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October 20 2021

Commentary by Eoin Treacy

China's Falling Home Prices Cast Another Shadow Over Economy

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

There are “individual problems” in the real estate market, but the risks are controllable overall, Vice Premier Liu He said at the same event, according to the official Xinhua News Agency. Reasonable funding needs in the sector are being met, Liu was quoted as saying.

Some analysts expect the current real estate slump to be less harsh than previous ones because inventories remain relatively small. Developers have been more rational about building projects in coastal cities where demand is higher, said Chen Long, a partner at Beijing-based consultancy Plenum.

“The relatively low stock of unsold housing limits the risk of a major downturn,” Oxford Economics said in a note on Wednesday. “We think the most likely scenario is a contained short-term downturn.”

Still, any recovery will be difficult until home values resume rising. 

“If property prices stop growing, we won’t buy,” said Jack, a tech worker in Shenzhen who didn’t want to be identified by his surname for fear of reprisals from his company. “Right now, I’ll sit and watch.”

Eoin Treacy's view -

The Federal Reserve is sensitive to equity prices because it is the most favoured asset class of US citizens. For the same reason the ECB is more concerned with bond prices than other asset classes. In China the vast majority of savers have some exposure to property prices so it is reasonable to ask how much pain can the government tolerate before they bend to market pressure?



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October 20 2021

Commentary by Eoin Treacy

Apple's iPhone Partner Foxconn Unveils First Electric Vehicles

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

Foxconn is among the technology companies targeting EVs as a source of growth beyond low-margin electronics assembly. The Ohio deal is a boon for Foxconn, giving it assembly capacity, equipment and talent, Citigroup analyst Carrie Liu wrote in a recent note. The company is close to deciding the location for a car plant in Europe, Liu said.

The Apple car would be the ultimate prize for every aspiring EV manufacturer. Working in Foxconn’s favor is its strong relationship with the U.S. consumer-electronics giant. The years-long partnership has expanded as Apple has added product categories, and the company now accounts for about 50% of Foxconn’s annual sales.

Any Apple automobile is still years away and the company has suffered setbacks including the recent departure of the head of its car project to Ford Motor Co. An Apple car has for years been somewhat of a paradox -- it’s one of its most hotly anticipated products yet the company has publicly said almost nothing about it.

Foxconn has yet to start sales of any vehicle following the debut of its EV platform last year. It plans to start mass production of Lordstown’s Endurance electric pickup in Ohio in April, according to a person familiar with its schedule.

Eoin Treacy's view -

Even if Apple is not going to produce a car, we are in a new era for the automotive sector. The evolution of the battery drive fuel cycle has lowered the barrier to entry and enables third manufacturing business models.



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October 19 2021

Commentary by Eoin Treacy

Video commentary for October 19th 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 continues to rebound, Facebook finds support on the metaverse, Chinese tech extends rebound, commodity currencies extend rebound, Indonesia and Mexico lead emerging markets higher, gold eases back from intraday peak, oil firm, natural gas weak. 



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October 19 2021

Commentary by Eoin Treacy

Grayscale Files to Turn Biggest Bitcoin Fund Into an ETF

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

“We are of the firm belief that because the futures and the spot pricing for Bitcoin are inextricably tied, that we have the willingness to allow or clear the way for a Bitcoin futures ETF in the market, and also clear the way for a spot ETF,”

Sonnenshein said in an interview. GBTC currently holds roughly 3.4% of the world’s supply of Bitcoin, according to Grayscale.  The conversion would likely solve a persistent problem for Grayscale: the trust’s discount to net asset value. The product’s price has traded below its underlying Bitcoin holdings for a prolonged period because shares in the vehicle can’t be destroyed in the same way as they can in an ETF. But it could also be seen as a way to sidestep obsolescence, with the advent of Bitcoin ETFs threatening to draw assets away from a product that investors have tolerated due to the lack of an alternative.

Eoin Treacy's view -

Commodity investors are more than familiar with the difficulties presented by investing in futures over the long term. The predictable roll schedule of the US Oil fund, and the trading environment that embedded a contango more often than not, ensured the fund seldom delivered on its promise to track the oil price.



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October 19 2021

Commentary by Eoin Treacy

Disruptive Innovations VIII

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

Eoin Treacy's view -

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

The metaverse has become the new buzz word for the tech sector so it is worth considering what it in fact means for commerce and social interactions. The lure of the sector is it creates a middle ground where the world of the physical interacts with the online world. Therefore, you can have a digital avatar like one would have in a game but you can also make purchases of both physical and digital items.



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October 19 2021

Commentary by Eoin Treacy

Quarterly Global Outlook 4Q 2021

Thanks to a subscriber for this report from UOB 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. 

Every country had to break the piggy bank to deal with the pandemic. That helped to boost economic activity and demand for just about everything over the last 18 months. Going back to less profligate ways will be a challenge everywhere, but emerging markets have the benefit of growth to ease the challenge. They also have more recent experience of doing what is necessary to combat inflation which should be a useful skillset going forwards.



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October 18 2021

Commentary by Eoin Treacy

Video commentary for October 18th 2021

Eoin Treacy's view -

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

Some of the topics covered include: inflationary pressures pushing up interest rates, that puts pressure on floating rate mortgages, bitcoin futures in contango will weigh on futures fund, oil remains in backwardation, natural gas pulls back, gold steady, 



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October 18 2021

Commentary by Eoin Treacy

New Zealand Inflation Surges to Fastest Pace in 10 Years

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

The Reserve Bank of New Zealand (RBNZ), which seeks to keep inflation around the midpoint of a 1 per cent to 3 per cent target band, raised its official cash rate on Oct 6 and signalled more increases are coming. That is despite a coronavirus outbreak that has kept largest city Auckland in lockdown for two months, curbing economic growth.

"We can now see annual CPI (consumer price index) inflation exceeding 5 per cent by the end of this year," said Mr Mark Smith, senior economist at ASB Bank in Auckland. "The widespread nature of price increases seen today was not a comforting sign. If it were not for the Delta variant outbreak, the pace of OCR (official cash rate) hikes being implemented by the RBNZ would potentially be quicker than 25 basis point increments."

Investors ratcheted up bets on further RBNZ rate hikes. Another increase is now fully priced in for the Nov 24 policy decision and there is a chance the bank will deliver a 50-point move, swaps data shows.

Eoin Treacy's view -

- I received this account from a New Zealand-based subscriber last week which may be of interest:

I hope life is going well for you and your family in your new abode.

Life is very good on a personal level although we are sad at our present inability to visit our son and his family in Portugal. They moved from the UK to the Algarve in early 2019 just before Covid hit. Luckily, we have a daughter and her family here and we are helping them to build a new house next door to ours.

Auckland is struggling with an outbreak of Delta but, so far, the rest of the country is Covid-free, as we have been all the way through.  There is a big race to get 90%+ of the nation fully vaccinated before Christmas. That looks achievable and we all hope we won't stumble at the last hurdle. NZ has coped with the pandemic very well to date but Delta is a tricky challenge.

The economy has surprised everyone with its strength, even through lockdown periods.  Our government debt levels were low by world standards going into the pandemic (thanks to years of sound economic management by successive administrations) and even with the generous support measures over the past 18 months, net Government debt is still only around 30% of GDP.  Apart from tourism and some parts of hospitality, businesses are thriving, with the recent tax- take far above expectations.

As in many countries, Covid has highlighted the wealth disparities in our society, exacerbated by the recent house price boom.  The disadvantaged communities (Maori and Pacific Islanders in our case) are at greatest risk of severe Covid with unlucky genetics, poor housing and little financial flexibility.  Lockdowns have shown the absurdity that most of the truly essential workers in societies are often also the lowest paid and least appreciated.  The social fabric is a precious, fragile thing and history shows that prolonged injustice and disparity will sooner or later cause it to rend. 

As the fortunate son of Estonian WW2 refugees from totalitarianism, it troubles me that surveys all over the Western world show younger people losing faith in democracy and market economies and, unfortunately, it's not hard to see why in many places today.

I want to thank you for the great job you are doing in taking over from the late, great David.  As a long-time subscriber (and Chart Seminar attendee), I can't think of a year where your service hasn't helped me make up my subscription several times over.

Thank you for this generous email. New Zealand has fared better than most during the pandemic and not least because demand for its primary exports has sustained the economy despite the challenges of losing tourist revenue.

I totally agree on the challenge of young people losing faith in free markets and democracy. Unfortunately, they have grown up in an environment where markets have not been free and where democracy has been overridden by special interest groups (both public and private) and much of what passes for legislation is the product of focus groups.



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October 18 2021

Commentary by Eoin Treacy

Email of the day on UK renewable energy listings

It seems difficult to buy many of the ETFs you mention in the UK. For instance, FAN and TAN. Is there a copper mines ETF that a UK investor can buy?

Eoin Treacy's view -

Thank you for this email which may be of interest to the Collective. The UK equivalent of the Invesco Solar ETF (TAN) is the Invesco Solar UCITS ETF (ISUN). Unfortunately, it is illiquid with only $2.25 million under management.



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October 18 2021

Commentary by Eoin Treacy

Radiant aims to replace diesel generators with small nuclear reactors

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

Radiant says its fuel "does not melt down, and withstands higher temperatures when compared to traditional nuclear fuels." Using helium as the coolant "greatly reduces corrosion, boiling and contamination risks," and the company says it's received provisional patents for ideas it's developed around refueling the reactors and efficiently transporting heat out of the reactor core.

Radiant joins a number of companies now working on compact nuclear reactors, and a smaller number focusing specifically on portable units, which would include the floating barges proposed for mass-manufacture by Seaborg. It'll be a while before we see one up and running, but a clean, convenient, low-cost, long-life alternative to diesel generators would be very welcome.

Eoin Treacy's view -

The evolution of small modular reactors and the increasing volume of space traffic point towards secular growth trends for helium. The terminal decline of helium supply from North America’s major source of production in Amarillo Texas was highlighted in 2018 as a major supply bottleneck. It had the potential to be a major supply inelasticity trend, as new sources of demand emerged. With so much enthusiasm about nuclear reactors in the market today, I thought it might be worth revisiting.  



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October 15 2021

Commentary by Eoin Treacy

October 15 2021

Commentary by Eoin Treacy

China Breaks Silence on Evergrande, Says Risks Controllable

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

Zou also said:

China’s government has insisted that property not be used as a short-term stimulus for the economy
Cities have seen an excessive surge in property prices, which mortgage restrictions helped to curtail
Property investment has slumped recently after some developers faced credit problems, but this is a normal market phenomenon
Some banks have misunderstood macroprudential policies regarding the property sector.

“This is the strongest signal yet that authorities won’t come to the rescue of creditors of Evergrande and other developers,” said Travis Lundy, a special situations analyst who publishes on Smartkarma. They are sticking to the stance that there won’t be any property-boosting measures, aside from small steps such as faster home-loan processing and efforts to alleviate mortgage limits at banks, he added. 

Financial regulators have told some major banks to accelerate approval of mortgages in the last quarter, Bloomberg reported earlier Friday. Lenders were also permitted to apply to sell securities backed by residential mortgages to free up loan quotas, easing a ban imposed early this year, according to people familiar with the matter.

Eoin Treacy's view -

It’s ironic that when China talks about market principles it means they are no longer willing to bailout failed ventures but are more than willing to curtail growth in successful ones; that do not gel with policy. The number of defaults has been trending higher since they were allowed a few years ago, and will surge this year.



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October 15 2021

Commentary by Eoin Treacy

Rising Rents Are Fueling Inflation, Posing Trouble for the Fed

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

“Many participants pointed out that the owners’ equivalent rent component of price indexes should be monitored carefully, as rising home prices could lead to upward pressure on rents,” minutes from the Fed’s September meeting, released Wednesday, said.

Rent is less critical to the Fed’s preferred inflation gauge, the one it officially targets when it shoots for 2 percent annual inflation on average, than it is to the C.P.I. But it is a big part of people’s experience with prices, so it could help shape their expectations about future cost increases.

Those expectations matter a lot to the Fed. If consumers come to anticipate faster inflation, they may begin to demand higher wages to cover their rising expenses. As businesses lift prices to cover rising costs, they could set off an upward spiral. Already, some key measures of inflation outlooks — notably the New York Fed’s Survey of Consumer Expectations — have jumped higher.

The Fed is already preparing to start slowing the large bond purchases it has been making during the pandemic to keep longer-term interest rates low and money flowing around the economy. If inflation stays high, the Fed may also come under pressure to raise its policy interest rate, its more traditional and more powerful tool. That might slow mortgage lending, cool the housing market and weigh down inflation.

But doing that would come at a big cost, slowing the labor market when there are 5 million fewer jobs than before the pandemic. So for now, Fed officials are getting themselves into a position where they can be nimble without signaling that they’re poised to raise rates.

Eoin Treacy's view -

David Ricardo’s Iron Law of Wages dictates that the prevailing base rate will be enough for people to scrape by.  Since the cost of everyday items people spend money on to survive keeps rising, there is only one way for wages to go.



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October 15 2021

Commentary by Eoin Treacy

Fertilizer Woes Paint Bleak Outlook for the Pantry

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

Fertilizer plant shutdowns in the U.K. highlighted how critical the situation is, because it cut off supplies of carbon dioxide, a byproduct that’s needed for everything from slaughtering animals to packaging food. A deal was struck this week to maintain output in the coming months, averting more chaos for the sector.

The risk is that it’s just a quick fix. The owner of the British plants, CF Industries, said that CO2 users need to look for new sources of supply. An industry group also warned that temporary fertilizer-plant closures in Europe could become permanent.

It’s a worrying sign for future harvests a time when global food prices are at a 10-year high. There are concerns that farmers in France, the European Union’s top wheat grower, may find it hard to source fertilizers next spring, regardless of the price.

In Brazil, where a lot of farmers haven’t secured their fertilizer needs or locked in prices yet, worries of non-delivery are increasing. President Jair Bolsonaro has said the nation faces the risk of fertilizer shortfalls next year due to falling Chinese output in the wake of high energy costs.

Eoin Treacy's view -

Substituting coal for natural gas is the most common-sense solution to reduces carbon emissions. Unfortunately, that is not nearly ambitious enough to satisfy the demands of carbon fanatics. The result is there is resistance to increases supply from any and all sources. That’s putting pressure on fertiliser, carbon dioxide, heating and transportation costs.



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October 14 2021

Commentary by Eoin Treacy

Video commentary for October 14th 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: bonds unwind short-term oversold condition; spurring a return to risk-on, oil, gold, silver, copper firm, stock markets rebound, emerging asia rebounds except China, India leading, hydrogen plays rebound



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October 14 2021

Commentary by Eoin Treacy

Modi Says India Can't Afford to Go Slow on New Infrastructure

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

“Every department makes its own plans and typically the left hand doesn’t know what the right is doing,” Modi said, citing the example of how new roads were laid only to be dug up later by the water pipes or the telecom department. “These silos result in wastage of budgetary resources and India can no longer afford these bottlenecks,” he said.

The initiative comes as India targets spending $1.5 trillion in roads, railways, ports and gas pipelines, which are key for attracting investments and creating jobs in Asia’s third-largest economy as it recovers from a pandemic-induced downturn.

The master plan aims to nearly double the network of highways to over 200,000 kilometers and the number of airports to 220 by March 2025, and double the length of gas pipelines to 34,500 km, among others, during that period.

The International Monetary Fund sees India’s gross domestic product expanding 9.5% in the year to March after contracting 7.3% last year. While the forecast is for the economy to grow 8.5% next year, the outlook depends on the nation’s ability to create jobs and boost consumption, which accounts for some 60% of GDP. For that, India needs investments and infrastructure to attract businesses.

Eoin Treacy's view -

More than any other factor, investors have been demanding India build more infrastructure. That was true twenty years ago and it is still true today. The difference now is that the administration has a demographic imperative pushing for reform. The only way India will grow in a cohesive manner is to deliver better standards of living for its hundreds of millions of young people.



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October 14 2021

Commentary by Eoin Treacy

BOE Says Crypto Now Bigger Than Subprime Debt That Led to Crash

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

The crypto-currency market is double the size of the sub-prime debt in the U.S. on the eve of the financial crisis and poses a threat unless urgently regulated, the Bank of England said.

Crypto assets are now worth $2.3 trillion, about 200% more than at the start of the year. While that’s still a small part of the $250 trillion global financial system, it’s about twice the size of the $1.2 trillion sub-prime real estate debt market in 2008.

“You don’t have to account for a large proportion of the financial sector to trigger financial stability problems,” BOE Deputy Governor Jon Cunliffe said in a speech on Wednesday.

“When something in the financial system is growing very fast, and growing in largely unregulated space, financial stability authorities have to sit up and take notice.”

And

About 2.3 million adults in the U.K. alone hold crypto assets, a survey by the Financial Conduct Authority showed. Cunliffe said more people see those assets as an alternative to mainstream investments instead of a gamble, and about half intend to invest more. 

Eoin Treacy's view -

The vast majority of crypto wallets are open for investment/ trading purposes. Buying one crypto to enable trading in others does not contribute to the proliferation of real-world applications. Volume based on that activity is largely irrelevant to the wider world. On the other hand, borrowing against crypto holdings, leveraging up on investments based off crypto holdings and securitising physical assets using cryptos do have real-world applications.



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October 14 2021

Commentary by Eoin Treacy

Musings from the Oil Patch October 12th

Thanks to a subscriber for this report from Allen Brooks at PPHB which may be of interest. Here is a section on wind patterns:

The authors of the paper drew this key conclusion from their research.
The downward trend observed in the windiness indices for the period 1990 to 2005 is also reflected in the North Atlantic Oscillation, Grosswetterlagen and Jenkinson Lamb data. However, these proxies for wind speed indicate that there was an upward ‘blip’ in wind speeds centered on the early 1990s, which suggests that this recent downward trend in mean annual wind speed may represent a return to the longer-term mean. It is therefore concluded that a continued ramp down of future wind speeds should not be assumed. This is also supported by the increase in annual wind speeds in recent years as displayed in Figure 1 (our Exhibit 18, page 20).

It is important to note that this paper was published at a time when there were concerns about a continuation of the declining wind performance, especially as European governments were pushing utilities to embark on a massive buildout of wind generating capacity. The authors offer the conclusion that the post-2003 wind performance was a return to the long-term average wind speed and an end to the relentless decline of prior years. The conclusion we draw, however, is that even if Europe’s wind speed returns to its long-term average, the continent may experience future periods of wind speed resembling the 1990-2003 span when it was in a broad downward trend. That potential, something we have not heard discussed during the wind generation buildout in recent years, suggests wind energy dependency may put utilities at greater risk of stillness than considered in their planning.
 
The more that European countries come to depend on wind power for running their economies, the possibility of extended wind speed declines and increases in lulls means utilities will be scrambling more often to find backup power. Will they rely on huge batteries, or more fossil-fuel plants? Does this potential stillness risk increase the pressure on governments to allow utilities to keep their nuclear power plants operating, or even to begin building new ones? These are questions politicians and the public need to consider and answer, so energy planners can move forward. We have yet to see discussion of stillness as a potential long-term cyclical challenge for wind power, and in turn, Europe’s electricity grid. Maybe it is time for that discussion to begin.

Eoin Treacy's view -

One would think that the question of wind variability would be central to planning for the making significant investments in renewable energy infrastructure along most of the European and North American coastlines. Regrettably, there is not enough long-term data to make such predictions and the recent experience highlights the difficulty in predicting patterns with partial data at best.



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October 13 2021

Commentary by Eoin Treacy

Video commentary for October 13th 2021

October 13 2021

Commentary by Eoin Treacy

SepQ'21 preview & price deck update

Thanks to a subscriber for this report from Canaccord Genuity focusing on Australian gold miners. Here is a section:

October 13 2021

Commentary by Eoin Treacy

This Company is Reinventing the Wheel and Ditching the Rubber Tire

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

While GACW is initially targeting the OTR sector, which includes mining, the global tire market is much bigger, and the company has plans to enter that too. That said, the initial focus on mining could raise in excess of $20 million in revenue per mine site given the significant numbers of vehicles involved in each mining project.

And while the company may have competitors in the mid-sized market, it does not have any competitors in the global OTR sector.

In addition to this market, the ASW technology can be applied to all vehicles currently using traditional rubber tires, a $322 billion estimated value in 2022.

So far, the company has raised $3 million and has 4 patents with 13 others pending. It is also currently testing its ASW products with mining partners with an evaluation period of between 6 and 12 months. From 2022, it intends to ramp up its production of the ASW product with full commercialization expected in 2023.

“At this point, our plan is to expand our distribution network and really start taking the tire industry by storm,” the company said.

Eoin Treacy's view -

Mining costs are heavily dependent on energy and transportation prices and the cost of complying with increasingly stringent environmental regulations. As those costs rise, the incentive for companies to find alternatives where possible becomes progressively more urgent. Finding a cheaper alternative for a major cost centre, while also mitigating environmental liability represents an attractive sales pitch; if it works. Here is a link to Global Air Cylinder Wheels’ website. 



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October 13 2021

Commentary by Eoin Treacy

Uranium ETFs Roaring Back After $1 Billion Influx on Nuclear Bet

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

That view has been buttressed by some recent announcements. On Tuesday, the French government said it will help a state-controlled utility company develop so-called small modular nuclear reactors by 2030, a move President Emmanuel Macron signaled as key to reducing global carbon emissions. Japan’s new prime minister said that the nation should replace aging nuclear power plants with such module reactors. 

Eoin Treacy's view -

This graphic, from the 1960s, depicting German expectations for how nuclear would become the dominant supplier of electricity is particularly noteworthy. It helps to highlights how wrong expectations for the future can be, particularly when linear extrapolations are relied on. It also highlights uranium has had plenty of false dawns over the decades.



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October 12 2021

Commentary by Eoin Treacy

October 12 2021

Commentary by Eoin Treacy

The Death and Birth of Technological Revolutions

This article from Ben Thompson for his Stratechery blog may be of interest to subscribers. Here is a section:

That seems awfully descriptive of the current era, no? Products that break through reach saturation in record time (see TikTok reaching a billion users in three years, or DTC companies that seem to max out in only a couple of years), while the future of established companies seems to be quagmire in legislators and the courts, even as profits continue to pile up without obvious places to invest. And if the government’s response to the revolution has been disappointing, that also may be because of the revolution itself.

Moreover, to the extent the dystopian picture above is correct — that the real synergy has been between centralized governments and centralized tech companies, to the alarm of both those abroad and in the U.S. — the greater the motivation there is to make the speculative investments that drive the next paradigm, especially if that paradigm operates in direct opposition to the current one. To be sure this framework does imply that crypto is full of scams and on its way to inflating a spectacular bubble, the aftermath of which will be painful for many, but that is both expected and increasingly borne out by the facts as well. What will matter for the future is how much infrastructure — particularly wallet installation — can be built-out in the meantime.

For what it’s worth my suspicion is that the current Installation period for crypto — if that is indeed where we are — has a long ways to run, which is another way of saying most of the economy will remain in the current paradigm for a while longer. The time from the Intel microprocessor to the Dotcom Bubble bursting was 30 years (and, it should be noted, there were a lot of smaller, more localized bubbles along the way); Satoshi Nakamoto only published his paper in 2008. Thirteen years after 1971 was 1984, the year the Mac was introduced; the browser was another 9 years away. It’s one thing to see the future coming; it’s something else entirely to know the timing. On that Perez and I can certainly agree.

Eoin Treacy's view -

Technology is a constantly moving feast so there is always some portion of the market maturing and another portion evolving. Arguably we are close to the peak of social media proliferation since just about anyone who wants an account has one and the number of legal, regulatory and competitive challenges is only increasing.



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October 12 2021

Commentary by Eoin Treacy

Soaring Costs Squeeze Japan Inc. as Firms Hold Their Prices Flat

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

Costs that Japanese businesses pay for supplies surged last month at the fastest pace in 13 years.
Meanwhile, the prices that consumers pay are basically flat, a recipe for pinched profit margins and corporate pain. 

A Bank of Japan report on Tuesday showed the country’s producer prices rose in September 6.3% from a year earlier, with the gap between those costs and the prices consumers pay at its widest since 1980.

Even as profit margins fall, Japanese businesses have been reluctant to pass their costs on to the country’s shoppers, who are known for being extremely sensitive to price increases after years of deflation and stagnant wages. 

Forecasts from the BOJ, showing consumer price gains rising no higher than 1% next year, suggest businesses aren’t likely to get very aggressive in pricing even if they get stressed by
added cost pressure. 

That bind shows one reason why Japan’s new Prime Minister Fumio Kishida is so keen to get businesses to raise pay, a mostly unmet goal held by the two premiers before him including Shinzo Abe, who also made it a major policy plank.

Japan’s Kishida Vows Progress Where Abenomics Fell Short:

On Pay
Without bigger paychecks in consumers’ pockets, Japan’s policy makers have found it difficult to stoke inflation, which is not forecast to reach the BOJ’s 2% target for years. The bank is seen keeping its easing program for the foreseeable future, even as global peers unwind stimulus.
 

Eoin Treacy's view -

Japan’s economy has been locked in deflation for so long that businesses are unaccustomed to raising rates and have tended instead to try and be more efficient. The promise of automation has been one of the primary avenues Japan has taken to become more efficient but that’s not helping with supply bottlenecks and rising commodity prices. Ultimately, prices will have to rise. That will force wages higher.  



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October 12 2021

Commentary by Eoin Treacy

Gloves Come Off in EU Clash With Rogue Members Over Rule of Law

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

Separately on Tuesday, Luxembourg Prime Minister Xavier Bettel said his government “fully supports the new conditionality mechanism.”

Member nations “cannot take advantage of EU financial aid on the one hand, and disrespect the European values that unite us on the other. We cannot and will not accept this,” he said. “This is even truer in the context of a recent decision in Poland.”

Testing the Limit
The verdict questioning the supremacy of EU law, announced last week in Warsaw, marked a major escalation in Poland’s already fraught relations with the bloc and triggered street protests. In a joint statement just days later, France and Germany said Poland has a legal and moral obligation to abide by
EU rules.

Poland’s opposition, led by former European Council President Donald Tusk, accused the government of trying to force the country out of the EU. Prime Minister Mateusz Morawiecki, who triggered the ruling by the Polish court, has dismissed that accusation as “fake news”
Still, his government ushered the ruling into law by publishing it in the official gazette on Tuesday, putting put to rest any doubt it may be seeking a way to compromise. “The government has decided to put itself on the collision course with the EU,” said Piotr Buras, a senior policy fellow at the European Council on Foreign Relations in Warsaw. “They’re trying to test the limits of how far they can go.”

Eoin Treacy's view -

The big question for everyone in Europe is where does the state end and the superstate begin. That’s a question which is currently being tested on the eastern frontier of the bloc. Many policy setters in the Eurozone tend to socially and fiscally liberal (France, Spain, Italy, Belgium), while many in the governments in former eastern bloc countries tend to be both socially and fiscally conservative. That’s true even if they are some of the biggest beneficiaries from structural funds.



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October 11 2021

Commentary by Eoin Treacy

Video commentary for October 11th 2021

October 11 2021

Commentary by Eoin Treacy

October 11 2021

Commentary by Eoin Treacy

China Bonds Slide Most Since August as Bets on Easing Unravel

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

Bonds fell after the central bank withdrew a net 190 billion yuan ($29.5 billion) of short-term funds from the banking system Monday after draining the most since January on Friday. The likelihood of a rate cut in the near term is low and the timing of a reduction in the reserve requirement ratio is uncertain, state-backed China Securities Journal said.

China’s benchmark 10-year yields climbed five basis points to 2.95% on Monday, the highest close since July. 

The jump in 10-year yields sent them out of the 10-basis-point range where they had been since the start of August, suggesting traders are giving up bets on aggressive monetary easing. The selloff also followed losses in other global bond markets amid a surge in inflation expectations due to rising energy prices and central-bank progress toward normalization.

The selloff is far from over, analysts at Guotai Junan Securities Co. led by Qin Han in Shanghai wrote in a research note. “All the factors, apart from weak economic growth, are negative for the bond market. The adjustment in China’s bond yields in the fourth quarter may be more drastic than expected.”

Eoin Treacy's view -

The PBoC actively supplied funds to the banking system ahead of the mid-Autumn festival holiday. That helped to allay fears of outright contagion to the wider market and supported the view the administration is fully aware of the risks the property market slowdown entails. By taking some of that money back out, the PBoC is trying to signal they have no intention of bailing out the whole world, like they did following the credit crisis. They might not have a choice. 



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October 11 2021

Commentary by Eoin Treacy

ECB's Lane Says One-Off Wage Rise No Sign of Sustained Inflation

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

“Differentiating between transitory and persistent shifts in the growth rate of wages” will play an important role in assessing the progress of underlying inflation, he said at a conference on Monday. Single shifts in the level of wages do “not imply a trend shift in the path of underlying inflation.” 

Lane’s remarks suggest he will advocate for patience as the ECB waits for signs of persistently higher inflation to materialize. Price growth in the euro area is running at the fastest pace since 2008, propelled by energy and a number of statistical effects related to the pandemic that should fade next year. 

Still, persistent supply bottlenecks have fueled concerns that price pressures could remain elevated for some time. At a separate event on Monday, Lane’s Dutch Governing Council colleague Klaas Knot struck a more cautious tone when he warned against underestimating inflation risks that could force the institution to tighten monetary policy.

“There is more in the inflation process we don’t understand than we do understand,” Knot said, adding that price pressures may turn out to be stronger than currently projected.

The central bank is preparing to unwind emergency monetary stimulus as economies in the 19-nation euro area turn a page on the coronavirus crisis. Most ECB officials have pointed to missing wage pressures when arguing that the current inflation spike is largely transitory.

Eoin Treacy's view -

The big bet central banks are making is today’s inflation is similar to the spike that accompanied the rebound from the financial crisis. In the two years following the stock market low in March 2009, commodity prices surged to new all-time highs; fuelled by a near 50% increase in money supply. As that flood of new money subsided and governments began to run fiscal austerity, inflation subsided while growth remained positive but modest.The big bet central banks are making is today’s inflation is similar to the spike that accompanied the rebound from the financial crisis. In the two years following the stock market low in March 2009, commodity prices surged to new all-time highs; fuelled by a near 50% increase in money supply. As that flood of new money subsided and governments began to run fiscal austerity, inflation subsided while growth remained positive but modest.



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October 11 2021

Commentary by Eoin Treacy

Lumber prices have risen 50% since August, and 2 experts say the resurgence will continue through early 2022

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

A reason for the price increase in lumber is a modest increase in renovation demand after price-sensitive buyers proceeded with home improvement projects now that wood prices have seen a substantial correction, Dustin Jalbert, senior economist at Fastmarkets, told Insider.

Though Jalbert does not expect the kind of runup in lumber prices seen earlier this year - a period when there was a backlog of homes waiting to be built and a shortage of key construction supplies - as pandemic-related supply constraints continued to ease.

"The market has finally transitioned to a more balanced state compared with being severely oversupplied in the summer months, which ultimately drove the massive correction in prices from record-high levels set in May," Jalbert told Insider.

And even if Americans wanted to build and renovate homes, the field consumption of lumber is being bogged down by shortages of other complementary materials such as windows, siding, cabinet appliances, and garage doors, he added.

The supply side, meanwhile, continues to face challenges, Jalbert said. Log costs in British Columbia, which accounts for about 16% of North American lumber capacity, remain elevated.

Eoin Treacy's view -

Commodities tend to remain in well-defined ranges for years before breaking out and rallying in a profound manner that creates an uncomfortable feeling for consumers and sets new price expectations for sellers. Lumber spiked higher between 1991 and 1993. It subsequently gave up most of the advance but never dropped back into the preceding range.



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October 08 2021

Commentary by Eoin Treacy

October 08 2021

Commentary by Eoin Treacy

Strategy Data Pack October 2021

Thanks to a subscriber for this report from Mike Wilson’s team at Morgan Stanley which may be of interest. Here is a section:

Key Points:
• We are now calling for Fire AND Ice. We have been calling for a mid-cycle correction to happen one of two ways:
• Fire: tightening financial conditions as the Fed signals tapering is coming
• Ice: growth disappointment particularly on the earnings side
• We think it’s increasingly likely these scenarios happen together and we get a >10% correction. The Fed will likely announce its taper plans at its next FOMC meeting just as we expect a disappointment in earnings to materialize.

• Earnings Trouble Ahead. A number of companies have flagged serious supply chain issues in off-cycle earnings reports over the past month. Both forward earnings estimates and price de-rated after many of these reports. We think this will be a pervasive dynamic during 3Q reporting season and expect it to trigger downside in earnings revisions at the index level- a headwind for price. Beyond 3Q, we think the earnings risk comes more from (1) the inability of companies to pass on pricing (2) margin risk related more to higher wages and (3) a reversion (lower) in goods consumption

Eoin Treacy's view -

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

I don’t mind admitting I have been perplexed by the relative strength of Wall Street against a background of rising bond yields. The 5-year is trading above 1%, the 10-year hit 1.6% today and the 30-year is also running ahead. Meanwhile CPI at 5.2% is back at levels not seen since 2007.



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October 08 2021

Commentary by Eoin Treacy

O'zapft is! The gold/Oktoberfest beer ratio 2021

Thanks to a subscriber for this fun report from the team at Incrementum. Here is a section:

At the last regular Oktoberfest 2019, one Maß already cost up to 11.80 EUR. In 1950 a visitor to the Oktoberfest had to pay only 0.82 EUR. Since 1950 the annual Oktoberfest beer inflation rate has equaled, on average, 3.8%. And how many Maß does an ounce of gold currently buy? It will buy you 121 Maß! We made the assumption that the price of beer has risen at the same rate in the past two years as it did in 2019, i.e. by 2.6% per year. A Maß would therefore cost EUR 12.40 this year. Measured against the historical average of 90 Maß, the beer purchasing power of gold is now well above the average.

Friends of gold and the hearty enjoyment of beer will be pleased to know that this year's Oktoberfest can still take place within their own four walls. After all, the lower price of gold means that 16 fewer measures could have been drunk this year than last. Yet compared to 2019, when “Ein Prosit der Gemütlichkeit” (“A toast to Gemütlichkeit” – a song, regularly played at the Oktoberfest) could actually be sung at the Wiesn, one can now acquire 6 additional Maß for the table despite the rise in the price of beer. From the historic high of 227 Maß per ounce of gold in 1980, we are still a long way away.

Eoin Treacy's view -

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

How much of any given item one can buy with an ounce of gold is a useful way of thinking about how the purchasing power of one’s wealth has changed over time. The deviation of gold from the long-term average suggests something has changed in the rationale behind the calculus or it is going to be reasserted eventually.



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October 08 2021

Commentary by Eoin Treacy

Global: The one on Tsars, Muftis, Weathermen and Energy Prices

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

How low are inventories? Germany is already under water
German inventories of natural gas are scarily low ahead of the winter. We have taken a deep look at Gazproms major storage sites in Germany (Katharina, Jemgum, Redhen and Etzel), and were almost shocked by the severity of the issue. Current inventories will run frighteningly close to zero by Mid-March 2022, if usual seasonal patterns unfold over winter.

The current 16900 MCM/D inventory in Gazproms German facilities is barely enough to survive the winter, as the inventories usually drops by between 17500-20000 MCM/D between late October and mid-March. This is too much of a knife-edge situation to be truly comfortable with. Remember that natural gas makes up around 25% of the total energy consumption in Europe still. We are counting on you Vladimir!

The situation is about as bad in China, if we just replace natural gas with coal in the charts, which could prove to be even more problematic as coal makes up around 60% of the energy consumption in China. Per anecdotal evidence China has now re-allowed Australian coal shipments to reach Chinese land-territory despite the ongoing geopolitical dispute between the two countries.

Eoin Treacy's view -

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

A topic I discussed in yesterday’s audio was the current energy crisis in Europe and China highlights an important logical inconsistency for environmentalists. If one believes the climate is going to change in an unpredictable fashion, then building an alternative energy future which depends on weather patterns remaining constant does not make sense.



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October 07 2021

Commentary by Eoin Treacy

Video commentary for October 7th 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: inflation hedges outperform, financials breakout, Chinese tech rebounds, Wall Street steadies as yields trend higher, Yen weakens, Nikkei at potential support, South Korea steadies from deep oversold condition, bitcoin pauses.



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October 07 2021

Commentary by Eoin Treacy

Alibaba, Didi, and Other Chinese Tech Stocks Surge as U.S.-China Relations Brighten

This article from Barron’s may be of interest to subscribers. Here is a section: 

The U.S. and China agreed Wednesday that President Joe Biden and President Xi Jinping would meet before the end of the year. It will be a virtual meeting and follows a call between the two leaders that was held in September -- that was their first in seven months.

The virtual summit was announced shortly after White House national security adviser Jake Sullivan met a senior Chinese foreign policy advisor, Yang Jiechi, in Zurich, according to The Wall Street Journal.

"While we expect minimal material improvement in the tone or substance of their relationship in the coming months, we still see investment opportunities on both sides, especially in the areas of capital markets, technology, cybersecurity, and climate change," said strategists led by Mark Haefele, the chief investment officer at UBS Global Wealth Management.

"In our view, investors should avoid taking sides. The best long-term approach is to seek exposure to the different economic cycles, growth opportunities, and sectoral trends offered by both countries," the team at UBS said.

Strategists at the Swiss bank noted speculation around possible topics for discussion included trade, Taiwan, and climate issues.

Eoin Treacy's view -

Churchill’s “Jaw-Jaw is better than “War-War” comes to mind. It also begs the question whether the Biden administration is willing to make concessions on Taiwan’s independence for better trading conditions? That was certainly the case during the initial negotiations with China 50 years ago and not a lot has changed in terms of China’s priorities.



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October 07 2021

Commentary by Eoin Treacy

Schumer Says Debt-Limit Deal Reached, With Vote Possible Today

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

The plan reached between Senate Majority Leader Chuck Schumerand GOP counterpart Mitch McConnell would raise the statutory debt ceiling by $480 billion, according to a Senate aide. The amount would allow the Treasury to meet obligations through Dec. 3, the same day that the current short term government spending bill runs out.

“We’ve reached agreement to extend the debt ceiling through early December,” Schumer announced on the Senate floor Thursday morning.

The news added fuel to a rally in stocks. The S&P 500 Index headed for its biggest three-day advance since April as the risk of an economically devastating tightening in fiscal policy receded for now.

Eoin Treacy's view -

I’m not sold on the idea that investors were waiting with bated breath on the outcome of political negotiations to lift the debt ceiling. The initial furore about debt ceilings was a decade ago. Everyone now understands, it is mostly about political theatre. There is no realistic outcome where the US will renege on its debt obligations.



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October 07 2021

Commentary by Eoin Treacy

Stablecoin Tether Grows Into Crypto World's $69 Billion Mystery

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

It was hard to believe that people had sent $69 billion in real U.S. dollars to a company that seemed to be practically quilted out of red flags. But every day, on cryptocurrency exchanges, traders buy and sell Tether coins as if they’re just as good as dollars. Some days, more than $100 billion in Tether changes hands. It seemed the people with the most at stake in the crypto markets trusted Tether, and I wanted to know why. Luckily, in June, 12,000 of them were gathering in Miami for what was billed as the biggest crypto conference ever.

At the Mana Wynwood Convention Center, I found the usual cringey crypto signifiers. Models walked the floor body-painted with Bitcoin’s logo. A podcast host screamed, “F--- Elon.” A dumpster full of Venezuelan bolivars was labeled “cash is trash.” The place was full of people who held Tether. Sam Bankman-Fried, a 29-year-old billionaire who was in town to rename Miami’s basketball arena after his cryptocurrency exchange, FTX, told me he’d bought billions of Tethers, using them to facilitate trading other coins. “If you’re a crypto company, banks are nervous to work with you,” he said.

His explanation doesn’t make much sense if you still think of Bitcoin as a peer-to-peer currency, an ingenious way to transfer value without an intermediary. But most people aren’t using cryptocurrencies to buy stuff. They’re trading them on exchanges and betting on their value, hoping to make a real money score by picking the next Dogecoin, which spiked 4,191% this year after Elon Musk started tweeting about it, or Solana, up 9,801% in 2021 for seemingly no reason at all.

Think of crypto exchanges as giant casinos. Many of them, especially outside the U.S., can’t handle dollars because banks won’t open accounts for them, wary of inadvertently facilitating money laundering. So instead, when customers want to place a bet, they need to buy some Tethers first. It’s as if all the poker rooms in Monte Carlo and the mahjong parlors in Macau sent gamblers to one central cashier to buy chips.

The biggest traders on these exchanges told me they routinely bought and sold hundreds of millions of Tethers and viewed it as an industry standard. Even so, many had their own conspiracy theories about the currency. It’s controlled by the Chinese mafia; the CIA uses it to move money; the government has allowed it to get huge so it can track the criminals who use it. It wasn’t that they trusted Tether, I realized. It was that they needed Tether to trade and were making too much money using it to dig too deeply. “It could be way shakier, and I wouldn’t care,” said Dan Matuszewski, co-founder of CMS Holdings LLC, a cryptocurrency investment firm.

Eoin Treacy's view -

The story of tether, what it has invested its reserves in, and how integral it is to the entire crypto universe is intriguing as well as being filled with intrigue. It also helps to highlight just what the term unregulated assets means, when one is accustomed to the norms of dealing in the financial markets.



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October 07 2021

Commentary by Eoin Treacy

October 06 2021

Commentary by Eoin Treacy

Video commentary for October 6th 2021

October 06 2021

Commentary by Eoin Treacy

Putin Offers to Stabilize Gas Markets "on an Absolutely Commercial Basis"

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

Russia is ready to supply more natural gas to head off a growing energy crisis, President Vladimir Putin said Wednesday, on a day when U.K. and continental spot prices again hit all-time highs.

"I would like to hear your suggestions as to what more we can do to stabilize global energy markets," Putin told ministers in a carefully stage-managed broadcast of his introductory statement at the start of a video conferenced cabinet meeting. "We are ready to work on this, and we would like such work to be based on an absolutely commercial basis."

Russia is the one country capable of increasing gas flows substantially to European markets, where the shortage of gas is greatest, at short notice. However, the newly-completed Nord Stream 2 pipeline, which gas monopoly Gazprom (MCX: GAZP) would use for such additional flows, is still awaiting certification from German regulators before it can ship gas. The pipeline project has also been beset by U.S. sanctions and by opposition within the European Union, where fear of Gazprom's dominance in the market is widespread - especially among countries in the former Soviet bloc.

Elsewhere in his comments, Putin repeated previous criticisms of what he called "mistaken" European policy shifts that had left the EU and U.K. markets vulnerable to supply squeezes, notably its refusal to sign new long-term contracts with Gazprom and its desire to buy more at spot prices.

Eoin Treacy's view -

The challenge for countries accustomed to exporting energy is their consumers are now more interested in energy independence than energy security. Europe’s desire to buy at spot rates opens it up to exactly the kind of volatility experienced over the last couple of months. That a feature rather than a bug of this energy transition.



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October 06 2021

Commentary by Eoin Treacy

Tony the Tiger's road to appearing in a Kellogg's worker protest

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

While Tony the Tiger thinks Frosted Flakes are “grrr-eat,” hundreds of Kellogg’s factory workers think the company is “grrr-eedy”—and they’re using Tony to drive their point home.

On Oct. 5, when about 1,400 Kellogg’s workers across four US plants went on strike over payments and benefits, a poster featuring the iconic tiger appeared along the picket line in Battle Creek, Michigan. In front of Tony were the words “I’m greedy.” A digital poster by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union also features an angry Tony holding a”Kellogg’s on Strrr-ike” sign.

Eoin Treacy's view -

Many workers feel like they did everything right during the pandemic and came out worse off than they went in. That belief was reinforced by millions of people making more on welfare and stimulus payments than from working. We are now seeing the results of those policies. Worker activism is trending higher.



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October 06 2021

Commentary by Eoin Treacy

The Importance of Bitcoin Upgrades and Layer Two Applications

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

This November, Bitcoin will undergo the biggest upgrade to its code since SegWit. Taproot (discussed in BIP 340, 341 and 342) introduces what are called Schnorr signatures to Bitcoin. To avoid a very technical discussion, Taproot will improve privacy, scalability and finally implement smart contract functions on Bitcoin.

One of the major benefits of Taproot activation is the fact that multi-signature transactions will become much less data heavy, which blazes a Bitcoin path for smart contract implementation. Many alt coins were designed from the ground up with these improvements in place and therefore drew attention and investment away from Bitcoin. The Bitcoin developers took plenty of time to ensure this upgrade was safe before implementation. Many, including myself, view this as a monumental move for Bitcoin, and it certainly levels the playing field in the smart-contract competition.

And

Along came the Bitcoin Lightning Network. The Lightning Network is a second layer protocol that operates on top of the Bitcoin blockchain. Lightning takes transactions “off-chain.” Basically, bitcoin is removed from the main network and placed into a two-party, multi-signature “channel.” This channel is created between two parties and allows each party to send nearly an unlimited amount of transactions at a very low cost. These transactions happen specifically on the Lightning Network and not on the Bitcoin blockchain. Because these transactions are not approved by Bitcoin nodes or miners, the Bitcoin network is not affected. Upon terminating or closing the Lightning channel, all of the information included in the history of the channel is consolidated and included in a transaction that is then sent to the main Bitcoin blockchain (mainnet) to be recorded.

Twitter recently announced tipping for all iOS users. For this to be possible, Twitter will rely on third-party companies such as Strike that provide the ability to link a Twitter account to a Bitcoin address and a Lightning Network address. The Lightning Network allows tiny amounts of money to be sent instantly to anyone with an address. Twitter CEO Jack Dorsey has been a longtime proponent of Bitcoin and the Lightning Network. Many view this as an elegant solution to many problems faced in the global payment’s ecosystem. Many pro-Bitcoin investors are encouraged to see that such a large social media company is exclusively building on Bitcoin, and this adds to their Bitcoin-only conviction.

What is clear is that Bitcoin Core developers are focused exclusively on improving Bitcoin. Through BIP implementations, layer 2 advancements, and the continued focus on Bitcoin, the largest cryptocurrency is constantly able to compete with newer projects and continues to demand the majority of market share in the cryptosphere. Taproot and Lightning Network will allow bitcoin to remain competitive with other alt coins in terms of functionality, speed and security. Not only is bitcoin the largest cryptocurrency based on market cap, but the upgrades and core developers are working to ensure that bitcoin remains preeminent.

Eoin Treacy's view -

The innovations discussed above greatly enhance the scope of bitcoin to compete with altcoins in the provision of real-world services. It will further act to concentrate user interest in bitcoin and the other larger tokens. The threat of regulation is already doing that to small projects and this development will likely accelerate the trend.



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October 05 2021

Commentary by Eoin Treacy

October 05 2021

Commentary by Eoin Treacy

Beijing Blinked First in China's Energy Crisis

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

It looks like the government has blinked first. Miners, after months of being ordered to stick closely to capacity limits, are now being ordered to produce as much as they can, people familiar with the matter told Bloomberg News. That should help to take the wind out of surging thermal coal prices and prevent the current crisis from extending into the winter, when sufficient energy supply can be a life-or-death matter.

There is, to be sure, an attempt to make this retreat look like a withdrawal. The latest advice from Beijing’s economic planners last week focuses on protecting individuals but continuing the crackdown on industry, especially when it’s most energy-intensive and polluting. Allowing generators to raise prices to end-users, as is happening in Guangdong province, will also help create a more commercial power market. Electricity consumption controls have even been loosened in a way that would permit potentially unlimited volumes of cheaper renewable power into the market.

The risk, as with the rapidly fading fears over Evergrande, is that Beijing has simply deferred a pressing problem again. If China doesn’t reform a system that refuses to face up to its internal contradictions, the problems of an economy fed by credit and carbon will only fester and grow. 

 

Eoin Treacy's view -

Self sufficiency is Chinese government policy. Coal imports do not gel with that ambition so efforts to defray demand are likely to persist in a piecemeal manner subject to necessity. However, the reality is winters north of the Yangtze River are harsh and most communities rely on coal to heat homes, factories and run electricity.



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October 05 2021

Commentary by Eoin Treacy

Oil jumps 2%, hits 3-year high as OPEC+ sticks to output plan

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

Despite the pressure to ramp up output, OPEC+ was concerned that a fourth global wave of COVID-19 infections could hit the demand recovery, a source told Reuters a little before the vote.

"The (price) move looks a bit outsized given the ministers just reaffirmed the decision announced in July, but it shows how tight the market is, reinforcing our view of asymmetric price action with risks skewed to the upside at these inventory levels," Barclays said in a note. 

Investors will closely watch Wednesday's crude inventory data from the U.S. Energy Information Administration for further direction.

Eoin Treacy's view -

OPEC has a clear interest in sustaining reasonably high prices but not so high that significant additional supply is encouraged back into the market. At prices above $80, a lot of marginal supply becomes economic and it takes about 6 months to bring significant volumes online.



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October 05 2021

Commentary by Eoin Treacy

Lordstown to Sell Ohio Plant to Foxconn in $280 Million Deal

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

Under terms of the transaction, Lordstown Motors will sell the Lordstown factory to Foxconn for about $230 million after buying it from GM for just $20 million two years ago. The maker of Apple Inc.’s iPhone will buy $50 million worth of common stock in its new partner and will assemble the Lordstown Endurance electric pickup truck. The deal is contingent on the two sides reaching an agreement on manufacturing the vehicle. Foxconn plans to start mass production in April, according to a person familiar with its schedule. 

Lordstown shares jumped as much as 12% in late New York trading Thursday. During regular trading hours, the stock rose 8.4%, closing at $7.98 after Bloomberg had earlier reported a deal was in the works. It’s still down 60% for the year.

The accord gives both companies something they badly need. Lordstown Motors gets a partner that will hasten the startup’s move into large-scale production, which will help lower the high costs required to make EVs. Foxconn gets a plant in North America where it can build its open-source electric vehicle platform and do contract manufacturing for partners like Fisker Inc.

Eoin Treacy's view -

Perhaps another way of thinking about this deal is Foxconn will get some valuable experience in building electric vehicles. It will have time to work through the kinks of producing large products at scale.



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October 04 2021

Commentary by Eoin Treacy

Video commentary for October 4th 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: Nasdaq-100 continues lower on rising yields, copper steady, crude oil breaks out, the question of a debt trap and how will central banks tighten remains a central question that is fuelling a rotation. 



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October 04 2021

Commentary by Eoin Treacy

Amazon Turns Negative for 2021 as Higher Yields Add to Pressure

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

The losses in market value for the companies listed in the closely watched NYFANG+ index -- which includes 10 highly liquid tech and internet stocks -- now have soared to nearly $1 trillion from their Sept. 7 highs. Tesla Inc. is the only stock in black during that period.

The rise in yields has pressured tech names, as investors calculate that future earnings gains will be less valuable amid higher rates. The 10-year Treasury yield is currently around 1.49%, up from 1.3% on Sept. 22.

“Yields are likely to be biased higher for the time being as the world (and monetary policy) normalizes and inflation proves more durable than hoped,” the research firm Vital Knowledge wrote in a report. While some tech investors view the decline as temporary, “we think this time is different.”

Eoin Treacy's view -

The tech world exists in a universe of its own where the promise of the future is given a present value that is often exceptionally enthusiastic. Companies are given a great deal of leeway by investors because of low interest rates.



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October 04 2021

Commentary by Eoin Treacy

World's biggest clean energy project to power Singapore from Australia

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

The Australia-Asia PowerLink project, led by Australia's Sun Cable, plans to create a mammoth "Powell Creek Solar Precinct" on 12,000 hectares (29650 ac) of arid land about 800 km (500 miles) south of Darwin. The site, chosen because it's one of the most consistently sunny places on Earth, would be home to a mind-boggling 17-20 gigawatts of peak solar power generation and some 36-42 GWh of battery storage.

To give you a sense of scale, that's nearly 10 times the size of the world's current largest solar power installation, the 2.245-GW Bhadia Solar Park in India, and more than 30 times more energy storage than the last "world's biggest battery" project we covered in February. It's a bit big.

Eoin Treacy's view -

Not all that long ago spending more than $20 billion on a first of its kind project was considered completely unreasonable. Today, $20 billion is a rounding error compared to the quantities spent on stimulus.

The market for High Voltage Direct Current lines has been growing for more than five years. The first report of a feasibility study for an Australia - Indonesia connector is from 2016.



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October 04 2021

Commentary by Eoin Treacy

Email of the day on politically secure mining jurisdictions

Can you please give us a an update on copper producer plays for relative strength for listings in areas of good governance? As David said, we realize we need the tailwind or bull market to be successful investors.

Eoin Treacy's view -

It’s an unfortunate circumstance that many of the best sources of vital resources are located in politically unstable parts of the world. These are countries where a new government/regime may decide on a whim to massively increase royalties or retroactively charge taxes on the new laws. There is also the potential that any contracts signed with the last government may become null and void. Therefore, there is a solid argument for favouring miners with operations in politically stable parts of the world. That’s particularly relevant during bull markets because profits tend to attract the attention of governments.  



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October 01 2021

Commentary by Eoin Treacy

October 01 2021

Commentary by Eoin Treacy

Secular Themes Review October 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 May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”

Supply Inelasticity Meets Rising Demand was the phrase David coined to explain the last commodity-led bull market. After decades of underinvestment in commodity supply infrastructure, the market was not prepared for the massive swell of new demand from China; as it leaped from economic obscurity into one of the largest economies in the world. A decade of investment in new production was needed to supply China and that crested ahead of the credit crisis in 2008.

Today, we also have extreme example of supply inelasticity, and demand is breaking records for all manner of goods and services. The factors contributing to these trends are quite different from a decade though. Some will be resolved relatively quickly. Others will take years.



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September 30 2021

Commentary by Eoin Treacy

Video commentary for September 30th 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: end of the quarter respositioning weighs on Wall Street, supports gold. Commodities remains strong with palm oil breaking out and UK Natural gas reflecting a global demand surge. Australia and Indonesia rebound in a dynamic manner. 



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September 30 2021

Commentary by Eoin Treacy

Gold Surge Looks More Flow-Based than Fundamental

This note from a blog on Bloomberg may be of interest to subscribers.

Gold is showing some mysterious strength and it’s hard to see why. The dollar has weakened, but not nearly enough to push bullion about 2% higher. Real Treasury yields are actually rising, which usually is enough to keep the yellow metal in check.

It may seem like a cop out, but the culprit here is probably quarter-end flows. The last Commitments of Traders report showed hedge funds had boosted their gold shorts to near the highest since 2019. Perhaps they’re now covering and taking profits after what has been a month to forget for bullion bulls.

Eoin Treacy's view -

The end of the month and end of the quarter is a time for reassessment for many investors. That’s particularly true on this occasion because the Biden administration’s outsized spending plans are floundering, inflationary pressures are rising and investors are questioning the wisdom of supporting the government bond market. 



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September 30 2021

Commentary by Eoin Treacy

Palm Oil Ends Quarter With a Surge on Global Oilseed Shortage -

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

Demand has soared this month ahead of a major festival season in India, the top importer. Vegetable oils are an important part of the festivities as they’re used to make local sweets, fried food and other treats. Palm oil exports from Malaysia climbed 34% in September from a month earlier, data from AmSpec Agri show, with shipments to India likely to be robust. 

There’s also concern that the suspension of soybean crushing plants in China due to a power crunch may crimp soybean oil output and bolster demand for palm oil. “Fresh Chinese buying today ahead of the Golden Week holidays has helped the palm oil market,” said Anilkumar Bagani, research head of Sunvin Group, referring to the week-long holiday in China that starts Friday. 

He estimates that the crush plant shutdowns in China could translate to a loss of 160,000 to 180,000 tons of soybean oil in the September-October period. This may support higher palm oil purchases given import margins are “less negative” compared with other vegetable oils, he said. 

Eoin Treacy's view -

The upward pressure on oil prices is also helping to fuel demand for alternatives like palm oil, soybeans and sugar since they are primary ingredients in bio-diesel and ethanol. The impending holidays in both India and China add an additional wrinkle to supply chains but are not the primary factor behind the run up in prices over the last 18 months.



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September 30 2021

Commentary by Eoin Treacy

Indonesia Parliament Approves 2022 Budget, Pushes Tax Reform Law

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

Lawmakers passed the 2022 budget into law at a plenary meeting on Thursday, with state spending seen at 2,714.2 trillion rupiah, slightly lower than the 2,750 trillion rupiah set for this year. It set a faster economic growth forecast of 5.2% for 2022, while reducing its budget deficit to 4.85% of gross domestic product from a projected 5.8% this year. 

Earlier in the day, a parliamentary commission approved a tax reform proposal that will introduce a carbon tax policy, overhaul the value-added tax system, expand income tax brackets, and offer another round of tax amnesty program. The bill will next be deliberated at the plenary level so it can be passed into law. 

Indonesia joins its neighbors in finding solutions to improve finances as a protracted coronavirus outbreak depletes government coffers. While Thailand has been forced to raise its public debt ceiling and Malaysia weighs doing the same, Indonesia has stood by its pledge to bring its budget deficit back to 3% of GDP by 2023 by streamlining spending and expanding revenue sources.

 

Eoin Treacy's view -

Asian and other emerging markets are much more accustomed to dealing with inflationary pressures than we are in the West. As a result, it is not all that surprising that they are further along in normalising policy and taking corrective measures to improve economic efficiency and tax collection.



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September 29 2021

Commentary by Eoin Treacy

Video commentary for September 29th 2021

September 29 2021

Commentary by Eoin Treacy

China Keeps Cash Engine Running in Ninth Day of Injections

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

The central bank has added a total net 750 billion yuan via open market operations since Sept. 17. When onshore markets reopen on Oct. 8, 340 billion yuan of 14-day reverse repurchase agreements will fall due. Later in the month, 500 billion yuan of medium-term lending facility is set to expire. 

Overnight interbank funding costs slid 43 basis points to 1.48%, the lowest since May, after the cash infusion. The seven-day repurchase rate, which covers the week-long break, rose 36 basis points to 2.55%, a level last reached at end-June. 

The injection is also expected to allay fears of a contagion stemming from Evergrande’s debt problems. In a bid to contain the fallout from the property developer’s woes, China has stepped in to buy a stake in a struggling regional bank from Evergrande.

“The purpose of liquidity injection is mainly to give market confidence amid the Evergrande crisis,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “Having said that, there is still a possibility of a RRR cut in October due to a slowdown in economic activities caused by supply constraints and slower export growth.”

Speculation of an easing comes after recent data indicated that the pace of expansion in the world’s second-largest economy is slowing. A power crisis is adding to the strain and economists from Goldman Sachs Group Inc. are among those who have slashed their growth projections for this year.

China’s 10-year sovereign bond yield fell one basis point to 2.86% on Wednesday. It sank to a 14-month low after the PBOC unleashed 1 trillion yuan of liquidity into the system via a reduction in the RRR in July. 

Eoin Treacy's view -

For China watchers, the big question over the last year was when would the credit cycle turn. It is looking increasingly likely that the China Evergrande default is the catalyst for additional infusions of liquidity that will likely last for at least the next year and potentially longer.



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September 29 2021

Commentary by Eoin Treacy

Dollar Tree to Add Products Above $1 in Dollar Tree Plus Stores

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

Dollar Tree said it plans to begin adding new price points above $1 across all Dollar Tree Plus stores.

To test additional price points above $1 in selected legacy Dollar Tree stores
On track in 2021 to have 500 Dollar Tree Plus stores by fiscal year-end
Another 1,500 stores are planned for fiscal 2022; at least 5,000 Dollar Tree Plus stores are expected by the end of fiscal 2024
Currently has 105 Combo Stores; expects to add 400 Combo Stores in fiscal 2022
Sees potential for up to 3,000 Combo Stores over the next several years

Eoin Treacy's view -

Rising shipping costs, power cuts in major manufacturing centres and rising commodity prices all point towards margin compression for the sellers of low-priced items. They have no choice than to pass that inflation along to customers. The temporary shutting down of port facilities outside Shanghai will also have had the knock-on effect of putting upward pressure on prices because so much manufacturing capacity of low-cost items comes from Zhejiang.



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September 29 2021

Commentary by Eoin Treacy

Solar ETF Drops Most in Four Months as China Rattles Sector

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

Invesco Solar ETF (TAN) falls as much as 6.5% intraday, the most since May 4, amid growing investor jitters about China’s real estate crackdown potentially sparking a financial contagion. 

Among individual stocks, JinkoSolar down as much as 10.6% during the session, Beam Global -9%, Daqo New Energy -10%, First Solar-9.3%, Canadian Solar -7.8%

Eoin Treacy's view -

China is by far the largest manufacturer of solar panels. Silica is a major component for the sector and production is being hampered by electricity supply disruptions. That’s taking a toll on the solar sector. At the same time the upward pressure on government bond yields threatens the business model of many domestic installation businesses.



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September 28 2021

Commentary by Eoin Treacy

Video commentary for September 28th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: natural gas prices looking tired following explosive gain, 5-year yield pops on the upside weighing on growth stocks, particularly Nasdaq-100, bitcoin also weak, gold continues to ease. oil pauses at $80. 



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September 28 2021

Commentary by Eoin Treacy

"Can't Lose" Mentality Puts S&P 500 in Bigger Trouble, BofA Says

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

“Moral hazard and a ‘can’t-lose’ attitude from investors only raise the risk of a larger fragility shock before year end,” the strategists wrote in a client note Tuesday. “Adding further uncertainty to the outlook is the looming Fed taper and general hawkish turn away from the measures prompted by the Covid shock.”

The strategists joined their counterparts at Morgan Stanley in urging investors to remain vigilant after last week, when the S&P 500 reversed losses to snap two weeks of declines.  

Stocks are down for a second day Tuesday, with tech shares leading the decline amid a spike in Treasury yields. The S&P 500 has lost 3.7% in September, putting it on course for its worst month in exactly a year. 

Eoin Treacy's view -

On Friday I discussed the overly comfortable view that potential problems are so large that outsized liquidity injections are inevitable, so there is no need to sell. Inflation and rising yields punctured that fallacy today. The 5-year yield broke about the psychological 1% level and reintroduced the prospect of debt servicing costs and stagflation to the financial community.



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September 28 2021

Commentary by Eoin Treacy

Email of the day on China's energy challenges

You mentioned the energy shortages in China. These two articles from the Daily Telegraph spell out the scale and the implications globally. Best wishes to you and family

Eoin Treacy's view -

Thank you for the wishes and both these articles. Here is a section from Ambrose Evans Pritchard’s and here is a link to the other: 

The property squeeze is compounded by a parallel squeeze on carbon. Xi has promised peak CO2 emissions by 2030, a 25pc cut per unit of GDP by 2025, and a 3pc cut in energy intensity this year.

He knows that China is paying a high credibility price for foot-dragging as Europe and the US launch green deals (nobody can hide behind Trump any longer), and may soon face a carbon border tax in its top markets if it is not careful.

Energy-saving edicts are raining down. Party cadres have been mobilised to pursue CO2 crimes, and are reportedly doing so with the zeal of the Cultural Revolution. The state planner (NDRC) says 20 Chinese provinces have failed to meet this year’s goals on cutting energy intensity.

Nomura says nine have received “Level 1 warnings”, including Guangdong and Jiangsu, 35pc of China’s economy between them. Woe betide the Party officials responsible.

The steel, cement, and aluminium industries face production caps by the industry ministry (MIIT). They stole part of their allowance over the first half, and must cut back this half to compensate. That means drastic falls in steel output. It has already begun and is hammering iron ore prices, along with miners such as Vale and BHP Billiton.

I wonder does anyone remember the butter mountains and the wine lakes of the late 1980s and early 1990s? They were a political embarrassment, but prices were low. The EU and North America were overproducing because they subsidized farmers and low prices meant third world country farmers were impoverished and could not compete. The result was the abandonment of subsidies, much higher prices, still impoverished global farmers and a migration of market dominance to Brazil. I mention it here to emphasise that no good intention is left unpunished in the commodity markets.



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September 28 2021

Commentary by Eoin Treacy

Email of the day on Rolls Royce

Dear Eoin, could you kindly update us on Rolls Royce, e.g.: Worth buying more on this surge? Sell and buy back on inevitable dip after rumours regarding nuclear reactor subside? Thank you very much, very best, 

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. Rolls Royce is a potential beneficiary from the UK’s decision to exclude Chinese companies from its nuclear sector. That’s been a bullish factor for the share recently, not least as uranium investments have broken out. The additional news that it has sold ITP Aero unit for £1.5 billion also helped to support the share.



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September 27 2021

Commentary by Eoin Treacy

Video commentary for September 27th 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: 5-year yield tests 1%, stocks steady following initial weakness, commodities firm with oil testing $80, natural gas surges, carbon credits break out, China remains weak. FANGMAN susceptible to weakness if yields breakout. 



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September 27 2021

Commentary by Eoin Treacy

Email of the day on the Fed is the one that usually kills bull markets

Greetings, this has been our understanding as far as I can remember. The Fed has stated unequivocally that he intends to accelerate the date for the taper. The Fed mandate is employment and bring back inflation, both seem to be happening. Still Mr. mkt did not react, or did it? in some segments.

Maybe other will wonder as well, can you comment pls

Eoin Treacy's view -

Thank you for this question. I agree, David often said “the Fed has killed off more bull markets than all other factors combined”. Therefore, we need to pay attention to what the Fed is saying in terms of their willingness to introduce a quick pace of tapering and to begin a new interest rate hiking cycle.  



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September 27 2021

Commentary by Eoin Treacy

New all-solid-state battery holds promise for grid storage and EVs

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

“As battery researchers, it’s vital to address the root problems in the system," says Shirley Meng, the corresponding author. "For silicon anodes, we know that one of the big issues is the liquid electrolyte interface instability. We needed a totally different approach."

This new approach involved making some tweaks to the way the silicon anode is put together, with the scientists eliminating carbon and binders that are normally used, and opting for a cheaper form of micro-silicon that undergoes less processing. A sulfide-based solid electrolyte was then introduced to carry the charge, and the resulting battery proved extremely stable, by avoiding the damaging interactions at the anode.

The novel silicone all-solid-state battery is described as safe, long-lasting and energy dense. A lab-scale full cell was shown to be capable of 500 charge and discharge cycles while retaining 80 percent of its capacity, demonstrating the stabilizing effects of the new design.

Eoin Treacy's view -

It seems like there is a new battery innovation touted every day. What’s particularly relevant is the time lines to commercialisation are seldom mentioned.



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September 27 2021

Commentary by Eoin Treacy

Email of the day - on the copper/silver ratio:

The price of copper has been rising for some time now, while the price of silver, an important industrial metal now is languishing at the bottom of its recent trading range. Would there be any merit in examining a long-term historical chart of the ratio of copper to silver?

Eoin Treacy's view -

Thank you for this question which may be of interest to the collective. The outlook for both copper and silver are increasingly intertwined with that of renewable energy. Copper is required in motors, electric recharging infrastructure and wind turbines. Silver is the best-known reflective material. It’s a major component of solar panels, although there are significant efforts underway to try to substitute reliance on the metal.



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September 27 2021

Commentary by Eoin Treacy

Email of the day on investing for inflation:

Dear Eoin, Many thanks for your comment on inflation as a solution for the massive public debts. In these circumstances how would you structure your portfolio? In which sectors would you invest your funds?

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. This is a very big question because the stocks that have done best over the last decade have benefitted enormously from the massive availability of liquidity and very low rates. Divesting from the best performers runs contrary to most people’s instinct to run their winners so monitoring the consistency of their price action is particularly relevant to all portfolios over the next decade.



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September 24 2021

Commentary by Eoin Treacy

September 24 2021

Commentary by Eoin Treacy

Roubini Says He's "Dr. Realist" by Warning of Global-Debt Trap

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

“My concern is that we are in a debt trap,” Roubini, chairman and chief executive officer of Roubini Macro Associates, said in an exclusive interview on Bloomberg TV at the Greenwich Economic Forum in Connecticut. “When central banks are going to want to essentially phase out unconventional monetary policy, given the debt ratios, there is the risk of a crash in the bond market, in the credit market, in the stock market, in the economy and therefore they’ll be in that debt trap and unable to normalize policy rates.”

When the Covid-19 pandemic started to strangle the global economy, easy monetary policies and stimulative fiscal policies were seen as necessary to “backstop the financial system,” Roubini said. But the results have been extreme.

“We are in a debt super cycle,” he said. “And eventually, central banks are in a trap. People said they are going to normalize policy rates, but with these levels of private and public debt, if they were trying to do that, there will be a market crash, an economic crash, and therefore, I think the path of least resistance is going to be to wipe out the real value of nominal debt at fixed-interest rates with higher inflation.”

Eoin Treacy's view -

The recipe for success in 2020 was a willingness to accept problems and look through them to the inevitable solutions. The magnitude of the challenge the pandemic presented was so large that only a massive monetary and fiscal response would suffice to blunt its impact. With that conclusion in hand asset prices rebounded impressively.
 



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September 24 2021

Commentary by Eoin Treacy

Chris Wood On India's Property Cycle, Capex And Risks Facing Stock Market

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

The structural bull story of the Indian markets, Wood said, remains in place with growing evidence that a new residential property cycle has commenced after a seven-year downturn despite the setback triggered by the delta Covid-19 wave.

“Pre-sales across the top seven cities rose 23% month-on-month and 41% year-on-year in July. Property registrations, indicating completed transactions, for July-September were up 45% in Mumbai and 56% in Delhi compared with the levels prevailing in 2019,” he said.

Also, unsold inventory is coming down sharply. “The inventory level in the National Capital Region, after stripping out stalled projects, has declined from a peak of 50 months of sales in October 2017 to 33 months.”

Affordability, according to him, too, remains at historically attractive levels. The housing affordability ratio, measured as home loan payment as a percentage of income, declined from 53% in FY12 to a record low of 27% in FY21, the report said. “This is clearly very different from, say, China.”

Greed & Fear has a 17% allocation to the property sector in the Indian long-only portfolio, while it “resists for now the temptation of putting any China developers into the China long-only portfolio”.

Eoin Treacy's view -

India’s home finance and property development sector went through a painful restructuring process three years ago and it is still ongoing for smaller companies. The reason for the decline was much tighter regulation of how property developers funded themselves.



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September 24 2021

Commentary by Eoin Treacy

Email of the day on Chinese property developer bonds

Thank you for another very well video today. I noted your comment about bonds of some Chinese construction companies with attractive yields. Would you consider to share the names of some of the "better" Chinese companies with attractive yields for an international investor? As always thanks a lot for the excellent service you continue to provide.

Eoin Treacy's view -

Thank you for question which may be of interest to other subscribers. I posted a number of charts of Chinese property developer bonds in Comment of the Day on September 21st. 



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September 24 2021

Commentary by Eoin Treacy

Email of the day on slower Chinese growth:

Think, you may find interesting this Financial Times story that looks into the longer-term consequences of Evergrande saga - https://on.ft.com/3io45gH (open link). It seems that the Chinese real estate market finally (at long, long last) is crumbling, not without help of the country leaders. If it is so and given the fact that the property market accounts for 29% of the Chinese GDP (and land sales to developers, for the third of local governments’ revenues), the economic growth seems to slow dramatically in the coming years. What could be implications, in your view? We all remember that China and its industrialization were the major drivers of the global commodities supercycle in the 21st century. Also, every time China has got into trouble, the Communist party used the same recipe “more investments in infrastructure and construction, more leverage. If now China and its property sector grow much more slowly, not to mention possible contraction of the latter, it will need much less metals and materials, and also possibly less gas (to power plants and send it to homes) and even oil (fewer working trucks and construction equipment). What do you think?

Eoin Treacy's view -

Thank you for this informative email which may be of interest to the Collective. Here is a section from the FT article:

An even more consequential trend for China’s political economy is the collapse in land sales by local governments, which fell 90 per cent year on year in the first 12 days of September, official figures show. Such land sales generate about one-third of local government revenues, which in turn are used to help pay the principal and interest on some $8.4tn in debt issued by several thousand local government financing vehicles. LGFVs act as an often unseen dynamo for the broader economy; they raise capital through bond issuance that is then used to fund vast infrastructure projects.

The property market has funded local governments for decades. Without a solid trend of land sales municipal governments face bankruptcy. There is just no way the central government can let that happen. The first order solution will be to avert contagion into the rest of the property market following Evergrande’s demise.



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September 24 2021

Commentary by Eoin Treacy

Email of the day on accessing the Service via Tesla's onboard browser

Hope all is well. Please ask the community whether the Tesla drivers are able to access the members area from the Tesla web browser. I don’t manage to login. Thank u, 

Eoin Treacy's view -

Thank you for alerting us to this issue and I hope you are enjoying your new toy. If anyone in the Collective has information to share, please pass it along.



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September 24 2021

Commentary by Eoin Treacy

September 23 2021

Commentary by Eoin Treacy

Video commentary for September 23rd 2021

September 23 2021

Commentary by Eoin Treacy

BOE Opens The Door for 2021 Rate Hike as Inflation Seen Above 4%

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

The U.K. central bank is trying to tame inflation that accelerated well beyond its forecasts over the summer, reaching 3.2% last month. Its new focus is enabled by stronger-than-expected jobs data that show unemployment will peak well below worst-case scenarios predicted at the onset of the pandemic.

While the BOE targets inflation of 2%, the rate may temporarily exceed double that level in the final three months of the year, slightly more than predicted in August, officials said. Spiking gas costs that have caused turmoil in U.K. energy markets “could represent a significant upside risk,” and also mean that consumer-price increases remain above 4% until the second quarter of 2022, the MPC added. 

“The looming end of furlough is a major source of uncertainty facing the economy, but for now the bank appears relatively confident that the economy can deal with this shock without a large increase in unemployment,” according to Luke Bartholomew, economist at Aberdeen Standard Investments.

Eoin Treacy's view -

There has been a confluence of negative surprises that are affecting the UK economy at present. Some are related to pandemic supply chain issues, others are due to a lack of qualified drivers and others because the wind stopped blowing. (I can’t be the only one marvelling at how ridiculous that latter point sounds).



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September 23 2021

Commentary by Eoin Treacy

Evergrande marks the end of China's economic miracle

Thanks to a subscriber for this article from Ambrose Evans Pritchard for The Telegraph. Here is a section:

Harvard Professor Ken Rogoff and Yuanchen Yang (now at the IMF), say Chinese property and construction amount to 29pc of GDP when all ancillary sectors are included. Housing makes up four fifths of personal wealth and land sales make 40pc of local government revenues.

They argue that this extreme dependence on the property nexus has not been tested because super-charged growth rates hide all sins. But China is no longer growing fast. Xi Jinping’s neo-Maoist ideology of “common prosperity” marks a profound break with the Deng Xiaoping catch-up model.

“We find that a 20pc fall in real estate activity could lead to a 5-10pc fall in GDP, even without amplification from a banking crisis, or accounting for the importance of real estate as collateral,” they said.

The US Federal Reserve’s Ben Bernanke once famously said “we’ve never had a decline in house prices on a nationwide basis” and nothing had substantially changed. But it had changed. The national Case-Shiller index would soon fall by 36pc.

The Rogoff-Yang paper said nothing should be assumed in the case of China either. “Even the very cautious pragmatic Chinese regulators may not yet be fully anticipating the depth of the possible fall in China’s housing prices,” it said.

Deflating an economy that is so hyper-leveraged to property is going to take years and will be untidy. China will almost certainly avert a Minsky crisis but it may not avert a long grinding semi-slump that profoundly changes the world’s perception of the country.

Eoin Treacy's view -

This conclusion makes sense to me. We are probably at the peak of speculative interest in the Chinese property market. The Party understands that the property sector will represent a threat to its rule if there is a collapse but also if prices accelerate further from here. That suggests progressively more measures to reduce leverage in the system. At a minimum that implies smaller companies and less construction activity.



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September 23 2021

Commentary by Eoin Treacy

Sugar Futures Climb on Bullish Energy Signs as Coffee Gains

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

Raw sugar headed for the biggest gain in a week amid bullish signs from energy markets and lingering concern about constrained supplies in top shipper Brazil.

The March contract climbed 1.6% to 20.04 cents a pound on ICE Futures U.S. after adding 0.8% a day earlier. The commodity has climbed 29% this year after adverse conditions hurt plants in the South American giant. 

Higher energy costs are boosting the outlook for cane-based ethanol demand in Brazil, increasing incentives for mills there to direct the raw material toward making more biofuel and less sweetener. West Texas Intermediate crude climbed 1.9%, bringing its year-to-date rally to 48%. 

There are expectations for a poor crop next year as effects of drought and frost linger. Offsetting lower supplies are concerns about flagging demand, spurred by Covid-related restrictions and high transportation costs.

“On one hand, Brazilian production is low, on the other, there are uncertainties about the world demand for sugar because of the increase in sea freights,” said Heloisa Lee Burnquist, analyst for the University of Sao Paulo.

Eoin Treacy's view -

It is hard to get around the fact that the world has progressed economically in leaps and bounds since the advent of fossil fuels and is struggling to cope as they are excised from the system. That’s going to be a major topic of conversation at the upcoming climate conference in the UK. The resilience of the supply chains upon which modern life relies is under threat.



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September 22 2021

Commentary by Eoin Treacy

Video commentary for September 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: Fed announces taper possibly as soon as the next meeting, Wall Street and bonds stable. China injects more liquidity, bitcoin steadies in the region of the trend mean, Nifty continues to outperform. 



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September 22 2021

Commentary by Eoin Treacy

Fed Signals Bond-Buying Taper May Start Soon, Split on 2022 Hike

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

If progress toward the Fed’s employment and inflation goals “continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted,” the U.S. central bank’s policy-setting Federal Open Market Committee said Wednesday in a statement following a two-day meeting.   

The Fed also published updated quarterly projections which showed officials are now evenly split on whether or not it will be appropriate to begin raising the federal funds rate as soon as next year, according to the median estimate of FOMC participants. In June, the median projection indicated no rate increases until 2023.
And 

Projections for 2024 were also published for the first time, with the median suggesting a federal funds rate of 1.8% by the end of that year. The median for 2023 rose to 1%, from 0.6% in the June projection.  

 

Eoin Treacy's view -

Here is a link to the side by side comparison of today’s statement with the July one. Central banks feel the need to act to normalise policy because they are worried their actions are fuelling speculative activity. Yet, many of the countries that have begun to taper have soon found their initial estimates of the pace at which that can take place were overly ambitious.



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September 22 2021

Commentary by Eoin Treacy

Global Traders Given Evergrande Reprieve as PBOC Adds Liquidity

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

China’s central bank boosted its gross injection of short-term cash into the financial system after concern over a debt crisis at China Evergrande Group roiled global markets. 

The People’s Bank of China pumped 120 billion yuan ($18.6 billion) into the banking system through reverse repurchase agreements, resulting in a net injection of 90 billion yuan. That matches the amount seen on Friday, and was just below that of Saturday. Sentiment was also boosted after Evergrande’s onshore property unit said it plans to repay interest due Thursday on its local bonds. 

“The PBOC’s net injection is probably aimed at soothing nerves as the market worries about Evergrande,” said Eugene Leow, a senior rates strategist at DBS Bank Ltd. in Singapore. “While the aim may be to instill discipline, there is also a need to prevent contagion into the real economy or to other sectors.”

The need to calm market jitters is pressing amid losses in China-related equities worldwide over recent days amid concern over Evergrande’s debt woes. The benchmark CSI 300 Index fell as much as 1.9% Wednesday after the Hang Seng China Enterprises Index -- a gauge of Chinese shares traded in Hong Kong -- slid the most in two months on Monday. Losses came even as Wall Street analysts sought to reassure investors that Evergrande won’t lead to a Lehman moment.

Eoin Treacy's view -

Any way we look at it, China will need to print more money. If the Evergrande issue is resolved through restructuring in a timely manner it will be less. If the issue is fudged and the hit to the economy is deep, it will be more. Following the announcement that a domestic bond coupon will be paid, there is only one question. What about international investors?



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September 22 2021

Commentary by Eoin Treacy

Crypto Risks Existential Threat as U.S. Crackdown Gathers Steam

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

SEC Chair Gary Gensler drew first blood last week. On Friday, Coinbase quietly abandoned the lending product, announcing the move in a short update to a months-old blog post.

“Crypto lending might be the easiest way for the SEC to get its hooks into the industry, but it’s very clear they’re looking at cryptocurrencies themselves,” said Tyler Gellasch, a former counsel at the SEC who heads the Healthy Markets Association, whose members include large asset managers. If many cryptocurrencies are deemed securities, exchanges such as Coinbase and the rest of the crypto industry “will not be able to make money the way they do today.”

Crypto lending incumbents, such as BlockFi Inc. and Celsius Network Inc., have already garnered more than $35 billion in deposits of traditional cryptocurrencies such as Bitcoin, as well as stablecoins, whose values are pegged at $1 and are considered a replacement for fiat money.

Crypto industry executives have said they suspect rival firms in the traditional finance industry, such as large banks, are responsible for pushing regulators.

In a September “Ask Me Anything” event with customers, Celsius Network Chief Executive Officer Alex Mashinsky said he believed bank executives had called the SEC and state regulators to complain about crypto lending firms.

“We have to work twice as hard because these guys have the largest lobbyists working for them at both at the state and the federal level,” Mashinsky said. “We’ll prevail. The fight is over all the money in the world, right?”

Eoin Treacy's view -

When the chairman of the SEC talks about the cryptocurrencies in the same terms as the myriad number of competing currencies in the USA ahead of the Civil War, that’s not good news for the sector. It suggests the freewheeling days of launching a token for any purpose one can dream of are numbered. 



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September 21 2021

Commentary by Eoin Treacy

Video commentary for September 21st 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Chinese stocks pause with deep short-term oversold condiutions evident, Wall Street steady but susceptible to additional weakness dependent on liquidity. UK natural gas continues to remain strong. gas producers firm. 



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September 21 2021

Commentary by Eoin Treacy

Is Evergrande a risk for global financial markets?

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

September 21 2021

Commentary by Eoin Treacy

IEA Says Russia Could Do More to Boost Europe's Gas Supply

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

Europe is facing gas shortages, but Russia has a crunch of its own. Gazprom has boosted production this year, but it’s directing the additional output to refill depleted storage sites at home. Russia has been producing close to its maximum capacity, but its domestic needs have curbed availability to Europe, according to the Oxford Institute for Energy Studies.

“Russia is not running out of gas and its prolific gas reserves allow Russia to meet much higher overall demand, but this requires time, money, and contractual assurances of offtake,” said OIES Senior Research Fellow Vitaly Yermakov.

Some analysts have argued that Russia has capped flows to Europe as a way to get its controversial Nord Stream 2 pipeline to Germany online. Flows through the link could improve supplies, but the start of commercial operations will depend on regulatory certification -- first in Germany, then at the European Commission. That could run well into next year. U.S. sanctions have also created challenges for the project.

The IEA stressed that it’s wrong to blame the shift away from fossil fuels for the surge in gas prices. The comments came a week after Frans Timmermans, the EU’s climate chief, warned that the record spike in energy prices must not undermine the European Union’s resolve to cut emissions.

Eoin Treacy's view -

Could Russia do more to ease the supply shortage of gas in Europe? Probably. Will it? That’s going to be a strategic decision and it will probably come with caveats. Natural gas is not oil. The network for mass transportation across oceans is still immature. Pipelines remain the preferred transportation network. Russia has a clear interest in opening its Nordstream 2 pipeline in a timely manner. That will need to be weighed against the need to bolster its reputation as a reliable supplier.



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September 21 2021

Commentary by Eoin Treacy

Uber shares jump after finally set to halt quarterly losses

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

Uber did, too, but its sprawling business operates in many more countries and offers many other services besides rides.

Those aspects were not nearly as profitable and its report of second-quarter losses dismayed investors. Uber faces increased competition for its food delivery service and uncertain demand for its rides as the pandemic lingers in many parts of the world.

The boom in food delivery during the pandemic skewed Uber's business towards a lower-margin segment that might have weighed on efforts to become profitable, Bloomberg Intelligence analyst Mandeep Singh wrote in September.

However, customers hung on to their habits of getting hot meals sent directly to their homes, even as lockdown restrictions eased in many countries. UK rival Deliveroo plc reported a surge in revenue and orders in the first half of the year.

Uber still faces pressure from politicians and regulators on the status of its drivers. It recently lost a Dutch suit, where a court ruled that those who ferry passengers using the Uber app in the Netherlands are covered by a local collective labour law. In August a California state judge struck down a voter-approved ballot measure bankrolled by Uber and other gig-economy companies that declared drivers for the companies were independent contractors.

Eoin Treacy's view -

Companies like Uber and Lyft achieving profitability is no small achievement and suggests the companies are successfully transitioning from growth to income. The companies’ continued success is based on the assumption that their will continue to benefit from the disintermediation of the taxi and restaurant sectors.



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September 20 2021

Commentary by Eoin Treacy

Video commentary for September 20th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: China Evergrande contagion spreads to Hong Kong and globally. Buy the dip mentality prevails on Wall Street for now, commodities weak but oil steadies and gold firms, bonds yields compress on slowdown/deflatino fears.  



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September 20 2021

Commentary by Eoin Treacy

Market Contagion Tests Xi's Resolve on Evergrande, Property Curbs

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

The response so far has been largely limited to the People’s Bank of China, which injected a net 90 billion yuan into the banking system on Friday. It added another 100 billion yuan on Saturday.

Evergrande has around $300 billion worth of liabilities, more than any other property developer in the world. It’s a whale in China’s high-yield dollar bond market, accounting for about 16% of outstanding notes. Some $83.5 million of interest on a five-year dollar bond comes due Thursday, and failure to pay within 30 days may constitute a default. Evergrande also needs to pay a 232 million yuan ($36 million) coupon on an onshore bond the same day.

Evergrande’s shares lost as much as 19% on Monday, briefly taking its market value to the lowest on record. The stock closed 10% lower.

“With policy makers showing no signs of wavering on property market deleveraging, the latest headlines regarding Evergrande likely suggest that housing activity may deteriorate further in the absence of the government providing a clear path toward an eventual resolution,” Goldman economists led by Hui Shan wrote in a Sunday note.

Eoin Treacy's view -

The world is finally waking up to the contagion risk represented by China Evergrande. The big question which still needs to be addressed is who owns the company’s debt. Most of the $300 billion in US Dollar bonds were sold to international investors, while there is also an undisclosed sum in off balance sheet liabilities.



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September 20 2021

Commentary by Eoin Treacy

Dow Theory

Eoin Treacy's view -

In classic Dow Theory both the Industrials and Transportations Averages have to be making new highs to confirm a bull market for the US market. The logic is pretty simple. When the companies that make stuff and ship it around the country are doing well, it’s reasonable to conclude the economy and markets will prosper.



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September 20 2021

Commentary by Eoin Treacy

The Third Revolution in Warfare

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

An example of an autonomous weapon in use today is the Israeli Harpy drone, which is programmed to fly to a particular area, hunt for specific targets, and then destroy them using a high-explosive warhead nicknamed “Fire and Forget.” But a far more provocative example is illustrated in the dystopian short film Slaughterbots, which tells the story of bird-sized drones that can actively seek out a particular person and shoot a small amount of dynamite point-blank through that person’s skull. These drones fly themselves and are too small and nimble to be easily caught, stopped, or destroyed.

These “slaughterbots” are not merely the stuff of fiction. One such drone nearly killed the president of Venezuela in 2018, and could be built today by an experienced hobbyist for less than $1,000. All of the parts are available for purchase online, and all open-source technologies are available for download. This is an unintended consequence of AI and robotics becoming more accessible and inexpensive. Imagine, a $1,000 political assassin! And this is not a far-fetched danger for the future but a clear and present danger.

We have witnessed how quickly AI has advanced, and these advancements will accelerate the near-term future of autonomous weapons. Not only will these killer robots become more intelligent, more precise, faster, and cheaper; they will also learn new capabilities, such as how to form swarms with teamwork and redundancy, making their missions virtually unstoppable. A swarm of 10,000 drones that could wipe out half a city could theoretically cost as little as $10 million.

Eoin Treacy's view -

If the cost to the aggressor is reduced, that’s a problem for regular civilians. That’s really not good news and suggests the toll in terms of casualties in future wars will be considerably higher than anything seen in a century.



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September 17 2021

Commentary by Eoin Treacy

September 17 2021

Commentary by Eoin Treacy

Lucid Air blows past the competition (Tesla) with 520-mile EPA range

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

When Lucid Motors first announced its Air sedan would return 517 miles (832 km) on a single charge, it sounded too good to be true. But Lucid didn't think so, having hired an independent test firm to run it through the EPA cycle. A year and change later, Lucid's best-in-market electric car range stands. The official EPA numbers are out and show that the first 2022 Air models will all surpass the 405-mile (652 km) EPA benchmark set by the 2021 Tesla Model S Long Range, with the longest-distance variants breaking 500 miles.

Eoin Treacy's view -

The gauntlet has been thrown down. The Lucid vehicle has a longer range and charges faster than Tesla’s best in class vehicle. Right now, it costs about double what a Tesla does and deliveries are only just starting but the equivalent of an electric vehicle arms race is beginning.



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September 17 2021

Commentary by Eoin Treacy

Email of the day on Microsoft

would be interested in your views of Microsoft's price chart at present. I know you have been cautious over the past few years, and have even questioned the presence of a catalyst as a reason to expect limited upside going forward. Yet, a reasonably consistent upward pattern continues to play out. As always, your insights and perspectives are genuinely appreciated.

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. I was indeed cautious about the prospects for mega-caps in 2019 because we had an inverted yield curve, tightening liquidity and it was not apparent where the next big growth bump would come from.



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September 17 2021

Commentary by Eoin Treacy

How China's Pollution Fight Is Roiling Commodities

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

The growing importance of the environment in Beijing’s policy mix has left commodities markets caught between decelerations in both supply and demand. Iron ore prices more than halved between mid-May and mid-September as the steel production limits slashed demand for the steel-making ingredient. Aluminum, meanwhile, has jumped 46% so far this year as Chinese production -- more than half the world’s total --  of the energy-intensive metal is cut. The curbs on coal are particularly eye-catching because China has been wrestling with an unprecedented spike in the cost of the fuel. Coal futures in Zhengzhou hit a record in September, defying what should be a seasonal slowdown in demand. Any further cutbacks on output would run counter to the government’s pledges to stabilize prices by encouraging more domestic supply. It also would make another round of power rationing for industry more likely. Since coal is the major energy source in China for the production of fertilizer, its price has also soared.

Eoin Treacy's view -

The big question for many commodity investors is how serious is China about curtailing emissions? Perhaps a better question is how important is it to China’s leadership that the country look good ahead of the Winter Olympics in less than five months? Very important, is probably an understatement.



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September 16 2021

Commentary by Eoin Treacy

September 16 2021

Commentary by Eoin Treacy

Macau's Future in Doubt as Crackdown Spurs Global Casino Selloff

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

“Macau is already experiencing a challenging period where its top two biggest markets, the mainland and Hong Kong, are already constrained in terms of permitted travel,” said Ben Lee, a Macau-based managing partner at gambling consultancy IGamiX. “Add to that the recent crackdown on gambling as well as money channeling, one could easily draw the conclusion that the size of the market going forward will likely remain tightly controlled.”

Eoin Treacy's view -

This additional article discussing renewed efforts to clamp down on bitcoin mining may also be of interest. https://news.bloomberglaw.com/securities-law/china-said-to-intensify-hunt-for-cryptocurrency-miners-in-hiding



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