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August 24 2020

Commentary by Eoin Treacy

Video commentary for August 24th 2020

August 24 2020

Commentary by Eoin Treacy

Email of the day - on gold versus tech

Some people think that technology shares and gold are correlated. Why would this be the case for such different asset classes?

Do you think if the Nasdaq drops that precious metals will as well?

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. On an historical basis there is little correlation between technology and gold. For instance, tech did very well in the 1990s while gold languished. When gold took off in the early 2000s, most tech shares spent most of the decade ranging. When gold peaked in 2011, many tech shares were on the cusp of completing those long base formations. So, what’s changed?



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August 24 2020

Commentary by Eoin Treacy

Tesla resale values

This graphic from Bloomberg may be of interest to subscribers:


It’s early, but there are signs Tesla Inc.’s Model 3 could be as exceptional in the used market as it has been in the new-car world. The sedan has sold at volumes no other electric vehicle has come close to reaching, turning Tesla into the most valuable auto company in the world. Car-shopping websites still have small sample sizes to work with, yet so far, the Model 3s are retaining much more of their value than their small luxury-vehicle peers and they’re selling quickly once owners list them for sale -- on average just 29.3 days from March through June -- according to iSeeCars.com.

Eoin Treacy's view -

I took a test drive of a Model 3 and a Model Y on Saturday. It’s a pleasant experience. The acceleration, as reported, leaves every petrol driven car in the dust. For that reason, Tesla makes a big point of differentiating it product offering based on 0-60 times. I can’t fathom how anyone can really tell the difference between 3 and 4 seconds to 60 miles an hour in a city like Los Angeles where speeds of 30 miles an hour are the norm outside of the lockdowns.



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August 24 2020

Commentary by Eoin Treacy

Laura expected to reach Category 2 strength; Marco continues to weaken

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

Tropical Storm Laura’s forecast has it at hurricane strength on Tuesday and Wednesday. Laura’s predicted path as of 5 a.m. Monday had it making landfall near the Louisiana-Texas border late Wednesday or early Thursday.

But by Friday, Laura was “expected to produce rainfall of 5 to 10 inches, with isolated maximum amounts of 15 inches across portions of the west-central U.S. Gulf Coast near the Texas and Louisiana border north into portions of the lower Mississippi Valley,” the National Hurricane Center said.

Both storm tracks are unusually close to each other. If and how the two storms will interact with each other are highly uncertain, forecasters said.

Eoin Treacy's view -

This year has set records for named storms and there is still a couple of months left in the hurricane season. 



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August 21 2020

Commentary by Eoin Treacy

August 21 2020

Commentary by Eoin Treacy

Email of the day on big numbers

UK National debt hits £2 trillion. As in astronomy, it is difficult to get one’s head around the numbers A financial journalist put this into some perspective this morning. Someone living in ancient Egypt at the time of the great pyramid spending a million pounds a day over the next 3000 years would still have money to spare today!

Eoin Treacy's view -

Thank you for this comparison. It is also a £30,000 ($39,240) debt for every one of the UK’s 66.5 million people. By comparison the debt per capita of the US is now $80,000 per person. As with so many items, the absolute level is often less important than the trend.



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August 21 2020

Commentary by Eoin Treacy

Lyft, Uber Shares Jump on Delay in California Driver Rule

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

Lyft and Uber shares erased earlier losses to jump higher after the companies were spared from having to rapidly convert their California drivers to employees by a state appeals court

Shares of both companies had dropped earlier after Lyft said it will suspend its rideshare operation in California at 11:59 p.m. Pacific time today

“We don’t want to suspend operations. We are going to keep up the fight for a benefits model that works for all drivers and our riders,” Lyft said in statement

Lyft shares rose as much as 8.7%, Uber gained 7.8%

NOTE: Earlier, Former Uber Security Chief Charged With Obstruction of Justice

Eoin Treacy's view -

Tax codes generally favour business owners. It is in the public good to foster business creation because that improves the potential for new jobs to be created by entrepreneurs. The sole proprietor gains many of the benefits of business tax treatment, but also gives up the safety net provided by companies in the form of benefits. They lose access to unemployment benefits and the old age pension/social security benefits are also not as generous. In return sole proprietors generally pay less city, state and federal taxes than corporations do.



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August 21 2020

Commentary by Eoin Treacy

Email of the day - on risk appetites and the value of a subscription.

I am a pre-subscriber (financial constraints, exacerbated since Covid-19, make it impossible for me to become a full subscriber, I'm afraid, so I may not qualify for a reply. But David did reply to me on more than one occasion;  he was always so kind, and is greatly missed).

I remember your being on the panel at a money show in the conference centre in Westminster Square (I forget the name - possible Westminster Conference Centre) - it must have been about 2009 because I remember asking a question as to whether there were any "good" banks left that might be worth investing in.
  
Anyhow, in response to a question from another attendee about companies drilling for water in Australia, (or possibly into wind power or solar or even lithium miners (if it wasn't too early) - I forget exactly which), I remember you replying that you never favoured chasing these early-stage stories, and in general you have been proved right since.   

I still tend to class hydrogen fuel and battery power for vehicles in the same category, but perhaps you feel that times have changed sufficiently now?    Since I am only a pre-subscriber, and not able to read the full article, I appreciate that you may have said more on this there, or in previous Comments of the Day.
    
It seems to me that since hydrogen when mixed with oxygen is a very explosive mix (although this could also be said to a lesser extent of petrol vapour, I suppose), it would only take one careless mistake or faulty construction to cause a serious explosion.   But perhaps the design features are so tight that this would be impossible.   

At least I would trust an electric vehicle more than a self-driving one! In fact, I am a bit nervous by nature. I would never trust a Toyota now, after that stuck accelerator pedal caused a fatality. What the last minutes of those poor occupants were like I cannot face thinking about.

Whether it is possible to reply to this or not, many thanks Eoin for the comments that I am able to read daily. They give a very sane and reassuring perspective, especially in these difficult times.

Eoin Treacy's view -

David always saw value in conducting a public discourse with subscribers because it helped to educate us as much as the Collective. It also ensures we are covering topics of interest. I agree and one of the things I enjoy most is attempting to provide satisfactory answers to subscriber’ queries. However, as someone who has been familiar with the Service for at least 11 years, might I suggest you at least take a trial subscription?

If that is too much of a financial constraint it may be time to reassess your investment/trading ambitions. Investing involves a degree of risk. If you are uncomfortable with driving a Prius because of a fault corrected more than a decade ago, it might be time to conclude investing is not for you.

The response to this email continues in the Subscriber's Area. 



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August 21 2020

Commentary by Eoin Treacy

Gresham House Global Timber Outlook

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

Once countries have basic housing for the poor and an urban economy has installed the infrastructure to begin to grow, there is an increase in wealth, GDP and income per capita. This allows for a move from public housing to suburbanise into single unit family homes, something witnessed in many developed economies across the world. In the UK, the overall number of ‘housing starts’ has stayed largely flat since the 1970s, but the housing mix has changed from public to private homes. At the same time, timber consumption has increased as, on average, a single-family suburban home uses around three times the timber of a multi-family unit.

And

The result is that even when total new housing starts begin to level off, timber consumption increases again in the mature stage of an economy, leading to a third wave of timber construction. Not only is more timber used in single unit homes, the home improvements sector becomes a significant additional source of timber demand. In the US and developed world it contributes circa 35% of all consumption by the construction industry.

Eoin Treacy's view -

The big question for timber consumption in the medium-term is whether the trend of migration from cities to the suburbs will continue post COVID-19. The desire to exit population dense regions during the pandemic was understandable and not least because of the widespread public disobedience that characterised the lockdowns. The big question is whether that migration will be sticky. We do not yet know how long people will be happy working from home or whether they will miss the buzz of the city.



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August 21 2020

Commentary by Eoin Treacy

August 20 2020

Commentary by Eoin Treacy

Video commentary for August 20th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: moral hazard created by the Fed, gold and silver pause, bond yields contract, Nasdaq continues to lead on the upside, most other stock markets in negative territory, industrial resources firm,  



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August 20 2020

Commentary by Eoin Treacy

Fed Blog Says Debt Buying Aided Market Without Moral-Hazard Risk

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

The unprecedented speed and scale of the Federal Reserve’s buying of Treasuries and mortgage debt to aid a severely impaired bond market has accomplished that without raising the specter of moral hazard, Federal Reserve Bank of New York researchers wrote in a note.

Pandemic-sparked volatility in March caused liquidity in the world’s biggest bond market to plunge to its worst since the 2008 financial crisis. The Fed responded with purchases of Treasuries and mortgage securities that peaked at more than $100 billion a day combined.
It’s still soaking up about $80 billion of Treasuries and at least $40 billion of mortgage securities a month, and some bond veterans warn that the central bank’s involvement in the market could potentially be encouraging risky behavior, such as excessive borrowing. But a post Thursday in the New York Fed’s Liberty Street blog argued against that.

“The magnitude of the Desk’s purchase program in 2020 ‘to support the smooth functioning’ of the Treasury and agency MBS markets marked those purchases as highly unusual,” wrote Kenneth Garbade, a senior vice president in the New York Fed’s Research and Statistics Group, and Frank Keane, a senior policy advisor.

But they also say that the tool has been used before and “the infrequency of Federal Reserve intervention suggests that relying on the Fed on those rare occasions when markets are in extremis has not materially exacerbated moral hazard.”

Eoin Treacy's view -

Reading over the Fed minutes feels like an episode of the Twilight Zone. This quote in particular is relevant. “many participants judged that yield caps and targets were not warranted in the current environment but should remain an option.”. It doesn’t have to engage in yield curve control because the market is already behaving like it is a fact.



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August 20 2020

Commentary by Eoin Treacy

Email of the day on trading precious metals

According to other technical trading sites GOLD is a strong SELL and Silver is a BUY @ today's prices. You haven't mentioned Silver or Platinum for a number of days. I am tempted to start getting back into Silver ...... Keep up the good work,

Eoin Treacy's view -

Thank you for this insightful email. If all we did was look at short-term trading indicators, there would be no way to get a big picture perspective. I am very hesitant to ever short in a secular bull market. There will be times when taking a partial profit is opportune but the best way to play a big bull market is to be willing to buy on occasional bouts of weakness.



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August 20 2020

Commentary by Eoin Treacy

Ballard Power Gets Stock Upgrade as Hydrogen Vehicles Gain Steam

This article by Divya Baljifor Bloomberg may be of interest to subscribers. Here is a section: 

Ballard Power, one of Canada’s best-performing stocks this year, just got an analyst upgrade as
governments and vehicle manufacturers around the world push for the development of battery and hydrogen vehicles. BLDP fell as much as 9.5% intraday Thursday in Toronto.

* Stock raised to outperform from sector perform, PT increased to C$20 from C$18 by National Bank of Canada analyst Rupert Merer

* Ballard is in discussions with potential partners in Europe and could form a joint venture with a top-tier supplier; China could have a detailed hydrogen plan come soon, targeting one million hydrogen vehicles by 2030

* Merer sees a number of positive catalysts this year and the stock is still well priced compared with its peers

* Ballard is up more than 110% this year, making it the fourth best performing Canadian stock, vs the S&P/TSX Composite Index’s 2.7% decline

* NOTE: July 29, Fuel-Cell Firm Stages Comeback 20 Years Later With Help of China

Eoin Treacy's view -

I’ve created a reasonably complete list of companies from all over the world focusing on the hydrogen/fuel cell sector in the Chart Library.

Weichai Power has been extremely active in buying up rights to use and commercialise fuel cell technology developed in Europe and North America over the last few decades. The sector has never gotten off the ground because it was not economically feasible and there was not real incentive to try it out. That is now changing.

Some of the factors combining to support the trend include:  



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August 19 2020

Commentary by Eoin Treacy

August 19 2020

Commentary by Eoin Treacy

Email of the day on investing in 5G

good morning Eoin I enjoy every morning your briefing - thanks! could you guide me to an ETF which invests in the most promising companies benefitting from 5 G technology development? thanks, and greetings from Switzerland.

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. With an infrastructure build on the scale of what is necessary to get up and running with 5G the first moves were the infrastructure companies. South Korea was first to launch a nationwide network and China followed last year. Europe and the USA are lagging significantly. Latin America and Africa are even farther behind.



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August 19 2020

Commentary by Eoin Treacy

HSBC Tells Bank of England Now Is Not the Time for Optimism

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

Haldane has said Britain’s economic bounce back from the coronavirus-induced recession is looking V-shaped so far. Not all his colleagues on the Monetary Policy Committee seem comfortable with that view though -- Silvana Tenreyrohas warned of a likely flattening off later in the year and Governor Andrew Bailey has said there are a “lot of hard yards” ahead.

A compilation of forecasts published by the U.K. Treasury on Wednesday also showed a gloomy shift among economists. The average prediction for 2020 is now a 10% contraction, versus 9.2% in July.

Martins now reckons the British economy will shrink more than 10% this year, and still be almost 5% smaller than its pre-virus level by the end of next year. That’s somewhat more downbeat than the BOE’s projections.

Still, she’s not forecasting any more monetary easing by the BOE just yet, saying further fiscal stimulus from the government is more likely. If the BOE does need to act, as most economists believe, she predicts more bond-buying, easier loans for companies, and potentially another cut to the 0.1% benchmark interest rate.

Eoin Treacy's view -

The UK administration was caught flatfooted by the onset of the coronavirus. As with other late-acting countries, the early resistance to a lockdown contributed to widespread community spread. It means the recovery will be inhibited by the need to tackle large numbers of potential infection vectors. However, there will be a recovery. That will be achieved either by communities learning to live with the virus, a vaccine or community immunity.



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August 19 2020

Commentary by Eoin Treacy

The ecommerce surge

This article by Benedict Evans may be of interest to subscribers. Here is a section:

Both the UK and (today) the USA have given official statistics on how ecommerce and retail have changed during lockdown. The headline numbers are pretty dramatic. The UK went from 20% ecommerce penetration to over 30% in two months, and the USA from 17% to 22%.  

This spike partly reflects a shift in the denominator: digital increased while sales at most physical retail declined, except for groceries. This effect was much stronger in the UK, where lockdown was much deeper. Even so, absolute US ecommerce sales rose 32% in Q2. Interestingly, though, absolute UK ecommerce has continued to accelerate even as the lockdown has eased (the UK’s monthly ecommerce numbers make this visible, where the quarterly US reporting makes it harder to tell.

Eoin Treacy's view -

The lockdowns have been a golden opportunity for ecommerce brands to capture market share. It’s also likely that they will be able to hold that gain once consumers become accustomed to having their purchases delivered.

The primary concern is how much more they can grow beyond the current percentage of the market? There is no doubt that anyone who was thinking of buying online has now done so at least once. Being cooped up at home for months leads to all manner of experimentations and online shopping has certainly benefitted.



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August 18 2020

Commentary by Eoin Treacy

August 18 2020

Commentary by Eoin Treacy

Dollar Erases Trade-War Gains After Sinking to Lowest Since 2018

This article by Carter Johnson may be of interest to subscribers. Here is a section:

The dollar sank to its lowest level since May 2018 on concern that the world’s biggest economy will struggle to regain momentum amid a standoff over further virus relief and as infections continue to mount.

The greenback has now erased most of the gains it built on the back of U.S.-China trade tensions that started heating up around two years ago, fueling worries about global growth prospects. This time investors see the U.S. as the potential laggard amid questions over the government’s response to the pandemic. The euro climbed to a two-year high, extending its advance since last month’s landmark European Union stimulus package brightened the region’s prospects relative to the U.S.

The dollar has been on the defensive since mid-year, with U.S. lawmakers unable to agree on measures to support the economy’s recovery from the pandemic, and with the nation’s real yields dropping to multiyear lows. On top of all that, investors’ attention is turning to the November presidential election and the uncertainty that may bring.

Eoin Treacy's view -

The primary argument to support US Dollar strength over the last few years was supply related. The Federal Reserve was raising interest rates and simultaneously reducing the size of its balance sheet.

Never mind whether that was a contributing factor in the pop in high yield spreads at the end of 2018 or the freezing up of the repo market in the autumn of 2019. The supply deficit was a central factor in boosting the value of the Dollar simply because there were fewer of them around. The situation could not be more different today.



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August 18 2020

Commentary by Eoin Treacy

Accelerating AI Adoption in Bio-Pharma through Collaboration

This whitepaper from Insead may be of interest to subscribers. Here is a section:

In these trying times, we have seen many examples of digital technology and innovation flling in the gap. Among these, telemedicine and chatbots have been very helpful for frst-line triage and early-stage diagnosis. China’s AliHealth and JD Health both expanded their telemedicine services for distant consultation and preliminary diagnostics with physicians to prevent the spread of the virus. They also launched diferent versions of their chatbots (a basic form of AI) to disseminate COVID-19 related medical information, health recommendations as well as Q&As.

In the US, the CDC used Microsoft’s healthcare chatbot service to create a coronavirus symptom checker and Whatsapp (owned by Facebook) launched the WHO Health Alert to share critical information to millions of users worldwide. In India, Facebook also used its helpdesk bot to share news and answer user questions relating to the pandemic.

Closer to home, it was encouraging to see smaller European startups launch similar initiatives, such as the French startup Clevy which is among Early Metrics’ highly rated companies and has created Covid-bot.fr.

These speedy developments in response to the pandemic were a testament to the real value brought by these technologies and to the reactivity of young innovative companies. We hope they will inspire future considerations for public healthcare systems to welcome innovation from both tech giants and emerging innovators.

Eoin Treacy's view -

Crises force changes in behaviour. I know our family had never used telemedicine before the crisis. However, it was certainly helpful on a least two occasions over the seven months when we had questions that would normally have required a doctor’s visit. The fact the service is included in the price of our health insurance was also a bonus.



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August 18 2020

Commentary by Eoin Treacy

GM Shares Soar on Electric-Vehicle Spin-Off Speculation

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

GM does plan to sell more than 20 EV models around 2023. That business could be spun off for $20 billion and eventually be worth as much as $100 billion, Deutsche Bank’s Rosner said. GM’s core business selling gasoline-powered sport utility vehicles and pickup trucks is generating cash but viewed as being in long-term decline and is less exciting to investors than the company’s electric-car plans, he wrote.

Despite the share gains this week, the Detroit-based automaker’s stock is down about 17% so far this year while all-electric rival Tesla Inc.’s value is eight times that of GM. By spinning off its EV business, GM could get the kind of momentum enjoyed by Tesla and a handful of startups that have lured capital despite their having no vehicles on the market.

Battery-powered cars have caught the imagination of investors in recent weeks, sending shares of Tesla to successive record levels and boosting the value of electric startups such as Nikola Inc., Fisker Inc. and Lordstown Motors Corp., all of which took a fast track chasing public listings after being acquired by special purpose acquisition companies.

Eoin Treacy's view -

The entire automotive supply chain has concluded there is no future in internal combustion engines. Not only are battery costs coming down and efficiency improving but the regulatory environment continues to squeeze traditional manufacturers.



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August 17 2020

Commentary by Eoin Treacy

August 17 2020

Commentary by Eoin Treacy

Gold Miners Jump With Berkshire's Barrick Bet Fueling Outlook

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

Barrick Gold Corp. advanced the most since March, leading a surge in precious-metals miners after Warren Buffett’s Berkshire Hathaway Inc. added the company to its portfolio.

Barrick, the world’s second-largest miner of the metal, jumped as much as 12% and a Bloomberg Intelligence gauge of senior gold miners climbed after Berkshire on Friday reported a purchase of 20.9 million shares as of the end of the second quarter. Colorado-based Newmont Corp., the largest producer, also gained Monday, along with Kinross Gold Corp. and Harmony Gold Mining Co.

Gold miners are benefiting as near-record bullion prices boost profit margins and help them lure back generalists who fled the sector years ago. In the past, Buffett, the billionaire chairman of Berkshire, cautioned against investing in the metal because it’s not productive like a farm or a company. The filing shows moves made by Buffett or his two investing deputies, Todd Combs or Ted Weschler.

 

Eoin Treacy's view -

When the world’s most storied value/quality investor dumps banks and buys a gold miner it might not make a big difference to Berkshire’s bottom line but it sends an important message about where the company see’s opportunity. Investment in new greenfield mines has not been attractive for much of the last decade. Meanwhile demand is rising for a growing number of reasons, not the explosion in the supply of debt and competitive currency devaluation. That’s a recipe for a bull market.



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August 17 2020

Commentary by Eoin Treacy

PBOC Adds Cash to Ease Liquidity Stress With Rate Unchanged

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

China’s central bank supplied liquidity to commercial lenders on Monday to help them manage upcoming government bond sales, while leaving the price of the money unchanged as the economy recovers.

The People’s Bank of China added 700 billion yuan ($101 billion) of one-year funding via the medium-term lending facility. The central bank said Friday that today’s operation is meant to offset the 400 billion yuan in loans coming due Monday and another 150 billion yuan maturing on Aug. 26.

With the economy recovering slowly, the PBOC is trying to provide markets enough funding to purchase government bonds and make loans without fostering financial risks. In addition to Monday’s money, the central bank last week offered the most short-term funds since May, replenishing a banking system which needs about $500 billion this month.

The net injection indicates “a more accommodative stance on keeping liquidity levels ample” so that commercial banks can continue to support bond issuance and to stabilize credit growth, said Liu Peiqian, a China economist at Natwest Group Plc. in Singapore. The move is “a signal to ensure policy continuity and stability” rather than a reaction to a slower pace of economic recovery, she said.

The PBOC kept the interest rate on the funds unchanged at 2.95%. The yield on China’s 10-year government bonds fell 1 basis point to 2.93%.

“The MLF injection is larger than expected,” said Ming Ming, head of fixed-income research at Citic Securities Co. in Beijing. “The PBOC’s overall neutral monetary policy has an easing bias in August. I expect the 10-year government yield to drop to around 2.8%.”

Eoin Treacy's view -

The big unknown for the Chinese debt markets is where the natural default rate resides. It’s impossible to know since they never allowed defaults until quite recently. The current situation does not give an accurate picture either, since the aftershocks of the lockdowns are impossible to predict with any kind of accuracy. What we do know is the number of defaults is rising and has not stopped rising since the first were announced a couple of years ago.



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August 17 2020

Commentary by Eoin Treacy

Black silicon photodetector hits record-breaking 132% efficiency

This article by Michael Irving for NewAtlas may be of interest to subscribers.

Together, these advances made for a device with 130-percent external quantum efficiency. The team even had these results independently verified by the German National Metrology Institute, Physikalisch-Technische Bundesanstalt (PTB).

The researchers say that this record efficiency could improve the performance of basically any photodetector, including solar cells and other light sensors, and that the new detectors are already being manufactured for commercial use.

Eoin Treacy's view -

The efficiency of solar cells has been improving steadily for the last forty years. The capital poured into the renewables sector following the collapse in interest rates a decade ago, has been the catalyst to greatly enhance the speed with which efficiency gains are being delivered.



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August 14 2020

Commentary by Eoin Treacy

August 14 2020

Commentary by Eoin Treacy

BioMarin Transformative Gene Therapy Turns Goldman More Bullish

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

A deeper dive into the cost-effectiveness of BioMarin’s Roctavian, which is on track to become the first
approved gene therapy for Hemophilia A, and physician awareness left Goldman’s Salveen Richter more bullish on the prospects for the “transformative” therapy. * #

Boosts already Street-high PT to $218 from $172, as research suggests a two- to three-times larger prevalence pool than previously estimated

** Sees average gross price of $2m-$3m as cost-effective compared to prophylactic factor therapy or Roche’s Hemlibra

* “Majority of physicians plan to prescribe the drug upon approval to ~30% of their eligible patients and see utility across all severity levels”

* Expects rapid adoption with an industry specialist highlighting that recent announcements by various payors for coverage of gene therapies bodes well for Roctavian

* A decision from FDA is due Aug. 21 * BMRN shares are up 63% in the past year compared to a 30% gain for the Nasdaq Biotech Index

* NOTE: Aug. 4, BioMarin Second Quarter Loss Per Share Wider Than Estimates
 

Eoin Treacy's view -

The big difference between genetic solutions and pharmaceuticals is they provide solutions rather than treatments. Healthcare cashflows have been utility-like because of the predictable progression of a disease and the requirement for long-term chronic treatment. That ensured that every new patient represented a reasonably predictable set of cashflows with a well-defined time horizon.



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August 14 2020

Commentary by Eoin Treacy

Retail Chains Abandon Manhattan: 'It's Unsustainable'

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

For four months, the Victoria’s Secret flagship store at Herald Square in Manhattan has been closed and not paying its $937,000 monthly rent. “It will be years before retail has even a chance of returning to New York City in its pre-Covid form,” the retailer’s parent company recently told its landlord in a legal document.

“In the prime real estate areas, all the stores rely on having half international tourists and half local tourists or those from the local neighborhoods,” said Thiago Hueb, a founder of a jewelry company who had decided to close his flagship store on Madison Avenue before the pandemic struck because of high rents.

Now brokers are calling him trying to lure him back to the block, but Mr. Hueb, whose jewelry is sold in 80 department stores nationwide, is not interested.

“The avenue is no longer what it used to be,” he said.

J.C. Penney and Neiman Marcus, the anchor tenants at two of the largest malls in Manhattan, recently filed for bankruptcy and announced that they would shutter those locations.

Eoin Treacy's view -

It easy to give into the groupthink that the lockdowns will last forever. They won’t. By the time next summer swings around the world is going to be awash in tourists again. The lure of US retail will still be powerful for international travellers. The sheer scale and variety is hard to beat, but the high sales taxes and import taxes elsewhere make the USA a favoured shopping destination. Between now and then we can expect a significant transfer of assets from weak to strong hands.



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August 14 2020

Commentary by Eoin Treacy

Platinum Quarterly Presentation Q1 2020

This report carries a great deal of relevant information for the platinum market. Here is a section:

Automotive demand down only 17% (-132 koz) YoY despite a 24% fall in Q1 light global vehicle sales

Tightening global emissions standards, driving higher pgm loadings, partially counters lower auto sales/production

W. Europe diesel share decline slowed on increased diesel sales

Diesel vehicles still key for automakers to avoid or reduce heavy CO2 fines

German diesel car market share continued to recover (Q1’20 average 35%, up 1.3% over 2019 average)

Eoin Treacy's view -

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

It’s easy to think that diesel is a dead fuel but sales still continue. The damage to consumer confidence may, however, be impossible to overcome. That is creating a new market for transportation alternatives. 



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August 13 2020

Commentary by Eoin Treacy

August 13 2020

Commentary by Eoin Treacy

Asia Ex-China

Eoin Treacy's view -

A question that has been bugging me for a while is how well are Asia’s markets performing on aggregate? The MSCI Emerging Markets Index is heavily weighted by China and by commodity producers dependent on China. Therefore, it does not give us an accurate picture of what is happening the rest of the emerging universe. 



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August 13 2020

Commentary by Eoin Treacy

Now what? Gold correction or top?

Thanks to a subscriber for this report from Canaccord Genuity 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. 

I continue to think about my coffee cup analogy for inflation. When the cup is half full you need to stir quite quickly to get the level of liquid up towards brim without spilling over. When stirring slows down, the only way to maintain the level is to add more liquid. When stirring picks up again you had better siphon some of the liquid out or it will spill messily over the edges.



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August 13 2020

Commentary by Eoin Treacy

Changes in the global value of ecosystem services

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

3. Valuation is not privatization It is a misconception to assume that valuing ecosystem services in monetary units is the same as privatizing them or commodifying them for trade in private markets (Costanza, 2006; Costanza et al., 2012; McCauley, 2006; Monbiot, 2012). Most ecosystem services are public goods (non-rival and non-excludable) or common pool resources (rival but non-excludable), which means that privatization and conventional markets work poorly, if at all. In addition, the non-market values estimated for these ecosystem services often relate more to use or non-use values rather than exchange values (Daly, 1998). Nevertheless, knowing the value of ecosystem services is helpful for their effective management, which in some cases can include economic incentives, such as those used in successful systems of payment for these services (Farley and Costanza, 2010). In addition, it is important to note that valuation is unavoidable. We already value ecosystems and their services every time we make a decision involving trade-offs concerning them. The problem is that the valuation is implicit in the decision and hidden from view. Improved transparency about the valuation of ecosystem services (while recognizing the uncertainties and limitations) can only help to make better decisions.

Eoin Treacy's view -

Assigning a value to the natural world is at once both helpful and also deeply concerning. On the one hand it helps to ascribe a value to the benefit each of us receives from the place we call home, the air we breath and the water we drink. These are often factors we take for granted, but we are increasingly being re-educated to think of the unnatural way in which these gifts have been distributed.



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August 12 2020

Commentary by Eoin Treacy

Video commentary for August 12th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: precious metals pause following yesterday's weakness, emerging markets are pivotel point in recovery, Dollar remains weak, Europe and Japan firm, Industrial metals steady, bond yields firm again.  



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August 12 2020

Commentary by Eoin Treacy

Email of the day on stops and my personal portfolio:

Why did you not share the fact that you had stop losses at USD 2,000 for gold and USD 27.50 for silver? I consider this just as important as sharing the information on the purchase and sale of your positions. Especially in light of the fact that your mantra has been for a long time that PMs are "potentially due for a consolidation" which leaves your subscribers pretty much in the dark of how you intend to act if and when the "potential consolidation" sets in and what in your personal view is the right way of (re-)acting. Sharing only ex-post the information that you actually had stop losses in place AFTER they are executed feels more like " adding insult to injury".

And

I wondered whether you can communicate in earlier fashion to your subscribers when you are trading. You don’t trade often, but with high conviction when you do. After seemingly having high conviction in a potential decade long bull market in Gold, I was a little surprised to learn you’d had a tight stop on your Gold position, this exiting at $2,000. Only the day before you were talking about Gold having lots of room to consolidate. With the decline moving through $1,900 temporarily at least, it seems you were right to sell, but I wonder how we as investors can access that critical data point in more real time. By the time we learned of it this morning, Gold had already moved through $1,900. Similarly, Silver experienced the same sort of fall, only steeper given its more volatile nature.

Eoin Treacy's view -

Thank you both these emails which offer me an opportunity to clarify some points both with the provision of my personal portfolio trades and my approach to profiting from the unfolding bull market in precious metals.

My personal portfolio is provided as a public service not as a model portfolio or as a recommendation for what you should do. Inevitably some subscribers will follow my trades but these are not recommendations. In fact, we have never made recommendations because who would they be for? The reality is subscribers come from all walks of life and financial means; ranging from private individuals right up to sovereign wealth funds. Advice for one person would in no way be appropriate for another.



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August 12 2020

Commentary by Eoin Treacy

Email of the day - on returning customers

Dear Eoin and team, I would like to thank you very much for the big difference you have made to my confidence in advising my clients, since I re-joined the service. If only I could find a way of explaining the benefit to my professional contacts! All the very best

Eoin Treacy's view -

Thank you for your kind words and welcome back. The one thing I would highlight for prospective subscribers is that in the evolving global tapestry of events, some big picture perspective is likely to be beneficial.



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August 12 2020

Commentary by Eoin Treacy

Email of the day on Vietnam and coronavirus

Dear Eoin, I've enjoyed reading your words for quite a while. Today is the first time I am writing you. You included a snip-it from Martin Spring suggesting a genetic component to how people from Southeast Asia avoid infections. You also suggested that it might be potential herd immunity from previous outbreaks.

As a person who has lived in Hanoi for 12 years, I wanted to share my insights with you.

First, and foremost, the government was very quick to shut things down here. The border with China closed even before we had our first case in country. Given the history with previous outbreaks, the government knew enough to act swiftly.

Second, lots of propaganda. In every neighborhood there are announcements about covid. On TV you are reminded constantly about covid. Every time you call someone, they insert a message between the time you press the button and it starts to ring. That message reminds everyone to wear a mask, wash your hands, keep your distance, etc.

Third, people here are more compliant. Conflict is frowned upon. The government says do it, you do it. They say you will protect your parents and grandparents, so you do it out of respect. Young people often avoid wearing helmets on their motorbikes (required by law) but they all wear masks.

Fourth, and something I have not seen stated before, is the Vietnamese language itself. Vietnamese is an under-aspirated language. That is, people breath much less when they speak. In the English- speaking world, sometimes we feel others spit on us accidentally while they are speaking. This does not happen in Vietnam because of the way the language works.

In short, there are plenty of reasons why Vietnam, in particular, has been lucky. Of course, we just started our second wave and now have 16 deaths. Still, I see no reason to believe that there is a genetic component to Vietnam's good fortune. Keep up the great work. Even those of us who never write to you find great value in your insights. Best regards, J.

Eoin Treacy's view -

Thank you for this informative email and your kind words. The Vietnamese response has been very impressive and I in no way wished to disregard the Herculean efforts they have made to contain infection. I did however wish to draw some attention to the question of where the disease in fact originated.



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August 11 2020

Commentary by Eoin Treacy

Video commentary for August 11th 2020

August 11 2020

Commentary by Eoin Treacy

Gold Heads for Biggest Drop in Seven Years on Rising U.S. Yields

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

“Today real rates clearly moved higher and that’s clearly what moved gold lower,” Michael Widmer, head of metals research at Bank of America Merrill Lynch, said by phone from London.

“You had stronger PPI data out and I think when that data came out the market had another look at rates and expectations.” Exchange-traded fund investors also took a breather, seeing back-to-back outflows for the first time since June. On Friday, State Street Corp.’s SPDR Gold Shares, the largest gold-backed ETF, saw its biggest outflow since March. Meanwhile, a Bloomberg Intelligence gauge of senior gold miners dropped the most intraday since March, down as much as 5.7%.

Eoin Treacy's view -

From a medium-term perspective gold does best in a negative real interest rate environment. The inverse correlation between TIPS yields and gold over the last two months has been very tight because investors have been actively seeking a hedge against devaluation of purchasing power.



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August 11 2020

Commentary by Eoin Treacy

Moderna Wants to Transform the Body Into a Vaccine-Making Machine

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

The excitement around mRNA goes beyond the pandemic. Proponents hope it can become a wide-ranging platform that will lead to vaccines for other difficult-to-treat infections, as well as customized cancer shots and even heart disease treatments. “It’s a big moment for mRNA therapeutics in general, because now it’s a household word and everybody knows about it,” says Derrick Rossi, a stem cell biologist who was a co-founder of Moderna in 2010 but is no longer affiliated with the company. “For Moderna, it’s the first time on the global stage.”

Interest in using genetic material to turn the body’s cells into vaccine factories dates to a series of experiments in the early 1990s. In 1993 researchers at Merck & Co. injected lab mice with loops of DNA that contained instructions for influenza proteins. To the surprise of the scientists, the mice generated an immune response that protected against the flu. The concept, so elegant it seemed almost too simple to be true, produced a surge of excitement among vaccine experts.

But though DNA vaccines worked in animals, they weren’t successful in initial human trials. It was difficult to get sufficient amounts of DNA into human cells, and when scientists overcame that, the vaccines turned out to be less potent than needed. (They were tried on the most challenging diseases, including HIV.) Over the years research into DNA vaccines has continued, but none has made it to market for humans. Inovio Pharmaceuticals Inc., a dark horse in the Covid-19 vaccine race, is testing a DNA-based approach. It uses a hand-held device to zap the skin with electric pulses after an injection, opening up holes in cell membranes to allow in more DNA.

A few lonely scientists pursued mRNA therapies for years. In 2005, University of Pennsylvania researchers Katalin Kariko and Drew Weissman found that a slight modification to the mRNA molecule could reduce the immune reaction, making it much more amenable for use in drugs or vaccines. (Since then, scientists have found ways to reduce mRNA’s other vulnerability inside the body, protecting it from enzymes by encapsulating it in lipid nanoparticles.)

Eoin Treacy's view -

The world is betting big on new technology providing solutions to an intractable problem in record time. So far, results are positive and there is reason to be hopeful a treatment effective enough to improve consumer confidence will be available in the near-term.



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August 11 2020

Commentary by Eoin Treacy

On Target August 2020

Thanks to Martin Spring for this edition of his ever-interesting letter. Here is a section on the coronavirus:

Some of the biggest countries are recording amazingly low figures. In India the virus has killed only two people per hundred thousand. In Brazil less than 4 per cent of those infected are dying. Nowhere is Covid-19 much worse than a bad outbreak of flu. That’s why I call the extreme policies of lockdowns and border closures the Self-Inflicted Disaster.

You may remember that I suggested months ago that the extraordinarily low infection rates and deaths in East Asia could be because people of Mongoloid race have strong genetic resistance to the virus. Till now nobody has wanted to say that could be so, because of fear of being accused of racism. However now I see that the New York Times, in an article about Thailand’s amazing success fighting Covid-19, suggests there could indeed be a genetic component in the immune systems of Thais and other peoples of the Mekong River region. Thailand has experienced only 58 deaths from the virus; Vietnam none at all; China’s southwestern province of Yunnan fewer than 190 cases.

Eoin Treacy's view -

There is an alternative interpretation of the fact that cases in Yunnan, Cambodia, Laos, Thailand, Myanmar and Vietnam has been so low. What if these populations already had herd immunity because they have been exposed to similar diseases in the past?



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August 10 2020

Commentary by Eoin Treacy

Video commentary for August 10th 2020

August 10 2020

Commentary by Eoin Treacy

Time for Thinking

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

The first is that many investors have underestimated the impact of low rates on valuations.  In short, what should the stock market yield?  Not its dividend yield, but its earnings yield: the ratio of earnings to price (that is, p/e inverted).  Simplistically, when Treasurys yield less than 1% and you add in the traditional equity premium, perhaps the earnings yield should be 4%.  That yield of 4/100 suggests a p/e ratio (the inverse) of 100/4, or 25.  Thus the S&P 500 shouldn’t trade at its traditional 16 times earnings, but roughly 50% higher.

Even that, it’s said, understates the case, because it ignores the fact that companies’ earnings grow, while bond interest doesn’t.  Thus the demanded return on stocks shouldn’t be (bond yield + equity premium) as suggested above, but rather (bond yield + equity premium - growth).  If the earnings on the S&P 500 will grow to eternity at 2% per year, for example, the right earnings yield isn’t 4%, but 2% (for a p/e ratio of 50).  And, mathematically, for a company whose growth rate exceeds the sum of the bond yield and the equity premium, the right p/e ratio is infinity.  On that basis, stocks may have a long way to go.

Eoin Treacy's view -

The removal of the discount rate, as a basis for valuing cashflows has an outsized effect on all income producing assets. That implies the persistent threat of deflation which allowed long-bond yields to compress to historically low levels globally will persist indefinitely.



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August 10 2020

Commentary by Eoin Treacy

Platinum Giant South Africa Forced by Virus to Look Into Abyss

This article by Felix Njini and Elena Mazneva for Bloomberg may be of interest to subscribers. Here is a section:

In June, Implats balked at investing about 12 billion rand ($680 million) on building a new mine at Waterberg on the northern limb of the platinum belt. The outlook doesn’t support such spending over the next decade, said spokesman Theron. Anglo American Platinum Ltd. has delayed a decision until the second half of next year on whether to spend as much as $1.5 billion on expanding output at its key Mogalakwena mine.

Vancouver-based Ivanhoe Mines Ltd. said it’s still evaluating finance for its new Platreef project, which could require about $1.5 billion of investment. Still, notwithstanding the investment hiatus, the platinum sector remains in better shape than South Africa’s gold industry. Even without further spending, some deep-level mines have a 30-year lifespan, according to James Wellsted, a
spokesman for Sibanye Stillwater Ltd., the world’s No. 1 platinum miner.

Still, investment decisions are complicated because of an uncertain regulatory and policy environment, among other challenges, Wellsted said.
 

Eoin Treacy's view -

The price of any commodity is dictated by the actions of buyers at the margin. The biggest event to hit the sector in the last decade was the demise of the “clean” diesel market. That removed a major source of demand and the price collapsed to unimaginably low levels relative to the other precious metals. A number of platinum miners went bust because they were in no way prepared for the collapse in prices.



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August 10 2020

Commentary by Eoin Treacy

Navy's solar power satellite hardware to be tested in orbit

This article by Sandra Erwin for Spacenews.com may be of interest to subscribers. Here is a section:

The 12-inch square tile module will test whether power can be harvested from its solar panel and transform the energy to a radio frequency microwave. The experiment has been in the works for more than a decade.

The module converts sunlight for microwave power transmission. Depuma said engineers decided to not use optical power transmission because a lot of energy would be lost through clouds and atmosphere.

The Naval Research Laboratory said the results of the experiment could drive the design of a dedicated spacecraft to test the transmission of energy back to Earth. The Pentagon is interested in this technology to provide energy to remote installations like forward operating bases and disaster response areas.

Researchers believe that a space solar system traveling above the atmosphere would catch far more energy than it would be possible on the ground due to the abundant and unimpeded sunlight in space.

One of the concerns is the thermal performance of the hardware. “It’s kind of a tricky problem to have something that’s in direct sunlight all the time and maintain the temperature of the electronics,” said Jaffe.

Solar power satellites could provide energy anywhere in the world, he said. “So a really important component of these kind of satellites would be a device that can convert the sunlight into microwaves or some other form of electromagnetic energy that’s suitable for sending to Earth. Now is the time to test it in space and see how it performs.”

Eoin Treacy's view -

Development of SpaceX’s BFR is progressing much quicker than most people gave the company credit for. The delivery of the vehicle to active commercial service will greatly reduce the cost of lifting major payloads to space.



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August 10 2020

Commentary by Eoin Treacy

Eoin's personal portfolio: stock market long closed 22/7

Eoin Treacy's view -

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



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August 07 2020

Commentary by Eoin Treacy

August 07 2020

Commentary by Eoin Treacy

Trump Ban on Top Messaging App Risks Snarling Global Business

This article by Zheping Huang and Vlad Savov for Bloomberg may be of interest to subscribers. Here is a section:

Trump’s order on WeChat came after a similar injunction against ByteDance Ltd.’s TikTok, the viral video service the White House accuses of jeopardizing national security. But while ByteDance’s business outside of TikTok is largely confined to home, Tencent is central to the global distribution of games and a major conduit for American companies that sell products in the world’s No. 2 economy.

Apple, for instance, makes the majority of its iPhones in China, where WeChat is the oil that lubricates communications both on the factory floor and in the boardroom. In a worst-case scenario, American consumer brands like Walmart and Starbucks Corp. may be prevented from selling goods and services to Chinese buyers via WeChat’s “mini-programs” in China -- now one of the fastest-growing avenues for e-commerce. China accounts for about 9% of Walmart’s international sales and is its fastest-growing market.

“If you can’t pay for Starbucks coffee on WeChat, people will stop drinking it,” said BOCOM International analyst Connie Gu, commenting on the extreme cases where American brands are banned from using WeChat as a payment method.

Less quantifiable is the spillover effect on the gaming industry.
Tencent ranked as the world’s biggest games publisher by revenue in 2019, according to Newzoo data, and it collaborates with U.S. industry leaders like Activision and Electronics Arts Inc. It also holds a large stake in Fortnite maker Epic Games Inc. and owns League of Legends developer Riot Games Inc. That sprawling but somewhat stealthy gaming empire, deeply rooted in the U.S., was deemed under threat when the WeChat sanction was first announced, though a U.S. official later clarified that the action only involved the messaging service and not its parent.

Eoin Treacy's view -

Chinese language blogs were afire this morning with discussion of the WeChat ban. It is the primary vehicle many people use to communicate, shop, play and remit money across the Chinese diaspora. If India’s ban of Chinese apps is any guide, they will disappear from app-stores but will remain on consumers’ phones. That means existing users will still have access but will not have access to future updates.



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August 07 2020

Commentary by Eoin Treacy

Biogen Soars After Alzheimer's Drug Gets Priority FDA Review

This article by Timothy Annett and Bailey Lipschultz for Bloomberg may be of interest to subscribers. Here is a section:

Aducanumab, a so-called monoclonal antibody designed to target amyloid plaque in the brain, has been one of the most closely watched drugs in development for years. Biogen at one point halted research on it after getting disappointing results, only to revive the drug in a reversal that surprised scientists and investors and raised the hopes of patients and families.

The drug and the stop-start study process have been viewed skeptically by some. Data presented in December at the Clinical Trials on Alzheimer’s Disease conference in San Diego showed conflicting findings, with one trial suggesting the drug could be the first-ever to slow the progression of Alzheimer’s. But a second, essentially identical trial showed no effect on the disease at all.

Alzheimer’s is a progressive disease that most commonly arises in people over age 60. It robs patients of their memories and their minds, causing impaired speech and thought. More than 5 million Americans are living with the disease, according to the most recent data from the U.S. Centers for Disease Control and Prevention, and more than 14 million are expected to suffer from it by 2060.

With no medications currently available to slow the progression of the disease, demand for a therapy like aducanumab would be substantial. The next focus for investors will be a meeting of outside
advisers to review the results generated by Biogen. Stifel analyst Paul Matteis said the briefing documents released prior to the panel are expected to be “a bigger determinant than usual
in dictating how panelists eventually vote” and called the panel the highlight of 2020 and 2021 for health-care investors.

Eoin Treacy's view -

Completely unmet medical need represents growth potential that does not turn up all that often. Alzheimer’s is only going to become a more pressing burden on healthcare systems as the baby boomer generation continues to age and live longer than any generation that has come before. The first product to market will have access to virgin growth potential which is why there is such clear focus on the efficacy of Biogen/Eisai’s potential treatment.



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August 07 2020

Commentary by Eoin Treacy

How COVID-19 is changing the world of beauty

Thanks to a subscriber for this report from McKinsey which is dated May 5th but is no less relevant today.

Digital continues to rise. Pre-COVID-19 trends will likely accelerate, with direct-to-consumer e-commerce, such as brands’ websites, shoppable social-media platforms, and marketplaces becoming more important. Across the globe, consumers indicate they are likely to increase their online engagement and spending. Beauty-industry players will need to prioritize digital channels to capture and convert the attention of existing and new customers. On the operations side, the use of artificial intelligence for testing, discovery, and customization will need to accelerate as concerns about safety and hygiene fundamentally disrupt product testing and in-person consultations.

The pace of innovation accelerates. As the COVID-19 crisis has shown, the world can change quickly, bringing substantial shifts in demand. Sometimes, supply cannot catch up. Even before the pandemic, brands were under pressure to overhaul their product-innovation pipelines, inspired by the ability of digital-native direct-to-consumer brands to go from concept to cupboard in less than a month. Now, the need for speed is even greater. To achieve it, there may be a greater role for contract manufacturers, both to diversify (and thus reduce production risks) and to serve as thought partners in product innovation. There is also potential for closer collaboration—among brands and retailers, in particular—through data sharing and inventory pooling.

M&A rises as multiples fall. With the COVID-19 crisis causing significant damage to the balance sheets of brands, retailers, and suppliers, many companies will need to find new sources of capital. At the same time, given the hits to revenues and the global economy, multiples could fall from precrisis levels, when some brands were trading for more than eight times revenue or 10 to 15 times earnings.

Eoin Treacy's view -

The clearest trend in online retail is the evolution of the in-person sales experience. Most men think of shopping in a perfunctory manner but most women think of it as a pleasurable experience which is part of a daily social experience. It is very difficult to replace the sales experience of in person contact online and from a purely technological experience it is inefficient. That’s where livestreaming comes in.



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August 07 2020

Commentary by Eoin Treacy

August 06 2020

Commentary by Eoin Treacy

Video commentary for August 6th 2020

August 06 2020

Commentary by Eoin Treacy

Natural Resource Market Commentary

Thanks to a subscriber for this report from Geohring and Rozencwajg which takes an iconoclastic view on the outlook for oil. Here is a section:   

Eoin Treacy's view -

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

Financial discipline has been imposed on the shale drillers so they no longer have endless supplies of cash to fund expansive drilling programs. Investors have, for the last few years, only been willing to support the most lucrative of potential operations. That has resulted in the best and most accessible resources being drilled as companies sought to achieve economic costs of production.



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August 06 2020

Commentary by Eoin Treacy

Gold demand divergence

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

Eoin Treacy's view -

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

I have a lot of sympathy with Charlie Morris’ view that gold is best considered a zero- coupon perpetual bond. The strong inverse correlation between inflation-protected bond yields and the gold price suggest investors are increasingly of the same opinion.



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August 06 2020

Commentary by Eoin Treacy

Turkey's Lira Hits Record Low as Interventions Fail to Stem Drop

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

In the view of analysts from Goldman Sachs Group Inc. and Oxford Economics, rate increases may be warranted soon. Others are less bearish, citing a shortage of liquidity in the offshore money-market engineered by authorities.

The cost of overnight funding spiked to over 1,000% earlier this week, making it prohibitively expensive for foreign investors to borrow the currency and bet against it.

“My sense is that there is more tolerance for currency volatility than there is for a drastic measure like an emergency rate hike,” said Phoenix Kalen, a strategist at Société Générale in London. “And with the squeezes in the front-end rates, market participants are, needless to say, wary about getting burned trying to short the lira speculatively.”

Eoin Treacy's view -

The single biggest lesson this year is that COVID-19 is an accelerant. It has exaggerated just about every trend that was in evidence in 2019. That’s as true of yield compression and gold’s bull market as it is of the growth of cloud computing. It’s also highlighting the serious debt problems of countries like Turkey.



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August 05 2020

Commentary by Eoin Treacy

Video commentary for August 5th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: bonds ease but TIPS remains firm, gold and silver extend breakouts, energy and industrial resources firm, Dollar eases but is oversold, Wall Street extends breakout on stimulus and vaccine bets. 



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August 05 2020

Commentary by Eoin Treacy

Hearts of Glass

This edition of Tim Price’s letter for Price Value Partners may of interest to subscribers. Here is a section:

God only knows what the historians of the future will make of 2020. A global flu panic that results in countries shutting down entire economies sounds like the pinnacle of craziness – until you discover that Europe between the 15th and 17th centuries was periodically prone to something called the ‘glass delusion’, in which sufferers believed that they were made of glass and at risk of shattering into pieces. The French King Charles VI was one of the higher profile victims of the illness, and he would reportedly wrap himself in blankets to prevent his buttocks from breaking. Because human nature never really changes, we choose to allocate to uncorrelated investment vehicles known as systematic trend-followers, which make no attempt to predict the future, or to avoid seeming overvaluation, but which are simply content to ride such price trends as appear from time to time, both up and down, courtesy of the interests and enthusiasms of the mob.

We also allocate, at present, to precious metals-related companies, provided we can secure robust cash flows in the process from businesses trading on comparatively modest earnings multiples, and with little or no debt. As George Bernard Shaw once remarked,

“You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

Eoin Treacy's view -

Those gentlemen in government are primed to issue a vast quantity of debt. And why wouldn’t they? Interest rates are at historic lows and investors seem willing to invest in anything with a promise of a cashflow. The US Treasury is now stretching the maturity of outstanding debt which raises some important questions. 



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August 05 2020

Commentary by Eoin Treacy

Shale Driller Devon to Pay Biggest Dividend In Its History

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

The debt buybacks will target an amount equivalent to about half of Devon’s outstanding net debt, according to data compiled by Bloomberg. Devon stock was the best performer in the S&P 500 Index, rising 7.8% to $11.95 at 9:33 a.m. in New York after earlier climbing 8.3%.

Devon’s special payout and debt-reduction targets are the most aggressive efforts yet as shale explorers grapple with a virus-induced demand collapse and tumbling energy prices.

“These shareholder-friendly initiatives demonstrate our commitment to a new E&P business model, which moderates growth, emphasizes capital efficiencies, generates free cash flow and returns increasing amounts of cash directly to our shareholders,” Devon Chief Executive Officer Dave Hager said in the statement.

Eoin Treacy's view -

Instilling financial discipline on rapacious appetite for expansion at any cost is part of the ebb and flow of a commodity bull and bear markets. The gold mining sector went through exactly the same rationalisation process and it created healthier companies.



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August 05 2020

Commentary by Eoin Treacy

Lightweight-banking via messaging services are getting Gen Z buzz

This article by Mike Butcher for techcrunch.com may be of interest to subscribers. Here is a section:

They are not alone. Other players in the “banking services via a messaging” space include Kotak Mahindra Bank in India (on WhatsApp) and ICICI in WhatsApp (India). However, neither of these can do actual provisioning of the card and addition to Apple Pay and Google Pay in the messengers, which is what Zelf can do.

With Zelf, users get an account and a virtual card via their Facebook Messenger, WhatsApp, Viber and Telegram accounts. For offline and online purchases Zelf supports Apple Pay and Google Pay. This lightweight onboarding means card issuance takes less than 30 seconds via a Passport or national ID. Users then get a virtual Mastercard debit card available in their favorite messenger app. Operating inside the EU’s “Single Euro Payments Area” means it’s pretty easy for the startup to scale its offering to other countries.

Eoin Treacy's view -

One of the biggest advantages emerging markets have is they are afforded the opportunity to skip whole stages of development. This is because technology is immediately available to them without having to develop it themselves. China has been able to progress meaningfully because of its adoption of technological knowhow and the introduction of India’s 4G network offers India the same opportunity to evolve the entertainment, communication, banking and ecommerce sectors.



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August 04 2020

Commentary by Eoin Treacy

Video commentary for August 4th 2020

August 04 2020

Commentary by Eoin Treacy

Gold ETFs Top German Holdings to Become World's No. 2 Stash

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

Investors are so concerned about the global outlook that worldwide holdings in gold-backed exchange-traded funds now stand behind only the official U.S. reserves of bullion after they surpassed Germany’s holdings.

Gold has rallied to a record this year as the coronavirus pandemic savaged growth, with gains supported by massive inflows into bullion-backed ETFs. Bulls are fearful that the waves of stimulus to fight the slowdown may debase paper currencies and ignite inflation. They also point to simmering geopolitical tensions, rising government debt burdens, and lofty equity valuations.

Worldwide holdings in gold-backed ETFs rose to 3,365.6 tons on Monday, up 30.5% this year, according to preliminary data compiled by Bloomberg. That’s a couple of tons ahead of Germany’s stash. U.S. reserves exceed 8,000 tons.

Even after futures topped $2,000 an ounce, there are plenty of forecasts for further, substantial gains. Among them, Goldman Sachs Group Inc. says gold may climb to $2,300 as investors are “in search of a new reserve currency,” while RBC Capital Markets puts the odds of a rally to $3,000 at 40%.

Eoin Treacy's view -

China and India have historically been the biggest consumers of gold. However, prices are set by the marginal buyer. Right now, that is investment demand from ETFs which has jumped by more than 50% in the last 12 months. This is a totally fresh phenomenon. ETFs did not exist in prior cycles so it was impossible to estimate how much gold was owned by investors. It is reasonable to conclude that before this bull market has climaxed ETF holding will be the largest gold stockpile in the world.



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August 04 2020

Commentary by Eoin Treacy

John Authers' Points of No return

This edition of the former Lex Column’s editor contains some interesting charts on the correlation between Fed intervention and stock market recoveries. Here is a section:

There is a negative correlation between what the S&P did a month ago and moves in the Fed’s balance sheet. In other words, if the S&P falls, we should expect the balance sheet to be increased about a month later. Once the Fed has made its change, we should expect the two to move in the same direction for the next month — a rising balance sheet raises the S&P, a shrinking balance sheet brings it down. The lag is clear; it takes about a month for a weak stock market to prod the Fed into a response, and once that response has been made the effect is felt in full a month later. 

So, the two are indeed related but with a lag. How strong is the link? The top chart shows us what we should expect the Fed to do in response to a 10% correction, while the lower chart shows the S&P 500’s response to a 10% shift in the balance sheet:

There was also — and this should surprise nobody — a marked asymmetry to the Fed’s actions. It responds to falls in the market with alacrity. It doesn’t seem to feel any great macro-prudential need to prick bubbles by comparison, and so the tendency to respond to a rise in stocks with a shrinking of the balance sheet, as seen at the end of Janet Yellen’s tenure and the beginning of Jerome Powell’s, was much weaker. In late 1996, less than two years before the “Put” era began with LTCM, Alan Greenspan was plainly worried about the possibility of asset bubbles, and uttered his famous warning of “irrational exuberance” (following through with a rise in rates that induced a minor stock market correction). Now, the idea of raising rates to curb share prices appears so outlandish to Powell that he said in June “we would never do this.”

Eoin Treacy's view -

The Fed is reluctant to intervene to slow or reverse the rise in asset prices for a very simple reason. They believe the easiest way to objectively measure the success of their policies is in asset prices.

The continued uptrend in bond, stock and property markets is viewed as positive from the Fed’s perspective because it signals efforts to stimulate risk taking behaviour are effective. Unfortunately, that way of thinking about markets pays little heed to egregious risk taking or the assumption bad behaviour will always be bailed out.



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August 04 2020

Commentary by Eoin Treacy

Email of the day on a double dip

Read a very interesting piece in Saturday's Telegraph by financial journalist, Ambrose Evans Pritchard. In a nutshell he suggests that western governments risk making the most catastrophic error of economic policy since the thirties by pulling away the stimulus rug too soon. The pandemic is still causing havoc and stimulus is running out before the rebound can reach self-sustaining escape velocity. He suggests the crunch will come in September/October.

Eoin Treacy's view -

The prospect of stimulus being removed too early has made it onto the front page because of the politically motivated rancorous debate over extending the USA’s fiscal stimulus. It remains the base case that some form of agreement will be agreed to because neither party wants to be blamed for making the lives of tens of millions of unemployed people worse.  



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August 03 2020

Commentary by Eoin Treacy

Video commentary for August 3rd 2020

August 03 2020

Commentary by Eoin Treacy

Bank Collaboration Approved By Banque De France To Test CBDC For Interbank Settlements

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

A collaboration of the SEBA Bank AG and the Tezos Foundation to test the integration of a CBDC for interbank settlements was one of 8 successful projects chosen by the Banque De France announced on the 20th of July. Many people had speculated whether Tezos was involved with at least one of the eight projects.

One link involved NeoFacto, partners with Tezos core development team Nomadic Labs and also partners to successful CBDC project applicants Société Générale Forge.

However, it seems that the Tezos Foundation has collaborated with SEBA Bank AG based in the Crypto Valley in the same cryptocurrency-friendly region where the Tezos Foundation is based.

A post on LinkedIn from CV Labs a Swiss incubator also based in the Crypto Valley who have relationships with both the Tezos Foundation and SEBA Bank AG appeared to congratulate both Société Générale and SEBA Bank on the project whilst also tagging several prominent Tezos Foundation figures and also displaying the Tezos logo in the visual image.

Eoin Treacy's view -

China is not the only country actively exploring the creation of a digital currency. The fact that the French central bank is also exploring a digital currency outside of its subservience to the ECB might on first impression seem a little odd. However, it is does highlight the fact many central banks see the evolution of crypto tokens as a dual currency overlay within the limits of what the view as an evolution of conventional money control measures.



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August 03 2020

Commentary by Eoin Treacy

The Baupost Group Letter

Thanks to a subscriber for this letter by Seth Klarman and team. Here is a section focusing on appetite for risk:

Fed policy has been magnificently successful in achieving its objectives not only of lifting securities prices but also of altering investor behavior. The Fed wanted to influence buyers of securities to be bolder in their pursuit of return. The head of a major pension fund recently authored a piece describing how the fund had responded to lofty markets and low yields on safe debt instruments. Their reaction was not to lower the fund’s currently aggressive 7% risk-adjusted return objective to a more realistic threshold, but instead to direct more assets into “lower volatility” private investments while leveraging the portfolio. Private investments, of course, have the same underlying risk and inherent volatility as public investments – though because they are not publicly traded, their intermittent and privately determined appraisals may make them appear to be less volatile. And as for the choice to leverage up, we can only note that leverage is a double-edged sword that enhances returns in good times while sinking them in down markets. If markets falter, this fund will have not solved its problems but rather have multiplied them.  

Eoin Treacy's view -

Pension funds, life insurance companies and other firms with predictable future outlays are in a difficult position. If they do not take on additional risk, they will certainly not be able to meet their obligations. Alternatively, if they do take on additional risks, they might be able to reach their goals. However, that chance at success comes with the implied understanding that the alternative is financial oblivion.



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August 03 2020

Commentary by Eoin Treacy

NZ to trial world-first commercial long range, wireless power transmission

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

Emrod currently has a working prototype of its device, but will build another for Powerco, with plans to deliver by October, then spend several months in lab testing before moving to a field trial. The prototype device will be capable of delivering "only a few kilowatts" of power, but can easily be scaled up. "We can use the exact same technology to transmit 100 times more power over much longer distances," said Emrod founder and serial entrepreneur Greg Kushnir. "Wireless systems using Emrod technology can transmit any amount of power current wired solutions transmit."

The system uses a transmitting antenna, a series of relays and a receiving rectenna (a rectifying antenna capable of converting microwave energy into electricity). Each of these components appear in these images to simply look like big ol' squares on poles. Its beams use the non-ionizing Industrial, Scientific and Medical band of the radio spectrum, including frequencies commonly used in Wi-Fi and Bluetooth.

Unlike Tesla's globally-accessible free power dream, the power here is beamed directly between specific points, with no radiation around the beam, and a "low power laser safety curtain" immediately shuts down power transmission before any object, like a bird, drone, power thief or helicopter, can touch the main beam. There will be no difficulties this time working out where to place the meter.

Eoin Treacy's view -

The potential for wireless power transmission is a significant potential gamechanger for the energy sector because it represents an elegant solution to the question of how to connect very remote generating locations to points of consumption. While still in its infancy this is exactly the kind of technology that would benefit from venture funding and could succeed in boosting productivity.



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July 31 2020

Commentary by Eoin Treacy

July 31 2020

Commentary by Eoin Treacy

Gold Views: In search of a new reserve currency

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

As a result of growing debasement risk, DM investment demand strength has continued with ETF additions in both Europe and US running high (see Exhibit 6). We see this trend persisting for some time as investment allocations into gold increase in line with allocations to inflation protected assets, similar to what happened after the financial crisis. Following the GFC, inflation fears peaked only at the end of 2011 as the bounce back in inflation ran out of steam, bringing the gold bull market to a halt. Similarly, we see inflationary concerns continuing to rise well into the economic recovery, sustaining hedging inflows into gold ETFs alongside the structural weakening of the dollar, we see gold being used as a dollar hedge by fund managers. Indeed, decomposing our gold forecast, with returns of 18% over the next 12 months, we estimate 9% of the growth is driven by 5yr real rates going to -2% over the next 12 month, (an est. elasticity of 0.1), while the second 9% comes from the 15% increase in the EM dollar GDP (an est. elasticity of 0.5) (see Exhibit 7). On top of these known flows, a large share of physical investment demand in gold is non-visible, in particular vaulted bar purchases by high net worth individuals. Looking at net Swiss imports one can see that gold stocks in Switzerland, where most of these private vaults are located, have been building at close to a record pace (see Exhibit 8). In addition, the stretched valuations in equities, low real rates and high level of economic and political uncertainty all point toward continued inflows by high net worth individuals, in our view.

Eoin Treacy's view -

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

It is easy to conclude the USA is the world’s chief currency debaser because of the size of accommodation provided in response to increasingly frequent crises. However, every other country is actively debasing their currencies too. The only difference is in scale.



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July 31 2020

Commentary by Eoin Treacy

'An absolute necessity' Why this expert says China desperately needs a digital currency

This article by Veta Chan for Fortune.com may be of interest to subscribers. Here is a section:

How will data be used by central banks and how will the central bank reassure people about the privacy of their data?

The data you are going to collect, there are two sides to it. On one side, the data that they're going to collect, given they are going to be able to engage the complete economic activity of a country in realtime, that data will be recorded on a blockchain-type network, distributed ledger, we don't know exactly. So the government will have access to all of that. On the [other] hand, it will enable the central bank to do their job more effectively. Because rather than having a lag in economic data, they're monitoring all the spending, the transactions, money supply, inflation implications, all in realtime... Tracking where people go in the world, because CBDC will be available to Chinese as they do business in other countries. It's almost a sort of a way to track an individual. So there are big alarming questions that need to be properly considered when it comes to privacy and anonymity.

The technology is there to enforce anonymity, but it's a question of are they going to implement it? Is that something that they're going to build into their currency? Time will only tell if different central banks come up with their versions of digital currency, as they say there is no one-size-fits-all, they're all going to be different and likely to reflect the values and culture of their citizens. Are we just going to accept that all governments get to have this data like we've kind of accepted with tech giants like Facebook? No one has really done anything about it.

Eoin Treacy's view -

A classic blockchain is a public ledger. There is a clear record of all transactions, but not who participated in them.

It would be comparatively easy for a state to create a digital currency that attaches identity to the ledger.

That will allow governments to track every transaction in even greater detail than they do already.



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July 31 2020

Commentary by Eoin Treacy

Email of the day - on hedging exposure to market crashes

My past experience has been that when there is a stock market crash, gold suffers equally.  This pattern was repeated in March this year.  Can you recommend some protective measures?

Eoin Treacy's view -

Thank you for this question which is something I believe everyone has an interest it. In a crisis everything falls together. That’s because people end up selling what they can, rather than what they want. Gold, as you say, is not immune to those kinds of events.



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July 31 2020

Commentary by Eoin Treacy

Robusta Coffee Heads for Biggest Monthly Gain in a Decade

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

Robusta coffee futures have surged about 16% in London this month, the biggest gain for a most-active contract since June 2010 amid a shift toward home coffee consumption. Worldwide lockdowns that shuttered cafes, restaurants and offices have supported demand for robusta beans, typically favored to brew instant coffee at homes.

“Nestle results provide confirmation at-home sales is doing very well,” said Carlos Mera, an analyst at Rabobank in London. “It was priced in to some extent, based on IRI data from the U.S., but this is more global.”

Robusta spreads have firmed up and its certified stockpiles have fallen to the lowest since the start of last year. Speculators covering their negative positions has also helped prices rally in recent weeks. Smaller robusta crops expected in Brazil and Vietnam in the 2020-21 season are also bullish for prices, Rabobank said.

Eoin Treacy's view -

I’ve been working from home for 13 years and even I am drinking more coffee than normal lately. Many people have probably discovered that with the help of capsules of home espresso machines it is possible to get better tasting coffee than what is available from Starbucks. Arguably, that wouldn’t be difficult.



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July 30 2020

Commentary by Eoin Treacy

July 30 2020

Commentary by Eoin Treacy

Big Numbers Along Make No Proper Monetary Policy

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

In some ways, however, that was the easy bit. The U.S. economy now enters a phase that cautiously could be described as the beginning of a recovery. However, remember that the virus is still out there. This leads to the question of how QE can continue to provide support in the months ahead? In terms of mechanics, the Fed describes the main purpose of LSAP as putting "[…] downward pressure on longer-term interest rates […]" in order to stimulate economic activity by generating attractive financial conditions.5 The key word behind those mechanics would be financial conditions. Such metrics generally try to describe the "[…] financial conditions in money markets, debt and equity markets […]" as the Federal Reserve of Chicago puts it.6 In other words, measures of financial conditions gauge the effectiveness of monetary policy.

Deriving a metric that summarizes the stance of monetary policy once the policy rate hits the Zero Lower Bound (ZLB) is not a trivial task, however. The monetary stimulus, as a combination of rates at the ZLB and asset purchases, is not directly observable. Our preferred methodology to overcome this problem would be the so called shadow short rate (SSR) as provided through the Reserve Bank of New Zealand.7 This concept mathematically derives a theoretical policy rate which is based on the evolution of the whole yield curve, therefore accounting for the impact of QE once the true policy rate is at the ZLB (see Chart 2).

Eoin Treacy's view -

Using the inflation of financial assets as a way of measuring the success of monetary accommodation is a recipe for bubble inflation. Nevertheless, it is the most expedient way to measure the impact of a central bank’s actions in fostering growth.



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July 30 2020

Commentary by Eoin Treacy

Confessions of a California Covid Nurse

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

Unfortunately, the vast majority of the tests were done at the big new Optum site, or inside local hospitals, and processed by Quest Diagnostics and LabCorp. Five months into the pandemic, the two giant private testing companies were taking more than a week to send back results. “If I look at Optum I always ask, ‘What am I going to do with this, because the result is eight to 10 days old?’” said Erica. “Your ability to contain is over.” By the time she got a hold of people to inform them that they had Covid-19, they no longer had Covid-19. There was no point in isolating them.

Eoin Treacy's view -

I think the rest of the world must be bemused at the resistance many Americans have to cooperating with public health officials, wearing masks and social distancing. As far as I can see there are a couple of reasons that simply are not getting discussed.

When I was tested in early May it took 11 days to get the results. That’s frankly ridiculous and timelines have not improved. I was feeling flu symptoms for about 24 hours and I quarantined myself away from my family for two days but it was a 24-hour bug so maintaining distance when you feel fine is difficult. In the end my results were negative. However, if I was positive, I would probably have passed it one to multiple people before I got my results. That pretty much means that testing is futile and everyone who has been tested knows it.



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July 30 2020

Commentary by Eoin Treacy

Conoco Plunge Shows U.S. Oil Struggling to Exit Crisis Mode

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

On the bright side, Chief Executive Officer Ryan Lance said he’s encouraged by low premiums for shale acquisitions, citing Chevron’s recent agreement to buy Noble Energy.

When asked if Conoco also looked into buying Noble, Lance said “we did look,” but he was worried that Noble’s Israel assets might have been the source of political tension, since Conoco operates in other areas of the Middle East.

“The gem is certainly the Middle Eastern gas position,” he said. “With some of the other things we’re doing in the Middle East, that creates maybe a little bit of an issue and problem for us politically.”

Conoco’s earnings miss followed reports from three shale-focused explorers on Wednesday that signaled a grim rest of 2020 for the broader U.S. oil industry. QEP Resources Inc. cut its production outlook, WPX Energy Inc. further reduced its capital spending budget, while Concho Resources Inc. stuck with plans to keep crude volumes flat from 2019 levels, ending years of growth.

Eoin Treacy's view -

Bankruptcies in the oil patch are likely to continue to trend higher because so many projects have break-evens in the $60 area. That is creating buying opportunities for the majors and the chance to rationalise the onshore domestic US production landscape. That will be necessary in order to survive because global demand will take time to recover from the virus hiatus.



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July 29 2020

Commentary by Eoin Treacy

Video commentary for July 29th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Fed policy constrained by debt, risk of antitrust for US tech companies contrasts with risk of government control for China's, gold and silver steady, platinum and palladium weak, oil and copper steady, 



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July 29 2020

Commentary by Eoin Treacy

Zuckerberg Goes Off-Script; Blasts Apple and Google in Testimony

This article by Kurt Wagner and Alex Webb for Bloomberg may be of interest to subscribers. Here is a section:

During today’s testimony before a Congressional antitrust panel, Mark Zuckerberg went off-script a little bit -- at least the script we expected -- pointing out how Facebook Inc. lags behind a number of competitors, including Alphabet Inc., Amazon.com Inc. and Apple Inc.

Zuckerberg isn’t hesitating to use some sharp elbows, pointing out that Amazon is the fastest-growing advertising platform and Google is the biggest.

“In many areas, we are behind our competitors,” Zuckerberg said. “The most popular messaging service in the U.S. is iMessage. The fastest growing app is TikTok. The most popular app for video is YouTube. The fastest growing ads platform is Amazon. The largest ads platform is Google. And for every dollar spent on advertising in the U.S., less than ten cents is spent with us.”

This is why the executives likely preferred to appear at once -- it allows them to spread the burden. The antitrust case against Google and Facebook is far stronger than the one against Apple, for instance.

Eoin Treacy's view -

The five largest tech companies in the USA have dominant positions in the social/ecommerce/cloud computing sectors. They may compete with one another but the barriers to entry are so large that it is largely beyond the scope for smaller companies to compete. In fact the only way for established businesses to reach consumers in any other these sectors is to use the products and services provided by the big five.



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July 29 2020

Commentary by Eoin Treacy

Five Eyes alliance could expand in scope to counteract China

Thanks to a subscriber for this article by Peter Wintour for the Guardian may be of interest. Here is a section:

Kōno said Japan would welcome an invitation to join the Five Eyes grouping.

He warned the growth of the Chinese economy has allowed China to purchase foreign tech companies, adding: “This is a development we must monitor closely. Tech-partnerships with countries like the UK will be critical to countering China, pooling our investments and encouraging our people to study the skill sets needed for our high-tech sectors to grow.”

He added China was attempting to become independent of the US dollar economy through fast money-sending services, the introduction of their own internet, launching a digital renminbi and introducing a Chinese international order.

Kōno in his remarks stressed he was not seeking a military conflict with China, and was instead hoping to provide the Chinese Communist party with the space to cut defence spending, allowing democratic nations to take parallel steps.

Urging caution about economic decoupling, Pascal Lamy, the former World Trade Organization director general, predicted a more autonomous and closed China was likely to prove more dangerous. But he warned: “The west cannot coexist in a free trade relationship with a country that subsidies 30% of its economy. If China is not willing to accept global disciplines on state aid then we have to review a number of trade commitments – whether it is on public procurement or in specific sectors.”

Eoin Treacy's view -

The coronavirus crisis has been an accelerant for just about every trend. That is particularly true of the Anglosphere’s awakening to the threat posed by China’s increasingly ambitious program of global domination. There is no getting around the fact that many countries are heavily reliant on Chinese suppliers for essential components and products to fuel their economies, and are also reliant on Chinese demand to absorb their exports. Therefore, the process of decoupling was never going to be a simple process but it is underway and is likely to persist.



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July 29 2020

Commentary by Eoin Treacy

Tencent Sogou Deal Brings China U.S. Exits to $12 Billion

This article by Anson Tam and Irene Huang for Bloomberg may be of interest to subscribers. Here is a section:

 

Tencent Holdings Ltd.’s proposal to privatize search engine Sogou Inc. means eight Chinese companies
have either abandoned or plan to quit U.S. markets in deals worth more than $12 billion. Should investors be anticipating more deals?

Tencent’s $977 million proposed Sogou deal follows the $6.5 billion private equity-led privatization of 58.com Inc. and a $1.6 billion acquisition of Sina Corp. The backdrop is strained U.S.-China diplomatic ties, with this month’s closing of consulates in Houston and Chengdu. In May, the U.S. Holding Foreign Companies Accountable Act raised the prospect of delisting should a Chinese company be found to have broken tougher rules.

Eoin Treacy's view -

While the CEO’s of the USA’s tech companies are grilled in Washington, China’s tech CEOs face no threat of antitrust measures. In a command economy, a company either fulfils a need in supporting the rule and glory of the Party or it does not. To the extent its assists in supporting the government’s ambition size and scope are encouraged. In fact, complete market dominance is the ambition.



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July 28 2020

Commentary by Eoin Treacy

Video commentary for July 28th 2020

July 28 2020

Commentary by Eoin Treacy

Once-Unpopular Carbon Credits Emerge as One of the World's Best Investments

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

“It’s attracting hedge-fund speculators,” said Norbert Rücker, head of economics at Swiss private bank Julius Baer. “With this move, carbon has really come back to life this year and it’s attracted a lot of interest—we have clients reaching out to us asking about it.”

The resurgence in carbon-credit prices began in mid-2017 when EU policy makers agreed to sharply reduce the number of available credits. That has pushed up prices and allowed the carbon market to help fulfill its purpose of punishing excess polluters. With the market set up to constrict credit supply, prices should rise further still, analysts say.

Eoin Treacy's view -

The success of Tesla, in gaming the carbon credit system to its advantage, has woken the rest of the globe up to the possibilities government sponsored markets hold.



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July 28 2020

Commentary by Eoin Treacy

80,000 Evacuated From Vietnamese Beach Town After Three Locals Test Positive For Coronavirus

This article by Daniel Cassady for Forbes may be of interest to subscribers. Here is a section:

Evacuations of the mostly local tourists will take at least four days, with domestic airlines running 100 flights from Da Nang to 11 Vietnamese cities, according to Reuters.

The first case was confirmed on Saturday, with another 11 cases, all from the hospital where the initial case was being treated, confirmed late Monday.

These are the first cases of Covid-19 in the country since April.

Those leaving Da Nang will have to self-quarantine for 14 days, fill out health declaration forms, or report on their health to local authorities.

Vietnam’s aggressive response to the burgeoning outbreak is a prime example of how it has been able to keep the pandemic at arm’s length.

With a population close to 95.5 million people, Vietnam has seen only 431 cases of Covid-19 and zero deaths, according to John Hopkins University.

Eoin Treacy's view -

The number of countries that successfully quashed coronavirus infections in February and March is frighteningly small. Vietnam was among the leaders in aggressive early action and it succeeded in keeping its case numbers low and spread contained. It is testament to just how difficult the virus is to contain that cases are rising once more in Vietnam.



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July 28 2020

Commentary by Eoin Treacy

Coronavirus Stimulus Plan Splits Senate Republicans

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

The stimulus debate pits the GOP’s political pragmatists against its spending hawks, with the fate of swing-state incumbents hanging in the balance: At-risk Republican senators don’t want to return to the campaign trail during the August recess empty-handed, while fiscal conservatives recoil at any plan that they see as ballooning the deficit and conditioning the public to expect broader government assistance once the pandemic is over.

At stake could be control of the Senate and White House, some Republicans warn. The nonpartisan Cook Political Report last week released a new analysis of key Senate races that for the first time this cycle favored Democrats to take back the chamber.

Democrats already control the House and are expected to keep or expand their majority in November, making the GOP-held Senate a critical bulwark against total Democratic control of the legislature next year. Democrats need to flip three seats from red to blue to seize control of the chamber in November, or four if President Trump wins re-election.

Eoin Treacy's view -

The massive stimulus introduced during the initial lockdown with $1200 for the majority of adults and $600 a week for millions of unemployed people plugged a significant hole in consumer spending potential. It also allowed ecommerce businesses to flourish and gain market share.



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July 28 2020

Commentary by Eoin Treacy

Email of the day - on inflationary expectations

Thanks to your good guidance, the month of July has (already) produced the best portfolio performance in my life-time of investing! The portfolio switch from NDX stocks to gold and silver stocks has been phenomenal (20.59% in one stock today).

Attached is a report from “Goldmoney” regarding future inflation that you have addressed in recent commentaries.  (Underlining in the article is mine) Could we expect a sudden change in the Velocity of Money to facilitate an inflationary outcome or will other factors cause inflation regardless of the VoM?

Eoin Treacy's view -

Thank you for this interesting article and congratulations on taking opportunities in the market. Velocity of Money is a major component of inflation. The fact it has been falling for so long is one of the primary reasons we have not seen widespread inflation resulting from massive money printing over the last 12 years.



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July 27 2020

Commentary by Eoin Treacy

Video commentary for July 27th 2020

July 27 2020

Commentary by Eoin Treacy

Email of the day - on gold and asset allocation

It has been a couple of years since I last submitted a question, however the following has been niggling at me for some time and your Big Picture video this week was the final catalyst I need to put fingers to the keyboard. 

Traditional guidelines for asset allocation usually vary somewhat depending on the advisor and the client’s age, financial means etc, however they follow a general model of diversifying investable assets into property/shares/international shares/government bonds/corporate bonds/cash, etc in various percentages.  Gold, if recommended at all, gets relegated to the 1% - 2% category.

But as you have been pointing out in your audios/videos for some time now, in the current environment of unprecedented fiscal and monetary stimulus, dollar debasement, a looming sovereign debt crisis,  geopolitical tensions etc, etc, I feel perhaps the traditional allocation percentages can be detrimental to new wealth creation, and that a more skewed approach, with a much higher conviction to certain asset classes should be considered. 

Fortunately, from a personal position, I started moving to overweight shares in gold, silver and other precious metal miners about 3 years ago, starting initially with gold, and then into silver and silver miners about a year ago.  Although perhaps a bit early in some instances, I now find these positions in 15 different mining companies and 4 ETF’s in Australia, USA, Canada & the UK are all up between 30% - 300%, and now constitute about 60% of my investible assets.  I realise by traditional gauges most financial advisors would say I’m crazy (which is why I haven’t used any for about 20 years), and that I’m too heavily invested in one asset class.  But I have always taken a high conviction approach to my investment initiatives. In addition, a good lesson learned during the GFC was to keep 2-3 years cash available to get through any downturn, so in case my timing is wrong or I’m just plain wrong, I will have adequate funds to support myself & family without compromising our lifestyle.

But as you indicate, we are in a different environment, so my takeaway is that a different approach needs to be taken. Consequently, my question/quandary is what to do with the remaining 40% of my investments?  Most of these have been invested in the Platinum Asia Fund, which has basically gone nowhere over the past 4 years, and to a lesser extent Platinum Japan, with a similarly dismal performance.  Your recent audios/videos paint a rather gloomy outlook for China and correctly highlight the country’s investment risks.  Since the Platinum Asia Fund is predominantly China focused, I am feeling more at risk than optimistic for future returns, and am now thinking of selling my entire holding in this fund to take advantage of investment opportunities in other areas.

But outside of the gold, silver & base metal miners, I find little or nothing that inspires me at present. I would never think about putting these funds into Tesla, FAANG or other high-flying technology stocks, and with economic growth looking so precarious in most countries around the world due to Covid-19, I have little appetite to initiate investment in Europe or the USA (other than mining companies).  I am already well established in various segments of the market relating to battery technology and perhaps I’ll hang onto the Japan Fund for now.  But regardless of where else I look, I keep coming back to gold,  silver & base metal miners as representing the best opportunity over the next 2-3 years, especially when one considers that we are only at the beginning of a major secular bull market in gold/silver/platinum, with the miners usually high beta the metal at this stage in the cycle.

The ramification is that my entire investment portfolio would then be even more highly skewed to about 80% gold, silver and other metal miners. At some stage I will obviously need to keep a sharp eye on the charts to look for acceleration and over extension because if my timing is wrong and I sell too late, this happy scenario can quickly turn into a disaster as getting out of 15 - 20  companies quickly, especially in some of the small-mid caps where I am a major shareholder, could be a challenge!   

So, considering my age which is now late 60’s, is this crazy & irresponsible?  Or should one seize this moment and take full advantage of what can be perceived as a once in a generation opportunity to profit from the unfolding crisis?  Over recent days I have begun to see gold & silver mentioned on mainstream media such as CNBC, Bloomberg, the Australian Financial Review etc, and Wall Street firms are starting to take note and provide an outlook on the sector.  If metals and miners were not just beginning to break out from their long-term ranges, one could interpret this as a contrarian indicator. But what encourages me is that so far the mainstream media doesn’t seem to fully grasp the reasons behind the recent rise in gold/silver prices, (e.g. one expert telling people to now sell gold as it had reached its peak and was all downhill from here), advisors are still not recommending gold shares in the media or on Q & A sessions, pension funds and private investors are still underweight gold/gold shares or have no holdings at all, and everyone still seems to be in denial or at least not very concerned or vociferous about the debasement of the dollar and other fiat currencies and the wide-ranging impact it will have on all sectors of the market.

Anyway, your comment and insight would be greatly appreciated. 

Eoin, I have enjoyed and benefitted from your service since the late 1980’s, when I had zero funds to invest, but still anxiously awaited each edition of the old hardcopy reports!  These formed the basis of my acquiring an understanding of the markets and guiding me through my first steps in investing once I eventually had some funds to invest in around 1990! The service has gone from strength to strength, through the addition of the Chart Library, the daily audio and now video where charts can be analysed as you explain them. I continue to learn every day and am grateful to you and the service for facilitating this. 

And

Further to my earlier email, I omitted mentioning an important point so add it below as a PS.

P.S. I’m not proposing to jump in now and chase the market for additional Gold/Silver shares, but want to have funds available to take advantage of any pullback. In addition, if/when the gold/silver shares take another leg up from here, my plan is to take some profits off the table in anticipation of a consolidation and build up further reserves for the next buying opportunity.

Eoin Treacy's view -

Thank you for this thought-provoking email and your long-term support. At the Melbourne Chart Seminar in April 2018, the clear message was Australian gold miners were breaking out. At the time shares like Evolution Mining, St Barbara, Northern Star and Perseus Mining were on the verge of completing bases and the price of gold in Australian Dollars was testing the upper side of a six-year base.

Since then we have seen significant appreciation in the Australian gold mining sector which was accompanied until quite recently by a downtrend in the Australian Dollar. The weakness of the US Dollar is now creating a global trend toward increasing positions towards gold in portfolios. 



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July 27 2020

Commentary by Eoin Treacy

Everything You Need to Know About Ethereum 2.0

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

The culmination of over five years of research and development, Ethereum 2.0 is a highly ambitious upgrade.

Never before has the cryptocurrency industry seen a blockchain of the same size and value as Ethereum attempt to transition all users, as well as assets, to an entirely new decentralized network while keeping all operations on the old network active and running. 

It will likely take many years for the Ethereum 2.0 upgrade – in all its complexity – to be complete. However, developer commentary featured in this report suggests the biggest hurdle (and perhaps most important milestone) in the Ethereum 2.0 roadmap is its initial launch.

Eoin Treacy's view -

The breakout to new recovery highs by Ethereum last week and bitcoin this week suggest a return to demand dominance following a multi-month hiatus. The coincident surge in precious metals suggests this is more about the demand for a hedge against the debasement of fiat currencies than the range of impending innovations in the cryptocurrency sector.



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July 27 2020

Commentary by Eoin Treacy

Three Gorges Dam deformed but safe, say operators

This article by Frank Chen for AsiaTimes.com may be of interest to subscribers. Here is a section:

The deformation occurred last Saturday when the flood from western provinces including Sichuan and Chongqing along the upper reaches of the Yangtze River peaked at a record-setting 61,000 cubic meters per second, according to China Three Gorges Corporation, a state-owned enterprise that manages the dam and the sprawling power plant underneath it.

The company noted that parts of the dam had “deformed slightly,” displacing some external structures, and seepage into the main outlet walls had also been reported throughout the 18 hours on Saturday and Sunday when water was discharged though its outlets.

But the problem of water seeping out did not last long, as the dam reportedly deployed floodgates to hold as much water as possible in its 39.3 billion-cubic-meter reservoir to shield the cities downstream from the biggest Yangtze deluge so far this year.

And

Meanwhile, Wang Hao, a member of the Chinese Academy of Engineering and an authority on hydraulics who sits on the Ministry of Water Resources’ Yangtze River Administration Commission, has also assured that the dam is sound enough to withstand the impact from floods twice the mass flow rate recorded on Saturday.

Eoin Treacy's view -

It is still raining in southwest China and that means the dam will be letting out more water to control the level behind the wall. Therefore, it is unlikely to be able to curtail the risk of flooding downriver.



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July 24 2020

Commentary by Eoin Treacy

July 24 2020

Commentary by Eoin Treacy

Panic Selling Grips Chinese Stocks After U.S. Tensions Worsen

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

The escalation in tensions comes at a particularly volatile time for China’s stocks, with the government taking steps to manage a debt-fueled frenzy that had pushed equities to their highest since 2015. Bullish traders have pushed leverage to an almost five-year high.

“Worries over China-U.S. relations will dominate the market,” said Raymond Chen, a portfolio manager with Keywise Capital Management (HK) Ltd. “People will be closely watching how the U.S. reacts to the closure of Chengdu consulate. I expect more panic selling in the near term.”

China’s yuan fell as much as 0.28% to 7.0238 versus the greenback, the weakest since July 8. China’s government bonds extended gains, with futures contracts on 10-year notes climbing as much as 0.36% to the highest since July 3. The yield on debt due in a decade dropped 5 basis points to 2.86%, the lowest since July 1.

Overseas investors sold 16.4 billion yuan of China stocks Friday, the most since a record 17.4 billion yuan was dumped on July 14. Turnover rose to 1.3 trillion yuan, the 17th session over the 1 trillion yuan mark.

Eoin Treacy's view -

The Chinese government has been trying its best to paper over the cracks in the economy. The boom in IPOs and the efforts to repatriate foreign listings of its tech champions are all aimed at creating a façade of capital market strength and stability. It fulfills the secondary purpose of trying to protect Hong Kong’s status as a major financial hub despite the destruction of its legal freedoms.



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July 24 2020

Commentary by Eoin Treacy

Email of the day - on cryptocurrencies

Please refresh my memory about your stance on Bitcoin & Crypto Currencies. Regarding Bitcoin, one of the best hedge fund managers, Mark Yusko loves it an suggests it likely reaches $100K within the next 12-18 months, and much higher going forward. AVI GILBURT, the Elliott Waver says if you want to be safe, wait until it breaks out above 10,000. Warm Regards

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. Bitcoin’s halvening, when the reward for mining a new coin halves about once every four years, passed off without a hitch in May. In the past, these events have resulted in investors refocusing on the limited supply argument and prices have rallied meaningfully both ahead and after the halvening.



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July 24 2020

Commentary by Eoin Treacy

Intel Plunges as It Weighs Exit From Manufacturing Chips

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

Outsourcing is the norm in the $400 billion industry nowadays, but for 50 years Intel has combined chip design with in-house production. And until recently, Intel was even planning to churn out processors for others.

“To the extent that we need to use somebody else’s process technology and we call those contingency plans, we will be prepared to do that,” Swan told analysts on a conference call, after the company warned of another delayed production process.

“That gives us much more optionality and flexibility. So in the event there is a process slip, we can try something rather than make it all ourselves.”

Pursuing this option would represent a huge shift in the industry and the end of Intel’s biggest differentiator, Cowen & Co. analyst Matt Ramsay said.

Design can only do so much for semiconductor performance. The manufacturing step is crucial to ensuring these components can store more data, process information faster and use less
energy. Combining the two helped Intel improve both sides of its operation for decades.

Eoin Treacy's view -

Intel has lagged in its ability to deliver 10nm chips at scale and is also having difficulty in getting its 7nm manufacturing up and running. The reality is as the width of a single silicon atom is approached the difficulty in manufacturing chips increases exponentially. That means the cost and focus required to succeed is progressively more difficult to maintain. Intel’s willingness to entertain the idea of subcontracting represents a significant defeat. 



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July 24 2020

Commentary by Eoin Treacy

July 23 2020

Commentary by Eoin Treacy

Video commentary for July 23rd 2020

July 23 2020

Commentary by Eoin Treacy

Tech's Perfect Profit Record Fails to Impress Spoiled Bulls

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

For a view of just how high the bar is set for technology stocks, consider this: Every single one of their earnings reports this season has topped forecasts. Yet the sector has recently gone from being 2020’s best performer to one of its biggest laggards.

Not that beloved tech companies have crumbled. Since the reporting season began July 14, the S&P 500 technology sector is up 0.7% while the Nasdaq 100 is virtually unchanged. But both have trailed the broader S&P 500 over the period, and tech’s performance is the second-worst of S&P’s 11 main sector groups.

That’s a change from earlier in 2020 -- a year in which megacaps and tech firms have been viewed as coronavirus havens because of their strong balance sheets, healthy profit pictures and the fact that some have actually benefited from the stay-at-home economy. Still, with the tech-heavy Nasdaq 100 up 22% this year, investors want proof that those stocks are worth the high prices they’re fetching.

“On the positive side, there are so many reasons why tech should be okay,” said Gene Goldman, chief investment officer at Cetera Financial Group. “But on the negative side, it’s just valuations and earnings. It’s a high bar that companies are going to have to beat.”

Eoin Treacy's view -

Stay-At-Home stocks have been the clear winners from the lockdowns. The concentrated number of winners coupled with a surge in liquidity and punters eager to participate resulted massive outperformance over the last few months. 



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July 23 2020

Commentary by Eoin Treacy

Email of the day - gold attracting momentum traders

How far could the "Robinhooder's" distort the precious metal markets?

So far today the GDX/GDXJ do not seem to be confirming the upward movement in gold prices.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. There is a tendency among precious metals investors to expect a full bull market to unfold in a short period of time. That is because the price tends to range for lengthy periods before experiencing explosive breakouts. These tend to go faster and farther than anyone has been conditioned to expect during the range.



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July 23 2020

Commentary by Eoin Treacy

Tesla's $200 Billion Question Remains Unanswered

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

And yet the earnings call — where Musk has in the past ranted about “fascist” virus lockdowns and attacked analysts for asking “boring, bonehead” questions — was a bit of a snooze. It even featured a long discussion about insurance and Musk’s appreciation for the actuarial profession.

In the current economic environment, such steadiness is an achievement. Most car companies will probably suffer huge losses because of the recent closures of factories and showrooms, even if things won’t be quite as bad as feared initially. By contrast, Tesla reported $104 million of net income in the April to June period, bringing its total profit over the past four quarters to $368 million.

Still, these are modest amounts for a company that’s valued at an inexplicable 800 times trailing earnings, giving it a $295 billion market capitalization. 

The profits are also more than accounted for by $1 billion of regulatory credits that Tesla sold to other carmakers during the 12 months to June, including $428 million in the latest quarter. It’s only able to earn this income because rivals haven’t gotten their act together yet on building enough electric vehicles and have to buy credits from Musk’s company to satisfy emissions regulators. Tesla acknowledges this good fortune won’t last forever.

Eoin Treacy's view -

Without clear support from green regulations the company would be incapable of generating a profit. That effectively means Tesla’s competitors are being forced to fund its expansion. It’s an odd situation which runs contrary to the basic conditions of capitalism, but it is the reality provided by the market. It’s part of Elon Musk’s genius that he realised that fact before everyone else.



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July 22 2020

Commentary by Eoin Treacy

Video commentary for July 22nd 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar weakens but Renminbi weakens more, gold, silver and gold shares extend breakouts, stock market quiet but China weakens. India eases, geopolitical tensions rise but tech earnings positive with Tesla's positive surprise. 



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