Investment Themes - General

Search all article by their themes/tags in the search area
below for example “Energy” or “Technology”.

Search Results

Found 1000 results in General
April 07 2021

Commentary by Eoin Treacy

Coinbase Will Be First Major Cryptocurrency Company To Go Public

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

Its first-quarter results passed all of 2020. Coinbase reported revenue of $1.8 billion in the quarter, with net income of approximately $730 million to $800 million, according to the filing. Last year, it brought in $1.3 billion in revenue with a profit of $322 million.

Trading volume topped $335 billion in the quarter. For all of 2020, trading volume was $193 billion.

Total assets on Coinbase's platform increased from $90 billion to $223 billion, a nearly 150% increase.

Its full-year outlook presented a range of possibilities, "given the inherent unpredictability of our business," the company said in its report.

"To state the obvious, our business is hard to forecast," Coinbase Chief Financial Officer Alesia Haas said after the earnings report. That's because it can't predict the prices of Bitcoin and other cryptocurrencies.

About 96% of Coinbase's revenue comes from transaction fees. It has several lines of business in addition to its exchange services. Among them is Coinbase Commerce, which provides online retailers with software that lets them accept cryptocurrency payments.

Eoin Treacy's view -

Unlike many of the IPOs over the last year Coinbase has clear visibility of where it sources revenue and how that is likely to grow over time. It will be one of the few pureplays on the wider cryptocurrency market once it is listed.



This section continues in the Subscriber's Area. Back to top
April 06 2021

Commentary by Eoin Treacy

Video commentary for April 6th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: commodities continue to firm with agriculture playing catch up, stocks pause after strong Monday performance, bond yields continue to compress, gold firm, defensives/quality outperforming. Growth steadying.



This section continues in the Subscriber's Area. Back to top
April 06 2021

Commentary by Eoin Treacy

Email of the day on the potential for a crash:

I am a little concerned, that Bill Ackman is shorting the market and Ray Dalio and Michael Burry have predicted a market collapse. Burry recently went on record to confirm this prediction.

You have not mentioned Margin Debt for a while and my further concerns are that despite Margin Debt officially being at an all-time high - the ArchEgos scandal has demonstrated that perhaps not all of the margin debt is recorded as some hedge funds are circumventing the need to record their position by using prime banks to hold assets for them.

RLB

PS Best wishes to you and your family.

Eoin Treacy's view -

Thank you for your kind words and for this email which helps to elucidate the very real concerns of a large swathe of the market. Just over a year ago the market crashed. The decline was unlike anything we’ve seen before because it was unrelenting in its severity. Even during the crash of September/October 2008 there were weeks when the market rallied.

That did not happen in 2020. Between late February and March 24th, the S&P500 failed to rally for two consecutive days. Fear permeated market and it had a long-lasting impact on sentiment. Even today people are afraid of a repeat of this unrelenting selling. However, it would be extremely unusual to see another 35% drawdown a year after the last one.



This section continues in the Subscriber's Area. Back to top
April 06 2021

Commentary by Eoin Treacy

Gold Rises to Eight-Session High With Dollar, Yield Gains Ebbing

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

Gold advanced to the highest in more than a week as gains in bond yields and the dollar abated.

Treasury yields edged down from a recent high, increasing the allure of bullion, which doesn’t earn interest. The dollar gave back early gains, making gold more appealing to investors holding other currencies. The ebb is taking place even as positive economic data shows rapid growth for U.S. businesses and jobs.

That’s “good news for gold,” according to Commerzbank AG analyst Carsten Fritsch.

Gold has been under pressure this year because of increasing optimism over the post-pandemic economic recovery in the U.S., which buoyed bond yields and the dollar. Investors fled bullion-backed exchange-traded funds, a major pillar in gold’s ascent to an all-time high last year, with holdings in ETFs dropping to the lowest since May.

Eoin Treacy's view -

It is not a coincidence that gold and Treasury bond prices peaked within a day of each other in August. As bond prices have declined, they have taken gold with them. The strong correlation between the two assets has raised all sorts of questions for gold investors. Let’s try and answer some of them by looking at flows.



This section continues in the Subscriber's Area. Back to top
April 06 2021

Commentary by Eoin Treacy

Biggest Mining Buyback in Years Propels Vale to All-Time High

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

Vale’s buyback, which comes on the heels of a bigger-than-expected dividend, is the latest chapter in its turnaround story. In early 2019, a tailings dam disaster sent Vale into crisis mode, with dividends cut and operations scaled back as the company focused on shoring up safety. Now, after agreeing to a dam-collapse settlement and seeing the prices of its metals rally, Vale is repaying investor loyalty.

While metal prices have come off multi-year highs in recent weeks, they’re still well up on year-ago levels. Vale’s iron ore business generated its second-highest earnings ever and the company is focused on existing assets rather than splashing out on deals as it did in previous booms.

Shares rose as much as 6.6% in Sao Paulo Monday, closing at the highest level since trading began in 1994. The buyback should help narrow Vale’s discount to its Australian peers, according to BTG Pactual analysts led by Leonardo Correa. Vale fetches 4.8 times estimated profit versus top iron producer Rio Tinto Group’s ratio of 7.9.

Eoin Treacy's view -

The mining sector is flush with cash. The sector went through a painful rationalization between 2011 and 2016 so they have been cautious about embarking on risky behaviour. That left them well placed to benefit from the recovery in industrial metal prices from the pandemic lows.



This section continues in the Subscriber's Area. Back to top
April 01 2021

Commentary by Eoin Treacy

April 01 2021

Commentary by Eoin Treacy

April 01 2021

Commentary by Eoin Treacy

Secular Themes Review April 1st 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic has been an accelerant. The full ramifications of what that means are becoming increasingly clear.

The pandemic took trends that have been in evidence for a while and exaggerated them. At the same time, it introduced new challenges which require new solutions.

Corporations operating without the safety net of cash on the balance sheet has been a feature of the markets for decades too. They continue to be bailed out when they get into trouble. There is no evidence that the trend of using all available means to buy back shares has ended. In fact, buybacks are back at pre-pandemic levels. Companies were touting “resiliency” last summer. It appears to have been just talk. Buybacks represent a powerful tailwind for stock markets that were absent for much of 2020 but are now back in force. 



This section continues in the Subscriber's Area. Back to top
March 31 2021

Commentary by Eoin Treacy

Video commentary for March 31st 2021

March 31 2021

Commentary by Eoin Treacy

Voltswagen Is the Perfect Example of German Humor

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

This week Volkswagen AG provided a lesson in just how difficult it is to “be Elon.” VW’s U.S. arm claimed it was changing its corporate name to “Voltswagen,” denied it was an April Fools’ Day joke, then admitted that, um, it was in fact an April Fools’ Day joke gone wrong.  

The German giant has been riding a wave of investor excitement about its electric-car strategy. Thanks in part to some clever social media and marketing, VW seemed to have cracked Musk’s knack for share-price boosting publicity. The more frequently traded VW preference shares are close to a six-year high.

News of the purported name change helped VW’s American depositary receipts — the ones favored by U.S. retail investors — to climb as much as 12.5% on Tuesday. Which is where this cringeworthy incident goes from being a disastrous attempt at humor to something potentially more serious.

I’m not suggesting VW’s gaffe was an attempt to manipulate the stock market and I doubt the U.S. Securities and Exchange Commission would view it like that. It’s a reminder, however, that we now live in the meme-stock age where even bad jokes can add or subtract billions of dollars in market value. It’s a minefield for corporate executives to navigate.

Eoin Treacy's view -

The market liked the Voltswagen idea. That’s going to give Volkswagen’s board something to think about. Tesla prospered because it gained a near monopoly on California’s carbon credits when Karma went bust. That allowed it fund loss making operations and meet payment deadlines while it was building its first battery factory. Many people wonder at Tesla’s business model. Is it a car company, a solar company or a battery company? The most accurate description is it is a regulatory arbitrage company. That’s a consideration every company board should be discussing.



This section continues in the Subscriber's Area. Back to top
March 31 2021

Commentary by Eoin Treacy

Deliveroo Sinks 31% After IPO as Funds Shun Gig-Worker Model

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

“It’s not a great endorsement of setting IPOs in the U.K.,” said Neil Campling, analyst at Mirabaud Securities. “You have the combination of poor timing, as many ‘at home’ stocks have been under pressure in recent weeks, and the well-publicized deal ‘strike’ by a number of A-list institutional investors.”

Investors are also souring on the fast-growing companies that benefited during the pandemic. Doordash Inc. has slumped 23% this month, and European rivals Just Eat Takeaway.com NV and Delivery Hero SE have also fallen this year.

“The window for tech-driven IPOs just couldn’t be worse,” said Oliver Scharping, a portfolio manager Bantleon AG. “Deliveroo was trying to keep the window open with brute force.” Among the losers in the IPO will be retail investors, who were given the option to buy shares via Deliveroo’s app. Retail investors will only be able to trade the stock from April 7.

Eoin Treacy's view -

Food delivery is most prevalent in China. The price war between Alibaba’s Ele.me and Meituan Dianping is aggressive and keeps prices low. However, no one is under any illusion that it is profitable. Meanwhile both rely on an army of low paid migrant workers, willing to brave traffic and the elements, to make deliveries. This group have no rights. They also reside outside of the Hukou family registry system, so they are effectively anonymous. 



This section continues in the Subscriber's Area. Back to top
March 31 2021

Commentary by Eoin Treacy

Biden Plans $2.25 Trillion Spending, Corporate Tax Hikes

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

A major undercurrent through the infrastructure plan is addressing inequality and expanding help for segments of society that the administration judges have been left out in the past. For example, in addition to fixing the “ten most economically significant bridges in the country in need of reconstruction,” there’s $20 billion for a new program that will “reconnect” neighborhoods that were cut off by past investments, such as the I-81 highway in Syracuse, New York. And all lead pipes will be replaced, to address water-quality issues.

Eoin Treacy's view -

$2.25 trillion is still a lot of money and if it passes it will represent a significant additional surge of liquidity through the economy. At a minimum that will help to spur commodity and building materials demand growth over the next decade.



This section continues in the Subscriber's Area. Back to top
March 30 2021

Commentary by Eoin Treacy

March 30 2021

Commentary by Eoin Treacy

Morgan Stanley's Shalett Says Market Shows Signs of "Fragility"

This note by Steve Dickson and Jonathan Ferro for Bloomberg may be of interest to subscribers. Here it is in full:

The Federal Reserve’s policy of keeping its “foot on the accelerator” to boost the economy has left the market showing signs of “fragility,” according to Lisa Shalett, Morgan Stanley’s chief investment officer for the wealth unit.

Speaking in a Bloomberg Television interview, Shalett also says:

Fallout from the implosion of Archegos Capital Management doesn’t threaten the financial system. “This, unlike some other issues, is not of an order of magnitude where there’s systemic risk,” Shalett says

Fed policy makers are making a bet that the liquidity being pumped into the financial system is more important for the economy than the “financial accidents or bubbles” that have popped up as a result, she says

“It’s time for investors to retool portfolios,” she says, arguing that the shift should be in favor of active management and shorter duration. Economic growth will be “much stronger” than it’s been, and that’s good for cyclicals and good for the labor market, but creates headwinds for the bond market and for stock multiples, she says

Eoin Treacy's view -

The only real question is what will need to happen for the Federal Reserve and other central banks to arrest the decline in bond prices. Until that happens there will be increasing stress on leveraged trades and companies.



This section continues in the Subscriber's Area. Back to top
March 30 2021

Commentary by Eoin Treacy

Email of the day on where the most leverage resides

After Greensill and Archegos, where next? The GCC of 2008 cleaned up the banks and the Tech Bust of 2000 cleaned up non-earning tech. Leverage always lies hidden somewhere, and rising interest rates usually make the best assassins. But where's the leverage this time? Tech + Leveraged Product Roll Out? Can we put together a list of leveraged companies and sectors that will make the headlines in 2021 and 2022 as 10-year yields breach 2% and beyond? Keep up the excellent work.

Eoin Treacy's view -

Thank you for your kind words and this question which may be of interest to other subscribers. The Global Credit Crisis decapitated the banking sector and many of the tech champions of the 1990s disappeared. Both crashes exposed massive leverage and egregious abuses. The first challenge is to identify the sectors where leverage is concentrated and then what are the potential catalysts to unwind those positions.

The rush of interest in listing via SPACs is an obvious area to begin searching. Many private companies eschewed listing for years because they had no need to seek funds in the public markets. They are now eager to list because their backers want to exit while there is still time. Softbank’s wake-up call with WeWork was the catalyst for much greater interest in IPOs.



This section continues in the Subscriber's Area. Back to top
March 30 2021

Commentary by Eoin Treacy

Elliott Management Sends Letter to Board of Directors of AT&T

This letter may be of interest to subscribers. Here is a section:

The purpose of today’s letter is to share our thoughts on how AT&T can improve its business and realize a historic increase in value for its shareholders. Elliott believes that through readily achievable initiatives – increased strategic focus, improved operational efficiency, a formal capital allocation framework, and enhanced leadership and oversight – AT&T can achieve $60+ per share of value by the end of 2021. This represents 65%+ upside to today’s share price – a rare opportunity for any company, let alone one of the world’s largest.

Eoin Treacy's view -

There is increasing appetite for the companies that were left behind in the big 2020 surge. That’s being driven by the expectation for economic revival which will help to repair earnings potential and also by the rotation away from the stocks leveraged investors have been active in.



This section continues in the Subscriber's Area. Back to top
March 30 2021

Commentary by Eoin Treacy

Dutch Stock Benchmark AEX Set to Close at Record High

This article by Jan-Patrick Barnert for Bloomberg may be of interest to subscribers. Here is a section:

After more than 20 years, the main Dutch equity benchmark is set to reconquer its record high. The AEX Index gained 0.6% on Tuesday to 702.44, surpassing a peak reached in September 2000 during the dotcom bubble era.

And just like back then, the technology sector has driven the advance. Chip stocks ASM International NV, BE Semiconductor Industries and ASML Holding NV have all more than doubled in price over the past 12 months, in addition to the online payments firm Adyen NV. But the old economy has also helped the index. Steelmaker ArcelorMittal SA is the best-performing stock over the period, as basic material shares climb on the prospect of China’s recovery and its hunger for commodities. The gains in Royal Dutch Shell Plc and ING Groep NV have also been major contributors.

Meanwhile, Amsterdam’s initial public offering market is on track for its best-ever first quarter with $5.7 billion of proceeds after hosting the 2.8 billion-euro ($3.3 billion) listing on InPost SA, according to data compiled by Bloomberg.

Since dislodging London as the continent’s top place to buy and sell shares following Brexit, the Dutch city has emerged as a strong contender as the venue of choice for new listings. Amsterdam has also become the premier destination for SPACs in Europe. The Dutch capital has hosted three of the six blank- check listings in the region over the past year. The latest of the cohort, EFIC1, which is backed by a former chief executive officer of Commerzbank AG Martin Blessing, fell as much as 1.5% in its debut session on Friday after raising 415 million euros.

“The AEX index is definitely a rare combination of good European tech companies with the addition of other top-of-the- class names in their relative industries,” said Alberto Tocchio, a portfolio manager at Kairos Partners, adding that the benchmark gauge is “a bit the Nasdaq of Europe, with the benefit of also having an exposure to some value sectors.”

Eoin Treacy's view -

The Euro’s weakness has been a tailwind for European equities on several occasions over the last decade. That’s equally true at present with the Euro pulling back and the larger European markets breaking on the upside.



This section continues in the Subscriber's Area. Back to top
March 29 2021

Commentary by Eoin Treacy

Video commentary for March 29th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: liquidation of hedge fund assets raises single stock volatility but less evidence of contagion, gold weak, stay at home champions under pressure, China tech at support, bond yields continue to trend consistently higher. 



This section continues in the Subscriber's Area. Back to top
March 29 2021

Commentary by Eoin Treacy

A Tiger Cub's Huge Margin Call Means More Pain Ahead

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

A market optimist might brush off Friday’s massive liquidation as a one-off event — a huge stumble by a fabled player now in decline. But this is no time to be optimistic. Hwang is representative of, not distinct from, the rest of the hedge fund crowd. His bets are also their bets. He may have gotten margin calls faster because he was more leveraged. But his positioning is by no means unique — and that commonality is where trouble may lie. 


Take the trades involved. Media companies such as ViacomCBS and Discovery have net exposures that are the “highest level we have seen since 2016,” according to a recent note from the prime brokerage unit at Morgan Stanley, which, alongside Goldman, managed some of the block trades on Friday. Last week, when ViacomCBS was using the steep run-up in its stock to sell new shares and bolster its balance sheet, the pressure on leveraged hedge funds must have been intense. 

Eoin Treacy's view -

Rising yields and companies selling additional shares at rich valuations puts pressure on leveraged trades. It was inevitable that the rotation out of stay-at-home champions, who saw a one-time boost to business, would see a reality check in 2021. Last week’s block trades were an example of that.

Credit Suisse and Nomura took the brunt of selling pressure in the financial sector because of their net exposure. However, exposure has been limited within the broader sector so far.



This section continues in the Subscriber's Area. Back to top
March 29 2021

Commentary by Eoin Treacy

The return of the inflation spectre

Thanks to a subscriber for this article by Martin Wolf for the FT. Here is a section:

Manoj Pradhan in The Great Demographic Reversal. The economic regime that began in the 1980s is, they argue, coming to an end, with rising protectionism and rapid ageing in all the important economies, including China.

As labour forces shrink, this book suggests, the number of consumers will rise relative to the number of producers, thereby raising prices. Fiscal pressure will rise inexorably, as the population ages. If governments have to choose between inflation and fiscal tightening, they will choose the former. Finally, if interest rates rise too high for comfort, governments will force central banks to lower them.

Ultimately, then, these pressures would end in another era of high inflation. Some will note, against this view, that this is not how things have ended up in Japan, where decades of easy money has failed to ignite inflation.

Maybe, that will now happen in the world as a whole: we will all end up Japanese. Certainly, history never repeats exactly.

The stagflation of the 1970s, especially the squeeze on profits and stock market collapse, were due to features of the economies of that time, especially the political strength of labour. So, things may play out quite differently this time.

Inflation has not come back. It may never do so. But the political and policy shifts we are seeing today, after Covid, together with the longer-term changes in the world economy, have raised the chances of an inflationary shock of some kind. Investors must take this possibility into account.

Eoin Treacy's view -

No one factor contributes to a new secular inflationary cycle. Many trends need to coincide to shape consumer behaviour so they front load purchases rather than delay in the hope of lower prices later. That only happens when people are forced to act. It doesn’t happen voluntarily.

Disinflation, deregulation and globalisation over the last forty years contributed to the absence of an inflationary trend. Globalisation has peaked as geopolitical tensions rise. That is contributing rising support for national priorities rather than the furthering of the global community ideals.



This section continues in the Subscriber's Area. Back to top
March 29 2021

Commentary by Eoin Treacy

The Giant Ship Blocking the Suez Canal Is Finally Freed

 This article by Jack Wittels and Ann Koh for Bloomberg may be of interest to subscribers. Here is a section:

Egyptian authorities were desperate to get traffic flowing again through the waterway that’s a conduit for about 12% of world trade and about 1 million barrels of oil a day. This has been the canal’s longest closure since it was shut for eight years following the 1967 Six Day War.

Firms including A.P. Moller-Maersk A/S and Hapag-Lloyd AG were forced to reroute their ships via the southern tip of Africa, which can add two weeks on to a journey between Europe
and Asia.

Shipping experts anticipate that the disruption will last for months because of schedules being upturned and the uneven wave of cargo that will hit ports down the line.

While the hit of the canal’s $10-billion-per-day closure will likely be small given that global merchandise trade amounts to $18 trillion a year, the prospect of hundreds of ships being thrown off schedule will ensure cargo delays in the weeks if not months ahead. The dozen or so container carriers that control most of the world’s ocean freight capacity are already charging record-high rates on some routes, and shortages of everything from chemicals and lumber to dockside labor already abound.

Eoin Treacy's view -

It seldom pays to bet against small well-funded teams who are presented with a gargantuan task. The freeing up of the Suez Canal after a week is just such an example, and the snarl in the global supply chain will be smoothed out in a week or so. That’s good news but the whole episode is representative of the stress the global supply chain is under. Everyone is exhausted after a year of strife and disruption and that raises the risk that accidents will happen.



This section continues in the Subscriber's Area. Back to top
March 29 2021

Commentary by Eoin Treacy

March 26 2021

Commentary by Eoin Treacy

March 26 2021

Commentary by Eoin Treacy

Rio Tinto to deploy Heliogen's AI-powered industrial "solar refinery"

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

That temperature can be used to generate steam and turn turbines to produce electricity, or the heat can be stored for later use outside daylight hours. It's also hot enough to be used in cheap hydrogen production – Heliogen's Bill Gross told the Abu Dhabi Sustainability Week 2021 conference in January that a 600 x 600-m (656 x 656-yd) plant could produce around a million kilograms (2.2 million lb) of green hydrogen per year at an impressively low cost around US$1.80 per kilogram (2.2 lb) – lower than the average price of dirty hydrogen today.

Rio Tinto's boron operation, rather fittingly located in Boron, California, currently uses natural gas co-generation and boilers to produce steam for its processes. The Heliogen installation will contribute up to 35,000 lb (15,876 kg) of steam per hour to the plant day and night thanks to energy storage, and Rio Tinto says this has the potential to reduce total plant emissions by about 7 percent – "equivalent to taking more than 5,000 cars off the road," says the company, neatly sidestepping the fact that it's leaving more than 70,000 cars on the road in this metaphor.

This is just a pilot, though; should it prove viable, the company will assess whether to upgrade the facility to more than three times its current production rate, and the state intention here is to pilot the technology with a view to replicating it at other Rio Tinto facilities around the world where there's enough sunlight.

Eoin Treacy's view -

Rio Tinto’s management have displayed impressive foresight in positioning the company as the supplier of materials to drive the development of a carbon free economy. Making headlines for supporting concentrated solar plants in California is another example of sound PR strategy that detracts from the destructive nature of mining.

The company concentrates on iron-ore, copper and aluminium production which has allowed them to make a big play on being the most ESG-aware miner. Pollution is one portion of the ESG gambit the other is mine safety.



This section continues in the Subscriber's Area. Back to top
March 26 2021

Commentary by Eoin Treacy

On Target March 2021

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

Southeast Asia’s largest economy, Indonesia. is expected to see 67 per cent growth of its people becoming ultra-high-net-worth over the next five years, according to British property consultancy Knight Frank.

That’s those with personal wealth, including the value of primary residence, of more than $30 million. It’s not just the super-wealthy who are doing well. According to the World Bank Indonesia’s middle-class consumption has grown at an average annual rate of 12 per cent since 2002 and now accounts for almost half all household consumption.

The richer Indonesians get, the more they spend on cars, health, education and other services. Asia is the region where personal wealth is growing fastest and is already home to more billionaires than any other – 36 per cent of the world’s.

Eoin Treacy's view -

The rise of the middle class in ASEAN remains a secular theme because they have improving standards of governance, favourable demographics and higher growth potential. Indonesia is also a major exporter of commodities and has adopted an unobjectionable attitude towards China.



This section continues in the Subscriber's Area. Back to top
March 26 2021

Commentary by Eoin Treacy

WeWork agrees to $9 billion SPAC deal in new path to go public

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

The company disclosed to prospective investors it had lost about $3.2 billion last year, the Financial Times reported earlier this week. The documents also show that occupancy rates fell to 47% at the end of 2020, down from 72% at the start of the year, before the pandemic hit, according to the newspaper.

In the interview in January, Claure argued the pandemic was helping WeWork. He said the work-from-home situation benefits the company and would continue to do so as people return to the workplace. “This is where WeWork suddenly becomes an incredible value proposition,” he said. “New habits have been developed during this pandemic.”

Mathrani will continue to lead the company after the deal. Vivek Ranadive of BowX and Insight Partners’s Deven Parekh will join the board.

BowX Acquisition Corp. is managed by Ranadive and Murray Rode, both former executives at TIBCO Software and co-founders of venture firm Bow Capital.

Eoin Treacy's view -

How a global work-from-home trend can be positive for a company that offers office space is beyond me. That’s particularly true for start-ups for whom rising yields represent a challenge in raising capital.



This section continues in the Subscriber's Area. Back to top
March 26 2021

Commentary by Eoin Treacy

Message Received, Loud & Clear

This report from CIBC may be of interest to subscribers. Here is a section:

The Bank of Canada is seeing enough progress in the economy that it feels it can begin reducing outdated programs, as well as slowly begin to remove some of the considerable stimulus in the system. There should not be too much impact from the cessation of select market functioning facilities directly. The bigger news today is the strongest signal yet that the Bank is ready to conduct a taper, and begin ‘right sizing’ the QE program. This is also the first time we have been shown what the future sequencing looks like, which is: i) taper to a net-zero purchase profile; ii) enter a reinvestment phase, and; iii) normalize rates. The best trades to take advantage of this are micro in nature, though also put ‘bigger’ macro trades like receiving 2yr-to-4yr forwards versus the U.S. at risk.

Eoin Treacy's view -

As we exit the pandemic the approach being adopted by central banks to the respective challenges in their countries will help to inform us on what to expect from the late starters. Since Canada is about to begin tapering in April how the bond, currency and stock markets perform may offer a foretaste of what a taper will eventually look like in the USA and elsewhere.



This section continues in the Subscriber's Area. Back to top
March 25 2021

Commentary by Eoin Treacy

Video commentary for March 25th 2021

March 25 2021

Commentary by Eoin Treacy

Email of the day on bidding below the market.

Thank you, Eoin, for your work and sincerity about your portfolio. If I understand correctly, you have bids under the spot for gold due to probability that the yields shoot higher, consequently pressing the gold further down?

If that's correct, would you argue the same for BTC/ETH?

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. After the flash crash in 2010 it became clear that short-term outsized moves are not only possible but also likely.

The vast majority of trading is now algorithmically based. My central point is that an algorithm can be taught what to buy using an infinity of different metrics. However, there is only a very small number of ways of telling a computer how much to buy. That’s particularly true when we are talking about very short-term trading. It basically comes down to volatility and interest rates.

This limitation in how positions are sized creates herding activity in automated markets in just the same way we would expect from human controlled markets.



This section continues in the Subscriber's Area. Back to top
March 25 2021

Commentary by Eoin Treacy

The Euro's Viral Turn Is More Than Pseudoscience

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

Why? The clearest reason is the virus, which still dominates all of our lives. The broad narrative of the European struggle with the pandemic and how it compares with Americans’ battle on the other side of the Atlantic is roughly accurate. Neither has done as well in combating Covid as countries with wealth and advanced health systems should have done, but the EU record has been appreciably better throughout. That is now beginning to shift. The chart below shows the number of new cases recorded each five days. To allow an easy comparison, I multiplied the U.S. number to account for the EU’s larger population. Europe succumbed to its second wave a little ahead of the U.S., but this is the first time since Covid-19 appeared that new cases have risen in the EU while falling in America. This is plainly concerning.

The second big reason is wrapped up in the bond market and expectations for inflation. Treasuries tend to yield more than German bunds, and hence attract funds to the U.S., strengthening the dollar. This differential plummeted in the first month of the Covid scare — but at 2 percentage points it is now roughly back to where it started last year. The dollar has strengthened with it. The market has more confidence in the Federal Reserve’s ability to create inflation than it does in the European Central Bank’s, and so the dollar is rising:

Eoin Treacy's view -

The currency markets have spent the last year trading around the idea of the which country is doing best in the pandemic. The traditional metrics of money supply and interest rate differentials are less important at present, than the outlook for recovery.

The Renminbi trended higher from May as it became apparent China had successfully contained the spread of the pandemic. Around the same time the Euro began to trend higher because there was the perception the EU was doing better at containment. More recently the US Dollar has rebounded because it is further along in its vaccination program than other major currency issuers. That rationale also helped to power the Pound’s recovery until quite recently.



This section continues in the Subscriber's Area. Back to top
March 25 2021

Commentary by Eoin Treacy

Shipping Giants Look at Arduous Reroute to Avoid Blocked Suez

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

Loadings scheduled from Qatar’s Ras Laffan export terminal may experience “considerable delays” if the situation doesn’t improve by the end of this week, according to Rebecca Chia, an analyst at market information group Kepler.

The congestion is also hitting bulk carriers that ship products from wheat to iron ore. There’s a long queue of bulk ships at the moment -- just shy of 40 vessels -- according to Peter Sand, chief shipping analyst at trade group BIMCO.

“Unless the situation is resolved very quickly we will soon see ships sailing south of Africa,” Sand said. “Oil tanker rates are terribly low at the moment so that’s where there’s most upside. Then some upside for dry bulk.”

Eoin Treacy's view -

The global supply chain has a number of chokepoints. Panama has invested heavily in providing additional capacity for its canal. Egypt has been much less proactive in planning for the future. The current blockage of the canal is a headache and has the capacity to cause short-term disruption.

Some estimates are stretching the solution time to weeks rather than days. Considering how essential the shortcut is to the global economy every effort will be made to ensure the delay is a short as possible. Generally speaking, teams can perform the impossible in short periods of time provided they are given the resources required so I doubt this is an issue we will be worrying about in a few weeks.



This section continues in the Subscriber's Area. Back to top
March 24 2021

Commentary by Eoin Treacy

March 24 2021

Commentary by Eoin Treacy

PBOC, BOJ May Be Driving Some of the Stock Rout Infecting Asia

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

China hasn’t been this frugal in its cash offerings to banks in almost a year.

The People’s Bank of China has avoided net injections of short-term liquidity into the financial system since late last month, increasing concern that access to funds is becoming more difficult. The CSI 300 is headed for its steepest monthly loss in more than two years.

Japan’s Nikkei is falling for a fourth straight day after the BOJ said last Friday that it’s scrapping its annual target for stock purchases.

Stocks in both China and Japan had gotten used to these forms from the central banks. Now this backing, while not going away, is ebbing, and that could mean less central bank handholding for equities. 

Eoin Treacy's view -

The PBoC has been quite vocal in stating they do not want a bubble to form. They have very different priorities from the Federal Reserve. China’s administration wishes to preserve social harmony at all costs. In their view that is the only way to ensure the continued survival of single party rule. That means they will prioritise stability over asset price growth in the property or stock markets.

If that means restricting liquidity to the banking sector and curtailing the reach of the tech sector, those are deemed acceptable measures for China. The ChiNext Index is full of smaller companies that purportedly represent high growth. The Index has experienced it largest pullback since the lows and will need to find support soon if the benefit of the doubt is to be given to the recovery.



This section continues in the Subscriber's Area. Back to top
March 24 2021

Commentary by Eoin Treacy

Taiwan Raises Red Alert Over Water, Cuts Chipmakers' Supply

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

Taiwan stepped up its fight against its worst drought in decades, further reducing water supplies to areas including a key hub of semiconductor manufacturing in the central part of the island in an effort to stop reserves from running dry.

The government issued its first red alert on water supply in six years Wednesday, warning that reservoirs in several parts of central Taiwan are running dangerously low. Authorities will cut the water supply to companies in two major science parks in Taichung by 15%, economics minister Wang Mei-Hua said at a briefing in Taipei.

Water will also be cut to non-industrial users across Taichung and Miaoli County two days a week, Wang said. The measures will come into effect from April 6.

While Taiwan Semiconductor Manufacturing Co. and Micron Technology Inc. both have chip-making operations in Taichung, Wang said the restrictions would not affect their production. TSMC’s headquarters further north in Hsinchu has been spared further restrictions for now.

TSMC says it plans to increase the amount of water it uses from tanker trucks but the new restrictions would not affect operations, according to an emailed statement. A Micron representative in Taiwan declined to comment, saying the company is now in a quiet period.

The relative dry spell is putting pressure on the Hua said government to ensure continued supplies to water-intensive industries, such as its crucial semiconductor manufacturing, at a time when global companies are clamoring for computer chips. A shortage of semiconductors has slowed output at automakers worldwide, prompting TSMC and its peers to run their fabs at close to full capacity to try and keep up with demand.

Taiwan’s usually ample supplies of water have plummeted after a significant drop in rainfall last year. The situation was further exacerbated by the fact that no typhoons made landfall in Taiwan in 2020.

Wang said earlier this month that Taiwan has sufficient water reserves to keep its technology companies operating smoothly until late May, when seasonal rains usually replenish supplies depleted during the drier winter months.

The meteorological situation adds to a new challenge to TSMC just as it’s grappling with competition from Samsung Electronics Co. and Intel Corp., which has unveiled a $20 billion plan to create a foundry business that will make chips for other companies.

Eoin Treacy's view -

The world is swiftly waking up to how dependent the global economy is on Taiwan. Rising geopolitical tensions, a global shortage of chips and water concerns mean there will be concerted efforts to ensure there is significant investment in additional sources of alternative supply.



This section continues in the Subscriber's Area. Back to top
March 24 2021

Commentary by Eoin Treacy

In Copper Country, Lawmakers Want a Bigger Share of the Windfall

This article by James Attwood and Tom Azzopardi for Bloomberg may be of interest to subscribers. Here is a section:

The proposal is unnecessary and risks thwarting investment, according to government and industry representatives. Responding to criticism that Chile didn’t tax producers enough in the last supercycle, Energy and Mining Minister Juan Carlos Jobet said the current royalty system will generate more after a surge in prices pushed up earnings.

In his first term in office a decade ago, Pinera introduced a complicated system of payments that now charges large producers a variable rate on operating profit of as much as 14%. A new tax on sales wouldn’t bring in more than the current system, according to Diego Hernandez, head of mining society Sonami. Mining Council boss Joaquin Villarino warned against rushing through legislation just because copper has traded above $4 a pound for several weeks.

While consensus is building that highly profitable sectors such as mining should help finance the pandemic recovery, a heavier tax burden would add to rising costs associated with labor and the environment, BTG Pactual raw-materials analyst Cesar Perez-Novoa said.

“When doing the math, the cost competitiveness of Chile as a mining jurisdiction comes down,” he said. “So it matters.”

Eoin Treacy's view -

Copper is in a bull market and demand growth is likely to continue to increase as the focus of stimulus and economic recovery settles on renewable energy and the electric vehicles sectors. That introduces additional use cases for the metal in addition to the traditional telecommunications and infrastructure sectors.



This section continues in the Subscriber's Area. Back to top
March 23 2021

Commentary by Eoin Treacy

Video commentary for March 23rd 2021

Eoin Treacy's view -

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

Some of the topics discussed include: oil unwinds its overbought condition, bond yields contract. that boosts tech but weighs on reflation trades. China tech at trend mean, no contagion from Turkey in emerging markets, mean reversion is the order of the day. 



This section continues in the Subscriber's Area. Back to top
March 23 2021

Commentary by Eoin Treacy

A Taiwan Crisis May End the American Empire

This article by Niall Ferguson may be of interest to subscribers. Here is a section: 

Kissinger’s meetings with Zhou Enlai, the Chinese premier, were perhaps the most momentous of his career. As a fox, the U.S. national security adviser had multiple objectives. The principal goal was to secure a public Chinese invitation for his boss, Nixon, to visit Beijing the following year.

But Kissinger was also seeking Chinese help in getting America out of Vietnam, as well as hoping to exploit the Sino-Soviet split in a way that would put pressure on the Soviet Union, America’s principal Cold War adversary, to slow down the nuclear arms race. In his opening remarks, Kissinger listed no fewer than six issues for discussion, including the raging conflict in South Asia that would culminate in the independence of Bangladesh.

Zhou’s response was that of a hedgehog. He had just one issue: Taiwan. “If this crucial question is not solved,” he told Kissinger at the outset, “then the whole question [of U.S.-China relations] will be difficult to resolve.”

To an extent that is striking to the modern-day reader of the transcripts of this and the subsequent meetings, Zhou’s principal goal was to persuade Kissinger to agree to “recognize the PRC as the sole legitimate government in China” and “Taiwan Province” as “an inalienable part of Chinese territory which must be restored to the motherland,” from which the U.S. must “withdraw all its armed forces and dismantle all its military installations.” (Since the Communists’ triumph in the Chinese civil war in 1949, the island of Taiwan had been the last outpost of the nationalist Kuomintang. And since the Korean War, the U.S. had defended its autonomy.)

Eoin Treacy's view -

China is deadly serious about taking back control of Taiwan. Perhaps more importantly it is a personal mission for Xi Jinping to achieve that goal because it will cement his name in the annals of China’s history.



This section continues in the Subscriber's Area. Back to top
March 23 2021

Commentary by Eoin Treacy

New soba noodle-making robot at Japan train station eatery can cook 150 servings an hour

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

The robot fetches soba noodles from a box with one arm, and places it in a strainer. Then with the other arm, it picks up the strainer and boils the noodles for a minute and 40 seconds, rinses off the viscous film on the surface and then dips the noodles in iced water to bring out their firmness. The robot can cook 150 servings in an hour, substituting the work of about one employee.

Connected Robotics commented, "Not only can it tackle the shortage of human resources, it can also cook without any human contact and is therefore useful in reducing the risk of coronavirus infections." JR East Foods, meanwhile, explained, "We aim to implement it (the robot) at 30 stores by the end of fiscal 2025."

Eoin Treacy's view -

Upward pressure on minimum wages creates an incentive to do away with minimum wage workers. The trend in restaurants is towards online/tablet ordering and point of sale machine payments. Humans are required to clean up, serve, prepare and cook the food. The higher wages go the more intense efforts will be to do away with unskilled work.



This section continues in the Subscriber's Area. Back to top
March 23 2021

Commentary by Eoin Treacy

Federal Reserves Powell Says CBDCs Need to Coexist With Cash

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

In recent months, Powell has emphasized several times that the U.S. would not act fast on issuing a digital dollar because of the physical dollar’s status as the global reserve currency. 

The latest comment, though, is in line with Powell’s previous remarks about the Fed taking the prospects for a digital dollar seriously. Powell has said the Fed will engage with the public on the topic in 2021 and will seek congressional approval before issuing one. 

CBDCs are an early-stage payments innovation that governments hope can increase payments efficiency and lower costs by running them on blockchains. The details on CBDCs are still murky, and detractors argue most transactions today involve money that’s already digital. 

There’s a fear some governments may use CBDCs for increased financial surveillance. At the moment, it looks like the U.S. could favor privacy in its CBDC development.

Eoin Treacy's view -

I tuned in to this discussion on CNBC last night and what I found interesting is the eagerness central banks have in talking about digital currencies while at the same time saying they are in no rush.



This section continues in the Subscriber's Area. Back to top
March 22 2021

Commentary by Eoin Treacy

Video commentary for March 22nd 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Nasdaq rebounds as Treasuries show a modicum of steady trading, Turkish Lira volatile takes a toll on Eurozone banks, gold and oil steady, Japan weak, China steady, commodity producers steady.  



This section continues in the Subscriber's Area. Back to top
March 22 2021

Commentary by Eoin Treacy

Of Cigars, Contrarians, Nerds and Herds

Thanks to Iain Little for this edition of his Global Thematic Diary series. Here is a section:

Attitudes to risk have changed. In one month, investors have relegated Covid 19 and its mutant strains to the side[1]lines. They now obsess over inflation and a shaky bond market. Those who feared an equity bubble in February, spurred on by strident warnings from market opinion formers like Jeremy Grantham and Ray Dalio, have diminished in number and are keeping their heads down.

Anyone following 10 year USD bond prices will not be surprised. The move from 0.5% in August to 1.60% in March, a near tripling, has spooked bond buyers, with a consequent hit to gold, highly priced technology shares and other interest rate sensitive assets. But a more subtle and longer term conclusion may be drawn.

If sentiment is indeed registering such a confident attitude to growth and risk, it is reasonable to assume that investment positions are now largely in place to reflect that view. If so, the next concern of the market will be its nemesis: growth below expectations. Those investors who are now positioning investments excessively on the side of recovery, value or laggard stock sectors like banks may need to think twice before abandoning their long held commitment to healthcare, FMCG, e-commerce and technology. We are positioning client portfolios accordingly.

As Mark Twain once said: “if you find yourself on the side of the majority, it is time to pause and reflect”.

Eoin Treacy's view -

A link to the full note is posted in the Subscriber's Area. The reflation trend is increasingly being priced in and only a robust recovery will satisfy expectations for what it will entail for company earnings. The challenge for markets is the majority of people making English language predictions are sitting in the places with the most advanced vaccination programs.



This section continues in the Subscriber's Area. Back to top
March 22 2021

Commentary by Eoin Treacy

Investment Implications of a Shorter Cycle

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

Eoin Treacy's view -

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

The long expansions we have seen over the last decades have been followed by very sharp corrections with one sector or another crashing to previously unimaginable lows. That begs the question if a potential return to shorter cycles will result is less excess and shallower reactions? There is not a great deal of evidence to support that contention unfortunately.



This section continues in the Subscriber's Area. Back to top
March 22 2021

Commentary by Eoin Treacy

Germany to Sell Record Debt of Up to $576 Billion in 2021

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

The final decision on next year’s budget will be taken by the government that takes charge of Europe’s biggest economy after Chancellor Angela Merkel steps aside following the election.

Merkel’s conservative CDU/CSU bloc is on track to lead the next administration and favors a return to frugality once the coronavirus recedes, while Scholz’s struggling SPD and the surging Greens have pledged to invest billions in technology and tackling climate change.

As things stand, Merkel’s bloc could form a coalition with the Greens, though the outcome is far from certain with discontent increasing among citizens weary of virus restrictions and unhappy with the slow pace of Germany’s Covid-19 vaccine rollout.

With the contagion rate on the rise again, Merkel is holding talks with cabinet ministers and regional leaders later on Monday to decide the next steps in the government’s pandemic strategy.

Eoin Treacy's view -

Generally speaking, the junior member of a coalition government comes out worse off after entering government. That’s because voters had faith in them to deliver on their promises, but the sacrifices they have to make to enter power mean their primary goals are unrealisable. At the same time the senior partner takes credit for any successes.



This section continues in the Subscriber's Area. Back to top
March 19 2021

Commentary by Eoin Treacy

March 19 2021

Commentary by Eoin Treacy

Oaktree Client Memo

Thanks to a subscriber for this note by Howard Marks. Here is a section:

So today’s high asset prices may be justified at today’s interest rates, but that’s clearly a source of vulnerability if rates were to rise. (Note that today’s 1.40% yield on the 10-0year Treasury note is up from -.52% at he low in august 2020 and from 0.93% in just the last seven weeks)

The Fed says rates will be low for years to come, but are there limitations on its ability to make that happen? Can the Fed keep rates artificially low forever? On longer-maturity bonds? And what about inflation? Can the 10-year Treasury note still yield 1.40% if inflation reaches 3%? Will people buy it a negative real yield? Or will the price fall so that it yields more? Where could inflation come from? The price of goods may not rise in dollar terms, but reduced respect for the dollar (or increased quantities of dollars in circulation) could cause it to depreciate relative to the price of goods: same result.

Eoin Treacy's view -

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

These questions are seeking an answer in real time as Treasury yields trend higher. At present Treasury yields are pausing near 1.75% and the Personal Consumption Expenditure inflation measure is at 1.5%. The bond market is therefore insisting on a positive real yield to justify buying.

However, since a clear and consistent trend is in evidence bond investors are also pricing in the potential that the PCE will continue to also trend higher. Bond investors have become accustomed to central bank assistance. There was no revolt at the beginning of the quantitative easing era because the Fed was supporting the market.



This section continues in the Subscriber's Area. Back to top
March 19 2021

Commentary by Eoin Treacy

Junk Debt Is So Hot Investors Are Giving Issuers the Upper Hand

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

“With all the features combined, you could say this is a new low,” Alastair Gillespie, an analyst at Covenant Review, said. “When deals like this close, the question must be asked whether our marketplace and investors are well served.”

Spokespeople for Foncia and Partners Group declined to comment when contacted by Bloomberg News.

The provision was likened to the so-called trapdoor stipulation that U.S retailer J. Crew used it to its advantage in 2017 and that allows the company the flexibility to pay itself dividends. It also enables the firm to transfer value away from bondholders and leave them with less collateral claim in the event of a default.

Eoin Treacy's view -

The low interest rates era is breeding all manner of market dislocations in the bond markets. When yields are negative investors will do anything to achieve a positive yield. In the debt markets that means covenant lite provisions but that has been the case for years already. That emboldened issuers to seek even better terms. It’s another example of how high yield debt has turned into a seller’s market.



This section continues in the Subscriber's Area. Back to top
March 19 2021

Commentary by Eoin Treacy

Vietnam is 'Most Preferred Frontier Market' HSBC Says

This note quoting an HSBC report may be of interest to subscribers. Here it is in full:

Vietnam is “more investable than many think,” with positive factors including accelerating FDI, a government push on infrastructure, structurally increasing purchasing power, and the rising profitability of the banking system, HSBC wrote in a note to investors.

  • “Profitability, attractive valuations, strong balance sheets and market reforms point to the likelihood of a multi-year bull run,” HSBC said
  • Likes Vietnam growth story, citing low inflation, a stable currency and healthy earnings
  • Disagrees with common perception that Vietnam’s equity market is too small; says Vietnam now has 11 stocks with market cap of more than $5b vs 2 in 2015, while daily trading value has come close to $1b
  • Says government has passed new laws that should reduce restrictions on overseas investors and put Vietnam in line for an upgrade to emerging-market status
  • Says covered warrants and new diamond index are helping foreign investors gain exposure to companies at their foreign ownership limits
Eoin Treacy's view -

Vietnam is run by a communist party in the mould of China in the 1990s. They are primarily interested in economic development and raising living standards for the population. Dreams of global domination are not on the horizon. In fact, Vietnam’s primary concern is probably to remain independent and prosperous in an era of great power competition.



This section continues in the Subscriber's Area. Back to top
March 19 2021

Commentary by Eoin Treacy

March 18 2021

Commentary by Eoin Treacy

Video commentary for March 18th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Bond market gives no credence to dovish Fed commentary, growth and innovation plays sell off, cyclicals continue to exhibit relative strength, oil pulls back, gold steady, bitcoin fails to hold $60K. 



This section continues in the Subscriber's Area. Back to top
March 18 2021

Commentary by Eoin Treacy

CTA, Money Manager Unwinds Could Be Behind Oil Drop

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

Crude oil has fallen the most in nearly three months, sliding as much as 4.75% today, and on its way to a test of the March 4 low at $60.52 per barrel. The move is probably linked to some unwinding of long positions from CTAs as daily price gains or losses of more than 3% can often trigger this account group to quickly unload. Watch for this unwind to continue if price action maintains this pace in the days ahead.

Beyond that, money managers could be unwinding longs. This group’s crude holdings are the longest in more than two years, according to the most recent CFTC data. Let’s not forget Iran is swamping China with oil. Also, quarter-end window dressing can also get in the way of an otherwise nice trend.

Eoin Treacy's view -

There is no shortage of oil. OPEC is deliberately restricting supply. The shale properties massively reduced drilling activity in response to low prices and rising borrowing costs have inhibited a swift recovery. However, it is not as if the world has to spend hundreds of billions to find new sources of supply. Everyone knows where the oil is. The question is only at what price it will be produced. The higher prices move the greater the sensitivity to supply gains.



This section continues in the Subscriber's Area. Back to top
March 18 2021

Commentary by Eoin Treacy

Deutsche Bank Investment Banking Revenue Up 20% This Year

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

Deutsche Bank AG​​​ said investment banking revenue has risen about 20% so far this year, as the market volatility that spurred gains during the height of the pandemic endured into early 2021.

Chief Transformation Officer Fabrizio Campelli gave the outlook for the German lender’s largest revenue contributor at an online event hosted by Morgan Stanley on Thursday, saying also the firm has continued to win market share in investment banking. He didn’t give further details.

Germany’s largest lender earlier flagged a “good start” to 2021, signaling that trading returns are helping to offset a weak economy. Credit Suisse Group AG and Societe Generale SA each flagged strong investment banking momentum recently, with the Swiss lender seeing revenue up 50% from last year.

Eoin Treacy's view -

It’s not so long ago that investors feared Deutsche Bank would go bust or need to be nationalised. The return to profitability in trading and the steepening US yield curve is a tailwind for many investment banks. Banks are highly cyclical stocks that thrive on liquidity provision during steep yield curve phases.



This section continues in the Subscriber's Area. Back to top
March 18 2021

Commentary by Eoin Treacy

ByteDance embarks on hiring spree in Singapore

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

Singapore is viewed as a neutral city by Chinese technology companies as tensions continue to rise between Washington and Beijing. Tencent and Alibaba both announced last year that the city would serve as a key international hub, with Alibaba spending half a billion dollars to buy a skyscraper in the heart of the financial district in May.

ByteDance has not confirmed which of its international offices is its global hub outside China but its expansion in Singapore — it moved into a larger premises in a landmark office tower late last year — comes amid setbacks in India, the US and the UK, where it has been blocked or accused of breaching privacy regulations.

“As we grow our presence in Singapore, we continue to look for the best global and local talents to support our business and augment local skills and capabilities,” the company said.

The Financial Times reported last year that ByteDance could seek to separate TikTok and other units into a global business that was separate to its Chinese entity. Joe Biden’s administration is reviewing an executive order from former president Donald Trump that sought to force the sale of TikTok’s US operations.

Eoin Treacy's view -

Hong Kong is quickly being absorbed into the Chinese economy. That means its system of governance, with a focus on rule of law and contract negotiation, is being subverted by deference to political will. There is a need for an alternative East-meets-West centre. Singapore is well placed to fulfil that role.



This section continues in the Subscriber's Area. Back to top
March 17 2021

Commentary by Eoin Treacy

Video commentary for March 17th 2021

Happy St Patick's Day!

March 17 2021

Commentary by Eoin Treacy

BlackRock, Lombard Say Faster Inflation Calls Are Premature

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

“As the dust settles in the wake of today’s FOMC, we will be focusing upon whether any additional back-up in yields is accompanied by a further widening of breakevens,” said Richard McGuire, the head of rates strategy at Rabobank. “If so then this argues that the move higher in rates is sustainable.”

But as long as U.S. yields don’t rise in a chaotic fashion, risk assets including emerging-market and high-yield corporate debt are expected to outperform, according to BlackRock’s Seth. “Rates can drift higher and still remain a positive backdrop for the risk assets, as long as the vulnerability is under control,” he said.

A Bloomberg Barclays index on global credit returns has gained 11% over the past year, compared with a loss of 2% for a gauge tracking Treasuries. BlackRock switched to a neutral duration position in February from underweight. The fund likes notes sold by Chinese real estate companies and the nation’s onshore bonds.

“The lack of correlation with the rest of the global developed markets also provides a diversification benefit,” Seth said of Chinese debt.

Eoin Treacy's view -

The Fed remains wedded to its view nascent inflationary pressures will not last long. There is a logical argument to support the view that the bounce back from the pandemic lows is exaggerated by the base effect and everything will settle down over the course of the next year or two. Since the Fed is willing to wait and see with inflation, it could be two full years before they are willing to draw firm conclusions.



This section continues in the Subscriber's Area. Back to top
March 17 2021

Commentary by Eoin Treacy

Lennar Shares Spike on Plan to Spin Off Startup Investments

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

Lennar Corp. soared after the homebuilder said it will create a spinoff with at least $3 billion in assets.

The new company, which will have $3 to $5 billion in assets and no debt, will include Lennar’s technology investments, according to an earnings call Wednesday.

Lennar, which said it made about $470 million on its investment in Opendoor Technologies Inc., jumped as much as 9.5% to $97.09 in New York. The stock had gained 16% this year through Tuesday’s close.

Miami-based Lennar reported orders on Tuesday that beat estimates as it benefited from the pandemic housing market. It got also a boost from Opendoor, which began trading in December.

Lennar said two other “technology-driven” companies it has invested in also have announced agreements to go public through mergers with special purpose acquisition corporations, or SPACs.

Those companies are Doma, formerly known as States Title, and Hippo, the home-insurance startup that’s merging with a blank-check company led by Zynga Inc. founder Mark Pincus and LinkedIn co-founder Reid Hoffman

Eoin Treacy's view -

It is a clear sign of the times that a home builder, which is about as brick and mortar as it gets, has upwards of $5 billion in technology investments. It’s good news that the company has made wise decisions in what are now highly valued digital assets. However, that decision to prioritise risk in non-core businesses is also a symptom of the wider lack of building new homes that has been a feature of the recovery from the 2007-12 housing recession.



This section continues in the Subscriber's Area. Back to top
March 17 2021

Commentary by Eoin Treacy

Tinuiti Acquires Amazon Specialist Ortega Group, Adds Kevin Mayer to Board

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

Ortega will likely be the first in a string of purchases by Tinuiti, which in December became part of private-equity giant New Mountain Capital and is hungry to broaden its capabilities. Tinuiti is in talks to acquire two other companies, said Zach Morrison, its chief executive.

“We set out at the end of last year to find a partner that could take this from a hundred-and-some-million-dollar company to a billion-dollar company,” he said.

Future deals will focus on resources related to working with the “triopoly,” he said, referring to Google, Facebook and Amazon, as well as marketing services around video, digital advertising and first-party data, he said. New board members, like Mr. Mayer, will also bring expertise in those areas, Mr. Morrison said.

Mr. Mayer recently joined sports-streaming company DAZN Group as chairman. He served briefly as chief executive of TikTok and in senior roles at Walt Disney Co. Tinuiti also added Anneka Gupta, president and head of products and platforms at data company LiveRamp, to its board.

Tinuiti, with about 750 staffers, had its strongest growth last year, as businesses sped up their investments in e-commerce and digital marketing to reach consumers in the Covid-19 pandemic, said Mr. Atkinson.

Eoin Treacy's view -

Tinuiti is one of the most successful ad agencies for ecommerce companies. They offer an end-to-end marketing and advertising service with a solid track record of boosting sales right across the Amazon/Shopify/Wal-Mart universe.

They generally require a minimum advertising spend of $25,000 a month to even consider taking on a new client. That suggests a revenue base of at least $1 million in turnover and solid margins to absorb the cost.



This section continues in the Subscriber's Area. Back to top
March 17 2021

Commentary by Eoin Treacy

March 16 2021

Commentary by Eoin Treacy

Video commentary for March 16th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: bond yields continue to trend higher and represent a growing headwind for growth, global reflation candidates continue to outperform, gold and oil stable, palladium surges on mine issues. renewables ease. 



This section continues in the Subscriber's Area. Back to top
March 16 2021

Commentary by Eoin Treacy

Email of the on solar power, desertification, and profitability

This video is very interesting. It is hard to comprehend the scale of this project.  It is part of China's ''ending poverty'' project.

Whilst the US has been engaged in adventurism in the M-E and elsewhere (right up till today) resulting in heavy losses, both financial and human cost, China has been powering ahead in leaps and bounds, spreading their sphere of influence far and wide. Interesting times.

 

Eoin Treacy's view -

Thank you for this interesting video which is both information and raises some important questions. The point they seek to get across is that solar panel power plants can create clean energy, reverse desertification, and create lucrative income streams for local populations. 

The video at no point discusses the efficiency of the solar panels, the sustainability of using the precious water resource to regularly clean them, the cost/efficiency of power lines to get the electricity to where it is needed or the desire for energy self-sufficiency.



This section continues in the Subscriber's Area. Back to top
March 16 2021

Commentary by Eoin Treacy

Big Market Delusion: Electric Vehicles

This article by Rob Arnott for Research Affiliates may be of interest to subscribers. Here is a section: 

From the beginning, the air travel business has been capital intensive and highly competitive. During good times, new airlines emerged and drove down profits. During bad times, many less well-capitalized companies folded. Over the course of the last century, virtually every company in the business either failed or merged into a larger airline, most of which also collapsed.

The simple fact, as Warren Buffett so cleverly stated, is that technology does not translate into great fortunes for investors unless it is associated with barriers to entry that allow a company to earn returns significantly in excess of the cost of capital for an extended period. Of course, Apple, Google, and Facebook are well-known examples of such technological success, but they are the exception rather than the rule. For a host of complicated reasons, these companies have been able to build moats, or barriers to entry, around their businesses. They also benefit from the fact their products can be produced with limited capital investment.

Eoin Treacy's view -

Not every electric vehicle upstart is going to survive but they are currently priced as if they will be the ultimate successors to the global automotive industry. That’s the kind of contradiction bubbles are made of.



This section continues in the Subscriber's Area. Back to top
March 16 2021

Commentary by Eoin Treacy

Inside Disney's Plan To Automate Half Its Ad Business Within Five Years

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

Disney is courting two sets of advertisers with its platform approach. Linear TV buyers will be able to buy across new formats more easily and with greater granularity, while programmatic buyers will finally be able to see and bid on all of Disney’s inventory.

Building its own ad tech is a key part of Disney’s strategy. A video ad server “pressure-tested” at Hulu will be extended across the rest of Disney's video inventory. The muscle behind its tech is a 500-person engineering and product team led by Jeremy Helfand, previously Hulu’s VP and head of advertising platforms. The team already built the video ad server and the video header bidding solution that allows programmatic buyers to compete for every Disney ad impression. 

The team came about last year, when Disney merged all of its Hulu and Disney ad tech talent and products into a single, centralized team. All in, Disney said it’s making a “nine-figure” investment in its ad platform.

Eoin Treacy's view -

Google’s announcement that it is shutting down the tracking of user activity across websites is going to cause ructions for many companies that rely on that data to target the ads they buy. It also hands greater control to the owners of data pools who now have greater heft in selling access to potential ad buyers.



This section continues in the Subscriber's Area. Back to top
March 15 2021

Commentary by Eoin Treacy

March 15 2021

Commentary by Eoin Treacy

Yields, ETF Buying BOJ Set to Add Flexibility

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

The basic elements of yield-curve control will probably remain unchanged, with the short-term rate anchored at -0.1% and the BOJ aiming to keep the 10-year JGB yield around 0% -- while allowing fluctuations depending on economic and price developments.

We expect Kuroda to renew the commitment to the 10-year yield range of +/-0.2 ppt around 0%, but -- importantly -- also indicate that temporary moves beyond the range would be acceptable, as long as the effects of monetary easing aren’t disrupted and the yield curve is consistent with economic activity, prices, and financial conditions.

In operational terms, this may mean the BOJ will conduct its JGB purchases with more flexibility -- changing the frequency of the operations and the menu of its purchases, depending on market conditions.

This would help improve the functioning of the Japanese government bond market in terms of price discovery and liquidity -- increasing policy sustainability.

Eoin Treacy's view -

The question investors are likely asking is if the Bank of Japan is willing to loosen its yield curve control bands, do they believe inflation is in fact returning with sufficient vigour to initiate a trend?

One of the primary reasons for the Yen’s strength is because deflation was a surety. The supply might increase but there was no chance of inflation eroding the holding overnight. Meanwhile, the positive current account balance acted as a counterweight to the increasing money supply. If the BoJ is willing to change their perception of inflationary pressures that’s toxic for the Yen.



This section continues in the Subscriber's Area. Back to top
March 15 2021

Commentary by Eoin Treacy

Billionaire investor Mike Novogratz says bitcoin will be like a report card that measures how the government is handling

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

"Bitcoin will literally be like a report card for how citizens think the government is doing managing their finances," the Galaxy Digital CEO said on CNBC's "Squawk Box" after the cryptocurrency hit a record high above $61,000over the weekend.

Novogratz indicated that bitcoin is an inflationary hedge and a digital store of value, rather than regular money, which is why institutions, money managers, and retail investors are piling into the digital asset. If people in the US believe Fed Chair Jerome Powell and Treasury Secretary Janet Yellen can facilitate full employment for the economy while avoiding inflation, they will stop buying bitcoin, he said.

The billionaire further said there has been a "secular shift" from the mindset that bitcoin isn't an asset class, to it now becoming one. "We're in uncharted territories in how much money we're printing and bitcoin is a report card on that," he said.

Eoin Treacy's view -

Bitcoin is the ultimate risk asset. Any delusion that it would be uncorrelated with other assets evaporated as soon as institutional investors began to participate. In that respect I agree with Mike Novogratz, people buy it as a speculative asset. When money is being printed with abandon it is the asset that has increased most in value.



This section continues in the Subscriber's Area. Back to top
March 15 2021

Commentary by Eoin Treacy

Why in the World Would You Own Bonds

This article by Ray Dalio may be of interest to subscribers. Here is a section:

…History and logic show that central banks, when faced with the supply/demand imbalance situation that would lead interest rates to rise to more than is desirable in light of economic circumstances, will print the money to buy bonds and create “yield curve controls” to put a cap on bond yields and will devalue cash. That makes cash terrible to own and great to borrow. Through their powers central banks can, at least temporarily, put a lid on interest rates and keep short-term interest rates low relative to long-term rates so that it becomes profitable to buy bonds with cash, which central banks abundantly provide which makes real interest rates very negative. For example, during the 1930-45 period the Fed kept the bond yield around 2.5% and the cash yield around 1%, which made it profitable to borrow cash and use it to buy and own bonds. While that can make holding bonds financed with cash profitable at low rates, under such circumstances both the cash rate and the bond rate are bad. Naturally, because cash rates are so low it pays to borrow cash and invest it in investments that are higher-returning. Back in the 1930-45 period, the Fed was able to keep yields there, and the way they did that was also through outlawing gold and the movement of capital elsewhere. So, when I look at it, while I want to be short bonds (because they have the most terrible fundamentals), I do know that central bankers can keep cash more terrible, and I do know that they might have to prevent the movement to other storehold of wealth assets and other countries. 

Eoin Treacy's view -

There is a good reason large hedge fund managers have been buying trophy properties around the world. They wish them to be hedges against the potential for a significant devaluation in the purchasing power of their wealth. At the other extreme we have people like Elon Musk who just sold all his property (in California) because he is afraid of being taxed into oblivion. That suggests while some are betting on property as a hedge, the location in a friendly regulatory environment is likely to either make or break the trade.



This section continues in the Subscriber's Area. Back to top
March 12 2021

Commentary by Eoin Treacy

March 12 2021

Commentary by Eoin Treacy

Treasury Yields Surge to Test Key Level in Sudden Selling Bout

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

The move started in Australia, where bond futures fell heading into the market’s close to put modest pressure on Treasuries. At around the same time, there was a block sale of 10-year ultra bond futures, followed by a buyer of downside put options -- the hedging of which tends to weigh on the market. The three combined to tip 10-year Treasury futures through Thursday’s session low, which unleashed the wave of selling.

As many as 20,000 contracts changed hands in the next five minutes, the largest activity of the day. The speed and severity of the move left many traders perplexed, with volumes in the cash market comparatively modest.

The moves there were most pronounced in the benchmark 10-year tenor, with the yield curve steepening as two-year rates only rose as much as two basis points. European bonds followed Treasuries, with U.K. 10-year yields up five basis points to 0.79%.

Eoin Treacy's view -

Macro traders make money by sniffing out logical inconsistencies and pushing them until they break. George Soros and his ilk pressuring the Pound’s ERM fix is one such notable example so are the small number of traders that correctly called the demise of the subprime markets.

These kinds of contrarian bets are aided by the fact that crowds thrive on contradiction. The biggest bull markets inevitably breed the biggest contradictions because outlandish forecasts are required to justify buying at extraordinary highs.



This section continues in the Subscriber's Area. Back to top
March 12 2021

Commentary by Eoin Treacy

Platinum Quarterly

This report from the World Platinum Investment Council may be of interest to subscribers. Here is a section:

In 2020 the platinum market was in a deficit of -932 koz, the largest annual deficit on record albeit below the -1,202 koz deficit forecast in November 2020. This difference was due to Anglo American Platinum Converter Plant (ACP) Phase A being restarted in December 2020, three weeks earlier than expected. However, over the year, as a whole, lower supply due to COVID-19-related mine closures, ACP outages and reduced recycling far outweighed the pandemic-driven fall in demand from the automotive, jewellery and industrial sectors, which fall was partially offset by increased investment demand.

For 2021 the platinum market is forecast to remain in a deficit for the third consecutive year. The modest deficit of -60 koz results from a 17% increase in total supply and a 3% increase in total demand. Interestingly, total supply in 2021 will still be 3% lower than in 2019, with industrial, jewellery and automotive demand levels all above their respective levels in 2019.

Total platinum demand in 2020 was 7,738 koz, 7% (-569 koz) lower than in 2019. Automotive demand reduced by 17% (-474 koz) year-on-year, largely due to lower vehicle sales in the first half of the year, as measures to control the spread of COVID-19 resulted in vehicle factory and showroom closures. However, platinum automotive demand losses were cushioned by the impact of higher metal loadings on catalysts to meet tighter emissions regulations. Jewellery demand was similarly impacted in 2020, with volumes 13% (-279 koz) lower on a full-year basis despite quarter four demand returning to pre-pandemic levels. Industrial demand was 5% (-111 koz) lower, with strong glass sector demand largely compensating for weakness in all other industrial demand segments.

In 2020, weakness in automotive, jewellery and industrial demand was partly offset by strong investment demand, from bars and coins and ETFs, collectively up 24% (+295 koz) year-on-year. Heightened global risk drove investor demand for hard assets such as platinum during the first half of the year, further encouraged by the weak platinum price. Investment demand increased in line with the improving economic outlook in the second half of 2020 and was bolstered by NYMEX futures exchange physical metal stocks, that increased significantly to address the disconnect between the price of platinum futures and platinum. However, as the year progressed bar and coin demand moderated somewhat as the platinum price increased and stock shortages in North America were addressed. ETF holdings increased strongly over the year with growth in North America, Europe and Japan far exceeding declines in South Africa.

Eoin Treacy's view -

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

Platinum is more of an industrial metal than an investment vehicle. The demise of diesel engines resulted in a crash because catalytic converter demand evaporated.

That is exactly what happened to silver when digital cameras eroded demand for photographic film. The price of silver halved between 1989 and 1991 as the first digital cameras arrived on the market. Without that major source of demand, the price drifted in a range for more than a decade. It did not breakout until a new source of demand appeared. It broke out in 2003 as emerging market investment demand heated up and Western investors worried about financial repression in the aftermath of the tech bust.



This section continues in the Subscriber's Area. Back to top
March 12 2021

Commentary by Eoin Treacy

Tencent, Baidu Fined by Antitrust Regulator for Past Deals

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

“The message is clear that seeking government approvals in deals like these are a must.” said Ye Han, a partner at Beijing-based law firm Merits & Tree, who specializes in antitrust and M&A.

“While we haven’t seen cases where companies got broke up or mergers got unwinded, such evaluations are likely going on behind the scene.”

Didi Mobility Pte, a unit of ridehailing giant Didi Chuxing, and Japan’s SoftBank Corp. were also issued fines of 500,000 yuan each -- the maximum penalty possible -- for setting up a joint venture without permission. A ByteDance unit and its partner Shanghai Dongfang Newspaper Co. were also penalized the
same amounts for a 2019 partnership that created a video-copyright venture. ByteDance said the joint venture has since been canceled.

Technology companies like Tencent had previously carried out mega mergers and acquisitions through so-called Variable Interest Entity structures, which operate on shaky legal grounds. The new antitrust rules, accompanied by the fines handed down by the regulators, are a signal VIEs are now under
their oversight.

Eoin Treacy's view -

Being a Chinese billionaire is a dangerous profession. Wang Jian, head of HNA group, fell to his death while posing for a photo in France in 2018. Richard Lu, CEO of JD.com, was accused of rape in the USA the same year. Jack Ma fell foul of the Party late last year and disappeared from view for months. Lin Qi was murdered by a business colleague in December. In the eight years up to 2011 China executed 14 billionaires for various reasons including murder and graft.    



This section continues in the Subscriber's Area. Back to top
March 12 2021

Commentary by Eoin Treacy

Email of the day on China information sources

Sinocism by the old China hand Bill Bishop is a great Substack newsletter covering many of these developments. Flagging if other readers are interested. The Centre for Strategic and International Studies (CSIS) have via their China Power and Strategic Technologies programmes a number of great reports on Chinese semiconductor procurement, 5G security and control of rare earth supplies such as neodymium. They’re great reports!

Eoin Treacy's view -

Thank you for this note. I agree Bill Bishop is a fountain of information about China. It’s also worth mentioning that he moved home to Washington DC a few years ago because of the changing climate for independent thinkers in Beijing.



This section continues in the Subscriber's Area. Back to top
March 11 2021

Commentary by Eoin Treacy

Video commentary for March 11th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Dow Theory suggests a new bull market but short-term overbought, ECB yield curve control, Dollar weakens on stimulus passing, value opportunities in Asia rebounding, Europe STOXX 600 on cusp of breaking out. 



This section continues in the Subscriber's Area. Back to top
March 11 2021

Commentary by Eoin Treacy

Remit For The Monetary Policy Committee (MPC)

This letter and response between the UK’s Chancellor of the Exchequer and the Governor of the Bank of England may be of interest to subscribers. 

To achieve this objective, the government’s economic strategy consists of:

• operationally independent monetary policy, responsible for maintaining price stability and supporting the economy;
• a credible fiscal policy, maintaining sustainable public finances, while providing the flexibility to support the economy;
• structural reform to level up opportunity in all parts of the UK and to transition to an environmentally sustainable and resilient net zero economy, including through regulation, and an ambitious programme of investment in skills, infrastructure and innovation, in order to sustain high employment, raise productivity and improve living standards;
• maintaining a resilient, effectively regulated and competitive financial system that supports the real economy through the provision of productive finance and critical financial services, while protecting consumers, safeguarding taxpayer interests and supporting the transition to a net zero economy. 6

ACCOUNTABILITY
The Monetary Policy Committee is accountable to the government for the remit set out in this letter. The Committee’s performance and procedures will be reviewed by the Bank of England’s Court on an ongoing basis (with particular regard to ensuring the Bank is collecting proper regional and sectoral information). The Bank will be accountable to Parliament through regular reports and evidence given to the Treasury Committee. Finally, through the publication of the minutes of the Monetary Policy Committee meetings and the Monetary Policy Report, the Bank will be accountable to the public at large.   

Eoin Treacy's view -

Central banks are “operationally” independent. All that means is politicians do not get involved in their day-to-day affairs. The central bank still takes orders from politicians. When elected officials feel the “need” for change they simply announce it in the budget. Today we “need” to save the planet so it is now the central bank’s job to do that.



This section continues in the Subscriber's Area. Back to top
March 11 2021

Commentary by Eoin Treacy

Worst-Performing Asia Stock Index Turns Winner on Value Love

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

“Singapore stocks look attractive because of their relatively better valuations and high dividend yields,” said Stuart Rumble, a multi asset investment director at Fidelity International. The large share of property firms and banks also make the market “highly geared” to economic re-opening, he added.

The Straits Times Index closed up 1.2% on Tuesday to the highest in more than a year. The gauge is trading at 14.7 times 12-month forward earnings, behind most of its regional peers and the MSCI Asia Pacific Index’s 16.8 multiple, according to Bloomberg-compiled data. The Singapore gauge’s dividend yield is estimated at 3.8% for the next 12 months, higher than the regional benchmark’s 2.3%.

The export-oriented economy suffered its biggest contraction since independence last year due to the global pandemic. Now, new daily Covid-19 infections locally are hovering near zero and the government expects growth to rebound to between 4% and 6% in 2021.

The three local banks -- DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. -- that make up nearly half of the index’s weight, contributed the most to the benchmark index’s rise amid higher yields, climbing more than 10% each this year. Investors are awaiting the easing of a regulatory cap on bank dividends introduced last year.

Eoin Treacy's view -

The Singapore Dollar is a strong regional currency that does best in periods of economic growth led by Asia. The rate has been ranging between S$1.3 and S$1.45 since 2015 but that situation may now be coming to a conclusion as Asian growth ramps up following a milder contraction than the rest of the world and with a rebound fuelled by positive demographics.



This section continues in the Subscriber's Area. Back to top
March 11 2021

Commentary by Eoin Treacy

Shell Plans to Take Virtual Power Plant to the Next Level

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

Royal Dutch Shell Plc agreed to buy Next Kraftwerke, the operator of a virtual power plant that brings together clean-energy capacity across Europe to sell the electricity into the market.

Next Kraftwerke remotely connects and manages more than 10,000 off-grid units -- including solar, hydropower and bioenergy facilities -- across eight countries, the Hamburg-based company said Thursday in a statement. The deal expands Shell’s footprint in low-carbon technologies as the Anglo-Dutch oil major seeks to slash its emissions.

“The acquisition of Next Kraftwerke will accelerate Shell’s strategy to grow by adding smaller renewable assets to our portfolio,” David Wells, vice president of Shell Energy Europe, said in the statement. The terms of the deal, which is expected to complete in the second quarter of this year, were not disclosed.

Power is a key part of Shell’s ambition to become a “net-zero” company by 2050 and one of the world’s largest providers of green electricity. Shell aims to double electricity sales to 560 terawatt-hours by 2030.

Eoin Treacy's view -

European oil majors have been delivered a clear message to evolve or die. The political tide of support for green energy and decarbonisation continues to favour reduced emphasis on fossil fuels. Royal Dutch Shell is at the forefront of that regional energy transition.



This section continues in the Subscriber's Area. Back to top
March 11 2021

Commentary by Eoin Treacy

Email of the day on China and the coronavirus:

I am shocked at your remarks about China. It is not the China I know, and have seen develop over the last 40 years. A country where Harvard (Ash Center 9 July 2020) surveys found 95.5 percent of respondents were either “relatively satisfied” or “highly satisfied" with their government compared with 38% in the US.

The article from Politico is am interesting read, but does not mention that a partner of the Wuhan Institute was the US Galveston National Laboratory, of whose activities we know very little too.

Bad things happen in every country, including China and the US, but it behooves us to have a sense of proportion and get the facts both right and complete. Take one example: you mention a man in China who altered a gene to suppress HIV - he ended up in jail for breaking the rules.

I am sure you would embrace Deng Xiao Ping's instruction "find the truth through facts", and please recognize that most of the almost 1.5 billion people in China have just finished a perfecting satisfactory day!

And this from David Brown:                 

Thank you for this article and comment Eoin. On February 13 2020 I gave a presentation at my company's All Hands meeting about the viral epidemic in China. I made slides describing the evidence trail going back many years that indicated it was manufactured in the Wuhan lab. I removed those slides at the last moment as the meeting organiser gave me just 10 minutes for a 30 minute presentation - as you can imagine, the remaining content of the 1 hour meeting was trivia. Staff reaction to my presentation could be described as 'has he gone crazy!' They thought I was exaggerating. Nevertheless, I had them practice 3 days working from home, and we have not returned to the office since those days. I am sad to say that woke culture has come into the company as it has expanded over the past year with naive virtue-signalling new recruits, and I would be causing a storm if I now presented those slides showing the likely origin of the virus or showed them your comments. It's a sad world that has emerged in the past couple of years. I am glad I do not have many years to live.
 

Eoin Treacy's view -

Thank you both for these comments which are representative of the divide in perception. I might also add we all wish a mind such as David Brown’s will be with us for years to come.

No country is perfect and most have some part of their history they are embarrassed about.  However, there is the world of difference between countries with an independent judiciary and free press compared to authoritarian regimes. Freedom to discuss alternatives and to openly air grievances is the basis for western liberal society.



This section continues in the Subscriber's Area. Back to top
March 10 2021

Commentary by Eoin Treacy

Video commentary for March 10th 2021

March 10 2021

Commentary by Eoin Treacy

In 2018, Diplomats Warned of Risky Coronavirus Experiments in a Wuhan Lab. No One Listened

This article by Josh Rogen appeared in Politico and may be of interest to subscribers. Here is a section:

A little-noticed study was released in early July 2020 by a group of Chinese researchers in Beijing, including several affiliated with the Academy of Military Medical Science. These scientists said they had created a new model for studying SARS-CoV-2 by creating mice with human-like lung characteristics by using the CRISPR gene-editing technology to give the mice lung cells with the human ACE2 receptor — the cell receptor that allowed coronaviruses to so easily infect human lungs.

After consultations with experts, some U.S. officials came to believe this Beijing lab was likely conducting coronavirus experiments on mice fitted with ACE2 receptors well before the coronavirus outbreak—research they hadn’t disclosed and continued not to admit to. In its January 15 statement, the State Department alleged that although the Wuhan Institute of Virology disclosed some of its participation in gain-of-function research, it has not disclosed its work on RaTG13 and “has engaged in classified research, including laboratory animal experiments, on behalf of the Chinese military since at least 2017.” That, by itself, did not help to explain how SARS-CoV-2 originated. But it was clear that officials believed there was a lot of risky coronavirus research going on in Chinese labs that the rest of the world was simply not aware of.

“This was just a peek under a curtain of an entire galaxy of activity, including labs and military labs in Beijing and Wuhan playing around with coronaviruses in ACE2 mice in unsafe labs,” the senior administration official said. “It suggests we are getting a peek at a body of activity that isn’t understood in the West or even has precedent here.”

This pattern of deception and obfuscation, combined with the new revelations about how Chinese labs were handling dangerous coronaviruses in ways their Western counterparts didn’t know about, led some U.S. officials to become increasingly convinced that Chinese authorities were manipulating scientific information to fit their narrative. But there was so little transparency, it was impossible for the U.S. government to prove, one way or the other. “If there was a smoking gun, the CCP [Communist Party of China] buried it along with anyone who would dare speak up about it,” one U.S. official told me. “We’ll probably never be able to prove it one way or the other, which was Beijing’s goal all along.”

Back in 2017, the U.S. diplomats who had visited the lab in Wuhan had foreseen these very events, but nobody had listened and nothing had been done. “We were trying to warn that that lab was a serious danger,” one of the cable writers who had visited the lab told me. “I have to admit, I thought it would be maybe a SARS-like outbreak again. If I knew it would turn out to be the greatest pandemic in human history, I would have made a bigger stink about it.”

Eoin Treacy's view -

China is the wild west for medical research. The moral, ethical and safety considerations that slow down research in much of the developed world are ignored in China. That means if one wants to do research that would be frowned upon at home, you will find a welcome in China. The result is that all manner of experiments with new biomedical technology are taking place, often behind closed doors.



This section continues in the Subscriber's Area. Back to top
March 10 2021

Commentary by Eoin Treacy

Email of the day on solvency

I have a question. In your various videos and daily updates, you oftentimes mention that the government (80% of the time you mean the US Govt since you comment on the huge US fiscal stimulus) cannot afford higher rates and that higher yields pose a problem. Implicitly there was something like that in your opener yesterday (“We don’t have record low yields anymore. Therefore, the cost of servicing the debt will rise“).  Sometime I also read words “like “solvency” when the discussion is about higher rates, government debt and cost of servicing

My question: why should the debt for a country like the US be a solvency issue, even if yields rise to 3%? I understand that the total amount of government debt is moving towards USD 30 tn quickly. However, the US govt.  will always be able to service its debt. The US has its liabilities in USD, a currency that it controls and can print into existence anytime. It does not even need to issue debt. It can just create & spend USD. If investors go “on strike “(another expression that I sometimes read) the US can always retire its debt (YCC is by the way the first step towards redemption even if the debt sits temporarily on the balance sheet of the FED after it is purchased). Spending without new issuance of debt is btw. what the market fears now i.e., that the govt. spends the fiscal stimulus directly into the economy without issuing new debt, filling the banks with reserves and potentially causing an issue with the SLR (all of a sudden, the financial media have discovered that the SLR moratorium is expiring end of March and that the fiscal stimulus without new debt might not be so bullish …)

so, my question: why is the debt an issue for a country that issues its currency and where its debt is denominated in the same currency?  By definition a default or solvency problem is not possible. Obviously if money printing and new debt is not accompanied by an increase of the “total output / GDP / total net national worth” produced, the country will face an inflation issue. But not a default. The US is not Greece (constrained by the EUR) nor Turkey nor Argentina (constrained by debt issued in foreign currency USD and EUR) or HK (constrained by the currency peg).

Eoin Treacy's view -

Thank you for this question and for your relevant points. You are correct that countries who control their own currency and issue debt in that currency will never default in the classic sense. However, inflation and yield curve control are default by stealth.



This section continues in the Subscriber's Area. Back to top
March 10 2021

Commentary by Eoin Treacy

Special Report: Fade the Front Cover

Thanks to a subscriber for this short report from David Rosenberg. Here is a section:

There is a common refrain that “demographics is destiny.” The difference between then and now is that we had a population profile with so much more vitality in the 1920s. We started that decade with a median age of the population at 29 years — today it is 38 years. The share of the population over the age of 65 was 7% in the 1920s; today that share is on the precipice of hitting 20% for the first time in recorded history. Not to detract from retirees and their dominance, but they are savers, not spenders. When you have half the population under 30 years of age as you did in the 1920s, well, that does blaze the trail for a spending boom.

And guess what? There was capital deepening back then. Company executives were less focused on financial engineering but on improving the capital stock. So, the 1920s was renowned for a decade that saw 5% annualized growth in manufacturing productivity. We had a central bank then that seems to have understood that we can actually tolerate mild deflation as was usually the case in peacetime periods (as my old chum Gary Shilling always points out). Only today is inflation seen as a desirable outcome — because today’s central bankers are consumed with bailing out debtors and penalizing savers. But inflation erodes real purchasing power — something today’s central bankers don’t tell you.

Eoin Treacy's view -

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

If demographics is destiny then India is the place to be. Half of the population is younger than 25 so the country’s demographics are better than the USAs in the early 1920s. That young population has also aided young countries during the pandemic so they are better placed to growth as the global economy recovers.



This section continues in the Subscriber's Area. Back to top
March 09 2021

Commentary by Eoin Treacy

Video commentary for March 9th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: bond price decline pauses, risk assets rebound on stimulus and global reflation hopes. solar, wind, innovation, follow bitcoin's rebound. Dollar eases back, Asia rebounding, China lagging in the rebound so far. 



This section continues in the Subscriber's Area. Back to top
March 09 2021

Commentary by Eoin Treacy

'Reddit Raider' Favorite GameStop Soars After Latest Cohen Push

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

Monday’s rally came despite short interest being near the lowest level in at least a year. Roughly one-quarter of shares available for trading are currently sold short, according to data compiled by S3 Partners. That compares to a peak of more than 140% in January.

“Shorts will continue to be squeezed out of their positions as GameStop’s stock price continues to trend upwards,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Shorts sellers are down nearly $6 billion in year-to-date mark-to-market losses, including $609 million in Monday’s trading alone, Dusaniwsky said by email.

Eoin Treacy's view -

The rebound of reflation plays and retail investor favourites is partly a response to short-term oversold conditions. It is also because $1.9 trillion is still a lot of money, even after a decade of printing.

$1400 for individuals and each child as well as extended benefits the unemployed means many families will see bumps of several thousand dollars in the nest month.  According to this calculator a family of four with an income of $70,000 per annum would receive a payment of $5,600 or 8% of income. 



This section continues in the Subscriber's Area. Back to top
March 09 2021

Commentary by Eoin Treacy

Email of the day on whether technical analysis has predicative qualities

I’m confident that most subscribers admire your courage in publishing the uncomplimentary letter extoling the benefits of Bitcoin.  Ten years ago, an early teenage, nerd neighbour, who was a Bitcoin investor gave me and some other local adults an introduction with the promise that Bitcoin was the money of the future.  At that time, one calculated the number of Bitcoins required to buy a cup of coffee.  Its usefulness seemed apparent.  My partner was keen. My reticence won-out because I could see how easy it was to buy but I was not confident that I could get my money back. 

Today, Bitcoin is obviously not money nor a substitute for money and will never become one.  See attached article. How long it will continue to be an investible asset is also an open question. Your critic may be disappointed.  Bitcoin may be a store of value; and its liquidity has improved but there will be similar and more convenient options.  Unlike art it has no attraction other than its relatively unattractive store of value.  It is purely a speculative venture dependent upon an increasing number of bigger fools while at the same time there is a diminishing number of potential buyers. One could never say the same about gold.

You politely ignored the correspondent’s criticism of your technical analysis that remains the principal reason for my subscription. Do you believe that T.A. has predictive characteristics?

Eoin Treacy's view -

Thank you for the associated article and your kind words. The best way to think about bitcoin or the other cryptocurrencies is as venture capital. Whatever portion of your portfolio you would normally devote to “make or break” opportunities, where you are willing to lose everything that is what you should think about investing in cryptocurrencies. That also fits the technical definition of gambling. The idiosyncrasy of the sector is that they are open to retail investors. Most venture deals, in the technology sector for example, are only available to much wealthier individuals.



This section continues in the Subscriber's Area. Back to top
March 09 2021

Commentary by Eoin Treacy

Email of the day on oil prices

Oil price is in the news and as a holder of a leveraged position I was very happy with the price spike. Here's an article that is arguing it's a sellers’ market, will remain so, and that shale production will not drive prices back down. What are your thoughts.

Eoin Treacy's view -

Thank you for this article. Here is a section: 

The big players are consolidating the shale field now. And if you think that they want to pump barrels of oil at a loss, then you’ve got another think coming. They don’t have to do that. And once the land grab ends and the conservation of capital game begins, suddenly everyone is Opec.

The shale guys would be quite happy to see oil sustainably higher than it is now, especially given that competition within that area is now calming down. Everyone can make a profit as long as no one gets too greedy. That’s not going to upset them.

On top of that, Saudi Arabia has US president Joe Biden backing its hunches on this one. The president’s focus on “green” policies could make it tougher to develop shale fields and so it’ll be tougher to expand supply and so prices will go up. It’s another illustration of how regulation very often is exactly what any big incumbent player in a market wants. It keeps the competition at bay.

​The low return on invested capital has been a major challenge for the oil and gas sector over the last few years. Unconventional supply is extremely capital intensive. With prices below $60 large portions of the market are not economically viable. That reality led to the lower for longer mantra gaining traction. The lack of additional investment created the conditions for the current rebound and the massive decline in drilling during the pandemic exaggerated the effect.



This section continues in the Subscriber's Area. Back to top
March 08 2021

Commentary by Eoin Treacy

Video commentary for March 8th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Renminbi breaks down, Euro tests MA, Brazilian Real breaking down, DAX breaks out, Nasdaq leads on the downside because of interest rate sensitivity, bonds yields remains high, commodities weak, 



This section continues in the Subscriber's Area. Back to top
March 08 2021

Commentary by Eoin Treacy

Email of the on my ignorance from a bitcoin Holdr

I suggest though that you ignore Eoin Treacy on matters relating to Bitcoin and Cryptocurrency as he clearly has no idea what he is talking about. This became obvious to me the more of his videos that you have sent to me.

He talks about Bitcoin as if it a stock or currency and clearly doesn't understand the real value proposition here and why it actually has value. This is very obvious when he says things like you can hold gold in your hand but you can't hold Bitcoin..  This is completely ignorant of what Bitcoin is and how it works, yes it is digital but because of the encryption and the way the system works with mining/proof of work, each Bitcoin is a unique piece of information so when you have a key to a wallet it's just like you have the key to something physical. No one has access to it except you and it cannot be copied or duplicated or stolen or anything in any way, Eoin seems to misunderstand this, he is also forgetting that most gold in the world is not held in your hand it's stored in a vault somewhere subject to seizure or it's a digital representation of gold not the actual underlying that you can hold.

He then continues this faulty thinking and misunderstanding by concluding with completely ludicrous fear mongering ideas like what if the power grid goes down it will destroy a lot of Bitcoins.  No, it won't you ignorant buffoon, first there is no way to "destroy Bitcoins" they are stored in the Blockchain and never leave it, that is all they do and were meant to do, store value and move around. You could lose access to your coins by losing the keys but technically the coins are still there sitting securely in your wallet it would be entirely your fault for losing your keys. In the situation of the power going down the Bitcoin network would continue running in other countries and then it would catch up when the power comes back on, nothing would be lost except the mining revenue of the miners who had no power.

If there was a worldwide situation like what he mentions an EMP or a Solar flare then we would have much bigger problems then Bitcoin going down. It would take down all communications all banking services all vehicles all important infrastructure like water cleaning and pumping etc, anything electronic which in the modern world is practically everything, it would be chaos. But yea it would get Bitcoin! so don't risk any money on it!  It actually wouldn't as if everyone lost power at the same time all miners would go offline and then as power was slowly restored worldwide miners would rush to go back mining since the network would have ground to a halt, there would be easy money to be made mining without competition for as long as you can. The network would be back online and functioning properly in a matter of hours after the internet is back on and if someone like a bank or government tried to deliberately mess with the blockchain while most miners etc are offline then when the rest of the world comes back online, we would immediately backdate to the last known block before the power down and discount the manipulation that occurred while everyone was offline.

Eoin’s technical analysis style is odd as well as I said before he seems to think Bitcoin is a stock or trades like a stock, his technical analysis is basically, look at this moving average we may go down and hit it or we may not. It is useless and cannot predict what is going to happen to prices. In fact, I believe nearly all standard indicators are useless as they are all lagging behind price, the only way to get an edge in technical analysis in my opinion is to use PA, price action methods.

He's also forgetting (or doesn't know) the fact that Bitcoin is even harder money than gold because of the mathematical hard cap on total amount of coins and that it's also a naturally deflationary asset as coins get lost or go out of circulation over time. Gold is still inflationary as more is mined every day and we have no idea how much actually exists on earth or on asteroids etc. Taking this in mind we shouldn't be surprised to see Bitcoin going higher and higher every cycle, how could it not? especially considering the current macro environment of unlimited QE and worldwide uncertainty.

Anyway, there's my rant for this week,

Eoin Treacy's view -

I was not smart enough to buy bitcoin when I first heard about it in 2013. There is no getting around that fact. Even if I did buy at $100, I am too much of a sceptic to have held all this time; particularly during the 90% drawdowns. Anyone who has held through these traumas is unlikely to ever sell. That’s why supply is so concentrated in the hands of a very small number of players despite the international hoopla about bitcoin.

I would point out though that I have traded cryptocurrencies successfully over the years. In fact, I’ve never lost money trading crypto, which is a testament to just how big the bull market is. However, just because it is a big bull does not mean it has been divorced from crowd psychology. In fact, that means it is more tightly intertwined with the emotions and actions of the crowd. Afterall it is still people buying bitcoin and the other cryptocurrencies.



This section continues in the Subscriber's Area. Back to top
March 08 2021

Commentary by Eoin Treacy

Email of the day on Non Fungible Tokens (NFTs):

Are you going to add NFTs to your coverage(half-joking)?

Eoin Treacy's view -

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

The Twitter CEO shared a link Friday afternoon to a platform called “Valuables,” where his March 21, 2006 tweet “just setting up my twttr” was up for bidding. The highest offer is from Sina Estavi, CEO of Bridge Oracle, for $2.5 million as of Saturday afternoon, according to the website.

Ownership of these assets is recorded on a blockchain — a digital ledger similar to the networks that underpin bitcoin and other cryptocurrencies. However, unlike most currencies, a person canʼt exchange one NFT for another as they would with dollars or other assets. Each NFT is unique and acts as a collectorʼs item that canʼt be duplicated, making them rare by design.

Crypto collectibles have exploded in popularity lately, with anyone from artists to rock bands minting their content. A digital rendition of the Nyan Cat meme from 2011, for example, sold for nearly $600,000 in an online auction last month.

Some people who are buying NFTs believe it can help them prove ownership of a virtual item thanks to blockchain.

Dorsey has also been an advocate of digital currencies, displaying ”#bitcoin” in his Twitter bio, so jumping into NFTs seems to be a natural extension. His digital payments company Square also purchased approximately 3,318 bitcoins in late February, expanding on its October 2020 buy of 4,709.

A friend of mine was exploring the sector ahead of the pandemic. He morphed into an art consultant by happenstance and began offering consultancy on how to create fractional ownership as a way of raising money for art collectors and museums. Creating a liquid market for illiquid assets is a significant innovation which will thrive as long as M2 is accelerating higher.



This section continues in the Subscriber's Area. Back to top
March 08 2021

Commentary by Eoin Treacy

Email of the day - on gold ETF holdings

On gold, I notice there is now significant weakness in the chart for Total known holdings of gold ETF. Will we need to see this stabilize and turn up before any rise is likely in spot gold prices?

Eoin Treacy's view -

There is undoubtedly some liquidation of gold longs going on at present as investors price in the potential for outsized swift economic recovery. That’s also the main rationale for selling bonds since there is less need for a safe haven.



This section continues in the Subscriber's Area. Back to top
March 08 2021

Commentary by Eoin Treacy

From Spotify to Hello Fresh: lockdown Brits give subscription economy an adrenaline boost

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

Hamish Grierson, chief executive of Thriva, a home blood-testing company that helps users monitor their health, said founders were now eyeing subscription models instead of the Facebook approach of chasing huge growth with no immediate revenue stream. He said the “growth at all costs” model worked for only a handful of companies and meant that most failed.

“As a consequence of that, there is a little bit more sympathy for more pragmatic, more resilient business models — and subscription tends to be a good version of that story,” Grierson added.

Investors want a piece of the action, too. Last week, Deliveroo, which charges £11.49 a month for free deliveries of restaurant meals, confirmed plans to float in London.

Thematics Asset Management launched its Subscription Economy Fund in 2019 to let investors cash in on the trend. The first of its kind, the $230 million (£165 million) fund is invested in about 50 companies with subscription models. It is up 50 per cent already.

Nolan Hoffmeyer, who runs the fund, said: “Last spring, when many companies didn’t have visibility over the next 30 days, subscription-based companies still had a lot of visibility over the next 12 months [because of recurring revenues]. They’ve been able to continue to invest and innovate. It’s a competitive advantage.”

Eoin Treacy's view -

Having the ability to predict revenue growth over a 12-month horizon is a particular benefit where interest rates are low and asset prices are high. That visibility commands a higher valuation because cashflows are so easily modellable. In other words, these kinds of companies can carry more leverage because they have less risk on the revenue side.



This section continues in the Subscriber's Area. Back to top
March 05 2021

Commentary by Eoin Treacy

March 05 2021

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review March 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The rollout of vaccines to COVID-19 continues to accelerate and that will continue through the balance of the year and 2022. There is encouraging news about the number of different vaccines which have been approved and their success against variants. By the end of the year, the world will be inundated with doses which will provide at least some protection from the virus for anyone who wants it. That’s all the rationale any government needs for reopening the economy.

On Valentine’s Day 2020 Mrs Treacy and I went out for dinner with another couple. We talked about the news of a virus threat from China and how it could potentially cause ructions further afield. We told them we had stocked up on rice, meat, protein bars and batteries just in case. They thought we were crazy crackpots jumping at shadows.

It was hard to imagine then just how disruptive the decision to lockdown was going to be. A similar condition exists today. After a year of being confined to our immediate vicinity it is tempting to think this is how it will always be. The reality, however, is we are going to see a surge back to normalcy much quicker than most believe possible.

Humans are social animals and we yearn for social contact. We’ve been starved of that basic need for a year and we’ll overdose on it when we are able. That suggests we are looking at a boom in consumer activity over the coming couple of years.



This section continues in the Subscriber's Area. Back to top
March 04 2021

Commentary by Eoin Treacy

Video commentary for March 4th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Fed not yet ready to provide additional assistance so yields bumped back up, tech/innovation stocks pulled back, oil firm on OPEC supply control, gold weak on stronger Dollar. bitcoin eases back



This section continues in the Subscriber's Area. Back to top
March 04 2021

Commentary by Eoin Treacy

Macro Digest: Don't put all your eggs in the yield curve control basket just yet

Thanks to a subscriber for this note by Steen Jakobsen for Saxo Bank. Here is a section:

3. The Fed wants the yield curve to steepen – it is better for credit provision and banks, who borrow short and lend long, and most of the funding for the US government happens is done at 0-3 years, the most important part of the yield curve. The 10-year plus long end is not a major concern as long as the short-end is anchored

4. Chaos at the short-end of the yield curve. The running down of the Treasury’s funds held at the Fed (built up to more than $1.6 trillion during the pandemic emergency) has created dysfunction in the repo market and at the very shortest end of the US yield curve, where rates have dipped below zero at times for the repo. The fault for this lies with the inexperienced New York Fed President Williams, who needs to be replaced. Some believe that the situation can be addressed with a new “Operation Twist” in which the Fed sells some of its shorter maturity holdings to buy at the longer end. But this does the exact same thing as YCC and would set a precedent the Fed won’t want to set. Another fix, a raising of the bank deposit limit would also have two major consequences: the Congress don’t want to "weaken" banks’ balance sheets, and why would Jamie Dimon and other bank CEOs want to be burdened with more US debt if the Fed is going to cap the yields on that debt?

Yes, the troubles in the plumbing at the short-end of the yield curve will trigger some sort of Fed action, but expect a very technical support for the short-end that raises liquidity and the shortest rates away from zero.

If the Fed were to do yield-curve-control YCC, it will be further down the road and likely not extend beyond the 3-year treasury rate, as opposed to market expectations of up to 10Y. The Fed may support the fiscal handover at the margin when we have yet to get to the other side of vaccinations and with unemployment and underemployment at current levels, but they will not entirely throw in the towel on allowing the market the ability to reign in overspending governments.

Of course, one wonders if it is already far too late for the Fed to think this way – given where US budget deficits are headed and the needed treasury issuance to cover those deficits, but at least we need to acknowledge the modus operandi of the Fed.

Eoin Treacy's view -

Economic data is probably going to be loopy for at least another six months. The massive one-time economic contraction in global economic activity has skewed all manner of economic comparisons with past cycles.

Negative oil prices, surging savings and outsized wage growth amid record high unemployment tell us little more than there was a big shock to the system. In five years, these will look like data aberrations, but today we are creeping up on when year over year comparisons will be most affected. Making bold predictions about the output gap or economic potential against that background is fraught with risk. I prefer instead to focus on objective facts.



This section continues in the Subscriber's Area. Back to top
March 04 2021

Commentary by Eoin Treacy

OPEC+ Keeps Tight Squeeze on Output, Sending Prices Soaring

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

restraints. It leaves the world facing a significant supply squeeze, higher energy costs and the risk of inflation, just as widespread vaccination allows economies to start emerging from the downturn caused by the pandemic.

“OPEC+ definitely risks over-tightening the oil market,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.

Brent has already rallied almost 30% this year to above $67 a barrel as OPEC+ kept production below demand in order to drain the glut that built up during the worst of the Covid-19 lockdowns. Without additional supply, that deficit will widen significantly in April, according to the cartel’s internal estimates.

Eoin Treacy's view -

The oil price has been rebounding in part because of a renewed demand outlook as the global economy reflates and also because supply growth has been both intentionally and unintentionally constrained.

The brief but traumatic trip below zero last year was a catalyst for OPEC members to be more amenable to supply discipline. They want to ensure prices stay at economic levels and that means somewhere in the region of $60 to $80.



This section continues in the Subscriber's Area. Back to top
March 03 2021

Commentary by Eoin Treacy

March 03 2021

Commentary by Eoin Treacy

Sunak Offers U.K. Companies Way to Cut Tax Bill in Next 2 Years

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

Chancellor of the Exchequer Rishi Sunak says the U.K. will introduce a new “super deduction” to reduce tax bills for investments in the next two years.

Sunak speaks in Parliament: “For the next two years, when companies invest, they can reduce their tax bill, not just by a proportion of the cost of that investment, as they do now or even by 100% of the cost, the so-called full expensing some have called for. With the Super Deduction they can now reduce their tax bill by 130% of the cost”

Sunak gives example: “Under the existing rules, a construction firm buying £10m of new equipment could reduce their taxable income, in the year they invest, by £2.6m. With the Super Deduction, they can now reduce it by £13 million”

Eoin Treacy's view -

This measure is designed to motivate companies to invest in new plant and machinery. It will create a significant boost to consumption over the next year by pulling forward any such investment from the future. It’s one of a range of measures in today’s budget aimed at promoting economic growth even as the government look at what will be required to deal with the massive rise in debt resulting from the pandemic.



This section continues in the Subscriber's Area. Back to top
March 03 2021

Commentary by Eoin Treacy

Gold ETF Exodus Quickens in Ominous Sign for Faltering Metal

This article by Yvonne Yue Li and Eddie Spence for Bloomberg may be of interest to subscribers. Here is a section: 

Gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs,” Carsten Fritsch, an analyst at Commerzbank AG, said in a note. “A shift in sentiment among investors would be needed for gold to free itself from its extremely difficult predicament.”

Federal Reserve officials slated to speak this week may give more insight into the economic outlook and how the central bank might respond to the recent tumult in bond markets. Higher yields dim the appeal of the non-interest-bearing metal.

“Gold remains vulnerable to a further tightening from real rates,” TD Securities analysts led by Bart Melek said in a note.

Eoin Treacy's view -

Sentiment towards gold is rapidly deteriorating as the pace of the decline from the August peak picks up. The trend of gold holdings in ETFs is also now below its trend mean as investors migrate away from the yellow metal in favour of better performing assets. The big question for investors is whether this is a temporary or major correction.



This section continues in the Subscriber's Area. Back to top
March 03 2021

Commentary by Eoin Treacy

March 03 2021

Commentary by Eoin Treacy

Bitcoin ETF Competition Heats Up as Crypto Trust Eyes Conversion

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

Less than a month after the first Bitcoin exchange-traded fund debuted in Canada, a Toronto-based asset manager is looking to convert its cryptocurrency trust to the format.

Ninepoint Partners LP plans to ask holders of its $266 million (C$335 million) Bitcoin Trust (BITC.U) to approve its conversion from a closed-end investment fund into an ETF, according to a statement Wednesday. The firm, which manages $9 billion in assets, cited increased liquidity and a better price to the fund’s net asset value as reasons for the change.

Discounts and premiums to the net-asset value are common among such crypto trust because unlike ETFs, new shares can’t be quickly created. The BITC.U fund was trading at a 9.13% discount
to its NAV on Tuesday.

The meeting to approve the conversion will take place April 19 and all costs of the conversion will be covered by the firm, the release said

Eoin Treacy's view -

In March 2017 there was a lot of discussion about the creation of a bitcoin ETF. The Winklevoss twins in particular were at the forefront of attempts to launch one. Those efforts failed because the market was not sufficiently well understood or supported by institutions and because cryptocurrencies are completely unregulated. 



This section continues in the Subscriber's Area. Back to top
March 03 2021

Commentary by Eoin Treacy

March 02 2021

Commentary by Eoin Treacy