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November 23 2021

Commentary by Eoin Treacy

Oil Advances With Global SPR Release Smaller Than Expected

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

Futures in New York rose as much as 2.6%, erasing earlier losses, after Tuesday’s statement from the White House. While the headline size of the U.S. release is large, a significant chunk of the crude will be borrowed -- to be returned later -- leaving traders expecting tighter balances down the line. The U.S. is making the move in concert with China, Japan, India, South Korea and the U.K.

Oil prices have hit multiyear highs in recent months amid a global energy crisis that’s added hundreds of thousands of barrels a day to consumption, while the world economy is grappling with surging inflation. The decision puts major consumers on a collision course with OPEC+, which views such a release as unjustified and may reconsider plans to add more supply at a meeting on Dec. 2.

“From OPEC’s perspective, a cautious ramp-up is still the way to go,” said Damien Courvalin, the head of energy research at Goldman Sachs Group Inc,, in a Bloomberg Television interview on Tuesday. “OPEC has no incentive to increase production aggressively and the SPR release probably comforts them.”

Eoin Treacy's view -

COVID-19 numbers are ramping higher in Europe again. That holds out the prospect of rising case numbers in other regions as well. Against that background OPEC would be foolish to commit to spending on additional supply when it may not be used.



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November 22 2021

Commentary by Eoin Treacy

Video commentary for November 22nd 2021

Eoin Treacy's view -

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

Some of the topics discussed include: risk-off on Powell being less dovish than Brainard. Nasdaq-100 downside key day reversal, bitcoin pulls back from $60,000, ethereum tests $4000, Bonds yields continue to firm but yield curve stable, cloud computing leading on the downside. Dollar only risk-off asset breaking out suggest deleveraging.  



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November 22 2021

Commentary by Eoin Treacy

BofA Is Bearish on Stocks, Sees 'Mother of All Bubbles' in Tech

This article by Nikos Chrysoloras for Bloomberg may be of interest. Here is a section:

Rates shock” in 2022 to follow “inflation shock” of 2021 and “growth shock” of 2020

Financial conditions set to tighten, short rates to rise, QE to end, inverted yield curve a threat, and EPS growth to slow sharply; GDP growth to remain robust with China as outlier

Base case for strategists is low or negative and volatile asset returns in 2022, after “18 months of fat (latterly frothy) returns in crypto, credit and U.S. equities”
2021-2022 investment backdrop is similar to early stagflation of late-60s

Stock market upside could continue if it becomes clear in 1H that Fed is determined to keep real rates deeply negative, “the-mother-of-all bubbles in crypto & tech remains a fat tail”

Biggest downside risk is Fed staying hawkish even if Wall Street corrects, because fears of wage-price spiral grow; more extreme downside risks include a crypto-derivatives crash, geopolitical events related to China and Taiwan, and that a receding liquidity wave exposes credit-events to the detriment of a private or public equity

Eoin Treacy's view -

I have seen a noticeable uptick in talk of a crash over the last couple of weeks. It might be early to think about this is as a consensus view, but it certainly suggests some investors are wary of chasing successive new highs in steep uptrends.



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November 22 2021

Commentary by Eoin Treacy

OPEC+ Warns of Response as Biden Poised for Oil Reserve Release

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

OPEC+ officials warned they’re likely to respond to plans by the world’s largest oil consumers to release oil from their strategic stockpiles, setting up a fight for control of the global energy market.

President Joe Biden is set to announce a plan to release reserves from the Strategic Petroleum Reserve on Tuesday in tandem with China, India, Japan and South Korea, according to officials briefed on the matter. The move, weeks in the planning, is designed to ease this year rise in fuel prices for drivers and businesses.

OPEC+ delegates said the release of millions of barrels from the inventories of their biggest customers is unjustified by current market conditions and the group may have to reconsider plans to add more oil production when they meet next week.

The tussle threatens the biggest ructions in the geopolitics of oil since the price war between Saudi Arabia and Russia in early 2020. At stake is the price of the world’s most important commodity as politicians and central bankers contend with the strongest inflationary surge in more than a decade. It also shows the strained relationship between Washington and Riyadh, traditionally a cornerstone of U.S. relations in the Middle East.

Eoin Treacy's view -

Releasing supply from strategic reserves is supposed to be limited to times of emergency, not to serve political purposes. The whole purpose of having a strategic reserve is so it can be a short-term fix until a crisis passes. It is not designed as a weapon to go head-to-head with the world’s largest producers. Even a coordinated release will only inject volatility into the market and leave consumers even more exposed to supply shocks in the future.



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November 22 2021

Commentary by Eoin Treacy

World Fish Stocks Are in Worse State Than Expected, Study Shows

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

The world’s fish population is in a dire state, with about half of assessed stocks being overfished,
according to a study backed by Australian billionaire Andrew Forrest. 

The rate of depletion is worse than previous estimates of just over a third, Forrest’s Minderoo Foundation said in a report Sunday. A tenth of fish stocks worldwide is now on the brink of collapse, reduced to 10% of their original size, the study shows.

The findings are based on 48% of the total global catch for which there’s sufficient data, according to the report. The other half lacks information to say if they are sustainable or not. More than 1,400 stocks were assessed from 142 countries.

The journey to replenishing fish numbers isn’t easy. The report noted that it could take between three and 30 years for stocks to recover, and in many places that would require a major overhaul. The foundation recommended increased intervention and investment from governments, as well as better auditing and management practices from businesses.

Eoin Treacy's view -

Two important characteristics to the global fishery are worth considering. The first is overfishing which is a current problem and will likely get worse. The second is cyclicality. We have enough back data to conclude the Pacific goes through long warming and cooling cycles. Together with intense fishing, the current time is when we would expect to have lower catches of small pelagics like sardines and anchovy.



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November 19 2021

Commentary by Eoin Treacy

November 19 2021

Commentary by Eoin Treacy

When Bubble Meets Trouble

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

Let’s start with a proposition that one can prove with simple (if tedious) arithmetic: every deficit of government (spending in excess of revenue) is matched by a surplus across other sectors – households, corporations, and foreign countries – where their income will exceed their consumption and net investment. The chart below shows what this looks like. I’ve excluded some very small payment items for simplicity, but the basic upshot is simple: every time the government runs a deficit, you’ll see it directly reflected in the sum of three surpluses: personal savings, retained corporate profits, and trade deficits (a surplus from the perspective of foreigners).

Think of it this way. What a government deficit does is to direct goods and services produced by other sectors of the economy toward consumption and investment (including transfer payments to individuals, subsidies to companies, and public infrastructure) that has been approved by Congress. In return, the sectors that produced those goods and services receive income for output that they did not consume. This private surplus takes the form of securities, and in equilibrium, those securities are exactly the same ones (Treasury debt and base money) that the government issued in order to finance the deficit.

The red line in the chart below is essentially the federal deficit as a share of GDP (including amounts spent on transfers to other sectors). The blue line is the sum of personal, corporate, and foreign surpluses. The two lines are mirror images of each other because this sort of equilibrium is just arithmetic.

Already, investors may feel a bit sick here. See, the deficit that the U.S. government ran during the pandemic amounted to nearly 19% of GDP, and that – in equilibrium – is exactly why corporate earnings, personal savings, and trade deficits enjoyed a record surge in recent quarters. Meanwhile, the spending bills currently on the table ($1 trillion for infrastructure and $1.8 trillion for social and climate spending) are 8-10 year spending proposals, partially offset by revenue measures. There’s nothing in current legislation that’s going to replicate the breathtaking federal deficits we’ve seen in the past 18 months. That means – purely by the force of arithmetic – that the sum of those other three surpluses must shrink. The only question is which of the three will take that hit.

Eoin Treacy's view -

The hard fundamentals point to a sharply overvalued market, but bull markets don’t die of old age. They are most often assassinated by central banks. The next most significant cause of recessions is surging oil prices. The reality is bull markets thrive on liquidity and as long as the liquidity keeps flowing, valuations will continue to expand. 



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November 19 2021

Commentary by Eoin Treacy

Solar demands to normalize in 2022, polysilicon price likely to remain high

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

While some factories have already resumed operation after the mandatory power rationing expired, for instance GCL-Poly revealed that their 36,000 tonnes polysilicon factory has already restarted production after making use of the 2-week suspension period to undergo repair and maintenance, most solar materials have also witnessed significant price increase under the adverse effect of supply reduction. One of the clear examples is the sharp price rally of silicon raw material, which is the major material for making polysilicon and on average account for 40% of polysilicon’s production cost. The silicon raw material price rose sharply from USD 2.4/kg in Aug-21 to the peak of USD 10.4/kg in late Sep-21, before gradually normalizing to USD 6/kg in Nov (See Exhibit 3), especially after the Yunnan government decided to restrict the utilization of most energy-intensive production, including silicon raw material, by 90% starting from Sep in 2021. It is noteworthy that Yunnan accounts for 20% of total silicon raw material production in China, while Xinjiang and Sichuan’s market shares are 40% and 15% respectively. In our view, the cost pressure originated from silicon raw material price rally would gradually pass down the supply chain, implying subsequent solar material price hike would continue to emerge in other segments.

Eoin Treacy's view -

China has historically been willing to do whatever it takes to capture market share in emerging industries. That helped it dominate the entire supply chain for solar panels in the last decade. Deploying excess energy from coal fired power stations into polysilicon production was a big part of that strategy.



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November 19 2021

Commentary by Eoin Treacy

Bill Gates' nuclear startup picks a Wyoming coal town for its 1st advanced reactor, which will cost $4 billion

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

Warren Buffett's power company, PacifiCorp, is working with Gates' TerraPower on the Natrium reactor project, which is expected to be finished in 2028, per the release.

The US government has agreed to pump $1.9 billion into the project, Reuters reported. This includes $1.5 billion from the infrastructure bill that President Joe Biden signed this week, according to TerraPower's press release.

TerraPower, founded by Gates 15 years ago, will contribute $2 billion for the project, per the release.

The advanced nuclear power plant in Kemmerer would be able to produce a baseload of 345 megawatts, but would also have the capacity to supply 500 megawatts of power, which is enough energy to power around 400,000 homes, TerraPower said in the release.

 

Eoin Treacy's view -

This project means molten salt reactors will become a more dominant part of the global nuclear sector over the coming couple of decades. The big selling point from a global perspective is the difficulty of using these designs to manufacture fissile material for bombs. That boosts the potential for exports to third party countries once the technology has been proofed up.



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November 19 2021

Commentary by Eoin Treacy

November 18 2021

Commentary by Eoin Treacy

Video commentary for November 18th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: RBA delays raising rates, weights on banks, stay at home champions breaking out, virus spreading in Europe again, vaccine producers mixed, China growth moderating, crypto weak, gold steady, oil firms from $80. 



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November 18 2021

Commentary by Eoin Treacy

Staples Center to become Crypto.com Arena in reported $700 million naming rights deal

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

Staples Center is getting a new name. Starting Christmas Day, it will be Crypto.com Arena.

The downtown Los Angeles home of the NBA's Lakers and Clippers, the NHL's Kings and the WNBA's Sparks will change its name after 22 years of operation, arena owner AEG announced Tuesday night.

Crypto.com is paying $700 million, according to multiple reports, over 20 years to rename the building. The parties aren't publicly announcing the financial terms of what's believed to be the richest naming rights deal in sports history.

The 20,000-seat arena has been Staples Center since it opened in October 1999, with the naming rights owned by the American office-supplies retail company under a 20-year agreement. The name will change when the Lakers host the Brooklyn Nets in the NBA's annual Christmas showcase.

Eoin Treacy's view -

Staples was an enormous 1990s success story. The share opened at $0.89 in the 1989 IPO and peaked in 1999 at $23.95. It briefly regained that peak in 2006 and was taken private in 2017. Back in 1999 it must have felt like the world was the company’s oyster. Today it represents a diminishing position in the office supplies and services market.



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November 18 2021

Commentary by Eoin Treacy

Let's Buy the US Constitution

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

DAOs are not a new idea. Vitalik Buterin, Ethereum’s co-founder and unwitting figurehead, contemplated Decentralized Autonomous Organizations in the original Ethereum Whitepaper in 2013. The DAO, a doomed decentralized venture fund, launched and folded in 2016. DAOs have been on fire this year within the web3 community; becoming a DAO is the de facto long-term fate of any sufficiently serious protocol. 

In October, a16z led a $10 million round in the popular DAO Friends with Benefits. A couple weeks ago, PleasrDAO bought a 1/1 Wu-Tang album for $4 million. Last week, the Ethereum Name Service (ENS) became a DAO and airdropped $2 billion worth of ENS tokens on anyone who’d bought a .eth domain over the past few years. Many people received $10s of thousands just for being an early adopter. 

But despite the early bright spots, most people have never heard of a DAO or bought into web3 yet -- it’s still very early. There’s still a struggle going on between web3’s fans and its skeptics, including many members of the US government. That’s not how it should be. America should be the home of web3, as @punk6529 eloquently laid out here: 

Eoin Treacy's view -

I’m sure those of us with a few grey hairs remember 2008 when securitization was a dirty word that was blamed for crashing the global financial system. The reason it created such a problem was it took groups of cashflows, treated them as a whole, they spliced them up into income streams with varying degrees of risk. Then smart people took that structure, leveraged it, and kept on leveraging it until it broke. Banks went bust all over the world and regulators swore it would never happen again. That’s why banks are less than eager to participate in these new ventures.



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November 18 2021

Commentary by Eoin Treacy

Alibaba Outlook Disappoints After China Slowdown Hurt Sales

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

Revenue growth at a plethora of divisions including its Cainiao logistics arm and local on-demand services underperformed expectations, while bread-and-butter customer management revenue from platforms like Taobao and Tmall grew just 3% -- the slowest in at least five quarters.

Competition is intensifying just as China grapples with the widest Covid-19 outbreak since the virus first emerged in Wuhan. Rivals like JD.com Inc. and Pinduoduo Inc. are stepping up investments to win over Alibaba’s users, just as a resurgence in coronavirus cases dents consumer spending. Gross domestic product expanded 4.9% in the September quarter, cooling from the 7.9% growth in the previous period, partly because of lockdown measures across many cities.

“Looking ahead, we will continue to invest heavily into three growth engines of domestic consumption, globalization, cloud computing and data intelligence,” Zhang told analysts on the call.

Eoin Treacy's view -

China’s growth has slowed meaningfully as the housing market shock therapy imposed in response to Evergrande’s overleverage has weighed on sentiment. As more credit is made available to property developers, speculative interest should begin to recovery over coming quarters.



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November 17 2021

Commentary by Eoin Treacy

November 17 2021

Commentary by Eoin Treacy

Cargill CEO Says Food Prices to Stay High on Labor Crunch

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

MacLennan said in September that soaring food costs would prove transitory and should dissipate in time. Since then, the rally in energy prices and continued supply-chain snarls have made markets “a lot tighter,” he said.

“When you have limited supply, that can lead to higher prices,” MacLennan said. However, he noted that China hasn’t been buying crops as aggressively as it did last year, while North American harvests are robust. “That takes some pressure off the system.”

A search for greener airplane fuel and biodiesel is also pitting food against energy production, leading to tighter edible oil supplies. Prices for palm oil, the world’s most consumed vegetable oil, have soared about 50% in the past year, while soybean oil is up 60%. Canola, also used to make oil, is near a record.

The food-versus-fuel tension will become more intense than it’s ever been in the last 15 years, MacLennan said. The day will come when more agricultural products will be used for energy than food, so it will be incumbent upon the farmers of the world to innovate and become more productive, he added.

Eoin Treacy's view -

Using food for fuel should be a much more controversial practice. We are literally substituting political idealism for the wellbeing of millions of people. The fact that palm oil demand is soaring because of its use as both a food ingredient and a fuel is a useful example of how the environmental lobby often does more harm than good.



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November 17 2021

Commentary by Eoin Treacy

IBM unleashes the Eagle, the world's most powerful quantum processor

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

With its 127 qubits, IBM says that Eagle is the company’s first processor with power beyond the reach of traditional supercomputers, a milestone often called quantum advantage. It estimates that recreating one of the Eagle’s states on a regular computer would require more classical bits than there are total atoms in every single person on Earth.

However IBM isn’t the first to reach quantum advantage. Google claimed it back in 2019 with its 53-qubit Sycamore processor, but IBM clapped back saying that with better classical algorithms the same job could be done on existing supercomputers in a matter of days – hardly unreachable. Nevertheless, the first-generation Jiuzhang demonstrated the quantum advantage last year, conducting a certain calculation in a few minutes that would take a classical supercomputer 2.5 billion years.

Eagle is now available on the IBM Cloud to some members of the IBM Quantum Network. The company has already outlined its roadmap for future quantum processors, with plans to release the 433-qubit IBM Quantum Osprey next year, followed by the Quantum Condor in 2023, which will pack an astounding 1,121 qubits.

Eoin Treacy's view -

As I pointed out in yesterday’s subscriber’s video Rivian with no revenue has a higher valuation than Lucid Group, which just began delivering cars. In turn Lucid Group now has a higher valuation than Volkswagen which producers millions of vehicles a year. That’s a very roundabout way of saying that in this market promises are worth more than reality.



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November 17 2021

Commentary by Eoin Treacy

Mobius Bets on '50-Year Rally' in Indian Stocks as China Slows

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

“India is on a 50-year rally,” even if there are short bouts of bear markets, Mobius said in an interview on Bloomberg Television. “India is maybe where China used to be 10 years ago,” he said, adding the government policies of unifying rules across states will help the country in the long run.

Mobius’ bullish view on India clashes with those of analysts at Morgan Stanley and Nomura Holdings Inc., who have downgraded the stock market after the benchmark S&P BSE Sensex Index more than doubled from a March 2020 low.

Emerging-market equities have trailed behind their developed-nation peers this year, held back by losses in China as the government has roiled markets with a widespread regulatory crackdown.

“People say emerging-markets look bad because China is dragging down the index, but they have to look at other areas such as India that are going up,” said Mobius…

Eoin Treacy's view -

Saying that India could be on a 50-year bull market is not incompatible with the risk of a reversion towards the mean which would correct the short-term overvaluation.

India represents a significant growth opportunity but is also subject to volatility. The Nifty Index remains in a reasonably consistent uptrend but is best bought following inevitable occasional setbacks.



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November 16 2021

Commentary by Eoin Treacy

Video commentary for November 16th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Wall street steady but speculation in new companies continues to build, Europe and Japan gains eroded by weak currencies, China recovering, oil steady, gold weak, bitcoin and ethereum pull back. 

Some of the topics discussed include: Wall street steady but speculation in new companies continues to build, Europe and Japan gains eroded by weak currencies, China recovering, oil steady, gold weak, bitcoin and ethereum pull back. 

 



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November 16 2021

Commentary by Eoin Treacy

Gold Erases Earlier Gains After Fed Officials Stir Policy Debate

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

St. Louis Fed President James Bullard said Tuesday that the U.S. central bank should be more aggressive in managing risks from price pressures. Bullard participates in the Federal Open Market Committee, which sets direction of U.S. monetary policy, and will become a voting member next year.

“I think it behooves the committee to go in a more hawkish direction in the next couple of meetings so we are managing the risk of inflation appropriately,” Bullard said in a Bloomberg Television interview with Michael McKee, Lisa Abramowicz and Tom Keene.

Eoin Treacy's view -

James Bullard will be a voting member of the Fed’s Open Market Committee next year. His pronouncements tend to carry more weight than Neel Kaskari’s, who won’t be a voting member until 2023. 



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November 16 2021

Commentary by Eoin Treacy

European Gas Prices Jump on Delay to New Russian Pipeline

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

The German regulator said Tuesday it suspended the certification procedure for the Nord Stream 2 project because the operator of the pipeline decided to set up a German subsidiary, which will be the owner of the section of the pipeline in the country. The permitting process has been halted until assets and people are transferred to the new unit.

Benchmark European gas prices surged as much as 12% after the announcement as it adds to the uncertainty over how much gas the energy-hungry market will have this winter. Many in Europe expect Russia to significantly increase supplies only when the pipeline is approved.

“This is potentially a good thing for the project for the long term, as the changes could mean it would be eventually approved,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “But it’s not helping the short-term outlook for the market where a bad, cold winter could leave us short.”

Eoin Treacy's view -

There is no doubt the Nordstream 2 pipeline will eventually be permissioned. However, that is not going to happen until German regulators have had the opportunity to feign independence in making the decision. No one likes to admit they are beholden to a foreign power but unfortunately, Europe is completely dependent on Russian gas. They need that pipeline as much as Russia wants it and therefore it will be permissioned eventually.



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November 16 2021

Commentary by Eoin Treacy

Introducing the First AI Model That Translates 100 Languages Without Relying on English

This article from Meta Platforms (Facebook) may be of interest to subscribers. Here is a section:

•Facebook AI is introducing M2M-100, the first multilingual machine translation (MMT) model that can translate between any pair of 100 languages without relying on English data. It’s open sourced here.

•When translating, say, Chinese to French, most English-centric multilingual models train on Chinese to English and English to French, because English training data is the most widely available. Our model directly trains on Chinese to French data to better preserve meaning. It outperforms English-centric systems by 10 points on the widely used BLEU metric for evaluating machine translations.

•M2M-100 is trained on a total of 2,200 language directions — or 10x more than previous best, English-centric multilingual models. Deploying M2M-100 will improve the quality of translations for billions of people, especially those that speak low-resource languages.

•This milestone is a culmination of years of Facebook AI’s foundational work in machine translation. Today, we’re sharing details on how we built a more diverse MMT training data set and model for 100 languages. We’re also releasing the model, training, and evaluation setup to help other researchers reproduce and further advance multilingual models.

Eoin Treacy's view -

The trend of artificial intelligence away from iterative learning to free associative learning is a major innovation which has also been used to by Google’s DeepMind to make substantial progress in a range of medical questions.



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November 15 2021

Commentary by Eoin Treacy

November 15 2021

Commentary by Eoin Treacy

4 Million Tons a Day Show Why China and India Won't Quit Coal

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

Meanwhile, mines across China and India have been ramping up production in recent weeks to ease a supply crunch that’s caused widespread power shortages and curbs on industrial activity. China’s miners have beaten a government target to raise output to 12 million tons a day, while India’s daily production is close to 2 million tons.

“The power cuts since mid-to-late September show that we are still not prepared enough,” Yang Weimin, a member of the economic committee of the Chinese People’s Political Consultative Conference and a government advisor, told a conference in Beijing on Saturday. Additional funding is needed to ensure coal plants can be used to complement a rising share of renewables, he said.

Coal’s share in global electricity generation fell in 2020 to 34%, the smallest in more than two decades, though it remains the single largest power source, according to BloombergNEF.

In China, it accounted for about 62% of electricity generation last year. President Xi Jinping has set a target for the nation to peak its consumption of the fuel in 2025, and aims to have non-fossil fuel energy sources exceed 80% of its total mix by 2060.

For India, coal is even more important, representing 72% of electricity generation. The fuel will still make up 21% of India’s electricity mix by 2050, BNEF analysts including Atin Jain said in a note last month.

Eoin Treacy's view -

The focus on attention right now is on the willingness and potential of both India and China to eventually limit their use of coal. Much less attention is focused on Africa where the bulk of population growth is occurring. The next couple of billion people will mostly be born in Africa. That means increasing demand for power and higher standards of living as the continent urbanises



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November 15 2021

Commentary by Eoin Treacy

Fed's Kashkari Says Policy Shouldn't Overreact to Inflation

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

Kashkari said the move was “appropriate” and stressed that moving too quickly to remove the Fed’s support could end up hurting the economy more than it helps on the inflation front.

“When we adjust monetary policy it acts with a lag,” he said. “So if we overreact to a short-term price increase, that can set the economy back over the long term.”

Kashkari, who doesn’t vote this year on the policy making Federal Open Market Committee, said he expects heightened demand connected to previous fiscal stimulus and supply constraints caused by the pandemic to slowly ease. 

Asked about President Joe Biden’s pending decision whether to reappoint Fed Chair Jerome Powell to another four-year term, or perhaps choose Fed Governor Lael Brainard to succeed him, Kashkari said both are capable and would be likely to pursue similar monetary policies.

“Both of them have been instrumental in the new framework that we’ve adopted in terms of not shortcutting the recovery, and I’m confident that either of them as chair would continue to see that through,” he said.

Eoin Treacy's view -

Kashkari is one of the biggest doves at the Fed but he is not short of company considering the trajectory of policy. Regardless of who is in charge, the set of challenges that need to be addressed will not change. The economic recovery is uneven with labour force participation declining while the number of job opens is climbing. That’s not going to be fixed by monetary policy.



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November 15 2021

Commentary by Eoin Treacy

Why AT&T Stock May Be Near a Bottom With Its Proposed Dividend Cut

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

The question remains then whether $20.23 is still too high. For example, with a 6% dividend yield, the stock has to trade at $19.17 per share. If we add $4.76 to that price, this implies that T stock should be at $23.93 per share.

That implies that T stock could fall another $1.12 or 4.5% to $23.87 if the post-split dividend yield will be at 6%.

But don’t forget this is just an estimate. We don’t know exactly what the new dividend payment will be. For example, if the dividend is reset at $1.18, then today’s price implies a new post-split yield of 5.62% (i.e., $1.18 / $20.99). That is fairly close to 6% and may imply that T stock is actually near a trough.

Until the company begins to clarify some of these issues, the market will not know exactly where to price T stock. However, all indications are that it is getting close to a trough, assuming that the new yield will be close to 6%.

Eoin Treacy's view -

An 8.38% yield is conspicuously large even for the high yielding global telecommunications sector. With a lengthy history of both paying and increasing the pay out, it is reasonable to assume a good many investors are in the share for the income and are selling because they fear their income will be reduced.



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November 12 2021

Commentary by Eoin Treacy

November 12 2021

Commentary by Eoin Treacy

Easing Auto Supply-Chain Woes May Foreshadow Path for Inflation

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

Investors will keep a close eye on UMich inflation expectations, due at 10 a.m. NYT. Another piece of the inflation picture that bears attention is the auto supply-chain crunch that’s been an exceptionally large contributor to rising prices.

News from Toyota adds to signs that supply issues may finally be easing. The carmaker is targeting greater December output than it’s seen in recent years, with next month set to be the first time in seven months that all of Toyota’s production lines in Japan will be operating normally.

That follows an Oct. 31 report that GM had no chips-related downtime scheduled in North America, the first time it had been able to resume full production since February. BMW’s results showed it’s muscling through the chip shortage, and Ford said revenue and profit rose due to increases in chip availability and vehicle shipments. Smartphone chipmaker Qualcomm‘s outlook, and steel and freight shifts, have also added to recent signs of broader relief.

Yet consumers may not feel like there’s been a downshift. U.S. used-vehicle prices rose 9.2% in October, according to Manheim Auctions; the index was up 38% from a year earlier. Reported used-vehicle inflation is also lower than suggested by the Manheim index, suggesting another big print for November’s CPI, as my colleague Cameron Crise pointed out.

Eoin Treacy's view -

There is clear potential that we are looking at the peak of supply disruption for chips. This is obviously a nuanced topic because there are lots of different kinds of chips and not every sector requires the same types of components. However, on aggregate, the supply of chips to the sectors that have contributed most to inflationary pressures is improving.



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November 12 2021

Commentary by Eoin Treacy

How NFTs Create Value

Thanks to a subscriber for this article from the Harvard Business Review. Here is a section:  

Itʼs not uncommon to see creators organize in-person meetups for their NFT holders, as many did at the recent NFT NYC conference. In other cases, having a specific NFT in your online wallet might be necessary in order to gain access to an online game, chat room, or merchandise store. And creator teams sometimes grant additional tokens to their NFT holders in ways that expand the product ecosystem: owners of a particular goat NFT, for example, were recently able to claim a free baby goat NFT that gives benefits beyond the original token; holders of a particular bear NFT, meanwhile, just received honey.

Thus owning an NFT effectively makes you an investor, a member of a club, a brand shareholder, and a participant in a loyalty program all at once. At the same time, NFTsʼ programmability supports new business and profit models — for example, NFTs have enabled a new type of royalty contract, whereby each time a work is resold, a share of the transaction goes back to the original creator.

This all means that NFT-based markets can emerge and gain traction quickly, especially relative to other crypto products. This is both because the NFTs themselves have standalone value — you might buy an art NFT simply because you like it — and because NFTs just need to establish value among a community of potential owners (which can be relatively small), whereas cryptocurrencies need wide acceptance in order to become useful as a store of value and/or medium of exchange.

Eoin Treacy's view -

The value of the NFT evolution is in giving greater control to the creators of intellectual property. The penniless artist is a long-standing meme because the few become truly great. Even then, seldom ever profit from their early works. It is only when they become famous and the value of their oeuvre increases that financial rewards come from new works. That’s not a great business model and NFTs help creators to participate in the increasing value of all their work to the extent others see value in it.



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November 12 2021

Commentary by Eoin Treacy

Ray Dalio and BlackRock's Rick Rieder on the New World Investors Are Facing

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

Second point I would make is that the usage of fiscal and monetary policy to bridge to the other side of this epidemic has been pretty extraordinary and beyond anything I’ve ever seen, certainly, in the investment universe. I would say generally well-designed, flexible, more than adequate, in order to minimize social and economic disruption. And you think about the backdrop of when you pull monetary and fiscal together, not just in the US, but globally—I mean, you pressed into the system immense amounts of liquidity. But just to put a couple of these numbers in the backdrop into perspective, today versus 20 years ago—20 years ago there was less than $3 trillion of liquidity in the system—in dollar equivalents, 6% of GDP. It’s now $40 trillion or just under 50% of GDP.

So, first thing, from an investment point of view, that liquidity is completely different. And then, how do you invest? And now, you think about you’re probably on the back side of that. And then finally, to wrap up, I’ll pass it to Ray for his better, bigger-picture thoughts than mine, I would throw out: how do you think about global and political tensions on the back side of what I just described? Supply-chain breakages, the dynamics around how do you think about your domestic trade, how do you think about your domestic ecosystem, which I think you’ll see some stress based on, you know, how have you operated internationally over the last few decades? So, big consideration, I think, is going to be how do you think about political tension, and how do you think about sovereign or regional dynamics? Maybe a bit more profound and different than we’ve seen over the last couple of decades. So, with that, I’ll pass it to Ray for his big-picture thoughts on these things.

Eoin Treacy's view -

Capital is both global and mobile, so it flows to the most attractive assets wherever they may reside. With liquidity representing 50% of global GDP there is a clear incentive to invest in capital intensive industries that will bear fruit long into the future.



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November 11 2021

Commentary by Eoin Treacy

Video commentary for November 11th 2021

November 11 2021

Commentary by Eoin Treacy

Gold as a monetary metal

Eoin Treacy's view -

Gold is a monetary metal. That’s true even if we never use it for everyday purchases. It’s also true even if we never go back to a gold standard. The reason it is a monetary metal is it has a history as a unit of exchange and it is possible for it to become a unit of exchange in some potential set of future circumstances.



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November 11 2021

Commentary by Eoin Treacy

Three Reasons To Be Bullish

This report from Morgan Stanley focusing on Indonesia may be of interest to subscribers. Here is a section:

Economics - 3 Reasons To Be Bullish: We see an absolute and relative growth story in Indonesia for 2022. We expect growth here to accelerate into 2022, even as it moderates in other parts of Asia and growth differentials between Indonesia and the rest of the world are likely to become more favourable. Indeed, we expect Indonesia to be a prime beneficiary as growth broadens out from the front-runners to the laggards and from exports to domestic demand. This is due to: (1) Indonesia is a reopening domestic demand play. We estimate that Indonesia will have implemented more than enough doses to fully vaccinate its adult population by Jan-22 and 99% of its total population by Mar-22. Rising vaccination rates should unlock growth delta from domestic demand. India's recovery patterns offer some interesting insights in that regard. (2) Indonesia offers an inflation hedge against stagflation concerns from supply-side constraints. It is one of the only two net commodity exporting economies in AXJ and hence benefits from the positive terms-of-trade as commodity prices rise. (3) It has one of the strongest structural growth stories in the region and offers diversification opportunities away from China. Its benign demography and low debt ratio stand in contrast to most other parts of Asia. Geopolitical tension and Covid have increased the need to diversify manufacturing risks and policy[1]makers are capitalising on this with the right structural reforms.

Eoin Treacy's view -

Indonesia was one of the best performing markets in the post GFC recovery. That was because the entire ASEAN region was not leveraged to the US mortgage market and reacted very positively to massive monetary accommodation. The recovery in commodity prices also contributed to its outperformance. That ended when commodities peaked and the Dollar began to recover.



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November 11 2021

Commentary by Eoin Treacy

Why You Should Care About Taproot, The Next Major Bitcoin Upgrade

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

For one, Taproot ultimately empowers the Lightning Network to unleash its full potential as a proper scaling technology for Bitcoin. Currently, the second layer protocol can be spotted in action in the Bitcoin blockchain, reducing coins' fungibility. Fungibility is vital for a monetary good to actualize the medium of exchange role because it allows for coins to be seen as equal. If transaction outputs were seen differently, they could suffer from discrimination by the receiver, preventing users from using their BTC for payments in certain conditions.

In addition, the Lightning Network and other complex wallets and contracts will enjoy greater efficiency and lower transaction fees, further empowering the usage of Bitcoin as a medium of exchange. Enabled by Schnorr signatures, even the most complex transactions made between Taproot-supporting wallets will incur the same fees as simple ones. Furthermore, this reduction of costs and the increased flexibility and capabilities for smart contracts will ultimately enable very complex setups that were previously not feasible in Bitcoin.

Eoin Treacy's view -

One of the biggest arguments against bitcoin retaining its crown as the most significant cryptocurrency is the slow and limited size of transactions. The Taproot protocols being implemented tomorrow are aimed at addressing many of those arguments.



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November 11 2021

Commentary by Eoin Treacy

Greenland parliament vote effectively halts Kvanefjeld rare earths project

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

Earlier this year, we touched on the snap elections in Greenland, where the victorious left-wing Inuit Ataqatigiit party ran in opposition to the promising Kvanefjeld mining project on the southern tip of the island.

Australian firm Greenland Minerals had been working to secure a mining license for the project.

“The project is centred on the globally unique Ilimaussaq Alkaline Complex in southern Greenland,” the firm says on its website. “To date over 1 billion tonnes of mineral resources (JORC-code compliant) have been delineated in the project area, across three different zones – Kvanefjeld, Sørensen and Zone 3. Mineralisation is hosted by a rock-type called lujavrite, and is enriched in rare earths, uranium, and zinc.”

However, Greenland’s parliament voted Tuesday to ban uranium mining and exploration, effectively halting the project.

On Wednesday, Greenland Minerals submitted a request for a trading halt “pending an update to the market regarding passing of legislation concerning uranium, in the Greenland parliament.” As of Wednesday, the company had yet to release a statement about parliament’s decision.

Eoin Treacy's view -

Greenland has some of the most promising rare earth and uranium deposits in the world and the receding ice is revealing additional untapped potential sources of minerals. Shutting down exploration/development of uranium removes potential sources of new supply from the global market. It could well be terminal for Greenland Minerals.



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November 10 2021

Commentary by Eoin Treacy

Video commentary for November 10th 2021

November 10 2021

Commentary by Eoin Treacy

Newcrest Joins M&A Gold Rush With $2.8 Billion Pretium Buy

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

Newcrest Mining Ltd. agreed to buy Pretium Resources Inc. in a cash and shares deal valuing the Canadian gold producer at about $2.8 billion, adding to a wave of consolidation in the sector.

Melbourne-based Newcrest will offer Pretium holders C$18.50 ($14.87) a share, a 23% premium to the target’s closing price Monday in Toronto. Pretium’s board has unanimously recommended the transaction, although it still requires the approval of two-thirds of the company’s shareholders.   

“Our strategy is to specialize in low-cost, long-life and large-scale gold mines, and this is certainly that,” Sandeep Biswas, Newcrest’s managing director and chief executive officer, said on a media call. Adding Pretium, which owns the Brucejack operation close to Newcrest’s Red Chris mine in British Columbia, would immediately add more than 300,000 ounces a year of gold output, the company said, taking annual production to more than 2 million ounces. 

Eoin Treacy's view -

Exploration and development is risky, expensive and time consuming. M&A by contrast is quick, the reserves are relatively well understood but the upfront cost tends to be headline grabbing. That’s why timing of purchases is so important. Miners have a long dismal history of paying record prices at market peaks. At least on this occasion Newcrest is buying Pretium after a good-sized shakeout.



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November 10 2021

Commentary by Eoin Treacy

China's Inflation Risks Build as Producers Pass on Costs

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

The producer price index climbed 13.5% from a year earlier, the fastest pace in 26 years and above economists’ median forecast for a 12.3% gain, data from the National Bureau of Statistics showed Wednesday. The consumer price index rose 1.5%, the highest since September 2020 and exceeding the projected 1.4% gain.

Producer prices in China have been rising rapidly in the past few months, first due to the global commodity price rally and then output curbs caused by a power crunch. Consumer inflation is also starting to pick up as weather-related supply problems push up food prices and manufacturers pass on higher costs to retailers. 

The data “implies broad-based inflation pressure on both the production side and the consumer side,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd. “Inflationary pressure and the more hawkish stance of monetary policy in other major economies will likely limit China’s room to maneuver for monetary easing.”

Eoin Treacy's view -

China exported deflation for much of the last twenty years, with a steady flow of cheaply manufactured goods flooding the global market. That boosted consumption as well as created the impression prices would never again rise in an unexpected matter.



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November 10 2021

Commentary by Eoin Treacy

Inflation in U.S. Builds With Biggest Gain in Prices Since 1990

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

“We haven’t seen, I’ll say, any more resistance to our price increases than we’ve seen historically.” -- McDonald’s Corp. CFO Kevin Ozan, Oct. 27 earnings call

“Looking at Q4, we expect our selling price actions to continue to gain traction, as we work to mitigate the raw material and logistics inflationary pressures we have experienced throughout the year.” -- 3M Co. CFO Monish Patolawala, Oct. 26 earnings call

“We feel very comfortable that any inflation that is affecting our margin today, we have the ability to offset it.” - Chipotle Mexican Grill Inc. CFO John Hartung, Oct. 21 earnings
call

“We have now announced pricing in nine out of ten categories, so very broad based.” -- Procter & Gamble Co. CFO Andre Schulten, Oct. 19 earnings call

While most CPI categories rose, the cost of airfares declined for a fourth month and apparel prices were unchanged. Wages have strengthened markedly in recent months -- with some measures rising by the most on record -- but higher consumer prices are eroding Americans’ buying power. 

Inflation-adjusted average hourly earnings fell 1.2% in October from a year earlier, separate data showed Wednesday.
 

Eoin Treacy's view -

The ability of companies to pass on inflation is a good reason why the stock market generally does well in the early portion of an inflationary cycle. The big question therefore is not whether they can successfully pass on one price increase but whether they can continue to pass on price increases should inflationary pressures trend higher.



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November 09 2021

Commentary by Eoin Treacy

November 09 2021

Commentary by Eoin Treacy

Email of the day on gold, ratios and real rates

In contradistinction to your bullish backdrop for gold and your contention of an eventual breakout (not breakdown) of the price, I would appreciate your comments on the relevance and significance of this part of the John Authers’ Points of Return article in Bloomberg this morning:

The Loser of the Year of the Vaccine: Gold
The last 12 months have seen a steady rise in inflation, yet gold has Authors taken a drubbing. That is weird, because the precious metal has long been regarded, more or less correctly, as a hedge against inflation and monetary debasement. There’s been a lot of both inflation and money-printing in the last 12 months, and yet gold has declined, with miners of the metal becoming the single worst-performing sector in the S&P 500.

We would have found this even harder to predict if we had been told a year ago that real yields would stay solidly and historically negative. Gold has no yield and historically has a strong inverse relationship with real yields. The less bonds pay after inflation, the less unappealing gold will appear. But real yields have remained bafflingly low and that hasn’t helped:

As the chart indicates, there is only one other period since the crisis that looks anything much like this. Unfortunately, that was in 2012 and early 2013, when real yields stayed low during the Federal Reserve’s “QE Infinity” and gold began to fall. It turned out on that occasion that the price was telling us something. The spring of 2013 saw first a dramatic fall for gold and then the “taper tantrum” as bond yields shot upward in response to a hawkish Fed.

Another indicator looks surprising. The ratio of stocks to gold, the effective price of the S&P 500 in ounces rather than dollars, has stayed surprisingly constant since Richard Nixon removed the U.S. from the last vestiges of the gold standard in 1971. The S&P has been worth more in gold terms than it was in 1971 only for a few years at the top of the 1990s bull market. Despite all the worries about debasement, that golden ratio is now stronger than it was in 1971, and at a 16-year high:

It’s possible that gold’s admirers have deserted it for cryptocurrencies, of course. There are various explanations out there. But the interpretation that it’s telling us to beware a possible tantrum in the bond market and correction in stocks seems fair.

Eoin Treacy's view -

Thank you for this email which raises a number of important points. I don’t mind admitting I have found the Dow/Gold ratio to be particularly perplexing over the last three years. For the first 15 years of my career, it was the most reliable of all long-term ratios. It had a wonderful history of cyclicality which depicted the ebb and flow of capital between asset classes over more than a century. It was one of the primary tools for rationalising the beginning of a secular bull market in equities from 2011 onwards. Then it pulled back in a big way in 2018 which raised big questions about the consistency of the move.



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November 09 2021

Commentary by Eoin Treacy

Brainard Interviewed by Biden for Fed Chair as Search Heats Up

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

But the White House has raised the possibility with some Senate Banking Committee members that Powell might not be reappointed, according to two people familiar with the matter. Discussing the chairmanship with Brainard could signify that the Biden team is weighing how a break with Powell might
help advance their goals for the central bank. Brainard and Powell work closely together on multiple issues and are viewed as holding similar views on monetary policy, but she’s favored a tougher stance on big banks.

If he chose Brainard, Biden would be nominating someone who would excite Democrats in Congress but put Republicans and large banks on edge -- setting up a tougher confirmation battle in the Senate, where Democrats command only 50 of the 100 seats. Still, Vice President Kamala Harris would be able to cast a tie-breaking vote.

Eoin Treacy's view -

The progressive wing of the Democratic Party was intent on forcing the infrastructure and big social spending bill to be passed together. By breaking from that policy, the Biden administration successfully passed the infrastructure bill over the weekend, but will also have angered the progressives. Courting Lael Brainard for the position of Fed chair and the potential to appoint progressive-friendly people to the Fed board will likely be used as a way of keeping that wing of the party on side.



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November 09 2021

Commentary by Eoin Treacy

Email of the day on telecoms companies

Hi Eoin, would like to hear your opinion on the Global Telecom sector and AT&T in particular. Is there any reason why these high yielding but low growing stocks are so unloved? Tkx for your thoughts!

Eoin Treacy's view -

Thank you for this question. I was also looking at AT&T over the weekend and found the size of the decline puzzling. The most recent news is focused on the delay to rolling out 5G imposed on both AT&T and Verizon; resulting from a complaint by the FAA that their signals might interfere with aircraft.  



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November 08 2021

Commentary by Eoin Treacy

November 08 2021

Commentary by Eoin Treacy

Global Themes Review November 2021

Eoin Treacy's view -

A year ago, I began a series of reviews of longer-term themes which will be updated going forward on the first Monday every month. The last was on October 1st. These reviews can be found via the search bar using the term “Secular Themes Review”.

The metaverse has captured the imagination of many investors over the last month. It’s an online world that accepts real world money and is growing at an exponential rate. The value being created rests on the assumption someone will put more value on the space or bauble than you, at some point in the future. Stories of people making 1000x on their investments are not uncommon so it is understandably creating a great deal of excitement in the online community.

The fact this is occurring as an offshoot of the cryptocurrency sector is unsurprising. Bull markets find ways to continually increase leverage in the system. Binance, for example, recently limited leverage to 40 times but 100 times is still easily available. The introduction of futures-based ETFs for bitcoin and the options that trade on them has re-upped the leverage in the system. On top of that we have the money pouring into the NFP and metaverse offerings through the medium of cryptocurrencies.



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November 05 2021

Commentary by Eoin Treacy

November 05 2021

Commentary by Eoin Treacy

November 05 2021

Commentary by Eoin Treacy

Treasuries Surge Despite Strong Jobs Data, Pricing In Slower Fed

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

Gains in Treasuries may be partly driven by short-covering, which appears to have contributed to Thursday’s U.K.-led rally. CME Group Inc.’s preliminary open-interest data for Treasury futures show steep declines, in particular for the two-year note contract. Open interest in two-year note futures fell 2.3%, its biggest drop in three weeks.

Fed officials continue to emphasize that inflation is too high even as they hope to foster labor-market recovery by keeping interest rates low.

Federal Reserve Bank of Kansas City President Esther George Friday said “the risk of a prolonged period of elevated inflation has increased,” and “the argument for patience in the face of these inflation pressures has diminished.”

The declines in 10- and 30-year yields -- which fell as much as 6.5 basis points to 1.899%, the lowest since Sept. 23 -- come despite next week’s auctions of those tenors. The auctions, whose sizes were announced on Nov. 3, are smaller than the previous new-issue auctions in August, however. The reductions were the first since 2016.

Eoin Treacy's view -

The longer-term inflationary trend is being driven by wage demand growth and the upward pressure on the cost of housing and rents. However, it does not all happen at once, and some of the supply inelasticity factors that contributed to inflation over the last year are easing.



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November 05 2021

Commentary by Eoin Treacy

Is the Metaverse Really Going to Happen? Nvidia Is Betting Yes

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

The company, now called Meta Platforms Inc., argues that millions of users are ready to adopt virtual reality technology — like its own headset — and live their lives in immersive online environments. That could mean attending a work meeting in a virtual boardroom, touring a digital factory or hanging out with far-flung friends in a simulated saloon. “The metaverse is the next frontier,” Chief Executive Officer Mark Zuckerberg declared.

For now, few people even have VR gear, and the metaverse concept would have to overcome concerns about privacy and — for some — a certain creepiness. But it has a big believer in one key corner: the largest maker of video-game chips, which says the metaverse is closer than we think and potentially the next gold mine for technology. 

The video-game boom set Nvidia Corp. on a path to become the world’s most richly valued chip company — overtaking the likes of Intel Corp. — and now it’s ready to remake the internet as a three-dimensional place. Rather than using the web to look at electronic pages, there will be a set of connected virtual worlds, according to Richard Kerris, an executive at the chipmaker whose career has included stints at Apple Inc. and Lucasfilm.

“You might not think you’ll be in the metaverse, but I promise in the next five years all of us will be in one way or another,” he said.

Eoin Treacy's view -

The metaverse has captured the imagination of the mob over the last week. The fact it twins with the evolving trend of recreating the supply inelasticity of land in the virtual world through the issuance of non-fungible tokens and crypto tokens has helped fuel enthusiasm. 



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November 05 2021

Commentary by Eoin Treacy

Zillow's House-Flipping Rivals Defend Tech-Powered Homebuying

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

For Opendoor, Zillow’s departure represents an opportunity, CEO Eric Wu said in an interview. He expects his company, which pioneered the iBuying model, to be the market leader now that the best-known brand is out.

“We’re going to lead the charge in this transition from offline to online,” he said in an interview.

Wu said Opendoor has invested heavily to build expertise in home pricing and getting renovations done in a timely, cost-efficient manner. Those challenges contributed to Zillow’s iBuying demise.  

On Oct. 17, Bloomberg reported that the Seattle-based company would stop pursuing new acquisitions for its iBuying business, citing shortages of workers and supplies it needed to fix up homes. But Zillow also struggled to get pricing right. The company bought many homes for more than it could sell them for, forcing it to take writedowns of more than $500 million on property inventory. 

Those results convinced Zillow CEO Rich Barton that the iBuying model was too risky for his company.

“Fundamentally, we have been unable to predict future pricing of homes to a level of accuracy that makes this a safe business to be in,” Barton said on the company’s earnings call this week.

Eoin Treacy's view -

Anyone using Zillow’s app to look at houses over the last year will quickly have realised how inaccurate the “Zestimate” score is for gauging a home’s value. It was in no way reflective of the market condition because it was not adjusting quickly to new selling prices for homes. That resulted in differences of over 20% when we were housing hunting in the spring. That would also have forced Zillow’s algorithm to be manually adjusted to cope with the lag of data which obviously created issues.



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November 04 2021

Commentary by Eoin Treacy

Video commentary for November 4th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Pound continues to pull back from the upper side of its base. developed markets compete for weakest currency, China property remains under pressure, Australian dollar continues to ease, stocks steady, iron-ore weak, shipping rates break below trend mean, 



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November 04 2021

Commentary by Eoin Treacy

UBS Global Real estate

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

Frankfurt, Toronto, and Hong Kong top this year’s UBS Global Real Estate Bubble Index, with the three cities warranting the most pronounced bubble risk assessments in housing markets among those analyzed. Risk is also elevated in Munich and Zurich; Vancouver and Stockholm both reentered the bubble risk zone. Amsterdam and Paris round out the cities with bubble risk. All US cities evaluated— Miami (replacing Chicago in the index this year), Los Angeles, San Francisco, Boston, and New York— are in overvalued territory. Housing market imbalances are also high in Tokyo, Sydney, Geneva, London, Moscow, Tel Aviv, and Singapore, while Madrid, Milan, and Warsaw remain fairly valued. Dubai is the only undervalued market and the only one to be classified in a lower category than last year. On average, bubble risk has increased during the last year, as has the potential severity of a price correction in many cities tracked by the index.

Hot but likely short-lived fireworks
House price growth in the cities analyzed accelerated to 6% in inflation-adjusted terms from mid2020 to mid-2021, the highest increase since 2014. All but four cities—Milan, Paris, New York, and San Francisco—saw their house prices increase. And double-digit growth was even recorded in five cities: Moscow; Stockholm; and the cities around the Pacific, Sydney, Tokyo, and Vancouver.

Eoin Treacy's view -

The methodology of taking the price of an apartment in the downtown area of a city is certainly convenient. However, for markets like Los Angeles, it does not fully reflect the dynamics of the market. There is no doubt that the price of apartments has risen significantly in the last decade, it is also true that some of the city’s cheapest pieces of real estate lie within a couple of miles of downtown. In fact, the further one gets from downtown the higher the price per square foot gets.



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November 04 2021

Commentary by Eoin Treacy

Tactical US Themes Monthly

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

Applications for 5G are expected to include autonomous driving, the massive internet of things (IoT) and telemedicine, mobile and fixed broadband, among others.

• Investor perceptions of 5G are tracking prior cycles of early excitement followed by skepticism. While there are certainly technologic and economic hurdles to overcome, we view the global 5G build-out as inevitable and see the current sentiment as an attractive opportunity.

• The 5G build-out will take a number of years before consumers fully realize its benefits. However, we believe the “inevitability” of 5G relative to investor skepticism creates an attractive opportunity in companies leveraged to infrastructure. We believe infrastructure companies will benefit from 5G before smartphone-focused companies.

Eoin Treacy's view -

The big difference 5G offers over existing infrastructure is that it eliminates lag. One of the limiting factors behind current wireless technology is the time it takes to upload a file versus downloading it. That slows down two-way communication. Anyone who had ever played an online multiplayer game is familiar with lag because one’s character can hang on the screen while the connection tries to catch up with the activity. During that time you often end up getting killed by someone with a better connection.



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November 04 2021

Commentary by Eoin Treacy

Sprott Analysis of I-80

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

The acquisition of Lone Tree and Ruby Hill makes I-80 the premier gold developer in the US, and on par with the best developers in Canada and Australia. For SCPe capex of US$458m, we estimate that I-80 can reach annual production of >400koz/year. Adding the Ruby Hill open pit, we estimate 2026-2031e average annual production of 500koz(peaking at 638koz) at LOM US$1,155/oz AISC. On defined resources alone, this generates an NPV5%-1850 of US$1.73bn. Uplift to producer peer averages results in annualized returns of 21-31% from present to 2026e. Moreover, all of I-80’s assets have exploration upside at depth with limited historic exploration for sulphides due to a lack of sulphide processing capacity. To reiterate: a path to 500kozpa, exploration upside, sulphide processing ability and 20% annual returns equates to one of the best risk-adjusted return opportunities in the gold miner/developer peer group. We update our model for the transaction and reiterate our BUY rating and lift our price target to C$7.00/sh on our unchanged target multiple of 0.75xNAV5%-1850. Stepping back, yes for newcomers this is a complex set of assets but upside is spectacular and with domestic US assets in a mining friendly state.  

Eoin Treacy's view -

The big challenge for gold explorers is securing acreage in close proximity to major mines. That greatly enhances their chances of securing funding because they can point to their neighbours and argue that where gold was found once it can be found again.



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November 03 2021

Commentary by Eoin Treacy

Video commentary for November 3rd 2021

November 03 2021

Commentary by Eoin Treacy

On Target #273

Thanks to Martin Spring for this edition of his letter which may be of interest to subscribers. Here is a section on battery back-ups:

The key inefficiency is intermittency. When winds don’t blow and the sun doesn’t shine, electricity has to be found elsewhere. In July there was so little wind driving the turbines on which Britain depends for a quarter of its power supplies that they operated at less than 5 per cent of their capacity for 314 hours. We’re told that we’ll eventually have battery farms on such a scale storing back-up energy to overcome the intermittency problem with the renewables that will replace fossil fuels. But the figures don’t add up. A friend who has analyzed them tells me that, using reasonable assumptions, to replace the 1,400 Terawatthours of electricity used in the European Union each year and currently coming mainly from natural gas and coal will require battery storage back-up of some 273 million tonnes of batteries. Assuming battery prices continue to fall, that will nevertheless cost say $8.2 trillion – double that taking into account necessary peripherals -- and need about 25 years’ mining of lithium carbonate. And you’d need to replace the entire stack of batteries every few years as their charge holding capacity erodes. As my friend says: These are “insanely prohibitive costs.” Activists argue that the current energy crisis must be used to intensify the transition to renewables. That is, more of one of the root causes of the crisis. More inefficiency, more malinvestment and more demand for relatively scarce materials such as copper.

 

Eoin Treacy's view -

The willingness of the environmental lobby to drive investment towards renewables remains unabashed particularly as we look at the verbal commitments being made as part of the COP26 discussions. The viability of these commitments rests squarely on developing new battery chemistries that are more efficient, cheaper and less resource intense. It’s a tall order and, even then, will only form part of the wider energy mix.



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November 03 2021

Commentary by Eoin Treacy

Chinese Developers Repay Bonds Early as Contagion Spreads

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

As stress among Chinese developers mounts, some firms are telegraphing their ability to meet debt
obligations.

On Monday, Zhenro Properties Group Ltd. said it informed a bond trustee it will redeem its 5.95% dollar notes early in full on Nov. 16. Central China Real Estate Ltd. on Tuesday said it has remitted funds to a trustee for payment of its 6.75% dollar bonds, which are due Nov. 8.

“Central China Real Estate becomes one of a string of developers publicly setting aside money to redeem offshore bonds in apparent attempts to set themselves apart from weaker firms,” said Daniel Fan, an analyst at Bloomberg Intelligence.

Property companies need to do all they can to restore investor faith. Yields on Chinese junk dollar bonds -- dominated by real estate firms -- surged to more than 20% on Monday, the highest in at least a decade. Credit assessors are downgrading the industry’s companies at the fastest pace on record. At least four developers defaulted last month and others sought to delay near-term bond payments as contagion sparked by China Evergrande Group spreads.

Eoin Treacy's view -

China’s property developers are in a fight for survival. Regardless of how leveraged or otherwise their business models are, they all require access to liquidity. That’s creating a rush to put distance between themselves and China Evergrande, which is in a state of terminal decline.



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November 03 2021

Commentary by Eoin Treacy

China Urges Winter Food Stockpiling, Prompting Online Worry

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

China’s bracing for a cold snap this week, with temperatures in some regions forecast to fall by as much as 15 degrees Celsius. Vegetable prices typically rise when the temperature drops in winter and supply is unable to catch up with increasing demand before the Lunar New Year holiday.

The Monday statement told local commerce departments to coordinate more to improve local and inter-provincial supply chains for vegetables and also to strengthen monitoring of the prices of key staples such as vegetables and meat. 

Major agricultural distributors were encouraged to sign long-term contracts with producers, while provinces in both southern and northern China were told to improve their vegetable reserve systems and also release meat and vegetables from the reserves in a timely manner to replenish supplies. 

The call to stock up on food comes less than two weeks after a different government department told companies not to hoard food. 

 

Eoin Treacy's view -

Food prices are rising everywhere and that is putting everyone on edge. The experience of empty supermarket shelves was isolated to only a few household items during the pandemic while supply of staples was relatively constant. We’re still eating the rice we bought in January 2020 as a precautionary measure for example. (The chocolate is long gone).



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November 02 2021

Commentary by Eoin Treacy

Video commentary for November 2nd 2021

November 02 2021

Commentary by Eoin Treacy

November 02 2021

Commentary by Eoin Treacy

New Bitcoin ETFs May Ease Pressure on ProShares as Limit Looms

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

Four Bitcoin futures ETFs are set to launch in the U.S. in the next week, which could ease demand for the ProShares Bitcoin Strategy ETF (BITO) as it nears November contract limits and annualized roll costs hover around 11%. With more than 30 crypto ETFs still awaiting SEC approval, we expect an Ethereum futures product in 1H, well before a spot Bitcoin ETF. (11/02/21)

1. BITO Already Near Limit on November Contracts

The CME increased position limits for front-month Bitcoin futures contracts to 4,000 from 2,000 for November, but ProShares' BITO is already at 3,885 and has even bought some December futures. BITO's success at attracting assets will likely hinder its correlation to spot Bitcoin by forcing it to buy more contracts for December or further out on the curve. BITO switched early from October futures due to intense demand but was close to the planned roll date anyway. In November, it's being pushed down the curve just one trading day into the month.

ProShares may get an exemption to increase position limits to maintain exposure. We also expect multiple new ETFs to ease demand for BITO.

Eoin Treacy's view -

Open interest on bitcoin futures totals 13,106 contracts for maturities stretching between now and December 2022. That’s more than double the number of outstanding contracts at the end of September. 9,452 are in the front month. That suggests the BITO ETF has a dominant position. If they are permitted to hold 4,000 contracts it would represent a virtual cornering of the market in bitcoin futures as the market currently stands.



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November 02 2021

Commentary by Eoin Treacy

Cash on Cash, Gold on Gold

Thanks to Iain Little for this edition of his Global Thematic Investors’ Diary focusing on gold miners. Here is a section:

For most of my 40 year career, analysts have mocked poor management in the mining business. The wisdom is that gold mines -perhaps with the exception of royalty or streaming financiers- are low quality, cyclical investments that only work when the cycle is right. Management doesn’t matter. The gold price -and luck with your timing- do. So I was intrigued by this chart. After decades of devouring investors capital for capital-intensive projects and surviving on shareholder bounty, the current generation of gold miners have finally got the message. They have done so when most of their all-in, sustainable costs cluster around USD 1,000 an ounce. Gold trades near USD 1800. Free cash flow yield (FCFY) measures the free cash flow (net profits plus depreciation less annualized capex) as a percentage of a company’s market value. It can be compared to the yield on a bond or a cash deposit. Gold mining, handcuffed by capital constraints after years of shareholder abuse, is now the highest yielding sector on the planet, with a FCFY of 7%, roughly double that of the rest of the market. During the last 2001-2012 bull cycle, when most gold shares multi-bagged, they never really got close to cash positivity. This is money -or maybe gold- that can be paid to investors and it is on the increase. In a yield deprived, inflationary age, is this not El Dorado?

Eoin Treacy's view -

It is going to take a long time to shake the reputation miners’ earned for being capital destroyers. The move to positive free cash flow yields is indeed positive and is helping to support the shares of the major miners during what has been a lengthy correction for the gold price.



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November 02 2021

Commentary by Eoin Treacy

RBA's Dovish Tone Set to Reignite Aussie Yield-Curve Steepening

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

“The RBA is clearly more dovish than the market anticipated,” said Jeffrey Halley, a senior market analyst at Oanda Asia Pacific in Singapore. “The market was clearly short and now they are taking some of it back after bit of a disappointing decision by the RBA.”

Australia’s underlying inflation is forecast to be no higher than 2.5% at the end of 2023, with only a gradual increase in wages growth, the RBA said in its policy statement. The central bank said last month its central scenario was that conditions for a rate hike wouldn’t be met before 2024.

The RBA’s policy statement means traders are likely to dial back some of their expectations for higher rates and that should pave the way for a steeper yield curve, according to Westpac Banking Corp.

“We expect that the market will be satisfied with the shift in the RBA’s approach, and will continue to pare back some of the aggressive front-end pricing,” Damien McColough, head of fixed-income research at Westpac in Sydney, wrote in a research note.

Eoin Treacy's view -

The RBA ended its yield curve control policy today so that implies they will allow not get in the way of short-term rates rising. The other side of that argument is they are not going to be in a hurry to raise rates. There are still too many uncertainties in too many portions of the economy to commit to a pattern of raising rates.



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November 01 2021

Commentary by Eoin Treacy

Video commentary for November 1st 2021

November 01 2021

Commentary by Eoin Treacy

Chris Wood Shrugs Off India Equity Downgrades, Says A Selloff Will Be A Buying Opportunity

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

Jefferies’ Chris Wood stays bullish on Indian equities and sees any selloff as a buying opportunity even as global research firms have started downgrading domestic markets citing expensive valuations. “If Greed & fear had to own one stock market globally for the next ten years, and not be able to sell it during that period, that market would be India,” the market veteran said in his latest report said. He remains "remains structurally...

Jefferies’ Chris Wood stays bullish on Indian equities and sees any selloff as a buying opportunity even as global research firms have started downgrading domestic markets citing expensive valuations.

“If Greed & fear had to own one stock market globally for the next ten years, and not be able to sell it during that period, that market would be India,” the market veteran said in his latest report said. He remains "remains structurally overweight on India".

India, from a macro perspective, looks in a similar condition to where it was in 2003 when the country embarked on the last property and capex cycle, Wood said. "Rising interest rates will not derail the upcoming investment cycle. Indeed, they will reflect accelerating growth.”

“The 10-year bond yield rose from a low of 5% during the 2003-2004 period to 8-9% during the next several years without impacting the then accelerating investment-led cycle,” the report said. Jefferies sees a similar situation now that will help accelerate growth.

A selloff triggered by a tapering or tightening scare on Wall Street will provide opportunities to add to Indian equities, most particularly if this coincides with a further likely rise in the oil price on an accelerating re-opening of the global economy, he said.

India's benchmark Nifty 50 has surged more than 26% so far this year, making it the best performer among world's major equity indices. And Jefferies' bullish stance is contrary to what some of the other research firms are saying.

Morgan Stanley downgraded Indian equities to ‘equal-weight’ from ‘overweight’ citing expensive valuations, following similar moves by Nomura and UBS. Morgan Stanley sees Fed tapering, higher energy costs and a likely rate hike by Reserve Bank of India in February as some of the risks.

Strategists at UBS downgraded Indian equities saying the valuation gap with Asean markets was “too wide to justify”. Nomura downgraded domestic equities to ‘neutral’ citing unfavourable risk-reward.

Eoin Treacy's view -

India’s stock market has more than doubled since the pandemic panic lows in March 2020. With a 10% overextension relative to the trend mean evident, it is susceptible to some consolidation but the current reaction is no larger than anything seen in the last eighteen months and suggests momentum is still dominant in supporting the market.



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November 01 2021

Commentary by Eoin Treacy

America's Plunging Barley Crop Means Cheap Beer No More

This note from Bloomberg may be of interest to subscribers.

It’s last call for cheap beer. Rising input costs are soaring across the globe, fueled by withering barley supplies and surging aluminum costs, plus the same labor and transport bottlenecks plaguing every other industry. In North America, dry weather scorched fields, which typically produce enough barley to account for about 20% of global commercial beer production. In the U.S., American farmers reaped the smallest crop since 1934, just after Prohibition ended, while in Canada - - the fifth-largest producer -- barley output shrunk 34% to the second-smallest harvest since 1968

Eoin Treacy's view -

The cost of both barley and aluminium might be rising but there is increasing evidence that brewers are using this as an opportunity to raise prices. Many consumers have been couped up at home for more than a year and they are probably more willing to accept a price increase now than before the pandemic if they can get some semblance of their normal social life back.



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November 01 2021

Commentary by Eoin Treacy

I'm A Twenty Year Truck Driver, I Will Tell You Why America's "Shipping Crisis" Will Not End

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

How do you convince truckers to work when their pay isn’t guaranteed, even to the point where they lose money?

Nobody is compelling the transportation industries to make the needed changes to their infrastructure. There are no laws compelling them to hire the needed workers, or pay them a living wage, or improve working conditions. And nobody is compelling them to buy more container chassis units, more cranes, or more storage space. This is for an industry that literally every business in the world is reliant on in some way or another.

My prediction is that nothing is going to change and the shipping crisis is only going to get worse. Nobody in the supply chain wants to pay to solve the problem. They literally just won’t pay to solve the problem. At the point we are at now, things are so backed up that the backups THEMSELVES are causing container companies, ports, warehouses, and trucking companies to charge massive rate increases for doing literally NOTHING. Container companies have already decreased the maximum allowable times before containers have to be back to the port, and if the congestion is so bad that you can’t get the container back into the port when it is due, the container company can charge massive late fees. The ports themselves will start charging massive storage fees for not getting containers out on time — storage charges alone can run into thousands of dollars a day. Warehouses can charge massive premiums for their services, and so can trucking companies. Chronic understaffing has led to this problem, but it is allowing these same companies to charge ten times more for regular services. Since they’re not paying the workers any more than they did last year or five years ago, the whole industry sits back and cashes in on the mess it created. In fact, the more things are backed up, the more every point of the supply chain cashes in. There is literally NO incentive to change, even if it means consumers have to do holiday shopping in July and pay triple for shipping.

Eoin Treacy's view -

I was at the bonded warehouse in Dallas this morning to pick up Mrs. Treacy’s Christmas inventory. There is a great deal of talk at present about the supply chain crisis so I thought subscribers might be interested to know how long it took for us to get our goods.



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October 29 2021

Commentary by Eoin Treacy

October 29 2021

Commentary by Eoin Treacy

The Macro Case for Precious Metals

Thanks to a subscriber for this chart-laden article from Crescat Capital. Here is a section:

As inflation continues to develop in the economy, see below the incredible link between gold and CPI since the GFC.

Note how after the pandemic lows, gold front ran the potential risk of a rise in consumer prices and the entire precious metals market appreciated sharply.

It is important to remember that before recently peaking, gold had been going on a streak for two years already.

The metal was up more than 75% from August 2018 to August 2020 and even reached historical highs during this period.

Back then, with CPI around 1%, very few investors foresaw inflation as a risk to the economy. Now it is a real problem.

We think gold likely appreciated too quick and too fast becoming what some thought as an obvious trade.

Extreme sentiment probably explains the reason for its recent weakness after signaling way earlier than any other asset the possibility that an inflationary environment could be ahead of us.
We are now on the other side of this extreme.

 

Eoin Treacy's view -

I have a lot of sympathy with the view that gold ran ahead for almost two years so it was due a pause. We also know that medium-term corrections in gold can last up to 18 months so it is a good time to start looking at the sector again since the peak was in August 2020.



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October 29 2021

Commentary by Eoin Treacy

Higher For Longer Oil Prices?

This podcast from Morgan Stanley may be of interest to subscribers. Here is a section: 

Underlying our structurally bullish view on EEMEA is an assumption of higher for longer oil prices due to supply constraints on the path to net zero. Marina speaks to Martijn Rats about his bullish near-term and long-term outlook for oil and the questions EM investors have been asking on this theme.

Eoin Treacy's view -

The shock of negative prices during the pandemic killed off speculative appetite among exploration and production companies in the oil sector. Few new wells were dug and the sector has been relying on the stock of drilled but incomplete wells over the last intervening year. That has curtailed the sector’s ability to respond quickly to higher prices.



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October 29 2021

Commentary by Eoin Treacy

Global Carbon Markets

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

The world is a mess when it comes to carbon regimes — there are currently 64 carbon pricing systems globally, with another 30+ in development. Thirty of the existing systems are carbon markets, with the remaining 34 carbon tax regimes. Not only is there no agreement on a mechanism, but the prices within these regimes vary from the meaningless $0.10/tonne to an eye-watering $142.40/tonne — against a price widely seen as necessary now for Paris-alignment of $40-$80/tonne. This fragmented approach is clearly inefficient, and evidence tells us that so far, it is proving ineffective at a global level. Accordingly, to achieve real progress, we must find some way of integrating these individual regimes into one globally-fungible system. There are essentially four ways we could achieve this, using one, or a combination, of the methods mentioned below:

The first option is essentially via command and control directives, where governments/regulators simply mandate the amount of emissions that are allowed when and from which industries, with non-compliance penalized severely. While potentially effective, this is unlikely to be efficient, and almost certainly would not provide the lowest cost solution. This leads us to the three other, market-based solutions (which, it should be pointed out, are not mutually exclusive):

The first of these is a carbon tax on emissions, which could either be applied as a flat rate globally, or with differing rates for emerging and developed markets, potentially with differing ratcheting up speeds, to eventually bring the world into alignment.

The second option involves cap and trade systems, whereby allowances for emissions are granted and/or auctioned up to a (reducing) limit, with parties showing faster than prescribed progress allowed to sell their excess allowances to other slower moving parties — while still reaching the same cap.

The third option involves baseline and credit systems, whereby parties earn credits for reducing emissions, which could be sold to others in deficit, potentially within one of the two preceding mechanisms.

Each of these is fraught with complexities, both technical, and perhaps more importantly, political. Discussion of the pros and cons of each of these methods, the pitfalls and stumbling blocks, as well as how they might be implemented, forms the basis of this report.
 

Eoin Treacy's view -

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

With the latest big climate conference scheduled for this month there is a great deal of speculation about the possibility of world changing regulations being implemented. If the past conferences are any guide, the possibility of the world’s governments agreeing on an achievable zero- carbon goal by 2030 has to be treated as a low probability outcome.



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October 28 2021

Commentary by Eoin Treacy

Video commentary for October 28th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Australia short-dated yields surge on the end of yield curve control, commodiity currencies firm, banks extend break outs, FANGMAN+Tesla back at relative highs, debt traps are a real threat to plans to hike rates, gold steady, natural gas, coal, iron-ore and aluminium correcting on China risk. 



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October 28 2021

Commentary by Eoin Treacy

Curve Control Under Attack in Australia as Traders Bet on Shift

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

Australia’s sovereign bond yields surged Thursday after the central bank chose not to defend its yield target, raising speculation that it could adjust its policy guidance next week. 

The rate on the April 2024 note more than doubled, jumping as much as 30 basis points to 0.51%. That took the gap to the Reserve Bank of Australia’s 0.1% target to the widest since yield control was introduced in March 2020.

Governor Philip Lowe and his peers are being challenged by market expectations that they’ll need to tighten policy more rapidly than previously thought. Data Wednesday showing Australia’s core consumer prices rose at the fastest pace in six years helped spark a flattening in global sovereign yield curves, with Bank of Canada adding to the impetus by signaling a rate hike as early as April.

“I think if the RBA doesn’t step in to buy the April 2024 bonds tomorrow, then the risks are certainly increased that the RBA will announce a change to its forward guidance next week,” said Hayden Dimes, an economist at ANZ Banking Group “Not buying bonds tomorrow will fuel the markets expectation that next week Governor Lowe will move away from his guidance of no rate hikes till 2024.”

Eoin Treacy's view -

Yield curve control didn’t last very long in Australia. Today’s upward dynamic in short-dated yields suggests the RBA is abandoning the policy and preparing the market for interest rate hikes.



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October 28 2021

Commentary by Eoin Treacy

October 28 2021

Commentary by Eoin Treacy

Nuclear Stocks are Making a Comeback

Thanks to a subscriber for this article by Brendan Coffey for Cabot Wealth which may be of interest. Here is a section:

HALEU is in between, with 5% to 19.75% of the uranium mass that power-source isotope. As an added bonus, HALEU can be made from down-blending the used, military-grade uranium. The U.S. Department of Energy (DOE) is so excited by HALEU that it’s close to approving a new generation of reactor designs it says “will completely change the way we think about the nuclear industry.” Power plants will be smaller, more efficient, produce less waste uranium and they won’t need their cores replaced for 20 years, unlike every 18 to 24 months for current reactors. At the moment, the DOE is in the process of deciding on the next generation reactor from 10 finalists; nine of them are designed to use HALEU.

The first market for HALEU will be micro-reactors for the military. The Pentagon is seeking to remove domestic bases from the wider electrical grid as part of its climate change-related plans to keep bases operational under increased extreme weather events. A Defense Department prototype reactor, Pele, should be available by 2024. Perhaps 130 reactors will be deployed. By mid-decade, utility owned micro-reactors will start rolling out for remote locations like interior Alaska and far-flung islands. They’ll generate perhaps 10 megawatts (MW) of energy with a one-time upfront fueling to last 20 years. More powerful, advanced utility reactors could come to market by 2030. Even current reactors will be able to use HALEU in place of the low-enriched stuff.

Eoin Treacy's view -

Militaries pioneered small modular reactors for use in aircraft carriers and submarines so they are also likely to be the first to deploy small reactors for use in other applications as well. The US military’s answer to climate change is to double down on nuclear reactor technology by taking bases off the grid and creating options for power in remote locations like Alaska and forward operating bases. 



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October 28 2021

Commentary by Eoin Treacy

EU Gas, Power Tumble After Russian Signals to Add More Fuel

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

It’s the latest intervention in the market from Putin to talk down gas prices, even as some European officials suspect he’s been holding back supply to pressure Europe into approving Nord Stream 2, the controversial new pipeline linking Russia to Germany. Russia is also concerned that excessively high prices could destroy demand, and would like to see them fall by about 60%, according to people familiar with the situation.

Higher Norwegian gas flows and a drop in Chinese coal prices are also putting downward pressure on prices, Engie EnergyScan said in a note. Norway’s Equinor ASA promised Wednesday to boost exports. Maintenance at its giant Troll field in December will be shorter than previously planned, system operator Gassco said Thursday, also a bearish factor.

Tom Marzec-Manser, an analyst at pricing agency ICIS, said the timing of Putin’s comments on adding fuel to Gazprom’s storage sites in Germany and Austria could be connected to Germany’s Economy Ministry saying on Tuesday that certification of Nord Stream 2 wouldn’t pose any risks to security of supply.

Eoin Treacy's view -

UK natural gas futures extended their pullback on the above news. That further supports the view that a peak of medium-term significance has been reached. The bigger question is how much prices will fall as the bottlenecks ease? Generally speaking, it is unusual for commodity prices to trade back down into their base formations once breakouts occur. Significant sources of new supply would be required for that to happen.



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October 27 2021

Commentary by Eoin Treacy

October 27 2021

Commentary by Eoin Treacy

Sunak Delivers Johnson-Style Budget That Ramps Up U.K. Spending

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

“We need to strengthen our public finances so that when the next crisis comes, we have the fiscal space to act,” Sunak said. He also said the country hasn’t yet turned the corner on infections, warning of “challenging months ahead.”

The chancellor signaled the need to repair the country’s finances after racking up hundreds of billions of extra debt to protect workers and businesses through the pandemic. Unveiling new fiscal rules that will guide his approach to rebuilding the economy from its worst recession in a century, he vowed that in “normal times,” the government would only borrow to invest and that underlying public sector net debt must be falling as a percentage of output.

With inflation already well above the Bank of England’s 2% target and forecast to rise to at least double that, it’s already raising the cost of repaying the country’s debt, a quarter of which is linked to inflation indexes. Sunak also faces the prospect of an interest-rate hike that would add to borrowing costs: For every percentage point that interest rates go up, the Treasury estimates it would cost an extra 23 billion pounds a year.

“The House will recognize the challenging backdrop of rising inflation,” the chancellor said. “Our public finances are twice as sensitive to changes in interest rates as they were before the pandemic and six times as sensitive as they were before the financial crisis.”

And

Sunak’s firepower was boosted by a significantly improved outlook for the British economy from the Office for Budget Responsibility, the government’s independent fiscal watchdog. It revised upwards its forecast for growth this year to 6.5% from 4%, and downwards its forecast for the long-term economic scarring caused by the pandemic to 2% of output from 3%.

With growth filling the government coffers, the OBR’s borrowing forecast for the next five years was lowered by 154 billion pounds, while planned debt sales for this fiscal year were cut by a fifth.

Eoin Treacy's view -

The UK is boosting spending which is a crowd pleaser. That’s possible because the economy is rebounding from the pandemic nadir and the outsized growth is benefitting from the base effect of last year’s decline. Sustaining that momentum will be a key challenge, so supporting workers with higher wages and businesses with lower taxes is a necessary move but it also delays balancing the budget which will exacerbate the fiscal drag.



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October 27 2021

Commentary by Eoin Treacy

Bitcoin Breaks Below $60,000 as ETF-Related Bliss Evaporates

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

Analysts said speculators are cutting back on positions as the launch of the first U.S. Bitcoin exchange-traded fund fanned enthusiasm and pushed prices to new all-time highs. Total liquidations of long crypto positions topped $700 million on Wednesday, the most since Sept. 20, according to data from
Bybt.com. 

“The market has been leveraged long for a few weeks, so there has been that overhang in positioning,” said Jonathan Cheesman, head of over-the-counter and institutional sales at crypto-derivatives exchange FTX.

Stephane Ouellette, chief executive and co-founder of FRNT Financial Inc., a crypto-focused capital-markets platform, said some of the elation around the ETFs has vanished and the selloff’s been exacerbated by the fact that there is much more leverage available in crypto for retail traders globally than there is in other asset classes.

“We already saw a wave of quite severe leverage come into the space which was evidenced by futures contangos, perpetual swap and peer-to-peer lending rates all spiking around the launch of the BTC ETF,” Ouellette said. “In the last few weeks, for example, we saw monthly and quarterly BTC futures contangos in the 20-to-30% range. While leverage can in some cases get even more extreme, the activity over the last few days has some tell-tale signs of a typical crypto check-back.” 

Eoin Treacy's view -

Futures-based funds were originally designed for intraday trading but investors assume they were designed for holding for longer time periods. The embedded loss from rolling contracts in contango ensures futures’ funds fall more during setbacks and rally less during rallies. That guarantees they will underperform their benchmark over the medium term.



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October 27 2021

Commentary by Eoin Treacy

U.S. 5-Year Auction Short Stop Is Among Biggest of Past Decade

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

Wednesday’s $61b Treasury 5-year auction was among the strongest on record gauging by its yield relative to where it was trading at the bidding deadline. The auction yield of 1.157% was 2.5bp lower than the approximate pre-auction level of 1.182%, a sign that dealers underestimated investor demand for the notes. Consistent with that, the share awarded to primary dealers was among the lowest on record.

While the difference between an auction yield and the pre-auction level is always an estimate, as dealers may quote the issue differently, the last time a 5-year note auction stopped short by more than that was in November 2009; a $42 billion auction that month was awarded at 2.175%, 3.6bp below where it had been quoted moments before

Wednesday’s 17.9% primary dealer award was the third lowest on record in data since 2004, reflecting above-average shares for indirect and direct bidders

Eoin Treacy's view -

Longer-dated bonds rallied in a number of countries today. That suggests investors are still willing to give the benefit of the doubt to the view that inflationary pressures are going to moderate or at the very least that yields have run away from the publicly stated intentions of central banks.  



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October 26 2021

Commentary by Eoin Treacy

Video commentary for October 26th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street short-term overbought, bonds steady, gold steadies from intraday lows, oil remains firm, governance questions in China and US focusing on companies and who is liable in a default, India, Vietnam, Mexico firm. 



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October 26 2021

Commentary by Eoin Treacy

S&P's Best Earnings Run Since 1999 Meets Rebalance

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

The S&P 500 has advanced 5% since JPMorgan Chase & Co. kicked off the earnings season nine days ago, in the best start to a reporting cycle since the dot-com mayhem 88 quarters ago. Along the way, the index slipped only once, with a 0.1% drop on Friday doing little to derail the benchmark from its best month since the election.

Now institutional investors with large stock and bond holdings will need to balance out their positions, buying dips on losers and taking profits on winners. How big will the impact be? A regression analysis done by strategists at BNP Paribas SA shows that the outflow needed to compensate for a divergence between this month’s drop in the bond market and rally in stocks could translate into a 2.6% decline in the S&P 500 when the rebalancing takes place.

Eoin Treacy's view -

End of month reweighting of portfolios is a predictable event and represents a solid rationale for the recent bounce in Treasury futures. It’s unlikely to contribute to more than temporary strength because none of the underlying factors have changed.



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October 26 2021

Commentary by Eoin Treacy

Smashing Atoms: The History of Uranium and Nuclear Power

This infographic from Sprott focusing on uranium may be of interest to subscribers. Here is a section:

Although uranium mining is a global activity, only a handful of companies account for the majority of production.

The top 10 uranium mining companies accounted for 85% of global production in 2020.

The demand for this uranium come from nuclear reactors around the world.

Eoin Treacy's view -

There is no groundswell of support for a new massive round of reactor building. At least, not yet. The anti-nuclear lobby has been incredibly successful in pushing their agenda, over the last sixty years, and not least because of the Cold War and the threat of mutually assured destruction.



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October 26 2021

Commentary by Eoin Treacy

China Urges Evergrande's Hui to Pay Debt With His Own Wealth

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

Chinese authorities told billionaire Hui Ka Yan to use his personal wealth to alleviate China Evergrande
Group’s deepening debt crisis, according to people familiar with the matter.

Beijing’s directive to the Evergrande founder came after his company missed an initial Sept. 23 deadline for a coupon payment on a dollar bond, said the people, asking not to be identified discussing a private matter. Local governments across China are monitoring Evergrande’s bank accounts to ensure company cash is used to complete unfinished housing projects and not diverted to pay creditors, the people said.

The demand that Hui tap his own fortune to pay Evergrande’s debt adds to signs that Beijing is reluctant to orchestrate a government rescue, even as the property giant’s crisis spreads to other developers and sours sentiment in the real estate market. Chinese President Xi Jinping has been cracking down on the billionaire class as part of his “common prosperity” campaign to reduce the country’s yawning wealth gap.

It’s unclear whether Hui’s fortune is big and liquid enough to make a sizable dent in Evergrande’s liabilities, which swelled to more than $300 billion as of June. The developer’s dollar bonds are trading at deep discounts to par value as investors brace for what could be one of China’s largest-ever
debt restructurings.

Eoin Treacy's view -

Bailing out troubled lenders during the credit crisis and letting their senior management walk away with golden handshakes helped to seed a populist backlash against the status quo in the USA. That was exacerbated by a foreclosure crisis that saw millions of people kicked out of their homes. China appears to have learned from that mistake and Hui Ka Yan is unlikely to escape Evergrande’s dissolution unscathed.



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October 26 2021

Commentary by Eoin Treacy

Robusta Coffee Prices Hit Highest Since 2011 on Supply Woes

This article from Bloomberg may be of interest to subscribers. Here it is in full:

Robusta coffee futures rallied to the highest in more than a decade driven by dwindling stockpiles for the beans favored for instant-coffee brands such as Nestle SA’s Nescafe. 

January futures in London jumped as much as 3.8% to $2,278 a ton, the highest for a most-active contract since September 2011. Arabica coffee also rose in New York. 

Both varieties have climbed more than 60% this year after drought and frosts damaged the arabica crop in Brazil, the No. 1 coffee producer, boosting demand for the cheaper robustas. The January-March spread in London surged to record premium. 

At the same time, soaring shipping costs are hindering a draw down of hefty stockpiles in robusta giant Vietnam. Exchange-monitored stockpiles for both varieties have continued to slide as roasters tap stored reserves.  

Technical-trading indicators are “very positive” and that attracted more buying, plus “there’s concern that flows have been paralyzed out of Vietnam because of the lack of container and elevated freights,” said Hernando de la Roche, senior vice president at StoneX Financial in Miami.

Eoin Treacy's view -

The Baltic Dry Index is currently unwinding a short-term overbought condition so that will take some of the pressure off of exporters of just about everything. Nevertheless, it will be quite some time before the port bottlenecks are eliminated.



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October 25 2021

Commentary by Eoin Treacy

Video commentary for October 25th 2021

October 25 2021

Commentary by Eoin Treacy

Gold Extends Gain as Inflation Risks and Virus Concerns Persist

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

“Gold and silver’s recent strong run of gains received a temporary setback on Friday in response to a sudden bout of taper tantrum following comments by Fed Chair Powell,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in a note. “At the same time, however, he talked down the risk of raising interest rates while also expressing concern over persistently elevated inflation.” 

Eoin Treacy's view -

Around the world, central banks are raising interest rates in response to inflationary pressures that are both more persistent and intense than many anticipated. Some countries will benefit from this turn of events. They have positive balance of payments, booming exports and their currencies are appreciating. That group is concentrated among the commodity exporters.



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October 25 2021

Commentary by Eoin Treacy

Email of the day on gold miners

Thank you for your great service. I was most interested in your comments in the video on the weekend about gold. Sometime in the last 6 months you provided a link to an article about interesting junior gold stocks. It included Kirkland Gold and Sabina Gold & Silver amongst others. I can’t locate this. Would it be possible to provide the link again? Thank you!

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. I’m afraid I don’t recall exactly which report you are referring to and not least because I have written a great deal about gold since 2018, when it looked like it was about to complete its base formation.



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October 25 2021

Commentary by Eoin Treacy

Hertz Orders 100,000 Teslas in Rental-Market Shake-Up

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

The cars will be delivered over the next 14 months, and Tesla’s Model 3 sedans will be available to rent at Hertz locations in major U.S. markets and parts of Europe starting in early November, the rental company said in a statement. Customers will have access to Tesla’s network of superchargers, and Hertz is also building its own charging infrastructure.

It’s the single-largest purchase ever for electric vehicles, or EVs, and represents about $4.2 billion of revenue for Tesla, according to people familiar with the matter who declined to be identified because the information is private. While car-rental companies typically demand big discounts from automakers, the size of the order implies that Hertz is paying close to list prices.

“How do we democratize access to electric vehicles? That’s a very important part of our strategy,” Mark Fields, who joined Hertz as interim chief executive officer earlier this month, said in an interview. “Tesla is the only manufacturer that can produce EVs at scale.”

The electrification plan, which eventually will encompass almost all of Hertz’s half-million cars and trucks worldwide, is the company’s first big initiative since emerging from bankruptcy in June. And it signals that Hertz’s new owners, Knighthead Capital Management and Certares Management, are intent on shaking up an industry dominated by a handful of large players who are typically slow to change.

Eoin Treacy's view -

This is a win/win situation for Hertz and Tesla. Anyone wishing to rent a vehicle will take a look at Hertz if only for novelty value. For Tesla, it represents a strong try before you buy marketing campaign, they don’t have to pay for. I had both Toyota and Hyundai SUVs when I was house-hunting in Dallas earlier this year and my opinion of both brands was much improved following the experience. For many consumers looking at a minimum of five months wait time for a new Tesla, the chance to drive one on a temporary basis will be a tempting prospect.



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October 25 2021

Commentary by Eoin Treacy

Brazil Analysts Jack Up Inflation, Rate Forecasts as Woes Grow

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

Brazil analysts expect a higher interest rate both this year and next after the government said it would
circumvent the public spending cap to increase spending on the poor.

The central bank will lift the Selic to 8.75% at the end of this year and 9.5% in 2022, up from prior projections of 8.25% and 8.75% respectively, according to a survey published on Monday. Analysts also lifted their year-end inflation forecasts to 8.96% this year and 4.40% in 2022, both above target. 

President Jair Bolsonaro announced last week plans for cash transfers to the poorest that would be financed either by a waiver or changes to the spending cap rule. The increased spending, coupled with a fresh plunge in the currency, are boosting bets that policy makers will have to raise borrowing
costs faster. The central bank will meet over rates Tuesday and Wednesday.

With annual inflation running above 10%, policy makers led by Roberto Campos Neto had promised their third consecutive rate hike of a full percentage point this week. But now analysts at major Wall Street firms expect them to deliver an increase of at least 125 basis points. 
 

Eoin Treacy's view -

It’s hard to imagine that 8.5% in short-term rates still represent negative real interest rates for Brazil. Inflation running at 10% is a major challenge for any government but especially during a time when a restive population is agitating for more spending and better conditions.



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October 22 2021

Commentary by Eoin Treacy

October 22 2021

Commentary by Eoin Treacy

Powell Says Fed on Track to Taper, Inflation Will Come Down

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

“We are on track to begin a taper of our asset purchases that, if the economy evolves broadly as expected, will be completed by the middle of next year,” Powell said Friday during a panel discussion at a virtual event hosted by the South African Reserve Bank. “I do think it is time to taper and I don’t think it is time to raise rates.”

 

Eoin Treacy's view -

The sudden success of former President Trump’s SPAC, up 1225% in 48 hours, is enough to convince anyone there is froth in the market and we are past time to begin tapering. That’s seems to be the conclusion of Chairman Powell since until today he has been circumspect about the Fed’s intentions. Nevertheless, he remains cautious about raising rates and not least because the 5-year continues to trend higher which takes a toll on government debt servicing costs.



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October 22 2021

Commentary by Eoin Treacy

China Vows to Keep Property Curbs, Evergrande Risk Seen Limited

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

The property controls have achieved good results and the government will refrain from using the real estate sector as a short-term economic stimulus measure, Liu Zhongrui, an official at the China Banking and Insurance Regulatory Commission, said at a briefing in Beijing on Thursday. Evergrande is an “individual” case and won’t hurt the overall credibility of Chinese firms, which is backed by the country’s economic stability, he said.

Property controls to stamp out speculation in the housing market have weighed on the country’s indebted developers, which are now seeing sales plunge and home prices snapping a years-long streak of increases. While officials have told banks to speed up mortgage lending again, the central bank has indicated that contagion risks from Evergrande are “controllable” and unlikely to spread.

Property lending growth at Chinese banks slowed to 8.6% this year through September, Wang Zhaodi, a spokesman at the CBIRC, said. That’s down from 12% in the first quarter, which was the slowest pace in eight years.

New-home prices in 70 cities fell 0.08% in September, the first drop in six years, official data showed this week, posing a potentially big blow for an economy that counts on property-related industries for almost a quarter of its output.

Eoin Treacy's view -

China Evergrande was ordered not to default on its US Dollar debt, so it has made a last-minute payment to avoid that outcome this weekend. It has late payment deadlines on two additional bonds due before the end of the month. Since it has so far failed to reach agreements on asset sales, it begs the question how long more can this go on for?



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October 22 2021

Commentary by Eoin Treacy

Russia sharply raises key rate as prices soar

This article from Bloomberg may be of interest to subscribers.

Russia's central bank aggressively raised its interest rate for the sixth time in a row Friday in an
effort to slow soaring food prices, and did not rule out further hikes.

Rising prices, falling incomes and a lack of tangible government support during the pandemic have been eroding popular support for President Vladimir Putin's two-decade rule, and authorities are under pressure to ease inflation.

At a meeting on Friday, the Bank of Russia increased its key rate by 0.75 percentage points to 7.50 percent, surprising many analysts who had expected a smaller hike.

The bank said that more hikes could follow and revised up inflation predictions.

"Inflation is developing substantially above the Bank of Russia's forecast and is expected to be within the range of 7.4-7.9 percent at the end of 2021," the bank said.

The Bank of Russia said that as of October 18, inflation stood at 7.8 percent but was expected to return to 4.0-4.5 percent next year.

"The central bank continues to act decisively and proactively," Dmitry Polevoy, head of investment at Locko Invest, said in a note to clients.

After months of historically low inflation, consumer prices began to climb in March 2020, driven by a drop in the ruble's value in the middle of the coronavirus pandemic.

The central bank started raising its historically low rate the same month. Its next rate review meeting is scheduled for December 17. In September, the bank raised its interest rate by 0.25 percentage points to 6.75 percent.

Eoin Treacy's view -

Russia is a major grain producer but is also reliant on imports for many additional food stuffs. That offers a graphic representation of how everyone is susceptible to the fragility of the global supply chain. Shutting the whole world down eighteen months ago had a dire effect on the ability of producers to manage their operations. The ensuing volatility has taken much longer than anyone thought to iron out and it is not over yet.



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October 21 2021

Commentary by Eoin Treacy

Video commentary for October 21st 2021

Eoin Treacy's view -

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

Some of the topics discussed include: stocks remain firm despite rising yields and are supported by earnings, SPACs pick on Donald Trumps entrance to the market, bitcoin pulls back with futures-based ETF predictably underperforming, China walks back property tax talk. 



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October 21 2021

Commentary by Eoin Treacy

Guedes Cites 'Waiver' for Fiscal Cap Bolsonaro Pledged to Uphold

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

Guedes, who spoke shortly before markets closed, said the government also mulls bringing forward a spending cap revision scheduled for 2026.  

“We want to be a popular, not a populist government,” he said, adding that the country must remain committed to fiscal responsibility.

Brazilian assets tumbled the most in the world on Tuesday on reports the government would breach the country’s spending cap rule, in place since 2017, to finance the new social program. 

The cap is seen by economists and investors as one of the key pillars of Brazil’s fiscal policy, keeping public finances from derailing by limiting spending growth to the inflation rate of the previous year. The government bypassed the rule in 2020 and 2021, getting one-time exemptions approved in congress to accommodate pandemic-related expenses.

Eoin Treacy's view -

One of the central themes of democracy is the loser of an election leaves office peacefully and handovers to new governments are reasonably smooth. When that pattern does not go according to plan, as in the US earlier this year, the strength of a nation’s institutions is tested. The USA passed that test, even though no one ever considered it would ever need to be tested.



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October 21 2021

Commentary by Eoin Treacy

West Coast ports to stay open 24/7 under U.S. plan to relieve supply chain issues

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

The White House plan has the cooperation of the International Longshore and Warehouse Union, whose leaders and port officials were expected to meet with Biden's top officials on Wednesday. The ILWU says its members are willing to work extra shifts to ease the crisis.

Six companies are part of the plan -- Walmart, FedEx, UPS, Target, Home Depot and Samsung.

"Across these six companies over 3,500 additional containers per week will move at night through the end of the year," the White House said in a statement.

The administration said it's also trying to assist in a truck driver shortage by supporting state motor vehicle departments.

"In 2021, an average of 50,000 commercial drivers licenses and learner's permits have been issued each month, 60% higher than the 2020 numbers," a senior administration official said. "The supply chain is essentially in the hands of the private sector, so we need the private sector to up to help solve problems."

Eoin Treacy's view -

To say that the supply chain is in the hands of the private sector is a gross misrepresentation of the power unions hold over how speedily goods move through the most significant ports in the USA.



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October 21 2021

Commentary by Eoin Treacy

Email of the day on recycled gold

How will the recycling of gold, silver and other raw materials from mobile phones affect the markets for these metals. [Times article]

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The World Gold Council estimated that about 10% of recycled gold comes from electronics at present. The method discussed in the above article suggests Excir is using both extreme heat and chemical deposition to extract precious metals from phones since they claim it can be done in seconds. There is no discussion of how dependent the process is on high prices.  



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October 20 2021

Commentary by Eoin Treacy

Video commentary for October 20th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: bitcoin breaks out and the S&P500 makes a new closing high, gold remains firm, China rebounds, Indian rupee firms and saps demand for stocks, OEM manufacturing coming to the auto sector, copper & oil firm, 



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October 20 2021

Commentary by Eoin Treacy

Did Bitcoin Kill Gold's Monetary Utility?

Thanks to a subscriber for this article by Cullen Roche for Pragmatic Capitalism. Here is a section:

One of the corollaries between cryptocurrencies and gold is that, as forms of money, they’re both grounded in the same decentralized concepts that make them useful alternatives to fiat. Gold has obvious impediments to its monetary utility in a modern economy – mainly the fact that it’s difficult to transport. Bitcoin and crypto fixes that. Personally, I find the long-term inflation hedging benefits of crypto to be somewhat less beneficial than many proponents believe. After all, all crypto is endogenous in the sense that it is literally created from nothing and can be borrowed into existence in exactly the same way that modern banks create synthetic “dollars” from nothing when they make loans. A “fractionally reserved” Bitcoin system with endogenous lending could be every bit as inflationary as the current fiat system with the main difference being that there isn’t a government there to pump trillions into the system on a whim. And that’s where the last 18 months and this “faith put” in gold is pretty interesting….

A strange thing happened during COVID. The US government spent $6T to fight off the pandemic. As expected, the huge fiscal stimulus led to a somewhat uncomfortable level of inflation. But here’s where things get interesting – since the start of the pandemic in March 2020 the price of gold is up 6.5%. The price of Bitcoin, on the other hand, is up almost 10X. It’s not just a small difference. It’s an astounding difference. It’s the kind of difference that makes you wonder if people even believe that gold is an inflation hedge.

Eoin Treacy's view -

The Permanent Portfolio with 25% in stocks, 25% in bonds, 25% in cash and 25% in gold has stood the test of time. It is logical to question whether the introduction of new assets should alter the composition of the portfolio. What I find particularly interesting today is there is a simultaneous questioning of the merits of the 60/40 portfolio which is much more popular than the permanent portfolio.  Meanwhile Paul Tudor Jones is touting bitcoin’s status as an inflation hedge. 



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