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April 05 2018

Commentary by Eoin Treacy

April 05 2018

Commentary by Eoin Treacy

Digital 49'ers: A look into the state of cryptoasset mining

Thanks to a subscriber for this report from Canaccord which I found to be one of the more comprehensive educative pieces I have read. Here is a section:

Regarding the future outlook of bitcoin miners generally speaking, our analyses above and conversations with multiple mining-focused companies indicate that as miners continue to enter the market and raise competition levels for block rewards and transaction fees, margins will as a result compress for all participants in the mining ecosystem. While this will allow the most efficient miners in bitcoin’s network to continue to operate at relatively healthy profitability levels, less efficient mining companies are likely to face considerable pressure in this future setting of higher mining difficulty and hashrates. As a result, our expectation is that we will see the less-efficient mining companies begin to diversify their businesses sooner rather than later in one of several ways. In particular, we expect that some miners will diversify their portfolio of cryptoassets that they mine to altcoins beyond bitcoin, while others will pursue different lines of businesses altogether, e.g., cryptoasset exchanges or advisory services. 

Eoin Treacy's view -

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

Bitcoin remains one of the most volatile assets in the world, digital or otherwise. It has been in a bear market since late last year and it is as yet uncertain whether the lows are in. The wild jumps and collapses in cryptocurrency prices have been chastening to many investors who must now be asking whether there is a better way of making money from what is a rapidly evolving sector where there are likely going to be more losers than winners.



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April 05 2018

Commentary by Eoin Treacy

Laying Down the Groundwork for a Knowledge-Led Society: Policy and Practice

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

Africa is increasingly becoming a generator of knowledge, innovation, creativity and technology, rather than being solely an adapter of trends produced elsewhere in the world - like it was mostly the case in the past. There is no doubt that this trend must not only be encouraged by African Governments, but it must also be accelerated with the implementation of specific proposed public policies. Why? Because the knowledge and creativity-based development model renders obsolete all other models of development as it has a unique feature that none of the other models does: its entire bedrock rests on bringing self-sufficiency, independence and self-generating mechanisms of well-being gains enshrined in each domestic economy, and that is for the entire African continent. The knowledge-based development model can charter new territory for Africa – a territory where it has never succeeded in going before - a territory where an extremely knowledgeable, creative, skilled and educated young and dynamic African population combined with the implementation of science/evidence-based public policies by African leaders, finally brings societal well-being, that is well-being to every single citizen, on the continent. The knowledge-based development model can do so in two specific ways: 1) it can ensure the continent’s self-sufficiency, independence and self-generating mechanisms of well-being gains for all segments of its population rather than depending on outside help, and 2) it can, once and for all, lift all African countries out of the natural resources curse2 or the Dutch disease or the paradox of the plenty by ushering them into an era where endowment in two new kinds of natural resources – namely knowledge and creativity -- is more closely correlated with societal well-being compared to endowment in oil and other natural resources.

Eoin Treacy's view -

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

Africa is often considered as a whole but is a continent replete with different languages, cultures and traditions that are as valuable and varied as anywhere else. There are obviously countries that are more successful than others and the record of improving standards of governance is patchy at best. I look forward to a time when any mention of the Africa does not require a preamble.



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April 05 2018

Commentary by Eoin Treacy

Email of the day on programming errors in autonomous vehicles

Now here's a thought from your friendly local software expert: Microsoft Windows has approximately 50 million lines of code and 1 defect per 2,000 lines of production code (as reported by Sogeti Labs). Industry production code is often reported to have 15-50 defects per 1,000 lines of code (Kloc). My head says Windows therefore has 25,000 defects. Not all defects can be tested out. Not all defects get "seen", because they are in rarely-executed code. Not all "seen" defects cause the blue screen of death, of course. But some do. ("The blue screen of death" is when a computer freezes up completely - on Windows machines, a blue screen is displayed with basic information intended to help an expert determine what went wrong.)

According to The Visual Capitalist, the autonomous control software in a self-driving car has about 100 million lines of code (and growing), so if a self-driving car has the same software quality as Windows, it should only have about 50,000 defects. Not all defects get "seen", because they are in rarely-executed code. Not all "seen" defects cause the blue screen of death, of course. But some do.

Oh, but but but the pointy-hair guy (the non software engineer) proclaims loudly, surely Tesla does a much better job of testing than Microsoft (with a LOT less engineers than Microsoft, maybe just to mention). And of course the other companies building similar software will also do a much better job of testing. Wow, maybe 10x better. So that self-driving car which will be hurtling you down the crowded freeway at 75 mph should only have 5,000 defects. (If you believe you can get 10x better testing results without spending a lot more than 10x the $, I have a really cool virtual bridge to sell you.) Not all defects get "seen", because they are in rarely-executed code. Not all "seen" defects cause the blue screen of death, of course. But some do...

Microsoft actually does a good job of testing. 10x better quality is really hard, and doing it with less resources, maybe not so doable. The space shuttle is the only large piece of production code that I know of where defect density was driven to near-zero - it cost many thousands of dollars per line to get that result, and the system was only 400,000 lines of code.

Hop in, let's let the car take us for a spin.

Eoin Treacy's view -

Thank you for this account which highlights the enormity of the challenge in getting self- driving cars on the road. There appears to be a “you can’t make an omelette without breaking some eggs” attitude surrounding the sector right now. However, with the number of fatalities mounting from both Tesla’s semi-autonomous features and now Uber’s killing of a pedestrian the focus of attention is likely to be turned towards the safety of these products.



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April 05 2018

Commentary by Eoin Treacy

April 04 2018

Commentary by Eoin Treacy

China's Rejoinder Shows No One Wants a Trade War, Really

This article by David Fickling and Shuli Ren for Bloomberg may be of interest to subscribers. Here is a section:

Is the phony trade war over?

With its plans to levy 25 percent tariffs on $50 billion of U.S. products including soybeans, cars and aircraft, China looks to have stepped the simmering trans-Pacific economic battle up a gear.

The initial parries between Washington and Beijing resulted in little more than flesh wounds. There were a series of levies on steel and aluminum exports to the U.S., which largely excluded the countries that export steel and aluminum to the U.S.; an impost on China's infinitesimal imports of U.S. pork, and on a scrap trade that Beijing is already trying to stamp out; and then Tuesday's heftier $50 billion tariff list from Washington, which was nonetheless carefully crafted to be almost invisible to Joe Sixpack.

Pick apart Beijing's latest list of countervailing duties and you'll see that in many areas there's once again less than meets the eye.

To be sure, the list deals a few headline-grabbing blows to select political constituencies. There's a special levy on cranberries, which these days are mainly grown in Wisconsin, the home state of House of Representatives Speaker Paul Ryan.

Another hits the whiskey industry associated with Senate Majority Leader Mitch McConnell's base of Kentucky, borrowing a move from the European Union's tit-for-tat trade war game plan.

And let's not forget those levies on fresh orange juice, calculated to hit growers in the electorally pivotal state of Florida.

Beneath that, though, many of the details suggest a more moderate approach. The duties on aircraft exclude all planes with an operating empty weight above 45 metric tons, a provision that looks to spare every aircraft that matters to Boeing Co. -- and, in any case, aerospace companies can get around tariffs by deferring orders to China and bringing forward deliveries to lessors elsewhere in the world.

Seven of the trade categories affected relate to beef, which China resumed importing from the U.S. only last year -- in minute quantities -- after a 14-year ban due to fears of mad cow disease. New 25 percent duties on wheat and corn won't do much additional damage to a trade that's minimal given the 65 percent import tariffs that China already charges on those crops.

Eoin Treacy's view -

The big question for investors is how much of Trump’s trade tariffs are appeals to his voter base ahead of the mid-term elections in November and how much are aimed at truly disrupting the international trade web that has been such a powerful force for greater flows over the last forty years.



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April 04 2018

Commentary by Eoin Treacy

The Bank of Japan Steps Up With Record Buys of Local Stocks

This article by Min Jeong Lee and Toshiro Hasegawa for Bloomberg may be of interest to subscribers. Here is a section:

"If it hadn’t been for the BOJ’s ETF buying, the Nikkei 225 would have breached 20,000," said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd in Tokyo. "For investors, March was a month to reduce exposure to Japanese equities."

The BOJ bought 1.9 trillion in ETFs in the first quarter, which is 32 percent of its annual purchase goal. To be sure, Kuroda has said that the target isn’t set in stone at exactly 6 trillion per year, and annual purchases don’t necessarily have to be measured from January to December. On Tuesday, Kuroda said the central bank is discussing how to eventually exit from its massive monetary stimulus but that it’s still too early to reveal details.

Not that long ago, many investors expected the BOJ to join the global trend toward stimulus tapering by reducing ETF buying this year. That came after the Topix and the Nikkei 225 soared to their highest levels in a quarter century. But then the market slumped, and the situation changed.

Foreigners have muddied the picture, dumping Japanese equities as the yen gained to a 16-month high against the dollar. They yanked almost 8 trillion yen from cash equities and futures in the first quarter alone, according to data through March 23. Suddenly, not many people are expecting a BOJ taper anytime soon.

Tatsuya Oguchi, chief executive officer and president of Franklin Templeton Investments in Japan, says the BOJ won’t rush to alter its ETF purchases.

"Obviously, the BOJ has to stop buying at some point," Oguchi said. But "I think we have to wait until the Tokyo Olympics” in 2020, he said. “The BOJ won’t change their policy at least for another two three years."

Kiyoshi Ishigane, chief strategist at Mitsubishi UFJ Kokusai Asset Management Co. in Tokyo, agreed. “Of course, they won’t cut back," Ishigane said. Like the others, he doesn’t expect the bank to increase the target, either. "The BOJ would buy more if they could stop the market from falling, but it knows that it can’t."

Eoin Treacy's view -

Bank of Japan buying of stocks represents a powerful tailwind for the market. Both the Bank of Japan and the Swiss National Bank have been actively buying shares, in addition to bonds, in an effort to promote inflation. This policy has the added benefit of the central bank gaining interests in tangible assets with no fixed maturity dates. Dividend growth potential then offers at least a partial inflation hedge to central banks they might not otherwise have had.



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April 04 2018

Commentary by Eoin Treacy

Homebuilder ETFs Jump on Lennar Earnings Beat

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

Homebuilders strengthened after Lennar Corp revealed adjusted earnings of $1.11 per share, compared to expected 77 cents per share from analysts polled by Thomson Reuters, MarketWatch Opens a New Window.reports. Revenue increased 28% to $2.98 billion, compared to expectations of $2.65 billion.

"We continue to remain positive on the outlook of the housing industry in general," CEO Stuart Miller said in prepared remarks. "Although interest rates have ticked up, unemployment remains low, the labor participation rate has been increasing, and wages have been moving modestly higher, though we think, even higher than the data the government captures. Feedback from our new home consultants indicates that our customer base feels confident in both job security and compensation levels in spite of the political noise that abounds."

Eoin Treacy's view -

This attestation from the CEO of a homebuilder that he is seeing strong consumer confidence gels with the results of what we refer to in our home as the Treacy indicator.



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April 03 2018

Commentary by Eoin Treacy

Video commentary for April 3rd 2018

April 03 2018

Commentary by Eoin Treacy

Goldman Sachs: 20 Years Left of Mineable Gold

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

"The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce." He wrote in the report.

King notes that the intention behind the report was to highlight the areas of scarcity, and demonstrate how scarcity is the ultimate driver of value and investment.

"Perhaps unsurprisingly, these are the so-called precious metals (and diamonds), and that their value is derived from the fact they are rare." He writes, "Gold has been used as a measure of wealth for more than 4,000 years, as the ancient Egyptians soon worked out that gold was not only shiny and heavy, but rare."

He adds that the relative scarcity of the commodity, and "the market’s belief that new discoveries will be limited, is what drives the price of these super-rare commodities."

King’s report falls in line with the forecast made last year, estimating that 2015 will be the year when gold production would reach its peak in the mining industry, a concept known as Peak Gold.

Eoin Treacy's view -

Mineral discoveries are a function of geology, technology and price. Shale oil was known about for over a century but was completely uneconomic until technology improved and that changed the pricing structure of the gas, and later the oil markets, beyond recognition.



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April 03 2018

Commentary by Eoin Treacy

On Target April 3rd 2018

Thanks to Martin Spring for this edition of his letter which reproduces my answer to the question of differences in standards of governance between China and India. Here is a section on North Korea:

Eoin Treacy's view -

A link to the full repoort and a section from it are posted in the Subscriber's Area. 

Kim’s trip to China last week was no doubt aimed at squaring any plans he has for talks with South Korea and the USA with China. There is no chance that China would tolerate a reunification of the peninsula on the USA’s terms so the best case scenario for the talks is for a normalisation of relations between North Korea and the USA and that would represent a significant victory for both Kim and Trump.



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April 03 2018

Commentary by Eoin Treacy

Musings From the Oil Patch April 3rd 2018

Thanks to a subscriber for this edition of Allen Brooks’ everinteresting report for PPHB. Here is a section on autonomous vehicles:

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area. 

Google’s Waymo is obviously the leader based on the above statistics in what is likely to be a transformational technology; once commercialised. Nevertheless, this is still an emerging technology that, despite its potential, needs further innovation to reach the point where drivers are optional.



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March 29 2018

Commentary by Eoin Treacy

March 29 2018

Commentary by Eoin Treacy

March 29 2018

Commentary by Eoin Treacy

Amazon in Trump's Crosshairs: Here's What the President Could Do

This article by Ben Brody, Todd Shields and David McLaughlin for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump renewed his long- running assault on Amazon.com Inc. with an early morning tweet Thursday. But what measures can he actually take against the online retail giant?

He could push for probes of consumer protection, privacy and antitrust issues. He could also step up his support for allowing states to collect sales tax on third-party purchases from Amazon, or seek to have the Postal Service charge more to deliver packages. And he could thwart Amazon’s aspirations to win a multibillion dollar Pentagon contract for cloud services.

Even with those powers, Trump’s ability to act has limits. Inquiries by the Justice Department or the Federal Trade Commission could take years and bear a high burden of proof. The FTC and other enforcement agencies guard their independence, as does the board of governors of the Postal Service. Changes to the tax law would require cooperation from Congress, which just passed a tax overhaul and may have limited appetite to reopen negotiations.

The feud pits the world’s most powerful man against one of the world’s biggest corporations -- a global titan with $684 billion in market capitalization and more than half a million employees. At stake is its reputation, revenue and, potentially, ability to continue to disrupt markets as it reshapes retailing.

Eoin Treacy's view -

Capitalism trends towards consolidation, as the strong eventually consume the weak and further dominate their respective sectors. That has created a comparatively small number of companies that we refer to as Autonomies which are truly global in scale and exert considerable sway both over their national indices but the global sectors in which they reside.



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March 29 2018

Commentary by Eoin Treacy

King of the (Bond) World: Terry Duffy Makes His Biggest Trade

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

“Man, that’s a lot of power the CME now has in the U.S. Treasury market,” said Jim Greco, who co-founded the former Treasuries trading platform Direct Match Holdings Inc. “You have to be a little worried about the pricing power of the CME in the most critical asset class in the world.”

Bond traders have reason to cheer the deal. NEX, also known by its old name ICAP, comes to the table with about 80 percent of trading volumes between dealers in the $14.7 trillion market for cash Treasuries. CME is the main destination for Treasury futures trading. Instead of coughing up margins to trade in two places as they do now, customers of cash Treasuries and futures could potentially save costs by having the complementary products under the roof of one combined powerhouse.

In its essence the consolidation of some of these business and the centralization of them to a single clearer makes sense,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. “There is the economies of scale to be taken advantage of and collateral and posting type issues that will be easier to manage.”

Eoin Treacy's view -

At their roots exchanges are flow businesses and there have been concurrent stock and bond bull markets. That’s good for turnover. At the same time technological innovation has increased the speed of trading creating fees from colocation of servers. That opened up a whole new business for the sector and has helped to drive consolidation as companies compete to dominate in this new environment.



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March 29 2018

Commentary by Eoin Treacy

Anti-Corruption Crusader Is Eyeing Brazil Presidential Bid, Sources Say

This article by Simone Preissler Iglesias and Samy Adghirni for Bloomberg may be of interest to subscribers. Here is a section:

Barbosa, a 63 year-old black man raised in poverty, became a household name in Brazil during the Supreme Court’s handling of the so-called "mensalao" corruption scandal in the government of President Luiz Inacio Lula da Silva. Of all the potential candidates for October’s presidential elections, Barbosa has one of the lowest rejection ratings, at just 14 percent, according to Datafolha polling company. That compares with 60 percent for President Michel Temer and 40 percent for Lula.

The former judge is a presidential candidate "with potentially the best profile in the field," according to a note published by Eurasia Group on March 29, adding that he has a good mix of experience, anti-corruption credentials, and credibility on social issues.

"It’s a huge movement on the electoral chess board," said Richard Back, a political analyst at XP Investimentos.

Eoin Treacy's view -

The Brazilian iBovespa Index has been the best performing major market globally over the first quarter. It has been assisted by improving perceptions that the crusade against institutional and political corruption is gaining traction and the relative stability of the Real over the same period.



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March 28 2018

Commentary by Eoin Treacy

March 28 2018

Commentary by Eoin Treacy

How Bad Could It Get, Counting the Cost of a Global Trade War

This report from Bloomberg Economics may be of interest to subscribers. Here is a section on the factors that led to the current tensions on trade and tariffs:

There were also losers:

U.S. labor groups, it turns out, were right to be suspicious of China’s arrival in the global market. Taken together with a shift toward more capital—intensive production, the result was stagnant wage growth. Between 2001 and 2016, real income for the bottom 20% of U.S. households didn’t rise at all, and wages for the middle 20% managed only a 4% increase.

Mercantilist policies in China (combined with an irresponsible approach to financial regulation and mortgage lending in the U.S.) resulted in a buildup of major global imbalances. China’s current account surplus ballooned to 9.9% of GDP in 2007 from 1.3% in 2001. U.S. current account deficit peaked at 5.8% of GDP in 2006. The recycling of China’s surplus back into U.S. Treasuries kept U.S. borrowing costs too low for too long, an important background condition for the real estate bubble and financial crisis.

For foreign policy hawks, the strategic benefits were outweighed by the costs. China didn’t democratize, in fact it doubled down on its single—party model. Worse still from Washington’s point of view, China’s rise means it now jostles with the U.S. for global influence, and on straight—line projections may overtake in terms of economic size in the next decade.

Eoin Treacy's view -

Taken in the context of the total trade between China and the USA and indeed the USA and everywhere else, the total amount announced as tariffs is comparatively small but the knock-on effect to sentiment has been severe and quick.



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March 28 2018

Commentary by Eoin Treacy

Hedge Funds Short Dollar-Yen Stare Down Fiscal Year Squeeze

This article by Michael G. Wilson and Chikako Mogi for Bloomberg may be of interest to subscribers. Here is a section:

Just as hedge funds pile into wagers betting on dollar-yen weakness, signs are emerging that the pair is poised for a resurgence in Japan’s new fiscal year.


The greenback’s failure to break below 104.50, seen by major Japanese banks as a key barrier amid a congestion of buy orders, is pointing to a potential bottom for the widely traded cross. That’s bad news for speculators that suddenly turned bearish for the first time in almost a year this month as an escalation in global trade tension and a domestic political scandal spurred demand for Japan’s haven currency.


The culmination of the country’s fiscal year this week -- which has historically capped dollar strength amid repatriation flows -- month-end fund rebalancing and easing trade tensions are creating the conditions for a dollar bounce against the yen, according to traders and strategists. The rebound looks to have already begun, with the pair climbing as high as 106.41 Wednesday as Japanese importers were seen selling the domestic currency.


“With Japan’s new fiscal year starting shortly, I expect a certain degree of yen selling flows to emerge,” said Tohru Sasaki, head of Japan markets research of JPMorgan Chase & Co. Flows related to the start of the fiscal year could push dollar- yen upward toward the 111 to 112 area, he added.

Eoin Treacy's view -

The Dollar has been among the weakest currencies in the world so far this year, amid widespread angst about the implications of fiscally profligate policy on the value of the currency. However, the USA is also raising interest rates and that interest rate differential is beginning to be meaningful, particularly as LIBOR rates for short-term paper advance.



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March 28 2018

Commentary by Eoin Treacy

Cobalt price: Automakers 'waking up too late' as China takes control

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section: 

The Democratic Republic of the Congo today has six of the top 10 cobalt mines globally. Due primarily to Chinese investment, by 2022, the central African nation will host the nine largest cobalt producers. Congo also holds half the world’s reserves.

Not only is primary production highly concentrated, but the downstream industry is beginning to resemble a monopsony. China, despite having no cobalt resources of its own, is responsible for 80% of the world’s cobalt chemical production, which overtook metal production around four years ago.

Glasenberg told FT Chinese refiners and processors "will have most of the offtake of cobalt":

They’re not going to sell batteries to the world, more than likely they’ll produce batteries in China and sell electric vehicles to the world,” Mr Glasenberg told the conference. 

Eoin Treacy's view -

Despite the fact cobalt prices have surged there is no such thing as a cobalt mine. It is almost exclusively a by-product of copper and nickel mining. The Congo/Zambian copper belt therefore is the primary source of cobalt while it is a by-product of other mining operations all over the world.



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March 28 2018

Commentary by Eoin Treacy

Video commentary for March 27th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street bounces at the MA, Euro bounces but less impressively and is still below its MA, Gold and oil pause at the upper side of thier ranges, Japanese banks bounce from the lower side of its range. Treasuries look likely to unwind their oversold condition. 



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March 27 2018

Commentary by Eoin Treacy

Security In an Unsecure World

Thanks to a subscriber for this transcript of a talk given by Benjamin Graham in the 1960s. Here is a section but it is well worth taking the time to read in full:

They are returning to the idea that for the smart investor the question of stock market fluctuations does not have to be considered to any great extent. There is a two-fold emphasis here, which slurs over the reality of stock market fluctuations. The first is the general conviction that the market can be counted on to advance so emphatically through the years that whatever declines take place are comparatively unimportant; hence if you have the true investor’s attitude you don’t have to concern yourself with them.

And

As I see it, the real truth is exactly the opposite, for the higher the stock market advance the more reason there is to mistrust its future action if you are going to consider only the market’s internal behavior. We all know that for many decades the typical history of the stock market has been a succession of large rises, in good part speculative followed inevitably by substantial falls. Consequently, the substantial upsweeps of the past have always carried with them warning signals of unhappy consequences to come. It does not necessarily follow that a large rise in the price an individual stock or in the market average must be followed by a decline; but the only reason to view with confidence the future price of a security that has already advanced substantially in the presence of external reasons, other than the actual price movement itself, which would justify such confidence. Hence a large advance in the stock market is basically a sign for caution and not a reason for confidence.

Eoin Treacy's view -

One of the benefits of being locked in a metal cylinder for 14 hours is I get to catch up on my reading. The first thing that occurred to me on reading this paper is how little things change. We might have different names for popular financial products but the basic psychology of investors does not change.



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March 27 2018

Commentary by Eoin Treacy

Electric Cars May Be Cheaper Than Gas Guzzlers in Seven Years

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

Electric cars may be cheaper than their petroleum counterparts by 2025 if the cost of lithium-ion batteries continues to fall.

Some models will cost the same as combustion engines as soon as 2024 and become cheaper the following year, according to a report by Bloomberg New Energy Finance. For that to happen, battery pack prices need to fall even as demand for the metals that go into the units continues to rise, the London-based researcher said on Thursday.

The clamor to roll out electric vehicles has grown louder as countries and companies race to clean up smog in their cities and hit ambitious climate goals set by the Paris Agreement. U.K. lawmakers started an inquiry into the market in September, probing the necessary infrastructure and trying to determine whether to bring forward the 2040 deadline to end the sale of gasoline and diesel cars.

Eoin Treacy's view -

Tesla has one major undeniable achievement to its name. It made electric cars sexy. Before Elon Musk delivered his roadster, electric vehicles were a hard sell, plagued by perceptions of inconvenience. However, in little more than a decade, they have become so desirable that just about every car company is planning on investing billions in manufacturing capacity.



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March 27 2018

Commentary by Eoin Treacy

Berlusconi Says League Plotting Government With Five Star

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

The accusation threatens to shatter the parliamentary group that won the most seats in the inconclusive March 4 general election. Both Matteo Salvini of the League and Luigi Di Maio of Five Star have claimed the premiership although they are short of a majority.

Lawmakers in each house of parliament started voting Friday to elect speakers, a clue to possible new alliances in the search for a government with a working majority.

Forza Italia had selected former minister Paolo Romani as its candidate for the Senate job, but Salvini’s senators voted against him. Salvini’s decision is seen by Forza Italia as yielding to Five Star, which had ruled out backing Romani or any candidate with a judicial conviction. Romani has been convicted of embezzlement, an offense he denies.

Salvini said the League’s choice was “a courageous and generous help to the coalition” to break a political deadlock, in remarks quoted by newswire Ansa.

Salvini and Di Maio have taken the lead in attempts to broker a deal over the speakers. The ballots could run until early next week after several rounds of voting on Friday produced no result.

Eoin Treacy's view -

These two maps of Italy, one with the income dispersion, the other with the geographical support for the various parities give us two clear conclusions. The first is that the poor people voted for the Five Star Movement. The other is by arranging a coalition between the centre right and the Five Start Movement just about the whole country is represented. Quite whether the revolutionary party is willing to share power, and therefore become more conventional, is still open to question.



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March 26 2018

Commentary by Eoin Treacy

Video commentary for March 26th 2018

Eoin Treacy's view -

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

Some of the topics covered include: Asian markets find at least near-term support, Europe under pressure as Euro strengthens, oil eases, gold firm, bonds steady, Facebook and Tesla breaking down but subscription oriented shares offer relative strength.



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March 26 2018

Commentary by Eoin Treacy

Higher Libor-OIS Is New Normal But Don't Fret, Says CS' Pozsar

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

“BEAT is forcing foreign banks to substitute FX swaps with unsecured funding and also leads to temporary overfunding on the margin,” he wrote. “BEAT explains why cross-currency bases are tighter while Libor-OIS is wider, and also introduces upside risks” to the forward Libor-OIS spread, he wrote.

The gauge measuring where Libor-OIS is seen moving in coming months -- the June FRA/OIS spread -- reached about 54 basis points this month, from around 18 at the end of last year. It retreated to 44 basis points Friday.

The impact is strongest in foreign-exchange swaps because the shift is creating excess funding for those headquarters.

That cash is being lent into the foreign-exchange swaps market, preventing the basis from narrowing for now, wrote Pozsar.

Total excess funding that may build up at headquarters of European, Japanese and Canadian banks with branches and broker- deal affiliates in the U.S. could tally as much as $450 billion, he estimates. To the extent that this money had been raised in FX swaps at headquarters, the change may reduce demand for dollars via the basis swaps market, he says.

Even without the tax effect, Libor has been rising amid a deluge of Treasury-bill issuance since the U.S. debt ceiling was raised in February, which has helped drive bill rates to the highest since 2008. The increase has forced banks to boost commercial paper rates to lure buyers.

“BEAT is redistributing pressures from the cross-currency basis to the Libor-OIS basis,” Pozsar wrote. “The pressures we should be seeing in cross-currency bases from bill issuance are showing up in the Libor-OIS basis instead. This suggests Libor- OIS could widen more from here.”

Eoin Treacy's view -

The pop is overnight index swap spreads since the beginning of the year has a lot of people thinking about what this all means. The most visceral memory everyone has of the LIBOR-OIS, or the FRA/OIS spread which is the equivalent, is the surge in unsecured paper funding costs that were associated with the credit crisis back in 2008. So, the big question is whether that is relevant today?



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March 26 2018

Commentary by Eoin Treacy

Fear of trade war between US and China

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

Eoin Treacy's view -

A link to the full note and a section from it are posted in the Subscriber's Area.

ETF Holdings of gold has been remarkably steady since the initial surge in 2016 suggesting investors were willing to continue to hold gold despite a lengthy period of consolidation. Holdings are now hitting new recovery highs and a clear move below 70 million ounces would be required to question the return to demand dominance.



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March 26 2018

Commentary by Eoin Treacy

As Trump Takes On China, Another Trade Challenge Looms in Asia

This article by Connor Cislo and Jiyeun Lee for Bloomberg may be of interest to subscribers. Here is a section:

But at the same time, there’s been a spike in sales to China of precision metal working machines and equipment for making chips from firms like Japan’s Yaskawa Electric Corp. With a Chinese state-backed fund gearing up to pour as much as $31.5 billion into homegrown semiconductor manufacturing, there’s potential for trade flows to start to shift.

China’s ambitions, set out in its sweeping Made in China 2025 plan, go much further than semiconductors and would see its technical prowess advance in a host of areas, ranging from bio- medicine and artificial intelligence to new-energy vehicles and aircraft. The challenge to Japan, Korea and Taiwan also applies to European exporters like Germany, and comes on top of the risks to global trade from the Trump administration’s embrace of tariffs.

"The bits of the global supply chain that are currently the preserve of Korea, Japan, Taiwan, the U.S., and Germany, are the bits of the supply chain that China has a decade-long industrial strategy to move into," said Tom Orlik, Bloomberg’s chief Asia economist. He said it’s only a matter of time before many components for electronic products are made domestically and the country is on track to become a car exporter. Eventually, it will be selling airplanes, said Orlik.

Eoin Treacy's view -

China is moving up the value chain in just about all industries. It’s policies in achieving that goal are openly mercantilist. It has unabashedly supported domestic industry by whatever means necessary, closed off the mainland market to global competitors, engaged in industrial espionage on a grand scale and none of these actions are without precedent.



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March 23 2018

Commentary by Eoin Treacy

March 22 2018

Commentary by Eoin Treacy

March 22 2018

Commentary by Eoin Treacy

Protectionism Risks? What's Next?

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

Eoin Treacy's view -

A link to the full report and section from it are posted in the Subscriber's Area.

This is a very measured report which I think is underplaying the short-term volatility tariffs are likely to provoke. Bilateral trade between the USA and China is substantial and US companies have invested considerable resources in developing customer bases in China. They are far from immune from Chinese retaliatory measures which over the course of the medium-term will likely be ironed out but probably not before there is some pain felt on both sides.



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March 22 2018

Commentary by Eoin Treacy

Tencent Drops After Warning Spending to Weigh on Profit Margins

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

Tencent’s business revolves largely around its vast social networks WeChat and QQ, the twin platforms through which more than a billion people consume games, news and online entertainment while paying for a plethora of real-world services. Chief Executive Officer Ma Huateng is now angling to grab a larger slice of an advertising pie dominated by Alibaba Group Holding Ltd., while investing in new areas such as financial, retail and computing services.

“Tencent needs to invest in new business, it would help the company build a better ecosystem infrastructure to support growth, but it will hurt margins in the short term,” said Benjamin Wu, an analyst at Shanghai-based consultancy Pacific Epoch.

Analysts at Credit Suisse Group AG and Citigroup Inc. lowered their earnings estimates for Tencent after the results.

Tencent’s quarterly profit included gains in the quarter of 7.9 billion-yuan thanks mainly to the initial public offerings of Sea Ltd., Sogou Inc. and Yixin Group Ltd. Those are just three of the 600 companies the company has invested in.

Eoin Treacy's view -

I don’t know a Chinese person, either by birth or heritage, that does not use WeChat. That fact alone means it is going to be more expensive to gain new customers.



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March 22 2018

Commentary by Eoin Treacy

A Dangerous Cyberattack On A Petrochemical Plant Could Be The First Of Many

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

You probably didn’t hear about it at the time, but in August 2017, there was an attack on a petrochemical plant in Saudi Arabia. It was meant to cause a cascading explosion, experts determined. The only reason it didn’t (and that you didn’t already hear about it) is because there was a mistake in the assailant’s code.

This may feel far away, but such an attack could have easily happened more locally. Russians are hacking the U.S. electric grid. The greatest fear is that they are able to access American nuclear plants, which could wreak devastation rarely seen on some of the country’s most populated areas.

A new kind of attack has made its way into the world. And, frankly, it’s terrifying.

Experts are learning a lot from this foiled attack in Saudi Arabia. The New York Times reports that the attack required a level of sophistication that shows the attackers had government backing, though the individual hackers and the country backing them are still unknown.

Eoin Treacy's view -

This attack failed because of a typo. That’s not a comforting thought. The introduction of cyberattacks into the arsenal of sovereign states represents a major issue from the perspective of investors. That is particularly true because they are close to the perfect weapon. They have the ability to strike at the heart of an enemy’s domestic architecture, require no loss of munitions or personnel, are comparatively cheap to deploy and for the most part are anonymous.



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March 22 2018

Commentary by Eoin Treacy

Eoin's personal portfolio update March 21st 2018

March 22 2018

Commentary by Eoin Treacy

Long-term themes review March 7th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a brief summary of my view at present.



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March 21 2018

Commentary by Eoin Treacy

March 21 2018

Commentary by Eoin Treacy

Fed Lifts Rates, Steepens Path Through 2020 For More Hikes

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

In another change to the statement, the Fed said inflation on an annual basis is “expected to move up in coming months,” after saying “move up this year” in the January statement. Price gains are still expected to stabilize around the Fed’s 2 percent target over the medium term, the FOMC said.

The central bank’s preferred price gauge rose 1.7 percent in the 12 months through January and officials projected it to rise to 2 percent in 2019 and hit 2.1 percent the following year, the latest estimates showed. The estimates for inflation excluding food and energy, which officials see as a better way to gauge underlying price trends, rose to 2.1 percent in 2019 and 2020 from 2 percent seen in December.

“Job gains have been strong in recent months, and the unemployment rate has stayed low,” the FOMC said. The statement said that household spending and business investment “have moderated” from strong fourth-quarter readings.

Eoin Treacy's view -

A dovish rate hike is what the market was hoping for and that’s what it got which eases concerns that the new Fed chair is anything other than market friendly. There had been some concern that the Fed might raise rates four times this year but that is now looking less likely. However, the upshot of the statement is that four rates hikes in 2019 is a realistic possibility and a significant negative impact would be required to stop the run-off of the balance sheet. Therefore, the outlook is not quite as liquidity friendly as might have appeared on first blush.



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March 21 2018

Commentary by Eoin Treacy

BOE's May Rate Increase Seen Locked In as Wage Growth Picks Up

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

Prime Minister Theresa May’s government lifted the cap on pay for more than a million National Health Service workers on Thursday. They will get a 6.5 percent pay rise over the next three years -- spelling an end of the longstanding limit on public-sector raises -- while a 4.4 percent increase in the minimum wage is also due to come into effect in April.

BOE officials, who raised rates for the first time in more than a decade in November, are preparing to unveil their latest policy decision in London on Thursday. Markets had started to price in further tightening at the next meeting in May even before the positive upturn in wage growth, while a second hike this year is also seen as probable.

“In BOE speak, higher wages point to upside risks to domestically generated inflation and improving jobs numbers point to further erosion of slack,” said Scotiabank economist Alan Clarke. “In other words, this supports the case for a May rate hike.”

Eoin Treacy's view -

The collapse of the Pound in the aftermath of the Brexit vote in 2016 shielded the UK economy from what might otherwise have been a rather difficult period. However, the currency’s weakness made just about all imports more expensive. While the high street is just getting around to passing on higher import costs, the price of oil is 50% higher today than it was in July 2016. That might not be taken into account by official figures but it’s something all consumers have to deal with on a daily basis. With the NHS scoring a substantial pay increase, we can expect teachers, police and regular civil servants to make similar claims and that is before the private sector starts demand pay rises. That all points towards inflation.



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March 21 2018

Commentary by Eoin Treacy

Features of a Bitcoin Bear Market

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

Eoin Treacy's view -

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

The argument proposed by hard cryptocurrency advocates is that profits accumulated in the cryptocurrency world should be simply left in the system and only reinvested in other tokens or altcoins. The basis for eschewing fiat currency entirely is that the cryptocurrency market is evolving so quickly that it is only a matter of time before digital assets have widespread real-world utility and at that point the declining value of fiat currencies can be foregone completely in favour of accumulating real assets.



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March 21 2018

Commentary by Eoin Treacy

Policy focus shifted to sustainability from stability

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

March 20 2018

Commentary by Eoin Treacy

March 20 2018

Commentary by Eoin Treacy

Musings From the Oil Patch March 20th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest. Here is a section:

Eoin Treacy's view -

Both a section from the report and a link to a pdf are posted in the Subscriber's Area.

Shale oil is typically of the light variety which is used for gasoline production rather than diesel. Europe has favoured diesel for a long time and the aftermath of the Volkswagen cheating scandal suggests it will be using less in future. A lot of the new supply that has become economic over the course of the last 15 years has been of the heavy variety but that is now changing with the evolution of US domestic onshore tight resources. That represents a significant retooling risk for European refineries while the US sector will also need to evolve to cater to the prolific supply coming on line domestically.



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March 20 2018

Commentary by Eoin Treacy

Labor 2030: The Collision of Demographics, Automation and Inequality

This report from Bain & Co. by Karen Harris, Austin Kimson and Andrew Schwedel may be of interest to subscribers. Here is a section:

We expect the magnitude of workforce change in the 2020s to match that of the automation of agriculture from 1900 to 1940. However, the transition of farm workers into the industrial sector was spread out over four decades. In the case of the automation of manufacturing, the impact was over a shorter time period (roughly 20 years), but the share of labor force in manufacturing jobs was relatively small in the US. Investment in automation is likely to proceed moderately faster than agricultural automation or manufacturing automation unless other forces act to impede its progress, and it will affect a larger percentage of the total workforce.

The tension between the push to offset slowing labor force growth with automation and the pull to slow automation's rollout to prevent massive disruption will play out over the next 10 to 20 years. But once the first companies begin deploying new forms of automation, others are likely to follow suit rapidly to stay competitive.

The base-case scenario
Based on the magnitude and speed of change, our base-case scenario could result in about 2.5 million jobs per year lost or not created because of automation. Previous transformations provide an interesting comparison. The automation of agriculture transformed national economies and disrupted labor markets, culminating in the Great Depression. But if that event occurred today, scaled to the current population and labor force, it would displace 1.2 million workers per year. The rate of reabsorption from the automation of agriculture was about 700,000 workers a year.

Eoin Treacy's view -

Technology is disruptive and inherently deflationary. The rise of the robot represents a significant secular theme and for the millions of workers who are going to be affected their only resource is likely to be at the ballot box.



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March 20 2018

Commentary by Eoin Treacy

China Pledges Action on Tech Transfer as Trump Plans Tariffs

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

“Businesses are very much in a position that they want to see China take action, and talking about it isn’t sufficient any more,” John Frisbie, president of the U.S.-China Business Council, said of Li’s speech. “And it has to be tangible actions that matter.”

The administration is said to be considering wide-ranging tariffs on everything from consumer electronics to shoes and clothing made in China, as well as restrictions on Chinese investments in the U.S., according to people briefed on the matter.

That’s one of the administration’s lines of attack to deal with the lopsided bilateral trade account, which according to U.S. data, the trade deficit with China reached a record $375 billion last year, with China’s accounting considerably lower.

“A large deficit is not something we want to see,” Li said. “We want to see balanced trade. Otherwise this kind of trade would not be sustainable.”

Eoin Treacy's view -

The last thing China wants is a trade war particularly since its domestic companies are primed to take a more dominant position on the international stage selling everything from smartphones to cars. However one of the reasons they are now able to compete internationally is because of the technology sharing China insisted on over the course of the last twenty years. If China is now willing to give up on that demand we can conclude the administration believes the economy has progressed to a stage where it is no longer essential to development. The pace of R&D spending and patent lodging would support that view. 



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March 19 2018

Commentary by Eoin Treacy

March 19 2018

Commentary by Eoin Treacy

Facebook Plunges as Pressure Mounts on Zuckerberg Over Data

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

Politicians on both sides of the Atlantic are calling on Chief Executive Officer Mark Zuckerberg to appear before lawmakers to explain how U.K.-based Cambridge Analytica, the data-analysis firm that helped Donald Trump win the U.S. presidency, was able to harvest the personal information.

Facebook has already testified about how its platform was used by Russian propagandists ahead of the 2016 election, but the company never put Zuckerberg himself in the spotlight with government leaders. The pressure may also foreshadow tougher regulation for the social network.

U.S. Senators Amy Klobuchar, a Democrat from Minnesota and John Kennedy, a Republican from Louisiana, have called on the chairman of the Judiciary Committee to bring in technology company CEOs, including from Twitter Inc. and Alphabet Inc.’s Google, for public questioning.

Eoin Treacy's view -

The status quo was shaken by the election of Donald Trump and the rise of populist causes right across Europe and parts of Asia. Whether this is as a result of Russian propaganda or demographic/personality profiling is missing the point. A deep vein of discontent has been tapped by emotional rhetoric which is a symptom of political change regardless of the avenue through which it is delivered. That is contributing to polarity in political views which is likely to intensify until a new reform agenda has been implemented and it could take a decade of political disfunction to achieve it.



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March 19 2018

Commentary by Eoin Treacy

Understanding China's Rise Under Xi Jinping

This speech delivered by Kevin Rudd at West Point earlier this month represents an excellent summary of the machinations of political power in China which I found very interesting. Here is a section:

However, militating against any of the above, and the “tipping points” which each could represent, is Xi Jinping’s seemingly absolute command of the security and intelligence apparatus of the Chinese Communist Party and the state. Xi Jinping loyalists have been placed in command of all sensitive positions across the security establishment. The People’s Armed Police have now been placed firmly under party control rather than under the control of the state. And then there is the new technological sophistication of the domestic security apparatus right across the country—an apparatus which now employs more people than the PLA.

We should never forget that the Chinese Communist Party is a revolutionary party which makes no bones about the fact that it obtained power through the barrel of a gun and will sustain power through the barrel of a gun if necessary. We should not have any dewy-eyed sentimentality about any of this. It’s a simple fact that this is what the Chinese system is like.

And

Many scholars failed to pay attention to the internal debates within the Party in the late 1990s, where internal consideration was indeed given to the long-term transformation of the Communist Party into a Western-style social democratic party as part of a more pluralist political system. The Chinese were mindful of what happened with the collapse of the Soviet Union. They also saw the political transformations that unfolded across Eastern and Central Europe. Study groups were commissioned. Intense discussions held. They even included certain trusted foreigners at the time. I remember participating in some of them myself. Just as I remember my Chinese colleagues telling me in 2001-2 that China had concluded this debate, there would be no systemic change, and China would continue to be a one-party state. It would certainly be a less authoritarian state than the sort of totalitarianism we had seen during the rule of Mao Zedong. But the revolutionary party would remain. 

Eoin Treacy's view -

China is going to stay authoritarian and is in the process of implementing an internal security apparatus that is more sophisticated than anything the world has seen before. The nexus of artificial intelligence, cameras, local monitoring, real name social media enforcement, social scorecards are all designed to ensure the long-term sustainability of single party rule.



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March 19 2018

Commentary by Eoin Treacy

Businesses Respond Positively to Transition Deal

This article by Ian Wishart and Tim Ross for Bloomberg may be of interest to subscribers. Here is a section:

“Business leaders will welcome the announcement of a provisional agreement on an implementation period and congratulate the U.K. government for heeding the call of business and making it a priority early on,” Allie Renison, head of Europe and trade policy at the Institute of Directors, says in statement. “We are, however, concerned that not enough attention is being given now to the finer details and practical implications of transition.”

But the British Chambers of Commerce was more positive. “While some companies would have liked to see copper-bottomed legal guarantees around the transition, the political agreement reached in Brussels is sufficient for most businesses to plan ahead with a greater degree of confidence,” BCC director general Adam Marshall says in a statement.

It’s also noticeable that the pound has risen significantly against the dollar.

Eoin Treacy's view -

The GBP/EUR exchange rate is the clearest barometer for the market’s perception of whether the Brexit negotiations will be advantageous or not for the UK in the short term. Every time the tide of opinion turns bullish on a negotiated settlement the Pound rallies and vice versa.



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March 16 2018

Commentary by Eoin Treacy

March 16 2018

Commentary by Eoin Treacy

Precious Metals Review

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

Capital allocation: We are nearing 5 years since the significant gold price (~$1,600/oz down to $1,360/oz) correction in early April 2013. The period since has largely been characterized by cost cutting, capex reduction and de-leveraging of Balance Sheets. With an average ND/2018E EBITDA ratio of 0.5x for Precious stocks under coverage, companies are largely finished with debt reduction and must now decide on the right mix of project capex (brownfield and greenfield) /exploration /dividends/buybacks/further debt reduction/M&A opportunities. Management decisions to define companies will likely diverge over the coming years and we believe this is a key consideration for investors, particularly for a sector that does not have a good record of deploying capital. In terms of dividends, companies will need to define policies that are both sustainable but also representative of variation in cash flow through the cycle, e.g., a base dividend with a supplementary dividend is most likely.

Cost pressure starting to come back: A number of companies on recent conference calls mentioned cost pressure that is entering the industry either through macro factors or through mining sector specific areas.

Examples include the increase in energy costs (mainly due to higher diesel/gas prices), some currency moves, consumables, equipment and contracting. It does not appear to be significant at this stage but the opportunities for cost-cutting initiatives seem to have largely ended (with the potential exception of technology impacts, e.g., Barrick's initiatives medium- to long-term). As an example of cost pressure, Barrick's nearterm All-In Sustaining Costs (AISC) are expected to be ~$765-815/oz for 2018, ~$50/oz higher than previous guidance of $740-760/oz. Longer term, Barrick has alluded to the fact that its target of $700/oz is going to be more difficult to achieve.

Eoin Treacy's view -

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

The Gold/NYSE Arca Gold BUGS Index ratio hit an important peak near 10 in late 2015 which presaged the recovery rally in the metal price which broke the five-year downtrend. That undervaluation of the miners relative to the gold price represented a period of deep stress for the sector as companies scrambled to pay down debt and to keep their operations afloat. However, as the gold price rallied the miners exhibited high beta characteristics which saw them double relative to the gold price.



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March 16 2018

Commentary by Eoin Treacy

Email of the day on the MidPoint Danger Line

Trust you and your tribe are well.

Just a quick question. I don’t seem to have heard the phrase ‘mid-point danger line’ (MDL)for quite a while. Is the MDL irrelevant these days?

Eoin Treacy's view -

Thank you for your kind words and yes, the whole tribe are thriving. Thanks also for this question which remains a topic of conversation at The Chart Seminar. Incidentally, it has been a bit of a challenge to secure a venue for next month’s Chart Seminar in Melbourne, but we finally signed a contract with the Mercure in Treasury Gardens today. I’m really looking forward to revisiting my old stomping ground, having a coffee on a Lygon Street and, most of all, spending some quality time with subscribers.



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March 16 2018

Commentary by Eoin Treacy

New study rips into cobalt, lithium price bulls

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

Prominent commodities research house Wood Mackenzie this week released a report on battery materials that forecasts a decline in the price of cobalt and lithium this year which would turn into a rout from 2019 onwards.

Woodmac is not lowballing demand growth for lithium and the authors expect demand to grow from 233 kilotonnes (kt) in 2017 to 330kt of lithium carbonate equivalent in 2020 and 405kt in 2022, but:

… the supply response is under way. Yet it will take some time for this new capacity to materialise as battery-grade chemicals. As such, we expect relatively high price levels to be maintained over 2018. However, for 2019 and beyond, supply will start to outpace demand more aggressively and price levels will decline in turn.

According to Woodmac data, spot lithium carbonate prices on the domestic market in China are already down 6% from December levels to around $24,500 a tonne while international market prices have remained robust rising to $16,000 at the end of February.

Eoin Treacy's view -

Lithium and cobalt represent the freshest iterations of the supply inelasticity meets rising demand condition that contributes to the cyclicality of mining ventures. Batteries are now big business and with Volkswagen saying this week that it is willing to outspend Tesla on batteries by the early 2020s the demand portion of the market is well affirmed.



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March 15 2018

Commentary by Eoin Treacy

Video commentary for March 15th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Japan and Europe steady, Australian banks under pressure, China steady, Nasdaq quiet but continues to hold the move above 7000, gold eases, dollar firms, oil inert for the moment. Bond yields close above 2.8%.



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March 15 2018

Commentary by Eoin Treacy

Deep Thaw Below Arctic Circle Risks $30 Billion Nordic Industry

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

The forest floors below the Arctic Circle are usually frozen solid this time of year, hard enough to support the giant timber machines needed to harvest their wood.

But that’s changing, according to the foresters who work the land in Finland and Sweden. Unusually mild winters are turning once icy grounds into thick layers of mud capable of swallowing up the 25-ton vehicles used to gather the materials that go into pulp, paper and packaging.

“We will see more and more of these difficult conditions,”

Uno Brinnen, head of forestry at Sweden’s BillerudKorsnas AB, said in an interview. “It will always shift between warm and cold winters, but the long-term trend seems clear.”

Temperatures across large swathes of Sweden were as much as 3 degrees Celsius (5.4 degrees Fahrenheit) higher than normal in December and January, according to the Swedish Meteorological and Hydrological Institute. That warming forms part of a trend that’s likely to persist, according to SMHI, whose scientists expect temperatures to continue rising over the next six decades because of climate change.

The travails increasingly experienced by Nordic foresters underscore the economic impacts of climate change. Even as warming temperatures in and around the Arctic Circle frees waterways and reveals new paths to exploit natural resources, countries and companies in the region are being forced to adopt new ways of conducting traditional business.

Eoin Treacy's view -

Lumber prices have pulled back over the course of the last month but are still holding the breakout from a 25-year range. The renegotiation of NAFTA rules on trading lumber across the US/Canadian border, the long-term impact of mountain pine beetle infestations, which are themselves a result of milder winters, coupled with warmer weather in Scandinavia and stronger economic growth are driving a supply inelasticity bull market in lumber.



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March 15 2018

Commentary by Eoin Treacy

Pipeline Stocks Sink as FERC Kills Key Income-Tax Allowance

This article by Stephen Cunningham, Tim Loh and Jim Polson for Bloomberg may be of interest to subscribers. Here is a section:

Wells Fargo & Co. analyst Michael Blum said the broad selling was an overreaction, because the effects would be felt only on partnerships with a large amount of interstate pipelines.

"It’s definitely a negative, but it’s not Armageddon for MLPs," Jay Hatfield, a New York-based portfolio manager at the InfraCap MLP exchange-traded fund, said by telephone. "And it’s not as if it affects every asset in every single MLP."

Even among interstate pipelines, it’s unclear how much the ruling will impact different assets, Selman Akyol, an analyst at Stifel Nicolaus & Co. wrote in a note Thursday. That’s because these pipelines can charge rates based on a different agreements -- there are "cost of service" rates, which will be affected, as well as market-based rates or negotiated ones, which won’t be impacted. What’s more, "cost of service" rates are partly built on aspects that have nothing to do with taxes -- including maintenance and depreciation costs for the pipeline.

"This adds a layer of uncertainty to the group, and we do not expect it to be cleared soon," Akyol said in the note. “We anticipate companies will provide disclosures around cost of service exposure and potential impact to cash flow.”

The decision could further the trend of MLPs converting into corporations -- or simply selling interstate pipelines affected by this change in policy to existing corporations such as Kinder Morgan Inc., Hatfield said.

Eoin Treacy's view -

Master Limited Partnerships are generally highly leveraged because taking out debt to fund the construction of pipelines is feasible considering the reliability of the cashflows that arise from it once it moves into service. However as with any leveraged balance sheet how it is treated for tax is a thorny issue which has resulted in a sharp sell-off today as the investors concluded it was better to sell first and ask questions later.



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March 15 2018

Commentary by Eoin Treacy

Pimco Sells Australia Banks, Property Bonds as Risks Climb

This article by Ruth Carson and Andreea Papuc for Bloomberg market be of interest to subscribers. Here is a section:

Risk assets are vulnerable to a correction as valuations approach fair value, Thakur and John Dwyer, vice president and credit research analyst, wrote in a report.

“This risk becomes more important as we transition to a period of gradual tightening of monetary policy by global central banks,” according to the report. Asset prices offer little buffer to the risk of possible shocks resulting from negative growth surprises or higher-than-expected inflation, they said.

Eoin Treacy's view -

Australian government yields share a high degree of commonality with those of other developed market nations. The 10-year has been ranging below 3% since 2015 and over the course of the last month has pulled back to test the region of the trend mean. With inflationary pressures being more of a fear than a reality at present there is scope for some further steadying in the market.



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March 14 2018

Commentary by Eoin Treacy

Video commentary for March 14th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing.

 
FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing,
 
FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing,
 
FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing,


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March 14 2018

Commentary by Eoin Treacy

Gundlach Disagrees with Mnuchin and Powell

Thanks to a subscriber for this article by Robert Huebsche for Advisor Perspectives summarizing Jeff Gundlach’s talk for DoubleLine clients yesterday. Here is a section:

He said that deficits have historically shrunk in non-recessionary periods and risen during recessions. “We are late in the economic cycle,” he said, “and it is unusual that the deficit is expanding.” He said that this is driven by political reasons, and noted that the fact that we are adding stimulus “has never happened before.”

Deficit problems will move to the forefront by the end of this year, he said. The deficit is getting a lot worse and there will be “a lot of bonds supplied to the market,” he said. The supply of bonds was about $650 to $700 billion in 2017, he said. It will be $1.2 to $1.3 trillion in 2018, in addition to quantitative tightening (QT) as the Fed contracts its balance sheet, according to Gundlach. There could be another $600 billion in tightening, he added.

If there is a recession the deficit will get worse, he said, but QT will stop. Either way, investors should expect $2 trillion in supply.

”If quantitative easing (QE) was a tailwind for financial assets, then QT must necessarily be a headwind,” he said.

The unique conditions that prevailed in 2017 are over, Gundlach said. The VIX is above 17, he said, which is higher than at any time in 2017. “We have lived the entire last month and a half at VIX levels higher than in 2017,” Gundlach said. As a result, the markets turned in the greatest Sharpe ratio ever in 2017, but he said that has flipped in 2018.

“We’ve gone from an easy to a very tough investing environment,” Gundlach said.

Gundlach predicted that the S&P 500 will have a negative rate-of-return this year. “My conviction is high,” he said, “higher than that the 10-year yield will break to the upside.

Eoin Treacy's view -

A link to the full deck of Gundlach’s slides is posted in the Subscriber's Area.

The S&P500 is currently up 2.88% this year but it hit at least a near-term and potentially medium-term peak in January following a brief acceleration of the two-year uptrend.



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March 14 2018

Commentary by Eoin Treacy

Crypto Research Report

Thanks to a subscriber for this report on cryptocurrencies from the team Incrementum which may be of interest. Here is a section:

Do you see any common misconceptions about cryptocurrencies and blockchains?  

Yes, actually. There is the misconception that intangible assets do not have value. However, this is not true: some cryptocurrencies are backed by tangible assets, some provide access to potential earnings, and some provide access to a network. 

We can look at this argument the other way around as well. If I am wrong, and it is the case that intangible assets have no value, then this would apply to a lot of other asset classes as well. For example, fiat currencies are mostly intangible. Although fiat currencies are backed by a government that can tax income, that does not make fiat currencies tangible in my opinion. 

However, I think we are the very beginning of the blockchain revolution. At Incrementum, we believe that a lot of the cryptocurrencies that we see today are going to disappear in the short to mid-term. There is potential for some to stay, and for some to stay for a long time. If cryptocurrencies stay around, I am convinced that regulators will regulate cryptocurrencies like every other investment, which they should do in order to level the playing field for all financial assets.

Eoin Treacy's view -

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

Bitcoin was the genesis token and is still by far the largest. It is also used as a vehicle to purchase a considerable number of other cryptocurrencies, so that creates a daisy chain effect which ensures a high degree of commonality between the various tokens.



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March 14 2018

Commentary by Eoin Treacy

Commodities Daily

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

The cocoa price has soared by 33% in New York and by 28% in London since the beginning of the year. Thus cocoa has achieved the best price performance of all the commodities we track this year – with the exception of carbon. The Coffee and Cocoa Council (CCC) of Ivory Coast, the world’s largest cocoa producer, apparently wishes to curtail its cocoa production. The first step is to count the plantations. Depending on the result, the distribution of higher-quality seeds and plants for the 2018/19 season is then to be temporarily suspended. The aim is to combat the overproduction that saw cocoa prices forced to multi-year lows at the end of last year. According to the International Cocoa Organization, global supply exceeded demand by 300,000 tons in the 2016/17 crop year. The surplus is set to decline to a good 100,000 tons in the current crop year 2017/18. Deficits are needed to reduce the cumulative surplus, as was the case on the oil market a good year ago. OPEC brought this about by cutting production, and Ivory Coast appears to want to follow a similar strategy for cocoa. If the CCC has its way, Ivorian cocoa production will be lowered from 2 million tons now to 1.7-1.8 million tons within two years. Ivory Coast has a good 40% share of the cocoa market, which is even somewhat higher than OPEC’s share of the oil market.

Eoin Treacy's view -

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

I was trading cocoa back in August for rather modest profits because I was hoping it would complete its base formation. I grew impatient with the ranging, and probably would not have held in any case during the steep decline posted in December, but there was certainly a case for buying it back at the January lows. The price has now surged higher to emphatically complete its base formation and while increasingly overbought in the short term, a clear downward dynamic would be required to check momentum.



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March 13 2018

Commentary by Eoin Treacy

March 13 2018

Commentary by Eoin Treacy

March 13 2018

Commentary by Eoin Treacy

Email of the day on the differences between China's authoritarianism and India's chaotic democracy:

I have just returned from a visit to India and I visited China last autumn. I was struck by the difference between the two societies. In China I found an almost total absence of religious belief while in India I discovered an almost nationwide attachment to different religions and traditional mysticism. While I saw "tomorrow" all over China in the form of futuristic cities like Shanghai and Hong Kong, I only saw "yesterday 's poverty and superstition" in India. David and you harp on the importance of governance. I heard many Chinese persons state that as long as their material well-being improves, they are prepared to accept the absence of democracy because this enables the government to take action without vested interests standing in its way. In India democratic discussion was said by the persons I met to be an obstacle to rapid and firm decision-taking. What is your opinion on this?

Eoin Treacy's view -

Thank you for sharing your impressions from China and India following your travels. You are not the first subscriber to have asked this question. There have been a number of people over the years who, having visited China and India, said that on coming home they sold their India positions and transferred the balance to China.



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March 13 2018

Commentary by Eoin Treacy

Volkswagen Steps Up Tesla Rivalry in $25 Billion Battery Buy

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

 

Volkswagen AG secured 20 billion euros ($25 billion) in battery supplies to underpin an aggressive push into electric cars in the coming years, ramping up pressure on Tesla Inc. as it struggles with production issues for the mainstream Model 3.

The world’s largest carmaker will equip 16 factories to produce electric vehicles by the end of 2022, compared with three currently, Volkswagen said Tuesday in Berlin. The German manufacturer’s plans to build as many as 3 million of the cars a year by 2025 is backstopped by deals with suppliers including Samsung SDI Co., LG Chem Ltd. and Contemporary Amperex Technology Ltd. for batteries in Europe and China.

With the powerpack deliveries secured for its two biggest markets, a deal for North America will follow shortly, Volkswagen said. In total, the Wolfsburg-based automaker has said it plans to purchase about 50 billion euros in batteries as part of its electric-car push, which includes three new models in 2018 with dozens more following. 

Eoin Treacy's view -

Volkswagen needs a new strategy if it is going to get past the diesel scandal, so embracing batteries whether for all-electric or hybrid vehicles is a solution. By committing to such a large purchase of batteries it will overtake Tesla as the largest consumer and this announcement helps to backstop demand for the world’s largest battery producers as well as the miners that produce the requisite metals.



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March 13 2018

Commentary by Eoin Treacy

Persimmon chief's 75m pound bonus 'almost unfathomable'

This article by Rob Davies for The Guardian may be of interest to subscribers. Here is a section:

In an evidence session held by the housing committee on Monday, the Labour MP Helen Hayes asked Raab if he was comfortable with the “positive effect” that help to buy had had on housebuilders’ profits and executive bonuses. “It’s almost unfathomable,” said Raab. “No I’m not comfortable with it.

“That’s why the government has introduced measures on corporate governance and is encouraging shareholders to take a greater grip on it. We want to see shareholders take a stronger grip on it and we’re starting to see more shareholder activism.”

Hayes asked if the government was monitoring the effect that help to buy was having on corporate profits. “I’m not sure how we would measure a hydraulic relationship between those three points,” Raab said. He added that “other parts of government” were looking at corporate pay.

Help to buy is designed to spur the construction of new homes by giving aspiring homeowners an interest-free government loan worth up to 20% of a property’s value – if the buyer opts for new build. According to several reports, housebuilders have simply increased the price of homes in response, driving up prices and boosting their own profits.

Eoin Treacy's view -

UK homebuilders initially collapsed following the Brexit vote but were among the first to rally as the full ramifications of the collapse of the Pound filtered through into nominal asset prices. Help-to-buy programs also represented significant tailwinds for the sector, however increases to stamp duty have had negative effects and not least in London where prices are now falling against a background where the Pound has strengthened considerably from its 2016 lows.



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March 12 2018

Commentary by Eoin Treacy

March 12 2018

Commentary by Eoin Treacy

China's investments in research and innovation

This is a hot topic with two subscribers sending through articles from different authors covering the same topic for newspaper columns.

Eoin Treacy's view -

Links to both articles are posted in the Subscriber's Area.

China was making headlines today because Xi Jinping’s bid to remain in power following the end of his official term was rubber stamped by the People’s Congress today. It has been a key object of Xi’s to do everything possible to ensure China sits on a level playing field with the USA on the international stage. Modernisation of the military, greater surveillance of the domestic population, strengthening the nation’s censorship of the internet, the Belt and Road infrastructure program, dominating international engagement with African countries, spending on research and development and infiltration of university campuses in the OECD are all part of that plan.



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March 12 2018

Commentary by Eoin Treacy

How Blackstone Turned India Into Its Most Profitable Market

This article by George Smith Alexander and Anto Antony for Bloomberg may be of interest to subscribers. Here is a section:

 

Blackstone’s private equity funds have now invested a total of $3.5 billion in India. The firm is planning to add another $2 billion of such investments in the country over the next five years, Dixit said.

Its Tactical Opportunities fund acquired a stake last year in an Indian asset reconstruction company that buys bad loans. Blackstone is also looking at insolvent firms put up for sale under the new bankruptcy law that took effect in December 2016, he said.

At the turn of the century, many Indian industries weren’t fully open to foreign investment, and family-run businesses were wary of ceding control. Private equity has now become a “very important” source of funding for Indian companies’ growth, according to Sunil Sanghai, founder of NovaDhruva Capital Pvt. Blackstone has been successful in aligning its interests with portfolio company executives as well as finding the right time to sell, he said.

“In the past few years, the investment climate has certainly undergone a positive change,” Sanghai said. “The private equity firms have also matured: they have seen a couple of investing cycles, and they now have experience with Indian companies and Indian management.”

Eoin Treacy's view -

With a well-developed domestic consumer market and the pace of digitization increasing India’s financial, consumer and health care sectors remains on secular uptrend trends of expansion.



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March 12 2018

Commentary by Eoin Treacy

Security analysis of the most popular cryptocurrency exchanges

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

This table shows that out of the 140 exchanges we analyzed less than 40% of them are using headers like the Strict-Transport-Security header or the X-XSS-Protection header. 20% expose server information which isn’t a security vulnerability in itself but that clearly shows the low level of security best practices implemented. And 26% of them use frontend libraries with known vulnerabilities. Only 2% implemented a Content-Security-Policy that, if done well, can offer powerful protection against clickjacking or XSS….

We can do better.

Our analysis isn’t saying that these exchanges have blatant vulnerabilities. But I’m questioning whether they implemented deeper security controls and protections if they didn’t implement basic security best practices that only take a few minutes (or seconds with Sqreen) to implement.

After taking the volume that these platforms handled in the last 24h, I wanted to see if there was a correlation between volume traded and security.

The answer is clearly no. There’s no correlation between transaction volume and security maturity.

The 10 biggest crypto exchanges have an average grade of 3.8 out of a maximum of 10 and a median of 4.5.

Eoin Treacy's view -

Cryptocurrencies are completely unregulated. For many libertarians that were early backers of the theme that is considered good news. However, the downside is that a substantial number of exchanges have collapsed following hacking incidents and large numbers of investors have been robbed.



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March 12 2018

Commentary by Eoin Treacy

Japan Scandal Gives Fresh Boost to Yen Bulls Eyeing 100 Mark

This article by Masaki Kondo and David Finnerty for Bloomberg may be of interest to subscribers. Here is a section:

Governor Haruhiko Kuroda made it clear last week the current stimulus program will remain in place for a while. There’s concern that any move past 100 could prompt a policy response if it’s deemed to hurt attempts to reflate the economy. However, his remarks on March 2 that the bank will start thinking about a stimulus exit in fiscal 2019 have at least increased market speculation over the timing of a possible normalization.

Kuroda’s mention of an exit was meant to prime markets for an eventual withdrawal, says Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp. in Tokyo. “Given the reduction in bond purchases, the BOJ is already laying ground for an exit. It just isn’t saying so.”

 

Eoin Treacy's view -

The Bank of Japan will likely be the last of the major central banks to exit its quantitative easing program. With the ECB due to complete tapering by September that suggests Japan’s program will end sometime in 2019. That is of course under the assumption exogenous factors do not required it to be extended even further.



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March 09 2018

Commentary by Eoin Treacy

March 09 2018

Commentary by Eoin Treacy

Bigger U.S. Auctions in Shorter Time Seen Boosting Yields

This note by Brian Chappatta for Bloomberg may be of interest to subscribers. Here is a section:

Bond traders have to contend with both larger auction sizes and a condensed schedule when the U.S. Treasury sells $28 billion of three-year notes and $21 billion of 10-year notes on March 12. To JPMorgan Chase & Co. strategists, that combination signals a weak reception. Last month’s offerings, the first since 2009 to increase in size, priced at yields higher than the market was indicating heading into the sales. The 3- and 10-year auctions are usually spaced out over two days, but when they came on the same day in December, yields also missed higher.

Eoin Treacy's view -

Bull markets don’t often end because demand evaporates. They usually end because the surge in prices encourages supply into the market and that eventually overwhelms demand. There is no shortage of new supply, in fact the USA’s decision to double its deficit is the latest in a long line of issuers who have been locking in low rates. The fact that one of the biggest buyers, the Fed, is now a net seller, should be giving investors pause when thinking about the value represented by bonds at close to 3%.



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March 09 2018

Commentary by Eoin Treacy

There's No Accounting for Tesla Bondholders' Tolerance

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

There's more to be found off the balance sheet, too. According to Tesla's annual filing, which dropped a couple of weeks ago, it's potentially on the hook for an estimated $8.5 billion of contracted purchases over the next three years alone. Most of this relates to batteries coming from Panasonic Corp. and emphasizes the importance of Model 3 production catching up with the vast ambitions set ahead of it.

That fixed-income investors are fine with this is, of course, a function of their primary defense; namely, Tesla's gravity-defying stock price. The potential for an eighth equity sale to refill company coffers serves to salve any wounds inflicted by slipping Model 3 targets or senior managers sipping away. In early trading on Friday morning, the shares were down less than 1 percent.

What might cause the market's confidence to crack? It's impossible to say, though the Model 3's woes represent the most acute threat. We are now just over three weeks away from the March 31 deadline to get weekly production up to 2,500; a target that's been reset several times already. Bloomberg's own tracker estimates the current rate at less than 700.

Eoin Treacy's view -

Tesla is a B- rated credit so it sits squarely in the riskiest portion of the junk bond universe. The fact that it’s attempts to build a large-scale manufacturing venture from zero have been met with equanimity by the investing public is a testament to the boldness of their design, Elon Musk’s ability to inspire just about everyone he meets and the abundance of credit on offer since 2008.



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March 09 2018

Commentary by Eoin Treacy

How a Donald Trump-Kim Jong Un Summit Scrambles the Calculus for Key Players

This article by Jonathan Cheng in Seoul and Alastair Gale for the Wall Street Journal may be of interest to subscribers. Here is a section:

President Donald Trump’s decision to accept a meeting with North Korean leader Kim Jong Un caught the world off guard.

In agreeing to sit down with North Korea’s third-generation leader, Mr. Trump has boosted the stature of Mr. Kim—a man he has ridiculed as “Little Rocket Man” and threatened with “fire and fury”—with a surprise diplomatic opening that left some allies wrong-footed.

For Mr. Kim, who is half the age of Mr. Trump, just getting a summit meeting with the U.S. president is a big win. Neither his father nor his grandfather succeeded in getting a face-to-face meeting with a sitting U.S. president.

Mr. Trump’s move represents a victory for South Korea’s president, Moon Jae-in, who has pleaded with the U.S. to tone down its rhetoric and worked assiduously to get negotiations off the ground, and others who have pushed for engagement and diplomacy.

Other U.S. allies and some veteran negotiators, however, expressed concern that while a summit meeting could lead to a breakthrough in what has been a protracted standoff, it is a risky move that could lead to ill-considered concessions to Pyongyang.

Eoin Treacy's view -

Agreeing to a meeting with Kim is a big risk because of the polarity of the potential outcomes. These kinds of win/lose scenarios are not attractive from the perspective of any diplomatic corp but are not at all unusual in business where the first lesson is you have to be willing to walk away with nothing if you do not get the price you want.



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March 08 2018

Commentary by Eoin Treacy

March 08 2018

Commentary by Eoin Treacy

Saudi Oil Minister Says Aramco IPO Could Be Delayed to 2019

This article by Annmarie Hordern, Glen Carey and Grant Smith for Bloomberg may be of interest to subscribers. Here is a section:

Saudi Arabia’s energy minister hinted the initial public offering of the state oil company Aramco could be delayed until 2019, pushing back a central plank of Crown Prince Mohammed bin Salman’s plan to modernize the economy.

Khalid Al-Falih also said the IPO, potentially the largest ever, would be “anchored” by a listing on Saudi Arabia’s local exchange and any international listing would be announced in due course, if at all.

“Between December 31st and January 1st there is no value lost for the kingdom,” Al-Falih said in an interview in London.

“So, I don’t see this artificial deadline that you refer to as being significant.”

Until recently, Saudi officials insisted the IPO was “on track, on time” for 2018, but two months into the year that deadline is looking harder to meet. Still, Al-Falih, who also serves as Aramco’s chairman, insisted the company had made all the necessary preparations for a share sale of the world’s largest oil producer.

"The only certain thing about the Saudi Aramco IPO is that a) it will happen, b) the anchor market will be the Tadawul exchange in Saudi Arabia,” Al-Falih said. “We have created the framework -- fiscal and otherwise regulatory -- for Saudi Aramco to be listed this year. The actual timing will be announced when we feel that the conditions for the success of that listing are in place.”

Eoin Treacy's view -

Managing even a partial sale of one of the world’s most significant assets is not an undertaking that can be completed in a short period of time and there is an obvious incentive to get the best possible price. One of the primary supporting arguments for the oil price over the last year has been that Saudi motivation to get the best possible price for its asset.



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March 08 2018

Commentary by Eoin Treacy

Draghi Says Euro-Area Turnaround Warrants Policy Dial-Back

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

The European Central Bank unexpectedly dropped a pledge to ramp up bond buying if the economy deteriorates, saying the turnaround in the outlook has given it to confidence to change a key part of its monetary-policy guidance.

In what the ECB President Mario Draghi said was a unanimous decision, policy makers in Frankfurt surprised investors by ending an easing bias on quantitative easing, effectively a conditional promise to increase debt purchases in “size and/or duration” if needed. But he said downside risks remain, and added rising trade protectionism to the list of threats.

“These are unlikely contingencies now, the ones that would suggest that we would activate this easing bias,” Draghi said Thursday. The language “was introduced in 2016 -- think about how different the situation was at that time.”

The revision coincided with an upgrade to the ECB’s outlook for 2018. At the same time, Draghi emphasized that, currently scheduled to run at a monthly pace of 30 billion euros ($37

billion) until at least the end of September, will continue until inflation is solidly back on track toward its goal.

Eoin Treacy's view -

The ECB is edging towards the exit of quantitative easing. First, they put an end date on purchases, now they are removing the proviso that purchases will be increased and in September they will cease to add €30 billion to their balance sheet. This timetable is subject to the belief that the economy will continue to improve.



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March 08 2018

Commentary by Eoin Treacy

Autodesk's results

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

Autodesk continues to show steady progress in shifting to a subscription model, which has boosted its recurring sales. Subscriber additions continued to be aided by its discounting and other promotions for converting legacy license users to subscription offerings. The company has bundled its products to boost annual recurring revenue (ARR) and average revenue per subscriber (ARPS). While upsell of subscription products to its maintenance subscribers is aiding sales momentum, new cloud products are unlikely to be a growth driver in the near term.

Eoin Treacy's view -

Subscription business models have been growing in popularity among technology companies since Adobe first explored the concept about five years ago. Historically technology has been a highly cyclical business with each new iteration of the product or software resulting in a surge in sales which subsequently led to declines as sales growth tapered off while support costs rose. The cycle would be repeated with each new product offering and this also put a lot of pressure on companies to come up with a new iteration that was measurably better than the last to justify the additional outlay.



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March 07 2018

Commentary by Eoin Treacy

Video Commentary for March 7th 2018

Eoin Treacy's view -

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

Some of the topics covered include: Trade wars troubling for India, base formations in bonds and commodities, bitcoin decline may be positive for gold, subscription businesses continue to do well, consumer staples underperform, stock markets generally steady



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March 07 2018

Commentary by Eoin Treacy

Email of the day on long-term themes:

I was at the last Seminar in London.

I hope you are enjoying the weather in Dubai. Here in Dublin it is snowed in with temperatures -2C, real feel -11C and the city has ground to a halt!!

Anyway, I wanted to let you know that I think your note on Long Term Themes is an excellent addition to the Comment of the day. A very good succinct summary of your current view. I had been keeping my own notes from your videos. I think that you could also consider adding comments on the disenfranchisement of people in the developing countries contributing to the change in the established order, the rise of the global consumer, forecast population growth being greatest in Africa and gold….

Thanks for a great service.

Eoin Treacy's view -

Thank you for these suggestions and I’m delighted you are enjoying the service. I love to travel because I believe it helps to broaden one’s perspective, but it is also nice to be back in the routine of home life. Thank you for these suggestions which I will incorporate into today’s and future long-term updates.



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March 07 2018

Commentary by Eoin Treacy

Trade Frictions: Broadening Out

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

Eoin Treacy's view -

A link to the full report as well as a section from it are posted in the Subscriber's Area.

Trade wars are only manageable if both parties decline the temptation to escalate. This is still very early and some still doubt whether the Trump administration will go ahead with tariffs even after Steve Cohn’s resignation. However, Trump also started his re-election campaign last week and this move is aimed squarely at his voter base in the exactly the same way as the tax cuts were.



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March 06 2018

Commentary by Eoin Treacy

Video commentary for March 6th 2018

Eoin Treacy's view -

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

Some of the topics covered include: gold prices continue to firm from the $1350 area while gold shares still look neglected, commonality in bond yields, TIPS and commodities, Wall Street steady, China bounces but governance is deteriorating, India weak, Eurozone barely steady but Italy bouncing, 



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March 06 2018

Commentary by Eoin Treacy

Gold helped by USD pullback and safe haven flows

This report by Joni Teves for UBS may be of interest to subscribers. Here is a section:

March 06 2018

Commentary by Eoin Treacy

Stock Bulls in Trump Country Are Freaking Out Their Brokers

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

The glittering rise has been irresistible to Americans of all political stripes, of course. Consumers’ confidence in the stock market soared to a record high in January before fading in February after the market slumped 8.6 percent over a span of eight days. (And markets have begun gyrating again, triggered in part by Trump’s plan to impose steel and aluminum tariffs.)

Among Trump’s fans, though, trust in the firebrand politician as a stock-market bulwark easily endured the selloff, at least in San Angelo. During other routs, Edward Jones’s Freeman said, “I had people wanting to jump out of windows. Not this time.” This time, they kept buying. “I have to temper people,” he said, without much success.

Neff, for one, is unyielding. So strong is his faith, in fact, that he can even get odd looks in the heart of Trump country when he starts talking about how much money he’s investing in stocks -- including an additional $30,000 amid the February selloff.

“People look at me like a cow looking at a new gate.” But to Neff, it’s not complicated. “The economy’s doing too good, and all the companies are making money.”

Eoin Treacy's view -

One headline I saw this morning was something akin to the cry “Why do we need a Powell put when we have a Trump put?” That’s a simple emotive rallying cry for retail investors who have seen the stock market do nothing but go up since the Presidential election. Quite whether it will continue to work following the shock and awe of the early February meltdown is another question entirely.



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March 06 2018

Commentary by Eoin Treacy

Musings from the Oil Patch March 6th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section natural gas:

Eoin Treacy's view -

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

Unconventional oil and gas have been game changers for the US energy sector and with increasing export capacity that moniker will increasingly be true for the global market.

Together with the fact that US tight oil supply is also of the sweet light variety makes it an attractive option for refiners, particularly since a great deal of the additional supply coming from Saudi Arabia is of the heavier variety.



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March 05 2018

Commentary by Eoin Treacy

March 05 2018

Commentary by Eoin Treacy

China Turns Fiscal Screws While Targeting GDP Growth Around 6.5%

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

Xi has ratcheted up his drive to curb debt risk, pollution and poverty at a time when the world’s second-largest economy is on a long-term growth slowdown. His efforts to rein in spending contrast with an historic expansion of U.S. borrowing under Donald Trump during a period of economic expansion.

The 2018 targets “suggest slower growth and a fiscal drag,” said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore. “This makes sense for China in the context of the new focus on financial de-risking, poverty alleviation and environmental clean-up, but is less good news at the margin for those economies that have high export exposure to China.”

Growth handily surpassed 2017’s target with a 6.9 percent expansion that was the first acceleration since 2010. Economists forecast a moderation to 6.5 percent this year amid the ongoing deleveraging drive and trade tensions with the Trump administration and a further deceleration to 6.2 percent in 2019.

Eoin Treacy's view -

China has significant challenges ahead as it engages with deleveraging, particularly among the regional lenders. However, it is also worth considering that fiscal discipline at this stage in the cycle is admirable since it will leave the government with some firepower when the economy next slows. That is the exact opposite of what the US government is doing at present which is of course why interest rates are set to continue to rise.



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March 05 2018

Commentary by Eoin Treacy

Bitcoin's Plunge in Volume Stirs Questions About Its Usage

This article by Eddie Van Der Walt for Bloomberg may be of interest to subscribers. Here is a section:

Earlier this year, when Bitcoin’s price fell by more than 60 percent from its record close, a less-noticed Bitcoin figure also plunged: the number of daily transactions.

There are many explanations for the fall-off in trading, from software- to news-related. What’s less understood is why the level hasn’t recovered as Bitcoin’s price made a 50 percent comeback since Feb. 5. That’s left some investors wondering whether the cryptocurrency is waning in popularity.

The average number of trades recorded daily has roughly dropped in half from the December highs and touched its lowest in two years last month, even as Bitcoin became a household name and roared back to near $11,000.

The transaction data may be bad news for Bitcoin bulls, according to Charles Morris, chief investment officer of Newscape Capital Group in London, who invests in cryptocurrencies. Trading and purchases on the Bitcoin network, which can be measured by metrics like transaction volume, is indicative of price direction, he said.

Eoin Treacy's view -

Following a crash of bitcoin’s magnitude it is only reasonable that some people are shy about now continuing to invest at such a feverous pace. The 69.65% peak to trough decline will have resulted in a large number of people coming under severe hardship but the fall was also enough to encourage bargain hunters at least in the short term. The decline in trading volume is also not so surprising for exactly the same reason.
 



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March 05 2018

Commentary by Eoin Treacy

OPEC Must Rethink Plans as $60 Oil Brings New Glut, IEA Says

This article by Javier Blas and Grant Smith for Bloomberg may be of interest to subscribers. Here is a section:

"Established producers need to reconsider their production plans quickly and substantially in light of the huge production increase from U.S. shale," the agency’s Executive Director Fatih Birol said Monday on the sidelines of the CERAWeek by IHS Markit conference in Houston. Asked whether he was referring to OPEC nations, Birol said: "All OPEC producers are established producers."

The Organization of Petroleum Exporting Countries and allies including Russia, Mexico and Kazakhstan agreed to cut production in late 2016 in an effort to clear a glut in crude inventories. They defied the skeptics by going deeper than their pledged curbs and maintaining them for long enough to deplete the bloated stockpiles.

Yet the strategy has also backfired by unleashing “a new wave of growth from the U.S.” that leaves little space for OPEC to increase output once the cuts expire at the end of the year, according to the agency’s report.

The U.S. will dominate global oil markets for years to come, satisfying 80 percent of global demand growth to 2020, the IEA said. Supplies from other non-OPEC nations will make up the rest.

Eoin Treacy's view -

US unconventional supply is elastic since the pace of production can only be sustained by continued drilling. When prices are high production can be hedged out as far as two years which ensures profitability. At the same time, drilling multiple horizontal wells is a capital-intensive exercise and the sector has been issuing a great deal of debt to fund production in the hope prices will stay higher for longer.

 



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March 05 2018

Commentary by Eoin Treacy

Email of the day on the yield curve spread and medium-term outlook for bonds

I just have a couple of queries for you:

Where can I find the US yield curve spread chart (10yY-2yY) in your chart library?

Based on expected MT to LT yield rising environment, should I keep my PIMCO income Fund (Global Investor Series Plc), or dispose of it? 

Thank you and best regards 

Eoin Treacy's view -

Thank you for these questions which may be of interest to other subscribers. I created this video to discuss both how to create the chart and save it as a preset template for when you want to find it later which I hope will be of use to you. 



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March 02 2018

Commentary by Eoin Treacy

March 02 2018

Commentary by Eoin Treacy

Paul Tudor Jones on Jerome Powell

Thanks to a subscriber for this note which may be of interest.

Eoin Treacy's view -

A link to Tudor-Jones comments are posted in the Subscriber's Area.

The market has long relied on the assumption that in a crisis the Federal Reserve will wade in to the rescue by boosting money supply and helping to reflate asset prices. However, it is not until a crisis occurs that investors truly knew whether Greenspan, Bernanke or Yellen had their backs. Jerome Powell is a lawyer, rather than an economist by training, and has yet to be tested. Therefore, investors do not know how he will react in a time of market stress. That remains an uncertainty that is being priced into this market.



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March 02 2018

Commentary by Eoin Treacy

Welcome to Dubai 2.0

This article by Donna Abu-Nasr may be of interest to subscribers. Here is a section:

It tackled oppressive summer heat and sandstorms, the population more than doubling in a decade to approach 3 million. Foreigners, who make up the vast majority of Dubai’s residents, flocked for work, banking and fun.

Now it’s about how to keep the party going, even one in a country where unmarried couples can’t legally live together and where free voice calls over the Internet and Apple’s FaceTime are blocked.

Few places reflect the challenge more than the site of the expo, without which the emirate could face a sharp economic slowdown. Dozens of cranes are busy working on the 438-hectare (1,080-acre) site south of Dubai’s center. The city is the first in the Middle East to be awarded the event in its 167-year history. The pressure is on to make it work beyond the short-term influx of visitors.

“The impact that it has in terms of generating opportunities for the economy is definitely big,” said Marjan Faraidooni, who’s in charge of the legacy impact and development for the expo. “If we don’t showcase things that are cool, then we’re not living up to our reputation.”

Eoin Treacy's view -

Here was the view from my balcony this morning which highlights how much building is still going on in Dubai, with the horizon peppered with cranes.



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March 02 2018

Commentary by Eoin Treacy

Diesel ban approved for German cities to cut pollution

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

The likelihood now is that the German government will rush to introduce some sort of national policy, to ensure at least some level of consistency across the country.

It's not just about Germany either - cities across Europe are struggling to meet EU air quality standards, and may well see the German ruling as setting a precedent.

New diesel cars won't be affected, but that's not really the point. Consumers are already moving away from the technology - and the prospect of city bans will only accelerate that process.

So diesel's decline is likely to gather momentum.

That's a problem for the industry, because while diesels produce high levels of nitrogen oxide - a major urban pollutant - they emit relatively low levels of carbon dioxide, a greenhouse gas.

So moves to control one environmental problem may end up undermining efforts to combat another - unless we all start driving electric cars very soon.

Eoin Treacy's view -

Platinum has been struggling to rally since the Volkswagen scandal broke in 2015 and this ban of diesel vehicles from city centres represents an additional headwind.



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March 01 2018

Commentary by Eoin Treacy

March 01 2018

Commentary by Eoin Treacy

"Fickle February"

Thanks to a subscriber for this report by Jeffrey Saut for Raymond James. Here is a section:

One of them, and arguably the smartest strategist on “The Street,” is my friend Tony Dwyer, who writes:

Why bother worrying about a retest? Given our positive fundamental core thesis and 3100 target, many wonder why we bother calling for a retest of the “shock drop” ending the week of 02/09.  The answer is simple – when a retest happens, fear it is something more significant causes many to reduce risk, just at the very time history suggests increasing it.  In all prior occurrences of such a historic spike in the 10-week rate-of change in volatility as measured by the CBOE Volatility Index (VIX), there was an average bounce of 5.62% (ex-2008 instance) prior to the retesting of the low 30 trading days later.  With a gain of 4.89% from our signal highlighted in “Shock drops, pops and flops,” the market is following the script, which means the comfort of the rebound should soon fade, either from fear of Fed, disappointing data, or some combination of the two.

Obviously, opinions vary on the “Street of Dreams,” but that’s what makes a market.  We happen to think a full retest of the “selling climax lows” is not going to happen, but then anything can happen in the equity markets.  So, what caused yesterday’s Dow Dump (-380 points).  Well, we think it was cognitive dissonance, which would be the ability to hold two disparate thoughts at the same time.  In the current case it is whether to believe the softening headline economic reports (durable goods, housing, etc.), or the details within those reports that show final sales up 3.3%, domestic final sales better by 4.3%, and private domestic final purchases improving by 4.6%, which suggest the economy is really strong.  We continue to think the economy is stronger than a “garlic milkshake!”  This morning the S&P 500 futures are off about 7-points as we write at 5:12 a.m. as the Street awaits Fed head Powell’s part 2 testimony to lawmakers.  Clearly, Wall Street is currently of the belief that Jay Powell is more hawkish than his predecessors.  Surely time will tell; but, until he demonstrates a more dovish disposition, the perception will be the new Fed Chair is a hawk.

Eoin Treacy's view -

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

Ranging appears to be the most amenable course of action for the market following the sharp drawdown in February that resulted in a 10% pullback. February was the first month in 15 where the S&P500 recorded a negative return. Since that was the longest run of consecutive positive monthly returns in decades it is reasonable that this inconsistency represents at least a pause for markets.



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March 01 2018

Commentary by Eoin Treacy

Dogmas of the Quiet Past, Why Higher Rates are on the Horizon

Thanks to a subscriber for this article by Pamela Rosenau which appeared in Forbes. Here is a section:

For starters, history tells us that the dynamics of the supply and demand for money are relevant for determining an appropriate level for interest rates. The Federal Reserve is decreasing the supply of money by tapering their balance sheet, while the demand for money will increase with the latest bout of expansionary fiscal policy (i.e. tax reform). Professor Lars Oxelheim of the Financial Times, recently wrote how historical precedence has shown how this supply/demand shift can lead to significantly higher interest rates over a short period of time. Of course, this would impact the valuation of all asset classes as discount rates head higher. Market strategist Dave Rosenberg recently added that “we have a government policy that is aimed at pushing fiscal deficits higher and pulling trade deficits lower. Say this over and over again – these two goals can only co-exist with rising interest rates.”

Also, who is going to stroll in on their white horse and be the new big US treasury bond buyer? We know that the Fed is pruning their bond portfolio. After all, newly installed Fed Chairman Powell showed his true colors six years ago when he warned of the “Greenspan put” and its implicit encouragement of risk taking. Considering his concerns back then, I cannot imagine him being overly dovish given the valuation excesses in our environment today. Furthermore, the Chinese could play monetary hardball as a response to any hostile U.S. trade actions and choose to mitigate their participation in our auctions, thus causing a sudden spike or pernicious reset in interest rates. Frankly, Xi Jinping has a license to do whatever he wants at this point.

Eoin Treacy's view -

Let’s lay aside for a moment the arguments about whether inflation is in fact rising or not, or whether we can expect all of the deflationary forces that have contributed to the decades long decline of yields to continue. Let’s just devolve to the first principles of markets. There are more sellers than buyers.



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March 01 2018

Commentary by Eoin Treacy

Why Italian Elections Matter: A New Type of Populism Is Rising

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

The election is likely to prompt a question that could force 5 Star to define its future—and potentially that of Italy, too. Is it a governing force or simply a protest movement?

On one side are members, including Luigi Di Maio, the party’s 31-year-old candidate for premier, who are pushing it to join an alliance with mainstream parties. According to polls, 5 Star would receive about 27% of votes—not enough to govern alone, but potentially enough to play a major part in a coalition government.

Mr. Grillo has roundly rejected that scenario, saying that unless 5 Star wins an outright majority, it should remain an opposition party. Joining a coalition government is “like saying that a panda can eat raw meat,” he said in January. “We only eat bamboo.”

If no single party or coalition emerges with a parliamentary majority, Italy’s president could ask parties to attempt to form a grand, cross-party coalition that could have a limited lifespan.

Eoin Treacy's view -

This history of protest parties that enter government as part of a coalition is not favourable so Grillo is exhibiting political savvy in eschewing the temptation to enter power without a majority. However, Italy’s political system is so fractured that receiving a majority is a tall order which suggests the most likely scenario is another coalition that supports the status quo or limited reform at best. Nevertheless, until the event has passed it will continue to represent an uncertainty.



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February 28 2018

Commentary by Eoin Treacy

Video commentary for February 28th 2018

Eoin Treacy's view -

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

Some of the topics covered include: small key reversals on Wall Street yesterday suggest the impetus of the short covering rally is fading, stocks generally fall in sympathy. Eurozone banks testing the region of the trend mean and Italian yields inert ahead of the election, discussion of the impact of Chinese dictatorship on headline grabbing shares. 



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