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August 08 2018

Commentary by Eoin Treacy

Australia Holds Key Rate as Central Bank Sounds Caution on China

This note by Micheal Heath for Bloomberg may be of interest to subscribers. Here it is in full:  

The RBA has kept rates low in expectation the stance will gradually tighten the labor market and spur wage gains sufficiently to drive faster inflation. But outside strong economic growth and increased demand for construction workers amid an infrastructure boom, there are few signs of this emerging.

“The bank’s central forecast for the Australian economy remains unchanged,” Lowe said. “GDP growth is expected to average a bit above 3 percent in 2018 and 2019. This should see some further reduction in spare capacity.”

The RBA maintains its next move is more likely to be up than down; Lowe, since taking the helm in September 2016, has consistently said that an increase will only come once the economy is near full employment and inflation closer to the central bank’s 2-3 percent target midpoint. Markets aren’t pricing in a rate increase for at least another year, according to bets by swaps traders.

Eoin Treacy's view -

Australia’s population hit 25 million this year which highlights how quickly the numbers of migrants reaching the country have risen. That inward flow of migrants coupled with robust demand from China for the country’s primary exports has helped to keep Australia’s growth trajectory on an expansionary path for decades.



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August 08 2018

Commentary by Eoin Treacy

Crypto's $600 Billion Crash Hits New Low as Bitcoin Pain Spreads

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

The SEC postponed its decision on whether to approve the Bitcoin ETF, dealing a blow to bulls who had bet a green light from the regulator would help sustain last month’s tenuous rally. Optimists are counting on the wider adoption of cryptocurrencies to support prices, but regulators and many institutional investors have remained wary amid concerns over security and market manipulation.

Eoin Treacy's view -

The pump and dump schemes which prevailed during the most aggressively bullish portion of the cryptocurrency bubble helped to attractive speculative flows but also act as a headwind to longer-term investors who might otherwise have had an interest.



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August 07 2018

Commentary by Eoin Treacy

Video commentary for August 7th 2018

August 07 2018

Commentary by Eoin Treacy

Musings From the Oil Patch August 7th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may on this occasion focuses on the impending IMO 2020 regulations for ship emissions. Here is a section:

Eoin Treacy's view -

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

The Baltic Dry Index has base formation characteristics and exhibits a rounding characteristic associated with accumulation over the last five years. The pace of scrapping older ships is increasing as shipping rates are low and scrap prices are high so that will create a supply inelasticity environment eventually. Retrofitting costs of older ships both to comply with tighter emissions standards and new ballast water regulations mean the pace of scrapping is likely to increase.



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August 07 2018

Commentary by Eoin Treacy

Morgan Stanley Says Traders Finally Hearing Bearish Tech Call

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

Morgan Stanley, which recommended selling U.S. tech stocks a month ago, says traders are finally starting to take heed.

The Nasdaq Composite has lost as much as 4.2 percent since reaching a record high on July 25 as investors fled the likes of Facebook Inc., Twitter Inc. and Netflix Inc. following disappointing earnings. And while Apple Inc. breached the historic $1 trillion value mark last week, Morgan Stanley warns that this could actually be a signal of the rally in tech reaching a top, posing risks for the broader market.

“When we made the call, feedback was fairly lopsided against us. Phones were not ringing and even those who had sympathy for our views of a poor near-term risk reward in tech could only muster an ‘I see your points, but ... good luck,’”

Morgan Stanley strategists led by Michael J. Wilson said in a note. “Given recent moves lower in parts of tech and challenges to growth and momentum, our inbound has picked up considerably as investors consider these risks.”

The bank’s strategists are sticking with their underweight U.S. tech recommendation, citing lower earnings revisions in some parts of the sector, continued leadership of defensives, as well as the fact that fewer stocks are now spurring the market gains.

The main thrust of their bear call is that the nascent selloff in tech -- which at 26 percent has the highest weighting in the S&P 500 Index -- will likely mark the beginning of a bigger drop in U.S. stocks. Morgan Stanley warned last week that the U.S. equity slump is just starting and that growth stocks- focused portfolios could especially get hurt.

“If we are right, and tech gets its turn on the volatility roller coaster, its market weighting, crowded positioning and overweight in growth and momentum strategies mean the pain will likely spread beyond just the tech sector,” Morgan Stanley strategists wrote.

Eoin Treacy's view -

I ended up with a subscription to a number of magazines a few months ago because some points I had accrued on an airline were expiring. This week’s front cover of Fortune caught my eye, unfortunately my software doesn't allow me to flip it the right way around. 

The US Economy will slow, the bull market will end are not usually sentiments that are accompanied by market tops. It’s usually the opposite. Of course, these warnings are also truisms since they will come to pass eventually.



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August 07 2018

Commentary by Eoin Treacy

Bonuses Push Up Pay for Japanese Workers Yet Spending Falls

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

Driven by the tightest labor market in decades, wages in Japan have grown steadily since mid-2017, and even real wages are starting to pick up. That’s welcome news for the Bank Japan, which recently adjusted monetary policy in an effort to make its easing program more sustainable. If households become convinced that pay hikes will keep coming, they’ll be more willing to increase spending, which will drive further price increases and economic growth. The problem is that employers favor pouring pay hikes into bonuses, which can be taken away, rather than permanent increases in wages.

Eoin Treacy's view -

Employers are paying higher bonuses but are so far demurring from committing to higher wages. However, continued tightness in the labour market, rising participation rates and the breakout in wage growth suggests the trajectory of higher wage growth is a medium-term consideration.



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August 06 2018

Commentary by Eoin Treacy

Video commentary for August 6th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street exhibits relative strength amid continued buybacks and positive sentiment, oil steady, gold weak, China remains under pressure with a weak currency and stock market. Turkish Lira extends decline, wheat firm, rice weak.



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August 06 2018

Commentary by Eoin Treacy

Forget Apple, Goldman Says, Flagging New $1 Trillion for S&P 500

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

Investors fixated on one 13-digit milestone last week, Apple Inc.’s value. But another trillion-dollar threshold is in sight and is more relevant to the bull market in U.S. equities, says Goldman Sachs Group Inc.

It’s the volume of stock buybacks that corporate America is likely to announce this year. The total for S&P 500 firms will jump 46 percent from 2017 to an annual record, according to an increased estimate from the Goldman unit that executes share repurchases for clients.

The new forecast highlights accelerating demand from companies, a sign that any weakness in stocks is likely to be met with unbridled corporate buying. While August has been one of scariest months of the year for equities in the past decade, it’s also the busiest in terms of buybacks, accounting for 13 percent of the annual total.

Now, with more than 80 percent of S&P 500 members done with quarterly financial reporting, most companies can boost discretionary buybacks, concluding a blackout period that typically restricts share repurchases.

“Investors should focus on a different $1 trillion number that will have a key influence on the market: total buyback authorizations,” strategists led by David Kostin wrote in a note Friday. “It’s not the size of the company but the use of the cash that matters.”

Eoin Treacy's view -

Buybacks have been one of the primary avenues through which monetary largesse influenced the stock market since the dawn of quantitative easing. Central banks dropped interest rates, companies took the opportunity to boost debt sales and used the proceeds to buy back shares which lowered the weighted average cost of capital.



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August 06 2018

Commentary by Eoin Treacy

India Bond Buyers Emerge as Nomura, StanChart Say Worst Over

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

Is the worst over for India’s much-battered bond market? Standard Chartered Plc and Nomura Holdings Inc. seem to think so.

The lenders are among investors who are adding to their Indian debt holdings, betting that the central bank will stay on hold for the rest of the year after raising interest rates last week for the second time since June.

“Current Indian government bond valuations already reflect most of the negative factors the market has been worried about in 2018,” Nagaraj Kulkarni, an Asia rates strategist at Standard Chartered Bank in Singapore, wrote in a note.

Standard Chartered raised its three-month bond outlook to positive after the Reserve Bank of India kept its neutral policy stance last Wednesday and signaled that its rate increase isn’t the start of an extended tightening cycle. Nomura is bullish on five-year securities and has added to its holdings of debt due 2020, it said in note after the RBI decision.

“The market had become over-bearish on the quantum and the pace of hikes and is getting repriced,” said R. Sivakumar, head of fixed income in Mumbai at Axis Asset Management Co., which oversees around $11.5 billion in assets. “We advise investors to stay in short-to-medium term strategies.”

The gap between the RBI’s benchmark rate and the 10-year yield -- a key market metric -- has narrowed to 126 basis points from the year’s peak of 178. Even so, the spread is higher than the five-year average of 75 basis points, indicating further tightening is baked in, Standard Chartered says.

Eoin Treacy's view -

Investors demand higher yields when they are worried about inflation. It is reasonable to think that the run-up in India yields from 6.5% to 8% is at least in part attributable to rising inflation fears not least as populist measures to lock in voter approval ahead of next year’s election continue to be put in place.



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August 06 2018

Commentary by Eoin Treacy

Here Are Three Reasons to Short Australia's Dollar

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

The Reserve Bank of Australia is forecast on Tuesday to keep its cash rate target at a record low 1.5 percent, where it’s been for about two years, as it endeavors to breathe life into the nation’s sluggish economy. The Federal Reserve in contrast has raised its benchmark seven times since December

2015 and said last week it remains committed to further tightening.

Australia’s 10-year bond yields dropped to more than 30 basis points below their U.S. peers at the end of July and the divergence is expected to keep widening. Markets are anticipating the RBA will stay on hold well into 2019, while the Fed is expected to raise rates another two times this year.

Positioning data backs up the gloomy assessment. Hedge funds and other large speculators shifted to a net short position on the Aussie of 23,995 contracts on July 24 -- the biggest bet against the currency in more than two years -- after being net long position as recently as May.

Eoin Treacy's view -

The Australian Dollar has historically been a high yielding currency so with interest rate differentials narrowing and pressure coming to bear on the commodity markets there is a logical argument for why it should be trading lower. The big question is how much of that argument is already in the price?



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August 03 2018

Commentary by Eoin Treacy

August 03 2018

Commentary by Eoin Treacy

China Steps In to Support Yuan By Boosting Cost to Short

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

China stepped in to try to cushion the yuan after a record string of weekly losses saw the currency closing in on the key milestone of 7 per dollar.

The People’s Bank of China will impose a reserve requirement of 20 percent on some trading of foreign-exchange forward contracts, according to a statement on Friday evening.

That will effectively make it more expensive to short the yuan, and is a tactic that the central bank used to stabilize the currency in the aftermath of its shock devaluation in 2015.

The change is aimed at preventing macro financial risks as the currency market shows signs of volatility amid recent trade frictions, the PBOC said. The yuan surged in offshore trading and U.S. stock-index futures turned higher after the news, though the moves pared after China detailed how it plans to retaliate against U.S. tariff proposals.

Eoin Treacy's view -

It’s pretty clear that China wants a weaker currency, just not all at once. Today’s action to pressure shorts should help to stem the decline but it does nothing to stop people simply converting currency. That point is unlikely to be a lost on those who continue to harbour bearish attitudes.



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August 03 2018

Commentary by Eoin Treacy

A tiny tweak to sugar is about to make the world's sweets a lot healthier

This article by Chase Purdy for Quartz may be of interest to subscribers. Here is a section:

In order to enjoy the sensation of sweetness, sugar molecules have to land on our sweet-tasting receptors, most of which sit on the tip of the tongue. But sugar is notoriously bad at actually hitting those receptors, so bad that only 20% actually makes it, the rest washing down our gullets and into the digestive system. This is one reason why many foods contain so much sugar. It’s also why a lot of food companies, in spite of their efforts, have found it difficult—even impossible—to reduce the amount of added sugar in their products while also maintaining the tastes people expect.

But a relatively new startup headquartered near Tel Aviv, Israel has developed a super-tiny method that may have cracked what has been an impossible code. In doing so, it sits on the cusp of changing the landscape of food manufacturing by making sugar so efficient that food companies can use 40% less while keeping tastes the same.

Eoin Treacy's view -

If companies can transition to using 40% less sugar that’s good for consumer health and the fight against diabetes but it’s really bad news for the sugar price over the medium term.



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August 03 2018

Commentary by Eoin Treacy

Bitcoin Whale's Bad Trade Leaves Counterparties Holding the Bag

This article by Benjamin Robertson, Andrea Tan and Yuji Nakamura for Bloomberg may be of interest to subscribers. Here is a section:

A massive wrong-way bet on Bitcoin left an unidentified futures trader unable to cover losses, burning counterparties and threatening to dent confidence in one of the world’s largest cryptocurrency venues.

The long position in Bitcoin futures listed on OKEx, a Hong Kong-based exchange, had a notional value of about $416 million, according to an OKEx statement on Friday and data compiled by Bloomberg. OKEx moved to liquidate the position on Tuesday, but the exchange was unable to cover the trader’s shortfall as Bitcoin’s price slumped. Because OKEx has a “socialized clawback” policy for such instances, it will force futures traders with unrealized gains this week to give up about 18 percent of their profits.

While clawbacks are not unprecedented at OKEx, the size of this week’s trading debacle has attracted lots of attention in crypto circles. The episode underscores the risks of operating on lightly regulated virtual currency venues, which often allow high levels of leverage and lack the protections investors have come to expect from traditional stock and bond markets. Crypto platforms have been dogged by everything from outages to hacks to market manipulation over the past few years, a period when spectacular swings in Bitcoin and its ilk attracted hordes of new traders from all over the world.

Eoin Treacy's view -

Margin requirements are an exchanges primary tool in ensuring they are not left making up the shortfall when traders’ positions go awry. These kinds of events mean that the margin requirements for trading cryptocurrency futures are only going to get more onerous. Just as with every other futures traded market that is going to put a dampener on speculation.



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August 02 2018

Commentary by Eoin Treacy

Video commentary for August 2nd 2018

August 02 2018

Commentary by Eoin Treacy

Email of the day on Facebook and FAANG

Many people are worried that Facebook collapse may have wider implications for not only the tech sector but also by contagion the broader market. What do you make of FB and its future and effect on tech / broader market? This is an important question as you know.,,,tech has been a cycle leader many thanks for your continuing good service

Eoin Treacy's view -

Thank you for this question which as you say is something a lot of people are ruminating on. Leaders tend to lead in both directions has been an adage at this service for decades so Facebook’s large downside weekly key reversal is a significant development. Equally Apple reaching a $1 trillion market cap today is an important development not least because it closed on the high of the day.



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August 02 2018

Commentary by Eoin Treacy

Corporate Japan's capital spending plans reach 38-year high

Thanks to a subscriber for this article by Jun Watanabe for Nikkei’s Asian Review. Here is a section:

The latest survey shows manufacturers boosting capital expenditures by 27.2%. This is due in large part to investment and research and development outlays for electric vehicles, on top of redesigns. Extending ranges for electric autos requires development of better batteries and other onboard components. On that front, chemical and electric machinery makers are expected to step up their own investments.

For the nonmanufacturing sector, spending is forecast to rise 18.5%. In addition to urban construction projects, contractors are building massive logistics centers to handle a surge in online orders. Construction starts for hotels remain high ahead of the 2020 Tokyo Olympics.

For the first time in its survey, the DBJ asked companies about the impact of labor shortages. About 60% of nonmanufacturers said a lack of workers is hindering business development. Furthermore, they see the situation growing worse three years down the road. The DBJ expects this to drive more labor-saving investments among retailers and wholesalers.

Eoin Treacy's view -

Japan is booming and labour-saving investments are not going to overcome the lack of available workers. There are now almost as many women in the work force as men. Meanwhile, the reality on the ground is that the country has opened the doors to foreign workers and that means more demand for just about everything since new arrivals have to start from scratch.



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August 02 2018

Commentary by Eoin Treacy

BOE Raises Rates as Carney Unites Panel to Curb Inflation Risks

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

The Bank of England raised its benchmark interest rate to the highest level since 2009 as Mark Carney suggested that inflation is a more imminent concern for the economy than the risk of a disorderly Brexit.

“With domestically generated inflation building and the prospect of excess demand emerging, a modest tightening of monetary policy is now appropriate,” the BOE governor told reporters in London on Thursday. “The Bank is well-prepared for whatever path the economy takes, including a wide range of potential Brexit outcomes.”

While the rate increase was widely anticipated, few economists had predicted the Monetary Policy Committee would be unanimous on the move with Britain’s divorce from the European Union on the horizon. The 9-0 vote to lift the rate to 0.75 percent was the second quarter-point increase since November, and the bank’s forecasts suggest it doesn’t see the need for another hike before the U.K. leaves in March.

 

Eoin Treacy's view -

The Bank of England has been flirting with raising rates since last year but the Pound’s decline today suggests investors are less than convinced this represents the beginning of a new tightening cycle.



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August 01 2018

Commentary by Eoin Treacy

August 01 2018

Commentary by Eoin Treacy

Video commentary for August 1st 2018

August 01 2018

Commentary by Eoin Treacy

China trip report July 2018

Eoin Treacy's view -

This was another highly enjoyable and educative trip to China for the Treacy family. One of the reasons we love visiting Guangzhou is because it is close to the factories Mrs. Treacy deals with but is also the gastronomic capital of China. The city is replete with wonderful dining options and the quality of food on offer is of a high standard. I’ll write a separate review of restaurants on another occasion.

This poster is in just about every public space from railway stations to the tube, to the barriers around building sites in Guangzhou. The first question I asked myself is why it needs to be in English as well as Chinese. Internet searches using English language terms do not return results even if one is using Baidu or other Chinese search engines and the vast majority of the domestic population does not read English. Therefore, the message is meant for a wider audience or the use of English is intended as a form of legitimisation of the ideals expressed.



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July 31 2018

Commentary by Eoin Treacy

New Playbook Required

This report from KKR Global Institute may be of interest to the Collective.

From a macro and asset allocation perspective, we think we may be on the cusp of a secular shift where a new playbook for investing may be required. Most importantly, we now see a significant ‘baton hand-off’ in many of the markets that we cover from monetary policy towards fiscal stimulus — perhaps the most important shift in the last decade. 

Eoin Treacy's view -

    



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July 30 2018

Commentary by Eoin Treacy

Rising Rates and Asset Class Performance

Many thanks to Dr. David Brown for this report which I'm sure will be of interest to our subscribers.

Our current equity bull market began in Spring 2009 and has run for 9 years - the second longest in history. However, the gains have been more muted than in some other bull markets possibly due to the nature of the economic crash in 2007-2009. Market recoveries after financial crashes generally take longer. The well-researched book ‘This Time is Different’ by economists Carmen Reinhart and Kenneth Rogoff showed that it took up to 8 years for full recovery from previous financial crashes. We are now at that point and evidence is building that the USA has dealt effectively with many of the problems in its banks. The UK has also. Other European countries have made a slower job of rectifying their banks and that hangs over markets.

Eoin Treacy's view -

     



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July 30 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



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July 30 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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July 27 2018

Commentary by Eoin Treacy

Do you have a bear market plan?

Thank you to Dr. David Brown for this article, published in full in the Subscribers Area.

A bear market will come. We cannot know when with any certainty, but we can be certain it will happen. We really do need to think through in advance how we will respond. Can we private investors structure our portfolios and design our methods of investment so we don’t have to panic when that bear bites?

Eoin Treacy's view -

    



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July 27 2018

Commentary by Eoin Treacy

U.S. Growth Hits 4.1%, Fastest Since 2014, in Win for Trump

This Bloomberg article, sent by Niru Devani, may be of interest to the Collective.

July 27 2018

Commentary by Eoin Treacy

Amazon appears 'miles' behind an Alibaba-backed rival in Prime's only Southeast Asian market

Thanks to this article from Niru Devani which may be of interest to Subscribers.

As Amazon celebrates Prime's first anniversary in Southeast Asia, it still has not expanded the program beyond Singapore.

Amazon's regional rivals are growing quickly and investing heavily.

Southeast Asia's e-commerce market has potential for huge growth, so competitors' successes do not necessarily equate to losses for Amazon.

Eoin Treacy's view -

     



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July 27 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



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July 27 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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July 26 2018

Commentary by Eoin Treacy

Facebook shares plunge as growth stalled by Scandal Regulation

Thanks to Niru Devani for her commentary on this Bloomberg article

Here is an excerpt:

The company’s second-quarter results caused shares to plunge as much as 24 percent in after-hours trading, driving the market value down by $151 billion at one point. If the sell-off hits these levels in Thursday trading, it will be one the largest collapses in value ever suffered by a U.S.-traded company in a day.

And for those hoping for a swift bounce back, the company told Wall Street the numbers won’t get any better this year. Chief Financial Officer David Wehner said revenue growth rates would decline in the third and fourth quarters. Analysts who follow Facebook were blindsided, asking frequently on a conference call with executives for more information on exactly how the company’s financial future had changed so dramatically.

Gene Munster, an analyst from Loup Ventures said “the company has a track record of resetting revenue growth and expense expectations only to turn around and exceed those expectations the following quarter,”

Eoin Treacy's view -

Niru Devani’s view

Facebook is now the second member of the FAANG gang to disappoint following Netflix’s results last week which also fell short of expectations although Alphabet’s results pleased investors. Facebook opened down almost 20 percent today which wiped out $120bn from its market capitalisation after closing at a new record high of $217.50 yesterday. Before today, the share price had risen by 40 percent since the data privacy scandal in late March. This explains partly the violence of the move down – there was little room for disappointment.



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July 26 2018

Commentary by Eoin Treacy

2018 Emerging Markets Mid-Year Outlook

A report here from Mirae Asset Global Investments which may be interest to Subscribers.

We believe that emerging market (EM) equities are in the midst of a multi-year recovery and that the recent volatility is an opportunity to increase our positions in high conviction ideas. EMs still benefit from a much larger structural growth opportunity than their developed market (DM) peers. 

Eoin Treacy's view -

        



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July 26 2018

Commentary by Eoin Treacy

Combining Value Investing and Trend Following into a single method: 'Trending Value'

Thanks to Dr. David Brown for this report.

Value and Momentum are two of the most powerful factors that drive stock market returns. My Trending Value method combines the two into a very rigorous method of investment.  Let's look at the two methods of Value Investing and Trend Following independently then consider the merits of combining them.

Eoin Treacy's view -

       



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July 26 2018

Commentary by Eoin Treacy

Musings from the Oil Patch July 24th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. This week it contains some interesting commentary on natural gas. Here is an excerpt:

Natural Gas: The Forgotten Fuel’s Future Needs LNG Exports 

One can be forgiven if he/she believes only crude oil news is important to the energy sector.  The volatility of crude oil prices, coupled with the OPEC meeting drama and President Donald J. Trump’s twitter campaign against high oil prices, provides opportunities for shocking headlines and non-stop commentary by the media.  On the other hand, if your business is tied to natural gas, you can be excused for believing it’s pretty boring since no one is talking about gas.   

Eoin Treacy's view -

                    



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July 26 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



This section continues in the Subscriber's Area. Back to top
July 26 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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July 25 2018

Commentary by Eoin Treacy

Please note I am away on holiday until August 1st

I would like to extend my special thanks to subscribers and friends of FullerTreacyMoney for submitting a number of articles for your kind consideration over the course of the next few weeks. I think subscribers will be pleasantly surprised with their contributions. 

July 25 2018

Commentary by Eoin Treacy

Trump to offer farmers $12B in trade aid

Thanks again to Niru Devani for this article which may be of interest to Subscribers.

In a highly unusual move, President Trump announced $12bn  in direct aid to farmers hurt by the trade war. These farmers in the Mid-West voted for the Republicans in the last election and there are some indications that some States may be leaning towards the Democrats. Of course the mid-term Congressional elections are coming up in November. While this aid package may help some farmers, there are other key sectors also in the firing line from the trade war, namely the car makers.

Here is the full story:

Trump to offer farmers $12B in trade aid 

Eoin Treacy's view -

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July 25 2018

Commentary by Eoin Treacy

Monopolies have killed the marine diamond industry

Many thanks to Gavin Craythorne for this story about his unique and isolated industry which he wrote recently for the Daily Maverick. Gavin is a campaigner for the rights of small-scale marine diamond miners. 

 

The marine diamond industry is a unique sector of the global diamond mining industry and is indigenous to South Africa and Namibia. There are no other places on our planet where diamonds are mined from the seabed. These diamonds are among the most sought-after gems in the world, having survived the process of natural selection during the epic journey from their source to the sea, a journey which destroys all but the highest quality diamonds.

One would think that the seaside towns and villages where these diamonds are found would be thriving with successful diamond divers, cutters and polishers, jewellery craftsman and tourism entrepreneurs. But they are not.

The towns and villages along the Northern Cape littoral are among the poorest in South Africa with unemployment at unbearable levels. The South African marine diamond mining industry is a shadow of its former self and what remains of it today is so structurally imbalanced that 93 percent of the industry’s capacity is concentrated on only 27 percent of the concessions. More than two thirds of the concessions are effectively dormant with no job creation, skills development or any other form of mining benefits for the community, while almost three quarters of the industry has contracted.

For the exceptional economic potential in the industry to be unlocked, there must be enforcement of compliance to the Mining Charter (any of them will do as far as we are concerned) and theMineral and Petroleum Resources Development Act (MPRDA). It is clear to all reasonable people that the objects of the Act are appropriate for combating poverty, inequality and unemployment in South Africa.

Why then, in an industry wherein the Charter and the Act could make such a dramatic improvement in the socio-economic conditions of so many people, is there such an obvious lack of compliance?

It is due to our South African corporate culture of monopolistic greed coupled to political insiderism. Why else would a unique, highly specialised industry be handed over, lock stock and barrel, to people who know nothing about its workings and could not care less if it thrives or dies?

It is irrational to presume that individuals with no experience, no qualifications, no technical expertise, no mining vessels and no aptitude will be able to comply with the conditionalities of marine diamond concession ownership,ie perform the optimal exploitation of the resource and deliver sustainable economic development. And yet, here we are, in a death spiral.

Then there is the matter of moral hazard. What incentive is there for a concession owner to invest significant sums of capital, at considerable risk, in an extremely challenging industry they do not understand and which they can milk anyway at someone else’s risk, effort and expense?

This dynamic has led to the collapse of the industry and the hoarding of its minerals, a situation which the Equitable Access Campaign (EAC) very cogently warned the Department of Mineral Resources would happen if it continued to allow further concentration in the hands of Trans Hex. Unfortunately, the Minister was too busy fighting the Gupta’s Imperial Crown Trading battle all the way to the Constitutional Court to listen. At great cost to taxpayers for sure.

Well before the announcement of the Namaqualand Mines transaction, the EAC made every effort to engage with the owners of dormant and underutilised concessions in the Northern Cape to address the collapse of the diamond diving industry brought about by the effects of climate change, resource depletion, high operating costs and lack of equitable access. Our efforts were simply ignored and have continued to be ignored.

The formation of the EAC was a response by people from within the industry with many years of dedication to it and a deep understanding of its unique inner workings to the unfolding collapse of Namaqualand’s marine diamond mining industry.

The depletion of the low-hanging fruit coinciding with the arrival of climate change effects has brought about a harsh new reality in which a steep decline in seadays coupled with extreme weather events make diving for diamonds a very challenging and high-risk enterprise.

The haughty indifference on the part of Trans Hex, Alexkor and the Department of Mineral Resources, who continue to ignore the impact of climate change on small-scale marine miners in the face of alarming evidence-based information flowing from the EAC, is highly antagonistic of the MPRDA’s objects, not to mention contradictory of the Ramaphosa New Era.

Did we host COP17 just to impress the rest of the world?

The only intervention which can mitigate the negative impacts of climate change and resource depletion is the meaningful establishment of equitable access for small-scale marine diamond miners to the marine diamond deposits alongside our towns and villages.

The Mining Charter and the MPRDA are emphatic on transformation and sustainability in the mining sector through equitable access to mineral resources. The National Development Plan echoes these same imperatives, so too the King III code of conduct, quoted here as follows:

“Sustainability is the primary moral and economic imperative of the 21st century. It is one of the most important sources of both opportunities and risks for business. Sustainability considerations are rooted in the South African Constitution which is the basic social contract that South Africans have entered into.”

We think so too.

The EAC came into existence on April 28, 2010 at a meeting of concerned members of the Northern Cape small-scale marine mining community with the purpose of rebuilding the industry to take full advantage of its economic development potential.

This took the form of an undertaking to bring about the establishment of equitable access in our remote sector of the mining industry by taking our government at its word and using, to the full extent possible, the powers we naively believed were available to us through the BEE Mining Charter and the Minerals and Petroleum Resources Development Act.

At a series of special town hall meetings held in Port Nolloth shortly thereafter, the EAC introduced itself to the rest of the shallow water mining community and presented the Muisvlak Manifesto, our founding principles, which was duly endorsed in full by all the BEE small-scale marine mining companies of the Northern Cape.

During one of those meetings, Archie Ovies, a coloured small-scale marine mining contractor who, disillusioned by years of struggle and financial losses in our industry, made the following observation:

“Julle beteken absoluut niks nie en die charter beteken ook niks nie want julle het geen politike mag nie.” (You mean absolutely nothing and the charter also means nothing because you have no political power.)

So far, his words have proved to be prophetic.

In response, the EAC gave all present at the meeting a commitment to strive for the transformation and sustainability of our industry while giving our best efforts, going the distance and never backing down.

Our resolve is based on the fact that we are a unique seafaring mine community with highly specialised expertise, impeccable BEE credentials, an impressive track record, living next to a diamond resource which only we are capable of mining, yet which resource is rendered largely dormant by outsiders who hold the mining rights.

The presence or absence of equitable access will determine the success or failure of the entire mining industry in South Africa. Without it there can be no transformation and therefore no sustainability. The insiders would be wrong to think that their monopolies are unassailable. One way or another they will fall and surely, they realise this by now.

In 2004 President Thabo Mbeki was outraged at the comments made by Tony Trahar (then chairman of Anglo American) on the political risks in South Africa because the ANC government had given monopoly capital their entire wish-list only to get bad-mouthed over in The City.

The irony is that much of the political instability in South Africa today is due to a lack of shared growth, for which those who wield monopoly power must accept their share of responsibility. One only need consider the heavy case load of the Competition Commissioner to know this is true.

The entire shallow water mining industry is structured in two tiers. Up in the top tier are the concession owners, Trans Hex and Alexkor, who now jointly own all the concessions from the Orange River mouth to the Groenrivier mouth. One is controlled by Llewellyn Delport and the other by Mervyn Carstens, a good friend and former colleague at Trans Hex.

Down in the bottom tier are all the small-scale marine miners who do the mining. The small-scale miners would have no quarrel with this if the top tier were complying with the Mining Charter and the Act by providing equitable access. They do not and in fact fall very far short of their commitments as concession owners.

By allowing a more equitable, efficient, fair and developmental model to emerge, the concession owners could open the way for a dramatic improvement of the socio-economic conditions in the Namaqualand littoral. No question – a profound improvement.

Our industry can no longer support an unproductive and oppressive layer seeking to benefit on our behalf by clinging to a redundant rent-seeking culture – precisely what the MPRDA and NDP seek to eliminate.

The two-tier marine mining model has broken down under the weight of years of rental extraction that has impoverished the miners, killed innovation and blocked technical progress. The only solution for rebooting into a sustainable marine diamond mining industry is to ensure equitable access, thereby reigniting the entrepreneurial spirit of Texan oilman Sammy Collins and creating an appetite for innovation and risk. Precisely what the MPRDA and NDP prescribe and what the Fourth Industrial Revolution ruthlessly demands. It is also Industry 4.0 that holds the key to exhuming that ancient black swan buried beneath the delta.

The focus for the past four decades has been on the low-hanging fruit, the easy diamonds located in shallow water with little or no overburden. A long term sustainable future for the industry lies in deeper water, under many metres of sand and mud.

The inshore industry has mainly operated two types of vessels, ski-boats and under-25-ton deck-boats. These vessels have been effective for pursuing the low-hanging fruit where the water is shallow, the volumes of gravel are low, and the operational emphasis has been on agility to prospect.

Technically speaking, there has never been any mining conducted in shallow water because the diamond grades and gravel volumes are extremely erratic due to the hydro-dynamics of the surf-zone and the rugosity of the bedrock. Operators are in a perpetual mode of prospecting: no sooner does one find an area that has gravel, and which carries diamonds than it runs out and the hunt starts over again.

The Orange River delta alluvial fan which overlays the rich diamond megaplacer orebody is mostly absent from the surf-zone as the wave energy prevents it from settling in any significant layer. The depth of the alluvial fan sediment correlates positively with distance from the shore and reaches depths up to 30m deep in the eye of the delta, the zone which is likely to regularly produce diamonds over a hundred carats in the future when the technology to mine there is ready.

Due to depletion of the surf-zone portion of the orebody, the operational emphasis must shift urgently towards earthmoving capacity to strip the sand and mud overburden, much like the terrestrial alluvial mining operations along the beaches of Namibia where Namdeb have deployed their beach accretion mining method for the past few decades.

However, it is one thing to chase an ore body with known grades into the ocean by holding back the sea using off-the-shelf capital equipment, it is an entirely different matter to design, build and operate your own capital equipment to do the same in an underwater environment that is literally as unpredictable as the weather and without a geological model.

Furthermore, when there are individuals in positions of power who can weaponise their monopoly control of the entire industry against active citizens who are merely using democratic means to pursue constitutional rights for an entire community, the business case is not very appealing, to say the least.

The need to pivot away from the surf-zone to deeper water where the orebody is covered by many metres of fine/heavy and sticky overburden, therefore poses not only a substantial technical challenge to the industry but also a substantial mindset challenge to the concession owners.

The first is a challenge for which neither Trans Hex nor Alexkor have been willing to risk one single cent towards developing a solution, and the second is a challenge that neither have been willing to engage upon in the slightest. Kragdaadigheid is their way as far as we can tell.

We have no problem with self-interest, our problem is with unenlightened self-interest.

Remember what Oom Anton (Rupert) said: “He who covets all, loses all.”

Eoin Treacy's view -

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July 25 2018

Commentary by Eoin Treacy

July 25 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



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July 25 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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July 24 2018

Commentary by Eoin Treacy

Please note I am away on holiday until August 1st

I would like to extend my special thanks to subscribers and friends of FullerTreacyMoney for submitting a number of articles for your kind consideration over the course of the next few weeks. I think subscribers will be pleasantly surprised with their contributions. 

July 24 2018

Commentary by Eoin Treacy

China adds fiscal and monetary stimulus to support growth 24 July2018

Many thanks to Niru Devani for this report on China.

Eoin Treacy's view -

Niru Devani's view

China announced a combination of tax cuts and infrastructure spending late yesterday  to boost growth. The fiscal measures are another sign that the authorities are worried about how the trade war with the US will exacerbate a weakening domestic economy. External “uncertainty” was cited as one of the reasons for the stimulus measures. At the same time, the authorities are keen to allay concerns that China is abandoning structural reform which would damage its credibility on the international stage that it has worked hard to build.



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July 24 2018

Commentary by Eoin Treacy

Japanese markets unsettled on reports that the Bank of Japan will discuss policy change

Thanks to Niru Devani for this report and commentary.

Here is an excerpt from the article posted on Bloomberg on reports that the Bank of Japan will discuss policy change at its meeting next week.

A dramatic day for Japan’s debt market saw yields surge on media reports of possible changes to the nation’s ultra-loose monetary policy, spurring the central bank to offer to buy an unlimited amount of bonds.

The yield on 10-year government securities soared as much as six basis points to 0.09 percent, its biggest increase in almost two years, pulling the yen higher and weighing on stocks. While the yield came down after the purchase offer by the Bank of Japan, it then bounced back to just one basis point below the day’s high.

Any change to BOJ’s stimulus would be the first since 2016 when it introduced control of the yield curve in a bid to manage the impact of its bond purchases and negative interest rates. Still, profits for banks and bond traders continue to be depressed, with reports from Reuters, Asahi and Bloomberg suggesting that officials are debating ways to further mitigate the side effects.

Eoin Treacy's view -

Niru Devani’s view

In response to a spike in yields, the Bank of Japan said it would purchase an unlimited amount of 10-year Japanese government bonds if the yield hit 0.110 per cent, above the 0% to 10% range it set in 2016 to support economic growth and raise inflation. It is worth pointing out that it is rare for the Bank of Japan to use such a mechanism to stabilise the bond market and seems to be the latest sign that loose monetary policy globally could be coming to an end. 



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July 24 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



This section continues in the Subscriber's Area. Back to top
July 24 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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July 23 2018

Commentary by Eoin Treacy

Please note I am away on holiday until August 1st

I would like to extend my special thanks to subscribers and friends of FullerTreacyMoney for submitting a number of articles for your kind consideration over the course of the next few weeks. I think subscribers will be pleasantly surprised with their contributions. 

July 23 2018

Commentary by Eoin Treacy

Building wealth is about more than stock markets

Dr. David Brown has provided us with a series of reports to post this week, which I'm sure our subscribers will enjoy reading.

David is a medical researcher responsible for several major inventions (including Viagra) and a private investor with interests in the stock market, property and hi-tech start-up companies. He co-founded two biotechnology companies and chairs others. He is a Trustee of two charities: Antibiotic Research UK, dedicated to solving the serious threat of antibiotic resistance; and Friends of Manjushree Vidyapith School and Orphanage, helping destitute orphans in South Tibet.

You can read this report in full in the Subscriber's area.

Eoin Treacy's view -

As investors, we tend to spend our time selecting the right shares to buy. But if we step back, we may realise that our success in picking stocks may play a relatively small part overall in our lifelong financial security. We need to broaden our thinking and diversify our investments beyond stock markets. 



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July 23 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



This section continues in the Subscriber's Area. Back to top
July 23 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  



This section continues in the Subscriber's Area. Back to top
July 20 2018

Commentary by Eoin Treacy

Please note I am away on holiday until August 1st

I would like to extend my special thanks to subscribers and friends of FullerTreacyMoney for submitting a number of articles for your kind consideration over the course of the next few weeks. I think subscribers will be pleasantly surprised with their contributions. 

July 20 2018

Commentary by Eoin Treacy

Is there complacency over Chinese woes?

Thanks to Niru Devani for this article on China.

The Chinese markets turned around today from being down around half a percent to rise by over 2% by the close with the renminbi stabilizing. There was some speculation that the authorities had been supporting the currency to slow down the pace of decline. There was also talk that they would add liquidity into the system to support the equity market.

The yuan has fallen by over 8% since late March and is at a one-year low against the dollar. The renminbi’s fall is partly a catch-up with the other currencies that have fallen against the US dollar. The dollar has been strong this year because of widening interest rate differentials with the Federal Reserve being the only major central bank raising rates. However, the currency has also fallen because of softer economic growth and trade tensions with the US. The Chinese authorities are likely to tolerate a weaker currency as long as it falls in an orderly manner and smoothing its decline from time to time as they appear to have done today.

The current phase of renminbi weakness has not yet led to a global market panic similar to the one we saw in late 2015 and early 2016. However, it is one of the key concerns on investors’ minds. So far, the pressures have been felt in the commodities markets where copper, often described as the metal with a PhD in economics because of its past record of being a lead indicator of economic growth, has fallen sharply since early June, declining by about eighteen percent over such a short time. The tariff war has clearly been a big contributor as has the strength in the dollar which has negatively affected various other commodities with the exception of oil which is being moved by other factors.  Asian equities and other emerging markets have also been hit hard over the last few months. The Chinese equity market is in correction territory having fallen by 20% from its highs in January while the Hang Seng index is at a ten month low.

The tariff war is unlikely to come to a resolution before the mid-term Congressional elections. The concern is that the weakness in the Asian and emerging markets spreads to the developed markets. Other than the Nasdaq index, most other major markets have not made new highs since January. The best case scenario is that the consolidation in these markets continues for longer, the worst being that they react more sharply to the falls in Chinese and emerging markets. China is at least as important a factor as the US and merits watching closely.
 

Eoin Treacy's view -

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July 20 2018

Commentary by Eoin Treacy

US President's criticism of the Federal Reserve's interest rate policy

Thanks to Niru Devani for this timely article.

US President Donald Trump broke with tradition and levelled criticism at the Federal Reserve about their interest rate policy and its impact on the US dollar as well as economic growth. In an interview on CNBC, he said “I’m not thrilled,” “Because we go up and every time you go up they want to raise rates again . . .  I am not happy about it. But at the same time I’m letting them do what they feel is best.” While presidents appoint the chairman of the Federal Reserve and other committee members, they do not interfere with their management of monetary policy. The last time a president commented on Fed decisions was in the in the 1990s when George W Bush expressed his displeasure with the Fed’s policy after losing the election.  

With the Fed’s target rate at 1.75 per cent to 2 per cent, the central bank is expected to raise rates twice more this year. Trump’s intervention should not stop them from continuing to raise rates as long as economic growth and inflation justify it. The Fed has faced criticism from both the left and the right in the years following the financial crisis. Mr Trump also expressed unhappiness with the strength of the dollar against the euro and the renminbi. He criticised the Europeans and the Chinese for being passive at best and currency manipulation at worst. The latter point was targeted at the Chinese.

Mr Trump’s comments triggered a fall in the U.S. dollar which was approaching some resistance against the euro which comprises over 50% of the dollar index. The euro has so far managed to find support around the 1.15 level versus the dollar and it did so again yesterday afternoon following these comments. The dollar has continued to pull-back today.  The index hit its high for the year earlier yesterday at 95.652 and was trading around 94 at its low point today. The president’s unorthodox verbal intervention in the currency markets has so far had the desired impact but it will not change the trend of a higher dollar over the coming months given that the U.S. is the only major developed economy apart from Canada raising rates.

Eoin Treacy's view -

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July 20 2018

Commentary by Eoin Treacy

The Most Dis-advantageous Lottery in the World

Thanks to subscriber Ian Runge for this paper.

Ian has spent a professional lifetime as an engineer and economist in the resources industry and related capital intensive industries. The products from these industries are the backbone of the world economy; they provide the essentials for life in all economies and underpin the sophisticated lifestyles enjoyed by the advanced world. Yet the efforts, skills, and technology that go to find, produce, refine, and transport these goods are hardly known (and more often than not, unappreciated) outside these industries themselves.

July 20 2018

Commentary by Eoin Treacy

This is usually a good month to buy gold but it's a tough call this year

Thanks to Niru Devani for this article on Gold.

Gold broke down below a key technical support level of 1236 which was the low in December 2016. The trigger was the yield on the three month Treasury Bill which broke through 2%, a level not seen since the summer of 2008. This followed the Fed chairman's testimony on Capitol Hill to reiterate that the Fed remains on track to continue to raising interest rates. In an environment of a rallying U.S. dollar and still positive real interest rates, gold does not prosper.

I thought the article below, by Dominic Frisby at Moneyweek.com, would be of interest to other subscribers as it offers a contrarian point of view. 

Summertime, and the gold investing ain’t easy

Wisdom has it that the summer months – June, July and August – are the best time of year to buy precious metals (and their related stocks) with a view to offloading the following winter or in early spring.

It’s one of those trades that seems to work better in the rear-view mirror than it does in real time, however.

If you look back at a chart of gold you can usually find a low sometime in July, and then find a point between the following October and April, where the gold price was 10% or 20% higher, and then declare that the trade worked.

Buying the low and selling the high in real time is a rather trickier proposition. That said, it is do-able.

However, gold itself is currently in freefall. In April, gold was re-testing five-year highs at $1,360-$1,370 per ounce. There was a nice uptrend in place. Each low was higher than the last. Talk of inflation was doing the rounds again, and the solution was shiny, yellow-y metal.

Now it is some $130 lower at $1,227. Each low is lower than the last. Every attempt at a rally is anaemic. The trend is strong and the trend is down. To be buying now and attempting to play the “summer trade” is to try and catch a falling knife. Sometimes it works and the audience applauds – however the risk of self-injury is high.

Tuesday was particularly brutal. Gold’s enemy number one, the chairman of the Federal Reserve Bank, Jerome Powell, said that the economy was growing at a “solid pace”, that the unemployment rate was expected to fall further, that the recent pickup in inflation, toward the Fed’s 2% target, was “encouraging”.

The Fed has already raised interest rates twice this year and Powell pencilled in two more quarter-point moves. Stocks duly rallied (a bit), the dollar rallied – and gold took a $20 wallop in the face, sending it to two-year lows.

 

Eoin Treacy's view -

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July 20 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



This section continues in the Subscriber's Area. Back to top
July 20 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



This section continues in the Subscriber's Area. Back to top
July 19 2018

Commentary by Eoin Treacy

Please note I am away on holiday until August 1st

I would like to extend my special thanks to subscribers and friends of FullerTreacyMoney for submitting a number of articles for your kind consideration over the course of the next few weeks. I think subscribers will be pleasantly surprised with their contributions. 

July 19 2018

Commentary by Eoin Treacy

U.S. Fed's chairman outsources 'neutral' rate decision to the yield curve

Thanks to Niru Devani for her second article this week.

A long term subscriber to FullerTreacyMoney, Niru began her career in the financial markets 30 years ago as a trainee fund manager. After spending 14 years in the fixed income sector, she moved to managing commodities and global macro funds. Niru now manages both hers and her families' pension funds and other savings. She also likes to trade. She says, ‘My enthusiasm for my profession is even stronger now and I enjoy the fact that I am constantly learning new things.’

During a two day testimony to the Senate Banking Committee that ended yesterday, Fed Chairman Jerome Powell said that he runs policy according to what is in front of him and uses a slow, steady approach to keep policy from becoming too restrictive. He is fully cognisant of the risks ahead, be it inflation accelerating from fiscal stimulus or growth decelerating because of trade uncertainty. He rates the chances of both outcomes 50/50, so he isn’t going to react to either until they become actual rather than potential risks.

What the FOMC is doing is to steadily raise rates, that is, the price of short-term money so that it is better aligned with growth. It will continue with that policy until it sees risks to growth from this path. Two further rate hikes are expected this year. Real growth remains strong although new housing growth is flattening out, but construction is still expected to rise on a year-on-year basis. As the chairman said, the economy was growing at a “solid pace”, that the unemployment rate was expected to fall further, that the recent pickup in inflation, toward the Fed’s 2% target, was “encouraging”.

The Fed’s first aim is to get interest rates up to their “neutral” level, and then see how the economy is performing. What rate constitutes neutral is a matter of spirited debate among FOMC members. Powell weighed in on the subject during the Q&A portion of his testimony by saying he has  effectively outsourced the resolution of the debate to the credit markets. He will take his cue as to whether the Fed has reached neutral from the shape of the yield curve. This means that as long both the economic news and the yield curve remain positive,  the Fed will keep raising rates.

It is of course nothing new that the interest rate setting committee watches the bond markets and the yield curve very closely. However, it is the communication style of the current head of Federal Reserve that is a lot more open and direct compared to his predecessors, especially Alan Greenspan who was a master of obfuscation.

The eventual challenge to the Fed’s policy management will come when core inflation is drifting higher while growth is weakening around the edges because of trade disruptions. Assuming the yield curve is still positive by year-end, the question will be whether the Fed changes tack to counter trade-induced slower growth or stays the course to stem inflation – which, by that time, will probably be testing its tolerance threshold. The most likely scenario is that the Fed is likely to hold true to form and go on fighting inflation, which should mean that growth in 2019 will be slower but still positive in the Fed’s view. As it has a dual mandate, it has to balance its inflation fighting credentials with promoting a supportive policy mix for growth.

During his testimony, there was no talk about the reduction of the Fed’s balance sheet, which is odd considering the IOER*/fed funds spread is generating a lot of comment and leading some to conclude that quantitative tightening will end sooner than anticipated. The issue is that because the Fed pays interest on reserves, bank deposits at the central bank consist of both the Fed’s reserve requirements and the capital requirements of Basel III. This raises the question of how useful is the normal analysis of reserves at the Fed. The wider issue is one of bank capital adequacy. Powell was pressed about this but avoided answering. No doubt we will hear more on the subject the next time he appears in front of the Senate.

*interest rate on excess reserves

Eoin Treacy's view -

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July 19 2018

Commentary by Eoin Treacy

Some thoughts on the Dollar

Our second guest contributor today is Mikhail Overchenko. Mikhail has been working at the leading Russian business daily Vedomosti, co-founded by Financial Times and The Wall Street Journal, since its launch in 1999. He is a longtime foreign news editor, specializing in economics, markets and finance. 

Following recent discussion here on surprising dollar strength this year, I would like to add a factor that wasn’t mentioned. Writing some 18 months ago a story about Donald Trump’s possible policies (I am a journalist), I mentioned that his idea to bring US corporate profits back home could lead to dollar appreciation. Because we had similar example not long ago. George W. Bush’s American Jobs Creation Act of 2004 allowed companies to bring foreign profits to US while paying significantly lower tax. He hoped that they would invest these funds at home but they mostly bought back their shares, paid dividends and did mergers and acquisition (they seem to do the same now). 

So, in 2005 US companies repatriated approximately $300 billion. This resulted in almost 13% growth of dollar vs euro as well as of Dollar Index that year. As you can see on the chart, this was the most significant correction during overall dollar long-term bear trend of 2001-2008. 

While obviously there are other factors in play that determine currencies’ dynamics, the factor of repatriation of profits seems to prevail and possibly will continue to play a significant role till the end of the year.

Eoin Treacy's view -

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July 19 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



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July 19 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

 



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July 18 2018

Commentary by Eoin Treacy

Please note I am away on holiday until August 1st

I would like to extend my special thanks to subscribers and friends of FullerTreacyMoney for submitting a number of articles for your kind consideration over the course of the next few weeks. I think subscribers will be pleasantly surprised with their contributions. 

July 18 2018

Commentary by Eoin Treacy

Is Netflix the chink in the Armour of the FAANGs?

Thanks to Niru Devani for this article, which I’m sure will be of interest to the Collective.

A long term subscriber to FullerTreacyMoney, Niru began her career in the financial markets 30 years ago as a trainee fund manager. After spending 14 years in the fixed income sector, she moved to managing commodities and global macro funds. Niru now manages both hers and her families' pension funds and other savings. She also likes to trade. She says, ‘My enthusiasm for my profession is even stronger now and I enjoy the fact that I am constantly learning new things.’

Netflix fell by 14% in after-hours trading yesterday following their results announcement which were below expectations. The company reported subscriber growth of over 5.1 million, one million below market forecast although the headline earnings per share at 7% beat consensus forecasts. Netflix also warned that it was seeing stiff competition. The Nasdaq 100 index also lost 125 points from the highs made just a couple of days ago.

Of all the FAANG stocks which comprise Facebook, Amazon, Apple, Netflix and Google, Netflix has always looked very similar to the dotcom stocks from the 1998/2000 period. As Eoin has commented on before, it relies on junk-rated debt for funding and the barriers to entry in its market are low. In the last five years, it has been enormously successful and this year alone, it had more than doubled before yesterday’s fall. However, it is burning a lot of cash and Amazon is also trying to steal its market share.  

The FAANGs have dominated the market since the presidential election and the technology sector now forms 25% of the S&P 500 index. Momentum investors and passive funds have significant allocation to the FAANG stocks. For example, there are 145 ETFs that are long of Amazon and 450 ETFs long of this group.

The group has wobbled before and has been on the verge of a correction, the most recent episode being during Facebook’s data privacy problems earlier this earlier. Sceptics have tried to call the end to the ascent of these stocks and of the technology sector in general. But they have defied the bears. We know that the technology sector per se has huge growth potential in the medium and long term. However, Netflix looks very extended relative to the trend mean even after this reaction post its results. More broadly, it has certainly focussed even more attention on the members of this select group.

Eoin Treacy's view -

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July 18 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



This section continues in the Subscriber's Area. Back to top
July 18 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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July 17 2018

Commentary by Eoin Treacy

Please note I will be away on holiday until August 1st

I would like to extend my special thanks to subscribers and friends of FullerTreacyMoney for submitting a number of articles for your kind consideration over the course of the next few weeks. I think subscribers will be pleasantly surprised with their contributions. 

July 17 2018

Commentary by Eoin Treacy

July 17 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 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.



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July 17 2018

Commentary by Eoin Treacy

One in ten Tokyoites in their 20s are now foreigners

Thanks to a subscriber for this article by Kanako Watabe for Nikkei Asian Review. Here is a section:

Among 20-somethings living in Japan's capital, one out of 10 are foreign-born, reflecting the rapidly shifting profile of the country's working population.

Throughout Japan, foreigners in their 20s numbered 748,000 at the beginning of the year, or 5.8% of the total, the government reported Wednesday. The figures exclude foreign nationals that are here for short stays, and typically include those with residency credentials staying for over three months.

In all, the country's population of non-Japanese residents grew 7.5% to a record 2,497,000 people. Many of them live in Tokyo, with the largest portion -- around 42,000 -- housed in the city's Shinjuku ward.

At 3 p.m. on weekdays, Shinjuku's government offices are jam-packed with people filling out moving notices and other forms. Over half of those waiting in line are young people of non-Japanese descent, and a mixture of English, Chinese and other languages fills the air. More than 40% of the foreigners are 20 years old.

While Shinjuku's native-born residents in their 20s shrank 7% over five years, the number of foreigners in the ward soared by 48%. One convenience store near JR Shinjuku Station has hired a 31-year-old Chinese woman. "The store wouldn't run if I'm away from my shift," she said.

Eoin Treacy's view -

One of the most widely repeated objections to Japan’s ability to reform and growth is its reluctance to absorb young immigrants who have been engines for demand elsewhere.



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July 17 2018

Commentary by Eoin Treacy

Tesla Model 3 can become profitable

Thanks to a subscriber for this article by Stefan Hajek for Wirtschafts Woche which may be of interest. Here is a section:

The Model 3 is still months away from its launch in Europe, but the German engineering service has managed to ship a few electric cars across the ocean and dismantled them into their smallest individual parts. A practice that is common in the automotive industry to keep abreast of the competition and their technology. Still, it is rare to see as much effort being made as in this case.

WirtschaftsWoche got the evaluations and laboratory results first hand – and they surprise in two respects: Firstly, the dismantling specialists estimate that the sales price per Model 3 of 35.000 to 78.000 dollars contrasts with estimated material and supply costs of 18,000 dollars plus production costs of 10,000 dollars. The more vehicles Tesla gets off the production line per unit of time, the greater the profit remains. According to the report, the targeted 10,000 shares per week (currently estimated at between 2,000 and 4,000 per week) would make a „significant positive contribution to earnings,“ says an engineer. The complete analysis and various graphics are not available online, but only in the print magazine. Still, this report will likely result in a frown or two across boardrooms of the industry today.

Eoin Treacy's view -

The big question for investors is less about the cost of producing one Model 3, although this article is certainly encouraging, but whether the company can keep up with the its forecast production schedule to ensure it can meet its financial obligations. That is still a major uncertainty for the share.



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July 17 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend. I envisage holding our first online seminar in late May or early June. 

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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July 16 2018

Commentary by Eoin Treacy

July 16 2018

Commentary by Eoin Treacy

Jeffrey Gundlach Says We're Getting Closer to a Recession

Thanks to a subscriber for this interview of Jeff Gundlach which appeared in Barron’s and may be of interest. Here is a section:

We are getting closer to a recession. When the curve goes flat from the two-year Treasury to the 10-year [meaning that the yields are identical], the recession risk is at least a year away. Recently, that spread was 28 basis points [hundredths of a percentage point], which is pretty close to being flat. It is flashing yellow. It needs to be respected. The other reason to think 2019 might be more problematic is that quantitative tightening has just started. The Fed has started to let bonds roll off its balance sheet [the central bank isn’t buying new bonds when many current holdings mature]. Several billion dollars of bonds per month are coming due, but by October the amount will be up to $50 billion per month.

At the same time, the Fed has said it intends to keep raising interest rates, probably twice more this year. That, together with the signal from the yield curve and perhaps $600 billion of quantitative tightening, and a budget deficit that is growing, is an issue. The strangest thing is that Congress passed a $280 billion tax cut and spending increases so late in the cycle, and with interest rates rising. It’s like a death wish. The U.S. is taking on hundreds of billions of dollars of debt while raising rates, which means our debt-service payments are going to be under serious pressure to the upside.

Eoin Treacy's view -

A PDF of the full article is posted in the Subscriber's Area.

The simple conclusion is often the most useful. The Federal Reserve, and other central banks, are taking away the proverbial punch bowl and that will eventually lead to a recession. Central bankers are generally a cautious group of people so they usually wait until they have ample evidence to support the view that their stimulative measures worked before raising rates. That often means they are late in tightening and have to play catch up.



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July 16 2018

Commentary by Eoin Treacy

Global Strategy Q3 2018

Thanks to a subscriber for this report from Erste Group which may be of interest. Here is a section on the Eurozone:

We expect GDP growth in the euro zone to stabilize in the second half in range of around +0.4% to +0.5% q/q. The recent weakness in the euro should support export growth, even though the trade dispute is certain to weigh on foreign trade. A sustained steady uptrend in credit growth in the household and corporate sectors should support growth in domestic demand and investment spending in H2. We are forecasting GDP growth of +2.3% for the euro zone in 2018. 

We expect consumer price inflation in rise moderately in 2018 to an average of +1.6%. Considerable uncertainty remains regarding the extent to which the ongoing recovery will be reflected in higher core inflation rates. The trend in core inflation was at times below expectations, inter alia due to the regional fragmentation of the labor market.

Eoin Treacy's view -

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

It is arguable whether the European Union is ready for the end of quantitative easing but the ECB is ending its quantitative easing program anyway. It has legitimate concerns about the distorting influence of negative yields on both the economy and the bond market. However, it is quite likely that the end of purchases will have deleterious effect on the economy and most particularly for the peripheral economies.



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July 16 2018

Commentary by Eoin Treacy

Trump Says U.S. to Compete With Russia for Europe Gas Market

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

But Europe may have difficulty attracting gas cargoes from overseas, given higher prices in Asia. The WGI spot LNG assessment for Northeast Asia was $10.30 per million British thermal units on July 9, while U.K.’s National Balancing Point gas futures traded at $7.50 on Monday.

Longer term, gas export project developers in the lower 48 states may face delays as they wait for regulatory approval. Sefcovic called the U.S. approval process “redundant” and said it needed to be revamped.

Gazprom is Europe’s largest gas supplier and provides more than a third of the region’s needs in the fuel. Its chief executive officer, Alexey Miller, confirmed in June its plan to start laying the pipes in the next couple of months and to open the Nord Stream 2 link by late-2019. The project would cut Russia’s dependence on Ukraine and help meet additional demand for the fuel in the EU in next two decades as local production falls.

Meanwhile, Russia is unperturbed by the prospect of American LNG supplies to Europe. They “will never catch up with and will never surpass” Russian gas exports to the region, Miller said in June.

Eoin Treacy's view -

Gas is increasingly an international traded commodity with global markets expanding as more countries transition away from a reliance of coal for power generation and heating and from solid fuel or electricity for cooking. The USA has the potential to be a major gas exporter since it has more of the commodity than it knows what to do with but it will have a hard time competing with Russia for Europe’s market.



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July 16 2018

Commentary by Eoin Treacy

Vacation 2018

I will be taking two weeks off at the end of July, leaving for China on July 18th and back in action on August 1st. If anyone in the Collective would like to submit a guest article for publication between those dates please get in contact. 

I also received this email

No idea why this popped into my head whilst watching the World Cup !

You need content for the two weeks that you are off. You have a collective whom are educated people. Why don’t you invite everyone to email you the following which you will post:

Current investment positions and why
Best ever investment
Worst ever investment

Eoin Treacy's view -

This is an useful idea and at a rather interesting time. It would allow us as a Collective to think about why we hold what we do, so please feel free to share.  



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July 16 2018

Commentary by Eoin Treacy

Long-term themes review June 22nd 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.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.



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July 13 2018

Commentary by Eoin Treacy

July 13 2018

Commentary by Eoin Treacy

Global Crude Oil Supply-demand

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

The IEA forecasts that US crude oil production will increase 1,720,000bbl/day in 2018 and 1,190,000bbl/day in 2019. In the Permian region, which has been driving growth in output, the lack of pipeline capacity is likely to persist until 2019. Because of this, Midland oil prices are some USD14/bbl lower than the WTI price. With issues including rising production costs and a lack of engineers, too, we think US shale oil output is unlikely to substantially exceed current forecasts even if tightening supply-demand causes oil prices to rise. See our 11 July 2018 Global research report US crude oil output - Sharp slowdown in pace of increase in 2019.  We estimate that US production forecasts are predicated on WTI price assumptions of USD55-60/bbl for 2018 and USD60-65/bbl for 2019. We estimate WTI of around USD70-75/bbl were the aforementioned short supply to be made up with increased output in the US.

Eoin Treacy's view -

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

The USA’s onshore production of oil and gas continues to surge, fuelled by access to cheap credit. If we cast our minds back to 2015, private equity firms had amassed massive sums to invest in energy and that has helped to fuel the surge in US supply over the intervening period.



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July 13 2018

Commentary by Eoin Treacy

The "Big Bang" of Alzheimer's: Breakthrough study uncovers genesis of the disease

This article by Rich hardy for New Atlas may be of interest to subscribers. Here is a section:

Much modern Alzheimer's research concentrates on a specific protein called amyloid beta, and the clumping of that protein is suspected as being the primary pathological cause of the disease's symptoms. But, after a long series of clinical trial failures in drugs designed to target those amyloid beta plaques, some scientists are turning their research attentions elsewhere.

This new research focuses on a different protein, called tau. These tau proteins have been found to form abnormal clumps in the brain, called neurofibrillary tangles, which can accumulate and kill neurons. Some researchers hypothesize that this is actually the primary causative source of Alzheimer's disease.

Until now it was not known how, or when, these tau proteins began to accumulate into tangles in the brain. It was previously believed that isolated tau proteins didn't have a distinctly harmful shape until they began to aggregate with other tau proteins. But the new research has revealed that a toxic tau protein actually presents itself as misfolded, exposing parts that are usually folded inside, before it begins to aggregate. It is these exposed parts of the protein that enable aggregation, forming the larger toxic tangles.

"We think of this as the 'Big Bang' of tau pathology," says Diamond. "This is a way of peering to the very beginning of the disease process. It moves us backward to a very discreet point where we see the appearance of the first molecular change that leads to neurodegeneration in Alzheimer's."

Eoin Treacy's view -

Alzheimer’s is one of the only major killers that has no form of treatment. It represents a massive tax on the productive capacity of every family afflicted since the burden for care usually falls on the spouse and children before expensive care is called for. The slow but inevitable decline the disease entails means the cost of care rises inexorably often for more than a decade before fatality.



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July 13 2018

Commentary by Eoin Treacy

Climate Gentrification: A 21st Century Problem

This article by Richard Florida for Undark may be of interest to subscribers. Here is a section:

The study finds considerable evidence of climate gentrification, and for the elevation hypothesis in particular. Properties at high elevations have experienced rising values, while those at lower elevations have declined in value. In fact, elevation had a positive effect on price appreciation in more than three-quarters of the properties and 24 of the 25 separate jurisdictions the authors examined. The study also found support for a secondary hypothesis, the “nuisance hypothesis,” which posits that price appreciation in lower-elevation places had not kept up with higher-elevation places since approximately 2000 due to nuisance flooding.

Generally speaking, the areas that had the strongest regression coefficients—that is, the places where elevation best predicted the change in real estate prices — are all along the coast and at the highest risk of flooding. They include Key Biscayne, Miami Beach, and a number of exclusive island enclaves, as well as Sunny Islands and Golden Beach to the north.

But these positive associations spanned land-locked communities as well as coastal ones. In fact, more than half of the jurisdictions with positive correlations —13 out of 24 — were landlocked. All of these have significant water exposure in the form of lakes and drainage canals. The largest jurisdiction in the sample, unincorporated Miami-Dade County, showed the lowest, but still positive, correlation.

Eoin Treacy's view -

I have no idea if projections for rising sea levels will in fact come to pass. However, there is enough of commentary about this subject right now that it is worth considering from the perspective of how fears of rising sea levels might affect behaviour. If this is taken in conjunction with estimates that hurricanes may become more powerful as a result of warming sea temperatures then that would be a contributing factor in changing sentiment towards property.



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July 12 2018

Commentary by Eoin Treacy

July 12 2018

Commentary by Eoin Treacy

MercadoLibre Shrugs Off Amazon With Brick and Mortar Focus

This article by Carolina Millan and Ed Hammond for Bloomberg may be of interest to subscribers. Here is a section:

"Our way of competing successfully is to look at all the players, see what they have that we think is great, and if we can incorporate that into our model, we will, but mostly play our game," Galperin said while speaking from Allen & Co.’s Sun Valley conference, and musing about this year’s global soccer championship. "As you know, we’re looking at the World Cup -- we try to play our game and use our advantages and our strengths. We have a great network of sellers, a great brand, we’re investing very heavily, we already have scale."

Shares of MercadoLibre gained as much as 2.2 percent in New York, the most intraday in almost a week.

It’s also betting on brick and mortar investments to improve service. Earlier this year, MercadoLibre announced a partnership for a 38,000-square meter distribution center in the greater Buenos Aires area. In addition, the company, which is providing loans to merchants and payment processing platforms, is working on a digital wallet that offers returns on whatever money is left, Galperin said. Infrastructure -- notoriously poor in Latin America -- is also a priority.

Eoin Treacy's view -

Many commentators have made the point that social media companies require broadband by either mobile or fixed line access to generate income from a market and therefore have an interest in promoting internet access. However, that is equally true of online retail. Wherever ubiquitous internet access is available online retail flourishes, along with its disruptive influence on the conventional retail sector. These maps of the internet’s pervasiveness may be of interest. 



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July 12 2018

Commentary by Eoin Treacy

Netflix Crowned New King of TV, Toppling HBO in Emmy Nominations

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

Netflix’s accolades follow a rapid ascent in the television world. After its start two decades ago as a DVD-by-mail operation, the company has become a Hollywood powerhouse, signing popular producers, comedians and actors for original content. The company spends about $8 billion a year on new shows and films, far exceeding HBO and other competitors.

“Netflix has proven to be a welcoming home to A-list talent,” said Bloomberg Intelligence analyst Paul Sweeney. “And they have the checkbook to back it up.”

Other streaming services are getting more Emmy recognition, includingAmazon.com Inc. and Hulu. “The Handmaid’s Tale” contributed to 27 nominations for Hulu, while “The Marvelous Mrs. Maisel” helped Amazon collect 22.

Eoin Treacy's view -

Netflix is another company that has gone for scale ahead of profitability in the hope that it will be able to garner critical mass and market share before its competitors in the legacy sector of cable and theatres sector have time to catch up. So far, the strategy has worked and many people, myself included, have traded their cable/satellite TV for the convenience of Netflix.



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July 12 2018

Commentary by Eoin Treacy

Musings from the Oil Patch July 10th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. This week it contains some interesting commentary on estimates of sea level rises but here is a section on electric vehicle demand:  

There are many reasons why EVs are popular in California.  Continuing to lead national social trends, the large population of wealthy entertainment and technology people love to show off their social awareness credentials, while taking advantage of lucrative financial and other driving benefits by purchasing EVs.  Those benefits are being reduced as EV car manufacturers reach the limits at which federal tax subsidies for EVs are eliminated.  The state has recently decided to double down and boost spending to subsidize EV sales.  What is interesting, however, has been the elimination of the right to drive EVs in High Occupancy Vehicle (HOV) lanes in Southern California with one person, as too many vehicles have slowed lane speed and increased accident risk when EVs are entering and exiting HOV lanes.  When the Toyota Prius lost use of HOV lanes, sales fell the following year.  Prepare for similar shocks.  

Eoin Treacy's view -

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

Tesla will soon or potentially already has achieved 200,000 vehicles in sales which will mean that the $7500 subsidy buyers receive when taking delivery of cars will disappear. That’s a headache for the hundreds of thousands of people waiting to get their model 3s.



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July 11 2018

Commentary by Eoin Treacy

July 11 2018

Commentary by Eoin Treacy

Goldman Says Market Melancholy Is Recipe for Big Earnings Season

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

Relax, says Goldman Sachs -- enough has changed that a replay is unlikely. Bulls should take heart, says David Kostin, the firm’s chief U.S. equity strategist, because whatever euphoria infected markets in the first part of the year has long ago dissipated. Hedge fund clients who were aggressively positioned heading into April are more conservative now, with exposures sitting near the bottom of their 12-month range.

“Going into Q1 earnings season, it was peak optimism,” Jeff Schulze, an investment strategist at ClearBridge Investments in New York, said by phone. “Now you have exactly the opposite situation where that optimism has been converted to pessimism.

As long as companies can hit those estimates, I think the market will reward those, rather than punishing them.”

Fundamentally, the second quarter will look a lot like the first as far as results go. S&P 500 companies are forecast to report 20 percent growth from a year ago and sales are likely to rise 8 percent, mirroring the previous period, which was the best since 2011.

Eoin Treacy's view -

The media’s number one story today has been the tariffs and the prospect of an all-out trade war between China and the USA. At the same time the USA is entering into this situation while engaged in fiscal stimulus while China is tightening to close out speculation in the shadow banking system. That has contributed to very different performance in their respective stock markets.



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July 11 2018

Commentary by Eoin Treacy

Email of the day on currencies and stock market performance:

Thank you for your always articulated views on the general macro. Highlighting the China risk (“China deserves an additional risk premium”) and the direction of credit spreads (“EU junk spreads have been on the rise in 2018”) are particular eye opening

One point on USD though. In your videos resp. online reports, you say / write that the USD should get stronger. One of the reasons you add to the commentaries is that the FED is on its hiking path and the interest rate differential makes the USD interesting relative to zero / negative interest currencies. In addition, you write that Gold suffer when nominal rate rise less than inflation (i.e. real rates rise) and when the USD is on the rise. I hope I am correct in the summary. Otherwise please correct me.

If I look at the recent history I am puzzled to note following: the FED started to raise rate in Dec 2015 and EUR/USD was at around 1.08 USd per EUR. Likewise gold was trading at something like 1’100 USD / Oz.  at the same time.

How is it that 1+6 hikes later (1 in 2015, 1 in 2016, 3 in 2017 and 2 in 2018), EUR /USD is at 1.17 and gold is at 1.250 (and was 1300 just 2 weeks ago)? shouldn’t rate hikes make the USD interesting relative to ZIRP / NIRP countries like the EU Area or Japan?

Isn’t it that the current dollar strength is nothing more than an adjustment of a USD oversold condition prevalent until April? (due to lots of carry trades with EM currencies accumulated last year, most of which are done via a cross on the USD because of liquidity constraints with smaller currencies)

And that when the entire market hysteria around tariffs and on Trump tweets on NATO, on Germany and China retaliations threats etc. etc. calm, we will see the normal path of rising US interest rates and a falling USD combined with a rising JPY and EUR and rising Gold again? at the end of the day this makes sense. Otherwise it would be like a free lunch (buy USD, invest at higher rate and gain on the exchange rate). it cannot last forever.

Negative interest rates and ZIRP are deflationary policies. It makes sense for the EUR and JPY to appreciate.

Am I missing something?

Ps: if I look at history on other countries, higher rates are not supportive for a currency. Look at Turkey, Argentina, etc. All down sharply. the higher the rates to stem a crisis, the lower the currency.

On the other end, when the Bank of Russia reversed its super high interest rate policy after the 2014 crisis, RUB (and its equity market) started to recover. And RUB was also relatively stable during the most recent EM crisis

I would not be surprised to see TRY doing the same if the new governor reduces rates (the FT reported that Erdogan is not a fan of high rates) and the ministry of finance enact a policy aiming at reducing the current account deficit. Then TRY should recover despite the bad-to worst governance structure of the country

I would be interested in hearing your view on that

Best regards and nice holidays in China!

Eoin Treacy's view -

Thank you for this email which raises a number of points about currencies and what we can expect from various asset over the medium-term.

I think the most important thing to remember about currency markets is that they are a discounting mechanism just like equities and bonds. When we think about interest rate differentials it does not make sense to look at today’s levels because that is already in the price. We need to look further out.



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July 11 2018

Commentary by Eoin Treacy

Crude Crumbles Under Trade War That Imperils Economic Growth

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

“There’s no doubt that that uncertainty continues to weigh, not only on the crude oil markets, but really all markets,” said Brian Kessens, who helps manage $16 billion in energy assets at Tortoise. As for the storage report, “there was a little bit of noise in the data. It just depends when the ships actually hit the docks.”

Oil topped $75 a barrel last week amid actual and anticipated supply disruptions from Canada to the Persian Gulf.

Saudi Arabia has promised to ramp up output to help cover shortfalls from other major suppliers, though some observers questioned the kingdom’s capacity to do so.

In the U.S. Gulf Coast region that includes refining centers in Texas and Louisiana, oil imports plunged by 1.13 million barrels last week, the steepest decline since September 2012, according to the EIA.

“There’s a sense that Saudi Arabia’s going to increase their exports to the U.S.,” Kessens said. “There’s a lingering sense in the back of people’s minds that we’ll see that a little bit later this summer.”

Eoin Treacy's view -

Oil prices have been firm because economic growth has been robust, OPEC had been reducing supply and major suppliers like Libya and Venezuela have dropped out of the market. News today that pro-government forces have retaken four of Libya’s export ports suggests supply will start flowing once more. Meanwhile the threat to China’s economy from a ratcheting up of tariffs is a simmering issue. 



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July 11 2018

Commentary by Eoin Treacy

Eoin's personal portfolio April 11th 2018

July 10 2018

Commentary by Eoin Treacy

July 10 2018

Commentary by Eoin Treacy

China in Ten Charts A New Impossible Trinity

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

However, China faces a new policy trilemma: if President Xi Jinping truly prioritises reforms over growth, we must see more corporate defaults or foreign borrowing. But if the government does not want higher offshore USD debts, they must sacrifice some growth. They can’t have all three. 

Removing the implicit government guarantee is a necessary evil. Since the national fiscal audits in 2013 and 2015, the central government has tried to detach itself from ill-defined liabilities, notably the local government financing vehicles (LGFVs). 

This is done via taming shadow lending (slide 5). Since these activities were a key funding source for LGFVs, SMEs, and other borrowers which major banks do not serve, we must see credit spreads surge as a result of the deleveraging process (slide 6).

Many corporates opted to borrow from offshore (slide 7) in 2017. However, the rapid rise of foreign debt has triggered policymakers’ concern (slide 8). In Q1 2018, China’s foreign liabilities hit a record high of USD1.8trn (29% y/y), extending its uptrend since Q1 2016. 53% of it was USD debt and 64% were short-term debt. Meanwhile, Q1 also saw China’s first current account deficits since 2001 (slide 9). Going forward, the outlook for China’s FX reserves position deserves attention. 

We believe that slowing GDP growth is not a risk; the temptation to pump prime the economy is. The RRR cuts in April and July are unlikely to be monetary policy responses to growth risks. Any impact from the US-China trade war is still insufficient to halt the deleveraging process (slide 10). Thus, we believe the cuts are a response to the normalised ‘M1-M2 gap’ (slide 11) which indicates shadow lending is under controlled. Chinese regulators are tackling credit allocation on banks’ balance sheets under the flag of ‘structural deleveraging’. GDP growth will still slow (ANZ: 6.3% for H2, slide 12). Market sentiment will be poor. But targeting growth over reform will be worse, in our view.

Eoin Treacy's view -

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

China has banned borrowing in US Dollars and it is closing off funding to highly leveraged regional governments, infrastructure projects and businesses. At the same time, it is allowing the default rate to rise. If we were asking where borrowers are supposed to get the funding they need to refinance or continue operations, we have our answer. Defaults are going to rise further.



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July 10 2018

Commentary by Eoin Treacy

Email of the day on Brexit and likely outcomes

On the latest events, I think this table in attachment is reasonable and persuasive in content.

Basically, it indicates the following as yet the most likely scenario:

“Soft Brexit - Stay in the EEA and Customs Union, or never-ending Transition”

Then expanding to say:

“The EU sticks to its principles and does not allow the Single Market to be broken up. The government and the public become more fearful of the impact of a hard Brexit. No other option solves Irish border issues. Alternatively, the Tories implode or delay Brexit until after the next election, which Labour wins”

It would then become – in my opinion – imperative to open a serious debate re how referenda are done and forbid those on international agreements… I think it has been abundantly demonstrated they are a folly. With good governance restored the country would finally be able to move forward.

Eoin Treacy's view -

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

Thank you for this graphic and email which may be of interest to subscribers. Muddle on has been the policy of choice followed throughout the negotiations where the EU has gotten just about everything it wanted and the UK has made one concession after another. That suggests the UK government has concluded it has more to lose from a “hard” Brexit than the EU.



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July 10 2018

Commentary by Eoin Treacy

Electric vehicle demand will double nickel price as soon as 2022

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

While stainless steel production – currently nearly 80% of total demand for nickel – is expected to stay solid over the coming years, booming demand from the electric vehicle battery market is set to fundamentally alter the structure of the industry.

Michael Sinden, WoodMac Research Director, and Senior Research Analyst, Rory Townsend say in their long-term outlook for nickel that demand for nickel in EV batteries will contribute 1.26 million tonnes to nickel demand in 2040.

That compares to total primary nickel production last year of not much more than 2 million tonnes.

Slightly more than half the total is from so-called Class 1 producers which is suitable for conversion into nickel sulphate used in battery manufacture. Class 1 nickel powder for sulphate production enjoys a premium of as much as a third over LME reference prices, but for miners to switch to battery grade material requires huge investments to upgrade refining and processing facilities.

Eoin Treacy's view -

Tesla announced today that it is going to be building another large battery factory, this time in China. Meanwhile Contemporary Amperex Technology (CATL), which is China’s largest homegrown battery manufacturer is quite likely to outstrip Tesla’s production capacity within the next few years. Meanwhile Nissan announced yesterday that it also cheated on emissions systems which is likely to further fuel the trend towards delivery of electric vehicle models.



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July 10 2018

Commentary by Eoin Treacy

Shipowners on Pace to Scrap $1 Billion in Oil Tankers This Year

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

Some 1,000 vessels are broken up every year and their steel and other metals are melted or simply stacked up and sold to factories. The yards in the Indian subcontinent recycle around 80% of all ships, with the remainder going to China and Turkey, although Beijing has said it will suspend scrapping starting next year.

The average age of VLCCs going to scrap this year is 18.8 years, the youngest since 2013, according to VesselsValue. A ship’s average operational age is around 25 years, but after 15 years in the water, the vessel has to go through an extensive survey to determine if it is seaworthy. “An average survey costs about $2 million, and you have to do it again at 20 years, so a number of owners opt to scrap instead,” Mr. Sharma said.

The oil glut is also sending offshore rigs to scrapyards. It is a relatively new business that has boomed over the past five years, as the cost of drilling at sea is much higher than inland exploration. At least 18 rigs have been broken up so far this year, compared with 46 last year, according to GMS.

Eoin Treacy's view -

The cost of maintaining a fleet of aging ships has risen considerably over the last few years because of the imposition of the long-awaited restrictions on bilge water discharge and environmental restrictions on diesel fuel. That is in addition to the cost of supporting vessels in a hostile maritime environment. These costs are helping to remove excess inventory from the market after a lengthy bear market.  



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July 09 2018

Commentary by Eoin Treacy

Video commentary for July 9th 2018

July 09 2018

Commentary by Eoin Treacy

China Stocks Rebound With Biggest Gain Since 2016, Yuan Climbs

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

Chinese stocks are still among the world’s worst performers this year. In addition to the trade war threat, investors have been troubled by a domestic deleveraging campaign weighing on liquidity, signs of an economic slowdown, and a weaker currency.

The Shanghai index is in a bear market after dropping more than 20 percent from its January high. “There’s room for a technical rebound after the selloff in past few weeks, while regulators’ positive comments on A shares showing value also helped,” said Shen Zhengyang, Shanghai-based strategist with Northeast Securities Co.

The Shanghai Stock Exchange said in a statement Sunday that valuations of companies listed on the exchange and big-cap blue chips are at reasonable or even relatively low levels when compared with peers in major economies. Value is emerging after recent declines, it said.

China International Capital Corp. said there’s medium-to- long term opportunities in A shares as valuations and sentiment have hit the bottom, while brokerages including Citic Securities Co. and Essence Securities Co. now expect the market to rebound.

Credit Suisse Group AG remains cautious, forecasting further losses over the coming weeks. It added that the downside would be limited by solid fundamentals.

Eoin Treacy's view -

The Renminbi has bounced over the course of the last week and is looking increasingly likely to stage a reversionary rally back towards the region of the trend mean.



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July 09 2018

Commentary by Eoin Treacy

May Fights to Contain Brexit Crisis After Key Ministers Quit

This article by Thomas Penny, Kitty Donaldson, Robert Hutton and Tim Ross for Bloomberg may be of interest to subscribers. Here is a section:

“The dream is dying, suffocated by needless self-doubt,” Johnson wrote. “It is as though we are sending our vanguard into battle with the white flags fluttering above them.”

Straight after her Commons appearance, May went to a packed meeting of rank-and-file Tory lawmakers, where she spoke and took questions for an hour about her plan. There were some voices of dissent during the gathering, one lawmaker said as he left the room, though the end was marked by loud cheers.

Geoffrey Cox, who campaigned to leave the EU, said he can offer May’s proposals to voters with a clear conscience. “This deal does represent a giant step out of the EU,” he said after the meeting. “If I didn’t think so, I wouldn’t support it.”

But Jacob-Rees Mogg, chairman of the pro-Brexit European Research Group, warned that May would split her party if she relies on opposition Labour votes to get her plan through Parliament. The premier’s team briefed Labour Party lawmakers on Monday in an apparent effort to try to count on their support if her own side lets her down.

Eoin Treacy's view -

The UK is still grappling with widely differing visions for what a post Brexit situation will look like and the fact that there has not been an immediate call for a vote of no confidence in Theresa May highlights just how tenuous the Party thinks its hold on power is if an election were to be called.



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