Investment Themes - General

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February 08 2021

Commentary by Eoin Treacy

Japan's Topix Surges to Highest in 30 Years as SoftBank Gains

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

With more than half of the results out in the latest reporting season, more than 68% of companies in the Topix have beaten expectations, according to data compiled by Bloomberg. The Topix forward price-to-earnings ratio is now at 18 times, significantly higher than its five-year average of about 14 times.

Results from the current earnings cycle are pointing toward a major recovery next fiscal year, according to Frank Benzimra, Societe Generale’s head of Asia equity strategy. “Our thesis in Japan is that the market has been quite under-owned for some time, because there was not so much interest on earnings,” Benzimra told Bloomberg Television.

Eoin Treacy's view -

Veteran investors will remember about fifteen years ago there was an argument that Japanese equities would always trade at a higher P/E because of idiosyncrasies with the market. That proved incorrect and valuations have contracted considerably. The market is now a lot more attractive for international investors in search of earnings growth.



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February 08 2021

Commentary by Eoin Treacy

Email of the day on gold and fighting the Fed

Thursday's article, “Gold Plunges the most in Four Weeks…” is greatly appreciated.  Despite all the uncertainties and volatility of the past two months you report that you have retained your gold investments and are looking forward to “increase [your] position”.  You express even more confidence in silver.

The attached St Louis Fed Chart showing an accelerating measure of inflation provides good evidence to support your position, long term, but long-term charts, both weekly and monthly show gold is still over-extended. 

If “fighting The Fed” is to be avoided, a bullish gold position may be a courageous act when the world’s central banks will be united in their determination to frustrate gold investors.  There may have been some evidence of that last year.  Also, since silver prices are more easily manipulated, that market seems to be more vulnerable to a combined central bank manoeuvre?

Common sense says that the present world-wide, money creation will end in disaster.  In that situation, precious metals are a safe haven but, in the short term, and even the medium term, risks in those markets appear to be very high. A prudent plan to cover both outcomes seems desirable.  That plan should, perhaps, also incorporate different allocations to gold and silver. Further guidance by you would be invaluable.

Eoin Treacy's view -

Thank you for this email. Fighting the Fed would be holding a gold position in a positive real interest rate environment where one can easily anticipate a positive return from other asset classes. That is not at all what we have at present. We could be looking at a negative real yield for years to come as central banks attempt to loot savings to pay off massive unfunded debts.



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February 08 2021

Commentary by Eoin Treacy

Email of the day on chartbooks and highlighting opportunities

I am a new subscriber having followed David Fuller closely and subscribed to his weekly chart book for many years. You may cover this but I would find it really helpful if you could cover markets by region and comment on individual stocks showing attractive chart patterns in those regions...maybe each region/associated stocks to be covered once a month. For example, to my untrained eye Hong Kong is looking interesting. I miss so many opportunities in stocks that I do not follow on a regular basis by not seeing the charts in hard copy. Just a thought. Thanks

And

I have no wish to appear negative however, what exactly have I paid money for. It appears to me that, the majority of the menu items are either redundant (for about year now), or indeed have no content at all. Perhaps I could draw a parallel with another financial services advise provider, and the one that springs immediately to mind is Investors Chronicle. The content and level of professional presentation from them is first class. I am concerned that I have paid money for a product that is simply inadequate. I have no wish to knock the excellent uploads from Eoin, they are useful with regard the macro picture. It is really the absence of detail with everything else.

Eoin Treacy's view -

Thank you both for this feedback. The chartbooks were long ago superseded by the Chart Library. We have 13,000 instruments and the first port of call for many investors in the Eoin’s Favourites section. That’s where you will find assets of potential interest broken down into lists. It is then very easy to scroll through charts by clicking on the View All It is true, I have been much more focused, of late, on macro themes because that is by the far the most important consideration at present. 

Nevertheless, I accept the charge that this site is not the easiest to navigate. That is why I started doing videos, posting items on repeatable schedules and tagging items. A full list of all tags can be found here. http://www.fullertreacymoney.com/investment-themes/ I also created this brief video to talk about how to find different items of interest in the site. 

I will also going forward pick a market at least one day a week and highlight interesting charts within it starting tomorrow.



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February 05 2021

Commentary by Eoin Treacy

February 05 2021

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review February 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “secular themes review”. 

Highlighting secular themes has been a hallmark of this service for as long as I have been a part of it. I first met David Fuller in Amsterdam in 2003. He was giving a talk to Bloomberg’s clients and we went out for dinner that evening. His way of looking at markets, with a focus on suspending ego to see what the market tapestry is telling us, answered all of the questions I had about how to interpret
markets. I felt honoured when he asked me to come work with him a few months later.

The easy way to find secular themes to is to look at long-term ranges. Prices can so sideways for a long time, sometimes decades, and the whole asset class can be forgotten by investors. These kinds of markets need a catalyst to reignite demand. Once that new theme gathers enough pace, prices break on the upside because the supply side is not capable to responding in a timely manner to the new phenomenon. Sometimes that’s because they don’t believe in the new trend, or it may be because they simply do not have the financial wherewithal to expand. As the power of the new catalyst gathers, it takes time for supply to respond and the market will proceed higher until there is a robust supply response. That can take a long time because demand continues to grow as the new theme increases its dominance of investor attention.



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February 04 2021

Commentary by Eoin Treacy

Video Commentary for February 4th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street firm with small caps leading, gold and precious metals weak, emerging markets steady, investors giving the benefit of the doubt to countries that are likely to come out of the pandemic quickest, bond yields continue to rise for these countries with Gilts breaking on the upside and the Dollar strengthening. 



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February 04 2021

Commentary by Eoin Treacy

Email of the day - on the impact of currencies on investment returns

I'm a new subscriber and am massively enjoying the content, in particular your video commentary, thank you. Perhaps it just hasn't been touched on in the last few weeks since I joined but I wanted to ask about your views on Sterling, from the point of view of a UK based investor. I used to be 50/50 allocated, GBP/USD. A few months after Brexit with cable close to 1.20 I figured it was potentially the opportunity of a lifetime to get longer Sterling (in particular given I'm UK based). I changed my balance to 80/20 in favour of Sterling. It took a few years for this to feel like the right decision, but I'm happy I did it. Given my reporting ccy is GBP I don't see a lot of that gain unless I dollarize my returns.

Specifically, I would appreciate your views on: 1. What is your outlook for cable heading into 2021? 2. Do you think that a large part of this trade is potentially continued dollar weakness (USD rarely doing well in risk-on mode)? 3. You mentioned in the 3Feb commentary that most central banks tend to fight appreciation of their own currency. Certainly, that is true for the ECB and the SNB. What about the BOE at present? 4. Given the bulk of my investments are NON-GBP (major US funds, Japan, China, Global) what strategy would you suggest for accessing these sectors if one wanted to keep a sterling bias?

Eoin Treacy's view -

Thank you for these questions and I am delighted you are enjoying the service. Since you are a new subscriber you might not be aware, I do a long-term review of assets and themes on the first Friday of every month. My aim is to ensure there is a predictable timetable for when long-term investment themes are covered in the written commentary outside of the weekly Big Picture audios/videos.
Here is a link to the last one and the next one will be tomorrow.



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February 04 2021

Commentary by Eoin Treacy

Reddit's Power to Push Stocks Down Is the Next Worry for Traders

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

“Put buying en masse would add to dealers’ short put positioning and could create much more severe structural leverage imbalance to the downside,” said Cem Karsan, founder of Aegea Capital Management LLC and a former options market maker.

Karsan, who has 24,000 Twitter followers, floated the scenario on The Derivative podcast last week.

The Squeeze
Once an obscure dynamic in the market plumbing, gamma squeezes are the talk of both Wall Street and the amateur crowd following the GameStop drama.

It goes like this. When an investor buys a call, the dealer who sold the contract will typically hedge by purchasing the underlying stock. The more the latter rises toward the option’s strike price, the more shares the market maker will theoretically have to buy. That can supercharge stock prices as shares rise and dealers buy more.

And the dynamic works in reverse, too.

Dealers who have sold puts will hedge themselves by selling the underlying shares. As the price drops toward the option’s strike, they will sell more and more.

Eoin Treacy's view -

Mobs are emotional, extremely aggressive, thrive on contradiction but they are also fickle. They can look like the strongest army in the world until they lose cohesion. Then they fall apart and turn into the weakest. Mobs thrive as long as they are growing and the reason for that growth is still compelling. As soon as it ends, they dissolve quickly. As GameStop’s mob dissolves it might be some time for a crowd to coalesce around a new idea. There are plenty of candidates from biotech to silver to micro-caps and cryptocurrencies.



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February 04 2021

Commentary by Eoin Treacy

Gold Plunges the Most in Four Weeks With Dollar Extending Gains

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

“Looks like there’s some liquidation so far this morning,” said Tai Wong, head of metals derivatives trading at BMO Capital Markets. “The dollar is slowly grinding higher, 10-year Treasury yields are back up. Longs are very disappointed that gold never broke above key resistance at $1,860-70 even as silver soared.”

Bullion for immediate delivery fell 2.4% to $1,789.88 an ounce at 11:16 a.m. in New York. The metal dropped as much as 2.7%, the most since Jan. 8. Spot silver slid 2.7% while platinum and palladium also declined.

The wild ride in silver fueled partly by retail investors is abating for now. Last week, posts on Reddit’s WallStreetBets forum initially called for a “short squeeze” of the metal, and that snowballed into a buying frenzy through exchange-traded funds and physical markets. But sentiment shifted after CME Group raised margins, causing prices to swiftly decline, and the volatility is being scrutinized by U.S. regulators.

Eoin Treacy's view -

The demand for gold from those who were buying as a hedge against calamity is abating and that has contributed to the correction which began in August and continues today. Gold dropped below the $1800 level and is now testing the low from back in December. A clear upward dynamic will be required to signal a return to demand dominance.



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February 03 2021

Commentary by Eoin Treacy

Video commentary for February 3rd 2021

February 03 2021

Commentary by Eoin Treacy

Email of the day on the US Dollar

I am a not so new subscriber, I started in 2010. And your service is very valuable for me, so thank you! - Your commentary starts my day.

I understand that your view is that the dollar will depreciate over the coming years. Since I am based in the euro area, and have approx. 50% of my investments in USD, this is a topic that interest me very much.

I enclose a report from Nordea Bank, with a slightly different view. I would be very interested to know your take here.

Eoin Treacy's view -

Thank you for patronage over the last decade and for this well-argued report which I’m sure will be of interest to the Collective. Here is a section:

It's one thing to say you will accept inflation overshooting, it's another thing to do it once inflation is decidedly overshooting - especially with global growth numbers booming at the same time. We therefore expect the market to be back in questioning the pace of the Fed's bond purchase program around summer at the latest (the consensus looks for the first tapering some time in H1, 2022 - too late in our view). A further sell-o in US fixed income, or steepening of US curves in relative terms, will at least reduce the downward pressure on the dollar from a double deficit perspective. It will also weigh on various "fair value" models for the EUR/USD.

The big question for a Dollar investor is whether the Fed is going to stick to its stated interest rate policy. They have said, in plain English, they are not going to taper and not going to raise rates until inflation takes off and not just in a transitory way.



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February 03 2021

Commentary by Eoin Treacy

Billionaire Pierre Lassonde on #SilverSqueeze, Gold Mining Business & Advice for Speculators

Thanks to a subscriber for this interview which may be of interest to subscribers. Here is a section from the transcript:

Pierre: Oh, look, as far as I’m concerned, the best, best deposit in the world that you can have or find today is a copper-gold deposit or a copper-gold-silver, or a copper-silver deposit, but something with copper. Because I really believe that copper is the metal of the future. In fact, our entire civilization rests on copper, on one metal, and it’s copper. Because without electricity, we have nothing. We have no transportation. We have like no communications. We have nothing. And with the emphasis on greening the world, we’re going to use more copper. So copper is absolutely the fundamental basis of our civilization and it’s going to get better. And with that in terms of fundamental money, I would say gold and silver is also part of the greening of the world. So these three metals are to my mind, the best place to be at this point in time.

Eoin Treacy's view -

Copper has been used as a conductor and alloy component since the Bronze era. In the last decade it has also taken on the role of electricity generation and is impinging on oil’s dominance of transportation.



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February 03 2021

Commentary by Eoin Treacy

New China swine fever strains point to unlicensed vaccines

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

Yan said he believes that people have replicated the sequences of virus strains being studied, which have been published in scientific literature, and that pigs injected with illicit vaccines based on them could be infecting others.

“It’s definitely man-made; this is not a natural strain,” he said.

Neither Johnson nor Yan have fully sequenced the new swine fever strains. Beijing strictly controls who is allowed to work with the virus, which can only be handled in laboratories with high biosecurity designations.

But several private companies have developed test kits that can check for specific genes.

GM Biotech, based in China’s central Hunan province, said in an online post last week it had developed a test that identifies whether the pathogen is a virulent strain, a single-gene deleted attenuated strain, or a double-gene deleted attenuated strain.

The test helps pig producers because the new strains are “very difficult to detect at the initial stage of infection and have a longer incubation period after infection,” the company said.

The government has not said how widely used illicit vaccines are or who has produced them. But a “vast amount” of pigs in China have nonetheless been vaccinated, Johnson said, a sentiment echoed by many other experts.

In 2004-5, when the H5 bird flu strains were spreading across Asia, Chinese laboratories produced several unauthorised live bird flu vaccines, said Mo Salman, a professor of veterinary medicine at Colorado State University, who has worked on animal health in Asia, raising fears that they could produce dangerous new variants.

“The current ASF unlawful vaccine(s) in China is repeating history,” Salman said

Eoin Treacy's view -

Governance is Everything but that is particularly true for the healthcare sector. The challenge for all of us is that China has very little regulation of the pharmaceuticals industry. That’s true of both the human and animal sectors. It leaves open the potential for significant issues to arise in the food supply pipeline as untested remedies proliferate.



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February 02 2021

Commentary by Eoin Treacy

Video commentary for February 2nd 2021

February 02 2021

Commentary by Eoin Treacy

India Spending Bonanza Powers Stocks as Valuations Take Backseat

This article by Subhadip Sircar and Kartik Goyal for Bloomberg may be of interest to subscribers. Here is a section:

Stock-market sentiment has also been buoyed by the absence of new taxes on the wealthy and corporations in the budget. Traders expect the government’s growth push to boost corporate profits, which are already showing signs of a recovery. As the results season continues, 21 of the 29 NSE Nifty 50 firms that have reported earnings so far have beaten analyst estimates.

If the budget measures are executed properly, they have the potential to increase the share of corporate profits in GDP, and help bring about a new private investment cycle, recovery in domestic equity flows and earnings growth, analysts at Morgan Stanley wrote in a note.

Eoin Treacy's view -

The time to go big on fiscal spending is during a recession. It will mean the economy moves back into expansion mode quicker than might otherwise be case. Pushing out the ambition to contract the fiscal deficit by another few years was unavoidable and the stability of the Rupee suggests investors are reasonably comfortable with that idea.



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February 02 2021

Commentary by Eoin Treacy

Why Amazon May Fill Its Own Shopping Cart With Buybacks

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

Amazon.com Inc.’s equity performance has far exceeded the S&P 500 Index over the past five years, yet buybacks may be the best use of capital in the near term as financial flexibility grows and excess cash builds, according to Bloomberg Intelligence’s Robert Schiffman. With consensus free cash of almost $42 billion in 2021 and $58 billion in 2022 -- the e-commerce giant’s share-repurchase authority has gone unused since 2016 -- cash could exceed $100 billion over the next two years. The company is scheduled to report fourth-quarter earnings after the close of trading Tuesday.

Eoin Treacy's view -

Some of the largest tech companies like Alphabet and Amazon do not buy back many of their shares. That hasn’t impeded investor enthusiasm because they have been able to continue to deliver on growth and new product offerings.



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February 02 2021

Commentary by Eoin Treacy

U.S. nuclear: delayed closures could add 26Mlbs to 2021-30 global uranium demand

Thanks to a subscriber for this report from BoA Securities. Here is a section:

Eoin Treacy's view -

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

The uranium sector has had a number of false dawns over the last decades. The reason for an inability to reach escape trajectory from the lengthy base formations was KazAtom’s policy of flooding the market and driving high-cost producers out of business.



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February 02 2021

Commentary by Eoin Treacy

Silver, GameStop Sink as Investor Frenzy Shows Signs of Cooling

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

Most-active silver futures declined as much as 5.5% to $27.81 an ounce on the Comex after the CME Group said margins will rise to $16,500 per contract from $14,000, effective Feb. 2. The decision was based on “the normal review of market volatility to ensure adequate collateral coverage," it said.

“Fundamentally I don’t believe that there are any significant short positions in the silver market, as the outlook for silver is robust this year, coming off a strong performance in 2020," Wendt said.

As the frenzy built, BlackRock Inc.’s iShares Silver Trust recorded an unprecedented $944 million net inflow on Friday, followed by another $551 million on Monday after a since-removed post appeared on the WallStreetBets forum that encouraged traders to pile into the exchange-traded product. That move now appears to be fizzling out, with some on Reddit urging their fellow investors to back away from silver.

“We suspect that prices will remain volatile," James Steel, chief precious metals analyst at HSBC Securities (USA) Inc., said in a note before the margin increase was announced. “Beyond this week, and possibly sooner, we believe the new entrants into the market may tire and begin to liquidate silver holdings, with a commensurate price impact. Buyer beware!"

Eoin Treacy's view -

Raising margin requirements for futures trades always has an impact on prices. It’s the primary tool used by exchanges to ensure orderly markets and it has had a negative effect on silver today. That helps to confirm resistance in the region of the upper side of the range and suggests some additional consolidation is likely.



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February 02 2021

Commentary by Eoin Treacy

Email of the day on why GameStop does not sell additional shares

I did not check, but I guess GME did not have a shelf registration which allows a swift sale of securities.

Last week, AMC and AA did use such registration to raise fresh equity. In addition, Silver Capital did convert its $600 MM convertible bond and racked a $100 MM profit: I do believe that they sold short the stock and covered it with the conversion of the CB: opportunistic, sensible and well done!

Eoin Treacy's view -

Thank you for this insightful email.



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February 01 2021

Commentary by Eoin Treacy

Video commentary for February 1st 2021

February 01 2021

Commentary by Eoin Treacy

Citadel Silver Holding Exposes Rifts in WallStreetBets Army

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

Ken Griffin’s Citadel has once again found itself at the center of a WallStreetBets drama, this time over the firm’s holdings of silver.

The precious metal has become a popular buying target for retail investors keen to inflict losses on hedge funds, after posts on WallStreetBets claimed the market was ripe for a short squeeze. Yet some members of the Reddit forum have responded with pleas to avoid the trade, saying Citadel stands to benefit as a major holder of the largest silver exchange-traded fund. “CITADEL IS THE 5TH LARGEST OWNER OF SLV,” one WallStreetBets user wrote on Sunday, referring to the iShares trust’s ticker symbol. “IT’S IMPERATIVE WE DO NOT ‘SQUEEZE’ IT.”

Eoin Treacy's view -

The short-term pop in GameStop might have been driven by a band of retail investors and some sharp hedge fund players. The narrative has been a David and Goliath story where retail investors extract a measure of justice for the foreclosure crisis after the Global Financial Crisis. Meanwhile the narrative in silver is also a David and Goliath story, where retail and institutional investors face off against central banks and their inflationary policies. 



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February 01 2021

Commentary by Eoin Treacy

DoubleLine Round Table 2021

Section 1 Global Macroeconomy: State of Play and Outlook Part 1 and Part 2

Section 2: Financial Markets Part 1 and Part 2

Section 3: Best Ideas

 

Eoin Treacy's view -

I enjoyed this series of roundtables last year and this year did not disappoint. The points made are all relevant to the market environment as we see it today. Ther participants expressed a great deal of fear that we are dangerously close to a bubble peak. There is a lot of worry about valuations, social unrest and the effects on the credit worthiness of the corporate bond market, when the Fed is backstopping it.



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February 01 2021

Commentary by Eoin Treacy

Email of the day on GameStop supply and demand

Hello Eoin, First of all I want to congratulate you with your daily audio comment. A very interesting start of the day. But I have a question: In your audio you talked about the fact that ‘GME could perform a capital increase and sell a block of new shares to the HF managers that are short’. I personally think this is a great idea, it would deliver fresh easy capital to the company (a company which is not in excellent condition), give a chance to the shorters to buy a large amount of shares at the same price, and take the pressure off the market (this activity is putting the whole market under a lot of strain with the possibility of spillover effects to other markets). So why don’t they do this? I don’t understand but maybe there are some details that I’m missing?

Eoin Treacy's view -

Thank you for your kind words and for this important question. The first answer is perhaps GameStop’s management really are flat-footed. That has certainly been the case for the last decade because they completely missed the move to ecommerce in the same way that Blockbuster missed the jump to streaming.

The second answer is perhaps they have just not had the time to get the details together. Let’s not forget, the short covering rally began less than two weeks ago.  With prices starting to come back down and the short interest percentage contracting the brief window for potential revenue raising may have passed already.



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February 01 2021

Commentary by Eoin Treacy

Email of the day on Israeli vaccinations

I live in Israel and so can share with you what I am seeing on the ground. Israel's results would have been even better if we did not have two internal communities whose behaviour is the main cause of the high contamination rates. The ultra-orthodox Jewish minority (about 15% of the population) refuses to obey the rules of social distancing. The members of this community insist on gathering together to pray and to study the religious texts. They make up about 40% of the positive cases and deaths from Covid. The Arab citizens of Israel also resists the social distancing rules and they are the other cluster of positive cases and deaths. Many of them fear that the vaccine is an Israeli plot to weaken them. The rest of the Israeli population is obeying the rules and that is why the situation is very good. At the same time as the mass vaccination there is very strict lockdown. This will probably continue for some time until so many people have been vaccinated that there is a mass immunity. The Palestinians in the West Bank have, unfortunately once again chosen an unsuccessful strategy. Under the Oslo Agreements, the Palestinian Authority is responsible for health. The PLA decided at the start of this crisis not to cooperate with Israel, but to rely on the UN for its vaccine. This is why the Arab population of the West bank is lagging behind on being vaccinated.

Eoin Treacy's view -

Thank you for this insight. There is a significant population of people in most countries who for varying reasons will not take a vaccine. In Israel it might be the Orthodox or Arab populations, but in the USA, there is a significant and highly vocal anti-vax community which conservatively reaches about 15% of the population.

Additionally, the black community has the been the subject of botched medical experiments in the past. Many people are leery of taking vaccines. That’s before we even begin to think about the online conspiracy theories that have been circulating over the last 12 months and have certainly affected sentiment. This article from NBC news highlights the fact that 70% of nursing home staff are refusing to get the shot. https://www.nbcnews.com/news/us-news/nursing-homes-make-big-push-change-minds-workers-who-refused-n1254509

I think it is safe to say there will be a significant minority that refuse vaccination in most countries. As we process into the year, there will be more vaccines permissioned and production will ramp up. By December there will be a surfeit of doses. By June, anyone who wants a vaccine will be able to get one I suspect. The big question at this stage is whether the conscientious objectors to taking a vaccine will be allowed to travel, work or study without one.

There is no doubt that COVID-19 is deadlier than the flu. An uncomfortably high percentage of people who develop severe symptoms, which require hospitalisation, experience a lengthy recovery. Aches and weakness are among the most common issues reported. However, risk remains concentrated in the ranks of the elderly and those who are already ill with chronic conditions.

It was obvious as early as August that a massive public information campaign would be required to ensure a successful inoculation program. That didn’t happen so there is a clear risk of difficulty in reaching the herd immunity threshold. Forcing vaccination is a serious infringement of civil liberties but it is actively being considered.

My own view is anyone who habitually gets the flu vaccine, will have little issue with getting the COVID vaccine. Meanwhile, the trial of ivermectin as a treatment for COVID-19 in the UK might prove to be the bridge between the anti-vaccination movement and the desire to reach herd immunity as quickly as possible.



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January 29 2021

Commentary by Eoin Treacy

January 29 2021

Commentary by Eoin Treacy

Speculative Frenzy Spills Into Crypto as Bitcoin Tops $38,000

This article by Yakob Peterseil and Joanna Ossinger for Bloomberg may be of interest to subscribers. Here is a section:

Musk’s page on Twitter simply said #bitcoin with no further explanation, but speculation that the world’s richest man might be a Bitcoin investor was enough to set off the dramatic rally.

Prices spiked in a matter of minutes, for the biggest intraday move in almost a year.

“This huge melt-up is due to Elon’s tweet,” said Antoni Trenchev, managing partner and co-founder of Nexo in London, which bills itself as the world’s biggest crypto lender. Musk’s
support for Bitcoin “creates a safe zone for some of the smaller companies and possibly everyone in the S&P 500 to allocate into Bitcoin,” he said.

Musk also tweeted an image of a “Dogue” magazine cover featuring a whippet in a red sweater -- a play on the fashion magazine “Vogue.” He also sent posts calling Cyberpunk a great video game and said, “In retrospect, it was inevitable.”

Binance, the world’s largest cryptocurrency exchange by volume, briefly suspended withdrawals on Friday to address a large increase in requests. Chief Executive Officer Changpeng Zhao said that user sign-ups and trades jumped to a record high. “We almost ran out of DOGE coin addresses,” Zhao told Bloomberg. “Our system couldn’t generate new addresses fast enough to match new users coming in. It’s crazy.”
 

Eoin Treacy's view -

The kind of activity that has been witnessed in GameStop this week is considered normal in the completely unregulated cryptocurrency markets. Since there is no hard fundamental to base value on, the market is dependent on momentum to stoke bull markets. When an anarko-capitalist idol like Elon Musk tweets, it tends to get a lot of attention.



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January 29 2021

Commentary by Eoin Treacy

China Engineers Biggest Cash Squeeze Since 2015 to Avoid Bubbles

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

On Friday afternoon, speculation spread that the People’s Bank of China will hike the cost of a short-term loan. Volatility swept the country’s sovereign bond market, with the 10-year yield spiking and trading briefly suspended for a one-year note. The PBOC later said the speculation was untrue and reported it to the police.

The stock market is jumpy too. The CSI 300 Index slumped almost 5% since Monday, when it closed at a 13-year high, while margin debt in the market has fallen from its highest level
since a bubble burst in 2015.

Bubbles have long been a concern to the Communist Party. Capital borders mean the country’s 1.4 billion people have few investment options. Abundant liquidity in the past has fueled
speculative frenzies in everything from housing to equities and commodities, something that the government is keen to avoid.

Officials don’t have to look hard to see the effect of easy money in the rest of the world on asset prices, and the risk of a sharp reversal.

In China, however, the bursting of a bubble has the potential to create social instability, which could threaten the Communist Party’s rule.

Eoin Treacy's view -

China’s Communist Party understands that it will have a hard time keeping its population under control if there is a property crash. The best way to avoid that outcome is to ensure prices do not rise too quickly. That means they are willing to do whatever is necessary to support prices but also will act to curtail rampant speculation.



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January 29 2021

Commentary by Eoin Treacy

World's Most Vaccinated Nation Struggles With Virus Variants

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

The variant first identified in the U.K., 50% more infectious and possibly more virulent than the original virus, is to blame for the inability so far of the vaccination campaign and the lockdown to curb the spread, Israeli health ministry officials said.

Although the vaccine is believed to work against the variant, the mutation’s more contagious nature means higher infections and hence more hospitalizations. The health ministry’s main goal now is to bring down the numbers of the seriously ill who are overwhelming hospital wards and exhausting medical teams.

The rate of infections in Israel has declined to just over 9% from 10.2% earlier this month, and people seriously or critically ill has stabilized at about 1,100. But the number of patients on respirators has hit a record, Corona Commissioner Nachman Ash has said. More than 4,600 people in Israel have died from the virus, and more than 7,600 people are being diagnosed with it daily.

Balicer said it would likely take another 10 days before the country sees critical cases decline, allowing the economy to begin to return to normal.

Eoin Treacy's view -

Israel offers a valuable preview of what the rollout of vaccines in other countries will look like. The country’s advantages in having a small population, socialised medicine and rapid vaccination program suggest it represents a best-case scenario for what other countries might hope for. As vaccinations roll out and enthusiasm that the light at the end of the tunnel is in view, the spectre of virus variants represents a brake on the pace of reopening.



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January 28 2021

Commentary by Eoin Treacy

Video commentary for January 28th 2020

January 28 2021

Commentary by Eoin Treacy

Email of the day - on the validity shorting and market manipulation

It is satisfying to see some hedge funds losing because a crowd of ordinary investors are smart enough to play the game against the big guy. Does the GameStop example not suggest there is something wrong with a system that allows more short position to exist than the number of shares the company issued? Why are short positions reported only quarterly in the US? Should there not be an obligation to report short positions above a certain level in real time, at a level much less than the similar obligations for long positions (say 0.5% of the number of shares issued)? Why are short positions allowed at all? The markets are supposed to be places to raise capital, but short positions raise no capital - they are primarily used for financial manipulations that are of no benefit to society.

Eoin Treacy's view -

Thank you for this note and I think a lot of people are engaging in Schadenfreude at the expense of hedge funds. The practice of initiating a short position, then putting out of bearish report has been rife over the last decade. The instigators of this practice typically cover shortly after the initial drop and move onto the next target. It’s a predatory practice and amounts to market manipulation. Putting your put option positions in 13-F filings amounts to the same thing. So, it is high time this form of manipulation was targeted.

Shorting exists because it helps the market function more efficiently. In the competitive world of finance there should be no room for the weak. The reality today is there are legions of zombie companies supported by little more than access to cheap capital.



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January 28 2021

Commentary by Eoin Treacy

Big Ideas 2021

Thanks to a subscriber for this report from Ark Invest. Here is an important chart:

Eoin Treacy's view -

This report is packed full of blue sky thinking and gels with a lot of how I see the path of technological innovation over the next decade. The simple reality is that every innovation in how we communicate has created an industrial revolution. The printing press allowed for the dissemination of information and fostered inquisitiveness. The telegraph made the world smaller and allowed even more communication. The semiconductor created the conditions for instant communication. The internet realised that potential.



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January 28 2021

Commentary by Eoin Treacy

Coinbase is going public via direct listing

This article by Lucas Matney for techcrunch.com may be of interest to subscribers. Here is a section:

Last month, the company shared that it had confidentially filed an S-1 with the SEC, we still haven’t seen those financials but we now know that they have opted out of the traditional IPO process. Direct listings have been slowly gaining popularity and given some of the most recent first day pops from tech IPOs, it’s unsurprising to see a company like Coinbase which is likely flush with cash thanks to recent gains in the cryptocurrency market opt for a path to public markets that involves less fuss.

Direct listings allow companies to skip much of the heavy-lifting of the IPO process by stripping the public debut of a release of new shares, instead giving existing shareholders like VCs and employees a path to just liquidate their equity in the company.

This has been one of the friendliest IPO windows for tech stocks ever with investors racing to back technology companies that are primed for what’s been called the “digital transformation.” Coinbase is in a pretty favorable spot with the public markets and cryptocurrency markets aligned in frothiness. Bitcoin is currently trading near $33,000 just weeks after reaching on all-time-high.

Eoin Treacy's view -

Coinbase filed confidentially with the SEC in December and the announcement of the direct listing suggests the IPO will occur shortly. Many people have been looking for an easy way to buy cryptocurrencies and Coinbase will be a popular vehicle to express a view on the sector. It also has the added benefit from coming to market with a strong likelihood of being profitable which can’t be said for many of the shares which listed over the last year.



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January 27 2021

Commentary by Eoin Treacy

Video commentary for January 27th 2021

January 27 2021

Commentary by Eoin Treacy

ECB Officials Agree to Push Back on Market Rate-Cut Skepticism

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

The discussion resulted in President Christine Lagarde placing a special focus on the wide range of options available to the ECB, when she declared on Thursday, with an emphatic pause, that policy makers stand ready to adjust “all” tools if needed.

Officials are not currently considering another cut in borrowing costs in the short term, the people said. One of them said investors shouldn’t be ruling out such an action at a time when economic uncertainty remains high and the euro is relatively strong.

Eoin Treacy's view -

There is a growing antipathy at the ECB to the strength of the Euro. The jawboning began about a month ago and was amped up with today’s announcement. The ECB is reluctant to cut rates further into negative territory but they are also alarmed at the strength of the currency. Europe’s path to recovery from the pandemic will be built on exports and a strong Euro is not helpful.



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January 27 2021

Commentary by Eoin Treacy

Reddit Jolts Activist-Short Hedge Funds Into 'Adapt or Die' Mode

This article by Michael P. Regan, Bailey Lipschultz and Anders Melin for Bloomberg may be of interest. Here is a section:

The days of “smash-and-grab” shorting are over, according to veteran bear Marc Cohodes, referring to investors who release a critical research report and then quickly cover their positions following an initial share price drop -- or those who piggyback on others’ work and crowd into bearish positions. More
discipline will be required, he says.

“The last thing the referee tells you when you’re in a boxing match before they ring a bell is ‘protect yourself at all times,’” he said. “And these big hedge funds who’ve been short and over-concentrated in these names have been arrogant, pompous and didn’t realize they were overstretched.”

The big lessons of the last week are pretty simple, according to Fraser Perring, founder of Viceroy Research: “If you go short, make sure you have a position that in some way preserves some capital if the trade goes against you in the short term. If the cost of that strategy is too high, the risk isn’t worth it.
Price discovery is officially suspended.”

Eoin Treacy's view -

13-f filings are required to be filled out every quarter. They detail what funds managing more than $100 million held over the quarter. Retail investors tend to pour over these filings because some funds also put their options positions in the filings. Activist funds hope that by publicizing their short positions they will gain additional adherents. The opposite is occurring at present which is what landed Melvin Capital in trouble.



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January 27 2021

Commentary by Eoin Treacy

Email of the day on positioning and evidence of a mania:

I wanted to provide some input to the question you asked subscribers today on how we are invested and cash levels.

I am close to 70 years old and just retired. My investment portfolio is my pension which comprises stocks and property. For me, within my own fairly conservative criteria I am close to fully invested in the stock component of my pension. In the final 4 months of last year I invested additional cash in FTM themes such as  emerging markets, metals and mining and renewables. A large portion went to South East Asia where I have built some knowledge over the years and saw real value, often with good dividend yields. The remainder of my portfolio is in a portfolio of US stocks which I have managed for some years but the contents of which I rotate as trends change. A small percentage is in continental Europe plus UK Investment Trusts the latter following FTM themes. I have additional cash available which I might invest in stocks if the market declines providing a buying opportunity or I may invest in property if a suitable opportunity arises. But the cash will be invested either in stocks or property  within the coming year.

 

I also maintain a cash or cash equivalent position amounting to several years living and recreation costs which will never be invested in stocks. Maybe overly conservative but I’ve been investing from the mid 1980’s, when I first subscribed to FM, and this way I can sleep at night knowing I wont need to sell assets to fund living costs.  

And

I am usually about 20-25% in cash. Now about 50% and I almost feel like I should be 75-80% in cash.  Just don't see why the world is so much better now vs 1 year ago today pre-covid-other than low cost of money.  Seems like a lot of pent-up demand and fear not to get in has made the market frothy...kinda like the run on toilet paper......

Eoin Treacy's view -

Thanks to a number of subscribers for responding. The responses so far tell me that while there is evidence of froth in the market, we are not at a point where there is a risk of an imminent end to the reflation. Many investors went 100% to cash in the summer and are still only beginning to get back into the market.



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January 26 2021

Commentary by Eoin Treacy

January 26 2021

Commentary by Eoin Treacy

Is there a bubble in financial markets?

Thanks to a subscriber for this chartbook from Deutsche Bank which may be of interest.

No doubt that in aggregate US equity valuations are at, or close to, all-time-highs.

Eoin Treacy's view -

There are a couple of things that are worth considering. The first is that identifying a bubble is not a timing indicator. The easy money policies adopted by central banks following the Global Financial Crisis 13 years ago were inevitably going to cause a bubble in something. The new information is that there is evidence of a bubble in a large number of asset classes because zero interest rates made a nonsense of any kind of valuation metric.

The one thing we know about manias from history is they are powerfully attractive. They suck in investors from all over the world and by the time they peak everyone is fully invested. Let’s take a poll. So how are subscribers invested and how much cash do you currently hold relative to what is “normal” for you? By looking at our individual actions, in aggregate, we will probably come up with a better understanding of where the wider investment community is.



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January 26 2021

Commentary by Eoin Treacy

Soybeans Buoyed as China Turns to U.S. for Nearby Supplies

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

China is looking for more U.S. soybeans after top exporter Brazil suffered from a drought that delayed planting and now downpours that slowed harvesting. The Asian nation needs so much of the oilseed to feed a growing pig herd that it already bought supplies for delivery in August, at the end of the U.S. season, and for 2021-2022.

China’s interest in nearby U.S. supplies comes after Chicago soybean futures slumped more than 7% last week, or over $1 a bushel, the worst performance in more than six years. Crop prices recouped some of their losses on Monday, but remain well down on their multiyear highs earlier in January.

Corn futures in China are also down from record highs this month, tracking Chicago prices and pressured by sales from state wheat stockpiles. In terms of South American supplies, Brazil is heading for a record soybean crop after rains, while dryness is still threatening the production outlook in Argentina.

Eoin Treacy's view -

2020 was a year of plagues. The coronavirus pandemic disrupted supply chains. The swine flu killed off millions of hogs all over the world. The plague of locusts devastated harvests in East Africa, India and southwest China. Spring floods in the USA may also have had an impact on both harvesting winter crops and the overall planting schedule. 2020 was also the year much stricter emissions rules came into effect for the shipping sector so it was going to be a disruptive year because plagues arrived.



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January 26 2021

Commentary by Eoin Treacy

China Asset-Bubble Warning Threatens Stock Frenzy in Hong Kong

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

In mainland markets, a gauge of interbank borrowing costs jumped 36 basis points to 2.78% on Tuesday, the highest level in a year. Futures on Chinese government bonds due in a decade were poised for the biggest decline since September, while the CSI 300 Index of shares in Shanghai and Shenzhen, which has been approaching 2007’s record high, fell 2%.

“The PBOC wants to bring investors out of the euphoria caused by abundant liquidity in December,” says Xing Zhaopeng, an economist at Australia & New Zealand Banking Group. “The PBOC is unlikely to loosen its purse strings at least this week, which will make cross-month liquidity very tight.”

PBOC Governor Yi Gang on Monday said the central bank will seek to support economic growth while limiting risks to the financial system -- a continuation of its existing policy stance. Yi said China’s total debt-to-output ratio climbed to around 280% at the end of last year.

Eoin Treacy's view -

In many respects China is running conventional monetary policy. The economy has been spared from an epic contraction and therefore the requirement for outsized liquidity to support growth is less compelling than in the OECD. It remains likely that China will be the first major economy to raise interest rates after the pandemic abates.



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January 25 2021

Commentary by Eoin Treacy

Video commentary for January 25th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: jump in demand for save haven assets as volatility in stock markets picks up. Europe eases, China firm, India pauses, gold steady, biotech continues to trend higher. Ethereum outperforming Bitcoin



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January 25 2021

Commentary by Eoin Treacy

Email of the day on gold as a Tier 1 asset under Basel III

You mentioned that gold should be higher. I understand that there is effectively a "put" on gold, die to shorts being able to be placed - using unallocated gold - which are naked. But that the Basel 3 Accord which should be in place in June will reduce unallocated gold to a tier3 asset.

Gold I understand being elevated to a tier 1 asset (as for cash).

This surely means that the demand for physical gold (already in demand with orders not being filled) will surely surge.

Are we therefore positioned to make a killing on gold between now and June?

Eoin Treacy's view -

Thank you for this topical question. The announcement that gold would be recategorized as a Tier 1 asset under Basel III occurred two years ago. That begs the question whether the outsized demand from central banks since early 2019 was in response to the announcement and in preparation for the changeover in June 2021. I suspect Russia’s outsized purchases over the last few years were influenced by this change over.



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January 25 2021

Commentary by Eoin Treacy

Signaling No Change in China's Course, Xi Warns Against Cold War

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

“To build small circles and start a new Cold War, to reject, threaten or intimate others, to willfully impose decoupling, supply disruptions, or sanctions, or to create isolation or estrangement, will only push the world into division and even confrontation,” he said.

Xi’s speech had been widely anticipated for the tone it would set for relations between the world’s biggest economies over the next four years. Though Xi did not name Biden by name, many of his comments were clearly targeted at the new U.S. administration.

Xi repeated many of the same talking points about multilateralism and “win-win” outcomes that he deployed in his last address to Davos four years ago, days before Donald Trump’s inauguration, but he also signaled that he does not intend to change course in the face of U.S. pressure.

“Each country is unique with its own history, culture and social system, and none is superior to the other,” Xi said, warning against imposing a “hierarchy on human civilization” or forcing one’s own systems onto others.

Eoin Treacy's view -

This all sounds very reasonable and is a perfect example of China’s efforts to exude a façade of reasonableness. Perhaps it would be better to measure China’s actions in the four years since Xi’s last speech to Davos where much the same call to embrace appeasement was made.



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January 25 2021

Commentary by Eoin Treacy

Moderna Says Shot Works Against Variants, Developing Booster

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

Moderna Inc. said its vaccine will protect against two known variants of the Covid-19 virus, but it plans to start human studies of a booster shot for a strain from South Africa that may cause immunity to wane more quickly.

In laboratory tests, Moderna’s vaccine produced antibody protection against the B.1.1.7 strain first identified in the U.K. at levels comparable with older forms of the virus. But against the South Africa variant, known as B.1.351, the neutralizing antibodies produced were six-fold lower, the company said in a statement.

Despite that gap, Moderna’s shot should protect against either strain, according to the company. While the South Africa variant hasn’t been seen in the U.S., the U.K. mutation -- which British officials said last week may be deadlier -- is spreading rapidly among Americans. Both strains are thought to be more transmissible than the original virus.

“We expect that whatever immunity you get over time will wane. The question is will it wane faster if you have lower levels to begin with,” said Tal Zaks, Moderna’s chief medical officer, in an interview.

Eoin Treacy's view -

It’s a game of whack-a-mole as the virus iterates faster than vaccines are currently being produced. The challenge with a global pandemic is no two countries deploy the same response. Even between households the approach to social distancing varies widely. With news today that California has its very own new strain, similar to the UK’s, the drive to speed up both production and rollout of vaccines will become even more urgent. Meanwhile, the Israeli experience with a national rollout offers a test case for how effective, the Pfizer vaccine in particular is.



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January 25 2021

Commentary by Eoin Treacy

Sunak's Tax Choices to Fix U.K. Debt Range From Wealth to Fuel

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

 

A more innovative and potentially hugely controversial option that could seek to address growing U.K. inequality would be a wealth tax. Last year, the independent Wealth Tax Commission said the
U.K. could raise more than 260 billion pounds with an annual charge of 1% lasting five years on individual assets above 500,000 pounds. About 8 million residents would be affected.

Wait and See
Sunak could also decide that it’s too early to raise taxes, choosing to tolerate a higher debt load until the U.K.’s recovery is assured. That tactic was mooted last week by a Treasury minister who suggested hikes could be avoided should the economy stage a strong rebound.

“It’s not absolutely obvious therefore that there may be any future need for consolidation, depending on the view you take for taxes,” Financial Secretary to the Treasury Jesse Norman told the House of Commons Treasury Committee. That approach, which removes the risk of premature tightening that could choke off growth, could be achievable after Bank of England bond purchases to stimulate the economy drove U.K. debt-servicing costs below pre-pandemic levels, despite the borrowing splurge.

Eoin Treacy's view -

The prospect of a wealth tax would in all likelihood raise important questions about the attractiveness of London as a bastion for the world’s wealthy. It would also enhance the subjects of the tax to decamp to sunnier climates.

Every one of the potential levers for higher taxation revenue represents a difficult decision. If I had to guess, some form of carbon tax on individuals is much more likely. Each of us is an emitter and we will end up paying for the original sin of simply existing. That's going to be contentious but it will be couched in the verbage of saving the planet. 



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January 22 2021

Commentary by Eoin Treacy

January 22 2021

Commentary by Eoin Treacy

Email of the day - on money printing

As an American investor, it has occurred to me that as we enter an era of money printing the likes of which we probably have never experienced, I really don't have a good handle on the potential risk. It is virtually impossible to allocate one's assets appropriately without a good understanding of a "best case/worst case" scenario. I watch as those in charge in Washington salivate at the prospect of writing checks, checks, checks, and assume that the currency will depreciate, but wonder: how bad might this possibly get? With a pistol to your head, if you had to take a guess at it, what do you see as the range of possibilities here? Might we be another Greece? Thanks for all you do for us - day in and day out.

Eoin Treacy's view -

Thank you for this question which helps to express the uncertainty many people feel after a year of outsized volatility across assets…everywhere. Trillions of dollars in deficits will need to be funded somehow. Right now, the plan is to print the money and devalue the currency. Comparisons with Greece, Zimbabwe or Venezuela miss the point. The USA prints debt in its own currency. It will never default. All of the pressure will be borne by the Dollar.

The Dollar’s Purchasing Power peaked in 1933 and halved by 1948 (15 years). It halved again by 1974 (26 years). It halved again by 1983 (9 years). It halved again by 2007 (24 years) and is well on its way to another halving.  

There is a cottage industry in worst case scenarios and I am reluctant to indulge in that kind of speculation. The one thing we know for sure is investors are being forced to speculate. Cash is a wasting asset when devaluation is in play. That is creating demand for hard assets and preferably those with strong cash flows.



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January 22 2021

Commentary by Eoin Treacy

Don't Bank On the Glut of Savings Being Spent

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

From a broader perspective, inflation results from demand exceeding supply, but since globalization commenced three decades ago, it’s been an excess supply world. Asian countries are big producers of exports they send to the West, but they’re weak consumers. China’s consumer spending is just 43% of GDP, compared with 68% for the U.S. So the resulting Asian saving glut generates price-depressing excess supply. Barring a tariff wall that seals off imports from Asia, any revival of U.S. consumer spending wouldn’t be big enough to eliminate global excess supply. And President Joe Biden is less zealous on the trade war with China than former President Donald Trump.

Finally, note that some investors aren’t anticipating surging inflation and interest rates. Technology-related and other growth stocks have low earnings yields, the inverse of price-to-earnings ratios, which are justified by low interest rates. The theory is that their present stock values equal the discounted value of future earnings, so the lower that discounting interest rate, the more their equities are worth
today.

Earnings of $10 in 10 years hence is worth $9.05 today with a 1% discounting rate, but only $5.58 at 6%. So if investors expected a leap in inflation and interest rates, they’d probably be dumping growth stocks now.

Eoin Treacy's view -

Is it different this time? That’s the big question for anyone who has been monitoring the markets for the last few decades. Every time we see a recovery from a major decline, there is evidence of inflationary pressures beginning to rise. In 40 years, they have not proved to have staying power.



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January 22 2021

Commentary by Eoin Treacy

Short-Seller Citron 'Walks Away' After 'Angry Mob' Tried to Silence Him on GameStop (GME), Turning Info Over to Feds

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

GameStop (NYSE: GME) short-seller Andrew Left of Citron Research says an "angry mob" that owns the stock spent the last 48 hours committing multiple crimes against him and his family that he will turn over to the FBI, SEC, and other government agencies.

He said what he experienced is nothing short of "shameful and a sad commentary on the state of the investment community" and he will no longer be commenting on GameStop.

Left said this was not just name-calling and hacking but "serious crimes such as harassment of minor children."

Left said they are "investors who put the safety of family first and when we believe this has been compromised, it is our duty to walk away from a stock."

Eoin Treacy's view -

Crowds all share common characteristics. The most important from the perspective of monitoring markets is that as the crowd grows, only the basest of emotional responses survive. There is no room for equivocation. Only absolutes are acceptable to the mob. Estimates of future potential stretch to infinity as a result.



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January 21 2021

Commentary by Eoin Treacy

January 21 2021

Commentary by Eoin Treacy

Bitcoin Losses Gather Pace, With Prices Nearing Three-Week Low

This article by Anchalee Worrachate and Eric Lam for Bloomberg may be of interest to subscribers. Here is a section:

“Bitcoin has already achieved the fastest-ever price appreciation of any must-have asset,” wrote JPMorgan Chase & Co. strategists John Normand and Federico Manicardi in a report on Thursday. “Current prices are so far above production costs that mean-reversion lower in returns is a recurring concern.”

Bitcoin was down 10% to $31,532 as of 10:08 a.m. in New York. Prices are on track for their first back-to-back weekly decline since early October.

Adding to the anxiety, a report in a trade blog suggested that there had been what’s known as a double purchase, where the same “coin” is used in two separate transactions.

“This really will chill a lot of that relentless buying and belief that Bitcoin is a stable form of providing transactions” if a double-spend actually happened, said Edward Moya, senior market analyst at Oanda.

Eoin Treacy's view -

Talk of a double purchase went wild on social media overnight. The primary issue is that bitcoin is designed to ensure that is impossible. Bitcoin processing is slow because it is designed to ensure that a bitcoin cannot be used to make a transaction twice. People try all the time to make double purchases but in order for a transaction to be considered “secure” it needs to go through six blocks. Therefore, I believe it is unlikely that bitcoin has been hacked or that a double purchase has taken place. However, the whole issue does highlight the difficulty bitcoin has in scaling the number of transactions. It is the primary argument against it being a medium of exchange for everyday purchases.



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January 21 2021

Commentary by Eoin Treacy

WHO Information Notice for IVD Users 2020/05

This information notice from the WHO may be of interest to subscribers. Here is a section: 

WHO guidance Diagnostic testing for SARS-CoV-2 states that careful interpretation of weak positive results is needed (1). The cycle threshold (Ct) needed to detect virus is inversely proportional to the patient’s viral load. Where test results do not correspond with the clinical presentation, a new specimen should be taken and retested using the same or different NAT technology.

WHO reminds IVD users that disease prevalence alters the predictive value of test results; as disease prevalence decreases, the risk of false positive increases (2). This means that the probability that a person who has a positive result (SARS-CoV-2 detected) is truly infected with SARS-CoV-2 decreases as prevalence decreases, irrespective of the claimed specificity.

Most PCR assays are indicated as an aid for diagnosis, therefore, health care providers must consider any result in combination with timing of sampling, specimen type, assay specifics, clinical observations, patient history, confirmed status of any contacts, and epidemiological information.

Eoin Treacy's view -

The use of PCR testing has been criticised by many commentators as inappropriate for almost as long as the tests have been in use. The reality is that high numbers of cycles tend to give false positives. These tests also have no capacity to differentiate between active and inactive virus. It means that asymptomatic people are forced to quarantine when there is virtually no risk of them being infectious. That is equally true of the more transmissible versions of the virus currently spreading.



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January 21 2021

Commentary by Eoin Treacy

Australian Resources

Eoin Treacy's view -

The S&P/ASX 200 Resources Index is back testing its peak from 2008 and now occupies about 20% of the broader index; second only to the banking sector. Of course, that is in nominal terms. On a constant currency basis, the Index is well shy of the 2008 and 2011 peaks.

That’s a common feature for resources indices around the world. The commodity crash took a heavy toll on the metal and currency values which compounded the effect of the declines on portfolios.

The opposite is now true. As the Dollar trends lower it burnishes returns for investors in currencies other than the Dollar.



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January 20 2021

Commentary by Eoin Treacy

Video commentary for January 20th 2021

January 20 2021

Commentary by Eoin Treacy

Deflation Threatens to Push Yen Higher on Japan Real Yield Gain

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

“Japan’s real yields are high and are rising with deflation underway,” said Tohru Sasaki, head of Japan markets research at JPMorgan Chase & Co. “The real yield gap widening in the negative is very significant. It may eventually drag the yen higher.”

Consumer price growth in Japan excluding fresh food -- a measure closely watched by the country’s central bank -- has been negative or zero since April. Expectations for future inflation -- derived from 5-year breakeven rates -- sit at minus 0.12%. Equivalent U.S. breakevens are at 2.16%, up over 60 basis points and rising since November, as investors bet further stimulus under new President Joe Biden will help reflate the American economy.

Yen at 100
The result is a higher real yield in Japan, where 5-year inflation-protected notes trade around zero versus minus 1.73% in the U.S., increasing the relative attractiveness of the country’s bonds and its currency.

Eoin Treacy's view -

You know you live in a funny reality when a zero or negative interest rate produces a positive real yield. Japan’s deflationary environment has been an abiding characteristic of the market for decades and the vast quantity of debt accrued in that time is a headwind to risk taking, speculation and economic activity going forward. Attempts to reinvigorate the domestic demand story with immigration were beginning to bear fruit ahead of the pandemic. Japan has weathered the storm better than most so it will face less of a challenge in recovering as the world heads towards reflation.



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January 20 2021

Commentary by Eoin Treacy

Jack Ma's Brief Video Chat Prompts a $58 Billion Sigh of Relief

This article by Lulu Yilun Chen, Coco Liu and Abhishek Vishnoi for Bloomberg may be of interest to subscribers. Here is a section:

Much about the future of China’s most famous businessman remains unclear. Yet analysts said Wednesday’s video was a sign that worst-case scenarios -- such as jail time for Ma or a government takeover of his companies –- are probably now off the table. It’s unlikely Ma would have participated in the event without at least tacit approval from Beijing; state-run media including the Global Times were among outlets that posted snippets of his talk or wrote stories about his appearance.

“There’s still a lot of uncertainty on regulators’ next moves, but this does mean the status of Jack Ma is much better than a lot of people speculated,” said Fang Kecheng, a professor at the Chinese University of Hong Kong.

Eoin Treacy's view -

There is no getting around the fact that Ant Financial prospered in the grey area between consumer finance and traditional banking. By offering a higher interest rate than banks, it grew into a massive deposit taking operation without having to submit to banking regulation. When he publicly showed distain for banking regulators, it signalled Ma had forgotten that his success was based on the ability of Ant Financial to operate outside the regulatory umbrella of the banking sector. They dropped the hammer on him and the company will now be part of the regulatory environment. It remains to be seen if the rule breaking on deposit rates will still be tolerated. 



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January 20 2021

Commentary by Eoin Treacy

3D Systems, ExOne Rally After Stifel Sees 3D Printing Growth

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

 

Shares of 3D printing companies rose on Tuesday, extending their recent gains, after Stifel started
research coverage on the group with a broadly positive view.

* The firm issued buy ratings on ExOne, Stratasys and Desktop Metal
** XONE up 11%, SSYS up 7%, DM up 3.2%
* Analyst Noelle Dilts wrote that XONE is “well-positioned to benefit from increased adoption of 3D printing technology for industrial end part production,” while DM should be supported by “a dramatic increase in the use of 3D printing for end-use part production” over the coming decade
** PT $20 for XONE, $30 for DM
* On SSYS, Stifel wrote that it’s in a “mature position where it can leverage its existing infrastructure” for further growth
** The company is working to be the first choice in the polymer 3D printing marketplace, which is “expected to more than double by 2025”

Eoin Treacy's view -

Veteran subscriber might remember the initial hoopla about the promise of 3D printers in 2012 and 2013. A large number of startups entered the market on the expectation that additive manufacturing creates better materials with fewer imperfections, that it would lead to mass production as economies of scale improved and that the potential for reshoring was vastly improved by the largely automated technology.



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January 19 2021

Commentary by Eoin Treacy

January 19 2021

Commentary by Eoin Treacy

Weekly Warm-up: More Stimulus May Mean Less for Markets

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

Eoin Treacy's view -

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

The US government expects to issue about $1 trillion more bonds than the Fed currently expects to buy in 2021. Without a clear move to boost the amounts committed to the bond buying program yields will inevitably rise. It’s a simple supply and demand argument. Of course, no one really believes the Fed will fail in its commitment to provide assistance while unemployment is well above trend.



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January 19 2021

Commentary by Eoin Treacy

A Year of Poor Planning Led to Carmakers' Massive Chip Shortage

This article by Debby Wu, Gabrielle Coppola and Keith Naughton for Bloomberg may be of interest to subscribers. Here is a section:

Carmakers don’t deal directly with TSMC and other contract chipmakers. Instead, they work with auto-part suppliers like Robert Bosch GmbH and Continental AG, which in turn deal with automotive-chip designers including NXP Semiconductors NV and Infineon Technologies AG.

While those two European chipmakers both make some parts in-house, they outsource a significant portion of production to TSMC and other foundries. It’s difficult for automotive-chip designers to get their orders prioritized by foundries because their volume is dwarfed by their consumer-electronics peers.

Because of carmakers’ “just-in-time” manufacturing model, their suppliers worried about quick inventory buildups and canceled orders originally planned for foundries in the first half of 2020, the people said. At the same time, foundries began seeing a surge in demand for gadget chips after Apple Inc., Samsung Electronics Co. and Chinese brands prepped an avalanche of 5G devices including the iPhone 12, which require as much as 40% more silicon content as 4G handsets.

One contract chipmaker notified all its customers in the third quarter that it might be time for them to place more orders as it anticipated a rebound in demand, but automotive clients demurred and ended up being the last ones to seek more capacity, one of the people said.

Eoin Treacy's view -

Globalisation enabled just in time manufacturing. With abundant labour and companies willing to build to whatever spec was desired, large companies no longer had to hold inventory. The expense of warehousing and commodity trading disappeared. That removed a source of volatility from balance sheets. Meanwhile, the supply ecosystem of parts and equipment was considered strong enough to weather a minor hurdle. First the trade war and then the pandemic poked large holes in that practise.

The byword in 2nd and 3rd quarter earnings calls was “resiliency”. That means holding more inventory. So far there is little sign that companies have made the transition to thinking more than 10 weeks forward. The challenge is chip manufacturers only have so much capacity. Resiliency has been an urgent consideration for China’s tech companies as they respond to US sanctions. They have led the world in stockpiling.



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January 19 2021

Commentary by Eoin Treacy

Copper: Staying elevated in 2021

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

Eoin Treacy's view -

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

Copper has always been leveraged to the traditional drivers of economic growth; infrastructure and communications. The big question for the coming decades is how much of a role will it play in the power generation and transportation sectors. This is a wholly new demand growth avenue for the metal so the growth in demand for green energy and electric vehicles will have a strong influence on investor enthusiasm for the metal.



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January 18 2021

Commentary by Eoin Treacy

January 18 2021

Commentary by Eoin Treacy

Email of the day - on the early stages of a secular bull market.

Until the beginning of last year you often spoke on the theme of the early stages of a secular bull market. David had begun speaking about it as long as 4 years ago. But with the onset of the pandemic, you have been largely silent about it. Has it stalled or, in your view, already peaked?

Eoin Treacy's view -

Thank you for this important question. In October 2008, I remember sitting at my desk and looking at the calculation that the S&P500 was sitting on the widest overextension relative to the 200-day ever. Acceleration is always a trend ending and the crash signalled the beginning of the bottoming process. By the time Wall Street reached its nadir in March 2009 many instruments were well off their lows and by the end of the year the leaders were making new highs.

Gold, commodities, ASEAN and technology took off. Of these, technology is the only one which had uninterrupted staying power all the way through the bull market to date.  

I started writing Crowd Money in 2011. At the time a host of big international companies, with global franchises, that dominate their niches were breaking out of long-term ranges. It was a clear signal that a new secular bull market was underway. By the time the book was published in 2013, it was still a minority view that a new bull market was underway.



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January 18 2021

Commentary by Eoin Treacy

Tata Motors ties up with private lenders for commercial vehicles financing

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

 

Homegrown auto major Tata Motors on Monday said it has entered into partnerships with leading private banks, including HDFC Bank, ICICI Bank and Yes Bank, to fund its commercial
vehicles.

The tie-ups aim to enhance value offerings for customers of both new as well as pre-owned vehicles throughout the customer lifecycle, Tata Motors said in a statement. The offerings arising out of these tie-ups will include ancillary financial provisions such as fuel financing, working capital financing, aggregate financing and service cost financing. It will enable customers to avail attractive
financial schemes from all the partner financiers with minimal formalities, it added.
 

Eoin Treacy's view -

India’s positive demographics and massive pharmaceuticals manufacturing capacity puts in a very positive position to come out of the pandemic in a strong position. The USA published its geopolitical template for East Asia last week. India is a big part of that. The Western world wants to build up India to counterbalance China’s dominance of the region. That suggests an easier path to development for India over the coming decade. 



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January 18 2021

Commentary by Eoin Treacy

Email of the day - on how to use the Chart Library

I hope that you, Sarah and your families are all doing well. I've recently returned to the Fullermoney 'flock' after a hiatus of a few years and am a bit rusty on the chart library. I'm also aware that I never utilized anything close to its full potential, but I do remember you providing some quite detailed instruction - perhaps in a .pdf document, or in particular Comments of The Day? If there are any primers / or a user guide that you could point me towards that would be fantastic. Just in case you're not tired of hearing it, the service is fantastic - thank you!!

Eoin Treacy's view -

Welcome back to the Collective and thank you for your kind words. I’d also like to wish a warm welcome to all of the other subscribers who have made their way back to the fold recently. I’ve tried to compile a reasonably complete list of videos for how to use various aspects of the Chart Library.

How to create an Inflation-adjusted price video.   
P&F charting video.
How to create a purchasing power parity video
Here are some written instructions on how to set up Preset templates for your favourite charts.
Here are some written instruction on the Performance Filter. 
Here is a video on how to use the Chart Library search function 

 

 

 



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January 15 2021

Commentary by Eoin Treacy

January 15 2021

Commentary by Eoin Treacy

Carry Trades

Eoin Treacy's view -

There is nothing in the financial markets that can’t be made better with leverage. That’s the foundation most trading operations are based on. One of the most common trade patterns is to source cheap funding in a currency which is depreciating in value. That way when it comes to paying back the loan, you get to keep the profit on the currency trade as well as any gain from the assets you invested in.

Japan’s zero interest rates made it an ideal candidate for carry trades but the propensity for the Yen to strengthen meant that short yen carry trades tended to be rather volatile. It was common in the decade up to the introduction of Abenomics in early 2012 for unwinding of carry trades to contribute to profit taking across global markets.

As interest rates have trended towards zero across the world the opportunity to access cheap funding in a wide array of currencies has never been greater. The challenge today is to find the currency most likely to decline versus assets with high growth and yield potential.



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January 15 2021

Commentary by Eoin Treacy

City of London High-Flyers Get Ready to Migrate

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

The rules for London’s financial services firms may still be uncertain after Brexit, but one result is already clear: a steady stream of people and business leaving Europe’s financial capital. First it was stock-trading, now fund managers. They are concerned about a Brussels-shaped threat to $2 trillion of business. As Lucca de Paoli and Silla Brush report, the EU is considering tightening the rules on delegation, meaning the management of some assets could be forced out of London.

Thousands of traders and salespeople have already moved out of London since the 2016 referendum. But the next wave is likely to include the high-flyers who advise on strategy, mergers and the raising of capital, according to more than a dozen officials at global institutions. Goldman Sachs Group Inc., for one, is moving senior London investment bankers to the continent. The problem, as Eyk Henning and Jan-Henrik Förster report, is that U.K. bankers can no longer directly pitch transactions to EU

corporate clients. They need a chaperone, a colleague within the EU to initiate contact. And one European regulator has already warned firms against trying to game the system.

The backdrop to all this is the negotiation between the EU and U.K. over regulatory equivalence. Unless the EU determines that Britain’s rules are as strict as its own, U.K. firms won’t be able to offer their services directly to clients in the bloc.

The problem for London is that equivalence is entirely in Brussels’ gift – and it’s hard to see what incentive EU member states, which have long lusted after a slice of London’s business, have to grant it soon. If anything, there’s an incentive for them to prolong the uncertainty and lure business away.

Eoin Treacy's view -

The presence of a deal has eased investor fears of an abrupt change to the status quo. However, the relationship between the UK and EU has been changed and the full implications of that will only become obvious over time. The one thing we do know is the EU is going to attempt to take the most possible advantage of the new environment and the UK will do the same.



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January 15 2021

Commentary by Eoin Treacy

China Unexpectedly Drains Cash as Leverage Builds in Bonds

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

China’s central bank withdrew cash from the financial system for the first time in six months, after excess liquidity had pushed an interbank borrowing cost to an all-time low. The People’s Bank of China offered just 500 billion yuan ($77 billion) of medium-term loans to lenders on Friday, resulting in a net drainage of 40.5 billion yuan for January. Analysts had predicted a net injection of 230

The move signals that the PBOC’s monetary easing of the past two months may be ending. While the policy has helped repair sentiment in China’s credit and government bond markets, injecting too much cash risks further stoking leverage in the financial system.

“The injection is much less than consensus,” said Xing Zhaopeng, an economist at Australia & New Zealand Banking Group. “This means that the era of super-loose cash supply will end, and liquidity conditions will not be as favorable as previous years.”

Eoin Treacy's view -

China’s economy rebounded quicker than most others because it successfully contained the spread and demand for the products it exports surged to new highs.

The reality is that China became the workshop of the world because it was willing to subject its population to privation and pay little heed to environmental concerns. That went into overdrive during the lockdowns when whole workforces were quarantined at factories to ensure production remained on track.



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January 14 2021

Commentary by Eoin Treacy

Video commentary for January 14th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: financial repression and bond yields, megacaps susceptible to additional weakness, small caps, Europe, Japan, emerging and commodities continue to outperform, gold stable, bitcoin pauses at $40K. 



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January 14 2021

Commentary by Eoin Treacy

Email of the day on financial repression:

Thanks so much for the terrifically informative analysis that you continue to provide. The quality of your work is simply jaw dropping at times. But I wonder if you could please clarify one thing. Would you mind defining more clearly what you mean by the term “financial repression”? I can certainly search this, but I’d like to know what it means to you.

Eoin Treacy's view -

Thank you for your kind words and I’m delighted you enjoy the service. The term “financial repression” is emotionally charged because of its historic significance. After World War II the US government paid back its war debt by inflating it away. That was a deliberate policy where interest rates were held at a low level for a prolonged period, taxes were raised and inflation eroded the debt over decades. From an investors perspective it was akin to the government reaching into your pocket and taking your money.



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January 14 2021

Commentary by Eoin Treacy

Russia May Raise Wheat-Export Tax, Stoking Grain Supply Worries

This article by Megan Durisin and Yuliya Fedorinova for Bloomberg may be of interest to subscribers. Here is a section:

Russia may almost double a planned levy on wheat exports and impose new restrictions on barley and corn in an effort to curb food prices, heightening supply risks for global grain markets.

Officials in the world’s top wheat shipper will meet Friday to review grain-export duties and may increase a planned tax on shipments to 45 euros ($55) per ton from March 15, a spokesman for the Agriculture Ministry said. That compares with a 25-euro levy approved last month for sales from mid-February through June, as well as a quota on grain shipments.

The moves come after President Vladimir Putin’s call to cool food-price inflation because of sharp increases for staples like bread and sunflower oil last month. The threat of heightened restrictions from a major exporter helped stoke wheat futures in Chicago and Paris, and adds to concerns of crop
protectionism as grain prices rise.

Eoin Treacy's view -

Export restrictions might curb domestic food price inflation but will exacerbate it everywhere else. We are on the front end of significant commodity price inflation. The three most important food commodities are wheat, soybeans and rice. All have completed base formations. No one single factor creates more social unrest than a surge in basic food commodities. The high cost of bread in Tunisia was once of the causal factors in the origin of Arab Spring. Considering the extend of social unrest seen in the last 12 months it is quite likely we are going to see significant unrest in 2021 if food prices continue to rise.



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January 14 2021

Commentary by Eoin Treacy

Global Money Dispatch

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

Eoin Treacy's view -

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

The absence of a credit multiplier helped to keep inflation under wraps for the decade after the Global Financial Crisis. Banks just did not have the ability to lend, even if they had wanted to. Rebuilding their balance sheets was the number one priority. It was a monumental task. New regulations massively increased the burden of compliance and simultaneously denuded banks of some of their most profitable operations. The result is that the sector has been recapitalised but it is now much more risk averse than before.



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January 13 2021

Commentary by Eoin Treacy

January 13 2021

Commentary by Eoin Treacy

Email of the day - on debt servicing costs and liquidity

You've been pointing to this risk mentioned by Mohamed El-Erian in this article.

Is there an answer? Can the Fed extricate itself without damaging markets?

"One of the most under covered stories is what’s happening to the US yield curve. It’s on a consistent move up, and that puts the Fed in a very difficult position, because if it allows the curve to continue to steepen it can undermine financial stability. If the Fed wants the yield curve to stop steeping, it has to implement yield curve control, or what they like to call yield curve targeting. But yield curve targeting is a huge step in policy. It would distort the US Treasury market completely. So keep an eye on this, because this is starting to get to dangerous levels."

Also he sounds as if he is saying that trend following is the most viable strategy now - get out when the trend breaks!

"Honestly, I’m really happy that I don’t manage other people’s money. That’s because I know I would go back to doing something that is very tactical in nature: I would be like a surfer on a wave, knowing that the liquidity will end at some point, but going to be on it for as long as I can. I would look around and see that many other surfers are riding the same wave, and I would start wondering what happens if we get into each other's way or if the wave breaks. So I would be a very nervous investor."

Eoin Treacy's view -

Thanks for this article which offers a fresh perspective on the outlook for rates, liquidity and momentum trades. Sometimes it helps to take a birds-eye view.

Wall Street has been rallying since late 2008 so we are in the 13th year of the uptrend. In that time the leading companies are those that benefitted from the introduction of 4G and quick internet connectivity. The second group of companies that benefitted took the biggest bets by utilising cheap abundant credit to the greatest effect. So outside of everything else that has happened, the two big themes have been technological advances and cheap credit. Therefore, it makes sense that those are the topics we need to continue to pay attention to as the trend matures.



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January 13 2021

Commentary by Eoin Treacy

EV makers' battery choices raise questions about future cobalt demand -

This article from S&P Global Platts was written in November but includes some useful information about the outlook for battery chemistries. Here is a section:

In May, Volkswagen acquired a stake in Chinese battery supplier Gotion-High Tech, one of the country's largest suppliers of LFP batteries. However, Volkswagen told Platts by e-mail that it currently does not plan to use LFP in its cars, although the company is "verifying that technology and its opportunities."

Another German automaker, BMW, recently expanded its battery plant in Tiexi, China, but reportedly to produce nickel-cobalt-manganese (NCM) batteries for the iX3 model. The company's primary goal at the moment is to increase driving range, but lowering costs will be a priority in the future, BMW told Platts by e-mail.

"In this conflict of objectives between range and cost, it is more important than ever to completely penetrate all actuators, starting with raw materials, cell chemistry, cell and module construction, and optimizing their entire interactions," BMW said, without dismissing any specific kind of cathode chemistry.

Some western market participants still argue that LFP should be restricted in the future to Chinese low-range city cars, as well as energy storage systems. Most of the investment is still flowing into NCM technology, which will maintain cobalt's relevance, sources said.

Even Tesla, despite committing to completely move away from cobalt and employing LFP in its Chinese-made Model 3 Standard Range, still uses NCM 811 (8 parts nickel, 1 part each cobalt and manganese), supplied by LG Chem, in the Model 3 Long Range version produced in Shanghai.

Eoin Treacy's view -

Every battery manufacturer is chasing economies of scale so there is a great deal of investment flowing into battery production. At the same time there is a lot of competition to come up with the most effect chemistries. Some are better for short haul city cars but long-range vehicles need different batteries.

On top of that complication there is the promise of completely new products disrupting the market. An increasing number of companies believe they have what it takes to commercialise solid state batteries. Toyota’s concept vehicle will be released this year and Quantum Scape went public on the promise of delivering a product by 2025. That suggest picking the one battery manufacturer that will break the mould is likely to be quite difficult but there are other ways to play the theme.



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January 13 2021

Commentary by Eoin Treacy

Corn Supply Squeeze Sends Prices Soaring, Risking Food Inflation

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

Corn futures rose to a seven-year high a day after the U.S. slashed its forecast for domestic stockpiles more than expected, adding steam to a rally fueled by Chinese demand for grain and soybeans.

The U.S. Department of Agriculture’s cut in the corn-inventory forecast to a seven-year low means world supply is tighter than expected at a time when Chinese demand shows little sign of letting up and South American growers face drier-than normal weather. Brazil’s crop agency on Wednesday lowered its estimates for corn and soybean output. Global food prices have been rising and stronger grains means further inflation is likely.

“Corn markets should stay bid this winter,” given Chinese demand and risks to Brazil’s harvest, Citigroup said in a note.

Eoin Treacy's view -

Subscribers may remember the swarms of locusts that plagued east Africa, India and China last year. What I found interesting at the time was the willingness of Western media to be spoon fed stories of how successful China was in combatting the swarms using drones. At the time I thought it was the modern equivalent of a Potemkin village. We may now be seeing the repercussions of Asian crop damage in 2020 combined with the impact the pandemic has had on planting and harvesting. 



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January 12 2021

Commentary by Eoin Treacy

January 12 2021

Commentary by Eoin Treacy

Email of the day on California, governance and manias

Happy New Year and, as always very much enjoy your nightly newsletter. That said, very sorry to hear in Governance about your experience (I assume it was yours-maybe a contributor?) w BLM door knocking and your wife's apprehension. I am also in LA, for 35 years now and, in years past, my friends from across the pond only moved back when they couldn't take earthquakes or fires. We are also thinking of a move, after hearing friends talk about arming themselves at home because of police defunding, the state's inability to stop spending and taxing, etc. A sad state of a once great state. Be well

Eoin Treacy's view -

Thank you for this email and I am one of the people who has recently armed himself. For me it’s the trend. Fires and earthquakes are a nuisance but don’t phase us. People are a different matter.

When we arrived in 2013 the city was quite different, at least to my eyes. Vagrancy and public indecency among the homeless have been a long running problem. However, in 2017 the City was barred from seizing and destroying the belongings of homeless people that are found on the street. 

After that, the number of homeless exploded on the West side. Google’s campus in Venice is surrounded by a large homeless encampment. They are building another one less than half a mile from my home which is due to open in the next 18 months. There is no one size fits all symptom for homelessness but the majority of people on the streets are not from California. The state has been a magnet for people trying to make it big for generations and the weather makes it so living on the street is possible.

In 2014 theft of anything less than $950 was made a misdemeanour. It has been a bonanza for thieves. Criminality has become big business and the lockdown riots were like all their Christmases came at once. On my block four cars have had their wheels stolen in the last eighteen months. There is very little the police can do. Videos are popping up everywhere of shoplifting from all kinds of stores. Here are two recent ones. (Cheviot Hills and Rodeo Drive)  The shoplifting ordinance was upheld by popular vote in the recent election so there is no end in sight to this trend.



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January 12 2021

Commentary by Eoin Treacy

Precious Metals: Easy come's "But for how long will easy stay"

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

Eoin Treacy's view -

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

Most major miners are now very reluctant to embark on ambitious exploration and development programs. They have been punished by the markets for doing so for over the decade and are often described as capital destroyers. Instead, they have concentrated on M&A activity, where they have security of production already underway and at least partial visibility about the extent of the resource base.



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January 12 2021

Commentary by Eoin Treacy

Why Israel Was the Perfect Test Case for Vaccines

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

All Israelis are insured by one of four national health maintenance organizations (HMOs), whose clinics and hospitals are spread throughout the country. They are competitive, but the price of membership, co-payments and treatments are regulated and uniform. So is the subsidized “basket” of medication, procedures and treatments. These are decided by a national board of experts. Medication is bought by the government and centrally distributed via a single company. All medical records are online, available to hospitals, doctors and the Ministry of Health.

This makes Israel especially attractive to Pfizer and other vaccine producers. HMOs know who has been vaccinated and in what order of priority. They know who has returned for a booster shot and who has opted out. Israel knows the ages, medical conditions and other demographic information of a heterogeneous population. And all this data is held by the Ministry of Health. It is a treasure for testing efficacy of the vaccine among various groups and the relative amount of vaccine needed for efficacy. Israel will be likely to be the first country to know the level of coverage needed to achieve herd immunity.

Distribution has been a model of efficiency. Vaccinations happen seven days a week in most places and even late at night. While it is a civilian operation, the army is vaccinating its own soldiers and helping with tracking and tracing infection and some logistics. 

Israel’s government has left people guessing about the number of vaccines it has received, what it has paid for them or what supply is coming. We know that 2 million people have received a dose of the Pfizer vaccine and will receive their second dose starting this week. According to Netanyahu, an unspecified “millions more” are in the pipeline. Last week, Moderna, whose chief medical officer is an Israeli, sent an initial shipment of 100,000 doses. Israel is also working on a homemade vaccine that could be ready by the summer.

Eoin Treacy's view -

Israel, with a small population and abundant supplies of vaccines, is reaping the benefits of being a first mover. Its economy will be among the first to recover from the pandemic. That puts it in the company of a relatively small number of Asian countries which have come through the pandemic with little in the way of economic hardship.



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January 11 2021

Commentary by Eoin Treacy

Video commentary for January 11th 2020

January 11 2021

Commentary by Eoin Treacy

Bitcoin whales are profiting as 'weak hands' sell BTC throughout $40K bull run

This article by William Subery for cointelegraph.com may be of interest to subscribers. Here is a section:

While institutional buy-ins have become the standard narrative of Bitcoin over the past few months, a rogue “weak hands” signal from one of them caught analysts’ attention this week.

As Cointelegraph reported, Guggenheim Partners, which announced a sizable fund allocation to BTC in late November, is allegedly planning to sell some of its holdings already. The trigger came from chief investment officer Scott Minerd, who on Monday said that Bitcoin’s weekend drop provides the impetus to rethink its position.

“Bitcoin's parabolic rise is unsustainable in the near term," he wrote. "Vulnerable to a setback.”

“The target technical upside of $35,000 has been exceeded. Time to take some money off the table.”

His suggestion appeared to confuse market participants, with responses questioning the rationale behind the decision, coming just weeks after Guggenheim’s initial entry.

“CIO of huge firm day trading btc? It's a 5-10yr hold minimum,” macro investor Dan Tapeiro argued.

Institutional uptake comes amid a more fundamental supply and demand squeeze for Bitcoin, with large buyers already outpacing what miners can produce each month. At the same time, miners have stepped up their sales in recent days in what one theory suggests is some well-earned profit-taking at or near all-time highs.

Eoin Treacy's view -

The ownership of bitcoin has become more concentrated over the last six months because institutions have been buying in size. Meanwhile the concentration of mining in a handful of companies is detracting from the decentralised argument for bitcoin. Both of these factors contribute to the speculative nature of the market but detract from the long-term store of value argument.



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January 11 2021

Commentary by Eoin Treacy

Governance

Eoin Treacy's view -

There is no way the storming of the Capitol can be justified. Overwhelming an unsuspecting police cordon and disrespecting the nation’s seat of power is an affront no government is going to tolerate. That’s on top of what impact it has had on the vast majority of people who live their lives by a code of common decency.

By the same token, riots where private businesses are destroyed, police stations set light and people afraid for the integrity of their homes should also be condemned.

The problem with the polarization of political discourse in the USA is neither side is willing to sharply criticize the actions of their adherents. To do so would be political or busines suicide.

We are currently being treated to commentary fomenting fear that there will be a great deal of unrest at the upcoming Presidential inauguration. It’s a significant risk but it is far from the only form of intimidation.

My doorbell rang on Saturday night while we were sitting down to dinner. I thought it was an Amazon delivery so I went out to see what it was. Two BLM activists were waiting and informed me they were collecting donations. I told them we were in the middle of dinner and closed the door. They left chanting Black Lives Matter.

One way of looking at this encounter is that it was innocuous. Another is that they were indeed innocently collecting donations for their cause. Another is that they were canvasing the leafy suburb to identify who supports them and who doesn’t. For Mrs. Treacy’s part, she saw correlations with the Cultural Revolution.

The challenge is that the rioters during the summer threatened they would come into the neighborhoods. It never happened, but when fund raisers come knocking on the door it feels like they are after protection money. I think our days in Los Angeles are numbered. This is not the city we moved to seven years ago.

President-elect Biden says he wants to heal the country. That’s a tall order but regardless of its success it will mean throwing money at the problem. There is clear potential the USA is now moving towards formal adoption of MMT.



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January 11 2021

Commentary by Eoin Treacy

As Polar Vortex Stirs, Deep Freeze Threatens U.S. and Europe

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

Technically, the polar vortex refers to a band of winds that encircle the Arctic and keep the cold locked far to the North. But with that temperature spike, known as sudden stratospheric warming, the band can buckle, allowing frigid air to head south. Gas traders used to call it the “polar pig.”

That could mean chills anywhere in the Northern Hemisphere, though this year it’s likely to end up in the U.S. according to Ryan Truchelut, president of Weather Tiger LCC. A wave of deep cold could give the Great Lakes and East Coast their first real blast of frigid winter weather, along with a storm pattern that delivers snow storms as well.

It will be a big shift for the U.S., where winter has been a bit lackluster so far. In New York, January readings have been 5.1 degrees above normal through Thursday, and Chicago has been 7.2 degrees warmer for the month.

Still, there’s no guarantee it will happen. While a sudden stratospheric warming usually leads to a burst of frigid weather, sometimes the clockwork of gears in the atmosphere doesn’t deliver.

“Many times in the past, the forecast for a cold weather event across the country resulted in a false alarm,” said Jim Rouiller, lead meteorologist with the Energy Weather Group LLC.

Eoin Treacy's view -

Weather is indeed fickle so no one can be sure that the expected wintry weather will in fact arrive. However, it is worth considering that the global economy is attempting to recover and delivery drivers are more a part of the fabric of the economy than ever before.



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January 11 2021

Commentary by Eoin Treacy

Musings From the Oil Patch December 29th 2020

Thanks to a subscriber for this report by Allen Brooks for PPHB. Here is a section:

What is most interesting is the impact of the JKM price rise on the global LNG market and its implications for the U.S. LNG industry. The sharp JKM price increase has diverted LNG cargoes away from Europe and toward Asia. This means Europe is drawing down on its record gas inventories. With JKM trading at the highest premium to the Dutch and U.K. gas benchmarks since 2014, this shift in cargoes will continue. That will help boost European gas imports during 2021, meaning there is less risk of another gas glut developing that would force Gulf Coast cargo cancellations. It also means the expansion of the domestic LNG business will be supported, leading to ‘final investment decisions” on several of the new terminals under development.

On December 7th, Cheniere Energy announced that its Train 3 at the firm’s Corpus Christi terminal had loaded its initial commissioning cargo. This will add about 700 million cubic feet per day to the LNG gas feed rate, the amount of domestic gas flowing from producing wells to LNG terminals, pushing the total to more than 11 billion cubic feet per day (Bcf/d). The EIA’s Short-Term Energy Outlook for December estimated that November dry gas production in the U.S. was 89.6/Bcf/d. It also estimates that net LNG exports were running at a 9.2/Bcf/d rate, or slightly over 10% of domestic supply. Assume that gas production remains at this level, lifting the feed gas flow to 11/Bcf/d will push LNG’s share of domestic gas output above 12%, which will likely grow further. That prospect was captured in a chart from a gas market report by Grand View Research. Under their outlook, growth will steadily increase, driven primarily by increased use of gas in power generation. As the world’s energy system decarbonizes, coal will be displaced by natural gas.

Eoin Treacy's view -

There is an abundance of natural gas and the price is also cheap. Together that creates an incentive to use more of the commodity. The fact that natural gas is less polluting than coal for power generation is at least a medium-term stop gap measure until the presumed utopia of carbon free power is achieved.  



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January 08 2021

Commentary by Eoin Treacy

January 08 2021

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review January 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on December 4th.

This month it seems like a particularly good time to think about the long-term because the world has seen a great deal of change in a very short period of time. In December the EU and China signed an investment agreement which many believe is a precursor to a wider trade deal. The UK left the EU in a reasonably smooth manner and the African Continental Free Trade Area came into effect on January 1st.

This week anarchists broke into the US Capitol building, took a lot of selfies and shattered the legitimacy of the populist right wing, from the perspective of just about everyone outside of that group. Almost as an aside, the Democrat Party now have full control of the US government and will therefore have ample potential to increase spending on their priorities.

The US 10-year yield is now above 1% and completing a medium-term base formation. One of the idiosyncrasies of 2020 is that government borrowing costs declined meaningfully even though their total debt ballooned. The only reason that was possible was because interest rates compressed so quickly. The sustainability of government debt is totally dependent on yields staying low; indefinitely. Therefore, the jump above the 1% hurdle is a meaningful event.



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January 07 2021

Commentary by Eoin Treacy

Video commentary for January 7th 2020

January 07 2021

Commentary by Eoin Treacy

The Fever Has Broken, Stability is Coming

Thanks to a subscriber for this article by Greg Valliere for AGF which may be of interest. Here is a section:

AN INEPT INSURRECTION FAILED, and there will be an orderly transition of power on Jan. 20; even Trump pledged as much early this morning. He probably won’t be ousted but his legacy will be forever stained, and his sycophants — Josh Hawley, Ted Cruz, etc. — will never recover.

THE TEMPERATURE WILL LOWER SOON: For the next few days, there will be speculation about removing Trump, largely out of fear over what he may do — especially geopolitically — in his final two weeks. And there will be questions about why the Capitol Hill police were so pathetically caught off guard yesterday. But a change is coming . . .

Eoin Treacy's view -

Stoking the mob is always tempting for populists on both sides of the spectrum.

That was abundantly clear in the mass protests, looting and destruction of public property over the summer. Those protests have since abated because the organisers achieved their goal of overthrowing the Trump administration.

The big question now is whether the mob seeking to overthrow the new Democrat controlled government will be chastened by yesterday’s events. My intuition tells me they represent a significant demographic and will form a significant portion of the new opposition, regardless of whether Donald Trump is banned on Twitter/Facebook.



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January 07 2021

Commentary by Eoin Treacy

Banana Republic

This post by Edward Ballsdon may be of interest to subscribers. Here is a section:

In 2018 it was clear that Trump's excessive deficits would lead to debt refinancing risks that were similar to those of the Italian Tesoro following the 2011 peripheral crisis. This die was already cast before the Covid19 pandemic as the US private sector indebtedness was reaching saturation point and, just like in Japan, the government would have to support economic growth with fiscal policy. This is the "private to public debt growth switch" that I have discussed in previous posts.

The Covid pandemic has merely brought forward the day of reckoning that was already on the cards, simply because the private sector had no buffers and reserves for bad times, so the government had to step up to the plate.

The investor ramifications from this upcoming long dated debt issuance are huge. If the private sector has to finance this forthcoming tsunami of coupon issuance, you can bet that real yields will have to rise to attract those private sector savings away from private sector assets. This is exactly what 2018 was all about - real yields rose and stocks and corporate bonds got clobbered until the FED reversed its tapering exercise and started buying USTs in size. 

My thoughts remain the same - see previous posts - the genie is out of the bottle and the Fed will of course come to the water and have to buy an ever larger amount of USTs to keep net supply and thus real yields low. This will be to try and keep financial assets afloat, which will of course allow bubbles to continue. The same will naturally occur in the Eurozone, UK and Japan. But take note from the previous charts, the increase in debt is NOT linear - the power of cumulation is at work.

Given the supply next year, it is fair to say that Central Bank QE had better NOT be temporary in nature, otherwise risk assets could move in a similar fashion to 4Q 2018 (when there was the terrible combination of large debt issuance, Fed unwinding its balance sheet and rising real yields). My guess is the FED and other Central Banks will continue to buy substantial amounts of debt, raising the question of what Temporary actually means.........and thus the title of the post.

Eoin Treacy's view -

Milton Friedman’s quip the “nothing is so permanent as a temporary government program” is particularly relevant when we think about the outlook for money printing. In simply terms, if there is not enough of money to go around, the central bank will print more. They don’t have much choice.



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January 07 2021

Commentary by Eoin Treacy

Cryptocurrency market cap tops $1 trillion with bitcoin above $37,000

This note from MarketWatch may be of interest to subscribers.

The market capitalization of all cryptocurrencies topped over $1 trillion for the first time, according to data from Coindesk. That came as bitcoin BTCUSD, 9.15% topped $37,000, trading up nearly 4% to $37,152. Cryptocurrencies have surged, helped by a move in the autumn by PayPal to allow transactions through their service.

Eoin Treacy's view -

Cryptocurrencies have risen to a $1 trillion market cap faster than Tesla which is no mean feat. Until quite recently Tesla’s share price advance has been outpacing even the feverish pace of bitcoin’s ascent. That all changed this week with Bitcoin’s three-day jump from $30,000 to $40,000.



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January 07 2021

Commentary by Eoin Treacy

Email of the day - on US COVID cases

As a result of the violent rioting in Washington yesterday, by thousands of people under huge stress, a super-spreader event has almost certainly been generated. I note the daily tally of deaths yesterday in the US exceeded 4000. Not good!

Eoin Treacy's view -

I totally agree and it seems like there are super-spreader events going on all the time. Since the UK variant of the virus has been found in an increasingly large number of countries, we have to assume it is much more pervasive than spotty testing highlights. Many countries now test for coronavirus but much fewer do the genetic testing necessary to identify variants. The USA for example doesn’t have a wide tracking system for mutations.



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January 07 2021

Commentary by Eoin Treacy

January 06 2021

Commentary by Eoin Treacy

Video commentary for January 6th 2021

January 06 2021

Commentary by Eoin Treacy

Banks, Small Caps Power Stock Rally as Tech Drops

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

Investors poured into financial assets that benefit from a stronger economy after Democrats looked set to take control of Congress, potentially unleashing a torrent of federal spending to revive growth.

Banks and energy producers led gains in the S&P 500 as the Russell 2000 Index of smaller companies climbed 3%. The Nasdaq 100 fell as traders sold out of high-flying stocks such as the Apple Inc. and Amazon.com Inc. The Dow Jones Industrial Average outperformed.

Democrats claimed one of the two Senate seats contested in Georgia and led in the other tight race. Two wins would give President-elect Joe Biden’s party control of Congress and smooth the path for some of his spending policies. That’s fueled bets that increased stimulus will boost the economy and spark inflation. The 10-year Treasury yield powered past 1% for the first time since March, and the dollar fluctuated after earlier weakening toward a six-year low.

“The growth-into-value rotation may be reinforced after the results of the Georgia Senate election amid the prospect of a higher fiscal stimulus bill and steeper yield curve, which would benefit banks and other non-tech companies,” David Bahnsen, chief investment officer of the Bahnsen Group in Newport Beach, California, wrote in a note to clients.

Eoin Treacy's view -

Control of the Senate will give the Democrats greater power to remake policy. It won’t all be plain sailing since such a slim majority will require total unanimity but it certainly means they will have an easier time passing spending measures. If debt financing and Modern Monetary Theory were likely before, they are doubly so today.



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January 06 2021

Commentary by Eoin Treacy

Waiting For The Last Dance

Thanks to a number of subscribers for this article by Jeremy Grantham which may be of interest. 

The strangest feature of this bull market is how unlike every previous great bubble it is in one respect. Previous bubbles have combined accommodative monetary conditions with economic conditions that are perceived at the time, rightly or wrongly, as near perfect, which perfection is extrapolated into the indefinite future. The state of economic excellence of any previous bubble of course did not last long, but if it could have lasted, then the market would justifiably have sold at a huge multiple of book. But today’s wounded economy is totally different: only partly recovered, possibly facing a double-dip, probably facing a slowdown, and certainly facing a very high degree of uncertainty. Yet the market is much higher today than it was last fall when the economy looked fine and unemployment was at a historic low. Today the P/E ratio of the market is in the top few percent of the historical range and the economy is in the worst few percent. This is completely without precedent and may even be a better measure of speculative intensity than any SPAC.

This time, more than in any previous bubble, investors are relying on accommodative monetary conditions and zero real rates extrapolated indefinitely. This has in theory a similar effect to assuming peak economic performance forever: it can be used to justify much lower yields on all assets and therefore correspondingly higher asset prices. But neither perfect economic conditions nor perfect financial conditions can last forever, and there’s the rub.

All bubbles end with near universal acceptance that the current one will not end yet…because. Because in 1929 the economy had clicked into “a permanently high plateau”; because Greenspan’s Fed in 2000 was predicting an enduring improvement in productivity and was pledging its loyalty (or moral hazard) to the stock market; because Bernanke believed in 2006 that “U.S. house prices merely reflect a strong U.S. economy” as he perpetuated the moral hazard: if you win you’re on your own, but if you lose you can count on our support. Yellen, and now Powell, maintained this approach. All three of Powell’s predecessors claimed that the asset prices they helped inflate in turn aided the economy through the wealth effect. Which effect we all admit is real. But all three avoided claiming credit for the ensuing market breaks that inevitably followed: the equity bust of 2000 and the housing bust of 2008, each replete with the accompanying anti-wealth effect that came when we least needed it, exaggerating the already guaranteed weakness in the economy. This game surely is the ultimate deal with the devil.

Eoin Treacy's view -

The challenge for value investors is they tend to see trouble coming way before the rest of the crowd. For many funds the high Cyclically Adjusted P/E ratio has ensured they have been underinvested for years so bearishness is not a new phenomenon even if some are now doubling down on their view.



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January 06 2021

Commentary by Eoin Treacy

Wealth Taxes Are Going Global, From California to Germany

This article by Ben Steverman and Benjamin Stupples for Bloomberg may be of interest to subscribers. Here is a section: 

Driving the idea’s revival is the need for revenue. The pandemic has devastated government finances around the world, boosting spending by trillions of dollars, from India to Canada, while slashing tax collections.

The situation in the U.K. — which now faces its widest fiscal deficit since World War II — has brought the idea of taxing wealth back into the discussion. An independent commission last month called for a one-off levy to raise about 260 billion pounds ($354 billion) — more than a third of the U.K.’s tax receipts in the latest financial year. Raising that much money would require taxing individual wealth above 500,000 pounds at 1% annually for five years, affecting 8 million people.

“There’s been quite a lot of murmurings about reforming existing taxes on wealth, but everyone’s just effectively treated a wealth tax as being off the ‘serious’ agenda,” said
London School of Economics assistant law professor Andy Summers, one of the report’s authors. “Partly, that’s because barely anyone in the U.K. has studied it since the 1970s.”

Eoin Treacy's view -

Wealthy individuals represent a ripe target for taxation. So do wealthy companies with hundreds of billions sitting in cash. The time to look at trusts, real assets like gold or property, gifting to children, deferring income, options programs, internationally diversifying where wealth is held and potentially looking at alternative accommodations was yesterday.



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January 05 2021

Commentary by Eoin Treacy

Video commentary for January 5th 2021

January 05 2021

Commentary by Eoin Treacy

China-EU investment deal: who's the real winner after seven years of negotiations?

This article from the South China Morning Post may be of interest to subscribers. Here is a section:

Some said the deal was premature and could come at the cost of a reboot of the transatlantic alliance Biden has set as a priority in his multilateral approach to countering China.

George Magnus, a research associate at Oxford University’s China Centre, said the EU appeared to have conceded leverage for seemingly very little in return.

The agreement was unlikely to become a platform for the deepening of EU-China relations or even pave the way to a free-trade agreement, but it was a good move for China “without having to make major concessions commercially or any on labour standards and rights, which the EU is normally very robust about”, he said.

According to Gal Luft, co-director of Institute for the Analysis of Global Security, a think tank in Washington, the EU’s move was a deliberate attempt to take advantage of the power vacuum in the US.

“Concluding it in the interregnum period ensures that the outgoing administration will have no time to penalise Brussels while the new one will have no chance to weigh in,” he said.

“This shows that the EU, despite its misgivings about China’s behaviour and policies, wants to remain an independent player and is unwilling to be dragged into the US-China power struggle.” 

Eoin Treacy's view -

The last couple of months of 2020 ushered in three significant trade deals. That gives those of us who think globalisation is under threat something to contemplate. If we consider exactly what these agreements mean, it supports rather than negates the view we are entering a multipolar world.



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