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February 24 2022

Commentary by Eoin Treacy

Video commentary for February 24th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Russia invades Ukraine, US/EU sanctions underwhelm so iniital prices spikes are reversed, oil release from the strategic reserve negative for energy, gold steadies near $1900 but susceptible to consolidation, stocks rebound, bonds firm, Ruble steadies from its low, dollar eases from its high, 



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February 24 2022

Commentary by Eoin Treacy

The Invasion of Ukraine Is a Tragic Sin

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

I have met Putin, and I have watched him as a journalist since before he became president. My analysis of his actions was always based on the assumption of his rationality. There was always something to gain, a manageable risk of losing. Perhaps I was wrong from the start. Perhaps Putin has changed in recent years as his close circle narrowed and negative selection expelled people with a broader vision from the ranks of his advisors. Quite likely, Ukraine has long constituted an exception from Putin’s rationality, as most of its people time and time again chose the Western path, away from Putin’s vision of the Russian World.

I left Russia after the Crimea annexation because I couldn’t accept it and felt it was a great historical wrong — both for Ukraine and for Russia. But I ended up returning to that assumption of rationality. I analyzed Putin’s moves from a cost and benefit perspective. I have a lot of rethinking to do.

The invasion is an irrational move. It makes any further negotiations with Putin and his clique pointless: There is, quite clearly, nothing he won't do, no line he won’t cross, no matter what he says or what deal he makes. From this point on, autarky is the only feasible economic choice for Russia, and a retreat into isolation is the only remaining cultural and political choice. At the same time, Russia's dependence on China, which has grown in recent years, is no longer a matter of choice. Any security benefits from turning Ukraine — and neighboring Belarus, from whose territory Putin also attacked — into a buffer state are illusory since Russia also borders actual NATO member states, which now will arm themselves as heavily as possible. 

Eoin Treacy's view -

I was not expecting a full-scale invasion, but my positions benefitted anyway. I agree we are now in a new environment and it will be years before Russia’s relationship with most of its biggest trading partners is repaired.



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February 24 2022

Commentary by Eoin Treacy

February 24 2022

Commentary by Eoin Treacy

Petrobras Revenue Hits Record as It Resists Cheap Fuel Calls

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

Political pressure for Petrobras to make fuel cheaper for Brazilians is mounting ahead of presidential elections in October, but the giant oil producer has instead focused on taking advantage of the windfall from crude’s rally to shore up its finances and reward investors.  

Once the world’s most indebted oil producer, Petrobras last year managed to reduce its debt below $60 billion ahead of schedule, thanks also to the sale of refineries. 

Meanwhile on the campaign trail, former president Luiz Inacio Lula da Silva is leading the polls and calling for fuel price relief and more investments in refining. This has put Bolsonaro on the defensive, though a recent rally in the local currency has helped mitigate the impact of higher international oil prices.

Under Lula’s Workers’ Party, Petrobras lost an estimated $40 billion during the 2012-2014 oil price boom because of policies to make gasoline and diesel cheaper. Since the party lost power in 2016, two pro-business administrations have transformed Petrobras into a leaner, more profitable outfit. 

Eoin Treacy's view -

Cordial relations with much of the rest of the world favour Brazilian exports of raw commodities. That’s particularly true of its oil and iron-ore exports as geopolitical tensions with Russia are amplified.



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February 24 2022

Commentary by Eoin Treacy

EMs' Vulnerability to Rising Food Prices and Political Instability

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

Using these variables, our findings show that Kazakhstan and the Philippines are the most vulnerable credits in the IG universe.1 The massive protests that broke out in Kazakhstan earlier this year in response to soaring commodity prices serve as confirmation of our analysis, and it bears watching what happens in the Philippines as the May elections approach.  On the least vulnerable side, higher-income countries, including Hungary and Uruguay, unsurprisingly fare better. Meanwhile, HY credits are much more dispersed. Kenya and Nigeria appear to be the most vulnerable, and the months leading up to the Kenyan general election in August could be a volatile period, as they have in past elections. The least vulnerable HYs, from Serbia to Sri Lanka, are very diversified from a geographical point of view. It is somewhat reassuring that Brazil, a continental giant holding elections in October, is not in the most vulnerable group. We will continue to monitor these vulnerabilities closely as part of our credit selection process.

Eoin Treacy's view -

Nothing contributes to more social stress than surging food prices. The risks to food supplies remain skewed to the upside over the medium term. However, the initial surges for food commodities were not sustained today. That suggests we are likely to see at least some unwinding of short-term overbought conditions.



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February 23 2022

Commentary by Eoin Treacy

Video commentary for February 23rd 2022

February 23 2022

Commentary by Eoin Treacy

Email of the day on Ukraine

I wondered this morning what you meant when you said on commentary, as regards Ukraine, that, "all other factors aside, these are reasonable demands from a geopolitical perspective".

This comes across as appearing to justify Putin's move. I am sure what you meant to say was that the move might be considered reasonable from Putin's perspective.

That might be true but that doesn't make it right morally: every sovereign nation should be able to decide what their future looks like, not an outsider.

Eoin Treacy's view -

Thank you for this email which raises some important points. First off, I am in no way saying that moving troops into another country is ever morally correct. What I said was the demands are reasonable. The methods used to achieve them are not. The reality is geopolitics seldom has anything to do with morality.



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February 23 2022

Commentary by Eoin Treacy

Saudi Al Dawaa Sees Profit Surge After IPO Draws Strong Demand

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

Saudi Arabian companies raised almost $9.3 billion from share offerings last year, making Riyadh the most active IPO market in the Middle East and Africa behind Israel, according to data compiled by Bloomberg.

The most recent IPO wave has already seen a digital security firm owned by the kingdom’s wealth fund draw about $57 billion in orders from institutional investors. Al Dawaa’s IPO attracted demand of more than $25 billion ahead of its retail offering.

The firm operates a network of pharmacies with over 800 outlets across 130 cities in Saudi Arabia. It posted a revenue of about 5 billion riyals ($1.3 billion) and profit of 246 million riyals in 2020 compared with 4 billion riyals and 233 million riyals year ago, respectively.

More from the CEO:

Estimates Al Dawaa’s profit to rise by “not less than 15-20% a year” after 2022
“Will continue paying dividends of around 50%-60% of profit on a continuous basis”

 

Eoin Treacy's view -

One of the defining characteristics of Middle Eastern stock markets is companies are only allowed to list when they have three-years of continuous profits. When global interest rates are low and investors chase momentum in growth stocks, that’s not especially appealing. On the other hand, when rates rise and a premium is put on the predictability of cashflows, those characteristics make some emerging markets more appealing.



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February 23 2022

Commentary by Eoin Treacy

Intel Chip Challenges Reign of China's Bitcoin-Mining Firms

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

Bitcoin mining, which is earning rewards in Bitcoin by using computers to secure the cryptocurrency’s network, has become a lucrative business amid the surge in the price of Bitcoin in recent years, enriching the rig makers along the way. The mining industry raked in $15 billion in revenue in 2021, more than double the previous year, according to research from The Block. 

Intel’s entry could weaken the Chinese manufacturers’ pricing power and offer better maintenance services given the company’s close proximity to the miners in North America, industry participants said. The region dethroned China as the world’s Bitcoin mining hub as Beijing banned crypto mining last May.

“Having a U.S.-based manufacturer with the size, scale and credibility like Intel is fantastic for the entire crypto industry,” said Dave Perrill, chief executive of Eden Prairie, Minnesota-based Compute North, which provides Bitcoin miners with data centers to operate their machines. “Competition is a good thing.”      

Eoin Treacy's view -

NVidia has prospered because GPUs are deployed in mining cryptocurrencies. That has been one of the primary factors in supporting the outsized valuation for the company despite the fact its primary business is in gaming and datacentres. Intel directly exploring the market for crypto mining, as well as launching its own suite of GPUs last month is an attempt to steal market share.



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February 23 2022

Commentary by Eoin Treacy

February 22 2022

Commentary by Eoin Treacy

Video commentary for February 22nd 2022

February 22 2022

Commentary by Eoin Treacy

Stocks Plunge, Oil Prices Surge After Putin Orders Troops Into Eastern Ukraine

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

Stocks tanked amid rising tensions between Russia and Ukraine: The Dow Jones Industrial Average was down 1.3%, over 400 points, while the S&P 500 lost 1% and the tech-heavy Nasdaq Composite 1.4%.

Global stock markets took a hit after Russian President Vladimir Putin decided to recognize the separatist states of Donetsk and Luhansk in eastern Ukraine, ordering Russian troops to move into the region in order to “maintain peace.”

The move was widely condemned by the West, with the European Union and United Kingdom both unveiling economic sanctions against Russia on Tuesday, while the United States will reportedly release a new round of sanctions later in the day.

Many western officials continued to warn that Russian troops moving into eastern Ukraine to keep the “peace” could be a not so subtle pretext for a full invasion, with U.K. Health Minister Sajid Javid saying on Tuesday that “the invasion of Ukraine has begun.” 

Oil prices surged on the news, with Brent crude rising to more than $94 per barrel amid concerns that Russia’s energy exports could be disrupted.

Eoin Treacy's view -

Granting official recognition to, and moving troops into a region that has been ruled independently of Ukraine since 2014 is an escalation of tensions. However, it still falls into the brinksmanship category regardless of claims to the contrary. Russia appears to be serious about their demands that Ukraine not join NATO. They are also adamant that missile batteries not be placed within its neighborhood. 



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February 22 2022

Commentary by Eoin Treacy

Currency Speculators Shun Usual Havens Despite Ukraine Tensions

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

Leveraged funds’ net short positioning in the yen has increased in seven out of the last nine weeks and sits at its most bearish since November, according to Commodity Futures Trading Commission data released Friday. Net positioning in the Swiss franc, another preferred haven asset for currency traders, has been short since September, though it did grow less bearish in last week’s CFTC data. 

The pullback from havens was evident in the spot market on Tuesday, when the Japanese and Swiss currencies retreated while other major counterparts gained against the U.S. dollar. The moves signal that the market is comfortable with where the Russia situation is going, Brad Bechtel, a strategist at Jefferies LLC in New York, said in a Tuesday note. 

“No real downside momentum in the JPY crosses on any of these recent Russia headlines the past few weeks,” he wrote. 

“Even now, as we are on the brink of the conflict, we still do not see JPY perform. Same with the USD and CHF,” he wrote, referring to the Swiss franc.

Eoin Treacy's view -

The news flow from Ukraine is exciting but the trajectory of interest rates is much more important for markets. The defining characteristic of this earnings season was companies reporting better than expected figures for Q4 but disappointing on guidance. Home Depot was the latest example today. Markets are looking at slower growth and higher rates first and the wider geopolitical tension is a secondary concern.



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February 22 2022

Commentary by Eoin Treacy

Deadly Nigerian Oil-Blast Ship Has Peers All Over the World

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

The American Bureau of Shipping, which classifies vessels for their operating safety, last year raised the need to address safety issues such as structural integrity and maintenance challenges around the global fleet of FPSOs, with over 50 of them reaching the end of their design life in the next five years. More than half are over 30 years old and a quarter over 40 years old. 

Eoin Treacy's view -

Aging infrastructure is rarely the top priority for producers. The oil sector is reluctant to commit capital at present because there is a lot of uncertainty about how those investments will be viewed by both investors and the media.



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February 21 2022

Commentary by Eoin Treacy

Video commentary for February 21st 2022

February 21 2022

Commentary by Eoin Treacy

February 21 2022

Commentary by Eoin Treacy

Tencent Quashes Talk of New Crackdown as Tech Wipeout Deepens

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

Chinese technology shares had their worst two-day drop since July due to renewed fears Beijing may roll out more restrictions for private enterprise. Traders pointed to everything from regulatory warnings over the weekend about scams in the metaverse -- a virtual-reality based social media concept -- to unsubstantiated talk about more curbs on the gaming industry. Tencent is a leader in metaverse development.

On Monday, a screenshot detailing the alleged new gaming curbs made waves on China’s internet. But Wang Guanran, an analyst with Citic Securities, clarified that the content was originally posted by him last year when regulators hosted study sessions on gaming regulations.

“I didn’t post anything today,” he said on his WeChat. The screenshot flagged more oversight of violent genres and concepts like anime and religion and limits on player spending on loot boxes.

Eoin Treacy's view -

Protestations that Tencent does not expect additional curbs on its primary business lines would be more convincing if the government were not asking banks to disclose their relationships with Alibaba’s ANT Financial. 



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February 21 2022

Commentary by Eoin Treacy

Google Search Is Dying

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

Appendix 3: Seriously, what are you talking about? My search results are perfect.

If you think your search results are perfect (without appending reddit), then you're probably right. If every single person agreed that Google search results were trash, then Google would already be bankrupt.

Perhaps it is more likely that 80% of people think Google is good enough, and 20% think Google sucks.

I do suspect that the 20% will be growing in number though.

Appendix 4: *Yawn*, this is the 87th time someone has claimed that Google search is dying in the last 20 years. This is a big meme in the SEO world.

"The reports of my death are greatly exaggerated" - Google, probably

You're right, there's been a new article bashing Google every few months for the last 20 years straight. It's probably nothing.

Still, it is a bit interesting that this short and simple post is now one of the most upvoted things of all time on Hacker News. There must be a lot of people who resonate with it this time around.

Hard to tell if something significant has changed.

Appendix 5: Random redditor explains it succinctly

u/a_latvian_potato:

I think I understand what this article is trying to say. It's not saying that Google's search technology is worse or that people don't use Google to search. It's saying that people trust less of the results Google shows compared to seeing discussions of it on Reddit.

For instance, if I'm looking to see reviews of the Honda Civic 2022 or whatever, I do find myself typing "Honda Civic review reddit" instead of "Honda Civic review". This is because I want to see what real people and enthusiasts (on r/cars or whatever) are talking about the car, rather than the top results at Google which are basically just paid reviews advertising the car anyway.

Even though I kinda know people in Reddit are just as capable of spouting BS that are completely wrong, I find the discussions more authentic anyway than the corporate speak the "big websites" have on their articles that Google shows me.

Eoin Treacy's view -

I have also noticed the quality of search results on Google has deteriorated. A great deal of scrolling is required to get past ads. That’s particularly true for commercial search terms.



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February 18 2022

Commentary by Eoin Treacy

February 18 2022

Commentary by Eoin Treacy

China's Challenges

This article from Project Syndicate by George Soros may be of interest to subscribers. Here is a section:

The Winter Games are of course Xi’s prestige project, so the administration is going to incredible lengths to make the event a success. While the competitors will be isolated from the local population, continuing the effort after the Games are over makes little sense. City-wide lockdowns are unlikely to work against a variant as infectious as Omicron. This is evident in Hong Kong, where the outbreak looks increasingly serious. Yet the cost of zero-COVID is rising every day as the city is cut off from the rest of the world, and even from China.

Hong Kong highlights the wider challenge Omicron represents for Xi. He tried to impose total control but failed. As Omicron spreads, opposition within the CPC will grow stronger. Xi’s carefully choreographed elevation to the level of Mao and Deng may never occur.

It is to be hoped that Xi may be replaced by someone less repressive at home and more peaceful abroad. This would remove the greatest threat that open societies face today. Their task is to do everything within their power to encourage China to move in the desired direction.

Eoin Treacy's view -

When state media is under total government control, nothing we hear about happens by mistake. It is worth remembering that when we assess what signals are being sent by China’s media.



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February 18 2022

Commentary by Eoin Treacy

Lithium Stock Livent Is Soaring. Strong Earnings and Guidance Looked 'Easy

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

Looking ahead for 2022, Livent expects to generate about $180 million in Ebitda, short for earnings before interest, taxes, depreciation, and amortization, on about $570 million in sales. Analysts were projecting closer to $160 million in Ebitda on $515 million in sales.

“Sometimes it’s really that easy,” wrote Evercore ISI analyst Stephen Richardson in a Thursday report. He was referring to the relatively clean quarter Livent just reported.

Albemarle’s quarter wasn’t as easy to digest. Richardson wrote earlier on Thursday that Albemarle’s volume and earnings guidance was better than he expected, but that the company’s guidance for costs and capital spending would be a drag on 2022 cash flow.

He is staying positive on both stocks. He rates Albemarle stock at Buy with a $295 price target. He didn’t adjust he price target after the company’s quarterly hiccup. Richardson actually put Albemarle stock on his “tactical outperform list” Friday.

“The confusion from [Albemarle] investors came largely on the cost line which lead some to believe this was a structural step-up in costs [and] lower margins, and was a new permanent aspect of the business,” wrote the analyst. “We think none of this is indeed true.”

Eoin Treacy's view -

The lithium price has been accelerating higher. It’s a classic supply inelasticity meets rising demand market. Growing demand for electric vehicles and energy storage solutions is bumping up against a slow supply response.



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February 18 2022

Commentary by Eoin Treacy

Beware PayPal's New Fees for $100 Crypto Trades

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

Got some pocket change you want to throw at crypto? It won’t go as far on Venmo.

Venmo and its parent PayPal Holdings Inc. alerted their users earlier this week that they’re changing their fees for crypto transactions under $200. While the companies said the pricing adjustments were just an effort to provide investors with more transparency, a closer look shows any customer making transactions of $100 or less will be a lot worse off.

The online payment platforms started offering customers the ability to buy, sell and hold four cryptocurrencies (Bitcoin, Ethereum, Litecoin and Bitcoin Cash) last year. Since then, Venmo’s cryptocurrency wallet has nabbed 18% of global market share for active wallets with payment features, making it the third most popular site as of late last year. PayPal was No. 1.

Eoin Treacy's view -

How many crypto trading venues will ultimately survive is an open question but it is certainly likely to be fewer than exist today. One thing is certain, raising fees isn’t likely to encourage users to use the platform, much less find new customers. That’s doubly true in a troubled pricing environment for the sector.



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February 17 2022

Commentary by Eoin Treacy

Video commentary for February 17th 2022

February 17 2022

Commentary by Eoin Treacy

Gold Fields Bet on Giant Mine Pays Off After Years of Losses

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

Gold Fields Ltd. said a turnaround at its giant mine in South Africa is starting to pay off after more than a decade of losses that’s weighed on the Johannesburg-based company.

South Deep, which sits on the third-biggest known body of gold-bearing ore, almost tripled the net cash it generated to $97 million in 2021 as production rose and the rand strengthened. Output at Gold Fields’ last South African mine is expected to climb a further 30% over the next three to four years. 

That will complete a turnaround after years of financial bleeding that was compounded by power shortages, labor unrest and regulatory uncertainty in South Africa. It vindicates the management’s decision to restructure the mine after investors pressured Gold Fields to either end the losses or sell the asset.

“I am absolutely convinced this was the right thing to do,” Chief Executive Officer Chris Griffith said in an interview. “Already in one year we have made up probably what people would have paid for the asset, so I think it absolutely makes sense to stay in the asset.”

Eoin Treacy's view -

Gold miners have had a very difficult time over the last decade. Capital has been hard to come by because they were tarred with the “capital destroyer” brush and, with falling commodity prices, investors fled the sector. The fact that South Deep can generate more revenue in a year than the company could have sold the mine for at the bottom of the cycle is a testament to just how low valuations were.



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February 17 2022

Commentary by Eoin Treacy

Margin-Growth Fatigue a New Pressure Point for S&P: Taking Stock

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

Analysts have cut their profit-margin expectations for 75% of industries and about half of companies in the S&P 500 for the first and second quarters, data compiled by Bloomberg Intelligence show. Companies’ wherewithal to defend profitability amid mounting pricing pressures is becoming a growing issue at a time when the hottest inflation in four decades and higher borrowing costs threaten to crimp growth.

Anxiety about a faster-than-expected wind-down to the Federal Reserve’s asset-buying program and a quicker pace of rate hikes has pushed sell-side analysts to cut their first-quarter profit growth expectations to 5.4% last week from 6.7% in the first week of January. That figure, too, looks set to drop further to 3.5%, according to a Bloomberg Intelligence model that tracks the correlation between analysts’ pre-season forecasts and actual profit growth in the past two years.

“Negative revision momentum may remain a weight on stocks in the weeks ahead,” said Gina Martin Adams, chief equity strategist at Bloomberg Intelligence. “Improving top-line growth views are still offset by inflation pressure.”

More than 70% of S&P 500 companies are done with their earnings announcements. Among those that have already reported, 76% have outpaced analysts’ profit estimates, the lowest rate of beats since the first quarter of 2020.

Eoin Treacy's view -

Over the last few quarters companies have been comfortable passing on costs to consumers. Many have also taken the opportunity to increase margins at the same time. Politicians taking to social media and blaming inflation on record high corporate profits strikes a chord with the personal experience of many consumers. It suggests companies have seen the easy part of raising prices, continuing from here is going to be more difficult.



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February 17 2022

Commentary by Eoin Treacy

The rise of private markets

This report from the Bank of International Settlements may be of interest to subscribers. Here is a section: 

External financing is increasingly intermediated outside traditional channels. Banks and other institutions active in public capital markets, such as equity and corporate bond mutual funds, remain key financing sources for large and mature corporates. That said, “alternative asset managers” (AAMs) have become pivotal for smaller firms globally, including in emerging market economies (EMEs). Many AAMs were established as private equity firms that later expanded into credit, thus turning themselves into one-stop capital providers for firms less able or willing to access traditional sources.

Private markets have three features that distinguish them from public markets. First, there is limited liquidity transformation because investors commit capital for extended periods. Second, these investors tend to be large and sophisticated entities such as pension funds, whose focus on long-term returns enables target companies to confront significant earnings volatility. Third, the regulation of private market investment vehicles is relatively light, partly reflecting the lesser degree of liquidity mismatches and also the limited presence of retail investors.

Eoin Treacy's view -

The lack of regulation in the private markets is seen by many investors as a positive aspect. The challenge for the future is large pension funds are highly active in the sector. They might have long-term liabilities but they also have a long-term need for yield. The private sector has been particularly attractive because they have gained both portfolio diversification and higher returns. 



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February 16 2022

Commentary by Eoin Treacy

February 16 2022

Commentary by Eoin Treacy

Gold Steadies as West Cautious on Russian Claims of Pullback

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

Gold has firmed in the opening weeks of this year as investors sought a haven from elevated inflation and the geopolitical crisis in Europe. The precious metal’s climb has been aided by renewed inflows into bullion-backed exchange-traded funds, which are on track for a second monthly gain.

That support comes even as traders up their bets on a more aggressive approach from the Federal Reserve, pushing up inflation-adjusted Treasury yields and putting pressure on gold. The latest Fed minutes, due later Wednesday, may influence views on its policy path.

“We believe investors have attached a greater emphasis to hedging geopolitics,” strategists at UBS Group AG including Wayne Gordon wrote in a note. “A break in the negative correlation between gold and U.S. real rates never really endures, and this time is no different.” 

The UBS strategists still expect gold to hit $1,650 an ounce by the end of this year.

Eoin Treacy's view -

The primary argument being made by the UBS team is that negative real rates are tightening so the logical support for gold is less compelling. They argue that in a positive real rate environment there is no way gold can hold the current higher levels.

There are a couple of issues with relying only on a real rates argument. The first is that real rates were positive and averaged about 200 basis points between 2003 and 2009. Then after the credit crisis real rates trended lower to deeply negative rates until early 2013. Gold rallied meaningfully during positive real rates and peaked even though real rates were still contracting after 2011.



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February 16 2022

Commentary by Eoin Treacy

Email of the day on electricity generation and carbon emissions

Electricity is not an energy source in itself, but a means of getting energy from source to where it is required. Until all the energy sources of a country (or, at least, of an electricity grid) are clean, with clean energy to spare, the electricity required for EV's will have to come from fossil fuel sources. True, this will all be mixed together on the one grid - making the whole grid slightly less clean. But the outcome will be the same as if all the energy supplied to EV batteries was unclean. Thus, for the foreseeable future EV owners will not be reducing their carbon footprint, even though exhaust emissions will be zero. This is no doubt why the government is pushing for extra nuclear plants at Sizewell and Hinckley Point.

Eoin Treacy's view -

Thank you for this email. I totally agree. Transportation will not be carbon free until the electricity used to charge batteries is generated without using fossil fuels or some form of carbon capture is deployed. If we are to be fully correct, the carbon used in the production of the components of vehicles should also be incorporated in the calculation of intensity. I also agree that substituting reliance on coal, natural gas and oil is not practical without additional nuclear capacity.



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February 16 2022

Commentary by Eoin Treacy

Shopify Plummets Most Since 2020 on Slowing Growth Outlook

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

Shopify Inc. plunged the most in almost two years after giving a weaker outlook for growth this year, as online spending resets after the Covid-19 induced boom and consumers face higher inflation. 

“The Covid-triggered acceleration of ecommerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022,” the Canadian ecommerce giant said in a statement on Wednesday. “There is caution around inflation and consumer spend near term, for the full year.”

As a result, Shopify said full year revenue growth will be lower than the 57% increase in 2021. The U.S.-traded shares tumbled as much as 16% as the market opened in New York. It was the biggest intraday decline since March 2020. 

Shopify, which provides software and other services that underpin the websites of many small businesses, grew dramatically during the early stages of the pandemic, with sales jumping 86% in 2020. Investors, however, fear the company can’t sustain its growth as shoppers return to more normal buying patterns. Those concerns intensified last month when Shopify said it had terminated contracts with several warehouse and fulfillment partners, sending shares to a 16-month low. 

Eoin Treacy's view -

The justification for Shopify’s heady valuation was that it would become a true competitor for Amazon. The folly of that has been exposed by the pullback from fulfilment centres. From a broader perspective the big question is about a central hub versus distributed model.



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February 15 2022

Commentary by Eoin Treacy

Video commentary for February 15th 2022

February 15 2022

Commentary by Eoin Treacy

PBOC Pumps in More Liquidity, Spurring Gains in Chinese Stocks

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

The People’s Bank of China is catching its breath after it cut the one-year medium-term lending facility rate last month -- the pause won’t last long. The central bank has signaled it’s ready to deliver more support to prop up growth. We expect the next cut as soon as the second quarter, and see the PBOC delivering another one in 3Q -- part of a broader array of easing measures to counter the slowdown.--David Qu and Chang Shu, China economists

Despite the decision to hold the one-year policy loan rate steady Tuesday, the PBOC’s easing stance has set it apart from other major central banks including the Federal Reserve, which are tightening monetary policy to tame soaring inflation. The possibility that the Fed will accelerate the pace of rate hikes could restrict China’s room for further easing later this year as it could accelerate outflows. 

Global demand for Chinese bonds has already slipped amid their shrinking yield premium. The yield gap on China’s 10-year sovereign bonds over similar-maturity Treasuries narrowed to 73 basis points last week, the least since 2019.

Eoin Treacy's view -

China wishes to put an end to the pattern of booming asset prices every time it eases policy. The kneejerk reaction of Chinese investors has always been to rush into property when liquidity eases. It has been the best performing asset, but prices are now also very high and affordability is an issue.



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February 15 2022

Commentary by Eoin Treacy

Tech Questions for 2022

This article by Benedict Evans may be of interest to subscribers. I found the summary of the outlook for electric and autonomous vehicles to be about the best I’ve seen recently:

The car industry is shifting to electric, and that changes a lot of what a car is - there’s an order of magnitude fewer moving parts, a very different supplier base, and much of the sophistication moves to software. We go from complex cars with simple software to simple cars with complex software. 

Seen from tech, this looks a lot like the smartphone take-over of mobile phones, and there’s a lot of pattern recognition, right down to the dumb old industrial companies that think software is easy and they can just hire some developers. But it’s not yet entirely clear whether this really is disruption. An electric car is a better car but an iPhone is not a better Blackberry - it’s an entirely different thing that happens to be roughly the same size. So how much does electric really rewrite car manufacturing? Bulls think Tesla is a software company (and lots of other things), but bears think that no, it’s still a car company. 

Autonomy is potentially much more profound and disruptive, and really does change what a car is - a car with no steering wheel is not really a car anymore. That raises as many questions as cars themselves did (it was much easier to predict mass car-ownership than to predict Walmart), and the tech itself remains full of questions. Can Tesla boot-strap its way through to something that works well enough? Will Waymo get there first going top-down? Are there winner-takes-all effects?

But more importantly, we don’t know when, how or where any of this will work. There was a period of euphoria a few years ago when AVs looked imminent, but it may now be that autonomy is like the old joke that AI is anything that doesn’t work yet. ‘Full’ autonomy may be as many decades away as ‘general AI’ (indeed it might require general AI!) but we’ll get all sorts of much more limited automation in the meantime. 

Eoin Treacy's view -

The reason Tesla has achieved a $1 trillion valuation is because it is a favoured trading vehicle (pardon the pun) for options traders. That has created synthetic demand for the shares and supported the valuation. Nevertheless, promise of “full self-driving” keeps being pushed back. The company’s autonomy day was nearly 3 years ago



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February 15 2022

Commentary by Eoin Treacy

Coinbase Swears This All Isn't Like the Dotcom Bubble After Super Bowl Ad SNAFU

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

Coinbase, in one ad named WAGMI (“we're all going to make it”), crafted an advertisement that bounced a QR code around the screen, changing colors each time it hit the edge like an old-school DVD menu. Scanning the QR code―which immediately forfeits your right to enter heaven―takes the user to this page, where Coinbase offers $15 in Bitcoin for signing up as well as a chance to enter a contest to win one of three prizes for $1 million worth of Bitcoin.

The linked webpage went down almost immediately thanks to the increased traffic from the ad, and ridicule at the idea of paying millions of dollars to send millions of viewers to a down site poured in from around the web.  “Coinbase spending $16,000,000 on a Superbowl ad to direct people to their website and $0 to make sure that website doesn't crash 10 seconds after the ad starts is so very internet,” tweeted Edward Snowden amid the outage.

To Coinbase, though, the ad was a success. In a blog post congratulating itself on the advertisement and interviewing Coinbase Chief Marketing Officer Kate Rouch about why the ad was so good, the company revealed it saw "20M+ hits on our landing page in one minute" which "led to us temporarily throttling our systems." Chief executive Brian Armstrong took to Twitter to gloat about the ad: ranked #1 by AdWeek and peaking at #2 in the Apple App Store, just ahead of apps for the Pepsi Super Bowl Halftime Show and the NFL.

Eoin Treacy's view -

The offer was still live today when I visited it and offers $15 in bitcoin for signing up. For anyone looking for why bitcoin popped on the upside yesterday, despite stocks falling, we don’t have to look much further than the Superbowl ad.



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February 14 2022

Commentary by Eoin Treacy

Video commentary for February 14th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: oil and gold firm, bond yields pause near 2% and Wall Street choppy in the region of the trend mean. Mosty commodity currencies have base formations. Japanese yields testing resolve of the BoJ's yield curve control, Chinese stocks remain lacklustre.  



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February 14 2022

Commentary by Eoin Treacy

CPI Is Old News; Focus on Growth

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

Eoin Treacy's view -

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

Q4 earning from the major cloud companies impressed but guidance was much less enthusiastic. Shares of Amazon, Google and Microsoft initially bounced on that their earnings and subsequently gave up much of their advances. They are now steadying once more.



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February 14 2022

Commentary by Eoin Treacy

Precious Appraisal

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

For ICE vehicles, Euro 7 could mean more PGM demand to meet tighter emissions limits, but the risk is that it could also become too expensive to make ICE cars that meet the new emissions standards. Most automakers’ new model announcements make it clear that they intend to continue to develop ICE platforms compliant with Euro 7 rather than abandoning the ICE. Extensive hybridisation is likely to be used. Nissan has said Euro 7 will raise the costs of developing ICEs to unsustainable levels and has stopped gasoline engine development for the European market.

Potential PGM demand upside could be considerable. Assuming a similar jump in autocatalyst loadings as for earlier tightening of standards, European PGM demand could increase by several hundred thousand ounces. The BEV market share is growing rapidly, reaching 9.1% in 2021 (source: ACEA), and that additional demand takes account of BEVs potentially exceeding 20% of light-vehicle sales in 2025.

Palladium and rhodium would benefit the most, as the majority of cars will still be gasoline or gasoline hybrids. Diesel cars’ share of the market may be only 12% in 2025. Platinum demand would also receive a boost from its use in gasoline autocatalysts and commercial vehicles, which will still be mostly diesel. This year, automotive palladium demand from Western Europe is forecast to be ~1.5 moz as vehicle production is predicted to recover from the semiconductor chip shortage. The global recovery could move the palladium and rhodium markets into deficit. With ICE vehicle production forecast to grow further by 2025, the introduction of Euro 7 could keep the palladium and rhodium markets tighter for longer, supporting prices

Eoin Treacy's view -

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

Carbon emissions hit an all-time high last week near €97 and are now consolidating. The stated EU objective has been to get the price to €100. That price was deemed necessary to enable new carbon free solutions, like hydrogen, to be economic. We are now at that point so it is a good time to think about the future of both legacy and future energy solutions.



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February 14 2022

Commentary by Eoin Treacy

Goldman Sees 'Reverse Currency Wars' as Inflation Gathers Pace

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

Mounting inflationary pressures are likely to make central banks more sensitive about weakness in their currencies, which could add fuel to the global tightening cycle, Goldman Sachs strategists George Cole and Michael Cahill wrote in a client note Monday.

This scenario is a regime shift from the competitive depreciation seen over the past decade as central banks acted to protect the appeal of their export markets
To offset a single percentage point weakening in the currency, G-10 policy rates would need to rise 10bps on average, Goldman analysis using a financial-conditions framework showed

Implication is higher G-10 policy rates as each central bank pressures the others, as well as “higher rate volatility relative to FX volatility”

NOTE: Rates volatility reflected in the ICE BofA MOVE Index is the highest since March 2020, while currency vol on JPMorgan’s benchmark index is the highest since late December

Japan’s policy “bears watching” as the central bank’s tolerance of yen weakness has been a key anchor for global yields, Goldman said

Eoin Treacy's view -

Amid rising energy and commodity prices, a weak currency becomes a liability for importers. One of the few tools they have is to allow their currencies to appreciate versus the Dollar.

The Dollar Index is currently appreciating because the general consensus is the Fed will raise rates quicker than either the ECB or BoJ. Since both of those central banks experienced a great deal of difficulty in getting off the zero bound ahead of the pandemic, they are likely to have similar difficulty now. That’s true even if Germany is experienced surging inflation.



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February 11 2022

Commentary by Eoin Treacy

February 11 2022

Commentary by Eoin Treacy

Gold Set for Best Week Since May on Inflation Hedge Appeal

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

Gold surged, heading for its best week in more than three months as concerns over red-hot inflation boosted demand for the metal as a store of value.

A surprise jump in U.S. inflation sparked rate-hike speculation that the Federal Reserve may act more aggressively to contain rising prices. Gold extended gains Friday as U.S. stocks fell to session lows and Treasuries rose after the U.K. told its citizens in Ukraine to leave the country, adding to worries over long-simmering tensions with Russia. The Kremlin has repeatedly denied that it plans to attack Ukraine.

Bullion’s appeal as an inflation hedge is outweighing worries that rising interest rates will erode demand for the metal, which doesn’t offer a yield.

Gold’s ability to defy gravity amid rising U.S. yields is driven by its credentials as “an inflation hedge as well as a defensive asset during a period of elevated stock and bond market volatility as the market adjusts to a rising interest rate environment,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. 

Hansen sees inflation to remain elevated with rising input costs, wages and rentals being a few components that may not be lowered by rising interest rates.  This helps gold as a hedge against the view that central banks will be successful in bringing down inflation, according to him.

Spot gold gained 1.7% to $1,858.41 an ounce by 1:57 p.m. in New York, the highest intraday level since Nov. 19.  Prices are up 2.8% this week, heading for the best week since May 7. The Bloomberg Dollar Spot Index fell 0.1%. Silver and palladium also rose, while platinum was little changed.

Eoin Treacy's view -

Gold is unloved and if recent subscriber emails are any guide, even the faithful have given up hope. That’s usually an indication that leverage has been squeezed out of the market. When that kind of action occurs and prices don’t give up their gains, it suggests a willingness by other investors to buy dips and keep on accumulating regardless of volatility.



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February 11 2022

Commentary by Eoin Treacy

Ted Spread Anomalies

Eoin Treacy's view -

Heading into the credit crisis, the TED spread and the OIS spread took on almost legendary status as predictors of future troubles in the financial sector.

The Ted spread is the difference between 3-month LIBOR and 3-month Treasury yields. Since LIBOR is a measure of what rate banks are willing to lend to one another, when the spread widens it is viewed as a measure of perceived risk in the sector.

The LIBOR-OIS spread is the difference between 3-month LIBOR and 3-month Overnight Index Swap. It’s another measure of health in the financial system.

Both spreads jumped higher in 2007 and spiked in 2008. Two things are worthy of consideration at present.



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February 11 2022

Commentary by Eoin Treacy

OPEC+ Supply Shortfall May Push Oil Price Higher, IEA Warns

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

“If the persistent gap between OPEC+ output and its target levels continues, supply tensions will rise, increasing the likelihood of more volatility and upward pressure on price,” the Paris-based agency said in its monthly report.

Still, the economic shock could be averted if those members of the Organization of Petroleum Exporting Countries that possess extra reserves deploy them.

“These risks, which have broad economic implications, could be reduced if producers in the Middle East with spare capacity were to compensate for those running out,” the agency said.

Saudi Arabia, OPEC’s de facto leader, holds the bulk of the group’s spare capacity. It has so far resisted the idea of tapping those reserves more quickly, contending that the individual quotas set by the OPEC+ agreement should be respected. 

Despite the IEA’s warnings, its forecasts still indicate that world oil markets will tip back into surplus for the rest of this year as supplies outside of OPEC+ pick up. The agency revised up its forecast for U.S. oil supply growth in 2022 by 240,000 barrels a day to 1.2 million barrels a day.

The agency also made substantial increases to its historic demand estimates for the past few years, with an upgrade of 1 million barrels a day for 2021. The revision helps account for a discrepancy between the IEA’s theoretical estimate of changes in stockpiles and what could be detected.

Eoin Treacy's view -

Major oil producers appear to be in no hurry to increase supply. That’s particularly true when the announcement of any plan to expand production is greeted by media coverage akin to the murder of innocents. What is perhaps more important is governments are increasingly walking back their commitments to an energy transition agreed to at COP26. This is one more example of incompatible trends. The world cannot both use more oil and gas, and produce less.



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February 10 2022

Commentary by Eoin Treacy

Video commentary for February 10th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: bonds yields surge, TED spread negative when SOFR incorporated, risk-off reappearing as resistance encountered at the lower side of overhead trading ranges, gold, oil and copper pause. Singapore, Malaysia and Vietnam strong but will likely pause if Wall Street follows through on the downside, Dollar mixed, Yen weak



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February 10 2022

Commentary by Eoin Treacy

Goldman Commodity Veteran Says He's Never Seen a Market Like It

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

Jeff Currie, the closely-followed head of commodities research at Goldman Sachs Group Inc., says he’s never seen commodity markets pricing in the shortages they are right now.

“I’ve been doing this 30 years and I’ve never seen markets like this,” Currie said in a Bloomberg TV interview. “This is a molecule crisis. We’re out of everything, I don’t care if it’s oil, gas, coal, copper, aluminum, you name it we’re out of it.”

Futures curves in several markets are trading in super-backwardation -- a structure that indicates traders are paying bumper premiums for immediate supply. The downward sloping shape in prices is generally taken to mean commodities are severely undersupplied.

Eoin Treacy's view -

This is the time in the cycle where there is a vociferous argument between whether the strength in commodity prices is cyclical or secular in nature. If it is cyclical then we are in a repeat of the post global financial crisis episode where commodity prices surged to new highs and subsequently gave up most of the advance. On the hand, if this is the beginning of a new secular theme, we can expect the breakouts to hold and prices to multiply several times over the next decade.



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February 10 2022

Commentary by Eoin Treacy

Insurance executive says death rates among working-age people up 40 percent

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

“We’re seeing right now the highest death rates we’ve ever seen in the history of this business,” said Scott Davison, the CEO of OneAmerica, a $100 billion life insurance and retirement company headquartered in Indianapolis.

“The data is consistent across every player in the business.”

Davison said death rates among working age people – those 18 to 64-years-old – are up 40 percent in the third and fourth quarter of 2021 over pre-pandemic levels.

“Just to give you an idea of how bad that is, a three sigma or 200-year catastrophe would be a 10 percent increase over pre-pandemic levels,” Davison said. “So, 40 percent is just unheard of.”

He said the data shows COVID deaths are greatly understated among working age Americans.

Davison says OneAmerica expects to pay out more than $100 million in short- and long-term disability claims due to the pandemic.

“Whether it’s long COVID or whether it’s because people haven’t been able to get the health care they need because the hospitals are overrun, we’re seeing those claims start to tick up as well,” he said.

Because of this, insurance companies are beginning to add premium increases on employers in counties with low vaccination rates to cover the benefit payouts.

Eoin Treacy's view -

Middle aged people have been dying at an increasing rate in the USA over the last decade. Poor lifestyle habits, suicide, and an opioid epidemic contributed to that condition. Now the pandemic has resulted in an acceleration of the trend.



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February 10 2022

Commentary by Eoin Treacy

U.S. Inflation Charges Higher With Larger-Than-Forecast Gain

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

The data reinforce the Fed’s intentions to begin raising rates next month to combat broad-based inflationary pressures and could lead markets to expect even more aggressive action from the central bank. The steady run-up in prices has eroded recent wage gains and diminished American families’ purchasing power, sucking much of the air out of what has been an exceptional bounceback in the U.S. economy.

Leading up to the Fed’s March 15-16 meeting, policy makers will also have the February CPI and employment reports in hand.

Investors boosted their expectations for a a half-point increase in the federal funds target rate in March following the report. While most economists expect a more gradual approach to liftoff -- as has been telegraphed by several Fed officials -- the acceleration of inflation on the heels of rapid wage gains will keep the possibility of a half-point hike on the table.

Eoin Treacy's view -

The Federal Reserve has already signalled what their plans are. They aim to end purchases next month and simultaneously begin to raise rates. The market is well on its way to pricing in a 50-basis point hike. Reducing the size of the balance sheet is expected to begin sometime later this year. That’s where the big differences between this tightening cycle and last begin.

The process of running off debt is expected to take a different trajectory from the last time around. Jay Powell signalled they will be focusing on reducing mortgage debt holdings. The Fed is probably worried about the spiralling cost of shelter. By reducing their holdings of mortgage bonds, they are potentially aiming at property prices.



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February 09 2022

Commentary by Eoin Treacy

Video commentary for February 9th 2022

February 09 2022

Commentary by Eoin Treacy

Ryanair CEO O'Leary Sees 'Dramatic' Jump in Ticket Sales

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

Ryanair Holdings Plc has seen a “dramatic recovery” in bookings over the past two weeks as the easing of pandemic travel curbs across Europe encourages people to fly again.

The Irish low-cost carrier’s planes are flying about 75% full and could reach 90% of capacity by the peak of the summer high season, Chief Executive Officer Michael O’Leary said at a briefing in Milan Wednesday.

Ryanair expects fares to remain “very low” through May before rising for summer, by which point it’s possible that a combination of strong demand and limited capacity could see them climb above pre-coronavirus levels, O’Leary said. Trends for next winter are difficult to predict, he said.

Eoin Treacy's view -

Most people are hungering for a traditional vacation. I know I am. As the omicron variant flares out, demand for travel and other opening-up sectors is likely to continue to improve. There have been several times when it looked like a full recovery was possible, only for a new variant to pop up and create delays. The good news is the last one was much less serious, albeit much more transmissible, than its forerunners. That suggests the bounce back in demand will be stronger this time.



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February 09 2022

Commentary by Eoin Treacy

Russia, China agree 30-year gas deal via new pipeline, to settle in euros

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

Russia already sends gas to China via its Power of Siberia pipeline, which began pumping supplies in 2019, and by shipping liquefied natural gas (LNG). It exported 16.5 billion cubic metres (bcm) of gas to China in 2021.

The Power of Siberia network is not connected to pipelines that send gas to Europe, which has faced surging gas prices due to tight supplies, one of several points of tension with Moscow.

Under plans previously drawn up, Russia aimed to supply China with 38 bcm of gas by pipeline by 2025.

The new deal, which coincided with a visit by Russian President Vladimir Putin to the Beijing Winter Olympics, would add a further 10 bcm, increasing Russian pipeline sales under long-term contracts to China.

Eoin Treacy's view -

Exporting gas is not Russia’s biggest money spinner but it creates reliance that is priceless from a geopolitical perspective. More than doubling gas exports to China might be described as an alliance of autocrats but the reality is China needs energy. That’s not an equal partnership even if the long-term pricing structure is competitive. Russia is building a network of dependency right across the Eurasian continent that will give it a lot of leeway to push for concessions in other areas.



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February 09 2022

Commentary by Eoin Treacy

EU rolls out a red carpet for TSMC and other semiconductor giants

This article from the South China Morning Post may be of interest to subscribers. Here is a section:

The European Union announced a blueprint on Tuesday to make one-fifth of the world's microchips, saying it was "open for business" to semiconductor giants from Taiwan and other industry leaders.

The European Chips Act provides at least Euro42 billion (US$48 billion) by 2030 in public and private sector capital behind an ambitious plan to effectively double the bloc's chip production, to 20 per cent of the global supply of semiconductors, the tiny processing units that will power the industries of the future.

Currently, the bloc produces 10 per cent of the world's supply, few of which are considered to be cutting-edge.

Eoin Treacy's view -

$20 billion from Intel, $38 billion from Taiwan Semiconductor, $40 billion from Taiwan Semiconductors this year represents a massive increase in potential supply of both chips and memory.



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February 09 2022

Commentary by Eoin Treacy

Los Angeles Port Sees Chance to Ease Ship Backlog by Summer Peak

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

Seroka said he agrees with the chief executive of a major container line, A.P. Moller-Maersk A/S’s Soren Skou, who told Bloomberg TV in a separate interview earlier that ocean shipping should start to normalize in the second half of the year. Maersk, which handles almost one-fifth of the world’s container traffic, said it sees a 2%-4% expansion in the market this year, with a strong first half followed by an uncertain outlook after that. 

Eoin Treacy's view -

Supply chain disruptions forced companies to front load orders in the hope they could get enough inventory in to avoid future bottlenecks. That put upward pressure on both shipping rates and prices to consumers.



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February 08 2022

Commentary by Eoin Treacy

February 08 2022

Commentary by Eoin Treacy

Email of the day on gold shares

Eoin. I've been appreciating your daily commentary and your review of the charts. You've several times mentioned that gold stocks are "cheap," and I don't disagree. Within the gold ecosystem, however, which do you think have the most promise, i.e., the biggest bargains?

Eoin Treacy's view -

Thank you for your kind words and this question which may be of interest to subscribers. The NYSE Arca Gold BUGS Index / gold ratio has been ranging below 0.2 since 2013. It is currently mid-range but the current reading is still below the nadir posted in 2000. Relative to the price of gold, miners are cheap.



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February 08 2022

Commentary by Eoin Treacy

Email of the day on the Treasury General Account

You have put a chart of the TGA balance and projections in the comment of the day. I am sure I am not alone in wondering where this information comes from. Is it speculation by the Daily Shot or has the Treasury announced that this is their intention? How certain can we be that the projection is reasonably accurate? Have such projections been made before and, if so, have they held true? I am confused as I have never heard of such projections before. Best regards and keep up the good work.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. The Treasury General Account (TGA) at the Federal Reserve was irrelevant until before the global financial crisis. Since then, it has been growing as the role of government spending in the economy increases.



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February 08 2022

Commentary by Eoin Treacy

Iron Ore Smashes $150 After Beijing Eases Steel's Green Targets

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

China offered its huge steel industry five extra years of rising carbon emissions, sending iron ore soaring as investors saw the move as a renewed focus on propping up the economy.

Steelmaking accounts for about 15% of China’s carbon emissions. On Monday, the government set 2030 as the new deadline for peak-emissions for the sector, against an earlier target of 2025. That adds to signs that Beijing is recalibrating its climate strategy in light of last year’s commodity price spikes, and priming the economy for a more powerful, carbon-intensive stimulus. 
“This is a big adjustment to the timetable, which gives more room for the steel sector to reach peak emissions in an orderly way,” said Xu Xiangchun, an analyst with researcher Mysteel. A rush to meet carbon goals could lead to “unbearable economic costs”, he said.

The policy pivot is another sign that Beijing is changing the trajectory of its decarbonization plans to ensure industrial changes don’t result in damaging inflation or shortages. President Xi Jinping said last month that climate targets shouldn’t compromise supplies of commodities that “ensure the normal life of the masses.”

Iron ore surged past $150 a ton, with expectations rising for more infrastructure to soften China’s economic slowdown. More construction activity tends to means higher steel output, which in turn raises iron ore demand but means more greenhouse gases.

Eoin Treacy's view -

Xi Jinping announced a change of emphasis ahead of the Lunar New Year Holiday in saying carbon reduction would need to take a backseat to ensuring living standards are protected. Today, there was also news that the State investment fund is buying stocks to support prices and that curbs of property market loans are being removed. That’s all supportive of the view China is actively putting a floor under asset prices.



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February 07 2022

Commentary by Eoin Treacy

February 07 2022

Commentary by Eoin Treacy

Email of the day - on gold, governance, trading, and uncertainty

A bad back currently prevents me golfing, walking the dog, or driving the car and, in my opinion justifiably, I am feeling a grumpy.

So here are a few gripes for you:

First gold:
For several years you taught us that the gold price follows an approximate 35-year cycle between highs, although the gold price could outpace stock indexes for short periods in between those highs. We’ve not heard too much about the 35-year cycle for a while, the message now being that it is not unusual for gold to trade in a boring range for up to 18 months or so before breaking out conclusively up or down. You believe it will break to the upside taking out previous highs (which runs contrary to your 35-year cycle theory). I hold a fair chunk of gold and silver miners in ETFs but regard the holding as a hedge rather than representing a belief that gold will imminently break to the upside. It might and it would be nice if it did but I doubt it. As David said, investment options are similar to a beauty parade and for the foreseeable future, many options are likely to look superior to gold.

Second India v China:
You are very hard on China and its political system. Having lived most of my life in Asia I take a less severe view. Like most observers I was disappointed to see that XI, the reformer, had no intention of political reform but on reflection, I think he’s probably right to opt for political stability at a time when China is still struggling to bring modernity to all its people and regions; when lightening-speed technological change is taking place across the globe and when it finds itself in an inevitable struggle to assert what it regards as its rightful influence on global institutions and practices. On a smaller scale in Singapore Lee Kuan Yew did much the same thing and while there is now a little more political tolerance in Singapore than there was, the Government – and most of its people – believe that full-throated democracy would lead to economic and societal break-down. That would be Xi’s worst nightmare.

My grouse is not so much with your view on China but with your uncritical view of India. I agree with you that India should do well given its demographic advantage and talents of its people. However, I think the Modi government is quite repugnant in its covert – and not so covert – support of extremist Hindu nationalism represented by terrorisation of the Muslim and Christian communities, and by its appalling failure to do much about the abuse of women, also fuelled by Hindu extremists. In the medium term, I fear this, together with over-dependence on coal, will limit India’s investment appeal and therefore its economic potential.

To declare my investment positions, I have reduced my exposure to India and wait for an opportunity to reinvest in China. My favourite Asian market currently is Vietnam.

Third, the purpose of your ‘service’:
Under David’s direction, Fuller Money provided objective macro oversights together with some trading suggestions/recommendations and some investment suggestions/recommendations. He often put his money where his mouth was and invested in his recommendations. Towards the end of his career, he stopped publishing his investment portfolio which I regarded as a pity. Under your direction, Fuller-Treacy Money continues to provide objective (if sometimes convoluted and long-winded) macro oversights, but I find it difficult to work out whether beyond that you are offering trading hints or investment hints. I use the word ‘hints’ rather than ‘suggestions’ because in this aspect you are far more non-committal on specifics than was David. The details you provide of your own investment activities suggest that you are a trader with long(ish) term investments in gold bullion, gold miners and Rolls Royce. I made several profitable purchases based on David’s recommendations but so far have identified none under your watch.

Fourth Daily Audio and Video:
From emails you have referred to from other subscribers, I am confident that I am not alone in being irritated by several of your constant refrains. Three which particularly annoy me are ‘The big question is ….’ (to which we never get an answer); ‘[Gold (for example) has a lot of work to do’ (which is a nonsense, better to identify factors which might influence buying/selling decisions) and; ‘I can’t talk and chew gum at the same time’ (which sounds quite catchy heard for the first time, but grates increasingly after many repetitions).

So, getting that off my chest makes me feel slightly less out of sorts. I shall be renewing my subscription in March. It’s been part of my routine for too long.

Eoin Treacy's view -

Thank you for this detailed email, your long-term support and I hope you back feels better soon. If it is muscular, rather than a herniation, I strongly recommend Yunnan Baiyao. I’ve pulled muscles in my lower back on several occasions either playing tennis or lifting. If it is taken quickly after injury, it provides a powerful, quick solution with no side effects I have experienced. 

I began questioning the wisdom of relying on the Dow/Gold ratio during the early stages of the pandemic. Here is a link to Comment of the Day on April 24th 2020. It includes a large number of long-term ratios and concluded that the Dow Jones Industrials Average is no longer the best way to look at the long-term ratio, confirmed concentration of attention in the growth sector, predicted the recovery in oil prices, higher wages, and the return of inflation.



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February 07 2022

Commentary by Eoin Treacy

Police Target Truckers' Fuel After Ottawa Declares Emergency

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

Trudeau has largely been out of sight during the protest after testing positive for Covid-19 a week ago and going into isolation. On Friday, he said calling in the military was “not in the cards,” but he’s been silent since then and doesn’t have any public appearances scheduled Monday.

The ministers of public safety, transportation and emergency preparedness, along with other Ottawa-area lawmakers, will hold a briefing at 12:45 p.m. in Ottawa on the federal government’s response.

Carney, who was governor of both the Bank of Canada and the Bank of England before joining Brookfield Asset Management Inc., issued his call to action Monday morning in an opinion piece in the Globe and Mail newspaper. 

“Those who are occupying the downtown of our nation’s capital should be in no doubt. They are no longer simply advocating a different strategy to end Covid-19,” Carney said. “They are not patriots. This is not about ‘restoring freedom’ but beginning anarchy.”   

Eoin Treacy's view -

The protests in Canada are just one more symptom of the global unrest provoked by the pandemic. People have not been satisfied with the inability of governments to react in a timely manner to emerging data, or with their failure to formulate common sense strategies to limit risk and enhance mobility. Truckers are truly essential workers and losing that status in how they are treated by the government is at the root of these protests.



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February 07 2022

Commentary by Eoin Treacy

Bitcoin Notches Longest Rally Since September; Shiba Inu Jumps

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

The break above $43,000 could cause the current up move to target toward the $45,000 level, according to Nathan Batchelor, lead Bitcoin analyst for SIMETRI Research. 

“People are starting to feel a little more comfortable dipping their toes back into some of these riskier asset classes after the pullback,” Lindsey Bell, chief markets, and money strategist at Ally Financial Inc., said. However, Bell says the market in general isn’t necessarily out of the water yet with lingering uncertainty on multiple fronts, including the speed at which the Federal Reserve and central banks could act to quell rising inflation.

A strengthening relationship between Bitcoin and the stock indices has emerged in recent months, particularly with the technology heavy Nasdaq 100 index. The correlation between the Nasdaq and Bitcoin currently stands at 0.43.

Gritt Trakulhoon, an investment analyst at Titan Global Capital Management USA Inc., said the dramatic rise in Shiba Inu could be attributed to development progress on a blockchain add-on, known as a layer-2 network, specifically designed for the token called Shibarium. The memecoin is based on the Ethereum blockchain.

“It doesn’t take a lot of effort to push them higher or lower,” Bell said. “Because Bitcoin is such a large market cap and more liquid than some of these other ones, in a way -- it’s not necessarily stable -- but it’s more stable than some of the other ones.”

Eoin Treacy's view -

Buying the dip is an almost instinctual action for investors and particularly following 50% in bitcoin. There is still a great deal of cash in the financial system and dry powder in the private equity sector totals trillions. At least some of that money is now flowing back into the crypto sector as risk appetite begins to recover.



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February 04 2022

Commentary by Eoin Treacy

February 04 2022

Commentary by Eoin Treacy

Secular Themes Review February 4th 2022

Eoin Treacy's view -

In 2020 I began a series of reviews of longer-term themes which will be updated going forward on the first Friday of every month. These reviews can be found via the search bar using the term “Secular Themes Review”.

The biggest trend in the world isn’t bitcoin or the FANGMAN stocks. It’s bonds. Yields peaked in 1980 and the cost of borrowing has done nothing but decline since.

That’s enabled the steady rise of leverage, debt accumulation, asset price appreciation, speculation in all manner of public and private assets and every other bull market too.

The exact mix of where the debts have accumulated most is different in each country. For the USA, fiscal excess and unfunded liabilities are the biggest debt issue. The large number of companies surviving with no profits is the second biggest debt issue.

In Australia, Canada and the UK, consumer debt ratios, household debt and property debt are the pain points. The Reserve Bank of Australia’s reluctance to raise rates, despite inflation, is a symptom of the economy’s reliance on property prices.

For China, the accumulation of debt in the property sector has been epic. The sector represents 30% of GDP. At least in Japan, the massive quantity of debt is held domestically but it is a significant hurdle to raising rates.



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February 03 2022

Commentary by Eoin Treacy

Video commentary for Feburary 3rd 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Amazon earnings were positive as expected but guidance is not as strong, bond yield rising everywhere, Euro bounces back, European energy crisis is the biggest contributor to inflation, gold rebounds from intraday low, gold shares cheap. 



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February 03 2022

Commentary by Eoin Treacy

Meta Faces Historic Stock Rout After Facebook Growth Stalled

This article from Bloomberg may be of interest to subscribers. Here is a section:https://www.bloomberg.com/news/articles/2022-02-02/facebook-shares-plunge-as-users-stall-forecast-falls-short?sref=g4EhC0E7

This quarter’s sales forecast also disappointed Wall Street and Chief Executive Officer Mark Zuckerberg, who saw his personal wealth potentially plummet about $24 billion, acknowledged that Meta is facing serious competition for user time and attention, particularly from viral video-sharing app TikTok.
 
The dour outlook and stalled user momentum mark a dramatic turnaround for a company that has posted share gains in every year but one since its 2012 IPO, stoking concern that Meta Platforms flagship product and core advertising moneymaker has plateaued after years of consistent gains. 

“These cuts run deep,” wrote Michael Nathanson, an analyst at brokerage Moffett Nathanson, who titled his note “Facebook: The Beginning of the End?” The results were “a headline grabber
and not in a good way.”  Zuckerberg said Meta’s rival to TikTok, Reels, is growing quickly, but monetization has been slow. He asked investors for patience as the product ramps up.

“Over time we think that there is potential for a tremendous amount of overall engagement growth” with Reels, he said on a conference call Wednesday. “We think it’s definitely the right thing to lean into this and push as hard to grow Reels as quickly as possible and not hold on the brakes at all, even though it may create some near-term slower growth than we would have wanted.”

 

Eoin Treacy's view -

Does anyone remember Vine? It was the big short form video app of the early social media age and folded because it could not think of a way to make money. Musical.ly and later TikTok slid into that niche and effectively captured the generation Z demographic.



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February 03 2022

Commentary by Eoin Treacy

ECB Is Said to Prepare for Potential March Policy Recalibration

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

European Central Bank policy makers can envisage recalibrating their outlined policy path in March, according to officials familiar with their thinking.

The Governing Council agreed on Thursday that it’s sensible not to exclude the possibility of an interest-rate hike this year, said the people, who asked not to be identified because their discussions are private. 

An end of bond-buying under the ECB’s regular program, the APP, is possible as early as the third quarter, the officials said. No decisions have been taken. 

An ECB spokesman declined to comment. ECB President Christine Lagarde refused to repeat at her press conference that a rate increase was very unlikely this year, highlighting more persistent-than-expected inflation pressures in the 19-nation bloc. Investors brought forward bets on a liftoff while she spoke.

Eoin Treacy's view -

This graphic from the Nordea highlights the fact that European inflation is all about energy. Raising interest rates doesn’t do much more to curtail demand than high prices are doing already so the ECB is understandably reluctant to rush into action.



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February 03 2022

Commentary by Eoin Treacy

Looks Like There's a Whale Snapping Up Gold Bullion Below $1,800

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

That would suggest that whoever is buying is able to buy in scale, leave little footprint in the market and then take delivery and store the metal in secure, invisible vaults. And that points strongly toward a sovereign buyer.

Central banks normally declare to the IMF the amounts of metal they have on their books. But there are precedents where this has been done with some delay. Between 2009 and 2015, China reported no change in holdings, only to reveal that it had bought 53 million ounces of metal over the period.

Eoin Treacy's view -

Gold habitually ranges for long enough to try the patience of even the most ardent bulls. When it breaks out, it usually takes most traders by surprise. That’s the biggest lesson I’ve learned from trading the metal for nearly twenty years.



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February 02 2022

Commentary by Eoin Treacy

Video commentary for February 2nd 2022

February 02 2022

Commentary by Eoin Treacy

Mega-cap Influence

This note from a Bloomberg blog helps to put today’s price action into perspective.

Alphabet Inc.’s brisk rally on Wall Street on Wednesday is giving a boost to the Nasdaq 100 Index, still reeling from last month’s selloff in tech stocks. Shares in the Google parent are surging after it announced a stock split and posted quarterly sales and profit that topped analysts’ projections, signaling the resilience of its advertising business. The gains in Alphabet shares -- the third biggest stock on the Nasdaq 100 with a weighting of 7.4% -- account for most of the rise on the index on the day.

Eoin Treacy's view -

Apple warned about its ability to fulfill orders before Christmas and subsequently was able to beat that projection. The share jumped on the news but guidance was for slower growth in Q2.



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February 02 2022

Commentary by Eoin Treacy

Euro-Zone Inflation Unexpectedly Hits Record, Pressuring ECB

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

Euro-area inflation unexpectedly accelerated to a record, overshooting expectations by the most in at least two decades and heaping pressure on the European Central Bank to pare back pandemic stimulus more quickly, like its counterparts in the U.S. and the U.K.

Consumer prices jumped 5.1% from a year ago in January, up from 5% in December. The median estimate in a Bloomberg poll of 44 economists saw a reading of only 4.4% and none predicted inflation gaining pace.

The euro climbed 0.3% against the dollar to $1.1305 while German bonds pared gains to leave the 10-year yield one basis point lower at 0.03%.

While slowing in Germany and France, the euro zone’s two biggest economies, the spike in energy costs pulled price growth higher across the 19-member currency bloc as a whole. It was more than a percentage point higher than analysts predicted in Italy, where it accelerated to 5.3%.

Stripping out energy and other volatile components like food, core inflation was 2.3%, down from last month’s 2.6% reading.

Eoin Treacy's view -

Energy prices are a multiple of where they were a year ago. That’s hitting everyone’s wallet. The issue is particularly worrisome in Europe where natural gas inventories are extremely low and consumption taxes are high. An even bigger crisis has been avoided only by virtue of winter weather being relatively warm of late.



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February 02 2022

Commentary by Eoin Treacy

India Plans Record Borrowing to Fund Modi's Growth Ambitions

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

That plan will require borrowing a record 14.95 trillion rupees ($200 billion) to bridge the shortfall, much higher than the 13 trillion rupee consensus, as revenues from divestments are slow to materialize.

“While the fiscal expansion is expected to be pro-growth, the heavy supply is expected to worry the bond markets,” said Upasna Bhardwaj, an economist with Kotak Mahindra Bank Ltd. 

Indian bonds fell, with the yield on benchmark 10-year notes rising by as much as 21 basis points. Stocks traded 1.5% higher, paring earlier gains of as much as 1.8%.

The looser spending puts India on track to post one of the deepest budget deficits among major economies as nations spend their way out of the pandemic-induced downturn. 

Eoin Treacy's view -

The 2022 state elections are India’s equivalent of the mid-term elections in the USA. Four of the largest population states will hold elections. This will both influence the government’s majority and reflect public sentiment following the abandonment of the farm reforms. This article from the Hindustan Times may also be of interest. 



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February 01 2022

Commentary by Eoin Treacy

Video commentary for February 1st 2022

Eoin Treacy's view -

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

Some of the topics discussed include: total return on Treasuries testing the secular trend, Wall Street continues to unwind short-term oversold, oil and gold steady, copper rebounds, Europe and Japan continues to benefit from lower valuations than Wall Street with stronger rebounds and smaller reactions. 



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February 01 2022

Commentary by Eoin Treacy

Email of the day on Saudi Arabia

Your rather surprisingly positive reportage from Saudi Arabia awakened my interest in their stock market.  I found to my surprise that it is nearly perfectly correlated with a broad commodities index. This is not because it is just the oil price, as that takes up only a small part of the commodities index, and oil companies take up only a small part of the Saudi stock market.  The two markets I am comparing are IKSA and COMF, both in London.  Do you have any ideas about why this correlation is so tight?

It would be nice if you would revisit the market from time to time and give us your opinions on it.

Eoin Treacy's view -

Thank you for this email which highlights an important aspect of the Saudi market. The SASE Index is predominately weighted by banks. This being Saudi Arabia they are run on Islamic principles so loans are less leveraged relative to deposits than one might see elsewhere. Additionally, companies are not allowed to list until they have posted profits for three consecutive years.



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February 01 2022

Commentary by Eoin Treacy

Exxon to Accelerate Buybacks After Biggest Profit Since 2014

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

Chevron Corp. reported record free cash flow late last week. Shell Plc, BP Plcand TotalEnergies SE are scheduled to post fourth-quarter earnings during the next two weeks.

The boost in cash flow will allow Exxon to increase the pace of a $10 billion share buyback previously announced as taking place over two years. Now, the company expects the buybacks to be “faster than that 12-24 month pace,” Chief Financial Officer Kathy Mikells said during a conference call. 

Exxon also expects to grow oil production in the Permian basin by 25% in 2022 after increasing by the same amount from 2020 to 2021. That dwarfs the 10% increase that rival Chevron Corp. announced last week and is the latest sign that U.S. shale is ramping up again after years of restraint. 

Exxon’s results come a day after the driller disclosed yet another belt-tightening move, this time involving shuttering its corporate headquarters in suburban Dallas and consolidating those offices near Houston. Exxon shares have risen more than 20% this year, capping an almost 50% advance in 2021 for the best annual performance in at least four decades. 

Eoin Treacy's view -

The oil majors are not spending on new supply. That’s boosting profitability and contributing to strong oil prices. Even when Exxon expects to grow production by 25% from the Permian, that comes at a fraction of the cost base the company was prepared to spend before the pandemic. Both Exxon and Chevron now spend more on dividends than capex.



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February 01 2022

Commentary by Eoin Treacy

Nickel Is Gripped by a Supply Squeeze That Keeps Getting Worse

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

The nickel market is showing more signs of stress. Stockpiles held by the London Metal Exchange extended their decline on Tuesday, with the last increase coming in October. Buyers are paying a massive premium for immediately deliverable futures.

The key cash three-month spread, which briefly eased on news of additional shipments from Tsingshan Holdings Group Co., notched new highs on Monday. Contracts for immediate delivery are trading at a $508-a-ton premium to those in three months, the highest such premium since a historic squeeze in 2007.

While the squeeze last month was focused on near-dated contracts, in recent days it has spread through the curve. That shows the market is now pricing in tighter nickel supplies for longer, amid strong demand from stainless steel producers and battery manufacturers.

Eoin Treacy's view -

Demand for batteries is likely to ramp higher over the coming years as more automotive manufacturers release new models. What kind of batteries will go into those cars is less discussed. Nickel is primarily used as a range extender. The downside is it is much more expensive and chemically volatile. Tesla is switching to lithium iron phosphate batteries for all its mid-range vehicles. That is going to cut into demand for nickel in the medium-term.



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January 31 2022

Commentary by Eoin Treacy

Video commentary for January 31st 2022

Eoin Treacy's view -

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

Some of the topics discussed include: further evidence of growth slowing down, bond yields remains steady in the UK, rising in the UK, oil firm, the threat of stagflation reduces the potential for sharp interest hikes so gold and stocks firm. bitcoin reverses early decline.



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January 31 2022

Commentary by Eoin Treacy

BOE's First Back-to-Back Hikes in 17 Years May Just Be the Start

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

The Bank of England, one of the first movers in what looks set to be a rapid global tightening of monetary policy, this week will give a big clue about how far and fast it will move in combating inflation.

Policy makers led by Governor Andrew Bailey are expected to hike interest rates to 0.5% on Thursday, according to a survey of economists by Bloomberg. That would complete the first back-to-back increase since 2004 and open the question of whether more increases will follow.

The central bank’s latest forecasts also due with the decision will be key part of the answer. Analysts also are looking for words from Bailey at a press conference about how policy makers will respond to a surge in energy costs that’s helping drive up the prices at the fastest pace in three decades.

“More hikes are likely given the scale and persistence of inflation,” said Sanjay Raja, an economist at Deutsche Bank AG, who expects two hikes this year and another two in 2023. The risk is, he said, that “more will be needed and perhaps at a faster pace.”

Eoin Treacy's view -

UK Gilt yields are trending higher. A sequence of higher major reaction lows has been evident since mid-2020 and the rate broke out to new highs this month. The bond market has judged this inflationary spike is at least as powerful as the pre-GFC commodity-led move. It’s forcing the BoE to step in and raise rates.



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January 31 2022

Commentary by Eoin Treacy

Big Ideas 2022

This aspirational report from ARK Invest highlights the arguments they have been making for the last couple of years about the promise of the innovation sector.

When has investing not been about the future? Change appears to happen slowly and then all at once. Over time, innovation should displace industry incumbents, increase efficiencies, and gain majority market share. With the right understanding of disruptive innovation and a long-term time horizon, we believe investors will capture exponential growth opportunities, which deserve a strategic allocation in their portfolios. For this reason, ARK focuses on opportunities likely to scale as technologies converge, transforming entire industries.

To enlighten investors on the impact of breakthrough technologies we began publishing Big Ideas in 2017. This annual research report seeks to highlight our most provocative research conclusions for the coming year. We hope you enjoy our Big Ideas for 2022.

Eoin Treacy's view -

I’m not going to spend the time required to poke through the holes and validity of the arguments laid out in this report. It would take too much time and I’m not sure if it would add any value. 

From an investment perspective innovation and momentum are analogous. Investors are willing to give the benefit of the doubt to incredibly optimistic visions of the future, provided the discount rate is close to zero. When rates rise the duration of optimism shortens and potential for profits comes back into focus. 

 



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January 31 2022

Commentary by Eoin Treacy

Brazil Analysts See Inflation Further Above Central Bank Target

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

Brazil analysts raised their 2022 inflation expectations further above target for the third week in a row as the central bank prepares to lift its interest rate into double digits at Wednesday’s policy meeting.
Inflation will hit 5.38% in December, above the prior estimate of 5.15%, according to a weekly central bank survey published on Monday. Analysts also lifted their 2023 year-end consumer price forecast to 3.50% from 3.40%. 

Policy makers led by Roberto Campos Neto are expected to deliver their third consecutive 150-basis point rate hike this week, lifting the benchmark Selic to 10.75%. Inflation slowed less than expected in mid-January, as factors including global supply-chain disruptions pressured prices of transportation and
durable goods. Analysts see borrowing costs at 11.75% in December. 

The central bank risks missing this year’s inflation target of 3.5%, which has a tolerance of plus or minus 1.5 percentage points.

Eoin Treacy's view -

Brazil has some of the highest short-term interest rates in the world and they are about to get even higher. Emerging markets do not have the luxury of time to wait and see what happens. They have much more recent history of inflationary problems and have tended to act much quicker to curtail growth opportunities to bring inflation under control. That’s exactly what Brazil is doing with its aggressive hikes.



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January 31 2022

Commentary by Eoin Treacy

January 28 2022

Commentary by Eoin Treacy

January 28 2022

Commentary by Eoin Treacy

Email of the day on the green revolution

Thanks for the great service pulling the noise out of market trends for us. We especially enjoy what my wife affectionately calls the “Big Picture Long-Winded” Friday recordings. Regarding the possible rotation into the renewable/green economy do you have any ideas on Industries/companies that could benefit from the build out? Or would the safer play be directly in the commodities needed for the grid, vehicles, batteries, and such? Hoping to get to another Chart Seminar before too long.

Eoin Treacy's view -

Thank you for your kind words. A former delegate at The Chart Seminar once described my sense of humour as “impish” and I can’t argue with that. Your better half’s turn of phrase certainly tickled me. The Friday broadcasts are often a delicate balance between trying to be pithy and attempting to cover the relevant arguments. I’m looking at a late May/early June date for a London seminar and I hope to see you there.

The question of the future of the zero carbon/green revolution/energy transition is a big one. On one hand we have high minded projections of a utopian future where the air is pristine and no economy is dependent on carbon emissions for growth. Promises of hundreds of trillions being spent to achieve that goal were a major feature of international conferences in 2021.



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January 28 2022

Commentary by Eoin Treacy

January 28 2022

Commentary by Eoin Treacy

January 27 2022

Commentary by Eoin Treacy

Video commentary for January 27th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: corrective phase ongoing and Powell put probably closer to -20%. Dollar breaks out, gold weak, Japan at suppot, Europe and UK outperforming, value steady, semiconductors breaking down. natural gas one-day spike. 



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January 27 2022

Commentary by Eoin Treacy

Value Stocks, U.S. Dollar Among Top Trades After Hawkish Fed

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

“The Fed’s latest update is net negative for risk assets, as it seems to show that the Fed has a lower strike put than we thought - in other words Powell would be comfortable to allow further market weakness and volatility without intervening,” said Altaf Kassam, EMEA head of investment strategy and research at State Street Global Advisors.

“Investors should continue to avoid developed markets government bonds as there is only downside there. We are rotating into defensive equities, long-dated U.S. Treasuries, commodities and VIX futures - Volatility will be here for a while.”

Eoin Treacy's view -

The Fed is talking about raising rates faster than any other developed market central bank. That represents a strong tailwind for the Dollar Index and it broke upwards to new recovery highs today. This has been a consistent rebound from the lower side of the range and nothing has yet happened to question potential for a run back towards the psychological 100 level.



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January 27 2022

Commentary by Eoin Treacy

China Rushes to Deliver Stimulus as Fed Pulls Back in New Era

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

And having avoided the all-out stimulus of Western peers when the Coronavirus first struck in early 2020, the PBOC finds itself with dormant consumer prices and room to “open the monetary policy tool-box.”

For China, that sets the stage for a triple dose of support from increased lending, lower borrowing costs and — potentially — a weaker yuan that would boost exports. The PBOC has already made a down payment on rate cuts and most economists expect more to come.

By China’s normal standards, the prize for successful stimulus will be small — more preventing a continued slide in growth than driving a fresh acceleration. And past policy errors — allowing a debt bubble to expand to enormous size — add risk to the outlook and a constraint on the PBOC’s freedom of maneuver.

If Yi and his team can pull it off, though, the boost from PBOC stimulus should offset at least some of the drag on global growth from Fed tightening. International Monetary Fund projections show China is set to contribute more than one-quarter of the total increase in global gross domestic product in the five years through 2026, exceeding the U.S.’s roughly 19% share.

Eoin Treacy's view -

China avoided overstimulating the economy during the pandemic because they didn’t have to. Most factories have attached dormitories. That ensured production hummed even as much of the country was locked down. Instead, they used the massive surge in export revenue as catalyst to reshape the economy. Clamping down on property developer leverage and reshaping innovation priorities in the tech sector were top of the list.



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January 27 2022

Commentary by Eoin Treacy

Weaker Yen, Stronger Japanese Stocks Seen Ahead: BofA

This note appeared in Bloomberg may be of interest to subscribers. Here is a section.

A mix of Federal Reserve tightening and spring investment flows from Japanese funds should result in a weaker yen but support the country’s government bonds and equities, strategists at Bank of America wrote.

Bank expects pronounced Fed and BOJ divergence as latter stays on hold; that will be exasserbated by spring investment flows, led by the newly established university fund and life insurance funds’ seasonal activity, strategists Shusuke Yamada, Tomonobu Yamashita and Tony Lin wrote

Sees BOJ maintaining yield curve control despite rumors of tightening

“For Japanese fixed-income investors, implications of policy divergence are relative stability of JGB over foreign bonds, higher FX-hedge cost, rising FX carry, and a stronger USD,” they said

Forecast USD/JPY will fall to 118 by mid-year despite cheap valuation

“We believe pressure to keep JPY undervalued will prove more significant especially in the spring when the Fed-BoJ policy divergence would be pronounced and institutional money may flow into foreign assets without FX hedge,” they said

Tougher U.S. rates typically favor Japanese equities

As market volatility increases, flows from Japanese funds and light positioning among global investors should also support the market, they wrote.

Eoin Treacy's view -

The Bank of Japan has made no statement about changing its yield curve control policy. With 10-year JGB yields at the upper side of the stated band, we will find out in coming days whether they are going to continue to defend the policy.



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January 26 2022

Commentary by Eoin Treacy

Video commentary for January 26th 2021

Eoin Treacy's view -

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

Some of the topics covered include: Fed's hawkish tone suggests an additional correction for stocks is about to be priced in. Wall Street reverses an earlier bound, Dollar surges, gold pulls back, both oil and copper pause, Europe continues to exhibit relative strength, banks and agriculture stocks steady.



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January 26 2022

Commentary by Eoin Treacy

London Gets Vote of Confidence From Big Finance Firms, EY Says

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

Most global finance firms are planning to establish or expand operations in the U.K. in 2022, according to a survey of 40 key decision-makers in the industry.

Around 87% of global financial services investors expect to invest in the U.K. next year, EY’s latest poll found. That’s the highest since the professional services firm started tracking sentiment toward the country in 2016, the year of the Brexit vote, and compares to 50% in early 2021 and a low of 11% in 2019. 

The data is a boost for the City of London, whose credentials as an international finance center are being questioned since the U.K. left the European Union. Meanwhile, 90% of respondents said the U.K. offers the right conditions to invest in assets with environmental, social and governance attributes.

“This is testament to the stability and resilience of the mature U.K. market which continues to ably withstand the material challenges and uncertainty of both the pandemic and Brexit,” said Anna Anthony, EY’s financial services managing partner for the U.K.

Eoin Treacy's view -

There was a lot of fear that Brexit would result in London being denuded of financial firms. The reality is the Eurozone represents only a portion of the business done in one of the world’s great financial centres.



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January 26 2022

Commentary by Eoin Treacy

The New Agri-Giant Invading the U.S. Heartland

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

Viterra is already the world’s largest wheat trader, thanks to its investments in major exporting regions including Canada, Australia, Argentina, and the former Soviet Union. If Gavilon in the U.S. is added to that impressive portfolio, it will be the kind of concentration — and power — that governments worry about. Indeed, Beijing may be even more concerned about the deal than Washington. China, which is spending billions of dollars to build its own state-owned agricultural trading house, is unlikely to welcome further consolidation in an industry it relies on to feed more than one billion people.

Regulatory concerns aside, the deal is a steal. Glencore, founded by the late U.S. fugitive Marc Rich in the 1970s, built its agribusiness through acquisitions. In 2012, it beat out ADM and purchased Canadian grain trader Viterra Inc. for 6.1 billion Canadian Dollars ($4.8 billion). Today, Glencore controls just under 50% of the enlarged Viterra business, with 49% owned by two Canadian pension funds and a residual percentage controlled by the staff.

Eoin Treacy's view -

Most investment banks closed their commodity trading desks during the 2011-2016 bear market. They sold their ships and warehouses too so getting back to dominant positions is not going to be easy or cheap. That handed control of market making to private trading houses which now control the market regardless of whether Glencore’s bit for Gavilon is successful.



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January 26 2022

Commentary by Eoin Treacy

Microsoft's Shares Gain on Forecast For Azure Cloud Growth

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

Microsoft Corp. shares rose in early trading on Wednesday after the software giant gave a forecast that reassured investors the company’s Azure cloud-computing business still has potential to drive growth.  The company predicted Azure’s revenue growth rate would pick up in the fiscal third quarter from the second, excluding the impact of currency fluctuations. The stock gained about 5% in premarket trading in New York. “This will help calm Street tech growth worries,” said Dan Ives, an analyst at Wedbush. 

Microsoft’s fiscal second-quarter earnings report on Tuesday showed sales that topped $50 billion for the first time and profit that exceeded analysts’ estimates, fueled by cloud, gaming and Windows software. But Azure revenue, up 46% in the period, decelerated from recent quarters and missed analysts’ rosiest estimates, sending the stock tumbling before executives issued a more optimistic forecast for the business later in the afternoon.

Eoin Treacy's view -

When I was recording the audio last night Microsoft was down in after hours trading. Shortly afterwards, the company released a more upbeat opinion of what they think the next quarters will look like so the share rebounded. Nevertheless, growth in demand for cloud services is moderating which is to be expected following the mass adoption event that accompanied the pandemic.



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January 25 2022

Commentary by Eoin Treacy

Video commentary for January 25th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Microsoft cloud growth slows and is likely to take the sheen off the Wall Street rebound. Fed meeting tomorrow and Apple earnings after the close on Thursday are additional sources of potential volatility. Gold and oil firm, India and Vietnam resilient so far. Russia pulling back sharply. 



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January 25 2022

Commentary by Eoin Treacy

RBA Seen Scrapping Bond-Buying Program at First Meeting of 2022

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The Reserve Bank of Australia will probably scrap its bond-buying program at the first meeting of 2022, as a strengthening economic recovery suggests the additional stimulus measure is no longer needed.

All but one of 17 analysts polled by Bloomberg expect the RBA will end quantitative easing at its Feb. 1 meeting. The outlier, HSBC Holdings Plc’s Paul Bloxham, sees a taper to A$1 billion from the current A$4 billion ($2.9 billion) weekly pace and the program concluding in May.

Just last month, economists were divided on the future of QE, with six of 14 surveyed expecting a tapering. Since then, better-than-expected data on consumer spending and employment, as well as faster inflation, have bolstered market confidence in the strength of the $1.5 trillion economy. That prompted Westpac Banking Corp. among others to change their views on bond purchases.

“The string of strong data prints now means the RBA’s dovish stance is untenable,” said Prashant Newnaha, Singapore-based senior Asia-Pacific rates strategist at TD Securities. “With a rather clear case that the RBA is making progress towards its goals of full employment and inflation, it will need to re-write the policy narrative.”

The RBA, in minutes of its last meeting of 2021 released on Dec. 21, said its central economic forecast supported tapering the bond purchases. The bank releases updated estimates on Feb. 4 that are likely to see an upgraded outlook for unemployment and inflation.

TD’s Newnaha expects the RBA’s central forecast to now be for a rate increase in 2023, though the bank will “possibly open the door to a rate hike in 2022.”

Eoin Treacy's view -

The question of what to do about rising inflation is a topic facing every central bank. The answer is complicated by the presence of significant leverage and accumulated debts in different parts of the economy. If central banks raise rates too quickly some of those debts will run into trouble like we have seen with China’s property developers. That was admittedly an intentional act, the overleverage is not limited to China.



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January 25 2022

Commentary by Eoin Treacy

Buy-the-Dip Old Reliables

Eoin Treacy's view -

Throughout the course of this bull market the companies that never seem to pull back for long and which investors rush to buy when they do all seem to share a similar set of characteristics. They have dominant positions in their own small niche businesses and, also deploy a private equity business model to either acquire smaller similar niche dominators. They also tend to invest heavily in maximising the profit potential of their own business units.



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January 25 2022

Commentary by Eoin Treacy

These Investors Are Sticking With Gold Despite Easy Money Ending

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The end of an easy-money era should normally spell bad news for gold. But right now, fund managers are keeping their holdings.

At a time when equities and Bitcoin -- often touted as digital gold -- are sinking as loose monetary policy draws to a close, bullion exchange-traded fund holdings are proving resilient. Despite expectations for multiple U.S. interest-rate hikes this year, bets for real rates to stay negative and demand for an inflation hedge are supporting the appeal of the time-honored haven.

Christoph Schmidt, who heads DWS Group’s 20 billion euros ($22.6 billion) Multi Asset Total Return team, is among those in no rush to sell and who has helped keep prices from falling.

“I would not expect our gold position to change in the foreseeable future,” said Frankfurt-based Schmidt, who has 8% of his funds in gold. “We don’t see a dramatic change in the interest-rate environment.”

Eoin Treacy's view -

Rumours of the death of easy money are at best exaggerated. It’s been my view for months that a succession of interest rate hikes is very unlikely. My base case is one and at most two before the end of the year. Anything else would cause havoc in the financial markets and the Fed is at pains to avoid that outcome because of the effect it would have on confidence in the economic recovery.



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January 24 2022

Commentary by Eoin Treacy

Video commentary for January 24th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Type-2 top formation completions are often followed by period of ranging. Wall Street rebounds from lows as shorts are cut ahead of Microsoft and Apple earnings and the Fed meeting Wednesday, oil steady, gold rebounds from intraday lows, Dollar steady, Renminbi firm.



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January 24 2022

Commentary by Eoin Treacy

Morgan Stanley's Michael Wilson Says 'Winter Is Here' for Stocks

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Meanwhile, the earnings season so far has failed to assuage growing pessimism about the macroeconomic outlook. Goldman Sachs Group Inc. strategists said Monday that guidance for the months ahead has been “disappointing,” as only one S&P 500 company -- Micron Technology Inc. -- has both beaten earnings estimates and raised its outlook.

Markets are increasingly concerned that a more hawkish shift from the Fed could hit earnings growth, Goldman strategists led by David Kostin wrote in a note. “Investors will require a catalyst in the near-term to add length, but few obvious catalysts are evident in the near-term,” they said.

Eoin Treacy's view -

We have described this bull market as liquidity fuelled since 2009. Nothing has changed to question that assumption. The reality of tapering and the threat of rate hikes and quantitative tightening are weighing on asset prices from cryptocurrencies to unprofitable innovation companies. Many of the world’s largest companies are now also feeling the pain.



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January 24 2022

Commentary by Eoin Treacy

French Nuclear Giant's Fall Risks Energy Security for All Europe

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Nuclear power is dwindling elsewhere in Europe too. EDF has shut down some reactors in the U.K. earlier than planned because of other safety issues, while Germany will permanently close its three remaining reactors by the end of the year, after shutting down three others a few weeks ago. Belgium will also close a reactor in October, and halt its six others by the end of 2025. 

At the same time, those countries are adding large amounts of wind and solar generation, filling the gap left by nuclear but increasing their energy systems’ dependence on the whims of the weather. Without reliable baseload power exports from EDF, a cold and windless winter day will become a potentially stressful scenario. 

“The dependency on France is likely to increase with Germany getting out of coal and nuclear,” said Johannes Pretel, head origination for Germany at Swiss utility Axpo Holding AG. “This winter we still had all of our capacity, next winter we don’t have it anymore because the last nuclear plants will be out.”

Eoin Treacy's view -

Europe stopped building reactors thirty years ago. Today there is little appetite to invest in the infrastructure required to maintain aging plants or to build new ones. The loss of the primary source of base load electricity is going to be felt across the continent for years to come. Even if they decided to spend the money today, it would still be a decade before new reactors come into service.



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January 24 2022

Commentary by Eoin Treacy

China's Massive Current Account, Capital Surpluses Underpin Yuan

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Overseas investors boosted their holdings of Chinese sovereign bonds by 575.6 billion yuan ($90.9 billion) in 2021, the fastest pace on record compared with previous years, according to Bloomberg calculations of Chinabond data. 

Foreign exchange settlement under securities investment in the capital account, which reflects offshore investors’ buying of onshore equities and bonds, surged to $23 billion in December, the highest since records began in 2010.

Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd., said the high returns of yuan-denominated assets and the stability of the yuan exchange rate are attractive to foreign capital. 

However, the narrowing U.S.-China yield spread will lead to slower inflows into the onshore bond market, and direct investment next year could ease, considering multiple factors, including regulations, U.S.-China relations and China’s slowing economy, Cheung said.

Eoin Treacy's view -

The Renminbi has been slowly appreciating versus the Dollar since early 2021. That reticence of the Chinese government to deploy massive monetary and fiscal stimulus during the pandemic have contributed to the strength of the currency and the relative attraction of Renminbi bonds.



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January 21 2022

Commentary by Eoin Treacy

January 21 2022

Commentary by Eoin Treacy

Bitcoin billionaire Mike Novogratz says plunging crypto will have a hard time rallying until stocks find a base

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Billionaire investor Mike Novogratz has said cryptocurrencies will struggle to pull out of their sell-off if stocks keep falling, as he urged investors not to buy the dip.

Prices for bitcoin, ether and other digital currencies have fallen sharply across the board as they track Wall Street's rout in tech stocks, driven by pressure from rising bond yields.

"Crypto will have a hard time rallying until stocks find a base," Novogratz, CEO of investment company Galaxy Digital, tweeted late Thursday.

Novogratz pointed to the sharp fall in the Russell index, which is down almost 10% year to date, saying there are 1.2 trillion bad equity longs above the market.

"This is now a bear market," he said, adding: "Sell rallies.  Don't buy dips."

Eoin Treacy's view -

Doubts about whether bitcoin is a risk asset or a safe haven have been dispelled over night as bitcoin followed the stock market to new lows. That’s an important distinction because the primary comparison between bitcoin and gold over the last couple of years is they are both long-term stores of value. Recent action suggests that belief is wrong.



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