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September 28 2021

Commentary by Eoin Treacy

Email of the day on China's energy challenges

You mentioned the energy shortages in China. These two articles from the Daily Telegraph spell out the scale and the implications globally. Best wishes to you and family

Eoin Treacy's view -

Thank you for the wishes and both these articles. Here is a section from Ambrose Evans Pritchard’s and here is a link to the other: 

The property squeeze is compounded by a parallel squeeze on carbon. Xi has promised peak CO2 emissions by 2030, a 25pc cut per unit of GDP by 2025, and a 3pc cut in energy intensity this year.

He knows that China is paying a high credibility price for foot-dragging as Europe and the US launch green deals (nobody can hide behind Trump any longer), and may soon face a carbon border tax in its top markets if it is not careful.

Energy-saving edicts are raining down. Party cadres have been mobilised to pursue CO2 crimes, and are reportedly doing so with the zeal of the Cultural Revolution. The state planner (NDRC) says 20 Chinese provinces have failed to meet this year’s goals on cutting energy intensity.

Nomura says nine have received “Level 1 warnings”, including Guangdong and Jiangsu, 35pc of China’s economy between them. Woe betide the Party officials responsible.

The steel, cement, and aluminium industries face production caps by the industry ministry (MIIT). They stole part of their allowance over the first half, and must cut back this half to compensate. That means drastic falls in steel output. It has already begun and is hammering iron ore prices, along with miners such as Vale and BHP Billiton.

I wonder does anyone remember the butter mountains and the wine lakes of the late 1980s and early 1990s? They were a political embarrassment, but prices were low. The EU and North America were overproducing because they subsidized farmers and low prices meant third world country farmers were impoverished and could not compete. The result was the abandonment of subsidies, much higher prices, still impoverished global farmers and a migration of market dominance to Brazil. I mention it here to emphasise that no good intention is left unpunished in the commodity markets.



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September 28 2021

Commentary by Eoin Treacy

Email of the day on Rolls Royce

Dear Eoin, could you kindly update us on Rolls Royce, e.g.: Worth buying more on this surge? Sell and buy back on inevitable dip after rumours regarding nuclear reactor subside? Thank you very much, very best, 

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. Rolls Royce is a potential beneficiary from the UK’s decision to exclude Chinese companies from its nuclear sector. That’s been a bullish factor for the share recently, not least as uranium investments have broken out. The additional news that it has sold ITP Aero unit for £1.5 billion also helped to support the share.



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September 27 2021

Commentary by Eoin Treacy

Video commentary for September 27th 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: 5-year yield tests 1%, stocks steady following initial weakness, commodities firm with oil testing $80, natural gas surges, carbon credits break out, China remains weak. FANGMAN susceptible to weakness if yields breakout. 



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September 27 2021

Commentary by Eoin Treacy

Email of the day on the Fed is the one that usually kills bull markets

Greetings, this has been our understanding as far as I can remember. The Fed has stated unequivocally that he intends to accelerate the date for the taper. The Fed mandate is employment and bring back inflation, both seem to be happening. Still Mr. mkt did not react, or did it? in some segments.

Maybe other will wonder as well, can you comment pls

Eoin Treacy's view -

Thank you for this question. I agree, David often said “the Fed has killed off more bull markets than all other factors combined”. Therefore, we need to pay attention to what the Fed is saying in terms of their willingness to introduce a quick pace of tapering and to begin a new interest rate hiking cycle.  



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September 27 2021

Commentary by Eoin Treacy

New all-solid-state battery holds promise for grid storage and EVs

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

“As battery researchers, it’s vital to address the root problems in the system," says Shirley Meng, the corresponding author. "For silicon anodes, we know that one of the big issues is the liquid electrolyte interface instability. We needed a totally different approach."

This new approach involved making some tweaks to the way the silicon anode is put together, with the scientists eliminating carbon and binders that are normally used, and opting for a cheaper form of micro-silicon that undergoes less processing. A sulfide-based solid electrolyte was then introduced to carry the charge, and the resulting battery proved extremely stable, by avoiding the damaging interactions at the anode.

The novel silicone all-solid-state battery is described as safe, long-lasting and energy dense. A lab-scale full cell was shown to be capable of 500 charge and discharge cycles while retaining 80 percent of its capacity, demonstrating the stabilizing effects of the new design.

Eoin Treacy's view -

It seems like there is a new battery innovation touted every day. What’s particularly relevant is the time lines to commercialisation are seldom mentioned.



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September 27 2021

Commentary by Eoin Treacy

Email of the day - on the copper/silver ratio:

The price of copper has been rising for some time now, while the price of silver, an important industrial metal now is languishing at the bottom of its recent trading range. Would there be any merit in examining a long-term historical chart of the ratio of copper to silver?

Eoin Treacy's view -

Thank you for this question which may be of interest to the collective. The outlook for both copper and silver are increasingly intertwined with that of renewable energy. Copper is required in motors, electric recharging infrastructure and wind turbines. Silver is the best-known reflective material. It’s a major component of solar panels, although there are significant efforts underway to try to substitute reliance on the metal.



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September 27 2021

Commentary by Eoin Treacy

Email of the day on investing for inflation:

Dear Eoin, Many thanks for your comment on inflation as a solution for the massive public debts. In these circumstances how would you structure your portfolio? In which sectors would you invest your funds?

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. This is a very big question because the stocks that have done best over the last decade have benefitted enormously from the massive availability of liquidity and very low rates. Divesting from the best performers runs contrary to most people’s instinct to run their winners so monitoring the consistency of their price action is particularly relevant to all portfolios over the next decade.



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September 24 2021

Commentary by Eoin Treacy

September 24 2021

Commentary by Eoin Treacy

Roubini Says He's "Dr. Realist" by Warning of Global-Debt Trap

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

“My concern is that we are in a debt trap,” Roubini, chairman and chief executive officer of Roubini Macro Associates, said in an exclusive interview on Bloomberg TV at the Greenwich Economic Forum in Connecticut. “When central banks are going to want to essentially phase out unconventional monetary policy, given the debt ratios, there is the risk of a crash in the bond market, in the credit market, in the stock market, in the economy and therefore they’ll be in that debt trap and unable to normalize policy rates.”

When the Covid-19 pandemic started to strangle the global economy, easy monetary policies and stimulative fiscal policies were seen as necessary to “backstop the financial system,” Roubini said. But the results have been extreme.

“We are in a debt super cycle,” he said. “And eventually, central banks are in a trap. People said they are going to normalize policy rates, but with these levels of private and public debt, if they were trying to do that, there will be a market crash, an economic crash, and therefore, I think the path of least resistance is going to be to wipe out the real value of nominal debt at fixed-interest rates with higher inflation.”

Eoin Treacy's view -

The recipe for success in 2020 was a willingness to accept problems and look through them to the inevitable solutions. The magnitude of the challenge the pandemic presented was so large that only a massive monetary and fiscal response would suffice to blunt its impact. With that conclusion in hand asset prices rebounded impressively.
 



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September 24 2021

Commentary by Eoin Treacy

Chris Wood On India's Property Cycle, Capex And Risks Facing Stock Market

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

The structural bull story of the Indian markets, Wood said, remains in place with growing evidence that a new residential property cycle has commenced after a seven-year downturn despite the setback triggered by the delta Covid-19 wave.

“Pre-sales across the top seven cities rose 23% month-on-month and 41% year-on-year in July. Property registrations, indicating completed transactions, for July-September were up 45% in Mumbai and 56% in Delhi compared with the levels prevailing in 2019,” he said.

Also, unsold inventory is coming down sharply. “The inventory level in the National Capital Region, after stripping out stalled projects, has declined from a peak of 50 months of sales in October 2017 to 33 months.”

Affordability, according to him, too, remains at historically attractive levels. The housing affordability ratio, measured as home loan payment as a percentage of income, declined from 53% in FY12 to a record low of 27% in FY21, the report said. “This is clearly very different from, say, China.”

Greed & Fear has a 17% allocation to the property sector in the Indian long-only portfolio, while it “resists for now the temptation of putting any China developers into the China long-only portfolio”.

Eoin Treacy's view -

India’s home finance and property development sector went through a painful restructuring process three years ago and it is still ongoing for smaller companies. The reason for the decline was much tighter regulation of how property developers funded themselves.



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September 24 2021

Commentary by Eoin Treacy

Email of the day on Chinese property developer bonds

Thank you for another very well video today. I noted your comment about bonds of some Chinese construction companies with attractive yields. Would you consider to share the names of some of the "better" Chinese companies with attractive yields for an international investor? As always thanks a lot for the excellent service you continue to provide.

Eoin Treacy's view -

Thank you for question which may be of interest to other subscribers. I posted a number of charts of Chinese property developer bonds in Comment of the Day on September 21st. 



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September 24 2021

Commentary by Eoin Treacy

Email of the day on slower Chinese growth:

Think, you may find interesting this Financial Times story that looks into the longer-term consequences of Evergrande saga - https://on.ft.com/3io45gH (open link). It seems that the Chinese real estate market finally (at long, long last) is crumbling, not without help of the country leaders. If it is so and given the fact that the property market accounts for 29% of the Chinese GDP (and land sales to developers, for the third of local governments’ revenues), the economic growth seems to slow dramatically in the coming years. What could be implications, in your view? We all remember that China and its industrialization were the major drivers of the global commodities supercycle in the 21st century. Also, every time China has got into trouble, the Communist party used the same recipe “more investments in infrastructure and construction, more leverage. If now China and its property sector grow much more slowly, not to mention possible contraction of the latter, it will need much less metals and materials, and also possibly less gas (to power plants and send it to homes) and even oil (fewer working trucks and construction equipment). What do you think?

Eoin Treacy's view -

Thank you for this informative email which may be of interest to the Collective. Here is a section from the FT article:

An even more consequential trend for China’s political economy is the collapse in land sales by local governments, which fell 90 per cent year on year in the first 12 days of September, official figures show. Such land sales generate about one-third of local government revenues, which in turn are used to help pay the principal and interest on some $8.4tn in debt issued by several thousand local government financing vehicles. LGFVs act as an often unseen dynamo for the broader economy; they raise capital through bond issuance that is then used to fund vast infrastructure projects.

The property market has funded local governments for decades. Without a solid trend of land sales municipal governments face bankruptcy. There is just no way the central government can let that happen. The first order solution will be to avert contagion into the rest of the property market following Evergrande’s demise.



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September 24 2021

Commentary by Eoin Treacy

Email of the day on accessing the Service via Tesla's onboard browser

Hope all is well. Please ask the community whether the Tesla drivers are able to access the members area from the Tesla web browser. I don’t manage to login. Thank u, 

Eoin Treacy's view -

Thank you for alerting us to this issue and I hope you are enjoying your new toy. If anyone in the Collective has information to share, please pass it along.



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September 24 2021

Commentary by Eoin Treacy

September 23 2021

Commentary by Eoin Treacy

Video commentary for September 23rd 2021

September 23 2021

Commentary by Eoin Treacy

BOE Opens The Door for 2021 Rate Hike as Inflation Seen Above 4%

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

The U.K. central bank is trying to tame inflation that accelerated well beyond its forecasts over the summer, reaching 3.2% last month. Its new focus is enabled by stronger-than-expected jobs data that show unemployment will peak well below worst-case scenarios predicted at the onset of the pandemic.

While the BOE targets inflation of 2%, the rate may temporarily exceed double that level in the final three months of the year, slightly more than predicted in August, officials said. Spiking gas costs that have caused turmoil in U.K. energy markets “could represent a significant upside risk,” and also mean that consumer-price increases remain above 4% until the second quarter of 2022, the MPC added. 

“The looming end of furlough is a major source of uncertainty facing the economy, but for now the bank appears relatively confident that the economy can deal with this shock without a large increase in unemployment,” according to Luke Bartholomew, economist at Aberdeen Standard Investments.

Eoin Treacy's view -

There has been a confluence of negative surprises that are affecting the UK economy at present. Some are related to pandemic supply chain issues, others are due to a lack of qualified drivers and others because the wind stopped blowing. (I can’t be the only one marvelling at how ridiculous that latter point sounds).



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September 23 2021

Commentary by Eoin Treacy

Evergrande marks the end of China's economic miracle

Thanks to a subscriber for this article from Ambrose Evans Pritchard for The Telegraph. Here is a section:

Harvard Professor Ken Rogoff and Yuanchen Yang (now at the IMF), say Chinese property and construction amount to 29pc of GDP when all ancillary sectors are included. Housing makes up four fifths of personal wealth and land sales make 40pc of local government revenues.

They argue that this extreme dependence on the property nexus has not been tested because super-charged growth rates hide all sins. But China is no longer growing fast. Xi Jinping’s neo-Maoist ideology of “common prosperity” marks a profound break with the Deng Xiaoping catch-up model.

“We find that a 20pc fall in real estate activity could lead to a 5-10pc fall in GDP, even without amplification from a banking crisis, or accounting for the importance of real estate as collateral,” they said.

The US Federal Reserve’s Ben Bernanke once famously said “we’ve never had a decline in house prices on a nationwide basis” and nothing had substantially changed. But it had changed. The national Case-Shiller index would soon fall by 36pc.

The Rogoff-Yang paper said nothing should be assumed in the case of China either. “Even the very cautious pragmatic Chinese regulators may not yet be fully anticipating the depth of the possible fall in China’s housing prices,” it said.

Deflating an economy that is so hyper-leveraged to property is going to take years and will be untidy. China will almost certainly avert a Minsky crisis but it may not avert a long grinding semi-slump that profoundly changes the world’s perception of the country.

Eoin Treacy's view -

This conclusion makes sense to me. We are probably at the peak of speculative interest in the Chinese property market. The Party understands that the property sector will represent a threat to its rule if there is a collapse but also if prices accelerate further from here. That suggests progressively more measures to reduce leverage in the system. At a minimum that implies smaller companies and less construction activity.



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September 23 2021

Commentary by Eoin Treacy

Sugar Futures Climb on Bullish Energy Signs as Coffee Gains

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

Raw sugar headed for the biggest gain in a week amid bullish signs from energy markets and lingering concern about constrained supplies in top shipper Brazil.

The March contract climbed 1.6% to 20.04 cents a pound on ICE Futures U.S. after adding 0.8% a day earlier. The commodity has climbed 29% this year after adverse conditions hurt plants in the South American giant. 

Higher energy costs are boosting the outlook for cane-based ethanol demand in Brazil, increasing incentives for mills there to direct the raw material toward making more biofuel and less sweetener. West Texas Intermediate crude climbed 1.9%, bringing its year-to-date rally to 48%. 

There are expectations for a poor crop next year as effects of drought and frost linger. Offsetting lower supplies are concerns about flagging demand, spurred by Covid-related restrictions and high transportation costs.

“On one hand, Brazilian production is low, on the other, there are uncertainties about the world demand for sugar because of the increase in sea freights,” said Heloisa Lee Burnquist, analyst for the University of Sao Paulo.

Eoin Treacy's view -

It is hard to get around the fact that the world has progressed economically in leaps and bounds since the advent of fossil fuels and is struggling to cope as they are excised from the system. That’s going to be a major topic of conversation at the upcoming climate conference in the UK. The resilience of the supply chains upon which modern life relies is under threat.



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September 22 2021

Commentary by Eoin Treacy

Video commentary for September 22nd 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: Fed announces taper possibly as soon as the next meeting, Wall Street and bonds stable. China injects more liquidity, bitcoin steadies in the region of the trend mean, Nifty continues to outperform. 



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September 22 2021

Commentary by Eoin Treacy

Fed Signals Bond-Buying Taper May Start Soon, Split on 2022 Hike

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

If progress toward the Fed’s employment and inflation goals “continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted,” the U.S. central bank’s policy-setting Federal Open Market Committee said Wednesday in a statement following a two-day meeting.   

The Fed also published updated quarterly projections which showed officials are now evenly split on whether or not it will be appropriate to begin raising the federal funds rate as soon as next year, according to the median estimate of FOMC participants. In June, the median projection indicated no rate increases until 2023.
And 

Projections for 2024 were also published for the first time, with the median suggesting a federal funds rate of 1.8% by the end of that year. The median for 2023 rose to 1%, from 0.6% in the June projection.  

 

Eoin Treacy's view -

Here is a link to the side by side comparison of today’s statement with the July one. Central banks feel the need to act to normalise policy because they are worried their actions are fuelling speculative activity. Yet, many of the countries that have begun to taper have soon found their initial estimates of the pace at which that can take place were overly ambitious.



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September 22 2021

Commentary by Eoin Treacy

Global Traders Given Evergrande Reprieve as PBOC Adds Liquidity

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

China’s central bank boosted its gross injection of short-term cash into the financial system after concern over a debt crisis at China Evergrande Group roiled global markets. 

The People’s Bank of China pumped 120 billion yuan ($18.6 billion) into the banking system through reverse repurchase agreements, resulting in a net injection of 90 billion yuan. That matches the amount seen on Friday, and was just below that of Saturday. Sentiment was also boosted after Evergrande’s onshore property unit said it plans to repay interest due Thursday on its local bonds. 

“The PBOC’s net injection is probably aimed at soothing nerves as the market worries about Evergrande,” said Eugene Leow, a senior rates strategist at DBS Bank Ltd. in Singapore. “While the aim may be to instill discipline, there is also a need to prevent contagion into the real economy or to other sectors.”

The need to calm market jitters is pressing amid losses in China-related equities worldwide over recent days amid concern over Evergrande’s debt woes. The benchmark CSI 300 Index fell as much as 1.9% Wednesday after the Hang Seng China Enterprises Index -- a gauge of Chinese shares traded in Hong Kong -- slid the most in two months on Monday. Losses came even as Wall Street analysts sought to reassure investors that Evergrande won’t lead to a Lehman moment.

Eoin Treacy's view -

Any way we look at it, China will need to print more money. If the Evergrande issue is resolved through restructuring in a timely manner it will be less. If the issue is fudged and the hit to the economy is deep, it will be more. Following the announcement that a domestic bond coupon will be paid, there is only one question. What about international investors?



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September 22 2021

Commentary by Eoin Treacy

Crypto Risks Existential Threat as U.S. Crackdown Gathers Steam

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

SEC Chair Gary Gensler drew first blood last week. On Friday, Coinbase quietly abandoned the lending product, announcing the move in a short update to a months-old blog post.

“Crypto lending might be the easiest way for the SEC to get its hooks into the industry, but it’s very clear they’re looking at cryptocurrencies themselves,” said Tyler Gellasch, a former counsel at the SEC who heads the Healthy Markets Association, whose members include large asset managers. If many cryptocurrencies are deemed securities, exchanges such as Coinbase and the rest of the crypto industry “will not be able to make money the way they do today.”

Crypto lending incumbents, such as BlockFi Inc. and Celsius Network Inc., have already garnered more than $35 billion in deposits of traditional cryptocurrencies such as Bitcoin, as well as stablecoins, whose values are pegged at $1 and are considered a replacement for fiat money.

Crypto industry executives have said they suspect rival firms in the traditional finance industry, such as large banks, are responsible for pushing regulators.

In a September “Ask Me Anything” event with customers, Celsius Network Chief Executive Officer Alex Mashinsky said he believed bank executives had called the SEC and state regulators to complain about crypto lending firms.

“We have to work twice as hard because these guys have the largest lobbyists working for them at both at the state and the federal level,” Mashinsky said. “We’ll prevail. The fight is over all the money in the world, right?”

Eoin Treacy's view -

When the chairman of the SEC talks about the cryptocurrencies in the same terms as the myriad number of competing currencies in the USA ahead of the Civil War, that’s not good news for the sector. It suggests the freewheeling days of launching a token for any purpose one can dream of are numbered. 



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September 21 2021

Commentary by Eoin Treacy

Video commentary for September 21st 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Chinese stocks pause with deep short-term oversold condiutions evident, Wall Street steady but susceptible to additional weakness dependent on liquidity. UK natural gas continues to remain strong. gas producers firm. 



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September 21 2021

Commentary by Eoin Treacy

Is Evergrande a risk for global financial markets?

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

September 21 2021

Commentary by Eoin Treacy

IEA Says Russia Could Do More to Boost Europe's Gas Supply

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

Europe is facing gas shortages, but Russia has a crunch of its own. Gazprom has boosted production this year, but it’s directing the additional output to refill depleted storage sites at home. Russia has been producing close to its maximum capacity, but its domestic needs have curbed availability to Europe, according to the Oxford Institute for Energy Studies.

“Russia is not running out of gas and its prolific gas reserves allow Russia to meet much higher overall demand, but this requires time, money, and contractual assurances of offtake,” said OIES Senior Research Fellow Vitaly Yermakov.

Some analysts have argued that Russia has capped flows to Europe as a way to get its controversial Nord Stream 2 pipeline to Germany online. Flows through the link could improve supplies, but the start of commercial operations will depend on regulatory certification -- first in Germany, then at the European Commission. That could run well into next year. U.S. sanctions have also created challenges for the project.

The IEA stressed that it’s wrong to blame the shift away from fossil fuels for the surge in gas prices. The comments came a week after Frans Timmermans, the EU’s climate chief, warned that the record spike in energy prices must not undermine the European Union’s resolve to cut emissions.

Eoin Treacy's view -

Could Russia do more to ease the supply shortage of gas in Europe? Probably. Will it? That’s going to be a strategic decision and it will probably come with caveats. Natural gas is not oil. The network for mass transportation across oceans is still immature. Pipelines remain the preferred transportation network. Russia has a clear interest in opening its Nordstream 2 pipeline in a timely manner. That will need to be weighed against the need to bolster its reputation as a reliable supplier.



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September 21 2021

Commentary by Eoin Treacy

Uber shares jump after finally set to halt quarterly losses

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

Uber did, too, but its sprawling business operates in many more countries and offers many other services besides rides.

Those aspects were not nearly as profitable and its report of second-quarter losses dismayed investors. Uber faces increased competition for its food delivery service and uncertain demand for its rides as the pandemic lingers in many parts of the world.

The boom in food delivery during the pandemic skewed Uber's business towards a lower-margin segment that might have weighed on efforts to become profitable, Bloomberg Intelligence analyst Mandeep Singh wrote in September.

However, customers hung on to their habits of getting hot meals sent directly to their homes, even as lockdown restrictions eased in many countries. UK rival Deliveroo plc reported a surge in revenue and orders in the first half of the year.

Uber still faces pressure from politicians and regulators on the status of its drivers. It recently lost a Dutch suit, where a court ruled that those who ferry passengers using the Uber app in the Netherlands are covered by a local collective labour law. In August a California state judge struck down a voter-approved ballot measure bankrolled by Uber and other gig-economy companies that declared drivers for the companies were independent contractors.

Eoin Treacy's view -

Companies like Uber and Lyft achieving profitability is no small achievement and suggests the companies are successfully transitioning from growth to income. The companies’ continued success is based on the assumption that their will continue to benefit from the disintermediation of the taxi and restaurant sectors.



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September 20 2021

Commentary by Eoin Treacy

Video commentary for September 20th 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: China Evergrande contagion spreads to Hong Kong and globally. Buy the dip mentality prevails on Wall Street for now, commodities weak but oil steadies and gold firms, bonds yields compress on slowdown/deflatino fears.  



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September 20 2021

Commentary by Eoin Treacy

Market Contagion Tests Xi's Resolve on Evergrande, Property Curbs

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

The response so far has been largely limited to the People’s Bank of China, which injected a net 90 billion yuan into the banking system on Friday. It added another 100 billion yuan on Saturday.

Evergrande has around $300 billion worth of liabilities, more than any other property developer in the world. It’s a whale in China’s high-yield dollar bond market, accounting for about 16% of outstanding notes. Some $83.5 million of interest on a five-year dollar bond comes due Thursday, and failure to pay within 30 days may constitute a default. Evergrande also needs to pay a 232 million yuan ($36 million) coupon on an onshore bond the same day.

Evergrande’s shares lost as much as 19% on Monday, briefly taking its market value to the lowest on record. The stock closed 10% lower.

“With policy makers showing no signs of wavering on property market deleveraging, the latest headlines regarding Evergrande likely suggest that housing activity may deteriorate further in the absence of the government providing a clear path toward an eventual resolution,” Goldman economists led by Hui Shan wrote in a Sunday note.

Eoin Treacy's view -

The world is finally waking up to the contagion risk represented by China Evergrande. The big question which still needs to be addressed is who owns the company’s debt. Most of the $300 billion in US Dollar bonds were sold to international investors, while there is also an undisclosed sum in off balance sheet liabilities.



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September 20 2021

Commentary by Eoin Treacy

Dow Theory

Eoin Treacy's view -

In classic Dow Theory both the Industrials and Transportations Averages have to be making new highs to confirm a bull market for the US market. The logic is pretty simple. When the companies that make stuff and ship it around the country are doing well, it’s reasonable to conclude the economy and markets will prosper.



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September 20 2021

Commentary by Eoin Treacy

The Third Revolution in Warfare

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

An example of an autonomous weapon in use today is the Israeli Harpy drone, which is programmed to fly to a particular area, hunt for specific targets, and then destroy them using a high-explosive warhead nicknamed “Fire and Forget.” But a far more provocative example is illustrated in the dystopian short film Slaughterbots, which tells the story of bird-sized drones that can actively seek out a particular person and shoot a small amount of dynamite point-blank through that person’s skull. These drones fly themselves and are too small and nimble to be easily caught, stopped, or destroyed.

These “slaughterbots” are not merely the stuff of fiction. One such drone nearly killed the president of Venezuela in 2018, and could be built today by an experienced hobbyist for less than $1,000. All of the parts are available for purchase online, and all open-source technologies are available for download. This is an unintended consequence of AI and robotics becoming more accessible and inexpensive. Imagine, a $1,000 political assassin! And this is not a far-fetched danger for the future but a clear and present danger.

We have witnessed how quickly AI has advanced, and these advancements will accelerate the near-term future of autonomous weapons. Not only will these killer robots become more intelligent, more precise, faster, and cheaper; they will also learn new capabilities, such as how to form swarms with teamwork and redundancy, making their missions virtually unstoppable. A swarm of 10,000 drones that could wipe out half a city could theoretically cost as little as $10 million.

Eoin Treacy's view -

If the cost to the aggressor is reduced, that’s a problem for regular civilians. That’s really not good news and suggests the toll in terms of casualties in future wars will be considerably higher than anything seen in a century.



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September 17 2021

Commentary by Eoin Treacy

September 17 2021

Commentary by Eoin Treacy

Lucid Air blows past the competition (Tesla) with 520-mile EPA range

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

When Lucid Motors first announced its Air sedan would return 517 miles (832 km) on a single charge, it sounded too good to be true. But Lucid didn't think so, having hired an independent test firm to run it through the EPA cycle. A year and change later, Lucid's best-in-market electric car range stands. The official EPA numbers are out and show that the first 2022 Air models will all surpass the 405-mile (652 km) EPA benchmark set by the 2021 Tesla Model S Long Range, with the longest-distance variants breaking 500 miles.

Eoin Treacy's view -

The gauntlet has been thrown down. The Lucid vehicle has a longer range and charges faster than Tesla’s best in class vehicle. Right now, it costs about double what a Tesla does and deliveries are only just starting but the equivalent of an electric vehicle arms race is beginning.



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September 17 2021

Commentary by Eoin Treacy

Email of the day on Microsoft

would be interested in your views of Microsoft's price chart at present. I know you have been cautious over the past few years, and have even questioned the presence of a catalyst as a reason to expect limited upside going forward. Yet, a reasonably consistent upward pattern continues to play out. As always, your insights and perspectives are genuinely appreciated.

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. I was indeed cautious about the prospects for mega-caps in 2019 because we had an inverted yield curve, tightening liquidity and it was not apparent where the next big growth bump would come from.



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September 17 2021

Commentary by Eoin Treacy

How China's Pollution Fight Is Roiling Commodities

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

The growing importance of the environment in Beijing’s policy mix has left commodities markets caught between decelerations in both supply and demand. Iron ore prices more than halved between mid-May and mid-September as the steel production limits slashed demand for the steel-making ingredient. Aluminum, meanwhile, has jumped 46% so far this year as Chinese production -- more than half the world’s total --  of the energy-intensive metal is cut. The curbs on coal are particularly eye-catching because China has been wrestling with an unprecedented spike in the cost of the fuel. Coal futures in Zhengzhou hit a record in September, defying what should be a seasonal slowdown in demand. Any further cutbacks on output would run counter to the government’s pledges to stabilize prices by encouraging more domestic supply. It also would make another round of power rationing for industry more likely. Since coal is the major energy source in China for the production of fertilizer, its price has also soared.

Eoin Treacy's view -

The big question for many commodity investors is how serious is China about curtailing emissions? Perhaps a better question is how important is it to China’s leadership that the country look good ahead of the Winter Olympics in less than five months? Very important, is probably an understatement.



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September 16 2021

Commentary by Eoin Treacy

September 16 2021

Commentary by Eoin Treacy

Macau's Future in Doubt as Crackdown Spurs Global Casino Selloff

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

“Macau is already experiencing a challenging period where its top two biggest markets, the mainland and Hong Kong, are already constrained in terms of permitted travel,” said Ben Lee, a Macau-based managing partner at gambling consultancy IGamiX. “Add to that the recent crackdown on gambling as well as money channeling, one could easily draw the conclusion that the size of the market going forward will likely remain tightly controlled.”

Eoin Treacy's view -

This additional article discussing renewed efforts to clamp down on bitcoin mining may also be of interest. https://news.bloomberglaw.com/securities-law/china-said-to-intensify-hunt-for-cryptocurrency-miners-in-hiding



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September 16 2021

Commentary by Eoin Treacy

Volkswagen Says Chip Crisis Won't Ease Until Second Half of 2022

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

The pandemic exposed a “structural gap” between chip production and demand, and the disruption from the virus has only exacerbated the imbalance, Keogh said. But it hasn’t been all bad for automakers.

Tight inventory has led to soaring prices and minimal incentive spending, padding the companies’ bottom lines. That helped Volkswagen’s U.S. business turn a profit in 2020 for the first time in eight years, Keogh said, following a revamp of its lineup from sedans to SUVs.

When semiconductor shortages eventually ease, Volkswagen plans to keep fewer cars on dealer lots, because it has proved to be more profitable for manufacturers and dealers, Keogh said.

“Going back to the days of having 100 to 120 days’ supply is not going to happen,” he said. “Now, people have 30 to 40 days’ supply and it’s working quite fine. Somewhere in that 40 to 50-day camp would be a beautiful thing.”

Eoin Treacy's view -

Does anyone remember all the talk about building resilience into the supply chain after the pandemic. The reality seems to be very different. Companies have found limited supply is working just fine for their businesses and they are achieving better prices than they thought imaginable only a couple of years ago.



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September 16 2021

Commentary by Eoin Treacy

Does Tax Efficiency Just Delay the Tax Burden?

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

Over a horizon of 40 to 50 years, the value generated by hypothetical tax-efficient investments can be more than twice as high as that generated by hypothetical tax-inefficient investments, and—again—that is after the higher liquidation taxes are fully accounted for. Due to compounding, paying liquidation tax once can be much less punitive than foregoing part of capital appreciation to taxes each year, especially at long investment horizons

Eoin Treacy's view -

The logic supporting long-term investment is one of the primary reasons many investors prefer companies to buy back shares rather than pay dividends. The speed with which companies have returned to accelerating their pace of buybacks following the pandemic has been a significant support for the total market over the last year. Microsoft’s announcement this week they will spend $60 billion on buybacks is a notable example.



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September 15 2021

Commentary by Eoin Treacy

Video commentary for September 15th 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: UK natural gas prices surge again but doin't hold the high, oil firm, gold eases, food prices continue to ramp higher, Wall Street begins to rebound from another mid-month slump. Alibaba tests its lows.



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September 15 2021

Commentary by Eoin Treacy

China Tech Crackdown, a short-term pain for the new growth phase?

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

As there is still no indication of the regulatory crackdown, investing in the tech sector at this current juncture could result in a high risk of catching falling knives. On the flipside, the attractive valuation and rapid growth of these China Tech companies may strike as a good bargain to long-term investors. The sell-off of some tech stocks were not a result of any fundamental changes, but rather investor sentiment, which could change again in a flash. First, we must understand the short and long-term impact of the crackdown. Here are 3 fundamental factors you may want to consider if you decide to buy the dip:

1. Will policy changes cause structural change to business’s model?
2. Companies’ valuation
3. Companies’ growth

Eoin Treacy's view -

The big question for investors is whether the pullback in Chinese tech companies is just another short-term purge prior to re-establishing the prior growth trajectory or whether it represents deeper issues.



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September 15 2021

Commentary by Eoin Treacy

Priciest Food Since 1970s Is a Big Challenge for Governments

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

Adjusted for inflation and annualized, costs are already higher now than for almost anytime in the past six decades, according FAO data. Indeed, it’s now harder to afford food than it was during the 2011 protests in the Middle East that led to the overthrow of leaders in Tunisia, Libya and Egypt, said Alastair Smith, senior teaching fellow in global sustainable development at Warwick University in the U.K.

“Food is more expensive today than it has been for the vast majority of modern recorded history,” he said.

Eoin Treacy's view -

It is interesting to contrast the charts of Food and Agriculture World Prices disseminated by the UN with how the commodity sector as a whole has performed.



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September 15 2021

Commentary by Eoin Treacy

Key U.K. Power Cable Will Be Partly Knocked Out Until March

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

A key U.K. power cable knocked out by a fire will stay partly offline until March, National Grid Plc said, deepening the energy crisis threatening Britain as it heads into winter.

The timing couldn’t be worse. The U.K. is already struggling with shortages, with gas and power prices breaking records day after day. The energy crunch is fueling concerns about inflation and a potential hit to businesses just as the economy emerges from the worst impact of the pandemic. How the U.K. fares through the winter now hinges in large part on the weather.

Eoin Treacy's view -

One has to question how long it will be before the population wakes up to the reality that wind and solar are not base load suppliers of electricity. Placing one’s faith on an intermittent source of power is inevitably going to result in blackouts when the system breaks down.



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September 14 2021

Commentary by Eoin Treacy

Video commentary for September 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: starting to see evidence of contagion from China Evergrande in property developers and banks, inflation pressures remain lumpy with increased volatility in commodities, S&P500 mid month pull back still underway. 



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September 14 2021

Commentary by Eoin Treacy

Chinese Banks Are Dumping Dollars in Swap Markets, Traders Say

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

The PBOC is expected to conduct its monthly MLF operation on Wednesday, with 600 billion yuan due. Last week a central bank official said that interbank liquidity should remain balanced in the coming months, damping speculation that there’ll be another cut in the required reserve ratio soon. 

Money market traders are more cautious this month as cash demand could rise due to quarter-end regulatory checks and before China’s Golden Week holiday in early October. If the maturing MLF is not mostly rolled over or covered by another liquidity injection, market sentiment is likely to be further impacted, said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp. 

Evergrande Woes
Concern about the property sector amid the potential restructuring of China Evergrande Group -- the world’s most indebted developer -- could also be impacting swap rates. 

Market participants might be preparing for “the liquidity squeeze in crisis mode,” Mizuho Bank Ltd. chief Asian FX strategist Ken Cheung wrote in a note.

“Rising property sector concerns and specific credit concerns around Evergrande are raising pressure on banks’ liquidity management,” Eddie Cheung, senior EM strategist at Credit Agricole, wrote in a note. He expects onshore yuan liquidity conditions to remain tight in the near term.

Eoin Treacy's view -

Over the May holiday weekend, Didi snuck through an IPO in the USA while the Chinese regulators were away from work. That allowed the original investors to divest of at least some of their position before the company is dissected. As we approach the Mid-Autumn Festival Golden Week festival, where everyone will be on vacation for a week. and the stock market will be shut, it seems like an ideal time for creditors to make a move on Evergrande.



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September 14 2021

Commentary by Eoin Treacy

Email of the day on Modern Monetary Theory

Hope you are well in Dallas.

I have a question: why do you often mention that we have MMT in action right now?

MMT is not a policy adopted by government or central banks. They don’t “do mmt”

MMT is a theoretical framework that tries to explain how the monetary system works in a freely convertible and fiat currency system in which we have been living for 50 years now (and it explains it correctly to a large part in my opinion). it’s not the “policy ode making debt”. Isn’t it?

When you mention “MMT in action” you likely refer to the government demand for goods, services and the grant of subsidies / social securities payment / medicare /unemployment benefit to people etc. along with the debt issuance “to pay for” this spending. Finally the FED buying the government debt to “ease” the monetary conditions (the QE vs tapering).

But this is not “MMT”. Government spending has always existed and it is the second largest component of a country GDP (after “C” , private consumption). Look at the development of the US federal debt since the early 80es to the almost USD 28tn in 2021 / today. It does not matter who administered the country (super conservative or super liberal), they have all managed to expand the debt. And the market has always absorbed the “debt”. Have they been “doing MMT” for 40 years?

Thank you for your regular market updates... always appreciated

Eoin Treacy's view -

Thank you for this email which I believe will be of interest to the Collective. I agree there is nothing “modern” about MMT. Governments have a natural proclivity to spend and the freedom of fiat currencies inevitably leads to high debt loads. In that regard, the sustainability of debt regimes has been on a downward trajectory for a long time and people have been worrying about it for just as long. The bigger question is whether anything has really changed? 



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September 14 2021

Commentary by Eoin Treacy

Amazon and Walmart are Winning the Labor Market Wars

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

That’s putting manufacturers in an unexpected competition with service employers for workers. Amazon likes to quote its average starting wage of $17 an hour at fulfillment centers in Michigan that comes with a host of benefits, a package that's likely better than a lot of entry-level or lower-tier manufacturing jobs for similar work. Thursday, Amazon upped the ante again, announcing that it will pay for some U.S. employees to get four-year college degrees.

A whole host of retailers pay $15 an hour or more — Walgreens announced it would do just that last month — and offer working conditions that are likely more comfortable and less hazardous than being on a factory floor. Would you rather make $15 an hour working at a sawmill or inside a Home Depot?

This is one reason manufacturers will end up embracing automation: They just can’t find a way to make jobs good enough to attract the workers they need relative to their ever-escalating service economy competition.

Service employers have spent the past several years improving the nature of their jobs, doing everything from increasing pay and benefits packages to relaxing dress codes and offering more flexible schedules. Manufacturing employers are realizing that they now have to do the same. They've got arguably an even heavier lift in front of them, given the riskier, more physically demanding nature of many of the jobs — and if they can’t manage to pull it off with humans, they might have to do it with robots.

Eoin Treacy's view -

Higher wages and the rising cost of compliance encourage automation. Low interest rates and abundant credit enable automation. Technology companies respond to both these trends by profiting from innovation.



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September 13 2021

Commentary by Eoin Treacy

Video commentary for September 13th 2021

September 13 2021

Commentary by Eoin Treacy

The Apple v. Epic Decision

This article by Ben Thompson for his Stratechery service may be of interest to subscribers. Here is a section:

This isn’t the only duopoly: Google and Facebook jointly dominate digital advertising, Microsoft and Google jointly dominate productivity applications, Microsoft and Amazon jointly dominate the public cloud, and Amazon and Google jointly dominate shopping searches. And, while all of these companies compete, those competitive forces have set nearly all of these duopolies into fairly stable positions that justify cooperation of the sort documented between Apple and Google, even as any one company alone is able to use its rival as justification for avoiding antitrust scrutiny.

Judge Gonzales Rogers does note that it is unclear whether Google “could increase output in the short run in order to erode Apple’s market share”, but the real problem is that Google is content to simply share the market with Apple and earn their own supracompetitive commission rate.

Eoin Treacy's view -

As a child I enjoyed going to the horse races with my uncles during the summer. With the limited resources of my pocket money, I figured I could come out ahead by betting the 2nd favourite would place in the top three. Place bets are conservative but all I was interested in was walking away with more than I entered. It didn’t work every time but it worked enough for me to buy what I wanted with the profits.



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September 13 2021

Commentary by Eoin Treacy

Walmart Denies Litecoin Pact After Hoax Jolts Crypto Market

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

The debacle highlights how cryptocurrency investors can profit from hoaxes. And with no central authority overseeing them, it’s unclear what companies can do in response. The statement included what was purported to be a quote from Walmart’s chief executive officer and resembled the official statements that public companies use to announce news to the market. 

While hoaxes that move asset prices crop up in financial markets from time to time, cryptocurrencies would seem to provide particularly fertile ground for deceivers. Unlike stocks, trading is mostly untraceable -- scammers leave few tracks for regulators. It takes very little to influence trading of notoriously volatile assets in the space. Traders have become conditioned to expect hysterical price reactions to the flimsiest news -- when, say, Elon Musk namechecks a project on Twitter.

Like many companies, Walmart has indeed expressed interest in cryptocurrencies and blockchain, however. The Bentonville, Arkansas-based retailer advertised a position earlier this year to develop a blockchain strategy. The position is responsible for “developing the digital currency strategy and product roadmap” and identifying “crypto-related investment and partnerships,” according to an August job posting on the company’s website. 

Eoin Treacy's view -

Cryptocurrencies are completely unregulated. I don’t think most investors/traders fully comprehend what that means. Essentially, anything goes and it is hard to pin down exactly what is and is not enforceable by law. That has created a wild west environment where every dirty trick that has been regulated out of the conventional markets has found new life in the crypto world. The fact so many floor traders from the money markets have found a new lease of life in the crypto markets is a testament to that fact.



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September 13 2021

Commentary by Eoin Treacy

Japan's Leadership Rivals Diverge on Economic Paths After Covid

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

The three declared candidates vying to become Japan’s next leader offer an economic choice between a renewed drive to stoke inflation, a bid to rebuild the middle class, or an acceleration of digital reform that puts growth before price targets.
 
Not surprisingly, with an election looming, Sanae Takaichi, Fumio Kishida and Taro Kono have each promised to put together stimulus packages to help regain recovery momentum in an economy hit by the delta wave. 

Eoin Treacy's view -

One of the biggest takeaways from the pandemic is no party is willing to run on a fiscal austerity platform. Voters might disagree on priorities like growth or social services but no one wants to pay for additional spending or endure a loss of services. That change of priorities suggests politicians have learned from past failures and are determined to give the people what they want. The implication is we are going to see continued outsized government spending remain a priority relative to revenue raising on a global basis for the foreseeable future.



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September 10 2021

Commentary by Eoin Treacy

September 10 2021

Commentary by Eoin Treacy

A Momentous Shift Is Taking Shape in the Labor Market

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

For the third month in a row, wages for the low-skilled have risen faster than for the high-skilled. In the previous history of the survey, which now goes back almost 25 years, this had only ever happened in two months, in early 2010. Wage growth for the low-skilled is also exceeding that for the high-skilled by the most on record. 

In terms of the momentous macroeconomic issues of the moment, this is good for growth, as poorer people are more likely to spend their pay rises than richer people. It’s also potentially bad for inflation. Wage growth for the lowest skilled is the fastest since August 2008 (not coincidentally, the month before the Lehman bankruptcy), and that could easily lead to higher prices. 

More interestingly still, it does suggest a shift in the balance of power between labor and capital. This isn’t as yet a deep-seated or well-established trend, of course. But if it continues it could rattle a lot of assumptions, and alleviate a lot of social tension.

Eoin Treacy's view -

There has been a great deal of talk about the increasing shift between labour and capital or, perhaps more prosaically, power of the people relative to capitalists. The role of technology and globalisation in suppressing wages is much less discussed because it is does not fit with the inconvenient narrative of the oppressed masses.



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September 10 2021

Commentary by Eoin Treacy

Brazil's Bolsonaro: Only God will remove me from power

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

But mounting pressure from several investigations and calls for his impeachment have led to the president's rhetoric becoming ever more belligerent.

The rallies he convened for independence day were seen as an attempt to demonstrate he can still draw huge crowds of supporters after recent polls had him trailing his left-wing rival Luiz Inácio Lula da Silva by nine percentage points.

While elections are not due to be held until October 2022, Mr Bolsonaro's approval ratings have also dropped to an all-time low.

A poll by the Atlas Institute suggested that 61% of Brazilians described his government's performance as bad or very bad, up from 23% when he first took office in January 2019.

While an attempt to impeach the president over his handling of the Covid crisis was blocked by the speaker of the lower house of Congress, Mr Bolsonaro is portraying himself as under attack from Congress and the Supreme Court.

Last week, he told evangelical leaders - who are among his staunchest backers - that "I have three alternatives for my future: being arrested, killed or victory".

And he again took up that theme in his speech on independence day, saying that "only God will oust me".

Eoin Treacy's view -

The accusations being levelled against Bolsonaro are primarily focused on his response to the pandemic, but are likely to gain traction because he has been playing fast and loose with rules and regulations.



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September 10 2021

Commentary by Eoin Treacy

Shanghai Copper Stockpiles at Lowest in a Decade, Nickel Jumps

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

Copper inventories extend a drop to the lowest level in almost 10 years, while aluminum holdings also fell and nickel inventories climbed, according to weekly data from Shanghai Futures Exchanges.

Copper -11% to 61,838 tons, lowest since Dec. 2011
Aluminum -1.6% to 228,529 tons, lowest since Dec.
Lead +3.3% to record 204,008 tons
Nickel +45% to 8,608 tons, following a more than 30% gain the previous week

Eoin Treacy's view -

The realisation that contagion risk in the property sector could bring down the whole economy has refocused the attention of the Chinese administration on easing up on liquidity tightening measures. That has helped to stabilise the high yield sector and is also helping to improve the outlook for industrial resources.



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September 09 2021

Commentary by Eoin Treacy

Video commentary for September 9th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: oil softens on China reserve release, pressure eases on Evergrande, ECB tapering, stocks slightly softer, gold and ethereum steady, bonds yields compress, Brazil weak on deteriorating governance, palladium breaking down as nickel breaks out



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September 09 2021

Commentary by Eoin Treacy

China Lets Evergrande Reset Debt Terms to Ease Cash Crunch -

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

The development suggests Evergrande has regulatory backing to negotiate with creditors on a piecemeal basis, as it tries to ease a cash crunch that has unnerved investors in China’s $12 trillion bond market. While the company’s main banks had discussed setting up a creditor committee as recently as last week to consolidate repayment decisions, lenders and regulators have decided to give Evergrande more time to solve its liquidity crisis before taking more drastic measures, people familiar with the matter said. 

Evergrande’s complex web of obligations to banks, bondholders, suppliers and homeowners has become one of the biggest sources of financial risk in the world’s second-largest economy. While China’s government has publicly urged the company to solve its debt problems, officials have yet to spell out whether they would allow a major debt restructuring or bankruptcy. Speculation over Evergrande’s fate has fueled outsized swings in its shares and bonds, with the latter rising from record lows on Thursday. 

Some lenders have indicated a willingness to be flexible on payment deadlines. Bloomberg reported last month that China Minsheng Banking Corp., China Zheshang Bank Co. and Shanghai Pudong Development Bank Co. had agreed to give Evergrande extensions on some project loans. Citic Trust, one of the developer’s biggest non-bank lenders, has given preliminary approval to a three-month extension on loans that were due in August, a person familiar with the matter said.

Eoin Treacy's view -

China Evergrande might yet default, but it is increasingly likely that the measures currently being taken will not result is a systemic crisis for the financial sector. That’s not a statement about the stock market since many of the most troubled property developer stocks carry low weightings but it should help to lend some confidence to investors worried about the trajectory of the economic recovery.



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September 09 2021

Commentary by Eoin Treacy

Dispelling Myths In The Value vs. Growth Debate

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

Argument 3: Today’s business models have rendered most accounting data irrelevant, so isn’t investing on the basis of obsolete measures like P/E or price/book a fool’s errand?

Answer: Here at GMO we’ve got a good deal more sympathy for this argument than the first two. The fact that GAAP accounting hasn’t kept up with business models that are more dependent on intellectual property than tangible assets is unquestionably true. While it is worth remembering that book value was a highly imperfect guide to “true” economic capital even in the pre internet (and pre stock buyback) days, it is certainly more flawed now. We think the right response to the problem is not to give up on value as a style but to build better value models. GMO’s Global Equity team spent 4 years painstakingly rebuilding the balance sheets and income statements of over 10,000 companies going back over 40 years, capitalizing expenditures that we believe should have been considered investments and undoing the distortions created by decades of stock buybacks. This has not only given us improved versions of accounting-based valuation models that we believe are far closer to economic reality than what is embodied in the measures used to build style indexes, but we’ve taken advantage of that economically relevant data to build a forward-looking dividend discount model that we believe can also differentiate between companies where it is worth paying up for their future growth potential from those that are merely overvalued.

Eoin Treacy's view -

It is honourable for a captain to go down with the ship but it’s not a great personal decision. Faced with decades of unrelenting underperformance of traditional value stocks GMO decided to evolve their definition of what a value company is. It turns out value looks a lot like growth after all. Isn’t that convenient?



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September 09 2021

Commentary by Eoin Treacy

ECB Slows Crisis Stimulus in Shift Lagarde Insists Isn't a Taper

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

“This is not a tapering decision, as ECB President Lagarde stressed,” Elga Bartsch, head of macro research at the BlackRock Investment Institute, said in an emailed comment. “Asset purchases look here to stay as the new policy framework paves the way for looser for longer monetary policy in the euro area.”

Mark Dowding, who oversees $70 billion at BlueBay Asset Management LLP, was less convinced by Lagarde’s protestations. 

“To me it is just semantics,” he said. “It is a choice of words. It looks like a taper and smells like a taper, so markets will view it as the start of the taper process.”

With supply-chain disruptions and resurgent virus infections threatening to undermine the recovery and medium-term price pressures likely to remain well below its goal, officials have insisted in recent weeks that the euro-area economy is in a different state than the U.S. and remains reliant on ECB support.

Yet some governors have started to warn publicly that maintaining an ultra-accommodative stance for too long also carries risks. Austria’s Robert Holzmann and Klaas Knot of the Netherlands both told Bloomberg in separate interviews last week that emergency asset purchases should end in March, hinting at heated discussions about the policy path in the months ahead.

Eoin Treacy's view -

The most likely scenario is a long slow taper; potentially beginning in December. That appears to be the plan being laid out by central bankers everywhere with a similar statement released about Australia’s ongoing taper earlier this week.

They don’t have much choice. We are 18 months on from the pandemic nadir in markets and economies are well on the road to a full recovery. As economies recover, they have to think about tailoring their assistance. However, we are still a long way from the first interest rate hikes.



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September 08 2021

Commentary by Eoin Treacy

September 08 2021

Commentary by Eoin Treacy

Email of the day on China Evergrande's impending bankruptcy.

Hello Eoin, I really like your audios and try to listen to them almost every day and I find today's audio especially interesting because of your focus on Evergrande...and this is something I don't understand: how is it possible that a company of this size, being on the brink of bankruptcy, with a huge amount of USD debt (of which one can be sure it's on the books of big international players), keeps out of sight of the financial press...I can find almost nothing on this topic..and secondly: what do you think of the idea that the sudden drop of crypto was generated by the fact that Tether has usd evergrande bonds on its books...this seems to me a logical catalyst for this flash crash...

thank and keep up the good work...

Eoin Treacy's view -

Thank you for your kind words and this email which I believe will be of interest to the Collective. The reality is most journalists pay scant regard to the credit markets. On top of that writing negative, or cautionary, copy about China is dangerous for one’s career and particularly so if you happen to live in Hong Kong.    



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September 08 2021

Commentary by Eoin Treacy

More U.S. LNG Heads to Brazil, Nearing Ranks of Top Asian Buyers

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

More U.S. liquefied natural gas headed to Brazil last week, as the South American nation joins the ranks
of South Korea, China, and Japan as America’s top importers in 2021.

With 80 total cargoes in transit, at least ten tankers are currently destined for China, while six each are headed to Brazil and South Korea, according to vessel data analyzed by Bloomberg News. Year-to-date, Brazil is now just seven shipments behind Japan for third place in importing U.S. LNG. 

Many of the cargoes to China have already been weeks in transit, but at least one left in September as the nation tries to curb demand amid higher prices. At least two September departures are headed to Brazil, which continues to battle drought impacting the nation’s hydroelectric power.

U.S. export supply has been unabated recently as the five-day moving average for net flows was measured at 11.0 billion cubic feet on Sept. 8, 4.9% higher than the year-to-date average.

Exporters have loaded 19 tankers thus far in September, a 4.4% cargo-per-day decrease from August, when 88 cargoes were exported.

Eoin Treacy's view -

Brazil’s drought has resulted in a significant demand shift in the liquefied natural gas markets. The country normally relies on hydro to provide electricity but those plants have been running below capacity for two years. The below chart of rainfall at hydro plants suggests the nearest relief tends to arrive in the early part of the year in line with seasonal factors.
That suggests continued demand for LNG cargoes for at least the next few months. The added expense of burning imported gas rather than domestic hydro is a significant cause of the perception rising inflation. Additional demand drivers for LNG have also been a significant cause of energy cost inflation in the UK and Europe as natural gas prices have surged higher this year.



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September 08 2021

Commentary by Eoin Treacy

Uranium Surges to Six-Year High as Fund Buys Up Physical Supply

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

Uranium, the commodity used to fuel nuclear power plants, has surged to the highest level since 2015 due in part to a single fund aggressively cornering the physical market.

Investment firm Sprott Inc. earlier this year launched its Physical Uranium Trust and recently commented on Twitter about how much physical uranium it had been buying, aiding to the commodity’s recent bull run. Sprott has amassed over 24 million pounds of uranium, sometimes buying more than 500,000 pounds in a single day, according to its website and social media account.

For comparison, total spot volume for 2020 was 92.2 million pounds, according to uranium investor Yellow Cake Plc.

The buying is in addition to already bullish fundamentals. Uranium prices must rise further to spur the restart of production to meet uncovered utility demand after 2023, according to analysts at Raymond James Financial Inc. Earlier this year, NAC Kazatomprom JSC, the world’s top miner of uranium, said it would keep its output at reduced levels through 2023, removing supply from the market.

Eoin Treacy's view -

Uranium has languished for a decade because Kazatomprom flooded the market with supply in an effort to capture market share. That policy created the odd situation where major producers like Cameco could buy spot production cheaper than mine it themselves; to supply long-term contractual obligations. A new bull market was not going to be possible until that supply surfeit was worked off.



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September 07 2021

Commentary by Eoin Treacy

Video Commentary for September 7th 2021

September 07 2021

Commentary by Eoin Treacy

Crypto Platform Bitso to Service El Salvador's Bitcoin Wallet

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

Bitso will work with the U.S. federally regulated Silvergate Bank to facilitate transactions in U.S. dollars, according to a statement from the company. Bitso bills itself as Latin America’s fastest growing crypto platform with over 2.75 million users.  

Chivo -- a vernacular local term for “cool” -- is intended to serve like a mobile payments app, enabling payments in Bitcoin or dollars between individuals and businesses. Bitso said it will offer custody and exchange services to Chivo, and provide back-end technology. 

“We’re committed to making crypto useful for the country’s citizens,” Santiago Alvarado, vice president of Bitso for Business, said in emailed comments, adding it wants to help “transform payment structures that can increase financial inclusion.”

El Salvador’s passage of the Bitcoin law has been a subject of fascination, praise and criticism. A recent local poll found a majority of people preferred to use U.S. dollars. Observers will be watching to see if many people start using Bitcoin, and whether that brings benefits to the violent, impoverished nation.

Eoin Treacy's view -

The world of finance is seldom referred to as cool. When it is, that’s usually a sign of a frothy environment. The logic of assisting people receive remittances without needing to pay fees is sound. Why that has to be achieved with bitcoin and rolling out digital wallets to everyone is less clear. The size of today’s downward moves suggests many of the people who received gifts of bitcoin chose to sell.



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September 07 2021

Commentary by Eoin Treacy

Johnson Hands Workers, Firms $17 Billion Annual Health Bill

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

Johnson made a statement to a hushed House of Commons on Tuesday, ahead of a joint press conference with Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid.

As he begins his third year in office, 57-year-old Johnson is looking to move beyond the Covid-19 pandemic by delivering on a policy promise that he set out in his first speech as prime minister to “fix the crisis in social care once and for all” -- as well as ensure the NHS can keep functioning under extreme
pressure.

But by attempting to meet this pledge, he is tearing up another one: the Conservatives vowed in their manifesto not to raise income tax, national insurance or VAT. He’s gambling that voters will reward him for finding a solution to social care, a problem that eluded his predecessors.        

The government broke another pledge on Tuesday, saying it will scrap its “triple lock” commitment to pensioners, albeit for one year only. Pensions will now rise by the greater of inflation or 2.5%, Work and Pensions Secretary Therese Coffey said. Suspended is an average earnings component after distortions caused by the pandemic caused wages to soar almost 9% over the past year.
 

Eoin Treacy's view -

The UK has been among the most forthright in speaking about the budgetary problems the pandemic has delivered. The fact this new set of spending plans will be budget neutral is to be welcomed and suggests the UK is less likely to be a leading proponent of modern monetary theory. Nevertheless, the big question remains how the existing deficit will be tackled over the next couple of years.



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September 07 2021

Commentary by Eoin Treacy

RBA Sticks With Cautious Taper Plan as Delta Sweeps Economy

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

Lowe’s decision to proceed with the taper, while extending its duration, showed his desire to maximize flexibility to respond to the economic fallout from delta, which is proving far more difficult to contain than expected.

The RBA’s gentle shift from ultra-accommodative settings also fits in with more nuanced recent signaling from global policy makers. The Bank of Canada has taken the lead on tapering, the European Central Bank may follow this week and the Federal Reserve is likely to do so later this year, but all are highlighting the gradual and flexible nature of their moves.

Eoin Treacy's view -

The RBA has little choice but to tread softly with its tapering program because so many uncertainties are still present. Central banks are going to be led by the data. That’s particularly true as the various mutated forms of the virus present challenges for reopening.



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September 03 2021

Commentary by Eoin Treacy

September 03 2021

Commentary by Eoin Treacy

September 03 2021

Commentary by Eoin Treacy

Secular Themes Review September 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 May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

If it walks like a duck and quacks like a duck, it must be a duck. Wall Street is behaving like it is in a bubble. The most important thing is the bubble is still inflating.



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September 03 2021

Commentary by Eoin Treacy

September 02 2021

Commentary by Eoin Treacy

Video commentary for September 2nd 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: global liquidity supports the medium-term bull market hypothesis but their is short-term risk of weakness. oil continues to firm, carbon credits break out, continued signs of fervour in cryptocurrencies, gold steady. 



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September 02 2021

Commentary by Eoin Treacy

BRIC By Brick: The Demographic Dream Unravels

This article by Shankkar Aiyar for Bloomberg may be of interest. Here is a section:

The arc of electoral expediency demands a saleable alibi, a villain, and a promise of prosperity at the end of the rainbow. The rash of legislation and the promise to expand the enclave of reservations may at best serve as a placebo. The spectre which could come to haunt India is up ahead. What is important to recognise is the scale of the challenge. India’s 2020 population is estimated at over 1.39 billion of which 67% or nearly 925 million are of working age. By 2050 India’s population will touch 1.63 billion – and the working-age population is expected to touch 1.11 billion.

Demography is not destiny. India’s politicians are right to fear the looming spectre of rising working-age population and unemployment but both the cause and consequence are of their making. India needs structural reforms to propel growth. Effectively the demographic dream rests on the hope that India’s rulers would tune policy to empower the willing millions. Without growth, politicians will only be left with poverty and promises to redistribute.

Eoin Treacy's view -

Most India commentators adopt a glass half empty perspective. The performance of the stock market tells a different story.



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September 02 2021

Commentary by Eoin Treacy

Email of the day - on candlestick patterns

Dear Eoin Your monthly chart of gold shows a perfect and quite rare "Dragonfly Doji" candlestick pattern. With your considerable charting knowledge would you regard this as a bullish technical signal?

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. There are hundreds of candlestick patterns with colourful names. In order to assess how meaningful any one of them is we generally only have to ask one question. Did the price action have a big psychological impact?



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September 02 2021

Commentary by Eoin Treacy

Evergrande Contagion Fear Returns as Bonds Tumble Below 30 Cents

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

One of the company’s most widely held bonds plunged by 6 cents on the dollar to 28.5 cents on Wednesday, a record low. The rout -- triggered by Evergrande’s warning of a potential default if its asset-sale plans fail to materialize -- accelerated during European market hours as private banks offloaded positions, traders said.

The collateral damage was concentrated in junk-rated developers including Kaisa Group Holdings Ltd., Fantasia Holdings Group Co. and Guangzhou R&F Properties Co. The latter company’s dollar notes due 2024 tumbled 4.1 cents to 66.8, according to Bloomberg-compiled data. Declines in the broader Chinese high-yield space reached as much as 2 cents on the dollar, halting a tentative rally over the past few days. 

Investors in China’s $12 trillion bond market have become fixated on Evergrande as they weigh the ramifications of a potential default by the world’s most indebted developer. With bondholders, banks, suppliers and homebuyers exposed to the real estate giant, any collapse could roil China’s economy. While regulators urged the company to resolve its debt woes in a rare public rebuke earlier this month, they have said little about whether state support is forthcoming. President Xi Jinping has been trying to wean the Chinese financial system off implicit government guarantees that fueled years of outsized borrowing.

Eoin Treacy's view -

China Evergrande is the biggest issuer of US Dollar denominated debt in the emerging markets. The financial markets are floating on a sea of Dollars. There are so many dollars in circulation that cross currency swaps are close to moving into a positive spread for the first time in years. Therefore, Evergrande’s problems are not arising because global liquidity is tightening. Instead, they are the result of government efforts to contain leverage ratios in the Chinese property market.



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September 02 2021

Commentary by Eoin Treacy

Email of the day on food price inflation and political polarisation

I did notice the surge in fresh fish prices for the past 6 months. For example, dover soles (300-400g size) had been in the 20-25 eur/kg (with an average at +/-23 eur) for +/- 15 years with a few peaks at 30 eur and dips at 18 eur; for the past 6 months, I have never seen the price below 30 euros and it has averaged 35-37eur with peaks at 40+ eur. I wonder whether it has to do with Brexit and therefore less fish available on the EU market. In any case all fish prices have substantially increased (depending on the species 40-70%); the cost of milk, pasta, etc. has also increased, not talking about gasoline or real estate.

(Here in Luxembourg, I have been made aware that a new project outside the city -at +/- 10 km to the north- a new residential development to be delivered in 2023 has prices at 20.000 euros/sq m for flats of 65-75 sq m) ... [Ed. c.€1890/sqft]

Wages are not following, and taxes are globally up with budgets still showing too large deficits. This will fuel resentment and populism, maybe revolts when people have nothing left to lose (the situation is dire in France and the split within the have and have nots deepening by the day compounded by and immigration - whether with a French ID or not - separatism being more evident by the day. Wages are not following.

Eoin Treacy's view -

Thank you for this insightful account. The rising cost of marine products may be an unintended consequence of renewable energy, regulations and compliance. This article from the BBC profiling Grimsby may be of interest. Here is a section: 

Shell fisherman Darren Kenyon is not a fan of the wind companies, though.

"It's been a really bad thing for us," he says. "They've taken thousands of miles of sea up, and put wind poles in. They've gridded the sea with electricity cables."

Darren complains that he cannot compete with the wages the wind farm companies pay their crews. 

And

According to the environmental group, Greenpeace, just five wealthy UK families own or control nearly a third of the country's fishing quota.

Danny complains that the whole system conspires to push small players out. Retiring smaller fishermen have often sold their quota - sometimes to continental Europeans. Others rent out their allocation on a monthly basis; they're known in the trade as "slipper skippers" because it's assumed that they sit snug and warm at home while others go fishing.



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September 01 2021

Commentary by Eoin Treacy

Video commentary for September 1st 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: inflationary pressures tend to come in waves, gold steady, cryptos breaking higher, Wall Street looking a little tired, emerging markets turn to outperformance. interest hiking cycles tend to occur before market peaks. 



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September 01 2021

Commentary by Eoin Treacy

North American Gas Markets Now in Deficit

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

Since their initial development in the early 2000s, the US shale gas fields have completely overwhelmed US gas markets. Between 2007 and 2020, shale production grew by an incredible 68 bcf/d on a starting base of 50 bcf/d. Over that time, the shales represented 150% of total US production growth, with conventional supply declining steadily. Notably, the Marcellus (in Pennsylvania) and associated gas from the Permian (in Texas) were responsible for nearly 70% of that increase. In 2019, our neural network indicated that both plays were in the early stages of resource exhaustion. We predicted both basins would have a hard time growing at the same rate as in prior years and may actually begin to decline.

Our models appear to be correct. Between December 2019 and June 2021, the Marcellus has been flat while the Permian has added only 1.1 bcf/d. To put these figures into perspective, over the eighteen months between June 2018 and December 2019, the Marcellus added 6.5 bcf/d while the Permian added 5.5 bcf/d. In other words, Marcellus growth declined by 98% while Permian growth fell by 80%. While COVID certainly impacted drilling activity, recent production trends have not improved. Year to date, production from the Marcellus and Permian combined is down 250 mmcf/d.

If the shales stop growing, total US production would decline quite quickly. For example, total US dry gas production peaked in December 2019 at 97 bcf/d. As of April (the most recent month with complete data), US supply was down 4.5 bcf/d or nearly 5% to 92.5 bcf/d. Given that preliminary data suggests the shales declined between April and June, it seems almost certain total US dry gas production has continued to decline as well.

Eoin Treacy's view -

The shale oil and gas boom transformed the USA’s energy market but also played a significant role in the geopolitical theatre. The biggest idiosyncrasy attached to the market is the constant drilling requirement. Unconventional wells have prolific early production but quickly peak. The only way to ensure production grows or is sustained is to keep drilling new wells. The economics of the sector are capital intense so interest rates, availability of funding and the price of the commodity play a significant role in how many wells are dug.



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September 01 2021

Commentary by Eoin Treacy

Australia's Economy Had More Speed Than Thought as Delta Hit

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

“But today’s release highlights that when restrictions are eased, fiscal and monetary policy are supportive, and households and businesses are confident in the outlook -- and in the Covid situation -- the economy will recover,” said Sarah Hunter, chief economist for BIS Oxford Economics. 

Australia’s labor market had been tightening rapidly until the delta outbreak. The jobless rate dropped to 4.6% in July, the lowest level since 2008, though that was largely due to a fall in participation as Sydneysiders were unable to hunt for work. 

Unemployment is expected to rise in coming months due to the restrictions imposed to combat delta.

On a more positive note, in response to the worsening outbreak, authorities have ramped up vaccinations as they seek to emulate northern hemisphere counterparts in trying to navigate an approach to living with the virus.

The central bank has so far maintained that Australia’s economy will bounce back rapidly from the latest outbreak, as it did in 2020. However, the prolonged duration of lockdowns and the likelihood the virus won’t be suppressed quickly could cast doubt on such an outcome.

Eoin Treacy's view -

There is no reason to expect that Australia’s experience with the coronavirus will be any different from everywhere else. That’s a quick spike, panicky headlines, overzealous lockdowns and a major decline in cases after about two months. Since the most recent spike started in July, it suggests Australia’s peak infection point is rapidly approaching.



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September 01 2021

Commentary by Eoin Treacy

Biden administration ramps up antitrust efforts amid worries about high prices

Thanks to a subscriber for this article from The Washington Post may be of interest to subscribers. Here is a section:

But other troubling signs have emerged in ways that threaten the administration’s political agenda. The price of gasoline rose by 2.5% in June and 2.4% in July — a rate which, if consistent over the course of the year, would amount to a more than 20% annual increase. Gas prices have risen above $3 and are at their highest level since 2014 as part of a broader increase in prices that the administration is eager to reverse. Prices could increase further as Hurricane Ida slams into Louisiana, a key hub for refineries, although that uptick will likely prove temporary.

Food price hikes also strained family budgets, rising by roughly 3.4% from last year. The Agriculture Department saw faster than expected jumps between June and July in the price of 11 different food categories — including beef and veal; seafood; fish; and dairy products — with pork and chicken prices increasing by about 2% in just one month. USDA projected jumps in poultry prices of as high as 6% over 2021.

Eoin Treacy's view -

The big question for investors is how serious are politicians about interfering to control commodity prices? There are certainly measures which can be implemented to address anti-competitive behaviour, but the reality is that many of the supply bottlenecks have arisen as a result of direct government policies.



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August 31 2021

Commentary by Eoin Treacy

Video commentary for August 31st 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: Chinese tech shares extend bounce, India extends bull trend, Japan steady, Yen weak but Asian emerging currencies firm, Europe and US Steady but were led high by mega caps yesterday, nickel firm, gold steady, 



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August 31 2021

Commentary by Eoin Treacy

Strong Demand Keeps India on Path to World's Fastest Growth

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

“The print shows that the economic cost of the virulent second Covid-19 wave was much lower than the first,” said Gaura Sen Gupta, an economist with IDFC First Bank Ltd. “Details reveal a K-shaped recovery with much stronger growth in industries and muted growth in services,” she said.

A better-than-expected manufacturing performance and a milder hit to services, combined with a robust pace of vaccinations, also helped keep the annual growth outlook for the economy steady at 9.2%, according to a Bloomberg survey. That pace will be the quickest among major economies, surpassing China’s 8.5%.

The rupee completed its biggest monthly gain since May before the data was released, while stock indexes hit a new high amid optimism about the economy’s strong recovery. Bonds were up slightly.

Latest high-frequency data showed the impact of pandemic restrictions were less severe than last year, enabling demand to recover quickly in the consumption-driven economy. Loans for consumer durables and vehicle purchase, as well as to real estate and small businesses, grew in July, both in terms of month-on-month and from a year earlier, data published by the Reserve Bank of India showed.

Eoin Treacy's view -

India’s large young population and highly developed pharmaceuticals sector have allowed it to come through the pandemic in a stronger position. Simultaneously, the economy should continue to benefit as a primary destination for low-cost manufacturing as companies re-evaluate the wisdom of relying entirely on China’s workshop of the world model.



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August 31 2021

Commentary by Eoin Treacy

Visa Takes First Step Into NFTs With CryptoPunk Purchase for Almost $150K

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

Visa's head of crypto, Cuy Sheffield, said in a blog post that the main purpose behind Visa's purchase was to learn more about the growing market. "We think NFTs will play an important role in the future of retail, social media, entertainment and commerce," Sheffield wrote. "To help our clients and partners participate, we need a firsthand understanding of the infrastructure requirements for a global brand to purchase, store, and leverage an NFT."

He also said Visa wanted to signal its support for the creators, collectors and artists who are developing NFT commerce, as well as to “collect an NFT that symbolizes the excitement and opportunity of this particular cultural moment.” 

Sheffield further compared NFTs to the early days of e-commerce in which small businesses were empowered to sell online and reach customers worldwide. "We can envision a future in which your crypto address becomes as important as your mailing address," Sheffield wrote.

Eoin Treacy's view -

Visa paid $150,000 for a soundbite. If they are trying to make a market in nonfungible tokens that’s a small price to pay. It’s a sector that is exploding with interested counterparties. 



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August 31 2021

Commentary by Eoin Treacy

How water shortages are brewing wars

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

Unfortunately, there's no one-size-fits-all solution to water scarcity. In many countries simply reducing loss and leaks could make a huge difference – Iraq loses as much as two-thirds of treated water due to damaged infrastructure. The WPS partners also suggest tackling corruption and reducing agricultural over-abstraction as other key policies that could help. Iceland even suggests increasing the price of water to reflect the cost of its provision – in many parts of the world, humans have grown used to getting water being a cheap and plentiful resource rather than something to be treasured.

Much can also be done by freeing up more water for use through techniques such as desalination of seawater. Saudi Arabia currently meets 50% of its water needs through the process. "Grey", or waste water, recycling can also offer a low-cost, easy-to-implement alternative, which can help farming communities impacted by drought. One assessment of global desalination and wastewater treatment predicted that increased capacity of these could reduce the proportion of the global population under severe water scarcity from 40% to 14%.

At the international level, extensive damming by countries upstream are likely to increase the risk of disputes with those that rely on rivers for much of their water supply further downstream. But Susanne Schmeier, associate professor of water law and diplomacy at IHE Delft in the Netherlands, says that co-riparian conflict is easier to spot and less likely to come to a head. "Local conflicts are much more difficult to control and tend to escalate rapidly – a main difference from the transboundary level, where relations between states often limit the escalation of water-related conflicts," she says

Eoin Treacy's view -

Large populations with aspirations of increasing living standards are bumping up against the reality of resource scarcity. This is particularly true for water because many people think of it as free resource that falls from the sky or flows through the city. As cities grow larger and the global population becomes further concentrated at the deltas of major rivers, it is inevitable that water is going to become an increasingly contentious issue. That’s before anyone even begins to think about the ramifications of a changing climate.



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August 27 2021

Commentary by Eoin Treacy

August 27 2021

Commentary by Eoin Treacy

August 27 2021

Commentary by Eoin Treacy

Powell Says Taper Could Start in 2021, With No Rush on Rate Hike

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

Investors took the news of the coming taper in their stride -- avoiding any hint of the so-called 2013 “tantrum” when the Fed surprised markets by unexpectedly announcing it would start to pare back asset purchases. The S&P 500 rose during the much-anticipated address to stand more than 0.6% higher from opening levels. Ten-year Treasury yields nudged slightly lower to around 1.33% and the dollar fell.

“Chair Powell stuck to the script in his Jackson Hole speech; anyone hoping for a steer on the timing of the taper will have been disappointed, but it was never likely,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

At the July Federal Open Market Committee meeting, most Fed officials agreed it would probably be appropriate to begin tapering the central bank’s $120-billion-a-month bond-buying program before the end of the year, according to a record of the gathering. Some are pushing for a move as soon as next month.

Monetary policy makers would like to conclude the purchases before they begin raising interest rates, and several in June saw a possible need for rate increases as early as 2022 amid inflation that is running above the central bank’s 2% target. The Fed cut its benchmark rate to nearly zero and relaunched the crisis-era purchase program last year at the onset of the pandemic.

Eoin Treacy's view -

No surprises and the promise of a potentially lengthy interval between the end of quantitative easing and tightening was greeted with enthusiasm by investors. It ensures the Fed will remain a significant force in the Treasury market for a while longer.



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August 27 2021

Commentary by Eoin Treacy

Fearing Inflation, Germans Load Up on Gold Bars

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

Demand for physical bullion in Germany, traditionally the biggest coin and bar buyer in Europe, was the highest since at least 2009 in the first half, World Gold Council data show.

While purchases in other Western markets have also been strong, Germans in particular are pouring into the metal as a hedge against rising inflation -- and dealers say business remains good.

“We have a long history of inflation fear in our DNA. Now the inflation risk is picking up,” said Raphael Scherer, a managing director at metals dealer Philoro Edelmetalle GmbH, whose gold sales are up 25% on what was already a strong 2020.

“The outlook for precious metals is very positive.” Germany’s love of gold has its origins in the hyperinflation seen under the Weimar Republic a century ago, which saw consumers’ buying power collapse. Last month, the reopening of the economy helped German inflation jump to the highest in more than a decade. Negative interest rates in Europe are also making non-yielding assets like gold more attractive, Scherer said.

First-half demand for bar and coins in Germany increased by 35% from the previous six months, compared with 20% in the rest of the world, WGC data show.

Eoin Treacy's view -

I just realised this is the third day in a row I have featured an article relating to Germany. Imported inflation is running at a record rate and there is no sign it is abating just yet. Taiwan Semiconductor raising prices by 20% yesterday, rising shipping rates and higher commodity prices are all conspiring to raise prices for just about everything; everywhere. Meanwhile Euro weakness is a tailwind for inflationary pressures.  



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August 27 2021

Commentary by Eoin Treacy

Email of the day on bitcoin's reliability as an investment:

An interesting way to look at the Bitcoin price.

https://clockworkpartners.com/price/

Eoin Treacy's view -

Thanks for this insightful graphic which may be of interest to subscribers. Here is a section from the commentary:

The left chart displays the relationship between bitcoin's price on a given day (vertical axis) and four years before that day (horizontal axis). The right chart displays the trajectory of bitcoin's price vs. time. The radial axis (logarithmic) represents price in dollars per coin. The angle represents time (four years per cycle).

In both charts, each day is represented by a pink dot and the most recent day's dot is displayed within a blue circle. Price data are from Bevand and Coin Metrics.

Has anyone ever suffered a loss by purchasing bitcoin with dollars and holding it for four or more years? Will anyone?



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August 26 2021

Commentary by Eoin Treacy

Video commentary for August 26th 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: stocks markets ease of Powell statement tomorrow, gold steady, silver and platinum weak, oil stable, natural gas firm, bonds yields also quiet, China weak, Japan steady, commonality between Wall Street and European trends, particularly midcaps. 



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August 26 2021

Commentary by Eoin Treacy

The SPAC+ Fund - Uniquely Designed to Solve Today's Most Difficult Portfolio Problem

This promotional piece from Morgan Creek may be of interest to subscribers. Here is a section:

In today’s world of 0% risk-free rates (or less), investors face the difficult choice of either protecting themselves against worst-case scenarios but in turn accepting no return (and much opportunity cost), or of making choices designed to generate at least some return, but in doing so accepting significant potential losses if all goes wrong. SPAC+ is an actively managed strategy designed around the incredibly unique attributes of pre-combinations SPACs – investors are protected on the downside by T-bill collateral but can generate upside through embedded equity options – to help everyday investors solve this difficult portfolio problem. We believe it can improve risk/return in investors’ portfolios.

And

As an example of how these drivers come together to add value, at the end of 2020 the average price of a common share in the SPAC+ portfolio was $10.26 and the average price of a unit in the portfolio was $10.72, and the fund was at 1.45x leverage. At the end of March 2021, the average common price had declined to $9.81 and the average unit price had declined to $9.95, down 4.39% and 7.11% respectively, and the fund was at 1.63x leverage. Despite the significant price declines of the inventory on a levered portfolio, SPAC+ was up +8.45% year to date through March 2021. Moreover, in the absolute worst case scenario of a market downturn where no more SPAC mergers are ever completed, the SPAC+ Fund would only lose 1.5% after waiting and collecting the share of the collateral of all the positions held in T-bills.10 This absolute downside compares favourably to other equity or credit-related products, which would likely face much steeper drawdowns. The strategy of the SPAC+ Fund may improve risk-adjusted returns to investors’ portfolios, while reducing tail risk in a bad event.

Eoin Treacy's view -

The investor scrabble to deal with close to zero interest rates has been going on for more than a decade. The result is the yields available in every asset class have contracted considerably over that time. It is a measure of how desperate investors are for a fixed income-like return that making 8.45% on leverage of 1.69 is considered a bargain.



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August 26 2021

Commentary by Eoin Treacy

China's CSI 300 Slides, Weighed Down by Moutai, Wuliangye

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

Shares of Chinese liquor makers fall, with Kweichow Moutai and Wuliangye among the biggest drags on the benchmark CSI 300 Index.

Moutai drops as much as 3.3%, the biggest drag on the CSI 300 Index, which declines as much as 1.1%

Wuliangye also loses as much as 3.3%, Jiangsu King’s Luck -6.2%, Shanxi Xinghuacun Fen Wine -3.7%, Anhui Gujing -3.9%

Moutai organized a week-long special training for its sales team, stressing on product price stability, ahead of the Mid-Autumn Festival next month and the National Day holiday in October, according to a Wednesday posting by a WeChat account on liquor industry news

Prices of all Moutai products have dropped marginally in Beijing recently, with its flagship liquor down about 200 yuan to around 2,800 yuan

Capital Securities analyst Gu Xiangjun says liquor shares have had sizable gains recently, adding pullback on Thursday could be “temporary”

Moutai added a total of 7.6% over a three-day rally through Wednesday and Wuliangye rose 5.4% during the period

Eoin Treacy's view -

Kweichou Moutai and Wuliangye are the largest and fourth largest stocks on the CSI 300. That might surprise some people since it is unusual for liquor companies to occupy such large weightings in large economies.



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August 26 2021

Commentary by Eoin Treacy

VW and Daimler Going Electric Overwhelms German Auto Suppliers

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Carmakers are exacerbating issues by producing more components in-house. Tesla, VW and Porsche are making car batteries themselves or with a partner from outside the traditional car-parts industry. VW aims to cut procurement costs by 7% and fixed costs by 5% over the next couple years, potentially pressuring suppliers including Continental, Magna and ZF Friedrichshafen, my colleague Joel Levington wrote for Bloomberg Intelligence. During a visit to Germany earlier this month, Tesla CEO Elon Musk publicly called out Bosch for not supplying chips quickly enough.

The industry’s struggles won’t be over soon. The semiconductor shortage will cut worldwide auto production by as many as 7.1 million vehicles this year, with pandemic-related supply disruptions hobbling output well into 2022, according to IHS Markit. This week, VW's Wolfsburg plant — the world’s
biggest, employing some 60,000 people — restarted from its usual summer break running only one shift.

Chancellor Angela Merkel’s government, which has been kind to the industry in past years, earlier this month green-lighted a 1 billion-euro “future” fund to help German regions reliant on autos survive the shift away from the combustion engine. Still, analysts anticipate greater consolidation of the parts industry. So, what can suppliers do? Roland Berger says they must overhaul long-established processes to become leaner, invest more in software and digitization, become more open to R&D partnerships and look to Asia for potential growth.

Eoin Treacy's view -

I wonder if the CDU/CSU is prepared for the destruction of the auto parts sector to become an election issue because these kinds of events tend to spark populist uprising. There is no getting around the fact that electric vehicles do not have nearly as many parts as internal combustion engine-driven vehicles. As carbon credit taxes surge the incentive to sell rather than buy them ensures a migration towards batteries. That’s going to put a lot of people out of work in Germany’s CDU dominated industrial heartland.



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August 26 2021

Commentary by Eoin Treacy

August 25 2021

Commentary by Eoin Treacy

Video commentary for August 25th 2021

August 25 2021

Commentary by Eoin Treacy

Shortages From Chips to Paper Are Threatening Germany�s Recovery

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“It’s metal products, it’s plastic products, paper even. And then it’s certainly the pandemic,” he said. 

Concerns about the outlook come as Germany prepares for next month’s elections that will see the winner succeed outgoing Chancellor Angela Merkelafter 16 years in power. 

The Bundesbank, Germany’s central bank, said this week economic growth this year may be somewhat lower than the 3.7% it had forecast in June. But Fuest said a lot depends on how long supply shortages will last.

“What we see in this month is that in manufacturing, things are actually getting worse rather than better,” he said. “If that continues it will be a significant downgrade of the growth outlook.”  

Eoin Treacy's view -

China locked down half the country to deal with its outbreak of the Delta variant. That stopped people moving from the hinterland to the coast to find work. That has resulted in longer lead times for manufacturing. The temporary and partial shutdown of port facilities in Shenzhen and Ningbo created additional supply constraints with long queues of ships waiting to be loaded. These events have been significant contributions to shortages in Europe.



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August 25 2021

Commentary by Eoin Treacy

Supply Squeezes are Reappearing Everywhere in Key Metal Markets

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It’s hard to think of two metals with more disparate fundamentals than copper and lead, and long-term projections for prices reflect that. In one corner, there’s a metal that looks set to soar as it powers the world’s rapidly burgeoning renewable-energy and electric-vehicle industries, and in the other corner there’s lead. The highly toxic metal has been substituted out of virtually every product it’s been used in throughout history, and now the electric-vehicle revolution is posing a manifest threat to its last major application in conventional car batteries.

Still, for buyers scrambling to get hold of spot metal on the LME, the fact that lead prices are likely to crumble in the future will be of no comfort at all. And the general rule in commodities markets is that as long as buyers are bidding up spot prices, futures are likely to follow.

Eoin Treacy's view -

Every country has some form of a recovery plan from the pandemic and so does every consumer. That points to increased spending and not least because many purchases were delayed by the pandemic. That’s helping to support the price of all industrial resources since infrastructure spending is the go-to area for government stimulus.



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August 25 2021

Commentary by Eoin Treacy

Bond Math Reveals Secret to Big Tech's Fate in U.S. Stock Market

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“If rates go up, they will underperform,” Aash Shah, senior portfolio manager with Summit Global Investments, said of the biggest tech stocks. “That’s nothing against their business, just a reality of discounted cash flow.”

The interplay between technology stocks and Treasury rates is nothing new, of course; the rise in yields over 2018 contributed to an outsize rout in the Nasdaq 100 Index late that year, for example. And other forces, like last year’s shift away from companies hard hit by lockdowns, have also played a major role in driving tech stocks. 

Chris Murphy, co-head of derivatives strategy at Susquehanna International, said a rise in yields doesn’t necessarily pose a risk to tech stocks if economic growth stays strong. But that could be eclipsed if investors grow fearful about the expected pullback in the Federal Reserve’s bond buying program.

“If economic growth holds up, 10-year yields and the Nasdaq can rally together,” he said. “If the focus switches to the Fed tapering, then that’ll be bad for the Nasdaq and the relationship starts to become more negative.”

Eoin Treacy's view -

The thing I was most worried by, at the end of the 1st quarter, was the surge in the yield curve spread. The worst selling pressure in a bear market usually occurs when the spread is surging higher following an inversion. That is usually when trouble in the economy is obvious and central banks belatedly try to play catch up. On this occasion, central banks acted with alacrity and forestalled a much deeper decline by flooding the market with liquidity. The significant rally in government bond prices, from the April low reduced funding pressure for the growth sector and marked a significant peak for the yield curve spread.



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August 25 2021

Commentary by Eoin Treacy

Japanese scientists produce first 3D-bioprinted, marbled Wagyu beef

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From humble beginnings that resembled soggy pork back in 2009, to the classic steaks and rib-eyes we've seen pop up in the last few years, lab-grown meat has come along in leaps and bounds. The most sophisticated examples use bioprinting to "print" living cells, which are nurtured to grow and differentiate into different cell types, ultimately building up into the tissues of the desired animal.

The Osaka University team used two types of stem cells harvested from Wagyu cows as their starting point, bovine satellite cells and adipose-derived stem cells. These cells were incubated and coaxed into becoming the different cell types needed to form individual fibers for muscle, fat and blood vessels. These were then arranged into a 3D stack to resemble the high intramuscular fat content of Wagyu, better known as marbling, or sashi in Japan.

Eoin Treacy's view -

I tend to think of lab-grown meats in the same terms as lab-grown diamonds. They are technically the same thing as the naturally occurring variety but it is very difficult to convince consumers of that fact. Nevertheless, lab-grown diamonds have carved out an important niche in the precious stones sector and particularly in the market for smaller sizes.



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August 24 2021

Commentary by Eoin Treacy

Video commentary for August 24th 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: inflationary pressures misrepresented by data, China credit impulse bottoming, commodities and tech rebound,Wall Street continues to lead strong equity markets. Bond yields rising more on supply than inflation. 



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August 24 2021

Commentary by Eoin Treacy

Iron Ore Spikes With Commodities Markets Set for Demand Revival

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Iron ore’s revival came after it lost about a quarter of its value in the past month, as China’s push to curb steel production hammered demand. But steel and other industrial commodities have rebounded this week, after China’s count of daily Covid cases fell back to zero and central bankers vowed to step up support for the real economy. Coking coal in China hit a record on Tuesday, while copper has also recovered amid signs that Chinese consumers are on a buying spree. 

“Iron ore just cannot be the only one lagging while everything else in steel space is massively bid,” Xiaoyu Zhu, a metals trader at StoneX Financial Inc., said by email. “After the price spike in coal products in the last two days, it’s hard for iron ore to stay quiet.”
 

Eoin Treacy's view -

Steel is as essential to economic development as it has ever been and that makes it a important component of global economic revival. The challenge for China is they have vast oversupply of manufacturing capacity for the alloy and rationalising it is an erstwhile priority.



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