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March 16 2020

Commentary by Eoin Treacy

Fed Has Acted Yet Dollar Funding Markets Remain Under Pressure

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

Over the past week, the Federal Reserve has hit the U.S. dollar funding markets with a barrage of liquidity and tools to ensure they remain lubricated. Yet indicators of funding stress are still showing pressure.

In an emergency action Sunday, the central bank slashed interest rates to zero, adjusted the parameters of global dollar swap lines, in additional to offering trillions of dollars of liquidity via operations for repurchase agreements. Here’s what some of the key metrics have to say about the level of distress in the financial system:

Despite the Fed action, the repo market remains volatile. At one point during Monday’s trading session, the rate for overnight general collateral was around 2.50%, according to ICAP, which is well above the central bank’s new target range for the fed funds rate of 0% to 0.25%. While the bid-ask spread is now around 2%/1.25%, the central bank said it plans to conduct another overnight repo offering of up to $500 billion.

Cross-Currency Basis Swaps
The Fed on Sunday also lowered the rate on its U.S. dollar liquidity swap lines in coordination with other central banks. As a result, the three-month cross-currency basis for dollar yen -- a proxy for how expensive it is to get the greenback -- briefly spiked to its widest on record Monday in Asian trading before pulling back, according to Bloomberg data since 2011. Strategists at Bank of America believe volatility may persist until the Fed fixes the commercial-paper market and there are “more avenues available to secure USD funding.”

Libor-OIS
The gap between the London interbank offered rate and overnight index swaps expanded Monday to the widest level since 2009, led by an increase in Libor’s three-month tenor.

Widening: QuickTake
Rates on three-month commercial paper for non-financial companies reached the highest level since the financial crisis relative to OIS. This suggests companies may be having difficulty selling commercial paper, as they tend to do during times of stress. As a result, Wall Street strategists expect the Fed to announce a resurrection of a crisis-era facility for commercial paper.

Eoin Treacy's view -

The Fed reactivating swap lines between other central banks, cutting rates to zero, reducing reserve requirements for banks to zero and announcing a $700 billion quantitative easing program all point to a clear effort to ensure the financial system remains liquid as the economy shuts down. Ensuring liquidity is a priority for central banks but it is a factor that sends a signal to stock market investors that there may be something else they need to pay attention.



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March 16 2020

Commentary by Eoin Treacy

An Anguished Cry From the NHS Front Line: Coronavirus Is About to Explode Among Medical Staff

This article by Ambrose Evans-Pritchard for the Telegraph may be of interest to subscribers. Here is a section:

It strikes them as preposterous that you could achieve anything close to the threshold level of immunity - ultimately 60pc - over the six month window of time available to us before the second (more dangerous?) wave hits in the autumn.

The explosive rise in cases - with 13pc needing intensive care in the Italian region of Lombardy - would smash the system.

As a sample, I offer extracts from an email received on Sunday from consultant cardiologist at a top British hospital, with high-powered credentials, who is working in the front line.

His Whatsapp group of 10 fellow doctors has a Wuhan sense of frustration about it. Things are going horribly wrong. Covid-19 is taking off among NHS staff.

“One of them seems to probably have Covid, as has multiple symptoms. Two of them have personally treated a patient with Covid before the patient was diagnosed, eg with no protective measures in place. It is clear that there are certainly multiple cases amongst staff and patients in every NHS hospital today, and they are actively spreading, with nothing stopping them.

"One of the 10 is in his 50s, and has somewhat restricted lung capacity because of an orthopaedic problem – he spent this weekend making a will and putting his affairs in order. He had realised that with the current NHS leadership, there was basically nothing he could do to avoid catching it in coming days. Crunching the statistics, he realised that several consultants in the hospital will probably die.

“We have received no advice at all to take any measures to reduce spread in the hospital. Where the South Koreans were attending hospital in full hazmat suits, I will be arriving in my suit and
tie tomorrow with nothing to prevent me catching it, and working in an operating theatre that a Covid patient was in on Friday, nobody aware that he had it, and the staff members I will be working with, will all have been in contact with that patient.

Eoin Treacy's view -

“Panic early” or “Keep Calm and Carry On”? That is the decision provided to the UK government last week and they went with the latter, which was the wrong move. They are now, belatedly organising a change of heart. Social distancing is now top priority and not before time. What we now need to see is a clear follow through on shutting down contact between infected people and a massive ramp up of testing.



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March 16 2020

Commentary by Eoin Treacy

Email of the day on lists dividend aristocrats

I used to be able to find a list at the chart library for a list of the shares that are dividend aristocrats by Eoin. I was unable to do so today. Is it still available and if so, can you please advise how I can reach it? Tks in adv.

Eoin Treacy's view -

Thanks for this question which others may have an interest in. The route to find the lists of dividend aristocrats is to open the Chart Library. Select the International Equity Library. The lists of Dividend Aristocrats stocks are the second item on the left-hand column. Here is a link to the lists
 



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March 13 2020

Commentary by Eoin Treacy

March 13 2020

Commentary by Eoin Treacy

Email of the day - on what the market reaction to the coronavirus portends

Today’s commentary regarding the developing crisis in the credit markets is a major concern.  With that worry in mind, the Boeing chart and S & P Banks Index chart become alarming. 

The financial markets appear to have been kept afloat only by increasing credit at lower and lower interest rates which may have reached their bottom limit.

In Australia, the COVD-19 is already affecting the economy.  A New Zealand/Australia cricket match today was played without spectators.  Next week’s opening round of Australian football will also be played behind closed doors!  Micro businesses, such as coffee shops, are reducing staffing levels.  Small business loan defaults are inevitable and will put extra pressure on banks which are already under threat.

Are equity markets signalling a debt crisis that even the Fed cannot overcome?

And

Thanks for your calm evaluation of the current situation. I just want to remind the collective of one of David's mantra: I remember him saying, "If you are going to panic, panic early". I know it is not easy but with your analysis of past recessions, would you be willing to make a very rough prediction as to how long do you think before markets will start to stablise. Thanks again. Best rgds

Eoin Treacy's view -

Florida has hurricanes every year. People know when they are coming, so they stock up on essentials, take out a subscription to Netflix and hunker down to wait it out for a few days. Hurricanes have an economic impact that measures in the billions because of the damage done to physical infrastructure but economies pick right back up afterward because of the additional spending on rebuilding. It’s the classic version of the broken window argument in economic theory.

Hurricanes cause isolated credit events in the most overleveraged, least well-insured businesses but does not result in a wider credit event even when they are particularly disastrous like Hurricane Katrina. The coronavirus is worse than a hurricane. Let’s try and unpick why that is:



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March 13 2020

Commentary by Eoin Treacy

Eoin's personal portfolio: commodity long stopped out at loss, stock market index short opened

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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March 12 2020

Commentary by Eoin Treacy

Video commentary for March 12th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Central banks fail to placate investor fears, Wall Street declines further. solvency issues coming to fore with overvaluation, leverage and liquidity issues all coming to the fore, India breaks down, cloud following the market down.



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March 12 2020

Commentary by Eoin Treacy

Blackstone, Carlyle Urge Portfolio Companies to Tap Credit

This article by Sridhar Natarajan and Heather Perlberg for Bloomberg may be of interest to subscribers. Here is a section:

The moves -- along with similar plans by Hilton Worldwide Holdings Inc., Wynn Resorts Ltd. and Boeing Co.-- are signs of the uncertainty coursing through corporate America as a global pandemic, a price war in oil markets and other problems threaten to tip the U.S. economy into a recession. A sudden and sustained increase in companies tapping credit lines could eventually strain banks if conditions become so dire that borrowers won’t be able to meet their obligations.

Lenders offer revolving credit lines to strengthen relationships with companies and don’t typically intend for them to be drawn upon en masse. In normal times, revolvers serve as the corporate equivalent of credit cards, giving companies room to borrow as needed and repay when shortfalls ease. Under normal
circumstances, the lines are seldom maxed out. Extensive use can be seen as a harbinger of distress.

Oil and natural gas companies can come under particular funding stress when prices fall. That’s because their credit lines are periodically updated based on market prices, potentially motivating companies to tap them early.

Blackstone’s private equity operation is the firm’s largest business by assets, at $183 billion. Energy accounts for almost 10% of the total portfolio, the New York-based company said in October. Rival private equity firms also are weighing similar actions, according to executives at two of them.

“From an economic perspective, the virus has created dislocation in the market and fear among the people,” Blackstone co-founder Stephen Schwarzman said in an interview in Mumbai last week. “Once that starts, one has to find the impact of negative consequences.”

Eoin Treacy's view -

Sequoia kicked off efforts to lock down funding last week with its memo to partner companies and other private equity companies are following suit this week. Additionally, large companies with potential cashflow issues are also drawing down on credit lines. That is putting strain on banking balance sheets as they attempt to deal with the cut to interest margins and the potential clients will have solvency issues.



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March 12 2020

Commentary by Eoin Treacy

Fed to Widen Treasury Buying, Expand Repo to Ease Market Strain

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

U.S. stocks trimmed staggering losses of more than 8% earlier in the day as investors absorbed the Fed’s muscular decision.

The buying will include coupon-bearing notes and match the maturity composition of the Treasury market, it said. Ten-year U.S. Treasury yields fell sharply to trade around 0.68%.

“The Treasury securities operation schedule includes a change in the maturity composition of purchases to support functioning in the market for U.S. Treasury securities,” the New York Fed said.

Term repo operations in large size have also been added to help markets function, it also said. The New York Fed said it would offer $500 billion in a three-month repo operation at 1:30 p.m. and repeat the exercise tomorrow, along with another $500 billion in a one-month operation, and continue on a weekly basis for the rest of the monthly calendar.

Eoin Treacy's view -

The call on the repo market is likely to continue to rise because banks, the world over, are increasingly starved of liquidity. The liquidity shortage that appeared in Q3 was but a foretaste of the difficult environment we are currently presented with and suggests the remedial action to ensure property functioning of the money markets is going to be significantly larger than currently envisioned.



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March 12 2020

Commentary by Eoin Treacy

Risk Parity Trade Made Famous by Ray Dalio Is Now Ringing Alarms

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

Vontobel Asset Management’s risk-parity product has cut its stock position from 140% about a month ago to around 28%, while its bond exposure remains around 260%, says head of multi-asset Daniel Seiler.

“You reduce your volatility with a negative correlation and if that is not the case anymore, you will obviously need to reduce the volatility with a different measure and this could deleverage your whole portfolio,” he said from Zurich, referring to the link between bonds and shares.

On a positive note, for both asset classes to fall in tandem for an extended period, “what you would need is an inflationary shock and at the moment I don’t see that at all,” Seiler added.

With bond yields now so low, there are others on Wall Street who may disagree.

Eoin Treacy's view -

An inflation scare is one possible scenario where both bonds and equities fall at the same time. It is not the only one. Against a background where the pace of economic activity is taking a war-like dislocation the bigger risk is a solvency crisis or a liquidity crisis.



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March 12 2020

Commentary by Eoin Treacy

Coronavirus: Why You Must Act Now

This article by Tomas Pueyo is the best write-up on the spread of the coronavirus I have seen. Here is a section:

 

Here, you can just use a share of official cases to true cases. How to decide which one? For the Bay Area, they were testing everybody who had traveled or was in contact with a traveler, which means that they knew most of the travel-related cases, but none of the community spread cases. By having a sense of community spread vs. travel spread, you can know how many true cases there are.

I looked at that ratio for South Korea, which has great data. By the time they had 86 cases, the % of them from community spread was 86% (86 and 86% are a coincidence).

With that number, you can calculate the number of true cases. If the Bay Area has 86 cases today, it is likely that the true number is ~600.

France and Paris
France claims 1,400 cases today and 30 deaths. Using the two methods above, you can have a range of cases: between 24,000 and 140,000.


The true number of coronavirus cases in France today is likely to be between 24,000 and 140,000.

Let me repeat that: the number of true cases in France is likely to be between one and two orders or magnitude higher than it is officially reported.

Don’t believe me? Let’s look at the Wuhan graph again.

Eoin Treacy's view -

Testing as many people as possible, isolating anyone who has come into contact with an infected individual and curtailing travel everywhere is the only way we are going to see a decline in the number of new cases. The pressure health services come under as the number of new severe cases explodes is non trivial and is the primary reason the death rate in Italy is so high. Unfortunately, the USA’s reliance on private healthcare, motivated by profits rather than potential need, is hampering the ability to get tests done.  

Early action in locking down community transmission is the only solution and even if it is not early it is still the only solution. My family has been on a social distancing regime for the 10 days week. I cancelled all travel, but we are going on full self-quarantine after school today. Even then our school has not yet closed but that seems inevitable at this stage.

 



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March 11 2020

Commentary by Eoin Treacy

Video commentary for March 11th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: bonds and equities sell off together, S&P500 in the region of the 1000-day MA, oil and gold weak, Dollar steadies, fallout from the coronavirus is promoting massive monetary and fiscal stimulus but it has yet to gain traction in asset prices. 



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March 11 2020

Commentary by Eoin Treacy

ECB's Lagarde Warns of 2008-Style Crisis Unless Europe Acts

This article by Fergal O'Brien for Bloomberg may be of interest to subscribers. Here is a section:

Lagarde told European Union leaders on a conference call late on Tuesday that without coordinated action Europe “will see a scenario that will remind many of us of the 2008 Great Financial Crisis,” according to a person familiar with her comments. With the right response, the shock will likely prove
temporary, she added.

Lagarde said her officials are looking at all their tools for Thursday’s policy decision, particularly measures to provide “super-cheap” funding and ensure liquidity and credit don’t dry up, said the person, who declined to be identified because the call was private.

Still, she stressed that central-bank measures can only work if governments throw their weight behind them too, with steps to ensure banks keep lending to businesses in affected areas, said the person. An ECB spokesman declined to comment.

Lagarde spoke hours before the Bank of England became the latest central bank to take emergency action. It announced a 50 basis point interest-rate cut early Wednesday, combined with measures to help keep credit flowing, and said it still has more policy space to act if needed.

Eoin Treacy's view -

The ECB has been cautioning Eurozone governments for much of the last decade that fiscal stimulus has to be part of the solution to the region’s debt/growth challenges. That exhortation has fallen on deaf ears as the region’s creditors imposed fiscal conservativism on the most profligate debtors.



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March 11 2020

Commentary by Eoin Treacy

BOE Cuts Rates in Coordination With Treasury Virus Response

This article by Fergal O'Brien, David Goodman and Anooja Debnath for Bloomberg may be of interest to subscribers. Here is a section:

Chancellor of the Exchequer Rishi Sunak announced 30 billion pounds ($34 billion) of fiscal stimulus and pledged to spend 600 billion pounds by 2025 on a massive infrastructure program, alongside measures to help businesses and the National Health Service weather the disruption from the disease.

The European Central Bank is expected to join the easing this week after President Christine Lagarde warned leaders on Tuesday that the crisis has echoes of 2008.

“The bazookas are loaded and the BOE just fired their first salvo,” said Luke Hickmore, investment director at Aberdeen Standard Investments. “It seems unfeasible that the ECB does not also find ways of supporting the banking system. Europe needs to get its act together -- and act together.”

Eoin Treacy's view -

The predictable 50 basis cut to the Bank of England’s interest rates is the first volley in a range of supports. The announcement of massive infrastructure spending, fiscal deficits but less bond issuance than originally anticipated is all designed at making the best of a bad situation. That final point where less bonds were issued than expected was probably aimed at countering the claim Modern Monetary Theory is being deployed.



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March 11 2020

Commentary by Eoin Treacy

Boeing Plans Full Drawdown of $13.825 Billion Loan

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

Boeing obtained the loan from a group of banks last month to help it deal with its cash burn while it prepares to return its 737 Max plane to the skies. It initially tapped about $7.5 billion of the debt, and is now expected to draw the rest, said the people, asking not to be named discussing private information. Boeing plans to draw the remainder of the loan as a precaution due to market turmoil, one of the people said.

Companies affected by the virus are increasingly turning to banks for short-term financing to provide a safety net. United Airlines Holdings Inc. raised $2 billion in new liquidity with a secured term loan, while Norwegian Cruise Line Holdings Ltd. recently signed a new $675 million revolver. Should credit conditions worsen, more firms may start to draw down their credit lines, market watchers say. Boeing’s loan came about before Covid-19 spiraled into a global crisis and was expected to be fully drawn eventually.

“They want to have cash on the balance sheet,” said Bloomberg Intelligence’s Matthew Geudtner. The Max grounding, the company’s joint venture with Embraer SA and looming debt maturities will also weigh on Boeing’s cash hoard, he said.

Eoin Treacy's view -

The easiest way to determine where the biggest risks reside in this market is to use this metric: Whatever people were worried about in 2019, the coronavirus makes things worse.



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March 11 2020

Commentary by Eoin Treacy

Eoin's personal portfolio: commodity long initiated February 18th 2020

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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March 10 2020

Commentary by Eoin Treacy

Video commentary for March 10th 2020

March 10 2020

Commentary by Eoin Treacy

Market Makers "Didn't Show Up for Work," Macro Risk CEO Says

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

“It’s literally as if the market makers didn’t show up for work,” Curnutt said in a Bloomberg Television interview, referring to options and junk-bond exchange-traded funds such as the iShares iBoxx High-Yield Corporate Bond ETF, known by its ticker, HYG. “The posted bid-offers on the screens illustrated that there was no one in the market posting for something that is one of the more liquid -- usually -- hedges to use.”

Banks have been constrained by rules created after the 2008 financial crisis. That has pushed some market-making activity to other types of financial institutions including Citadel Securities and Virtu Financial Inc., which was one of a handful of firms that rose in trading Monday as the S&P 500 slipped
7.6%.

“The traditional liquidity provider in times of stress -- the bank -- really isn’t there,” John McClain, portfolio manager at Diamond Hill Capital Management, said in an interview. “Banks themselves have a lot more regulation around what they can be doing.”

Still, for all that, trading was relatively orderly in HYG and other debt ETFs, especially compared with the underlying bonds. The liquidity concerns still didn’t mean there was a “full-blown breakdown in markets,” Curnutt said.

Philipp Hildebrand, vice chairman of BlackRock Inc., agreed. “I was there in 2008, and the difference is the financial system essentially seized up, which is not what happened, at least not so far,” he said. “It’s an important signal that the ETF market functions.”
 

Eoin Treacy's view -

ETFs have been a wonderful innovation which have opened up asset classes which were never previously available to retail investors. They have also allowed the cost of investing to come down and reduced performance deviation from the broad market averages. The challenge is ETFs can often be more liquid than their underlying indices and instruments. That represents a significant challenge in times of stress and particularly during bouts of contagion selling.



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March 10 2020

Commentary by Eoin Treacy

Shale's Profitability Problem Just Became Much Worse

This article by Rachel Adams-Heard and Kevin Crowley for Bloomberg may be of interest to subscribers. Here it is in full:

With West Texas Intermediate crude trading just above $30 a barrel, America’s shale producers’
profitability problem just became much worse. Only a handful of companies in two areas of the country have breakeven costs lower than the current oil price. Wells drilled by Exxon Mobil Corp., Occidental Petroleum Corp. Chevron Corp. and Crownquest Operating LLC in the Permian Basin, which stretches across West Texas and southeastern New Mexico, can turn profits at $31 a barrel, data compiled by Rystad Energy show, while Occidental’s wells in the DJ Basin of Colorado are also in the money at that price, which is where oil settled Monday. For everyone else, drilling new wells will almost certainly mean going into the red.

Eoin Treacy's view -

The most expensive segments of the oil sector focusing on higher cost production are at risk of being shut in. Even in the best of times a lot of offshore supply has a $40 cost of production but deepwater and Brazil’s pre-salt can stretch to $70. Canada’s tar sands can be among the highest cost production areas but legacy operations have lower costs. Meanwhile the low-price environment is likely to represent an acceleration in the pace of consolidation in the unconventional sector.



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March 10 2020

Commentary by Eoin Treacy

Xi Jinping visits Wuhan, in major show of confidence as China turns corner on coronavirus

This article by James Griffiths for CNN may be of interest to subscribers. Here is a section:

He "will visit and express regards to medical workers, military officers and soldiers, community workers, police officers, officials and volunteers who have been fighting the epidemic on the front line, as well as patients and residents during the inspection," Xinhua reported.

That Xi can visit the city suggests the government has supreme confidence in his safety and epidemic controls put in place there. The closest he previously came to the frontlines of the outbreak was visiting virus treatment centers in the capital Beijing, which has far fewer cases than Wuhan.

Senior government officials, including Vice Premier Sun Chunlan and Premier Li Keqiang, have visited Wuhan, but it was assumed until now that the risk to Xi, even if slight, was not worth the potential cost. Since taking office in 2011, Xi has centralized authority massively, becoming China's most powerful leader since Mao Zedong, and were the 66-year-old to fall ill, that could seriously destabilize the political system.

Eoin Treacy's view -

Xi’s visit to a heavily sanitised sites in Wuhan is clearly aimed at signaling China is over the worst of the epidemic. What is less reported on is they have simply stopped counting. The majority of regions outside Hubei are only counting serious cases and ignore people with mild symptoms or those who are asymptomatic.



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March 10 2020

Commentary by Eoin Treacy

Britain Seen Announcing Biggest Bond Deluge in Nearly a Decade

This article by John Ainger and Greg Ritchie for Bloomberg may be of interest to subscribers. Here is a section:

 

“Market momentum this powerful will not be reversed by even a very large supply shock,” said John Wraith, a U.K. rates strategist at UBS Group AG in London. “Negative yields are clearly a possibility, especially in safest, shortest issues.” The scope of estimates from primary dealers of U.K. government bonds, known as gilt-edged market makers, was broad ranging.

The most conservative -- Morgan Stanley -- sees a supply of 146.3 billion pounds, while Nomura International Plc estimates an increase to 185 billion pounds. That’s a level not trumped since former leader Gordon Brown oversaw a record 228 billion in 2009-10 to help extricate the country from the financial crisis.

Now that Johnson has delivered on his election promise to “get Brexit done” after years of political turmoil, to retain support he must address the concerns of those in some of the poorest regions of the U.K. That requires funding for infrastructure, health care and job creation. Finance minister Rishi Sunak on Sunday hinted the nation’s fiscal rules could be ditched as he prepares a massive package of measures to tackle the coronavirus crisis.

Eoin Treacy's view -

The entire UK yield curve is a couple of interest rate cuts from negative yields so it is an ideal time for the government to borrow more than it needs to ensure ample liquidity to combat the negative effect of the coronavirus, to placate a restive population eager for better standards of living and to ensure a smooth exit from the EU.



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March 09 2020

Commentary by Eoin Treacy

Video commentary for March 9th 2020

March 09 2020

Commentary by Eoin Treacy

Wall Street Urges Shock-And-Awe Stimulus to End Market Bleeding

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

“Overall we expect declines in equities to continue until the coordinated response has a size where it offsets the impact from COVID-19,” said Peter Garnry, head of equity strategy at Saxo Bank. “What is happening now is that oil price war and COVID-19 have increased the probability of a new credit crisis.”

As such, the stars may be aligning for extraordinary stimulus. “If fiscal expansion comes with explicit guarantee from the central bank to backstop any funding required then you basically have the closest you get to ‘helicopter money’” said Garnry. “It’s too early at this point but it all depends on how the global pandemic plays out and whether we get another credit crisis.”

Ian Shepherdson, founder of Pantheon Macroeconomics, said on Twitter rising coronavirus cases in the U.S. could see the Fed cut rates to zero and a $1 trillion stimulus package. In the meantime, potentially brace for the Treasury curve to fall near zero with the S&P 500 tumbling further, he wrote.

Former Fed economist Claudia Sahm suggests the federal government should send money to people affected, push banks to ease pressure on borrowers and boost unemployment support. Bill McBride, who runs the Calculated Risk blog, has floated making all virus tests free and expanding insurance for the jobless.

Eoin Treacy's view -

Monetary policy beats most other factors most of the time has been a refrain at this service for decades. There is clear need for combined monetary and fiscal stimulus from most countries and if that is coordinated then all the better. However, while these kinds of supports for consumer activity are necessary, we need to also see progress made in the spread of the virus.



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March 09 2020

Commentary by Eoin Treacy

Rosneft Plans to Increase Output as Russia Digs in for Price War

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

Last week in Vienna, ministers from Russia, Saudi Arabia and other members of the group left a fractious meeting with no deal to continue the cuts beyond April 1. Saudi Arabia heavily discounted its oil over the weekend, triggering a plunge of more than 20% in international crude futures.

Rosneft’s London-listed shares dropped 19.5% on Monday, while markets in Moscow were closed for a public holiday. In a separate statement, Russia’s finance ministry said that the country’s oil-wealth reserves would be sufficient to cover lost revenue “for six to 10 years” at oil prices of $25 to $30 a barrel.

 

Eoin Treacy's view -

Unconventional oil and gas has been one of the biggest gamechangers for the global economy in history. When the world’s biggest consumer, where production peaked decades ago morphs into the world’s biggest producer and a net exporter it changes the fundamentals and interrelationships of the market.



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March 09 2020

Commentary by Eoin Treacy

Recession Looms in Europe as French Demand 'Call to Arms'

This article by William Horobin and Fergal O'Brien for Bloomberg may be of interest to subscribers. Here is a section:

The downbeat assessments come amid a meltdown in financial markets not seen since the height of the global financial crisis in 2008. It marks a grim start to the week for European Central Bank policy makers, who meet in Frankfurt and may be forced to lower interest rates and step up bond purchases. The U.S. Federal Reserve has already acted, with an unexpected easing last week.

“I want a strong, massive, coordinated response,” Le Maire said on France Inter Radio as the central bank slashed the outlook for the country’s economic expansion this quarter to 0.1% from 0.3%.

“We should work on a stimulus plan with fiscal and budgetary measures, and tax cuts, so that when the epidemic crisis is over we can relaunch the economic machine,” he said. The virus is another blow to the euro area’s second-largest economy, after disruption from strikes caused output to shrink at the end of 2019.

“This slowdown is potentially severe but temporary,” Bank of France Governor Francois Villeroy de Galhau said in a rare statement accompanying the report.

Eoin Treacy's view -

The markets tend to test new central bankers and Christine Lagarde’s honeymoon period is definitely over. The ECB will be expected to lay out what kind of assistance it is willing to provide. While room for interest rate cuts is limited because they are already so low, there is plenty they have do to ensure ample liquidity in the system.



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March 09 2020

Commentary by Eoin Treacy

South Korea's Virus Outbreak May Be Slowing, Officials Say

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

This article highlights widespread testing as one of the primary reasons South Korea has been able to make headway against the outbreak. Here is a section:

South Korea has borne its virus outbreak relatively well despite the scale of the spread. The country has been testing people for the virus at the fastest pace in the world, which appears to have allowed early detection of cases and keep its mortality rate lower than average. Infections have also been largely contained to Daegu and surrounding areas, although the government has not imposed restrictions over people’s movements like in China and Italy.

“New cases of coronavirus have been continuously slowing down, to 248 yesterday, after reaching a peak of 916 on Feb. 28. We should continue this trend,” President Moon Jae-in said in a meeting with his senior secretaries Monday. “Still, we need to stay vigilant as sporadic small group infections in Daegu, North Gyeongsang and other areas continue.”
 

Eoin Treacy's view -

The growth rate of South Korea’s cases appears to have peaked which suggests the measures put in place so far have helped contain the spread. The Kospi Index pulled back sharply today to test its recent lows.



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March 06 2020

Commentary by Eoin Treacy

March 06 2020

Commentary by Eoin Treacy

Covid-19 and Global Dollar Funding

Thanks to a subscriber for this edition of Zoltan Pozsar and James Sweeney’s report for Credit Suisse on the plumbing of the global financial sector. Here is a section:

Eoin Treacy's view -

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

The Credit Suisse team do an excellent job of highlighting where the risks are and provide a handy list of instruments to monitor to get an idea of how liquidity flows are functioning.

The repo market illiquidity in September was a signal to everyone that the tightening program had gone too far. There was nowhere near enough available capital in the system to allow the global money market to function. The Fed stepped in with a large swift injection of liquidity; inflating its balance sheet by $400 billion in four months.



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March 06 2020

Commentary by Eoin Treacy

Email of the day on the coronavirus infection rate

On coronavirus: figures from US I note that 14 people have now died in US from this disease and yet only 250 other cases have been identified. Would I be right in concluding that as the mortality rate is 1%, around 900 other cases are unidentified because of the absence of testing kits?

Eoin Treacy's view -

The WHO announced a mortality rate of 3.4% today but in order to come up with a true figure a large statistical sample needs to be taken and as of today only about 2000 people have been tested in the USA. A reliable figure for the mortality rate will probably only be arrived at after the virus has run its course and emergency measures give way to more careful study. The most relevant statistic for subscribers is the most at risk group is over 70. That means look after yourself and do everything to protect at risk individuals from infection.



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March 06 2020

Commentary by Eoin Treacy

Coronavirus: The Black Swan of 2020

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

Unfortunately, because of Sequoia’s presence in many regions around the world, we are gaining first-hand knowledge of coronavirus’ effects on global business. As with all crises, there are some businesses that stand to benefit. However, many companies in frontline countries are facing challenges as a result of the virus outbreak, including:

Drop in business activity. Some companies have seen their growth rates drop sharply between December and February. Several companies that were on track are now at risk of missing their Q1–2020 plans as the effects of the virus ripple wider.

Supply chain disruptions. The unprecedented lockdown in China is directly impacting global supply chains. Hardware, direct-to-consumer, and retailing companies may need to find alternative suppliers. Pure software companies are less exposed to supply chain disruptions, but remain at risk due to cascading economic effects.

Curtailment of travel and canceled meetings. Many companies have banned all “non-essential” travel and some have banned all international travel. While travel companies are directly impacted, all companies that depend on in-person meetings to conduct sales, business development, or partnership discussions are being affected.

It will take considerable time — perhaps several quarters — before we can be confident that the virus has been contained. It will take even longer for the global economy to recover its footing. Some of you may experience softening demand; some of you may face supply challenges. While the Fed and other central banks can cut interest rates, monetary policy may prove a blunt tool in alleviating the economic ramifications of a global health crisis.

Eoin Treacy's view -

The knock-on effect to consumer confidence from the coronavirus and most particularly its influence on social interaction is a wild card for the global economy. It should help to focus minds on how best to deal with the situation but the global response, so far, has been haphazard. 



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March 05 2020

Commentary by Eoin Treacy

March 05 2020

Commentary by Eoin Treacy

Email of the day - on volume data

I hope you and the family are enjoying a normal coronavirus free lifestyle?

I was looking at some 2 year charts recently, and I know you are not always   fan, but I noticed quite large volumes spikes on some individual co charts, but especially on the DJ and the NASDAQ. Near the end of 2018 and again last week major volume spikes. My experience over the last 50 years has taught me though it's not 100 0/0 accurate, volume spikes can be a very useful tool for gauging tops and bottoms, more so for lows. I just thought subscribers might find this food for thought!!

Eoin Treacy's view -

Thank you for your concern. I’ve got some travel coming up over the weekend which I am not especially thrilled about but it falls into the necessary category. I intend to take a number of infection prevention measures while travelling. Other than that, it has been business as usual since we have stocked up on just about everything.



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March 05 2020

Commentary by Eoin Treacy

The Coronavirus Hunter Is Racing for Answers in a Locked Lab

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

Over the last five years, Baric, working closely with Vanderbilt University infectious-disease specialist Mark Denison, tested almost 200,000 drugs against SARS, MERS and other bat coronavirus strains.  He found at least two dozen that appeared to hinder the virus.

Among the most promising was Gilead’s remdesivir, a drug that fared poorly when used against a recent Ebola outbreak in Africa. In the lab, it worked against numerous coronavirus strains, including SARS and other bat coronaviruses that are similar to the new strain. Every coronavirus it was tested on, “it had high potency and efficacy,” Denison says.

That work was fortuitous. In early January, Baric got an urgent call from an infectious-disease colleague to send his unpublished data on remdesivir to colleagues in China who were dealing with a then-mysterious outbreak. Baric says he “was shocked” to see how fast the coronavirus was spreading.

Since then, work at his lab has been virtually nonstop. Each scientist puts in from one to six hours inside two different clean rooms equipped to handle the virus. The lab’s workday begins at 6 a.m. and often goes until 11 p.m. Individual sessions are short for safety and practical reasons — researchers aren’t permitted to eat, drink or visit the bathroom once inside the lab. Everyone has to pass an FBI background check and undergo months of safety training.

Eoin Treacy's view -

The WHO has stated remdesivir is their best bet for a suitable treatment for coronaviruses. It’s another question whether Gilead will make money form that evolving market since it will be under extreme pressure to provide an affordable range of treatments ahead of a vaccine being developed over the next year. 



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March 05 2020

Commentary by Eoin Treacy

Coronavirus Spread in China Slows Sharply But Doubt Remains

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

Eighty-four percent of Chinese cases, 97% of critical cases and more than 96% of deaths are within the province, which was placed under mass quarantine by the government on Jan. 23 to slow the virus’ spread to the rest of the country. The ongoing lockdown of the region of 60 million people has led to widespread suffering and scores of preventable deaths as the local medical system collapsed under the strain.

The lockdown also meant that China’s fatalities from the pathogen have been confined almost entirely to the province. As of Wednesday, 4.3% of people who were confirmed to have the virus in Hubei have died, while that rate is 0.8% in China outside Hubei.

Over the past three weeks, China’s number of recovered patients has surged both in Hubei and the rest of the country, with the government sending in thousands of health-care workers to help in Hubei. Almost 65% of those who’ve been officially diagnosed with the disease are now better and out of hospital, according to the data from the National Health Commission on Thursday.

Eoin Treacy's view -

Loosening restrictions comes with a significant number of risks because the viral infection rate has capacity to ramp up again as people get back to work and particularly in the cramped conditions of factories. The bigger question is whether China is willing to tolerate community spread on the assumption most workers will recover in a relatively short period of time. I believe that is the most likely scenario considering the continued risk from domestic or imported infections.



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March 04 2020

Commentary by Eoin Treacy

Video commentary for March 4th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: interest rate sensitive sectors outperform as Canada follows other central banks in cutting interest rates. Wall Street rebounds on fiscal stimulus, Joe Biden's electoral success supports markets, gold and oil quiet, Bond prices very overbought. 



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March 04 2020

Commentary by Eoin Treacy

Nobody Knows II

Thanks to a subscriber for this memo from Howard Marks which may be of interest. Here is a section:

Eoin Treacy's view -

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

There is no doubting we saw evidence of contagion selling last week with everything selling off as quantitative strategies headed for the exits en masse and ditched ETF positions in the process. The growth of passive investing and the ease with which positions can be exited is contributing factor in the speed with which declines take place in today’s market.



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March 04 2020

Commentary by Eoin Treacy

Biden Reopens Path to Nomination That Was Out of Reach Days Ago

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

In politics, you have to win to win. And in the crucial Super Tuesday primaries in 14 U.S. states, Biden did just that, and Democratic voters singularly obsessed with defeating Trump finally began coalescing around their candidate.

There’s still a long road ahead for the former vice president. His chief rival, Bernie Sanders, won California -- the biggest prize of the entire nominating race -- where a runaway victory could give the Vermont senator enough delegates to blunt Biden’s gains on Tuesday. And the former vice president’s turnaround was made all the more remarkable because of his plunge from front-runner status, bruised and battered by a meandering campaign, lackluster fundraising and trademark gaffes.

Still, the whirlwind three days following Biden’s convincing win in South Carolina -- which propelled top rivals like Pete Buttigieg and Amy Klobuchar back the former vice president -- underscored the extent to which Democrats were ready to unite behind anyone perceived as ready to take on Trump.

“Just a few days ago the press and the pundits had declared the campaign dead,” Biden told supporters in Los Angeles. “I’m here to report, we are very much alive.”

Eoin Treacy's view -

The rise of Bernie Sanders to front runner status about ten days ago was a significant catalyst for profit taking in the wider stock market and was potentially the motivating factor behind the pricing in coronavirus fears.  
 



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March 04 2020

Commentary by Eoin Treacy

RBA Cuts Rates to 0.5% as China Slowdown Continues

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

“The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower,” Lowe said. “It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.”

In this case, though, Australia’s central bank isn’t going to have to face the downturn alone, with fiscal support in prospect.

“The Australian government has also indicated that it will assist areas of the economy most affected by the coronavirus,” Lowe said. Before the RBA meeting, Prime Minister Scott Morrison said the Treasury is working closely together with the other agencies “to address the boost that we believe will be necessary.”

Morrison urged major banks to pass on any RBA cut. The four top lenders have all since confirmed that mortgage rates will be reduced by the full amount.

The RBA now has only one 25 basis-point cut left in the locker before it reaches its effective lower bound of 0.25%. Lowe will find himself dragged toward quantitative easing, should the economy need further monetary stimulus.

Eoin Treacy's view -

The Australian Dollar has bounced over the last few days to partially unwind its oversold condition relative to the trend mean. The big question is whether the RBA will continue to hold the zero bound for interest rates and if it does that greatly increases scope for quantitative easing.



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March 03 2020

Commentary by Eoin Treacy

Video commentary for March 3rd 2020

March 03 2020

Commentary by Eoin Treacy

Treasury 10-Year Yield Sets Record Below 1% on Virus Fears

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

Though the Fed met Wall Street’s hopes for aggressive action with its half-point reduction, Chairman Jerome Powell seemed to unnerve markets by saying it’s unclear how long the virus’s impact will last. Traders were already pricing in another rate cut later this month, with more to come in June.

“The market is trading right now on a lot of fear and uncertainty,” said Gary Pollack, head of fixed income at DWS Investment Management. “The Fed certainly didn’t bring calm, and the virus continues. The Fed’s relatively large move also made people wonder what they know that we don’t.”

The central bank’s decision came a few hours after Group-of-Seven finance chiefs issued a coordinated statement saying they were ready to act to shield their economies from the virus. Policy makers faced pressure to act after the OECD warned the world economy faces its “greatest danger” since the 2008 financial crisis.

Eoin Treacy's view -

The market is pricing in the assumption the US economy is going to lock up in exactly the same fashion as the Italian or Chinese economies did as coronavirus concern/paranoia spreads. There is no doubt the virus is dangerous for at-risk groups, but the bigger question is whether its effects will persist beyond the first quarter or perhaps second quarter, not least because warmer weather will likely curtail its spread as temperatures rise.

A more urgent consideration is today is Super Tuesday. The biggest issue investors are worried about is the potential Bernie Sanders is going to be the next President of the USA. The range of proposals he has tabled include breaking up the banks, financial services taxes, capping interest rates, breaking up internet and cable companies, Medicare negotiations for drug pricing, importing foreign drugs, capping prices, end health insurance, banning fracking, insist on 100% renewable utilities and railroads, cars and manufacturing. It’s very unlikely any of these will become law without the Democrats retaining the control of the House and also winning the Senate. However, President Trump has demonstrated just how much power the executive branch has and therefore there are grounds for worry.



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March 03 2020

Commentary by Eoin Treacy

Gold Jumps With Fed Cut Seen Paving Way for Other Central Banks

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

The move on Tuesday comes after Group of Seven finance ministers and central bankers stopped short of taking action earlier Tuesday, disappointing markets that had been looking for a policy response to the virus. Bullion climbed 70% from December 2008 to June 2011 as central banks increased money supply on an unprecedented scale.

“Gold traders are happy today because this is what they have been waiting for,” Naeem Aslam, chief market analyst at Ava Trade, said by email. “I think the floodgate is wide open and other central banks like Bank of Canada are also likely to follow the same path.”

The central bank also said it is “closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”

Eoin Treacy's view -

Australia cut by 25 basis points and the USA by 50. It appears highly likely the UK and Canada will follow along in lock step. The reason Japan and the Eurozone are not cutting is because they are already at zero or negative on the deposit rate. What investors need to be asking is whether the other OECD countries are going to follow them there.



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March 03 2020

Commentary by Eoin Treacy

Email of the day on repo market liquidity

The coronavirus scare is obviously a factor for markets at the moment, but the repo crisis remains in the background too. First question - what are your thoughts on relative (best and worst) asset class performance if the repo crisis flares up on top of the coronavirus pandemic. Second related question - does the coronavirus effect (eg reduced rates, lower company profits, high yield bond risks etc) make it more likely that repo will get worse?

Eoin Treacy's view -

Thank you for this question which is particularly relevant against a background of tighter liquidity as banks underperform. Here is Bloomberg’s repo market summary from yesterday:



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March 03 2020

Commentary by Eoin Treacy

RBI Chief Sees Room to Cut India Rates as Virus Dents Growth

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

Speaking in an interview with Bloomberg News in Mumbai just hours before finance ministers and central bank chiefs from the G-7 economies were scheduled to discuss policy options, Shaktikanta Das said “there is a strong reason for coordinated policy action.” For India, options include a rate cut and supporting the market through liquidity measures, he said.

 Inflation, which had kept the central bank from easing since December, is expected to moderate, he said in an interview at the RBI’s headquarters. He argued the bank’s flexible inflation-targeting framework allows the central bank to look through recent price pressures and loosen policy.

“We’re ready for a response should the situation warrant,” Das said in a meeting room decorated with framed portraits of his predecessors. “I think the G-7 countries are having a conference. And going forward, in the near future, I do expect some discussion through video conference or telephone conference among the central banks of the large economies, including India.”

Eoin Treacy's view -

The challenge the RBI faces is in how to lend assistance to the economy while tempering inflation and encouraging foreign investors to remain in the market. The low oil price should weigh on inflation but the coronavirus’ potential impact on India’s underdeveloped medical system is weighing on the currency.



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March 02 2020

Commentary by Eoin Treacy

Video commentary for March 2nd 2020

Eoin Treacy's view -

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

Some of the topics covered include: short covering rally underway based on expectations for synchronised global monetary and fiscal stimulus. Wall Street surges, Euro firm, upside key reversal on oil, gold steady, bonds overbought.  



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March 02 2020

Commentary by Eoin Treacy

Email of the day on COVID-19 from Dr. David Brown

Coronavirus!

It's been a huge advantage for me as an investor in recent weeks that I also understand viruses very well. At one time in my career I led a viral disease research centre with 320 scientists and support staff. That was BSL3 level containment (HIV, HCV, Influenza etc). BSL4 required for coronavirus is a different game altogether. It worries me that the outbreak of COVID-19 started in Wuhan and only 300 yards from the 1st BSL4 lab in China that opened only 2 years ago. What a coincidence!

I am now doing different research (on rare genetic diseases) through my startup company Healx Ltd. Three weeks ago, I gave a presentation to staff about the virus for their own safety and for continued operation of the company if an outbreak occurs here in Cambridge. They may have thought I was exaggerating at the time. Today, things have escalated even more rapidly than I expected back then. However, we have planned for home working, and stocked up on all necessary supplies in the company. We have done the same at home too, though my wife also thought I was going a bit too far! I hope she is right, but it's better to be prepared for the worst while hoping for the best. 

Eoin Treacy's view -

Thank you for this informative and cautionary email. Also, congratulations on taking your opportunities in the market. The threat from the coronavirus is concentrated among older individuals with the median mortality age in the region of 75. That is cause for anyone within 25 years of that number taking extraordinary measures to avoid infection and everyone else should also take precautions to avoid passing it along to the most at risk individuals. The number of people who have recovered from the virus continues to rise in China but a serious infection would knock someone out for what could potentially be months, assuming they survive.



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March 02 2020

Commentary by Eoin Treacy

Central Banks Promise Stability as OECD Sounds Alarm

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

 

Already on Friday, Federal Reserve Chairman Jerome Powell opened the door to cutting interest rates to contain what he called the “evolving risks” to economic growth from the virus. The Paris-based OECD now expects the weakest global growth this year since the 2009 recession, and said a “long lasting” epidemic would risk a worldwide recession.

The prospect of central banks’ action temporarily halted the worst rout in stocks since that crisis. But the selloff resumed on Monday, with U.S. futures falling and Treasuries rallying.

Money markets now see the Fed lowering its main rate by 50 basis points this month, and give a 70% chance the European Central Bank will pare its by 10 basis points.

Economists at Goldman Sachs Group Inc. predicted the Fed will ultimately slash by 100 basis points in the first half of the year. The BOE will cut by 50 basis points and the ECB by 10 basis points, it said.

There is even speculation that the Fed will move before its policy makers gather on March 17-18, and some economists see the potential for international policy makers to coordinate cuts for the first time since 2008. Investors increasingly bet the central banks of Australia, Canada and Malaysia will ease at meetings already scheduled for this week.

“Global central bankers are intensely focused on the downside risks,” Goldman Sachs economists led by Jan Hatzius said in a report on Sunday. “We suspect that they view the impact of a coordinated move on confidence as greater than the sum of the impacts of each individual move.”
 

Eoin Treacy's view -

Government bonds are very overbought in the short-term, with US-10-year Treasuries testing the 1% level. That’s been possible because investors have rapidly priced in four quarter point cuts this year with the potential for the first two to be announced within the next two weeks. The potential for synchronised action from a number of central banks is rising, with the aim of lending assistance but also boosting confidence.



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March 02 2020

Commentary by Eoin Treacy

Email of the day - on palladium:

Thank you for Friday’s big picture video, there were a number of very useful things for me as a journalist.

Can you also give your analysis for palladium? You mentioned on a number of occasions that a $200 reaction represents consistency of a trend. It was about $350 on Friday. Also, reaction has unwound much of the last break-up. What are the prospects?

Eoin Treacy's view -

Thank you for your kind words and I am happy to extend subscriptions to journalists of reputable publications on the assumption attribution is cited when ideas are quoted. In fact, that has been about the only marketing this service has ever indulged in.



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February 28 2020

Commentary by Eoin Treacy

February 28 2020

Commentary by Eoin Treacy

Lead Indicators of Recession

Eoin Treacy's view -

After a week characterised by selling across the board, a great deal of profit taking has taken place and many overextensions relative to the trend mean have been unwound. The question I believe many people will be concerned with is whether the coronavirus is going to be the catalyst for an economic contraction? I thought it would therefore be worth monitoring the kinds of instruments that offer a lead indicator for that kind of concern.



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February 28 2020

Commentary by Eoin Treacy

Kolanovic Says $150 Billion Systematic Selling Drove Stock Rout

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

About $150b worth of stock selling from computer-driven traders and options hedgers drove the S&P 500’s worst two-day slump since 2015, according to JPMorgan strategist Marko Kolanovic.

* The unloading is largely over, Kolanovic wrote in a note to clients on Wednesday
* While the spread of the coronavirus sparked risk-off, traders who watch market trends and volatility for trading signals acted as “significant drivers” of the rout as the S&P 500 broke key support levels
* Exacerbating the sell-off was the dwindling liquidity as a measure known as market depth dropped by more than 50% * The selling trend from commodity trading advisers, or CTAs, now seen over, as S&P 500’s 200d (~3045), 6m (2900) and 12m (2800) signals are not likely being breached
** CTA’s equity exposure fell from ~85th percentile last week to ~40th percentile now
** “Selling will likely stop here”
** “A move higher could prompt CTAs to buy back equity exposure, so we think risk from CTAs is skewed to the upside.”
* Volatility targeters, such as variable annuities and risk parity funds, are likely to continue selling over the next few days to account for the pickup in equity price swings that were too large to be offset by bond moves
** Selling pressure expected to ease once their exposure drops to 35th percentile, vs 75th percentile before the sell-off
* Expected inflows from pension funds, which rebalance monthly and will need to buy stocks to return to prior asset allocation levels following the latest decline, are helping support the market
** That demand estimated to equal to 1-2% upside for the market
* “Option hedgers and CTAs are now more likely to buy than sell, and volatility targeters are still selling but at a lower pace, so we think a short term bounce-back is getting likely given month-end flows”

Eoin Treacy's view -

This note referenced above was released on Wednesday and since then the market has continued lower. However, the sharper the acceleration the closer we are to a low, even if dip buying has not worked to date, it will inevitably work eventually. Today was the last day of the month and it therefore represents the last opportunity for institutional investors like pensions and insurance companies to commit capital to the market.



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February 28 2020

Commentary by Eoin Treacy

Gold Joins the Virus Bloodshed With Biggest Slide Since 2013

This article by Justina Vasquez and Ranjeetha Pakiam for Bloomberg may be of interest to subscribers. Here is a section:

“It’s bloodshed,” Commerzbank AG analyst Carsten Fritsch said by phone Friday. “It first started with forced selling from equity investors who also sold their gold positions to cover their losses in equities and also to cover margin calls. Gold investors don’t want to sell but are forced to cover the losses in other asset classes.”

Spot gold fell the most intraday since June 2013, according to Bloomberg generic pricing. The metal was down 4.5% at $1,571.05 an ounce as of 1:35 p.m. in New York. Other precious metals including silver and platinum also dropped, with palladium sliding the most since 2008.

Fear over the economic fallout from the coronavirus has unnerved markets, sending the S&P 500 index toward its worst week since 2008. The outbreak has further undercut investor demand for raw materials, which was already wavering because of increasing supplies and concerns over global trade wars. Returns from commodities have plunged on worries that the fast-spreading virus will crush demand for raw materials, fuel and food across the globe.

Eoin Treacy's view -

The baby is currently being thrown out with the bath water, to coin a phrase. Contagion selling sets up some of the most attractive buying opportunities in assets not directly linked to the epicentre of risk. Therefore, this is an important time to monitor the precious metals sector.



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February 27 2020

Commentary by Eoin Treacy

Video commentary for February 27th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: stock market sell-off intensifies with major indices in the region of their trend means. gold quiet, oil weak, high yield spreads widening, Treasuries firm, unwinding of carry trades is boosting the Euro and Yen. 



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February 27 2020

Commentary by Eoin Treacy

Kass: Danger but Opportunity as Well

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

So, let's examine the non consensus view - some reasons why I have started to do some buying:

* China has moved on. Coronavirus cases are down and its stock market is well off the lows. (Interestingly, today the China H share Index and the Hang Seng closed up on the day.) Will this be the blueprint for the rest of the world as well?

* When China sneezes... The last two major selloffs in U.S. equities were China-induced (devaluation fears and a trade war with the U.S.) - these proved to be great buying opportunities.

* A point of maximum fear? There are many examples of this - Dr Roubini in the Financial Times, Mohamed El-Erian on CNBC, etc. "This time is different." But will it be?

* Market structure systematics created a perfect storm. We entered into this selloff with CTAs near record long with a need to sell substantial sums of stocks if the market inflected. This has more or less been absorbed now.

* Corporate buyback bids could trump systematic supply at this point.

* Volatility has spiked and the market may be pricing "guaranteed" panic.

* Speculation is no longer running amok and the "everything bubble" has been pierced. Stocks like SPCE, downgraded by Credit Suisse this morning (and many others) are in free fall now - erasing much of the recent gains as speculators run to the hills.

* As discussed in yesterday's "After The Fall" and "Brokedown Palace", stocks are swiftly moving towards oversold as market and economic expectations have quickly soured.

* If the old narrative comes back - it looks more sold than ever with yield gap support (and a 10 year U.S. note yield of 1.31%) coupled with a President Trump reelection (despite Sanders' ascent) at the highest probability this year.

* If financial TV and "talking heads" are viewed as a contrary indicator - the confident Bulls of only 1-2 weeks ago have confidently reversed their bullish views and now see little opportunity to buy.(Reminding us of Divine Ms M's wonderful phrase, "Price has a way of changing sentiment.") 

Eoin Treacy's view -

There is no doubt that short-term oversold conditions are rapidly replacing short-term oversold conditions and a significant number of global stock market indices are back trading at areas of potential support. It is therefore a logical time to begin to think about where opportunities may reside.



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February 27 2020

Commentary by Eoin Treacy

Eye on the Market February 2020

Thanks to a subscriber for this report from JPMorgan. Here is a section:

Eoin Treacy's view -

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

The graphic of mortality versus contagion included in the appendix of the report is the best one yet comparing COVID-19 with other killers.

The proximity of the Spanish flu to the range of potential outcomes from the new virus is obviously a topic of conversation. The Spanish flu came in three waves, in Spring 1918, Autumn 1918 and Winter 1919 and disproportionately killed young people. COVID-19 on the other hand tends to most kill people with compromised lung function and older people.



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February 27 2020

Commentary by Eoin Treacy

Junk Bond Sell-Off Deepens With Energy Hit the Hardest By Virus

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

Energy led the decliners as oil prices fell below $47 a barrel, while bonds of rental car Hertz Global Holdings Inc. slumped as much as six cents on the dollar. Leveraged loans tied to American Airlines Group Inc. and Travelport Worldwide Ltd. also slipped. The high-yield CDX index, which trades on price, was down a full point at one stage.

High-yield bond investors are trying to assess the big unknown: whether the coronavirus will be just a short-term problem if it can be contained, or, far worse, turn into a pandemic that could pose a long-term drag on the economy and spark a recession.

“The sell-off is accelerating,” said William Smith, a portfolio manager at AllianceBernstein. “Initially we were seeing more weakness in liquid securities, but today there are multiple situations where bonds are down more than five points.”

Eoin Treacy's view -

Riskier credits are less well able to ride out earnings volatility than better capitalised companies. That’s generally why they need to discount their bond offerings. Spreads in the sector were priced for near perfection heading into the end of 2019 as the stock market continued to rebound following the provision of $400 billion in stimulus to the repo market. The potential knock-on effect to demand for consumer products resulting from the virus scare is an obvious risk.



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February 26 2020

Commentary by Eoin Treacy

Video commentary for February 26th 2020

Eoin Treacy's view -

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

Some of the topics covered include: coronavirus containment versus contagion, stocks remain weak with many indices in the region of their trend means, oil at a new low, gold steady, bonds remain firm, South Korea Banks accelerating lower, hong introduces helicopter money. 



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February 26 2020

Commentary by Eoin Treacy

Gold-Backed ETFs Have Never Seen a Run of Inflows Like This

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

Global investors are stashing more and more assets into gold as the coronavirus outbreak spreads and appetite for risk takes a hit.

The global tally of bullion in exchange-traded funds swelled by the most in more than a month on Tuesday as equities sank. That was the 25th consecutive day of inflows, a record. At 2,624.7 tons, the holdings are the largest ever.

After surging 18% last year, gold has extended its rally in 2020, with prices hitting the highest since 2013. The haven has been favored as the virus outbreak has spread beyond China, threatening a pandemic and slower growth.

Goldman Sachs Group Inc. has said that should the disruption from the disease stretch into the second quarter, prices may rally toward $1,850 an ounce. Spot bullion was last at $1,644.67, up 0.6%. It touched $1,689.31 on Monday.

A global recession is likely if the coronavirus becomes a pandemic, according to Moody’s Analytics Chief Economist Mark Zandi. The odds of that outcome now stand at 40%, up from 20%, he said in a note.

The threat of a prolonged downturn in growth due to the impact of the virus may keep gold elevated, according to Morgan Stanley. Further ETF inflows are likely as long as real interest rates remain negative, it said in a note.

Eoin Treacy's view -

The Total Known Holdings of Gold in ETFs hit a new all-time high yesterday. The most significant point about the advent of ETFs as a major holder of bullion is even during the bear market for gold, ETFs still held 45 million ounces. Today it’s almost 85 million ounces.



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February 26 2020

Commentary by Eoin Treacy

Brazil Confirms Coronavirus Case, the First in Latin America

This article by Simone Iglesias and Fabiola Moura for Bloomberg may be of interest to subscribers. Here is a section:

A 61-year-old Brazilian man who lives in Sao Paulo was infected during a recent trip to Northern Italy and tested positive upon returning to the country, Health Minister Luiz Henrique Mandetta said Wednesday at a news conference in Brasilia. The patient, who traveled via France on the way back to Brazil, is doing well and is at home, a Sao Paulo state official said.

“We’ll have to see how the virus reacts in a tropical country in the middle of summer,” Mandetta said. “We still can’t say how lethal this virus will be.”

Eoin Treacy's view -

Maybe they should ask how Singapore has successfully contained the spread of the virus? The stock market lost now time pricing in the fear of a wider spread with the iBovespa dropped nearly 8% to test the region of the trend mean and the four-year sequence of higher reaction lows.



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February 26 2020

Commentary by Eoin Treacy

Berkshire Hathaway Inc Shareholder Letter

Thanks to a subcsriber for this letter by Warren Buffett. Here is a section on utilities:

Berkshire Hathaway Energy is now celebrating its 20th year under our ownership. That anniversary suggests that we should be catching up with the company’s accomplishments.

We’ll start with the topic of electricity rates. When Berkshire entered the utility business in 2000, purchasing 76% of BHE, the company’s residential customers in Iowa paid an average of 8.8 cents per kilowatt-hour (kWh). Prices for residential customers have since risen less than 1% a year, and we have promised that there will be no base rate price increases through 2028. In contrast, here’s what is happening at the other large investor-owned Iowa utility: Last year, the rates it charged its residential customers were 61% higher than BHE’s. Recently, that utility received a rate increase that will widen the gap to 70%.

The extraordinary differential between our rates and theirs is largely the result of our huge accomplishments in converting wind into electricity. In 2021, we expect BHE’s operation to generate about 25.2 million megawatt-hours of electricity (MWh) in Iowa from wind turbines that it both owns and operates. That output will totally cover the annual needs of its Iowa customers, which run to about 24.6 million MWh. In other words, our utility will have attained wind self-sufficiency in the state of Iowa.

In still another contrast, that other Iowa utility generates less than 10% of its power from wind. Furthermore, we know of no other investor-owned utility, wherever located, that by 2021 will have achieved a position of wind self-sufficiency. In 2000, BHE was serving an agricultural-based economy; today, three of its five largest customers are high-tech giants. I believe their decisions to site plants in Iowa were in part based upon BHE’s ability to deliver renewable, low-cost energy.

Of course, wind is intermittent, and our blades in Iowa turn only part of the time. In certain periods, when the air is still, we look to our non-wind generating capacity to secure the electricity we need. At opposite times, we sell the excess power that wind provides us to other utilities, serving them through what’s called “the grid.” The power we sell them supplants their need for a carbon resource – coal, say, or natural gas.

Berkshire Hathaway now owns 91% of BHE in partnership with Walter Scott, Jr. and Greg Abel. BHE has never paid Berkshire Hathaway a dividend since our purchase and has, as the years have passed, retained $28 billion of earnings. That pattern is an outlier in the world of utilities, whose companies customarily pay big dividends – sometimes reaching, or even exceeding, 80% of earnings. Our view: The more we can invest, the more we like it.

Today, BHE has the operating talent and experience to manage truly huge utility projects – requiring investments of $100 billion or more – that could support infrastructure benefitting our country, our communities and our shareholders. We stand ready, willing and able to take on such opportunities.

Eoin Treacy's view -

I found this to be an enlightening discussion of the utilities sector. The long-held perception is that these kinds of businesses can afford to pay out the majority of free cashflow in dividends because they are charging rents on established pieces of infrastructure with easily forecastable maintenance and renewal trajectories. As Berkshire’s experience with wind demonstrates, this ignores the long-term risk of exogenous shocks, technological innovation, changing regulation and infrastructure reaching the end of its useful life.



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February 26 2020

Commentary by Eoin Treacy

Reddit's Profane, Greedy Traders Are Shaking Up the Stock Market

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

The do-it-yourself traders of r/WSB are waging a kind of guerrilla warfare in the markets, trying to exploit what they see as weaknesses in the system to move prices where they want them. For anyone who wondered about where the small day traders who made the 1990s so wild went, meet the 2020 version. After years of indifference, individual investors seem to be finding their way back to stocks, for better or worse. They’re flexing muscles in ways that can easily call to mind excesses from the dot-com era.

“There is no denying the fact that in the month of February 2020, the public is back,” says Julian Emanuel, chief equity and derivatives strategist at BTIG LLC. He thinks the S&P 500 can jump an extra 10% because of small-investor enthusiasm. “This bull market is not going to end until the public falls in love with stocks, and that process may just be beginning.” Of course, timing the moment when irrational exuberance gives way to a mass exit isn’t so easy. Chatrooms where stocks were hyped are seminal artefacts of the 1990s boom and the following bust. They were a setting for bare-fisted digital brawls among all manner of hustlers and promoters, many of whom could move shares on a dime—sometimes just enough so they could get out and leave others holding the bag.

Eoin Treacy's view -

Back in the ‘90s an aspiring day trader needed to go to an internet café or dedicated trading location to get multiple trades done intraday. Today it takes nothing more than a phone app and can be done anywhere at any time.

It used to be a monumental decision on whether to quit one’s job to pursue trading because it was considered impossible to do both fruitfully at the same time. Today that decision is not as relevant although anyone who thinks trading is easy is in for a hard lesson. The temptation in a momentum driven move is to mistake a bull market for brains. Actively participating in online forums, while trading around the edges is easily done without the need to make big decisions about one’s personal life, other than with one’s money of course.



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February 25 2020

Commentary by Eoin Treacy

February 25 2020

Commentary by Eoin Treacy

Coronavirus threatens the global economy with a 'sudden stop'

Thanks to a subscriber for this article by Ambrose Evans-Pritchard for the Telegraph. Here is a section:

Contagion experts Peter Sandman, Ian Mackay, and Jody Lanard sum up my view in this passage from Past Time to Tell the Public: It Will Probably Go Pandemic, and We Should All Prepare Now:

“We are near-certain that the desperate-sounding, last-ditch containment messaging of recent days is contributing to a massive global misperception about the near-term future. One horrible effect of this continued 'stop the pandemic' daydream masquerading as a policy goal: it is driving counter-productive and outrage-inducing measures by many countries against travellers from other countries, even their own citizens back from other countries.

“But possibly more horrible: the messaging is driving resources toward 'stopping' and away from the main potential benefit of containment – slowing the spread of the pandemic and thereby buying a little more time to prepare for what’s coming.”

For readers who can spare the time, I suggest tuning out media noise – much of it dwelling on the malevolent distraction of which individual may have been spreading Covid-19 – and going straight to research papers being released daily by PubMed Central, the data bank of the US National Library of Medicine.

That way you avoid the sort of misunderstanding I just heard on the BBC, which stated that the death rate is comparable to flu. No, it is not. The average morbidity of flu annually is 0.1pc; Covid-19 is an order of far greater magnitude.

The latest tracking data as of Feb 22 (unreliable, but the best we have) is that the mortality rate is 4pc in Wuhan, 2.8pc in Hubei, and 0.8pc in other regions of China, though all figures are creeping up as slow deaths hit the data.

There can be long lag times after infection so it is too early to infer ratios from South Korea, Italy and Iran, but this is surely more like the Spanish Flu of 1918 than anything we are used to. Chinese data suggests that roughly 14pc of those infected over the age of 80 are dying.

You can read most of the PubMed abstracts free and can see what is coming out of labs in China – some of them excellent – or in Hong Kong, Korea, Japan, Europe and North America. There are already 80 peer-reviewed papers. The unfiltered findings are arriving almost in real time. They give you an extra edge.

Eoin Treacy's view -

The annual seasonal flu becomes a pandemic every year. The coronavirus shares enough similarities with the flu in how it spreads to become a pandemic. Meanwhile, it is far more deadly.

This graphic, produced by the New York Times a few weeks ago gives us a good picture of what we are dealing with. The mortality rate is anything from 8 to 40 times more deadly than flu while the transmission or contagion factor is about the same or higher.   



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February 25 2020

Commentary by Eoin Treacy

Exxon Drops to 15-Year Low Ahead of Annual Strategy Presentation

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

 

Exxon Mobil Corp. fell to a 15-year low on Monday amid a broad selloff in equity and commodity markets and just over a week before Chief Executive Officer Darren Woods is scheduled to present the oil explorer’s long-term strategic plan to investors and analysts.

The shares have been under pressure since Exxon disclosed disappointing fourth-quarter results in late January and prospects for a near-term recovery were dimmed by the spreading coronavirus. Excess supplies of natural gas, chemicals and motor fuels also weighed on the oil supermajor.

Exxon fell 4.7% to close at $56.36 on Monday in New York as Brent crude tumbled to about $56 a barrel. The last time the Texas-based driller’s stock traded at this level was the end of 2005, when crude fetched $59.

Eoin Treacy's view -

Exxon Mobil is one of the original cast of S&P500 Dividend Aristocrats. It has been decades since it cut its dividend so investors are looking on eagerly to hear how the company plans to retain a strong position in the global energy market that will allow it to sustain pay outs.



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February 25 2020

Commentary by Eoin Treacy

EU's Barnier Hits Boris Johnson With Brexit Trade Ultimatum

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

“Our overriding priority is to retake control of our laws,” Slack told reporters in London as Barnier spoke in Brussels. “The British public were promised we will take control of our fishing waters and that’s what we’re going to do.”

The EU does have level playing field conditions in other trade deals -- including its tariff-free agreement on goods trade with Canada that the U.K. wants to replicate -- but they aren’t as stringent. The EU says it needs to be tougher with the U.K. because the British economy is so close and so large.

That is reflected in the final negotiating mandate European ministers approved on Tuesday. In it, the bloc requires the U.K. to broadly follow any future changes in EU rules on competition policy, environmental protections, tax, and labor law.

Eoin Treacy's view -

Access to the UK’s, and Ireland for that matter, fisheries is worth billions to the Spanish and French economies every year. It is logical that allowing access should form part of any trade negotiation between sovereign entities. The UK deserves a significant reward for granting that access and financial services are likely to be part of the price.



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February 24 2020

Commentary by Eoin Treacy

Video commentary for February 24th 2020

Eoin Treacy's view -

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

Some of the topics covered include: Coronavirus spread accelerating outside of China, stock markets in risk off mode, carry trade currency steady, gold extends advance, gold shares break out, bond yields at record lows, bond - equity yield spread back at prior support.



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February 24 2020

Commentary by Eoin Treacy

Risk Parity Nirvana; Buyer's Compendium - 9 Screens Across Growth & Value

Thanks to a subscriber for this report by Mike Wilson for Morgan Stanley. Here is a section:

Eoin Treacy's view -

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

“The Fed has got your back and they will do whatever is necessary to support asset prices” That is the mantra of stock market investors who have been following a diversified or balanced investment strategy for the last decade. In between there have been occasions when the mantra was challenged, particularly following Jay Powell’s appointment as Fed chair. However, the pivot to easier policy and the response to the repo tightness in Q3 have reasserted belief in the mantra.



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February 24 2020

Commentary by Eoin Treacy

With Gold Up, Miners Face Payouts Versus Production Dilemma

This article by Justina Vasquez, Danielle Bochove and Steven Frank for Bloomberg may be of interest to subscribers. Here is a section:

Gold producers are “gushing cash,” said John Hathaway, senior portfolio manager at Sprott Asset Management, in support of the higher dividends. “They are in a position to raise their dividend,” he said. “And there will be boardroom pressure and shareholder pressure to do that.”

The industry has been blasted in the past for underspending on production, overspending on acquisitions and piling up debt. Now, though, after years of fat-trimming, miners and their investors are well-positioned to gain from the higher prices. That’s allowed companies including Barrick and Newmont to boost free-cash flow and, to varying degrees, reward shareholders.

Earlier this month, though, Mark Bristow, Barrick’s chief executive officer, sent a warning shot across the bow of the industry. Even if all current projects work out, he said, gold supply will still fall 30% globally by 2029. While sinking supply would be bullish for bullion prices, margins and revenues could be hit if companies are forced to mine lower-grade or hard-to-access deposits.

Eoin Treacy's view -

All-In-Sustaining-Cost estimates were introduced following the gold crash because investors were tired of seeing every available cent poured into investments in new production. It’s easy to see why miners were anxious to invest. The gold price had been in a bear market for decades and they had not been able to source capital for exploration or new projects. Higher prices ensured the survival of the sector but it came at the expense of stock market performance.



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February 24 2020

Commentary by Eoin Treacy

Gilead Surges After WHO Comments on Coronavirus Drug Testing

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

Remdesivir is the “one drug right now that we think may have efficacy,” Bruce Aylward, an assistant director-general at the World Health Organization, said at a briefing in Beijing. WHO officials and international scientists are in the country assessing the outbreak.

Eoin Treacy's view -

The spread of the coronavirus accelerated internationally over the weekend with exponential growth in South Korea and Italy. Right now, there are no cures for the ailment and therefore any whiff of a successful treatment is likely to be rewarded with investor interest.



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February 21 2020

Commentary by Eoin Treacy

February 21 2020

Commentary by Eoin Treacy

Japan Limits Large Gatherings to Thwart Coronavirus

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

Masahiro Kami, an infectious diseases expert, said he was skeptical that the suspension of some public events would have a significant impact on the spread of the virus. “Commuting on a packed train, for instance, is way worse than taking part in the Tokyo marathon,” he said.

Dr. Kami, who heads a nonprofit organization called the Medical Governance Research Institute, said a media focus on the few cases of serious illness from coronavirus infection in Japan had created a panic over the need to cancel events.

While Japan initially had a handful of cases involving people who had come from Wuhan, the center of the epidemic in China, or had direct contact with someone from Wuhan, a surge of cases in the past week included many whose path of infection wasn’t clear. The cases span from Hokkaido in the north to Okinawa in the far south.

More than 1,000 people disembarked from the Diamond Princess cruise ship between Wednesday and Friday, and they entered Japan without restrictions on their movements. All of those passengers tested negative for the virus, but in some cases people have tested positive after a negative test—including two cases reported Friday in Australia, which sent a flight to Japan to repatriate citizens who had been on the ship.

Eoin Treacy's view -

The coronavirus popping up in unrelated areas in Japan is not exactly good news. Additionally, the lax quarantine imposed on the passengers of the Diamond Princess cruise liner greatly increases the potential for the virus to spread even further. At a minimum the potential is for much tighter measures to contain the spread across Japan and other countries. This is also going to create a headache for Abe’s government.



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February 21 2020

Commentary by Eoin Treacy

The World's Biggest Economies Get a Jolt of Government Spending

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

In more than half of the world’s 20 biggest economies, analysts now expect looser budgets this year — in other words, bigger deficits or smaller surpluses — than they did six months ago, according to a Bloomberg survey of economist forecasts.

Asian economies like China and South Korea are using fiscal policy to counter the menace of the coronavirus, which has shut down swaths of industry and devastated supply chains, while governments in the U.K. and Russia have ditched long-held commitments to austerity.

The world remains far from an across-the-board easing. Japan recently raised sales taxes, Germany still holds its surplus sacred, and U.S. policy is gridlocked by upcoming elections. And some of the change in budget forecasts are a consequence of weaker growth expectations, rather than higher spending or lower taxes.

As finance ministers from the Group of 20 major economies prepare to meet in Riyadh, here’s a roundup of budget forecasts and recent policy shifts in some key countries.

Eoin Treacy's view -

The only real question is going to be the magnitude of the central bank response to the coronavirus. A handful of countries have cut interest rates over the last couple of weeks. Meanwhile emergency spending plans will lead to wider deficits in the majority of countries.



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February 21 2020

Commentary by Eoin Treacy

Mom and Pop Are On Epic Stock Buying Spree Fueled by Free Trades

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

“When you take a bull market and juice it with zero commission trading, we can expect it to generate interest among retail accounts. That, it did,” said Jason Goepfert, president of Sundial. “Retail traders have become manic.”

Individual investors were seen as indifferent participants for much of the 11-year bull market. No more. The latest leg of their emergence times closely with October, when E*Trade, Charles Schwab and TD Ameritrade slashed commission fees to zero. Not that it’s firm proof of anything, but since the start of that month, the S&P 500 is up 13% and the Nasdaq 100 has surged 24%.

Conversations with a handful of clients found lots of praise for zero-commission trades but mostly conservative purchases -- index funds and blue chips. Matt Hermansen, 23, who works for a concrete company in Oakland, California, said the absence of fees makes him more willing to trade.
“I’ll invest smaller amounts. Before I never really invested anything less than $1,000, $500 minimum,” he said in a phone interview. “Now if I have enough to buy an extra share, I’ll do it. I’ll do like $300.”

Eoin Treacy's view -

Welcome back! Remember Caveat Emptor! Retail investors have been absent for the majority of this bull market because they did not have the financial wherewithal to participate. Zero fee trading and accelerating trends are exactly the kind of combination that spurs retail interest in the stock market. Concurrently, low interest rates, the mortgage refinancing boom that began in Q4 and full employment mean retail investors increasingly have the available cash to participate. The downside is the return of retail investors, in force, is a late cycle phenomenon.



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February 20 2020

Commentary by Eoin Treacy

Video commentary for February 20th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: gold extends its breakout, bond yield compress, the green bubble continue to inflate, Wall Street increasingly overextended, clear trend of competitive currency devaluation and parallels with late 1990s.



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February 20 2020

Commentary by Eoin Treacy

Gold Climbs to Seven-Year High as Virus Spurs Hunt for Havens

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

“The minutes suggest that the bar to ease policy is clearly lower than to lift rates,” Colin Hamilton, an analyst at BMO Capital Markets, said in an emailed note Thursday. “In particular, they back up Powell’s recent comment that policymakers would not tolerate continued below-target inflation. This commentary was viewed as supportive gold.”

Spot gold advanced for a third straight day, rising as much as 0.7% to $1,623.73 an ounce. Holdings in global exchange-traded funds backed by bullion have risen to a fresh record, and are on course for a sixth weekly expansion, the longest streak since November.

“It looks like a self-fulfilling prophecy,” said ABN Amro Bank NV strategist Georgette Boele. As prices broke out, the move has attracted more investors into gold, she said.

Gold could reach $1,650 over the coming weeks, according to UBS Group AG’s Global Wealth Management unit. “With U.S. equity valuations elevated, any further upsets could see another bout of volatility, a further rally in government bonds and a higher gold price,” analysts Wayne Gordon and Giovanni Staunovo said in a note.

Eoin Treacy's view -

Investors are accustomed to the fiction of China’s economic statistics and therefore have little faith in the reliability of their reporting of the number of viral infections either. The one thing we can monitor with some accuracy is the success of containment efforts outside of China. So far these have been relatively successful in containing an exponential spread of the disease. The big question is how much of a toll is it taking on the Chinese economy and how much stimulus will be required to revitalise consumer demand.



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February 20 2020

Commentary by Eoin Treacy

Vanishing Spreads Are Ringing Alarms in Risky Debt Markets

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

“What do you do with your cash?” said Luke Hickmore, investment director at Aberdeen Standard Investments in Edinburgh, where he helps run a number of bond funds. “Leaving it standing there makes no sense and the experience over the last 10 years is that there is no pain in buying bonds. Learnt behavior is that it is safe. Inflation is nowhere and central banks start buying every time yields go higher.”

Heavy demand for tax-exempt income drove yields on even the riskiest municipal bonds to 3.58% on Friday, the lowest since Bloomberg’s records began in 2003. The influx has compressed spreads across the country and caused some debt in high-tax states like California and New York to yield less than top-rated benchmark securities. Municipal mutual funds have reported inflows for the 58th straight week on Feb. 13.

Eoin Treacy's view -

With 30-year debt yielding 1.92% in the USA, 1.59% in Australia, 1.42% in Canada, 1.05% in the UK. 0.36% in Japan and 0.04% in Germany bond investors, and particularly pension funds, are at a loss for where to invest to generate the returns necessary to meet their future liabilities.



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February 20 2020

Commentary by Eoin Treacy

British Tycoons, Cerberus in Talks to Acquire Yes Bank Stake

This article by Baiju Kalesh and Suvashree Ghosh for Bloomberg may be of interest to subscribers. Here is a section:

The beleaguered Indian lender has been struggling to raise capital for the past few months, amid concerns about the quality of its assets and its exposure to the stressed shadow banking sector. Firms including JC Flowers & Co., Tilden Park Capital Management, Oak Hill Advisors and Silver Point Capital have submitted non-binding expressions of interest, Yes Bank said in a stock exchange filing in Mumbai on Feb. 12.

Shares of Yes Bank rose 0.4%. The bank’s 2023 dollar bond climbed about 1 cent to 84.5 cents, according to Bloomberg- compiled prices.

“A high pedigree long-term investor could make all the difference for the bank which is under investor scrutiny,” Kranthi Bathini, an analyst at WealthMills Securities. “The ball is in the regulator’s court now.” The Hindujas already hold a stake in IndusInd Bank Ltd., another Indian private lender.
 

Eoin Treacy's view -

Yes Bank is India’s fourth largest lender. The predicament it finds itself in is quite similar to the policy which led to Standard Charter’s decline a few years ago. In that case Standard Chartered made big loans to commodity producers and infrastructure developers on the assumption Chinese growth would accelerate indefinitely. When those loans turned bad it shaved near 80% off its share price.



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February 19 2020

Commentary by Eoin Treacy

Video commentary for February 19th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Yen and Euro weakness fuel carry trades while the prospect of Chinese stimulus fuels speculative interest. Gold and precious metals breaking out, oil following through on the upside, Wall Street firm, high valuation companies surge, 



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February 19 2020

Commentary by Eoin Treacy

Chinese Companies Say They Can't Afford to Pay Workers Now

This article by Lulu Yilun Chen and Jinshan Hong for Bloomberg may be of interest to subscribers. Here is a section:

“A week of unpaid leave is very painful,” said Jason Lam, 32, who was furloughed from his job as a chef in a high-end restaurant in Hong Kong’s Tsim Sha Tsui neighborhood. “I don’t have enough income to cover my spending this month.”

Across China, companies are telling workers that there’s no money for them -- or that they shouldn’t have to pay full salaries to quarantined employees who don’t come to work. It’s too soon to say how many people have lost wages as a result of the outbreak, but in a survey of more than 9,500 workers by Chinese recruitment website Zhaopin, more than one-third said they were aware it was a possibility.

The salary freezes are further evidence of the economic hit to China’s volatile private sector -- the fastest growing part of the world’s second-biggest economy -- and among small firms especially. It also suggests the stress will extend beyond the health risks to the financial pain that comes with job cuts and salary instability. Unsurprisingly, hiring has all but ground to a halt: Zhaopin estimates the number of job resumes submitted in the first week after the January outbreak was down 83% from a year earlier.

“The coronavirus may hit Chinese consumption harder than SARS 17 years ago,” said Chang Shu, Chief Asia Economist for Bloomberg Intelligence. “And SARS walloped consumption.”

Eoin Treacy's view -

The knock-on effect of meeting payroll when there is no money coming in is no laughing matter for the service sector; particularly when it is fuelling growth. The gravity of the threat means the range of policy options being explored is open-ended. Everything from direct payments to employees, tax holidays, relaxing regulations, cutting interest rates and boosting money supply are possible and probable.



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February 19 2020

Commentary by Eoin Treacy

Interview with Ronald Stoferle

Thanks to a subscriber for this interview from Claudio Grass’ website may be of interest. Here is a section:

The massive policy U-turn by the Fed certainly played a part, and so did the move by the ECB to resume its own easing policies and monthly asset buying spree. We have officially returned to loose monetary policies across the board, and not only did this provide a boost to precious metals until now, but I also think it will persist into 2020, along with balance sheet expansion. I think another important factor was the renewed interest in gold by institutional players, as demand from that side of the market also picked up significantly.

Nevertheless, let us not forget that what we’ve seen over the past few months is just a gold breakout in USD terms. It is, of course, very noteworthy, but it is important to remember that gold has already been in a bull market in other currencies for quite some time. This bull market has started much earlier, but went mostly unnoticed, because everybody is just staring at the USD price of gold. All the while, in EUR, AUD, CAD terms, gold has been trading at or near all-time highs.

Eoin Treacy's view -

Gold does best when it is appreciating in all currencies. As a monetary metal, the times when it is rising in all currencies generally coincide with a loss of confidence in the purchasing power and integrity of fiat currencies. The efforts underway to support the Chinese economy and the knock-on effect for countries relying on exports to China suggests competitive currency devaluation is well underway.



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February 19 2020

Commentary by Eoin Treacy

Tesla Cybertruck Pre-Orders Unofficially Top 500,000

This article by Tony Owusu for TheStreet may be of interest to subscribers. Here is a section:

Tesla (TSLA) - Get Report was roundly criticized when it debuted the Cybertruck back in November thanks to the pickup truck's unconventional design and a failed durability test that left the demonstration vehicle with a cracked window.

But three months later, the company’s gamble on the vehicle could be paying off as the unofficial Cybertrucks Owners Club released numbers suggesting the vehicle has received 522,764 preorders in just three months.

The group also compared Cybertruck preorders to Model 3 preorders, saying the Model 3 only received around 518,000 total reservations between its unveiling in April 2016 and August 2017.

Eoin Treacy's view -

This is probably an accurate representation of interest in the cybertruck not least because the deposit required was a $100 versus $1000 for the Model 3. That allowed a lot more people the opportunity to express interest with a relatively modest sum but it is a much bigger question whether they will translate into sales in the same way the Model 3 did.



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February 18 2020

Commentary by Eoin Treacy

Video commentary for February 18th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Asia weak following Apple earnings but Wall Streets recovers on Wal-Mart guidance, gold breaks out, palladium breakouts, coronavirus priced for perfection amid increasing evidence of a peak in new cases. 



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February 18 2020

Commentary by Eoin Treacy

BHP Sees Next Six Weeks as Key For Virus Hit to Commodities

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

If the impact of the outbreak can’t be contained this quarter, annual growth forecasts will need to be revised down, Huw McKay, BHP’s vice president of market analysis and economics, said Tuesday in a blog post. “This would then flow directly through to lower commodity demand and price expectations.”

BHP forecasts China’s growth to slow to about 6% this year and as low as 5.75% in 2021 based on a swift recovery from the virus outbreak. In a worst-case scenario that combined a lingering impact from the virus and a re-escalation of trade war tensions, the nation’s economic expansion this year could slip to 5.5%, the miner said.

Goldman Sachs Group Inc. and Macquarie Group Ltd. are among banks who’ve cut China growth forecasts for both the first quarter and the full year as a result of the outbreak. China’s gross domestic product will grow 4% in the first quarter, according to the median of 18 forecasts since Jan. 31, which would be the lowest level since 1990.

Eoin Treacy's view -

The working assumption most investment models are relying on is the trajectory of the coronavirus outbreak and recovery is going to follow that of SARS. Even though the number of cases and deaths is larger and the coronavirus is more contagious, the measures taken to contain it have been much more aggressive. Therefore, the majority of investors have concluded that a V-shaped recovery is the most likely scenario.



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February 18 2020

Commentary by Eoin Treacy

Email of the day on palladium's acceleration

I hope you are well. What on earth is going on with Palladium? It goes higher every day but yet surely it is correlated to industrial activity which should be going down with the CV? Please could you elaborate. Many thanks,

Eoin Treacy's view -

Thank you for this question which I think is puzzling a number of investors. There is a brisk trade right now in stolen catalytic converters with thieves cutting them out of cars. The logical conclusion is there is just not enough of the metal around but there are some additional factors which are worthy of consideration.



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February 18 2020

Commentary by Eoin Treacy

Not Random: The Gold-Silver Ratio

Thanks to a subscriber for this report from Wheaton Precious Metals. Here is a section:

Eoin Treacy's view -

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

The gold/silver ratio traded above 90 for a brief time in the summer before dropping to break its sequence of higher reaction lows. That prompted breathless speculation that a major reversal was underway, only for the ratio to pop back up and test the high. The big question now is whether than move can be sustained.



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February 17 2020

Commentary by Eoin Treacy

Video commentary for February 17th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: potenital for synchronised monetary and fiscal stimulus continues to support asset prices, it is also feeding short positions in the Euro and Yen while supporting the Dollar, gold and treasuries. 



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February 17 2020

Commentary by Eoin Treacy

China's Coffers Are Depleted Just as Virus Spurs Spending

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

China’s top leaders have kept their official deficit target below 3%, partly through belt-tightening, as a gesture to deter excessive borrowing as the nation fights debt on multiple fronts. Yet it has also given way to all types of off-balance sheet borrowing, a problem S&P Global Ratings said may re-emerge this year.

Signs of more proactive fiscal policy have already appeared. The Ministry of Finance allowed local governments to sell more than 1.8 trillion yuan ($258 billion) of debt before the annual budget has been approved. The ministry has also announced targeted tax cuts to help companies and households hit by the virus, partially waived social security premiums or delayed taxes.

“Fiscal policy ought to be counter-cyclical, and the tension between revenue and expenditure shouldn’t be a reason to constrain it,” said Xu Gao, chief economist at BOCI Securities Ltd. in Beijing. “The government should increase the fiscal deficit to cope with the virus, and ease spending pressure by selling more debt.”

 

Eoin Treacy's view -

Economic activity in much of China has ground to a halt. Factories are struggling to get back to full capacity, where they can open at all, and consumer confidence has taken a significant hit so discretionary spending is cratering. That is particularly true in the leisure and travel sectors. There was news today that casinos in Macau are now allowed to open again but it will be a while before consumers have the confidence to go back. We were at lunch with another expat Asian couple yesterday and they are going to skip visiting Asia this year. That’s a pretty common reaction to the evolving scenario. Most people’s conclusion is why take the risk?



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February 17 2020

Commentary by Eoin Treacy

U.K. Fires Broadside at EU Before Future-Ties Talks Even Begin

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

The EU says any agreement hinges on the U.K. signing up to commitments to prevent it undercutting the European economy. But  the U.K. says sticking to the EU’s rules -- known as the “level
playing field” because it would force Britain to accept EU standards in areas such as public subsidies, environmental rules, and labor conditions -- is unfair and goes beyond the conditions the EU imposed in other trade deals.

“It is central to our vision that we must have the ability to set laws that suit us -- to claim the right that every other non-EU country in the world has,” Frost said. “To think that we might accept EU supervision on so called level playing field issues simply fails to see the point of what we are doing. It isn’t a simple negotiating position which might move under pressure -- it is the point of the whole project.”

Under Johnson, the U.K. is taking a less conciliatory approach to its EU negotiations than under his predecessor Theresa May. Frost’s outlining of Britain’s strategy in public contrasts sharply with the secretive way the government conducted talks from 2017-2019 on the country’s withdrawal.

The EU is still concluding its own position on the negotiations, with a series of internal discussions by diplomats scheduled to end on Wednesday. The bloc is considering demanding the U.K. stick to EU rules -- and, in some cases, make them tougher if the EU does -- in a whole host of areas from food hygiene to data protection to labor law.

In a signal of where a compromise might eventually come, Frost said the U.K wants “open and fair competition provisions” based on precedents in other free trade deals.

Eoin Treacy's view -

If the UK is going to succeed in developing a successful economic model capable of competing with the EU and everyone else for that matter, then the ability to set its own rules, regulations and incentive programs is essential. It’s a good thing the current UK administration understands that but it is also a recipe for acrimonious negotiations where brinksmanship is to be expected. The deadline of December 31st ensures this is going to be a topic of conversation for the rest of the year.



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February 17 2020

Commentary by Eoin Treacy

Aureus Fund Plc Factsheet

Thanks to a subscriber for this factsheet which may be of interest.

The Aureus Fund (Ireland) plc. is an accumulating fund under Irish Law. The physical allocated gold investment will at all times between 51% and 60% of the Net Assets. Although the focus is on Gold, the Aureus Fund aims to invest in physical precious metals (Silver, Platinum and Palladium) to diversify risk. As an ancillary investment policy the investment manager has the option to invest in gold derivates for hedging and gold mining funds.

Eoin Treacy's view -

This fund popped up in a search I performed on Bloomberg of gold mining funds but it carried no additional details of holdings. My supposition on Friday that it is heavily weighted in platinum miners was incorrect and I am thankful to a subscriber for clearing up this misunderstanding. Instead, it has a heavy weighting in palladium; directly through its physical holdings. That has helped to supplement returns over and above the price if gold in Euro.



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February 17 2020

Commentary by Eoin Treacy

Email of the day on gold's upside potential

The long run outlook for gold is very encouraging. Even in the short run, competitive devaluations by CBs are supportive.  Coronavirus is also supportive.  Do you think that investing in a gold ETF is a reasonable hedge against a short-term correction on the S&P500? Are frightened investors likely to seek the security of gold or are they more likely to flock to cash?

 

Eoin Treacy's view -

Thank you for these questions which may be of interest to other subscribers. Gold and the Dollar have been rallying together against a background of increasing virus-hedging activity. That suggests investors have a preference for classic hedges rather than cash at present.



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February 17 2020

Commentary by Eoin Treacy

Email of the day on personal hygiene habits as a best defence against viral infection:

Please take a few minutes to watch the attached video.  Great information to know if the epidemic ever comes our way.  Please share with others.  This could get worse before a solution is found

Eoin Treacy's view -

Thanks to a subscriber for this video which may be of interest. The prevalence of this kind of advice also tells us the risk from the virus is increasingly well understood and therefore increasingly priced into markets.



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February 14 2020

Commentary by Eoin Treacy

February 14 2020

Commentary by Eoin Treacy

Play Your Game

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

Today, we see the global capital markets through a different lens — one that is certainly less rose colored than the ones we were wearing last year. Indeed, unlike last January, we now think that the U.S. stock market has already priced in a robust economic recovery in the first half of 2020. By comparison, our predictive earnings model (Exhibit 4) suggests only a modest recovery occurring by the second half of this year. We also think that there may not be enough political risk priced into the U.S. market at current valuations, and believe the private growth markets still need to unwind further.

However, unlike the slowdowns of 2008, 2012, and 2016, credit conditions did not unravel during the recent economic turbulence that occurred in the second half of 2019 (when we essentially had a global manufacturing recession). In fact, during this period global central banks not only supplied ample liquidity to the market again but also expanded their balance sheets. These initiatives have, in turn, helped to suppress bond yields and support credit, leaving financial conditions today as favorable as they have been since the beginning of the prior decade, according to the investment bank Goldman Sachs. Renewed financial easing is an important input in our thinking because it ought to be a net positive both for economic growth and risk asset performance in the near-term.

So, what are investors to do? Despite mounting headwinds, our call is certainly not to head to the sidelines and wait for a major pullback. As we show in Exhibits 7 and 8, we forecast global liquidity to continue to improve consistently in 2020 at a time when our research shows that many individual investors and endowments are not yet at their target risk levels. Central bank balance sheets too should increase again (Exhibits 9 and 10). Moreover, while the cycle is running long in duration, the risk premium relative to the risk-free rate on quite a few asset classes, including Equities, is still attractive in many areas of the global markets. One can see this in Exhibit 75, which shows that the current earnings yield on U.S. stocks is just only now back to the historical average relative to the current yield on the 10-year U.S. Treasury.

Eoin Treacy's view -

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

The people where I am from in Ireland are often accused of answering a question with a question. I was reminded of that this morning because there is a persistent question asked by value investors which is “How can anyone justify paying close to record high cyclically adjusted P/Es for the stock market today?” The corollary is “Why is value underperforming so dismally?” the answering question is “How do you go about developing an algorithm that has any hope of performing in line with the market? 



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February 14 2020

Commentary by Eoin Treacy

Kraft Heinz Cut to Junk by Fitch Following Lackluster Earnings

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

Kraft Heinz Co. was downgraded to junk status by Fitch Ratings, which predicted the company’s leverage will remain high for an extended period as the maker of Jell-O and Classico pasta sauce works to stabilize declining sales.

The food company was cut to BB+ from BBB- by the credit-ratings company, with a stable outlook. Fitch said the company may need to divest a sizable portion of its business in order to reduce its debt.

The downgrade follows Thursday’s earnings report, in which Kraft Heinz reported a drop in fourth-quarter sales that sent its bonds and stock tumbling. It was the latest sign that the company’s turnaround plan still has a long way to go.

Kraft Heinz said Thursday it would release a more detailed turnaround plan around the time of its next earnings report in early May, though many investors and analysts had been looking for it sooner.
 

Eoin Treacy's view -

Kraft Heinz’ dividend was 62.5¢ in 2018, 40¢ in 2019 and is expected to be 20¢ in 2020. The decline in the share price has supported the yield, which is currently 5.98% but the outlook for additional dividend cuts puts that under question. The company is likely to be a case study in how intangible values cannot be used to underpin a credit rating during a time of technological and social upheaval.



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February 14 2020

Commentary by Eoin Treacy

Email of the day on gold miners:

I hope you are well & not working too hard!

Just completed the ‘corporate action’ required to take the shares for Sibanye. To me all your excellent recommendations are just exotic names & lines on a screen, and whatever spare brain processing power I have these days perhaps best left for other things.

Please may I ask a favour? Do you have any ideas for an ETF or even generalist fund which I could use to provide gold miner ‘sector’ exposure? In broad terms would you suggest something holding larger cos or junior miners? If you have any thoughts, I would be grateful. I know you cannot give advice & it would never be construed in that way.

On gold miners shares per se, can you clarify a point? I was talking to the manager of a UK listed investment trust the other day, managed on what used to be called an ‘absolute return’ basis, which actually has delivered a consistent return. They look at things very simply & believe that at some unknown point in the future, there will simply be a tipping point where the discount rate applied (across all asset class valuations) spikes.  They don’t speculate how this will unfold. I think I can guess what this will do to Netflix or Tesla but in broad terms, what happens to gold miners? Do you take the view that in essence the (future) value of their gold in the ground will likely mitigate a higher interest rate assumption? Perhaps what I am really meaning to ask is that if the equity bull market bubble bursts, do you have a view on what might happen to gold miners as a sector in terms of correlation?  

I really don’t like to ask you questions like this as you probably add me to the list of bears to assist with the calculation of your contrarian market indicators,

All the very best

Eoin Treacy's view -

Thank you for this question which I believe will be of interest to other subscribers. I think you will agree that it is not hard work when you are doing something you love, though sometimes Mrs. Treacy may beg to differ.

 



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February 14 2020

Commentary by Eoin Treacy

February 13 2020

Commentary by Eoin Treacy

February 13 2020

Commentary by Eoin Treacy

China's Coronavirus Is Bringing Alibaba to Its Knees

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

Yet investors ought to examine the December quarter because it gives clues about how the e-commerce giant was faring before the COVID-19 virus appeared on the scene. Although revenue continued to grow at a respectable 38%, that was the slowest in almost four years and the smallest beat against estimates in at least a year. Its earnings-per-share beat was the slimmest in more than a year.

Importantly, its bread-and-butter core commerce business, which accounts for 88% of sales, continues to weaken. This division was propped up by acquired units in the physical retail space. Stripping those out, customer management (advertising) revenue and commissions combined climbed 21%, almost 4 percentage points slower than the prior quarter and 5.5 percentage points less than a year ago. Bear in mind, the December quarter includes Alibaba’s big Nov. 11 Single’s Day bonanza, which is supposed to push revenue skyward. Clearly, this event is losing its luster.

Eoin Treacy's view -

Alibaba sells or facilitates the sale of all manner of stuff. That’s its primary business. The economic slowdown brought on by central bank tightening and the war on shadow banking were the reasons behind slower growth in the fourth quarter. Meanwhile the delay in factories reopening after the Lunar New Year holiday, justified fears about viral contamination, restrictions on travel and the impact on the migrant workers ecommerce companies rely on for deliveries are all going to weigh on earnings in the first quarter. So why is the stock so steady?



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February 13 2020

Commentary by Eoin Treacy

Health insurer stocks surge as Bernie Sanders' primary win seen boosting Trump's chances

This article by Tomi Kilgore for MarketWatch may be of interest to subscribers. Here is a section:

Basically, Medicare for All would be bad for health insurers.

But as MarketWatch's Victor Reklaitis wrote Tuesday, Sanders' New Hampshire victory is like a double negative, as while it might appear as a negative for insurers, Wall Street seems to believe Sanders would lose to Trump in a general election, which would be a positive for insurers.

Eoin Treacy's view -

Bernie Sanders won New Hampshire by a wide margin in 2016 and only by 4000 votes in 2020. That’s not a particularly encouraging signal. There is a historical comparison circulating that any candidate who won both Iowa and New Hampshire went on to win the Democratic nomination. I’m not convinced by that considering how many historical comparisons have been challenged over the last few years. The results from Super Tuesday in a few weeks will be a better picture.



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February 13 2020

Commentary by Eoin Treacy

China's Record Car-Sales Slump Throws a Curve Ball on Palladium

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

Output in the world’s largest auto market could be cut by more than 1.7 million cars should the spreading virus resulted in more shutdowns of manufacturing facilities across China, lasting into mid-March, according to an IHS Markit estimate last month.

The auto industry accounts for more than 80% of demand for the precious metal, according to a Johnson Matthey report released Wednesday. That makes it difficult for the market to ignore the shutdowns in China.

“The effects on the wider, global supply-chain are also starting to show,” refiner Heraeus Holding GmbH said in a research note. “Plants across Europe and the wider Asia region are also at risk now because of problems sourcing Chinese-made parts.”

Eoin Treacy's view -

The palladium market is another area where investors and traders are paying scant regard to the risk of a Chinese slowdown despite the fact prices are at elevated levels.



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February 12 2020

Commentary by Eoin Treacy