400,745 tons this year, according to Bloomberg NEF.

“Please mine more nickel,” Musk urged producers on an earnings call two years ago. “Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way.”

Eoin Treacy's view -

Tesla’s management deserves credit for ensuring they have access to the resources needed to make production targets. Tesla’s vertically integrated business model is what the conventional auto sector used to do. Ford closed its last steel plant nearly thirty years ago. Selling steel to the major US automakers now represents the bulk of Cleveland Cliffs’ revenue.

As the geopolitical environment grows progressively more complicated, and competition for access to supply of copper, nickel, lithium, manganese and cobalt intensify, inventory management is going to become more important for major industrial companies.



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March 30 2022

Commentary by Eoin Treacy

March 29 2022

Commentary by Eoin Treacy

Video commentary for March 29th 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: inverted yield curve and recession probability within 18 months. oil and gold steady following initial declines, stocks rebound, led by the speculative sector, Europe continues to rebound with a stronger Euro, Dollar and bond yields ease. 



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March 29 2022

Commentary by Eoin Treacy

Biden Says Wait and See on a Russian Pullback

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

Ukraine and Russia failed to clinch a cease-fire in talks that ended in Istanbul on Tuesday, with Moscow saying it will reduce military operations in areas where its forces are being pushed back and Kyiv calling for security guarantees from European Union and NATO members.

U.S. President Joe Biden said he’ll see how Russia acts on a pullback and “see what they have to offer” in further talks with Ukraine.

A Ukrainian negotiator said his country is seeking guarantees for territory that doesn’t include Russian-controlled areas and that Kyiv is willing to discuss the status of occupied Crimea. Russia indicated a meeting was possible between President Vladimir Putin and his Ukrainian counterpart Volodymyr Zelenskiy.

Russia’s delegation left Istanbul, and no date or time was set for any potential future talks, according to a person close to the Moscow delegation. European nations expelled more Russian diplomats from their capitals, even as stocks rose and oil fell on optimism for progress in the negotiations.

Eoin Treacy's view -

This brief history of Finland’s fight against the Soviet Union in 1939 and again in 1944 bears some striking similarities to what is going on in Ukraine today. The most likely outcome remains that Russia will hold the territory it has already won and will negotiate hard for a land bridge to Crimea. In return Ukraine will receive new security guarantees, adopt a neutral foreign policy and will eventually be allowed to join the EU.



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March 29 2022

Commentary by Eoin Treacy

(Don't Fear) The Yield Curve, Reprise

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

It is not valid to interpret inverted term spreads as independent measures of impending recession. They largely reflect the expectations of market participants. Among various terms spreads to consider, the 2-10 spread offers a particularly muddled view. Especially in the present circumstances when the 2-10 spread is very much out of step with the near-term forward spread, which offers a much more precise view of market expectations over the next year and a half, it is difficult to concoct a reason to be concerned about the flattening of the 2-10 spread. In contrast, if and when the near-term spread does contract, we know that investors will then be expecting a cessation in monetary policy tightening. While such a shift in expectations could well be precipitated by future concerns about a recession, that need not be the case. A more benign cause would be a marked easing in inflation and inflation expectations that allow for a cessation of policy firming.

Eoin Treacy's view -

The benign outcome is more often referred to as a soft landing. The 10-2 year spread closed at 1 basis point and was inverted for a brief period intraday. The 10-year-3-month is at 189 basis points which is an historically wide diversion.



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March 29 2022

Commentary by Eoin Treacy

Email of the day on miners

Having subscribed for 20 plus years, firstly many thanks for your excellent advice. A quick question, appreciating that you are not a tip sheet. I have followed your comments of late with observations on particularly copper and to a lesser extent nickel.

I have looked in the Chart library and there are records of trading in copper, but it seems few actual copper mines. I have in fact invested in two companies that have done very well.

I am just wondering if there are other operating mines that perhaps are not in the chart library, or perhaps some I have missed that might be alternatives to those I have invested in. Incidentally the two I have purchased, approx six months back are behaving very well!!

Eoin Treacy's view -

Thank you for your long-term patronage and I am delighted to hear your investments are doing well. A while back, I partially recreated my favourites in the public portion of the Chart Library under the Eoin’s Favourites section. Here is a link.

You’ll find sections devoted to copper miners, small cap copper miners, nickel miners, lithium producers, battery materials companies and a host of additional subsectors.

 



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March 28 2022

Commentary by Eoin Treacy

March 28 2022

Commentary by Eoin Treacy

Barclays VIX ETN Turmoil Looks Linked to $591 Million Note Error

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

While the issuance halt initially triggered outsize moves for VXX -- including a 45% jump then reversal in a single session -- the ETN has been calmer as volatility across U.S. stocks retreated, helping prevent a potentially vicious short squeeze in the product. 

All the same, since new cash can’t be added to either note the distortions can be significant. VXX closed at a record 24% premium on Friday, according to data compiled by Bloomberg. OIL has swung between a premium and discount amid major moves in the crude market in the past two weeks. It closed Friday at a 1.1% discount to assets.  

VXX gained 2.4% in early trading as of 9:02 a.m. in New York. OIL was 3.2% lower.

“This is a rare case of an exchange-traded product issuer dropping the ball and mismanaging their products,” said Todd Rosenbluth, head of research at ETF Trends. “Although it is no more likely to occur again this is another red flag for trading ETNs and not ETFs.”

Eoin Treacy's view -

ETNs were created to offer exposure to portions of the market that are difficult for ETFs to access. This comes with additional counterparty risk. The times when ETN products go awry is generally when there is significant credit market volatility like we have seen recently.



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March 28 2022

Commentary by Eoin Treacy

Private market transaction prices down -10%

This blog post from Forge may be of interest so subscribers. Here is a section:

In February, we reported that seller interest outpaced buyer interest on the Forge platform as the broader market downturn led more employees to inquire about selling their vested equity.

These trends now show up in completed transactions. On average, prices in February fell –10% for companies that traded on Forge Markets in both Q4 2021 and February 2022.2 Meanwhile, the Renaissance IPO ETF, which holds many of the newest public tech companies, lost –28.4% from the beginning of October through the end of February.3

Although some softening has started to appear in the private market, the overall picture does not suggest overreaction. Decreasing prices may be new territory for some pre-IPO shareholders, but they seem to be proceeding cautiously. For investors, more sellers participating in the private market may yield a better opportunity to land shares of pre-IPO companies at favorable prices.

Eoin Treacy's view -

Since the 2009 lows, the value of private companies has surged as successive waves of new money chased the promise of outsized returns. The persistence of the low interest rate environment and central bank willingness to increase money supply have been central factors in supporting valuations. 



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March 28 2022

Commentary by Eoin Treacy

BOJ Steps Into Market to Cap Yields Amid Global Bond Selloff

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

The BOJ’s yield curve control framework aims to cap the 10-year yield, while allowing more flexibility for longer-tenor yields. There’s also talk among traders over whether the BOJ will act to bring down yields for longer-tenor bonds.

“Focus turns to whether the BOJ will also try to control 20- or 30-year maturities, but it’s likely the bank will tolerate the rise in these super-long yields,” said Mari Iwashita, chief market economist at Daiwa Securities in Tokyo. “By firmly capping 10-year yields, the BOJ can send a signal that it’s keeping an eye on market developments.”

The 30-year yield matched a six-year high of 0.995% reached last month. 

The central bank has kept planned purchase amounts for all maturities including super-long bonds steady since July after tweaking operation schedule to quarterly from monthly. It will announce the April-June plan on Thursday.

The BOJ is expected to continue conducting unlimited fixed-rate bond buying particularly when there is risk of scheduled events of data driving U.S. yields higher after Tokyo session ends, such as U.S. jobs data due on April 1, minutes of FOMC’s March meeting and U.S. CPI.

“How high Japanese yields will rise depends on U.S. yields and the BOJ will likely automatically seek to cap yields if there are anticipated risks of overseas yields climbing,” Daiwa’s Iwashita said.

Eoin Treacy's view -

The Bank of Japan continues to target a single point on the yield curve, but every other portion is rising. At present, the curve’s shape remains steep and moving from lower left to upper right which is consistent with easy policy. That begs the question whether continued BoJ activity will create a belly in the curve. That could create an even more distorted picture of Japan’s rising inflationary pressures.



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March 25 2022

Commentary by Eoin Treacy

March 25 2022

Commentary by Eoin Treacy

A Powell-Backed Yield Curve Gives Fed Cover to Go Max Hawkish

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

The near-term forward spread measures the difference between bets on where the three-month rate will be in 18 months’ time and that same rate today. That curve, along with the more traditional three-month, 10-year spread, has steepened to multi-year highs, spurred by expectations that a hawkish Fed may frontload interest-rate increases, taking the federal funds rate to about 2.8% at the end of 2023. 

A 2018 Fed research paper highlighted that the shorter-term yield curve eliminates complicating factors like the so-called term premium, and thus gives a cleaner read on market expectations for future monetary policy. In effect, the gauge would only invert when a large cohort of investors expected rate cuts on the basis of slowing growth. Previous Fed research has found it has a better predictive power than other parts of the curve -- a conclusion the chair endorsed Monday. 

History has shown that when the force of a Fed tightening cycle causes a yield-curve inversion, it foreshadows a pending recession as consumer spending and business activity increasingly buckles under the weight of policy tightening.

Campbell Harvey was one of the first to historically show the link, with his work on the three-month, 10-year spread -- which has inverted before each of the past eight U.S. recessions. These days, the professor at Duke University’s Fuqua School of Business is concerned about growing threats to the U.S. recovery, even though his beloved spread is not yet flashing “code red.”

High inflation and “geopolitical risk -- which we haven’t even felt the economic outcome of yet, besides at the gas pump -- is all acting like a tax,” Harvey said. “It all indicates slower economic growth.”

Eoin Treacy's view -

Cherry picking the one part of the yield curve that is not at danger of inverting seems to be intellectually dishonest to this observer. Instead, we should be attempting to answer the question why 3-month yields are so depressed.



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March 25 2022

Commentary by Eoin Treacy

China's Worsening Virus Threatens Commodities Supply and Demand

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

Almost 80% of the Chinese economy has been affected in some way by the worst outbreak of Covid-19 in two years, straining the supply of commodities and posing an increasing threat to demand.

China’s restrictions to contain the fast-spreading omicron variant have primarily hit travel over both short and long-distances, which is a direct drag on fuel consumption and a complication for supply chains.

The longer that Beijing persists with its Covid Zero policy, the greater the impact will be on the consumption of commodities as purchases are deferred -- think copper for electronic goods or steel for cars. Production is also at risk as inventories of raw materials dwindle and workers stay at home.

Widespread outages at metals processors, for example, could further lift markets that have already hit record highs in recent weeks because of the war in Ukraine. That would set the inflation-hawks at the central bank and economic planning agency on edge. Still, demand is also likely to shrink at some point, which would leave the net impact on prices uncertain.

Eoin Treacy's view -

The coronavirus might be a medical issue, but pandemics are political. That is truer for China than most countries. They were the first country to experience it and adopted one of the most stringent quarantine regimes. That successfully contained the infection rate. Factories and ports remained open in 2020 because the problem was contained to Wuhan and the surrounding area.



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March 25 2022

Commentary by Eoin Treacy

A Revolution in British Meritocracy

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

Nowadays, Brampton Manor Academy regularly gets as many pupils into Oxbridge as Eton College, the alma mater of Cameron, Johnson and the majority of the privileged faces staring out from the 1987 photograph. It does this by dint of high-expectations and relentless discipline. Pupils arrive early in the morning and stay on into the evening in order to accumulate extracurricular activities. Slacking is not tolerated. Pupils are expected to be smartly dressed and always on the ball. Eton — the quintessential, privately-funded British public school — charges about £50,000 a year and selects from the whole world. Brampton Manor charges nothing and selects from one of the poorest boroughs in London. The majority of pupils are from ethnic minorities and one in five gets free school lunches because of their parents’ low incomes.

Eoin Treacy's view -

Education is a contentious subject for politicians, because everyone wants the best for their children despite the fact levels of academic ability vary widely. That desire to secure the best opportunities for one’s offspring has to be married with society’s need to find and nurture the best brains.



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March 24 2022

Commentary by Eoin Treacy

March 24 2022

Commentary by Eoin Treacy

The Year Ahead In Crypto

This note from Panterra Capital may be of interest to subscribers. It is more of a retrospective look at what happened in 2021 but includes some interesting copy on the broad macro environment. Here is a section:

The next step in their complicated minuet – after “taper” comes “run off”.  That’s not going to get it done either.  The Fed’s holdings make it impossible to fight inflation by waiting for higher interest rates based on runoff.  More than 97% of the $2.6 trillion in mortgage-backed securities owned by the Fed won’t mature for at least ten years.  Only 20% of the Fed’s $5.6 trillion in Treasury securities will come due in the next year.  42% have maturity dates longer than five years out.

And

“Inflation persistently below its goal”?  This is embarrassingly behind the curve.  Measured inflation is at 7.0%.  That includes the spurious owners’ equivalent rent of only 3.1%.  If real housing inflation were included it would be double-digits – all 1970’s style.  (The lagged effect of true housing inflation will show up in CPI over the next two years.)

Eoin Treacy's view -

The Fed is talking about accelerating pace of the balance sheet run off. With 20% of its holdings maturing in the next 12 months, that offers significant leeway to make run-off the primary tool for restricting inflationary pressures.



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March 24 2022

Commentary by Eoin Treacy

The Oil Crisis is Unfolding in Slow Motion

This article from Goehring & Rozencwajg which may be of interest to subscribers. Here is a section:

If an EROEI of 10:1 resulted in de minimis economic growth, what can we use this 10:1 number to infer about how high oil prices can go today? An EROEI of 10:1 means that 10% of all energy goes to sustain the energy supply. If energy is a good proxy for general economic activity, then an economy should stagnate once 10% of its GDP goes towards producing (and by extension consuming) energy. Evidence backs this up. Many academic studies suggest an economy will fall into recession once energy takes up 10% of total GDP – an empirical result that agrees with our theory.

In 2008, energy prices were approximately 10% of GDP right before the global financial crisis. If oil represents about half of all energy consumed, this means an economy will stall when oil represent about 5% of GDP. In 2008, the US consumed 18.8 m b/d. At $120 per barrel that equated to $823 bn or 5.6% of the $14.7 tr US GDP. The economy fell into recession shortly thereafter. In 2012-14, oil consumption never exceeded 3.5% of US GDP and prices stayed between $90 and $100 per barrel with no impact on either demand or economic activity.

Today, oil represents less than 3.3% of US GDP and would have to rise to $140 per barrel before approaching the critical 5% threshold. Why do we focus only on the US? Demand is the most elastic in wealthy countries with high energy intensities and the least elastic in developing countries that need energy to fuel their ongoing development. In 2008, prices spiked as high as $145 per barrel albeit temporarily. In this cycle, we believe oil prices will at some point reach, and potentially significantly exceed the previous $145 per barrel peak before we begin to see evidence of demand destruction.

Eoin Treacy's view -

How high do prices have to go to limit demand might not be the correct question. It’s well understood that oil spikes are one of the leading causes of recessions, because energy is a tax on consumption. That suggests the speed of the price rise is at least as important as the headline rate.



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March 24 2022

Commentary by Eoin Treacy

Chinese Navy Growth: Massive Expansion Of Important Shipyard

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

The incredible growth of the Chinese Navy has seen several shipyards expanded already. Jiangnan shipyard, which is situated next to the new site, has itself been expanded massively in recent years. Added to this, new facilities to build large numbers of submarines has been set up near Wuhan. And the nuclear submarine facilities at Huludao have also been massively expanded. Now the new work at Jiangnan takes this further still.

The new facilities will dramatically increase capacity at the yard. It is expected to have a basin for fitting out ships and a large multi-berth dry dock.

A Fleet of 6 Aircraft Carriers

The U.S. Navy expects that the Chinese Navy may operate 6 aircraft carriers by 2040. Currently only two are operational, built at Dalian in Northern China. But the third, the improved and enlarged Type-003, is under construction at Jiangnan. It seems likely that one or more of the additional carriers will also be built at Jiangnan.

One hypothesis is that China will build nuclear powered aircraft carriers. These may be even larger still than the Type-003, which is anyway almost the same size as the U.S. Navy’s Ford Class. The larger ship, and new technologies involved, may dictate a new construction site. This is one explanation for the new site.

Eoin Treacy's view -

There is an abundance of evidence to suggest we are going to be living in a more volatile geopolitical environment for the foreseeable future.



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March 23 2022

Commentary by Eoin Treacy

March 23 2022

Commentary by Eoin Treacy

U.K. Treasury to Raise $36 Billion More Tax Despite Sunak's Cuts

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

The U.K. Treasury will pocket about 27 billion pounds ($36 billion) more a year in revenue than previously forecast despite eye-catching tax cuts on pay announced in its Spring economic statement on Wednesday.

The figures, buried in documents from the Treasury and Office for Budget Responsibility, leave Chancellor of the Exchequer Rishi Sunak presiding over the highest tax burden since Clement Attlee’s Labour government in 1949.

The record gave lobby groups across the political spectrum ammunition to criticise Sunak’s handling of the public finances at a time when households are facing their biggest cost-of-living squeeze in at least three decades. 

“The Treasury is taking with one hand to give away with the other,” said John O’Connell, chief executive officer of the TaxPayers’ Alliance, a consumer pressure group. “Cutting income tax down the line will be easily offset by the upcoming national insurance hike and freezing income tax thresholds, leaving taxpayers out of pocket overall.”

In his statement to Parliament, Sunak increased the payroll tax threshold at a cost of 6 billion pounds reduced the basic rate of income tax to 19% from 20%, handing households 5 billion pounds from the 2024-25 fiscal year. 

Despite the giveaways, Sunak will raise 7 billion pounds more a year from taxes on wages than previously expected, the OBR said. The independent budget watchdog also assumes solid growth in corporate profits, which will generate an extra 6 billion pounds a year on average compared with October. 

Eoin Treacy's view -

Inflation gives cover to governments to look like they are cutting taxes while in fact increasing them. If the tax bands are held steady and inflation rises more people fall into the higher brackets as wages play catchup. The fact wages don’t quite keep up with inflation means consumers come out worse off.



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March 23 2022

Commentary by Eoin Treacy

Putin Demands Ruble Payment for Gas, Escalating Energy Conflict

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

“Gazprom would need to ask buyers to agree to change the payment terms in contracts,” said Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd. “It reopens the contracts, and buyers could ask for shorter-terms for instance.”

Some 58% of Gazprom’s gross gas sales abroad were in euros as of the third quarter of last year, according to the producer’s most recent bond prospectus. Another 39% were in U.S. dollars. The press office of gas giant Gazprom PJSC declined to comment on whether its long-term supply agreements allow a switch to ruble payments.

Russia announced earlier this month a list of 48 states deemed hostile. They included the U.S., Japan, all European Union members, Switzerland and Norway. As a result, the bulk of Russian gas exports now go to “unfriendly” nations.

“At the same time, I want to emphasize that Russia will definitely continue to supply natural gas in line with the volumes and prices and pricing mechanisms set forth in the existing contracts,” Putin said.

In the first 15 days of March, Gazprom exported an average of 500 million cubic meters per day to countries outside the former Soviet Union, including those in the EU, China and Turkey. Of the total, flows toward Europe averaged 384 million cubic meters per day, the producer’s data showed.

Eoin Treacy's view -

This change of policy serves the short-term requirement of creating demand for the Ruble which will make enforcing sanctions even more difficult. That suggests the recent low of the Ruble near RUB120 is likely to be a medium-term nadir.



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March 23 2022

Commentary by Eoin Treacy

Adobe's Lackluster Forecast Suggests Growing Competition

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

While Adobe is one of the industry’s longtime success stories, the maker of creative and marketing software has faced rare investor skepticism recently over fears that businesses are reducing their spending on such tools and rivals are making in-roads among new customers. The stock has dropped 18% since its last earnings report on Dec. 16, closing Tuesday at $466.45 in New York. Shares declined about 2% in extended trading.

Adobe is in the midst of revising prices for its signature creative suite, the first major overhaul since 2017, said Chief Executive Officer Shantanu Narayen. The new structure will reflect features Adobe has added in the past five years, including new collaboration capabilities, executives said. The impact will be seen in revenue in the second half of the fiscal year, they said.

“It was time to take a very comprehensive look,” Narayen said on a conference call after the results were released. “We want to continue to attract hundreds of millions to the platform, but we also want to get value for the tremendous innovation we’ve provided.”

Eoin Treacy's view -

Adobe transformed its fortunes with investors by adopting a subscription business model. The Photoshop service that used to cost thousands of dollars was suddenly much more accessible and every upgrade was instantly available to subscribers. The transition coincided with the evolution of ecommerce and the mobile telecommunications revolution and Adobe’s profits took off.



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March 22 2022

Commentary by Eoin Treacy

March 22 2022

Commentary by Eoin Treacy

Now That Powell's Convinced Markets He Means It

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

Market-based expectations for how the Fed moves its target fed funds rate have also broken out. The shift in expectations has come with breathtaking swiftness. The following chart shows implicit expectations for rates after each of the next seven meetings as they stood on Dec. 31, where they had moved by the day the tanks entered Ukraine, and where they are now:

Bear in mind that as the year began, CPI had already topped 7% for the first time in four decades. It’s remarkable both how long it took for investors to come around to expecting a sharp monetary tightening, and how swiftly that realization has now taken root.

What does this imply for asset allocation? Higher bond yields tend to be bad news for stocks if they are part of a Fed tightening, and make high stock valuations harder to justify. However, expectations of a more aggressive Fed are even worse for bonds. The mathematics of the bond market on this point is
inexorable. If rates and yields are going up, then bond prices have to come down.

And, indeed, just as those who’ve been saying There Is No Alternative (to stocks) would have predicted, this news has been far worse for bonds than stocks, meaning that the returns for those who are long in stocks relative to bonds have surged to yet another new high:
 

Eoin Treacy's view -

There is a significant anomaly developing in the bond markets. 2-year and 10-year yields are ramping higher on the expectation of future inflation and much higher rates. 3-month bills are also rising but at a much more sedate pace. The rate is currently at 0.5% which approximates the Fed Funds rate. That’s an oddity because investors are increasingly convinced a 50-basis point in May is a certainty.



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March 22 2022

Commentary by Eoin Treacy

Half-hearted sanctions against Russia have already failed

This article by Ambrose Evans Pritchard for the Telegraph may be of interest to subscribers. Here is a section:

Goldman’s deep-dive into the effect of sanctions ought to end all wishful thinking. The US investment bank forecasts that the Russian economy will contract by 10pc this year, a bad recession but not an economic breakdown.

Growth will then recover to 2.4pc next year and 3.4pc in 2024 as the country adjusts. Exports will be back to 98pc of prior levels by early next year. If so, Putin is not going to lose sleep over this.

Russia’s trade will mostly be diverted rather than destroyed. There may even be some short-term growth stimulus as Russia replaces western goods with home-made manufactures. Putin has been building a fortress economy ever since the annexation of Crimea. Net foreign funding is negligible. Total public debt is 18pc of GDP, one of the lowest ratios in the world. 

Over four-fifths of GDP come from sectors that import just 15pc or less of their inputs, falling to 7pc in the mining industry. This is a radically different economic structure from western states such as Poland.

“If Russia were fully integrated into global supply chains, restrictions on imports and exports would be immediately destructive. However, Russia largely exports goods that are almost fully produced locally,” said Mr Grafe.

Iran endured tougher sanctions without buckling. Cornell professor Nick Mulder, author of The Economic Weapon, said the country settled into a new equilibrium within a couple of months. “If Iran’s experience is any guide, Russia will survive and return to lacklustre growth,” he said.

“Historically, sanctions have hardly ever been successful in stopping wars,” he said. A rare exception was the Balkan ‘war of the stray dog’ in 1925. Needless to say, Putin’s war on Ukraine is not a border skirmish. It is a long-planned attempt to overturn the post-Cold War settlement and alter the world’s balance of power.  

European ministers once again grappled with a hydrocarbon embargo – the fifth package of sanctions – at an EU meeting on Monday. Once again the proposals ran into resistance from Germany, with Italy and others happy to tuck in behind.

Eoin Treacy's view -

Russia continues to make coupon payments. That indicates it has the capital available to do so and avenues are open. Without cutting Russia off from the financial system and banning energy purchases, the country can continue to operate effectively. Due to its size and dominance of several key commodity markets, Russia has ample scope to cause mischief on a grand scale.



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March 22 2022

Commentary by Eoin Treacy

Ray Dalio's Bridgewater reportedly backing a crypto fund means the world's largest hedge fund and one of Bitcoin's former skeptics is taking it seriously

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

“It has been an amazing accomplishment for Bitcoin to have achieved what it has done, not being hacked, having it work and having it adopted the way it has been,” he told MarketWatch in December. 

“I believe in the blockchain technology. … It has earned credibility.”

Eoin Treacy's view -

This might be a case of “if you can’t beat um, join um”. The reality is as bond prices decline, money is pulling out and is looking for a home where its value will hold versus the declining purchasing power of fiat currencies.



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March 21 2022

Commentary by Eoin Treacy

Video commentary for March 21st 2022

March 21 2022

Commentary by Eoin Treacy

Oil Surges With Growing Supply Fears as EU Considers Russian Ban

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

In weeks prior, the EU sanctioning Russian oil “seemed unrealistic given their reliance on Russian energy supply,” said Rohan Reddy, a research analyst at Global X Management, a firm that manages $2 billion in energy-related assets. If sanctions were instilled, “it would basically shave off a full 4-5% of global oil supply,” as “Europe bought up around 40-45% of Russia’s total oil production in 2021.”

The global oil market has been thrown into turmoil by Russia’s invasion of Ukraine, with the U.S. and Europe imposing sanctions on Moscow and crude buyers shunning the country’s cargoes. Brent neared $140 a barrel earlier this month to hit the highest since 2008, before seeing a massive pullback that briefly put the market into bear territory. Prices have seen unprecedented volatility, with frequent intraday swings of about $10 and broader commodity markets seizing up amid a widespread liquidity crunch.

The rally in oil prices has spurred importing nations to pressure other producers to step up supply, including members of the Organization of Petroleum Exporting Countries. During the weekend, Japan urged the United Arab Emirates to increase exports. Meanwhile, oil giant Saudi Aramco plans to raise spending as it seeks to boost output.

Saudi Arabia said it cannot be held responsible for any drop in oil output if it doesn’t get more help to deter attacks from Yemen. Yemen’s Houthi rebels attacked at least six sites across Saudi Arabia late Saturday and early Sunday, including some run by Aramco. Saudi Arabia has been facing calls from oil-consuming nations such as the U.S. to increase supply output.

Eoin Treacy's view -

Cutting demand for oil is not easy. It doesn’t usually happen by choice. Prices rise to a point where it is unaffordable and demand falls. That usually means a recession. Therefore, any effort to manage prices must rely on increasing supply.



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March 21 2022

Commentary by Eoin Treacy

Email on the day on world hunger

*Almost certainly widespread famine within a year*: _15% of world’s calories come from wheat. 1/3 of all wheat comes from Russia and Ukraine…_

Russia has banned export of wheat; a lot of wheat supply blocked. Whole planet earth operates on a 90-day food supply. Once we stop making food the world runs out in 90 days. Most vulnerable nations lose the supply first; very quickly a massive bifurcation. Already have 1bn living on under 1200 calories…

The even bigger problem is the future planting season. Wheat spring planting season is right now; not a lot of planting going on…

This is because of the fertilizer problem. All fertilizer is made up of nitrogen, phosphorus, or potassium. All farmers must use this. Without fertilizer crop does not grow. Nitrogen is made from natural gas. Nat Gas prices have doubled. The price of nitrogen-based fertilizer has gone from 200 per ton to 1000 per ton. 10% of world phosphate and 25% pf potash is from Russia and that has been banned for export. Prices on phosphate and potash have sky-rocketed too. Now it is so expensive to grow crop that farmers are pulling out of production.

The world is “scrambling” for food right now, corn, soybeans etc. skyrocketing. Strategic reserves of food being released now…

A bad weather year can be disastrous. Regardless, it will be a humanitarian disaster within 12 months and we will see hundreds of millions will go starving (think famine)

We just don’t have enough food. The way supply chains are set up just don’t work.

Eoin Treacy's view -

Wheat prices accelerated to test the 2008 peak near 1200¢ and paused over the last week. War in Ukraine and the slow start, or potential absence, of a planting season are obviously major considerations for its customers. Russia’s efforts to capture the entire Black Sea coast are an additional obvious headwind to exports.



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March 21 2022

Commentary by Eoin Treacy

The Dirty Secret of Inflation: Corporations Are Jacking Up Prices and Profits

This article from The Nation last month may be of interest to subscribers. Here is a section:

From CNBC: Oil giant BP reports highest profit in 8 years on soaring commodity prices

From Reuters: Cereal maker Kellogg Co. forecast full-year profit growth above market expectations on Thursday, riding on higher product prices that helped overcome labor strike disruptions and soaring input costs in the fourth quarter.

From The New York Times: Procter & Gamble’s sales jump as consumers brush off rising prices.

From The Ticker: McDonald’s to raise prices despite record revenue

From Yahoo Finance: Amazon stock soars 15% after earnings, will hike Prime membership fee

US Senator Elizabeth Warren put the pieces together when Fed chair Jerome Powell appeared last month before the Senate Banking, Housing, and Urban Affairs Committee. Offering a lesson in what she referred to as “Econ 101,” the senator from Massachusetts led Powell through a series of questions related to inflation.

Eoin Treacy's view -

Bond prices continue to accelerate lower with 10-year Treasury yields jumping nearly 15 basis points today. Stock markets remain reasonably steady in what is a clear role reversal. Usually, bonds do well in times of economic stress and the stocks decline. Right now, inflationary pressures are weighing heavily on bonds, but stocks are steadier because companies have successfully raised prices.



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March 18 2022

Commentary by Eoin Treacy

March 18 2022

Commentary by Eoin Treacy

Living With Yield Curve Inversion

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

US Rates | An inverted curve by design, not by conundrum We expect 2y,5y, and 10y yields to end 2022at 2.75%,2.50%, and 2.40%, respectively, and see inverted curves across the entire UST space. We think markets are learning to live with yield curve inversion, and not necessarily extrapolating it as a sign of recession, given (1) the market's willingness to price restrictive policy – a terminal rate above the neutral rate – consistent with an inverted curve, and (2) the significant distortions from pension demand, QE, and flight to quality, making the curve artificially flat. We think investors eventually will accept an inverted curve as a natural consequence of interest rate policy moving toward restrictive territory faster than balance sheet policy moves toward neutral territory. Discussions of an impending recession will continue, but we expect confidence in that view to wane over time.

Eoin Treacy's view -

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

The US yield curve is exceptionally flat from 2-years out to 30-year. Earlier this week the 5-year traded above the 10-year. That was the first inversion of any part of the curve in this cycle. This is not the only measure that is beginning to signal signs of stress.



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March 18 2022

Commentary by Eoin Treacy

BOJ's Kuroda Waves the Green Flag for Further Yen Weakness

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

Now that the Bank of Japan has suggested that it isn’t losing sleep over a weaker currency, the yen may gravitate even lower.

The yen has lost more than 3% against the dollar so far this year despite the war, highlighting how its fundamentals have superseded its haven status. BOJ Governor Haruhiko Kuroda remarked earlier Friday that it is “wrong” to think that a weaker yen is negative for the economy and that the monetary authority doesn’t have a need to run forex policy. With no verbal or actual intervention to stop it, the yen faces little hurdle in weakening further toward 120, consistent with a call MLIV made at the start of the year.

The BOJ has also reiterated for good measure that inflation reaching 2% -- led by a surge in commodity prices -- is different from its goal of kindling demand and that the current cost-push inflation will in fact weaken the economy. In other words, the BOJ isn’t remotely thinking of changing its policy in the face of what it legitimately sees as temporary factors. That essentially means that real-rate differentials will continue to worsen in favor of the dollar, sending USD/JPY to 120. In fact, colleague Vassilis Karamanis cites technical indicators to suggest that the pair is well set-up to reach the January 2016 high of 121.69.
 

Eoin Treacy's view -

Japan has been trying to stoke inflation in the economy for years. Now that it has what it wants, it is going to err on the side of caution and allow prices pressures to force consumers to spend. There is no country that needs to reignite consumer activity more than Japan. From their perspective this is good news.



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March 18 2022

Commentary by Eoin Treacy

'Dash for Trash' Fuels Big Bounce for Money-Losing Growth Stocks

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

No earnings? No problem.

That was the message from investors this week who stormed back into the shares of faster-growing companies with little in the way of profits after months of chasing value stocks. While major benchmarks rallied, a Goldman Sachs index of unprofitable tech companies was up 18% over the five sessions. That compares with a gain of 6.2% for the S&P 500 and 8.4% for the Nasdaq 100.

“A straightforward dash for trash” is how Bespoke Investment Group described it when explaining why smaller companies with the lowest return on assets and no dividends were among this week’s biggest gainers.

Eoin Treacy's view -

The Ark Innovation ETF bounced this week in an emphatic manner from the region of the of the pre pandemic peak. In doing so it fully unwound the big bull market and the upside weekly key reversal suggests investors are willing to bargain hunt.



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March 17 2022

Commentary by Eoin Treacy

Video commentary for March 17th 2022

Eoin Treacy's view -

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

Some of the topics duscussed include: quantitative tightening creates deflation, questions remain about the extent of China's stimulus, Renminbi is too fiirm for large stimulus and the dollar is too weak if the market actually believes supply is going to be constrained. stocks continue to stready. 



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March 17 2022

Commentary by Eoin Treacy

Bridgewater Executive Says Markets Pricing In "Magical Scenario"

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

stock and bond markets are betting on a “magical scenario” where economic expansion continues even while the Federal Reserve raises rates to combat inflation, said Bridgewater Associates executive Karen Karniol-Tambour. 

“If you look at history, that looks pretty unlikely,” Karniol-Tambour, the firm’s co-chief investment officer for sustainability, said Thursday in a Bloomberg Television interview.

She recommended that investors buy Treasury inflation-protected securities as well as commodities to hedge against rising prices and said nominal bonds are the “worst possible thing” investors can hold. 

Last month, Karniol-Tambour said the Fed would struggle to contain inflation even if it decided to raise rates five times this year. The central bank hiked by a quarter of a point Wednesday and signaled it would raise rates at each of its six remaining meetings this year. 

She added that current economic and financial conditions echo those of the 1970s, when high inflation was coupled with a geopolitical shock. 

“It’s just not pleasant to be in the Fed’s shoes and tighten into an exogenous supply shock in commodities that has to do with geopolitical events,” she said.

Eoin Treacy's view -

If the Fed begins to reduce the size of its balance sheet next month at a faster pace than the last time they attempted it, deflation will follow. There have only been a couple of examples of central banks reducing the size of their balance sheets. Every one has resulted in deflationary fears and sharply lower growth.



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March 17 2022

Commentary by Eoin Treacy

Trafigura Seeks PE Funding as Commodity Surge Triggers Margin Calls

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

Trafigura Group, one of the world’s top oil and metals traders, has been holding talks with private equity groups to secure additional financing as soaring prices trigger giant margin calls across the commodities industry.

Trafigura has in recent weeks stepped up efforts to seek new funding from beyond its traditional group of bank lenders, according to people familiar with the matter.

The trader held talks with Blackstone Inc. for an investment of around $2 billion to $3 billion in preference shares or a similar hybrid instrument, but those talks ended without a deal, said the people, who asked not to be identified as the discussions were private. Trafigura has also approached Apollo Global Management Inc., BlackRock Inc. and KKR & Co., the people said.

The discussions with private equity firms have been broad-based, ranging from financing for specific projects to raising funding at a company level, the people said. There’s no certainty any of the discussions will progress to a deal, they said.

Eoin Treacy's view -

Trafigura emerged from the last commodity bull market as the leader in commodity trading. As investment banks closed desks, sold warehouses and ships, the trading house stepped in and took market share. Today, most of the big trading houses for commodities are privately owned. They also do not have the balance sheets of banks. When volatility steps out to multiple standard deviations, models go awry.



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March 17 2022

Commentary by Eoin Treacy

Moderna kicks off Phase 1 trial of 3 different mRNA HIV vaccines

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

“Finding an HIV vaccine has proven to be a daunting scientific challenge,” said NIAID director Anthony Fauci, in a statement announcing the Phase 1 trial. “With the success of safe and highly effective COVID-19 vaccines, we have an exciting opportunity to learn whether mRNA technology can achieve similar results against HIV infection.”

The Phase 1 trial will enroll around 100 healthy adults, with the initial goal of evaluating the safety and immune responses to three different mRNA vaccine formulations. Each subject will receive three doses of their assigned mRNA formulation over a six-month period.

In the same way mRNA COVID-19 vaccines are designed to train the immune system to respond to the spike protein on the surface of SARS-CoV-2, these experimental vaccines focus on the HIV equivalent of the spike protein antigen target, known as an envelope glycoprotein trimer.

This protein on the surface of HIV particles is much more complex that the coronavirus spike protein, so Moderna has developed three different mRNA formulations to test, each encoding for a slightly different protein architecture.

The trial is expected to run until mid-2023. By that point it is hoped one of the three formulations will have demonstrated robust immune responses and Phase 2 trials can commence.

Eoin Treacy's view -

This announcement holds out promise that an intransigent health issue can be addressed with a shot. It also highlights the fact that rushed permitting for COVID-19 vaccines is not about to be repeated. If the trials schedule discussed in the above article is followed, it will be a decade before a potential solution reaches market. It is also likely to be held to a much higher standard of proof.



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March 16 2022

Commentary by Eoin Treacy

Video commentary for March 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: Fed raises rates, gold and bonds steady, stocks rebound, China announces support measures to arrest the downward acceleration in the stock market and high yield bonds, Dollar eases, Euro and Renminbi steady, Hang Seng surges, Europe and Japan firm from 1000-day MA. 

Please note: I will be travelling tomorrow and in meetings all day, so the video will probably be recorded later than usual. 



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March 16 2022

Commentary by Eoin Treacy

Xi Spurs Frantic Stock Buying With Lifeline for China Market

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

In a brief statement carried by state media, China’s top financial policy body vowed to ensure stability in capital markets, support overseas stock listings, resolve risks around property developers and complete the crackdown on Big Tech “as soon as possible.” Yi Gang, governor of the People’s Bank of China, followed with a statement saying the central bank would help implement the policies, as did the banking watchdog.

While the pledges from President Xi Jinping’s government offered little clarity over what authorities may do to achieve their goals, it was the first time China publicly addressed investors’ top concerns in one coordinated swoop. The move underscored Xi’s focus on ensuring economic and financial stability before a Communist Party congress at which he’s expected to secure at least another five years in power.

By the time trading ended just after 4 p.m. local time on Wednesday, the Hang Seng China Enterprises Index was up 12.5% in its best session since October 2008. Alibaba Group Holding Ltd. surged 27%, while JD.com Inc. jumped 36%. Property stocks rallied the most in more than a decade.

Eoin Treacy's view -

Investors have been fearful of buying Chinese securities because of uncertainty about the commitment of the government to do what is necessary to protect the economy. Now they have an answer, government officials do not like volatility and China’s stock markets have been falling in a very panicky manner. 



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March 16 2022

Commentary by Eoin Treacy

March 16 2022

Commentary by Eoin Treacy

Fed Lifts Rates a Quarter Point and Signals More Hikes to Come

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

“The American economy is very strong and well positioned to handle tighter monetary policy,” Powell told a press conference Wednesday following a meeting of the Federal Open Market Committee. “We are attentive to the risks of further upward pressure on inflation and inflation expectations.” He also said that officials could move faster on policy tightening if needed.

The hike is likely the first of several to come this year, as the Fed said it “anticipates that ongoing increases in the target range will be appropriate,” and Powell repeated his pledge to be “nimble.”

“I saw a committee that is acutely aware of the need to return the economy to price stability,” he told reporters, characterizing the mood around the table as policy makers debated the outlook. “It is determined to use its tools to do so.”

In the Fed’s so-called dot plot, officials’ median projection was for the benchmark rate to end 2022 at about 1.9% -- in line with traders’ bets but higher than previously anticipated -- and then rise to about 2.8% in 2023. They estimated a 2.8% rate in 2024, the final year of the forecasts, which are subject to even more uncertainty than usual given Russia’s invasion of Ukraine and new Covid-19 lockdowns in China are buffeting the global economy.

Eoin Treacy's view -

The market took the first hike in this cycle in its stride and not least because it has been fully priced in over the last four months. Remaining nimble is going to be essential. Uncertainties abound, not the least of which is China’s problem with containing the omicron variant is only just beginning. Predicting 1.9% by the end of the year implies at least a 25-basis point hike at every meeting. That seems ambitious in the extreme. 



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March 16 2022

Commentary by Eoin Treacy

Wait Times for Chip Deliveries Grow Again as Shortages Persist

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

Lead times -- the lag between when a chip is ordered and delivered -- increased by three days to 26.2 weeks last month, according to research by Susquehanna Financial Group. In January, the group reported that delays were getting shorter, the first sign of improvement since 2019.

Though the lag times have now increased again, they aren’t growing quite as quickly as during much of 2021. But certain sectors were hit worse than others. Delivery times for microcontrollers reached a high of 35.7 weeks in February, according to Susquehanna’s research. Lead times also increased by a week and a half for power-management components. Both are essential parts of many electronics, including car components.

The global shortage of semiconductors began in the first half of 2020, driven by pandemic-fueled demand for consumer technology and vehicles. The scarcity of chips has held back production of everything from smartphones to pickup trucks, leading to billions in lost revenue and contributing to inflation by raising costs.

Eoin Treacy's view -

Ukraine is a major supplier of neon gas. It’s an essential component for the production of semiconductors. The war in Ukraine is therefore contributing to the shortfall in supply. At the same time, the increased demand for all sources, including military are inhibiting the balancing out of the market.



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March 15 2022

Commentary by Eoin Treacy

Video commentary for March 15th 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: deep oversold conditions ahead of Fed meeting tomorrow suggest potential for a relief rally. Gold and oil at potential areas of support, bonds are also deeply oversold having priced in seven interest rate hikes. a dovish turn by the Fed would be positive for risk assets. 



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March 15 2022

Commentary by Eoin Treacy

The Ukraine crisis: what's at stake for investors?

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

Our analysis shows that every time the oil price surged 50 per cent above trend – as it has now – a recession followed. Even though the world is less reliant on oil than a generation ago, crude still makes up a substantial slice of global GDP and it drives inflation expectations and, in turn, consumer confidence.

The impact of these shocks won’t be evenly distributed. For instance, the euro zone’s dependence on energy imports from Russia – they represent 40 per cent of the region’s gas consumption – leaves it particularly vulnerable.

At the same time, large public sector budget deficits and high inflation rates leave limited, if any, headroom for additional fiscal or monetary stimulus from the world's major economies. The market still expects US interest rates to rise some 150 basis points this year. As for the euro zone, the market is discounting two rate hikes this year – down from three before the invasion. And while a European Central Bank intervention to support the euro zone can’t be ruled out, it would take a bad recession or spreads on Italian government bonds to move above 250 basis points for the ECB to launch fresh stimulus.

But even if the risks have clearly risen, it is important to highlight that geopolitical shocks tend to be short-lived. Typically, crises such as military conflicts trigger a 10 per cent decline in equities over a period of one to two months, only for that sell-off to give way to strong rally once a resolution begins to take shape.

Eoin Treacy's view -

Gasoline prices are on everyone's lips at present and that has a psychological impact on purchasing decisions. For example, this graphic depicting spending on clothing over the last three months shows a steep decline for the poorer quadrant of the population. The correlation with the spike in energy prices must be at least partially to blame.



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March 15 2022

Commentary by Eoin Treacy

Saudi Arabia Considers Accepting Yuan Instead of Dollars for Chinese Oil Sales

This article from the Wall Street Journal may be of interest to subscribers. Here it is in full:

Saudi Arabia is in active talks with Beijing to price its some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollar's dominance of the global petroleum market and mark another shift by the world's top crude exporter toward Asia.

The talks with China over yuan-priced oil contracts have been off and on for six years but have accelerated this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom, the people said.

The Saudis are angry over the U.S.'s lack of support for their intervention in the Yemen civil war, and over the Biden administration's attempt to strike a deal with Iran over its nuclear program. Saudi officials have said they were shocked by the precipitous U.S. withdrawal from Afghanistan last year.

China buys more than 25% of the oil that Saudi Arabia exports. If priced in yuan, those sales would boost the standing of China's currency.

Eoin Treacy's view -

Gold is a monetary metal because it is the barometer against which we can compare the performance of fiat currencies. However, gold stopped being a currency when President Nixon took the USA of the gold standard in 1971.

By 1973, the surge in oil revenues created an excess reserve issue for Gulf states and recycling savings into Treasuries made sense. That created the so-called petrodollar system. Since oil is used in every country in the world it is also used as a unit of account.



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March 15 2022

Commentary by Eoin Treacy

Powering Up

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 14 2022

Commentary by Eoin Treacy

Video commentary for March 14th 2022

Eoin Treacy's view -

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

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



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March 14 2022

Commentary by Eoin Treacy

Email of the day on how many interest hikes are likely

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

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

Eoin Treacy's view -

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



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March 14 2022

Commentary by Eoin Treacy

ESG in practice: assessing Food and Beverage companies' externalities

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

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

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

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

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

Eoin Treacy's view -

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



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March 14 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 12 2022

Commentary by Eoin Treacy

March 12 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 12 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 12 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 10 2022

Commentary by Eoin Treacy

Video commentary for March 10th 2022

March 10 2022

Commentary by Eoin Treacy

Fund Manager's Diary March 9th 2022

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

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

Eoin Treacy's view -

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



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March 10 2022

Commentary by Eoin Treacy

Israel's tortured choice on Russia

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

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

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

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

Eoin Treacy's view -

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



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March 10 2022

Commentary by Eoin Treacy

Volatility Grips Chinese Tech Shares Again as Traders On Edde

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

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

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

Eoin Treacy's view -

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



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March 09 2022

Commentary by Eoin Treacy

Video commentary for March 9th 2022

Eoin Treacy's view -

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

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



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March 09 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 09 2022

Commentary by Eoin Treacy

Might Have a Russian Titanium Problem

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

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

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

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

Eoin Treacy's view -

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

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

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



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March 09 2022

Commentary by Eoin Treacy

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

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

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

Eoin Treacy's view -

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



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March 08 2022

Commentary by Eoin Treacy

March 08 2022

Commentary by Eoin Treacy

Bretton Woods III

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

March 08 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 08 2022

Commentary by Eoin Treacy

Satellite outage knocks out thousands of Enercon's wind turbines

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 07 2022

Commentary by Eoin Treacy

Video commentary for March 7th 2021

March 07 2022

Commentary by Eoin Treacy

Oil Shocks and Recessions

Eoin Treacy's view -

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

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

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



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March 07 2022

Commentary by Eoin Treacy

Email of the day on lithium and rare earths

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

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

Eoin Treacy's view -

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

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

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

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



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March 07 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 04 2022

Commentary by Eoin Treacy

March 04 2022

Commentary by Eoin Treacy

Secular Themes Review March 4th 2022

Eoin Treacy's view -

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

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

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

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

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



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March 03 2022

Commentary by Eoin Treacy

Video commentary for March 3rd 2022

March 03 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 03 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 03 2022

Commentary by Eoin Treacy

Hacktivists Are Piercing Russia's Propaganda Bubble

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

 

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

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

Eoin Treacy's view -

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

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



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March 03 2022

Commentary by Eoin Treacy

Issues with accessing the subscriber's video via Vimeo

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

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

Eoin Treacy's view -

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



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March 02 2022

Commentary by Eoin Treacy

Video commentary for March 2nd 2022

March 02 2022

Commentary by Eoin Treacy

Global Money Dispatch February 27th 2022

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

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

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

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

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

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

…before QT even began.

Eoin Treacy's view -

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



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March 02 2022

Commentary by Eoin Treacy

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

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

Eoin Treacy's view -

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



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March 02 2022

Commentary by Eoin Treacy

China Moves to Secure Commodities Rocked by Ukraine War

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

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

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

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

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

Eoin Treacy's view -

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



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March 02 2022

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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March 01 2022

Commentary by Eoin Treacy

Video commentary for March 1st 2022

Eoin Treacy's view -

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

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



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March 01 2022

Commentary by Eoin Treacy

Kyiv TV Tower Hit as Russia Targets the Capital

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

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

Eoin Treacy's view -

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



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March 01 2022

Commentary by Eoin Treacy

RBA Highlights Ukraine War Risks to Outlook as Key Rate Held

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

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

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

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

Eoin Treacy's view -

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



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March 01 2022

Commentary by Eoin Treacy

Chevron Doubles Buyback as Spending Cap Helps Lift Cash Flow

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

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

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

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

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

Eoin Treacy's view -

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



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March 01 2022

Commentary by Eoin Treacy

Email of the day on issues with Vimeo

March 01 2022

Commentary by Eoin Treacy

The Chart Seminar 2022

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

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

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

February 28 2022

Commentary by Eoin Treacy

Video commentary for March 28th 2022

Eoin Treacy's view -

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

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



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February 28 2022

Commentary by Eoin Treacy

West Uses Russia's Central Bank Against Putin

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

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

And

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

Eoin Treacy's view -

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



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February 28 2022

Commentary by Eoin Treacy

Joe Biden Has Days to Avoid Being Jimmy Carter

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

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

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

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

Eoin Treacy's view -

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

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



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February 28 2022

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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



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February 28 2022

Commentary by Eoin Treacy

February 25 2022

Commentary by Eoin Treacy

February 25 2022

Commentary by Eoin Treacy

China Boosts Liquidity by Most Since 2020 Amid Ukraine Conflict

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

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

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

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

Eoin Treacy's view -

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



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February 25 2022

Commentary by Eoin Treacy

Solar Stocks Rally as Tariff Expiration Nears With No Decision

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

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

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

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

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

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

Eoin Treacy's view -

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



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February 25 2022

Commentary by Eoin Treacy

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

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

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

Eoin Treacy's view -

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



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February 24 2022

Commentary by Eoin Treacy

Video commentary for February 24th 2022

Eoin Treacy's view -

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

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



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