Oil traders including Vitol and Trafigura, as well as a host of hedge funds have been building up trading desks to profit from one of the hottest commodities trades of the year. Traders are bracing for tighter supplies as the European Union is preparing for the markets biggest reform to date to align emissions trading with a stricter climate goal for the next decade.

“Carbon is already the largest commodity in the world, with the potential to be 10 times the size of the global crude markets,” Hauman said the FT Commodities Global Summit on Wednesday. “We see a massive potential here.”

Carbon emissions are a growing market as the willingness to enact legislation to tax fossil fuel usage goes global. That is limiting the supply response of large companies because they are unwilling to make the investments necessary to replace reserves. The global economic recovery and OPEC+’s supply discipline continue to support oil prices as a result.

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

Some of the topics discussed include: bonds and equities steady ahead of the Fed, copper weakens, oil firm, shipping rebounds, energing markets, Europe and Japan firm. 

“We’re at a point where a lot of the cyclical tailwinds, if they haven’t blown themselves out, are past their peak,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said by phone. “That fear that things are just going to go higher and higher and higher -- that’s come out of the market now.”

Copper has been one of the standout performers in a year-long rally seen across commodities markets as a surge in demand coincided with bottlenecks that have wreaked havoc on global supply chains. The key questions for investors across asset classes are whether the rally would prove transitory, and whether the inflationary impact on consumers would prove short-lived.

 

China wants lower commodity prices because of the upward trend of prices at the factory gate. They have a lot more ability to manipulate copper prices because they have such large stockpiles. That's not quite the same for metallurgical coal or iron ore.

Recessions are supposed to lead to more bankruptcies, and make it harder for companies to borrow. Rises in debt outstanding, all else equal, should increase the risk of bankruptcies down the line. So what has happened in the last 12 months virtually surpasses understanding. French bankruptcies had steadily declined since the brief recession caused by the sovereign debt crisis, while companies took advantage of the dirt-cheap credit that had been engineered to save the euro to refinance and take on more leverage. When the crisis hit, they were then able to borrow far more, while bankruptcies tumbled.

Logic might dictate that an increase in bankruptcies lies ahead. This should mean that debt investors demand a higher yield to compensate them for the greater risk of defaults. In the U.S., this is exactly what has not happened. The spread between the yield on “high-yield” bonds (which might need to be renamed) over five-year Treasury bonds hasn’t been this low since the summer of 2007. And we know what happened after that:

Interest expense is seldom the reason for companies to get into trouble. It’s when large portions of a company’s debt approaches maturity and needs to be refinanced that the potential for trouble increases.

I found your comments on autonomous vehicles today very well written and enlightening, thanks a lot. On a different note, do you think cyber security has a big potential for the next decade. And if so, do you have any suggestions for how to invest in this theme. Any potential companies and/or ETFs would be greatly appreciated. Thanks again for a very nice service.

Thank you for your kind words and I am delighted you are enjoying the service. There has undoubtedly been a bull market in ransomware attacks which has made abundantly clear how inept cyber controls are. The recent hack of Electronic Arts is a case in point. Here is a section from an article on Vice.com:

A representative for the hackers told Motherboard in an online chat that the process started by purchasing stolen cookies being sold online for $10 and using those to gain access to a Slack channel used by EA. Cookies can save the login details of particular users, and potentially let hackers log into services as that person. In this case, the hackers were able to get into EA's Slack using the stolen cookie. (Although not necessarily connected, in February 2020 Motherboard reported that a group of researchers discovered an ex-engineer had left a list of the names of EA Slack channels in a public facing code repository).

"Once inside the chat, we messaged a IT Support members we explain to them we lost our phone at a party last night," the representative said.

The hackers then requested a multifactor authentication token from EA IT support to gain access to EA's corporate network. The representative said this was successful two times.

The bigger the company the greater the threat. The primary challenge for any company is securing access to intellectual property that can be used by a competitor and customer data which carries costs if lost. They are not that worried about everything else.

Is it possible to add the Topix First Section Index to the Chart Library?

The Topix Index is the short name of the First Section of the Tokyo Stock Exchange. The ticker is TPX in the Chart Library.
 

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

Some of the topics discussed include: differring sources of inflation and how they are perceived, gold and silver rebound from intraday lows, stocks close higher, bonds ease, oil steady, quiet markets ahead of the Wednesday Fed meeting, discussion of ESG investing

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

The theory that growth and inflation are likely to moderate in coming quarters, following the blowout moves in the 1st quarter, is reflected in the bond market where yields have been locked in a range for the last three months.

The challenge for investors is there is the inflation that economists and central banks monitor and the inflation we feel on a day-to-day basis.

An 85% RSF charge would:

• Undermine clearing and settlement – The required stable funding for short-term assets would significantly increase costs for LPMCL clearing banks to the point that some would be forced to exit the clearing and settlement system, which may even be at risk of collapsing completely.

• Drain liquidity – The required stable funding would dramatically increase costs for remaining LPMCL members taking gold on deposit to be held as unallocated metal relative to the cost of providing custody of allocated metal. This would prevent LPMCL clearing banks from holding unallocated metal and drain essential liquidity from the clearing and settlement system. These unallocated balances are the only material source of liquidity in the clearing and transaction financing systems. Without this liquidity, there would be a material deleterious effect on the global precious metals market.

• Dramatically increase financing costs – The required stable funding would penalise LBMA members who hold unallocated balances of precious metals. This would increase the cost of short-term precious metals financing transactions as stable funding costs are passed through to non-bank market participants. Such cost increases would impact miners, restrict refining and raise the costs of an inelastic key input to industrial and consumer goods. This includes some essential medical equipment and technologies required to reduce pollutants (such as catalytic converters).

• Curtail central bank operations – Fewer LPMCL clearing banks may curtail central bank deposit, lending and swaps in precious metals. These operations are essential to offset the costs of storing gold reserves and generating income. In addition, this provides important liquidity to the market. The effects of an 85% RSF charge would not just be limited to the London OTC market, but would be felt globally across the entire gold value chain. While London acts as the default settlement location for most global OTC spot transactions, the precious metals market is international. An undermining of the clearing and settlement system, reduced market liquidity, significantly increased financing costs and curtailed central bank activity would fundamentally alter the structure and attractiveness of this market.

Most gold is trading is through fungible non allocated bars. Reducing liquidity in this over-the- counter market, while also elevating gold to a tier 1 asset could have the potential to create demand while reducing supply. That’s the recipe for a bull market; assuming the Basel III rules as they are currently envisaged pass into effect this month.

Thanks to e-commerce, the world has gotten used to buying all sorts of daily necessities online. Automakers in China will soon be afforded the same convenience, with the ability to purchase must-have autonomous driving data from a central repository.

For that, credit must go the China Association of Automobile Manufacturers, which has been working on a Vehicle Data Platform with industry players for the past three years. Its launch is expected any day.
China, a pioneer in the promotion of electric cars, is exploring a credible and efficient way of storing, sharing and utilizing data to help automakers speed up their efforts in making autonomous driving a reality. In the intelligent and connected car space, data is as important to vehicles as crude oil is to internal combustion engine cars.

The issue is scale. Thousands upon thousands of terabytes of sensory data must be collected, analyzed and interpreted to produce the technology that ultimately allows cars to navigate roads, highways and obstacles themselves.

Currently, this valuable information is in the hands of individual companies, which are trying their best to use it to “train” the brains of intelligent vehicles as humankind races to that point where we can take our hands off the steering wheel altogether.

Tesla was welcomed into China with open arms. The company’s factory outside Shanghai was built in record time and every effort was made to remove regulatory roadblocks to begin production. Sales naturally followed and the move looked like a success. Then there was an accident and a loud public (orchestrated) outcry, with protestors standing on cars at a media junket. Now, a reservoir of self-driving data is being created and all companies active in the space will be expected to contribute what they have.

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

It has been a while since our last meeting in London. Gillian and I are spending the little time that may be left for us in Lugano.

Since early this year I am in discussion with our banker friends about the risk of inflation and all that goes with it. Being closer to 90 than 80 I have seen and felt what inflation does to people’s savings and the social structure of the countries affected.

Debt levels around the world are at catastrophic heights and some of my friends in the banking world are of the opinion that debt will never be paid back - utter nonsense in my mind. The Federal Reserve Banks of the world are no longer controlled by the people in charge but by politicians who, if they have any knowledge of economics and finance, are scared stiff. Rolling over is the motto of present days because what would happen if interest rates would rise to normal levels is too terrible to imagine.

The G7 15% min. tax is not solving the problem but at least it’s indicating that some people are aware of the enormity of the debt and try to do something about it.

The U.S. inflation figure for May 2021 has been commented by John Authers today - see attachment -; what are your thoughts?

The other and much bigger problem for everything that lives on our planet - I call it ‘spaceship earth’ - is also very much on my radar but we leave that for another day.

Wishing you a pleasant weekend.

Thank you for attached report and article. I hope you are both enjoying the contemplative life in the beauty of Lugano. I’ve been saying for months that we all have to take the economic figures of the 2nd and 3rd quarters with a degree of scepticism. Year over year comparisons are effectively useless when last year represented a shutdown of the entire global economy.

Should I prefer longs in the European chip companies including machine manufacturing companies like ASML (almost a monopolist), ASML and Besi and chip producing companies like INFINEON or STM or the US companies like NVDIA, INTEL, AMD, QUALCOMM?

Should we consider the expected weakening usd while comparing? Especially chip machine producing companies should have a very bright future when both the US and Europe want to produce more chips themselves with a shortage of machines and chips for the foreseeable future it is unlikely any price discounts will be given interesting isn't it? kind regards

Looking forward as always to your long-term video have a nice weekend

Thank you for this kind email and I am delighted you are enjoying the videos. Semiconductors have become a nationalist priority as a result of the current shortage, the drought in Taiwan which questions the ability to increase supply, and geopolitical tensions. These factors have highlighted short-term thinking that was behind the migration of domestic European manufacturing to Asia, over the last couple of decades.

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

Leverage is a major component in any momentum move. It also tends to trend higher in line with prices as paper gains collateralise additional new position sizes. That inevitably raises the average purchase price and greatly increases the sensitivity of traders to even modest setbacks. The net result is that leverage trends higher but can just as easily evaporate as prices decline.

Dry powder Private equity dry powder stands at $1.4 trillion (60 percent of the private markets total) and has grown 16.6 percent annually since 2015. Dry powder stocks are best viewed in the context of deal volume, and as a multiple of average annual equity investments over the prior three years, PE buyout dry powder inventories have crept higher, growing 11.9 percent since 2017. However, normalizing for abnormally high deal volatility in 2020, PE dry powder as a multiple of deal volume remained largely in line with historical averages (Exhibit 21). Dry powder growth reflects fundraising in excess of capital deployment. Its continued growth in 2020 highlights a common misperception among industry participants and pundits: the belief that stocks of dry powder can be deployed quickly in a market correction. While fundraising fell sharply in the first half of 2020 (–22.8 percent relative to the first half of 2019), so too did deal volume (–22.5 percent). Despite the sharp (and short-lived) decline in mark-to-market valuations in the first half of 2020, PE investors were largely unable to take advantage, as private owners exercised a key feature of PE—the right to hold. Without willing sellers, dry powder stocks rose once again, piling pressure on deal multiples, which once again reached all-time highs in 2020.

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

Private Equity is one of the primary destinations for liquidity and the fact that dry powder stands at $1.4 trillion with no easily accessible opportunities or willing sellers is a testament to just how high valuations are.

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

Some of the topics discussed include: Loopy year over comparisons exaggerate inflation while bonds continue to rally, Asian export prices increases are where inflation is most obvious, commodities continue to trend higher, stocks steady, oil rebounds from intraday low, banks ease and tech rebounds. 

While Lagarde also unveiled forecasts that showed faster growth and inflation both this year and next, she insisted that price pressures in the economy “remain subdued.”

The ECB’s continued emergency easing is likely to presage a similar move by the Federal Reserve next week not to start winding down stimulus, in a two-pronged policy push to ensure recoveries from the pandemic can be assured.

ECB purchases have been conducted at a pace of roughly 19 billion euros a week since March, up from 14 billion euros earlier in the year. Thursday’s decision suggests they are likely to continue at or close to that higher clip until the recovery firms. Most economists don’t expect a reduction until September.

Amid all the talk of tapering over the last couple of weeks, there has been no mention of how deleterious higher yields are to government finances. We have already seen meaningful moves higher in yields this year. That has stoked inflationary fears but ultimately, the move was about supply and demand. The US Treasury has been issuing bonds at a quick pace to fund the latest round of stimulus and the bond market has experienced indigestion so bond yields rose.

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Electric plane designs are being commercialised for hopper flights but medium to long-range aspirations depend on innovations in battery technology which have not yet been solved. Hydrogen is a promising potential alternative for jet fuel but it requires a total redesign of aircraft. Both these solutions depend on massive investment in new infrastructure and supply chains. They will also depend on high carbon trading costs to drive the transition for at least the next decade.

Government policy support has improved dramatically...Growth from non-OECD nations has always been the bedrock of our positive demand outlook, and this view has only strengthened following the release of China's 14th Five-Year Plan, which called for an ~40% expansion in its nuclear fleet to 70GWe by 2025, with an additional 50GWe under construction. Adding to this is a more constructive view around North American and European demand in the wake of (1) bipartisan support for nuclear energy in the US for the first time in 48 years, the US rejoining the Paris Agreement, and clear support for nuclear energy in the "American Jobs Plan" and (2) the European Commission announcing that it will potentially include nuclear energy in the European Union's sustainable financing taxonomy.

...and we have upgraded our demand forecasts accordingly. The acknowledgement of nuclear's critical role in providing cost-effective emissions-free baseload power has been slow in coming, but has now gained momentum. This has reduced the risk of accelerated plant closures in OECD nations and continues to drive growth in developing nations. Accordingly, we increase our demand growth to 2.6%pa to 2035 (2.3% prior), a forecast which excludes any potential positive impact from small modular reactors (>300MW), which are garnering increased attention globally.

Mine closures and unscheduled curtailments. Primary supply remains under significant pressure, a situation which has only been compounded by the shutdown of Ranger in January (produced 3.5Mlb in 2020) and Cominak in April (approximate capacity 3.9Mlb). While the re-start of Cigar Lake (18Mlb) should provide some welcome near-term relief, we continue to expect a supply deficit of ~25Mlb in the 2021 uranium market, which follows on from a 25Mlb deficit in 2020 (CGe). We estimate that over the last five years mine capacity has been reduced by ~45Mlb/year, and this is before any consideration of COVID-19 related disruptions.    

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Nuclear energy is a proven reliable zero-carbon producer of electricity. The one thing that every zero-carbon solution being proposed today shares is a significant increase in demand for electricity. Against that background there is room for the nuclear industry to continue to provide base load power in a wide number of jurisdictions.

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

Some of the topics discussed include: discussion of inflationary pressures; monetary versus commodity and psychology, bond yields compress amid tapering bets, stocks ease, bitcoin steadies, 

The Fed’s move away from pre-emptive action in its new policy framework is the most important factor raising the risk that it will fall well behind the curve and be too late to deal effectively with an inflation problem without a major disruption to activity. Monetary policy operates with long and variable lags, and as we have noted, it will also take time to recognize that inflation has actually overshot excessively and persistently. As inflation rises sustainably above target, forward looking expectations are likely to become unanchored and drift higher, adding momentum to the process.

By this point, the Fed will likely be moved to act, and when it does the impact will be highly disruptive to the markets and the economy. In the past, the Fed has not been able to reverse a sustained run-up in inflation without causing a recession and potentially large increase in unemployment. Being behind the curve when it starts will make the event that much more painful. Rising interest rates will also cause havoc in a debt-heavy world, leading to financial crises especially in emerging markets. If the Fed lets up and reverses rate increases in response to rising unemployment and other economic pain as occurred during the 1970s, inflation could back up again, leading to a repeat of the stop-go economic cycles that occurred during that period.

Depending on the timing of this potential inflation scenario, the 2022 midterm elections could be crucial. A surprisingly strong showing on the Democratic side could even pave the way for modifying the Federal Reserve Act to raise the inflation objective. This discussion has been brewing in academic circles for some time, not the least as a way to enhance the Fed’s power to move interest rates into negative territory when needed. But such a move could damage the Fed’s inflation fighting credibility. It could also lead to still higher inflation over time and ultimately intensifying the kind of boom-bust cycle experienced during the 1970s.

In brief, the easy policy decisions of the disinflationary 1980-2020 period appear to be behind us.

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The response to the credit crisis resulted in massive asset price inflation which exacerbated inequality across society in most countries. The response to the pandemic is aimed at reversing that trend and providing greater opportunity to the people left behind by the last recovery. That implies massive money printing, spending and social programs.

World’s largest producer of palladium and high-grade nickel and a major producer of platinum and copper Nornickel announced that on June 1 the company began to gradually restart ore mining at the Taimyrsky underground mine and plans to advance mine’s operations to full capacity in the near future. Currently, the mine has reached a daily mined volume of 5 kt, which is about 40% of the design capacity. The final stage of recovery operations at the Taimyrsky mine of 4.3 million tonne per annum of ore is expected to be fully completed by the end of June.

Norilsk Nickel Senior Vice President Mr Nikolay Utkin said “Water from the horizons of the Taimyrsky mine has been pumped out. Today, our main goal is to reinforce the underground workings to ensure the safety of our employees. We will be gradually scaling up mining as we take these measures. The mine is expected to reach its design capacity of 12,1 kt per day by the end of June 2021.”

The flooding of the Taimyrsky mine was a major support for palladium prices over the last six months. It helped the price reverse a reversion to the mean and trade out to all-time new highs. The recovery in demand from the automotive sector has been an additional factor which allowed the price to steady.

While European broadcasters are still profitable, “and some very much so,” Godard highlighted, “savvy investors believe this is looking suspiciously like the high earnings of printed newspapers circa 2007, or a Wile E. Coyote run over the edge of the cliff. Broadcasters are capturing a declining share of total video audiences and their capacity to finance attractive content is shrinking as talent is bid up by SVOD operators.”

The analyst then outlined two consolidation options that have emerged in Europe.

“The first path — heralded by Bertelsmann RTL Group — would aim at creating national broadcasters with the content scale to operate compelling online platforms” via domestic acquisitions, Godard said, calling this the “possibly more defensive but also more realistic” option.

The second path is “more ambitious but lacking a credible backer,” he argued. It targets “the never achieved idea of pan-European synergies, leveraging increased international appetite for non-English language content” by merging assets across borders, something that the likes of Italy’s Mediaset and Vivendi have talked about. “But its champion, Italy’s Mediaset, lacks capacity to deliver,” Godard concluded.

“The group is already the biggest broadcaster in Italy and Spain and has built a 24 percent stake in Germany’s ProSieben, with the remaining shareholding fragmented,” he explained. “The problem is, if the cross-border strategy is sound, Mediaset may be its worst possible proponent. Besides bringing in strong leadership to its Spanish division, Mediaset never extracted significant synergies from its two Mediterranean units, despite their cultural affinity.”

National broadcasters survive because they have state backing and a captive audience. The value proposition they represent is tied to continued support from governments because they provide domestic language content. That does not transfer well internationally. This map of the 12 most spoken languages in the world suggest the biggest opportunities are in the Chinese, English, Spanish, Hindu-Urdu and Arabic speaking parts of the world. 

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Some of the topics discussed include: bitcoin recoups intraday loss and the S&P500 does the same. big spread between call and put prices for volatility suggest appetite for hedging, gold eases, oil firm, 

The action signals U.S. law enforcement’s ability, in some cases at least, to track cryptocurrency, identify digital wallets and seize funds, a potentially powerful tool in combating ransomware attacks in particular. The operation also reveals how quickly hacking operations can be identified by the FBI, which Abbate said has been investigating DarkSide since last year.

The FBI was able to find the Bitcoin by uncovering the digital addresses the hackers used to transfer the funds, according to an eight-page seizure warrant released by the Justice Department on Monday.

Blockchains are public ledgers by design. Treating ransomware as if it is terrorism is a major escalation in the fight against this revenue model. It suggests the ability to transact secretly in bitcoin is about to garner a lot more scrutiny and most particularly from the tax authorities.

Multi-horizon forecast models using statistical analysis have been around for years now, channeling market variables into predictions about how a stock will move over different time periods. The machine-learning techniques introduced in this research will increase the amount of data that can be processed and the potential accuracy of the predictions over longer time periods.

But to make it work, the AI has to be able to process a huge amount of data quickly. The researchers turned to Bristol, England-based Graphcore’s Intelligence Processing Unit, a pizza box-sized chip
designed specifically to handle the demands of an AI program. In the trials, Graphcore’s chip performed about 10-times faster than GPUs.

While the research and the Graphcore chips that make the model possible are the “logical next step” in the high-speed computations that Man Group is interested in, the fund hasn’t committed to rolling it out, Ledford said.

Meanwhile, not every firm would be able to deploy this kind of strategy. “You would not try this model if you did not have access to fast computation,” said Zohren, who worked with Oxford-Man Institute research associate Zihao Zhang on the research.

 

Traders built some of the fastest telecommunications equipment anywhere, to get prices quickly between New York and Chicago. They pioneered colocation and the transition of exchanges into data centres. It is inevitable they will invest heavily in super computers if they believe they can gain an edge in short-term trading.

The exploration and production sector just reported its “best organic free cash flow since shale began,” according to an analysis of first-quarter results by Bob Brackett at Bernstein Research.

Most notably, less than half of cash flow from operations was swallowed up in capital expenditure. This not-spending-everything approach may seem like finance 101 but is actually pretty radical stuff for the shale business. Look at 2012 to 2016 on that chart. Such profligacy led investors to abandon the sector, finally forcing some discipline.

Secular bull markets in commodities are about the rising cost of marginal production. Decades of little investment in new supply in the energy sector created conditions that required a decade of overinvestment in new supply to compensate for rising demand. Ahead of the bull market in the early 2000s, the marginal cost of production was somewhere around $20, today that level is closer to $40.

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Some of the topics discussed include: Alzheimer Drug approved, biotech rebounds, gold steady, Peruvian Sol weakens, Mexico and Italy breaking out. Dollar weak, emerging markets firm,  

Let’s zoom out for a second. All blockchain-based systems share two basic ideas. The first is that for the first time you can have a thing online that can be probably yours. A coin, a token, an NFT… whatever it is. You have it and control it and no third party has any say. Alice can own something and then send it to Bob. Alice doesn't have it anymore and Charlie can't interfere. The other core idea is that part of achieving this involves a sufficiently decentralized network of computers, such that no individual, company, or government has a say in what goes on.

But this is where the fork in the road emerges. The Bitcoin vision is to create a new form of money outside the authority of any central issuer. The DeFi vision inverts this, and takes the money creation part for granted. After all, you can spend a dollar on the Ethereum network using a USD-backed stablecoin, so why reinvent the wheel? Instead, the DeFi-based vision is to build unstoppable blockchain-based software and services that then do something with this money.

A couple weeks ago, I wrote that Wall Streeters are increasingly getting ETH-pilled and the above is why. There’s a certain concreteness to the value proposition. If a decentralized network of computers can match borrowers and lenders in some powerful and novel way, then the software and the tokens that power it should be valuable. And in general, this vision jibes much more with the Silicon Valley ethos. Trying to create a new form of money? That’s not really a thing you learn about at Stanford. Writing software to disrupt traditional financial services? That they get. Furthermore, Bitcoin frustrates many people in tech because of the community’s move slow and don’t break things approach.

All this being said, all these different factions and visions… they remain something of an inside game. It’s not clear how much your average crypto investor is paying attention to any of these different modes and models. If you look at the coins, you’ll mostly see a high degree of correlation. Either they’re all going up at the same time or down at the same time. This includes Bitcoin and Ethereum and Solana, but also a bunch of other coins that don’t map to a trendy narrative. (For example, Litecoin is still one of the world’s biggest coins despite its founder having peaced out from the project in 2017, and neither has a store-of-value narrative nor a DeFi narrative or anything else really.)

Here’s a chart of Ethereum, Bitcoin, and Litecoin going back to the summer of 2017. You can see, everything just kind of rises and falls at the same time.

The market strongly gives off a vibe of people wanting to get into crypto and then placing their chips on a bunch of different squares without too much thought. Maybe they buy a few that they’ve heard of, maybe they buy a few with a low nominal coin price because it’s fun to have a lot of coins and maybe they buy a few that just seem interesting. That still seems to be how flows work in the space. And as long as this is all the case, we’ll probably still have these generalized boom-bust cycles where coins rise and fall together along with the animal spirits of investors and traders.

Peru’s currency and stocks tumbled after incomplete results of Sunday’s presidential runoff showed the leftist candidate gaining momentum even as he trailed by a thin margin in the count.

The sol headed to its biggest drop in more than a decade at one point and the S&P/BVL Peru General Index fell as much as 6.8%, the most since November, with mining companies and financial firms among the hardest hit. Overseas bonds edged lower in light trading while the cost to insure against a default climbed.

Analysts were left to scour incomplete vote tallies for hints at who had the advantage, after investor favorite Keiko Fujimori saw her early lead over leftist opponent Pedro Castillo fade overnight and in the early morning. With almost 93% of votes counted, Fujimori had 50.1% support to 49.9% for Castillo, a former school teacher turned union organizer from the Peruvian highlands.

“The country is pretty much split down the middle,” said Alfredo Torres, director of Ipsos Peru. An unofficial quick count published earlier by Ipsos gave Castillo a 0.4 percentage point advantage over Fujimori, within the margin of error, while an Ipsos exit poll after Sunday’s voting showed Fujimori with a slight lead.

Fujimori, who is under investigation for corruption and campaigned while out on bail, gets more of her support from urban centers, while Castillo has the advantage in the countryside. She has vowed to save the country from “communism” by preserving a liberal economic model and boosting cash payments to families affected by the pandemic. The daughter of a jailed former president, it’s her third attempt at the top office.

Castillo, who launched his political bid with a Marxist party and was virtually unknown at the start of the year, ran on a platform of extracting more taxes from multinational miners and oil drillers to increase outlays on education and health. He blames the country’s inequality on the ruling elite whom he says have long been content to run Peru from Lima while ignoring swathes of the country.

The gulf between populist left and right-wing parties conspires to create volatility in all manner of financial assets prices. However, the reality of governing has been less revolutionary because most left-wing populists have achieved victory by slim margins which has curtailed their ability to implement their policy goals.

The FDA said in a statement on Monday that it was allowing the drug on the market because it reduces amyloid, a sticky, harmful protein that clogs the brains of Alzheimer’s patients. Amyloid’s role in Alzheimer’s is debated, but numerous other drugs that target it are being developed by pharmaceutical companies.

Biogen plans to sell the therapy under the brand name Aduhelm. It will cost $56,000 a year, the Cambridge, Massachusetts-based biotechnology company and its Tokyo-based partner, Eisai Co. Ltd., said in a statement.

U.S.-traded shares of Eisai leapt 60% to $118.73.

In an interview, Biogen Chief Executive Officer Michel Vounatsos said that the company had already produced millions of vials of the drug and that it would hit the market within 10 days to two weeks, once the company had done things like printed labels.

Over 900 infusion sites in the U.S. are prepared to administer the drugs, he said.

By giving the treatment a broad label allowing it to be used for a wide swath of Alzheimer’s patients, and not just the very early-stage patients the drug was mostly studied on, “the FDA is basically empowering the physician to make the decision,” who it is most appropriate for, Vounatsos said.

Until today, there has been no treatment for Alzheimer’s. There is an argument about how effective the drug is, and some of the concerns about efficacy are very significant. Nevertheless, many patients will be prescribed it on a “something is better than nothing” basis.

A link to this week's Big Picture Long-Term video is posted in the Subcsriber's Area. 

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic panic is now one year in the rear-view mirror. It seems to have lost its ability to scare us so that begs the question what happens next? That’s the big conundrum

Some still believe that technology will solve all our problems and that the largest companies in the world will continue get even larger. Others believe that the inflation genie has been releases so it is inevitable that bonds will collapse in value. Others believe that we are in for a long grind of subpar growth because the debt is so large, it will sap the will to live out of every speculative asset. Others believe we are in a stock, commodity and property market bubble that could pop at any moment. Still other believe that cryptocurrencies are the solution, though no one is exactly sure what the problem is. So how do we make sense of these divergent views?

Personally, I have a strong feeling of déjà vu. In late 1999 and early 2000 I was selling Optus cable connections door to door in Melbourne. When I tired of backpacking, I went to London and within three weeks had started at Bloomberg. I was amazed at the speed of the Royal Mail. I saw an ad in The Times on a Wednesday for European sales people. I posted my CV that afternoon and had a reply back from Bloomberg delivered the next day. I had an interview on Monday and started on Tuesday. To say they were desperate for sales people is a gross understatement. I was in Belgium, visiting private banks, 10 days later. That was the top of the market and it was evidence of a true mania in the TMT (Telecoms, Media and Technology) sectors.

By the end of the Nasdaq bear market in 2003 the number of Bloomberg terminals being sold to mortgage bankers was surging. I was even offered a job by one. The Dollar was pulling back, there were fears about financial repression, China’s demand for commodities was only beginning, emerging markets were breaking out and gold was completing its base formation. A year later oil broke out.

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Some of the topics discussed include: gold pulls back from the psychological $1900 level. Dollar steady on Fed selling of LQD, Tech shares continue to underperform and are led lower by Tesla while Ford surges, bitcoin continues to pause below $40,000. 

Record low junk yields, the tightest spreads since 2007 on high-grade debt, rapidly evaporating distress -- the Fed’s fingerprints are all over credit markets. Central bank purchases ended up being marginal but the psychological boost can’t be overstated, leaving spreads vulnerable to widening now it’s backing out.

“The Fed has your back” was the constant refrain from investors piling into corporate credit over the last 14 months, even after valuations overshot pre-pandemic levels and high-grade losses accumulated. The program technically only extended to the very best quality junk, but it squeezed yields all the way down to CCC, arguably keeping a lot of zombies walking.

Of course, now they’ve been used once, it’ll be tough to leave those tools sitting idle next time there’s a blowup, so some investors will keep faith. And there’s still too much cash chasing returns in an asset class that could be seen as offering relative value. But removing the Fed crutch may force buyers to look a little harder at credit fundamentals amid razor-thin valuations.

The Fed is still buying $120 billion of Treasuries and mortgages every month. That hasn’t changed and it will be a while before they begin to chip away at that rate of purchases. The decision to unwind credit holdings is timely since spreads are so tight, but it also shows some awareness of how big a step it was to buy them in the first place. Central banks do not see themselves as white knights for markets even if that is the function they fulfil in practice.

Drought in key Brazilian growing regions is crippling crops from corn to coffee, and vegetable oil production growth has slowed in Southeast Asia. That’s boosting costs for livestock producers and risks further straining global grain stockpiles that have been depleted by soaring Chinese demand. The surge has stirred memories of 2008 and 2011, when price spikes led to food riots in more than 30 nations.

“We have very little room for any production shock. We have very little room for any unexpected surge in demand in any country,” Abdolreza Abbassian, senior economist at the UN’s Food and Agriculture Organization, said by phone. “Any of those things could push prices up further than they are now, and then we could start getting worried.”

The prolonged gains across the staple commodities are trickling through to store shelves, with countries from Kenya to Mexico reporting higher food costs. The pain could be particularly pronounced in some of the poorest import-dependent nations, which have limited purchasing power and social safety nets as they grapple with the pandemic.

The UN’s index is treading at its highest since September 2011, with last month’s gain of 4.8% being the biggest in more than 10 years. All five components of the index rose during the month, with the advance led by pricier vegetable oils, grain and sugar.

Farmers that survive the pandemic disruptions will want to plant as much acreage as possible for their next growing season in every agricultural zone in the world. High prices are all the incentive they need. That’s particularly true for the grains and beans where production is possible in multiple different geographically diverse regions.

Dear Eoin I hope that your move went well. The chart of Carnival (CUK in the USA) is making an interesting breakout. It is a classic example of a company that suffered greatly from Covid and that has a great recovery potential.

Thank you for this question which may be of interest to the Collective. Thanks also for the well wishes. We are settling in nicely. Cruises were either the bargain of the year or a boondoggle for consumers in December. I had brochures arriving at my home offering buy one get one free and thousands in onboard credits and shore excursion for sailings into 2022. I thought of it as a value proposition. The rest of the family were not so keen.

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Some of the topics discussed include: Dollar fails to hold gains, Asian emerging markets rebounding, gold steady, Europe firm, Treasuries firm on stronger economic news, Wall Street inert but tech remains weak. 

Australia’s rapid rebound has been underpinned by its ability to limit Covid-19 outbreaks, boosting consumer and business confidence. A massive fiscal-monetary injection strengthened the financial position of households and firms during the lockdown, and consumers are spending and companies hiring.

“Australia is in rare company here -- only five other countries can boast an economy that’s larger now than before the pandemic,” said Kristian Kolding, a partner at Deloitte Access Economics. “Maintaining this trajectory is now the task at hand -- the lockdowns in Victoria are a stark reminder that the pandemic is far from over.”

Deloitte noted that on average, economies in the Organisation for Economic Cooperation and Development are 2.7% smaller than they were before the pandemic. The U.K. is almost 9% smaller, the European Union is 5% smaller and the U.S. has shrunk 1%, it said.

Yet a potential risk to the outlook is the sluggish rollout of a Covid vaccine. This has been magnified by a renewed outbreak of the virus in Melbourne that prompted a lockdown in the nation’s second-largest city, and has now been extended for another week.

Victoria is back in lockdown but the number of cases is comparatively low and the rest of the country is reasonably unaffected. Investors are taking the news in their stride. After more than a decade of liquidity infusions the reality remains liquidity beats most other factors most of the time. Central bankers also understand that logic and must feel vindicated in their actions. Every time there is a problem, they boost money supply and act to depress yields and the economy rebounds. They are unlikely to do anything different until that policy stops working.

The South African rand rallied to its highest in more than two years against the dollar on Wednesday, as investors cheered the latest evidence of a sustained rebound in global economies and as U.S. Treasury yields pulled back.

At 1525 GMT, the rand was 1.27% firmer at 13.5900 against the dollar, trading at its firmest since early February 2019.

With the local economy remaining weak and facing power cuts, the rand's recent rally has been mainly on the back of global factors, including higher commodity prices which benefit resource-rich South Africa and expectations U.S. lending rates will stay lower for longer.

Riskier currencies, such as the rand, thrive on U.S. interest rates remaining low because they benefit from the interest rate differential that increases their appeal for carry trade.

Investors waited for crucial U.S. jobs data on Friday to assess what the increasing evidence of a faster-than-expected economic recovery would mean for central bank policy in the United States.

"This figure could also give markets some short-term guidance as to the economy in the U.S. which is likely to have a systemic effect across financial markets," said DailyFX analyst Warren Venketas.

South Africa is a commodity exporter so its balance of payments is likely to improve considerably as the price of agricultural and industrial resources trends higher. The standards of governance in South Africa leave a lot to be desired. However, from an investor’s perspective the question is whether the corruption situation is getting worse or the status quo is being sustained. In the event it were ever to improve, South Africa would become a highly attractive investment destination. Doing what is necessary to ensure reliable electricity supply would be a big step forward.

Local investors have continued to snap up stocks despite a domestic coronavirus surge, with more than 4,000 local virus cases reported since the end of April - three times more than new cases last year. Last month, the index gained more than 7%, the most in the region.

That compares to a 25% slump in March last year as the global pandemic erupted, and a decline of about 4% in January when another wave hit the country.

Stocks have remained resilient in part due to efforts by the government to contain the outbreak and demand from the Vietnamese making the most of low interest rates. Trading value for Vietnamese stocks climbed to all-time high Monday-- at more than $1 billion, as retail traders poured funds into the market.

On Tuesday, the main bourse halted trading in the afternoon as turnover surged. The VN Index is trading at about 15 times estimated earnings for the next year, compared with more than 16 times on the MSCI Asia Pacific Index.

Vietnam has been dealing with new case loads from the coronavirus but the broader success of the economy in keeping factories and businesses open is more important to investors.

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Silver’s rally is likely to continue for the rest of the decade. We could be moving into an inflationary politician-led era of universal basic income, modern monetary theory, and government-guaranteed bank loan schemes. These trends will put upward pressure on the silver price.

Silver is far and away the most heavily leveraged exchange-traded commodity. An August 2020 report by Macquarie put the ratio of derivatives to physical market at 193 for silver, compared to 86 for nickel and 74 for gold. This creates potential for a GameStop-style short squeeze on silver.

The consensus opinion of professional silver analysts is that the world will broadly go back to the way it was before 2020. They are forecasting falling investment demand and lower silver prices for 2021–25, but we think they are mistaken.

We believe the ‘go back to the way things were’ assumption will be proven wrong. The virus may have had little impact on silver sources, but it has had a profound impact on government and society.

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Silver is both a precious and industrial metal. The growth of the solar cell industry has been one of the key industrial demand drivers over the last decade and that is likely to continue even as the marginal cost compression of solar cells moderates.

 

The company, which has its North American operations headquartered in Greeley, Colorado, controls about 20% of the slaughtering capacity for U.S. cattle and hogs, according to industry estimates.

U.S. beef and pork prices are already rising as China increases imports, animal feed costs rise and slaughterhouses face a dearth of workers.

The cyberattack on JBS could push U.S. beef prices even higher by tightening supplies, said Brad Lyle, chief financial officer for consultancy Partners for Production Agriculture.

Any impact on consumers would depend on how long production is down, said Matthew Wiegand, a risk management consultant and commodity broker at FuturesOne in Nebraska.

"If it lingers for multiple days, you see some food service shortages," Wiegand added.

Two kill and fabrication shifts were canceled at JBS's beef plant in Greeley due to the cyberattack, representatives of the United Food and Commercial Workers International Union Local 7 said in an email. JBS Beef in Cactus, Texas, also said on Facebook it would not run on Tuesday.

JBS Canada said in a Facebook post that shifts had been canceled at its plant in Brooks, Alberta, on Monday and one shift so far had been canceled on Tuesday.

 

Piracy on the high seas is policed by both nation states and international organisations. A zero tolerance policy is taken to any threat to international trade and significant military and diplomatic resources are deployed to contain any threat that appears. Doing the same for cyber pirates is a lot more difficult.

AMC said Tuesday it sold stock to Mudrick with plans to “go on offense” for acquisitions. The agreement with New York-based Mudrick was for 8.5 million shares of common stock at $27.12 apiece. The stock purchase came with the assurance that the shares would be “freely tradable,” meaning the firm could sell the shares at any point or in any amount it chose.

Debt holders have also benefited from the recent equity rally. Some of its junk-rated second lien bonds due 2026 that were trading as low as 5 cents on the dollar in November are now close to face value, and quotes on its senior subordinated notes maturing in 2027 jumped about 4.5 cents Tuesday to almost 80 cents.

Mudrick has made big bets on AMC in the past, helping the movie theater chain as it pushed through the pandemic. In January, the firm agreed to buy $100 million of new secured bonds in exchange for a commitment fee equal to about 8 million AMC shares. The agreement also called for Mudrick to exchange $100 million of AMC bonds due 2026 for about 13.7 million shares.

Kudos to AMC’s management for making ample use of its shelf listing to milk investors for additional capital. Quite what going on the offensive means is another question entirely. Content creators are increasingly choosing to go straight to streaming. When they do choose to show movies in theatres the interval before streaming is shorter. Cinema might be a shrinking market but the company will at least survive long enough to increase market share.

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"The system is considered a subtropical cyclone rather than a tropical cyclone since it is still entangled with an upper-level low as evident in water vapor satellite images, but it does have some tropical characteristics as well," according to the National Hurricane Center.

There have been pre-season named storms in the past six years, but Ana’s addition to the group is distinct for another reason. Storms in May normally form near the eastern Gulf of Mexico, the western Caribbean Sea or the Southeastern coast of the United States, CNN reported. But subtropical storm Ana is distinct because it formed in the Atlantic. 

The National Oceanic and Atmospheric Administration (NOAA) recorded a record-breaking 30 named storms in 2020. NOAA reported that 2020 was the fifth consecutive year with an “above-normal” hurricane season. There have been 18 “above-normal” seasons out of the last 26. 

“As we correctly predicted, an interrelated set of atmospheric and oceanic conditions linked to the warm AMO were again present this year. These included warmer-than-average Atlantic sea surface temperatures and a stronger west African monsoon, along with much weaker vertical wind shear and wind patterns coming off of Africa that were more favorable for storm development. These conditions, combined with La Nina, helped make this record-breaking, extremely active hurricane season possible,” said Gerry Bell, lead seasonal hurricane forecaster at NOAA’s Climate Prediction Center. 

La Nina has dissipated and we are now in the lull before a new El Nino forms. How long that takes is likely to have an impact on how storms form over the summer months. Seven years in a row for an early hurricane season is not an aberration but looks more like a trend.

Volume at the Federal Reserve’s facility for overnight reverse repurchase agreements is poised to climb on the last trading day of the month, surpassing Thursday’s record, as global banks pull back on their balance sheet activity for regulatory purposes.

Wrightson ICAP said it’s likely demand for the Fed’s RRP moves above $500 billion level, but will be looking for some pullback in activity on June -- though any dip may be temporary

RRP usage surged to $485.3 billion Thursday, a record since the facility started in September 2013 and up from $450 billion in the prior session

The rate on overnight GC repo opened at -0.01%, according to Oxford Economics. Treasury bills out to September are yielding less than 1.5bp. On the unsecured side, three-month Libor dropped to a fresh record low of 0.13138% from 0.13463% in the previous session

The glut at the front-end has been spurred by the central bank’s ongoing asset-purchase program, commonly referred to as quantitative easing, as well the drawdown of the Treasury’s general account. The latter has been driven by the looming debt-ceiling reinstatement, which is due to take place at the end of July, and the flow of pandemic stimulus funds to taxpayers

Federal relief payments to state and local municipalities are also adding to the oversupply, and that’s being exacerbated as regulatory constraints encourage banks to turn away deposits, directing that cash into money-market funds

There was a lot of concern at the prospect of banks turning away deposits and the impact that would have on money market funds a couple of months ago. Since then, the Fed has acted to support banking operations. Additional supports are now going to be required to ensure money market funds do not see negative yields. That may require stepping up asset purchases in an effort to mop up excess liquidity.

The pandemic purchases were ramped up in March when the U.S. rebound was fueling a global rise in borrowing costs while the euro zone was in a double-dip recession. The ECB will unveil new economic projections that should confirm a far brighter outlook as vaccinations pick up.

A European Commission report on Friday showed economic confidence in May at the highest level in more than three years as restaurants, hotels and shops across the region start to reopen.

Yet in a sign that the recovery remains fragile, French data on Friday came in much weaker than expected. Consumer spending fell 8.3% in April from the previous month, more than twice as much as forecast, and first-quarter gross domestic product was revised to show a decline. Finland also posted an unexpected contraction.

Over the past few decades there have seldom been times when European equities outperformed the S&P500. The equity cult in the USA is much stronger than elsewhere which creates demand for domestic growth stories. The presence of strong consumer brands, companies with long histories of paying and increasing dividends, the ready supply of new exciting stories from Silicon Valley and the largest consumer base in the world means Wall Street has tended to outperform.

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Some of the topics discussed include: Pound appreciates, Yen among the weakest currencies, gold steady, meme stocks continue to rebound, ex-US to outperform on weak Dollar. 

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Biodegradable plastic is a major growth theme if costs can be brought in line with existing manufacturing techniques. The modern world is built on hydrocarbons because the chemical sector has been so versatile in developing products from them. The challenge is these types of products last for seemingly interminable lengths of time and find their way into every facet of the global ecosystem. As awareness of the dangers of microplastics increases, demand for degradable alternatives will increase.

“In that scenario, the first rise in Bank Rate is likely to become appropriate only well into next year, with some modest further tightening thereafter,” he added.

The government’s furlough programme, which pays the wages of more than 2 million workers, does not expire until Sept. 30 and Vlieghe said it would take time for the true health of the economy until early in 2022.

If unemployment in the first quarter of 2021 was low and upward pressure on wages stronger then than the BoE expected, “a rise in Bank Rate could be appropriate soon after, along a slightly steeper path than in my central case,” Vlieghe said.

However, if concerns about COVID infection risks persist - possibly as a result of new variants of the disease - higher unemployment could prove persistent and the economy might need more BoE stimulus. (Reporting by David Milliken and Andy Bruce)

Dominic Cummings and his lengthy testimony in front of Parliament are making headlines today but crowds have short memories.

Psychologically, we tend to remember a whole experience by how we feel at the end. Christmas is a good example. All of the preparation, decoration and rushing around are worth it because of the positive experience at the climax of the festival.

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Some of the topics discussed include: stocks quiet but meme shares perk up, profit motivation threatened at major oil companies, many Asian markets have been ranging for a decade and would bene4fit from a breakdown in the Dollar. 

Dear Eoin, What is happening with Platinum please? Many thanks,

The platinum miners have been among the biggest supporters of the hydrogen fuel cycle because platinum is essential to how hydrogen fuel cells function. The loss of diesel engine demand left a hole in the market and they have been struggling to find new customers. The new energy revolution, being supported by politicians all over the world, is great news for the sector.

Eoin Hope you are well and settled in your new home. In your comments, you refer to companies having to purchase carbon credits and how Tesla has profited at the expense of others. Could you kindly share some more color on this or direct us to articles you may have posted. Also, could you please shed some light on carbon futures, and where they trade? Thanks much and stay safe Regards

Thank you for this timely email. Royal Dutch Shell’s failure to avoid censure in the Netherlands brings the issue of how emissions are priced into sharper focus.

Here is a section from a relevant article:

“Companies have an independent responsibility, aside from what states do,” Alwin said in her decision. “Even if states do nothing or only a little, companies have the responsibility to respect human rights.”

There are currently 1,800 lawsuits related to climate change being fought in courtrooms around the world, according to the climatecasechart.com database. The Shell verdict could have a powerful ripple effect, not least among its European peers including BP Plc and Total SE. Those companies have set similar emissions targets, which have also been criticized by campaigners for not going far enough.

Court Wins
The courts have become an increasingly successful arena for campaigners to hold governments and countries to account over pollution and climate change. This is the second time in quick succession that a Dutch court has ruled that Shell’s parent company in The Hague is liable for environmental damages in other jurisdictions.

In January, a court of appeals said that Hague-headquartered Shell had a duty of care to prevent leaks in Nigeria. The German government fell foul of a judge over its climate targets when its top court ruled that Chancellor Angela Merkel’s climate-protection efforts were falling short in April.

“Urgent action is needed on climate change which is why we have accelerated our efforts to become a net-zero emissions energy company by 2050,” a Shell spokesperson said. “We are investing billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables and biofuels.”

The EU measures will need to name specific sectors and be clearly defined so as to withstand potential legal proceedings and win the backing of all member states. Forging unanimity between EU governments has proved tricky lately, with several countries keen to avoid hurting their economies or dent controversial political alliances.

“A lot will depend of what type of sanctions are implemented,” said Elena Sakhnova, an analyst at VTB Capital. “If those are just sectoral penalties, such as limiting Belarus potash industry’s ability to get financing in European banks, this won’t cause disruption on the market as Belarus uses alternative sources of funding anyway.”

Potential Impact
More meaningful penalties would prevent European companies from trading with the Belarusian potash industry, though Belarus would still be able to divert from Europe to other markets,
mostly to Asia Sakhnova said.

That may cause a short-term increase in potash prices in Europe, as Belarus supplies about 25% of the region’s demand, though the situation should normalize fairly quickly, she said. Producers like Russia’s Uralkali PJSC may replace Belarusian volumes in Europe, she said.

A big outstanding question is how powerful is the EU’s farm lobby? Potash is an essential crop nutrient and is impossible to replace. Supply is concentrated in Belarus, Russia and Canada. Farmers have plenty of experience with exaggerated pricing for agricultural nutrients so achieving unanimity on sanctioning Belarus’ potash exports will be difficult to achieve. A further deterioration in relations would probably be required to spur action.

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Some of the topics discussed include: Dollar weak, Treasuries firm, Wall Street eases, China breaks out, Renminbi firm, lumber toppy, bitcoin weak, ex-US outperforming

Beijing’s efforts to talk down commodity prices and impose more control over financial markets have sent investors into more defensive assets such as consumer stocks with steady cash flows. Liquor giant Kweichow Moutai Co., mainland’s biggest stock, rose 6% after Chinese media outlets reported its parent company aimed to double revenue by 2025.

“Beijing’s crackdown on commodity prices has forced more funds to seek shelter,” said Zhang Gang, a Central China Securities strategist. “Stocks such as Moutai are attractive given its stable earnings outlook and relatively reasonable valuation following this year’s correction.”

Two pieces of news on China hit the headlines today. The first is that Goldman Sachs and ICBC have formed a joint venture for wealth management clients. The second is the central bank is at least comfortable with the current strength of the Renminbi and may be inclined to allow it to appreciate further. Both are positive for asset prices.

Eoin, congrats for your most recent calls on crypto etc. well done! You were showing a chart re value over growth outperformance and that it could go on a little longer. What in your view is the best way to play it? iShares ETF value long and short iShares growth? Tkx a lot and keep, up your good work! Dani

Thank you for your kind words and the general pattern of outperformance in value is certainly noteworthy. Low interest rates favour growth at the expense of value because expectations for future potential are stretched to the point of incredulity the longer an easy money regime persists. When interest rates change direction the enthusiastic outlook for valuations is harder to justify and the relative attraction of reliable earnings is burnished.

Dear Eoin, I hope you are keeping well. A very (very) general query, but I've found myself struggling to distinguish between mean reversion in ongoing trends and type 2 / type 3 trend endings. Can we overlay some (subjective) fundamental analysis to gain some clues at this point, or do we have to "wait for the charts to show us"? Or is it about trend consistency? I accept the uncertainty present in markets and that one man's mean reversion is another man's top / bottom, but as this has been playing on my mind, I thought I'd ask the question. Please feel free to answer this in the context of examples as they come up if that's easier! Sincere thanks for the unique and invaluable service.

Distinguishing A top from THE top is a big question and requires us to have an appreciation for what the motivating factor behind a move is. The most pressing point is that every secular bull market is punctuated by several medium-term corrections. Market trends are endlessly fractal so we see evidence of acceleration, massive reactions against the trend and massive congestions areas on occasion.

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Some of the topics discused include: oil and stocks firm, renewables steady, gold eases, China steadies, commodities hold gains, bitcoin rebounds 

Weber: What puzzles me about the idea that the problem lies in Chinese “state capitalism” or China’s active state participation in the market is that this is not unique to China. Other states also have historically had quite extensive industrial policy and state engagement. It seems that the tensions between China and the West have been mounting since China moved from being the workshop for companies headquartered in the West toward trying to establish its own companies that can reach the technological frontier. That of course required the state, as China was starting from a position of relative technological under-development.

Browne: Local experimentation accounts for much of China’s early economic success. But these days, the approach is more top-down. Is that a problem?

Weber: First of all, I think we have to recognize that the 1980s is really this moment of great openness before a new paradigm has settled. This is a little bit like what we might be observing right now in the U.S. context, where suddenly all of the premises that we used to have in economics, especially in economic policymaking, seem to be up for debate. Obviously, this moment of openness cannot last forever. Eventually the mist settles, and you get a new, more consolidated system.

China is a country populated by large numbers of industrious, inventive people who are ruled by an autocratic regime that is terrified of the peasant revolts that have toppled many previous dynasties. The only way for them to ensure control is maintained is clamp down on any form of protest while simultaneously attempting to sustain productivity growth. It’s a tall order and will require continued political evolution if they are to succeed.

Consider a car manufacturer with $100 billion in sales. A 10% decline in sales volume would push earnings before interest and tax down by 40%, the Boston Consulting Group has estimated. That's an optimistic scenario — and this analysis assumed the company could eliminate all variable costs such as raw materials and labor. In the current situation, that’s not quite possible.

No doubt, carmakers could digest the rising cost of production a bit longer by reducing incentives and discounts they’ve used to lure buyers. But that's already been happening in the world’s largest auto markets, the U.S. and China, and you can’t trim back enticements forever. 

Companies have few options to offset creeping manufacturing expenses. With prices already high, consumers aren’t going to be as liberal with their wallets. So far, they have been willing to
accept a 12% premium, or around $5,000 over the sticker price, according to Kelley Blue Book and Cox Automotive. But a U.S. vehicle affordability index has started ticking down, signaling people are beginning to think twice before splashing out. Almost 40% of those who were going to buy cars have now put off their purchases. 

The challenge for consumers is prices rarely go down after they go up because companies pocket margin. That’s as true of cars as it is of every other product. The additional premium companies are no enjoying will help as they redeploy resources towards developing electric replacements for their biggest sellers. That was going to happen anyway so in many regards the current go-slow on production is being welcomed by manufacturers.

For the solar industry, the timing couldn’t be worse. Renewable energy finally has a champion in the White House and ambitious climate goals have been announced across Europe and Asia.

At the center of the crisis is polysilicon, an ultra-refined form of silicon, one of the most abundant materials on Earth that’s commonly found in beach sand. As the solar industry geared up to meet an expected surge in demand for modules, makers of polysilicon were unable to keep up. Prices for the purified metalloid have touched $25.88 a kilogram, from $6.19 less than a year ago, according to PVInsights.

Polysilicon prices are expected to remain strong through the end of 2022, according to Roth Capital Partners analysts including Philip Shen. 

And the problem isn’t limited to polysilicon. The solar industry is facing “pervasive upstream supply-chain cost challenges,” panel manufacturer Maxeon Solar Technologies Ltd. said in April.

This is just one more sector facing medium-term supply disruption. The clear conclusion is when we look around the world there is too much money chasing too many goods and services. The big question is how long will it take for this inflationary bias to become anchored in the minds of consumers?

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Dear Eoin, I hope that your move has gone well. In this article the author argues that it is the velocity of money rather than the quantity of money that influences stock market prices. What do you think of this? Regards https://on.ft.com/3v9CcNt
 

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

What is really happening is that all the additional money sloshing around makes people want it less, relative to stocks, and the increased relative demand for the stocks forces share prices up. That’s how QE affects stock prices (or one way it does; other people, especially central bankers, prefer stories about QE lowering the discount rate, on which more shortly.)

Eric Barthalon, global head of capital markets research for Allianz Research, notes that this process is self-limiting. As equity prices rise, the weight of cash relative to equities in investors’ portfolios goes down to a level where the investors are happy. Investors stop trading so much, and prices stabilise. In this story, it’s not the Fed simply stuffing the markets with cash. There is an intermediary factor: investors’ relative preference for cash. 

Barthalon’s argument — I find it pretty convincing — is that (a) investors preference for cash is not stable and (b) the Fed is not in control of it at the moments that matter, that is, when markets are falling. You can track investors’ unstable preference for cash by looking at the velocity of money, or how much it changes hands. Barthalon told me: “It is not the quantity of money but its circulation that causes asset prices to rise or fall . . . and historical experience shows us that central banks do not control the velocity of money, especially in capital markets.”

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The one thing the market teaches us is the consensus is seldom correct. What happens when we spend until trillions on energy diversification only to learn that it does nothing to arrest a warming trend? Will we then lament not moving sooner on risk mitigation strategies like building higher seawalls or developing additional food supplies? The one thing I can be sure of is the vilification of opposition is a key symptom of mania.

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The moving company arrived Friday at 7:30 am and finished at 4:30. By the time we had grabbed a bite to eat and driven to our first stop in Palm Springs it was 10pm. Unfortunately, I grossly overestimated my ability to work today and hope to make up for lost time on Saturday morning. 

The Canadian dollar may fare better than other commodity currencies in the remainder of the year as resurgent growth spurs the nation’s central bank to wean the economy off stimulus.

While already perched near multi-year highs, the loonie still has potential to add to its gains given the surge in commodity prices and an economy that is forecast to grow at the fastest pace in several decades. And with the Bank of Canada having unveiled a scale-back of government debt purchases while accelerating the timetable for a possible interest-rate increase, money markets have lost no time in pricing an aggressive rate trajectory.

Other G-10 commodities, too, have fared well this year. While Norway’s central bank is likely to raise rates sooner than its Canadian counterpart, the differential between 10-year yields in the two nations is a considerable hurdle for the krone to overcome. The Australian and New Zealand dollars, meanwhile, face considerable headwinds to climb from current levels given that they are both overvalued from a fundamental perspective, especially against a backdrop where their central banks are likely to stay accommodative for a long time yet.

The Canadian dollar also stands out in relation to its peer group by its muted volatility, which reduces the overall risk in a portfolio setting. All told, it’s been plain sailing for the loonie so far this year. If the current macroeconomic backdrop prevails, 2021 may well turn out to be annus mirabilis for the currency, not only against its commodities peer group but also the wider G-10 complex.

Canada has a long history of fostering upstart companies that come to dominate their respective niches during the prevailing bull market of the time. Nortel Networks, Blackberry, Canopy Growth Corp, Brookfield Asset Management and Shopify all come to mind. Amid the significant media attention these companies receive, it is worth remembering that the oft-maligned extractive sector forms the basis for the country’s wealth and stability.

The Reserve Bank’s hawkish stance is likely to draw criticism from politicians and labor unionists, who say it should be doing more to support the economy and reduce unemployment that’s at a record high.

The central bank cut the key rate by 300 basis points last year. Its contribution to an economic recovery will now be predictable policy, according to Deputy Governor Kuben Naidoo.

“You need low, predicable rates during the recovery to support economic activity, to encourage people to lend, to encourage businesses to invest,” he told reporters. “That’s the contribution of the SARB during a crisis.”

South Africa has joined the ranks of countries signaling the lows for rates are in. Interest rate differentials are once more a factor in how currencies are valued. Commodity exporters are leading this trend because of their much-improved balance of payments and that is true of both emerging and developed markets.

“Looking at Europe, expectations for business sentiment increased when the inoculation rate reaches about 20-30%,” said Masashi Samizo, a senior market analyst at SMBC Trust Bank Ltd. in Tokyo. “Japan is still in single digits, but the trend is clearly accelerating.”

To be sure, vaccinations for professionals in Tokyo still seem far off, with little indication when they might get shots. While Japan has administered just 7 million first and second doses in a country of more than 126 million, compared with almost 60 million in the U.K., the pace has begun to increase as more local authorities in charge of vaccinations start to spin up their programs.

Japanese Prime Minister Yoshihide Suga surprised many earlier this month when he gave a formidable target for the country to achieve 1 million inoculations a day, seeking to finish administering doses to the country’s 36 million over-65s by the end of July. While around 86% of municipalities have said they expect to finish by that date, it’s unclear if the pace, which per capita would match some of the best days in the U.S., is realistic.

But the stock market’s mood has definitely changed for investors like Naoki Fujiwara, the chief fund manager at of Shinkin Asset Management in Tokyo. “It’s starting to feel real, whereas just a few days ago I was wondering when it would begin,” said Fujiwara, who expects the Moderna approval to support the market. “Should vaccination expand in the next month or so, Japanese stocks could rebound strongly again.”

Most of the island nations that successfully limited exposure to COVID-19 by cutting themselves off from the world have lagged in accessing vaccines. That has delayed economic recovery and the reopening of borders. For Japan the question of open borders is particularly pressing since they had hoped for a tourist influx with the Olympics. That missed opportunity is probably the motive force behind vaccination enthusiasm today. 

Thank you, Eoin, for the service. Your call on BTC topping out was excellent. Could you please explain again the signals for your call? You were discussing inconsistency in trend, I believe. In what period? Also, it would be great to hear (based on your latest audio comment) why do you think BTC is not in a secular bull? Thank you. Kind regards, 

Thank you for your kind email which may be of interest to subscribers. One of the oldest adages from The Chart Seminar is “a consistent trend is a trend in motion”. That means the rhythm of the market will persist until something happens to change it. When a consistent trend becomes inconsistent, it tells us the imbalance between supply and demand has altered. That is a warning sign that trouble may lie ahead.

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

Some of the topics discussed include: bitcoin volatility and bounces, accelerated trends unwinding overbought conditions, Treasury yields rise, standing repo facility confirmed, stocks steady from intraday lows and VIX reverses earlier advance. 

Bitcoin is now down more than 50% from its record of almost $65,000 set in April. Fueling the volatility is Tesla CEO Elon Musk, whose social-media utterances have whipsawed the crypto community. A statement from the People’s Bank of China on Tuesday reiterating that digital tokens can’t be used as a form of payment added to the selloff.

The selloff dominated market chatter on a day when equities also were tumbling and the Federal Reserve was set to release minutes from its latest meeting. #Cryptotrading was trending on Twitter, where critics and fans alike were in a tither over the rout. Critics had warned for weeks that the moves in crypto assets were unsustainable and that any sign of a selloff would lead to a rout.

“This is going to be the first ‘welcome to crypto’ day for a lot of new entrants,” said Stephane Ouellette, chief executive and co-founder of FRNT Financial. “The history of these assets has been littered with aggressive rallies and sickening selloffs.”

The biggest question for the wider investment community is “who are the new entrants to crypto?”. There are two large new groups of investors. Retail investors, flush from US government stimulus checks, bought cryptos in size in the first quarter. Institutional investors, desperate for an “uncorrelated asset” also jumped in and helped fuel the appreciation in value to $1.9 trillion for the entire crypto sector at its peak.

An untouched stand of trees in Oregon – as in our compliance market example above – generates one big benefit – the carbon sequestered in the living trees themselves. However, voluntary development projects may offer other social or environmental benefits in addition to lowering GHG emissions, such as poverty reduction, habitat preservation, and increases to local living standards.

These are all benefits that support U.N. Sustainable Development Goals, so a company able to tout participation in programs with co-benefits scores valuable PR wins for its shareholders.

For example, one of Bluesource’s founders helped start a venture named the Paradigm Project to subsidize highly efficient wood-burning stoves and easy to use water filtration units to rural families in Kenya. In Kenya, as is true for other less developed rural areas, a lot of deforestation is brought about by families cutting wood to boil water and cook.

Through projects developed by the Paradigm Project, organizations are able to invest in carbon credits generated by verified emission reductions from rural households’ reduced burning of wood for fuel.

Proceeds from the sale of those carbon credits are ploughed into to the operations of a company that employs local people to build stoves and filters and distributes these products to their rural neighbors. The filters help cut the amount of firewood needed for boiling water and the stoves are much more efficient at converting wood fuel into usable energy.

This article highlights the virtuous circle argument for carbon credits when low emitting companies voluntarily redeploy money devoted to public good to socially acceptable carbon offset strategies. 

Starting in the 1950s, as UFO sightings began proliferating across the U.S., both the Air Force and the CIA tried to conceal their interest in the matter. They did so in part because they feared that the Soviets were trying to sow hysteria and wanted to calm the public, but they also knew that many of the sightings were of top-secret U.S. spy planes. In the end, such deceptions were counterproductive. Nobody believed the denials, the government lost credibility, and the hysteria only grew. An internal CIA review in 1997 found that the agency’s duplicity only added “to a growing sense of public distrust.”

That skepticism is one reason why, in the decades since, garden-variety military incidents and mishaps have repeatedly been transformed into galactic conspiracies believed by a shockingly high percentage of Americans. With trust in the U.S. government once again at a low ebb, misleading the public with regard to UAPs would be a serious mistake.

Media interest in unidentified flying objects is ramping up ahead of the anticipated release of a US government report in June. That report is almost certainly going to reveal a lot more examples of pilots observing phenomena they do not have a ready explanation for. The question is why is the US government so eager to talk about it now?

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

Some of the topics discussed include: Dollar testing the lows of a long-term range versus many currencies, Bund yields rise, accelerated trends unwinding overenthusiasm in all asset classes, gold steady, oil eases. ASEAN picking up interest. 

But Robert Alster at Close Brothers Asset Management warned of a divide between industrial economies in the north and tourist-reliant nations in the south, despite the start of UK tourism to Portugal. This could spark a return to the two-speed Europe which raised questions over the stability of the bloc after the financial crisis.

Mr Alster said: “The risk now is that the north/south divide continues to widen. Germany’s economic growth is not far behind the UK’s, with its vaccination programme set to overtake, whereas Spain’s economy has been hardest hit,” he said.

“The northern countries have benefited from strong manufacturing growth, with the US and China driving global demand, whereas the Southern countries are on tenterhooks to see whether the European tourism season can go ahead.”

Two consecutive quarters of contraction mean the currency area is officially in recession again, despite not fully recovering from the initial shock of Covid.

GDP remains more than 4pc below its pre-pandemic peak at the end of 2019.

Employment fell by 0.3pc in the first quarter of 2021, meaning the number of people in work is still almost 3.6m below its pre-Covid level.

Jack Allen-Reynolds at Capital Economics said the jobs market should soon start to recover too, but that the rebound in hiring will probably be quite slow.

He said: "Many firms will be able to raise output by increasing employees’ working hours before they start taking on more staff."

Europe and the USA adopted very different methods of supporting the economy during the pandemic. The USA favoured giving direct support to workers by boosting unemployment benefits. Europe favoured supporting companies so they would not fire large numbers of workers. Both sets of policies have resulted in unintended consequences.

Reducing emissions to net zero -- the point at which greenhouse gases are removed from the atmosphere as quickly as they’re added -- is considered vital to limit the increase in average global temperatures to no more than 1.5 degrees Celsius. That’s seen as the critical threshold if the world is to avoid disastrous climate change.

But it’s a path that few are following. Government pledges to cut carbon emissions are insufficient to hit “net zero” in the next three decades and would result in an increase of 2.1 degrees Celsius by the end of the century, the IEA said.

“This gap between rhetoric and action needs to close if we are to have a fighting chance of reaching net zero by 2050,” the agency said. Only an “unprecedented transformation” of the world’s energy system can achieve the 1.5 degrees Celsius target.

The IEA’s road map appears to be at odds with climate plans laid out by Europe’s top three oil companies -- BP Plc, Royal Dutch Shell Plc and Total SA. They all have targets for net-zero emissions by 2050, but intend to keep on seeking out and developing new oil and gas fields for many years to come.

“No new oil and natural gas fields are needed in our pathway,” the IEA said. If the world were to follow that trajectory, oil prices would dwindle to just $25 a barrel by mid-century, from almost $70 now.

Many of the oil majors have significantly reduced plans for additional new supply already. That decision was as much about the price structure as it was about appeasing the increasingly powerful green lobby. Today, the European oil companies in particular are attempting to reorient towards becoming utilities to boost their green credentials.

The Singapore dollar gains as buoyant Asian equities outweigh concern over the spread of coronavirus infections in the city state.

USD/SGD falls 0.2% to 1.3335 after closing up 0.3% on Monday
MSCI AC Asia Pacific Index advances 1%
Govt bonds gained across the curve on Monday, with the 10-year yield down 2bps to 1.52%
HSBC sees more room for underperformance of SGD rates versus USD rates over the next few days, according to a note on Monday

FX swaps and front-end SGD rates have shifted higher as tighter social distancing measures reduced the odds that the Monetary Authority of Singapore would tighten its currency policy stance later this year

The highly transmissible strain of Covid-19 that surfaced in India has become more prominent among Singapore’s growing number of unlinked cases
An air travel bubble between Singapore and Hong Kong has been delayed
The World Economic Forum canceled the annual meeting it was planning to hold this August in Singapore

The US Dollar has been ranging against the Singapore Dollar for six years and is now testing the lower side. Meanwhile the Straits Times Index has also been ranging for a long time. The correlation between the two assets is hardly a coincidence. If the Dollar declines, the bank-heavy Singapore market with capacity for dividend growth and a 3% yield becomes more attractive.

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

Some of the topics discussed include: cryptocurrencies had a tough weekend, gold resurgent, gold miners break their downtrend, mega cap stocks continue to underperform, Dollar on cusp of breaking lower which supports non-US assets, 

Jack Dorsey’s Square is not planning on buying more bitcoin for its corporate treasuries after losing
$20m on a $220m investment in the cryptocurrency last quarter, Financial News reports, citing CFO Amrita Ahuja.

* Bitcoin represents about 5% of Square’s cash on hand
* NOTE: Square Revenue More Than Triples, Driven by Bitcoin Sales
 

Fans of any asset will buy all day, all week and all month as long as they are making money. When they stop making money, they might think about selling, but they first stop buying. That action removes a significant source of demand from the market.

Earlier, gold was buoyed by signs that money managers and exchange-traded fund investors are turning more positive on the precious metal
Gold spot price was up as much as 1.3%, silver +2.8% intraday; U.S. Dollar Index (DXY) fell as much as 0.2%
Precious metal miners intraday gainers include HL which rose as much as 15%, EDR CN +11%, GGD CN +11%, CDE +8.9%, FR CN +7.4%, K CN +6.1%, FVI CN +6.5%
Goldman said in a note that “gold tends to perform well when realized inflation is elevated and rising, while the dollar suffers, especially as the Fed stays on hold”
Meanwhile, copper miners also got a boost as price climbed on Monday, lifted by concerns of supply disruptions in Chile and signs that Chinese demand is picking up
Some of the copper/base metals miner that gained intraday include TKO CN, FCX, FM CN
TECK also gained, which was partially helped by rise in coal equities on higher natgas prices

Negative real interest rates are the primary secular tailwind for gold prices. With inflationary measures ramping higher and central banks reluctant to raise rates, the negative real interest rate environment is being supported by that policy.

You say that India has a significant demographic tailwind, taking the consensus view that that is an investment plus; one that is embedded in so many analyses on India. For a challenge to this listen to the Meb Faber interview with Vikram Mansharamani, 50 minutes in for 5 minutes, on his take on India and why in fact the demographics are a head not a tail wind: https://www.youtube.com/watch?v=cM40JZ3NSNk&t=30s

Thank you for this link and the discussion raises a large number of questions. There are two that I think are particularly relevant. The first is on the assumed ubiquity of the bullish India story and the second is the continued dominance of capital over labour.

 A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

McDonald’s Corp. announced Thursday it will raise hourly wages by about 10%, bringing the average wage at its restaurants to more than $13 an hour. Chipotle Mexican Grill Inc. said earlier this week it will set hourly starting wages at $11 to $18. Target Corp. and Costco Wholesale Corp. have increased theirs to $15 and $16, respectively.

McDonald’s is hiring 10,000 new employees at its company-owned stores over the next three months alone, and Walmart Inc. brought half a million people on board last year. Chipotle is hiring 20,000 workers across the U.S., and Target needs workers for the 30 to 40 stores it will open this year.

Amazon.com Inc. also upped the labor market ante Thursday by announcing plans to hire 75,000 people in the U.S. and Canada at starting pay that will average more than $17 an hour. New employees will get hiring bonuses of $1,000 and those fully vaccinated for Covid-19 will get additional $100.

The year over year change in average hourly wage growth has been massively distorted by the pandemic. It surged in 2020 because fewer people were working, and those that were got pay rises. It then plummeted to historic lows because the current growth is on par with what was witnessed a year ago.

Knowing the interest that some of your subscribers have in investment trusts, they might be interested to know that in addition to publishing the Investment Trusts handbook each year (this year's out in December will be the fifth edition), I have been hosting a regular weekly podcast devoted to keeping up with all the news from the investment trust sector which has proved pretty popular - we are now up to 1400 listeners a week. I do it with Simon Elliott, one of the best and certainly the most articulate of the investment trust analysts in London. He is the head of investment trust research at Winterflood Securities. Oh and it is free of course!

More info at www.money-makers.co, where I also offer a modestly priced newsletter with a couple of model portfolios I report on that roughly mirror my own investing.

Hope all is well in your empire. Not sure how you fit it all in....!

Thank you for your kind words and this informative email. Your podcast is a trove of information on investment trusts and well worth the time to tune in. Investment trusts are certainly an interesting sector and not least because of the potential to buy attractive assets at a discount and to sell at a premium.

Excuse my ignorance but is Dogecoin the same animal as Shiba Inu crypto? Shiba is a breed of Japanese dog ("inu") but frankly, I'm more than a bit confused (despite Eoin's clear and enlightening description of the phenomenon) by the entire cryptocurrency story. To me it smells of...tulips.

Thank you for this question. Shiba Inu coin is a copycat coin for Dogecoin. They are not related projects. There are valid comparisons between cryptocurrencies and the tulip mania but perhaps not in the way people think.

“Appreciate your daily comments very much! But you know that we don’t get any email alerts anymore?"

Thank you for this email. Unfortunately, the server we used for the free daily email has crashed, potentially irretrievably, and we are currently working on fixing the problem. Getting the free daily email up and running again is a priority but it is not a simple fix.

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

Some of the topics discussed include: cryptocurrencies pull back sharlpy, gold steadies, growth underperforming value, bonds steady, accelerated commodity trends at least pause, lumber limit down four days in a row. 

“Surely he would have done his diligence prior to accepting Bitcoin?” said Nic Carter, founding partner at Castle Island Ventures, and a leading voice among defenders of Bitcoin’s energy use. “Very odd and confusing to see this quick reversal.”

Musk’s decision in February to buy $1.5 billion in Bitcoin and plan to accept it as a form of payment has been a major catalyst in the crypto bull market. In the eyes of analysts, it helped add legitimacy to the token and usher in new investors.

Musk’s crypto tweets have often been in jest, and his attention toward Dogecoin brought the joke token into the mainstream. He’s quipped about being the “Dogefather” in the past, and tweeted on Tuesday, “Do you want Tesla to accept Doge?”

The cognitive dissonance of a clean energy visionary also promoting one of the most carbon dependent endeavours has obviously begun to weigh on Elon Musk. It may also be convenient to argue against bitcoin if he is helping to promote alternatives which certainly appears to be the case with Dogecoin.

That some manufacturing will move to other parts of Asia makes sense (especially as Chinese labour costs rise)

But the comparison some make with Japan needs to take account of the facts that:

a) Even now only 60% of the Chinese population is urbanised (93% for Japan)

b) Output per capita must still be much lower than advanced countries so they can also catch up in that? Most developing countries have the constraint that they don't have the capital to invest for that but lack of capital is not China's constraint.

Thank you for this email which raises some important points. The base effect helps to spur economic growth for frontier markets because small improvements tend to have big effects on economic potential for poor countries. Obviously, the larger a country becomes, the greater the challenge to maintain high growth rates. That’s where China is today.

“The river is the jugular for the export market in the Midwest for both corn and beans,” said Colin Hulse, a senior risk management consultant at StoneX in Kansas City. “The length of the blockage is important. If they cannot quickly get movement, then it is a big deal. If it slows or restricts movement for a longer period it can be a big deal as well.”

The New Orleans Port Region moved 47% of waterborne agricultural exports in 2017, according to the U.S. Department of Agriculture. The majority of these exports were bulk grains and bulk grain products, such as corn, soybeans, animal feed and rice. The region also supports a significant amount of edible oil exports, such as soybean and corn oils and even attracted 13% of U.S. waterborne frozen poultry exports in 2017.

Cracks in pieces of critical regional infrastructure are not encouraging. It’s another example of how much need for infrastructure replacement there is. The massive infrastructure development in the post World War 2 era boosted economic growth for decades but many countries grew complacent to the need for constant renewal and maintenance. Large numbers of roads, railways, dams, power plants and pipelines are reaching the end of their anticipated lives.

One of the most commonly asked questions by subscribers is how to find details of my open traders. To make it easier I will simply repost the latest summary daily until there is a change.

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

Some of the topics discussed include: stocks and bonds fall together spurs volatility bets as inflationary fears are priced in. Semiconductors follow innovation stocks lower, bitcoin weak, gold eases back, oil stable.value outperforms growth amid risk-off sentiment.

Today, there’s ample reason to expect a positive term premium to return. For one, the Fed has a new, more patient monetary policy stance. As a result, inflation will be higher and more variable — a risk that must be compensated with higher long-term yields. Also, keeping inflation in check will require a higher peak fed funds rate, reducing the risk that the Fed will again get pinned at the zero lower bound. Beyond that, deficit financing is expanding the supply of government bonds: Treasury debt outstanding has quadrupled since 2007, and the Biden administration is seeking to add several trillion dollars more. Meanwhile, one big source of demand for the bonds is set to dwindle as the Fed phases out its asset purchases, most likely next year.

Putting the pieces together, one can expect a 10-year Treasury yield of at least 3%: The 2.5% floor set by the federal funds rate, plus a term premium of 0.5% or more. But that’s not all. The Fed says it wants inflation to exceed its 2% target for some time, to make up for previous shortfalls. This, in turn, could stoke inflationary fears and lead markets to expect a higher path for future short-term rates. As a result, the 10-year Treasury yield could more than double from the current 1.6%. And if persistent deficit financing prompts concern about growing U.S. debt, the yield could go to 4% or higher.

Anyone who has been in finance for less than a decade has rarely seen 10-year Treasury note yields above 3%. So what’s coming could, for many, be quite a shock. The secular bond bull market that began nearly 40 years ago is finally ending.

US job openings now far exceed the pre-pandemic peak. At the same time credit card balances are declining even as debt loads are increasing. Meanwhile the unemployment rate is holding at 6%.

The conclusion is simple. Households are buying capital goods like houses and cars, that do not require credit cards, because they are flush with cash. Companies are desperate for workers, but unemployed people are in no hurry to take up offers. The reality is the stimulus enacted in the first quarter was overly generous and has created economic disincentives. It exacerbated bottlenecks and enhanced consumer perceptions of rampant inflationary pressures.

One of the most commonly asked questions by subscribers is how to find details of my open traders. To make it easier I will simply repost the latest summary daily until there is a change.

“Something has to give,” Scott Irwin, a professor at the University of Illinois said by phone. “Either we have to find more planted acres, we have to get lucky with summer weather, or the price has to go high enough to ration usage lower than projected.”

Crop markets have skyrocketed amid record Chinese demand and rising consumption as economies recover from the pandemic. More evidence of China’s strong appetite for farm commodities emerged this week with further purchases of U.S. corn. Weather concerns persisting in major producers like Brazil also risk further straining global supplies.

The relentless rally across crop markets has stoked worries over rising food bills at a time when many consumers are still struggling from the fallout of the Covid-19 pandemic. The United Nation’s monthly gauge of global food prices has climbed for 11 straight months.

There is a scenario in which the supply crunch could see some relief.

“If we don’t see a major weather problem from September all the way through June of next year, then we should see maybe new crop prices remain below the average that we’ll probably realize for the current marketing year,” said Terry Reilly, senior commodities analyst at Futures International LLC in Chicago.

Soybean supply is dominated by the USA and Brazil. Demand is focused on Chinese consumption and cooking oil demand everywhere. The pandemic hit restaurant demand last year so there were fewer acres planted, and the surge in demand this year has resulted in a supply shortfall. US drought conditions eased over the last week which is good for crops but the Brazilian drought remains ongoing.