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March 16 2021

Commentary by Eoin Treacy

Video commentary for March 16th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: bond yields continue to trend higher and represent a growing headwind for growth, global reflation candidates continue to outperform, gold and oil stable, palladium surges on mine issues. renewables ease. 



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March 16 2021

Commentary by Eoin Treacy

Email of the on solar power, desertification, and profitability

This video is very interesting. It is hard to comprehend the scale of this project.  It is part of China's ''ending poverty'' project.

Whilst the US has been engaged in adventurism in the M-E and elsewhere (right up till today) resulting in heavy losses, both financial and human cost, China has been powering ahead in leaps and bounds, spreading their sphere of influence far and wide. Interesting times.

 

Eoin Treacy's view -

Thank you for this interesting video which is both information and raises some important questions. The point they seek to get across is that solar panel power plants can create clean energy, reverse desertification, and create lucrative income streams for local populations. 

The video at no point discusses the efficiency of the solar panels, the sustainability of using the precious water resource to regularly clean them, the cost/efficiency of power lines to get the electricity to where it is needed or the desire for energy self-sufficiency.



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March 16 2021

Commentary by Eoin Treacy

Big Market Delusion: Electric Vehicles

This article by Rob Arnott for Research Affiliates may be of interest to subscribers. Here is a section: 

From the beginning, the air travel business has been capital intensive and highly competitive. During good times, new airlines emerged and drove down profits. During bad times, many less well-capitalized companies folded. Over the course of the last century, virtually every company in the business either failed or merged into a larger airline, most of which also collapsed.

The simple fact, as Warren Buffett so cleverly stated, is that technology does not translate into great fortunes for investors unless it is associated with barriers to entry that allow a company to earn returns significantly in excess of the cost of capital for an extended period. Of course, Apple, Google, and Facebook are well-known examples of such technological success, but they are the exception rather than the rule. For a host of complicated reasons, these companies have been able to build moats, or barriers to entry, around their businesses. They also benefit from the fact their products can be produced with limited capital investment.

Eoin Treacy's view -

Not every electric vehicle upstart is going to survive but they are currently priced as if they will be the ultimate successors to the global automotive industry. That’s the kind of contradiction bubbles are made of.



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March 16 2021

Commentary by Eoin Treacy

Inside Disney's Plan To Automate Half Its Ad Business Within Five Years

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

Disney is courting two sets of advertisers with its platform approach. Linear TV buyers will be able to buy across new formats more easily and with greater granularity, while programmatic buyers will finally be able to see and bid on all of Disney’s inventory.

Building its own ad tech is a key part of Disney’s strategy. A video ad server “pressure-tested” at Hulu will be extended across the rest of Disney's video inventory. The muscle behind its tech is a 500-person engineering and product team led by Jeremy Helfand, previously Hulu’s VP and head of advertising platforms. The team already built the video ad server and the video header bidding solution that allows programmatic buyers to compete for every Disney ad impression. 

The team came about last year, when Disney merged all of its Hulu and Disney ad tech talent and products into a single, centralized team. All in, Disney said it’s making a “nine-figure” investment in its ad platform.

Eoin Treacy's view -

Google’s announcement that it is shutting down the tracking of user activity across websites is going to cause ructions for many companies that rely on that data to target the ads they buy. It also hands greater control to the owners of data pools who now have greater heft in selling access to potential ad buyers.



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March 15 2021

Commentary by Eoin Treacy

March 15 2021

Commentary by Eoin Treacy

Yields, ETF Buying BOJ Set to Add Flexibility

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

The basic elements of yield-curve control will probably remain unchanged, with the short-term rate anchored at -0.1% and the BOJ aiming to keep the 10-year JGB yield around 0% -- while allowing fluctuations depending on economic and price developments.

We expect Kuroda to renew the commitment to the 10-year yield range of +/-0.2 ppt around 0%, but -- importantly -- also indicate that temporary moves beyond the range would be acceptable, as long as the effects of monetary easing aren’t disrupted and the yield curve is consistent with economic activity, prices, and financial conditions.

In operational terms, this may mean the BOJ will conduct its JGB purchases with more flexibility -- changing the frequency of the operations and the menu of its purchases, depending on market conditions.

This would help improve the functioning of the Japanese government bond market in terms of price discovery and liquidity -- increasing policy sustainability.

Eoin Treacy's view -

The question investors are likely asking is if the Bank of Japan is willing to loosen its yield curve control bands, do they believe inflation is in fact returning with sufficient vigour to initiate a trend?

One of the primary reasons for the Yen’s strength is because deflation was a surety. The supply might increase but there was no chance of inflation eroding the holding overnight. Meanwhile, the positive current account balance acted as a counterweight to the increasing money supply. If the BoJ is willing to change their perception of inflationary pressures that’s toxic for the Yen.



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March 15 2021

Commentary by Eoin Treacy

Billionaire investor Mike Novogratz says bitcoin will be like a report card that measures how the government is handling

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

"Bitcoin will literally be like a report card for how citizens think the government is doing managing their finances," the Galaxy Digital CEO said on CNBC's "Squawk Box" after the cryptocurrency hit a record high above $61,000over the weekend.

Novogratz indicated that bitcoin is an inflationary hedge and a digital store of value, rather than regular money, which is why institutions, money managers, and retail investors are piling into the digital asset. If people in the US believe Fed Chair Jerome Powell and Treasury Secretary Janet Yellen can facilitate full employment for the economy while avoiding inflation, they will stop buying bitcoin, he said.

The billionaire further said there has been a "secular shift" from the mindset that bitcoin isn't an asset class, to it now becoming one. "We're in uncharted territories in how much money we're printing and bitcoin is a report card on that," he said.

Eoin Treacy's view -

Bitcoin is the ultimate risk asset. Any delusion that it would be uncorrelated with other assets evaporated as soon as institutional investors began to participate. In that respect I agree with Mike Novogratz, people buy it as a speculative asset. When money is being printed with abandon it is the asset that has increased most in value.



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March 15 2021

Commentary by Eoin Treacy

Why in the World Would You Own Bonds

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

…History and logic show that central banks, when faced with the supply/demand imbalance situation that would lead interest rates to rise to more than is desirable in light of economic circumstances, will print the money to buy bonds and create “yield curve controls” to put a cap on bond yields and will devalue cash. That makes cash terrible to own and great to borrow. Through their powers central banks can, at least temporarily, put a lid on interest rates and keep short-term interest rates low relative to long-term rates so that it becomes profitable to buy bonds with cash, which central banks abundantly provide which makes real interest rates very negative. For example, during the 1930-45 period the Fed kept the bond yield around 2.5% and the cash yield around 1%, which made it profitable to borrow cash and use it to buy and own bonds. While that can make holding bonds financed with cash profitable at low rates, under such circumstances both the cash rate and the bond rate are bad. Naturally, because cash rates are so low it pays to borrow cash and invest it in investments that are higher-returning. Back in the 1930-45 period, the Fed was able to keep yields there, and the way they did that was also through outlawing gold and the movement of capital elsewhere. So, when I look at it, while I want to be short bonds (because they have the most terrible fundamentals), I do know that central bankers can keep cash more terrible, and I do know that they might have to prevent the movement to other storehold of wealth assets and other countries. 

Eoin Treacy's view -

There is a good reason large hedge fund managers have been buying trophy properties around the world. They wish them to be hedges against the potential for a significant devaluation in the purchasing power of their wealth. At the other extreme we have people like Elon Musk who just sold all his property (in California) because he is afraid of being taxed into oblivion. That suggests while some are betting on property as a hedge, the location in a friendly regulatory environment is likely to either make or break the trade.



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March 12 2021

Commentary by Eoin Treacy

March 12 2021

Commentary by Eoin Treacy

Treasury Yields Surge to Test Key Level in Sudden Selling Bout

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

The move started in Australia, where bond futures fell heading into the market’s close to put modest pressure on Treasuries. At around the same time, there was a block sale of 10-year ultra bond futures, followed by a buyer of downside put options -- the hedging of which tends to weigh on the market. The three combined to tip 10-year Treasury futures through Thursday’s session low, which unleashed the wave of selling.

As many as 20,000 contracts changed hands in the next five minutes, the largest activity of the day. The speed and severity of the move left many traders perplexed, with volumes in the cash market comparatively modest.

The moves there were most pronounced in the benchmark 10-year tenor, with the yield curve steepening as two-year rates only rose as much as two basis points. European bonds followed Treasuries, with U.K. 10-year yields up five basis points to 0.79%.

Eoin Treacy's view -

Macro traders make money by sniffing out logical inconsistencies and pushing them until they break. George Soros and his ilk pressuring the Pound’s ERM fix is one such notable example so are the small number of traders that correctly called the demise of the subprime markets.

These kinds of contrarian bets are aided by the fact that crowds thrive on contradiction. The biggest bull markets inevitably breed the biggest contradictions because outlandish forecasts are required to justify buying at extraordinary highs.



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March 12 2021

Commentary by Eoin Treacy

Platinum Quarterly

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

In 2020 the platinum market was in a deficit of -932 koz, the largest annual deficit on record albeit below the -1,202 koz deficit forecast in November 2020. This difference was due to Anglo American Platinum Converter Plant (ACP) Phase A being restarted in December 2020, three weeks earlier than expected. However, over the year, as a whole, lower supply due to COVID-19-related mine closures, ACP outages and reduced recycling far outweighed the pandemic-driven fall in demand from the automotive, jewellery and industrial sectors, which fall was partially offset by increased investment demand.

For 2021 the platinum market is forecast to remain in a deficit for the third consecutive year. The modest deficit of -60 koz results from a 17% increase in total supply and a 3% increase in total demand. Interestingly, total supply in 2021 will still be 3% lower than in 2019, with industrial, jewellery and automotive demand levels all above their respective levels in 2019.

Total platinum demand in 2020 was 7,738 koz, 7% (-569 koz) lower than in 2019. Automotive demand reduced by 17% (-474 koz) year-on-year, largely due to lower vehicle sales in the first half of the year, as measures to control the spread of COVID-19 resulted in vehicle factory and showroom closures. However, platinum automotive demand losses were cushioned by the impact of higher metal loadings on catalysts to meet tighter emissions regulations. Jewellery demand was similarly impacted in 2020, with volumes 13% (-279 koz) lower on a full-year basis despite quarter four demand returning to pre-pandemic levels. Industrial demand was 5% (-111 koz) lower, with strong glass sector demand largely compensating for weakness in all other industrial demand segments.

In 2020, weakness in automotive, jewellery and industrial demand was partly offset by strong investment demand, from bars and coins and ETFs, collectively up 24% (+295 koz) year-on-year. Heightened global risk drove investor demand for hard assets such as platinum during the first half of the year, further encouraged by the weak platinum price. Investment demand increased in line with the improving economic outlook in the second half of 2020 and was bolstered by NYMEX futures exchange physical metal stocks, that increased significantly to address the disconnect between the price of platinum futures and platinum. However, as the year progressed bar and coin demand moderated somewhat as the platinum price increased and stock shortages in North America were addressed. ETF holdings increased strongly over the year with growth in North America, Europe and Japan far exceeding declines in South Africa.

Eoin Treacy's view -

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

Platinum is more of an industrial metal than an investment vehicle. The demise of diesel engines resulted in a crash because catalytic converter demand evaporated.

That is exactly what happened to silver when digital cameras eroded demand for photographic film. The price of silver halved between 1989 and 1991 as the first digital cameras arrived on the market. Without that major source of demand, the price drifted in a range for more than a decade. It did not breakout until a new source of demand appeared. It broke out in 2003 as emerging market investment demand heated up and Western investors worried about financial repression in the aftermath of the tech bust.



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March 12 2021

Commentary by Eoin Treacy

Tencent, Baidu Fined by Antitrust Regulator for Past Deals

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

“The message is clear that seeking government approvals in deals like these are a must.” said Ye Han, a partner at Beijing-based law firm Merits & Tree, who specializes in antitrust and M&A.

“While we haven’t seen cases where companies got broke up or mergers got unwinded, such evaluations are likely going on behind the scene.”

Didi Mobility Pte, a unit of ridehailing giant Didi Chuxing, and Japan’s SoftBank Corp. were also issued fines of 500,000 yuan each -- the maximum penalty possible -- for setting up a joint venture without permission. A ByteDance unit and its partner Shanghai Dongfang Newspaper Co. were also penalized the
same amounts for a 2019 partnership that created a video-copyright venture. ByteDance said the joint venture has since been canceled.

Technology companies like Tencent had previously carried out mega mergers and acquisitions through so-called Variable Interest Entity structures, which operate on shaky legal grounds. The new antitrust rules, accompanied by the fines handed down by the regulators, are a signal VIEs are now under
their oversight.

Eoin Treacy's view -

Being a Chinese billionaire is a dangerous profession. Wang Jian, head of HNA group, fell to his death while posing for a photo in France in 2018. Richard Lu, CEO of JD.com, was accused of rape in the USA the same year. Jack Ma fell foul of the Party late last year and disappeared from view for months. Lin Qi was murdered by a business colleague in December. In the eight years up to 2011 China executed 14 billionaires for various reasons including murder and graft.    



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March 12 2021

Commentary by Eoin Treacy

Email of the day on China information sources

Sinocism by the old China hand Bill Bishop is a great Substack newsletter covering many of these developments. Flagging if other readers are interested. The Centre for Strategic and International Studies (CSIS) have via their China Power and Strategic Technologies programmes a number of great reports on Chinese semiconductor procurement, 5G security and control of rare earth supplies such as neodymium. They’re great reports!

Eoin Treacy's view -

Thank you for this note. I agree Bill Bishop is a fountain of information about China. It’s also worth mentioning that he moved home to Washington DC a few years ago because of the changing climate for independent thinkers in Beijing.



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March 11 2021

Commentary by Eoin Treacy

Video commentary for March 11th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Dow Theory suggests a new bull market but short-term overbought, ECB yield curve control, Dollar weakens on stimulus passing, value opportunities in Asia rebounding, Europe STOXX 600 on cusp of breaking out. 



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March 11 2021

Commentary by Eoin Treacy

Remit For The Monetary Policy Committee (MPC)

This letter and response between the UK’s Chancellor of the Exchequer and the Governor of the Bank of England may be of interest to subscribers. 

To achieve this objective, the government’s economic strategy consists of:

• operationally independent monetary policy, responsible for maintaining price stability and supporting the economy;
• a credible fiscal policy, maintaining sustainable public finances, while providing the flexibility to support the economy;
• structural reform to level up opportunity in all parts of the UK and to transition to an environmentally sustainable and resilient net zero economy, including through regulation, and an ambitious programme of investment in skills, infrastructure and innovation, in order to sustain high employment, raise productivity and improve living standards;
• maintaining a resilient, effectively regulated and competitive financial system that supports the real economy through the provision of productive finance and critical financial services, while protecting consumers, safeguarding taxpayer interests and supporting the transition to a net zero economy. 6

ACCOUNTABILITY
The Monetary Policy Committee is accountable to the government for the remit set out in this letter. The Committee’s performance and procedures will be reviewed by the Bank of England’s Court on an ongoing basis (with particular regard to ensuring the Bank is collecting proper regional and sectoral information). The Bank will be accountable to Parliament through regular reports and evidence given to the Treasury Committee. Finally, through the publication of the minutes of the Monetary Policy Committee meetings and the Monetary Policy Report, the Bank will be accountable to the public at large.   

Eoin Treacy's view -

Central banks are “operationally” independent. All that means is politicians do not get involved in their day-to-day affairs. The central bank still takes orders from politicians. When elected officials feel the “need” for change they simply announce it in the budget. Today we “need” to save the planet so it is now the central bank’s job to do that.



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March 11 2021

Commentary by Eoin Treacy

Worst-Performing Asia Stock Index Turns Winner on Value Love

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

“Singapore stocks look attractive because of their relatively better valuations and high dividend yields,” said Stuart Rumble, a multi asset investment director at Fidelity International. The large share of property firms and banks also make the market “highly geared” to economic re-opening, he added.

The Straits Times Index closed up 1.2% on Tuesday to the highest in more than a year. The gauge is trading at 14.7 times 12-month forward earnings, behind most of its regional peers and the MSCI Asia Pacific Index’s 16.8 multiple, according to Bloomberg-compiled data. The Singapore gauge’s dividend yield is estimated at 3.8% for the next 12 months, higher than the regional benchmark’s 2.3%.

The export-oriented economy suffered its biggest contraction since independence last year due to the global pandemic. Now, new daily Covid-19 infections locally are hovering near zero and the government expects growth to rebound to between 4% and 6% in 2021.

The three local banks -- DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. -- that make up nearly half of the index’s weight, contributed the most to the benchmark index’s rise amid higher yields, climbing more than 10% each this year. Investors are awaiting the easing of a regulatory cap on bank dividends introduced last year.

Eoin Treacy's view -

The Singapore Dollar is a strong regional currency that does best in periods of economic growth led by Asia. The rate has been ranging between S$1.3 and S$1.45 since 2015 but that situation may now be coming to a conclusion as Asian growth ramps up following a milder contraction than the rest of the world and with a rebound fuelled by positive demographics.



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March 11 2021

Commentary by Eoin Treacy

Shell Plans to Take Virtual Power Plant to the Next Level

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

Royal Dutch Shell Plc agreed to buy Next Kraftwerke, the operator of a virtual power plant that brings together clean-energy capacity across Europe to sell the electricity into the market.

Next Kraftwerke remotely connects and manages more than 10,000 off-grid units -- including solar, hydropower and bioenergy facilities -- across eight countries, the Hamburg-based company said Thursday in a statement. The deal expands Shell’s footprint in low-carbon technologies as the Anglo-Dutch oil major seeks to slash its emissions.

“The acquisition of Next Kraftwerke will accelerate Shell’s strategy to grow by adding smaller renewable assets to our portfolio,” David Wells, vice president of Shell Energy Europe, said in the statement. The terms of the deal, which is expected to complete in the second quarter of this year, were not disclosed.

Power is a key part of Shell’s ambition to become a “net-zero” company by 2050 and one of the world’s largest providers of green electricity. Shell aims to double electricity sales to 560 terawatt-hours by 2030.

Eoin Treacy's view -

European oil majors have been delivered a clear message to evolve or die. The political tide of support for green energy and decarbonisation continues to favour reduced emphasis on fossil fuels. Royal Dutch Shell is at the forefront of that regional energy transition.



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March 11 2021

Commentary by Eoin Treacy

Email of the day on China and the coronavirus:

I am shocked at your remarks about China. It is not the China I know, and have seen develop over the last 40 years. A country where Harvard (Ash Center 9 July 2020) surveys found 95.5 percent of respondents were either “relatively satisfied” or “highly satisfied" with their government compared with 38% in the US.

The article from Politico is am interesting read, but does not mention that a partner of the Wuhan Institute was the US Galveston National Laboratory, of whose activities we know very little too.

Bad things happen in every country, including China and the US, but it behooves us to have a sense of proportion and get the facts both right and complete. Take one example: you mention a man in China who altered a gene to suppress HIV - he ended up in jail for breaking the rules.

I am sure you would embrace Deng Xiao Ping's instruction "find the truth through facts", and please recognize that most of the almost 1.5 billion people in China have just finished a perfecting satisfactory day!

And this from David Brown:                 

Thank you for this article and comment Eoin. On February 13 2020 I gave a presentation at my company's All Hands meeting about the viral epidemic in China. I made slides describing the evidence trail going back many years that indicated it was manufactured in the Wuhan lab. I removed those slides at the last moment as the meeting organiser gave me just 10 minutes for a 30 minute presentation - as you can imagine, the remaining content of the 1 hour meeting was trivia. Staff reaction to my presentation could be described as 'has he gone crazy!' They thought I was exaggerating. Nevertheless, I had them practice 3 days working from home, and we have not returned to the office since those days. I am sad to say that woke culture has come into the company as it has expanded over the past year with naive virtue-signalling new recruits, and I would be causing a storm if I now presented those slides showing the likely origin of the virus or showed them your comments. It's a sad world that has emerged in the past couple of years. I am glad I do not have many years to live.
 

Eoin Treacy's view -

Thank you both for these comments which are representative of the divide in perception. I might also add we all wish a mind such as David Brown’s will be with us for years to come.

No country is perfect and most have some part of their history they are embarrassed about.  However, there is the world of difference between countries with an independent judiciary and free press compared to authoritarian regimes. Freedom to discuss alternatives and to openly air grievances is the basis for western liberal society.



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March 10 2021

Commentary by Eoin Treacy

Video commentary for March 10th 2021

March 10 2021

Commentary by Eoin Treacy

In 2018, Diplomats Warned of Risky Coronavirus Experiments in a Wuhan Lab. No One Listened

This article by Josh Rogen appeared in Politico and may be of interest to subscribers. Here is a section:

A little-noticed study was released in early July 2020 by a group of Chinese researchers in Beijing, including several affiliated with the Academy of Military Medical Science. These scientists said they had created a new model for studying SARS-CoV-2 by creating mice with human-like lung characteristics by using the CRISPR gene-editing technology to give the mice lung cells with the human ACE2 receptor — the cell receptor that allowed coronaviruses to so easily infect human lungs.

After consultations with experts, some U.S. officials came to believe this Beijing lab was likely conducting coronavirus experiments on mice fitted with ACE2 receptors well before the coronavirus outbreak—research they hadn’t disclosed and continued not to admit to. In its January 15 statement, the State Department alleged that although the Wuhan Institute of Virology disclosed some of its participation in gain-of-function research, it has not disclosed its work on RaTG13 and “has engaged in classified research, including laboratory animal experiments, on behalf of the Chinese military since at least 2017.” That, by itself, did not help to explain how SARS-CoV-2 originated. But it was clear that officials believed there was a lot of risky coronavirus research going on in Chinese labs that the rest of the world was simply not aware of.

“This was just a peek under a curtain of an entire galaxy of activity, including labs and military labs in Beijing and Wuhan playing around with coronaviruses in ACE2 mice in unsafe labs,” the senior administration official said. “It suggests we are getting a peek at a body of activity that isn’t understood in the West or even has precedent here.”

This pattern of deception and obfuscation, combined with the new revelations about how Chinese labs were handling dangerous coronaviruses in ways their Western counterparts didn’t know about, led some U.S. officials to become increasingly convinced that Chinese authorities were manipulating scientific information to fit their narrative. But there was so little transparency, it was impossible for the U.S. government to prove, one way or the other. “If there was a smoking gun, the CCP [Communist Party of China] buried it along with anyone who would dare speak up about it,” one U.S. official told me. “We’ll probably never be able to prove it one way or the other, which was Beijing’s goal all along.”

Back in 2017, the U.S. diplomats who had visited the lab in Wuhan had foreseen these very events, but nobody had listened and nothing had been done. “We were trying to warn that that lab was a serious danger,” one of the cable writers who had visited the lab told me. “I have to admit, I thought it would be maybe a SARS-like outbreak again. If I knew it would turn out to be the greatest pandemic in human history, I would have made a bigger stink about it.”

Eoin Treacy's view -

China is the wild west for medical research. The moral, ethical and safety considerations that slow down research in much of the developed world are ignored in China. That means if one wants to do research that would be frowned upon at home, you will find a welcome in China. The result is that all manner of experiments with new biomedical technology are taking place, often behind closed doors.



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March 10 2021

Commentary by Eoin Treacy

Email of the day on solvency

I have a question. In your various videos and daily updates, you oftentimes mention that the government (80% of the time you mean the US Govt since you comment on the huge US fiscal stimulus) cannot afford higher rates and that higher yields pose a problem. Implicitly there was something like that in your opener yesterday (“We don’t have record low yields anymore. Therefore, the cost of servicing the debt will rise“).  Sometime I also read words “like “solvency” when the discussion is about higher rates, government debt and cost of servicing

My question: why should the debt for a country like the US be a solvency issue, even if yields rise to 3%? I understand that the total amount of government debt is moving towards USD 30 tn quickly. However, the US govt.  will always be able to service its debt. The US has its liabilities in USD, a currency that it controls and can print into existence anytime. It does not even need to issue debt. It can just create & spend USD. If investors go “on strike “(another expression that I sometimes read) the US can always retire its debt (YCC is by the way the first step towards redemption even if the debt sits temporarily on the balance sheet of the FED after it is purchased). Spending without new issuance of debt is btw. what the market fears now i.e., that the govt. spends the fiscal stimulus directly into the economy without issuing new debt, filling the banks with reserves and potentially causing an issue with the SLR (all of a sudden, the financial media have discovered that the SLR moratorium is expiring end of March and that the fiscal stimulus without new debt might not be so bullish …)

so, my question: why is the debt an issue for a country that issues its currency and where its debt is denominated in the same currency?  By definition a default or solvency problem is not possible. Obviously if money printing and new debt is not accompanied by an increase of the “total output / GDP / total net national worth” produced, the country will face an inflation issue. But not a default. The US is not Greece (constrained by the EUR) nor Turkey nor Argentina (constrained by debt issued in foreign currency USD and EUR) or HK (constrained by the currency peg).

Eoin Treacy's view -

Thank you for this question and for your relevant points. You are correct that countries who control their own currency and issue debt in that currency will never default in the classic sense. However, inflation and yield curve control are default by stealth.



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March 10 2021

Commentary by Eoin Treacy

Special Report: Fade the Front Cover

Thanks to a subscriber for this short report from David Rosenberg. Here is a section:

There is a common refrain that “demographics is destiny.” The difference between then and now is that we had a population profile with so much more vitality in the 1920s. We started that decade with a median age of the population at 29 years — today it is 38 years. The share of the population over the age of 65 was 7% in the 1920s; today that share is on the precipice of hitting 20% for the first time in recorded history. Not to detract from retirees and their dominance, but they are savers, not spenders. When you have half the population under 30 years of age as you did in the 1920s, well, that does blaze the trail for a spending boom.

And guess what? There was capital deepening back then. Company executives were less focused on financial engineering but on improving the capital stock. So, the 1920s was renowned for a decade that saw 5% annualized growth in manufacturing productivity. We had a central bank then that seems to have understood that we can actually tolerate mild deflation as was usually the case in peacetime periods (as my old chum Gary Shilling always points out). Only today is inflation seen as a desirable outcome — because today’s central bankers are consumed with bailing out debtors and penalizing savers. But inflation erodes real purchasing power — something today’s central bankers don’t tell you.

Eoin Treacy's view -

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

If demographics is destiny then India is the place to be. Half of the population is younger than 25 so the country’s demographics are better than the USAs in the early 1920s. That young population has also aided young countries during the pandemic so they are better placed to growth as the global economy recovers.



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March 09 2021

Commentary by Eoin Treacy

Video commentary for March 9th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: bond price decline pauses, risk assets rebound on stimulus and global reflation hopes. solar, wind, innovation, follow bitcoin's rebound. Dollar eases back, Asia rebounding, China lagging in the rebound so far. 



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March 09 2021

Commentary by Eoin Treacy

'Reddit Raider' Favorite GameStop Soars After Latest Cohen Push

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

Monday’s rally came despite short interest being near the lowest level in at least a year. Roughly one-quarter of shares available for trading are currently sold short, according to data compiled by S3 Partners. That compares to a peak of more than 140% in January.

“Shorts will continue to be squeezed out of their positions as GameStop’s stock price continues to trend upwards,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Shorts sellers are down nearly $6 billion in year-to-date mark-to-market losses, including $609 million in Monday’s trading alone, Dusaniwsky said by email.

Eoin Treacy's view -

The rebound of reflation plays and retail investor favourites is partly a response to short-term oversold conditions. It is also because $1.9 trillion is still a lot of money, even after a decade of printing.

$1400 for individuals and each child as well as extended benefits the unemployed means many families will see bumps of several thousand dollars in the nest month.  According to this calculator a family of four with an income of $70,000 per annum would receive a payment of $5,600 or 8% of income. 



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March 09 2021

Commentary by Eoin Treacy

Email of the day on whether technical analysis has predicative qualities

I’m confident that most subscribers admire your courage in publishing the uncomplimentary letter extoling the benefits of Bitcoin.  Ten years ago, an early teenage, nerd neighbour, who was a Bitcoin investor gave me and some other local adults an introduction with the promise that Bitcoin was the money of the future.  At that time, one calculated the number of Bitcoins required to buy a cup of coffee.  Its usefulness seemed apparent.  My partner was keen. My reticence won-out because I could see how easy it was to buy but I was not confident that I could get my money back. 

Today, Bitcoin is obviously not money nor a substitute for money and will never become one.  See attached article. How long it will continue to be an investible asset is also an open question. Your critic may be disappointed.  Bitcoin may be a store of value; and its liquidity has improved but there will be similar and more convenient options.  Unlike art it has no attraction other than its relatively unattractive store of value.  It is purely a speculative venture dependent upon an increasing number of bigger fools while at the same time there is a diminishing number of potential buyers. One could never say the same about gold.

You politely ignored the correspondent’s criticism of your technical analysis that remains the principal reason for my subscription. Do you believe that T.A. has predictive characteristics?

Eoin Treacy's view -

Thank you for the associated article and your kind words. The best way to think about bitcoin or the other cryptocurrencies is as venture capital. Whatever portion of your portfolio you would normally devote to “make or break” opportunities, where you are willing to lose everything that is what you should think about investing in cryptocurrencies. That also fits the technical definition of gambling. The idiosyncrasy of the sector is that they are open to retail investors. Most venture deals, in the technology sector for example, are only available to much wealthier individuals.



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March 09 2021

Commentary by Eoin Treacy

Email of the day on oil prices

Oil price is in the news and as a holder of a leveraged position I was very happy with the price spike. Here's an article that is arguing it's a sellers’ market, will remain so, and that shale production will not drive prices back down. What are your thoughts.

Eoin Treacy's view -

Thank you for this article. Here is a section: 

The big players are consolidating the shale field now. And if you think that they want to pump barrels of oil at a loss, then you’ve got another think coming. They don’t have to do that. And once the land grab ends and the conservation of capital game begins, suddenly everyone is Opec.

The shale guys would be quite happy to see oil sustainably higher than it is now, especially given that competition within that area is now calming down. Everyone can make a profit as long as no one gets too greedy. That’s not going to upset them.

On top of that, Saudi Arabia has US president Joe Biden backing its hunches on this one. The president’s focus on “green” policies could make it tougher to develop shale fields and so it’ll be tougher to expand supply and so prices will go up. It’s another illustration of how regulation very often is exactly what any big incumbent player in a market wants. It keeps the competition at bay.

​The low return on invested capital has been a major challenge for the oil and gas sector over the last few years. Unconventional supply is extremely capital intensive. With prices below $60 large portions of the market are not economically viable. That reality led to the lower for longer mantra gaining traction. The lack of additional investment created the conditions for the current rebound and the massive decline in drilling during the pandemic exaggerated the effect.



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March 08 2021

Commentary by Eoin Treacy

Video commentary for March 8th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Renminbi breaks down, Euro tests MA, Brazilian Real breaking down, DAX breaks out, Nasdaq leads on the downside because of interest rate sensitivity, bonds yields remains high, commodities weak, 



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March 08 2021

Commentary by Eoin Treacy

Email of the on my ignorance from a bitcoin Holdr

I suggest though that you ignore Eoin Treacy on matters relating to Bitcoin and Cryptocurrency as he clearly has no idea what he is talking about. This became obvious to me the more of his videos that you have sent to me.

He talks about Bitcoin as if it a stock or currency and clearly doesn't understand the real value proposition here and why it actually has value. This is very obvious when he says things like you can hold gold in your hand but you can't hold Bitcoin..  This is completely ignorant of what Bitcoin is and how it works, yes it is digital but because of the encryption and the way the system works with mining/proof of work, each Bitcoin is a unique piece of information so when you have a key to a wallet it's just like you have the key to something physical. No one has access to it except you and it cannot be copied or duplicated or stolen or anything in any way, Eoin seems to misunderstand this, he is also forgetting that most gold in the world is not held in your hand it's stored in a vault somewhere subject to seizure or it's a digital representation of gold not the actual underlying that you can hold.

He then continues this faulty thinking and misunderstanding by concluding with completely ludicrous fear mongering ideas like what if the power grid goes down it will destroy a lot of Bitcoins.  No, it won't you ignorant buffoon, first there is no way to "destroy Bitcoins" they are stored in the Blockchain and never leave it, that is all they do and were meant to do, store value and move around. You could lose access to your coins by losing the keys but technically the coins are still there sitting securely in your wallet it would be entirely your fault for losing your keys. In the situation of the power going down the Bitcoin network would continue running in other countries and then it would catch up when the power comes back on, nothing would be lost except the mining revenue of the miners who had no power.

If there was a worldwide situation like what he mentions an EMP or a Solar flare then we would have much bigger problems then Bitcoin going down. It would take down all communications all banking services all vehicles all important infrastructure like water cleaning and pumping etc, anything electronic which in the modern world is practically everything, it would be chaos. But yea it would get Bitcoin! so don't risk any money on it!  It actually wouldn't as if everyone lost power at the same time all miners would go offline and then as power was slowly restored worldwide miners would rush to go back mining since the network would have ground to a halt, there would be easy money to be made mining without competition for as long as you can. The network would be back online and functioning properly in a matter of hours after the internet is back on and if someone like a bank or government tried to deliberately mess with the blockchain while most miners etc are offline then when the rest of the world comes back online, we would immediately backdate to the last known block before the power down and discount the manipulation that occurred while everyone was offline.

Eoin’s technical analysis style is odd as well as I said before he seems to think Bitcoin is a stock or trades like a stock, his technical analysis is basically, look at this moving average we may go down and hit it or we may not. It is useless and cannot predict what is going to happen to prices. In fact, I believe nearly all standard indicators are useless as they are all lagging behind price, the only way to get an edge in technical analysis in my opinion is to use PA, price action methods.

He's also forgetting (or doesn't know) the fact that Bitcoin is even harder money than gold because of the mathematical hard cap on total amount of coins and that it's also a naturally deflationary asset as coins get lost or go out of circulation over time. Gold is still inflationary as more is mined every day and we have no idea how much actually exists on earth or on asteroids etc. Taking this in mind we shouldn't be surprised to see Bitcoin going higher and higher every cycle, how could it not? especially considering the current macro environment of unlimited QE and worldwide uncertainty.

Anyway, there's my rant for this week,

Eoin Treacy's view -

I was not smart enough to buy bitcoin when I first heard about it in 2013. There is no getting around that fact. Even if I did buy at $100, I am too much of a sceptic to have held all this time; particularly during the 90% drawdowns. Anyone who has held through these traumas is unlikely to ever sell. That’s why supply is so concentrated in the hands of a very small number of players despite the international hoopla about bitcoin.

I would point out though that I have traded cryptocurrencies successfully over the years. In fact, I’ve never lost money trading crypto, which is a testament to just how big the bull market is. However, just because it is a big bull does not mean it has been divorced from crowd psychology. In fact, that means it is more tightly intertwined with the emotions and actions of the crowd. Afterall it is still people buying bitcoin and the other cryptocurrencies.



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March 08 2021

Commentary by Eoin Treacy

Email of the day on Non Fungible Tokens (NFTs):

Are you going to add NFTs to your coverage(half-joking)?

Eoin Treacy's view -

Thanks for this article which may be of interest to the Collective. Here is a section:

The Twitter CEO shared a link Friday afternoon to a platform called “Valuables,” where his March 21, 2006 tweet “just setting up my twttr” was up for bidding. The highest offer is from Sina Estavi, CEO of Bridge Oracle, for $2.5 million as of Saturday afternoon, according to the website.

Ownership of these assets is recorded on a blockchain — a digital ledger similar to the networks that underpin bitcoin and other cryptocurrencies. However, unlike most currencies, a person canʼt exchange one NFT for another as they would with dollars or other assets. Each NFT is unique and acts as a collectorʼs item that canʼt be duplicated, making them rare by design.

Crypto collectibles have exploded in popularity lately, with anyone from artists to rock bands minting their content. A digital rendition of the Nyan Cat meme from 2011, for example, sold for nearly $600,000 in an online auction last month.

Some people who are buying NFTs believe it can help them prove ownership of a virtual item thanks to blockchain.

Dorsey has also been an advocate of digital currencies, displaying ”#bitcoin” in his Twitter bio, so jumping into NFTs seems to be a natural extension. His digital payments company Square also purchased approximately 3,318 bitcoins in late February, expanding on its October 2020 buy of 4,709.

A friend of mine was exploring the sector ahead of the pandemic. He morphed into an art consultant by happenstance and began offering consultancy on how to create fractional ownership as a way of raising money for art collectors and museums. Creating a liquid market for illiquid assets is a significant innovation which will thrive as long as M2 is accelerating higher.



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March 08 2021

Commentary by Eoin Treacy

Email of the day - on gold ETF holdings

On gold, I notice there is now significant weakness in the chart for Total known holdings of gold ETF. Will we need to see this stabilize and turn up before any rise is likely in spot gold prices?

Eoin Treacy's view -

There is undoubtedly some liquidation of gold longs going on at present as investors price in the potential for outsized swift economic recovery. That’s also the main rationale for selling bonds since there is less need for a safe haven.



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March 08 2021

Commentary by Eoin Treacy

From Spotify to Hello Fresh: lockdown Brits give subscription economy an adrenaline boost

Thanks to a subscriber for this article from The Times which may be of interest. Here is a section:

Hamish Grierson, chief executive of Thriva, a home blood-testing company that helps users monitor their health, said founders were now eyeing subscription models instead of the Facebook approach of chasing huge growth with no immediate revenue stream. He said the “growth at all costs” model worked for only a handful of companies and meant that most failed.

“As a consequence of that, there is a little bit more sympathy for more pragmatic, more resilient business models — and subscription tends to be a good version of that story,” Grierson added.

Investors want a piece of the action, too. Last week, Deliveroo, which charges £11.49 a month for free deliveries of restaurant meals, confirmed plans to float in London.

Thematics Asset Management launched its Subscription Economy Fund in 2019 to let investors cash in on the trend. The first of its kind, the $230 million (£165 million) fund is invested in about 50 companies with subscription models. It is up 50 per cent already.

Nolan Hoffmeyer, who runs the fund, said: “Last spring, when many companies didn’t have visibility over the next 30 days, subscription-based companies still had a lot of visibility over the next 12 months [because of recurring revenues]. They’ve been able to continue to invest and innovate. It’s a competitive advantage.”

Eoin Treacy's view -

Having the ability to predict revenue growth over a 12-month horizon is a particular benefit where interest rates are low and asset prices are high. That visibility commands a higher valuation because cashflows are so easily modellable. In other words, these kinds of companies can carry more leverage because they have less risk on the revenue side.



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March 05 2021

Commentary by Eoin Treacy

March 05 2021

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review March 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The rollout of vaccines to COVID-19 continues to accelerate and that will continue through the balance of the year and 2022. There is encouraging news about the number of different vaccines which have been approved and their success against variants. By the end of the year, the world will be inundated with doses which will provide at least some protection from the virus for anyone who wants it. That’s all the rationale any government needs for reopening the economy.

On Valentine’s Day 2020 Mrs Treacy and I went out for dinner with another couple. We talked about the news of a virus threat from China and how it could potentially cause ructions further afield. We told them we had stocked up on rice, meat, protein bars and batteries just in case. They thought we were crazy crackpots jumping at shadows.

It was hard to imagine then just how disruptive the decision to lockdown was going to be. A similar condition exists today. After a year of being confined to our immediate vicinity it is tempting to think this is how it will always be. The reality, however, is we are going to see a surge back to normalcy much quicker than most believe possible.

Humans are social animals and we yearn for social contact. We’ve been starved of that basic need for a year and we’ll overdose on it when we are able. That suggests we are looking at a boom in consumer activity over the coming couple of years.



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March 04 2021

Commentary by Eoin Treacy

Video commentary for March 4th 2021

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 not yet ready to provide additional assistance so yields bumped back up, tech/innovation stocks pulled back, oil firm on OPEC supply control, gold weak on stronger Dollar. bitcoin eases back



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March 04 2021

Commentary by Eoin Treacy

Macro Digest: Don't put all your eggs in the yield curve control basket just yet

Thanks to a subscriber for this note by Steen Jakobsen for Saxo Bank. Here is a section:

3. The Fed wants the yield curve to steepen – it is better for credit provision and banks, who borrow short and lend long, and most of the funding for the US government happens is done at 0-3 years, the most important part of the yield curve. The 10-year plus long end is not a major concern as long as the short-end is anchored

4. Chaos at the short-end of the yield curve. The running down of the Treasury’s funds held at the Fed (built up to more than $1.6 trillion during the pandemic emergency) has created dysfunction in the repo market and at the very shortest end of the US yield curve, where rates have dipped below zero at times for the repo. The fault for this lies with the inexperienced New York Fed President Williams, who needs to be replaced. Some believe that the situation can be addressed with a new “Operation Twist” in which the Fed sells some of its shorter maturity holdings to buy at the longer end. But this does the exact same thing as YCC and would set a precedent the Fed won’t want to set. Another fix, a raising of the bank deposit limit would also have two major consequences: the Congress don’t want to "weaken" banks’ balance sheets, and why would Jamie Dimon and other bank CEOs want to be burdened with more US debt if the Fed is going to cap the yields on that debt?

Yes, the troubles in the plumbing at the short-end of the yield curve will trigger some sort of Fed action, but expect a very technical support for the short-end that raises liquidity and the shortest rates away from zero.

If the Fed were to do yield-curve-control YCC, it will be further down the road and likely not extend beyond the 3-year treasury rate, as opposed to market expectations of up to 10Y. The Fed may support the fiscal handover at the margin when we have yet to get to the other side of vaccinations and with unemployment and underemployment at current levels, but they will not entirely throw in the towel on allowing the market the ability to reign in overspending governments.

Of course, one wonders if it is already far too late for the Fed to think this way – given where US budget deficits are headed and the needed treasury issuance to cover those deficits, but at least we need to acknowledge the modus operandi of the Fed.

Eoin Treacy's view -

Economic data is probably going to be loopy for at least another six months. The massive one-time economic contraction in global economic activity has skewed all manner of economic comparisons with past cycles.

Negative oil prices, surging savings and outsized wage growth amid record high unemployment tell us little more than there was a big shock to the system. In five years, these will look like data aberrations, but today we are creeping up on when year over year comparisons will be most affected. Making bold predictions about the output gap or economic potential against that background is fraught with risk. I prefer instead to focus on objective facts.



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March 04 2021

Commentary by Eoin Treacy

OPEC+ Keeps Tight Squeeze on Output, Sending Prices Soaring

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

restraints. It leaves the world facing a significant supply squeeze, higher energy costs and the risk of inflation, just as widespread vaccination allows economies to start emerging from the downturn caused by the pandemic.

“OPEC+ definitely risks over-tightening the oil market,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.

Brent has already rallied almost 30% this year to above $67 a barrel as OPEC+ kept production below demand in order to drain the glut that built up during the worst of the Covid-19 lockdowns. Without additional supply, that deficit will widen significantly in April, according to the cartel’s internal estimates.

Eoin Treacy's view -

The oil price has been rebounding in part because of a renewed demand outlook as the global economy reflates and also because supply growth has been both intentionally and unintentionally constrained.

The brief but traumatic trip below zero last year was a catalyst for OPEC members to be more amenable to supply discipline. They want to ensure prices stay at economic levels and that means somewhere in the region of $60 to $80.



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March 03 2021

Commentary by Eoin Treacy

March 03 2021

Commentary by Eoin Treacy

Sunak Offers U.K. Companies Way to Cut Tax Bill in Next 2 Years

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

Chancellor of the Exchequer Rishi Sunak says the U.K. will introduce a new “super deduction” to reduce tax bills for investments in the next two years.

Sunak speaks in Parliament: “For the next two years, when companies invest, they can reduce their tax bill, not just by a proportion of the cost of that investment, as they do now or even by 100% of the cost, the so-called full expensing some have called for. With the Super Deduction they can now reduce their tax bill by 130% of the cost”

Sunak gives example: “Under the existing rules, a construction firm buying £10m of new equipment could reduce their taxable income, in the year they invest, by £2.6m. With the Super Deduction, they can now reduce it by £13 million”

Eoin Treacy's view -

This measure is designed to motivate companies to invest in new plant and machinery. It will create a significant boost to consumption over the next year by pulling forward any such investment from the future. It’s one of a range of measures in today’s budget aimed at promoting economic growth even as the government look at what will be required to deal with the massive rise in debt resulting from the pandemic.



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March 03 2021

Commentary by Eoin Treacy

Gold ETF Exodus Quickens in Ominous Sign for Faltering Metal

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

Gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs,” Carsten Fritsch, an analyst at Commerzbank AG, said in a note. “A shift in sentiment among investors would be needed for gold to free itself from its extremely difficult predicament.”

Federal Reserve officials slated to speak this week may give more insight into the economic outlook and how the central bank might respond to the recent tumult in bond markets. Higher yields dim the appeal of the non-interest-bearing metal.

“Gold remains vulnerable to a further tightening from real rates,” TD Securities analysts led by Bart Melek said in a note.

Eoin Treacy's view -

Sentiment towards gold is rapidly deteriorating as the pace of the decline from the August peak picks up. The trend of gold holdings in ETFs is also now below its trend mean as investors migrate away from the yellow metal in favour of better performing assets. The big question for investors is whether this is a temporary or major correction.



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March 03 2021

Commentary by Eoin Treacy

March 03 2021

Commentary by Eoin Treacy

Bitcoin ETF Competition Heats Up as Crypto Trust Eyes Conversion

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

Less than a month after the first Bitcoin exchange-traded fund debuted in Canada, a Toronto-based asset manager is looking to convert its cryptocurrency trust to the format.

Ninepoint Partners LP plans to ask holders of its $266 million (C$335 million) Bitcoin Trust (BITC.U) to approve its conversion from a closed-end investment fund into an ETF, according to a statement Wednesday. The firm, which manages $9 billion in assets, cited increased liquidity and a better price to the fund’s net asset value as reasons for the change.

Discounts and premiums to the net-asset value are common among such crypto trust because unlike ETFs, new shares can’t be quickly created. The BITC.U fund was trading at a 9.13% discount
to its NAV on Tuesday.

The meeting to approve the conversion will take place April 19 and all costs of the conversion will be covered by the firm, the release said

Eoin Treacy's view -

In March 2017 there was a lot of discussion about the creation of a bitcoin ETF. The Winklevoss twins in particular were at the forefront of attempts to launch one. Those efforts failed because the market was not sufficiently well understood or supported by institutions and because cryptocurrencies are completely unregulated. 



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March 03 2021

Commentary by Eoin Treacy

March 02 2021

Commentary by Eoin Treacy

March 02 2021

Commentary by Eoin Treacy

Hiding From The Madness: An Alts Perspective On The Search For Capital Shortage

I attended this zoom call this morning given by Dylan Grice and there were a number of interesting comments I thought subscribers might be interested in.

March 02 2021

Commentary by Eoin Treacy

Banks in Germany Tell Customers to Take Deposits Elsewhere

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

Interest rates have been negative in Europe for years. But it took the flood of savings unleashed in the pandemic for banks finally to charge depositors in earnest.

Germany’s biggest lenders, Deutsche Bank AG and Commerzbank AG, have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. The more customer deposits banks have, the more they have to park with the central bank.

That is creating an unusual incentive, where banks that usually want deposits as an inexpensive form of financing, are essentially telling customers to go away. Banks are even providing new online tools to help customers take their deposits elsewhere.

Banks in Europe resisted passing negative rates on to customers when the ECB first introduced them in 2014, fearing backlash. Some did it only with corporate depositors, who were less likely to complain to local politicians. The banks resorted to other ways to pass on the costs of negative rates, charging higher fees, for instance.

The pandemic has changed the equation. Savings rates skyrocketed with consumers at home. And huge relief programs from the ECB have flooded banks with excess deposits. Banks also have used the economic dislocation of the pandemic to make operational changes they have long resisted.

Eoin Treacy's view -

There are two big questions that arise from charging depositors to hold funds in their bank accounts. The first is the benefit banks receive from now being able to pass on costs to customers. The second is the quandary savers are put in.



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March 02 2021

Commentary by Eoin Treacy

Twitter announces paid Super Follows to let you charge for tweets

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

 

Twitter announced a pair of big upcoming features today: the ability for users to charge their followers for access to additional content, and the ability to create and join groups based around specific interests. They’re two of the more substantial changes to Twitter in a while, but they also fit snugly into models that have been popular and successful on other social platforms.

The payment feature, called Super Follows, will allow Twitter users to charge followers and give them access to extra content. That could be bonus tweets, access to a community group, subscription to a newsletter, or a badge indicating your support. In a mockup screenshot, Twitter showed an example where a user charges $4.99 per month to receive a series of perks. Twitter sees it as a way to let creators and publishers get paid directly by their fans.

Direct payment tools have become increasingly important for creators in particular in recent years. Patreon has been hugely successful, and other platforms including Facebook, YouTube, and even GitHub have all launched direct creator payment features. Twitter will presumably take a cut — the company has been hinting at subscriptions features that would offer it a new source of revenue — though it doesn’t appear to have said yet what that fee will be.

Eoin Treacy's view -

This announcement suggests Twitter is serious about starting to make money. The creation of a sales funnel so members with substantial followings can monetise that interest is a business model that has grown in popularity during the pandemic.  



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March 01 2021

Commentary by Eoin Treacy

March 01 2021

Commentary by Eoin Treacy

March 01 2021

Commentary by Eoin Treacy

Berkshire Hathaway Preamble to the Annual Meeting

Here is a section:

Berkshire’s investment in Apple vividly illustrates the power of repurchases. We began buying Apple stock late in 2016 and by early July 2018, owned slightly more than one billion Apple shares (split-adjusted). Saying that, I’m referencing the investment held in Berkshire’s general account and am excluding a very small and separately-managed holding of Apple shares that was subsequently sold.

When we finished our purchases in mid-2018, Berkshire’s general account owned 5.2% of Apple. Our cost for that stake was $36 billion. Since then, we have both enjoyed regular dividends, averaging about $775 million annually, and have also – in 2020 – pocketed an additional $11 billion by selling a small portion of our position. Despite that sale – voila! – Berkshire now owns 5.4% of Apple. That increase was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding. 6 But that’s far from all of the good news.

Because we also repurchased Berkshire shares during the 21⁄2 years, you now indirectly own a full 10% more of Apple’s assets and future earnings than you did in July 2018. This agreeable dynamic continues. Berkshire has repurchased more shares since yearend and is likely to further reduce its share count in the future. Apple has publicly stated an intention to repurchase its shares as well. As these reductions occur, Berkshire shareholders will not only own a greater interest in our insurance group and in BNSF and BHE, but will also find their indirect ownership of Apple increasing as well. The math of repurchases grinds away slowly, but can be powerful over time. The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses. And as a sultry Mae West assured us: “Too much of a good thing can be . . . wonderful.”

Eoin Treacy's view -

Buying back shares appears to be back on the menu for an increasingly large number of companies. For investors who seldom sell, like Berkshire, that’s good news provided the number of shares in issuance does in fact contract.

One of the most egregious abuses of share buyback programs is that additional shares are issued at a similar pace through executives exercising options. That effectively means buybacks amount to a massive transfer of wealth to company management.



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March 01 2021

Commentary by Eoin Treacy

Ignoring Energy Transition Realities

Thanks to a subscriber for this report from the team at Goehring & Rozencwajg which was released a couple of months ago. Here is a section:

Electric vehicles also involve energy intensive lithium-ion batteries. Few realize how much energy is embedded in an electric vehicle before it is ever plugged in. Over the life of a typical EV, nearly 40% of the total energy goes into manufacturing the battery. The IEA expects electric vehicles will represent nearly 15% of total transportation energy by 2040. We calculate this equates to approximately 850 mm EVs and nearly 65 terawatt hours of batteries. This is a staggering amount considering global lithium-ion manufacturing capacity is currently less than 0.4 terawatt hours per year. These batteries will require an incredible 2 billion tonnes of oil equivalent to build. We will shortly release a detailed podcast that goes into these figures in great depth.

Unfortunately, few people realize how energy intensive the “green transition” will be. As a result, much (if not all) of the carbon savings will be undone by generating the power in the first place. The IEA’s proposal assumes wind and solar make up nearly 50% of all electricity by 2040 and that some 850 mm electric vehicles will be on the road. These initiatives are expected to reduce CO2 by 55% or 18 bn tonnes per year. While this may sound impressive, simply moving away from coal towards much-cleaner natural gas would itself save nearly 14 bn tonnes of CO2 per year. When analyzed through this perspective, renewables would save an incremental 4 bn tonnes compared with the next cleanest option.

Eoin Treacy's view -

The views expressed in this report elaborates on many of the points made by other analysts. There is no getting around the fact that renewables are dependent on access to metals like copper, lithium, cobalt and nickel. That’s in addition to the significant additional quantities of rare earth metals required. These are all extractive industries. A lot of renewable infrastructure is also placed in very remote, ecologically pristine areas.



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March 01 2021

Commentary by Eoin Treacy

Housing Booms in Australia as Prices Surge Most in 17 Year

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

We are seeing a significant increase in demand across all price points and all suburbs,” said real estate agent Ben Collier, who handled the Paddington sale. Usually “you see different markets moving at different speeds, whereas it seems to be somewhat more uniformed right now.”

In New Zealand, where home prices soared 13% in January from a year earlier, the problem is so acute the government will now require the central bank to consider the impact on housing prices when setting interest rates, a change the bank opposed. The Reserve Bank of New Zealand is also reimposing lending restrictions on property investors in an attempt to cool the market.

Fears that Australia’s housing market would be flooded by distressed sales as people were thrown out of work by the pandemic have faded as the economy recovers faster than expected, and people resume paying their mortgages after being offered six-month loan holidays last year.

Instead, a shortage of supply is helping fuel the price boom. The number of houses advertised for sale in the first three weeks of February was down 26% from a year earlier, CoreLogic said.

“Housing inventory is around record lows for this time of the year and buyer demand is well above average,” Lawless said. “These conditions favor sellers. Buyers are likely confronting a sense of FOMO, which limits their ability to negotiate.”

Eoin Treacy's view -

This is a familiar story from all over the world. There is low supply because many people are worried about moving during a pandemic. At the same time there is increased demand because other people feel they have more cash and need to move because of personal circumstances. The combination is leading to rising prices across the board. Record low interest rates are fuelled the advance.



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February 26 2021

Commentary by Eoin Treacy

February 26 2021

Commentary by Eoin Treacy

Chaotic Treasury Selloff Fueled by $50 Billion of Unwinding

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

Market detectives looking to explain the fury of Thursday’s Treasuries selloff will find most of the evidence pointing to technical rather than fundamental reasons.

A combination of supply indigestion, a potential $50 billion position unwind and vanishing liquidity exacerbated moves as traders aggressively repriced the Federal Reserve rate-hike outlook, despite no major economic developments or shifts in tone from policy makers.

“It wasn’t an orderly selloff and certainly didn’t appear to be driven by any obvious fundamental continuation or extension of the reflation thesis,” wrote NatWest Markets strategist Blake Gwinn in a note to clients. A number of more “technical-style” factors were in the mix, against a backdrop of a good-old-fashioned buyers strike, he said.

Eoin Treacy's view -

In a bull market buying the dips always works. When buying the dips stops working, the bull market is over. That might seem tautological but it is the strategy every investor ends up following because buying the dips is the best risk-adjusted way of buying in an uptrend. That question will be discussed in every emergency meeting at fixed income fund management houses today and over the weekend.



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February 26 2021

Commentary by Eoin Treacy

The $1T resistance -

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

This was a DATA ERROR. I spoke to Glassnode’s CTO during the cascade of liquidations and can confirm this was a wallet labelling error from an upstream data provider. (What we were actually seeing was an internal movement of coins inside Gemini exchange.) During this time, investment flows continued into Bitcoin’s network unabated with no shake-out of new investors. We can see this in the chart below where SOPR climbed against the sell off.

This is VERY unusual occurrence. SOPR can only climb against a price decline when recent buyers hold their coins, and new buyers are stepping in to buy the steady stream of coins being offered by sellers who bought a while ago carrying greater profit. In summary, new investors bought the dip while traders buying on leverage were liquidated.

Eoin Treacy's view -

An additional odd occurrence in the crypto markets is that the Grayscale Bitcoin Trust is now trading at a discount to NAV. This is not the first time the fund has traded below book value and the trust has underperformed the bitcoin price by a considerable margin since March 2020. That suggests the aggressive fee structure and increasing availability of alternative vehicles for investing in bitcoin have robbed the fund of customers.



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February 26 2021

Commentary by Eoin Treacy

Copper Crunch Set to Ease With More Supply Heading to China

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

Chinese copper smelters grappling with a shortage of semi-processed material are set to see an influx of supply from South America, a sign that the tightness helping supercharge the metal’s rally may be easing.

Starting next month, there’ll be a large number of ships arriving at Chinese ports from Chile and Peru, the nation’s main suppliers, as bottlenecks ease, according to IHS Markit lead shipping analyst Daejin Lee. The amount of concentrate expected to reach the Asian nation may climb almost 60% from February’s volume, he estimated.

“The narrative could be shifting from very tight supply on account of port congestion and logistics difficulties, and even the waves in Chile, to more easier supply,” said Ed Meir, an analyst with ED&F Man Capital Market. That could take a little bit of the air out of copper’s rally, he said.

Eoin Treacy's view -

Commodities are volatile and chasing prices that are already at elevated levels is seldom a useful exercise. One of the oldest adages in the commodity markets is “the cure for high prices is high prices.” The surge in copper prices has begun to encourage supply into the market. At least some further consolidation of recent gains appears likely.



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February 25 2021

Commentary by Eoin Treacy

February 25 2021

Commentary by Eoin Treacy

Treasury Yields Surge Past 1.6%, Sounding Alarm for Risk Assets

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

The 5-year note is of particular interest to many in the $21 trillion Treasuries market. Earlier this week, tepid demand in an auction of five-year notes brought into focus this key part of the curve, which also reflects medium-term expectations for Fed policy. Then on Thursday, a measure of demand for a $62 billion auction of 7-year Treasury notes came in at a record low.

The rout comes as investors continue to reprice expectations for Fed hikes as the vaccine rollout and the prospect of additional stimulus foster a rosier outlook for the economy. Yields on 2- and 5-year yields are more influenced by the starting point and speed of normalization, said Bank of America Corp. rates strategist Ralph Axel.

“Everything that we see keeps pushing us into sooner, faster, more in terms of removing accommodation,” Axel said.

The surge in yields is hurting riskier assets. Emerging-market currencies such as the South African rand and Mexican peso sold off sharply against the dollar, and the S&P 500 Index dropped as much as 2.6%.

In Europe, peripheral countries have led a bond sell-off, with Italy’s 10-year yield spread over Germany climbing back above 100 basis points. Core debt wasn’t spared, with yields on France’s benchmark debt turning positive for the first time since June.

Eoin Treacy's view -

The 5-year Treasury best approximates the average duration of the US debt market so it tends to attract a lot of notice from bond traders. The surge in yields is being driven by two factors. The first is investors are increasingly willing to price in a quick recovery. The second is the indifference of the Fed to higher rates.



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February 25 2021

Commentary by Eoin Treacy

The Fed May Need to Head Off a Money-Market Mess

This article by Bill Dudley may be of interest to subscribers. Here is a section:

What can the Fed do? For one, at their next policy-making meeting in mid-March, officials could slightly bump up the interest rates the central bank pays on bank reserves (currently 0.10%) and on its borrowings in the repo market (currently zero). A slightly higher floor on such rates might help prevent other short-term rates, such as yields on Treasury bills, from going negative. There’s precedent for such a move: The Fed has made technical adjustments to these rates before in order to ensure that the federal funds rate stays within the Fed’s target range.

Beyond that, the Fed should extend its temporary exemption of bank reserves and Treasury securities from leverage-ratio calculations (the initial exemption, granted last spring, is set to expire in March). I would even recommend going further and exempting bank reserves permanently. This would help solve a problem that arises when the Fed buys securities to stimulate the economy: Its purchases cause reserves to increase, bringing banks closer to the point where the leverage ratio requirement binds and forces them to curtail lending. When this happens, it undermines the Fed’s stimulus efforts. To ensure that the exemption wouldn’t reduce the amount of capital required to be held by banks, the leverage ratio and other capital requirements could be adjusted upwards.

Granted, the Fed might have a hard time selling such a move to other financial regulators, which don’t share its monetary policy mandate. But it would be the right thing to do, eliminating the inherent conflict between the Fed’s quantitative easing and bank leverage limits. Under the current regime, the Fed is adding accommodation with one hand, and taking it away with the other. That’s a strange way of doing business.

Eoin Treacy's view -

The repo market is more than capable of sparking unwelcome volatility and the conditions for negative money market rates are growing. Some form of action will be required. Doing nothing will only exacerbate the problem. I suspect the Fed would much prefer removing inhibitions on bank liquidity than any form of interest rate hike regardless of how technical it would be.

This helps to highlight the Fed has challenges at both the long and short end of the curves. The yield curve spread continues to expand. The more sensitive 10-year - 3-month spread has jumped by almost 200 basis points in the last 18 months.



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February 25 2021

Commentary by Eoin Treacy

"Real world" test of Pfizer COVID-19 vaccine in Israel determines effectiveness in preventing illness

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

A real-world test of Pfizer’s COVID-19 vaccine in more than half a million people confirms that it’s very effective at preventing serious illness or death, even after one dose.

Wednesday’s published results, from a mass vaccination campaign in Israel, give strong reassurance that the benefits seen in smaller, limited testing persisted when the vaccine was used much more widely in a general population with various ages and health conditions.

The vaccine was 92% effective at preventing severe disease after two shots and 62% after one. Its estimated effectiveness for preventing death was 72% two to three weeks after the first shot, a rate that may improve as immunity builds over time.

It seemed as effective in folks over 70 as in younger people.

“This is immensely reassuring … better than I would have guessed,” said the Mayo Clinic’s Dr. Gregory Poland.

Vanderbilt University’s Dr. Buddy Creech agreed: “Even after one dose we can see very high effectiveness in prevention of death,” he said.

Eoin Treacy's view -

This is very encouraging news for anyone worried that the pandemic is going to last indefinitely. There are a handful of variants currently spreading and each appears to be more transmissible than the original strain of COVID-19.

Some of the vaccines have not proven to be effective at managing these threats. However, the big step in calming consumers has been achieved. If a vaccine can be created to deal with the first one, a booster can be delivered to the deal with the next. That’s true in addition to the fact that most young people have little to worry about anyway.



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February 24 2021

Commentary by Eoin Treacy

Video commentary for February 24th 2021

February 24 2021

Commentary by Eoin Treacy

Email of the day on paying up for commodities

Thanks again for your very calm analysis of these volatile times. I appreciate it a lot. I enjoyed very much your comments about the tendency of remembering the end of the events/experiences. There is a very good experiment on this done by Daniel Kahnemann. On a different note; you seem to be very bullish on copper, but it seems not enough to invest on that theme yet. Are you planning to invest? Otherwise, what would be a good instrument to invest for the medium/long term on that theme. Thanks in advance

Eoin Treacy's view -

Thank you for this email which may be of interest to subscribers. I have been conditioned through the decades to refuse to pay up for commodities. It’s a volatile sector that tends to have outsized moves in both directions. I am very bullish on industrial commodities overall and copper in particular.

Seeing outsized new sources of demand emerge for a commodity is a once in a couple of decades event. It will require a massive supply response to bring the market back into equilibrium. At present commodities are rallying because investors are pricing in an epic rebound in economic activity as fear about the pandemic subsides and people embrace fun and joie de vivre.



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February 24 2021

Commentary by Eoin Treacy

Long-End Yields Surge in Biggest Treasury Selloff Since January

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

The selloff in Treasuries sent the yield on the 30-year bond surging on Wednesday, putting the long-end
benchmark on track for its biggest one-day advance since early January.

Rates climbed across notes and bonds, with the long-end increasing most and the curve steepening. The 30-year yield jumped by around 11 basis points at one stage, hitting a one-year high of 2.29%, while the 10-year rate rose as much as 9 basis points to 1.43%.

Global bond markets are suffering this year amid the prospects for U.S. stimulus and a surging reflationary narrative, with volatility gauges climbing to multi-month highs. That’s prompted fears over a potential tantrum in havens, such as Treasuries and German bonds. While Federal Reserve Chairman
Jerome Powell this week called the recent run-up in bond yields “a statement of confidence” in the economic outlook, the move raises pressure on central banks to keep financing conditions easy.
 

“The market is nervous about additional stimulus, worried about the risks of higher inflation, and concerned about QE tapering,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. “The selloff is likely being exacerbated by convexity hedging and positioning stop-outs.”

Eoin Treacy's view -

Demand for save havens is waning. That’s perhaps the easiest way to explain the run-up in yields; globally. The scale of the flight to quantity because of angst at the lockdowns drove yields down to historic lows almost everywhere.



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February 24 2021

Commentary by Eoin Treacy

Square Buys $170 Million More Bitcoin, Deepening Crypto Bet

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

Square Inc. said it purchased $170 million in Bitcoin, further committing to the cryptocurrency and raising its holdings to about 5% of the company’s cash and equivalents.

The announcement came Tuesday as Square reported that cryptocurrency continues to be a growing part of its business through the use of its Cash App for Bitcoin transactions. The financial payments company’s involvement with Bitcoin is a reflection of Chief Executive Officer Jack Dorsey’s belief in
cryptocurrencies and the open internet.

The investment “really comes down to the alignment with our purpose, and aligning our incentives with cryptocurrency and more broadly expanding the economic empowerment opportunities and making them acceptable more broadly in a fair way around the world,” Chief Financial Officer Amrita Ahuja said. Square also bought $50 million worth of Bitcoin in October.

“Bitcoin has the potential to be a native currency of the internet and we want to continue to participate and learn in a disciplined way,” she said.

Eoin Treacy's view -

Once a company begins to accept bitcoin and promotes its use to clients it is virtually impossible to pull back. The fate of the company becomes twinned with the outlook for the cryptocurrency.

During bull markets demand for tokens increases and requires a devotion of capital to cater to the needs of clients. During bear markets, the company is left with useless assets that are expensive to maintain and lie dormant until the next bull run.



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February 24 2021

Commentary by Eoin Treacy

Battery Technology Fantasy Doesn't Match Reality

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

Technology has been forced to chase investors’ expectations. In China, the world’s largest market for electric cars where sales are growing steadily, battery installations of so-called lithium iron phosphate, or LFP, batteries – the technology of the last decade – accounted for 38% of the market, up from 33% the year before. Such batteries lag behind newer ones by as much as 30% in terms of energy density.

The reality is, these powertrains are highly complex. Even as some promising advances are made, commercial viability remains a stumbling block. Chief among those hurdles is boosting energy density and along with it, safety. The more energy a battery has, the further a car can go. However, that also hastens the pace of degradation and shortens battery life. Several higher-density batteries don’t have stable chemical compositions either, leaving them dangerously vulnerable to combustion.

To get over such challenges, firms are trying to make solid-state batteries that will be safer and, eventually, cheaper. Others are intent on boosting battery density by using more nickel content, and less cobalt, which is expensive and mired in supply issues. The progress so far has been limited.
Investors and analysts, meanwhile, are honing in the improvements on to individual battery parts, like cathodes and anodes.

The flipside of these advances are often overlooked. For instance, solid-state batteries that can store more have low power density, which means their energy delivery is slow, while those with higher nickel content are less chemically stable. In addition, solid state batteries have been known to discharge
sulphides.

Eoin Treacy's view -

It feels like I see a sensational headline about a new battery innovation almost every day. The reality is that it can take a decade to proof up and commercialise a new discovery and even that timeline is ambitious. There is no denying a great deal of capital is being poured into the sector but nothing has happened to question the historical timeline of 5 years between doublings in energy density.



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February 23 2021

Commentary by Eoin Treacy

February 23 2021

Commentary by Eoin Treacy

Johnson Says Pandemic End in Sight as He Plans U.K. Recovery

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

“This road map should be cautious but also irreversible,” the prime minister told members of Parliament in London. “The end really is in sight and a wretched year will give way to a spring and a summer that will be very different and incomparably better than the picture we see around us today.”

While U.K. leisure and travel stocks jumped as Johnson revealed his timeline, he is already facing pressure to move faster after the economy endured its deepest recession in more than 300 years. Chancellor of the Exchequer Rishi Sunak will announce more support for pandemic-hit businesses in his budget next week.

Eoin Treacy's view -

Psychologically, we tend to remember the totality of an experience based upon how well it ended. That’s why bubbles are always remembered so negatively. People forget the euphoria of the advance and focus instead on the trauma of the subsequent decline. 

As we exit lockdowns, worrying about mask protocols, handwashing and social distancing, will we now remember the pleasure of that first meal out, meeting up with friends, going to that first football game or concert more than the year of watching and waiting? In a couple of years, we might be yearning to spend more time with our families and a less hectic schedule.



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February 23 2021

Commentary by Eoin Treacy

Email of the day - on interest rate sensitivity and overbought conditions

At Greatest Risk from Higher Bond Yields? Eoin, we have seen some sizable sell offs in recent weeks from the hottest sectors such as Green Power, and the various Innovation Funds/ETFs as well as Electric Vehicle sector. As you'd pointed out, they are benefit from super low rates as growth is essentially free. What risk for EM though, which otherwise has been on cruise control of late? Today has seen a sizeable sell off, but is this just the first shot across the bow? Which of the EMs would you be most guarded against? What else might be at greatest risk given the run ups we have had in markets over the last 12 months?

Eoin Treacy's view -

The ARK Innovation ETF has pulled back by about 20% over the last six sessions. That’s a sizable pullback but the fund was up 383% since March 2020 so it was due some consolidation. This reaction has broken the 12-month sequence of higher reaction lows so the trend is no longer as consistent as it was on the way up.



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February 23 2021

Commentary by Eoin Treacy

Bitcoin Tumbles Below $50,000 as Fear Sweeps Through Crypto

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

The cryptocurrency tanked as much 18% on Tuesday and traded around $48,750 as of 10:41 a.m. in New York. While the selloff only puts Bitcoin prices at the lowest in about two weeks, investors are starting to wonder whether it marks the start of a bigger retreat from crypto or simply represents volatility in an
unpredictable market.

“Today’s correction for crypto assets is part of a wider sell-off in markets globally, being driven by profit-taking,” said Simon Peters, a crypto-asset analyst at the trading platform eToro. “Investors are closing positions, which will have generated significant gains for many of them.”

Bitcoin has been battered by negative comments this week, with long-time skeptic and now Treasury Secretary Janet Yellen saying at a New York Times conference on Monday that the token is an “extremely inefficient way of conducting transactions.”

Eoin Treacy's view -

Bitcoin is a speculative asset. That’s why it is capable of such big moves on the upside. It is also extremely volatile and dependent on a continued swell of new investors turning up to buy at successively higher prices.



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February 22 2021

Commentary by Eoin Treacy

February 22 2021

Commentary by Eoin Treacy

Yellen Shift on Vast Treasury Cash Pile Poses Problem for Powell

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

In an effort to provide a floor for the money markets, the central bank could lift the rate it pays on excess reserves parked at the Fed by banks and on its reverse repurchase agreements, from 10 basis points and zero, respectively. Tweaking these administered rates is something the Fed has done before.

“If the Fed decides that it wants overnight rates to move away from zero, the most effective approach in my view would be to raise” those two rates together, said former New York Fed official Brian Sack, who is now Director of Global Economics for D. E. Shaw & Co.

But that decision -- which could be made at next month’s policy making meeting -- would come as officials try to convince markets that they’re not about to reduce support for the economy. While any rate rise would be portrayed as a technical adjustment, there’s a risk investors wouldn’t see it that way.

“The aesthetics of having to hike these rates, I’m not sure how well the market will digest that,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York. “It might be complicated.”

What to do about the supplementary leverage ratio the Fed and other regulators impose on banks is also tricky. In order to ease market strains in March, the Fed temporarily exempted banks’ holdings of Treasuries and reserves from the ratio’s calculation. That exemption expires on March 31, just as banks’ cash balances at the central bank will be ramping up.

Eoin Treacy's view -

Bank leverage ratios are the big impediment to the financial system absorbing an additional trillion in liquidity. The easy answer would be to unshackle the banks but that is very unlikely given the current political environment.

Therefore, the most likely course of action is for the Fed to increase the rate it pays banks to hold reserves. This means the money leaving the Fed will quickly make a return journey through the economy and back to the Fed but would now command a higher return for banks.



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February 22 2021

Commentary by Eoin Treacy

China's Yield Appeal Catapults Yuan to Global FX Big League

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

There have been many false dawns in China’s quest for the yuan to challenge other major currencies. But underpinning the explosion this time lies a torrent of capital flowing into China’s markets, fueled by a frantic search for returns with over $14 trillion of debt globally paying less than 0%.

That appetite for some of the highest-yielding government bonds in the Group-of-20 countries has elevated interest in China to fever pitch and is generating demand for liquidity from investors looking to finance and hedge their investments. It’s also spurring volatility and attracting speculators who overlooked the market for years.

“It’s certainly a top currency in terms of the flow that we’re seeing,” said Kevin Kimmel, New York-based global head of electronic FX at Citadel Securities, one of the world’s biggest market makers. “Trading activity in the yuan has increased significantly.”

The shift comes as China continues to relinquish control -- albeit slowly -- of its tightly-managed currency, a linchpin of Beijing’s long-term plan to encourage its greater global use. China is considering easing restrictions on citizens investing in securities outside its mainland, a move that would facilitate two-way capital flows.

Eoin Treacy's view -

Capital is both global and mobile and it will always flow to the most attractive assets. There are no developed markets where one can pick up a yield above 1% in an appreciating currency. Investors have no other choice than to look elsewhere.

In doing so, they have to weigh how likely it is that tensions with China are likely to escalate. With a new US administration, the potential for surprises is lower and therefore the risk from investing in the renminbi is reduced but not eliminated. This trend of Renminbi strength has been very persistent since March and some consolidation will occur eventually.



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February 22 2021

Commentary by Eoin Treacy

Gold Extends Rebound on Wavering Dollar, Inflation Concerns

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

“I think the strong buying in gold stems from a sharp bounce from new lows and strong close on Friday,” said Tai Wong, head of metals derivatives trading at BMO Capital Markets. “And a softer dollar negates the impact of higher U.S. yields.”

A revival in Indian gold imports could also indicate some physical dip buying of bullion, according to Marcus Garvey, head of metals and bulk commodity strategy at Macquarie Group Ltd.

Meanwhile, Democrats begin the final push for President Joe Biden’s $1.9 trillion stimulus bill this week, and the Biden administration may unveil a multitrillion-dollar recovery package in March centered on infrastructure.

Eoin Treacy's view -

Perhaps gold has been overshadowed by bitcoin during the latest bull run. The continued strength in cryptocurrencies is attracting interest from all manner of sources internationally. Everyone is aware of the strength the sector is capable of but few are willing to consider bitcoin is also capable of pulling back by 90% following its accelerations.



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February 19 2021

Commentary by Eoin Treacy

February 19 2021

Commentary by Eoin Treacy

February 19 2021

Commentary by Eoin Treacy

Email of the day on the sequence of breakouts.

As someone who has no stake in Cryptoland, it is increasingly baffling, and frustrating to see the continued rise of virtually everything in that world. Particularly notable has been the rise of Bitcoin "Miners" RIOT in the US and ARGO in the UK, each of which has seen their share prices rise by roughly 50x in the last few months, with a notable explosion higher once Bitcoin rose through $20,000. Is it fair to say that these are like the Gold Explorers, the highest Beta plays that investors now feel comfortable owning now that Bitcoin, then Ethereum, then the other Alt Coins have roofed it?

Eoin Treacy's view -

Bitcoin miners are creating new supply and represent the only opportunity to obtain tokens below the prevailing price. That means they are heavily leveraged to price rises above the marginal cost of production. In that regard they are similar to the gold explorers. High-cost producers tend to move more as prices rise because the move into profitability is life changing for their prospects.



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February 19 2021

Commentary by Eoin Treacy

Email of the day on silver's relative strength

Silver price appears to be holding up much better vs. gold price. Any idea why?

Eoin Treacy's view -

Thank you for this question which I have been pondering over for the last few days. The easy answer is that silver has more industrial uses than gold. As industrial metals continue to price in additional infrastructure growth and new use cases in transportation and electricity generation they may be lending some support to silver versus gold.



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February 19 2021

Commentary by Eoin Treacy

Facebook and Twitter Can't Police What Gets Posted

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

In short, for a while AI was covering for the inevitable failure of user moderation, and now official or outsourced moderation is supposed to be covering for the inevitable failure of AI. None are up to the task, and events such as the capital riot should put an end to the era of plausible denial of responsibility. At some point these companies need to come clean: Moderation isn’t working, nor will it.

Eoin Treacy's view -

There is an easy way to improve user conduct on social media. Insist on real name confirmation. Anyone can say or do anything on social media today and have no fear of recrimination for their actions because it is completely anonymous.

The community of trolls on Twitter has multiplied beyond recognition and they form a significant core of user engagement. If the company were to insist on real names the business model would implode. However, it is instructive that many of the newer social media sites are insisting on real name login credentials from the outset. That is a simple measure to foster a less toxic community.



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February 18 2021

Commentary by Eoin Treacy

Video commentary for February 18th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Vietnam continues to rebound, South Korea pauses, Semiconductor demand remains firm, China eases and Renminbi weakens, copper extends rally, gold and silver remain stable but need a catalyst, bitcoin steady, ethereum breaks out, commodity currencies continue to rebound.



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February 18 2021

Commentary by Eoin Treacy

China blocked Jack Ma's Ant IPO after investigation revealed

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

The main reason seemed to be “growing unease in Beijing over Ant’s complex ownership structure and the people who stood to gain most from it”. The Street Journal said in a report on Tuesday.

“Behind layers of opaque investment vehicles that own stakes in the firm are a coterie of well-connected Chinese power players, including some with links to political families that represent a potential challenge to President Xi and his inner circle” the report added.

One of Ant’s investors is Boyu Capital, a private equity firm founded in part by Jiang Zhicheng. Jiang Zhicheng is the grandson of former Chinese leader Jiang Zemin, Many of Jiang Zemin’s allies have been purged in Xi’s anticorruption campaign, though he remains a force behind the scenes the WSF said in its report.

Eoin Treacy's view -

Many people are familiar with the fact that Chairman Mao was a prodigious reader of history. Few comment on the kind of history he focused on. His primary interest was in courtroom politics. He understood that he was now the emperor and that the only way to hold onto power would be to ensure his supporters were rewarded for their efforts. At the same time, they had to compete with one another for favour which strengthened his position. That’s how every dynasty functioned up to that point and he reintroduced the system of palace politics.



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February 18 2021

Commentary by Eoin Treacy

Email of the day on debt

In the 1960s David Cameron's father, Ian who was the head of the Gilts department, taught me when I was working. at Panmure Gordon, that states never repay their debts. They issue new bonds to refinance old ones when they come to maturity. Apart from President Andrew Jackson in 1835, there is no modern example of a state repaying the National Debt. It is about time that experts and journalists stop causing anxiety among older people who think that states are burdening their children and grandchildren with future debt repayments.

Eoin Treacy's view -

Thank you for this personal account. I agree governments never pay back their debts. They always issue more debt. However, the money for the bonds has to come from somewhere. If the yield is high enough it will siphon private savings from the economy to fund the government. If the yield is not attractive, the central bank will have to print the money and buy the bonds.

In the first case, the currency strengthen, growth has a harder time raising capital but value should do well. In the latter, they devalue the currency to fund government. All private savings are eroded. Those with savings pour them into financial assets to hedge against the falling purchasing power of the currency.



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February 18 2021

Commentary by Eoin Treacy

Peak oil demand is coming - but first brace for an almighty supply crunch

Thanks to a subscriber for this article by Ambrose Evans Pritchard in the Telegraph. Here is a section:

The world has turned its back on austerity. Keynesian reflation doctrines are triumphant. The Biden administration explicitly aims to run the US economy hot, with the help of the Federal Reserve.

Global "green deals" amount to $16 trillion. “It’s going to turbo-charge oil demand in 2022,” said John Hess, head of Hess Corp.

This spending may be low-carbon in ultimate effect but in the short-run it is brown. The transition requires infrastructure. It requires bulldozers and trucks. It requires the mining of iron ore and thermal coal, and the shipment to steel foundries. It trumps the $10 trillion infrastructure blitz by China, India, Brazil. and the emerging market "mini-BRICs" of the last commodity supercycle.

If future demand is large, the shortfall in future supply is even larger. Investment of $600bn a year in non-Opec exploration and drilling is needed to keep the global show on the road. Spending collapsed after 2014 and has never recovered. Last year it was $300bn. It has been running at just 35pc of levels reached in the boom.

This catches up with you in the end. The last two super projects to enter supply were Norway’s Johan Sverdrup and the Exxon-Hess Guyana venture. Henceforth it is a drought.

Goldman Sachs estimates that 9m to 10m barrels a day of future supply have vanished. That is a tenth of the world’s 100m barrels a day production. Remember that a swing of just 1m either way in normal times can flip the market from slump to price spike. Short-term demand is inelastic.

The elephant in the room is falling supply from non-Opec producers. These companies and regions (excluding US shale) were gently adding 500,000 barrels a day annually a year until recently. Goldman Sachs thinks they will soon be subtracting up to 1m barrels a day each year.

The pandemic has distorted the immediate picture but not the underlying dynamics. Global demand has fallen by 6m barrels a day. Two thirds of that is jet fuel. Aviation will come back fast as soon as the flying world is vaccinated.
 
The world has turned its back on austerity. Keynesian reflation doctrines are triumphant. The Biden administration explicitly aims to run the US economy hot, with the help of the Federal Reserve. Global "green deals" amount to $16 trillion. “It’s going to turbo-charge oil demand in 2022,” said John Hess, head of Hess Corp.

Eoin Treacy's view -

The commodity supercycle argument has become very popular all of a sudden among institutional investors. The trillions devoted to green tech commitments are expected to fuel a global infrastructure boom which is positive for industrial resources. 

When China entered the WTO, it embarked on the biggest building boom the world has ever seen. That primarily drove demand for oil, coal, iron-ore, copper and cement.

Secular bull markets or supercycles depend on supply inelasticity and rising demand. Twenty years ago, oil had both. Today, we have short-term supply inelasticity and the potential for a rebound in demand.



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February 17 2021

Commentary by Eoin Treacy

February 17 2021

Commentary by Eoin Treacy

Clubhouse Conversations

I’ve been granted early access to the Clubhouse app so I was thinking that a forum for the Collective to talk about markets might be welcome. I think right after the market closes, or on a weekend evening, might be the best time for these get-togethers but please let me know how what everything thinks the best time might be.

February 17 2021

Commentary by Eoin Treacy

Email of the day on real returns

Where can I find a chart plotting real returns of interest rates Thanks in advance.

Eoin Treacy's view -

Thank you for this question which is not easy to answer. The primary tools used by the market to monitor real returns on fixed income are heavily influenced by Fed actions.

For example, the Fed is buying large swathes of the inflation-protected securities market (TIPS). That’s supressing the yield.



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February 17 2021

Commentary by Eoin Treacy

Crisis Chronicles: Tulip Mania, 1633-37 The Plague and Tulip Mania

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

A number of factors contributed to the conditions that caused Tulip Mania. To start, the coin debasement crisis of the 1620s was followed by a period of prosperity in the 1630s. This prosperity coincided with an outbreak of the plague, which caused a labor shortage and increased real wages and surplus income. At the same time, there was a strong belief that social mobility was a Dutch birthright and that there was money to be made in every profession.

Prior to the 1630s, tulip bulbs were only physically traded among growers in the summer, when they could be safely pulled from the ground, in what evolved to be an informal spot market for individual commodities where cash and real assets traded hands. By the 1630s, the market for tulips began to grow as florists started buying and selling tulip bulbs still in the ground using promissory notes. The notes provided welcome credit and liquidity to help finance planting and limited credit risk to a known borrower with the borrower’s bulbs as collateral. However, the notes created a limited opportunity to inspect bulbs or to see them flower, provided no guarantee of quality, nor proof that the bulbs actually belonged to the seller, or even existed. Because delivery of the bulb was often months away, this financial innovation ultimately encouraged speculation as florists bought and sold promissory notes, which were in turn resold, creating a futures market. A legitimate need for financing real assets led to a financial market in which people with no stake in the actual underlying bulbs could participate. As Dash points out, it was “normal for florists to sell tulips they could not deliver, to buyers who did not have the cash to pay for them and who had no desire to plant them.” Such a financial market served the liquidity and credit needs of growers and florists, but it also led to highly leveraged speculation by those who could borrow to finance their investments with little of their own capital at stake. Promissory notes quickly transformed from a credit and liquidity mechanism to an instrument of speculation.

Beers Instead of Beurs Fuel the Market
Bulbs were traded not at the exchange buildings in Amsterdam, the beurs, but rather in local pubs where each trade was celebrated with a toast. The in het ootje method of trade required the seller to pay a commission independent of the seller’s acceptance or refusal of the bid (typically the equivalent of a round or two of drinks), which placed a premium on accepting a decent bid, further fueling the market.

The mania climaxed in January 1637, which marked the greatest influx of new florists. Many of these novices leveraged savings and mortgaged their goods or tools to take part in the bulb trade, just as we saw farmers turn to coin clipping during the Kipper und Wipperzeit. The absolute speculative peak is believed to be an auction on February 5, 1637, which raised 90,000 guilders. To put this in perspective, the wealthiest merchants of the day might’ve accumulated wealth of half a million guilders.

Eoin Treacy's view -

All true manias that see prices soar to multiples of what even the most bullish early investor thought reasonable require a number of factors.

A financial innovation unleashes the fuel necessary to support price increases. Tulip investors used futures contracts, in the 1920s trading on margin was popular and options helped revolutionise trading in the 1990s. Today bitcoin is the financial innovation, although no one is quite clear how it will used.



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February 17 2021

Commentary by Eoin Treacy

Email of the day on cryptocurrency charts

I hope that you and your family are well. Please could you set up a section in your favourites for the various crypto coin charts. thanks in advance

Eoin Treacy's view -

Thanks for this suggestion. Unfortunately, I don’t have access to a feed for cryptocurrency prices. The only charts Bloomberg supply are the various bitcoin forks, Ethereum and Litecoin. The instruments we have can be found in the cryptocurrency/digital assets in the Funds section of the Chart Library.



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February 17 2021

Commentary by Eoin Treacy

Kraft Heinz, Conagra may raise some product prices as grains, edible oil costs surge

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

Conagra CEO Sean Connolly said the company, which makes Duncan Hines cake mixes and Marie Callender’s pulled pork mac and cheese bowls, will need to implement inflation-justified price increases this year so it can also continue to fuel sales growth through innovation.

Ingredient and packaging costs represent 60% to 65% of Conagra’s total cost basket, Finance Chief Dave Marberger said on the sidelines of the Consumer Analyst Group of New York virtual conference.

With people on lockdown cooking more at home – and still stockpiling in some parts of the world – prices for commodities like sugar, wheat and soy are surging, forcing food companies to absorb higher costs.

U.S. consumers on average paid 3.7% more for food consumed at home in January than they did a year earlier, according to the Bureau of Labor Statistics Consumer Price Index. Year-over-year increases in food prices have topped 3.5% each month since last April, the longest such stretch in nearly a decade.

“We have inflation, we are seeing inflation, we are concerned about inflation. We have to mitigate that inflation, or at least part of it, with hedges and with efficiencies in the factories,” Kraft Heinz Chief Executive Miguel Patricio told Reuters in a recent interview. “Will we have price increases in food this year? Maybe in some categories that are very exposed to specific commodities.”

“Where we are seeing (inflation) is in grains and everything related to grains ... It’s across the board. Sugar has big inflation; mac & cheese because it has wheat; mayo because it has oil; salad dressing because it has oil; all sweet products like desserts,” Patricio said.

Eoin Treacy's view -

Agriculture prices are rising for a confluence of reasons. Supply chains have been disrupted by weather, shipping issues resulting from the pandemic, swine flu (which is resurfacing again) and plagues of locusts. On the demand side, consumers have been panicking at these interruptions so they are buying on a precautionary basis. That is also being funded with higher savings rates and a safety-first mindset. That will be difficult to shift.

Precautionary buying for fear of higher prices in future, demands for higher wages to offset these kinds of pressures and the perception of easy money policies into infinity are fuelling the perception inflation is rising. With inflation perception is at least as important as reality because of its effect on behaviour.



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February 16 2021

Commentary by Eoin Treacy

February 16 2021

Commentary by Eoin Treacy

Treasury Yields Surge to One-Year High as Reflation Bets Thrive

This article by Vivien Lou Chen, Stephen Spratt and Greg Ritchie for Bloomberg may be of interest to subscribers. Here is a section:

None of this is welcome news for those who bought into U.S. auctions last week. Investors snapped up a combined $68 billion of 10- and 30-year debt at yields more than 10 basis points lower than current levels. This week brings a $27 billion 20-year bond auction on Wednesday.

In the U.K., 30-year yields hit the highest level since March after the country hit a milestone in its vaccination program, supporting calls for easing of social restrictions. Germany’s benchmark yield climbed to levels last seen in June amid a significant slowdown in virus cases.

The selloff was broad, with even Italian bonds -- which would typically outperform haven assets such as German bunds when credit spreads tighten and stocks climb -- under pressure. The announcement of a new 10-year benchmark bond sale to take place via syndication saw yields also advance five basis points on Monday. Still, demand on Tuesday set a record of more than 110 billion euros ($133 billion).

Eoin Treacy's view -

Buying the dip has always worked in the bond market. The question for many fixed income investors is what will the catalyst be to stem the slide. The stock market has already priced in reflation. The stock market exceeded its 2019 highs months ago and the recovery in the social and industrial segment of the market continues.



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February 16 2021

Commentary by Eoin Treacy

Covid Slows Efforts to Ease California's Historic Port Logjam

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

Southern California ports are grappling with record ship backlogs because of Covid-19 protocols and sick
dockworkers, and the vessels keep coming.

Twenty-nine more ships are scheduled to arrive and anchor at the ports of Los Angeles and Long Beach in the next three days, according to data provided by Capt. Kip Louttit, director of the Marine Exchange of Southern California. A total of 48 vessels were anchored on Thursday, down from an all-time high of
60 on Jan. 28.

“Goods movement ashore to terminals is inefficient because of Covid protocols,” he said.
California’s biggest ports have become the epicenter of pandemic-driven shipping woes in the U.S. as homebound consumers swamp ports with an influx of goods ordered online from Asia.

Peloton Interactive Inc. said Thursday it’s unable to meet surging demand for its exercise machines because of shipping delays in Los Angeles and Long Beach, warning that profit will be squeezed.

Eoin Treacy's view -

 I was chatting with a friend on Friday night who is having difficulty importing containers. It’s not at all for the reason one might think. Getting goods on the ship in China is not an issue. Getting them off the ship in Los Angeles is an altogether different story.

The heavily unionized dock workers sector is not testing people for COVID-19. If one person gets sick, they quarantine the whole shift for two weeks on full pay. That is resulting in mass absenteeism which is creating huge delays in supplies reaching their destination.

It’s a symptom of the wider problem in California which is likely to result in governor Gavin Newsom being recalled. The state is managed for the good of the very wealthy and the union workers. Everyone else is ignored. The closing of schools, delays at the port, looking after government employees but making “essential workers” turn up is acceptable.

By all accounts dock workers will now be allowed to skip the queue and get vaccines in order to clear the backlog of ships within the next months.

Together with inclement weather, supply chain disruptions have the potential to put a dent in 1st quarter earnings for a large number of companies.



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February 16 2021

Commentary by Eoin Treacy

Blackouts Cascade Beyond Texas in Deepening Power Crisis

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

Blackouts triggered by frigid weather have spread to more than four million homes and businesses across the central U.S. and extended into Mexico in a deepening energy crisis that’s already crippled the Texas power grid.

After millions in Texas lost electricity, the operator of the grid spanning 14 states from North Dakota to Oklahoma ordered utilities to start rotating outages to protect the system from failing amid surging demand for electricity.

“In our history as a grid operator, this is an unprecedented event,” the Southwest Power Pool said in a statement Monday.

The brutal cold striking Texas -- the capital of the U.S. energy industry and home of some of the world’s largest oil and gas companies -- is emblematic of a world facing more unpredictable weather due to the rising impact of climate change. The outages also underscore the growing vulnerability of the grid as the globe moves away from fossil fuels to an all-electrified system increasingly reliant on renewable energy.

Eoin Treacy's view -

The big argument about renewables has been always been cost and reliability. The cost argument has been removed from the discussion over the last couple of years. Economies of scale mean that many wind and solar projects are now viable without relying on subsidies. Unfortunately, there hasn’t been any progress how to ensure base load when the turbines stop turning or the sun isn’t shining.

Temperatures significantly below zero (Celsius) freeze the turbines. That’s why there are rolling blackouts across Texas today and yesterday. They rely on wind to produce a significant proportion of electricity and were in no way prepared for the freezing weather to move this far south.

I arrived in Dallas yesterday evening. The car rental place was inundated and understaffed with about four inches of snow on the ground. The restaurants are not getting deliveries so most are closed. The super markets are all also closed. It’s a good thing the weather is expected to improve by the weekend or there will be a lot of hungry people as well as being cold.



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February 12 2021

Commentary by Eoin Treacy

February 12 2021

Commentary by Eoin Treacy

February 12 2021

Commentary by Eoin Treacy

Cyborg 2.0

Thanks to Bilal Khan for sending through his fund’s report focusing on Pakistan. Here is a section:

Eoin Treacy's view -

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

Pakistan is a frontier market. That means it is heavily influenced by investor flows. Any market is priced by the actions of the margin buyer. When international investors are repatriating capital it weighs heavily on the fortunes of frontier markets but the opposite is also true. Prolonged periods of inflows can boost frontier markets to significant positions of outperformance.

Valuations can be attractive for prolonged periods but it is when the currency moves in the favour of international investors that activity really starts to pick up. At that point perceptions of whether governance is improving and whether that is sustainable will influence how durable a recovery is.

 



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February 12 2021

Commentary by Eoin Treacy

Email of the day on Chinese Banks and geopolitical risk

Always enjoy the service, Eoin and look forward to the daily updates. To better my understanding of reading charts, would you please walk me through the consistency pattern you see in the Commercial and Industrial Bank of China's chart that make its purchase, "shooting ducks in a barrel", as a very wise man would say. Thank you.

Eoin Treacy's view -

At The Chart Seminar we begin by trying to imagine ourselves as the judges at an international beauty contest. We are only interested in the most beautiful charts. Those that have either truly consistent trends or the potential to develop them. Now ask yourself what is beautiful above ICBC’s chart?

The share was listed in Hong Kong in 2006 and since then it has done nothing but range in a very volatile manner. That’s neither beautiful nor consistent, so we need to ask whether there is anything occurring that may change the outlook?



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February 12 2021

Commentary by Eoin Treacy

Vestas reveals offshore turbine with world's largest sweep

This article by Paul Ridden for NewAtlas.com may be of interest to subscribers. Here is a section: 

Each turbine is expected to deliver around 80 GWh of energy per year, depending on site-specific conditions, which is said to work out as being enough to power 20,000 European homes.

The V236-15.0 MW also offers the potential to reduce the number of turbines deployed at offshore windfarm level – with Vestas calculating that the "offshore turbine offers 65 percent higher annual energy production than the V173-9.5 MW, and for a 900-MW wind park it boosts production by five percent with 34 fewer turbines."

The company expects the first V236-15.0 MW prototype to be built in 2022, with serial production following two years later. It has a design lifetime of 25 years.

“With the V236-15.0 MW, we raise the bar in terms of technological innovation and industrialization in the wind energy industry, in favor of building scale," says Anders Nielsen, Vestas CTO. "By leveraging Vestas’ extensive proven technology, the new platform combines innovation with certainty to offer industry-leading performance while reaping the benefits of building on the supply chain of our entire product portfolio. The new offshore platform forms a solid foundation for future products and upgrades.”

Eoin Treacy's view -

Boosting production and needing to build fewer towers suggests there should be cost savings in construction. The big change in renewable energy occurred in late 2019 when economies of scale improved enough that the wind and solar sectors could survive without subsidies. That has led to a complete reappraisal of the rationale for investing in the sector. More recently it has allowed the renewable energy sector focus on the subsidies provided to fossil fuel companies across the energy supply chain.



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February 11 2021

Commentary by Eoin Treacy

Video commentary for February 11th 2021

February 11 2021

Commentary by Eoin Treacy

Email of the day - on bitcoin and cryptocurrencies:

Having reached a certain age, I confess to being a Bitcoin sceptic. I thought today's piece on Twitter by Nouriel Roubini just confirms my anxiety regarding digital currencies. He's no fan!

Eoin Treacy's view -

Thank you for highlighting this article which may be of interest to subscribers. Here is a section: 

Vitalik Buterin, a co-founder of the cryptocurrency Ethereum, argues that no crypto can be at the same time scalable, safe and decentralised. Traditional financial systems are scalable and safe: if your credit card or bank account is hacked or stolen, you are made whole. But they are centralised because participants and assets are verified by trusted institutions. Right now, crypto is neither scalable nor safe. If your private key is stolen or lost, the assets are gone for good.

It isn’t even decentralised. Oligopolistic miners control most bitcoin mining. Many are out of reach of western law enforcement in places such as China, Russia and Belarus, creating a national security nightmare. About 99 per cent of bitcoin trading occurs on centralised exchanges, which may be hackable. Furthermore, the original programmers retain outsized control over their creations. In some cases they act as police, prosecutors and judges, and reverse transactions that are supposed to be immutable. Nor is crypto equitable: a small number of “whales” control much of bitcoin’s value.

This undermines claims that crypto will decentralise finance, provide banking services to the unbanked, or make the poor rich. Blockchain claims to enable cheap money transfers to refugees, but crypto is much more likely to provide cover for scam artists, conmen, tax evaders, criminals, terrorists and human traffickers.

There are a couple of points that one needs to consider with the above account. The first is that there are well understood limitations with bitcoin. It is decentralised, supply is limited and the speed of transactions is extremely slow. The need for forks every time a change is required makes it unwieldly. It stands to reason that if cryptocurrencies are eventually going to fulfil their promise it will be without bitcoin.



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February 11 2021

Commentary by Eoin Treacy

Almost Daily Grant's

Thanks to a subscriber for this edition of James Grant’s free eletter. Here is a section:

A similar trend is visible in the more speculative corner of the corporate bond market. Analysts from Barclays reported last week that average duration in high-yield debt has jumped to 6.7 years, compared to 6.1 years at the beginning of 2020.  Similarly, the effective yield on the ICE BofA US High Yield Index reached a record low 4.12% yesterday, down from 5.19% a year ago.  Meanwhile, Bloomberg reported Friday that a voracious hunger for yield has left junk bond investors “calling up companies and pressing them to borrow, instead of waiting for bankers to bring new deals to them.” 

“It’s kind of wacky,” Jim Shepard, head of investment-grade bond issuance at Mizuho in New York, told the Financial Times yesterday. “At a time when you would want greater insurance against a rise in interest rates, [people] are buying something more exposed to it.” 

Eoin Treacy's view -

It is impossible for the US government to fund itself given the current trajectory of the deficit and the purchases currently being made by the Fed. That puts upward pressure on bond yields because the government will be more dependent on the market to soak up supply.



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February 11 2021

Commentary by Eoin Treacy

Lithium | 2021 supercharge?

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

We estimate 2020 supply lifted 11% YoY to 340kt, noting lower capacity utilisation as largely a function of bottom-of-the-cycle pricing through 2020. We anticipate that a majority of the ~460kt of cumulative potential capacity that was delayed/deferred over the last ~18 months could remain suspended pending a recovery in pricing to higher levels. Recent consolidation among concentrate operations (i.e. Altura>Pilbara, Wodgina>Albemarle) now sees control of large scale, marginal cost production lies with a small number of established producers who, in our view, lack incentive to switch on large volumes of new supply.

We further note that long lead times to delivering new capacity means that the +US $4.4bn in new equity raised by lithium companies since the start of 2020 is unlikely to lead to a meaningful supply response until the mid-2020s, by which point we expect the market to move into deficit. Our revised market balance forecasts now call for more modest market surpluses (5-7% over 2021-23), with our higher rates of demand growth now expected to outpace supply growth out to 2025. Beyond 2025, we continue to forecast significant market deficits, noting a ~7x increase in supply (i.e. ~240ktpa average increase in capacity) is required to meet our 2030 demand forecast.

Eoin Treacy's view -

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

Supply Inelasticity Meets Rising Demand is the foundation of commodity bull markets. Lithium has been through one big boom and bust cycle already and perhaps the major producers have learned their lesson. The initial mining investment boom occurred almost a decade ago. That resulted in a lot of new supply hitting the market which depressed prices. It has taken significant growth in demand for electric vehicles to soak up that surfeit.



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