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July 21 2021

Commentary by Eoin Treacy

Bitcoin extends gain after retaking closely watched $30,000 mark

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

Bitcoin, the largest digital currency, rose as much as 5.8% and was holding at about $31,450 as of 7:23 a.m. in New York on Wednesday. Other cryptos advanced too, including Ether and Dogecoin 

Bitcoin extended gains after breaking above the $30,000 mark that some cryptocurrency traders view as a key support level.

The largest digital currency rose as much as 5.8% and was holding at about $31,450 as of 7:23 a.m. in New York on Wednesday. Other cryptos advanced too, including Ether and Dogecoin, while the Bloomberg Galaxy Crypto Index was also in the green.

Eoin Treacy's view -

Bitcoin dropped briefly below $30,000 yesterday and bounced back emphatically today. This is a clear upward dynamic and signals a return of demand in the region of the lows over the last couple of months. That supports the potential for at least a short-term bounce.



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July 20 2021

Commentary by Eoin Treacy

July 20 2021

Commentary by Eoin Treacy

Stock Traders Buy the Dip as Cyclicals Drive Rally

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

“We have a ways to go on the cyclical recovery here,” Levine, head of equities at the firm, said on Bloomberg TV and Radio. The U.S. has exhibited “an exceptionalism in the amount of fiscal policy, the amount of monetary stimulus and also in the way we vaccinated the population. And because of that I actually am very bullish,” she added.

For Bill Callahan, an investment strategist at Schroders, “equities just make sense right now,” and dip buyers will be rewarded as the market continues to grind higher.

On the economic front, data showed U.S. housing starts increased in June by more than forecast, suggesting residential construction is stabilizing despite lingering supply-chain constraints and labor shortages.

Eoin Treacy's view -

The compression in yields makes the argument for investing equities more compelling because it reduces speculation that monetary accommodation is about to be removed.



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July 20 2021

Commentary by Eoin Treacy

Email of the day on China's data security law:

What are your thoughts on the Data Security Law to be rolled out in Sept.? Yet another tool the Chinese government is using to control their equity markets?

Eoin Treacy's view -

Thank you for the attached article and this topic question. Here is a section from the Reuters article

"They're playing four-way chess here," said Samm Sacks, a cyber policy fellow at think tank New America.

"It's not just a national security policy, it's a much more deliberate plan asking 'how do we really tap into the value that flows from data from an economic standpoint?'"

A digital economy development plan released by the State Council in March lays out a five-part plan for "experimental stage data markets" and calls for authorities to "implement and strengthen the economic supervision" of internet platforms.

The powerhouse province of Guangdong last week announced plans to launch one such platform by year-end to trade and oversee the movement of data, including a customs hub for international transfers.

In the West we tend to think of individual personal and health data as the property of the individual. We share our information with service providers. In return they make products available that we place value in. Platform companies have monetised individual data points to create vast databases of files which are primarily used to sell advertising. China sees the potential but wants to ensure the market grows within arms’ reach of the Party.



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July 20 2021

Commentary by Eoin Treacy

Five companies make quarter of world's single use plastics

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

Plastic waste is “a massive problem . . . On this trajectory, we will have more plastics in our ocean by weight than fish by 2050”, said Sander Defruyt, who leads the New Plastics Economy initiative at the Ellen MacArthur Foundation. 

Its root cause was our “throwaway society” — countries must move from a system “based on the extraction of resources to one that is based on the circulation of resources”.

Plastics are made from fossil fuel-based chemicals, and break up into smaller and smaller pieces when they are disposed of, rather than decompose in the way that food does. Although disposable plastic items can often be recycled, many are not and millions of tonnes of plastic waste find their way into the ocean each year. 

As images of plastic-strewn beaches have become familiar sights, governments have started cracking down on the material with plastic bans or taxes.

Last year, England banned single use plastic straws, stirrers and cotton buds, and raised the charge on plastic bags. China outlawed single use bags and cutlery in major cities, and is planning to extend plastic bans in the years to 2025.

In a drive to entice eco conscious shoppers, consumer brands, including coffee chain Starbucks and fast food retailer McDonald’s, have started replacing disposable plastic items with paper alternatives. In April, grocer Morrisons announced it would become the first UK supermarket to completely remove plastic bags from stores.

In its 2020 annual report, Dow said plastics were facing “increased public scrutiny”.

“Local, state, federal and foreign governments have been increasingly proposing — and in some cases approving — bans on certain plastic-based products including single-use plastics,” which could affect demand, it said.

Nevertheless, producers expect global demand for plastics to increase, driven by population growth and an expanding middle class. The pandemic also prompted an increase in the use of disposable items, which have been seen as a way to minimise the virus’ transmission.

Eoin Treacy's view -

The drive towards managing the growing volume of waste products, and the related demand for landfill sites which no wants near their home, means the single use plastics sector is likely to attract significant attention in the expanding global carbon emissions market. That’s particularly true following the massive growth in demand for single use items during the pandemic. I think many people found it ironic that as soon as plastic straws were banned, that the number of used mask litter increased exponentially.



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July 19 2021

Commentary by Eoin Treacy

Video commentary for July 19th 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: risk-off grips markets, bond yields compress, oil pulls back sharply amid moderating growth and inflation, stocks weak, volatility spikes, tomorrow will tell if that jump in volatility can hold.  



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July 19 2021

Commentary by Eoin Treacy

"Same Old, But Not Old Same"

Thanks to Iain Little for this edition of his Global Thematic Investor’s Diary which may be of interest to subscribers. Here is a section:

The trouble about this reasoning –convincing as it might be on the numbers- is that it is backward looking. The high inflation years of the 1970s (inflation averaged 7% during the decade) were caused by reckless monetary policy (much as now) allied to other unforeseen factors, the most powerful of which were the OPEC energy shocks, estimated to have been about 3.5%, or half of the 7%. This shock was totally unforeseen. It was what economists like to call an “externality”. An asteroid and Covid are of the same sort. Today we risk another shock, another externality. The global “Climate Emergency” will entail higher carbon prices (an additional cost of production), higher carbon taxes (all governments need them), massive infrastructure spending (to placate populist outrage against inequality), a burgeoning usage of copper, cobalt, lithium and iron ore (the essential components of the energy transition), as well as mandatory and voluntary conversion of households to the Energy Transition economy.

I very much doubt that 1.3% yield on the 10-year bond will compensate investors for this external shock. Watch this closely. It’s not in the chart.

Eoin Treacy's view -

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

The big difference between the oil shock and the increasingly powerful climate agenda is the former was a true externality. The oil embargos were an example of one group who were willing to ensure domestic pain in order to impose their will on the global economy, so they could get a better price for their exports.



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July 19 2021

Commentary by Eoin Treacy

U.K. Set for Big Reopening as Cases Soar Most in the World

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

But the lifting of curbs came against a fraught backdrop of surging infections and political strife for Johnson. The U.K. added more than 54,000 new cases Saturday, and over 47,600 on Sunday, more than Indonesia, the current pandemic epicenter, according to data compiled by Johns Hopkins University.

The surge in cases weighed on the pound, which fell as much as 0.4% to $1.3707, the lowest since mid-April. Meanwhile, demand for safety boosted U.K. government bonds, with 10-year gilt yields falling two and a half basis points to 0.60%.

The prime minister, meanwhile, is fighting to regain his credibility after a furious backlash forced him and finance minister Rishi Sunak to abandon an initial attempt to avoid their own government’s isolation rules. The pair were told they needed to stay home after meeting Health Secretary Sajid Javid, who tested positive for Covid-19.

The furore — overshadowing what U.K. media have called “Freedom Day” — is a deep irony for Johnson. It graphically demonstrates the perils the premier faces as he tries to break the U.K.’s cycle of lockdowns and revive economic activity while ensuring state-run hospitals are not overwhelmed.

Eoin Treacy's view -

The big question for the UK was whether the trend of new cases would be followed by a trend of new deaths. Without the aid of a high vaccination rate, the death rate could have been expected to surge higher by now. The fact that it has not points to the efficacy of the vaccines administered.



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July 19 2021

Commentary by Eoin Treacy

Email of the day on South Africa reportedly from Clem Sauter:

“Dear friends,

Many of you outside of South Africa are wondering what is really going on. So here is a very simple outline. The thing is obviously far more complex and nuanced than can be set out in a brief note but this will give you some picture of what is really happening.

Following the 1994 democratic elections in South Africa, South Africa did really well economically until about 2008. That was also the year that Jacob Zuma was elected president of the ANC. At that point in time, some of us had a sense of disquiet already. But little did any of us understand then the extent of the corruption and weakening of government institutions that would follow. We have no clear idea of the extent of what was stolen during the Jacob Zuma years, other than that it is a stupendous sum of money which this country certainly cannot afford. Eventually however the internal tide within the ANC started to slowly turn against Jacob Zuma. On 18 December 2017 Cyril Ramaphosa was elected as the president of the ANC (and also subsequently became the president of South Africa). But it was a very narrow margin of victory.

The thing about Cyril Ramaphosa is that he is fundamentally a principled man. And certainly, determined to clean up the history of corruption we have seen since 2008. Various steps have been taken by him and the ANC under his guidance to give effect to this. One of the things that was done was to establish a commission chaired by Raymond Zondo, who is the Deputy Chief Justice of South Africa. The purpose of this commission was to investigate the corruption issues and to expose them to the light of day.

Jacob Zuma was required to appear in front of the commission. He effectively refused to do so. He was ordered by the Constitutional Court to do so. He defied the order of the Constitutional Court. The Constitutional Court in turn ordered his imprisonment for a period of 15 months for contempt of court. This, whatever you call it, is fundamentally the rule of law in action.

Initially there was resistance to imprisonment by Jacob Zuma and his supporters. A week ago, however Jacob Zuma submitted himself to imprisonment. And then all hell broke loose.

What you need to understand is that Jacob Zuma has his powerbase in KwaZulu Natal, where the riots have been at their worst. This is also, as the name will tell you, the home territory of the Zulu nation. And Jacob Zuma is a prominent figure in the Zulu nation. Within the Jacob Zuma camp, individuals set about instigating the so-called protests, riots and looting that you have seen in the media. To a significant extent they leveraged the problems of poverty and inequality in South Africa to achieve their ends. Very often in this country we have areas where many very poor people are resident adjacent to commercial complexes. This was an ideal combination to exploit. In addition to that there are the existing fissures along race lines that exist in our society which were also available to leverage. Audio files doing the rounds encouraged people to attack and destroy what are perceived to be white and white owned businesses. In the end though, many black businesspeople also suffered considerable losses.

The gameplan was to create a situation which would force the hand of the current government. Ideally, it would result in an overreaction by the security forces, with the result that many of the poor and vulnerable would be killed (which is what happened at Marikana a few years back). If that occurred, it would likely force the resignation or removal of Cyril Ramaphosa as president. Meaning the Jacob Zuma camp would have achieved their objective. This is one reason why the security forces have been so careful not to use excessive force in dealing with the riots and the looters.

While there is still a lot of instability in KwaZulu Natal and certain pockets in Gauteng, what is now starting to emerge quite clearly is that the gambit by the Jacob Zuma camp has failed. South African society of all walks has turned its face against this insurrection. In effect, an attempted coup has failed.

South Africans are a strange nation in many ways. They argue and fight amongst themselves but when pushed to the edge, they always pull together for the common good. This has happened again and again over the decades.

This has been perhaps a necessary test of our democracy and of the rule of law. Make no mistake but that South Africa has many very real challenges. But South Africa will pass through this and will put the locust years behind it.”

Eoin Treacy's view -

South Africa is a country of contrasts but it will survive as long people are willing to pull together during times of crisis. The significant threat to the rule of law that arose last week was a major challenge. The restraint shown by the armed forces, at least so far, is to be welcomed and highlights the fact that there are government institutions capable of acting responsibly and effectively. South Africa’s greatest institutional strength is the independence of the judiciary and a free press. Threats to both these pillars of governance never cease to arise but as long as they survive there is the potential for bounce backs following crises.



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July 16 2021

Commentary by Eoin Treacy

July 16 2021

Commentary by Eoin Treacy

The Future of Space Is Bigger Than Bezos, Branson or Musk

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

Here are just a few of the less remarked-on recent stories out of the private space industry. First was the stock market debut of a company called Astra Space, which, backed by venture capitalists, built a viable orbital rocket in just a few years. Its goal is to fly satellites into orbit every single day. Shortly after Astra went public at a value of $2.1 billion, satellite maker Planet Labs—which uses hundreds of eyes in the sky to photograph the Earth’s entire landmass daily—announced its plans to do the same, at a value of $2.8 billion. Firefly Aerospace has a rocket on a California pad awaiting clearance to launch. OneWeb and Musk’s SpaceX are both regularly launching satellites meant to blanket the planet in high-speed internet access. Rocket Lab, in the previously spacecraft-free country of New Zealand, is planning missions to the moon and Venus.

The SPAC frenzy has been particularly kind to the private space industry, including some of the companies named above. Easier access to public markets has helped draw billions of dollars from excited investors to an industry once dependent on governments with vague military objectives or expansive views of public works. Partly as a result, the number of satellites orbiting the Earth is projected to rise from about 3,400 to anywhere between 50,000 and 100,000 in the next decade or so—and that’s even if these companies just fulfill the orders they’ve received so far.

It seems likely the estimates will slide a bit, given that those kinds of numbers would require rockets to blast off one after another from bustling private spaceports all over the globe on an extremely frequent basis. But whatever the precise timing, the message will remain unchanged: Private space is here. This month’s space tourism race is just escape-velocity window dressing on a much bigger, more transformative set of changes. The results of these shifts will be unpredictable, except that ego and greed will likely be as present as ever. Nonetheless, the evidence on the non-ground suggests we should consider the possibility that this emerging industry might turn out OK.

Eoin Treacy's view -

The pace of innovation in lift (to space) technology is blisteringly quick. The size of rockets and payloads they carry continue to introduce economies of scale to a sector that has never known them. That’s an incredible change and opens the whole sector to waterfall of new ideas on how to commercialise the space.



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July 16 2021

Commentary by Eoin Treacy

German Death Toll Exceeds 100 After Worst Floods in Decades

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

Malu Dreyer, the Social Democrat premier of Rhineland-Palatinate, echoed Laschet in warning that the disaster was more evidence of the impact of global warming.

“We have more than 50 deaths to mourn and still people who are missing,” Dreyer said in an interview with ZDF television, adding that police helicopters alone had rescued more than 300 stranded on Thursday. “The pain is acute in our region and we have never seen anything like this.”

Merkel interrupted her U.S. trip on Thursday to make a statement in which she pledged swift federal government assistance backed by “all the power of the state.” The chancellor took part in a Rhineland-Palatinate crisis video call Friday and is considering visiting the region soon, according to her spokesman Steffen Seibert.

Eoin Treacy's view -

The human toll from this flooding event highlights volatility in weather events that appears to be increasing. Only a couple of years ago, there were worries that the Rhine was running dry and barges were having trouble traversing the river. Once in a hundred-year events seem to be occurring with surprising regularity. 



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July 16 2021

Commentary by Eoin Treacy

Email of the day on tin

What is your view on the tin chart?  https://uk.investing.com/commodities/tin-streaming-chart

Looking at the LSE the only tin share I can find is AFRITIN MINING who produce in the safe jurisdiction of Namibia. Additionally, they are due to release an estimate on their lithium resources mined as a by-product at the same time.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. This graphic produced by Rio Tinto Ventures goes a long way towards explaining the recent strength in the tin market. Here is also is a section from Avalon Advanced Materials website which talks about the primary uses of the metal: 

Tin is perhaps better known for its historical use in tin cans than in modern technology; however, usage of tin in coating lead, zinc and steel to prevent corrosion (i.e., tin plating) is now the second highest usage of tin worldwide. Tin is primarily used in lead-free solders for electronic circuit boards and microchips – accounting for 50% of global tin consumption.

Tin is expected to increasingly contribute to modern, clean technologies including lithium-ion batteries for autonomous and electric vehicles. For example, battery researchers are developing solid-state batteries utilizing ceramic electrolytes (versus liquid) for improved safety and performance. Silicon is a potentially attractive anode material due to its high potential capacity and abundance in nature. Recent research has shown that adding tin to the silicon-based anode enhances its performance, creating the potential for tin to be a major contributor to the next generation of lithium batteries.

Further, researchers at the Texas Material Institute have demonstrated a tin-aluminium alloy can be produced that is cheaper and double the charge capacity of today’s copper-graphite anodes for lithium-ion batteries.

The greatest growth potential for tin is likely to be found in these and other automotive battery applications. As of 2016, use of tin in lead-acid batteries approached 30 kt and, supported by further growth in vehicles sales and the further substitution of antimony, use of tin in this application is expected to exceed 50 kt by 2027 (Roskill).

Finally, indium-tin-oxide is used as a glass coating due to its electrical conductivity and optical transparency and continues to find application in renewable energy and communications, including flat panel displays, smart windows, thin film photovoltaics (solar panels) and organic light emitting diodes lights.



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July 16 2021

Commentary by Eoin Treacy

July 15 2021

Commentary by Eoin Treacy

July 15 2021

Commentary by Eoin Treacy

More Money, More Problems

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

In general, we believe increases in cash assets on bank balance sheets are less inflationary than increases in loans, especially if a large majority of those cash assets come from QE. Increased loan activity suggests increased spending/investment activity, which can have multiplier effects throughout the economy – generating higher prices.

Securities
Banks haven't been leaving all of their cash assets parked at the Fed. Based on assessments of deposit durations, banks have been investing more into securities than pre-pandemic trends would suggest (see Exhibit 8 again). The large majority of those securities have been Treasury and agency securities (see Exhibit 11).

In addition, banks have invested substantially more into agency MBS than into US Treasury and non-MBS agencies (see Exhibit 12). Does that matter for the inflation outlook? We don't think bank purchases of US government debt add to the inflationary impulse of government spending beyond what the government spending itself did.

More government spending (or less taxation) that leads to larger deficits puts more money in the banking system (adding narrow liquidity) which eventually finds its way into government bonds (removing narrow liquidity).

If the banks didn't purchase the government bonds, another actor in the system would. Put differently, Treasury securities on bank balance sheets don't represent credit or narrow liquidity (money) creation.

However, bank purchases of agency MBS, which are similar in nature to banks making mortgage loans and retaining them on the balance sheet from a credit-impulse perspective, do represent credit or narrow liquidity (money) creation.

Eoin Treacy's view -

The willingness and indeed ability of banks to make loans is an important credit multiplier. The retrenchment of both consumers and banks following the global financial crisis meant that multiplier was missing and the anticipated inflationary forces did not appear. It is logical to monitor this topic as a key support arbiter of whether inflationary pressures will be transitory.



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July 15 2021

Commentary by Eoin Treacy

On Target July 15th 2021

Thanks to Martin Spring for this edition of his report. Here is a section on the best wartime assets to own.

Conclusion: The best in-country stores of wealth are non-ostentatious property, such as remote farmland or vineyards. Just make sure the mortgages are paid off.
Jewellery and gold are crucial since they can be readily exchanged for daily necessities.

The best out-of-country stores of wealth are equities, jewellery and land. They should be located or stored in safe jurisdictions, protected by geography, rule of law and a strong national defence. The United States, New Zealand, the United Kingdom and Switzerland come to mind.

Don’t be tempted to sell just because news goes from bad to worse. And maintain a well-diversified portfolio of stocks.

Those are the key investing lessons from the Second World War.

Eoin Treacy's view -

There is a Chinese proverb to the effect that the most dangerous thing is for a thief to know who you are. The secret to sustained wealth in a time of global crisis is to become anonymous to anyone with the power to measure your wealth and take it away. That’s never been easy but it is getting harder.



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July 15 2021

Commentary by Eoin Treacy

TSMC Raises Sales Outlook, Affirming Global Chip Kingpin Role

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

TSMC, chipmaker to Apple Inc. and a key partner to many of the world’s biggest carmakers, expects semiconductor supply to remain tight into 2022, Chief Executive Officer C.C. Wei said Thursday. The company will ramp up production of microcontrollers by close to 60% this year, which will help to greatly boost supplies for its automobile clients starting in the current quarter. Executives also for the first time confirmed the company was weighing plans for a fabrication plant in Japan.

Eoin Treacy's view -

The shortage might last until 2022 but it is already turning the corner. One of the biggest sources of inflationary pressures has been in the automotive market. That’s going to improve significantly by the end of the year. It suggests waiting to make a purchase for a few months will likely pay off. That’s another reason the Fed is unwilling to act against current inflationary pressures.



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July 15 2021

Commentary by Eoin Treacy

July 14 2021

Commentary by Eoin Treacy

July 14 2021

Commentary by Eoin Treacy

How China's New Carbon Market Will Work

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

Before the launch of the national ETS, China had already established regional ETSs in eight provinces and cities, including Beijing, Shanghai and Shenzhen. Seven of the regional ETSs started trading in 2013, while the one in the eastern province of Fujian kicked off three years later. These regions allow companies to buy carbon credits equivalent to as much as 5% to 10% of their original quotas or actual emissions. The average price of carbon credits traded on the regional ETSs stands at 50 yuan ($7.73) per ton, analysts at Guotai Junan Securities Co. Ltd. estimate, far lower than the 250 yuan equivalent per ton in the EU ETS in 2020.

And

Initially, China’s national ETS will only cover the electricity generation sector. A batch of 2,225 electricity companies (link in Chinese) will participate in the trading.

In addition to electricity, the trading system will eventually cover seven other industries (link in Chinese), including petrochemical, chemical, construction materials, steel, nonferrous metal, papermaking and aviation. Companies that emit greenhouse gases equivalent to more than 26,000 tons of carbon dioxide a year will be included in the system.

It is expected that financial institutions will indirectly engage in the carbon market, as central bank Governor Yi Gang in April said that “the carbon market should be a financial market in nature and allow carbon financial derivatives trading.”

Eoin Treacy's view -

China appears to be serious about its intentions to migrate away from its reliance on coal (65%) for electricity generation. As a country’s economy progresses the relative value received from the health and wellbeing of citizens increases relative to the benefit gained from physical output. China crossed that barrier a decade ago so it is logical to expect greater focus on air and water resources.



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July 14 2021

Commentary by Eoin Treacy

World Hunger Hit 15-Year High as Virus Stifled Food Access

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

 

“This is a wake-up call to the entire world,” David Beasley, executive director of the World Food Programme, said on a webcast on Monday. “We’re heading in the wrong direction. To think that we’re going to end hunger by 2030, that’s not even possible given the direction, trajectory we’re on now.”

Between 720 million and 811 million people were undernourished last year, according to the UN, which used a mid-range of 768 million due to uncertainty of the pandemic’s impact. Most of those were in Asia. Roughly a third of all people lacked access to adequate food, a figure that rose by 320 million from a year earlier, about as much as in the previous five years combined.

The report -- the first global assessment of food insecurity in the wake of the Covid-19 crisis -- was jointly produced by agencies including the Food and Agriculture Organization, the WFP, Unicef and World Health Organization.

“Famine should be consigned to history, yet in multiple countries they loom again,” Unicef Executive Director Henrietta Fore said. “Millions of children are still struggling to access the nutritious and safe diets they need to grow, to learn, to develop and reach their full potential.”

Eoin Treacy's view -

The global community made a conscious decision to increase food prices in the 1990s. The primary argument was farm subsidies were creating an unfair system that favoured farmers in Europe and North America. Subsidies contributed to poverty among poor countries as excess supply was dumped on those markets. 



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July 14 2021

Commentary by Eoin Treacy

Email of the day on Seadrill

Thanks for bringing Seadrill to our attention back in April. Given the recent price performance what are your thoughts from a chart and fundamentals perspective? Many thanks and best wishes, Nav

Eoin Treacy's view -

Thank you for your email and here is a link to what I last wrote about Seadrill:

Offshore oil supply has been the big casualty of this bear market to date. Seadrill came out of bankruptcy in 2018, fell 98% from the relisting price and filed for bankruptcy protection again on Wednesday. If it can survive through forbearance maybe they can reinvent themselves as offshore wind turbine installers.



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July 14 2021

Commentary by Eoin Treacy

Moderna's Next Act Is Using mRNA vs. Flu, Zika, HIV and Cancer

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

The speed with which Moderna and its primary mRNA competitor, a partnership between Pfizer Inc. and BioNTech SE, devised their shots has made a major contribution to the fight to end the pandemic. With strong efficacy, steady supply, and no show-stopping safety scares (officials are carefully monitoring rare heart inflammation cases in teenagers and young adults), mRNA shots have become the vaccines of choice, at least in countries that can get them.

But for Moderna Chief Executive Officer Stéphane Bancel, the Covid vaccine is just the beginning. He’s long promised that if mRNA works, it will lead to a giant new industry capable of treating most everything from heart disease to cancer to rare genetic conditions. Moderna has drugs in trials for all three of these categories, and Bancel says his company can also become a dominant vaccine maker, developing shots for emerging viruses such as Nipah and Zika, as well as better-known, hard-to-target pathogens such as HIV.

Eoin Treacy's view -

The speed with which MNRA vaccines were developed is a major development. The capacity to analyse the genetic structure of a virus and devise a potential solution in a matter of days is a technological innovation the market is only beginning to grasp the full implications of.



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July 13 2021

Commentary by Eoin Treacy

Video commentary is posted in the Subscriber's Area

July 13 2021

Commentary by Eoin Treacy

U.S. Consumer Prices Jump Most Since 2008, Topping All Estimates

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

Shelter costs, which are seen as a more structural component of the CPI and make up a third of the overall index, rose 0.5% last month, the most since October 2005. The gain was driven by a 7.9% jump in hotel stays.

Wage growth rose steadily through the second quarter, but higher consumer prices are taking a toll. Inflation-adjusted average hourly earnings fell 1.7% in June after slumping 2.9% a month earlier, separate data showed Thursday.

Figures out Tuesday from the National Federation of Independent Business showed 47% of small-business owners, the largest share since 1981, reported higher selling prices in June.

Eoin Treacy's view -

The jump in used car prices is a direct result of the semi-conductor shortage. The kinds of chips required by the automotive sector could be in short supply until the end of the year, so that supply inelasticity is likely to last a while longer. It is also having a knock-on effect for the rental car market and even into the U-Haul sector.



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July 13 2021

Commentary by Eoin Treacy

Chinese Tech Stocks Jump After Tencent Gets Deal Approval

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

The gauge of the city’s tech stocks had fallen as much as 10% this month after China vowed to increase scrutiny over data collection and overseas listings.

“Regulators are still considering each deal case by case and not rejecting all of them. The sentiment is not that negative now,” said Castor Pang, head of research at Core Pacific Yamaichi. “Any good news will trigger buying on dips in the sector.”

Elsewhere, internet giant Meituan rose 3.4% after Caijing reported Monday that the company re-launched a ride-hailing app after industry leader Didi Chuxing was barred from offering new downloads. Short-video streaming platform Kuaishou Technology jumped 5.7% and Alibaba Group Holding Ltd. gained 4%.

Eoin Treacy's view -

Investors want to own Chinese tech shares because they believe they have the growth runway the USA’s tech behemoths had a few years ago. The temptation comes with a price attached because of China’s “rule by law” instead of “rule of law”. The tenor of regulation has the hallmark of being politically motivated but the trade is the Party may not be quite willing to kill the sector.



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July 13 2021

Commentary by Eoin Treacy

Rioters Undeterred by Army Wreak Havoc in South Africa

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

“Zuma’s imprisonment was the spark that ignited the protests, but underlying issues such as rampant unemployment, widespread inequality and discontent with Covid-19 related restrictions are the powder keg,” Montana said.

Eoin Treacy's view -

The reality is South Africa is suffering from the declining standards of governance the economy has endured for the last couple of decades. South Africa’s strength is in the independent judiciary. It is imperative that contempt of court charges be addressed in an adroit manner regardless of the target. The challenge is faith in democratic institutions has fallen to a low ebb and many of Zuma’s supporters believe the corruption charges levied against him are politically motivated. It’s hard to avoid that conclusion when corruption is rife and the new administration has failed to do anything to improve the situation.



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July 12 2021

Commentary by Eoin Treacy

July 12 2021

Commentary by Eoin Treacy

Branson's Space Jaunt Worth $841 Million for Virgin Galactic

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

The suborbital journey kicks off a landmark month for the future of space tourism, with Branson demonstrating Virgin Galactic’s capabilities nine days before Amazon.com Inc. founder Jeff Bezos plans to fly on a rocket made by Blue Origin, his space venture. Both companies envision businesses catering to wealthy tourists willing to pay top dollar for a short period of weightlessness and an unforgettable view of the Earth and heavens.

Virgin Galactic’s test flight demonstrated that such trips -- once the stuff of science fiction -- are becoming increasingly realistic.

While mostly accessible only to a tiny number of super- wealthy customers, they would add a new dimension to a burgeoning industry of private-sector space companies with plans for voyages to the International Space Station and new human outposts.

Branson and his fellow crew members experienced a few minutes of weightlessness as the Unity reached its peak altitude.

“So I looked out the window and the view is just stunning,” operations engineer Colin Bennett said afterward. “It’s very Zen; it’s very kind of peaceful up there as well.” Branson, who founded Virgin Galactic in 2004, said the memories of seeing the Earth from space will stay with him. “I’m never going to be able to do it justice,” he said. “It’s indescribably beautiful.”
 

Eoin Treacy's view -

Yuri Gargarin was shot into space in 1961, so it has taken sixty years to commercialise the technology to the point where commercial jaunts are possible. Reusable rockets are a big part of that. Virgin Galactic is not going as high as rockets. That implies if weightlessness is the end point of consumer demand, then rockets are not required. The variety of solutions, based on just how high a vehicle aims to go is also a reflection of how much technology has progressed over the last sixty years.



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July 12 2021

Commentary by Eoin Treacy

Investors in Japan Stocks Expect Turning Point After Olympics

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

The Olympics and the success of the vaccine rollout are set to define Suga’s premiership. Suga must face two polls in quick succession after the emergency ends, with his term as leader of the ruling Liberal Democratic Party expiring and a general election set to take place in October or November.

“If the vaccines continue and clear away the uncertainties surrounding the pandemic, that’s advantageous for the government” in the election, Invesco’s Kinoshita said.

John Vail, chief global strategist at Nikko Asset Management Co., said when the Olympics are over and vaccination rates pick up, investors will turn positive as rebounds in industrial production and exports become evident.

“When Japan comes out of this, it’s going to surge,” Vail says of the economy. “A lot of people don’t believe it until they see it. Especially in Japan, people tend to worry first and think about the future later.”

Eoin Treacy's view -

Japan is considered a cheap market with the implicit view that it is cheap for a reason. One of the primary reasons Japan ranged for so long is because company culture changed and prioritised resilience. That’s not just about maintaining higher inventories, it means less leverage and higher cash balances.



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July 12 2021

Commentary by Eoin Treacy

PE Daily: Private Equity's IPO Boom

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

Private-equity firms are taking portfolio companies public at record levels, capitalizing on a highflying market as the economy rebounds from the pandemic-induced recession, Maria Armental reports for WSJ Pro Private Equity. In all, 105 private equity-backed companies priced initial public offerings in the U.S. in the first six months of this year, according to data provider Dealogic. The total has already surpassed the 89 U.S. IPOs by sponsor-backed companies in all of last year and is more than triple the number of such exits in 2019.

Midmarket-focused Nautic Partners aims to raise $2.5 billion for its 10th buyout fund, Preeti Singh reports for WSJ Pro Private Equity, citing a public document from Rhode Island's public pension system. If the Providence, R.I.-based firm hits its target, Nautic Partners X LP would be about 60% larger than its predecessor, Nautic Partners IX LP, which closed with almost $1.57 billion in March 2019. The fund's sponsor is expected to commit as much as $100 million to the new pool, documents from the pension system and its investment consultant said.

Ordinary people would have a way to join the wealthy as investors in private-equity funds under a proposal from two members of the House of Representatives, part of a wave of recent government efforts to expand access to alternative investments, Chris Cumming reports for WSJ Pro Private Equity. A bill introduced in the House on June 30 by Rep. Anthony Gonzalez (R., Ohio) and co-sponsored by Rep. Gregory Meeks (D., N.Y.) would amend the Investment Company Act of 1940 to prohibit limiting the amount a closed-end vehicle can invest in private funds.

Eoin Treacy's view -

The decline in real yields have been the single biggest factor in the success of private equity. Investing in companies that will not turn a profit for years is a lot easier when the cost of funding is both low and falling. That ensures that debt can be refinanced at successively lower rates and the time to profit can be pushed out even further. That also allows valuations to increase as the enterprise value of the company jumps.



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July 09 2021

Commentary by Eoin Treacy

July 09 2021

Commentary by Eoin Treacy

Europe to Propose End of Combustion Engine Era in Green Overhaul

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

Europe wants to lead the global fight against climate change to become the world’s first net-zero emissions continent by 2050 under its Green Deal. To reach the goal, it will need to overhaul every corner of its economy, with reducing greenhouse gases in transport and industry being the biggest challenges.

The EU executive will next week propose strengthening and expanding its carbon market, revising energy taxation rules to discourage the use of fossil fuels and imposing the world’s first climate levy on certain emissions-intensive goods brought into the region. The Fit for 55 package will also include more ambitious climate targets for member states in areas not covered by the carbon market.

The revised renewable energy law will set targets for the use of sustainable fuels in transport, heating and cooling, buildings and industry. To help the massive roll-out of electric vehicles, a regulation on alternative fuels will require member states to ensure electric charging points are installed every 60 kilometers (37 miles) on major highways. Hydrogen refueling points would have to be available at the maximum interval of 150 kilometers.

Eoin Treacy's view -

The USA is now energy independent in practice which is a significant economic advantage relative to Europe. That has resulted in a growing disinterest in ensuring global energy security which increases costs to Europe. At the same time the bloc’s industrial base is under threat from China’s continued development; with the risk of the historic trade surplus reversing. That’s particularly true of the automotive sector. This evolving situation has also sharpened focus on China’s ambitions for global economic domination.  



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July 09 2021

Commentary by Eoin Treacy

Orocobre June Quarter Output 3,300 Tonnes of Lithium Carbonate

This note covering Orocobre’s production results today may be of interest.  

About 66% of production was battery grade lithium carbonate vs 21% a year earlier.

Sales of Olaroz lithium carbonate were 2,549t at $8,476/t FOB, with pricing up 45% on the March quarter

Inventory has increased due to Covid-19 related transport delays and the requirement to hold additional safety stock in Japan to guarantee delivery into the Prime Planet Energy and Solutions contract

Eoin Treacy's view -

Prime Planet Energy and Solutions is a joint venture between Toyota and Panasonic to produce enough batteries for 500,000 vehicles per annum. The factory is reaching completion in Japan and Orocobre will be supplying the lithium required for the project. 



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July 09 2021

Commentary by Eoin Treacy

China Is the First Crack in the Covid Recovery

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

Late Friday, the People's Bank of China cut its reserve requirement for most banks by half a percentage point. The move, which will unleash about 1 trillion yuan ($154 billion) of long-term liquidity, was flagged by Beijing earlier this week, but surprised economists with the speed of its arrival. Officials may be signaling that economic growth data for the second quarter, due for release next week, will be soft.

The shift by the PBOC is jarring because China spent months conveying the idea that it was comfortable trimming — not adding — support for the economy. With the worst of the pandemic shock seemingly behind them, policy makers could return to one of their principle worries before Covid-19 struck: bolstering financial stability and discouraging firms from taking on too much debt. For all the concerns about market upheaval when the Fed eventually starts dialing back quantitative easing, it looked for a while Beijing had already started down that path. Friday’s reserve cut suggests China is the one pivoting — in a dovish, not hawkish, direction.

Eoin Treacy's view -

China’s swift move to follow through on its announcement that it would cut reserve requirements may simply be a reflection of easing demand for products associated with lockdowns. The domestic demand story remains intact but the delta variant is taking a toll on many of the emerging markets China trades with. At the same time, outsized demand from the US is moderating as the economy opens up and shortages ease.



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July 08 2021

Commentary by Eoin Treacy

Video commentary for July 8th 2021

July 08 2021

Commentary by Eoin Treacy

ECB Unveils Policy Regime Change That Lets Inflation Overshoot

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

“The new formulation removes any possible ambiguity and resolutely conveys that 2% is not a ceiling,” President Christine Lagarde told reporters in a press conference, adding that the strategy review was agreed unanimously. “What we want to do is to avoid the negative deviation that will entrench inflation expectations.”

The outcome “can be perceived as net dovish in the short-term,” said Ima Sammani, FX Market Analyst at Monex Europe. “The new symmetric inflation target gives the central bank ample room to run accommodative monetary policy for longer without having to fight markets.”

Still, the euro gained after the announcement as traders perceived the ECB’s new strategy as less aggressive than the Federal Reserve’s flexible inflation targeting. The common currency was up 0.5% at $1.1848 at 2:42 p.m. Frankfurt time. It’s fallen from around $1.22 a month ago.

On climate change, another controversial topic for some central bankers, the institution said it will now include considerations on that matter in its monetary policy operations. Meanwhile officials also said they will start considering owner-occupied housing costs in their supplementary measures of inflation.

Eoin Treacy's view -

The big question for any central bank is how to do control inflationary expectations? In many cases the simple answer has been to change how they measure it.



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July 08 2021

Commentary by Eoin Treacy

U.S. Seeks to Lower Spiking Shipping Costs With Competition

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

While the surging rates represent a profit bonanza for container lines including Copenhagen-based A.P. Moller-Maersk A/S and China’s Cosco Shipping Holdings Co., they’re making it more difficult for importers to absorb higher costs. Some are raising retail prices, adding to inflationary pressures that
worry central banks, while Covid-related supply bottlenecks are also holding back economic activity.

The push against consolidation is part of a forthcoming executive order on competition that President Joe Biden is expected to sign in the coming days. Other elements of the action are expected to include new rules governing airline fees, non-compete clauses, right-to-repair, and food labeling. In recent weeks, senior Transportation Department officials have been meeting with port officials, shipping industry players and retailers to try to address port congestion and long-term infrastructure challenges.

Eoin Treacy's view -

There is not a lot the US government can do about rising shipping costs. It does not manufacture ships and the majority shipping companies are domiciled outside of their waters. Imposing regulations on the global sector will divert ships away from the USA and increase costs so it is much more likely that any measures introduced will focus on domestic considerations.



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July 08 2021

Commentary by Eoin Treacy

Wells Fargo Plans to Stop Offering Personal Lines of Credit

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

Wells Fargo & Co. said it’s shutting down all existing personal lines of credit and will no longer offer the product to its customers.

“In an effort to simplify our product offerings, we’ve made the decision to no longer offer personal lines of credit as we feel we can better meet the borrowing needs of our customers through credit card and personal loan products,” the bank said in an emailed statement. The firm has been providing existing customers with 60-day notices their accounts will be closed, with a fixed rate and minimum payment for their remaining balances, it said.

Under Chief Executive Officer Charlie Scharf, Wells Fargo has been exiting businesses deemed inessential with the goal of simplifying operations and improving profitability following years of scandals. Earlier this year, the bank agreed to sell its asset-management and corporate-trust units, and last year it agreed to divest a $10 billion private student-loan book.

Eoin Treacy's view -

Personal credit lines are often used to purchase expensive items like vacation homes, boats or planes. They are often collateralised with stock portfolios. The most public user of these kinds of vehicles is Elon Musk who has borrowed significant sums against the value of his Tesla shares. It has also been a popular vehicle in China where entrepreneurs have staked their holdings in order to source additional funds.



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July 07 2021

Commentary by Eoin Treacy

Video commentary for July 7th 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: Crude oil followsd through on the downside, gold steady, stocks stable, bond yields testing the 200-day MA, Dollar still firm and increasing divergence between high and low vaccinated countries, breakout coming for crypto. 



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July 07 2021

Commentary by Eoin Treacy

Australia Central Bank Takes First Steps to Paring Stimulus

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

“This is a more hawkish statement than we had expected,” said Bill Evans, chief economist at Westpac Banking Corp.

The Australian dollar extended its intraday gain, rising to 75.84 U.S. cents in response to the statement and subsequent comments from Lowe. The April 2024 bond yield crept slightly above the RBA’s target, to 0.13%, while the yield on the November 2024 note surged 8 basis points to 0.45%. Ten-year yields rose 4 basis points to 1.47%.

Lowe is determined to stay near the tail of global peers unwinding stimulus -- particularly the Federal Reserve -- even as Australia has recovered earlier and faster than many economies. That stance is likely aimed at avoiding the currency damage of previous early exits while also reflecting Australia’s vulnerability to further virus outbreaks due to a low vaccination rate.

The governor, in a post-meeting press conference, said that while Australia’s economy had surprised on the upside, this hadn’t passed through to wages and inflation. He said this explained why the RBA wasn’t laying the ground for rate increases like Canada.

“In Canada, the underlying inflation rate is quite close to the Bank of Canada’s target,” Lowe said. “Here in Australia, we’ve been below the target for too many years, and the prospect of reaching the target in the short-term is not particularly high.”

Eoin Treacy's view -

Tapering pandemic assistance is high on the list of priorities for countries less affected by the pandemic. That’s particularly true as inflationary pressures creep upwards with so much money sloshing around the system. At the same time no one wants a strong currency so there is a lot of reticence to be too aggressive in normalising policy.  



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July 07 2021

Commentary by Eoin Treacy

Email of the day on construction work, supply bottlenecks and Japan

Heard the construction work yesterday, hope you and the family will soon be peacefully settled in!!

A minor update on Japan.

Last year my Japanese portfolio performed well when the Nikkei was up , but this year, having tweaked my portfolio it performs in line with the Topix. Today was typical, percentage wise the Topix was up over double the Nikkei and my portfolio performed very well. Plus I think the Topix index will be the 1st to break it's psychological level of 2,000 before the Nikkei breaks the 30,000 level!! Take a look at the 10-year Topix chart, this year it has formed a perfect pennant, ready to pierce the 2,000 level. I believe the Topix is closer to following the 2nd section than the Nikkei. 

Eoin Treacy's view -

Thank you for your well wishes and this topical email. Our contractor is back again today so I apologise if there is any banging in the background while I record this aternoon.

We bought a newbuild home foreclosure that had been sitting on the market for eighteen months. The builder had gone bust so the final touches on the home were rushed and the kitchen was left unfinished. As far as we can make out the reason the house sat unwanted for so long was the starting price was too high back in late 2019 and the absence of a kitchen was a deterrent. There was also a leak in the dishwasher that led to significant mould growth in the kitchen island so that probably also limited demand.



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July 07 2021

Commentary by Eoin Treacy

Rare Griffon vulture saved with help from a military drone

This is a fascinating video which may be of interest to subscribers.

Eoin Treacy's view -

The short section about 1:30 minutes in highlights how the drones are piloted with virtual reality headsets with a great deal of accuracy.

This kind of accurate control of aircraft is transformational for the aircraft sector and not least as autonomous applications improve. The reality is that it is a lot easier to develop autonomous aircraft than ground vehicles. There are simply fewer obstacles.



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July 07 2021

Commentary by Eoin Treacy

July 06 2021

Commentary by Eoin Treacy

Video commentary for July 6th 2021

July 06 2021

Commentary by Eoin Treacy

U.S. Service Industries Expand at Slower Pace Than Expected

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

The services index of inventories also shrank, indicating that supply chain constraints continue to hold back economic activity. Supplier delivery times remain elevated due to truck availability, slower rail services, port congestion and container shortages, Nieves said on a call with reporters.

A separate gauge of inventory sentiment dropped to a record low, showing more service providers see their stockpiles as too lean. The index of prices paid for materials fell slightly, suggesting that while still elevated, the acceleration in cost pressures may be starting to cool.

Eoin Treacy's view -

The argument inflation is transitory got a boost today with services data coming in weaker than expected. The challenge is that the labour market has been distorted by massive government intervention and global supply chains are simultaneously struggling to recover from the impact of the lockdowns. The tendency to focus on year over year comparisons further muddies the economic picture in most countries.



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July 06 2021

Commentary by Eoin Treacy

Email of the day - on Ethereum as a crypto panacea:

I value the input you provide Eoin. I however disagree with your comment that cryptos will next be of interest in 2023. Ethereum is a disruptive technology platform with strong network effects which is growing rapidly. In addition, the supply of ETH will diminish by about 85% (a triple halving) when Ethereum transitions from Proof of Work to Proof of Stake (POS), likely in December or early next year. Electricity required to power Ethereum simultaneously goes down by 99.99%. In addition, EIP1559 goes live at the end of this month, which both improves the user experience and burns the bulk of the fees (paid in ETH) - the combination with POS probably results in the number of ETH declining on a consistent basis. Holders of ETH can stake their ETH to own an attractive yield. In short, it is the most compelling opportunity I’ve come across in my decades as a money manager.

I have no strong opinion on Bitcoin. I think its security model is flawed and I doubt it will stand the test of time. I however think the odds favour most crypto assets having a strong run over the next 6 months, perhaps driven by the growing understanding that blockchains are a disruptive new technology that is far more efficient and decentralized than the financial systems of the past.

Eoin Treacy's view -

Thank you for this email and your valuable insight. My contention has been that in order for crypto to succeed it will need to go the way of Encarta and AOL Online. We paid for these services when the internet was still young because they were valuable tools with no real competition. Today they either do not exist or are inconsequential. The internet on the other hand has become part of the economic landscape. 



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July 06 2021

Commentary by Eoin Treacy

SoftBank, Biggest Investor in Didi, Sinks After China Blocks App

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

It’s inevitable to see selling from investors who had been pinning their hopes on Didi,” said Tomoichiro Kubota, a senior market analyst at Matsui Securities Co. in Tokyo. “If it’s deleted from app stores, it’ll be a very difficult situation.”

China’s cyberspace regulator announced the Didi ban on Sunday, just two days after revealing a review of the company. The decision effectively requires the largest app stores in China to strike Didi from their offerings, though the current half-billion existing users can continue to order up rides and other services. Didi said the regulatory move may have “an adverse impact” on its revenue in China.

On Monday, regulators expanded the probes further to target Full Truck Alliance, which runs an Uber-like platform for truck-hailing, as well as Kanzhun Ltd. Full Truck Alliance, backed by Tencent Holdings Ltd. as well as SoftBank, raised $1.6 billion in its U.S. offering last month.

Eoin Treacy's view -

The Vision Fund was bloodied by the failure of WeWork. Since then, Softbank has since been eager to accelerate the pace of IPOs for the companies it invested in. Didi is a big one and there was no way they could risk missing out on a pay day.

Two weeks ago, the Chinese regulator warned Didi not to pursue its IPO. It appears large investors like Softbank and Uber pressured the company to file over the Communist Party centenary celebration to take advantage of a lull in regulatory enforcement. In doing so the company raised $4.4 billion in cash, achieved a valuation in excess of $70 billion and was promptly banned from Chinese app stores.



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July 02 2021

Commentary by Eoin Treacy

July 02 2021

Commentary by Eoin Treacy

Secular Themes Review July 2nd 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 May 7th. These reviews can be found via the search bar using the term “secular themes review”.

News today that Johnson & Johnson’s vaccine is effective against the delta variant should help to allay fears that the world is about to experience a round of upheaval similar to early 2020.

There is no question that the pandemic has acted as an accelerant. It forced migration and adaption to new conditions in a manner that might otherwise never have happened. Some of those changes will stick, others will fade away.

Everyone seems to think that the pandemic has to mean something and that we will never again get back to normal life. I don’t believe it. The surges back into social activity whenever restrictions are lifted is confirmation that humans are social beings. We crave physical contact and fellow feeling. That’s not going to change, even if we have a better appreciation for it today than since the demise of organised religion.  

As with every other crisis, the liquidity created to deal with the shock will remain in the system for much longer than it is strictly required. Central banks cannot afford to jeopardise the recovery they worked so hard to create. Meanwhile, populations everywhere are impatient for better conditions.



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July 01 2021

Commentary by Eoin Treacy

July 01 2021

Commentary by Eoin Treacy

Saudis, Russia in Tentative Deal for Gradual Oil-Output Hike

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

“The last thing Saudi Arabia and the United Arab Emirates, even Russia, want is $85 a barrel, much less $100 a barrel,” Bob McNally, president of Rapidan Energy and a former White House official, told Bloomberg Television on Thursday. “So far in Washington, it’s been quiet. As we get closer to $80 a barrel, it’ll set off alarm bells” about the risk it poses to the economic recovery, he said.

Eoin Treacy's view -

The big question for investors is what price retards growth potential in the economy. That number is going to be different for every country. For the USA, as an exporter, the potential for higher oil prices will support parts of the economy and challenge others. That suggests there is a happy medium where unconventional supply is profitable but not too profitable. $70-$80 might be that balance point where everyone can tolerate prices.



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July 01 2021

Commentary by Eoin Treacy

Xi Warns China's Foes Will Break Against "Steel Great Wall"

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

“Xi used the speech to show that the CCP has wide support from the public and enjoys high-level popularity among Chinese people, which in turn shows that he himself has the support and popularity,” said Deng Yuwen, a former editor at the party’s Study Times journal. “Xi has also used the speech to send a stern warning to the U.S. and the West, and that’s when the audience responded most enthusiastically.”

Eoin Treacy's view -

100 years since the founding of the Communist Party is a momentous anniversary. It is a time for reflection and to think both about the lessons learned and the ambitions for the future. The primary importance of the century anniversary is the people who struggled to achieve victory at the dawn of the epoch are long dead. Those entrusted with responsibility today rest on the laurels of people they have little in common with because cultural memory of struggle is not the same thing as experiencing it in person.



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July 01 2021

Commentary by Eoin Treacy

Ray Dalio and Larry Summers Discuss the New Paradigm

Thanks to a subscriber for this transcript from the Qatar Economic Forum which may be of interest to subscribers. Here is a section:

Let me take your question a moment ago and then come to that, Stephanie. Look, I think the arguments about average inflation targeting and so forth, they kind of have their place. But I think we need to recognize when you declare victory. When we’ve got a record labor shortage, the Fed probably shouldn’t be obsessing about making sure there are opportunities available. When we’ve now got average inflation over the last two or three years, up to 2%, we don’t have the problem of needing more inflation in order to get to some kind of level of average. So, I just think we need to recognize the new reality is very different from the secular stagnation reality of two years ago.

Look, I am all for a strengthening on a variety of dimensions of the hand of workers. I think we need to raise the minimum wage. I think we need to re-empower the ability to organize unions. I think that we can’t read the stories about working conditions at Amazon and not think that something should be happening to rebalance things.

At the same time, I think you have to recognize that doing all of those things is going to bear on the inflation process. It’s going to bear on what economists call the natural rate of unemployment. And you’re going to have it have a set of consequences, and you need to factor those in in setting macroeconomic policy.

I mean, we had a moment very much like the current moment, coming after a long period of no inflation. We had a government that had very expansive desires for what it was going to do. We had a progressive tide sweeping through the country, changing attitudes on very many fronts. We had that in the 1960s. And what we saw was that inflation rose more rapidly than anybody anticipated, that a right-wing tide in politics was ushered in with the successive elections with lags of Richard Nixon and Ronald Reagan, and that what happened ultimately did not serve the interests of the progressives who supported it. And you saw a big upsurge with the way in which the United States went off gold and imposed tariffs universally 50 years ago this summer.

So, a return to that does not seem to me to be what we should be targeting, and my concern is that I see too much in the current trajectory of economic policy. The Lyndon Johnson/John Connally axis of economic policy making doesn’t seem to me to be a healthy guide.

Eoin Treacy's view -

It might seem like a choice but it never is. The reality is that the modern protest movement and the new age civil rights movement share many of the same motivations of their progenitors 50 years ago. Arguably today’s vintage is less violent than in other generations, because they have additional tools like social media where they have the opportunity to vent their frustrations.



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June 30 2021

Commentary by Eoin Treacy

Video commentary for June 30th 2021

June 30 2021

Commentary by Eoin Treacy

Email of the day on money supply and gold

Something to ponder – we are 12 months on plus a bit from central banks going “all in”…..so YOY money supply growth is now actually slowing down quite markedly – for the Fed to cause a reacceleration they would now have to actually expand QE , which is obviously the opposite of their intention. So perhaps equities may start to struggle and with the Fed implicitly tightening (by not increasing asset purchases on a larger monetary base) the dollar starts to perform better and does not need higher treasury yields to do so?- though a peaking of inflationary expectations in the US would also imply real rates may rise too?. Perhaps this is what the gold price is telling us? and the better performance of growth and consumer staples versus value?

Michael Howell of Cross Border Capital always had a nice line in presentations …..”what makes equities go up ?” , someone says “fundamentals” and he smiles and says ……”money”…… it may be seasonal but it feels like liquidity conditions are peaking out? a stronger USD would hardly be helpful either……

Good luck to all in markets….  

Eoin Treacy's view -

Thank you for this thought-provoking email. It is true that year over year money supply growth is contracting. There was no way money could continue to grow at such a prodigious rate compared to the 2nd quarter of 2020.

Month over month money supply growth is still rising at around 16%. That range (between 9% and 16%) has been held for the last eight months and is faster than at any time other than a crisis in the last couple of decades.



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June 30 2021

Commentary by Eoin Treacy

Crop Prices Soar as Drought and Heat Grip U.S., Canada

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

The water deficit could spur a further drop in crop ratings when the U.S. Department of Agriculture updates its weekly condition scores Monday afternoon, Paris-based adviser Agritel said in a note.

Spring wheat in Minneapolis and canola trading on ICE Futures U.S. both rose for a seventh straight trading day, gaining as much as 4.1%.

Corn settled the U.S. trading day up 5.4% at $5.4725 a bushel amid concerns over a lack of upcoming rains in key growing regions. Soy oil surged as much as 5.6%. The markets had plunged Friday after a U.S. Supreme Court ruling stoked concern that upcoming biofuel policy proposals could crimp demand for the crops used to make “green” liquid fuels.
“Last week’s sell-off was overdone, especially on the Supreme Court ruling,” Arlan Suderman, chief commodities economist at StoneX, said in an email. “The market also took the weekend to assess rainfall over the past 10 days, and found it came up short for much of the northwestern crop belt. That added up to a buying opportunity in the eyes of many traders.”

Soybeans and hard winter wheat both increased almost 4% in Chicago intraday trading.
August hogs jumped by as much as 3%, buoyed by hopes China’s move to replenish pork reserves will translate to more exports of U.S. meat to Asia. American hog futures had dropped last week to the lowest levels since April, in part on worries that pork exports to China were set to fall as the herd there
recovered.

In other markets, arabica-coffee rose for the second day in a row on ICE Futures U.S. in New York amid a forecast for freezing temperatures in some Brazilian growing areas, according to weather forecaster Somar Meteorologia.

Eoin Treacy's view -

The pandemic represented a shock to the global supply chain for most commodities. Transportation networks shut down, restaurant demand evaporated and consumers stockpiled. Farmers’ production schedules were upset and the net effect is stockpiles of vital good commodities were reduced. This year’s freezes, floods and now droughts have added an additional element of uncertainty to the market.



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June 30 2021

Commentary by Eoin Treacy

Private Equity Gears Up for the Siege of Japan Inc.

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

Private-equity funds have a growing interest in Japan—and are making surprisingly good money there. The scandal at venerable Japanese electronics maker Toshiba could shape up as a test case for just how big the industry can grow in the world’s third-largest economy.

There are no offers publicly on the table for Toshiba, but there is no doubt the company is an attractive target for private equity—especially with management on the back foot after shareholders ousted former Chairman Osamu Nagayama last week. Toshiba had previously dismissed a bid from CVC Capital Partners valuing the company at more than $20 billion, which would have made it the biggest private equity-led buyout in Japan. Activist investors are demanding that management now welcome and encourage interest from potential suitors.

Unlike in the U.S., private equity doesn’t have a big presence in Japan. According to consulting firm Bain, 8% of Japan’s mergers and acquisitions involve private equity, compared with 15% in the U.S. And M&A activities, relative to the size of the economy, are much lower in Japan than in the U.S. or Europe.

But private-equity funds are gearing up to look for opportunities in the country now. Total assets under management in Japan-focused private equity amounted to $35 billion as of September last year, more than double the sum at the end of 2015, according to data provider Preqin. They are now sitting on $14.9 billion of cash. Moreover, a record 80 private-equity and venture-capital funds focused on Japan closed last year, raising $10 billion, says Preqin. Carlyle, for example, raised $2.3 billion for a Japanese buyout fund last year.

Eoin Treacy's view -

$35 billion for acquisitions is a pittance in the market of Japan’s size. The attraction of the market is obvious. Valuations are attractive, corporate leverage is low and cashflows are strong. The added incentive for private equity is the demographic transition.



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June 29 2021

Commentary by Eoin Treacy

June 29 2021

Commentary by Eoin Treacy

Email of the day - on Basel III and gold:

Greetings Eoin, I hope you've settled in comfortably after your move. Do you have an opinion or observation about the possible effects of Basel III might have, if any, on the price of gold? Thank You.

Eoin Treacy's view -

Thank you for this question which has been circulating in the gold sector for the last couple of months. The prospect of Basel III positive impacting gold prices was first raised two years ago. The argument centred on the prospect of gold being raised to tier 1 status which would put it on par with cash-like instruments. The gold price broke out in June 2019 and trended higher for more than a year to new all-time highs.



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June 29 2021

Commentary by Eoin Treacy

Deadly Delta Variant Starts to Ripple Through Emerging Markets

This article from Bloomberg may be of interest to subscribers. Here are some soundbites from regional analysts:

"The U.K. has shown that the variant is not such a health challenge if people have been vaccinated. We are concerned that Australasia and the smaller markets in Asean could continue to be impacted. We remain cautious on Asean equities. Watching for any sharp increase in Covid cases in Asean”

Kelvin Wong, an analyst at CMC Markets (Singapore) Pte.: “Tactically, it is likely to be more of a rotation play that may last into the upcoming third quarter where high-quality technology stocks may outperform over cyclicals”

“Hence for Southeast Asian equities that tends to be heavily weighted toward cyclical/financials and the external sector such as tourism are likely to underperform, for example Singapore’s Straits Times Index”

“The major key support to watch on the STI will be at 2,950/2,920 which also coincides with the 200-day moving average”

Alan Richardson, a senior portfolio manager at Samsung Asset Management (HK) Ltd. “It’s a speed bump that could slow the speed of the recovery but doesn’t change the direction to a post-Covid economy. The delta variant should increase the urgency for countries to reach three-quarters immunization”

Paul Mackel, global head of FX research at HSBC Holdings Plc in Hong Kong: Market is watching closely the recent Covid resurgence as it has caused short-term depreciation of some currencies

“But the elephant in the room is whether the dollar has bottomed or not” and “it’s not yet. But if the dollar is indeed getting stronger and the Fed is becoming more hawkish, it could challenge the outlook of some Asian currencies”

Eoin Treacy's view -

There is an incredible variety of perspectives on the merits of vaccination. The primary point I made last year was it doesn’t matter what anyone thinks, global governments have all followed a similar set of policies. Having made the decision to lock down, there has to be a set of requirements which need to be demonstrably met to open back up. Vaccinations are key to that decision making process. Variants introduce some doubt into the equation.



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June 29 2021

Commentary by Eoin Treacy

CVPR 2021 Workshop on Autonomous Vehicles

This video focusing on Tesla’s full self-driving suite may be of interest to subscribers.

Eoin Treacy's view -

Creating a high-definition map, and using lidar to make the driving decision is not a scalable solution. It is ridiculously expensive to rollout that solution to the world. Tesla is going the other way. It is relying on the computer’s ability to do on-the-fly calculations and make decisions. This video goes into quite a lot of detail on the decision to stop installing radar on new vehicles.



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June 28 2021

Commentary by Eoin Treacy

Video commentary for June 28th 2021

June 28 2021

Commentary by Eoin Treacy

Bitcoin, Currencies, and Bubbles

This whitepaper by Nicolas Taleb may be of interest to subscribers. Here is a section:

The difference between the current bitcoin bubble and past recent ones, such as the dot-com episode spanning the period over 1995-2000, is that shell companies were at least promising some type of future revenue stream. Bitcoin would escape such a valuation approach had it proven to be a medium of exchange or satisfied the condition for a numeraire off of which other goods would be priced. But currently it is not, as we will see next.

Success in Wrong Places
More generally, the fundamental flaw and contradiction at the base of most cryptocurrencies is that, as we saw, the originators, miners, and maintainers of the system currently make their money from the inflation of their currencies rather than just from the volume of underlying transactions in them. Hence the total failure of bitcoin in becoming a currency has been masked by the inflation of the currency value, generating (paper) profits for large enough a number of people to enter the discourse well ahead of its utility.

Comment 2: Success for a currency There is a conflation between success for a "digital currency", which requires some stability and usability, and speculative price appreciation.

Transactions in bitcoin are considerably more expensive than wire transfers or other modes, or ones in other cryptocurrencies, and order of magnitudes slower than standard commercial systems used by credit card companies —anecdotally, while you can instantly buy a cup of coffee with your cell phone, you would need to wait ten minutes if you used bitcoin. Nor can the system outlined above —as per its very structure accommodate a large volume of transactions –something central for an ambitious payment system. To date, twelve years into its life, in spite of the fanfare, with the possible exception of the price tag of Salvadoran permanent residence (3 bitcoins), there are currently no prices fixed in bitcoin, floating in fiat currencies in the economy.

Eoin Treacy's view -

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

Bubbles make fools of everyone. It’s really only a question of whether one is a fool at the beginning, middle or end. It is exceptionally rare, though not unheard of, for someone to spot the beginning of a trend and hold on all the way through and sell right at the end. Even with the best foresight and discipline you also need the luck of the big trend. For the majority, they don’t believe at the beginning and will react violently to doubt at the end. That’s how manias have played out repeatedly throughout human history.



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June 28 2021

Commentary by Eoin Treacy

India Shifts 50,000 Troops to China Border in Historic Move

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

"The current situation on the border between China and India is generally stable, and the two sides are negotiating to resolve relevant border issues," Chinese Foreign Ministry spokesman Wang Wenbin told a regular press briefing in Beijing Monday in response to a question about troop deployment. "In this context, the words, deeds and military deployments of relevant military and political leaders should help ease the situation and increase mutual trust between the two sides, not the other way around."

The fear now is that a miscalculation could lead to an even deadlier conflict. Several recent rounds of military-diplomatic talks with China have made minimal progress toward a return to the quiet status quo that had prevailed along the border for decades.

“Having so many soldiers on either side is risky when border management protocols have broken down,” said D. S. Hooda, a lieutenant general and former Northern Army commander in India. “Both sides are likely to patrol the disputed border aggressively. A small local incident could spiral out of control with unintended consequences.”

The northern region of Ladakh — where India and China clashed several times last year — has seen the largest increase in troop levels, three of the people said, with an estimated 20,000 soldiers including those once engaged in anti-terrorism operations against Pakistan now deployed in the area. The reorientation means India at all times will have more troops acclimatized to fight in the high-altitude Himalayans, while the number of troops solely earmarked for the western border with Pakistan will be reduced.

Eoin Treacy's view -

India is a front-line country and NATO+ hope it will act as a counterweight to China in the region. That means it is likely to be afforded a helping hand in the form of aid, regulatory laxity and technology transfers to ensure it is capable of resisting Chinese adventurism.



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June 28 2021

Commentary by Eoin Treacy

The IPO Market Has Never Been Hotter Than It Is Right Now

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

When the rush for IPOs kicked off last year, stay-at-home technology dominated the scene, seizing on investor interest in anything digital, while special-purpose acquisition companies also flooded the market. This year, with stocks continuing to push skyward, the trend has broadened to include renewable-energy companies and online retailers.

Everyone from Swedish oat-milk company Oatly Group AB to bootmaker Dr. Martens Plc sold shares in 2021. Still, tech accounts for a big chunk of the deals. Didi Global Inc. will rank among the biggest U.S. IPOs of the past decade if the Chinese ride-hailing giant carries through with plans to sell as
much as $4 billion in stock.

“The markets from New York to Hong Kong were on fire in the first half of this year and have left even the late 90s dotcom boom era in the rearview mirror,” said Aaron Arth, head of the financing group at Goldman Sachs Group Inc. in Asia ex-Japan.

The boom has been fueled by a torrent of cash that central banks have pumped into the economy and the rise of individual investors, who are eager to buy a piece of their favorite companies.

It’s delivered a windfall for investment banks around the world, who reap the rewards from underwriting and advisory fees. Goldman and Citigroup Inc. rank Nos. 1 and 2 in the global
league tables for IPOs this year.

With so many companies rushing to market, the industry is starting to look saturated. Investors say they can afford to be picky and are increasingly reluctant to pay steep valuations demanded by the fast-growing companies that populate the IPO market.

As a result, a number of high-profile stocks have stumbled in their trading debuts this year and some companies are getting spooked. Food-delivery startup Deliveroo Plc plunged 26% on its first day of trading in London, while Oscar Health Inc., the insurance startup co-founded by Josh Kushner, has fallen 40% since joining the New York market.

Eoin Treacy's view -

The best time to sell your company is when you think you can get more for it than you believe it is worth. This is a good time to sell. Valuations are high, credit is abundant and fears about inflationary pressures create urgency to get a deal done. The additional point is that many upstart companies eschewed IPOs in the decade after the credit crisis. They didn’t need to raise money in the public markets because credit was free and venture companies were eager to pursue growth.



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June 25 2021

Commentary by Eoin Treacy

June 25 2021

Commentary by Eoin Treacy

World's first lab-grown-meat factory opens in Israel

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

The first lab-grown burgers cost more than US$300,000 apiece to produce back in 2013. Bit by bit, however, we're seeing progress in driving these costs down to the point where mainstream outfits like KFC are getting in on the action. Future Meat Technologies says it is the only company to be able to produce cultured chicken breasts for $3.90 a pop and, as it continues to scale up its operations, it expects those costs to fall even further.

"After demonstrating that cultured meat can reach cost parity faster than the market anticipated, this production facility is the real game-changer," says Yaakov Nahmias, founder and chief scientific officer of Future Meat Technologies. "This facility demonstrates our proprietary media rejuvenation technology in scale, allowing us to reach production densities 10-times higher than the industrial standard. Our goal is to make cultured meat affordable for everyone, while ensuring we produce delicious food that is both healthy and sustainable, helping to secure the future of coming generations."

Eoin Treacy's view -

Plant based burger patties, like Beyond Meat, taste nothing like the real thing in my experience. Beyond virtue signalling and the trend towards vegetarianism, I can’t see they will displace demand for meat products. Lab-grown meat on the other hand has all the physical characteristics of animal tissue but is grown from the atomic level to the finished product. That’s a very different prospect.



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June 25 2021

Commentary by Eoin Treacy

China Banks Stockpile Record $1 Trillion of Foreign Exchange

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

Some officials “may see the foreign-exchange liquidity as a feather in China’s cap, and some may worry that the surge is flighty,” said George Magnus, a research associate at Oxford University’s China Centre. “It’s fine when the flows are coming in, but a big problem for financial stability when they try and go the other way.”

For Magnus, the increase in dollar deposits is “random and most likely temporary,” and will slow when other nations recover from the pandemic.

While it lasts though, the situation offers an opportunity for China to implement reforms and loosen its grip over its tightly controlled capital borders.

“China will take the chance of flush dollar liquidity to make its cross-border flows more balanced,” said Becky Liu, head of China macro strategy at Standard Chartered Plc in Hong Kong. “Policy makers in the coming two to three years will keep widening channels for funds to leave the country.”

Eoin Treacy's view -

China’s accumulation of Dollars as a result of the relative strength of the economy during the pandemic should naturally put upward pressure on the currency. The rally over the last year is at least a partial reflection of that. The big question is how do they loosen capital controls while also discouraging capital flight?



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June 25 2021

Commentary by Eoin Treacy

The Gold Digger

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

The mining clock, is a concept originally introduced by Lion Securities and adopted by Investec. The clock on the right, gives us a sense of where we are in the mining cycle based on various liquidity indicators.

In our opinion, the clock was positioned at 6:30 as of September 2020.
Mining is one of the most cyclical industries on the planet, gains are very large on the upside, and losses are also magnified on the downside.

Why is it important?
We cover the Investec Mining Clock because it is crucial to know where we are in the mining cycle so we can properly plan for reaping the rewards the mining sector can give. Without a logic based system, investors end up doing the investment round trip making sizable money on paper only to see it vanish when the cycle turns.

You can see that there are times to look, times to buy, and times to sell. Unfortunately, most investors sell when they should be looking, look when they should be buying, and buy when they should be selling. Bull markets create bear markets, and bear markets create bull markets. The ways you look at the market must change depending on whether a primary bull market or a primary bear market is at hand.

Eoin Treacy's view -

The gold mining sector is still scarred from the previous bear market. They are not aggressively engaging in new exploration. That’s a limiting factor in how quickly supply can be increased.

Instead, they are deploying the same business development strategy deployed by pharmaceutical companies. That involves watching junior miners and acquiring promising projects as feasibility studies are completed and reserves are proofed up.



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June 24 2021

Commentary by Eoin Treacy

Video commentary for June 24th 2021

Eoin Treacy's view -

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

Some of the topics disccused include: $559 billion in new stimulus gets green light, Wall Street hits new highs, gold eases, bond yields rise, copper steady, materials stocks firm, bitcoin steadies, Tesla firms, value outperforms again. 



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June 24 2021

Commentary by Eoin Treacy

Copper/Gold ratio

Eoin Treacy's view -

This ratio is often looked at in the bond markets because it can be a lead indicator for yields. The logic is simple enough. Dr. Copper gives us some perspective on the health of the global economy and gold is the ultimate bond so it reflects demand for a safe haven.

At the low in 2020 the ratio tested the lows from 1986/87. The global economy had shut down so demand for commodities collapsed and safe haven surged. Since then, the ratio has trended back up to test the highs of the last decade; with copper floating higher on a tide of abundant liquidity.



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June 24 2021

Commentary by Eoin Treacy

BOE Warns Against Tightening Too Soon as Inflation Surges

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

“Today’s decision reinforces our belief that the committee will continue providing monetary support through the economic restart,” said Vivek Paul, U.K. chief investment strategist at BlackRock Investment Institute.

Officials led by Governor Andrew Bailey voted unanimously to keep the benchmark lending rate at 0.1% and by 8-1 to maintain the pace of its bond purchases, targeting a cumulative 895 billion pounds ($1.2 trillion) by the end of this year. Chief Economist Andy Haldane, who steps down from the nine-member Monetary Policy Committee this month, pressed for a reduction in the stimulus.

The pound dipped against the dollar and euro after the decision, and U.K. stocks ticked higher. The yield on U.K. government 10-year bonds fell after the decision. Money-market bets on the BOE raising interest rates were also pushed back by two months to August 2022.

“Financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory,” the BOE said in a statement on Thursday.

Eoin Treacy's view -

That transitory word is becoming progressively more common in the statements of central banks globally. The question in my mind is do central banks create inflation. That is another way of thinking about the monetarist view of the topic.



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June 24 2021

Commentary by Eoin Treacy

Tilting The Odds In Your Favour

This promotional piece from Baillie Gifford may be of interest to subscribers. Here is a section:

It may come as a surprise to learn that Tel Aviv (Israel), Vilnius (Lithuania), and Tallinn (Estonia) all rank in the top 50 cities in the world in Fintech. You may not yet have heard of many of their leading companies, but I’ll wager you will in the coming decade. Lithuania ranks number one in the world in terms of broadband speed and in the top five countries for Fintech innovation. Investment in the right infrastructure has given that country a head start it is not wasting.

Access to capital and need for less of it in today’s capital-lite, ‘free money’ world means more and more entrepreneurs, the geniuses who will lead the exceptional companies of tomorrow, no longer feel anchored to the US. 20 years ago, fewer than 15 per cent of Chinese students studying abroad felt compelled to return home, filled with ideas but lacking the capital to fund their ambitions. Today closer to 80 per cent see a much more favourable environment in which to put their western education to profitable use domestically.

Adding to the earlier comments on the popularity of the Hong Kong stock market, companies are increasingly eschewing an ADR listing entirely, preferring a Hong Kong local listing, with exchange regulators encouragingly supportive. For the Chinese company of the future, a dual listing may well mean H-shares (HK) and A-shares (mainland China).

In a world obsessed with buybacks (at the wrong time) and cost-cutting (at the wrong time), we look for investment and expansion. Here, the US is no longer the world leader it once was.

Eoin Treacy's view -

There is an exceptional amount of competition for attention in today’s market. The wall of money printed in the last year has refocused attention on relative performance of assets. Interest rates and currency movements play a big part in how well international assets fare versus US assets. That’s particularly relevant for large pools of US capital that have mostly stayed at home over the last decade.



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June 23 2021

Commentary by Eoin Treacy

June 23 2021

Commentary by Eoin Treacy

The monumental challenge of trying to hit climate targets

Thanks to a subscriber for this report from National Bank of Canada. Here is a section:

Eoin Treacy's view -

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

When numbers in excess of $100 trillion are bandied about most people’s eyes glaze over. The global annual GDP in 2020 was $93 trillion. That suggests to achieve the stated aim of containing temperature rises to 1.5% by 2050, we need to made big assumptions. The most important is that if we go ahead and make the sacrifices and spend the money, that it will work.



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June 23 2021

Commentary by Eoin Treacy

South African Brothers Vanish, and So Does $3.6 Billion in Bitcoin

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

We were immediately suspicious as the announcement implored investors not to take legal action,” Hanekom Attorneys said in response to emailed questions. “Africrypt employees lost access to the back-end platforms seven days before the alleged hack.”

The firm’s investigation found Africrypt’s pooled funds were transferred from its South African accounts and client wallets, and the coins went through tumblers and mixers -- or to other large pools of bitcoin -- to make them essentially untraceable.

South Africa Plans to Regulate Crypto Trading in Phased Manner

Calls to a mobile number for Cajee were immediately directed to a voicemail service. He and his brother, Raees, 20, set up Africrypt in 2019 and it provided bumper returns for investors. Calls to Raees also went straight to voicemail. The company website is down.

The saga is unfolding after last year’s collapse of another South African Bitcoin trader, Mirror Trading International. The losses there, involving about 23,000 digital coins, totaled about $1.2 billion in what was called the biggest crypto scam of 2020, according to a report by Chainalysis. Africrypt investors stand to lose three times as much.

Eoin Treacy's view -

This is not confidence inducing and suggests the potential rebound for bitcoin will be contained as investors weigh the risks from various exchanges.



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June 23 2021

Commentary by Eoin Treacy

India to Spend $9.1 Billion on Free Rice and Wheat for the Poor

This article by Pratik Parija for Bloomberg may be of interest. Here is a section:

India’s cabinet approved Wednesday an earlier proposal to distribute 20.4 million tons of free rice and wheat to people covered under the nation’s food program for five months ending November, according to a government statement.

* Govt will spend 672.7 billion rupees ($9.1 billion) as subsidy for distribution of food grains to as many as 813.5 million people

* The beneficiaries will get 5kg of rice or wheat per person per
month: statement

** NOTE: The free allocation is in addition to the sale of same amount of subsidized food grain each month

* NOTE: The announcement was made by Prime Minister Narendra Modi on June 7, before a formal approval by the nation’s cabinet on June 23

 

Eoin Treacy's view -

India has experienced some significant challenges in tackling its coronavirus outbreak and measures to support the poor are to be welcomed. Targeting the staple food sector also suggests Narendra Modi is working towards success in the 2022 interim and 2024 general elections.



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June 22 2021

Commentary by Eoin Treacy

June 22 2021

Commentary by Eoin Treacy

Email of the day on China Evergrande's debt issues

Is China Evergrande an isolated problem or should we be concerned that this is a common problem throughout the Chinese economy (and thus much more to be concerned about)?

Eoin Treacy's view -

Thank you for this relevant question and this link to Grant’s free newsletter. Here is a section:

The unfolding Evergrande saga is taking a toll on the Chinese offshore bond market, as yields on the ICE BofA Asian Dollar High Yield Corporate China Index rose to 9.93% on Friday, up from 8.5% as recently as May 26 and far above the 4.65% on offer for the equivalent U.S. gauge. That 536 basis point spread marks a near-decade high, apart from a brief spasm during the March 2020 liquidation. Yet, that rough price action hasnʼt derailed insatiable investor appetite for yield: Chinese developers sold $20.3 billion in dollar bonds through June 2 per Refinitiv, up 16% from last yearʼs pace and running “completely contrary” to investor expectations for subsiding deal flow, Owen Gallimore, head of credit-trading strategy at ANZ, commented to The Wall Street Journal.

More broadly, as a debt-fueled fixed asset investment and a bloated financial system (featuring $50.3 trillion in banking assets as of March 31, more than half the $84.5 trillion in global GDP last year) stand as the centerpieces of the Chinese economic miracle, a brisk pace of economic growth is paramount for avoiding trouble.

Yet on that score, recent data are less than encouraging, as total social financing (i.e., aggregate credit and liquidity flows) came to RMB 1.92 trillion in May, light of the RMB 2 trillion consensus estimate to mark the third straight negative surprise. Similarly, M2 money supply growth registered at 8.3% year-over-year in May, down from 10.1% three months earlier and near the lowest level since at least 1996, while the credit impulse (or growth in borrowing as a percentage of GDP) slipped to 25.6% last month, down from 31% in February and the lowest reading since early 2020.

Quid pro quo is a dangerous mix when it comes to debt markets because one of the easiest ways to raise funds is to boost leverage through convenient relationships. If I need more funds, it is easy for me to buy a portion of your bank in return for your boosting leverage to invest in my company. The challenge is this is a simple transaction but the underlying web of interconnectedness across the developer/bank/materials/local and national government level is probably impossible to clearly identify.



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June 22 2021

Commentary by Eoin Treacy

'Value' Label Haunting Japanese Shares Again: Taking Stock

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

As a key “value” market, Japan’s shares have gotten rolled up in the reversal of the reflation trade sparked by the Fed’s hawkish turn last week. The market capitalization of traditional value sectors financials, industrials, energy and materials is about 36% of the MSCI Japan Index, versus around 24% for the U.S. equivalent, according to data compiled by Bloomberg.

With stocks trading higher Tuesday, after a value share rally in the U.S. overnight, it would seem the path for Japanese shares -- at least in the short-term -- is linked to the fate of global reflation bets.

Back at home, the slow vaccination rollout is still a risk especially with the Olympics looming. Only about 6% of Japan’s population have been fully vaccinated, a sharp contrast to other Asian markets like Singapore and Hong Kong, where 35% and 17% of the population have received two doses, according to data compiled by Bloomberg.

“The vaccine rollout is picking up, but risks of a resurgence will increase as Japan lifts the state of emergency and welcomes thousands of Olympic athletes and officials,” wrote Barclays Plc’s Tetsufumi Yamakawa and Kazuma Maeda in a note Friday.

Eoin Treacy's view -

It would be nice to think that Japan’s growing success in vaccinating the population and fighting the pandemic is behind renewed demand in the stock market. Instead, the more likely scenario is there is a swarm of hot money lurching from one asset class to another as perceptions about growth and inflation ebb and flow.



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June 22 2021

Commentary by Eoin Treacy

Billionaire caught in 'world first' crypto bloodbath

Thanks to a subscriber for this article from 9news.au which may be of interest. Here is a section: 

In a blog post four days ago, Iron Finance blamed the start of the avalanche on "some whales" removing liquidity.

"We never thought it would happen, but it just did," the company said.

"We just experienced the world's first large-scale crypto bank run."

It has been a tough few days for cryptocurrencies.

Eoin Treacy's view -

Stable coins, at least partially backed by some national currency, are supposed to be less volatile. That is their primary attraction. The demise of Titan coin highlights how large investors in illiquid markets can have outsized effects. This exact same process has been playing out in Frontier markets for years, it just that everything happens quicker in cryptos.



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June 21 2021

Commentary by Eoin Treacy

June 21 2021

Commentary by Eoin Treacy

Raisi Victory Will Delay Return of Iran's Oil, Analysts Say

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

The election of a conservative cleric as Iran’s president will probably hold up the lifting of U.S. sanctions on the Islamic Republic’s energy exports, said analysts including Sara Vakhshouri, president of SVB Energy International LLC.

“The election of a hard-liner delays the expectation of a rapid return of Iranian oil,” she said.

Eoin Treacy's view -

The absence of Iranian oil from the international market has helped to support prices. It is also worth considering that the absence of 8 million barrels of oil from OPEC+ has been an even bigger tailwind for the price.

The spread between Brent and WTI crude has almost closed. The compression should be encouraging more onshore domestic supply into the market. However, the big question for the sustainability of the oil price rally is when will the supply discipline of OPEC+ end?



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June 21 2021

Commentary by Eoin Treacy

Bitcoin Drops as Hashrate Declines With China Mining Crackdown

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

Cryptocurrencies have been enduring a lull recently. Bitcoin is trading at about half its record high of nearly $65,000 reached in mid-April. The market value of all cryptocurrencies is about $1.45 trillion, as measured by CoinGecko, versus a high around $2.6 trillion last month.

One of the factors cited has been concern about China clamping down on mining amid concerns about energy usage, and in the wake of deadly coal accidents.

The city of Ya’an in the southwestern region of Sichuan has promised the provincial authorities to root out all Bitcoin and Ether mining operations within one year, said a person with knowledge of the situation. According to a report in the Communist Party-backed Global Times, the closure of many Bitcoin mines in the province has resulted in more than 90% of China’s Bitcoin mining capacity being shuttered.

About 65% of the world’s Bitcoin mining took place in China as of April 2020, according to an estimate by the University of Cambridge.

Eoin Treacy's view -

The big question for bitcoin’s rapacious demand for electricity is where do they go now that China’s energy loophole has been closed? In Texas, there is speculation they will set up next to drilling wells and harvest the flared gas.



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June 21 2021

Commentary by Eoin Treacy

China's tech workers pushed to limits by surveillance software

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

In China, technology adoption promises its swelling middle classes an easier, more productive life. But as companies bring productivity-enhancing tools into everyday office life, their efficiency is being channeled, not into leisure time, but into squeezing ever more value from employees.

Just as algorithms have come to govern the workdays of blue-collar warehouse workers at Alibaba Group Holding and food delivery riders for Meituan, elsewhere, white-collar workers are becoming affected by the creep of software-driven management and monitoring into their professional lives.

This is particularly the case in China's tech industry, where rapid technological development, paired with poor labor regulations, has created a potential for labor abuse. The big tech companies themselves, locked in cutthroat competition for new business opportunities, are pioneering these technologies and tools in their own operations. From hiring and goal-setting to appraisal and layoff, productivity-enhancing technologies look to quantify workers' behavior by collecting and analyzing extensive amounts of personal data.

Some scholars warn that some practices can be unethical, invading employees' privacy and burdening them with greater workload and mental stress. Others draw parallels to the fatigue faced by factory laborers during industrial revolutions, where workers chased the pace of machines.

"I felt that I was getting busier and having less time for myself," said the engineer Wang, looking back on his five years at Chinese internet companies.

Eoin Treacy's view -

Asian work culture is not something many in the West are familiar with. Long hours, arriving before the boss and leaving after him are normal work practices. Not taking holiday, an expectation to do whatever is asked and the assumption of absolute loyalty are common characteristics of working in Japan, China, South Korea and elsewhere. When a Japanese newspaper talks about potentially overworking individuals it is worth paying attention. Afterall Japan has a word for being worked to death. (karoshi - death by overwork).



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June 18 2021

Commentary by Eoin Treacy

June 18 2021

Commentary by Eoin Treacy

Luxury Boom Helps Birkin Bag Maker Overtake a Beer Giant

This note from Bloomberg highlights an interesting development.

Hermes International, best known for its silk scarves and $10,000 Birkin handbags, is becoming one of the world’s hottest luxury stocks. The shares hit a fresh record on Friday, giving the company a market capitalization of about 130 billion euros ($155 billion) and nudging it above beer giant Anheuser-Busch InBev NV. Hermes, which only joined France’s CAC 40 Index three years ago, has benefited from a boom in demand for luxury goods that showed no sign of abating during lockdowns, while closed bars and restaurants weighed on AB InBev and other brewers.

Eoin Treacy's view -

Hermes’ most popular products are in limited supply by design. That helps to create an aura of exclusivity and keeps demand high. It is also a recipe for low growth as price rises are implemented in an orderly manner against a background of deliberately controlled sales. Why then would the share accelerate?

There are two primary reasons. The first is only the name bags are in limited supply and everything else is produced at greater scale. The second is that massive money supply growth inflates the ability of consumer to afford luxury goods. That suggests the accelerating trend is a product of stimulus and is just as subject to the outlook for global money growth as growth stocks.



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June 18 2021

Commentary by Eoin Treacy

June 18 2021

Commentary by Eoin Treacy

As good as it gets, for now

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

Eoin Treacy's view -

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

The beginning of any new bull market creates a wide dispersion of views about future potential. The most important are between the cyclical versus secular camps. Cycle bull markets are powerful but short lived while secular bull markets surprise in their persistence over years.

There is likely to be a lot more dispersion in the commodity complex on this occasion that there was at the beginning of the big bull market that began in the early 2000s. The biggest difference is there is no secular shortage of oil.



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June 18 2021

Commentary by Eoin Treacy

"Mosquito smoothies" streamline production of promising malaria vaccine

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

This new process, spearheaded by scientists at Imperial College London, could make the process far more efficient. The method involves the batch processing of whole mosquitoes, which are reduced to a slurry that is then filtered by size, density and electrical charge. This process of making "mosquito smoothies" leaves behind the necessary sporozoite products for vaccination.

“Creating whole-parasites vaccines in large enough volumes and in a timely and cost-effective way has been a major roadblock for advancing malaria vaccinology, unless you can employ an army of skilled mosquito dissectors," says lead researcher Professor Jake Baum, from Imperial College London. "Our new method presents a way to radically cheapen, speed up and improve vaccine production.”

In addition to making the process faster and cheaper, the technique can also make the vaccine more potent. Traditional extraction of sporozoites brings with it contaminants such as unwanted proteins and other debris, which can affect the infectivity of the sporozoites and possibly the immune system response, compromising the efficacy of the whole parasite vaccine. Conversely, the mosquito smoothies result in pure uncontaminated samples.

Eoin Treacy's view -

The promise of a vaccine against malaria is a significant piece of the missing puzzle to economic development in Africa. Malaria is a wasting disease that strikes people in their prime. It reduces productivity and requires other people to care for the invalid, which only compounds the effect. It is one of the biggest taxes on productivity on the continent. If malaria is solved, it frees up resources and productive capacity for significant evolution of human potential.



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June 17 2021

Commentary by Eoin Treacy

June 17 2021

Commentary by Eoin Treacy

Seaborg plans to rapidly mass-produce cheap, floating nuclear reactors

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

Seaborg's solution is to use another molten salt – sodium hydroxide – as a liquid moderator. Thus, the core design places the fuel salt tube inside a larger tube filled with sodium hydroxide, creating a first-of-its-kind all-liquid reactor that's remarkably compact. But sodium hydroxide itself is a powerfully caustic base, often used as oven cleaner or drain cleaner; the Seaborg design has to deal with this added corrosive agent too.

And on top of all that, there's the freaky phenomenon of "grain-boundary corrosion" to boot, caused by the presence of tellurium as a fission by-product in the fuel salt stream. Tellurium atoms can merrily penetrate through metals, and swap positions with other elements, leading to embrittlement of the metals at their weakest points.

The company is well aware of its key challenges here. "Seaborg’s core IP is based on corrosion control in the moderator salt, and applying the lessons learned since the 1950s," says Pettersen. "But it is not just a question of corrosion, it is also how easy it is to put these things together. Hands-on experience is important. They need to be welded, tested, inspected, maintained. We are working towards having perhaps 20 or 30 test loops in Copenhagen, with the experiments designed, set up and executed. The conceptual design is already done; we are now working on the basic design and in that way we are working up towards a full-scale prototype."

Eoin Treacy's view -

Here is a link to the presentation Seaborg’s CEO gave at the Singapore Week of Innovation & Technology earlier this year. 

To my mind creating a nuclear energy solution that accepts that accidents do happen as the primary starting point is a significant development. The primary attraction of molten salt is it does not present a massive dispersion or bomb threat. After that everything else comes down to economies of scale.



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June 17 2021

Commentary by Eoin Treacy

Lifting the mask

 This initial article by Edward Snowden for his new letter may be of interest to subscribers. Here is a section:

One history of the Internet — and I'd argue a rather significant one — is the history of the individual's disempowerment, as governments and businesses both sought to monitor and profit from what had fundamentally been a user-to-user or peer-to-peer relationship. The result was the centralization and consolidation of the Internet — the true y2k tragedy. This tragedy unfolded in stages, a gradual infringement of rights: users had to first be made transparent to their internet service providers, and then they were made transparent to the internet services they used, and finally they were made transparent to one another. The intimate linking of users' online personas with their offline legal identity was an iniquitous squandering of liberty and technology that has resulted in today's atmosphere of accountability for the citizen and impunity for the state. Gone were the days of self-reinvention, imagination, and flexibility, and a new era emerged — a new eternal era — where our pasts were held against us. Forever.

Everything we do now lasts forever... The Internet's synonymizing of digital presence and physical existence ensures fidelity to memory, identitarian consistency, and ideological conformity. Be honest: if one of your opinions provokes the hordes on social media, you're less likely to ditch your account and start a new one than you are to apologize and grovel, or dig in and harden yourself ideologically. Neither of those "solutions" is one that fosters change, or intellectual and emotional growth.

The forced identicality of online and offline lives, and the permanency of the Internet's record, augur against forgiveness, and advise against all mercy. Technological omniscence, and the ease of accessibility, promulgate a climate of censorship that in the so-called free world instantiates as self-censorship: people are afraid to speak and so they speak the party's words... or people are afraid to speak and so they speak no words at all...

Even the most ardent practitioners of cancel culture — which I've always read as an imperative: Cancel culture! — must admit that cancellation is a form of surveillance borne of the same technological capacities used to oppress the vulnerable by patriachal, racist, and downright unkind governments the world over. The intents and outcomes might be different — cancelled people are not sent to camps — but the modus is the same: a constant monitoring, and a rush to judgment.

Eoin Treacy's view -

Censorship is not something I thought I would ever write about and yet today we are surrounded by it. It is not so much that the law has changed, but that we find ourselves in a position where speaking one’s mind comes with consequences that can stretch into a lifetime. Most people’s default is to play along to get along so self-censorship is an easy answer. That’s a challenge and it is not easily overcome.

The chasm between tribes who believe in the rightness of their opposite positions is a recipe for continued political polarisation. Politicians continue to contort themselves so they can appeal both to the fringe and the core, so they can win elections.



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June 17 2021

Commentary by Eoin Treacy

Xi Taps Top Deputy to Lead China's Chip Battle Against U.S

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

The task of coordinating that sprawling program now falls to Liu, who has to keep track of the relevant resources and drive the national strategy to help China achieve chip independence.

“For our country, technology and innovation is not just a matter of growth,” Liu told a three-story auditorium packed with China’s top scientists in a separate meeting in May. “It’s also a matter of survival.”

Xi is counting on his lieutenant to help China fend off growing threats from the U.S., which is seeking to take back chip industry supremacy. Under the Trump administration, sanctions were slapped on Chinese giants from Huawei to SMIC, cutting off their access to American technology and equipment crucial to designing and making advanced logic chips. President Joe Biden has also laid out a $52 billion plan to bolster domestic chip manufacturing, while calling on allies to join export controls aimed at curbing Beijing’s drive toward technology self-sufficiency.

Rival powerhouse nations like South Korea and leading corporations such as Taiwan Semiconductor Manufacturing Co. have also responded with their own spending plans, fueling the race to take the lead in the sector.

With traditional chipmaking facing a series of challenges from technology development to heavy capital investment, third-generation chips -- which use compounds such as gallium nitride and silicon carbide to significantly improve the performance of semiconductors that power a wide range of industries and products -- may offer China its best chance to overcome rivals, senior academic Mao Junfa told an industry event in Nanjing earlier this month.

“China couldn’t buy chips, even with cash in hand,” he said, referring to Washington’s sanctions on Chinese tech companies including Huawei. “The compound chip technologies could help China surpass rivals in the post-Moore’s Law era.”

Eoin Treacy's view -

A decade ago, China needed a domestic demand led recovery so social media, ecommerce and mass consumerism were promoted. That allowed Alibaba, Tencent etc to become some of the largest companies in the world. Their economic function has been realised and now efforts are underway to curtail their growth, lest they become a challenge to the political status quo. The opening of an antitrust investigation of Didi ahead of its IPO is one more example of how the growth of the most successful companies is being curtailed. 



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June 17 2021

Commentary by Eoin Treacy

June 16 2021

Commentary by Eoin Treacy

Video commentary for June 16th 2021

June 16 2021

Commentary by Eoin Treacy

FOMC Dots Offer Up a Hawkish Shocker

This note from Bloomberg was the representative of the initial response to the Federal Reserve’s announcement today.

The Fed announcement is out! Salient features include the following, with the super-hawkish dot plot showing up as the main feature. Lower asset prices is an obvious response:

Dot plot: The 2023 median dot was higher -- a lot higher! Only five members had rates unchanged, and the median is now 0.625% -- higher than anyone was reasonably expecting.
Tapering: The statement retained the reference to substantial further progress
Forecasts: The unemployment rate was forecast at 4.5 in 2021, 3.8 in 2022, and 3.5 in 2023 from 4.5, 3.9, and 3.5 respectively. Core PCE was forecast at 3.0 in 2021, 2.1 in 2022 and 2.1 in 2023 from 2.2, 2.0, and 2.1. The big news here is probably the lower unemployment rate forecast next year, as the PCE forecast adjustment is basically a mark-to-market.
IOER: There was a five basis point hike to 0.15%

Eoin Treacy's view -

Here is a link to the side-by-side comparison to the statement made in April. Raising rates twice in the next 30 months is now considered a shocking development. That conclusion can only be reached if one believed they would never again attempt to normalize policy.



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June 16 2021

Commentary by Eoin Treacy

China's Campaign to Control Commodities Goes Into Overdrive

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

It’s also unclear what could have triggered Sasac’s latest order on overseas positions. The regulator hasn’t ruled out further measures, including those that target specific companies under its control, the people said. A fax to Sasac seeking comment didn’t receive a reply.

The government had already asked domestic firms, including steel mills, commodities merchants and brokerages, to reduce bullish bets on local futures markets for highly volatile raw materials like iron ore and coal.

The expansion of oversight suggests Beijing is now seeking to exert a measure of control over the international benchmarks that influence commodities prices in China, as well as deterring speculation more generally among state-owned companies.

Eoin Treacy's view -

Historically, exchanges have been the primary deciders of whether ebullient sentiment in futures contracts constitutes a threat to the market. Their solution is simple. They raise margin rates and make it much more expensive to hold positions. That has almost universally succeeded in bringing prices back down.



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