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July 16 2020

Commentary by Eoin Treacy

Worst China Stocks Selloff Since February Caps Brutal Reversal

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

The impact showed in Wednesday’s smallest increase in stock leverage since late June. The CSI 300, which was up almost 17% for the month on Monday, has now given up half those gains.

An attack from the People’s Daily newspaper on Moutai was taken as another sign of Beijing’s desire to slow the recent run-up, after government-backed funds sold shares or announced plans to so in the past few days. Increasing tensions with the U.S., the central bank’s clampdown on easy money and a drop in retail sales are also adding up as reasons to start selling.

Data Thursday showed the Chinese economy returned to growth in the second quarter, expanding a better-than-expected 3.2%. While industrial output rose 4.8% from a year earlier, retail sales shrank 1.8%, weaker than a projected 0.5% increase. That suggests the recovery is still largely industry-driven, with consumer sentiment remaining fragile.

“Retail sales came worse than expected, which hurts sentiment towards some consumer stocks,” said Daniel So, a strategist at CMB International Securities Ltd. “A stabilizing economy means the scale of monetary easing may be smaller than expected. Ample liquidity was one of the key reasons for markets to jump.”

Overseas investors continued to trim their holdings of mainland-listed shares, selling nearly $4 billion worth of the stocks through exchange links in the past three days.

Eoin Treacy's view -

The CSI 300 pulled back sharply today to test the upper side of the underlying range. This represents the first area of potential support so evidence of demand returning in the next day or two will be required if the benefit of the doubt is to be given to the breakout.



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July 16 2020

Commentary by Eoin Treacy

Gold adjusted for Purchasing Power Parity in USD, GBP, AUD, CAD, EUR and CHF

Eoin Treacy's view -

Gold is a monetary metal because it has been viewed as a store of value for millennia. The question therefore is how do we best measure its performance as a store of value? Afterall, the simply looking at its value in different currencies gives us an historical perspective but it does not illustrate how much the purchasing power of currencies has been degraded over time. In order to do that we need to create charts of gold adjusted for the purchasing power parity of various currencies.



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July 16 2020

Commentary by Eoin Treacy

U.K. Says Russians Seek to Steal Virus Vaccine Research

This article by Kitty Donaldson, Ryan Gallagher and Chris Strohm for Bloomberg may be of interest to subscribers. Here is a section:

In a dramatic statement on Thursday, Britain’s National Cyber Security Centre (NCSC) said vaccine and therapeutic sectors in multiple countries have been targeted by a group known as APT29, which it said is “almost certainly” part of Russian state intelligence. Security agencies in the U.S. and Canada later issued their own statements backing up the findings.

“It is completely unacceptable that the Russian intelligence services are targeting those working to combat the coronavirus pandemic,” British Foreign Secretary Dominic Raab said. “While others pursue their selfish interests with reckless behavior, the U.K. and its allies are getting on with the hard work of finding a vaccine and protecting global health.”

The intelligence bombshell came at a delicate time in geopolitics with a combative U.S. election looming in November and the pandemic plunging the world economy into recession. Coronavirus has launched a global race for a vaccine, in which researchers in the U.K. have made progress recently.

Eoin Treacy's view -

The geopolitical dividend of being the country that develops a viable solution for the coronavirus first is obvious. That is regardless of the fact that most countries and companies have clearly stated they are willing to do everything possible to made a vaccine widely available.



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July 15 2020

Commentary by Eoin Treacy

July 15 2020

Commentary by Eoin Treacy

July 15 2020

Commentary by Eoin Treacy

Musings From the Oil Patch July 15th 2020

Thanks to a subscriber for this report by Allen Brooks for PPHB. This issue includes a comprehensive discussion on the viability of a hydrogen economy. Here is a section:

The conclusion that comes from our examination of hydrogen is that without some major technological breakthrough that reduces the cost of producing it substantially, the economic hurdle will not be overcome.  That means the only way hydrogen could become an important energy source is with government intervention in the energy market and assigning a price to carbon, or subsidizing the hydrogen fuel.  At this point in time, as governments around the world struggle to reopen their economies and repair the financial damage done to their citizens and businesses by the response to the pandemic, it is difficult to see them embracing carbon prices, which raises energy costs for their people and companies.  This is why the strong push, especially in Europe, for tying net-zero carbon emission policies in government stimulus efforts to rebuild their economies following Covid-19.  We suggest energy executives, analysts and investors worry more about the debates over the economic rebuilding efforts than the short-term moves in oil prices, demand and supply.  The long-term future of the oil market will be impacted by the success of governments instituting carbon prices.

Eoin Treacy's view -

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

Natural gas and coal prices are low in both nominal and relative terms. Economics 101 dictates that when the price of a vital commodity falls, consumers will naturally migrate towards it and find new uses for the resource.



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July 15 2020

Commentary by Eoin Treacy

As US Seeks Sourcing, Sole US Rare Earth Miner Goes Public

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

The sole miner of rare earths in the U.S. is becoming a public company amid elevated trade tensions with China, the dominant global supplier of the material used in everything from computers to cars.
MP Materials, which runs a mine and processing facility in Mountain Pass, Calif., near the border of Nevada, will be listed on the New York Stock Exchange in a deal with the blank-check company Fortress Value Acquisition Corp.

“This business combination and becoming a public company is a key milestone in MP Materials’ mission to restore the full rare earth supply chain to the United States of America," said James Litinsky, a co-chairman who will become chairman and CEO. MP Materials can produce refined neodymium-praseodymium, a rare earth material used in magnets that help power electric vehicles, wind turbines, robotics, drones and defense systems. China currently controls more than 80% of that market. MP Materials Corp. will be listed under the ticker symbol “MP."
 

Eoin Treacy's view -

A decade ago, the price of rare earth metals surged to unimaginable heights because China restricted exports in a mercantilist effort to force investment in its high-end manufacturing sector. The effort created significant efforts to develop alternative sources of supply but most failed to reach production when China started exporting again.



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July 15 2020

Commentary by Eoin Treacy

Aphria-Aurora Combo Would Post Over C$1 Billion in Sales

This note by Michael Bellusci for Bloomberg may be of interest to subscribers.

A combined Aphria and Aurora Cannabis entity would suggest a company with over C$1 billion in sales in 2021, with over C$600 million in net cannabis sales, Stifel analyst W. Andrew Carter wrote in note.
 

* Stifel says “headset market share data suggests” a combination would produce a leader in Canada’s adult-use market, with 30% share
* Stifel questions whether a potential deal would garner regulatory scrutiny
* Separately, Scotiabank analyst Adam Buckham wrote in note a potential deal makes sense
** Positives for Aurora holders would be annual cost savings and improved credit position
** Could spark pot sector M&A
* Aurora shares in Toronto rose as much as 6.3% intraday; Aphria rose 7.7%
* NOTE: Earlier, Aurora-Aphria Merger Talks Are Not Just Smoke: React (BI)
* NOTE: July 14, Aphria and Aurora Explored Merger, Talks Failed: BNN Bloomberg

Eoin Treacy's view -

The legalisation of cannabis in Canada was a buy the rumour, sell the news phenomenon. The prices of related shares surged ahead of the transition but did not improve on that performance subsequently and have since declined meaningfully.



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July 14 2020

Commentary by Eoin Treacy

July 14 2020

Commentary by Eoin Treacy

Global Macro Outlook: Virus curve flattening, markets stabilizing, slow recovery

Thanks to a subscriber for this report from Deutsch Bank by Torsten Slok. It is loaded with thought provoking charts which may be of interest.

Eoin Treacy's view -

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

I found the chart comparing the Swedish and US COVID-19 infection rate to be particularly interesting. It suggests that anything less than total adherence to social distancing, effective testing and contact tracing is ineffectual. That’s a challenge because while some Asian countries have been able to implement these types of protocols swiftly, not least because of their prior experience with SARS, it seems beyond the ability of most countries to do. With cases in Hong Kong and Australia rising it is looking increasingly likely this is going to be a long hard slog until a vaccine is widely available.



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July 14 2020

Commentary by Eoin Treacy

Ten Thousand Day Traders an Hour Are Buying Tesla Shares

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

The frenzy in interest means that as of the end of Monday’s trading session, there are now roughly 457,000 users on the Robinhood app that hold shares of the company in some form. That makes it the 10th-most popular stock on the platform, ahead of even Amazon.com Inc., which is held by 358,000 users.

It isn’t at all clear that day traders are the main driver for the nosebleed rally in Tesla shares over the past few weeks. Indeed, there are myriad other possibilities, from the potential reveal of a new battery technology, to short covering, to conjecture over the possibility for the stock’s addition to the S&P 500 Index.

Eoin Treacy's view -

The rise of the day trader is another late cycle signal that we are now in the speculative excess phase of the bull market. When regular people make more money from trading than from their regular jobs it is an anomaly that does not last indefinitely.



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July 14 2020

Commentary by Eoin Treacy

Equities & The Rise of Inflation: How Much Inflation Before Repression?

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

Eoin Treacy's view -

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

Governments are engaged in a massive nationalization of private assets. Whether its buying sovereign, corporate or mortgage bonds, equities, repos and commercial paper it all represents an accumulation of private assets. Indirectly, property taxes and rising payments to public sector workers represent an additional confiscation and redirection of private property to sustaining the status quo. 



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July 13 2020

Commentary by Eoin Treacy

July 13 2020

Commentary by Eoin Treacy

Party Like It's 2020, Not 1999

Thanks to a subscriber for this report from Mike Wilson at Morgan Stanley. Here is a section:

Eoin Treacy's view -

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

Rather than compare the pace of the current advance with what we saw in 1999, I think it is more appropriate to highlight the COVID-19 fear mongering to what went on ahead of Y2K. Back in 1999 there was palpable fear all computers, everywhere, would stop working on January 1st 2000. That catalysed spending decisions in corporations globally to frontload technology upgrade decisions into 1999. Y2K effectively pulled forward sales from 2000. 2001 and 2002 and tech sales looked like they would go on forever.



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July 13 2020

Commentary by Eoin Treacy

The Thucydides Trap and the Rise and Fall of Great Powers

Thanks to a subscriber for this report from Geopolitical Futures by Jacak Partosiak which may be of interest. Here is a section:

Political scientist Joseph Nye believes that the key trigger in the Thucydides trap is an excessive reaction to the fear of losing one’s power status and prospects for future development. In the case of Washington and Beijing, the relative decline of America’s power and the rapid rise of China’s power destabilizes their relationship and makes it difficult to manage. Gen. Martin Dempsey, then-chairman of the Joint Chiefs of Staff of the U.S. Armed Forces, even admitted in May 2012 that his primary task was to ensure that the United States did not fall into the Thucydides trap.

As a result of the slow but noticeable erosion of the U.S. position in the Western Pacific, it is highly conceivable that a scenario could emerge in which the current hegemon is tempted to conduct a strategic counteroffensive in response to an incident, even a trivial one, in the South China Sea or East China Sea, believing falsely that it has the edge over its inferior rival. This would trigger a modern Thucydides trap.

An in-depth reading of Thucydides’ work reveals a second trap, even more complex and dangerous than the first. Thucydides clearly warned that neither Sparta nor Athens wanted war. But their allies and vassal states managed to convince them that war was inevitable anyway, which meant that both city-states would need to gain a decisive advantage at an early stage of the escalating confrontation. Thus, they decided to enter the war after being urged to do so by their vassal states.

Eoin Treacy's view -

The discussions of the Great Game between China and the USA and many interlinkages across the global economy has been fodder for analysts for much of the last five years. I believe a much greater intensification of the competition between the USA and China is likely. Arguably it is already underway. However, for outright war to take place a number of additional conditions would need to be met.



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July 13 2020

Commentary by Eoin Treacy

U.K. Can't Inflate Debt Away, New Head of Fiscal Watchdog Says

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

The chancellor and Prime Minister Boris Johnson have repeatedly said they’re not planning on pursuing austerity policies to rein in government spending, and for now Sunak has focused on preserving jobs to avoid long-term scarring of the economy. He unveiled a 30-billion pound stimulus program last week, and plans a wider package in a budget in the fall.

Hughes said while there are upside and downside risks to inflation, they’re tilted toward it remaining below the Bank of England’s 2% target. He also warned that the debts being built up by companies to tide them over the pandemic could end up becoming a burden that leads to scarring of the economy.

“One of the concerns that we’ve had is that the longer the crisis goes on for, the more likely government-guaranteed loans becomes less of a facilitator of the recovery and more of a burden,” he said. “The more the debt is a burden on companies the less they will invest. We know from past crises that one of the reasons you see longer-term scarring on the economy is you have foregone investment, and that scarring can be significant.”

He suggested one way to mitigate for that effect would be to tie repayments of the government-backed loans to a company’s earnings and profitability.

Hughes said high frequency data pointed to a “a bit of good news,” with April representing the low point for the economy and output contracting by about 25% instead of the 35% initially forecast by the OBR. The question is how quickly the economy gets back that loss.

Current OBR projections are based on Britain and the European Union striking a free-trade agreement. If talks fail and Britain is forced onto WTO rules when the current transition period ends in December, there will be adverse “consequences” for growth and the public finances, he said.

Eoin Treacy's view -

The biggest challenge for every country as we look beyond the coronavirus-induced crisis is in what manner the debt will be paid back and how a drag on recovery can be avoided. The clear answer is to refuse to raise interest rates regardless of how powerful the economy is. Following that up with additional spending measures, to placate restive populations is also likely to be part of the solution.



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July 10 2020

Commentary by Eoin Treacy

July 10 2020

Commentary by Eoin Treacy

Skai revises targets for its liquid-hydrogen, long-range eVTOL

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

One challenge for anyone who wants to work with liquid hydrogen is that you need to keep it extremely cold to keep it in its liquid state. At atmospheric pressure levels, we're talking just 20.28 kelvins above absolute zero (−252.87 °C, or −423.17 °F).

That temperature can rise a little if you're willing to pressurize as well as cool (using a cryogenic system running between 250 and 700 bar of pressure), but Gunter says that's not part of Skai's plans, as "even a moderately pressurized system has significant weight penalties."

So, super-cooling it'll be, and while that entails extra energy losses in the liquefaction stage, the cooling equipment, the conversion back into gas for use in the fuel cell and in boil-off in the tank itself, the net result will still be a much longer range aircraft than anyone dealing with gaseous hydrogen – or certainly lithium batteries – will be able to deliver.

It'll be interesting to see how Skai gets the job done, as really you've got to look to NASA and other space programs to find liquid hydrogen being used in serious volumes.

"The good thing in all of this," says Gunter, "is the notable developments that occur in this space on an increasing basis. The efficiencies we’ve seen in fuel cells and the same the industry is seeing regarding H2 production all point to increasing effectiveness of any form of H2 as a future focused solution."

"There's a number of naysayers about what we're doing with hydrogen," says Hanvey, "but we believe we've gone from the question to the possible, and it's now the probable. We know we can fly with hydrogen, and the question is just how quickly we can get it to the market. And based on our experience, we think we can get there a lot quicker than perhaps the market will give us credit for."

Eoin Treacy's view -

Hydrogen’s energy density is orders of magnitude greater than any other fuel currently used in the global economy. The only reason we don’t already use it is because of the technological difficulty of containing what is a highly combustible material. The whole world knows about the Hindenburg accident 83 year ago, which put an end to transatlantic zeppelin travel. It did to the hydrogen industry what the Fukushima accident did to nuclear.



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July 10 2020

Commentary by Eoin Treacy

Record Lows Await for U.K. Money Market and Gilt Yields

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

U.K. yields’ march to record lows will gather momentum in the coming weeks as traders’ conviction in
negative BOE rates grows.

It’s happening today, with short-sterling contracts in 2022 printing 100 for the first time. This implied a 3-mo. GBP Libor fixing at 0%, with the March 2022 contract implying an unprecedented fix of -0.01%. Moreover, MPC-dated OIS rates currently have a cut to zero fully priced by the June 2021 meeting and 15bps of reductions priced by September 2021, which would take the rate negative.

In the gilt curve, 2-yr and 5-yr yields are already comfortably below zero and a negative yield in the 10-yr maturity is only a matter of time. The underwhelming fiscal package unveiled this week, with the furlough scheme unlikely to be extended, has spurred investors to bet the BOE will pick up the bulk of the stimulus slack. With that, new superlatives await for the depth of U.K. yields.

 

Eoin Treacy's view -

The Bank of England is facing the same quandary as many other central banks. Do they push rates into negative territory or do they greatly increase monetary stimulus to offset the inability to cut rates? The first hamstrings the banking sector, because they will see margins on loans disappear or even go negative. The second risks debasing the currency and fueling asset price inflation.



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July 10 2020

Commentary by Eoin Treacy

Franco-Nevada Eyes $1 Billion Deals as Base Metals Lag Gold

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

“Right now, on the precious metals side, we’re entering a bull market even for the junior companies,” Harquail said. “People are doing financings and they’re upsizing the financings.”

Franco-Nevada’s investors want the company to focus on precious-metal deals, he said, as gold continues its ascent. The pandemic has created some headwinds, mainly around doing on-site due diligence for new investments. But Franco-Nevada has been able to work around that with “installment deals” that are subject to doing that work once it’s safe.

The company’s biggest investment, in First Quantum Minerals Ltd.’s Cobre Panama mine, was shut for most of the second quarter but is now reopening.

Harquail said the possibility of supply interruptions in Chile or Peru is serious but that so far governments have treated mining as an essential industry. The company has a stake in Lundin Mining Corp.’s Candelaria mine in Chile.

So far, miners have been able to take advantage of their ability to control sites to contain the virus, he said. While Franco-Nevada doesn’t expect full production this year, he’s comfortable if assets are performing at 85% to 90% of optimal volume.

”I think the industry is going to be able to manage this quite well,” he said.

Eoin Treacy's view -

In the early stages of a commodity bull market investors are focused on dividends. They want the security of the payout to offer some form of compensation for the perception of risk. As prices improve, priorities change. A desire to buy at a discounted price to try and gain leverage to the rising price environment supersedes the desire for yield. By the time the bull market climaxes investors are willing to pay anything to capture supply for fear of missing out on future returns.



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July 10 2020

Commentary by Eoin Treacy

July 09 2020

Commentary by Eoin Treacy

Video commentary for July 9th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: megacap tech extends uptrend, China extends breakouts, industrials resources firm but energy eases, agricultural commodities steadying at previous support, Dollar steadies, Europe eases. US regional banks weak.



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July 09 2020

Commentary by Eoin Treacy

Email of the day on China's ascendency:

Your excellent piece today focusing on the China question arrived at the same time as an interesting counter-narrative to the "China-supreme argument". From the Telegraph. If correct, China's is not going to have it all its own way. Here is a section:

"The Huawei saga has exposed just much the country still lags, a surprise to some who have bought into the media narrative of Chinese hi-tech ascendancy. China is not yet capable of making the advanced semiconductor chips used for telecommunications or for FGPA circuits that can be programmed.

Nor has it mastered the electronic design automation needed for circuit design. It lacks the critical raw material needed to sustain its ambitions for global dominance of G5 mobile and the coming “internet of things”.

The Centre for Strategic and International Studies estimates that China has yet to crack the materials science that goes into the latest microscopic chips, despite hurling money at the challenge in successive programmes, the latest one commanding more than $20bn. Its high-end chip industry is ten years behind, but in ten years the infrastructure of global cyber dominance will already be in place.  

In short, the US controls the world’s semiconductor ecosystem, working tightly with Japan, Korea, and Taiwan. All Washington had to do in late May was to flick its fingers and Taiwan’s TCMS instantly cut off chip supplies to Huawei, dooming the company’s G5 global quest at a stroke."

Eoin Treacy's view -

Thank you for your kind words and this article which I’m sure will be of interest to the Collective. The significant investment China is making in its domestic semiconductor industry will need to be long-term and ongoing in nature to achieve the level of sophistication currently available to other countries. By some accounts they have sunk $20 billion into the project so far and it may take recurring investments of at least that much to develop the tools required to achieve technological superiority over coming decades.



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July 09 2020

Commentary by Eoin Treacy

The Gold-Oil Ratio Revisited

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

However, looking only when the gold-oil ratio has exceeded 30:1 (i.e., oil is cheap relative to gold), crude has returned 32% on average over the next twelve months (over four times its long-term average), while gold has returned 4% on average. Oil was lower only 13% of the time (70% less often). On average, oil outperformed gold by 28% during these periods compared with 2% normally.

At the other extreme, when the gold-oil ratio was less than 10:1 (i.e., oil was expensive relative to gold), crude lost 7% on average over the next twelve months and was negative nearly 60% of the time. Gold returned 18% on average during these periods, outperforming oil by 25%. Since 80% of all observations occur when the ratio is between 10 and 30 you should expect the relative returns of both gold and oil to be like their long-run averages and that is exactly what occurred. When the ratio was between 10 and 30, oil returned 5% on average in the following 12 months, and was lower 41% of the time while gold returned 4% and was lower 33% of the time, roughly in line with long-term averages.

We last used this analysis in early 2016 to justify our investments in oil-related securities. At that point, the gold-oil ratio hit a then-record 47:1. We argued that oil prices were set to surge and invested in oil-weighted E&P securities as a result. Over the next 30-months, oil rallied by 191% from $26 per barrel to $76 per barrel by October 2018. Gold on the other hand fell by 4% over the same period. Oil stocks (as measured by the XLE ETF) advanced by 56%, well in excess of gold stocks (as measured by the GDX) which rose only 3% but lagging the S&P 500 which advanced 69%.

Eoin Treacy's view -

The gold/oil ratio spent much of the last couple of decades ranging mostly between 10 and 30. On the small number of occasions is veered outside of those bands the move was quickly reversed. It has therefore been reliable indicator of where value was present on repeated occasions. However, the current reading questions that conclusion. 



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July 09 2020

Commentary by Eoin Treacy

Torrid Heat and Empty Acres to Help Offset Corn's Demand Slump

This article by Michael Hirtzer, Tatiana Freitas and Elizabeth Rembert for Bloomberg may be of interest to subscribers. Here is a section:

In 2012, the last time corn supply dropped that much, the U.S. crop was hit by a combination of heat and drought, sending Chicago futures to their all-time peak of over $8 a bushel. The weather isn’t quite as drastic this year and grain prices are starting from a much lower level. But U.S. Department of Agriculture data last week made things more interesting, showing American farmers planted 3 million fewer acres with corn than expected.

The surprise drop in acreage makes any decline in yields due to record-high temperatures this week more acute -- and a potential turning point in a corn market that has suffered from a massive glut. The USDA in a monthly report on Friday is expected to shave off 600 million bushels from its supply
forecast, the biggest change since 2012, according to analysts polled by Bloomberg.

“One of the things we’ve talked about for a number of years is that supply has overtaken demand,” said Stephen Nicholson, senior grains and oilseeds analyst at agriculture lender Rabobank. “To rectify that imbalance, we have two things: some sort of weather event or produce less.”

Eoin Treacy's view -

The knock-on effects of the lockdowns and reduced economic activity has yet to be full seen. Whether that is in less demand for fuel additives, greater demand for snack foods, fewer acres planted or inclement weather affecting yields. The one thing we know for certain is that commodity prices are low. Therefore, supply disruptions have the capacity to shift the balance in favour of the bulls.



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July 08 2020

Commentary by Eoin Treacy

July 08 2020

Commentary by Eoin Treacy

China Has Already Declared Cold War on the U.S

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

Yet the book that has done the most to educate me about how China views America and the world today is, as I said, not a political text, but a work of science fiction. "The Dark Forest" was Liu Cixin’s 2008 sequel to the hugely successful "Three-Body Problem." It would be hard to overstate Liu’s influence in contemporary China: He is revered by the Shenzhen and Hangzhou tech companies, and was officially endorsed as one of the faces of 21st-century Chinese creativity by none other than … Wang Huning.

"The Dark Forest," which continues the story of the invasion of Earth by the ruthless and technologically superior Trisolarans, introduces Liu’s three axioms of “cosmic sociology.”

First, “Survival is the primary need of civilization.” Second, “Civilization continuously grows and expands, but the total matter in the universe remains constant.” Third, “chains of suspicion” and the risk of a “technological explosion” in another civilization mean that in space there can only be the law of the jungle. In the words of the book’s hero, Luo Ji: The universe is a dark forest. Every civilization is an armed hunter stalking through the trees like a ghost … trying to tread without sound … The hunter has to be careful, because everywhere in the forest are stealthy hunters like him. If he finds other life — another hunter, an angel or a demon, a delicate infant or a tottering old man, a fairy or a demigod — there’s only one thing he can do: open fire and eliminate them.

In this forest, hell is other people … any life that exposes its own existence will be swiftly wiped out. Kissinger is often thought of (in my view, wrongly) as the supreme American exponent of Realpolitik. But this is something much harsher than realism. This is intergalactic Darwinism.

Of course, you may say, it’s just sci-fi. Yes, but "The Dark Forest" gives us an insight into something we think too little about: how Xi’s China thinks. It’s not up to us whether or not we have a Cold War with China, if China has already declared Cold War on us. 

Eoin Treacy's view -

The Three Body Problem is an excellent read and The Dark Forest follows on well from where it left off. The third book in the series, Death’s End, was too meandering for me and I did not finish reading it. For a non-Chinese reader, the names can be a bit of an obstacle but the story is compelling.



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July 08 2020

Commentary by Eoin Treacy

Commodities and Predominant Deflation

Thanks to a subscriber for this report from Bloomberg’s economists. Here is a section on gold:

Quantitative Easing Is Strong Gold Tailwind. Gold is in the early days of resuming the bull market that started about 20 years ago, in our view. The financial crisis and inception of central-bank quantitative easing (QE) accelerated the metal's upward trajectory then, and we see parallels that are likely more enduring this time. Our graphic depicts the potential upside in spot gold toward $3,000 an ounce vs. about $1,770 on June 26, if simply following the trajectory of the G4 central-bank balance sheet as a percent of GDP. Central banks essentially printing money to spur inflation is a solid foundation for the benchmark store of value.

Gold bottomed at about $700 in 2008 and peaked near $1,900 in 2011. A similar-velocity 2.7x advance from this year's low-close near $1,470 would approach $4,000 by 2023. Rising Stock-Market Volatility a Gold Launchpad. If gold's relationship with equity volatility that's mean-reverting higher and the financial crisis is a guide, the metal has plenty more upside potential vs. downside risks. Our graphic depicts the 100-week moving average of the CBOE Volatility Index (VIX) bottoming from the life-of-index low in 2018, like it did in 2007 before the financial crisis and which accelerated gold's rally. There are potential parallels to about a decade ago. A key difference is the metal has had a substantial correction and appears to be in the early days of resuming a bull market.

Eoin Treacy's view -

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

Gold does best with negative real interest rates. That occurs when interest rates are held down because of fears of deflation, like now, and it also occurs when inflation advances quicker than central banks are willing to raise interest rates. That’s a scenario that could easily unfold in future considering the long-term repercussions of massive civil unrest and debt monetisation.  



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July 08 2020

Commentary by Eoin Treacy

Data-mining Firm Palantir Files for Stealth Public Offering

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

The Silicon Valley data-mining firm Palantir Technologies confidentially filed to go public, setting up what could be the biggest stock offering from a technology company since Uber’s debut last year.

Founded in 2004 by investors including Peter Thiel, the company works with governments, law enforcement agencies and the defense establishment to organize and analyze huge volumes of data. The technology can be used to disrupt terrorist networks or battle human trafficking. Most recently, it was used by the White House to track coronavirus infections. Last year, Palantir won army contracts potentially worth hundreds of millions of dollars.

Palantir’s clients include major banks and the U.N.’s World Food Program.

The company has stirred controversy for upgrading Immigration and Customs Enforcement software that has been used in the Trump administration’s deportation crackdown, which led to on-campus campaigns to discourage recruitment and the picketing of CEO Alex Karp’s home.

The Palo Alto company has attracted venture capital from investors including In-Q-Tel, the Central Intelligence Agency’s investment arm. It has been weighing going public for years, with reluctance coming from the added scrutiny to the secretive nature of much of its business.

In a prepared release late Monday, Palantir said it had submitted its filing to the Security and Exchange Commission for confidential review and that a public stock listing is expected afterward “subject to market and other conditions.”

With the U.S. stock market rallying in recent weeks, a number of tech companies have gone public including Vroom, which sells used vehicles online, and Lemonade, an insurance start up.

Eoin Treacy's view -

Going public is not for everyone. If a company’s margins and market niche would attract attention and competition there is a clear incentive to stay private. Therefore, when a group of companies that have long eschewed the opportunity to list decide to do so, it is often a signal of the wider market environment not least because it affords early investors an opportunity to exit the business.



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July 07 2020

Commentary by Eoin Treacy

July 07 2020

Commentary by Eoin Treacy

White House Wants Stimulus by August Recess With $1 Trillion Cap

This article by Jordan Fabian and Kevin Cirilli for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump and senior White House officials have said a payroll tax cut, liability reform, tax incentives for businesses to adapt to the pandemic and a potential back-to-work bonus are priorities for the administration.

Short said the White House views liability protections as “essential” for companies to bring workers back and fully re-open the economy.

The administration wants to be sure it’s “striking the right balance between income replacement on the one hand, and ensuring that we don’t have excessively high implicit tax rates on the return to work, on the other hand,” Tyler Goodspeed, acting chairman of the president’s Council of Economic Advisers, said in a separate interview with Bloomberg Radio.

Implicit tax rates can’t exceed 100%, he said, meaning it can’t be more lucrative for workers to stay at home. But any plan will require “not allowing a big blow to household income,” which is core to the economy, Goodspeed added.

Ohio Republican Brad Wenstrup, a member of the House’s tax-writing committee, said the package should address the ability of working parents to find childcare and helping schools to reopen.

“We have a shortage of day care providers,” he said in another Bloomberg Radio interview. “I am going to look for incentives for those type of programs.”

Congress in March passed a $2.2 trillion pandemic relief program, with carve-outs for small businesses and the airline industry as well as multiple lending programs for corporations and Main Street businesses through the Federal Reserve. Treasury Secretary Steven Mnuchin sent out nearly $1 trillion in the first month after that bill became law, through checks directly to American families, forgivable loans to companies and unemployment insurance.

Still, much of that money remains unused. The Treasury Department has yet to disburse any loans from a $25 billion pool for airlines, and most of a $17 billion carve-out for firms deemed critical to national security remains untapped.

Eoin Treacy's view -

The idiosyncrasy of how data sets are reported means the rebound in economic activity probably looks better than it is. If an historic decline occurs it will necessarily result in a deep decline. If the rebound from that low is in the order of 10% it will come through as an historic percentage advance and yet the absolute level of activity may still be well below the peak.



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July 07 2020

Commentary by Eoin Treacy

Bank Indonesia Agrees to Buy Government Debt to Fund Budget

This article by Grace Sihombing and Tassia Sipahutar for Bloomberg may be of interest to subscribers. Here is a section:

Governor Perry Warjiyo said at Monday’s briefing that inflation is under control and the central bank regularly assesses price and growth dynamics.

“We see so far that demand is not yet strong and inflation is low,” he said. “However, if inflation recovers and the economy picks up, Bank Indonesia has the tools ready, we have
the policies.”

The agreement between the Finance Ministry and central bank allows the bonds to be tradable and marketable, Indrawati said, so Bank Indonesia can use the securities for its monetary
operations.

The burden-sharing scheme caps the upside risk for bond supply in the near term, as the bulk of the securities will be privately placed with Bank Indonesia, according to Citigroup Inc. economist Helmi Arman. There’s less likelihood of the central bank unwinding the securities this year or next even
though the notes are tradable, he said in a report.

Bank Indonesia already had been taking a more aggressive role in providing stimulus to the economy, buying sovereign notes directly from the government at primary market auctions since April. Under the latest agreement, Indrawati said the government will double the size of its auction, held every two
weeks, to 40 trillion rupiah.

Eoin Treacy's view -

Emerging markets are currently free to engage in quantitative easing because they are experiencing the same deflationary forces of developed markets. That’s an odd set of circumstances but it speaks to the deleterious effects of the global response to the coronavirus and the impact it has had on near-term inflationary expectations.



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July 07 2020

Commentary by Eoin Treacy

Great Bear Expands LP Fault Gold System at Depth: 10.06 g/t Gold Over 31.25 m, Within 4.07 g/t Gold Over 80.50 m, and 57.32 g/t Gold Over 3.95 m, Within 7.26 g/t Gold Over 53.50 m

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

Chris Taylor, President and CEO of Great Bear said, "The most recent drilling along 650 metres of strike length of the multi-kilometre LP Fault gold system has shown mineralization typically expands at depth. As the system broadens, we generally observe an increasing number of high-grade gold intervals within broader halos of moderate gold grades.  Gold mineralization continues to show excellent continuity within and between drill sections in all locations tested to date.  A new gold zone adjacent to the LP Fault zone was also discovered at approximately 750 metres vertical depth, consistent with our model of a greater than one kilometre wide structural zone at Dixie that has the potential to host additional new gold discoveries."

The Company has completed 120 of approximately 300 planned drill holes into the LP Fault target, as part of its 5 kilometre long by 500 metre deep grid drill program.  Current drill hole locations and results are provided in Figure 1, and in Table 1, respectively.

Eoin Treacy's view -

Great Bear’s resource base is next door to the historic Red Lake mine in Ontario. However, the company’s marketing department is almost as valuable as the resource they are proving up. Every time the results of a new drill hole are found, they issue a press release. Those eye-catching results continue to spur interest in the share as a high probability project that will eventually deliver on gold to the market.



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July 06 2020

Commentary by Eoin Treacy

July 06 2020

Commentary by Eoin Treacy

Chinese Stocks Surge as Individual Investors Pile Into Market

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

A front-page editorial in China Securities Journal said fostering a “healthy bull market” is important given China’s increasingly complicated international relations, intense financial and technological competition, and the challenge of controlling internal financial risks.

Steven Leung, executive director of institutional sales at UOB Kay Hian in Hong Kong, said the editorial had bolstered investor confidence. He said some mainland investors were also buying shares anticipating that coming changes, such as an overhaul of the Shanghai Composite, would attract more global investment.

Eoin Treacy's view -

“China’s bull markets are state sponsored” has been my short hand for analysing the Chinese market for much of the last decade.

The primary indices have inconsistent trends, where large surges have been followed by collapses and volatile ranging. The defining characteristic of broad advances has been overt government support for prices.



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July 06 2020

Commentary by Eoin Treacy

Email of the day on psychological perception stages of a new bull market

Your comment on psychological perception stages. I find it most interesting that in the financial press in the UK at this point in time, the "g" word is very rarely mentioned by any of the financial journalists I follow, let alone recommending any gold mining companies. I wonder if this could be a sign that we are still in the latter stages of the "disbelief" phase regarding gold as an investment despite all the signs that a bull market is now underway.

Eoin Treacy's view -

Thank you for this question. There is a ‘stealth’ bull market underway in gold and a number of miners have posted impressive returns over the last 18 months. That is being overshadowed, right now, by the continued outperformance of large cap technology companies which are now accelerating higher.



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July 06 2020

Commentary by Eoin Treacy

Prospering in the pandemic: the market winners

Thanks to a subscriber for this article by Tom Braithwaite for the Financial Times. Here is a section:

We also ranked them. It would have been nice to use profits or sales as the gauge of success. But the lag in reporting and different calendars made that impractical, even for public companies. So we stuck with a market measure, accepting that — in the saying attributed to value investing doyen Benjamin Graham — the market is only a “voting machine” in the short run, rather than a “weighing machine”.

But which market measure? For the main rankings of the top 100, we opted for equity value added. That list included some of the clear “winners” from the pandemic, such as Netflix and Zoom Video. But it has one obvious flaw: it favoured those that were already large. Companies including Nestle, L’Oréal and Alibaba made the cut despite single-digit percentage gains in value.

If we had used percentage gains, the list would have had the opposite problem, favouring smaller companies, penny stocks that can swing wildly on trades of modest value. However, we still wanted to assemble an alternative ranking to highlight some less known but still significant winners. To do this, we used percentage gains but with a $10bn floor for market cap.

This brings into the top 100 companies that escaped the original list such as Ocado, the UK online supermarket that has reinvented itself as a global tech supplier to other grocers, and Peloton, whose stationary bikes equipped with video screens for online classes have surged in popularity as gyms closed. But otherwise the top 100 has a lot of the original big names such as Tesla, Pinduoduo and PayPal.

If the floor is $1bn, there is a lot more shuffling around. On this measure, Novavax comes top, with a 1,900 per cent rise in value. There is little mystery behind this: Novavax has a vaccine candidate for Covid-19 and is racing to expand its manufacturing capacity. 

Eoin Treacy's view -

There is no doubt that for some companies the COVID-19 crisis has been a gift. It accelerated customer acquisition efforts while also lower lowering borrowing costs and boosting liquidity. High growth companies that reside online, instead on Main Street, were already gaining market share from brick and mortar. That process has not gone into overdrive as the number of retail bankruptcies surges.



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July 03 2020

Commentary by Eoin Treacy

July 03 2020

Commentary by Eoin Treacy

Psychological Perception Stages of Major Bull Markets

Eoin Treacy's view -

At The Chart Seminar we discuss the progression of investor psychology through disbelief, acceptance and into mania as bull markets develop, evolve and eventually end.  John Templeton’s quote “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.” Is relevant to that discussion.



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July 03 2020

Commentary by Eoin Treacy

A Quick Survey of "Broken" Asset Classes

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

We recognize the substantial survivorship bias in our survey, having personally survived most of these episodes ourselves! So, to be more comprehensive, we also plot other periods when these asset classes fell within their lowest decile of historical three-year rolling absolute returns.6 A similar pattern unfolds. A large majority, or 88%, of all observations (43 of 49) deliver a positive five-year return. The average five-year cumulative return across all observations is 80%, or approximately 12% a year, suggesting both the presence and strength of mean reversion.

How do the asset classes perform on a relative basis? Recall that the broken asset classes in our survey had mostly fallen short of the performance of the S&P 500 in the years leading up to the proclamation they were broken. In the subsequent three years, these asset classes surpassed the performance of US stocks on a cumulative basis by an average of 45%, or 13% a year. After five years, the cumulative excess return of REITS, commodities, small value stocks, and high-yield bonds versus the S&P 500 averaged 101%, or 15% a year. Over this five-year span, the four asset classes fared significantly better than US stocks, with cumulative excess returns ranging from 10% (high-yield bonds) to 158% (commodities).

The press is often quick to label asset classes broken. Rarely is this the case, although exceptions do exist. For instance, the German and Russian stock markets during World War I, Japanese and German stock markets during World War II, and the Egyptian stock market in the early 1950s all collapsed. The near-obliteration of a stock market has happened, but it is an extraordinary occurrence.

Eoin Treacy's view -

The epicentre of risk in a crash is the most likely to experience a lengthy Type-3 base formation following the big decline. However, even within the crashing sector, there will be companies that come through the crisis relatively unscathed. They most often show early relative strength and come to dominate in the following years. However, there will also be times when leaders underperform. That occurs most often when the weak sector convalesces. That’s when value propositions become compelling and even deeply troubled companies can do well for a while; not least because of the base effect of low prices. 

Let’s look at some examples.



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July 03 2020

Commentary by Eoin Treacy

Are you reframing your future or is the future reframing you?

Thanks to a subscriber for this report from Ernst and Young. Here is a section on financial statistics:

To some extent, technology can help meet these new challenges. The costs of data collection and analysis are falling rapidly thanks to Internet of Things and AI. Satellites and sensors, for example, can generate highly accurate real-time data. A broader corporate data strategy aimed at collecting social and environmental cost data, in addition to the well-being of employees and local communities, might help fill significant gaps in measurement. Useful new corporate reporting that details progress toward a broader business purpose means building the prerequisite data capabilities first.

Governments also have an opportunity to leverage data generating technologies to enhance feedback. More than 20 countries from Singapore to Sweden have “smart city” initiatives, demonstrating how better measurement through data can improve public safety and citizen services, albeit not without risks. The UK’s National Health Service has dozens of partnerships with leading technology companies analyzing the vast troves of patient data to support the provision of its services.109 And big data techniques have also proved a significant part of the policymaking process when fighting the COVID-19 pandemic. Countries that successfully implemented track and-trace techniques using smartphones fared better in managing the deadly outbreak.

An inflection point is approaching, driven by necessity. Our industrial-era metrics are misaligned with the needs of a knowledge-based economy characterized by widespread technological disruption. We are on the cusp of a significant change in the way societies make policy and conduct business. Companies will either evolve to realign with new values, or risk dissolving as their social contract is withdrawn. There is no looking back.

Eoin Treacy's view -

The way in which we collect data about the economy is deeply flawed. That’s a well understood fact but we have not yet come up with a more effective way of measuring economic activity and potential. The problem with changing the status quo is it would completely upend the way in which economies are managed. That might well be inevitable because the populist uprising that continue to  spread are challenging the establishment already.



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July 03 2020

Commentary by Eoin Treacy

Hong Kong Files First Charges Under New Law, Bans Rallying Cry

This article by Iain Marlow and Natalie Lung for Bloomberg may be of interest to subscribers. Here is a section:

“Hong Kong should be able to continue to enjoy the freedom of speech, freedom of press, of publications, protest, assembly and so on,” Chief Executive Carrie Lam told reporters after it took effect, adding international agreements on civil rights allowed restrictions to ensure national security. “Where it is for the protection of national security, then sometimes some of these rights could be restrained in accordance with the law.”

The Hong Kong Bar Association said this week it was “gravely concerned” about the law and its broadly defined criminal offenses.

“These are widely drawn and absent a clear and comprehensive array of publicly accessible guidelines and basic safeguards as to legal certainty and fair treatment, are capable of being applied in a manner that is arbitrary, and that disproportionately interferes with fundamental rights,” the group said in a statement. “Lawyers, judges, police and Hong Kong residents were given no opportunity to familiarize themselves with the contents of the new law, including the serious criminal offenses it creates before it came into force.”

Eoin Treacy's view -

China’s nine dashed line in the South China Sea, border clashes with India, overriding of the Hong Kong handover agreement and increasingly strident statements towards reuniting with Taiwan, all points towards an expansionist foreign policy. 



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July 03 2020

Commentary by Eoin Treacy

July 03 2020

Commentary by Eoin Treacy

Eoin's personal portfolio: stock market short stopped out a small profit June 16th

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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July 02 2020

Commentary by Eoin Treacy

Video commentary for July 2nd 2020

July 02 2020

Commentary by Eoin Treacy

Email of the day - on a stay at home index

“Are you able to create a Work From Home/Stay at Home index for you/us to track on a regular basis. Today has been another big day for many of these stocks with Shopify for example up another 7% in here today, clearing the $1,000 level, Netflix up 5%, Amazon 4%, Peloton up 4, DocuSign up 4, and Wayfair 11%! Regretfully I’m not involved in any of these as I can’t get my head around valuations. When will this madness stop?”

Eoin Treacy's view -

Thank you for this email which highlights the dilemma of many people on the side-lines of the broad market rebound. There is always a crisis of confidence for anyone who has missed a rebound and is presented with the choice of buying a breakout or waiting for a pullback. That is amplified during accelerations where the fear of missing out is weighed against the fear of sitting through a reversal.



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July 02 2020

Commentary by Eoin Treacy

China in counterfeit gold scandal as Wuhan company uses fake bars to gain $4.1bn in loans

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

The story broke after a Beijing-based website investigated complaints and then posted the news under the headline: “The mystery of [US]$2 billion of loans backed by fake gold”.

Kingold is denying it lodged fake bars with Chinese lenders such as China Minsheng Trust, Hengfeng Bank, Dongguan Trust and Bank of Zhangjiakou. The trust companies involved are largely what are known as “shadow banks”.

The alleged scam came to light earlier this year when Kingold defaulted on loans to Dongguan Trust. The gold bars pledged as collateral turned out to be gilded copper alloy. Minsheng Trust’s “gold” bars have also turned out to be copper alloy under the gilded surface.

 

Eoin Treacy's view -

Veteran gold watchers will remember the case of gold-plated tungsten bars which began to turn up in New York a few years ago. 82 tonnes of gold is a substantial total and highlights the lack of governance in China’s financial system.



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July 02 2020

Commentary by Eoin Treacy

Email of the day on contrasting life experience between generations

When I read that high house prices are a problem for the younger generation, I wonder whether the historical context is considered. I bought my first house in 1974 and I finally paid off the mortgage on my current home in1999. Over the 25 years that I had a mortgage the lowest interest rate I ever paid was 10% and the highest was 15%. Yes, for a quarter century I paid 10-15% interest on my mortgage, which frequently used up more than half my monthly income. Many of my age group went through a similar experience. My wife and I hardly ever ate out, and our children were treated to many years of cheap camping holidays. I had little spare cash at any time until the mortgage was gone.

Do today's new home buyers have any idea how we lived and struggled with finances? House prices today mirror the very low mortgage interest rate and I suspect that very few (if any) 20-40 year olds are using 50% or more of their income to pay their mortgage as we did. Their money goes on things we could not afford and did not regard as essentials. It's a matter of priorities.

Eoin Treacy's view -

Thank you for this perspective which I’m sure will be of interest to other subscribers. The personal experience you highlight is a testament to what can be achieved through resilience and frugality. If more people were willing to practice delayed gratification we would be in the very different world. As I see it there are two important trends that the younger generation face relative to the older generation. These are disinflation and globalisation.



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July 02 2020

Commentary by Eoin Treacy

Email of the day on hydrogen

I loved your article but why don't you mention the rise of hydrogen and the use of green hydrogen as being a valuable alternative as an energy storage tool for the future (we are talking about 2040!)? It's also more logical as energy source for trucks as batteries alone are far too heavy...

Eoin Treacy's view -

Thank you for your kind words and this email which raises some important points. I have been of the opinion for years that the low price of natural gas would seed a hydrogen economy. That now appears to be coming to fruition. Ultimately, the production of hydrogen will be replaced with less reliance on fossil fuels, but we are reliant on gas for at least the next decade to deliver supply.



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July 01 2020

Commentary by Eoin Treacy

July 01 2020

Commentary by Eoin Treacy

The FDA Wants a Covid-19 Vaccine That Really Works

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

The path the FDA outlines is a long one. It’s going to take a while to recruit and enroll 30,000 people in a trial and give half of them two shots in the arm — as Moderna Therapeutics Inc. intends to do to test its candidate. And until a sufficient number of subjects in the placebo arm of such a trial contract Covid-19, there won’t be any firm results. Any number of variables could cause further delays: bad luck, a poor vaccine performance, or slowing case growth.

The FDA is by no means ignoring the urgency of the moment. Its guidance includes a variety of concessions on safety data and other issues that are meant to speed the process. But the world can be grateful the agency is willing to bend only so far.
 

Eoin Treacy's view -

Setting a high standard for a vaccine that will be administered to hundreds of millions of people is imperative. It is the minimum requirement to instill faith in the population that it is worth accepting. I have every expectation that the advances in genetic sequencing and editing will deliver a positive result this year and that a true second wave will be avoided.

The impatience many people feel is perhaps the biggest obstacle to containing the spread before a vaccine has been delivered. I even find myself being less vigilant now than I was a few months ago. That is despite the massive swell of community spread and the greater likelihood of contracting it as a result. That’s a good example of how even the most extreme situation can assume an air of normalcy after a relatively short period of time. That’s one of humanity’s greatest survival instincts, although it is not especially helpful in the short term.



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July 01 2020

Commentary by Eoin Treacy

Tesla China Plant Might Have Come to the Rescue Last Quarter

This article by Dana Hull for Bloomberg may be of interest. Here is a section:

“The lesson learned by now is that TSLA shares tend to ‘work’ when something new has launched,” Jeffrey Osborne, a Cowen Inc. analyst with the equivalent of a sell rating on the stock, said in a report Tuesday. “At this point both the Model Y and China built cars are ramping up.”

Musk, 49, suggested to Tesla employees early this week that the company could manage to avoid a quarterly loss.

“Breaking even is looking super tight,” the CEO wrote to staff in an email seen by Bloomberg. “Really makes a difference for every car you build and deliver. Please go all out to ensure victory!”

Eoin Treacy's view -

Tesla has done an admirable job of keeping production on line globally even as sporadic shutdowns at home impaired manufacturing. The decision by California to mandate emission free trucking by 2040 is an additional tailwind for the battery producer. 



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July 01 2020

Commentary by Eoin Treacy

Musings from the Oil Patch June 30th 2020

Thanks to a subscriber for this report by Allen Brooks for PPHB. Here is a section on Chinese and Indian coal demand:

India has auctioned 41 coal mines with 17 billion tons of geological coal reserves to enable private companies to commence commercial extraction. All of these mines are largely fully-explored, enabling them to come into production quickly. Four of the mines will be dedicating their coal for use by steel-making plants. The 41 mines represent both large and small mines with peak-rated capacities (PRC) of 0.5 to 40.0 million tons annually (mmt/y). These mines will provide a total PRC of 225 mmt/y when in operation. Given the sizes and locational challenges of some of the mines, we can expect to see more pictures of women hauling baskets of lump coal from the mine to shipment points. This is one way to help the nation’s employment situation.

The increased use of coal is designed to help India deal with its economic challenges, of which employment is one aspect. However, lowering, or at least keeping stable, the cost of energy is also crucial for political peace. The impact on India’s climate goals remains an open question. The long-term outlook for India’s energy mix suggests that fossil fuels will remain the dominant supplier. Even if coal, which accounted for 56% of India’s energy in 2017, were to fall below 50%, and all of that decline went to renewables, it would only triple its contribution – rising from 3% to 9%. Making further gains in reducing carbon emissions will become a huge challenge for government policymakers.

The China story has become more interesting, given that it has become the largest emitter of carbon dioxide and other pollutants, while still paying lip-service to its environmental commitments to the 2015 Paris Climate Accord. China still consumes more than half the world’s coal, and that seems likely to remain the condition for a while, despite the large push for renewable power.

China recently approved two new coal mines with a combined output of 3.6 mmt/y, at a cost of $566 million (4 billion yuan). Those two new mines will have nearly as much output as China’s current coal production, which in 2019 was 3.75 mmt/y. Behind approving the new mines is the government’s plan for shutting down small and outdated mines in favor of larger ones located in coal-rich provinces.

Eoin Treacy's view -

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

Energy security is a major consideration for every consuming nation. Neither India not China have any hope of achieving energy independence any time soon. The virtue signalling China, in particular, engages in at climate conferences contrasts starkly with the reality on the ground. China is building more coal fired power stations all over the world than ever.



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June 30 2020

Commentary by Eoin Treacy

June 30 2020

Commentary by Eoin Treacy

Gold Climbs Above $1,800 for the First Time Since 2011

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

Goldman Sachs Group Inc. said gold could climb to a record $2,000 an ounce over the next 12 months, while JPMorgan Chase & Co. recommended investors stick with bullion.

“The Fed is being extremely accommodative and because these shutdowns are starting to reoccur globally, more central bank measures are probably going to be initiated,” Phil Streible, chief market strategist at Blue Line Futures in Chicago, said by phone.

Eoin Treacy's view -

Gold’s front month futures traded above $1800 today while the spot price has yet to achieve that goal. The difference between the short-term patterns may give us some insight into what is animating the market in the short term.



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June 30 2020

Commentary by Eoin Treacy

IOTA Takes Step Towards Decentralized Network

This article by Sead Fadilpašić for cryptonews.com may be of interest to subscribers. Here is a section:

IOTA is continuing its path towards the so-called 'Coordicide' - the death (that is, the removal) of the Coordinator, which is a node run by the IOTA Foundation for network protection and transaction confirmation. The goal of this act is to make the network decentralized.

In order to "solve blockchain’s biggest issues with scalability and decentralization," as the Foundation said in their announcement, they are launching the first testnet of the decentralized network. It is a new protocol called Pollen.

Pollen's goal is to enable the community, researchers and developers to "test and validate the concepts of IOTA 2.0, which will serve as IOTA’s Coordinator-free network," the press release said. People can now test and work independently on the components such as rate-limiting, Mana (reputation-based system), and Fast Probabilistic Consensus (new consensus algorithm that doesn't need the centralized Coordinator).

"IOTA has spent the last year researching a solution that will ultimately replace its current network in the first half of 2021," they said.

Whether the Coordinator will indeed be killed in the first months of 2021 is "always hard to say," Dan Simerman, Head of Financial Relations at the IOTA Foundation, told Cryptonews.com. "Right now IOTA's actually ahead of schedule, so it’s very well possible it could be sooner. But, IOTA always like to be safe and ensure things are at their best."

Eoin Treacy's view -

The holy grail for cryptocurrency acolytes is to have a fully automatic network, without relying on any one group that might theoretically exert control, while also being quick enough to compete with payment networks like Visa and Mastercard.



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June 30 2020

Commentary by Eoin Treacy

'Build, Build, Build' for U.K. Virus Recovery, Says Johnson

This article by Alex Morales and Tim Ross may be of interest to subscribers. Here is a section: 

The 5 billion pounds Johnson allocated to hospital maintenance, school repairs and road improvements on Tuesday is not new money and is a fraction of the infrastructure spending announced in March.

What Our Economists Say:
“There was a lot of inevitable political bluster in Prime Minister Boris Johnson’s speech today, but for the economy there were two key takeaways. First, his pledge to accelerate 5 billion pounds worth of capital projects is money already allocated in the March Budget. He left plans for any further stimulus to Chancellor of the Exchequer Rishi Sunak’s update on the economy next week. Second, Johnson distanced himself from a quick return to austerity. That’s good news for the outlook.”

--Dan Hanson. For the full insight, click here

Carolyn Fairbairn, director general of the country’s biggest business lobby, the Confederation of British Industry, described the intervention as “first steps” only.

“Foundations are there to be built on,” Fairbairn said in a statement. “More is needed to prevent the uneven scarring unemployment leaves on communities.”

She called for more details on Johnson’s guarantee of apprenticeships and in-work placements for younger workers, as well as an extension of wage support to protect jobs and more funding for “future skills in high-potential areas such as digital, low carbon and health.”

Johnson described the planning reforms as the most “radical” since World War II. They include greater freedom for developers to change the use of buildings and land in town centers without planning permission, and would make it easier to convert unused commercial buildings into homes, his office said in a briefing.

Eoin Treacy's view -

Focusing more on regulatory reform to boost growth, rather than relying solely on big ticket spending is an encouraging sign the Johnson administration understands where the big gains are to be made once the UK is unshackled from the EU.

The spending measures in the March budget already imply significant spending. The challenge for the UK is in overcoming the raft of bureaucratic roadblocks to growth that focus on regulations for regulations sake, rather than prioritising productivity.



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June 30 2020

Commentary by Eoin Treacy

China Opens Wealth Tap to Hong Kong Amid Political Crackdown

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

The plan “has strategic importance, reinforcing Hong Kong’s position as a wealth management hub,” Sally Wong, chief executive officer of Hong Kong Investment Funds Association, said by phone. “It provides important investment channels for mainland investors to achieve diversification.”

As Beijing seeks to quash a year of unrest in Hong Kong with the introduction of a new security law, authorities have also sought to tamp down concern over the city’s status as an international finance hub. Mainland investors have boosted stock purchases through the stock connect link over the past weeks and a string of high-profile Chinese companies have listed shares in the city.

Local authorities have also sought to reassure investors that Hong Kong will remain a stable place to invest, with Chief Executive Carrie Lam lobbying for more financial integration to build the city’s presence as a global hub for private wealth and make it a more prominent offshore renminbi center. While there has been no sign of an exodus of cash, Hong Kong’s rich are increasingly hedging their bets amid the worst economic and political crises since the handover.

The U.S. overnight escalated pressure on China over its crackdown on Hong Kong by making it harder to export sensitive technology to the city as Beijing is poised on Tuesday to pass the security law. The Commerce Department said it’s suspending regulations allowing special treatment to Hong Kong over things including export license exceptions.

Eoin Treacy's view -

As China attempts to draw a line under the protests that have plagued Hong Kong over much of the last couple of years, they are likely to continue to meet with resistance on the streets. The new security law is an affront to the one country, two systems agreement. It presages an acceleration of trend of absorption with the mainland than was envisaged by the framers of the handover.



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June 29 2020

Commentary by Eoin Treacy

Video commentary for June 29th 2020

June 29 2020

Commentary by Eoin Treacy

Australian lawmaker says he isn't a suspect in China probe

This article by Rod McGuirk for APNews may be of interest. Here is a section:

The secret service, best known as ASIO, confirmed in a statement that “search warrant activity occurred in Sydney on Friday as part of an ongoing investigation,” but would not comment on Moselmane or its involvement.

Less than two weeks ago, Morrison said that a “sophisticated state-based cyber actor” was targeting Australia in an escalating cyber campaign that was threatening all levels of government, businesses, essential services and critical infrastructure.

Most analysts said Morrison was referring to China, but the prime minister would not name the country.

Already high tensions between Australia and China have been raised by the pandemic.

China in recent weeks has banned beef exports from Australia’s largest abattoirs, ended trade in Australian barley with a tariff wall and warned its citizens against visiting Australia. The measures have been interpreted by many as punishment for Australia’s advocacy of an independent probe into the origins and spread of the coronavirus.

Australia’s foreign minister has accused China of using the anxiety around the pandemic to undermine Western democracies by spreading disinformation online, prompting China to accuse Australia of disinformation.

Eoin Treacy's view -

Australia depends on China’s demand for many of its exports. That’s represents a difficulty for the country in attempting to assert independence from China. For its part, China has a clear interest in securing its supply chains. That means ensuring Australia is at least amenable if not fully subservient to its wishes.



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June 29 2020

Commentary by Eoin Treacy

Growth of Working-Age Adults Hasn't Kept Up With Graying America

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

The aging population is pushing up the insolvency dates of the major trust funds that many seniors reply on. The CRFB now sees the Medicare Hospital Insurance trust fund going bust by 2023, and the combined Social Security trust funds depleted by 2031.

Almost 13 million Americans are older than 80, and the number of centenarians almost doubled from 2010 to more than 100,000 last year, according to the data.

The aging of America and low births mean that the U.S. dependency ratio has increased. The ratio looks at the size of the population younger than 15 (60,570,846 in 2019) and the 65-and-older population (54,058,263) and how their combined size compares to the population age 15 to 64 (213,610,414).

In 2019, the dependency ratio showed that for every 100 people of working age, there were almost 54 other Americans potentially needing support.
 

Eoin Treacy's view -

The age group most at risk from the coronavirus is well reported to be the over 60s. This group staying at work beyond the traditional retirement age was one of the primary reasons the US economy was able to contain inflation despite peak employment and a rising participation rate. If many of these people fail to return to work, they go from being contributors to beneficiaries of state supports.



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June 29 2020

Commentary by Eoin Treacy

Chesapeake's Collapse Is Latest in Long Line of Shale Busts

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

More than 200 North American oil and gas producers, owing over $130 billion in debt, have filed for bankruptcy since the beginning of 2015, according to a May report from law firm Haynes & Boone. This month alone, seven oil and gas companies have gone under, tying December 2015 for the busiest on record after crude prices plunged amid the Covid-19 pandemic, according to data compiled by Bloomberg.

The shale boom spearheaded by the likes of Chesapeake a decade ago was fueled by debt. Profitability and shareholder returns have been consistently disappointing, and investors had already grown wary of throwing more money into shale before this year’s oil crash. The rate of default on high-yield energy debt stood at 11%, Fitch Ratings said in a June 11 report, the highest level since April 2017.

Eoin Treacy's view -

Unconventional drilling is capital intensive. Arguably, it would not have been a viable development option for new supply without the tailwind of very low interest rates and abundant liquidity. The challenge the sector faces is once a well begins producing, there is a very steep increase in supply, followed by a steep decline. That ensures companies are very exposed to near-term oil prices. The significant volatility in commodity prices has been a headwind for the sector, because most operations are profitable in the region of $60-$80 a barrel.



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June 29 2020

Commentary by Eoin Treacy

Merkel Throws Her Support Behind Radical European Recovery Plan

This article by Ania Nussbaum and Arne Delfs for Bloomberg may be of interest to subscribers. Here is a section:

German Chancellor Angela Merkel made a pitch for a radical recovery proposal for the virus-ravaged European Union and warned her cohorts that there was no time to lose.

Her words carried extra weigh, spoken in person on Monday alongside Emmanuel Macron. The French president is the other heavyweight in the euro. He is a long-term advocate of ever-closer collaboration for a common position on international relations and a joint fiscal policy.

Germany has always been the more reluctant partner on both fronts, but there are signs the famously cautious Merkel is letting up.

“Talks won’t fail because of us,” Merkel told reporters in Meseberg, Germany. “But there will be no new proposal.”

Merkel’s exhortation comes before all 27 EU members gather in Brussels on July 17 to discuss a stimulus package that would see the bloc issue 750 billion euros ($845 billion) in joint debt and make 500 billion euros of that in grants to the nations most affected by the coronavirus crisis.

The plan, which needs the unanimous approval of all EU members, seeks to tackle divergences in the region’s internal market that have widened as a result of the uneven impact of the outbreak and differing national responses.

Eoin Treacy's view -

Here is a summary of what the director general of the WHO had to say today:

Tedros Adhanom Ghebreyesus, director general of the World Health Organization, said that living with Covid-19 is the “new normal” and that “we will need even greater stores of resilience, patience, humility and generosity in the months ahead.” He spoke Monday at a press briefing in Geneva. 



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June 26 2020

Commentary by Eoin Treacy

June 26 2020

Commentary by Eoin Treacy

Befuddled by the Bull? The Primacy of Free Liquidity and Risk-Love

Thanks to a subscriber for this report from Bank of America/Merrill Lynch which may be of interest. Here is a section:

Eoin Treacy's view -

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

The biggest existential question in financial markets today is how likely are global interest rates to trend towards zero in aggregate. To date the Anglosphere countries have been adamant in their determination to avoid negative interest rates.

However, there is no avoiding the fact that interest rates are falling all over the world. Additionally, Poland, Ghana, Philippines, Chile, Turkey, Colombia, Thailand, South Africa, Egypt, Hungary, Romania, Indonesia and South Korea are all now engaged in quantitative easing.



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June 26 2020

Commentary by Eoin Treacy

Email of the day - on island reversals

Looking at the daily charts of the Dow Jones and S&P there appears to be potential "island reversals". Do these "islands" carry much weight in charting terms?

Eoin Treacy's view -

Thank you for this question which I believe will be of interest to the Collective. In order for an island reversal to form we need to first see a breakaway gap form which is generally consistent with a burst of enthusiasm. That has to be followed shortly afterwards by a breakdown gap which is consistent with a sudden bout of fear which nullifies the initial surge.



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June 26 2020

Commentary by Eoin Treacy

Silver Price Forecasts Increased

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

Eoin Treacy's view -

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

The extent to which mine supply has been impacted by the spread of COVID-19 in Latin America is something that had more of an effect on iron ore prices than silver. The bigger question is how much of an impact a return to production will have on prices. The supply deficit may have at least supported prices without contributing to an outsized gain. The return of supply could create a surfeit.



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June 25 2020

Commentary by Eoin Treacy

Video commentary for June 25th 2020

June 25 2020

Commentary by Eoin Treacy

The RBC Macroscope

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

Eoin Treacy's view -

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

The Dollar tends to attract interest because the USA is the largest capital market and the Federal Reserve is highly active in deploying support measures for the economy. The supply inelasticity argument supported its value until last year and the subsequently, desire for a safe haven has been a support.



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June 25 2020

Commentary by Eoin Treacy

U.K. Rejects Mooted Brexit Compromise in Setback to EU Talks

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

“@DavidGHFrost
6/6 Finally, I want to be clear that the Government will not agree to ideas like the one currently circulating giving the EU a new right to retaliate with tariffs if we chose to make laws suiting our interests.We could not leave ourselves open to such unforeseeable economic risk.”

Frost’s comments come ahead of a fresh round of talks with the EU next week. The two sides are trying to break an impasse that risks a damaging rupture at the end of this year. Without a trade accord, Britain and the EU would default to trading on World Trade Organization terms from Jan 1. 2021, meaning steep tariffs and an economic shock.

A key sticking point in the talks has been the EU’s demand that the U.K. commits to tracking the bloc’s rules in areas such as environmental and labor protections and state aid, for fear that Britain would become a competitor on its doorstep. The British government sees the request as inconsistent with the principle of sovereignty that it argues was at the core of the vote for Brexit.

“This needs to be a real negotiation and some of the EU’s unrealistic positions will have to change if we are to move forward,” Frost said. “U.K. sovereignty, over our laws, our courts, or our fishing waters, is of course not up for discussion.”

Eoin Treacy's view -

The EU is deeply concerned at the prospect of the UK competing aggressively. There is a simple reason for that. Self-determination, which the UK has just recovered, is easier to manage than decisions by committee. Any counter measures the EU uses against the UK will need to focus on broad market access and tariffs because it is incapable to taking competitive steps on its own for fear of upsetting its own internal balance of relationships. The EU’s negotiations are aimed at ensuring the status quo is maintained.



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June 25 2020

Commentary by Eoin Treacy

Occidental, AB InBev Lead Debt-Laden Firms Buying Back Bonds

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

Occidental Petroleum Corp. and Anheuser-Busch InBev SA/NV are seeking to buy back bonds through separate tender offers launched Thursday. Both are targeting debt due in the next three years.

Companies are seeking breathing room on debt payments as they contend with lower earnings amid the coronavirus outbreak, threatening to push leverage even higher. Credit raters are running out of patience: Occidental, already one of the largest fallen angels of this cycle, may be cut again by Moody’s Investors Service and S&P Global Ratings, while AB InBev was recently downgraded by S&P with a negative outlook.

Both companies largely amassed their massive debt loads by funding acquisitions. Much of Occidental’s nearly $40 billion of debt came from borrowing to help finance its takeover of Anadarko Petroleum Corp. last year, while AB InBev’s roughly $103 billion of obligations mostly stems from its purchase of SABMiller Plc in 2016.

While some firms are looking to buy back debt outright, others are pursuing different liability management exercises to push out maturities. Rite Aid Corp. launched a $750 million exchange offer Thursday, while Macy’s Inc. initiated one earlier this week. They’re also trying to amend certain covenants through what are known as consent solicitations.

Eoin Treacy's view -

Corporate debt issuance has surged over the last three years to a new all-time high and combined total of $2.4 trillion in only a couple of months. That is all aimed at ensuring they have enough capital to see them through a particularly uncertain period.



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June 24 2020

Commentary by Eoin Treacy

Video commentary for June 24th 2020

June 24 2020

Commentary by Eoin Treacy

Forecasting the US elections

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

Right now, our model thinks Joe Biden is very likely to beat Donald Trump in the electoral college.

Eoin Treacy's view -

No President in modern history has been more stock market friendly than Donald Trump. Since he won the election in 2016, the Nasdaq-100 has doubled. The fiscal stimulus, tax cuts and tax holidays on foreign income, regulatory roll backs and championing of the stock market have all contributed to positive returns. The simple fact he has continually pointed to the strength of the market as vindication for his policies is a clear sign of his efforts to boost sentiment.



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June 24 2020

Commentary by Eoin Treacy

IMF Forecasts Deeper Global Recession From Growing Virus Threat

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

The International Monetary Fund downgraded its outlook for the coronavirus-ravaged world economy, projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

The fund said Wednesday it now expected global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, the fund forecast growth of 5.4%, down from 5.8%.

Having already warned of the biggest slump since the Great Depression, the IMF said its increased pessimism reflected scarring from a larger-than-anticipated supply shock during the earlier lockdown, in addition to the continued hit to demand from social distancing and other safety measures. For nations struggling to control the virus spread, a longer lockdown also will take a toll on growth, the IMF said.

“With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting,” the lender said in its update to the World Economic Outlook.

Eoin Treacy's view -

Last night, Mrs. Treacy was looking at flights to China and Japan for sometime in August. The rates are attractive, until you realise it is impossible for a non-national to enter. The borders are closed. That’s the challenge with the rolling wave of infections all over the world, cases flare up in one area and countries on the other side of the world are forced to take precautionary measures. It is probably going to be months before borders open and even then, it will take time for sentiment to recover. Until that happens only the most necessary of travel is likely. That has a knock-on effect for every sector that demands on travelers is likely to remain significant for the foreseeable future.



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June 24 2020

Commentary by Eoin Treacy

Bayer Pays Billions to Put Monsanto Legal Liabilities Behind It

This article by Jef Feeley and Tim Loh for Bloomberg may be of interest to subscribers. Here is a section:

The settlement is more comprehensive than expected, since it includes the dicamba and PCB cases, and the price will be reasonable for most investors, Sebastian Bray, an analyst at Berenberg, said by email.

It’s a “big relief,” Bray said, and “should allow investors to draw a line under the saga of the last two years.”

The Roundup agreements will resolve 75% of about 125,000 filed claims and those that were unfiled, the company said Wednesday in a statement. Bayer said it will pay $10.1 billion to $10.9 billion to resolve all lawsuits over the popular herbicide, including $1.25 billion for future claims handled as a class action.

Eoin Treacy's view -

Bayer pretty much bet the value of the entire firm on the speculation they would be better able to settle the Roundup claims than Monsanto. It’s looking increasingly likely that they were correct.



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June 23 2020

Commentary by Eoin Treacy

June 23 2020

Commentary by Eoin Treacy

The 'Fed story' will win out over second wave and election fears, UBS says. It's time for investors to get off the sidelines

Thanks to a subscriber for this article by Callum Keown for MarketWatch. Here is a section:

The analysts, led by chief investment officer Mark Haefele, said three narratives were currently driving markets; the ‘Fed story’ — ongoing central bank stimulus — the second-wave story, and the U.S. election story. Fears of a second coronavirus wave have come to the fore in recent days, with spikes in Beijing, Germany and a number of U.S. states. The UBS team said that U.S.-China tensions fed into the election narrative, which would come into focus over the next four months.

“Overall we see the second-wave and U.S. election stories as contributing to market volatility as headlines feed investors’ hopes and fears about the speed and strength of the economic recovery. But it is the Fed story that will endure over the medium term,” they said in a note on Monday. They said they were positive on the outlook for both equities and credit, preferring USD high yield, Asian high yield and USD-denominated emerging market sovereign bonds as well as stocks in sectors that have so far lagged behind the market.

“Against this backdrop, we think the most important thing an investor can do is to be invested, rather than sitting on the sidelines. As earnings are likely to recover in the second half of the year and excess liquidity continues to support risk assets, we see further upside potential in global equities, in particular among sectors that have lagged the rally so far,” they added.

Eoin Treacy's view -

Monetary policy beats most other factors most of the time” was one of David’s favourite sayings and it has certainly helped to inflate asset prices over the last 12 years. The process began another upward cycle when the Fed reversed its quantitative tightening program last year in response to the illiquidity in the repo market. It went into overdrive when following the imposition of the lockdowns.



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June 23 2020

Commentary by Eoin Treacy

The New Weapon in the Covid-19 War

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

Back in 2003, when the original SARS virus started killing people in Hong Kong at a frightening rate, DeRisi sequenced its genome. But the process was too slow and expensive to be of practical use. “It’s 50,000-fold cheaper now than it was for SARS,” he told me. “What cost me $10,000 to do in 2001 now costs a penny.” And so we might now test for the virus in a way that gives us a picture that you can’t get from more conventional random sampling. Explore how the virus works in one neighborhood and you can apply what you learn to others. “Our state government should be doing this,” said DeRisi. “It should be asking: What are our social relationships and which ones lead to the transmission of disease? That’s what you would do in a rational society.”

Eoin Treacy's view -

The world was caught flatfooted with COVID-19 and many countries are still struggling to get a handle on how best to deal with a wholly new pathogen that seemed to spring out of nowhere. The big difference on this occasion is all historical comparisons are likely to be inaccurate because of the leaps in technological innovation that have taken place since the sequencing of the human genome almost twenty years ago.



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June 23 2020

Commentary by Eoin Treacy

Alpha: Made in China

Thanks to a subscriber for this article from the Man Institute. Here is a section:

China A has been notorious for various practical hurdles for active managers to effectively implement their investment strategies, one of which is suspension. Historically, Chinese-listed companies tend to suspend the trading of their stocks to avoid unfavourable price moves, sometimes even arbitrarily. In Figure 13, we plot the time-series of the suspension ratio of the China A-share market. The suspensions peaked in late 2015 and early 2016 amidst the market turmoil and a brief introduction of circuit break mechanism. Since then, the suspension issue has improved, driven by efforts from domestic regulators as well as pressure from leading index providers. When the market opened down 8% following the extended lunar New Year holiday and coronavirus outbreak in early February 2020, we were pleased to see no suspensions.

Conclusion
With the abundance of breadth, inefficiency, local information and increasingly fewer implementation hurdles, we believe investing in the China A-share market can potentially benefit active managers looking to explore new alpha sources or diversify their existing strategies. In the meantime, the unique market dynamic, retail dominant investor base and the language barrier for leveraging local information pose significant challenges. As such, we believe investors should view China A-shares as a separate asset class, requiring dedicated research resources and allocation.

Eoin Treacy's view -

The question of governance is always relevant, but particularly so when the topic is return of your capital versus return on your capital. China is a difficult place to do business and there is a clear government effort to control the market narrative. That can have capricious consequences for investors in A-Share market. However, it is uncorrelated with other markets and that means modern portfolio theory practitioners will be drawn towards it as a diversifier for balanced portfolios.



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June 22 2020

Commentary by Eoin Treacy

June 22 2020

Commentary by Eoin Treacy

Email of the day - on the third psychological perception stage of a bull market

Mr Treacy mention on the big picture/long term view today that we are in the mania stage of the markets.

I would be grateful Mr Treacy could describe some past mania markets and how they played out - e.g. how long did they run for and what set of circumstances precipitated the turning point to the downside.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. The third psychological perception stage of a bull market is mania. It’s when the risk is greatest but it is also when it is easiest to make money from simply being long.



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June 22 2020

Commentary by Eoin Treacy

Email of the day on key reversals

After watching your latest insightful and thought-provoking long term take on the markets, I noticed on Friday there were daily downside key reversals both for the Dow Jones Utilities and Transportation indices. Could this be a straw in the wind for the main US indices?

Eoin Treacy's view -

Thank you for your kind words and this question which may be of interest to other subscribers. For a key reversal to occur, we need to see a new high reached for the move, only to be reversed and for the market to fall and close below the low of the previous day.



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June 22 2020

Commentary by Eoin Treacy

Investors Are Spending Fresh Billions Hedging Market Mania

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

Gold and longer-maturity bonds are getting outsized inflows. Protective equity options are outdrawing speculative contracts, while volatility markets are positioning for fresh disruptions.

It comes as signs of froth are emerging. The S&P 500 Index is on the cusp of its best quarter in more than 80 years even as fears of a second coronavirus wave grow. Speculative mania reigns among retail investors, while the likes of JPMorgan Chase & Co. are turning bullish on U.S. stocks.

But for all the fears that Wall Street is running headlong into risk in one of the fastest rebounds ever, hedging demand shows the frenzy is being met with some vigilance.

Eoin Treacy's view -

When equities yield 4% and a 10% correction is normal, then hedging with bonds that yield 6% and have less volatility makes sense. It is the relationship risk parity strategies were based on even though the original numbers were different. However today we have equities that yield 2% with 30% drawdown risk. Bonds yield 0.7% but volatility hit decade highs, more than double current levels, just a couple of months ago.



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June 19 2020

Commentary by Eoin Treacy

June 19 2020

Commentary by Eoin Treacy

The Anatomy of a Rally

Thanks to a subscriber for this memo by Howard Marks for Oaktree which may be of interest. Here is a section:

Questions like these can’t tell us for a fact whether an advance has been reasonable and current asset prices are justified. Buy they can assist in that assessment. They lead me to conclude that the powerful rally we’ve seen has been built on optimism; has incorporated positive expectation and overlooked potential negative; and has bene driven largely by the Fed’s injections of liquidity and the Treasury’s stimulus payments, which investors assume will bridge to a fundamental recovery and be free from highly negative second-order consequences.

A bounce from the depressed levels of late March was warranted at some point, but it came surprisingly early and quickly went incredibly far. The S&P500 closed last night at 3,133, down only 8% from an all-time high struck in troubled-free times. As such, it seems to me that the potential for further gains from things turning out better than expected or valuations continuing to expand doesn’t fully compensate for the risk of decline from events disappointing or multiples contracting.

In other words, the fundamental outlook may be positive on balance, but with listed security process where that are, the odds aren’t in investors’ favor.

Eoin Treacy's view -

The rise of earnings-agnostic investing has been a trend which has defined the bull market since 2008. Every major bull market thrives on a financial innovation. It would be tempting to think that in this case it was cryptocurrencies, but the answer is probably more mundane. ETFs have enabled factor investing and promoted the acceptance of Modern Monetary Theory. They have allowed companies like Blackrock and Vanguard to become titans of Wall Street on the back of value-agnostic investing.  



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June 19 2020

Commentary by Eoin Treacy

The Curious Case of COMEX Gold Deliveries in April and June

Thanks to a subscriber for this article by Ronan Manly for bullionstar.com which may be of interest. Here is a section:

Switzerland never normally exports gold to the US. In fact, the US usually exports gold to Switzerland gold to Switzerland – to be refined. Why was 153.3 tonnes rushed into New York during late March and April. Were these COMEX deliveries known about in advance?

Another coincidence is that the amount of gold that has flowed into COMEX since early April that is reported as eligible for the new COMEX 400 oz gold futures contract totals 155.67 tonnes of gold. Very similar to the total amount of gold ready to be delivered for the June 100 oz contract.

The next article will look at the flows into the COMEX gold vaults since 23 March, which have totaled a huge 694 tonnes, comprising 363 tonnes in eligible and 331 tonnes in registered. This has brought registered stocks up to 387 tonnes and eligible stocks to 578 tonnes, for a combined total of 965 tonnes.

Could it be that the entity or entities that were looking for gold in London on 23-24 March and didn’t get it, switched their attention back to the COMEX and demanded delivery through futures, the delivery of which is now panning out? A trans-Atlantic shock that left bullion banks scrambling.

Eoin Treacy's view -

Ensuring there is enough gold on hand to supply a newer larger contract size is just part of doing business as a commodities exchange. The spike in the spread between London and New York gold prices witnessed in March and April was probably a result of trying to source this supply during the lockdowns. The bigger questions will be if investors are now willing to take delivery, rather than roll their contracts, will that reduce supply in the physical market and where will those tons of gold be stored?



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June 19 2020

Commentary by Eoin Treacy

Johnson Says Time for Less Covid Fear as U.K. Lowers Alert Level

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

Prime Minister Boris Johnson called for people to be “less apprehensive” about Covid-19 as the U.K.
lowered the pandemic alert level and he promised to get all students back to school by September.
The new Level 3 alert indicates the virus is no longer spreading exponentially after almost three months of lockdown, and the guidance allows for some relaxation of social-distancing
measures.

Johnson hinted the rule that people should stay 2 meters (6 feet, 7 inches) apart may be relaxed to 1 meter for pupils -- as Northern Ireland has done -- to help re-open schools in England. He also said the track and trace system, and a new treatment for the virus, means the pandemic is entering a new phase.

“We’ve got to start thinking about a world in which we are less apprehensive about this disease,” Johnson told broadcasters on Friday. “On the social-distancing measures, watch this space, we will be putting in place further changes as the science allows.”

Eoin Treacy's view -

We have a lot more testing so the number of cases continues to rise. The protest movements that sprang up at the end of May and the end of lockdowns have also both contributed to the increasing pace of the spread of the coronavirus. The big question we all need to answer is does it matter?



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June 18 2020

Commentary by Eoin Treacy

June 18 2020

Commentary by Eoin Treacy

Daily Observations

Thanks to a subscriber for this note from Bridgewater which includes a number of interesting discussion points on the outlook for stock market returns over coming months. Here is a section:

Eoin Treacy's view -

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

There is a solid argument that the coronavirus lockdown is this generation’s Y2K. Back in the late 1990s there was a real fear electronics would stop working when the date ticked over into 01.01.2000. It prompted substantial investment in additional tech infrastructure and accelerated the rollout of the internet.



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June 18 2020

Commentary by Eoin Treacy

Email of the day on rising left-wing populist fervour

FWIW I found this page on the AP website which seems to debunk the idea on BLM being used to fund Democratic candidates:

https://apnews.com/afs:Content:9043930562

Over here in the UK, I found this expressed aim of the BLM movement a lot more troublesome:

https://www.gofundme.com/f/ukblm-fund

"a commitment to dismantle imperialism, capitalism, white-supremacy, patriarchy and the state structures"

Has raised nearly £1M.

Eoin Treacy's view -

Thank you for this information email. The ActBlue Charities organisation was set up in 2004 and has been one of the primary routes through which the Democratic Party has sourced grassroots funding. It’s association with BLM, as you point out, is not funding Democratic electoral campaigns directly. However, it would be a gross misrepresentation to think that the two movements are not highly sympathetic to one another. This article from fivethirtyeight.com carries additional information on ActBlue’s success in raising money before the recent protests.



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June 18 2020

Commentary by Eoin Treacy

BOE Walks the Line Between Quick Rebound and Fragile Job Market

This article by Lucy Meakin and David Goodman for Bloomberg may be of interest to subscribers. Here is a section:

Bailey said that while the overall output is holding up better than expected in May, there’s probably worse to come for employment. Jobless claims have risen sharply and the number of workers on the government’s furlough program is higher than the BOE had anticipated.

“We certainly do see signs of activity picking up,” Bailey said. But “we also have quite a strong focus on the labor market,” where the data are “quite mixed.”

The new pace of bond purchases means the total QE target of 745 billion pounds should be reached around the end of the year, and the bank didn’t indicate a possible extension into 2021.

Eoin Treacy's view -

The UK missed the narrow window to get ahead of the virus and instead has had to deal with a prolonged period of uncertainty where economic statistic volatility is creating a great deal of uncertainty. The massive decline in GDP reported last week is likely to be countered by an historic rebound which benefits from the low base effect when it is next reported.



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June 17 2020

Commentary by Eoin Treacy

June 17 2020

Commentary by Eoin Treacy

Powell Says Fed Working to Relieve Coin Shortage in U.S. Economy

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

Federal Reserve Chair Jerome Powell took a question Wednesday about something that doesn’t come up very often in congressional hearings about monetary policy: coinage. Representative John Rose, the Tennessee Republican, asked Powell if he was aware of the shortage of coins caused by the pandemic that he was hearing about from banks in his district.

“With the partial closure of the economy, the flow of coins through the economy has gotten all -- it’s kind of stopped,” Powell said, during the hearing before the House Financial Services Committee.

“The places where you go to give your coins, and get credit at the store and get cash -- you know, folding money -- those have not been working. Stores have been closed. So the whole system has kind of, had come to a stop,” he said. “We’re well aware of this. We’re working with the Mint and we’re working with the reserve banks, and as the economy reopens, we’re seeing coins begin to move around again.” Powell said he believed the shortage would prove only temporary.
 

Eoin Treacy's view -

Velocity of Money figures are notoriously hard to get a hold of. However it is reasonable to expect that with much of the global economy on lockdown the flow of liquidity around the system ground to a halt. Since central banks are in the business of ensuring there is sufficient liquidity in the system to promote growth, they have little choice than to flood the market during such times. There is an additional consideration that a long-term war on cash has been evident for some time and the coronavirus is an ideal excuse to dispense with cash even further.



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June 17 2020

Commentary by Eoin Treacy

2020 JPM Macro Quantitative and Derivatives Conference

Thanks to a subscriber for this report by Marko Kolanovic for JPMorgan. Here is a section:

June 17 2020

Commentary by Eoin Treacy

More early data revealed from landmark CRISPR gene editing human trial

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

The very first patient treated with CTX001 is now at a 15-month follow-up point, and the data suggests the therapy is still efficacious with no long-term complications detected. Nine months on from treatment the first sickle cell disease patient is also displaying promising results, free of any sickle cell-related adverse events.

“In my 25 years of caring for children and young adults facing both sickle cell disease and beta thalassemia, I have seen how these diseases can adversely affect patients’ lives in very significant ways,” says Haydar Frangoul, from the Sarah Cannon Research Institute. “I am encouraged by the preliminary results, which demonstrate, in essence, a functional cure for patients with beta thalassemia and sickle cell disease.”

Eoin Treacy's view -

Genetic diseases shorten lives and represent significant drains of finances for many families. The promise of a cure has long been too much to hope for but we are likely to see sickle cell anaemia, thalassemia, cystic fibrosis and muscular dystrophy eradicated in our lifetimes.



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June 16 2020

Commentary by Eoin Treacy

June 16 2020

Commentary by Eoin Treacy

Consolidation happens fast

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

Eoin Treacy's view -

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

There is no question that the pace of market action has picked up. We had the quickest drop from an all-time high in history and one of the swiftest rebounds in history. On top of that, the Federal Reserve has morphed from being reactive to proactive. In so doing its actions are pre-empting weak economic figures which has helped to support asset prices.



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June 16 2020

Commentary by Eoin Treacy

Beijing Shuts Schools to Stem Virus as Cases Spread Beyond City

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

The costs of imposing an across-the-board shutdown are too high as Beijing’s population is much larger than that of Wuhan, said Yanzhong Huang, professor at the Center for Global Health Studies of Seton Hall University.

“A city-wide lockdown in Beijing would not only reverse the process of economic and social reopening, a key policy objective of the party, but also undermine considerably the government’s own narrative on the success of its anti Covid-19 campaign,” Huang said. “The social, economic, and political pain might be way too high to justify a city-wide lockdown.”

Beijing on Tuesday closed another food market located near the financial district after a case linked to the original cluster was discovered. Eleven other food markets have been shuttered and almost 300 others sanitized, while nearly 30 housing compounds have been put under lockdown, local officials said.

Eoin Treacy's view -

China learned quicker than everyone else that the cost of lockdowns far outweighs the benefit of containment. It is very unlikely the whole country will be locked down again regardless of how bad the infection rate gets. The emerging reality is the mortality rate is about double that of the seasonal flu. Even if the transmissibility trend tends to pressure healthcare systems that is a cost which countries will simply have to bear. Meanwhile new high potency treatment options are emerging all the time.



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June 16 2020

Commentary by Eoin Treacy

Amazon Faces a Sharp Challenge from Walmart and Shopify

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

The announcement adds another major player to Shopify’s growing alliance against Amazon.com Inc.’s e-commerce dominance. Last month, I wrote how Shopify CEO Tobi Lutke has often said his company’s goal was to “arm the rebels” against the Amazon empire. The Walmart deal comes just weeks after Shopify signed a partnership with Facebook Inc. that allows Shopify’s merchants to sell on the social-media giant’s platforms under the newly launched Facebook Shops initiative. Before these moves, the aggregated online sales of Shopify’s U.S. customer base already ranked as the second-largest in the country after Amazon, according to the company. And now with Walmart on board and the expanded deal with Facebook, they mark significant steps to expand Shopify’s eco-system, making its platform a more viable and an attractive alternative to sellers.

Eoin Treacy's view -

Amazon is a facilitator of commerce by being a destination in its own right. When people shop, they go to Amazon in much the way we go to Google for information. Anyone who completes a transaction via Shopify’s network is ignorant of the company’s existence because it facilitates trade in the background. The big challenge in competing against Amazon is in easing the route to customer acquisition for Shopify sellers.



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June 15 2020

Commentary by Eoin Treacy

Video commentary for June 15th 2020