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June 21 2022

Commentary by Eoin Treacy

Email of the day on gold and the Dollar

In the past both you and David thought that the precious metals where to be the last recourse for the currencies. Is that still a big factor for your bullishness vs the precious metals?

At the moment for the USA the dollar is very strong. Some, as u know, think it has overdone, peaked.

Is that the reason why you still like gold longer term.

Would appreciate your comments

Eoin Treacy's view -

Thank you for this topical question which may be of interest to the Collective. Gold is a monetary metal and does best when it is appreciating in every currency.

At present the Dollar is very strong and that has impeded gold’s performance in US Dollars. The strong performance of the Brazilian Real and Russian Ruble have had much the same effect on the price when denominated in those currencies. Gold is trending higher in Euro and is even more impressive from the perspective of a Yen-based investor.



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June 21 2022

Commentary by Eoin Treacy

Global Food Inflation Gets Reprieve as Wheat and Oilseeds Tumble

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

Agricultural commodities fell, offering some reprieve to rampant food inflation, as traders weigh incoming data on harvests and looming recessions in some major economies.

Wheat harvests are kicking off across the Northern Hemisphere, with analysts continuing to increase production estimates for some key growers like Russia after favorable weather. The US will give an update on its winter-wheat harvest progress later on Tuesday.

The prospect of recessions is also weighing on commodity prices, according to analyst Agritel. Subdued economies can mean lower fuel use or spur shoppers to cut back on higher-priced foods like meat. Chicago soybean oil is headed for its longest retreat since 2019, Paris rapeseed erased its year-to-date gain and Malaysian palm oil recently entered a bear market as rival producer Indonesia ramps up exports.

Eoin Treacy's view -

The oldest adage from the commodity market is the cure for high prices is high prices. I was in two different supermarkets yesterday and failed to find pasta for sale. Meanwhile the supply of instant noodles does not appear to have been impacted, probably because they are higher margin products. The leap in wheat prices and price sensitivity of consumers means demand destruction may already be setting in.



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June 21 2022

Commentary by Eoin Treacy

Chinese Developer Accepts Wheat, Garlic as Payment to Woo Buyers

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

As China’s property slump persists, one developer is trying to entice farmers to buy homes by accepting their crops as payment. 

Central China Real Estate Ltd. is offering to pay farmers as much as 160,000 yuan ($24,000) for their wheat to offset down payments for homes in its River Mansion residential project in Shangqiu, a city in Henan province, according to a Monday marketing post. Weeks ago, it offered to accept garlic from growers looking to buy homes in another project in Kaifeng city.

The move reflects how far some developers are willing to go to attract wary homebuyers as the economy slows and the industry endures a crippling cash crunch. Central China, the country’s 37th-largest builder, recently sought state support when its parent company agreed to sell a stake to the provincial government. 

Its perk to farmers appears aggressive. Central China was offering to buy wheat at 4 yuan a kilogram, higher than the record 3-3.1 yuan that China’s state stockpiling company was purchasing the grain for earlier this month. 

Landlocked Henan is China’s largest wheat-producing area. The country just had another bumper harvest of winter-sown wheat. 

Similarly for garlic, Central China offered to pay 10 yuan a kilogram last month. That’s higher than the 6.92 yuan wholesale price as of June 10, according to weekly data released by the commerce ministry. 

Eoin Treacy's view -

Property manias tend to start in prime areas and move progressively further into the hinterland. During a crash it is usually the third tier cities and far flung suburbs that see the most aggressive selling pressure. Eventually, even the prime areas take a hit. China’s tier 3 cities have seen an epic bull market in housing as capital fled the exorbitant prices in the tier 1 cities. It is a measure of how desperate the company is to make sales that it is now willing to accept volatile commodities rather than insist on cash.



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June 20 2022

Commentary by Eoin Treacy

Video commentary for June 20th 2022

June 20 2022

Commentary by Eoin Treacy

Germany turns to coal as Russia cuts gas supplies

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

The Greens party minister also said the country will rely more on coal-fired power plants to produce electricity. A bill providing the legal basis is making its way though parliament and should take effect quickly after discussions in the upper house on July 8. 

Using more coal to generate power is “bitter, but it’s simply necessary in this situation to reduce gas consumption,” he said. “We must and we will do everything we can to store as much gas as possible in the summer and fall.” 

Siegfried Russwurm, president of the German industry lobby group BDI, said the country should “stop gas-fired power generation now and get coal-fired power plants out of reserve immediately,” in an interview with Funke Mediengruppe published Saturday. Importing electricity from neighboring countries has its limits, he said.

Savings will also have to be made by the industry. An auction model will begin this summer to encourage industrial gas consumers to save fuel, which can then be put into storage, Habeck said, adding that the government is ready to take further measures if needed.

Eoin Treacy's view -

There is a lot of discussion in the financial media about the possibility the Eurozone will break up. I don’t see that as a realistic possibility. Europeans understand they are in a better position to oppose foreign adventurism together than apart. Putting cherished climate goals on the long finger is an example of the lengths they are willing to go to protect national interests.



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June 20 2022

Commentary by Eoin Treacy

Greenlight Presentation at Sohn Conference 2022

Thanks to a subscriber for this presentation by David Einhorn. Here is a section:

However, the Fed is limited in raising rates. Powell faces a problem that Volker didn’t have. We have $24 trillion of debt held by the public, which is over 6 times in the last 20 years.

Approximately $7 trillion has to be rolled in the next year. Every 1% increase in rates adds $70 billion to the deficit annually. So, raising rates to 4% would be an additional $280 billion, 85 would be $560 billion, and a full Volker 19% would be $1.3 trillion…and that’s just the first year.

Raising short rates will also cause a strain on the Fed’s financials, where assets are of long duration and the funding is at overnight rates $5 trillion of overnight liabilities costs an extra $50 billion per percent increase in interest the Fed will pay on reserves. I will let you figure out the rest of the math for bigger increases.

The fiscal situation has limited the Fed’s flexibility.

Eoin Treacy's view -

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

The 1.5% increase in the Fed Funds rate so far this year has increased the deficit by $105 billion. Nevertheless, the Dollar has been firm and there has been little concern about the knock-on effects of this on government finances. That is because fiscal tightening is in effect even if it is not being talked about.  



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June 20 2022

Commentary by Eoin Treacy

UK Confronts 1970s-Style Problems With Strikes and Inflation

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

The UK this week will face up to surging inflation and labor strikes as well as a rising risk of recession in a series of setbacks that have echoes of the 1970s.

Strikes are likely to halt at least half of all trains for three days in the worst disruption to mass transit since Margaret Thatcher was prime minister. The teachers union also is set to ballot its members on a strike, adding to the list of professions considering action.

On Wednesday, inflation is set to rocket to a new 40-year high with the cost of goods leaving factories already racing ahead at a double-digit pace. Last week, the government confirmed the economy shrank in the three months through April, the weakest performance since a coronavirus lockdown.

 

Eoin Treacy's view -

The risk of a wage/price spiral is nontrivial in the UK. The effort to keep wage increases below the official inflation rate is obviously aimed at reducing that possibility but workers are understandably upset. The challenge is everyone feels the same way, but only the most organized unions have the collective bargaining power to achieve their goals. That’s going to further underscore the gap between the privileged and the underrepresented in society. Meanwhile transportation strikes fall most heavily on people who do not have the luxury of working from home.



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June 17 2022

Commentary by Eoin Treacy

June 17 2022

Commentary by Eoin Treacy

Biden Takes Swing at Inflation, Signs Law to Cut Shipping Rates

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

“One of the factors affecting prices is this: nine major shipping companies consolidated into three alliances controlling the vast majority, mostly shipping in the world,” Biden said.

“And each of these nine is foreign-owned. During the pandemic, these carriers increased their prices by as much as 1,000%.”

Attempts to “demonize ocean carriers” are not only inaccurate but dangerous because they undermine the ability to understand the root of US supply-chain problems, the World Shipping Council said in a statement.

“As long as America’s ports, rail yards and warehouses remain overloaded and unable to cope with the increased trade levels, vessels will remain stuck outside ports to the detriment of importers as well as exporters,” the WSC said. “Ocean carriers continue to move record volumes of cargo for our country and have invested heavily in new capacity – America needs to make the same commitment and invest in its land-side logistics infrastructure.”

Eoin Treacy's view -

Price controls are a lot easier to impose when the targets are overseas companies. The challenge is that insisting ships need to leave with full cargoes ignores the reality of a trade imbalance. China does not import the same quantity of goods from the USA that it exports. It’s impossible to send every ship back full, at a minimum loading empty containers is time consuming and additional layers of compliance raise costs and slow down turn around. Of course, there is also the possibility these measures could shift supply of ships away from the USA if the burden of regulation becomes too onerous.



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June 17 2022

Commentary by Eoin Treacy

Crypto Lender Babel Freezes Withdrawals as Industry Pain Spreads

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

In a sign of deepening turmoil in the crypto community, Babel Finance became the second major digital-asset lender this week to freeze withdrawals, telling clients it is facing “unusual liquidity pressures” as it contends with recent market declines.

“The crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events,” the Asia-based lender and asset manager said in a notice on its website to explain the temporary measure.

Eoin Treacy's view -

Another day, another crypto exchange declines to allow withdrawals. Cryptocurrencies are pure liquidity plays so they are unlikely to recover until there is clear visibility on where the next outsized round of new money is going to come from.



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June 17 2022

Commentary by Eoin Treacy

Seagen Surges on Report Merck Eyeing Purchase of Company

This article by Caitlin Fichtel for Bloomberg may be of interest to subscribers.

Seagen jumps as much as 20% Friday, the most since February 2021, after Dow Jones reported that Merck is eyeing a purchase of the biotech firm, citing people familiar with the matter.

Merck gains as much as 1% Friday
Report adds that talks have been in progress for a while, although a deal is not imminent
Marketing agreement could be struck instead of full purchase
Other unnamed companies are also interested in Seagen

Eoin Treacy's view -

The biotechnology sector was overtaken by vaccine mania during the pandemic. A small number of companies led by Moderna quickly grew to dominate the weighting of the sector. For 18 months the biotech index behaved more like a small number of vaccine providers, than the wide array of solutions to intransigent problems the companies it is comprised by represent. The collapse of vaccine providers, as the immediate risk from this pandemic recedes, means the biotech sector is back trading on the individual merits of its companies.



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June 16 2022

Commentary by Eoin Treacy

Video commentary for June 16th 2022

June 16 2022

Commentary by Eoin Treacy

Traders Bet Dovish Bank of Japan to Capitulate After Swiss Shock

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

A Small BOJ Policy Change Should Have a Large Ripple Effect While Japan’s policy makers are expected to continue with monetary easing, there’s growing speculation in global markets about the potential for a shock decision. The BOJ has been keeping a lid on government bond yields since 2016 and defending that cap vigorously in recent days, but pressure is building to either alter its policy stance or give guidance on when that will end after the Federal Reserve’s biggest interest-rate hike since 1994. The yen rallied as much as 1.1% Thursday.

“As the BOJ is now the last central bank standing as regards easy policy, it’s unsurprising that bets against the BOJ are building,” according to Jeremy Stretch, head of G-10 foreign-exchange strategy at CIBC. While Stretch expects the central bank to stick with its current policy, “any suggestion of an adjustment to the YCC threshold would result in a material bounce in JPY valuations,” he wrote, referring to yield-curve control, in a note published Thursday.

Eoin Treacy's view -

The Dollar began to ease today as the risk of recession rises and other countries join the Fed in raising rates. The surprise more by both the SNB and BoE begs the question how long the BoJ can hold out against rising inflationary pressures. They will certainly be among the last to raise rates.



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June 16 2022

Commentary by Eoin Treacy

Russia's Gazprom continues cutting natural gas supplies to Europe just as customers try to build up inventories for winter

This article from Business Insider may be of interest to subscribers.

Gazprom said Thursday it was further cutting gas flows to Europe citing more technical issues with its Nord Stream pipeline, Reuters first reported. 

Russia's state-run supplier's latest reduction, the second in just two days, edges the Nord Stream's pipeline's capacity down by 40%. The move comes as European countries try to bulk up gas storage in anticipation of winter. European stores are currently 56% full, Reuters said. 

Gazprom said issues with a gas compressor lead to the initial reduction. The company said that a delay in equipment sent to Canada for repairs is to blame for Thursday's reduction in flows, a claim that Germany disputes as a reason to push gas prices higher.

European natural gas prices climbed as much as 30% Thursday morning on the news. Norway, Europe's second-largest supplier behind Russia, has increased exports to make up for a curb in Russian gas in light of the Kremlin's invasion of Ukraine. The EU pledged to be 90% rid of Russian supply by the end of 2022, and fully exit from Moscow-sourced fossil fuels by 2027. 

The EU has also turned to liquefied natural gas to make up for supply shortcomings in light of its sanctions against Russia, although a fire in Texas last week at a key export hub lowered supply expectations. 

Eoin Treacy's view -

Russia’s energy/economic military strategy will be most effective if it can prevent Europe from rebuilding inventories over the summer. The rationale is European politicians will be much more amenable to make concessions if their populations are cold and miserable this winter.



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June 16 2022

Commentary by Eoin Treacy

Rheinmetall Unveils New Tank as Arms Demand Set to Surge

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

The German arms maker expects revenue to surge by as much as 20% per year driven by growing demand for military equipment, according to Chief Executive Officer Armin Papperger. Rheinmetall is boosting capacity and can at least triple ammunition production within the next twelve months, he told Germany’s Bild am Sonntag in an interview. 

The company also is able to double military truck output “because a lot of Cold War infrastructure can be reactivated fairly quickly,” the CEO said.

Rheinmetall’s first modernized Marder light tanks are also ready for delivery, Papperger said, adding that when and where the vehicles get shipped depends on the German government. Berlin has faced criticism for what some see as tepid commitments to deliver weapons to Ukraine.

Rheinmetall is currently updating 100 decommissioned Marder vehicles, 88 Leopard 1 tanks and additional Leopard 2 versions. The vehicles could potentially be delivered to Ukraine or replace equipment dispatched by other countries.

Eoin Treacy's view -

Spending money on arms is always easier when there is a war. The argument for modernizing the military apparatus of any country is more difficult without a clear urgent reason to do so. That’s especially true for democracies where competing priorities often take precedence and even more so for Europe with explicit protection guarantees from the USA. .



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June 15 2022

Commentary by Eoin Treacy

Video commentary for June 15th 2022

June 15 2022

Commentary by Eoin Treacy

Fed Hikes Rates 75 Basis Points, Intensifying Inflation Fight

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

Federal Reserve officials raised their main interest rate by three-quarters of a percentage point -- the biggest increase since 1994 -- and signaled they will keep hiking aggressively this year, resorting to drastic measures to restrain the rampant inflation they failed to forecast.

Slammed by critics for not anticipating the fastest price gains in four decades and then for being too slow to respond to it, Chairman Jerome Powell and colleagues on Wednesday intensified their effort to cool prices by lifting the target range for the federal funds rate to 1.5% to 1.75%.

They projected raising it to 3.4% by year-end, implying another 175 basis points of tightening this year.

The median official saw a peak rate of 3.8% in 2023, and five officials forecast a federal funds rate above 4%; the median projection in March was for 1.9% this year and 2.8% next. Traders in futures markets were betting on a peak rate of about 4% ahead of the release.

The Fed reiterated it will shrink its massive balance sheet by $47.5 billion a month -- a move that took effect June 1 -- stepping up to $95 billion in September.

Eoin Treacy's view -

The Fed expects to raise rates above 3% by the end of the year. That’s a higher high. The only time the Fed Funds rate posted a higher high in the past was in 1999 and it was quickly reversed. This time around, the big question is how long that level will be sustained and where the next low will be.



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June 15 2022

Commentary by Eoin Treacy

ECB Speeds Up Work on Crisis Tool After Italian Bond Blowout

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

The ECB surprised markets Wednesday by holding the unscheduled meeting to discuss a market backdrop that’s deteriorated markedly since plans to start lifting borrowing costs from record lows were outlined last week.

Investors aren’t convinced officials can raise borrowing costs to combat unprecedented euro-zone inflation while also keeping yields among the bloc’s most indebted members in check. A possible 75 basis-point rate increase from the Federal Reserve later in the day could add to the jitters.

“I see today’s statement as the bare minimum of what could be expected, but also the most realistic outcome,” said Piet Christiansen, chief strategist at Danske Bank. “With ECB tasking the committees they have sent a signal that they have fully committed to ensure the functioning of the monetary policy transmission. However, they have also bought themselves some time. We will likely only hear from the committees at the July or September meeting.”

A different tool to address market stress would open a new chapter in the ECB’s fractious relationship with bond markets ever since debt-laden Greece first succumbed to turmoil more than a decade ago.

That crisis was ultimately tamed by ECB President Mario Draghi’s creation of the OMT program, part of his pledge to do “whatever it takes” to preserve the euro. Meanwhile, market stress at the onset of the pandemic was addresses with another emergency bond-buying program.

Officials have repeated recently that they’re ready to devise new instruments as required, but have disappointed markets with a lack of detail on their plans.

Eoin Treacy's view -

The ECB’s QE program bought bonds weighted by the size of the respective economies in the Eurozone. That was a handy way of ensuring the ECB ended up with higher quality bonds; heavily weighted to Germany. Since Italy is the third largest economy in the region it also served the purpose of helping suppress its yields.  



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June 15 2022

Commentary by Eoin Treacy

Bitcoin Veterans Know to Keep Their Eyes on the $19,511 Level

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

Round numbers tend to be a fixation for Bitcoin chart-watchers, with many keeping their eyes peeled on $20,000 amid the latest swoon. But veterans know to be on the lookout for a more noteworthy one: $19,511.

That’s the high the coin hit during its last bull cycle in 2017, which it reached at the end of that year. Throughout its roughly 12-year trading history, Bitcoin has never dropped below previous cycle peaks, according to Vetle Lunde and Jaran Mellerud at Arcane Research, so a break below it would be momentous. 

“A potential visit below this level could lead to a lot of hodlers capitulating and a wind-down of leverage, making this a very important support level to pay attention to onwards,” the pair wrote in a note, referencing long-term, staunch holders. 

In addition, besides the psychological importance of the level, most of the open interest in Bitcoin options is based on the $20,000 strike price, according to Arcane, “which can contribute to selling pressure in the spot market should the price fall below.”

Eoin Treacy's view -

If most option strikes are at $20,000 and most options trade for several thousand dollars, the majority of positions are already underwater. Therefore, stops are being placed on leveraged bets, even as some traders look for entry opportunities.



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June 15 2022

Commentary by Eoin Treacy

FDA Approves Historic Alopecia Treatment by Eli Lilly, Incyte

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

The Food and Drug Administration on Monday approved the first systemic treatment for alopecia areata, an autoimmune disorder that causes hair loss and affects more than 300,000 people in the US each year.

The drug is sold by Eli Lilly  & Co. and Incyte Corp. under the brand name Olumiant and comes in the form of oral tablets taken once daily. It’s approved for adult patients with severe alopecia. In two big trials, about 40% of people with severe alopecia achieved significant hair growth after 36 weeks, according to the FDA. 

Eoin Treacy's view -

Sitting around the kitchen table with most of my siblings two weeks ago, the topic of hair loss and greying was of particular interest to my sister who is turning 40 at her next birthday and my youngest brother who is 25.

Hair loss treatments are big business. Minoxidil (Rogaine) application is apparently almost more trouble than it is worth.  Finasteride is a pill but reduces testosterone and can impact libido which is not exactly ideal. Meanwhile Elon Musk’s success in tackling his male pattern baldness clearly signals that at least surgical options are available. 



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June 14 2022

Commentary by Eoin Treacy

Video commentary for June 14th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: equity sell off pauses ahead of Fed decision tomorrow, bond yield continue to march higher, US natural gas pulls back sharply on export outage, UK price jumps for the same reason, Yen extends decline, Chinese large cap tech outperforming because of better liquidity provision. 



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June 14 2022

Commentary by Eoin Treacy

BOJ Ramps Up Yield Control Defense Against Global Debt Rout

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

The jacked-up moves reflect the BOJ’s commitment to protect its yield-curve control policy even if it prompts further slides in the yen as the Federal Reserve accelerates its rate hike pace. Worse-than-expected inflation data from the US has been a catalyst behind the global market rout this week.

Governor Haruhiko Kuroda insists it’s too early for Japan to step back from keeping rates ultra low, with the economy still recovering from the pandemic and inflation stemming largely from higher energy prices. The vast majority of surveyed economists expect the bank to stick with its policy settings this week.

Still, as the pressure continues to build on the BOJ’s easing framework, speculation smolders on that changes will have to come eventually.

“There’s growing market concern over possible adjustments in yield curve control given the yen is weakening so rapidly,” said Hiroshi Miyazaki, senior economist at Mizuho Research & Technologies.

“The BOJ is likely to be able to keep yields low for 10-year yields, but it remains to be seen whether it can control longer maturities.”

 

Eoin Treacy's view -

Japan has been trying to ignite inflationary forces for years. Arguably, it was impossible to succeed in that objective because the world was in a secular disinflationary trend. Now that inflationary pressures are ramping higher at the fastest pace in decades, Japan is not about to miss the opportunity to change the population’s psychology.



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June 14 2022

Commentary by Eoin Treacy

US Natural Gas Slumps as LNG Plant Shutdown Strands Supplies

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

US natural gas futures plummeted and European prices surged after the operator of a key Texas export terminal said it may take three months to partially restart the facility following a fire last week. 

Gas for next-month delivery in New York tumbled as much as 19% to $7.008 per million British thermal units as the shutdown threatens to leave supply stranded in US shale basins. European futures on the Title Transfer facility hub in Amsterdam jumped 18% to $30.14.

Eoin Treacy's view -

The role of LNG in smoothing out the arbitrage between the North American and European gas is probably under appreciated by investors. The transatlantic LNG market did not exist five years ago. Today it is expected to compensate for Europe’s reluctance to continue to buy Russia supply. The loss of one plant, even temporarily highlight just how tenuous that plan is.



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June 14 2022

Commentary by Eoin Treacy

Email of the day on central bank activity in the gold market

Do you think there is much Central bank activity in the gold market? I can see countries like Turkey and Russia (?) selling to meet current requirements and on the other side countries ideologically opposed to the US wanting reserves which cannot be sanctioned. I guess data is kept secret but.....

Eoin Treacy's view -

Thank you for this question which I suspect will be of interest to the Collective. Russia miscalculated how strong Europe's response would be to the invasion of Ukraine, so it does not have access to nearly as much of its reserves as it might like.



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June 13 2022

Commentary by Eoin Treacy

June 13 2022

Commentary by Eoin Treacy

Email of the day on shorting after taking profits

Thanks for the very good summary of the market situation after your well-deserved break.

I'm just puzzled by one thing.  You seem pretty convinced that the Nasdaq will continue to go down for at least a while.  Yet you say one should have a very small short on it.  Why only a very small short, why not a big one? Regards

 

Eoin Treacy's view -

Thank you for this question which I believe related to the Friday audio. My concern arises from the reflection of investor sentiment I witnessed at The Chart Seminar. Investors still want to buy the dip. That strategy works well in a bull market. It can decimate a portfolio in a bear market which is what we have now. So how do you sit on your hands when the temptation to buy is so strong and has been such a positive experience for the last 14 years?



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June 13 2022

Commentary by Eoin Treacy

Crypto Lender Celsius Stops Withdrawals, Fuels Market Slum

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

Celsius Network Ltd. paused withdrawals, swaps and transfers after weeks of speculation over the sustainability of the outsized returns being offered by the DeFi lending platform, fueling a broad cryptocurrency selloff. 

Crypto markets tumbled after the Celsius announcement, with Bitcoin dropping as much as 14% to the lowest level since December 2020 and other major tokens like Ether also falling sharply. Celsius’s CEL token was down about 50% to 19 cents as of 7:16 a.m. in New York Kong, according to pricing data site CoinGecko.

The meltdown is the latest blow to DeFi, or decentralized finance, crypto’s answer to traditional finance, with more control and less costs for users but also less oversight and more risk. 

Doubts about the sky-high yields backing products such as those Celsius offers have intensified after the collapse of the Terra ecosystem in May, and as tighter monetary policy across the world curbs demand for riskier assets. The CEL token promises “actual financial rewards,” including as much as 30% extra returns weekly, according to its website.

While the collapse of the TerraUSD (UST) stablecoin captured most of the market’s attention, one of the project’s main attractions for investors had been its promised interest rate, set as high as 20% for UST deposits in the Terra blockchain-based lending project Anchor. Celsius was an investor in the project. Both revolve around the promise of super-high yields to keep up demand, which itself depended on a steady flow of new entrants feeding the system, or borrowing to pay the high rates.   

Eoin Treacy's view -

Relying on a steady flow of new entrants to support outsized yields for existing investors sounds very similar to a ponzi scheme. The parallels with the yields Bernie Madoff promised are obvious. Even the 20% headline number is the same. That suggests investors in these schemes are either ignorant of market history or simply ignore it. 



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June 13 2022

Commentary by Eoin Treacy

Email of the day on moving average calculations

Not that there isn’t anything else to consider today, but I would appreciate more information on moving averages as discussed in the audio.  I realize there are several types that can be applied and they present different results. 

Is there a standard across the board we should apply or is one appropriate for a type of chart and time period and not for another?  I just want to know how to apply what and when.

Eoin Treacy's view -

Thank you for this question which many people are wondering about at present because several major stocks and indices are testing their respective secular trend means, defined by the 1000-day MA.

In the Chart Library we only calculate moving averages using daily closing data. That result is then plotted on any time series regardless of whether one is looking at a daily, weekly or monthly chart. Historically, systems defaulted to a simple moving average but many technicians and algorithmic traders use exponential averages.

Bloomberg calculates average of daily charts using daily date but calculates weekly charts using weekly data and so on. That will have an effect on what level the average is displayed at.



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June 10 2022

Commentary by Eoin Treacy

June 10 2022

Commentary by Eoin Treacy

Secular Themes Review and Chart Seminar report June 10th 2022

Eoin Treacy's view -

I spent the last couple of weeks in Killarney and London. It was very enjoyable but was also an eye-opening experience. The Chart Seminar was also a big learning experience for me. Getting to speak with investors from the UK, Switzerland, Dubai, Belgium, Israel and elsewhere, and listening to their concerns and ambitions is both enlivening and educative.

I am now more convinced than ever that we are coasting along the front edge of a recession for much of Europe and the USA.

The future of technological innovation and wonderful solutions to the many issues facing society is undimmed. However, the market is also a discounting mechanism.

Secular bull markets make lots of big promises about what is possible in the future. They even deliver on those promises. The biggest lesson from the history of markets is that happens independently of the share price.
This point and figure chart of Apple is enough to given anyone pause. It’s taking the entire history of weekly closes and is a clear break of the secular trend.

This version takes daily closes and also exhibits significant deterioration in uptrend consistency.



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June 01 2022

Commentary by Eoin Treacy

June 01 2022

Commentary by Eoin Treacy

June 01 2022

Commentary by Eoin Treacy

May 26 2022

Commentary by Eoin Treacy

Please note - New video/audio posted May 26th 2022

I arrived in Ireland this afternoon. It's been an interesting day with windfall taxes on UK oil producers and oil prices breaking on the upside. The renminbi weakened, the Dollar was also weak, gold paused and stock markets rebounded. 

May 26 2022

Commentary by Eoin Treacy

The Chart Seminar June 6th & 7th in London sold out

Eoin Treacy's view -

Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.

This event is sold out. A waitlist has now begun. 

To reserve your place please contact [email protected]

Delegate Rates:

Full fee: £1799

Each additional delegate: £850

Fuller Treacy Money Subscriber rate: £850

Prices exclude VAT where applicable



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May 24 2022

Commentary by Eoin Treacy

Video commentary for May 24th 2022

May 24 2022

Commentary by Eoin Treacy

Email of the day on what it is like living in Russia today

In Friday analysis, you mentioned situation on the Russian market. I would like to share with you some thoughts that can be interesting to the Collective.

The problem is, you view rouble as a market instrument. It used to be, but no longer. It was a convertible currency, but now it is not. There are several reasons for its impressive rebound and all of them have nothing to do with the market forces. First, all Russian markets were stopped in late February. Then, exporters were forced to sell 80% of foreign exchange revenues. To stop the bank run, the central bank did everything to kill demand for foreign currencies. I will not give all the measures but among them: almost all transfers abroad were banned. Foreign companies and residents could not withdraw money from Russia, Russian residents were allowed to transfer abroad only $5,000 a month. Banks were banned to sell currencies to individuals. 12% commission was introduced to buy dollars and euros on the Moscow exchange. Foreign investors were banned from transactions and withdrawing their money. Some of those restrictions were later withdrawn or reduced BUT: there is one more huge factor, and this is collapse of imports.

In April, US commerce secretary said that US exports to Russia fell 90% due to sanctions. German exports fell 60%. Even Chinese ones fell from $8 bn a month in January and February to $3.8 in March and April. Even if foreign companies are ready to sell something, it is impossible to transport products to Russia (The Wall Street Journal has a nice piece on this - https://www.wsj.com/articles/how-russian-businesses-are-skirting-sanctions-11652828497 ) At the same time, Russian exports are large due to high energy prices. So, Russia has a huge current account surplus, almost no outflow on capital account and no demand for forex on the local market. That is the reason for the rouble strength.

The Kremlin presents exchange rates as a victory over sanctions. But Robin Brooks, the Institute of International Finance chief economist, calls this an “illusion.” The economy is going to have the worst recession since the early 1990s (after the crash of the Soviet economy), GDP can fall by 10% or more. Russian analysts also call rouble strength, paradoxically, the sign of the economy weakness.

The same is with the dollar denominated RTS stock index. It rose simply because rouble rose. If you look at the rouble denominated Moscow Exchange index (IMOEX), you’ll see no growth at all. Today it is even lower than when trading resumed after a one-month pause. (I attach the IMOEX chart, the one in the Chart Library stopped renewing in 2018.)

Let me also say a couple of words on the state of the Russian economy. For example, car sales crashed 78% in April. Car sales and after sales sector employs about 2 mln people. What these people are going to do? Foreign car companies, not just western but also Korean (they were market leaders in Russia), and Japanese stopped sending spare parts. Parts prices have spiked but soon they will also come to an end.

Nothing illustrates the situation better than news headlines (Russian, not foreign ones). Here are just some from one day last week:

Government allowed to produce cars without airbags

Mercury discharge rate into Baikal lake to increase 13-fold

Russia will start importing used cellular communications equipment (By the way, Russian mobile communications are one of the best and cheapest in the world. In 2017, while in London, I bought a local SIM-card and found out that there was no mobile connection in the London tube, let alone Internet connection. Moscow metro had had free Wi-Fi for several years already. I paid $20, on the pre-war rate, a month for a family of four with unlimited calls, unlimited mobile internet, unlimited home internet, and digital TV. Mobile communications were built from scratch in the 1990s, and not by oligarchs but by genuine entrepreneurs. It was always an example, what Russian business can achieve without government interference.)

Russian airports warn of reverting to manual security screening (this is due to lack of spare parts for screening equipment)

Moscow will revive Moskvich car production (this is an awful Soviet car; Renault decided to leave Russia and the Moscow government took over its local plant; actually, the “new” car will be some Chinese)

Today’s news:
Government purchases of vaccines are in jeopardy
Imports of button phones rose 43% (because Apple and Samsung stopped selling smartphones, and Chinese producers also reduced imports significantly)
New home sales in Russian regions ground to a halt
China will leave the largest LNG project in Russia without equipment, because of sanctions
Russian clinical labs are running out of chemical reagents for tests
Aeroflot will begin to take planes to pieces, because of sanctions
Putin’s foundation will leave children with cystic fibrosis without life-saving medicine.

Hope, this helps to understand current situation in Russia.

Eoin Treacy's view -

Thank you for this generous account which I’m sure will be of value to the Collective. The pain being inflicted on regular Russian citizens is probably going to intensify. The OECD is attempting to squeeze Russia by withholding manufactured goods and technological widgets from the economy. In doing so they hope to drive living standards so low that Russia will be forced to relent.



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May 24 2022

Commentary by Eoin Treacy

In Gold We Trust May 2022

Thanks to a subscriber for this book-sized report from the team at Incrementum. Here is a section comparing the USA to Rome.

The Roman experience looks eerily similar to the present US economic situation. Just like ancient Rome, the USA enjoys the privilege and shoulders the burden of enforcing its “Washington Consensus” on the world, but like late-stage Rome, the US cannot fund its army and welfare state through taxation alone.  

As Rome had to resort to currency debasement to pay for its welfare/warfare state, the US finds itself increasingly unable to fund current expenditures through taxation. For each downcycle the US relies ever more on a complex process of bond issuance, covert, and more recently, overt inflationary policies to ensure the once mighty Empire can pay its bills.

Although the US saw expenditures soar during the world wars, large subsequent surpluses allowed the Federal fiscal house to remain in order. When the last vestiges of the old Gold Standard were abandoned in the 1970s, the spending dynamic changed as the Empire no longer needed to adhere to a sound fiscal policy. Funding was secured via the central bank. The modern-day Empire felt entitled to take full advantage of its ‘exorbitant privilege’ to keep its soldiers and plebs content, docile and obedient.

During the Global Financial Crisis (GFC), taxes covered less than 60% of outlays, down from an average of ~90% in preceding decades. In the course of the Covid-19 shutdowns the US government funded less than 50% of its outlays from taxation.

Rome found itself equally tied down by a Gordian knot. The ancient Empire had to fund its army above all else. Imperator Severus famously advised his sons Caracalla and Geta to “Be harmonious, enrich the soldiers, scorn all others” 61 to remain in power.

Similarly, the US has to placate its industrial military complex, but even more important to modern day ‘Imperators’ is to mollify the ~60% of its population who are either on state welfare or directly employed by the government.

Eoin Treacy's view -

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

The investment community has been conditioned to believe technological innovation will continue to provide sufficiently large benefits and productivity gains to compensate for rising debt levels. A powerful secular bull market delivers big gains and changes how people perceive risk and react to downdrafts. That helps to explain the rush to buy the dips at every initial sign of a relief rally taking hold.

Artificial Intelligence, robotics, synthetic biology, autonomous vehicles and nuclear fusion are being discussed as near-term realizable solutions. I don’t think investors are prepared for the possibility the timeline for these kinds of advances might stretch to a decade or more. The fact Elon Musk’s latest pronouncement that full self-driving is less than a year away fell flat is a sign enthusiasm for inevitable imminent technological disruption is waning.  



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May 24 2022

Commentary by Eoin Treacy

Lula Says Replacing Petrobras Head Won't Lower Fuel Prices

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

“It’s useless to replace the head of Petrobras, Bolsonaro needs to change his ways,” Lula said at an interview with a local radio. “He could call a meeting of the energy policy council, bring Petrobras to the table and decide that prices won’t be dollarized anymore.”

Bolsonaro sacked the third chief executive officer he had appointed to lead Petrobras, piling pressure on the company to stop raising fuel prices as inflation running above 12% becomes a major campaign issue ahead of October’s general election. Pushing Petrobras to absorb higher crude prices instead of passing them to consumers is a rare point of coincidence between Bolsonaro and Lula as they vie for the presidency.

Eoin Treacy's view -

Inflation is going to be a major election issue everywhere this year. The most successful politicians are likely to be those who make big promises like increasing wages, taxing the rich, implementing price controls on commodities and/or boosting domestic supply.



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May 23 2022

Commentary by Eoin Treacy

Video commentary for May 23rd 2022

Eoin Treacy's view -

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

Some of the topics discussed include: short covering rally underway but bond yields remains stubbornly high and Dollar is unwinding short-term overbought, natural gas and shipping companies exhibit relaitve strength, gold steady, US natural gas firm, European gas soft. 



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May 23 2022

Commentary by Eoin Treacy

How an Energy Expert Triggered Vladimir Putin With One Word

This transcript of a podcast with Daniel Yergin may be of interest. Here is a section:

He knew that US shale was a threat to him in two ways. One, because it meant that US natural gas would compete with his natural gas in Europe, and that’s what we’re seeing today. And secondly, this would really augment America’s position in the world and give it a kind of flexibility it didn’t have when it was importing 60% of its oil. 

And

That’s the question that’s really weighing now because in terms of oil, there’s enough crude oil in the world. You have to move it around, but between strategic stocks, between demand being down in China, you can manage that. When you get into products like diesel, it gets harder. And then you’re going to the hardest thing with natural gas, and that is exactly as you go into the winter. So, the big question now is can they fill storage so that they can get through the winter, and, by the way, not only stay warm, but keep industry operating. And I think we can say that Putin made a series of decisions which kind of were irrational -- that his army was really good, that Ukraine wouldn’t be able to resist, that the US had just gone through getting out of Afghanistan and was deeply divided, that Europe was so dependent on his energy that they would say, ‘OK, this is terrible, but life goes on.’ And none of that happened.

But I think he’s still calculating. And he said that ultimately this energy disruption -- and we are in a huge disruption of energy markets -- would be such a big threat to the European economy that the coalition that now exists would fall apart. I think that’s his wager right now. And the Achilles heel is what you pointed to: what happens as Europe goes into the fall and winter. And we’ve had at least one German, very prominent industrialist, who said, ‘This is too dangerous for the European economy. We should negotiate something with Putin.’

Eoin Treacy's view -

We are in a market lull for European natural gas prices as we head into summer and lower heating demand. The price of European gas (Netherlands) is down from a peak of €140 in December to €74 today. The UK price has been much more volatile and is down from a March high of £800 to £138.



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May 23 2022

Commentary by Eoin Treacy

Shipping's $500 Billion Profit Can Take on Amazon

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

Besides splurging on dividends and share repurchases, the once-scarcely profitable container lines are planning to use this once-in-a-lifetime haul for acquisitions and investments. Some aim to turn themselves into end-to-end logistics giants, in the vein of Amazon.com Inc. or FedEx Corp.

In theory, this should make them more resilient when shipping freight rates normalize, which is bound to happen one day. Shipping costs have already come down a bit, but due, in part, to the spread of omicron in China, some industry observers now don’t expect port congestion to ease until next year. 

Of course, the big risk is these hungry hippos waste their epic windfall on empire building, and an industry that’s already on the defensive due to its inflation-stoking profiteering may end up stoking an even greater political backlash.

It’s a sign of how the ambitions of the shipping industry have been transformed that a container liner joining forces with an airline no longer seems unusual: Mediterranean Shipping Co. is angling to acquire a controlling stake in Italian flag carrier ITA Airways, while the billionaire principal shareholder of Germany’s Hapag Lloyd, Klaus-Micheal Kuehne, has built a 10% stake in Lufthansa AG. In addition to expanding its own air-cargo fleet, Maersk agreed to acquire air-freight forwarding specialist Senator International in November.

Eoin Treacy's view -

The two things that bring down shipping rates are softer demand from lower economic growth and a surge in supply of new ships. If shipping companies are spending some of their windfall on logistics or airlines, that does nothing to increase the supply of new ships.



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May 23 2022

Commentary by Eoin Treacy

Bank Stocks Gain on JPMorgan's Biggest Rally Since November 2020

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

JPMorgan Chase & Co. jumped by the most in 18 months as upbeat comments from Chief Executive Officer Jamie Dimon on the US economy and improved guidance helped drive bank shares higher.

Shares of the JPMorgan rose as much as 7.1% on Monday, the most since November 2020, after the start of the company’s investor day, when it boosted its annual forecast for net interest income excluding its markets business and maintained its expense outlook. The KBW Bank Index climbed as much as 4.4%, with Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. all gaining more than 5%.

Wells Fargo banking analyst Mike Mayo said in a note to clients that the biggest takeaway from JPMorgan’s gathering so far is that it shows there’s “no recession imminent.” JPMorgan’s presentation was bullish for the company and “even more so for the industry,” he added.

Bank shares have been under extensive pressure this year as worries that an aggressive series of interest rate hikes by the Federal Reserve could plunge the US economy into a recession. The KBW Bank Index has fallen 25% since hitting a record high in early January.

JPMorgan has been the worst hit among the biggest banking stocks. While Monday’s surge has helped erase some of the decline this year, the lender is still down nearly 22%, making it the worst performing big bank stock. Still, analysts have not given up on the company, with the average 12-month price target forecasting a 23% gain, near the highest it’s been since the pandemic began.

Eoin Treacy's view -

Rising interest rates are generally considered positive for banks because they get to charge more for their services. The challenge today is the spread they rely on to profit has evaporated as the yield curve has flattened. The absolute rate on mortgages also means refinancing income has disappeared on mortgages. That implies banks will probably do better when the yield curve steepens and yields contract.



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May 20 2022

Commentary by Eoin Treacy

May 20 2022

Commentary by Eoin Treacy

Global Interest Rates in Aggregate

Eoin Treacy's view -

As inflation has continued to surprise on the upside, countries all over the world are accelerating their efforts to raise rates. Brazil’s Selic Target rate is now 12.7% and the EU is beginning to talk about moving deposit rates out of negative territory.

We tend to think of interest rates as barometers of efforts by central banks to control domestic factors. However, there is also the additional point that if interest rates are rising everywhere, the availability of cheap cash is declining and competition for what is available becomes more fervent.  



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May 20 2022

Commentary by Eoin Treacy

US Set to Block Russian Debt Payments, Raising Default Odds

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

Russia has started the process of paying holders of two foreign-currency bonds before a key carveout in restrictions expires next week.

The money isn’t due for another week, but the settlement date for both payments is two days after a temporary exemption for US bondholders to receive Russian bond funds is set to end. 

That loophole has allowed the government to get payments through the plumbing of the international financial system to US investors, staving off a foreign default. But Treasury Secretary Janet Yellen characterized the carve-out as “time-limited” last week.

Payments of $71.25 million on a note maturing 2026, and 26.5 million euros ($28 million) on debt due 2036, were transferred to the National Settlement Depository, or NSD, Russia’s Finance Ministry said Friday. It added that its obligations on the debt have been met “in full.” 

Previous fund transfers have been delayed or blocked by financial institutions amid the sweeping international sanctions imposed on Russia since its invasion of Ukraine. About $650 million of payments were made just days before a grace period was due to expire earlier this month.

Russia Dodges Default for Now as Investors Get Dollar Funds

From the NSD, the payments go to international clearinghouses, which distribute the funds to the various custodian banks where foreign bondholders have their accounts.

If that all goes smoothly, attention will turn to almost $400 million of coupons due toward the end of June. 

Without the Treasury loophole for US investors, and no alternative options arranged, the question will be whether bondholders elsewhere can still receive the funds. 

The first two coupons due June 23 have clauses that allow payment in euros, pounds sterling or Swiss francs. Their terms also stipulate that the funds will land with the local paying agent, the NSD.  

One day later, $159 million comes due that can only be paid in dollars, via a unit of JPMorgan as foreign paying agent.     

Eoin Treacy's view -

Engineering a Russian debt default is obviously part of the economic warfare the West has launched in response to the invasion of Ukraine. The impact of those measures is significantly reduced by the fact Russia has one of the lowest debt to GDP ratios in the world.



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May 20 2022

Commentary by Eoin Treacy

Email of the day on global food shortages

The media highlight the possibility / likelihood of a worldwide food shortage - could you please cover this subject and share with us your conclusion and how a smart investor could potentially take advantage of such regrettable drama for large parts of the world population.

Eoin Treacy's view -

Thank you for this question which I’m sure is of interest to the Collective. The last time we had a food shortage scare was in 2007/08 when fertilizer shares were accelerating to records, commodity prices were strong, and the rising prosperity of the global consumer was driving calorie consumption for billions of people.



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May 20 2022

Commentary by Eoin Treacy

Email of the day on moving average settings in the Chart Library.

Eoin, When I watch your daily videos, it seems the 1,000-day moving average of Nasdaq 100 is about 11,700. When I look at this on your chart library though, it seems to be nearer 10,600. Which is it? And why the difference? Thanks

Eoin Treacy's view -

Thank you for this question which pops up from time to time. The charts I use default to exponential moving averages. The system default on the Chart Library is for a simple moving average. You can change it to an exponential version by following these instructions:



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May 19 2022

Commentary by Eoin Treacy

Video commentary for May 19th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar begins to ease as growth concerns trump inflation concerns, gold, silver, bonds and the yen also strengthen. bitcoin steadies, retailer shares extend declines, oil reverses earlier decline and natural gas remains steady, copper firms.  



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May 19 2022

Commentary by Eoin Treacy

BOE Gold Trades at Rare Discount in Sign of Central Bank Selling

This article from Bloomberg may be of interest to subscribers. Here It is full: 

Gold stored at the Bank of England has been trading at an unusually low price, in a sign that central banks may be shedding some of their holdings.

The Bank of England’s vaults contain 5,676 tons of bullion, one of the largest stockpiles in the world, which it holds on behalf of other central and commercial banks. Gold held by central banks is typically bought and sold between large institutions in bilateral trades at prices usually within a few cents of the market rate.

In recent days, however, gold at the BOE traded as much as a dollar an ounce beneath benchmark London prices, according to traders familiar with the matter. Such a big discount usually indicates a big institution like a central bank selling a sizable amount of reserves to raise US dollars or other currencies, one of the traders said.

Central banks expanded their gold holdings by almost 456 tons in 2021, according to the latest World Gold Council data, in a long-running trend driven by emerging markets diversifying their reserves away from foreign currencies. Notable buyers included Brazil, Thailand and Ireland, which made its first purchase since 2009.

Buying may slow during 2022, with financial institutions looking to hold more interest bearing dollars as the Federal Reserve gears up for aggressive monetary tightening. The greenback is on track for its biggest annual increase in seven years, putting pressure on the currencies and borrowing costs of emerging market nations.

The BOE gold discount has narrowed since the dollar-an-ounce margin, but remains large by normal standards, said the people, who asked not be identified discussing private information. Bullion has slipped more than 12% since peaking in March, leaving it close to unchanged this year.

A spokesperson for the BOE declined to comment on the discount.

Eoin Treacy's view -

Central bank gold selling is a clear sign of distress at the strength of the US Dollar. The rising cost of importing commodities and dearth of new Dollars following the end of QE and impending QT mean countries are scrambling to source Dollars.



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May 19 2022

Commentary by Eoin Treacy

China Warns US a 'Dangerous Situation' Forming Over Taiwan

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

China frequently lashes out at the US over its backing for Taiwan, saying it amounts to interference in its internal affairs. Xi told Biden in the March call that the issue could “have a disruptive impact on the relationship between the two countries” if it was not properly handled, and has referred to China’s quest to gain control of the democratically ruled island as a “historic mission.” 

Earlier this week, Admiral Michael Gilday, the top American naval officer, said Taiwan must prepare itself against potential Chinese aggression through military deterrence that includes getting the right weapons and training. Gilday said this was the “big lesson learned and a wakeup call” following the Russian invasion of Ukraine.

The US has stepped up its backing for Taiwan since the war in Ukraine started, with a group of senior senators including Republican Lindsey Graham visiting last month. China responded to that trip by conducting air and naval training near the island. 

And

Last week, the State Department updated a Taiwan factsheet posted on its website, dropping a reference to not supporting the island’s independence, and describing it as “a leading democracy and a technological powerhouse.” It also said Taiwan was a key partner in the semiconductor industry and “other critical supply chains.”

On Wednesday, more than 50 senators signed a letter urging Biden to include Taiwan as a partner in the proposed Indo-Pacific Economic Framework, part of Washington’s efforts to counter China’s clout in Asia. Biden will hold a summit in Tokyo with the leaders of Japan, India and Australia as part of a trip to Asia that begins later this week.

Eoin Treacy's view -

I visited Taiwan before the pandemic because I regretted never having had the opportunity to visit Hong Kong before the handover. A large number of factors continue to converge around the Taiwan question. The country has prospered in a geopolitical grey area for decades. That is becoming progressively more difficult as geopolitical tensions amplify.



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May 19 2022

Commentary by Eoin Treacy

Bondholders Present Plan to Seize Control of Vale, BHP Venture

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

Bondholders presented a proposal to take control of Samarco Mineracao SA, a joint-venture between mining giants Vale SA and BHP Group Ltd. that’s under bankruptcy protection in Brazil, according to a plan filed in court.

The plan would slash the 24 billion reais ($4.9 billion) that Samarco said it owes the two companies to less than 960 million reais, according to Renato Franco, a partner at Integra, the consulting firm hired by the bondholders. Samarco listed about 50 billion reais in defaulted debt in its April 2021 bankruptcy filing.

An ad hoc committee of bondholders, representing 17 funds including Oaktree Emerging Market Debt Fund LP, offered Samarco creditors two options. One includes no discount on the face value of the debt, a 2% cash payment upfront and 38% converted into voting shares. Since those bondholders have about 20.6 billion reais of Samarco’s debt, and Vale and BHP would hold less than 960 million reais under their plan, creditors would take control of the firm. 

In this option, the voting shares could be sold in the future, through a private transaction or on the public markets, Franco said. The remaining 60% of the debt would be swapped into a new 10-year dollar bond paying interest rates as high as 10.5% a year, which would be capitalized in the first and second years, and decrease after that. 

Under the second option, creditors would have a 15% discount on the face value of the debt and the remaining 85% would be converted into an 18-year bond with interest rates no higher than 2.5% a year.

Samarco became unable to pay its debts after its waste dam collapsed in 2015, killing 19 people and almost destroying two villages in Mariana, Minas Gerais. The firm halted production, and it took until December 2020 before it was able to even partially restart operations. 

The creditors’ plan includes a proposal to speed up pellets and iron ore production at Samarco, at attempt to get the firm back to the 30 million tons per year it generated before the disaster, said Tito Martins, a former director at Vale SA who has been working as an adviser for bondholders. The idea is to double investments in 2023 and 2024 to $300 million a year, and get back to the previous production levels by 2026, three years before Samarco’s current plan.

Bondholders also propose making Samarco responsible for no more than $2.8 billion of the $8.4 billion that the bankruptcy-protection process allocates toward disaster repairs. Vale and BHP would pay for the rest. 

This is the first time creditors filed a restructuring plan for a company in Brazil, a possibility allowed under a new bankruptcy law, after a plan presented by the company was rejected in a meeting a month ago. The new plan must be approved at another meeting or through written and signed documents from creditors, said Marcos Pitanga, a lawyer hired by bondholders. 

Eoin Treacy's view -

This deal relates to the dam collapses in 2015 rather than the even more disastrous collapse in 2019 at a Vale facility.  The deal as laid out above sounds like a positive outcome for the creditors who will now gain control of significant iron-ore resources.



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May 18 2022

Commentary by Eoin Treacy

Video commentary for May 18th 2022

May 18 2022

Commentary by Eoin Treacy

Norway Targets Record Gas Sales This Year as Europe Shuns Russia

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

Norwegian gas sales are on course to test a record high this year as Europe seeks to reduce its dependence on top supplier Russia as soon as possible. 

Total exports from fields in the Nordic nation are poised to jump about 8% this year to 122 billion cubic meters, the government said in its updated outlook on Wednesday. The country sold similar volumes in 2017, a record year for exports.

The continent’s second-biggest supplier is pumping at full tilt, benefiting from record prices and higher demand than ever for its fuel. The European Union aims to curb imports from Russia by two thirds this year because of the war in Ukraine.

European prices spiked after Russia’s invasion in late February, deepening an energy crisis that started last year. Costs have since eased but they remain historically high and traders remain on the edge because of the uncertainty of flows and payment regimes. 

“High prices give the companies strong incentives to utilize the production capacity on the fields,” Petroleum and Energy Minister Terje Aasland said. “Companies are producing at full, or near full capacity.” 

Norwegian producers have tweaked operations at some fields, including reducing gas injections for oil recovery. Energy major Equinor ASA will also restart its Hammerfest LNG plant this month. The facility has been shut after a fire in late 2020.  

The extra volume would amount to an increase of about 9 billion cubic meters this year compared with 2021 sales. While every molecule counts, it’s just a fraction of Russia’s flows to the European Union, which exceeded 155 billion cubic meters last year. That was about 40% of the bloc’s total consumption. 

Eoin Treacy's view -

Europe has a chronic need to boost energy security. Importing from a friendly country, with a long history of sound governance like Norway, is infinitely preferable to relying on Russia. That’s great news for Norway’s balance of payments.



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May 18 2022

Commentary by Eoin Treacy

Stable Coin and the SEC

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

Current-SEC Chair Gary Gensler cuts this gordian knot by making the obvious remark that asset-backed stable coins are repackaging the securities held in the reserve, and so are derivatives hence themselves securities: ‘Make no mistake: It doesn't matter whether it's a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities ...these platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.’

In the way of the Terra/Luna collapse, he reiterated this conviction today: ‘there’s a need to bring greater investor protection to these crypto markets ... central to that are crypto trading and lending platforms, where investors buy, sell and lend around $100 billion of crypto assets a day. The crypto-related events in recent weeks have highlighted yet again how important it is to protect investors in this highly speculative asset class.’

Eoin Treacy's view -

The abrupt collapse of a $60 billion stablecoin has raised eyebrows. There has been a lot of discussion about how and whether to regulate the sector, but the size of the market and the potential for significant losses by retail investors is creating urgency. Regulation of crypto securities is inevitable. Jurisdiction is irrelevant if a country’s own citizens can purchase. That also suggests full transparency on where deposits are being invested is inevitable.



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May 18 2022

Commentary by Eoin Treacy

UK Inflation at a 40-Year High Engulfs Johnson and BOE in Crisis

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

The increase is more than double the pace of basic wage growth, squeezing consumer spending power at the sharpest pace on record. The pain is set to intensify, with the Bank of England predicting double-digit inflation by October when energy bills are almost certain to jump again. 

There was evidence of more generalized inflation, with a 6.7% jump in food and non-alcoholic drink prices. The cost of recreation and culture rose 5.9%, the largest increase since at least 2006, and restaurant and hotel prices were up 8%. Part of that was due to value added tax reverting to the normal rate after the pandemic. Furniture and household equipment rose 10.7%.

The cost-of-living crisis already has amplified the political debate about how to handle a series of shocks hitting the UK. Prime Minister Boris Johnson’s Conservatives government has targeted relief at those with jobs, while the Labour opposition is calling for an emergency budget to help pensioners and people on benefits. 

“Countries around the world are dealing with rising inflation,” Chancellor of the Exchequer Rishi Sunak said in a statement. “We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.”

Eoin Treacy's view -

The Pound came close to reversing yesterday’s rebound on global de-risking following Jerome Powell’s comments on persisting with policy tightening. Even though the price of oil was down $3 today, the weakness of the Pound has exacerbated the impact of the advance for European consumers. Brent crude in Pounds is still consolidating above the 2008 and 2012 peak. A sustained move back below £70 will be required to confirm a change of trend.



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May 17 2022

Commentary by Eoin Treacy

Video commentary for May 17th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: reversionary rally underway as China suggests support for the tech sector is forthcoming, dollar, gold and oil ease, bond yields continue to rise, high yield spreads continue to trend higher. Fed remains committed to tightening. 



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May 17 2022

Commentary by Eoin Treacy

A Bull Case Is Forming Around Bearishness at Hedge Funds, Quants

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

The violent selloff has forced many systematic macro strategies, including trend followers and volatility-targeted funds, to slash equity holdings. Last week, their exposure fell to the bottom of a five-year range that even if stocks resume selling, their unwinding would be relatively subdued, according to Morgan Stanley. 

For instance, should the S&P 500 drop 5% in one day, the cohort would need to offload less than $20 billion of stocks in the follow week, analysts including Christopher Metli estimated. That’s down from an expected disposal of over $100 billion at the start of the year.

Goldman’s long/short hedge fund clients saw their gross leverage falling 12 percentage points during the week through Wednesday, the largest reduction over comparable periods sine at least 2016, according to data compiled by analysts including Vincent Lin. 

Light positioning by hedge funds and quants is among indicators watched by Goldman’s Scott Rubner to determine whether investors have capitulated. With cash holdings elevated in mutual funds and day traders retreating, one missing ingredient to call the all-clear is a reduction of stocks in US household holdings and retirement accounts, he says.

“Tracking this cohort is my single and most important focus from the lows here,” he wrote in a note last week. “We have not capitulated, it is very slow on the way out.” 

Eoin Treacy's view -

There is still a great deal of uncertainty about the trajectory of monetary policy and the continuing impact of the war in Ukraine. The challenge for investors is to determine if this has been adequately priced in by the pullback to date.



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May 17 2022

Commentary by Eoin Treacy

Pound Jumps Most in 17 Months as Traders Eye Tight Labor Market

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

“People don’t need too strong an excuse to buy sterling right now,” said Geoffrey Yu, a strategist at BNY Mellon. “Even a modicum of good data or even data that isn’t as bad as previously expected can see them coming back because of valuations.”

The move accompanies a broader dollar decline, with the greenback underperforming all Group-of-10 currencies bar the Japanese yen as risk sentiment rebounded. The Bloomberg Dollar Spot Index slid 0.5%, a third day of declines and the longest losing streak since March.

Eoin Treacy's view -

The Pound is rebounding from the lower side of a lengthy medium-term range just as the Dollar Index is encountering some resistance at the upper side of its range. As risk appetite returns there is scope for both to unwind their respective overextensions.



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May 17 2022

Commentary by Eoin Treacy

China Economy Czar Vows Support for Tech Firms After Crackdown

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

China’s top economic official gave an unusual public show of support for digital platform companies Tuesday, suggesting Beijing may be ready to let up on a year-long clampdown on technology giants as it battles a slowing economy.

The government will support the development of digital economy companies and their public listings, Vice Premier Liu He, who is President Xi Jinping’s most senior economic aide, said after a symposium with the heads of some of the nation’s largest private firms. Baidu Inc. founder Robin Li, Qihoo 360 Technology Co.’s Zhou Hongyu and NetEase Inc. chief William Ding were among the tech luminaries spotted at the forum, according to a video posted online.

Liu’s remarks reported by state media were short on detail but signal further easing of the regulatory risk for China’s technology behemoths including Baiduand Tencent Holdings Ltd., as investors await clues on whether a rout in their shares is near an end. The Hang Seng Tech Index rallied as much as 6% Tuesday on optimism the meeting would affirm Beijing’s intention to dial back some of its restrictions.

Eoin Treacy's view -

China’s 7-day repo rate continues to trend lower. That’s supports the view the government is supporting the economy in a tacit manner. Liu He turning up to the symposium was already good news for the tech sector. Receiving overt verbal support was a bonus. Together with the supports for first time home buyers announced yesterday, this suggests China is aware of the risks from tightening too much and is ready to be more generous.



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May 16 2022

Commentary by Eoin Treacy

Video commentary for May 16th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: checken and egg of tightening financial conditions and buy the dip instinct, energy and grains break out, gold steadies, increased demand for bonds as growth fears mount, bitcoin closes below $30,000



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May 16 2022

Commentary by Eoin Treacy

Ride of the 'Volkyries'

Thanks to a subscriber for this report by Zoltan Pozsar for Credit Suisse. Here is a section:

As I see it, the risk of recession, whether it is real or merely implied by an inversion of the yield curve, won’t deter the Fed from hiking rates higher faster or from injecting more volatility to build up negative wealth effects, and signs of a recession might not mean immediate rate cuts to ramp demand back up …

…cuts may have to wait until the Fed is certain that inflation is surely dead.

Back to the level of the stock market under the Fed call.

According to President Daly’s comments, the recent stock market correction and the rise in mortgage rates is “great”, but not enough (“want to see more”). Chair Powell also noted in his press conference that he wants to see further tightening in financial conditions still. At face value, that implies that the Fed won’t stop shaping expectations until we see more damage to stocks and bonds.

Rallies could beget more forceful pushback from the Fed – the new game…

Eoin Treacy's view -

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

This is a welcome elucidation of the “chicken and egg” argument I have been talking about the audio/video commentary.
 
If the stock market and other financial assets sell off, the Fed will believe their policies are working which reduces the need for further tightening. However, if investors believe tightening is less likely they will buy the dip which will convince the Fed their policies are not sufficiently tight.



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May 16 2022

Commentary by Eoin Treacy

Delhi suffers at 49C as heatwave sweeps India

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

The effects are visible. Farmers say the unexpected temperature spikes have affected their wheat harvest, a development that could potentially have global consequences given supply disruptions due to the Ukraine war.

The heat has also triggered an increase in power demand, leading to outages in many states and fears of a coal shortage.

Mr Modi also flagged the increased risk of fires due to rising temperatures.

And

D Sivananda Pai, director of the Institute for Climate Change Studies, points to other challenges apart from climate change - such as increasing population and the resulting strain on resources.

This, in turn, leads to factors that worsen the situation, such as deforestation and increasing use of transport.

"When you have more concrete roads and buildings, heat is trapped inside without being able to rise to the surface. This warms the air further," Mr Pai says.

And the cost of such extreme weather events is disproportionately borne by the poor.

Eoin Treacy's view -

Anyone who has suffered through a muggy August in London will be familiar with the heat well effect created by concrete structures and air conditioners pouring hot air into the street.

That’s for a country that does not typically get temperatures approaching 40 degrees. For India, where pre-monsoon heat waves are typical, the urgency to industrialise is creating some unique issues.



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May 16 2022

Commentary by Eoin Treacy

Another Stablecoin Loses Its Peg as Algorithm Fails to Keep Pace

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

Deus Finance’s DEI token has lost its 1-to-1 peg to the dollar, becoming the latest failure of an algorithmic stablecoin during a period of crypto market stress.

DEI is currently trading at 70 cents, according to data tracker CoinGecko. With a market value of about $63.5 million, the token is tiny compared with the more than $18 billion TerraUSD stablecoin that shook crypto markets when it become depegged last week. 

Read more: Crypto Hedge-Fund Head Predicted Terra’s $60 Billion Implosion

Put out by Deus Finance, a marketplace for financial services, DEI is different from TerraUSD, or UST, in that it’s a fractional reserve stablecoin, backed by coin collateral, consisting of 20% DEUS tokens and 80% of other stablecoins, such as USDC.

Deus’s team is working to restore the peg, according to a Tweet.

The depegging comes several months after Deus Finance was hacked, with some coins stolen.

UST is currently trading at about 6 cents. Last week, even the world’s biggest stablecoin, Tether -- which is not algorithmic and claims to have full reserves -- lost its dollar peg before regaining it. Crypto bellwether Bitcoin is trading at less than $30,000, down from over its all-time high of almost $69,000 in November.

Eoin Treacy's view -

The TerraUSD coin is an algorithm based stablecoin, which relies on the value of its underlying token to support its value. That token, Luna, collapsed last week and took the stablecoin with it. The potential for contagion arises when stablecoins using money market instruments fail.



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May 13 2022

Commentary by Eoin Treacy

May 13 2022

Commentary by Eoin Treacy

Oil Climbs as Global Refining Crunch Drives Record Fuel Cost

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

Oil climbed as a global squeeze on refined products continued to pull fuel prices higher with Russian diesel exports falling sharply.  

West Texas Intermediate traded near $110 wrapping up another week of tumultuous trading where lowered liquidity exacerbated price moves. Diesel exports from Russia dropped in April from their prewar level as oil buyers seek to punish one of the world’s biggest suppliers. Investors have also been keeping a close eye on China as authorities in Beijing denied rumors that the city will go into lockdown even as new Covid-19 cases climbed.

Fuels are currently the bullish driver for crude, especially as Russian diesel exports drop, said Dennis Kissler, Senior Vice President of Trading, BOK Financial. “The path of least resistance still looks higher for all petroleum products as demand continues to outstrip supplies.”

Eoin Treacy's view -

Diesel and jet fuel prices have been making headlines this year because they are at record levels. The war in Ukraine and Europe’s reliance on Russia for 70% of its diesel have been blamed for this development. However, there is an additional consideration I have not seen mentioned elsewhere.



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May 13 2022

Commentary by Eoin Treacy

Capitulation

Thanks to a subscriber for this portion of a note from JPMorgan:

the bottom this time won't be a capitulatory puke, but more likely consistent selling which fades as it burns out, to wit:

... signs of a market bottom are unlikely to resemble traditional "capitulation" that’s played out in the last few years. Why? Because traditional capitulation is typically marked by a quick de-grossing by hedge funds + systematic macro strategies, where positioning is already light. Instead, the next leg of de-risking is likely to be more gradual, coming from asset allocators/real money/retail and is therefore likely slower to play out, making a precise bottom more difficult to call.

from a more tactical (i.e. very near term) standpoint, the bank writes that there are multiple metrics that suggest we could be closer to a bounce than before, including:

The magnitude of the drawdown in net and gross exposures (-33% for net and - 30% for gross) in N. America among L/S funds is now similar to the early 2016 and March 2020 declines

Retail flows in single-stocks have been very negative over the past 3 days, which has generally coincided with short-term lows over the past 6 months.

The drawdown in “risky” factors (e.g. high vol, small cap, low profitability) is one of the most extreme of the past 20+ years and the S&P has rallied over the following 1-3 months post hitting similar extremes

Buying of Defensives and selling of Cyclicals is also one of the most extreme with Staples vs. Discretionary in particular looking stretched

Eoin Treacy's view -

The significant declines seen in stocks and the return of P/E ratios to average readings have been sufficient to encourage some speculative value buying over the last couple of days. The other side of that argument is oil prices remain firm and the Fed intends to hike rates by an additional 100 basis points before the end of July. Rallies are hard to sustain when liquidity is contracting.



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May 13 2022

Commentary by Eoin Treacy

Email of the day on my leveraged gold positions

I was interested to see today that gold hit just below $1800 and your average buying price so far is at that level. You have had bids in the market for some time ...I wondered if they have been triggered with the $200 drop in the gold price in the last month. It feels like March 2020 when gold was swept up in the stock market declines in the rush to cash. Are we seeing a repeat now...in which case gold could make a swift recovery like it did then perhaps?

Eoin Treacy's view -

Thank you for this question which I’m sure will be of interest to the Collective. I also apologise for not speaking more about gold in yesterday’s audio commentary. It occurred to me last night that I had not mentioned gold in the broadcast and that was a glaring omission.



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May 13 2022

Commentary by Eoin Treacy

Email of the day on AI/Deep learning promises

Eoin, your comment "I feel bombarded with podcasts, YouTube videos, analysts and reports telling me about the inevitability of AI and deep learning transforming the global economy" is important. This is typical of the initial excitement about any new technology. History shows it takes 'a generation' (20-25 years) for a new technology to go through its slow and expensive development phase, with many failures in the early years despite the hype, followed by disillusionment for several years, or a decade or so, before it actually begins to pay back. I presented the data at David's Markets Now many years ago. Gartner capture this in their Hype Curve/Cycle chart. The initial hype phase is where Venture Capitalists get involved and they aim to exit before the disillusion phase sets in. Investors in public markets have to await the third phase, when the technology matures and starts to be economic. We'll get there with AI / Deep Learning - but not quite yet!

Eoin Treacy's view -

Thank you for this grounded email and I completely agree. The promise of AI will be delivered upon but that doesn’t often equate to a smooth ride for investors which is the big challenge at present. High valuations and high interest rates don’t play well together.



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May 12 2022

Commentary by Eoin Treacy

May 12 2022

Commentary by Eoin Treacy

Coinbase Gives $256 Billion Reminder About Agonies of Bankruptcy

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

Coinbase Global Inc., like the rest of the cryptocurrency market, is having a really tough week. Not filing-for-bankruptcy bad, but the biggest US crypto exchange did just mention the B-word in a regulatory filing, giving its customers a painful reminder of how bad things could get for them if Coinbase ever does get seriously distressed.

In its quarterly report, Coinbase added a risk disclosure: if the company were to file for bankruptcy, the court might treat customer assets that the exchange is custodian for -- their Bitcoin, Dogecoin or whatever -- as Coinbase’s assets. And they’d be at the back of the line for repayment, forcing normal people, unaccustomed to the ins and outs of federal bankruptcy court, to claw back their money along with everybody else owed money by the exchange.

It’s a huge amount at stake. Coinbase was custodian for $256 billion of customer money on March 31, according to the filing.

Chief Executive Officer Brian Armstrong quickly took to Twitter to elaborate, saying the company is not at risk of going bankrupt and that users’ funds are safe.

Eoin Treacy's view -

Segregated accounts didn’t save MF Global’s clients in 2019. It took six months to get two thirds of their money back and it’s not clear how successful efforts have been to recover the rest. Since the crypto markets are unregulated and Coinbase is an “exchange” rather than a broker, the funds are not truly segregated. The company might not be in imminent danger of going bust, but that only exacerbates the leverage to the bitcoin price. It’s a very binary bet.



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May 12 2022

Commentary by Eoin Treacy

Wheat Prices Spike as US Sees War, Adverse Weather Hurting Crops

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

From war to extreme weather, the world’s wheat crops are under threat, a view that’s being bolstered by a US report.

Production in Ukraine, one of the biggest growers, will fall by one-third compared to last year, according to a U.S. Department of Agriculture forecast. Other major producers are battling drought, floods and heatwaves. In all, global stockpiles in the coming season will dwindle to a six-year low. 

The smaller wheat harvests and a slow start to the US planting season is risking more food inflation ahead. Hunger is already on the rise in many parts of the globe.

Eoin Treacy's view -

Food stockpiles are low after two years of pandemic lockdowns. The war in Ukraine is an additional complication and prices are already high. The wildcard in terms of supply is Russia where farmers have access to fertilizer and oil from domestic sources. No one is going to broadcast they are buying Russia grain but that supply will reach market as prices rise.



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May 12 2022

Commentary by Eoin Treacy

India's Real 10-Year Yield Turns Most Negative Since 2020

This note from Bloomberg may be of interest to subscribers. Here it is full:

India’s faster-than-expected inflation print for April has pushed the pace of consumer-price rises above the benchmark bond yield by the most since 2020. The return of the negative real yield suggests the Indian debt may suffer a deeper selloff.

India’s real policy rate -- the spread between the central bank’s main rate and inflation -- has been negative for several months, like almost all emerging markets (China, Brazil and Indonesia are exceptions). But the latest inflation data has turned the market-determined real bond yield negative too.

India might just be paying the price for its hesitation to raise interest rates. The Reserve Bank surprised markets last week with a 40-bp hike, after previously saying it would stick with a dovish policy as consumption remained below pre-pandemic levels. It had hoped oil prices might come down, but crude prices remain above $100 a barrel and the nation’s consumer-price inflation is more broad-based, including items like clothing and footwear.

Eoin Treacy's view -

The upward pressure on inflation from the rising cost of commodity imports suggests the RBI will have no choice than to accelerate interest rate hikes. The Rupee has held a succession of lower rally highs since early 2021 and broke to a new all-time low today. Considering the strength of the US dollar, this has been a better performance than other regional currencies but that does not detract from the fact a weaker currency boosts inflation.



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May 11 2022

Commentary by Eoin Treacy

Video commentary for May 11th 2022

May 11 2022

Commentary by Eoin Treacy

Dollar Won't Be Haven Currency of Choice for Long

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

This in turn takes us to an interesting observation by George Saravelos, Deutsche Bank AG’s global head of currency research, who says that “we are perhaps now reaching the tipping point where further financial conditions tightening will start to place more severe headwinds to how much more we can reprice the Fed.” This will result in the dollar becoming less responsive to risk-off due to more dovish implications for the Fed path. And while it’s still early stages, Saravelos argues that “the market is starting to behave as if we may be approaching this tipping point.”

Now, even if inflation does peak this year, that won’t mean central banks will exit their tightening path, but will adjust it accordingly. Just look at the Bank of England’s latest forward guidance and the divide within the voting committee. At the same time, and if we talk stagflation or recession, we should consider that the yen may attract haven flows once again given its low inflationary readings, Japan’s current surplus and so forth.

Eoin Treacy's view -

Today’s month over month CPI figure was 0.3%. Analysts expected 0.2% but the prior reading was 1.2%. That’s still a moderation in near-term inflation, even if it is still rising. Year over year the rate is still 8.3% which is in the middle of what was expected and the last reading.



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May 11 2022

Commentary by Eoin Treacy

Patience through Bumpy Final Leg of Bear Market

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.

COVID cases are finally coming down in Shanghai which is positive news for the domestic economy. China remains exposed to the risk of further outbreaks because of the size and age of the population and the reluctance to be vaccinated. That holds out the prospect of continued lockdown phases for the foreseeable future. That’s a recipe for volatility. 



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May 11 2022

Commentary by Eoin Treacy

TerraUSD's Struggles Are a Concern for All Markets

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

Much more important, if TerraUSD fails it will be a blow to the hopes of many traditional financial institutions that rely on liquidity to maintain stability. That includes central banks, exchange-traded funds, mutual funds, derivatives clearinghouses, securities dealers and many others.

TerraUSD is an “algorithmic stablecoin,” meaning it attempts to maintain a $1 market price via an algorithm rather than traditional methods such as backing each token with an actual dollar. TerraUSD can be exchanged for $1 worth of another cryptocurrency, in this case Luna. Therefore, if the price of TerraUSD deviates from $1, arbitragers should force it back.

The Federal Reserve, although it doesn’t officially target the value of the dollar, can use a similar strategy if it wants to influence the currency’s value. If the value of the dollar falls either in terms of purchasing power or foreign-exchange rates, the Fed’s two main policy responses are to raise interest rates to make the dollar more attractive to hold, or to sell assets to soak up dollars, reducing the supply, and pushing up the price. TerraUSD uses mainly the second strategy, selling Luna to reduce the supply of TerraUSD.

The strategy relies on there being a liquid market for the asset being sold — mainly US Treasury securities for the Fed and Luna for TerraUSD. Unfortunately for the Fed, if the dollar’s value is falling, investors may not be enthusiastic about buying Treasuries, which pay off in future dollars and whose perceived credit may be impaired if too many have to be sold to soak up excess currency. TerraUSD has the same issue, the value of Luna is tied to the success of the Terra suite of products, which would be impaired by TerraUSD’s collapse

Eoin Treacy's view -

In a bull market leverage begets leverage. From the perspective of financial engineers there is no strategy that can’t be made better with leverage. Stablecoins are the crypto market’s version of money market funds. They aim to hold parity with the Dollar by buying near-cash items that pay a slightly higher yield than the Fed. Algorithmic stablecoins try to go one better and only trade in their own tokens. That’s great during a bull market. However, the value of any money market instrument is in its ability to redeem at par in times of stress. If it folds at the first sign of trouble it is not fit for purpose.



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May 10 2022

Commentary by Eoin Treacy

May 10 2022

Commentary by Eoin Treacy

Email of the day on the 60/40 portfolio:

For some time, the best-looking charts have been the yield charts, almost everywhere but particularly in Europe. They are a pure example of consistency.

Questions: with the trillions of dollars invested in these securities how are the losses going to be reconciled? My personal belief was that rates could not go to where they seem headed because of the losses it would imply. Is there a lower rate case? How does this logic chain play out? The "prisoners" that own these bonds, who are they and how many of them are there? Is the 60/40 cookie cutter approach to managing portfolios getting crushed? Is income the new oil?

Sorry for the multiple questions but intellectually the global losses in bonds has to be discussed in my opinion.

Eoin Treacy's view -

Thank you for these topical questions. I agree being short bonds (long yields) has been the most consistent breakout of any market anywhere this year. As a result there is no doubt bond portfolios have been under extraordinary stress. Reconciling losses in fixed income will mean pension contributions will have to rise, payouts will fall, recipients will need to work longer and/or assets prices will need to recover.



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May 10 2022

Commentary by Eoin Treacy

Email of the day on the Dollar and commodities

A very well-respected cotton trader in Texas told me many years ago, that amongst all the factors influencing the price of cotton, the value of the dollar is by far number one. I guess this also is true for the price of gold to some extent. I was presently surprised to see how well gold has held inspite of the dollar’s strength. Am I missing something? I would be grateful if you would share your views on gold in the current environment. As always thanks for your very valuable service. 

Eoin Treacy's view -

Thank you for your kind words and this topical question which may be of interest to the Collective. The Dollar usually trends higher when there is a wide interest rate differential with other currencies supporting it. That makes borrowing money for speculation more expensive, such liquidity out of the global economy, and reduces demand for raw commodities. That tends to weigh on commodity prices.



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May 10 2022

Commentary by Eoin Treacy

Email of the day on Rolls Royce and selling investments

Eoin, given how markets have deteriorated of late, could I be so cheeky as to ask why you have not cashed in on Rolls Royce yet? It looked like a great but when it near tripled to 140p, but it’s nearly halved now and you’ve sat tight. Surely there must have been a key technical level between then and now to warn you to sever ties with this one. I ask because I too sit on similar scenarios and I keep asking myself why I don’t cash in a while ago while the going was still good, making it more difficult to let go now, despite prices still sliding, seemingly day by day.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. The broad aerospace and airlines sector has been deeply affected by the pandemic lockdowns and is taking longer to recover than I expected. Nevertheless, I remain confident it will recover.



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May 09 2022

Commentary by Eoin Treacy

Video commentary for May 9th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: chicken and egg of higher yields and lower stocks. commodities pull back sharply as Chinese growth disappoints, the renminbi continues to accelerate lower and the dollar is firm, gold at potential support. 



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May 09 2022

Commentary by Eoin Treacy

Policy Has Tightened a Lot. Is It Enough?

Thanks to a subscriber for this article by Neel Kashkari for the Minneapolis Fed. Here is a section:

First, at a minimum, the FOMC must follow through on the forward guidance of federal funds rate increases and balance sheet reduction that we have already signaled in order to validate the repricing that has taken place in financial markets.

Second, we will need to see whether the supply issues that have contributed to high inflation begin to unwind and/or if the economy is in a higher-pressure equilibrium. I wrote about this possibility seven weeks ago. Unfortunately, the news from the war in Ukraine and the COVID lockdowns in China are likely delaying any normalizing of supply chains. If supply constraints unwind quickly, we might only need to take policy back to neutral or go modestly above it to bring inflation back down. If they don’t unwind quickly or if the economy really is in a higher-pressure equilibrium, then we will likely have to push long-term real rates to a contractionary stance to bring supply and demand into balance. The incoming data over the next several months should provide some clarity on these questions.

Finally, we will need to continue to assess where neutral is. If the economy is in fact in a higher-pressure equilibrium, that might indicate the neutral long-term real rate has increased, which would then require even higher rates to reach a contractionary stance that would bring the economy into balance.

Eoin Treacy's view -

Kashkari is not a voting member this year, so he has some leeway to speak his mind. The big takeaway is he has historically been viewed as a dove, so for him to talk about the need to create a recession to combat demand strength is notable. That is feeding into the current recession scare and financial conditions tighten.



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May 09 2022

Commentary by Eoin Treacy

Tesla's Impact Report Hints At The Future Of Battery Recycling And Battery Cost Declines

This short note from ARK Innovation ETFs may be of interest. Here is a section:

According to its Impact report for 2021, Tesla can recover raw materials from batteries with ~92% efficiency: for every 1,000 kWh worth of end-of-life batteries, Tesla recovers 921 kWh worth of raw metals to produce new batteries. The importance of recycling already is clear when cells don’t meet quality assurance during the manufacturing process. Tesla believes that “the costs associated with large-scale battery material recovery and recycling will be far lower than purchasing additional raw materials for cell manufacturing,” contributing significantly to continued battery cost declines and amplifying the importance of recycling as more electric vehicles reach end-of-life.

Eoin Treacy's view -

Here is a link to Tesla’s 2021 Impact report. It clearly states Tesla does practically no recycling at present, because its batteries have not been in the field long enough to provide adequate supply.



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May 09 2022

Commentary by Eoin Treacy

China Premier Warns of Grave Jobs Situation as Lockdowns Weigh

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

“Stabilizing employment matters to people’s livelihoods, it is also a key support for the economy to operate within a reasonable range,” Li said, urging businesses to resume production with Covid-fighting measures in place, while reiterating the government’s policy to promote the healthy development of internet platform companies to support employment. 

The premier’s warning on employment came after the nation’s surveyed jobless rate climbed to 5.8% in March, the highest since May 2020, according to data released by the National Bureau of Statistics in mid-April.

China’s top leaders last week warned against attempts to question the country’s Covid Zero strategy as newly released data for April showed the lockdown-dependent approach taking a heavy toll on the economy. The rolling out of even more intense restrictions over the weekend in Shanghai and Beijing adds further to the challenges facing policymakers seeking to shore
up growth.

Eoin Treacy's view -

Li Keqiang is often regarded as a bookish technocrat who thinks more in terms of the health of the economy than politics. Talking about rising unemployment is already sensitive when the question of the merit of the COVID-zero policy is beyond discussion. He is due to retire in a few months, and his successor is likely to be even more loyal to Xi Jinping.



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May 06 2022

Commentary by Eoin Treacy

May 06 2022

Commentary by Eoin Treacy

In the Long Run, These Equity Losses Barely Register

This article from Bloomberg highlights the philosophical attitude being adopted following a couple of days of rather extreme volatility. Here is a section:

A momentous week has ended with a thud rather than a bang (at least on the data front) as the U.S. employment numbers came out broadly in-line with expectations. To be sure, there were some notable features of the data -- a drop in both household employment and labor participation, though perhaps that was driven by the timing of Good Friday, which fell during the survey week. 

You can cherry-pick whatever you like from the figures to support your pre-existing view, so at this point it’s hard to say that they change much of anything. For now, the growth picture remains strong enough to support the policy trajectory that’s currently priced into rates markets. That, in turn, should continue to apply pressure to equities, regardless of how “cheap” they may seem.

From a macro perspective, the issue to focus on has clearly rotated from inflation to growth. Pretty much everyone understands that base effects will drive y/y CPI and PCE figures lower, but the run-rate of inflation will remain high enough for central banks to keep worrying ... and keep (or start) tightening. That policy trajectory will change when the growth outlook deteriorates significantly enough that demand looks more correctly aligned with supply. So that’s what we’ll be watching for.

While you can point to the 353k drop in household employment as a signal that the economy is weakening, that’s a pretty tenuous hook upon which to hang your hat at this point -- particularly given that household employment growth had comfortably outstripped the establishment survey over the prior six months. Moreover, the drop in the participation rate suggests the household figure may well have been a supply, rather than demand, issue -- which is problematic if the relatively elevated level of wages can still not attract fresh workers.

Eoin Treacy's view -

The pandemic economy is not the new normal. It was an anomaly fueled by money creation on a previously unimaginable scale. It is therefore reasonable to expect that unwinding much of the bonanza will be required to get inflation back under control.



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May 06 2022

Commentary by Eoin Treacy

U.K. Plans New Energy Law to Enable Renewable, Nuclear Build Out

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

The U.K. will introduce new laws for energy to enable a fast build out of renewables and nuclear power stations as set out in the government’s energy security strategy last month.

An energy bill will be included in the Queen’s Speech on May 10, according to a person familiar with the matter who asked not to be named because the information isn’t public.

The last significant set of energy legislation was in 2013 and the government has accelerated its push toward net zero significantly since then. Britain is targeting a tripling of installed nuclear power capacity by 2050 and plans to build 50 gigawatts of offshore wind farms this decade. The nation has also increased its ambition on hydrogen, solar power and measures to spur North Sea oil and gas projects.

“This country now has a raft of ambitious targets in place and the focus must now be on delivering these,” said Dhara Vyas, director of advocacy at EnergyUK. “A new Energy Bill should create a framework for a low carbon future. The energy industry is ready to deliver.”

Eoin Treacy's view -

North Sea oil allowed successive UK governments the leeway to avoid thinking seriously about energy policy. In the 15 years since the UK became a net energy importer, social cohesion has deteriorated, taxes have risen, debt has become problematic and social services have suffered. That’s not all because of energy imports but it is a factor at the margin.



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May 06 2022

Commentary by Eoin Treacy

India's Surprise Rate Hike Spurs Aggressive Tightening Bets

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

The Reserve Bank of India stunned markets Wednesday with a 40-basis point rate increase and a move to suck out billions from the banking system. That was a remarkable U-turn from February, when it announced an ultra-dovish policy, highlighting a relaxed stance toward inflationary pressures at home and U.S. tightening abroad.

“We believe the rate hike is a belated acknowledgment of the inflation risks and that policy has been behind the curve,” Nomura analysts Sonal Varma, Aurodeep Nandi and Nathan Sribalasundaram wrote in a note.

Yields on the benchmark 10-year bond jumped as much as 30 basis points on Wednesday to 7.42%, the highest since 2019, while the shorter 4-year yield saw a nearly 50 basis point jump. Yields extended gains on Thursday. 

Eoin Treacy's view -

Emerging market central banks have much more direct experience of the damage high inflation can do. They are usually alert to inflationary pressures and tend to implement remedial action quickly. Brazil hiking from 2% to 12.75% in little more than a year is a good example of that. That also helps to highlight just how out of step the RBI has been. The Repo rate was stock at 4% for nearly two years before this week’s hike.



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May 05 2022

Commentary by Eoin Treacy

Video commentary for May 5th 2022

May 05 2022

Commentary by Eoin Treacy

Pound Dives After Bank of England Signals Caution as It Raises Rates

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

Six MPC members voted for the rate rise to 1%, while three voted for a larger rise to 1.25%.

The central bank also said it has asked its staff to prepare a plan for selling some of the bonds it bought as part of its past stimulus programs. That plan is set to be outlined in August, but bond sales would start later.

However, the central bank indicated that it is likely to raise rates more slowly, if at all, in coming months, with the very high energy prices that have followed Russia's invasion of Ukraine set to squeeze household spending power and weaken economic growth.

In its statement, the BOE said further rises in its key rate "may still be appropriate" in coming months, but added that two of its policy makers didn't support that guidance and instead thought it likely the key rate would stay at 1%.

"There were risks on both sides of that judgement," the BOE said.

That greater caution is a contrast with the Fed, which Wednesday approved a rare half-percentage-point interest-rate increase to a target range between 0.75% and 1%. Fed Chairman Jerome Powell said at a news conference that officials broadly agreed that additional half-point increases could be warranted in June and July given current economic conditions.

Eoin Treacy's view -

The Pound rebounded yesterday and reversed that advance today following the reluctance of Andrew Bailey to talk about continued interest rate hikes. The decision was a long way from unanimous, which highlights the difficulty of containing inflation without causing a recession.



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May 05 2022

Commentary by Eoin Treacy

Email of the day on the cumulative effect on interest rate hikes

I seem to remember many years ago David saying that the time to be wary of share markets is after the third interest rate rise. Is this accurate and, if so, is it a relevant indicator for us now?

Eoin Treacy's view -

Thank you for this topical question which may be of interest to the Collective. The initial response to a new hiking cycle is generally seen as positive by investors because they prize efforts to control inflation and preserve growth. However, interest rate hikes have a lagged effect on the economy and are cumulative in nature. That means the initial enthusiasm at continued growth gives way to worry about the toll of withdrawing liquidity as the number of hikes builds. 



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May 04 2022

Commentary by Eoin Treacy

Video commentary for May 4th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: BoE and Fed tighten but guidance was not as hawkish as feared. Dollar eased, stocks rebounded, Treasuries steadied. oil surged, gold steadies. Upside follow through would confirm lows of at least near-term significance for most stock markets and increase scope for reversionary rallies.  
 



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May 04 2022

Commentary by Eoin Treacy

May 04 2022

Commentary by Eoin Treacy

Email of the day on value opportunities in telecoms

Your comments are often from a US perspective such as "telecom stocks are in downtrends such as Charter Communications". This is true for US telecom shares but many others, particularly in Europe have been going sideways for a number of years, potentially building bases such as KPN, Orange, Singapore Telecom, Telefonica, Vodafone and China Mobile. One or two have broken out to the upside. Would you be happy to comment on some of these charts?

Eoin Treacy's view -

Thank you for this email. I last did an extensive review of the high yielding global telecoms sector in November. Here is a link



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May 04 2022

Commentary by Eoin Treacy

EU Squeezes Hard on Russia, Sweeping In Oil, Bank, Business

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

The European Union plans to ban Russian crude oil over the next six months and refined fuels by the end

of the year as part of a sixth round of sanctions to increase pressure on Vladimir Putin over his invasion of Ukraine.

“This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined,” European Commission President Ursula von der Leyen said in remarks to the European Parliament. “We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimizes the impact on global markets.”

Hungary and Slovakia, which are heavily reliant on Russian energy and had opposed a sudden cut-off of oil, will be granted a longer timeframe -- until the end of 2023 -- to enforce the sanctions, according to people familiar with the matter.

Eoin Treacy's view -

A rumbling argument in the oil market is contributing to the evolving wedging characteristic in prices. For the bulls, the dislocation caused by Western Europe’s efforts to stop buying Russian oil, as well as leaning on other countries to do the same, is a clean support for prices. The bears believe the impending global slowdown will kill off demand, and the market will turn to surplus faster than many people expect. 



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May 04 2022

Commentary by Eoin Treacy

U.S. Cuts Quarterly Debt Sale, May Do So Again Even With Fed QT

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

The Treasury Department said in a statement Wednesday that it will sell $103 billion of long-term securities at auctions next week -- down $7 billion from February. This marks the longest string of quarterly cuts since a 2014-2015 cycle. In a surprise for some dealers, it’s also trimming sales of two-year, three-year and five-year auctions in coming months.

“The issuance plans announced today leave Treasury well positioned” with regard to necessary borrowing, the department said in its statement. However, “additional reductions in future quarters may be necessary depending on future developments in projected borrowing needs.”

Eoin Treacy's view -

The Fed hiked by 50-basis points today as expected and suggested 75 basis point hikes are not being actively considered. The pace of quantitative tightening will initially be slower than initially expected.  It will start on June 1st at $47.5 billion and ramp up to $95 billion over the next quarter instead of starting at $95 billion now.



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May 03 2022

Commentary by Eoin Treacy

Video commentary for May 3rd 2022

Eoin Treacy's view -

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

Some of the topics discussed include: stocks markets quiet ahead of Bank of England and Fed rate decisions, China rebounding on easier monetary policy, Australia weakness on tighter policy, commodities at risk from slower growth. The biggest risk to a recovery is stagflation. gold at 200-day MA, Russell 2000 at 1000-day MA. 



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May 03 2022

Commentary by Eoin Treacy

Rogoff Sees Fed Hiking Rates Up to 5% as Prices 'Out of Control'

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

Fed Chair Jerome Powell and his colleagues are expected to raise interest rates by 50 basis points on Wednesday and signal they’re on track to lift them to around 2.5% by the end of the year. But it’s not clear if that’ll be enough to tame inflation, which is running at more than three times the central bank’s 2% target. 

Rogoff spoke about the “risks of having a perfect storm” of recessions, where European economic growth contracts because of Russia’s war in Ukraine, China’s does the same due to “a failed Covid lockdown policy,” and the U.S. economy shrinks because the Fed “tightens too much, too fast.”  

“If China has a supply recession, which is really what we’re talking about, that’s going to feed inflation, it’s going to hurt demand in Europe,” Rogoff said. “I would say the risk has risen palpably, that this might happen,” he said of a U.S. economic contraction that would hit global financial markets. 

“Things could work out well, and so there’s a lot of uncertainty -- but it’s not hard to see all of these risks,” he said, adding that China “might already be bordering on recession.”

Eoin Treacy's view -

Over the last month Treasuries sold off aggressively, the Dollar surged, major stock market indices pulled back sharply, and gold contracted. Conventional energy sources like natural gas and coal surged while crude oil has been steady. 

These trends have been pricing in both the potential for successive 50-basis point interest rate hikes and the supply disruptions arising from Russia using commodities as an economic weapon. Tomorrow’s Fed meeting will deliver news on the interest rate front but will do nothing to change the Ukraine question.



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May 03 2022

Commentary by Eoin Treacy

Politburo Brightens Mood for China Stocks After Gloomy Month

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

“The meeting addressed most of the pressing issues in the economy and is intended to boost confidence and turn around negative sentiment,” said Xiong Yuan, chief economist at Guosheng Securities. “It’s a rare exception that the Politburo publishes the statement during the trading day. Clearly it’s meant to incentivize investors to hold on to positions ahead of the holiday.

China’s top leaders responded to calls from investors and analysts alike to revive an economy hurt by Covid lockdowns that this week spread to Beijing and Yiwu, disrupting business operations and roiling global supply chains. The Politburo’s readout -- which was released at the earliest time of day of any since at least January 2017 -- came ahead of a five-day break for onshore markets.

While headwinds for China’s economy and markets still remain, in particular the government’s adherence to Covid Zero, traders are now asking whether this can be the long-awaited market bottom. 

The CSI 300 Index jumped 2.4% Friday, trimming this year’s loss to 19%. That still makes it one of the world’s worst performing national benchmarks, far outpacing the 13% decline in MSCI Inc.’s Asia Pacific gauge.

Eoin Treacy's view -

Mainland Chinese stock markets are closed until Thursday for the May holiday, but Hong Kong reopened today. Faced with the political impossibility of altering the COVID-zero program, the central government have little choice but to cede some ground on its recalibration of the economy. That should represent further progress in supporting the trend of the credit impulse.



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