Investment Themes - General

Search all article by their themes/tags in the search area
below for example “Energy” or “Technology”.

Search Results

Found 1000 results in General
September 05 2019

Commentary by Eoin Treacy

Apple Leads Corporate Bond Bonanza

This article by Matt Wirz and Nina Trentmann for the Wall Street Journal many of interest to subscribers. Here is a section:

Apple Inc. on Wednesday joined U.S. companies including Deere & Co. and Walt Disney Co. in a recent sprint to issue new bonds, taking advantage of the steep decline in benchmark interest rates and a surge in investor demand.

Apple launched its first bond deal since 2017, selling $7 billion of debt. All three companies issued 30-year bonds with yields below 3%, a first for the corporate debt market.

Twenty-one companies with investment-grade credit ratings issued bonds totaling about $27 billion on Tuesday, said Andrew Karp, head of investment-grade capital markets at Bank of America Corp. “That’s equivalent to a busy week for us—in one day,” he said. About 20 more companies were expected to issue investment-grade bonds Wednesday.

The issuance boom is one consequence of a rally in debt that has driven down Treasury yields, which fall as bond prices rise, to near-record lows. Spurred by concerns that slowing growth and a mounting trade conflict will end the decadelong global economic expansion, investors have swept up government bonds around the world, pulling yields in many countries into negative territory. Bonds issued by name-brand corporations give investors a relatively safe alternative that still pays more than government bonds.

Eoin Treacy's view -

Anyone with any sense is either refinancing or issuing debt at these levels. There is a cacophony of people talking about the US following Europe and Japan into negative rates. That is a possibility but the bigger question is when? It does not look likely before the end of the year and in the meantime, there is a wave of corporate and sovereign bond issuance for the market to digest.



This section continues in the Subscriber's Area. Back to top
September 05 2019

Commentary by Eoin Treacy

The Unlikely Chinese Cities Where House Prices Rival London

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

 

London, Seattle, Manchester and, um, Xiamen. Some of the world’s priciest housing markets aren’t where you might think. A four-year property boom in China has elevated a collection of little-known cities and turned them into real estate gold.

While that’s been great news for speculators, it’s raising concern about whether China’s educated middle-class is quickly being priced out of these so-called second-tier cities, undermining Beijing’s goal of making them home to the millions moving from rural areas. Another risk is increasingly stretched family budgets: The average household debt-to-income ratio in China soared to a record 92% last year from just 30% a decade ago.

“A property bubble is foaming up in many places in China,” said Chen Gong, the chief researcher at independent strategic think tank Anbound Consulting. “Prices are starting to look
abnormal when compared to residents’ income.”

Eoin Treacy's view -

When something sounds crazy, that’s usually because it is. Xiamen is a smallish city, by Chinese standards, in Fujian. It’s a long way from any of the other coastal metropolis’ stature so its rise as one of the most expensive places in the world to buy property is further evidence of another bubble inflating in financial assets, this time in China.



This section continues in the Subscriber's Area. Back to top
September 04 2019

Commentary by Eoin Treacy

Video commentary for September 4th 2019

September 04 2019

Commentary by Eoin Treacy

Stocks Advance as Risks Recede; Greenback Slides

This article by Randall Jensen and Vildana Hajric for Bloomberg may be of interest to subscribers. Here is a section:

Stocks in Hong Kong leaped the most since 2018 after embattled leader Carrie Lam said she formally withdrew legislation to allow extraditions to China, the detonator for three months of often-violent protests. In the U.K., the pound surged after Parliament took a crucial first step to block a no-deal Brexit. The euro advanced after purchasing managers indexes for the region beat expectations, while the onshore Chinese yuan gained following another stronger-than-forecast currency fixing.

“The main news is geopolitical, with less risk in Hong Kong, and Italy and the U.K. Investors are reacting positively to the lower geopolitical risks even though there’s still concerns over trade tensions as well as slower economic growth,” said Kate Warne, an investment strategist at Edward Jones. “Overall, it’s a positive day. It’s about offsetting the worries of yesterday which really focused, I think, on geopolitical risks.”

Eoin Treacy's view -

Italy has a new government, at least for a while, the Hong Kong protestors got what they originally asked for but their demands have swollen considerably since then, the UK may be heading for an election, but could still end up with a hung parliament and factory figures are not quite as disastrous as many people were worried about. I think it is safe to say that these are modest improvements. Perhaps it would be better to look elsewhere for the reason behind the bounce in equities today.



This section continues in the Subscriber's Area. Back to top
September 04 2019

Commentary by Eoin Treacy

Why Peak gold is Fake News

This article by Mickey Fulp for Kitco.com may be of interest to subscribers. Here is a section:

However, the following chart illustrates the severe decline in production, i.e., peak gold, by the six largest gold miners. This particular group of companies has gone steadily downhill from an all-time high of 955 tonnes, or over 40% of world production in 2006, to a multi-decade low of 705 tonnes, or 22.5% of world production in 2017.

So not only are majors declining in the numbers of ounces (-26% over 12 years), they have also lost a significant share of the world gold mining market (-18%):

We have shown that the current narrative promulgated for peak gold applies to the major gold miners only and not for the gold mining industry as a whole. That said, the data presented above cover a relatively short time frame of 19 years: the end of a bear market for gold (2000-2002); a long bull market cycle (2003-2012); a relatively short but deep bear market (2013-2015); and a lower, range-bound gold price over the past three years (2016-2018).

To fully assess the idea of peak gold, I submit we must take a much longer-term view and determine what factors drive mining of the yellow metal.

According to the USGS, world gold production increased from 386 tonnes in 1900 to 3150 tonnes in 2017. That is an eight times increase and an average gain of 1.8% per year:

Eoin Treacy's view -

Mines are wasting assets by definition and the only way to continue to increase production is to spend more money on digging deeper. If that cost can be contained by technological advances then the mine can make a profit, otherwise they are wholly dependent on the price of the commodity rising to justify the expenditure. Therefore, secular bull markets in commodities are defined by a rise in marginal cost of production to a sufficiently high level which encourages new supply into the market.



This section continues in the Subscriber's Area. Back to top
September 04 2019

Commentary by Eoin Treacy

The great deficit gamble

This article by Robert J. Samuelson for the Washington Post may be of interest to subscribers. Here is a section:

The irony is that both Republicans and Democrats are partially right. Presidents and Congresses of both parties have delayed for so long in addressing these problems that there is no gentle way to push the budget back toward balance without inflicting real pain: deep spending cuts and higher taxes. In the 1990s and early 2000s, a less disruptive approach might have been possible. There were many warnings and almost no action.

The best we could have expected is that the president and Congress wouldn’t make the problems worse. But they are. The implicit hope of present policy is that the world’s demand for “safe assets” — mainly U.S. Treasury securities — means that we can spend more than we tax, with the shortfall being made up by perpetual borrowing.

This is a high-stakes gamble. The possible ways in which a world sated with dollar securities could trigger a financial or economic crisis are many. The consequences of a run on the dollar — the currency most held by multinational firms, international banks, investors and traders — would clearly destabilize the world economy. A prudent society would recognize this and take preventive steps.

Eoin Treacy's view -

The Fed’s balance sheet run-off which began in earnest at the beginning of 2018 is still underway with the total hitting a new reaction low last week despite Fed claims to the contrary. Maturing mortgages and early prepayments, in part driven by low interest rates are the most likely reason, with a disparity between redemptions and the quantity reinvested in Treasuries. That suggests a shortage of Dollars internationally.



This section continues in the Subscriber's Area. Back to top
September 04 2019

Commentary by Eoin Treacy

Eoin's personal portfolio: crypto long increased July 15th 2019

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. 



This section continues in the Subscriber's Area. Back to top
September 03 2019

Commentary by Eoin Treacy

Video commentary for September 3rd 2019

Eoin Treacy's view -

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

Some of the topics discusseded include: Xi Jinping's speech and support for the stock market, gold and silver resurgent, bonds look overstretched, Euro and Pound steady from their lows, Japan steady, Wall Street closes off its lows. 



This section continues in the Subscriber's Area. Back to top
September 03 2019

Commentary by Eoin Treacy

Is an inflation resurgence credible?

Eoin Treacy's view -

At the end of last year, a return of inflation was assumed to be inevitable with the 10-year Treasury yield trading comfortably above 3%, commodity prices recovering, wages marching higher, full employment and high capacity utilisation. The perspective could not be more different today.

Interminable deflation has been priced in to Treasury yields as they test the lows of the last eight years. Commodity prices are under pressure, the trade war has resulted in a number of export dependent nations flirting with recessions, purchasing managers indices suggest contracting manufacturing activity and an inverted yield curve has started the clock on the next recession. Meanwhile gold has exploded on the upside to complete a six-year base formation.



This section continues in the Subscriber's Area. Back to top
September 03 2019

Commentary by Eoin Treacy

What Is a Tech Company?

I found this a thoughtful article from the Stratechery blog discussing what should qualify as a technology company. Here is a section on Netflix:

The question of whether companies are tech companies, then, depends on how much of their business is governed by software’s unique characteristics, and how much is limited by real world factors. Consider Netflix, a company that both competes with traditional television and movie companies yet is also considered a tech company:

There is no real software-created ecosystem.
Netflix shows are delivered at zero marginal costs without the need to pay distributors (although bandwidth bills are significant).
Netflix’s product improves over time.
Netflix is able to serve the entire world because of software, giving them far more leverage than much of their competition.
Netflix can transact with anyone with a self-serve model.

Netflix checks four of the five boxes.

Eoin Treacy's view -

TV shows and movies are delivered at no additional marginal cost once produced. That is true but they do not have the same residual value as software because unless the show is particularly good the vast majority of people will never watch it again.



This section continues in the Subscriber's Area. Back to top
September 03 2019

Commentary by Eoin Treacy

India May Have Entered 'Quasi-Recession' as Growth Plummets

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

Official data on Friday showed that gross domestic product in Asia’s No. 3 economy grew 5% in April-June from a year earlier, below the weakest estimate of 39 economists polled by Bloomberg and the slowest pace in six years. The five straight quarters of slowing growth mark the longest slump since 2012.
 
Under the hood, the numbers offer more cause for concern on whether output – once adjusted for inflation -- will increase fast enough to ensure borrowers cover their interest payments. A Bloomberg gauge of high-frequency indicators suggests that economic activity continued to weaken in July, with investment and consumption both falling. Economists at Nirmal Bang expect GDP growth to bottom out in the quarter ending September but believe that “a counter-cyclical government spending boost is required.”

Eoin Treacy's view -

The consolidation of the state-owned banking sector announced last week is a positive. India is a fast-growing economy with strong potential to become a future manufacturing powerhouse not least because factories are seeking a new home as they exit China.



This section continues in the Subscriber's Area. Back to top
September 03 2019

Commentary by Eoin Treacy

Email of the day on podcasts and videos

I this a new feature?  I hope so. Never noticed it before, it's fab. All really interesting, please make it permanent! Hope you're well.

Eoin Treacy's view -

Thank you for the feedback. I believe Fullermoney was among the first services anywhere to offer the kind of audio commentaries which are now referred to as podcasts. The first was on March 2nd 2004 and they have been a daily feature of the service for over 15 years. The first video version of the Subscriber’s Audio I recorded was on October 4th 2016. In the past three years many more services, particularly asset managers, have chosen to use both audio and video media to convey their messages because of the popularity of the medium. I’m increasingly coming into contact with these reports and I will post those I believe are of interest to the Collective on Fridays.



This section continues in the Subscriber's Area. Back to top
September 02 2019

Commentary by Eoin Treacy

September 02 2019

Commentary by Eoin Treacy

U.K. Election Threat Looms as Johnson Fights Tory Brexit Rebels

This article by Tim Ross, Kitty Donaldson and Alex Morales for Bloomberg may be of interest. Here is a section:

Talk of an early election highlights the make-or-break nature of this week for Johnson’s leadership and for the country as a whole. Since he became prime minister in July, Johnson has made it his mission to prepare the U.K. to leave the EU by the Oct. 31 deadline even if that means tumbling out of the 28-country bloc with no deal to cushion the blow to trade.

Many politicians inside his own Conservative Party are unwilling to go along with this plan, believing it will hit the economy, sparking a recession and a crash in the currency and house prices. They have been trying to work out a way to stop the premier forcing through a no-deal Brexit that would damage the economy and leave businesses and citizens facing legal chaos.

 

Eoin Treacy's view -

I will repeat my view that the only way for the UK to get what it wants from negotiations is to present a credible case for leaving without a deal. You have to be willing to walk away unless you get what you want. Even if it is a bluff, it needs to be even more credible. The problem is in a parliament riven by indecision, competing allegiances and electrical arithmetic there is no consensus even on what the best negotiation tactic is.



This section continues in the Subscriber's Area. Back to top
September 02 2019

Commentary by Eoin Treacy

Sydney and Melbourne house values rocket on lower rates

This article by Shane Wright and Eryk Bagshaw for the Sydney Morning Herald may be of interest to subscribers. Here is a section:

While stronger over the past quarter, values in the two cities are still down over the year. House values in Sydney are off by 7.7 per cent since August last year while in Melbourne they are down by 8.7 per cent.

There was a solid lift of 1.1 per cent in Canberra house values over the month while in Hobart they increased by 0.8 per cent.

But elsewhere values were down. They dropped another 1.6 per cent in Darwin with total house values down by 11.1 per cent over the past year. They dropped by 0.6 per cent in Perth, by 0.3 per cent in Adelaide while they were flat in Brisbane.

Eoin Treacy's view -

Perhaps the most important point about the Australian financial sector is the Royal Commission has concluded without a knock-out blow for the banks.
 



This section continues in the Subscriber's Area. Back to top
September 02 2019

Commentary by Eoin Treacy

Indonesia Set to Halt Nickel Ore Exports From End December

This article by Wahyudi Soeriaatmadja  for the Straits Times may be of interest to subscribers. Here is a section:

Energy and Mineral Resources Minister Ignasius Jonan said on Friday that the nickel export curbs are "in line with President Joko Widodo's directives".

Indonesia's current account deficit reached US$31.1 billion (S$43.2 billion) in 2018. The widening deficits were an issue Mr Joko's political opponents frequently played up during his presidential campaign ahead of the April election. Mr Joko will be sworn in on Oct 20 to begin his second and final five-year term.

A senior government official had earlier argued that Indonesia could have recorded even higher deficits had the country not boosted efforts to climb up the value chain in the iron and steel sector, encouraging investors to build plants at home to process raw nickel into intermediate products such as stainless steel slabs.

Eoin Treacy's view -

Indonesia has long sought to gain more economic benefit from its commodity exports. That was particularly true of the tin market when exports were limited to refined products in 2013. The aim was to try and build up the domestic refining business but the collapse in prices in 2014 and 2015 killed off that idea. It now appears Indonesia is attempting to do something similar with nickel exports.



This section continues in the Subscriber's Area. Back to top
August 30 2019

Commentary by Eoin Treacy

August 30 2019

Commentary by Eoin Treacy

Email of the day - on how to trade a bubble and its impact on gold

What is likely to happen to the price of precious metals if a bubble in equities arises for all the reasons that you have stated. Precious metals appear to fall each day that equities perform well. Which sectors/countries are the likely leaders If there is an equities bubble or will we need to wait for the charts to tell us?

Eoin Treacy's view -

Gold has rallied impressively to complete a six-year base. The catalyst for that move was the perception the ECB is about to move interest rates below zero. That spurred a massive move in bonds that has created a situation where $17 trillion in nominal bonds are trading with negative yields in Europe and Japan.



This section continues in the Subscriber's Area. Back to top
August 30 2019

Commentary by Eoin Treacy

Modi Creates Big Banks to Buoy Worse-Than-Expected India Growth

This article by Suvashree Ghosh, Siddhartha Singh and Shruti Srivastava for Bloomberg may be of interest to subscribers. Here is a section:

“Just increasing the size of balance sheets and combining operations of banks will only reduce the number of state-owned lenders but asset quality stress is unlikely to be taken care of,” said Avinash Gorakshakar, head of research at Joindre Capital Services Ltd. in Mumbai. “The bigger issue still remains as how risk profiling would improve banks’ bad-loan ratio ahead.”

After returning to power with a stronger mandate, Modi has been grappling with an economy still hurting from the fallout of his cash ban in 2016 and the botched rollout of a nationwide sales tax. A bad-loan clean up in the banking sector has contained credit to companies and a crisis among shadow lenders is denying consumers loans to buy goods like cars and refrigerators. Meanwhile unemployment is at a 45-year high as companies refrain from new investments.

Data on Friday showed gross domestic product growth slowed for a fifth straight quarter to 5% in the three months ended June. That’s slower than the 5.7% expansion predicted in a Bloomberg survey. The rupee pared gains in the offshore market.

Eoin Treacy's view -

Crude oil’s weakness and the compression of India’s sovereign bond yields represent important tailwinds for the Indian economy which should help to stabilise growth not least because they should offer the RBI space to cut rates even further.



This section continues in the Subscriber's Area. Back to top
August 30 2019

Commentary by Eoin Treacy

RBA Says Household Debt Could Complicate Future Rate Decisions

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

Reserve Bank of Australia comments in 2019/20 corporate plan released on website Friday.

“Over 2019/20 to 2022/23, the structure of the Australian economy will continue to evolve and economic shocks -- which, by definition, are not forecastable -- will occur. Movements in asset values and leverage may be more important for economic developments than in the past given the already high levels of debt on household balance sheets”

“Especially in the context of weak growth in household income, high debt levels could complicate future monetary policy decisions by making the economy less resilient to shocks”

“The flexible medium-term inflation target is the centerpiece of the monetary policy framework in Australia and has been well established for more than two decades. Since the early 1990s, it has provided the foundation for the bank to achieve its monetary policy objectives by providing an anchor for inflation expectations. The bank will remain alert to new developments that may have a bearing on the framework for monetary policy”

Eoin Treacy's view -

The Australian Dollar remains in a medium-term downtrend, moving to a new closing low today. With energy and iron-ore prices declining and the domestic housing market in a parlous condition the RBA may be required to embark on the same counter deflationary measures other developed markets have endured over the last decade.



This section continues in the Subscriber's Area. Back to top
August 30 2019

Commentary by Eoin Treacy

August 29 2019

Commentary by Eoin Treacy

Video commentary for August 29th 2019

August 29 2019

Commentary by Eoin Treacy

Stock dividends are yielding more than the 30-year Treasury bond for the first time in a decade

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

For the first time since 2009, S&P 500′s dividend is yielding more than 30-year Treasury bonds.

The only other similar inversion in the past four decades came in March 2009 — a low point of the financial crisis, according to data from Bespoke Investment Group. But it might bode well for stocks as investors have few other options to find yields.

“For an investor looking to hold something for the long term, it makes equities relatively attractive,” says Bespoke’s Paul Hickey. 

Eoin Treacy's view -

The contraction in government bond yields, globally, have driven demand for higher yielding assets. It has been one of the primary factors in containing risk in the high yield sector and it is also likely to continue to represent a major factor in the ability of the primary indices to continue to hold in the region of their peaks.



This section continues in the Subscriber's Area. Back to top
August 29 2019

Commentary by Eoin Treacy

The Three Big Issues and the 1930s Analogue

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

Since then, we have had a mirror-like symmetrical reversal (a dis/deflationary blow-off). Look at the current inflation rates at the current cyclical peaks (i.e. not much inflation despite the world economy and financial markets being near a peak and despite all the central banks’ money printing) and imagine what they will be at the next cyclical lows. That is because there are strong deflationary forces at work as productive capacity has increased greatly. These forces are creating the need for extremely loose monetary policies that are forcing central banks to drive interest rates to such low levels and will lead to enormous deficits that are monetized, which is creating the blow-off in bonds that is the reciprocal of the 1980-82 blow-off in gold. The charts below show the 30-year T-bond returns from that 1980-82 period until now, which highlight the blow-off in bonds.

Eoin Treacy's view -

Today’s 7-year auction of Treasuries came in well below expectations suggesting at least some reticence to participate at decade-low yields. The effect on yields was minimal but we did see a pause in the run-up in gold.



This section continues in the Subscriber's Area. Back to top
August 29 2019

Commentary by Eoin Treacy

U.S. Glut in Natural-Gas Supply Goes Global

This article by Ryan Dezember for the Wall Street Journal may be of interest to subscribers. Here is a section:

Earlier this month Freeport LNG Development LP’s export terminal in a beach town south of Houston began buying and liquefying gas with the expectation of sending out its maiden cargo in September. The Freeport facility, the fifth to begin operating in the lower 48 states since the first opened in early 2016, should help push gas consumption from LNG exporters to a new high. Last week, a record nine LNG vessels left the U.S. carrying cargoes, according to Jefferies Financial Group Inc.

In July, LNG exporters consumed an average of about 6 billion cubic feet of gas per day, according to the U.S. Energy Information Administration. That is the most yet and is equal to roughly 7% of total U.S. gas production. Analysts expect demand from LNG facilities to absorb about 12% of total production by next summer as additional facilities start up and existing terminals boost their capacity.

But if those projects are delayed because of low prices overseas or if existing LNG plants slow down or take advantage of the lull to perform extended maintenance, then the domestic gas market could be swamped, sending prices even lower.

“If that demand goes away even for a couple months, it becomes a real problem for the balance of the market,” said Welles Fitzpatrick, an analyst with SunTrust Robinson Humphrey.

Eoin Treacy's view -

Natural gas is a commodity widely associated with the rise of the global middle class. As living standards improve, and infrastructure is laid down, demand for cleaner burning fuels trends higher. The big change in the market over the last few years has been the creation of the global market for natural gas. Prior to this it was primarily a regional market because of a lack of transportation options. Significant investment in LNG terminals all over the world is turning the USA, Australia and potentially Canada into natural gas exporting giants to compete with Russia and Qatar. That represents a significant change to the status quo.



This section continues in the Subscriber's Area. Back to top
August 29 2019

Commentary by Eoin Treacy

Chinese Military Vehicles Just Entered Hong Kong. Beijing Says There's Nothing to Worry About.

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

The official Xinhua News Agency reported that this was the 22nd rotation of the People’s Liberation Army’s garrison in Hong Kong. The previous one was in August 2018.

However, after each of the last two years’ rotations, the PLA stated that the number of troops would remain the same. There was no such statement this year, sparking speculation that China may be planning to increase its military presence on Hong Kong.

Xinhua also reported that the new troops had undergone training “to master military skills and knowledge about the general situation in Hong Kong and relevant laws.”

Experts said the unusually early report from the Xinhua News Agency, which was published at 4 a.m. local time, was designed to allay fears of Chinese military intervention and prevent any further instability in Hong Kong.

Eoin Treacy's view -

The timeliness of the Xinhua article served the dual purpose of avoiding panic but also sending a none too subtle message that China has resources that can be brought to bear on the civil unrest if it so wishes.



This section continues in the Subscriber's Area. Back to top
August 28 2019

Commentary by Eoin Treacy

August 28 2019

Commentary by Eoin Treacy

Longest Parliament Suspension in Decades Tests U.K. Constitution

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

With just over two months until Johnson’s self-imposed deadline to leave the European Union with or without a deal on Oct. 31, every day is going to count. And since Johnson wants a new Queen’s Speech to set out his government’s legislative agenda, which is usually followed by five days of debate, it will be more like two weeks of parliamentary time lost.

While suspensions of as much as two months were common in the 19th century, most prorogations of Parliament in recent decades have lasted for less than a week. Johnson’s suspension for 35 days will be the longest since the 1970s, according to the House of Commons library.

The U.K. doesn’t have a written constitution and, within reason, governments can do whatever they like as long as they have a parliamentary majority. But given that a number of ex-ministers -- including former Chancellor of the Exchequer Philip Hammond and Theresa May’s Justice Secretary David Gauke, have already attacked his move, that is far from guaranteed.

Eoin Treacy's view -

Exiting the EU and retaking the ability to set its own rules and regulations is a once in a generation opportunity to recast the UK’s economy as a pro-growth engine for innovation and trade. Grasping that opportunity is the only way the UK will make a success of Brexit, so it is imperative that the raft of measures proposed in September is not simply a commitment to double down on spending without a plan to grow.



This section continues in the Subscriber's Area. Back to top
August 28 2019

Commentary by Eoin Treacy

Homeowners are sitting on a record amount of cash, but they're not really tapping it

This article by Dina Olick for CNBC may be of interest to subscribers. Here is a section:

So-called tappable equity grew by more than $335 billion during the quarter. The total is 26% more than the mid-2006 peak of $5 trillion. Roughly 45 million mortgage holders have excess equity, and half of them have mortgage rates higher than 4.25%, making a refinance not only possible but attractive. The average rate on the 30-year fixed is now around 3.6%. The majority of these borrowers also have top credit scores.

Falling mortgage rates over the past several months have caused a surge in overall refinance activity, but despite the record housing wealth, homeowners have been highly conservative about taking cash out. In 2006, 89% of refinances were cash-out, according to Freddie Mac. In 2012, when home prices crashed, that share dropped to 12%. But even now, with prices back above their previous peak and mortgage rates much lower, cash-out refinances are just 61% of the total pool of refinances.

“I think you’re seeing a little bit of reluctance both on the side of lenders and on the side of borrowers,” said Andy Walden, director of market research at Black Knight. “If you look at lending, guidelines are a little bit tighter than they were back in 2006, but even given those lending restrictions, I think you’re seeing more conservative behavior on behalf of homeowners as well, as folks have the remembrance of the financial crisis in the rearview mirror.”

Eoin Treacy's view -

I was at an end-of-summer party on Saturday night and conversation turned to mortgage refinancing. About half of the people I was talking with had used low rates over the last 18 months to refinance at about 3.5% while the rest had not done so yet. Mortgage rates have done a round trip from 3.5% to 5% and back again over the last year and there is still scope for the rate to move lower. That is going to put additional cash in the pockets of the people most likely to invest in the stock market.



This section continues in the Subscriber's Area. Back to top
August 28 2019

Commentary by Eoin Treacy

Precious metals' ratios

Eoin Treacy's view -

We’ve seen some important moves in gold and the precious metals over the last couple of months with the yellow metal emphatically breaking out of a six-year range base formation. The total of debt with negative yields is an important support for prices but the broader conclusion that competitive currency devaluation is now a reality is a more important bullish medium-term catalyst.



This section continues in the Subscriber's Area. Back to top
August 27 2019

Commentary by Eoin Treacy

August 27 2019

Commentary by Eoin Treacy

Plenty to Worry About, but Not Much to Do

Thanks to a subscriber for this note by Byron Wein which may be of interest. Here is a section: 

Eoin Treacy's view -

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

One of the most important considerations is that there is a great deal of cash sitting on the side lines. If I think about the investment committees I sit on, most have a lot of cash, and most participants on calls are very cautious. On the other hand, the funds I have more control over are still fully invested. The fear being voiced is a symptom of the fact the stock market has been ranging for more than 18 months amid some acute bouts of volatility.



This section continues in the Subscriber's Area. Back to top
August 27 2019

Commentary by Eoin Treacy

Gold Climbs To A More Than 6-year High; Silver At Highest In Over 2 Years

This note from MarketWatch may be of interest.

Gold and silver futures rose on Tuesday (http://www.marketwatch.com/story/gold-higher-but-silver-sets-the-pace-2019-08- 7), with gold settling at a level not seen since 2013, and silver scoring its highest finish in more than two years. Prices for the precious metals got a boost from losses in the U.S. stock market, a drop in Treasury bond yields and a weaker dollar--all of which helped lift the metals' investment appeal. December gold climbed by $14.60, or 1%, to settle at $1,551.80 on Comex. That was the highest most-active contract settlement since April 2013, according to FactSet data. September silver added 51.2 cents, or 2.9%, to end at $18.153 an ounce, the highest since April 2017

Eoin Treacy's view -

The continued compression of government bond yields is creating significant demand for gold as a hedge against competitive currency devaluation. That is now starting to be manifested in other precious metals with silver playing catch up and platinum beginning to garner attention.



This section continues in the Subscriber's Area. Back to top
August 27 2019

Commentary by Eoin Treacy

OPEC+ Expects to Drain Oil Stocks as It Makes Supersized Cut

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

In response, the Saudis have reduced output by far more than pledged under the terms of the deal, and the coalition’s overall implementation rate last month was 59% above target, according to a statement posted on its website on Tuesday. That means the alliance cut supplies by about 1.9 million barrels a day.

OPEC signaled that the deeper-than-anticipated cutbacks had been necessary because of the extreme upheaval in the global economy.

“This high level of overall conformity has offset uncertainty in the market due to ongoing economic-growth worries,” according to the statement from the Joint Ministerial Monitoring Committee, a body set up by OPEC and its allies to oversee implementation of their strategy.

“Along with healthy oil demand,” the supply restraints have “arrested global oil-inventories growth and should lead to significant draws in the second half of the year,” the committee said.

Eoin Treacy's view -

Brent Crude is flirting with $60 and WTI is testing the $55 area. OPEC and Russia need a higher price to meet their domestic obligations. Meanwhile shale producers need a higher price to justify continued drilling and to help meet their debt obligations. That suggests the $50 area for WTI is a big level for the US domestic onshore sector because they cannot justify supply growth below that level. Despite this competition between OPEC and the Permian oil is trading in backwardation out to two-year maturities.



This section continues in the Subscriber's Area. Back to top
August 26 2019

Commentary by Eoin Treacy

August 26 2019

Commentary by Eoin Treacy

Trump Says China Talks Back on as Beijing Downplays Breakthrough

This article from Bloomberg News highlights the ebb and flow of commentary on the trade war. Here is a section:

“You can say we’re having very meaningful talks, much more meaningful than I would say at any time frankly,” Trump said while meeting with German Chancellor Angela Merkel on Monday. “Maybe I’m wrong but we’re in a stronger position now to do a deal, a fair deal for everyone,” he added.

Still, a spokesman for China’s foreign ministry wasn’t able to immediately confirm the details of the phone calls on Monday. Later, Hu Xijin, editor-in-chief of China’s Global Times newspaper, said in a tweet that top trade negotiators hadn’t spoken by phone in recent days and that Trump was exaggerating the significance of the trade contacts.

Trump later, at a separate bilateral meeting, insisted that calls were had at the highest level and was not aware that China was disputing them. U.S. Treasury Secretary Steven Mnuchin, also in Biarritz, said "there were discussions that went back and forth and let’s just leave it at that.”

Eoin Treacy's view -

Let’s look past the rhetoric and repeated announcements of progress and focus instead on the purpose of the trade war. The USA is the current global superpower and China has clearly stated they wish to overtake the USA economically, technologically and militarily. That suggests there is little prospect of relation returning to the status quo of the last 30 years. The question is primarily about the degree of separation which can be achieved without sparking a broader conflict.



This section continues in the Subscriber's Area. Back to top
August 26 2019

Commentary by Eoin Treacy

Global Money Notes #24 Sagittarius A*

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

Inflows into the foreign RRP facility are a case in point. Just as an inversion is forcing foreign central banks to latch on to the Fed for collateral, an inversion would force primary dealers and banks to latch on to the Fed for reserves, as weak demand for Treasuries from ultimate investors drives growing dealer inventories. The optics of what we just described are odd…

…as they imply the conflicted existence of two uncapped facilities: a foreign RRP facility that sterilizes reserves and adds to collateral supply and a standing repo facility or an asset purchase facility built to add reserves and absorb collateral. That makes no sense…

…it has to be one or the other. If the standing o/n repo facility or an asset purchase facility (or “mini-QEs”) are the future, an uncapped foreign RRP facility must be the past. Whether the Fed provides a technical fix with or without an uncapped foreign RRP facility, we don’t think a technical fix is the right solution for the problems caused by the inversion. All this brings us back to the rationale for more rate cuts – a series of rate cuts (see here).

Eoin Treacy's view -

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

The US Treasury has a substantial funding requirement this year with upwards of $600 billion in bonds maturing. Coupled with the increased demand for collateral from the reverse repo facility and the increased deficits agreed to as a way of avoiding a government shutdown that suggests significant bond issuance. Ensuring that issuance comes at as a low of yield as possible and with as long a maturity as possible is likely behind speculation on 50-year and 100-year bond issuance.



This section continues in the Subscriber's Area. Back to top
August 26 2019

Commentary by Eoin Treacy

New CRISPR Method Advances the Clock for Genetic Editing

This article by Adam Dachis for Extreme Tech may be of interest to subscribers. Here is a section:

If genetic editing wasn’t crazy enough for your reality, a recent breakthrough in CRISPRtechnology has paved the way for editing entire gene networks in a single step.  While this discovery will likely shorten the timeframes required for finding cures for deadly illnesses, it can also bring us closer to threats of bioterrorism.

Scientists at ETH Zurich recently published a new CRISPR technique in Nature Methodsthat removes one of the most significant limitations of the technology.  Prior to this discovery, the process could only target a single gene for editing.  The ETH scientists now managed to target 25 at once and believe that, theoretically, this method could target hundreds.  Here’s how they describe the process:

Eoin Treacy's view -

An improvement of 25 times in one iteration is a further example of the exponential growth in the biotechnology sector. The pace with which genetic sequencing prices have collapsed far outpaced that of Moore’s Law and it is looking increasingly likely that genetic editing is following a similar trajectory.



This section continues in the Subscriber's Area. Back to top
August 23 2019

Commentary by Eoin Treacy

August 23 2019

Commentary by Eoin Treacy

Powell Says Economy in Favorable Place, Faces Significant Risks

This article by Craig Torres and Rich Miller for Bloomberg may be of interest to subscribers. Here is a section:

“Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Powell said in the text of his remarks Friday to central bankers gathered at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “We will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2% objective.”

Eoin Treacy's view -

It is looking like the learning curve for a newly installed Fed chair is about 18 months. Today’s measured statement from Jerome Powell did an excellent job of placating investor fears while leaving open the optionality of how much to cut by. The Fed has made clear they will cut rates if they need to but will not hurry. However, the simultaneous announcement by China that they are increasing tariffs on $75 billion of US goods is likely to be prove the catalyst for deeper cuts.



This section continues in the Subscriber's Area. Back to top
August 23 2019

Commentary by Eoin Treacy

NYU professor calls WeWork 'WeWTF,' says any Wall Street analyst who believes it's worth over $10 billion is 'lying, stupid, or both'

This article by Scott Galloway for Business Insider may be of interest to subscribers. Here is a section:

Adam Neumann has sold $700 million in stock. As a founder, I've sold shares into a secondary offering to get some liquidity and diversify holdings. Ok, I get it. But 3/4 of a billion dollars? This is 700 million red flags that spell words on the field of a football field at halftime: "Get me the hell out of this stock, but YOU should buy some."

— Gross margins are a pretty decent proxy for how good or bad a business is. And this is a sh**ty business:

— Adam has several family members working in the business who make "less than $200,000."

— The ownership structure chart is similar to a hieroglyphic on a cave wall about the survival of the species: Harvest the crops when the sun is high in the horizon, do not venture over the hills, hostile tribes live there, and … don't buy this stock. The corporate governance structure of WeWTF makes Chinese firms look American, pre-big tech.

Eoin Treacy's view -

There is a growing risk the “liar loans” of this cycle are in the private equity space.



This section continues in the Subscriber's Area. Back to top
August 23 2019

Commentary by Eoin Treacy

Panic Stations

This report by Charles Gave for GaveKal may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

The massive move we have seen in European sovereign bonds is definitely representative of a buyer’s panic but the broader question is who is panicking? Pension funds and insurance companies spring to mind. What are they panicking about? There is a real prospect we are going to see the ECB announce negative short-term rates as well as a raft of additional measures which are clearly designed to boost liquidity but will come at the expense of savers. That suggests what we are seeing is potentially a buy the rumour and sell the news phenomenon.



This section continues in the Subscriber's Area. Back to top
August 22 2019

Commentary by Eoin Treacy

Video commentary for August 22nd 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Baltic Dry Index rallying, Transportation Index weighed down by energy, banks steady, Renminbi hits new low, the markets continue to signal a requirement for additional stimulus, gold steady, oil eases.
 



This section continues in the Subscriber's Area. Back to top
August 22 2019

Commentary by Eoin Treacy

Cass Freight Index Report July 2019

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

We acknowledge that: all of these negative percentages are against extremely tough comparisons; and the Cass Shipments Index has gone negative before without being followed by a negative GDP. However, weakness in demand is now being seen across many modes of transportation, both domestically and internationally.

Although the initial Q2 ’19 GDP was positive, it was not as positive upon dissection, and we see a growing risk that GDP will go negative by year’s end.

The weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens our concerns about the economy and the risk of ongoing trade policy disputes. Weakness in commodity prices, and the decline in interest rates, have joined the chorus of signals calling for an economic contraction.

Eoin Treacy's view -

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

When retailers like Wal-Mart, Nordstrom and Target are announcing surprisingly good earnings and Amazon’s Prime Day continues to grow in turnover it is hard to square underperformance of transportation figures. Macy’s remains in a clear, potentially terminal, downtrend and there is still pressure on other brick and mortar chains but I suspect the underperformance of the lower volumes on the transportation index are down to other factors.



This section continues in the Subscriber's Area. Back to top
August 22 2019

Commentary by Eoin Treacy

Hong Kong Retail Sales Plunge in August, Shop Association Says

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

Most Hong Kong retailers have seen sales drop more than 50% in August, according to the city’s Retail Management Association, as the ongoing political protests take a toll on business and the economy.

The association has urged landlords in the city to halve rents for six months to help tenants overcome difficult times, and has called on the government to provide relief measures to retailers, according to a press release. Retailers are facing large cash flow pressures and a few of them will cut jobs or even shut down if the situation continues to worsen, it said.

The release didn’t explain what period it was comparing August’s sales with. Hong Kong’s government expects the city’s businesses to continue to suffer this year. The value of retail sales dropped 6.7% in June from a year earlier, the fifth straight month of declines, while the overall economy contracted in the three months through June from the first quarter. Embattled Chief Executive Carrie Lam said earlier this month that she saw “no room for optimism” for the economy this year.

Eoin Treacy's view -

Several hundred thousand people chanting slogans outside your store unsurprisingly puts a dent in sales. Vital tourist traffic has slowed to a trickle as the street protests have persisted for months. Importantly, mainland travellers are staying away and that is a problem for the Hong Kong economy.



This section continues in the Subscriber's Area. Back to top
August 22 2019

Commentary by Eoin Treacy

Email of the day - on gold miners versus royalty streamers:

Gold: What's the difference between ROYALTY COS., and GOLD MINERS? Please explain.

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. Royalty companies typically provide seed capital or bridge financing for miners to reach full commercial production. In return for providing risk capital, they gain a percentage of production from the project at favourable rates in perpetuity. The best companies tend to invest in capital constrained environments like commodity bear markets and prosper in bull markets.



This section continues in the Subscriber's Area. Back to top
August 21 2019

Commentary by Eoin Treacy

August 21 2019

Commentary by Eoin Treacy

World's First 30-Year Bond With Zero Coupon Flops in Germany

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

“This shows that there is less demand for 30-year bonds at negative yields,” said Marco Meijer, a senior fixed-income strategist at BNP Paribas SA. Still, Meijer doesn’t “see yields rising a lot in Europe.”

The whole of Germany’s yield curve is now below zero -- the first major market exhibiting such a trait -- meaning the government is effectively being paid to borrow out to 30 years. That’s a reflection of dwindling expectations for inflation and growth over the coming years, while the European Central Bank is widely forecast to introduce a new wave of monetary stimulus next month.

The sale comes as Germany is priming the pumps for extra spending should an economic crisis hit. While the nation is confined to strict laws on running a fiscal deficit, Finance Minister Olaf Scholz suggested Germany could muster 50 billion euros ($55 billion) should a recession hit. The economy contracted in the second quarter.

 

Eoin Treacy's view -

Bond market investors are not quite yet willing to be the Turkeys that vote for Christmas. Even the most bullish of momentum traders can see that locking in a zero return, at best, for maturities out to 2049 does not make for sense for long-term investors. However, it is also worth remembering that this situation is occurring in a global slowdown where growth is still positive. It portends even lower yields during a contraction.



This section continues in the Subscriber's Area. Back to top
August 21 2019

Commentary by Eoin Treacy

European Stock Strategists Predict Selloff Will Only Worsen

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

Much like the rest of the world, investors in European equities have been whipsawed in August by headlines on the U.S.-China trade war. Making matters worse, the region’s companies have seen a stream of profit warnings, Germany’s edging closer to a recession, Italian politicians are at it again, and Brexit remains Brexit.

For months, strategists had been calling for European equities to rein in the strong rally that kicked off 2019, although there was little indication until recently the stock market would oblige. Their average annual predictions for the region’s two main gauges is slightly higher this month compared with July’s response, but still lower than current index levels.

As late as July, the Stoxx 600 was up 16% for the year, almost twice the gain forecasters now see for 2019. Since then, the region that catches a cold when the world sneezes is faring a lot worse.

Eoin Treacy's view -

Monetary policy beats most other factors most of the time has been one of the most enduring adages at this service. The ECB is believed to be readying a raft of policy support initiatives for its September meeting. Since the removal of QE and the tightening of the LTRO program were instrumental in the tightening of liquidity, it is reasonable to expect kickstarting the stimulus engine will reinvigorate animal spirits.



This section continues in the Subscriber's Area. Back to top
August 21 2019

Commentary by Eoin Treacy

Twitter Helps China Push Agenda Abroad Despite Ban in Mainland

This article by Shelly Banjo and Sarah Frier for Bloomberg may be of interest to subscribers. Here is a section:

China’s ambassador to the U.S. tweeted that “radical protesters” were eroding the rule of law embraced by the #silentmajority of Hong Kongers. The Chinese Mission to the United Nations’ Twitter account asked protesters to “stop the violence, for a better #Hong Kong,” while social media accounts of Chinese embassies in Manila, India and the Maldives shared articles from China’s state media blaming Westerners for disrupting the city. “Separatists in Hong Kong kept in close contact with foreign elements,” one story says above a photo of U.S. Vice President Mike Pence.

“We know China is adept at controlling domestic information, but now they are trying to use Western platforms like Twitter to control the narrative on the international stage,” said Jacob Wallis, a senior analyst at the Australian Strategic Policy Institute’s International Cyber Policy Centre.

It’s unclear if any of these diplomats were set up on the service by Twitter, but the state-backed attempt to discredit Hong Kong protesters continues to reach millions of global Twitter users. In many cases, the Chinese officials are promoting views similar to those in 936 accounts Twitter banned on Monday.

The practice of supporting Chinese officials who use Twitter to spread the Communist Party agenda highlights how difficult it is for the social media company to balance its commitment to root out disinformation and to allow the expression of varying opinions. It also raises concerns around why Twitter is helping Beijing make its case to a global audience when the service is banned in China, where dissenting voices are prohibited and officials sometimes detain users accessing the platform through virtual private networks.

Eoin Treacy's view -

While in China last week my daughter and I tried a number of different apps to see if they worked on public wifi. Facebook, Instagram, Google, Twitter etc do not work. In fact, no English language search works on any browser with any kind of regularity. However, less well-known but popular social media apps like iFunny, Discord and Ameno seem to work fine. TikTok is an interesting case because it has a Chinese version which is completely independent of the English language version following Bytedance’s acquisition of Musically last year.



This section continues in the Subscriber's Area. Back to top
August 20 2019

Commentary by Eoin Treacy

Video commentary for August 20th 2019

August 20 2019

Commentary by Eoin Treacy

Buy Gold "At Any Level" Mobius Says as Central Bankers Ease

This article by Ranjeetha Pakiam and Haslinda Amin for Bloomberg may be of interest to subscribers. Here is a section:

Veteran investor Mark Mobius gave a blanket endorsement to buying gold, saying accumulating bullion will reap long-term rewards as leading central banks loosen monetary policy and the rise of cryptocurrencies serves only to reinforce demand for genuinely hard assets. Prices climbed.

“Gold’s long-term prospect is up, up and up, and the reason why I say that is money supply is up, up and up,” Mobius, who set up Mobius Capital Partners LLP last year after three decades at Franklin Templeton Investments, told Bloomberg TV. He added: “I think you have to be buying at any level, frankly.”

Eoin Treacy's view -

Gold is monetary metal and is therefore valued both as a currency and a commodity. In both markets the outlook for interest rates and supply are important considerations. Interests rates are on a downward trajectory everywhere. Just by having a zero pay-out, gold is looking more attractive. In an environment where competitive currency devaluation is a growing trend gold is a standout for holding its relative value.



This section continues in the Subscriber's Area. Back to top
August 20 2019

Commentary by Eoin Treacy

Italian Premier to Resign After Condemning Salvini's Rebellion

This article by Chiara Albanese and Lorenzo Totaro for Bloomberg may be of interest. Here is a section: 

While Conte’s resignation adds to the uncertainty, bond investors welcomed the fact that an alternative coalition is still on the table, while the chance of snap elections in the fall diminished somewhat. Yields on 10-year Italian bonds touched 1.31%, the lowest level since 2016, while the spread over German bonds -- a key gauge of risk in the nation -- dropped to 200 basis points for the first time in nearly two weeks.

Salvini pulled his support from the governing alliance with the anti-establishment Five Star Movement this month, saying the coalition no longer has a working majority. The 46-year-old anti-immigration hardliner has been seeking to cash in on strong poll ratings and upended the political establishment with a mid-summer power grab while parliament was in recess.

At stake is whether Italy’s mountain of public debt -- a chronic concern for both European officials and international investors -- will be managed by a right-wing ideologue set on confrontation with Brussels. Salvini on Tuesday promised Italians 50 billion euros ($55 billion) of tax cuts and public spending if he can take control of the government.

Eoin Treacy's view -

There was a certain inevitability about the collapse of the merger between right and left-wing populists. In fact, some might reason it is amazing it lasted this long. Italian politics is not noted for the longevity of its administrations. Annual elections are the price to pay as the political establishment strains to come to terms with giving a voice a population at odds with the continued adherence to decades of fiscal austerity.



This section continues in the Subscriber's Area. Back to top
August 20 2019

Commentary by Eoin Treacy

The WeWork IPO

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

Frankly, there is a lot to like about the WeWork opportunity. Yes, a $47 billion valuation seems way too high, particularly given the fact the company is on pace to make only about $440 million in gross profit this year (i.e. excluding all buildout and corporate costs), and given the huge recession risk. At the same time, this is a real business that provides real benefits to companies of all sizes, and those benefits are only growing as the nature of work changes to favor more office work generally and more remote work specifically. And, critically, there is no real competition.

The problem is that the “unsavoriness” I referred to above is hardly limited to the fact that WeWork can stiff its landlords in an emergency. The tech industry generally speaking is hardly a model for good corporate governance, but WeWork takes the absurdity an entirely different level. For example:

WeWork paid its own CEO, Adam Neumann, $5.9 million for the “We” trademark when the company reorganized itself earlier this year.

That reorganization created a limited liability company to hold the assets; investors, however, will buy into a corporation that holds a share of the LLC, while other LLC partners hold the rest, reducing their tax burden.

WeWork previously gave Neumann loans to buy properties that WeWork then rented.
WeWork has hired several of Neumann’s relatives, and Neumann’s wife would be one of three members of a committee tasked to replace Neumann if he were to die or become permanently disabled over the next decade.

Neumann has three different types of shares that guarantee him majority voting power; those shares retain their rights if sold or given away, instead of converting to common shares.

Eoin Treacy's view -

WeWork by all accounts creates spaces where people might actually want to work. That’s no mean feat. It’s not cheap but it is laudable. I spent a couple of days a week popping in and out of the Luxembourg Regis office between 2000 and 2003 and it was a pretty grim experience despite the prime location on Boulevard Royal. I would never have volunteered to work there full time if there was a better alternative available.



This section continues in the Subscriber's Area. Back to top
August 19 2019

Commentary by Eoin Treacy

August 19 2019

Commentary by Eoin Treacy

Breakout in Gold

Thanks to Dr. David Brown for this commentary which I am sure will be of interest to the Collective.

August 16 2019

Commentary by Eoin Treacy

August 16 2019

Commentary by Eoin Treacy

Dealing with the next downturn: From unconventional monetary policy to unprecedented policy coordination

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

A soft form of coordination would rely on monetary and fiscal policy both providing stimulus when needed. Looking at the policy response during and after the crisis, and as we discussed earlier, there was room for a better policy mix with less reliance on monetary policy and more emphasis on fiscal policy. This is, in principle, a fruitful avenue to explore. Yet there are reasons why that better policy mix was not achieved – chiefly that it is practically and politically easier to resort to monetary policy. These forces are likely to keep prevailing in the future – and those simply hoping for a better form of soft coordination will probably be disappointed.

The charts below highlight how major economies are on a path of neutral budgets or mild deficit consolidation over the next five years based on IMF forecasts as of April 2019. This comes as their debt servicing costs have declined relative to growth – and given the recent plunge in interest rates those debt servicing costs have likely fallen further. See the expected change in the interest bill in the chart on the left below. This implies that fiscal policy is currently not pulling its weight.

This means that in a downturn the only solution is for a more formal – and historically unusual – coordination of monetary and fiscal policy to provide effective stimulus. Already many of the monetary policy tools adopted since the crisis – QE including private sector assets – have fiscal implications. Special facilities such as the eurozone’s Outright Monetary Transactions (OMT) during the sovereign crisis also show how the central bank can throw its balance sheet behind fiscal solutions.

Any additional measures to stimulate economic growth will have to go beyond the interest rate channel and “go direct” – when a central bank crediting private or public sector accounts directly with money. One way or another, this will mean subsidising spending – and such a measure would be fiscal rather than monetary by design. This can be done directly through fiscal policy or by expanding the monetary policy toolkit with an instrument that will be fiscal in nature, such as credit easing by way of buying equities. This implies that an effective stimulus would require coordination between monetary and fiscal policy – be it implicitly or explicitly.

Eoin Treacy's view -

Both the Bank of Japan and Swiss National Bank are already buying equities. In the Bank of Japan’s case this is through ETFs and it is the biggest single owner of domestic equities. The Swiss National Bank has been buying Autonomies and it is now also a listed stock so investors can see the value of its holdings rise and fall. For both these countries converting the eroding value of fiat currencies into the shares of globally significant business is a sound if cynical strategy. It is only a matter of time before other central banks do the same.



This section continues in the Subscriber's Area. Back to top
August 16 2019

Commentary by Eoin Treacy

Alibaba's Financial Superstar is Shining Once More

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

At 1.63 billion yuan ($237 million), Alibaba’s share of Ant’s profit was the highest in almost two years. In three of the past eight quarters, Ant ran at a loss or provided zero earnings to Alibaba, according to the data. Despite this uptick, Ant’s contribution to Alibaba’s bottom line remains minor at around 7% of operating income. It could shrink again if Alibaba’s e-commerce business dwindles.

Yet Ant has plans to expand its reach throughout China’s economy, including moves deeper into wealth management and other financial products. This could make it relatively robust against any weakness in online and offline commerce should a macroeconomic slowdown continue. 

Given Alibaba’s moves to broaden its business into offline shopping, cloud computing and entertainment, investors may not need to get panicky about retail just yet. But when that time comes, Ant may have grown large enough to shine a bright enough light across the rest of the business. 

Eoin Treacy's view -

Both Amazon and Alibaba are discovering that the future of retail is a hybrid online and bricks & mortar experience. That is not what investors believed would be the case when they accepted massive valuations. The theory was the high costs of physical infrastructure on the high street would be replaced by smaller workforces and remote warehouses. The truth is we need both and that comes at a cost. The benefit both companies have is they are in a better position to provide this kind of hybrid experience than many established retailers.



This section continues in the Subscriber's Area. Back to top
August 16 2019

Commentary by Eoin Treacy

Musings From the Oil Patch August 13th 2019

Thanks to a subscriber for this edition of Allen Brooks’ ever-interesting report for PPHB. Here is a section:

Today’s energy world is nothing like what it was prior to OPEC’s move.  It is even moving away from the model that evolved immediately after the price collapse.  Both of those models have been shunned by investors.  A new model is evolving in response to investor demands that energy companies be profitable and return cash to investors.  This new model is evolving in response to the disconnect between energy company fundamentals and their share prices.  That disconnect is evident in Exhibit 8, which tracks oil prices and stock indexes reflecting oil and oil service companies since mid-2014 when oil prices began sliding, before OPEC delivered its coup de grâce.  Oil company stocks (XLE) performed better during this period, largely because they pay dividends, offering investors income while waiting for share values to reflect higher oil prices.  Oil service stocks (OSX) fell steadily in this period, because of too much debt and shrinking market activity leading to substantial asset impairment and eroding company values.  

Eoin Treacy's view -

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

If we are indeed now in a period where energy investors are more demanding of profits than production growth that is not great news for the fragmented nature of the shale oil sector. That suggests there is significant scope for consolidation to provide the profitability demanded by investors.



This section continues in the Subscriber's Area. Back to top
August 15 2019

Commentary by Eoin Treacy

Video commentary for August 15th 2019

August 15 2019

Commentary by Eoin Treacy

Holidays

Eoin Treacy's view -

I will be travelling to Guangzhou and Taiwan between August 5th and 19th. I don't anticipate any issues with posting a limited Comment of the Day and Subscriber's video but I may be posting at odd times because of the timezone. If subscriber's would like to submit copy of general interest to the Collective we will be happy to publish it over the coming couple of weeks. 



This section continues in the Subscriber's Area. Back to top
August 15 2019

Commentary by Eoin Treacy

Hot Spots

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

What to do with China: Stay the course, but get more local. There are many reasons to worry about deploying capital in China these days. Geopolitical noise is high, with the recent intentional China currency weakening, the U.S. selling military equipment to Taiwan and Hong Kong poised to celebrate China National Day on October 1, 2019, more bumps in the road likely lie ahead. Moreover, the economy is now also clearly feeling the adverse impact of a decade-long debt stimulus program, and we believe that disinflationary forces are likely to keep a lid on pricing power. Finally, the ability to realize capital gains is becoming tougher as pulling capital out of China is now more difficult and/or seeking liquidity through the U.S. IPO market is likely to become more constrained.

However, China remains a core market where investors need to be active locally for several reasons. For starters, the shift we are seeing in technology – and the delivery of goods and services related to technology – is unlike anything else we see in any other market in the world. As such, we all need to learn more about and invest meaningfully behind these changes. In addition, given the rise of the Chinese millennial, we think that there is considerable money to be made as these 330 million individuals come of age.

Investors also need to work harder to better understand the rules of engagement to ensure that they are backing initiatives that do not conflict with the government’s agenda. Doing so will create significant opportunity because China still needs an increase in GDP-per capita to meet its stated 2020 goal of doubling total GDP since 2010. In our opinion, healthcare, food safety, travel, leisure, and wellness are all areas of significant investment potential, as they represent areas where the government wants and needs private sector support to continue to improve the quality of life for its population of approximately 1.4 billion.

Finally, given the uncertainty, we think that the opportunity to buy complexity at a discount is significant. Beyond just acquiring positions through the public markets (which is becoming a more relevant opportunity set for PE firms), our conversations in Beijing with senior executives lead us to believe that there is a forthcoming wave of deconglomeratization in China that could soon rival what we are seeing in Japan these days. Simply stated, multinationals are increasingly of the mindset that doing business in China as a foreigner is getting tougher, not easier. If we are even partially right, this opportunity could be quite meaningful to KKR’s Private Equity, Real Estate, Credit, and Infrastructure franchises over the next five to seven years, we believe.

Eoin Treacy's view -

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

Private equity investors continue to salivate over the opportunities in China where there is a clear effort to become the world’s leader in new technology areas at just the same time that the USA is looking to combat the rise of its own technology sector. The question everyone has to wrestle with is the likelihood of being able to realise profits at some stage in future. That might be easier for private equity investors than public market investors but it is an important question nonetheless.



This section continues in the Subscriber's Area. Back to top
August 15 2019

Commentary by Eoin Treacy

German Profit Warnings Signal Trade Woes May Trigger Recession

This article by Jan-Patrick Barnert for Bloomberg may be of interest to subscribers. Here is a section:

Industrial companies have fared worst during the second-quarter earnings season. Expectations for German businesses were comparatively low, but even so, only 41% of them managed to beat sales estimates. The ratio is well above 50% in France, Italy and Spain.

The consequences are starting to be felt. Unemployment rose by a total of 62,000 in the three months through July and demand for new workers continued to soften. That’s bad news for a country hoping to make up dwindling exports with consumption and investment. Domestic demand still supported the economy in the second quarter but that might change once uncertain prospects prompt companies and households to rein in spending.

Economists at Deutsche Bank AG and ABN Amro Group NV see Germany’s economy contracting again in the third quarter, pushing the nation in recession -- it’s first in six and a half years. Many more analysts say the risk of such a scenario has increased significantly after Wednesday’s report.

Eoin Treacy's view -

Germany relies on the rest of the Eurozone and China for its exports. Europe is totally dependent on the ECB’s monetary stimulus for growth because individual countries cannot engage in fiscal stimulus or devalue their shared currency. With the measly LTRO program announced at the end of last year and reluctance to admit ending quantitative easing was a mistake, the EU economy is foundering and hitting Germany harder than most. China’s continued focus on the domestic consumer rather than heavy industry also represents a headwind for Germany



This section continues in the Subscriber's Area. Back to top
August 15 2019

Commentary by Eoin Treacy

Corbyn's Plan to Stop a No-Deal Brexit Is Dead

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

That puts paid to the idea of a national unity government for now, unless Corbyn were to back down and accept another figure in charge (pigs will fly first). The various other blocking options, detailed in a column earlier this week, offer little confidence to those wanting to stop no deal either. Probably the best chance, short of a change of government, is for the opposition to force through legislation that requires an extension of the deadline. House of Commons Speaker John Bercow would be instrumental in this and he seems to be bullish.

“I will fight with every breath in my body to stop that happening. We cannot have a situation in which parliament is shut down. We are a democratic society and parliament will be heard,” he told an Edinburgh festival audience this week.

Binary choices in politics are like truth serum. Theresa May offered her deal or said the country would head toward a no-deal exit. Lawmakers refused her deal. Offered the prospect of Johnson’s no-deal exit or Jeremy Corbyn in Downing Street, they again took a pass at the alternative. Perhaps they still believe a no-deal Brexit can be averted through other means, or else they are willing to accept it and go to an election laying the blame elsewhere (the government, parliament, the EU). Either way, it’s not very reassuring.

Eoin Treacy's view -

It’s hard not to be disillusioned by the UK’s political impasse. If nothing else it highlights in bold terms that politicians are concerned about holding onto their jobs above all over factors. The best course of action in negotiating its exit from the EU was to push a Hard Brexit. It’s difficult to accept that so many politicians still cannot bring themselves to accept that fact even if they have no intention of following through on it.



This section continues in the Subscriber's Area. Back to top
August 14 2019

Commentary by Eoin Treacy

Video commentary for August 14th 2019

August 14 2019

Commentary by Eoin Treacy

Macro Outlook: Will the Fed's Pivot Save the Day? Guggenheim Partners

Thanks to a subscriber for this report by Brian Smedley for Guggenheim may be of interest to subscribers. Here is a section:

The U.S. economy is slowing as headwinds mount and tailwinds fade

The labor market is tight but is beginning to lose momentum, a clear late-cycle signal

Our research continues to point to a recession beginning in H1 2020

The next recession could be prolonged due to limited policy space at home and overseas

A looming recession means reducing risk, upgrading credit quality and extending duration

Eoin Treacy's view -

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

For a recession to begin at the beginning of 2020 growth would have to be negative in this quarter. That’s a big ask in my opinion. The one thing we know about the inversion of the yield curve spread is it has a long lead time. On the last two occasions it offered an 18-month lead indicator of trouble in the economy. That suggests we should probably be looking at after the US Presidential Election rather than before it for a source of strife. However, we will need to be guided by the price action.  



This section continues in the Subscriber's Area. Back to top
August 13 2019

Commentary by Eoin Treacy

Video commentary for August 13th 2019

Eoin Treacy's view -

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

Some of the points covered include: Tariffs averted so Wall Street rebounds, gold pauses, oil firm, Yen pauses in the region of the January peak, Continuous Commodity Index continues to trend lower, Renminbi slightly firmer, yield curve spread continue to flatten, high yield spreads beginning to trend higher



This section continues in the Subscriber's Area. Back to top
August 13 2019

Commentary by Eoin Treacy

U.S. Delays 10% China Tariffs on Some Holiday-Shopping Favorites

This article by Jenny Leonard and Shawn Donnan for Bloomberg may be of interest to subscribers. Here is a section:

While some tariffs will take effect on Sept. 1 as planned, “certain products are being removed from the tariff list based on health, safety, national security and other factors,” the USTR also said.

About $250 billion of Chinese goods have already been hit by 25% duties.

Chinese Vice Premier Liu He talked with USTR Robert Lighthizer and Treasury Secretary Steven Mnuchin by phone on Tuesday, according to a statement posted on the Ministry of Commerce website. Another conference call is planned again in two weeks.

The tariff announcement came shortly after Trump insisted again that his levies were not causing higher prices for American consumers and that China was bearing the cost of them. Economists and businesses have disputed that last point.

Eoin Treacy's view -

The holiday season inventory build is in full swing. Since more than half of all retail sales occur in the last three months of the year it is good to know the Trump administration is sensitive to the needs of retailers. By delaying tariffs on common gifts ideas investors can breathe a sigh of relief and economists will worry less about inflation.



This section continues in the Subscriber's Area. Back to top
August 13 2019

Commentary by Eoin Treacy

Email of the day on the ramifications of negative yields

See yield chart middle page 1.  How low (negative) can govt credit yields (-1%) go till the financial system freezes over?  Serious Q……………this negative yield stuff wasn’t taught in Economics 101.

There must be an absolute level of negative rates that destroys money velocity (V) as it means no one puts money in the bank anymore and lending gets restricted.  At -10% I wouldn’t lend to UBS.  What happens at say -5%?  Assuming a real rate of 3%, bank lending -after a margin of say 2%- would essentially be FREE (0%).  But what does that do to banking system integrity (banks make money but less of it as their margins collapse; their deposit base shrinks as they struggle to increase/ attract deposits………….not only do depositors go on strike but existing depos are decreased annually by negative yields!)….and what about regulatory oversight?….would CBs and regulators afraid of imprudent lending caused by needy borrowers at 0% step in to restrict the very process that they are trying to encourage via making money so cheap?  i.e. will they try to stop “BAD” lending.  How will they judge/enforce?

And where does inflation fit into this calculus?...without any inflation the interest rate structure/ yield curve that might restore banking margins is hard to normalize/ become positive again.

Or should governments everywhere borrow vast sums at negative rates for 50 years to finance a massive infrastructure spend (highways, 5G, clean energy, railways etc.) i.e. “GOOD” lending?  Wouldn’t this raise rates and restore normality?  Then what debt / GDP levels are prudent (see Italy)?  I recall Argentina’s 100-year bond issue in 2017 at 7.9%, 3x over-subscribed by famished yield scavengers.

Investment implications

  • Negative bond yields unattractive versus investment in high quality equities paying well covered dividends, though it is certainly not a good world for poor quality companies who don’t
  • How is any of this bad for gold, whose carry cost is collapsing?

 

Just sharing some thoughts, largely written out of confusion

Eoin Treacy's view -

I think we are all in a state of disbelief at the willingness of investors to pour trillions into bonds with a negative yield. I have long wondered at the absence of any discussion of bond market convexity over the last decade. After all, shouldn’t we all have an interest in the sensitivity of bonds to changes in interest rates?



This section continues in the Subscriber's Area. Back to top
August 13 2019

Commentary by Eoin Treacy

Weaker Yuan Tests China's Ability to Prevent Capital Flight

This article by Steven Russolillo for the Wall Street Journal may be of interest to subscribers. Here is a section: 

Any further selloff could also create problems for Chinese property developers and other corporate borrowers who have borrowed heavily overseas, since their earnings are largely in yuan while their international borrowings are mostly in dollars.

Chinese companies had nearly $900 billion of dollar-denominated debt securities outstanding at the end of March, nearly three times the amount five years ago, according to data from the Bank for International Settlements.

Despite Beijing’s strict capital controls, China could experience capital flight if the yuan weakens further, some observers say.

Louis Kuijs, head of Asia economics at Oxford Economics, said policy makers wouldn’t be comfortable with a major weakening of the yuan, given concerns about triggering large outflows.

“People in China tend to take weakening of the currency as a harbinger of more such weakening to come,” he said. “That is a reason for some to shift money abroad.”

Eoin Treacy's view -

Amid the platitudes about having confidence in its ability to deter capital flight, the fact US Dollar denominated debt has continued to trend higher since it was banned more than a year ago should give policy officials pause. China needs a weaker currency and we are unlikely to see it trade stronger than CNY7 any time soon. The bigger question is how long it will take to hit CNY8.



This section continues in the Subscriber's Area. Back to top
August 12 2019

Commentary by Eoin Treacy

Video commentary for August 12th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Argentinean Peso collaposes, commodities currencies retreat, copper and oil remain weak, China steady but it is a manipulated market, India steady, Wall Street eases back but remains a relative strength leader, bonds firm, gold back above $1500, silver playing catch up.



This section continues in the Subscriber's Area. Back to top
August 12 2019

Commentary by Eoin Treacy

Economic Compass A primer on protectionism

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

Second, production costs between countries are converging, in part due to all of the globalization that has already happened. Demonstrating this, U.S. wages have managed only limited growth in recent decades at the same time that Chinese wages have surged. The result is greater competitive parity: the savings from producing something in China and selling it to the U.S. have shrunk. A more homogenous world simply doesn’t need to trade as much.

Third, prior trade tailwinds have faded. All of the grand trade achievements of the past several decades – NAFTA, the EU, the opening of ex-Soviet bloc countries and China – have now been mostly absorbed into the global economy. Few major countries remain outside the global economic system, waiting to jolt the world forward with their entry. In turn, there is no reason for trade growth to continue substantially outpacing economic growth. To be sure, there are still a smattering of new free trade agreements being struck, but they are fewer in number, and by definition smaller in achievement given that tariff rates had already been whittled down by prior efforts (Exhibit 3).

Fourth, and finally, there are new trade headwinds now blowing from the spate of populist governments recently installed around the world.

Eoin Treacy's view -

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

The magnanimous ideal of giving up antiquated industries in service to building a global economy which could lift millions of people out of poverty is something the whole world got behind.



This section continues in the Subscriber's Area. Back to top
August 12 2019

Commentary by Eoin Treacy

Mortgages Hit Zero for First Time in Danish Rate History

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

Denmark introduced negative rates in 2012 as investors seeking refuge from Europe’s debt crisis piled into AAA-rated krone assets, threatening to destabilize the country’s euro peg. Back then, when Nodgaard was head of the Financial Supervisory Authority, he said negative rates were unlikely to hurt banks since lower impairments would offset a decline in interest income.

But no one expected negative rates to last this long. While banks initially benefited from lower impairments and inflated asset prices, their business models are struggling to withstand persistently low rates.

Last year Denmark’s banking and mortgage industry reported its lowest operating profit in at least five years, while return on equity hit a three-year low. Some banks are now looking into passing on the cost of negative rates to retail customers, broaching a subject that was once considered taboo.

The interest rate on current-account deposits at the central bank and the amount that lenders can place there are among a handful of levers that the central bank uses to maintain the krone’s peg to the euro.

The central bank has raised its current-account limit before, most notably back in 2015 when Switzerland’s decision to send its franc into a free float fanned speculation Denmark would be next. Back then, the Danish central bank raised its current account limit to 174 billion kroner.

Eoin Treacy's view -

Ben Bernanke’s fateful words “Deflation, making sure it doesn’t happen here” must be ringing through the halls of central banks the world over as $15 trillion in negative yielding bonds are pricing in a deflationary spiral the like of which the world has seldom seen. What Denmark’s experience with negative rates tells us is that traditional banking is doomed without some form of exaggerated assistance from the government. Perhaps more importantly, once accepted negative rates seem like a hard habit to kick.



This section continues in the Subscriber's Area. Back to top
August 12 2019

Commentary by Eoin Treacy

Mysterious radiation leak, 100x larger than Fukushima disaster, traced to Russian facility

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

"Today most of these European networks are connected to each other via the informal 'Ring of Five' (Ro5) platform for the purpose of rapid exchange of expert information on a laboratory level about airborne radionuclides detected at trace levels," it says. "In October 2017, an unprecedented release of ruthenium-106 into the atmosphere was the subject of numerous detections and exchanges within the Ro5."

State-owned Russian nuclear corporation Rosatom denied the findings of the recent study.

"We maintain that there have been no reportable events at any Rosatom-operated plants or facilities," Rosatom said. "Both the national regulator and experts from an independent international inquiry inspected the Mayak facility back in 2017 and found nothing to suggest that the ruthenium-106 isotope originated from this site, nor found any traces of an alleged accident, nor found any evidence of local staff exposure to elevated levels of radioactivity."

Eoin Treacy's view -

This kind of headline, regardless of whether it originally occurred in 2017 is bad news for uranium miners. We can make the case for the viability of next generation reactors until we are blue in the face, but one headline grabbing accident kills any progress make in rehabilitating perceptions.



This section continues in the Subscriber's Area. Back to top
August 09 2019

Commentary by Eoin Treacy

August 09 2019

Commentary by Eoin Treacy

Kolanovic Says Stocks Rallying on Buybacks, Quant Selling Eases

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

“We see this sell-off as a medium-term buying opportunity,” Kolanovic and his team wrote Thursday in a note to clients. “After a short period of stabilization, markets will likely regain previous highs.”

JPMorgan’s finding on corporate demand echoes that from Goldman Sachs Group Inc. David Kostin, Goldman’s chief U.S. equity strategist, told Bloomberg TV earlier that the firm’s buyback desk saw executions increase “dramatically” Monday when the S&P 500 tumbled 3%.

Stocks started selling off last week after the Federal Reserve played down its easing cycle and the U.S.-China trade war escalated. Some strategists pointed to quants as one of the culprits that may exacerbate the rout. In a note before Monday’s trading, Binky Chadha, chief global strategist at Deutsche Bank AG, said quant traders have raised their equity exposure to one of the highest in the past decade and may dump more than $70 billion of shares in coming weeks should the market turbulence persist.

Eoin Treacy's view -

Stock buybacks have been one of the primary mechanisms through which easy monetary policy has found its way into the equity markets. With the world heading progressively towards combined monetary and fiscal stimulus it is likely that the flow of capital companies are willing to commit to support their own shares will also increase.



This section continues in the Subscriber's Area. Back to top
August 09 2019

Commentary by Eoin Treacy

Revealed: how Monsanto's 'intelligence center' targeted journalists and activists

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

The documents, mostly from 2015 to 2017, were disclosed as part of an ongoing court battle on the health hazards of the company’s Roundup weedkiller. They show:

Monsanto planned a series of “actions” to attack a book authored byGillam prior to its release, including writing “talking points” for “third parties” to criticize the book and directing “industry and farmer customers” on how to post negative reviews.

Monsanto paid Google to promote search results for “Monsanto Glyphosate Carey Gillam” that criticized her work. Monsanto PR staff also internally discussed placing sustained pressure on Reuters, saying they “continue to push back on [Gillam’s] editors very strongly every chance we get”, and that they were hoping “she gets reassigned”.

Monsanto “fusion center” officials wrote a lengthy report about singer Neil Young’s anti-Monsanto advocacy, monitoring his impact on social media, and at one point considering “legal action”. The fusion center also monitored US Right to Know (USRTK), a not-for-profit, producing weekly reports on the organization’s online activity.

Monsanto officials were repeatedly worried about the release of documents on their financial relationships with scientists that could support the allegations they were “covering up unflattering research”.

Eoin Treacy's view -

It’s hard to imagine how much more toxic Monsanto’s reputation can get but as the record of the company’s nefarious actions come to light it is understandable why they were so willing to be taken over by Bayer. They are now attempting to settle the Roundup weedkiller class action lawsuits for $6-$8 billion while lawyers are looking for more upwards of $10 billion.



This section continues in the Subscriber's Area. Back to top
August 09 2019

Commentary by Eoin Treacy

Email of the day - on European energy prices

This is by Benny Peiser who is the director of the GWPF. Some bold warnings about Europe's decline fuelled by its high energy prices.

 

Eoin Treacy's view -

Outsized economic growth and the higher standards of living it delivers is the single best way of creating concern for lower emissions, a cleaner environment and creating greater efficiencies. We have plenty of empirical evidence that this is the case and yet it is still a hard sell for many politicians. The concentration of the argument on climate change is probably at the root of this problem. Instead we should be thinking about improving the human condition not as the problem but as the solution.



This section continues in the Subscriber's Area. Back to top
August 08 2019

Commentary by Eoin Treacy

August 08 2019

Commentary by Eoin Treacy

Bridgewater's Ray Dalio Discusses the Impact of China's Growth on the World Economy

This is a fascinating interview where Ray Dalio discusses the merits of betting on China.

Eoin Treacy's view -

There are two very big questions we have to answer which are fundamental to the construction of a long-term portfolio. The first is does governance really mean anything? The second is how do you value private assets in a portfolio?
 
At this service we have long held that governance is everything. Is that still true? Ray Dalio appears to be agnostic on whether property rights, respect for minority shareholder interests, an independent judiciary and a free press are important. What I personally find particularly interesting is that the performance of China’s stock market, during the decade where it has achieved the heights of its ambition has been dismal.



This section continues in the Subscriber's Area. Back to top
August 08 2019

Commentary by Eoin Treacy

From Global Heroes to Rates Near Zero, Rock-Star Economies Flop

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

Australia and New Zealand now find themselves with just 1 percentage point of conventional monetary policy remaining. That’s around the same level the Federal Reserve and Bank of England had when they turned to quantitative easing to support moribund demand following the 2008 financial crisis.

New Zealand’s 50 basis point interest-rate cut Wednesday and Australia’s back-to-back easing in June and July suggest both have joined the global race to the bottom. Policy makers across the world are looking for every bit of stimulus available and currency depreciation is an obvious one.

The kiwi dropped more than a U.S. cent after the RBNZ decision. RBA chief Philip Lowe would have enjoyed the spillover that sent his currency to the lowest level since 2009.

Lowe has noted the trouble with a global easing cycle is that the very nature of exchange rates means not everyone can enjoy the currency benefit usually associated with lower interest rates.

There seems little doubt that Australia and New Zealand’s ascendancy is over and both are now right back in the global policy pack. It’s a far cry from five years ago, when HSBC Plc’s chief economist for Australia Paul Bloxham described New Zealand as a “rock-star economy” and his country’s currency was still near parity with the U.S. dollar.

Eoin Treacy's view -

Lopping 50 basis points off of interest rates is a big move, particularly when it was not especially expected by markets. Considering how much New Zealand’s economy depends on China it probably says more about waning Chinese demand than the internal dynamics of domestic economy. The New Zealand Dollar is back testing the region of the lows for the year and will need bounce in a dynamic manner if demand is return to dominance beyond short-term steadying.



This section continues in the Subscriber's Area. Back to top
August 08 2019

Commentary by Eoin Treacy

As Shale Drillers Stumble, Big Oil Says It Can Do Permian Better

This article by Rachel Adams-Heard for Bloomberg may be of interest to subscribers. Here is a section:

Concho Resources Inc., long considered one of the Permian’s premier operators, was forced to scale back activity after drilling almost two dozen wells too closely together. That move by the Midland, Texas-based producer spooked investors across the industry, with Evercore ISI predicting the “carnage” would have a lasting impact.

Concho’s problem with well spacing highlights the challenges of fracking so-called child wells: Too close to the “parent,” and output is less prolific; too far apart, and companies risk leaving oil in the ground.

Exxon and Chevron say they aren’t as exposed to those problems. Because of their size relative to smaller independent producers, the oil giants are able to lock up acreage, giving them room to be more conservative in their well spacing.

Eoin Treacy's view -

The lower for longer nature of oil pricing over the last few years and probably for the foreseeable future suggests smaller independent oil drillers and producers need to concentrate a lot more on containing costs. That suggests there is scope for consolidation within the Permian where the larger better capitalised companies are likely to have an advantage.



This section continues in the Subscriber's Area. Back to top
August 07 2019

Commentary by Eoin Treacy

August 07 2019

Commentary by Eoin Treacy

Email of the day on the history of export growth

I note a few points. 

First, China was actually there on the list of top exporters in 1961. Then it disappeared and did not reappear until 35 years later. 

Second, at no time did Japan ever exceed Germany as an exporter but not once was there any paranoia in the US about Germans taking over the US economy?

Third, the UK was falling down the ranks of exporters until the pound sterling collapse in 1992 and the devaluation actually helped them recover along with the Maastricht Treaty in 1993 - giving them the access to EU export market without the monetary shackles of the Euro. And Brexiters still think Britain is better off??? 

Fourth, the gap between Germany and Japan was almost narrowing to zero until 1993, then Germany pulled away resolutely - and today exports twice as much as Japan. 

So, Germany will always stand by the Eurozone - nobody has benefitted like they have.

Eoin Treacy's view -

Thanks to Bernard Tan for the above comments and this video which is one of the most illuminating on export growth and contraction on a relative basis I have seen. (Please note the file it’s 36 megabytes so it may take some time to download on slower internet connections).



This section continues in the Subscriber's Area. Back to top
August 07 2019

Commentary by Eoin Treacy

Central Bank Hunger for Gold Lifts Demand to Three-Year Hig

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

Nations added 374.1 tons in the first six months as Russia and China kept building reserves and Poland made a massive purchase. The trend is expected to continue, with a recent survey of central banks showing 54% of respondents expect global holdings to climb in the next 12 months.

Central banks around the world have added to reserves as economic growth slows, trade and geopolitical tensions rise, and authorities seek to diversify away from the dollar. Gold rallied to a six-year high in July, as expectations for lower U.S. interest rates and concerns about the economy boosted bullion’s appeal.

Spot gold edged lower Thursday, falling for a second day after the Federal Reserve signaled it probably won’t embark on a lengthy easing cycle. The metal declined 0.5% to $1,407.04 an ounce, paring this year’s gains to 9.7%.

Eoin Treacy's view -

Energy independence has afforded the USA the ability to be much more assertive on the geopolitical scene. The deployment of trade weapons, tariffs and sanctions etc is all the easier when you are no longer beholden to other countries for supply of a vital commodity. That necessarily results in a corresponding action from other countries which is to try and free themselves from their attachment to the Dollar. Building up gold reserves make sense from that perspective.



This section continues in the Subscriber's Area. Back to top
August 07 2019

Commentary by Eoin Treacy

Tesla's big battery in South Australia is a "complete waste of resources," claims Nissan

This article by Simon Alvarez for Teslarati.com may be of interest to subscribers. Here is a section:

Thomas’ statement comes as he was discussing the new Leaf’s vehicle-to-grid/vehicle-to-home (V2G/V2H) system, which will allow the all-electric car to serve as a home battery unit. With the system in place, the Leaf will not only store energy by plugging into a home or business; the vehicle could also serve the energy back when needed. V2H is already in use in countries such as Japan, and a release in Australia is expected within six months. 

The Nissan executive noted that the Leaf’s V2G system has the potential to help homeowners save money, especially if the vehicle charges through a rooftop solar system during the day, and uses its stored energy to power appliances and lights at night. 

“The way we distribute and consume energy is fundamentally inefficient … what we need is flexibility in the system. It’s great that we’ve invested all this money in renewable energy, but fundamentally we’re wasting most of that energy because it’s all being generated in the middle of the day when we don’t really need it,” he said. 

Tim Washington, CEO of charging solutions provider Jetcharge, noted that Nissan V2H technology has a lot of potential, considering that vehicles spend much of their time just parked, or in the case of electric cars, plugged in. 

Eoin Treacy's view -

Tesla has battery manufacturing capacity so it produces batteries. Nissan produces cars so it is pushing a use case for cars to provide base load during periods of peak consumption.



This section continues in the Subscriber's Area. Back to top
August 06 2019

Commentary by Eoin Treacy

August 06 2019

Commentary by Eoin Treacy

"Trappedâ"

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

In 55 years of observing markets, we have NEVER seen such a downside capitulation as October 2008; and, we have believed we are in the biggest secular bull market of my lifetime!  This morning Chinese Foreign Ministry spokeswoman Hau Chunving said, “China will not accept any kind of extreme exertion of pressure, intimidation or blackmail. Neither will China give in an inch on major issues of principle.  Now it's time for Washington to show sincerity and demonstrate to the world that the US is still a reliable partner that can carry out negotiations.”  And with that the renminbi is at decade lows versus most currencies.  Such action has the preopening S&P 500 futures off some 40-points . . . Good Grief!

Eoin Treacy's view -

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

This was the front page of the China Daily newspaper on the flight from Beijing to Guangzhou yesterday. The drop below CNY was normal currency activity, there is a clear need for peace to spontaneously break out in Hong Kong’s protests and apparently China is not avoiding US agricultural exports. This is just one more example of how the same news can be spun in a number of different ways.
 



This section continues in the Subscriber's Area. Back to top
August 06 2019

Commentary by Eoin Treacy

Families Go Deep in Debt to Stay in the Middle Class

This article by AnnaMaria Andriotis, Ken Brown and Shane Shifflett for the Wall Street Journal may be of interest to subscribers. Here is a section:

Counting all kinds of debt, including mortgages, consumers aren’t nearly as debt-burdened as they once were. In the fourth quarter of 2007, the last year before the financial crisis struck, households devoted 13.2% of their disposable income to debt service. In the first quarter of 2019, that number was 9.9%, largely due to low interest rates.

Partly because of widespread refinancing, mortgage payments since the start of 2017 have claimed the smallest slice of disposable personal income in decades, in the low 4% range, according to Fed data.

Eoin Treacy's view -

Lifestyle creep hits most families. As soon as incomes increase people eat out more, buy more clothes, spoil the kids or indulge in more after school activities, buy a better car and move to a better neighbourhood. That all works out as long as incomes keep up with expectations. It is also why the throwaway remark “a recession is when your neighbour loses his job, a depression is when you lose yours” rings so true. Of course in today’s economy it might be more correct to state it’s a recession when your spouse loses their job and a depression when you both do.



This section continues in the Subscriber's Area. Back to top
August 06 2019

Commentary by Eoin Treacy

Going down: Property prices cool as affordability bites

This article by Madeleine Lyons for the Irish Times may be of interest to subscribers. Here is a section:

Latest reports have highlighted a distinct slowdown in growth in the housing sector since the start of the year. Despite a clear need for more houses this is not converting to actual sales. In fact, price drops have become commonplace in the second-hand market, and sales of properties over €500,000 have shown a 21 per cent drop since the start of the year.

All of this points to an affordability issue for buyers, and a gradual market realisation that prices need to be adjusted accordingly. Add to this fears over Brexit and Central Bank mortgage lending restrictions and the slow 2 per cent growth in number of mortgage drawdowns in the first quarter begins to make sense. Compare this with growth rates in 2018 of about 20 per cent.

Meanwhile, the throughput of housing stock for sale is strong. “June and July have been unseasonably strong with the flow of stock coming through,” said Angela Keegan, managing director of property website MyHome.ie. “It’s possible people are more confident about the market because, remember, if they are selling they are buying too. We know interest rates are not going up in the near term and there are excellent fixed-rate mortgages available too.”

Eoin Treacy's view -

Declining demand for higher priced homes suggests consumers and investors are trimming their expectations for continued economic strength. There is no country likely to do worse from a hard Brexit than Ireland.

It will be for historians to parse whether the backstop gambit was an historic mistake or a masterful stroke. Meanwhile the stock market is rolling over and the housing market is softening. That occurring against a background where interest rates are close to zero and the ECB is about to restart QE.



This section continues in the Subscriber's Area. Back to top
August 05 2019

Commentary by Eoin Treacy

Video commentary for August 5th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: the renminbi''s devaluation, gold and cryptocurrencies bounds, emerging market currencies and stock markets pullback while bonds and the yen firm. Short-term oversold conditions are evident in a number of stock markets as they test their respective trend means. 
 



This section continues in the Subscriber's Area. Back to top
August 05 2019

Commentary by Eoin Treacy

China's Yuan Tumbles Past 7 Per Dollar for First Time Since 2008

This article by Tian Chen and Sofia Horta e Costa for Bloomberg may be of interest to subscribers. Here is a section:

The yuan declined 0.9% in mainland trading last week, its biggest loss since mid-May, after President Donald Trump abruptly escalated the trade war with new tariffs on Chinese goods. Beijing pledged to respond if the U.S. goes ahead with a plan to impose a 10% tariff on a further $300 billion in Chinese
imports.

“It appears that the tariffs hike suggests the return of tit-for-tat moves and a suspension of trade talks, and the PBOC sees no need to keep the yuan stable in the near term,” said Ken Cheung, a senior currency strategist at Mizuho Bank Ltd. The tumble exacerbated losses in Asia’s financial markets.

Eoin Treacy's view -

China devalued its currency when the first round of tariffs was imposed and it is doing so again now that tariffs have been imposed on all of its exports to the USA. The Renminbi broke below CNY 7 today and that represents the reassertion of its bearish trend.

The devaluation of the currency below CNY7 is a major change of policy for China and it greatly increases potential for capital flight. That is the one thing China cannot afford to allow. The entire rationale for supporting the economy, and ensuring the ability to manage systemic risk in the nonperforming loans sector, is based on the trillions in deposits sitting in the banking and post office systems



This section continues in the Subscriber's Area. Back to top
August 05 2019

Commentary by Eoin Treacy

The Top Miners Are Split on How to Chase the EV Battery Boom

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

“We did a review of all the battery input materials -- nickel, cobalt, lithium,” said Eduard Haegel, asset president at the BHP’s Nickel West unit. “We think that in the medium-to-longer term there will be a margin that will be sticky for nickel -- we think it’s an attractive commodity.”

BHP, the biggest miner, this year reversed long-term efforts to seek a buyer for the division, opting to retain Nickel West to benefit from forecast growth in lithium-ion batteries and a scarcity of high-quality nickel supply. From the second quarter of 2020, the unit will begin production of bright-turquoise colored nickel sulphate -- a premium raw material for the battery supply chain -- from a nickel refinery south of Perth, with plans to potentially carry out the industry’s largest expansion.

Eoin Treacy's view -

Every auto manufacturer is going to have electric vehicle offerings in the next 18 months. That is going to create a lot of demand for batteries and the commodities that comprise the anode, cathode, catalysts and electrolyte.



This section continues in the Subscriber's Area. Back to top
August 05 2019

Commentary by Eoin Treacy

JAXA releases footage of Hayabusa 2 spacecraft's second asteroid touchdown

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

The Japanese Aerospace Exploration Agency (JAXA) has released a video showing the climactic moments of the Hayabusa 2 spacecraft's second descent to the surface of asteroid Ryugu. The goal of the risky operation was to capture newly exposed material from the asteroid's interior, which had been forcefully ejected during the creation of an artificial crater on Ryugu's surface in early April.

The footage of the second dive was captured on July 11, 2019 by Hayabusa 2's publicly-funded onboard small monitor camera (CAM-H). The playback is at 10x actual speed, and shows the spacecraft's final descent to the surface, which occurred between 10:03:54 – 10:11:44 JST.

Eoin Treacy's view -

There has been a lot of speculation over the last twenty years about when asteroid mining might become a reality. This is the first example of the thesis in action. While the program is research-oriented, and only interested in collecting small samples, it is a proof of concept which takes the sector from the fanciful to the possible. Considering the pace of innovation in space technology it is no exaggeration that we may see commercial asteroid mining within the decade.



This section continues in the Subscriber's Area. Back to top
August 02 2019

Commentary by Eoin Treacy

August 02 2019

Commentary by Eoin Treacy

Germany's Whole Yield Curve Dives Below 0% for the First Time

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

The move will add to fears that the region’s economic slowdown is being driven by more structural factors akin to Japan’s “lost decade.” Germany’s bond market is widely perceived as being one of the world’s safest, with investors lured in by the liquidity and credit quality offered. Funds still looking to extract a positive return from European sovereign assets have been forced further out the yield curve or into riskier debt markets such as Italy.

“It underlines that the hunt for yield, or rather hunt to avoid negative yields, is accelerating day by day,” said Arne Lohmann Rasmussen, head of fixed-income research at Danske Bank A/S. “It just makes things more complicated.”

Yields on 30-year bunds fell almost 10 basis points to -0.002%. Those on 10-year securities dropped five basis points to -0.50%, also a record low and below the European Central Bank’s -0.40% deposit rate.

Eoin Treacy's view -

Investors are paying the German and Swiss governments to take their money at every maturity and in Japan out to 15-year maturities. Bond investors have concluded the only possible way to manage the debts and unfunded liabilities that have built up over decades is with money printing. That will be facilitated by central banks buying the newly minted bonds and that contributes to the momentum move. The victims are currencies which is why gold is rallying.



This section continues in the Subscriber's Area. Back to top
August 02 2019

Commentary by Eoin Treacy

Downside Key Reversals

Eoin Treacy's view -

A downside key day reversal is defined by a move to a new intraday high which is subsequently reversed, so that the market closes at a low below that of the previous day. The key characteristic of the key reversal is size. In order for the signal to have an emotional impact on the market it needs to stand out on the chart so anyone looking at it concludes something big happened on that date. Weekly key reversals are often more important to investor psychology but the size rule is equally important. Downside follow through on the signal in the following days of week is a confirmatory sign of a change of direction.



This section continues in the Subscriber's Area. Back to top
August 02 2019

Commentary by Eoin Treacy

Japan-South Korea Feud Boils Over Amid Trade Actions, Protests

This article by Isabel Reynolds and Sam Kim for Bloomberg may be of interest to subscribers. Here is a section:

South Korean President Moon Jae-in called Japan “reckless” in a national address Friday and his country planned to cross its neighbor off a preferred-trade list. The move came hours after Japanese Prime Minister Shinzo Abe’s cabinet removed South Korea from its list of trusted export destinations.

U.S. Secretary of State Michael Pompeo met his counterparts from both countries Friday, but the dispute, which simmered for months as the Trump administration sat on the sidelines, looks set to worsen amid protests, boycotts and economic warnings. “By bringing economic sanctions, they’ve really escalated it to another level,” said Robert Dujarric, director of the Institute of Contemporary Asian Studies, Temple University, Japan. “This isn’t going to make South Korea cave in. If anything, it heightens South Korean nationalism. It makes it harder to de-escalate and harder to have a ‘united front’
against China.”

Eoin Treacy's view -

Japan and South Korea compete in many of the same export markets and their rivalry had previously been contained by the global trade network but the historical enmity between the two countries is never far from the surface. The advent of trade wars, mercantilist competition and shifting loyalties is introducing a degree of uncertainty in the region that hasn’t been seen in decades.



This section continues in the Subscriber's Area. Back to top
August 01 2019

Commentary by Eoin Treacy

Video Commentary for August 1st 2019

Eoin Treacy's view -

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

Some of the topics discussed include: President Trump imposes additional tariffs. Treasuries breakout out, gold firms, silver recoups losses, Stocks pull back, copper and oil weak, strong likelihood of additional easing following this development, high yield spread remain contained. 



This section continues in the Subscriber's Area. Back to top