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
November 20 2020

Commentary by Eoin Treacy

November 20 2020

Commentary by Eoin Treacy

The Allure of GameStop's Stores

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

Shankar, director of the Center for Retailing Studies at Texas A&M University. “There were two forks in the road. They could have scaled up online, or they could have moved into adjacent brick-and-mortar businesses. They chose brick-and-mortar, because it was lower risk in the short term,” Shankar said. “It was a missed opportunity and they’re still hurting from that.” 

If GameStop knew what its problem was, why didn’t it do more to address it? Cohen and Shankar both cite internal resistance to change. That may be right, but it's not as easy as turning down the “physical retail” dial and turning up the “digital commerce” one. I’ve spent enough time in GameStops to come to appreciate their strange charms, and I can tell you that the company's unique advantages don’t necessarily translate to the internet.

GameStop locations don’t seem like local bookshops or bike stores, but they bear similarities. Gaming remains enough of a niche interest that GameStop can create a sense of community just by employing people who know about video games and not chasing away the young men who make up a big proportion of their patronage. I’m now a lapsed gamer and wouldn’t exactly describe GameStop locations as pleasant. But there’s a kind of magic in a place completely dedicated to the activity that makes me want to clear my schedule, grab a controller and house a few Jolt colas. Plus the ability to pay for new games with old ones isn't a checkout option that is easily recreated in a mobile app. 

Eoin Treacy's view -

As the world comes out of the pandemic it is worth considering that if a brick and mortar store chain has survived this long, they might have something that is not easily replicable online. GameStop’s trade-in service is an example. So is the fact it is a place ignorant parents can go to ask about the game or apparatus their child has been badgering them to get. I’m increasingly of the opinion that some retail stores will persist because they offer to take cash which is impossible online. 



This section continues in the Subscriber's Area. Back to top
November 20 2020

Commentary by Eoin Treacy

Email of the day on bitcoin wallets

Many thanks for your ongoing informative and enlightening observations about the markets. One quick question please regarding holding Cryptocurrencies: do you value the 'vault' function within Coinbase? As I build my positions slowly, I am researching hardware wallets and some of them seem very restricted in terms of the number of coins they will hold. Just wondered your thoughts on the security of the accessible platform-based 'Vault'?

Eoin Treacy's view -

Thanks for this question. Before I answer I want to be very clear in saying I do not believe I am expert in what is the best way to physically transact in cryptocurrencies. All of my activity has been over Coinbase and via spread-bets. 



This section continues in the Subscriber's Area. Back to top
November 20 2020

Commentary by Eoin Treacy

Email of the day on valuing cryptocurrencies

With Bitcoin and Ethereum continuing to impress price wise, how do you think about Valuation of these instruments? Though you’re a Technician you clearly have a great understanding of valuation at the same time. With regards to these instruments though I have never read a compelling valuation argument. I couldn’t tell you whether Bitcoin should be worth $500/$5,000 or even $50,000. What framework do you use to determine real value, or can you refer me to something of substance that you might have read?

Eoin Treacy's view -

Thank you for this question. At present cryptocurrencies do not pay dividends so they do not submit readily to traditional dividend discount models. That may change with Ethereum’s transition to a proof of stake model which anticipates making interest payments. At that stage a traditional value model will be possible but whether it is relevant to the price structure is unknowable at present. 



This section continues in the Subscriber's Area. Back to top
November 20 2020

Commentary by Eoin Treacy

Email of the day on Worldwide Healthcare Trust

This may be of interest to you and the collective.

https://www.youtube.com/watch?v=2t5VmQ1Wiec

Disclosure: I have shares in Worldwide Healthcare Trust and am considering Biotech Growth Trust.

The second half is Q & A which is also useful. 

My subscription is due for renewal at end-Dec and I shall be renewing.  The comment of the day and especially your daily and weekend audios are priceless for a small investor like myself. It's hard to thank you enough.

Very best wishes

Eoin Treacy's view -

Thank you for this video which I believe will be of interest to subscribers. Thanks also for your long and continued support which is much appreciated.



This section continues in the Subscriber's Area. Back to top
November 20 2020

Commentary by Eoin Treacy

November 19 2020

Commentary by Eoin Treacy

November 19 2020

Commentary by Eoin Treacy

The Next Phase of the V

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

#1: A global synchronous recovery: We expect a broad-based recovery, both geographically and sectorally, to take hold from March/April onwards. Driving this synchronous recovery will be a more expansive reopening of economies worldwide and the extraordinary monetary and fiscal support now in place. Global GDP, already at pre-COVID-19 levels (based on seasonally adjusted GDP levels), continues to accelerate and is on track to resume its pre-COVID-19 trajectory by 2Q21. We expect China to return to its pre-COVID-19 path this quarter, and the US to reach it by 4Q21.

#2: EMs boarding the reflation train: After a prolonged period in which EMs have faced a series of cyclical challenges, macro stability is now in check. With the COVID-19 situation improving in a broad range of EMs, their pace of recovery is catching up. EM growth rebounds sharply in 2021, helped by a widening US current account deficit, low US real rates, a weaker dollar, China’s reflationary impulse, and EMs ex China's own accommodative domestic macro policies.

#3: Inflation regime change in the US: We see a very different inflation dynamic taking hold, especially in the US. The COVID-19 shock has accelerated the pace of restructuring, creating a significant divergence between the output and unemployment paths. With policymakers maintaining highly reflationary policies to get back to preCOVID-19 rates of unemployment quickly, wage pressures and inflation will pick up from 2H21. We expect underlying core PCE inflation to rise to 2%Y in 2H21 and to overshoot from 1H22, with the risk that it happens sooner.

Eoin Treacy's view -

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

With millions of people out of work it is easy to form a gloomy picture of economic potential. However, even at a US unemployment rate of 10%, there are still 90% of people with jobs. Moreover, many people who have held onto their employment have boosted savings this year.

When 90% of people come through a crisis in OK shape and a significant minority come out ahead, there is ample scope for a significant bounce back in activity. There is a great deal of pent up demand in the global economy and all that cash on the side lines is fuel for bull markets. The fact monetary and fiscal policy is aimed to improving the outcomes for the remaining 10% suggests loss credit and low rates are here to stay.



This section continues in the Subscriber's Area. Back to top
November 19 2020

Commentary by Eoin Treacy

EU Fights to Save Billions in Aid as Lagarde Demands Action

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

Hungarian Prime Minister Viktor Orban says tying “political debates” to financial issues is a form of “blackmail” against countries opposed to migration.

Poland said this week that the provisions are a first step to forcing it to accept EU regulations on gay marriage, abortion, euthanasia and press freedoms. “It’s a means of political, cultural and ultimately economic colonization,” Justice Minister Zbigniew Ziobro said.

Highlighting the gaping divide, Dutch Prime Minister Mark Rutte called the current rule-of-law provisions the “bare minimum.”

German Chancellor Angela Merkel has spoken with EU leaders in recent days, including Orban and Morawiecki. In a sign there’s unlikely to be a quick fix, she described negotiations as “extremely difficult.”

Eoin Treacy's view -

The current challenge for the emerging federal European superstate is how to net off the priorities of socially liberal but fiscally conservative creditors with socially conservative but fiscally liberally debtors.



This section continues in the Subscriber's Area. Back to top
November 19 2020

Commentary by Eoin Treacy

A New UN Push Aims to Feed the World's Rabid Hunger for Carbon Credits

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

It’s a tricky proposition, though. Offset programs are notoriously difficult to execute with confidence. REDD+, launched in 2007 to much fanfare among developing nations and UN climate negotiators, but has rarely lived up to its original excitement as developed nations failed to install carbon-pricing policies that succeed in guaranteeing demand. 

Global demand for offsets may outstrip supply by 2025, according to a September analysis by Fitch Ratings. Many companies, including Microsoft Corp, The Walt Disney Co, and Royal Dutch Shell Plc, have already begun either buying or planning to buy offsets. Amazon.com Inc. founder Jeff Bezos this week announced $791 million in funding for 16 environmental groups, including $100 million each to organizations with strong forestry or offsets programs—EDF, World Resources Institute, and World Wildlife Fund.

Navigating the challenges to come may require groups like Emergent to continue to act as market-making entities. Or, if markets get the boost they need from the Green Gigaton Challenge and other initiatives, “we'd be thrilled to turn off the lights, close the door,” Bloomgarden said. “Impact achieved.”

Eoin Treacy's view -

I was part of team that put together a proposal for a group in Alaska who were seeking to raise investment capital for a welfare/education program for their community. They were in line to sell a significant asset but instead were able to hold the asset and sell carbon credits on a stand of forest on the community’s property. That delivered a long-term cashflow, they got to keep their assets and they had no plans to sell or cut the trees in any case.



This section continues in the Subscriber's Area. Back to top
November 19 2020

Commentary by Eoin Treacy

Rocketing Bitcoin Stakes Claim as Pandemic Refuge for Brave

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

“Bitcoin seems to be the hedge of choice against the U.S. dollar debasement that is looming, either through more Federal Reserve quantitative easing, higher government debt or a steepening yield curve -- or all three,” Jeffrey Halley, a senior market analyst with Oanda Asia Pacific Pte, wrote in an email.

Bitcoin’s investor base is also widening as more institutions make the jump into the asset class. Purchases or endorsements from the likes of Square Inc., Paul Tudor Jones and Stan Druckenmiller add to the mix. But its volatility -- including a furious run toward $20,000 in December 2017 followed by a bust -- make arguments for the cryptocurrency as a store of value contentious.

Fear of missing out “is well and truly in play here, and the fact that so many big hitters are publicly declaring their positions is clearly helping,” Chris Weston, head of research at Pepperstone Financial Pty, wrote in a Nov. 18 note. “I don’t see this move as a mania or grossly over-loved just yet.”

Eoin Treacy's view -

The bitcoin price is back testing its peaks which begs the question whether it is about to break on the upside in a rerun of the 2017 mania. The one big difference between bitcoin and other assets is it is completely borderless. All anyone needs is an internet connection to buy. That equates to a very wide investor base for what is a tight market.



This section continues in the Subscriber's Area. Back to top
November 18 2020

Commentary by Eoin Treacy

November 18 2020

Commentary by Eoin Treacy

Top Ten Market Themes for 2021: A Shot in the Arm

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

1.Vaccine-led Recovery to Lift Cyclical Assets
2. Navigating the Path
3. A Steeper Real Yield Curve
4. Europe: Two Steps forward, One Step Back
5. China: Forging Ahead, with Assets in Tow
6. A New Commodity Bull Cycle
7. EM Outperformance: More than Before, Less than Sometimes
8. Rotations: Cyclical, North Asia in Focus but Vaccine News Key to Near Term
9. In Search of New (and Old) Safe Havens, Hedges and Diversifiers
10. Risks from Corona and Beyond

Eoin Treacy's view -

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

If we had to distill the priorities of governments next year there is only one word captures their intentions. Reflation. With millions of unemployed people, defaults only kept at bay by massive intervention and rising public discontent economic revival is the only possible solution. That’s true of every country. No one has been left unscathed by the pandemic. Whether the challenge has been domestic or from a loss of export markets, the solution is the same. Reflation.



This section continues in the Subscriber's Area. Back to top
November 18 2020

Commentary by Eoin Treacy

Merkel Under Fire as Virus Strategy Sparks Anger From All Sides

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

Berlin police used water cannons to break up a large demonstration near Brandenburg Gate on Wednesday. Participants - - which totaled 14,000 people, according to police -- refused to
abide by distancing and hygiene rules, while some threw bottles and other objects.

Pressure has been growing on German authorities, which are facing a crunch meeting next week to lay out a long-term plan to fight the pandemic. With restrictions likely to be extended and intensified, public anger and political tensions are rising.

The demonstration was organized to oppose a law being debated by the Bundestag that would expand the government’s powers to place restrictions on the public. Critics say the measures go too far. The far-right Alternative for Germany likened the legislation to policies under authoritarian regimes.

While the freedom of assembly must be guaranteed, social distancing and other rules to contain the spread of the virus must also be respected, government spokeswoman Ulrike Demmer said during a regular news conference.

Eoin Treacy's view -

Facing down a water cannon is not something protestors will soon forget. It may yet prove to further fortify the resolve of the populist right wing movement to challenge the status quo.

The challenge for all governments as they measure their response to the pandemic is what freedoms to infringe. Everyone knows that temporary taxes have a tendency to become permanent. The legitimate fear is that if the government can close businesses by writ what is to stop them doing it again in future? With a clear precedent, the range of potential reasons for closing businesses can easily increase.



This section continues in the Subscriber's Area. Back to top
November 18 2020

Commentary by Eoin Treacy

Platinum Heads for Record Deficit This Year on Supply Disruption

This article by Eddie Spence for Bloomberg may be of interest to subscriber. Here is a section:

Platinum markets are poised for a record deficit this year as disruptions to key producers and an increase in investor appetite far outstripped the pandemic’s effect on industrial demand.

Pandemic-related mine closures and outages at Anglo American Plc’s converter plant in South Africa have cut supply, according to a report by the World Platinum Investment Council. The group projects a deficit of 1.2 million ounces for 2020, the largest since records began, and almost four times higher than it forecast two months ago.

Despite the record shortfall, platinum has declined about 3% this year, making it one of the worst-performing major metals. Demand from auto-catalysts, the biggest consumers of platinum, is forecast to drop 16%. By contrast, gold has surged 24%, while sister metal palladium has advanced more than 19%.

Eoin Treacy's view -

Platinum is an industrial metal which saw demand decline sharply following the diesel scandal. Recent news that electric vehicle sales now outpace those of diesel cars in Europe is a testament to how low demand has fallen. That has resulted in the price being among the worst performers in both the industrial and precious metals sectors over the last few years.  



This section continues in the Subscriber's Area. Back to top
November 18 2020

Commentary by Eoin Treacy

Panasonic Is the Latest Company Betting on Electric Vehicles, Powering Past Its Tesla Partnership to Explore a Venture in Norway

This article by Jack Denton for Barrons may be of interest to subscribers. Here is a section:

Europe is one of the fastest-moving spaces in the race to dominate an expected boom in electric vehicles, with at least 12 countries planning a ban on internal combustion engine vehicles in coming years. U.K. Prime Minister Boris Johnson announced on Wednesday a ban on the sale of new gasoline and diesel cars, to come into effect by 2030.

Tesla is building a gigafactory in Germany and is reportedly planning one in the U.K., while one of its key rivals, Northvolt, is building a gigafactory in Sweden. Established European car makers like Daimler, Volkswagen, and BMW are racing to build electric vehicles on their own or through partnerships, and Panasonic has previously supplied batteries to Volkswagen and Peugeot.

Eoin Treacy's view -

At its recent battery day Tesla announced they plan on ditching outside help in producing batteries over the coming few years. That’s one of the primary ways they aim to achieve lower production costs. It obviously represents a business risk for Panasonic and this agreement appears to be a first step toward diversifying.



This section continues in the Subscriber's Area. Back to top
November 17 2020

Commentary by Eoin Treacy

Video commentary for November 17th 2020

November 17 2020

Commentary by Eoin Treacy

Amazon Expands Push Into Health Care With Online Pharmacy

This article by Angelica LaVito and Matt Day for Bloomberg may be of interest to subscribers. Here is a section:

Analysts have long expected Amazon to dive deeper into health care in a bet the company can bring its digital real estate and logistical prowess to bear on a roughly $4 trillion industry in the U.S. with a reputation for inefficiency. The company rattled drug retailers with its PillPack acquisition, but Amazon has been slow to integrate the online pharmacy startup into its offerings.

The announcement Tuesday marks the first time that shoppers can order prescription drugs directly on Amazon. Previously, they were redirected to PillPack’s website. An integrated pharmacy removes one of the few gaps in Amazon’s offerings compared with major big box and grocery rivals, some of whom have long filled shoppers’ prescriptions in the same stores where they sold flat-screen televisions or cans of soup.

The discounts are a clear play for people who pay for their medications with cash, whether they are uninsured or are looking to save money. Strong demand for transparency and better deals have helped fuel the rise of discount card programs like GoodRx Holdings Inc. Amazon will display both the price when using insurance and the price without. Infusing transparency into a system that has been frustratingly opaque for consumers could alter the supply chain.

“We designed Amazon Pharmacy to put customers first – bringing Amazon’s customer obsession to an industry that can be inconvenient and confusing,” said TJ Parker, vice president of Amazon Pharmacy and co-founder of PillPack.

Eoin Treacy's view -

Waiting for 15 or 20 minutes while a prescription is filled must be one of the biggest nuisances of the retail experience. Being forced to walk around aisles of products one has no interest in begs the question, “how long does it take to select a product from a shelf and put it in a bag?

The challenge for pharmacists is they spend much more time ensuring the veracity of a doctor’s instructions than they do filling them out. Yet, that is only small part of their business. The bulk of volume is focused on repeat custom and it is this business Amazon is targeting. Chronic conditions are where the money is in selling pharmaceuticals, Renewable prescriptions do not need to be verified all that often and cashflows are received on a subscription basis. That’s the kind of service Amazon excels at.



This section continues in the Subscriber's Area. Back to top
November 17 2020

Commentary by Eoin Treacy

Nobel UN food agency warns 2021 will be worse than 2020

This article by Edith Lederer for AP News may be of interest to subscribers. Here is a section:

In April, Beasley said 135 million people faced “crisis levels of hunger or worse.” A WFP analysis then showed that COVID=19 could push an additional 130 million people “to the brink of starvation by the end of 2020.”

He said in Wednesday’s virtual interview from Rome, where WFP is based, that while famine was averted this year, the number of people facing crisis levels of hunger is increasing toward 270 million.

“There’s about three dozen countries that could possibly enter the famine conditions if we don’t have the money we need,” Beasley said.

According to a joint analysis by WFP and the U.N. Food and Agriculture Organization in October, 20 countries “are likely to face potential spikes in high acute food insecurity” in the next three to six months, “and require urgent attention.”

Of those, Yemen, South Sudan, northeastern Nigeria and Burkina Faso have some areas that “have reached a critical hunger situation following years of conflict or other shocks,” the U.N. agencies said, and any further deterioration in coming months “could lead to a risk of famine.”

Other countries requiring “urgent attention” are Afghanistan, Cameroon, Central African Republic, Congo, Ethiopia, Haiti, Lebanon, Mali, Mozambique, Niger, Sierra Leone, Somali, Sudan, Syria, Venezuela, Zimbabwe, they said.

Eoin Treacy's view -

Africa has, generally, come through the pandemic in much better shape than developed nations because of its large youthful population. That’s makes intuitive sense. COVID-19 affects the elderly more than any other demographic and Africa has more young people than anywhere. 



This section continues in the Subscriber's Area. Back to top
November 17 2020

Commentary by Eoin Treacy

Batteries of the Future Are Weightless and Invisible

This article by Daniel Oberhaus for Wired.com may be of interest to subscribers. Here is a section:

Unlike the carbon-fiber and lithium-ion sheets being developed by Asp and Greenhalgh, Kotov and his students created a zinc-air structural battery for their automatons. This cell chemistry is able to store much more energy than conventional Li-ion cells. It consists of a zinc anode, a carbon cloth cathode, and a semi-rigid electrolyte made from polymer-based nanofibers that is nanoengineered to mimic cartilage. The energy carriers in this type of battery are hydroxide ions that are produced when oxygen from the air interacts with the zinc.

While structural batteries for vehicles are highly rigid, the cell developed by Kotov’s team is meant to be pliable to cope with the movements of the robots. They’re also incredibly energy-dense. As Kotov and his team detailed in a paper published earlier this year, their structural batteries have 72 times the energy capacity of a conventional lithium-ion cell of the same volume. For now, their batteries are being used to power robotic toys and small drones as a proof of concept. But Kotov says he expects they’ll be used in midsize robots as well as larger hobby drones in the not-so-distant future. “Drones and medium-size robots need to have new solutions for energy storage,” Kotov says. “I can guarantee you that structural batteries will be a part of that.”

The battery has always been an addendum, a limiting factor, and a parasite. Today it’s vanishing before our eyes, melting into the fabric of our electrified world. In the future, everything will be a battery, and stand-alone energy storage will seem as quaint as landline telephones and portable CD players. It’s a disappearing act worthy of a great magician: Now you see it—and soon you won’t.

Eoin Treacy's view -

Dematerialisation is the process through which many of the locations and products we have previously physically interacted with have disappeared onto the internet. The disappearance first of the record player and then the record store is a clear example of that trend.



This section continues in the Subscriber's Area. Back to top
November 17 2020

Commentary by Eoin Treacy

Email of the day on Tesla's prospects

I remember a few years ago that you wrote in one of your articles that Tesla could well go broke! It could yet happen but they seem to have found a firmer footing since then for the time being. 

Could their joining the S&P Index be an early warning of trouble ahead for the market generally as this Bloomberg report suggests?

https://www.bloomberg.com/opinion/articles/2020-11-17/will-the-stock-bubble-burst-as-soon-as-tesla-joins-the-s-p-500?sref=O3zvoUBa

Eoin Treacy's view -

Thank you for this question. I’ve written a lot about Tesla over the last decade. It’s a highly leveraged company so there is always a risk it will not be able to achieve its goals. At its current valuation it cannot afford to disappoint. If we listen to Elon Musk, the company was about a month from bankruptcy during the ramp up of Model 3 production but it successfully pulled through. 



This section continues in the Subscriber's Area. Back to top
November 16 2020

Commentary by Eoin Treacy

November 16 2020

Commentary by Eoin Treacy

Pfizer Vaccine Partner Warns Against Winner-Take-All Mentality

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

Pfizer and BioNTech shares both dropped on Monday -- reversing a surge in response to positive test results last week -- after rival Moderna Inc. said its Covid vaccine was 94.5% effective in a preliminary analysis of a large clinical trial. Moderna also said its candidate has a much longer shelf life at refrigerator temperatures than the Pfizer-BioNTech jab, which would make it easier to store and ship globally.

BioNTech is working on the storage issues, and Sahin said he’s confident that some of the current requirements around cold storage will change in the course of next year.

The successes in the clinic come even as the pandemic looks increasingly bleak in Europe and North America. The U.S. surpassed 11 million coronavirus cases on Sunday, while in Germany, BioNTech’s home market, Chancellor Angela Merkel pushed for a tighter lockdown.

Eoin Treacy's view -

The best-case scenario is all of the primary vaccine candidates prove both safe and effective. That would open up manufacturing capacity of as much as 7 billion doses by the end of 2021. That suggests there is real scope for massive overcapacity and that vaccine production will return to a low margin business.



This section continues in the Subscriber's Area. Back to top
November 16 2020

Commentary by Eoin Treacy

RCEP: A new trade agreement that will shape global economics and politics

This article by Peter A. Petri and Michael Plummer for the Brookings Institute may be of interest to subscribers. Here is a section:

CEP will connect about 30% of the world’s people and output and, in the right political context, will generate significant gains. According to computer simulations we recently published, RCEP could add $209 billion annually to world incomes, and $500 billion to world trade by 2030.

We also estimate that RCEP and CPTPP together will offset global losses from the U.S.-China trade war, although not for China and the United States. The new agreements will make the economies of North and Southeast Asia more efficient, linking their strengths in technology, manufacturing, agriculture, and natural resources.

The effects of RCEP are impressive even though the agreement is not as rigorous as the CPTPP. It incentivizes supply chains across the region but also caters to political sensitivities. Its intellectual property rules add little to what many members have in place, and the agreement says nothing at all about labor, the environment, or state-owned enterprises — all key chapters in the CPTPP. However, ASEAN-centered trade agreements tend to improve over time.

Southeast Asia will benefit significantly from RCEP ($19 billion annually by 2030) but less so than Northeast Asia because it already has free trade agreements with RCEP partners. But RCEP could improve access to Chinese Belt and Road Initiative (BRI) funds, enhancing gains from market access by strengthening transport, energy, and communications links. RCEP’s favorable rules of origin will also attract foreign investment."

Eoin Treacy's view -

The ratification of a free trade deal between China and much of Asia and Australasia is a significant bonus for its ambition of enmeshing as many countries as possible in dependency on its economy. China is already a major destination for exports from the wider region as well as a source of manufactured goods. This agreement will expand its role in the debt/credit markets too.



This section continues in the Subscriber's Area. Back to top
November 16 2020

Commentary by Eoin Treacy

Sugar, Coffee Jump as Hurricane Threatens Central America Crops

This article by Marvin G. Perez and Patrick McKiernan for Bloomberg may be of interest to subscribers. Here is a section:

Iota will hit near the Honduras-Nicaragua border on Monday in the aftermath of Hurricane Eta, which killed more than 100 people. Iota’s winds reached 160 miles (257 kilometers) per hour as a Category 5 storm, the strongest on the five-step Saffir Simpson scale. A hurricane that powerful can crush homes, snap trees and make areas uninhabitable for months.

Honduras is Central America’s biggest arabica producer. Guatemala is second and a key shipper of raw and refined sugar. Iota may bring 24 inches (61 cm) to 36 inches of rain as the storm crosses the two countries and Nicaragua, Donald Keeney, senior meteorologist for Maxar in Gaithersburg, Maryland, said in a telephone interview.

The region was hammered by Tropical Depression Eta earlier this month as torrential rain damaged roads, compounding hurdles for growers facing labor shortages during the coronavirus pandemic.

Eoin Treacy's view -

This has been an unusually active and lengthy Atlantic hurricane season. Not only has it gone on longer than normal but it also started early and has had more named storms than any other year.

The severity of storms has increased of late but the more important development is the surprise rapid strengthening of storms as they approach land witnessed over the last two years. That is a wholly new phenomenon which makes the damage potential increasingly difficult to predict.

This podcast interviewing Nathan Myhrvold includes a section where he discusses his theory on how to prevent hurricanes and may be of interest to subscribers.  This article from National Graphic from 2017 may also be of interest. 



This section continues in the Subscriber's Area. Back to top
November 16 2020

Commentary by Eoin Treacy

7 Misconceptions About Bitcoin

Thanks to a subscriber for this well-argued article by Lyn Alden which may be of interest. Here is a section:

The question then becomes whether that energy associated with Bitcoin is put to good use. Does Bitcoin justify its energy usage? Does it add enough value?

So far, the market says it does and I agree. A decentralized digital monetary system, separate from any sovereign entity, with a rules-based monetary policy and inherent scarcity, gives people around the world a choice, which some of them use to store value in, and/or use to transmit that value to others.

Those of us in developed markets that haven’t experienced rapid inflation for decades may not see the need for it, but countless people in emerging markets have experienced many instances of severe inflation in their lifetimes, tend to get the concept more quickly.

Furthermore, a significant portion of the energy that Bitcoin uses, could otherwise be wasted. Bitcoin miners seek out the absolute cheapest sources of electricity in the world, which usually means energy that was developed for one reason or another, but that doesn’t currently have sufficient demand, and would therefore be wasted.

Eoin Treacy's view -

The energy to utility argument for bitcoin makes intuitive sense and willingness of investors to continue to support the asset class is a testament to the belief people have that there is intrinsic value in the network.



This section continues in the Subscriber's Area. Back to top
November 13 2020

Commentary by Eoin Treacy

November 13 2020

Commentary by Eoin Treacy

Quant Shock That 'Never Could Happen' Hits Wall Street Models

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

 

As money managers rushed to price in stronger economic growth, factor investors who dissect stocks by how much they’ve risen or fallen saw this strategy, known as momentum, crash on Monday like never before. Equities more sensitive to the economic cycle like value and small-cap names skyrocketed.

So while the S&P 500 is just shy of its record high, it’s been a wild week for quants even by the standards of this wild year, with many enduring violent moves rather than capitalizing on the risk-on mood.

All this recalls long-standing worries that freakish cross-asset gyrations are getting more common thanks to cheap money and investor crowding.

Quigley’s estimate for the odds of this week’s shock is in part tongue-in-cheek, based on a rule of thumb for a normal distribution of statistical data. Asset moves are not known to reliably obey this convention that says 98% of all data points occur within three standard deviations of the mean.

But even with the knowledge that market prices are more prone to outlier moves, a rotation of the magnitude seen this week was still a shock to risk models.

Eoin Treacy's view -

Quantitative strategies are designed to take advantage of relative small moves between asset classes that take place every day. They make money be sizing their positions according to the “normal” volatility in the ratios they monitor. 98% efficiency means that on any given day there is a 2% chance of a volatility event leading to unexpected losses. That’s acceptable for the vast majority of investors provided the incidence of outsized events remains low. The reason the credit crisis killed off so many fixed income macro strategies is because the dispersion in the returns broke out and stayed that way for a prolonged period.



This section continues in the Subscriber's Area. Back to top
November 13 2020

Commentary by Eoin Treacy

Japan's Biggest Profit Beat in Years Seen Boosting Stock Appeal

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

“The number of positive surprises in first-half results has been greater than expected, so gains in earnings revision should accelerate and we expect more funds to flow in from overseas,” strategists led by Masashi Akutsu said in a note this week.

Eoin Treacy's view -

Japan has come through the pandemic better than most other developed countries. That’s a particularly admirable result considering the large numbers of elderly people in the population. The prospect of a return to growth for the export-oriented portion of the economy has helped to spur interest in the Nikkei-225 over other domestic indices. 

 



This section continues in the Subscriber's Area. Back to top
November 13 2020

Commentary by Eoin Treacy

Brexit Talks Hit Make-Your-Mind-Up Time as Deadlines Pass

This article by Ian Wishart, Alberto Nardelli and Dara Doyle for Bloomberg may be of interest to subscribers. Here is a section:

The exit of one of Johnson’s top aide less than 50 days before the U.K. is due to leave the single market, and the planned departure of another, has injected fresh uncertainty into the process. EU officials have been left speculating whether the departure of two of the most senior figures from the Leave campaign increases or reduces the likelihood that the prime minister will walk away without a deal.

“I see what is happening now in Downing Street and see this as quite a chaotic situation,” Manfred Weber, leader of the largest group in the European Parliament and an ally of German Chancellor Angela Merkel, told BBC Radio on Friday. “We need a clear idea from Boris Johnson now, and I think it’s now time for leadership.”

In the negotiating room, there was little movement this week on the three key issues that have bedeviled the talks for the past eight months -- the level playing field for business, access to U.K. fishing waters, and how any accord is enforced.

Progress on the first has been hampered by the U.K.’s reluctance to make specific commitments to abide by any future changes in the bloc’s rules, EU officials said. While both sides are inching closer to agreement on how any deal will be enforced, the U.K. is resisting EU calls for disagreements over the level playing field and fisheries to be included in any wider dispute-resolution system.

Eoin Treacy's view -

Dominic Cummings departure opens up the door for Boris Johnson to compromise on the Brexit deal. With the timing of the decision it is hard to reach any other conclusion. It also raises the question of how committed the UK will be to its ambitious program of investment in R&D or is Cummings perhaps leaving Whitehall for a well-compensated role as head up that organization?



This section continues in the Subscriber's Area. Back to top
November 13 2020

Commentary by Eoin Treacy

Can Marijuana Help Biden Heal a Divided Nation?

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

What’s more notable is that unlike in the past, all of this happened without much of a public uproar. To be fair, there have been bigger concerns on Americans’ minds these days. But this is the moment that cannabis companies and their investors have been waiting for: to be considered a legitimate industry rather than a hot voting issue. From here, the goal is to make weed every bit as normal as junk food, wine and other vices long found in stores across America.

In order for the industry to flourish it needs the federal government’s help, and the prospects of that are suddenly looking better. Two-thirds of U.S. adults are in favor of marijuana legalization — 91% if you include those who support it at a minimum for medicinal purposes, according to Pew Research Center. That’s more than the number of Americans who support abortion rights or who think human activity contributes to climate change.

Eoin Treacy's view -

President Trump was adamant in his opposition to easing restrictions on sales of cannabis. That contributed to a significant rationalization of the sector over the last couple of years where supply overwhelmed consumption. A number of the early winners in the sector went bust and the expansion plans of the some of the largest companies were heavily cut back. As new administration in the USA takes shape, enthusiasm at the prospect of a reclassification is gaining ground.



This section continues in the Subscriber's Area. Back to top
November 12 2020

Commentary by Eoin Treacy

November 12 2020

Commentary by Eoin Treacy

Email of the day - on Asia ex-China

With your comments yesterday on the video commentary about investing in China, I would appreciate some assistance. Bearing in mind your comments, and David's mantra that "Governance is everything", I do have some concerns about my investments in China. They are all through ITs (such as Aberdeen Asian Income and Schroder Oriental Income) but all have high exposure to China + Hong Kong (16% and 30% for those 2 ITs). Do you know of any income funds that invest in Asia excluding China? Many thanks for your continuing excellent service.

Eoin Treacy's view -

Thank you for this question which gets to the root of many of the conflicting arguments around monetary policy, growth prospects and geopolitics. Interest rates have been risible in Europe, Japan and North America or more than a decade. That promoted growth opportunities over value and in the process compressed yields. Hong Kong and the wider Chinese market offer some of the most attractive income opportunities globally and are not easily replicable.



This section continues in the Subscriber's Area. Back to top
November 12 2020

Commentary by Eoin Treacy

World Energy Outlook 2020

This summary report from the IEA may be of interest to subscribers. Here is a section:

Renewables grow rapidly in all our scenarios, with solar at the centre of this new constellation of electricity generation technologies. Supportive policies and maturing technologies are enabling very cheap access to capital in leading markets. With sharp cost reductions over the past decade, solar PV is consistently cheaper than new coal- or gasfired power plants in most countries, and solar projects now offer some of the lowest cost electricity ever seen. In the STEPS, renewables meet 80% of the growth in global electricity demand to 2030. Hydropower remains the largest renewable source of electricity, but solar is the main driver of growth as it sets new records for deployment each year after 2022, followed by onshore and offshore wind. The advance of renewable sources of generation, and of solar in particular, as well as the contribution of nuclear power, is much stronger in the SDS and NZE2050. The pace of change in the electricity sector puts an additional premium on robust grids and other sources of flexibility, as well as reliable supplies of the critical minerals and metals that are vital to its secure transformation. Storage plays an increasingly vital role in ensuring the flexible operation of power systems, with India becoming the largest market for utility-scale battery storage.

…but the downturn creates risks for the backbone of today’s power systems
Electricity grids could prove to be the weak link in the transformation of the power sector, with implications for the reliability and security of electricity supply. The projected requirement for new transmission and distribution lines worldwide in the STEPS is 80% greater over the next decade than the expansion seen over the last ten years. The importance of electricity networks rises even more in faster energy transitions. However, the financial health of many utilities, especially in developing economies, has worsened as a result of the crisis. There is a disparity in many countries between the spending required for smart, digital and flexible electricity networks and the revenues available to grid operators, creating a risk to the adequacy of investment under today’s regulatory structures.

Eoin Treacy's view -

The electrical grid was never designed to tackle the needs of the transportation sector. Not only do supercharging networks demand much greater loads but getting electricity to where it is needed requires a lot of infrastructure. The planning process is the primary obstacle to putting in more power lines or running high volatile cables. It is arguable whether green arguments can quickly overcome NIMBY concerns.



This section continues in the Subscriber's Area. Back to top
November 12 2020

Commentary by Eoin Treacy

Covid Hot Spots Show Signs Europe's New Wave May Be Cresting

This article by Thomas Mulier and Chris Reiter for Bloomberg may be of interest to subscribers. Here is a section:

The encouraging signs are emerging after many European countries enacted new restrictions, including closing non-essential shops, bars and restaurants, in an effort to slow the pandemic. Ireland, one of the first to reimpose curbs, cut the number of new infections to about 360 in the latest 24 hours from more than 1,200 a day in mid-October.

Progress is mixed, with some countries still seeing big increases. Austria reported a record 9,262 new cases in the past 24 hours on Thursday. The government will meet on Friday to discuss whether further restrictions are needed after a second lockdown began earlier this month.

German Health Minister Jens Spahn said the new numbers in his country are encouraging but that it’s too early to speak of a new trend. The effect of the new measures can’t be evaluated yet, a spokeswoman said. Hospitals are still straining under the backlog of patients with existing infections.

Eoin Treacy's view -

Europe is going to be open by Christmas for exactly the same reason it was open for summer. Businesses can’t miss their peak season. It’s what makes or breaks a year in the normal course of events so one way or other figures will be massaged enough to ensure business open up in early December.



This section continues in the Subscriber's Area. Back to top
November 11 2020

Commentary by Eoin Treacy

November 11 2020

Commentary by Eoin Treacy

Email of the day on velocity of money and inflation

Can you please help me understand the attached article that says prices are not related to the velocity of money.  It even includes a Fed chart (page 5) to support its case. 

Eoin Treacy's view -

Thank you for this question which is very relevant to the current market environment and may be of interest to the Collective. Here is a section from the article:

GDP can be thought of as Prices * Transactions or (P * T).

This leads us to: V = (P * T) / M2

Observations
Velocity can rise if prices fall if the number of transactions goes up.
Velocity can rise if prices stay the same and M2 goes down.
Velocity can fall if prices rise if M2 goes up
Velocity can fall if prices rise and the number of transactions drops.

Key Points
Prices can rise, fall, or stay the same, no matter what velocity does.
Velocity does not determine prices.
Velocity does not determine or even influence anything at all.

Velocity of Money is reported in arrears with a quarterly lag so whatever data we look at is six months out of date. I agree velocity of money does not itself lead to higher inflation. However rather than think about how velocity of money can rise or fall in the abstract let’s think about what it has been trending lower since 1997.



This section continues in the Subscriber's Area. Back to top
November 11 2020

Commentary by Eoin Treacy

Email of the day on hydrogen investments

Given hydrogen powered energy is an emerging trend I would be grateful! Mr. Treacy could mention the name of related ETFs or any other tradable security that would provide exposure to this trend.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. I’ve been anticipating a new use case for natural gas since the price collapsed with the introduction of unconventional supply. It was simply inevitable that with so much supply and low prices for a vital commodity that someone would find something to do with it. The hydrogen market is almost completely dependent on supply from natural gas at present. Efforts to produce green hydrogen are underway but are uncertain and will take years to build.



This section continues in the Subscriber's Area. Back to top
November 11 2020

Commentary by Eoin Treacy

Email of the day on investing in Ethereum

As you are an investor in Ethereum (it also comprises 35% of our fund), I've attached my recent Fact Sheet comments fyi :

Ethereum announced on 4 November (after a lengthy period of research, development and extensive testing) the imminent launch of the first phase of the major ETH2 upgrade. Ethereum, like Bitcoin, currently uses Proof Of Work (POW) to secure its blockchain while ETH2 will use Proof Of Stake (POS). POS requires that sufficient quantities of ETH are deposited on the blockchain and that these depositors also run a validator/node to process transactions and reach consensus on their validity.

Depositors/validators are rewarded for the risk they take and the service they perform by receiving additional ETH (the total quantity of ETH issued is determined by a sliding scale depending on the total amount staked). Should depositors act with malign intent they stand to lose their ETH, while tardy maintenance or excessive downtime will result in depositors/validators being penalised. Should the minimum threshold of 524288 ETH and 16384 validators be reached on 24 November, the ETH2 Beacon chain will go live on 1 December (if not then 7 days after the thresholds are reached). Running a validator is not without its technical challenges, and any ETH staked cannot be withdrawn until the current ETH1 chain becomes a shard of the ETH2 chain. That could take anything from one to two years from now. We are potentially keen to stake some of our ETH, but are proceeding cautiously and would likely use a third party to run the validators on our behalf.

Vitalik Buterin, the founder of Ethereum, recently posted a blog post https://vitalik.ca/general/2020/11/06/pos2020.html on why the new POS will be more decentralised, more secure and far more resistant to attack than the current POW used by ETH and Bitcoin. It is worth remembering that the majority of Bitcoin’s mining is in China – and ANT Financial’s IPO travails demonstrate yet again the extent that power is centralised in China. The next priorities for Ethereum are to release Sharding on ETH2 (which will increase the potential transactions per second to 100k) sometime in the next year as well as Ethereum Improvement Proposal (EIP) 1559 which will substantially improve Ethereum’s fee model – including burning the bulk of the fees generated on the system. EIP1559 will likely have the effect of reducing Ethereum’s net issuance (after ETH1 becomes a shard of ETH2) to negative.

On a one to two year horizon, Ethereum therefore offers the following advantages relative to Bitcoin :1) greater security and resistance to attack, 2) more decentralised (an average consumer laptop can run many nodes easily vs the large server farms needed to mine Bitcoin ), 3) lower inflation/issuance, 4) vastly higher scalability (100k transactions per second vs 7), 5) full programmability from inception (while Bitcoin’s programmability is limited), 6) the ability to earn a yield on your ETH through staking (which will become very easy in time and with no lockups), 7) the centre of the DEFI (Decentralised Finance) ecosystem, which it is already, and 8) use vastly less electricity (Bitcoin’s POW uses as much as say New Zealand).

I am however also very bullish on Bitcoin….the bull case of which is becoming increasingly well known (for example https://winklevosscapital.com/the-case-for-500k-bitcoin/). The Ethereum bull market has barely started in my opinion.

I can send the full Fact Sheet if you are interested.

Eoin Treacy's view -

Thank you for this detailed email which summarised a great deal of information relating to the evolution of the Ethereum network. I agree that the transition to the proof stake rather than proof of work model is a significant catalyst for investor interest. I’m sure subscribers would be gratified to see your fact sheet.



This section continues in the Subscriber's Area. Back to top
November 10 2020

Commentary by Eoin Treacy

Video commentary for November 10th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: bonds yield continue to back up, globally. stock markets generally steady, commodities moving to outperformance, loss making new listings falling, purchasing power of currencies to be threatened by additional monetary support measures.  



This section continues in the Subscriber's Area. Back to top
November 10 2020

Commentary by Eoin Treacy

Email of the day on recovery candidates versus stay at home champions

Thank you for bringing Rolls Royce to our attention recently. Thanks to you I was able to open a position which looks excellent now. Do you think the volatility in the share will continue for much longer? And what are your views about this share now? Thanks again very much.  

Eoin Treacy's view -

Thank you for your kind words and congratulations on taking opportunities in the market. The big question at present is about the trajectory or interest rates and bond yields. It will shape where risk appetite focuses. Investors will either favour recovery candidates on the basis that survivors will have more market share to expand into or they will continue to favour high growth/high leverage plays as they continue to disrupt incumbents.



This section continues in the Subscriber's Area. Back to top
November 10 2020

Commentary by Eoin Treacy

Fed Rate-Hike Risk Rebounds on Vaccine Buzz

This article by Stephen Spratt and James Hirai for Bloomberg may be of interest to subscribers. Here it is in full:

Traders are building the risk of Federal Reserve hikes back into interest-rate markets following news of
the most encouraging scientific advancement so far toward a coronavirus vaccine.

The sudden improvement in the economic outlook prompted a fresh burst of trade in Eurodollar futures, which are hugely popular as a low-cost way to play the Fed outlook. As daily volumes of contracts surged to the most since March, prices tumbled sharply, reflecting a flurry of bets on higher interest rates.

As front-end rates jolted higher, overnight index swap markets -- a proxy for the Fed’s policy rate -- show pricing for a quarter-point hike around the fourth quarter of 2023, and a second by the end of 2024.

ECB Easing
Rate hikes by the European Central Bank are not on the horizon yet, though investors trimmed bets on further easing and exited haven trades following the vaccine report. Money markets pared the odds of easing by almost half by the end of next year, betting on a 6 basis point rate cut, compared with 11 basis points at the end of last week.

BOE Bets
Similarly, Bank of England easing bets have been slashed, banishing the prospect of negative interest rates. Investors, who had bet on a 10 basis-point cut by August and sub-zero rates by the end of 2021, no longer expect the BOE to cut rates to 0%. Instead, wagers are for 7 basis points of easing by the end of next year.

Eoin Treacy's view -

There is a great deal of commonality in the government bonds markets at present. That is usually a sign that what is going on in the market is not isolated to a single market but is global in nature.

The total quantity of negative yielding bonds is a handy barometer for how much demand for debt is evident. It hit a new high last week and has pulled back this week. Downside follow through next week would confirm a failed upside break and greatly increase scope for at least a reversion towards the mean.



This section continues in the Subscriber's Area. Back to top
November 10 2020

Commentary by Eoin Treacy

Sustained high palladium price favours substitution

This report from Heraeus may be of interest to subscribers. Here is a section:

Substitution of palladium with platinum in three-way autocatalysts will help to offset platinum’s decline in time, but near-term upside is limited. A modest level of substitution is expected in gasoline autocatalysts from 2021, initially in the US where vehicles are generally larger with lower temperature engines. In China and Europe, car manufacturers have prioritised meeting increasingly tight emissions legislation, so will be behind on changing catalyst formulations compared to the US.

However, a sustained palladium price above that of platinum could be tipping the balance in favour of increased substitution, which is necessary to bring both the platinum and palladium markets closer to balance. Palladium has traded at an average of $2,187/oz this year, despite being in the midst of a pandemic and a global recession, with significant contractions to demand. The palladium market deficit is forecast to shrink to around 340 koz this year (as demand was impacted more than supply by Covid-19), and again in 2021 due to work-in-progress stock but is expected to expand significantly thereafter as light-vehicle production recovers.

Eoin Treacy's view -

Both platinum and palladium are industrial metals with precious metal attributes. They have both been used for catalytic converters and it usually takes a very large move to initiate the retooling necessary to switch from one to the other.



This section continues in the Subscriber's Area. Back to top
November 09 2020

Commentary by Eoin Treacy

November 09 2020

Commentary by Eoin Treacy

Pfizer Soars After Vaccine Prevents 90% of Covid Cases in Study

This article by Robert Langreth, Naomi Kresge and Riley Griffin for Bloomberg may be of interest to subscribers. Here is a section:
 

However, the strong reading from the first large-scale trial to post efficacy results bodes well for other experimental vaccines, in particular one being developed by Moderna Inc. that uses similar technology. Its big trial could generate efficacy and safety results in weeks. If that study succeeds as well, there could be two vaccines available in the U.S. by around year-end.

Pfizer expects to get two months of safety follow-up data, a key metric required by U.S. regulators before an emergency authorization is granted, in the third week in November. If those findings raise no problems, Pfizer could apply for an authorization in the U.S. this month. A rolling review is in process in Europe.

So far, the trial’s data monitoring committee has identified no serious safety concerns, Pfizer and BioNTech said.

Leading the Race
The positive preliminary data mean the U.S. pharma giant and its German partner are on track to be first with a vaccine, after signing advance deals with governments worldwide for hundreds of thousands of doses. The companies have said they should be able to produce 1.3 billion doses -- enough to vaccinate 650 million people -- by the end of 2021. About 50 million doses are expected to be available in 2020.

“It shows that Covid-19 can be controlled,” BioNTech Chief Executive Officer Ugur Sahin said in an interview. “At the end of the day, it’s really a victory of science.”

Eoin Treacy's view -

This news is the foundation of the argument for removing social distancing guidelines by the end of the second quarter at the latest.

It no longer matters whether one agrees with wearing a mask, practising social distancing, vacating offices, opening or closing schools or the potential for overloading the healthcare system. The question of whether this was necessary or not is now irrelevant. The introduction of vaccines will render the argument mute.



This section continues in the Subscriber's Area. Back to top
November 09 2020

Commentary by Eoin Treacy

Welcome back America!

Thanks to a subscriber for this article by James Breiding. Here is a section:

Resolution requires concerted and consistent effort over a long period of time. It took 25 years to reform Finland’s primary education system before it topped the league in PISA scores. Singapore achieves superior health care outcomes at 25% of the cost of the US and 40% of Europe thanks to a system which gives consumers “skin in the game”.  It’s now thirty years in the making. Denmark’s commitment to wind power dates back to the 1970’s when the benefits were egregiously uneconomic. More than half of its energy is now from renewable sources. Ontario Teachers’ Pension Plan has evolved over thirty years since Lamoureux convinced Canada’s labor unions that the fund needs to attract and pay the best people from Goldman Sachs and Blackrock to work for them, rather than paying them fees.  Ontario Teachers’ has had an annualized total-return of 10% since reforms were made in 1990, and retirees’ pensions are fully funded with 100% inflation protection provided on all pensions.

It may be far-fetched to think that small, successful, experimental nations can fill this vacuum of leadership, but the world is begging for consistent leadership and a positive example, so an opportunity presents itself to step up.  

Eoin Treacy's view -

There is a good reason small countries tend to succeed in niche areas, and are often more successful than larger countries on specific metrics. They have to. Israel, South Korea or Switzerland have spent lifetimes grappling with the uncertainty of geopolitics. They understand the reality that if they don’t succeed on their own no one is going to help them.

Ireland is small rainy island on the tip of Europe, without a commitment to education and active courting of FDI, coupled with low corporate taxes and light regulation it would be a very dreary place indeed.



This section continues in the Subscriber's Area. Back to top
November 09 2020

Commentary by Eoin Treacy

Video Game Prices Are Going Up for the First Time in 15 Years

This article by Olga Kharif and Takashi Mochizuki for Bloomberg may be of interest to subscribers. Here is a section:

Sony executives have been deliberating over a price increase for some time, said people familiar with the discussions. A spokeswoman for Sony said the company is selling titles at launch for as little as $50 and the “biggest games" for $70. She said the higher price is “reflective of the growing development resources needed for these ambitious games.”

Game companies argue prices haven’t kept pace with the cost of other media like a movie ticket, Netflix or cable television, said Yoshio Osaki, the head of IDG Consulting Inc., which works with most major publishers. Since 2005, the cost to develop a game has tripled or quadrupled, he said.

“Not all publishers will launch next-gen games at $70,” Osaki wrote in an email. “However, we do anticipate that a growing percentage of games will launch at $70, but not all at once and not uniformly across every publisher or every game franchise.”

Capcom Co., the Japanese publisher of Resident Evil and Street Fighter, won’t release software for the new systems until next year. But like other companies, Capcom said it’s taking a “title-by-title” approach. “We believe game software’s price should be determined by how much money consumers are willing to pay for the quality, not by how much money we spend to make that game,” said Kenkichi Nomura, the chief financial officer.

Eoin Treacy's view -

This discussion of what the cost of computer game should be is missing a significant evolution of the market which has been going on for the last decade. Freemium is the biggest trend in the market where players have access to the game for free and pay of add-ons to speed up their progress or enhance the look of their online profile. 



This section continues in the Subscriber's Area. Back to top
November 06 2020

Commentary by Eoin Treacy

November 06 2020

Commentary by Eoin Treacy

Bonds are the sentinels in the sequence of recovery

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

Phase 2: things have to get worse before they get better, and this means there are aggressive policies to come (more so if Biden wins). This bodes well for a recovery that should further support a rotation towards cyclical themes as we enter 2021. This should favour equities, which could have more upside potential vs HY credit, which could be less appealing on a risk/return basis at current valuations. A rotation from super-high-growth stocks into more cyclical and quality value areas will likely materialise. Commodity-related trades could also benefit from this cyclical rebound. The availability of a vaccine would be part of this recovery: markets are pricing in availability in mid-2021 and then an economic reacceleration. Any delay could generate volatility, putting the virus cycle once again at the top of market concerns. Investors should look at opportunities from rotation, while also being mindful of possibly higher volatility. Bonds will be the key sentinels for the next phase. The market will likely start pricing in higher inflation and reflation, leading to the next sequence.

Phase 3: from improving to sustained growth. The next part of the sequence embeds a new round of policy mix and a slow exit from the extreme accommodation seen so far. The measures introduced to fight the pandemic will be very difficult to withdraw, and governments and CBs will probably have to do more. Fiscal and monetary policies will be even more intertwined, making the possibility of further debt monetisation to finance the recovery a likely scenario. Some EM with weak CB credibility could see inflation rise faster amid their recoveries which could trigger higher commodity prices. This might overheat the economy, ultimately leading to some inflation. This could de-anchor the system, which is based on the assumption of low rates forever, and real rates could become more volatile. This phase will be challenging for risk assets and could favour further rotation into equity value, commodities and real assets.

Eoin Treacy's view -

There is really one question to occupy the minds of investors. What is the Federal Reserve going to do about rising long bond yields? All other investment themes flow from the answer to that question.



This section continues in the Subscriber's Area. Back to top
November 06 2020

Commentary by Eoin Treacy

Japan's Nikkei Hit 29-Year High as Buyers Look Past U.S. Vote

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

 

Despite the American election turmoil, both of Japan’s major stock gauges posted their best weekly gains since May. “Since 1980s, if you look at U.S. Presidential election and stocks, you see that stocks will price in any risks before the election, like we saw in September and October when technology stocks corrected,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “Once the election is over, there’s a trend for equities to rise with expectations for the next administration.”

Fujito sees a chance for the Nikkei 225 to reach 25,000, as central banks globally eye additional easing measures to stimulate economies. The Federal Reserve left its rates in hold Thursday but opened the door to a possible shift in its bond purchases in coming months, saying that more fiscal and monetary support are needed amid rising Covid-19 infections.

Eoin Treacy's view -

The Nikkei-225 hit a new closing high today and was up in a dynamic manner over the balance of the week. It may be in the process of completing an almost three-year range. The move was led by the market’s big industrials like Nippon Steel and Kobe Steel. The market is betting on infrastructure-led global reflation.



This section continues in the Subscriber's Area. Back to top
November 06 2020

Commentary by Eoin Treacy

Xi Eyes Sub-5% Growth Rate in New Vision for Chinese Economy

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

“It is extremely difficult to project growth 15 years out and, although we view growth of 5%-6% over 2021-2025 as likely, growth above 5% over 2026-2035 appears quite challenging,” Nomura Holdings Inc. economists, led by Ting Lu, wrote in a note.

To overcome some of those challenges, the Communist Party is promising to build the nation into a technological powerhouse and focus on quality growth over speed. Key to that objective is developing a robust domestic market and becoming self-reliant in technology -- especially in chips, the building blocks for innovations from artificial intelligence to fifth-generation networking and autonomous vehicles.

Eoin Treacy's view -

The greater the size of the economy, more difficult it is to grow quickly. That is why standards of governance are so important. If graft and political ideology gets in the way of innovation and the pass-through effect to a greater wealth effect the headwinds to growth only growth stronger. China has demonstrated repeatedly that subservience to the party comes ahead of every other factor. That was particularly clear this week with the smack down of ANT Financial’s IPO.



This section continues in the Subscriber's Area. Back to top
November 05 2020

Commentary by Eoin Treacy

Video commentary for November 5th 2020

November 05 2020

Commentary by Eoin Treacy

Gold Surges on Dollar, Stimulus Hopes With Election Outcome Near

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

Strong performances across most commodities with stocks sharply higher and the dollar lower is “in the realization that the combination of a Biden win and senate majority by the Republicans may remove a great deal of policy uncertainty,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in a note.

Eoin Treacy's view -

The big question for many individuals at present is how do we insulate ourselves from the trend of massive and continued monetary and fiscal stimulus? The purchasing power of fiat currencies continues to fall and that is helping to inflate the prices of all assets. The answer is increasingly to lock down ownership of physical assets in limited supply now, before the price goes up any further.



This section continues in the Subscriber's Area. Back to top
November 05 2020

Commentary by Eoin Treacy

Brazilian Real's Outperformance Demonstrates Trader Pragmatism

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

The Brazilian real’s outperformance hints at investors’ pragmatic stance toward the currency, which may have further room to appreciate despite potential diplomatic frictions with a Biden White House.

BRL rose 3.2% over the last two sessions, by far the best performance among all major currencies. That may sound strange given Joe Biden’s comments on potential sanctions on the country due to deforestation and Brazilian President Jair Bolsonaro’s clear alliance with Trump, but traders are working with the information they have at hand now instead of making assumptions about what will happen in the future.

A Biden presidency improves chances of stimulus in the near future even with a GOP-controlled Senate. That has prompted bets that the dollar is prone to weaken and the currency that seems to have most room for a quick swing is the Brazilian real. The currency is the most depreciated major currency in the world this year, even after this week’s gains. Brazil faces fiscal pressure with debt-to-GDP ratio expected to rise beyond 100% this year, but the fundamental issues are local and not external. With more dollars available, the temptation to bet on the recovery of a country that has shown robust activity data is just too high.

Investors will keep a close eye on Brazil’s budget challenges and the government’s maneuvers to finance itself. Concern about Brazil’s relationship with U.S. under a potential Biden government may grow in relevance, but only in the middle of next year.

Eoin Treacy's view -

The determination of governments everywhere to spur reflation in 2021 is probably a more significant factor than geopolitics for most commodity producers. Australia’s brewing dispute with China is an obvious counter example, but even then, China still needs what Australia exports. Global infrastructure development is likely to play a vital role in the plans of most countries to boost employment and stimulate growth. That’s a major commodity demand growth trend which is taking place against a background of meagre investments in additional supply.  



This section continues in the Subscriber's Area. Back to top
November 05 2020

Commentary by Eoin Treacy

BOE-Sunak Double Act Attempts to Boost Ailing U.K. Economy

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

The measures aim to counter the impact of a resurgent pandemic that has forced the government to order pubs, restaurants and non-essential shops to shut. With the outlook already clouded by the U.K.’s looming exit from the European Union’s single market -- potentially with no trade deal -- the nation risks a painful spike in joblessness.

Sunak told Parliament that the double injection of stimulus shows “all economic and monetary institutions are playing their part.” Governor Andrew Bailey said in a press conference that it is “important that we take prompt, strong and coordinated action.”

Spending on job support from November to March, along with an increase in help for self-employed workers, could cost around 25 billion pounds, Bloomberg Economics estimates.

Eoin Treacy's view -

If the government mandates a lockdown then some remedial action is necessary to blunt the economic hit to consumers and businesses. If the lockdowns and social media are abandoned then everything possible to reflate the economy will need to be done. Therefore, whichever way we look at it, the outlook is for more stimulus. The primary catalyst provided by the pandemic is to promote coordination between the monetary and fiscal authorities. It has ushered in modern monetary theory. 



This section continues in the Subscriber's Area. Back to top
November 04 2020

Commentary by Eoin Treacy

November 04 2020

Commentary by Eoin Treacy

Infrastructure Stocks Tumble, Seen as 'Key Casualty' of Election

This article by Esha Dey and Brendan Case for Bloomberg may be of interest to subscribers. Here is a section:

“While Republicans have also spoken supportively about infrastructure, funding remains a key issue,” he said in the report. “Particularly if Democrats take the presidency, we would expect a Republican Senate to recover its conservative fiscal focus.”

With no “blue wave” sweeping Democrats to unified control of Congress, the outlook for a big boost in infrastructure is fading, Jefferies analyst Philip Ngsaid in a separate report. That’s true whether President Donald Trump retains the White House or Democratic challenger Joe Biden ekes out a victory, with millions of ballots still to be counted in five key states.

Vulcan Materials, a supplier of building aggregates such as sand and gravel, dropped 6.9% to $139.84 at 11:37 a.m. in New York. Rival Martin Marietta slid 5.7% to $260.42. United Rentals, which provides construction and industrial equipment, declined 6.1% to $189.08. At their lowest for the session, all there were down the most intraday since March.

Eoin Treacy's view -

The polls were wrong…again. The media apparatus is not trusted by at least half of the population. The shy Republican is a very real phenomenon. Successive failures to come close to predicting the size of the unpopular party’s support should cause some introspection for the media organisations. It probably won’t because the media is more polarised than the politicians.



This section continues in the Subscriber's Area. Back to top
November 04 2020

Commentary by Eoin Treacy

Renewable Energy Falls as U.S. Green Ambitions Dim

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

With votes still being counted in key battleground states, it’s unclear if the the U.S. will more aggressively shift toward green energy, as Democratic candidate Joe Biden has pledged -- or if President Donald Trump will get four more years to promote fossil fuels.

While investors may be spooked by the uncertainty, its unlikely a second Trump term will significantly thwart the growth of wind and solar power. Demand for clean power has increased throughout the Republican’s presidency, thanks to state-level policies, corporations pushing to go green and a growing appetite for environmental, social and governance, or ESG, investments.

Eoin Treacy's view -

With a Republican controlled Senate a green new deal is unlikely to be approved. However, that has not stopped the sector from prospering for more than a year. The determination of both Europe and China to pursue anything that can enhance potential for energy independence and fewer emissions will be unaffected by the US Presidential election.



This section continues in the Subscriber's Area. Back to top
November 04 2020

Commentary by Eoin Treacy

Biogen Shares Surge After FDA Publishes Alzheimer's Documents

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

The Cambridge, Massachusetts-based company presented data from two trials at a conference in December. One trial showed the drug may slow the progression of the disease, while the other found no effect. Researchers questioned the positive results because not all participants completed the trial before it was stopped.

Aducanumab targets amyloid plaque that builds up in the brains of Alzheimer’s patients. Brain scans showed the drug removed the plaque, but whether that had any benefit is unclear. While the plaque is found in the brains of Alzheimer’s patients, scientists don’t know what role it plays in the disease.

More than 40% of patients who took high doses of aducanumab developed brain swelling or hemorrhages. Most didn’t develop symptoms but the side effects were seen on brain scans.

Eoin Treacy's view -

The number of people with Alzheimer’s is likely to trend higher over the coming decade as the large number of baby boomers progress in age. There has never been an effective treatment for the ailment. That pretty much means that every patient will be prescribed the drug when it is approved on the basis that something is better than nothing. It is very rare to see a product meet the hurdle of a large unmet need and expanding potential market.



This section continues in the Subscriber's Area. Back to top
November 03 2020

Commentary by Eoin Treacy

Video commentary for November 3rd 2020

November 03 2020

Commentary by Eoin Treacy

Correction Here. Now What?

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

Eoin Treacy's view -

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

Manufacturing activity figures have rebounded impressively over the last month on a global basis. That’s reflective of the snapback in activity following the contraction in the 2nd quarter and will probably moderate over coming months. Nonetheless, it is supportive of the view that this will be have been a short sharp recession.



This section continues in the Subscriber's Area. Back to top
November 03 2020

Commentary by Eoin Treacy

China Tells Ant It Must Meet New Capital Requirements Before IPO

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

Ant will have to make changes that include capital increases at its lucrative micro-lending units, people familiar with the matter said. Ant must also reapply for licenses for the units to operate nationwide, the people added, asking not to be identified discussing a private matter.

It’s unclear how extensively Ant will have to overhaul its business to meet all of China’s new regulations, which took effect on Nov. 1 and were designed to rein in systemic risks posed by companies that straddle at least two financial business lines. Representatives for Ant and China’s securities regulator couldn’t immediately comment on the issue after business hours.

The Shanghai Stock Exchange cited a “significant change” in the regulatory environment when it unexpectedly put a stop to Ant’s $35 billion share sale on Tuesday, upending what would have been the biggest market debut in world history. The move came just two days before Ant was due to start trading and a day after Jack Ma, the company’s billionaire founder, was summoned to a rare joint meeting with the country’s central bank and three other top financial regulators.

Eoin Treacy's view -

ANT Financial ignored banking regulations to grow its business at an exponential rate. The government was willing to look the other way for a long time which created the illusion they were willing to allow the company to continue to flourish as an innovation within the broader technology sector. That impression was dispelled today.



This section continues in the Subscriber's Area. Back to top
November 03 2020

Commentary by Eoin Treacy

How Discord (somewhat accidentally) invented the future of the internet

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

One user, who goes by Vind on Discord, was among Discord's earliest cohort of users. He and his Battlefield 4-playing friends ditched TeamSpeak for the app, right as they were also starting to do more than just talk about Battlefield. "We were moving away from being purely about the game to being more about a general community." Discord let them set up different channels for different conversations, keep some order in the chaos, and jump in and out as they wanted. But Vind said one feature particularly stood out: "Being able to just jump on an empty voice chat, basically telling people, 'Hey, I'm here, do you want to join and talk?'"

Almost everyone I talked to picked that same example to explain why Discord just feels different from other apps. Voice chatting in Discord isn't like setting up a call, it doesn't involve dialing or sharing a link and password or anything at all formal. Every channel has a dedicated space for voice chat, and anyone who drops in is immediately connected and talking. The better metaphor than calling is walking into a room and plopping down on the sofa: You're simply saying, I'm here, what's up?

Eoin Treacy's view -

The evolution of chatrooms for gamers into a real-world phenomenon for business is not going to occur without some bumps on the road. However, the quality of calls and ease of use is so much better than Zoom or RingCentral that it is hard to imagine these companies will hold onto their dominant market positions indefinitely.



This section continues in the Subscriber's Area. Back to top
November 02 2020

Commentary by Eoin Treacy

Video commentary for November 2nd 2020

November 02 2020

Commentary by Eoin Treacy

ICICI Bank Posts Record Profit on Expected Dip in Bad Loans

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

The bank, which raised 150 billion rupees in August to bolster its capital ratios, set aside 29.95 billion rupees, nearly a third of 75.94 billion rupees of provisions in the previous quarter. ICICI Bank had pegged it at 25.07 billion rupees a year earlier. The gross bad loan ratio was also lower at 5.17%, compared with 5.46% at the end of June. Net interest income rose 16% from a year ago.

The lender did not make any additional provisioning for Covid-19 induced bad loans as it had “frontloaded” them in June quarter, said Sandeep Batra, President of ICICI Bank, adding that he expected a “more normalized” financial year starting April 1. Lower tax payout in the second quarter from a year earlier also helped the bottom line.

“We are focused on risk calibrated growth,” Batra said adding that the bank saw its highest ever home loan disbursements in September. “Covid related impact won’t be there next year as economic activity is coming back.”

Eoin Treacy's view -

If banks are making money it is because of demand for credit and a positive carry. If we look around the world, the only places where there is organic growth in the banking sector is in the emerging markets where demographics and a steep yield curve support their business model.



This section continues in the Subscriber's Area. Back to top
November 02 2020

Commentary by Eoin Treacy

BOE to Counter Double-Dip Contraction Risk With Fresh Stimulus

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

The Bank of England looks certain to fire another burst of monetary stimulus this week as new coronavirus lockdowns leave the economy facing a third quarter of decline in 2020.

Any doubt that Governor Andrew Bailey and his colleagues might delay boosting their bond-buying program when they meet this week was effectively erased with Prime Minister Boris Johnson’s announcement of a month long closure of non-essential shops and hospitality venues in England.

That’s changed the outlook for the last three months of the year, forcing several economists to revise their forecasts. Output fell in the first half before starting to recover, though the BOE estimates it was still about 10% below its 2019 level at the end of the third quarter.

In a survey last week, analysts predicted the BOE will increase quantitative easing by 100 billion pounds ($129 billion) to 845 billion pounds. That’s almost double the level at the start of the year, and would be the fourth round of monetary easing since the crisis started.

Eoin Treacy's view -

Many European countries have taken the decision to lock down now, so they can open up again at the beginning of December. The hope is that the Christmas shopping season can be saved. What is receiving less commentary is the cost of these measures.



This section continues in the Subscriber's Area. Back to top
November 02 2020

Commentary by Eoin Treacy

The aftermath: The world after Covid-19

This report by Kim Catechis for Martin Currie may be of interest to subscribers. Here is a section:

The ‘accelerator effect’ of COVID-19 will prove particularly damaging in the area of mental health. The relatively rapid rate of urbanisation across the globe has often been cited as one of the drivers of certain types of mental health conditions. Even in normal times, for young people leaving families in rural areas and moving to impersonal cities for further education or work can be very stressful, exacerbated by the more negative effects of social media.

After the experience of COVID-19, pre-existing conditions may be exacerbated. Loneliness, anxiety and depression during periods of enforced limitation of movement, despair at treatments for chronic physical conditions being postponed, post-traumatic stress disorder (and not only for front line medical professionals) will likely take time to manifest themselves completely, but the social and economic cost will grow unhalted for some time.

For many, the sustained stress of uncertainty over job security and the consequent lack of cash flows, health security and insufficient savings may become triggers for hitherto controlled mental health conditions.

Pre-existing conditions are expected to accelerate and intensify and conditions such as anger management or addictions such as alcoholism clearly make the sufferer a danger to other household members, perhaps ending efforts to control and assuage them.

Unfortunately, the nature of these illnesses is often tough to diagnose in normal times, so there may well be an increase of cases over a long period of time, adding strain on the capacity of the relevant health systems.

Eoin Treacy's view -

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

Mental health is going to become a centre of focus for the health care sector for a number of reasons. The first is that our society has progressed enough that emotional pain is being placed on equal terms with physical pain in terms of social recognition. Schools are an integral part of that process. For example, last year when my eldest daughter was preparting for high school entry exams, her homeroom teacher made the none too subtle point that children with a mental health diagnosis are offered more time in exams. Talking about mental illness will be enhanced as we come out of the social distancing phase. Stress and mental anguish have been major factors in the lockdowns with many people exhibiting symptoms of PTSD. That’s only likely to be exacerbated by the onset of winter.



This section continues in the Subscriber's Area. Back to top
November 02 2020

Commentary by Eoin Treacy

Stocks Gain as Volatility Eases Ahead of Election

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

The main event this week will be Tuesday’s U.S. election, with Democratic nominee Joe Biden leading President Donald Trump in polls. Virus developments are also front and center, with daily cases continuing to surge in many parts of the world.

“Going into an election, there’s always, always jitters, there’s volatility,” said Quincy Krosby, chief market strategist at Prudential Financial. “But we have the question mark regarding the surge of the coronavirus. And the question is, how much does it jeopardize the recovery?”

Eoin Treacy's view -

My neighbourhood is boarding up ahead of the election because businesses expect violent protests regardless of the election outcome. Supermarket shelves were also bare yesterday amid renewed stockpiling. 



This section continues in the Subscriber's Area. Back to top
October 30 2020

Commentary by Eoin Treacy

October 30 2020

Commentary by Eoin Treacy

China's Fifth Plenum: Reading the Initial Tea Leaves

This article from the Center for Strategic & International Studies may be of interest to subscribers. Here is a section:

As expected, the plenum declared that China had met the critical political goal of becoming a “moderately prosperous society” in 2020. By the end of the year, China’s GDP is expected to reach nearly 100 trillion yuan (RMB)—equivalent to $14.3 trillion—a figure higher than the plan’s forecast of RMB 92.7 trillion, which makes China’s economy in nominal terms about 66.7 percent the size of that of the United States in 2019 ($21.4 trillion), up from 40.6 percent the size of the United States in 2010. China reportedly lifted 55.75 million people out of poverty and created 60 million jobs in urban areas over the past half-decade. By the end of 2020, there will be basic medical insurance coverage for 1.3 billion and basic pension support for nearly 1 billion citizens.

Looking ahead, the plenum emphasized that the 14th Five-Year Plan will build on the 13th Five-Year Plan’s principles of innovation, regional coordination, green development, international openness, and social equity. That said, there was a distinct emphasis on strengthening the domestic economy. There was no mention of a growth rate target; instead, the country will focus on improving quality and raising productivity. The plan will highlight China’s need to gain technological independence; become a powerhouse in manufacturing, cyber, and the digital economy; and raise China’s international competitiveness. At the same time, China will need to expand domestic consumption as a share of the economy, which will be dependent on raising wages, building a more complete social safety net, and expanding economic opportunities in rural China.

Eoin Treacy's view -

The middle-income trap has been escaped by only a handful of countries. South Korea, Singapore and Taiwan spring to mind. They have mustered the wherewithal to evolve their governance structure to become more efficient and successfully transitioned to high-end manufacturing and services. Relatively small populations relative to the scale of their exports has been a significant aid in achieving those goals.



This section continues in the Subscriber's Area. Back to top
October 30 2020

Commentary by Eoin Treacy

Gold Demand Trends Q3 2020

This report from the World Gold Council may be of interest to subscribers. Here is a section:

Although jewellery demand improved from the Q2 record low, the combination of continued social restrictions, economic slowdown and a strong gold price proved onerous for many jewellery buyers: demand of 333t was 29% below an already relatively anaemic Q3 2019.

By contrast, bar and coin demand strengthened, gaining 49% y-o-y to 222.1t. Much of the growth was in official coins, due to continued strong safe-haven demand in Western markets and Turkey, where coins are the more prevalent form of gold investment. Q3 also saw continued inflows into gold-backed ETFs, although at a slower pace than in the first half. Investors globally added 272.5t to their holdings of these products, taking y-t-d flows to a record 1,003.3t.

Central banks generated small net sales of gold in Q3, the first quarter of net sales since Q4 2010. Sales were generated primarily by just two central banks – Uzbekistan and Turkey – while a handful of banks continued steady albeit small purchases.

Eoin Treacy's view -

Many investors have been questioning why gold has not done better over the last few months and with good reason. Afterall, there has been no shortage of items to worry about and the trajectory of government debt is unlikely to improve anytime soon. We are on the cusp of competitive currency devaluation inside in the G-7 and yet gold has been soft.



This section continues in the Subscriber's Area. Back to top
October 30 2020

Commentary by Eoin Treacy

'People Are Going To Be Shocked: Return of the 'Shy' Trump Voter?

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

Last question: The election ends on Tuesday. National polling has consistently shown a substantial lead for Biden. What is your message to people who think that this thing is done?

Cahaly: I don’t think it’s done. Some of these national polls are not even taking into consideration the fact that Republicans have closed the gap with voter registrations. I don’t think they’re taking into account the number of low-propensity voters who are voting and who will vote on Election Day. I don’t think they’re measuring people’s genuine opinions. And I think [pollsters] are just not going to see it coming.

There’s a lot of hidden Trump votes out there. Will Biden win the popular vote? Probably. I’m not even debating that. But I think Trump is likely to have an Electoral College victory.

Kapteyn: I will be really surprised, given our own numbers, if there isn’t a very sizable gap between Biden and Trump in the popular vote—in favor of Biden. But in the states? I don’t know.

Cahaly: I like your skepticism.

Eoin Treacy's view -

There are going to be millions of people who vote for the first time in this election. That’s not just about Gen Z but it is also because people have more time. There are millions of people out of work and it’s an excuse to get out of the house or to spend half an hour filling in a form before mailing it. Turnout is likely to be the highest in decades. California alone could ensure Joe Biden wins a popular vote majority of 3 or 4 percent. Yet, the electoral college is likely to be a lot closer.



This section continues in the Subscriber's Area. Back to top
October 30 2020

Commentary by Eoin Treacy

Covid Spreading Faster Than U.K. Scientists' Worst-Case Scenario

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

“In England, we are breaching the number of infections and hospital admissions in the Reasonable Worst Case planning scenario” for the winter, the Oct. 14 conclusions of the panel’s sub-group that deals with modeling the pandemic said in one of the papers.

“The number of daily deaths is now in line with the levels in the Reasonable Worst Case and is almost certain to exceed this within the next two weeks.”

And

Johnson has introduced a three-tier approach where regions with the highest infection rates face tougher social-distancing rules, including a ban on household mixing and closing pubs that don’t sell substantial meals. Officials are considering an extra tier that would force restaurants and non-essential shops to close, newspapers including the Guardian reported on Friday.

Nottinghamshire was the latest area to enter the highest tier on Friday, while West Yorkshire will move to the same alert level from Monday. That will take the total number of people in England under the toughest restrictions to just over 11 million, or 19.6% of the population, according to the Press Association.

There was some good news for the government on Friday: the so-called R rate, reflecting the number of people each positive coronavirus case infects, declined to an estimated 1.1 to 1.3 from 1.2 to 1.4 a week earlier. But any number above 1 still indicates the virus is spreading exponentially.
 

Eoin Treacy's view -

If the number of deaths is trending higher, as certainly appears to be the case, then it is reasonable to conclude we are seeing a second wave. The case load appears to be rising quicker than the increased number of tests allows for. That is putting upward pressure on the number of hospitalisations and deaths. Governments are not about to back away from their playbooks so remedial action in the form of additional lockdowns is almost certain. We are seeing that in Europe now.       

This interview of Mike Yeadon makes the point that 2nd waves don't occur and that the massive movement of people after World War I contributed to the impression that pandemic had a 2nd wave. Perhaps the lockdowns did in fact slow the spread and therefore just prolong the inevitable herd immunity. The list of measures taken to date suggest economies will conitnue to be sacrifieced until a vaccine is approved, regardless of any other argument. To admit fault would be political suicide. 



This section continues in the Subscriber's Area. Back to top
October 29 2020

Commentary by Eoin Treacy

October 29 2020

Commentary by Eoin Treacy

Biden and beyond: many a micro makes a macro

Thanks to Iain Little for this edition of his report. Here is a section on technology

In a zero-interest rate, depression-filled world, growth should be highly valued. Our technology adviser Charles Elliott, whose tech fund is up +45% in 2020, defines a growth stock as one with top line revenue growth exceeding +15% in a zero-interest rate world.

People will continue to “overpay” for +15% growth because – assuming it leads to +20/25% earnings growth – it vaporises a 40x Price Earnings Ratio (PER) down to low double digits in under 5 years. So, the real question for an investor is not “is the company’s PER too high to buy it?” but rather “will the competitive position of this growth company persist for 3-5 years?”

Distributed working, 5G, growing internet diffusion, Internet of Things, augmented reality, electric or hydrogen cell vehicles, ageing populations… these sectors and themes have saved portfolios this year. Such themes are more sustainable change-drivers than either a Biden or a Trump presidency. Since we wrote about the Covid effect of “acceleration” in March, most commentators are running the same tape. “Acceleration” is the watchword.

In our June report we advised against leaving these safer “growth” shores for more cyclical and beaten down “value” sectors like cyclicals, industrials, traditional energy and, the kiss of death, hospitality or airlines. This shift and emphasis won’t last forever.

But it’s got longer to run, at least until central banks achieve their targets of 2% inflation by over-shooting it via a combination of fiscal reflation and Modern Monetary Theory.

Eoin Treacy's view -

The pace of technological innovation is accelerating. It is being driven by big data, much greater availability of computing power via the cloud, and soon 5G. Quantum computing is in its infancy but is progressing at an exponential rate. Artificial intelligence remains on a strong growth footing and benefits from the fact that you only need to teach a computer once. After that it is all copy and paste



This section continues in the Subscriber's Area. Back to top
October 29 2020

Commentary by Eoin Treacy

Email of the day on trading gold

 you (re-) purchased gold at 1879(as well as silver at 23.70 and platinum at the same time) as a trade as opposed to a medium to long-term investment.

(these PMs today finished slightly below your purchase prices).

At the same time, you have been saying that reaching or overshooting the 200dma on the downside which presently is at about 1780 (another 5% correction for gold from where it is today) could well be possible.

Do you intent to "stay put" in Gold and the other PM’s if such a further decline takes place or rather sell rather quickly and try to enter again at what will hopefully be the new low?

Thank you for your comments which will certainly be of interest for the collective as the mid- to long term long potential of PMs is certainly a high conviction long investment theme of yours.

Eoin Treacy's view -

Thank you for this question and I agree it may be of interest to the Collective. As I see it, the essence of the question is about the nature of uncertainty and the shape of reversions towards the mean.



This section continues in the Subscriber's Area. Back to top
October 29 2020

Commentary by Eoin Treacy

Email of the day the on Rolls Royce rights issue

RR shares finished the day at 84.54p whilst the newly issued rights finished at 51p.

When adding back the 10/3 of 51p to the share price of 84.54p, the result is 254p which is a very nice gain from the news of your first purchase at 154.75 p you gave the collective early October (your second purchase being adroitly at 105p). Thank you for advising us!

BUT:

Yesterday you wrote regarding RR  "...The knock-on effect of the rights issue could result in the share falling between 25% and 33% which may be priced into shares over the coming two weeks..."

Three interrelated questions:

1. Do you mean by this that the share price of 84.75 could go down to 57p (-33%) to 64p (-25%) which would be equivalent to the "old share price" coming down from today's 254p to 170p?

2. What would be the reason for this heavy decline - all endogenous factors should already be priced assuming a efficient pricing...

3. If such a decline is probable would it not make more sense to take good profits and then, if the share really comes down or stays where it is, and the turn-around story still seems valid, buy again a lower or more or less unchanged price?

It seems to me that from a risk-adjusted perspective, this would be the better action.

And

Dear Mr. Tracey,
Rolls Royce web site states for shareholder living in USA:
" Due to local regulations the rights issue cannot be offered in your country. We will arrange to try and sell your rights to new ordinary shares for you, and you will be sent the profit (after expenses) if it is £5 or more."
would elaborate on this process for those of us who are not familiar with it.
Many thanks for your great service.

Eoin Treacy's view -

Thank you both for these questions. The share was rebased yesterday and halved as a result of the rights issue. It subsequently rebounded from its lows because many investors were waiting for the uncertainty of the rebasing to pass before initiating long positions. The question now is what happens next.



This section continues in the Subscriber's Area. Back to top
October 29 2020

Commentary by Eoin Treacy

The Great Reset

This edition of Tim Price’s always enjoyable missive may be of interest to subscribers. Here is a section:

Markets were born free but are now everywhere in chains. Cash deposit rates are now derisory, but with added bail-in risk. Bond yields are likely to remain squashed indefinitely, helped by governmental funny money. So, cash and bonds are largely out of the question. The one market too big for even the world’s central banks collectively to kick around is the currency market. So, we would not be surprised to see some kind of reset develop there. Our way of anticipating that reset is to own precious metals and the shares of sensibly priced mining concerns in “safer” jurisdictions. Because we anticipate an ultimately inflationary outcome due to those aforementioned torrents of funny money, we value claims on the real economy in the form of equity ownership of cash-flow generative businesses run by principled, shareholder-friendly management with an excellent track record of capital allocation, especially when such stocks can be bought at a discount to their inherent worth. And because we frankly have no clue how the Great Suppression will necessarily play out, we hold uncorrelated (systematic trend-following) funds that offer the potential to zig when the markets finally and conclusively zag. Our watchword: if in doubt, diversify.

Not the sort of commentary we would prefer to be sending out into the world. But sometimes spades must be identified as such. On a more positive note, some wisdom from the ages: this too shall pass. It just better gets a bloody move on.

Eoin Treacy's view -

The question for investors is whether the ECB announced additional stimulative action to support the economy or arrest the advance of the Euro. The region’s plan for climbing out of the lockdown-induced recession will be founded on exports. A weaker currency would certainly help and the ECB is delivering.



This section continues in the Subscriber's Area. Back to top
October 28 2020

Commentary by Eoin Treacy

Video commentary for October 28th 2020

October 28 2020

Commentary by Eoin Treacy

Risk Off

Eoin Treacy's view -

The vast majority of markets pulled back today and the Dollar strengthened. The tightening on restrictions on movement and economic activity in Europe and the prospect of taxes rising in the advent of a Democrat clean sweep in next week’s election have sapped demand. The failure of the USA’s political parties to agree on additional stimulative measures represents a loss of the liquidity which has helped to support earnings and speculation.



This section continues in the Subscriber's Area. Back to top
October 28 2020

Commentary by Eoin Treacy

Email of the day on Covid and the Trump rallies

It seems to me that the above are going to be seen as super spreading events as we see day after day thousands of his followers in close proximity not wearing masks, blindly following his mantra that the disease is turning the corner. Supporting my argument is we know an important property of the virus is that it survives in the atmosphere much better at lower temperatures thus aiding the infectivity.

Eoin Treacy's view -

Thank you for this email which may be of interest to other subscribers. I found the point you made months ago about the tendency of stressed individuals to be more susceptible to infection to be particularly insightful.



This section continues in the Subscriber's Area. Back to top
October 28 2020

Commentary by Eoin Treacy

GE "Tough to Argue With" Results Win Over Wall Street Critics

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

General Electric shares jumped as much as 10% on Wednesday after the company’s third-quarter results
topped projections, earning the company plaudits from even the most bearish Wall Street analysts.

* Gordon Haskett analyst John Inch (hold) said GE’s EPS beat follows the pattern of mostly all other industrial companies that have beat bottom-line forecasts this earnings season

** Said overall, stronger healthcare and better free cash flow, despite still tough aviation business, “are likely to reinforce the messaging that GE has fundamentally bottomed – although the company will likely continue to face years ahead of difficult climb-back,” while Covid resurgence could arrest aviation fundamentals and future improvement in healthcare business

* JPMorgan analyst Stephen Tusa (neutral) said the across-the-board nature of the beat “is what it is, positive”

** The 4Q guide for free cash flow of over $2.5 billion suggests cash will be well ahead of JPM’s below-consensus expectations, and a “headline like that is tough to argue with”

* RBC analyst Deane Dray (outperform) said GE is still battling through a multiyear turnaround, worsened by the Covid-pandemic, but “there were encouraging signs” in the company’s EPS beat

** As is typical with a GE earnings, there are a number of moving parts involving charges/reserves, the analyst noted

** Said the most notable of those is the $100 million reserve taken for a potential settlement with the SEC for legacy accounting issues; however, since these issues date back to two CEOs ago, Dray expects investors would view it as a positive to see this issue resolved via a settlement

* GE 14 buys, 8 holds, 1 sell; avg PT $8.07: Bloomberg data

* NOTE: Earlier, GE Jumps on Surprise Profit as Culp Sees Faster Turnaround

Eoin Treacy's view -

The global economy is in a state of flux because no one can have an accurate reading what the future patterns of activity will be following the pandemic. The travel/hospitality sector obviously has a place in the economy but at what scale? The stay-at-home champions have seen a step change in demand growth for their products but how sustainable is that growth trajectory? For industrials is the economy going to bounce back on infrastructure development or be mired in political infighting?



This section continues in the Subscriber's Area. Back to top
October 27 2020

Commentary by Eoin Treacy

Video commentary for October 27th 2020

October 27 2020

Commentary by Eoin Treacy

Email of the day - on solar/wind power to generate hydrogen

The Australian government just approved fast tracking the Asian Renewable Energy Hub (asianrehub.com) proposed to be built in the Pilbara. It will generate green hydrogen from water using solar and wind energy that can produce clean ammonia to power ships, generate power and be used as a feed-stock for industrial processes. They say it will be the world's biggest power station at 26,000MW, covering 6500 square kilometers of land. It will start exporting in 2028.

Eoin Treacy's view -

Thank you for this informative email. Among the challenges faced by renewables is the distance of the primary locations wind and solar are available from the primary consumption markets. The only way to bridge that gap is to transport the energy produced to where it is needed. Producing green hydrogen and ammonia is a solution to that challenge and both are valued added commodities with a ready evolving market.



This section continues in the Subscriber's Area. Back to top
October 27 2020

Commentary by Eoin Treacy

JPMorgan Sees Cryptocurrency Commercialization As Bitcoin Rises

This article by Bill Peters for Investors Business Daily may be of interest to subscribers. Here is a section:

JPMorgan Chase's digital currency is in commercial use for the first time, and the bank has built a new business around the technology underpinning the coin. That follows a Bitcoin price surge over this month.

JPM Coin — a cryptocurrency JPMorgan launched last year — "is being used commercially for the first time this week" by a big technology client, which the bank did not identify, CNBC reported on Tuesday. The client is using the cryptocurrency for cross-border payments.

The bank has also created a new segment devoted to cryptocurrencies and blockchain, the record-keeping technology that enables cryptocurrency transactions. That segment is called Onyx.

JPMorgan hopes blockchain could reduce errors and rejections in cross-border payments if banks are able to verify account information was accurate and regulatory compliance, CNBC said. Such payments can slow down as they pass through the global banking system.

Takis Georgakopoulos, JPMorgan's global head of wholesale payments, told CNBC he believes the world is "shifting to a period of commercialization" of blockchain and cryptocurrency.

Eoin Treacy's view -

Banks issuing their own currency was relatively commonplace until the last few decades and the UK still has some vestiges of the practice. The ability of anyone with sufficient skill to create their own cryptocurrency is a testament to how early we are in the digital money cycle. As it matures and governments take a significant interest the range of what is possible is likely to coalesce around government sponsored digital currencies.



This section continues in the Subscriber's Area. Back to top
October 27 2020

Commentary by Eoin Treacy

Rolls-Royce Gets Investor Nod for $2.6 Billion Equity Sale

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

The package is aimed at seeing Rolls-Royce through to 2022, when the company expects to resume sufficient cash generation alongside a gradual recovery in demand for air travel. Chief Executive Officer Warren East has also said the company could sell assets as it repositions for the future.

“We didn’t want to put the business and our shareholders’ interests at risk by gambling on the situation next year so that’s why we chose to go with this package now,” the CEO said at an investor meeting.

Even with funding secured, Rolls-Royce still faces an uphill road to recovery. The twin-aisle planes the company supplies are predicted to take until at least 2025 to recover to pre-pandemic levels and the group has announced plans to cut 9,000 jobs.

Eoin Treacy's view -

The 10 per 3 rights issue is due to close at November 11th and will ensure Rolls Royce has sufficient capital to see it through the next couple of years come what may. It’s a worst-case scenario funding raise and will take place against a background of low interest rates and high liquidity.



This section continues in the Subscriber's Area. Back to top
October 27 2020

Commentary by Eoin Treacy

Coronavirus: Government throwing 'lit match into a haystack' by discharging Covid patients to care homes

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

The government has been warned it is throwing “a lit match into a haystack” by discharging Covid-positive patients to care homes, with politicians demanding that the safety of residents and staff is guaranteed under the new policy.

During the first wave of the pandemic, approximately 25,000 hospital patients were sent to care homes – many of whom were not tested – which helped spread the virus among residents. Around 16,000 care home deaths have been linked to Covid-19 since the start of the crisis.

The strategy was one of the government’s “biggest and most devastating mistakes” of the crisis, says Amnesty International, and questions have been raised over the decision to introduce a similar policy as the UK’s second wave intensifies.

As part of the 2020 adult social care winter plan, the government has called on local authorities and care providers to establish “stand-alone units” – so-called ‘hot homes’ – that would be able to receive and treat Covid hospital patients while they recover from the disease.

There is also an expectation that, due to housing pressures and a shortage of suitable facilities, some patients may be discharged to “zoned accommodation” within a home, before being allowed to return to normal living settings once they test negative for the virus.

Councils have been told to start identifying and notifying the Care Quality Commission of appropriate accommodation, and to ensure high infection prevention standards are met.

Eoin Treacy's view -

Battling the pandemic is as much about public relations as it is about medicine. Everyone knows elderly sick people are by far the most at-risk group. Stuffing elder care homes with people who may still be infectious is a recipe for another public relations disaster.



This section continues in the Subscriber's Area. Back to top
October 26 2020

Commentary by Eoin Treacy

Video commentary for October 26th 2020

October 26 2020

Commentary by Eoin Treacy

What Happens Next

Thanks to Iain Little for this lengthy essay by Chris MacIintosh for Capitalist Exploits. Here is a section:

Without the freedom to say what you think, you have no freedom to think. Sharing of thoughts, opinions, data and seeking out the truth of what it all means is crucial to relationships, happiness and life. Now imagine being afraid to do that.

Everything stops.

This is so very important I can’t stress it enough. If I could, I’d do so standing on a rooftop waving my hands with spittle flying. Please understand this assault taking place across the Western world. Right now there is wealth… because it has been built, but wealth is, and always has, been in human ingenuity, what we refer to as human capital. This is what Marxists don’t understand. They see the big houses and cars… the “stuff” and think that’s wealth. It’s not. But this is what they’ll come after.

It is actually worse than that. They won’t be content simply with theft, anymore than Mao’s red guards were satisfied with destroying the jobs of intellectuals. They instead wanted to see them suffer and to bleed and die. So they beat them to death.

Eoin Treacy's view -

Governance is Everything has been a mantra at this service for decades. The most important thing is that governance is not an absolute. It’s a trend. Standards are either improving or deteriorating and that has a direct knock-on effect for risk premia in any country. The primary tools for monitoring governance are minority shareholder interests, property rights, the rule of law, independence of the judiciary and freedom of the press. Every one of these facets of governance is under threat all the time.



This section continues in the Subscriber's Area. Back to top
October 26 2020

Commentary by Eoin Treacy

Range Bound Market as Margins Rebound; Earnings Driven Breakouts

Thanks to a subscriber for this report from Morgan Stanley by Michael Wilson and colleagues. Here is a section:

Eoin Treacy's view -

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

There have been some notable earnings beats announced over the last week but SAP’s very disappointing results today raised important questions about the sustainability of tech earnings. There is a clear continued divergence between the winners and losers from the pandemic but the outlook for 2021 may be see some reallocation towards a recovery.



This section continues in the Subscriber's Area. Back to top
October 26 2020

Commentary by Eoin Treacy

Jack Ma's Ant Seeks to Raise $35 Billion in Biggest-Ever IPO

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

The company will issue no more than 1.67 billion shares in China, equivalent to 5.5% of the total outstanding before the greenshoe, according to its prospectus on the Shanghai stock exchange. It will issue the same amount for the Hong Kong offering, or about 3.3 billion shares in total.

Alibaba Group Holding Ltd., which was co-founded by Ma and currently owns about a third of Ant, has agreed to subscribe for 730 million of the Shanghai shares, which will be listed in Shanghai under the ticker “688688,” according to the prospectus. Alibaba will hold about 32% of Ant shares after the IPO.

Eoin Treacy's view -

AliPay prospered by offering a higher interest rate than banks which was earned daily. That sensation of seeing one’s balance increasing by the day, even if only by a small amount, drove massive consumer adoption. The reason it was able to circumvent strict banking regulation on how much interest can be paid was because the government was willing to look the other way by not insisting on a banking license.



This section continues in the Subscriber's Area. Back to top
October 23 2020

Commentary by Eoin Treacy

October 23 2020

Commentary by Eoin Treacy

A $13.5 Billion SPAC Sensation Will Buy Your House

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

When the Vision Fund last invested in 2019, it valued Opendoor at just $3.8 billion. This year, Social Capital Hedosophia Holdings Corp II, a SPAC created by former Facebook Inc. executive Chamath Palihapitiya, decided it was worth $4.8 billion (excluding its cash). Since announcing the merger with Opendoor in September, the price of shares in Palihapitiya’s SPAC has more than doubled. This means Opendoor’s enterprise value has risen to about $13.5 billion, even before the transaction is complete.

​A serial SPAC launcher, Palihapitiya thinks Opendoor’s valuation could rise tenfold. “This to me feels like Bitcoin in 2012, Amazon in 2015, Tesla in 2016, Virgin [Galactic] last year,” he said last month. Palihapitiya’s first SPAC took Richard Branson’s space-travel company public in 2019.

Palihapitiya and his investment partner Ian Osborne have put more of their own money — about $169 million — into Opendoor than is customary in a SPAC deal. At the current share price, they’re set to achieve a spectacular four-times return on that invested capital.

It’s hard to see how the company’s fundamentals justify such returns. Opendoor said the SPAC transaction valued it at a 1x multiple of its revenue (the value of the houses it sells, plus any ancillary services). But once you deduct the cost of acquiring and renovating the houses, the company generated just $300 million in gross profit last year — a paltry 6% gross margin. 

Eoin Treacy's view -

Startups have waited a decade to list on the stock market. They didn’t have to. The conventional reason to list is because it is the only large source of funding available for small companies to fuel growth. Equity is an expensive source of capital for companies and private funds were a lot easier to come by since the financial crisis.



This section continues in the Subscriber's Area. Back to top
October 23 2020

Commentary by Eoin Treacy

Email of the day on buying Ethereum

Hello Eoin It seems to be difficult to invest in Ethereum here in Europe/Switzerland. first, there are very few providers and second, the liquidity is miserable. I want to invest appr US $ 200K, can you guide me where to go? 

Eoin Treacy's view -

Thank you for this question. Average daily volume of Ethereum is in order of about $7 billion so I suspect the markets you are looking at are not especially deep. The most expedient method to buy most cryptocurrencies is through a reputable exchange. Coinbase is the largest to the best of my knowledge. 



This section continues in the Subscriber's Area. Back to top
October 23 2020

Commentary by Eoin Treacy

Bailed Out Indian Lender Returns to Profit After Cutting Costs

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

Yes Bank Ltd., which is emerging from India’s biggest financial bailout, returned to profit in the quarter ended September after its tax and operating costs fell.

It reported a net income of 1.3 billion rupees ($17.7 million) in the quarter, compared with a 6 billion rupee-loss a year earlier, the Mumbai-based lender said in a filing Friday. The bank was teetering on the edge of insolvency before being bailed out in March at a cost of $1.3 billion.

Yes Bank’s expenses fell 30%. The bank set aside 19.2 billion rupees as Covid-related provisions, the results showed. Yes Bank’s gross bad loan ratio was 16.9% at the end of September, compared with 17.3% three months earlier.

“The bank has been able to register a very significant improvement in the operating profit side,” Chief Executive Officer Prashant Kumar said at a briefing. “This will continue in the future also and we believe that because of our operating profits, by and large, we will be able to take care of our any credit costs which may happen due to the impact of the Covid.”

Kumar, who was brought in to turn the bank around in March, is facing one of his toughest challenges after India’s economy posted the worst contraction among major economies last quarter. Kumar has made restoring the faith of the bank’s depositors a priority and is planning to nearly double deposits to 2 trillion rupees by March 2021.

Eoin Treacy's view -

The burden from India’s non-performing loans have fallen most heavily on the private sector banks. That has necessitated a significant deleveraging cycle for the sector with a number of previously high-profile companies falling significantly.



This section continues in the Subscriber's Area. Back to top
October 23 2020

Commentary by Eoin Treacy

Expectations and the Role of Intangible Investments

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

The primary task of an investor is to anticipate revisions in expectations. This requires an understanding of price-implied expectations and having a sound thesis for why the market will revise those expectations. The primary purpose of financial accounting is to provide a company’s external parties, including current and prospective shareholders and creditors, with the information they need to make informed economic decisions.

Earnings are deemed to be “the single most important output of financial reporting.”42 It used to be that earnings were on the income statement and investments were recorded mostly on the balance sheet. The rise of intangible investments means that the bottom line is now a mix of earnings and investment. The goal of this report is to allow an investor to untangle these pieces and assess them properly.

Earnings are less relevant for value today than in the past. This is because of the rise of intangibles and the increase in non-recurring, or ancillary, items reported in earnings.43 We focus on the former, but investors seeking to understand value must thoughtfully deal with both.

Baruch Lev, a professor of accounting at New York University Stern School of Business, argues that earnings have become less relevant for value over time.45 He supports this claim by analyzing the correlation between contemporaneous earnings and market value. He further develops a proxy for intangible investment, R&D plus SG&A spending as a percentage of assets, which allows him to separate the universe of stocks into those that are above the median, the “top spenders,” and those below, the “bottom spenders.”

Exhibit 7 show the results of this analysis by decade from the 1950s through the 1990s and from 2000 to 2016. A couple of features stand out. First, there is a monotonic decline in earnings relevance for the top spenders. This coincides with the rise of intangible investment. Second, the relevance gap between the top and bottom spenders, which was modest in the 1950s, grows over time. The earnings relevance for companies that rely mostly on intangibles is low, and reclassifying investment improves the signal.

Eoin Treacy's view -

The long-running underperformance of value versus growth has confounded many traditional fundamental investors. The continued outperformance of the technology sector, where there is a paucity of earnings but ample performance, raises important questions for value investors.



This section continues in the Subscriber's Area. Back to top
October 22 2020

Commentary by Eoin Treacy

Video commentary for October 22nd 2020

Eoin Treacy's view -

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

Some of the topics discussed include: cryptocurrencies extend breakout, Bonds yields continue to climb, Dollar steadies, Renminbi susceptible to consolidation, US fiscal deal appears to be closer, continued evidence ot rotation into recovery candidates.



This section continues in the Subscriber's Area. Back to top
October 22 2020

Commentary by Eoin Treacy

Grains Have 'Immediate Upside' Says Goldman Sachs

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

A report from Goldman Sachs says that the commodity sector is likely on its way up in 2021 due to inflation. However, while grains futures have been traveling higher, momentum is likely to slow down for agriculture in general, the report says -- pointing to energy and metals as more likely areas of growth. "Goldman Sachs analysts acknowledged that the non-energy commodities have 'immediate upside' potential due to the strong Chinese demand and weather driven risks, but they see that momentum fizzling in 2021," says Arlan Suderman of StoneX. Corn futures on the CBOT are up 0.7% Thursday, while soybeans are up 0.4%. Meanwhile, wheat is down 0.8%. 

Eoin Treacy's view -

Drought risk, the transition to a La Nina weather system and restocking following the panic buying during the initial lockdowns, all represent tailwinds for the soft commodity sector.

Another way of looking at the base formation completions in the sector is commodities are beginning to react to the weakness of the Dollar and risk of inflation in a predictable manner. There is clear potential that commodities are acting as a lead indicator for future inflation.



This section continues in the Subscriber's Area. Back to top
October 22 2020

Commentary by Eoin Treacy

Compton Launches Largest Universal Basic Income Program In The Nation

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

Compton, with a population of 95,000, has upwards of 1 in 5 residents living in poverty, double the nationwide average, city officials said. Local housing assistance in the city is at capacity, and 46% of its residents are renters. Since the outset of the pandemic, city officials say its unemployment rates have skyrocketed to 21.9%, and a growing segment of its population are relying on food pantries.

“People in our community are going through tough times, and I know that guaranteed income could give people a moment to navigate their situation, and have some breathing room to go back to school, explore a new career path, spend time with their children, or improve their mental and emotional wellbeing.”

A number of cities across the country are expressing more willingness to consider universal basic income, and the concept was the basis of tech entrepreneur Andrew Yang’s presidential run. The California city of Stockton launched their program last year, and Los Angeles and Long Beach exploring their own pilot programs.

Eoin Treacy's view -

Many people associate Compton with movies like Boys from the Hood or Straight Out of Compton which highlighted the city’s gang culture. Today 70% of the population is Latino and many of those people are illegal immigrants.



This section continues in the Subscriber's Area. Back to top
October 22 2020

Commentary by Eoin Treacy

The Race to Hydrogen Goes Beyond Brexit With Italy-U.K. Deal

This article by Chiara Albanese and Alberto Brambilla for Bloomberg may be of interest to subscribers. Here is a section:

Italy’s Snam SpA will brush aside Brexit and invest 33 million euros ($39 million) in ITM Power Plc, which produces electrolyzers, a crucial component in the hydrogen technology.

The investment is part of a 150-million pound ($197 million) capital increase by ITM. The accord is part of Snam’s expansion in the technology after the European Union put hydrogen at the heart of its measures to cut greenhouse gases and become climate neutral by 2050. Hydrogen, if made with renewables, could replace coal, oil, and eventually natural gas, and help eliminate about a third of emissions from industries like steel and cement by mid-century, according to BloombergNEF.

“The hydrogen sector is like the internet before the dot com boom,” Marco Alvera, chief executive officer of Snam, said in an interview. “What matters now is to unlock potential technology and to find the right positioning.”

Eoin Treacy's view -

The EU is going to spend €2 trillion on a green new deal. China is at least talking about going carbon neutral within the next thirty years. That’s a lot of money chasing an energy transition.



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