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May 24 2019

Commentary by Eoin Treacy

May 24 2019

Commentary by Eoin Treacy

May 24 2019

Commentary by Eoin Treacy

The hardest Post to Write

This blogpost by Kevin Muir may be of interest to subscribers. Here is a section:

Last October there was a full hike priced in, but now those expectations have completely collapsed to the point where there is two cuts already embedded into the Eurodollar futures curve.

Although it’s not quite this simple, to make money at the short end, the Fed will have to cut more than twice in the next year and a bit. Could that happen? For sure. No doubt about it. Maybe the economy hits a real air pocket and the Fed cuts aggressively. Or there is some geopolitical event and the Fed is forced to slash rates.

But the point to ask yourself is whether that is a good bet? I contend that with everyone leaning so heavily one way, the surprise will not be how much money they make, but instead if things don’t play out exactly as ominously as forecasted, how quickly the trade goes sour.

There is little room for error. Or put it another way, the global economy better collapse as quickly as these bears believe as even a lengthening of the process will make their trade unprofitable.

And in case you are bullish the long end of the curve and believe a slow-to-cut Fed is your best friend, don’t forget what Tariff Man has done to inflation. Next year should see a rise of 50 basis points across the board to core inflation. Sure commodities are falling hard, but that helps more with China’s inflation situation than with America’s.

Eoin Treacy's view -

The bond market is indeed pricing in rate cuts by the end of the year. The big question is how much of that is hedging of fears about the potential for a slowing global economy and resulting US Dollar outperformance and how much is about the need for an end to quantitative tightening in order to fend off fears about an impending recession?



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May 24 2019

Commentary by Eoin Treacy

Email of the day on Yes Bank

The cloud over Yes Bank is the result of the Reserve Bank of India (RBI) announcing last Fall that the bank’s co-founder and former CEO, Rana Kapoor, had not provided adequate reserves for bad loans in 2017. The RBI asked Kapoor to step down and find a replacement, which is a fairly radical move.

When Gill took over this spring, he immediately took large write offs to clear the decks, but has since changed his tone and become much more optimistic (I am referring to his interview on 5/17/19 on CNBC India). He is adamant that there are no more skeletons in the closet.

I am inclined to take him at his word, since the RBI has been closely scrutinizing Yes Bank for the past 6 months and knows the full extent of any problems. Also, the RBI found no issues in its most recent review of Yes Bank’s reserves, released just after Gill took the helm (but before his first earnings announcement in which he wrote off everything). The RBI also just appointed a representative to the board, so Gill is being held accountable in real time.

Local investors remain nervous that there is more bad news coming in the next quarters, but I hold the view that the bank has adequate collateral for its important exposures (ADAG and Essel group), will get through this phase, and that perceptions will change – I think the shares will return to their historic valuation range in the next two to three years, providing excellent returns from the current price.

The capital raise in the next 6 weeks could also be a catalyst in this process. That could be when the bank announces a capital raise, possibly with the participation of a Private Equity firm or other marquee investor. Tier 1 capital is now 8.3%, and the bank needs the capital to continue to grow.

Long term shareholder returns from private sector banks in India have been excellent (HDFC Bank, Axis Bank, or Kotak Bank compare very well to the S&P 500 over 5, 10, or 15+ yrs. In USD). Yes Bank is trading at a severely distressed level compared to its historic valuation range, and I believe there is a strong possibility of making a 2x return in 3 years, and more over a 5-7 year time horizon.

I am set up to invest in India (which is no small feat, 4-6 months of paperwork)

The market capitalization in USD is $4.7bn, book value is $3.88bn, price/book is 1.21x. This is the lowest p/b ratio since the financial crisis (See chart below). In Aug 2013 the p/b ratio got down to 1.5x and recovered to 4.37x book by Jan of 2015. The mean p/b during the bank’s history appears to be around 2.7x, which is normal for private sector banks in India due to their continuing high growth and high ROE.

Here is a chart of Yes Bank’s p/b range since 2009. It is important to note that when the shares reached 1.5x book in 2013 they were INR 49/share, compared to today’s price of 137/share, owing to the bank’s very fast rate of growth in book value.

Eoin Treacy's view -

Veteran subscribers will be familiar with the fact that India is our favourite market for the long-term. The challenge for many investors has always been in how best to express that view since it is difficult to transact in Indian shares and the number of Global Depository Receipts is limited. That leaves funds which may or may not perform.

Allen Benello is fund manager, a long-time subscriber and dear friend who has gone through the 4-6-month process of being set up as a Foreign Portfolio Investor (FPI) by the Securities and Exchange Board of India (SEBI). He has offered to answer any questions subscribers might have about opening a brokerage account in India and can be reached at ABenello@WRPartners.com.



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May 24 2019

Commentary by Eoin Treacy

As May Steps Aside, Rival Boris Johnson Makes His Brexit Pitch

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

Johnson said he would prepare for no-deal, go back to Brussels to renegotiate the toxic Irish backstop, and make clear that he’s prepared to leave without a deal if the EU says no. He said he believes the U.K. will leave the EU on Oct. 31 -- the latest deadline -- with or without a deal.

He has long indicated that he’d be willing to pull the U.K. out of the bloc without a deal and has criticized May for surrendering to the EU. That has spooked markets, and the pound has weakened on concerns that a hardliner would pursue a no-deal exit.

Johnson’s other tactic is to get Parliament to rule out the possibility of canceling Brexit --- an option the U.K. legally has. That would make the threat of no-deal more credible, and could concentrate minds in the EU, where some officials continue to hope that the U.K. might change its mind.

The EU has repeatedly said it won’t reopen the divorce deal and won’t change the Irish backstop. It’s the most contentious part of the agreement as it potentially keeps the U.K. bound to the EU rules indefinitely and treats Northern Ireland differently to the rest of the country. Johnson noted that a majority in the Parliament has voted to renegotiate the backstop.

As for a second referendum, Johnson thinks it’s a very bad idea. “Put Brexit to bed, pacify this bawling that’s been going on for so long,” he said.

Eoin Treacy's view -

With all the best will in the world, the Brexit question is still going to be an enormous dispute to settle successfully. The first rule of negotiating is you need to be willing to walk away. That is why the threat of a hard Brexit needs to remain on the table and needs to be credible. The UK needs to do everything possible to plan for a hard Brexit because preparing for the worst and hoping for the best is the only strategy one can follow when faced with tough odds. From that perspective Boris Johnson is the best man for the job.



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May 23 2019

Commentary by Eoin Treacy

Video commentary for May 23rd 2019

Eoin Treacy's view -

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

Here of the topics discussed include: whiff of risk off in the market with China related instruments taking the brunt of selling. Treasuries, yen and gold steady, Wall Street testing the region of the trend mean, Oil pulls back sharply to break its uptrend, 



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May 23 2019

Commentary by Eoin Treacy

Modi and B.J.P. Make History in India. Gandhi Concedes.

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

“If someone is victorious, it is India,” he said. “If someone is victorious, it is democracy. If someone is victorious, it is the electorate.”

Striking a populist tone and evoking mythical Hindu figures engaged in war, Mr. Modi framed the elections as a victory by and for ordinary Indians, over those who write off the poor and downtrodden. At the end of the battle, he said, was “the guarantee of a bright future for India.”

“Some are saying, ‘Modi, Modi, Modi.’” he said. “This is not Modi’s victory. This is the victory of the expectations of the honest citizen of this country.”

“This is the victory of the mother who was longing for a toilet,” he continued. “This victory is of the farmers who sweat to fill the stomachs of others. This is the victory of the 400 million unorganized laborers.”

Exceeding all predictions, Modi’s party is winning a majority of seats.

Mr. Modi, one of the most powerful and divisive leaders India has produced in decades, appeared easily headed for another five-year term, according to election returns.

With most votes counted, the Election Commission reported that Mr. Modi’s Bharatiya Janata Party, or B.J.P., was ahead in about 299 parliamentary districts, far beyond the 272 seats it would need for a majority in the 543-seat Parliament. At this pace, the party would actually expand on its current majority — a development no one was predicting in recent months. And its actual majority will be larger, as its established coalition partners have won at least a few dozen more seats.

Eoin Treacy's view -

Narendra Modi declated victory today which is going to maintain his party’s dominant position in the recent elections. That ensures the business-friendly environment which has prevailed for the last five years will persist and further strengthens his hand in pushing through reforms, assuming of course that is what he intends. There is also the matter of building a temple to Ram on the site of a mosque, which is likely to inflame religious tensions over coming months. How that is handled will give us a clear clue as to just how populist the administration has become.

 



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May 23 2019

Commentary by Eoin Treacy

Email of the day on the impact of currency on global investment decisions:

Again, very grateful thanks for the very interesting and thoughtful comments you post each day. They are helpful to both newer investors and the more experienced who may get locked into their way of thinking. I count myself in that category! One factor that does not get mentioned perhaps as often as it should is the impact of currency movements on investment portfolios. Those of us using pound sterling as our home currency may feel particularly sensitive to this at this time. Those of us that assess gold as a possible investment often check gold in different currencies to determine whether a broad-based uptrend is evolving (eg compare gold in USD, Euro where the pattern looks quite different.) But I suspect fewer investors factor in currency movements when buying stocks in the USA, Europe, India, Japan and China. What are your thoughts on this?  

Eoin Treacy's view -

Thank you for this question which I believe will be of interest to other subscribers. From everything I have witnessed over the years large institutional investors look for three attributes when deciding to invest in markets beyond assets denominated in their domestic currency. These are potential for currency market appreciation, potential for capital market appreciation and yield differentials. I see no reason why investors of all hues shouldn’t follow the same rationale. That is the basis for thinking as a globally oriented investor and why this is a Global Strategy Service.



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May 23 2019

Commentary by Eoin Treacy

Bad News for Markets Offers Little Help to Gold as Metal Dithers

This article by Joe Richter and Marvin G. Perez for Bloomberg may be of interest to subscribers. Here is a section:

With an equities rally wavering, trade relations between world’s two largest economies deteriorating and U.S. borrowing costs slipping, the commodity often seen as a haven in times of turbulence is encountering troubles of its own. Gold prices are headed for a fourth straight monthly drop, and have seesawed between weekly gains and losses since late April.

Bullion, which hasn’t posted more than three straight daily gains since March, has been stuck in a fits-and-starts pattern as signs of resilient growth and a rising dollar counter concern that the world economy is set to slow. Even increased wagers that the Federal Reserve will ease monetary policy this year haven’t been enough to sustain rallies in bullion, which can benefit from low rates because it doesn’t pay interest.

“Prices are kind of range bound, nobody is making any money, so on the margin, people are just disinterested,’’ said John Laforge, the head of real asset strategy at Wells Fargo Investment Institute, which oversees 1.9 trillion. “You really need something fearful out there, which is the scary part. You really need something that rattles markets for gold to take off.’’

Eoin Treacy's view -

I like to see these kinds of articles because they give us some perspective on what sentiment towards an asset class is like. As you can see from the above passage the broad feeling is this “market has no legs” and “can’t sustain a rally”. That tells us the majority of people are not in the market.



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May 23 2019

Commentary by Eoin Treacy

Mrs May is the epitome of all that is wrong with British politics

Thanks to a subscriber for this article by Allister Heath for The Telegraph which may be of interest. Here is a section: 

The root cause of the problem is that too few Tories realise that we are in the midst of the political equivalent of a bank run: the depositors are queuing to take their money out, and the whole system is about to implode. The choice is either urgent, decisive and painful action, or a Canadian-style collapse for the Tories when the inevitable general election comes. Every passing day is an embarrassment, further toxifying the Tory brand, and each one of Mrs May’s pronouncements costs the party yet more support that it will struggle ever to recover. The European elections will be a catastrophe.

Tory MPs and the remaining members of the Cabinet need to understand the depth of their predicament, and do anything they can to accelerate Mrs May’s ejection from office. They should snap out of their debilitated stasis, pull out their fountain pens and get writing to Sir Graham. The other Cabinet members must realise just how badly their own reputations are being damaged: they are propping up Mrs May, and they are still far too obsessed with their own leadership prospects to want to rock the boat. Do they really want to lead a rump opposition party, or even lose their own seats, which is where their cowardice and excessive caution could eventually lead?

There may be a chance of a Tory-Brexit Party pact at some point but zero chance that supporters of Mrs May’s deal or her allies will be spared the full force of Nigel Farage’s party. Any Cabinet minister with a sense of self-preservation must therefore follow Mrs Leadsom in repudiating both. It is their only chance.

Eoin Treacy's view -

Theresa May took the job of Prime Minister in large part because no one else wanted it, and everyone knew from the outset it was a poison chalice. She has failed, as expected, to bridge the chasm between the Leave and Remain sides of her party. However, because of the betrayal of the vote for a clean break she is now is facing the clear potential for schism with in the Conservative Party. Under Theresa May’s watch a third force has emerged in UK politics, with far more groundswell appeal than the Liberal Democrats ever had. That is something she deserves all the blame for. The lurch towards the fringes and away from the status quo is now well underway. It has been my opinion for months that both the Conservatives and Labour would be eviscerated at the next election. Now we know what the alternatives look like.  



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May 22 2019

Commentary by Eoin Treacy

Video commentary for May 22nd 2019

Eoin Treacy's view -

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

Some of the topics covered include: buybacks continue to support markets but are dependent on earnings growth, Australia, New Zealand continue to trend higher supported by weak currencies, China pauses, Oil weak, gold steady, bonds trending higher. 



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May 22 2019

Commentary by Eoin Treacy

Shorts Beware, Your Archenemy in the Stock Market Is Revving Up

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

The dips may have, in fact, provided good buying opportunities for companies to step in and buy at lower prices, said Jim Paulsen, chief investment strategist at Leuthold Group.

“There’s something to be said about insiders showing confidence that their stock is probably going to go up. They think it’s relatively cheap or a good opportunity to buy it back,” said Paulsen. “It’s typically a good sign that has led to higher stock prices.”

Buybacks have climbed in recent years even as they’ve come under pressure from politicians who are focusing on corporate governance as an election issue. While far from being a consensus view, repurchases have been a bull case that strategists like David Kostin at Goldman Sachs have cited for the 10-year rally to keep going.

Corporate appetite has dwarfed that from all other investors as the biggest source of demand for U.S. stocks. Net purchases from corporations totaled $1.6 trillion during the past three years while investors from pensions to mutual funds to individuals were sellers, according to data from Goldman Sachs.

While it’s only one bank’s client flows, BofA’s data demonstrated a similar pattern. Over the last three weeks when stocks slipped, companies stepped up buying while hedge funds and individual investors retreated. During the stretch, buybacks totaled more than $7 billion. By contrast, selling from the other two categories reached almost $1 billion.

Eoin Treacy's view -

Regardless of how one feels about the merits of share buybacks they have been the primary transition mechanism for monetary and fiscal easing to enter the stock market. If that conclusion is correct then only a significant downtrend in corporate earnings or a need to defend the company’s credit rating is likely to change the spending priorities of big corporations.



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May 22 2019

Commentary by Eoin Treacy

Franklin Says Aussie Bonds to Rally as RBA May Ease Four Times

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

Overnight swap markets are currently pricing in two RBA cuts by November. Westpac Banking Corp. economist Bill Evans on Tuesday brought forward his forecast for the first reduction in the cash rate to June, with a second to follow in August. Commonwealth Bank of Australia and Royal Bank of Canada expect the same.

JPMorgan Chase & Co. though says two cuts may not be enough. “From where we are today, this is still not sufficient to fully neutralize risks to the RBA staff’s current forecasts, suggesting risks to a sub-1% cash rate,” economist Ben Jarman wrote in a note.

Franklin Templeton’s Canobi expects the RBA to lower borrowing costs three to four times over the next nine to 12 months as tepid inflation weighs. “We never felt that inflation has really had a grip since the RBA started easing in 2016, and it still looks pretty weak,” he said.

Eoin Treacy's view -

Australian mortgages are full recourse and floating rate. The Australian consumer is carrying some of the highest leverage ratios in the world, second only to Canadians in the G7. That’s fine as long as the property market is rising but when it starts to contract pressure starts to build on leverage at even a slight down turn in the ability of consumers to service their debts.



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May 22 2019

Commentary by Eoin Treacy

Jai hind: This is the new India

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

On our latest grassroots research trip to India, we visited three lower-tier cities — Ahmedabad, Pune, and Lucknow — to meet with middle-class consumers between the ages of 20 and 30. We also conducted an online survey of 1,200 millennials across the country. This paper outlines our observations and offers potential investment implications driven by a rapidly changing “Young India.”

High-level observations
• India is home to more millennials than any country in the world, with nearly 473 million people born between 1985 and 2000.1
• Digital democratization is driving lifestyle convergence between metro and lower-tier cities.
• Expanding internet access and a wave of national pride have begun to shift consumption trends.
• The desires to bridge tradition with modernity and gain independence without losing family ties have boosted markets for inventive products and aspirational experiences.

Trend: Digital democratization is reshaping consumption patterns Internet and mobile penetration in smaller cities like Pune and Lucknow are beginning to match that of large, metro cities like Delhi and Mumbai. Data prices in India have plummeted 95% to approximately 18 rupees (US$0.26) per Gigabyte (GB) since 2016 (Figure 1), contributing to an eightfold increase in usage with the average user consuming nine GB of data per month as of the end of 2018 (Figure 2).

Eoin Treacy's view -

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

The evolving populist, followed by nationalist trends first root in India. There is increasing evidence that this two-fold pattern is evolving elsewhere. The success of populist candidates in a large number of countries and the increasingly nationalistic rebasing of political dialogue that has occurred subsequently suggests there is a clear trend underway in the global market which is supportive of regionalisation rather than globalisation.



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May 22 2019

Commentary by Eoin Treacy

Email of the day on Brexit

You have probably have had your fill of Brexit but I thought you would find this piece quite insightful in explaining the rise of the Brexit Party. 

The weekend results are going to be far more interesting than we have ever believed an EU election could be.

https://unherd.com/2019/05/how-farage-outflanked-everyone/

Eoin Treacy's view -

Thank you for this article which I agree is a useful primer on the rise of a populist party. The process has been long and drawn out in the UK because people believed that by voting for Brexit, what they were going to receive was change. The failure of incumbents to deliver necessarily requires the rise of a new power which at least promises to deliver.



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May 21 2019

Commentary by Eoin Treacy

May 21 2019

Commentary by Eoin Treacy

May 21 2019

Commentary by Eoin Treacy

Farage's Brexit Party to Trounce May, Sporting Index Says

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

Nigel Farage’s Brexit Party is poised to dominate the upcoming European elections in the U.K., according to spread betting firm Sporting Index.

The anti-EU party will win 28 seats, the firm said. Prime Minister Theresa May’s Conservatives will win seven, while Labour will take 13 and the Liberal Democrats 12, Sporting Index predicted in an email in London on Tuesday.

Sporting Index has had a consistently strong record in predicting some of the key twists and turns of the Brexit saga. Last month, about two hours before the latest vote on May’s Brexit deal, the spread betting firm forecast she’d lose by 60 votes. She was defeated by 58.

“The Tories look set to face the consequences over their handling of Brexit, with the Brexit Party and Liberal Democrats making significant gains due to their clear stance on one of the most polarizing events in British politics,” Sporting Index’s Phill Fairclough said.

On Tuesday, May offered lawmakers a vote on whether her Brexit deal should be subject to a referendum, in a last-ditch bid to save it. Last time MPs voted on a second referendum, there was just a 12- vote difference, with 280 backing a confirmatory vote on a deal and 292 against it.

Eoin Treacy's view -

There is a large contingent of UK voters who thought they would never be voting in a European election again. Presented with the opportunity to stuff the European parliament with Eurosceptics they are likely to leap at the chance.  The UK isn’t the only country where parties at odds with the European union’s aim of further cohesion are likely to gain ground. France, Italy, Austria, Sweden, Denmark and Spain all have room for electoral upsets. Perhaps the greatest irony is from next week the continent will have a more Eurosceptic voice than Westminster.



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May 21 2019

Commentary by Eoin Treacy

PGM Market Report

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

Eoin Treacy's view -

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

The diesel cheating scandal had a huge effect on demand for platinum from the automotive sector in 2017 and 2018 which resulted in a significant drawdown. The automotive sector has been busy trying to clear up its image and play catch up with Tesla so diesel fell by the wayside. However, the significant surge in palladium prices, to levels where substitution becomes economic, raises questions about the bearish hypothesis on platinum.



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May 21 2019

Commentary by Eoin Treacy

Email of the day - on cryptocurrency exchanges:

I noticed that you did not mention Coinbase as a vehicle to use cryptocurrency; what would be the risks of opening an account with coinbase vs stockbrokers. Thank you.

Eoin Treacy's view -

Thank you for this question which is highly topical for anyone considering buying cryptocurrencies via an exchange. The reason Fidelity’s move to provide custody is such a big deal is because it lends security to your holding.



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May 21 2019

Commentary by Eoin Treacy

Email of the day - on battery powered flight:

I loved Lex’s tongue-in-cheek view of lithium-on batteries. A useful energy density chart that shows where lithium-ion batteries are - roughly in between lead batteries and liquid hydrogen.

Eoin Treacy's view -

Thank you for this story and I also enjoyed the tongue and cheek nature of the energy density comparisons. I suppose it is no longer politically correct to point out that whale blubber has about 87% the specific density of kerosene which is better than lithium ion batteries. If that could be artificially replicated, we really could see whales fly.



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May 21 2019

Commentary by Eoin Treacy

May 20 2019

Commentary by Eoin Treacy

Video commentary for May 20th 2019

May 20 2019

Commentary by Eoin Treacy

Exit polls predict Narendra Modi will cruise back to power in India

This article by Pramod Mathew for quartz may be of interest to subscribers. Here is a section:

In India, exit polls have often been off the mark but financial markets, among others, have rarely showed the patience to await the official results.

In 2014, most exit polls accurately predicted that the NDA had an upper hand over the UPA, but few foresaw that the BJP alone would get an absolute majority. In 2009, the UPA ended up getting more seats than forecast by polls.

In 2004, all exit polls had predicted a win for the NDA, but the Congress-led alliance’s triumph surprised the pollsters.

Eoin Treacy's view -

India is at an important juncture. It has millions of new voters entering the electorate at each election. That means politicians have to appeal to their interests if they are to secure power. Economic growth was the clear strategy which propelled Modi to power in 2014. Following the slow pace of reform over the last five years, a much more nationalistic and populist tone has been witnessed in electioneering.



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May 20 2019

Commentary by Eoin Treacy

Family Guy a New Conservative Hero after Shock Australia Victory

This article by Edward Johnson and Jason Scott for Bloomberg may be of interest to subscribers. Here is a section:

Former Treasurer Morrison is the Liberals’ third leader in four years and has only been at the helm since August. Factional infighting saw right-winger Tony Abbott dumped in 2015 by his own lawmakers for millionaire moderate Malcolm Turnbull, who in turn was ousted in a party vote.

Morrison, an evangelical Christian who represents one of the country’s most socially conservative districts, moved swiftly to unite the party and set about crafting a strategy to close down Labor’s long-standing lead in opinion polls.

He relentlessly attacked Shorten’s promise to boost the minimum wage, curb tax incentives for investors and take tougher action against global warming, insisting the slowing economy couldn’t risk such policies. While his reputation as an effective campaigner grew on the trail, polls still had him trailing by at least 2 points going into Saturday’s election, and book-makers had him at long odds to win as the ballot boxes closed.

Eoin Treacy's view -

I was chatting with a couple of ladies from Newcastle (NSW) on the plane back from Florida in March and they were very clear in their conclusion that young people had no idea what had helped to generate the economic prosperity Australia has become synonymous with over the last forty years. Of course, they are from one of the largest coal exporting terminals in the world, but that perspective helps to highlight not only the reluctance to embrace growth killing climate prohibitions but a generational divide.



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May 20 2019

Commentary by Eoin Treacy

Google Cuts Off Huawei Smartphones From Some Android Services

This article by Dan Strumpf and Yoko Kubota - for the Wall Street journal may be of interest to subscribers. Here is a section:

From now, Huawei will be able to use only the public version of Android and won’t have access to proprietary apps and services from Google, according to a person familiar with the matter. Though existing phones are expected to keep functioning largely as usual for now, users could lose some app functions, including some artificial-intelligence and photography features, the person said.

In a separate move, German chip maker Infineon Technologies AG said it was terminating the delivery to Huawei of some components originating in the U.S., in a sign that even non-U.S. suppliers to Huawei are being swept up in the U.S. trade restrictions. Infineon didn’t specify which components were affected by the action but said the “great majority” of products it sells to Huawei aren’t subject to trade restrictions.

Separately, Qualcomm Inc., San Diego, has suspended shipments to Huawei of its chips, and some employees have been told not to communicate with the Huawei side, according to a separate person familiar with the matter. Qualcomm chipsets are used in certain Huawei smartphone models. Huawei also designs a large number of its own chips for higher-end phones.

Eoin Treacy's view -

Huawei is a Chinese national champion, so the Chinese government looks on the efforts to excise it from competing internationally as a direct afront to the Made in China 2025 program which is one of Xi Jinping’s central policy objectives. There is no Chinese company with an operating system capable of replacing Android. Until now they never needed one but we can be sure this sequence of events is going to further accelerate the drive towards Chinese technological independence, however long that takes.



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May 20 2019

Commentary by Eoin Treacy

Email of the day on the potential for the Euro to breakup

re the EURO If the Euro currency breaks up, for example, if weak Italy or strong Germany leave, the transition to something else will have to be managed , to avoid chaos; either there is a new Euro, or regional Euros, or the countries go back to their old currencies. Something entirely digital could be invented overnight, perhaps through temporary dollarisation of prices now in Euro. If currency has to be printed, this would take weeks. The French destroyed their Franc printing presses back in 2000/ How would you see the transition ? How would this affect the Swiss Franc ? 2) REQUEST for INCLUSION of the following stock in Chart Library: Tanzanian Gold Corporation ( TNX), listed in Toronto. present price 0, 93 CAD Thank you

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. I believe thinking there is a difference between the Deutsche Mark and the Euro is one of the most common misconceptions of investors. The “creation” of the Euro was more about extending the umbrella of the Deutsche Mark to the whole continent, with its low borrowing costs, than forming a new currency out of nowhere.



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May 17 2019

Commentary by Eoin Treacy

DoubleLine Asset Allocation Webcast -

I tuned into this webcast on the 14th and here are the slides which may be of interest to subscribers.

Eoin Treacy's view -

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

Jeff Gundlach has a good record of spotting trouble early and he appears to share the view espoused by Ray Dalio that the Federal Reserve is going to need to adopt even more extraordinary measures to tackle the next downturn because of the quantity of debt outstanding.



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May 17 2019

Commentary by Eoin Treacy

China Downplays Chances for Talks, Pledges Economic Defense

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

China’s state media signaled a lack of interest in resuming trade talks with the U.S. under the current threat of higher tariffs, while the government said stimulus will be stepped up to buttress the domestic economy.

Without new moves that show the U.S. is sincere, it is meaningless for its officials to come to China and have trade talks, according to a commentary by the blog Taoran Notes, which was carried by state-run Xinhua News Agency and the People’s Daily, the Communist Party’s mouthpiece. The Ministry of Commerce spokesman said Thursday he had no information about any U.S. officials coming to Beijing for further talks.
 

Eoin Treacy's view -

China running ahead of the USA on patent filings has been a common statistic quoted to highlight the country’s growing incentive to uphold intellectual property laws. What is less commented on is what these patents are for.



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May 17 2019

Commentary by Eoin Treacy

Email of the day on instruments referred to in trading reports

Eoin mentions buying Ethereum in this report but I cannot make out which vehicle he used. Can you help please?

PS:  I am enjoying my one month’s free trial and will definitely sign up.

Eoin Treacy's view -

Thank you for this question and welcome to the Collective of subscribers. As a new subscriber you might not be aware that the vast majority of what I trade is via spread-betting which is tax advantageous for UK investors because of the absence of capital gains tax. If I take an investment position it will stated as such and would refer to a share or fund.



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May 17 2019

Commentary by Eoin Treacy

Email of the day on cryptocurrency funds

Are there collective funds (ETFs etc) through which we can invest in a basket of cryptocurrencies?

Eoin Treacy's view -

Thank you for this question which may also be of interest to subscribers. The number of crypto funds is proliferating with hundreds now participating in the market. The provision of custody services by companies like Fidelity, E-Trade and JPMorgan will further enhance the ability of institutions to invest either through these funds or directly in the market.



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May 16 2019

Commentary by Eoin Treacy

Video commentary for May 16th 2019

May 16 2019

Commentary by Eoin Treacy

Theresa May Promises to Set Out Timetable for Quitting in June

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

Theresa May took a major step closer to leaving office, in the face of growing demands to quit as U.K.
prime minister over her failure to deliver Brexit.

The embattled premier agreed to set out a timetable for her exit early next month, after she puts her Brexit deal to another vote in the House of Commons, the Conservative Party’s most senior rank-and-file politician Graham Brady announced. The pound fell.

“We had a very frank exchange with the prime minister,” Brady told reporters on Thursday, after he and other senior Conservatives met her for a showdown behind closed doors. Brady said he and May agreed that they will meet again to finalize the timetable for electing a new Conservative leader after the Withdrawal Agreement Bill is put to a vote in the House of Commons in the first week of June. This meeting will happen regardless of whether the Brexit deal law is approved or rejected, he said.

Eoin Treacy's view -

Theresa May has had the unenviable job of trying to shepherd disparate groups within her own party towards a conclusion everyone could get behind. It was a nigh on impossible job and she has failed to get a deal through parliament. The Labour party have no incentive to help out because they are eyeing the next election and would be punished by their membership if they were seen to be helping out Conservatives. In my view, that is the primary reason cross party talks are failing.



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May 16 2019

Commentary by Eoin Treacy

Di Maio Says Italy Doesn't Want Debt to Spiral Toward 140%

This article by Jerrold Colten and Chiara Albanese for Bloomberg may be of interest to subscribers. Here is a section:

Days after his coalition partner roiled markets by threatening to breach European Union fiscal rules, Deputy Prime Minister Luigi Di Maio of the Five Star Movement said Italy’s government wants to rein in the debt load to avoid it spiraling.

“Nobody wants to go over 140%,” Di Maio said during an event in Florence. “Otherwise, the debt-to-GDP level would be out of control.” He added that some investments could be financed by increasing the deficit level provided that it boosts economic output, limiting the debt ratio.

The country’s debt-GDP level was 132.2% at the end of last year.

"I think that 130% is already a lot," European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters in Brussels when asked about Italy’s debt.

Eoin Treacy's view -

Italy has a domestic economy that is struggling and a group of high-profile exporters heavily reliant global growth. Trade war worries are weighing on sentiment particularly as the populist government seeks to modestly breech EU fiscal deficit limits.



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May 16 2019

Commentary by Eoin Treacy

Stock Rally Gains Momentum on Risk Bet, Bonds Fall

This article by Randall Jensen and Vildana Hajric for Bloomberg may be of interest. Here is a section:

This has become a pattern where you get a big aggressive statement from the administration that might impact trade and then the market reacts aggressively as it did on Monday and then it seems to back off,” Chicago-based Susan Schmidt, head of U.S. equities at Aviva Investors, said in an interview. “Business is still doing well. I think if the market can stay focused on the facts and the data, then I think the market will hold.”

Strong economic data and earnings, along with hints from the Trump administration that it may be willing to compromise on trade has helped stocks rebound from the battering they took when the tariff battle with China flared. But the headlines have come fast and furiously, most recently President Donald Trump signed an order that’s expected to restrict Chinese telecommunications firms from selling in the U.S.

Eoin Treacy's view -

China’s dependence on global trade is far greater than the USA’s and the market has been voting with its feet by both supporting the Dollar, the bond market and the stock market since the trade war began.



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May 16 2019

Commentary by Eoin Treacy

The future of Emerging Markets

This report from Dimitris Melas for MSCI may be of interest to subscribers. Here is a section:

The rationale for allocating to emerging markets rests on three pillars: Superior economic growth has resulted in positive market returns historically, low correlation within emerging markets and across asset classes has provided diversification benefits, and relative scarcity of information has created opportunities for active portfolio management. Long-term historical data confirms that emerging markets have provided positive long-term risk-adjusted excess returns and enhanced portfolio diversification. Their diversity has led to high cross-sectional return dispersion, both at the country and at the security level, creating opportunities to add value through active country allocation and stock selection. Omitting this equity segment would have introduced a performance drag on global indexed strategies and reduced the investment opportunity set of active strategies. The opening of the domestic Chinese capital market and its integration into international markets is likely to have a transformative effect on the emerging markets equity segment. MSCI introduced domestic Chinese equities (A shares) into the MSCI Emerging Markets Index in June 2018 at a reduced weight. Chinese equities listed in mainland China and Hong Kong currently represent 30% of the index but could grow to over 40% when A shares are included at full weight. The growing size of China within emerging markets raises the prospect for investors of making dedicated allocations to China. Whether investors make separate China allocations or continue to seek opportunities across global emerging markets, the segment likely will remain an essential element of the global equity universe in the future.

Eoin Treacy's view -

China already dominates the emerging markets sector and its influence is likely to further increases with the increased weighting of A-Shares. At 40% of the Index it will become increasingly difficult to invest in emerging markets without gaining at least some exposure to China. That will be either because of direct participation or because of the reliance of some markets on Chinese demand.



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May 15 2019

Commentary by Eoin Treacy

Video commentary for May 15th 2019

May 15 2019

Commentary by Eoin Treacy

Ethereum And Ripple's XRP Soar As Bitcoin Treads Water--Here's Why

This article by Billy Bambrough for forbes may be of interest to subscribers. Here is a section:

Ethereum and Ripple's XRP have climbed sharply this week as the bitcoin and cryptocurrency industry comes together for one of the biggest events in the cryptocurrency calendar starting—Blockchain Week NYC and CoinDesk’s Consensus 2019 event, running all this week out of the New York Hilton Midtown.

Bitcoin and cryptocurrency analyst Nik Patel has meanwhile found that, historically, after bitcoin surges higher smaller cryptocurrencies such as ethereum and Ripple's XRP generally rally hard in the aftermath.

"Of the previous four [alt coin] bear cycles, the average drawdown has been 69.7%. The current drawdown of this [altcoin] bear cycle is 66.5%. The average growth experienced across the past five [altcoin] bull cycles was 617%," Patel said via Twitter, suggesting we could be about to see a further rise in the value of many so-called altcoins.

Eoin Treacy's view -

A big question for investors is always whether to bet on the leader continuing to outperform and when to look at laggards that have the potential to experience a catch-up play.



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May 15 2019

Commentary by Eoin Treacy

Email of the day - on winners form the trade war:

As you say, the US has many alternative sources of cheap goods but there are limited sources of US technology. China also has no alternative buyers of its products. Round One of the international confrontation will be won by the US.

Eoin Treacy's view -

Buyers can always look elsewhere because there is always someone who is willing to provides services at a lower cost or who can manufacture a copycat item which is “good enough” Sellers have to focus on retaining that competitive edge but often have a hard time replacing lost customers, particularly when they are have already maxed out their growth.



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May 15 2019

Commentary by Eoin Treacy

Alibaba Defies China Slowdown; Sales, Earnings Top Estimates

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

Revenue climbed to 93.5 billion yuan ($13.6 billion) in the three months ended in March, about 1.8% above estimates as adjusted earnings-per-share of 8.57 yuan topped projections for 6.5 yuan. Alibaba expects sales in the current year to jump at least 33% to more than 500 billion yuan.

As Alibaba pushes deeper into businesses like cloud computing, it’s getting better at understanding e-commerce customers and making money from recommendations based on their preferences. The move is driving more sales than traditional search and boosting its ability to sell targeted advertising to merchants on its main Taobao platform. That is bolstering revenue growth even as escalating U.S.-Chinese tensions threaten to further dampen the world’s No. 2 economy.

“The results were really good, especially given how the macro economy hasn’t been that great," said Steven Zhu, an analyst with Pacific Epoch in Shanghai. “It’s a great sign that core e-commerce was growing strong.”

Eoin Treacy's view -

Ecommerce has more penetration among consumers in China than in the USA or Europe not least because consumer attitudes towards consumption are not as embedded with brick and mortar as they are elsewhere. That is driving consumption, particularly among the high spending millennial generation towards online shopping and following brand representatives on social media.



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May 14 2019

Commentary by Eoin Treacy

May 14 2019

Commentary by Eoin Treacy

U.S. Stocks Extend Rebound From Trade-Driven Rout: Markets Wrap

This article by Randall Jensen and Sarah Ponczek for Bloomberg may be of interest to subscribers. Here is a section:

“Investors are looking for opportunities to get into this market, and so far in 2019 there really haven’t been any ‘buy the dip’ opportunities other than last week,” Ryan Nauman, market strategist at Informa Financial Intelligence, said by phone. “And you’re also seeing President Trump confirmed a meeting with President Xi during next month’s G-20 summit, which provides some optimism that despite the increase in tariffs, negotiations are still ongoing.”

Even as investors pick through Monday’s carnage for deals, the trade tussle between Washington and Beijing is keeping markets on edge as traders try to gauge its impact on the global economy. On Monday, all three major U.S. benchmarks dropped more than 2% -- only the second time this year that’s happened -- after China targeted some of the biggest U.S. exporters in response to American tariffs. Trump eased concerns talks would break down when he said he and Chinese President Xi Jinping would meet at the G-20 conference in late June.

Eoin Treacy's view -

Investors don’t believe a trade war is inevitable and still hope that a deal will be done sooner rather than later. The threat from that conclusion is the extension of tariffs from the original set of goods to all goods imported from China will have an inflationary effect which is not being priced in. That is not so surprising considering how wrong inflation forecasts have been over the last decade. Nonetheless, the risk of inflation from escalating tariffs is non trivial.



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May 14 2019

Commentary by Eoin Treacy

Late Planting and Projections of 2019 U.S. Corn and Soybean Acreage

This article by Scott Irwin and Todd Hubbs for Farmdocdaily may be of interest to subscribers. Here is a section:

The impact of late planting on projections of the U.S. corn and soybean planted acreage is an important question right now due to the very wet and/or cold conditions so far this spring through much of the Corn Belt.  We estimate the relationship of late corn planting to corn and soybean planted acreage and prevented plantings in this article.  If late corn planting is 10 percent or more above average, we find that the chance of corn planted acreage decreasing is 83 percent and the average decrease is 1.4 million acres.  The level of prevented plantings for corn is about 1.2 million acres larger than average when late planting is near 10 percent or more above average.  This indicates that there is a reasonably high chance that planted acreage of corn will decline 2-3 million acres from expectations based on the March 30 USDA Prospective Plantings report.  Likewise, we find that when late corn planting is 10 percent or more above average that the chance of soybean planted acreage increasing is 83 percent and the average increase is 0.9 million acres.  However, the level of prevented plantings for soybeans also increases, offsetting much of the acreage switch.  This indicates there is a reasonably high chance that planted acreage of soybeans will not change much compared to expectations based on the March 30 USDA Prospective Plantings report.  It should be noted that changes to corn and soybean planted acreage could be even larger if planting conditions do not improve substantially in the next two weeks.  Finally, corn and soybean acreage changes could also be impacted by policy changes made in response to reaching or not reaching a trade deal with China.

Eoin Treacy's view -

The flooding which left much of the USA’s midwest under water for much of February has had an effect on planting has represents a catalyst for short covering as a number of grains and beans are in the region of multi-year lows.

 



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May 14 2019

Commentary by Eoin Treacy

Oil Rises as Drones Strike Saudi Pipeline and Trade Fears Recede

This article by Alex Nussbaum and Grant Smith for Bloomberg may be of interest to subscribers. Here is a section:

Oil climbed as drones struck Saudi Arabia’s main cross-country crude pipeline, while President Donald Trump said a trade deal with China is still within reach.

Futures gained 1.2% in New York, amid assaults on the world’s chief crude exporter. State-owned Saudi Aramco halted operations in the area after the strike on two pumping stations, which was claimed by Iran-backed rebels from neighboring Yemen. The attack followed damage to four oil tankers anchored off the United Arab Emirates on Sunday.

Eoin Treacy's view -

The intensification of sanctions on Iran risked retaliation among the country’s proxies across the Middle East with Yemen being a good example. It is almost inevitable that Hizballah will now also rachet up activity as well.



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May 14 2019

Commentary by Eoin Treacy

May 13 2019

Commentary by Eoin Treacy

Video commentary for May 13th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Trade War Intensifies, stocks extend pullback, Dollar, Yen, Treasuries and gold firm, potential for a stagfltionary environment if tariffs are extended to all Chinese imports, oil reverses early gain but grains and beans reverse early loss, Asian and commodity currencies weak.



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May 13 2019

Commentary by Eoin Treacy

A Fed Cut This Year Is Now Being Priced In as a Near Certainty

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

The rate on the January fed funds futures contract implies that the central bank’s benchmark will fall to 2.075% by the end of 2019. This is more than 25 basis points below where the effective fed funds rate stood Friday, showing traders are fully pricing in a quarter-point reduction. The implied rate on the contract ended last week at 2.15%.

This is happening as China threatens retaliatory tariffs on some American imports, an escalation in the trade war with U.S. President Donald Trump. The clash is fueling concern about economic growth, prompting a key part of the U.S. yield curve to invert again -- a sign to many that the risk of a recession has increased.

While “China/U.S. trade ripple effects certainly affect the Fed’s outlook, I think this is more of a macro move,” said Todd Colvin, senior vice president at futures and options broker Ambrosino Brothers in Chicago. “It’s not about whether or not the Fed sees policy shifts, that is, as much as it’s looking at
global growth woes, or increased market volatility.”

Eoin Treacy's view -

Jay Powell probably didn’t bargain for the environment he has been presented with since taking the helm of the Federal Reserve. Reducing the size of the balance sheet was supposed to be part of the re-arming of monetary policy to provide for the next crisis. It turned out to be the primary cause of the volatility last year and offered graphic evidence of just how addicted to liquidity the market is.



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May 13 2019

Commentary by Eoin Treacy

China Hikes Tariffs on U.S. Products as Trade-War Divide Deepens

This article by Shawn Donnan and Miao Han for Bloomberg may be of interest to subscribers. Here is a section:

China announced plans to raise duties on some American imports starting June 1, defying a call from President Donald Trump to resist escalating a trade war that is sending stocks tumbling and clouding the outlook for the global economy.

Less than two hours after Trump tweeted a warning that “China should not retaliate -- will only get worse!” the Ministry of Finance in Beijing unveiled the measures on its website. The new rate of 25% will apply to 2,493 U.S. products, with other goods subject to duties ranging from 5% to 20%, it
said.

The next salvo was poised to come later Monday, when the Trump administration is expected to provide details of its plans to impose a 25% additional tariff on all remaining imports from China -- some $300 billion in trade.

Eoin Treacy's view -

There are a large number of companies that both manufacture in China but also rely on Chinese orders to support growth. There has been some speculation in the media about China’s desire to sell its holdings of US Treasuries but that would do as much damage to themselves as to the USA. Meanwhile making life difficult for the USA’s largest companies is an obvious strategy to exert the maximum possible shock on the US administration.



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May 13 2019

Commentary by Eoin Treacy

Funds Flock to Dollar on Bets Markets Underpricing Trade Divide

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

Uncertainty over how the dispute would be resolved in the one-month deadline set by Washington will reinvigorate a hunt for haven assets in a world already hampered by slowing growth.

An easy bet will be to short the expected losers: risk-sensitive currencies from Asia to South America, they say. “To be honest, I thought the dollar would be rising at a much faster pace than this -- markets were pricing in a Goldilocks environment and they were clearly wrong,” said Stephen Miller, an adviser at asset manager GSFM and a former head of fixed income at BlackRock Inc.’s Australian business.

“Right now I’d be long U.S. dollar versus EM currencies, the likes of Argentina and Turkey.” There’s a 60% chance that China and U.S. won’t reach a deal in the coming weeks, according to analysts at Australia and New Zealand Banking Group Ltd., after last week’s talks laid bare divisions including the removal of existing tariffs and a breakdown in trust. While both nations plan to continue negotiations, traders are waiting for Beijing’s retaliation measures after Washington slapped more duties.

Eoin Treacy's view -

The Chinese renminbi has long been used as policy tool and tariffs being imposed on a wider range of goods, there is a clear argument for having a weaker currency. The country is obviously going to experience some difficulties from tariffs imposed on exports to one its largest trading partners but the potential for domestic inflation to spike on the back of a weaker currency is likely to limit the scale of devaluation.



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May 10 2019

Commentary by Eoin Treacy

May 10 2019

Commentary by Eoin Treacy

China Armed With Powerful Market Weapons in Duel With Trump

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

Chinese policy makers could devalue the yuan to offset the impact of U.S. duties on China’s economy. The offshore yuan weakened 5.5% against the dollar in 2018, drawing Trump’s ire and fueling speculation that the country was deliberately weakening its currency. While it has fallen 1.8% this week, the currency rose on Friday after the People’s Bank of China set its daily fixing at a stronger-than-expected level.

However, China’s painful experience with devaluing the yuan in 2015, which prompted capital to flee the nation, is likely to dissuade a similar move, according to Tao Wang, UBS Group AG’s chief China economist and head of Asia economic research. “China doesn’t like the self-fulfilling outflows that come as a result of depreciation, which tend to diminish domestic confidence,” she said. “In addition, yuan depreciation last year angered the Trump administration and led to higher U.S. tariffs.”

Eoin Treacy's view -

Watch your own backyard first, worry about everything else afterwards has been the Chinese response to the imposition of additional tariffs on its US exports. The first order of business appears to have been to do what was necessary to avoid a negative reaction in the domestic stock market. That was achieved by clear support coming through for the A-shares market and it posted an upside key day reversal. This action is a testament to the fact that bull markets in China are state sponsored.



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May 10 2019

Commentary by Eoin Treacy

Fed Seen as More Likely to Cut Rates After U.S. Tariff Boost

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

The Federal Reserve probably will be more inclined to cut interest rates now that President Donald Trump has followed through on his threat to increase tariffs on U.S. imports from China. But it won’t rush into doing so.

While the higher levies will put upward pressure on inflation by raising import prices, the central bank will likely be more attentive to the potential drag they’ll exert on the economy by depressing consumer and business spending, Fed watchers said.

“We would expect the Fed to initially focus on the growth implication and look past the inflation impact,’’ Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a May 7 note to clients.

Eoin Treacy's view -

The Federal Reserve is highly unlikely to raise rates against a background of low domestic inflation and heightening international tensions. That has been one of the primary reasons bond market investors have concluded we are at the top of the interest rate cycle.



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May 10 2019

Commentary by Eoin Treacy

U.S. Consumer Prices Trail Estimates, Testing Powell's View

This article by Jeff Kearns and Reade Pickert for Bloomberg may be of interest to subscribers. Here is a section:

At the same time, apparel prices dropped steeply for a second month, falling 0.8% in April after a 1.9% March drop that was the most since 1949. Apparel only accounts for just over 3% of the CPI but a new methodology in March had dragged down the overall index.

Eoin Treacy's view -

I thought the above was an interesting figure in light of a conversation I had with a friend who is the owner of a garment factory in Los Angeles a couple of days ago. He said the tariffs were terrible for his business because they fall on imports of fabric but not on finished products.



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May 10 2019

Commentary by Eoin Treacy

Virgin Galactic Moves Into Spaceport as Passenger Flights Nears

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

 

Virgin Galactic already has about 700 customers who are each paying $250,000 for a 90-minute flight. Branson’s space effort had suffered delays due to major engineering changes that were required after the 2014 crash of its VSS Enterprise, which killed pilot Michael Alsbury.

Virgin Galactic plans a few additional test flights from New Mexico in late summer or early fall, with additional employees along for the ride as the company finalizes its operating procedures.

“We want to make sure we have a very choreographed service and offering planned out,” Whitesides said. “We want to give the pilots a few times to just fly it.”

Of the work remaining to be done, Whitesides said “the No. 1 thing is we need to finish installation of the commercial cabin. Our interiors team is sort of going through that process to create the world-class Virgin cabin everyone expects—and that’s going to entail a lot of work.”

Beyond the cabin work, Virgin Galactic is also ferrying its ground and training equipment from California. “We’ve moved from the realm of space-age physics to logistics,” he said.

Eoin Treacy's view -

We are at the dawn of commercial space flight and that represents the creation of a brand-new investment arena, which for the moment is primarily in private hands. Nevertheless, there are going to be ancillary movements in a host of supporting sectors such as tourism, communication, defense, manufacturing, experimentation, mining etc.



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May 09 2019

Commentary by Eoin Treacy

Video commentary for May 9th 2019

May 09 2019

Commentary by Eoin Treacy

Trump, China Signal Harder Stands Ahead of High-Stakes Talks

This article by Shawn Donnan, Jenny Leonard and Miao Han for Bloomberg may be of interest to subscribers. Here is a section:

But the mood on both sides going into the talks appears to be hardening with Lighthizer calling members of Congress ahead of the discussions to warn that a deal this week is unlikely, according to people familiar with the conversations. While Trump on Wednesday insisted that Liu was coming to make a deal and dubbed him a "good man," he later told a rally of supporters that China "broke the deal" by backsliding on prior commitments, leading him to order higher tariffs.

China has disputed Trump’s characterization that the country reneged. But it has also sent its own signals that a deal could take time.

Unlike in some of his previous visits to Washington, Liu is not traveling with the designation "special envoy" of Xi Jinping, according to people briefed on his trip. Chinese officials’ public statements have also hardened in recent days with Beijing vowing to retaliate against Trump’s tariff increase and rejecting the idea that it has reneged on any commitments made during the months of tough negotiations that have led to this week’s showdown.

“China is credible and honors its word and that has never changed,” Commerce Ministry Spokesman Gao Feng told reporters on Thursday.

The Ministry of Commerce also announced it would soon publish details of new retaliatory tariffs.

Eoin Treacy's view -

Haggling is a part of Chinese culture and nothing is agreed until everything is agreed is a common tactic. Fawning over one item to distract attention from the real intent of the negotiation, only to introduce that object later in a backhanded manner, in order to get a better price is also common. Why would trade negotiations be any different. Reintroducing points already considered settled appears to be a central tactic in Chinese negotiating style but that is normal in all Chinese dealings rather than being an individual tactic to the trade negotiations. 



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May 09 2019

Commentary by Eoin Treacy

Trump Trade Tweets Send Grain Markets Diving to 42-Year Low

This article by Michael Hirtzer and Shruti Date Singh for Bloomberg may be of interest to subscribers. Here is a section:

“The U.S.-China deal sentiment is being unwound,” Joe Davis, director of commodities at Futures International LLC, said in a message. “There’s a zero percent chance of a deal by tomorrow -- it was almost a 100 percent chance last week.”

Soybeans have become something of a poster child of the trade dispute. China, the world’s biggest consumer, has mostly shunned imports from farms in rural American communities that voted for Donald Trump in 2016. Meanwhile, supplies from the 2018 harvest piled up in silos, bins and bags across the U.S. Midwest.

On Thursday, July soy futures in Chicago fell as much as 2.5 percent to $8.065 a bushel, the lowest since the contract debuted in late 2015.

Eoin Treacy's view -

China has been slow rolling or banning purchases of US grains has had a material effect on the price of these commodities and on the welfare of farmers dependent on selling them. With trade tensions still high these commodities came under renewed pressure today.



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May 09 2019

Commentary by Eoin Treacy

Credit Market Shows Signs of Indigestion as Junk Tumbles

This note by Sebastian Boyd for Bloomberg may be of interest to subscribers. Here is a section:

It looks like this week's jumbo bond issues have provoked some indigestion after all. Older IBM bonds are widening as much as 25 bps, according to BVAL prices. Bristol-Myers Squibb is also underperforming other similarly rated debt. In both cases, it's the longer-dated debt and the 10-year area that seems to be suffering most. Meanwhile, the rest of investment grade is wider by a couple of basis points, but junk bonds are tumbling. Tuesday was the worst day since March, but it looks like today will be even worse. Week-to-date, the weakest sectors are materials and energy, but today it's health care.

Not all of this is related to the macro headlines. CommScope bonds are 43 bps wider on average today after results missed the lowest estimate. Chaparral Energy's bonds are falling after sales missed. But the impressive breadth suggests its more than just some disappointing quarterly numbers: 92% of the 413 movers in the index are wider today.

Eoin Treacy's view -

High yield bonds tend to trade like equity and they have shared the impressive rally that began in December. With a pause underway in the stock market, a similar condition is affecting high yield bonds. One look at the chart will tell us this is an exaggerated headline.



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May 08 2019

Commentary by Eoin Treacy

Video commentary for May 8th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street pauses, Dollar weakens against the Real and Rand, China banks weak, natural gas, coffee deeply oversold, Velocity of money turned up ahead of the Fed reducing the size of its balance sheet. treasuries and gold fail to hold intraday rallies. 



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May 08 2019

Commentary by Eoin Treacy

Email of the day on global liquidity addiction:

Eoin Treacy's view -

I concur to Iain's comments, you are on something. Liquidity has to go somewhere, and it is evident that liquidity went to financial and some hard assets (2-3 months ago I read an article saying that Whiskey had been the best performing hard asset with 582% gain over the past 10 years - 48% in 2018 alone!). 

This extensive email continues in the Subscriber's Area. 

Thank you for this detailed account of the global macro environment. We have long characterised this bull market as liquidity fuelled and that is as true today as it was back in 2009. The clearest conclusion therefore is that we have to be alert to the liquidity environment because the asset price inflation which has been the primary contributor to this bull market is dependent on it. In other words, markets are addicted to liquidity and like any addict, withdrawal would be painful.



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May 08 2019

Commentary by Eoin Treacy

Why cheap coffee means more migrants at the border

This article by Paul Hicks and Dan McQuillan for the Houston Chronicle may be of interest to subscribers. Here is a section:

In recent years, their challenges have increased. Climate change stretches the dry season, or makes rainfall erratic. Last year some farms went up to 45 days without rain. The farmers watched their maize and bean plants wilt and die. Then they reaped only more debt from their meager coffee harvest.

Eoin Treacy's view -

In normal circumstances when the price of a commodity drops below economic production levels supply dwindles. That eventually contributes to recovery.



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May 08 2019

Commentary by Eoin Treacy

China Defaults Hit Record in 2018. 2019 Pace Is Triple That

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

China continues to press banks to extend credit to the private sector, and small and medium-sized companies especially. The latest move came Monday, when the central bank loosened some reserve-requirement rules for lenders. But President Xi Jinping’s team has also focused on shrinking the shadow-banking system, where credit decisions were made with less regulatory oversight and where it was easier to build up unsustainable leverage.

It’s that funding squeeze that explains the default surge that began in late 2017 and continues today. By contrast, 2016 was more a story of China’s push to shrink excess industrial capacity having reverberating effects in credit markets. “Short bond tenors mean the companies need to refinance frequently,” and weaker ones will likely have difficulty, analysts including Hong Kong-based Nino Siu at Moody’s Investors Service wrote in a note last month. “Banks are reluctant to lend to weaker companies. Additionally, shadow banking, on which weaker Chinese companies rely, continues to contract as the government tightens regulation,” she and her colleagues wrote.

Eoin Treacy's view -

One of the companies listed in the above article is Neoglory. I visited their headquarters in Yiwu about seven years ago. Mrs. Treacy had a tourist focused store at the time and was sourcing costume jewellery. Neoglory was the largest, splashiest company around and was one of our first calls. We never purchased from them because when it came to negotiating prices, they had a complex web of discounts and promotions. When we questioned the accuracy of a salesman’s calculation he said “that’s how I do math”. At that point we walked. That phrase has passed “that’s how I do math” is something we still smile about. It looks like we were not the only ones to walk away from the company.



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May 08 2019

Commentary by Eoin Treacy

Match Group Beats Estimates as Tinder Popularity Grows Abroad

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

Match, which is owned by billionaire Barry Diller’s IAC/InterActiveCorp, runs dozens of dating sites like Tinder, OKCupid, Plenty of Fish and Hinge. But the bulk of the company’s earnings gains were fueled by Tinder, which lured in more than 384,000 new subscribers in the quarter, boosting direct revenue 38 percent from the year earlier period.

The online dating app, where users swipe right to indicate interest in a potential date, now boasts 4.7 million global subscribers. Overall, Match’s average subscribers increased 16 percent with most of the new users flowing in from outside North America.

“The world is changing," said Mandy Ginsberg, chief executive officer of Match. “I’ve been here a long time and 100 percent of the revenue used to be in the U.S. and now the growth and more revenue is outside of the U.S."

With arranged marriages on the decline in India and the stigma towards online dating eroding in Japan, Ginsberg is concentrating on international expansion. There are more than 400 million single people living outside North America and Europe, two-thirds of whom have not yet tried a dating product, according to Match. Ginsberg recently revamped the company’s leadership team in Asia -- appointing general managers in Tokyo, Seoul and Delhi -- to try and grow Match’s footprint across the continent.

Eoin Treacy's view -

Economic growth in India and the subtle shift towards female empowerment represent major growth opportunities for social media and online dating companies. Narendra Modi’s election five years ago as the first low caste Prime Minister represented a signal that social striation enshrined by the caste system and sustained by the system of arranged marriages may be changing. A more open society would represent a significant change for India which has historically been socially conservative.



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May 07 2019

Commentary by Eoin Treacy

Video commentary for May 7th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Trade War escalates contributing to some profit taking and further consolidation of recent strong gains, gold steady, bitcoin strong, oil eases, bonds firm, China steady following reserve requirement cut, 



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May 07 2019

Commentary by Eoin Treacy

EU Cuts German Growth Outlook, Sees 'Pronounced' Euro-Area Risks

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

Most of the downgrades were less severe than in the previous report in February, apart from Germany, where the 2019 prediction was slashed to just 0.5 percent from 1.1 percent. Officials in Brussels warned that downside risks to the region’s outlook remain “prominent.”

The forecasts reflect more pronounced weakness in the region, which has stumbled due to a slowdown in the global economy, unresolved trade disputes and “exceptional weakness” in manufacturing. Meanwhile sentiment has taken a hit from disruptions in the auto industry, social unrest, and uncertainty related to Brexit.

German carmaker BMW said on Tuesday that the economic backdrop is “increasingly challenging” and business conditions are “expected to remain volatile.”

“As initial deadlines for U.S.-China trade negotiations and Brexit have passed without resolution, various uncertainties continue to loom large,” the European Commission said in its quarterly report. “An escalation of trade tensions could prove to be a major shock.”

Eoin Treacy's view -

The Eurozone is heavily dependent on international trade and Germany’s persistent surpluses are very much tied to export growth. Trade wars and the continued transition of the automotive supply chain towards battery powered vehicles represent significant challenges to both economic output and employment.



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May 07 2019

Commentary by Eoin Treacy

Email of the day - on oil prices

“May I clarify something? The item denoted as Oil (1st West Texas) (CL1 COMB COMDTY) in the Chart Library - is this the Spot Price for WTI? Or is it the near-term futures price for WTI? Thanks in advance.“

Eoin Treacy's view -

Thank you for this question which other’s may also be interested in. The CL1 ticker is for the 1st month continuation chart. Oil trades on one-month contracts so it rolls with the most active contract at the end of every month.



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May 07 2019

Commentary by Eoin Treacy

May 07 2019

Commentary by Eoin Treacy

Bitcoin Bounds Toward $6,000 as More Institutions Embrace Tokens

This article by Todd White and Eric Lam for Bloomberg may be of interest to subscribers. Here is a section:

Fidelity Investments, which began a custody service to store Bitcoin earlier this year, plans to buy and sell it for institutional customers within a few weeks, according to a person familiar with the matter.

“Fidelity alone doesn’t move the entire needle, but Fidelity with E*Trade and Ameritrade and Robin Hood and a whole host,” said Chu, whose firm is a blockchain investment and advisory company. “You’re seeing a critical mass of these types of asset managers and brokers providing retail exposure and retail access to crypto.”

Some investors who expect Bitcoin to break above $6,000 see it quickly finding a new resistance level. The token will likely find fresh headwinds in the $6,000-$6,500 range, said Charlie Morris, a fund manager and founder of cryptocurrency price discovery site ByteTree.com in London.

“It would be unsurprising if that former support became resistance -- something that is quite normal in markets,” Morris said.

Eoin Treacy's view -

Cryptocurrencies started off as a purely retail investment. The anticipation of institutional involvement contributed to the mania in 2017 but the introduction of futures was an anti-climax. In fact many of the biggest holders used the futures to hedge their long exposure and contributed to the 1987 style crash. However, even though there were some hedge funds active in the space the majority of institutional investors were precluded from participating because of custody issues.



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May 06 2019

Commentary by Eoin Treacy

Video commentary for May 6th 2019

May 06 2019

Commentary by Eoin Treacy

Wall Street Asks Whether Trump's Tariff Is a Tactic. Or Not

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

Goldman believes a tariff increase may be “narrowly avoided,” putting odds that tariffs rise on Friday at 40 percent, Phillips wrote in a note.

Will be watching whether a large delegation of Chinese officials comes to Washington on May 8, as scheduled; canceling would mean an agreement in the coming week would “seem very unlikely,” and would make an increase in the tariff rate to 25 percent “the base case.”

China trade issues have “negative implications for the outlook for auto tariffs and passage of the USMCA [U.S.-Mexico-Canada Agreement].” Trump’s “willingness to risk a market disruption by threatening an unexpected tariff hike suggests that he might also be willing to risk the disruption that formally proposing auto tariffs or announcing the intent to withdraw from NAFTA might cause.” Phillips raised the probability that auto tariffs will be implemented later this year to 20 percent from 10 percent, and lowered the probability that USMCA will pass to 60 percent from 70 percent.

Eoin Treacy's view -

How much of this is brinksmanship ahead of a crucial point in the negotiations or should we take the gambit seriously. That’s the big question everyone is asking today and it suggests there is likely to be a pause in buying at the very minimum, at least until we know more at the end of the week. Meanwhile it appears Liu He is travelling to the USA this week afterall. 



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May 06 2019

Commentary by Eoin Treacy

Email of the day on global liquidity measures:

I really think you are on to something here and you should develop your deficit chart and data set even more. It is always possible to refine econ data further, as any credible economist will attest.   Gavekal and others charge a fortune for “who’s supplying liquidity?” work as it’s key to fin mkts.  I would just observe that Friedmanesque/ Chicago school money theory is being severely tested as my client below notes…. velocity has simply not picked up as expected.  Hence the social Angst of the bottom  50%…versus top 1% ….rich get richer etc (Brexit, Trump etc)

Inflation or its opposite is “sticky”.  “The cause of inflation is…..inflation”.  Volcker had to jack rates far too high in 1980+ to reverse decades of inflationary psychology.  So it may be with its reverse, disinfl.  Maybe CBs have to keep rates lower for longer and even let ‘er rip, until the psychology changes (then MS and velocity finally pick up, pitching us into the next inflationary cycle).

Some good points below, from an LSE grad living in HK, a far better economist than I

Eoin Treacy's view -

Thank you for your kind words and the attached analysis which highlights just how much money China has created, out of thin air over the last decade. Here is a section:



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May 06 2019

Commentary by Eoin Treacy

Can the gold industry return to the golden age?

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

Eoin Treacy's view -

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

Miners of all hues are in the extraction business and that comes at a cost which varies based on both internal and external factors. When the commodity price is low, they have no choice but to mine the richest ore bodies available because to do otherwise would likely lead to insolvency. When prices rise, they engage in M&A activity because they have to replace that ore because grades have deteriorated.



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May 03 2019

Commentary by Eoin Treacy

May 03 2019

Commentary by Eoin Treacy

It's Time to Look More Carefully at "Monetary Policy 3 (MP3)" and "Modern Monetary Theory (MMT)"

This article by Ray Dalio is well worth taking the time to read over the weekend. Here is a section:

Modern Monetary Theory is one of those infinite number of configurations that is in my opinion inevitable and shouldn’t be looked at in a precise way. For those of you who don’t know what Modern Monetary Theory is, it’s described here (link). It’s described differently by different folks so it has slightly different configurations. For example, some might change fiscal policy so that there is a wealth tax that is used to eliminate student loans, and others might change taxes and spending in other ways, and there are an infinite number of ways these changes can be configured that we shouldn’t delve into at this stage because that will drive us into the weeds and the particulars that will stand in the way of seeing the big important things. Also, people who are focusing on MMT as a package will limit their thinking to the specifics of that package rather than thinking about the wider range of MP3 policies to find the best one. 

MMT’s most important configuration is the fixing of interest rates at 0% and there is the strict controlling of inflation via the changing of fiscal policy surpluses and deficits, which will produce debt that central banks will monetize. In other words, whereas during the times we have become used to, interest rates moved around flexibly and fiscal deficits (often) and surpluses (rarely) were very sticky so interest rates were more important in producing buying power and the cycles, in the future interest rates will be very sticky at 0% and fiscal policies will be much more fluid and important and the debts produced by the deficits will be monetized. In case you didn’t notice, that is by and large what has been happening and will increasingly need to happen. In other words, interest rates are now pinned near 0% in two of the three major reserve currencies (the euro and the yen) and there is a good chance that they will be pinned there in the third and most important reserve currency (the dollar) in the next economic downturn. As a result, fiscal policy deficits that are monetized is the contemporary stimulation configuration of choice. That existed long before there was a concept called “Modern Monetary Theory,” though MMT embraces it. Putting labels aside, it is certainly the case that the configuration of having 1) an interest rate fixed at around 0%, 2) more flexible fiscal policies with debt monetization to fund the resulting deficits with 3) rigorous inflation targeting exists and is increasingly likely, necessary, and possible in reserve currency countries. An added benefit of this approach is that the money and credit created can be better targeted to fund the desired uses than the process of having the central bank buy financial assets from those who have financial assets and use the money they get from the central bank to buy the financial assets they want to buy. There are many historical cases of this happening (see the 1930s-1940s prewar and war periods which, as you know, I think are analogous), which offer worthwhile lessons about how this was and could be engineered. 

The big risk of this approach arises from the risks of putting the power to create and allocate money, credit, and spending in the hands of politically elected policy makers. In my opinion, for these MP3 policies to work well, the system would have to be engineered in a way that decision making would be in the hands of wise, not politically motivated, and highly skilled people. It’s difficult to imagine how the system will be built to achieve that. At the same time, it is inevitable that we are headed in this direction.  

Eoin Treacy's view -

The final paragraph above puts me in mind of Plato’s progression of democracy through tyranny and back again. Someone can only be considered wise after the fact and if recent events have told us anything it is that history is endless revisable.



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May 03 2019

Commentary by Eoin Treacy

U.K. Voters' Brexit Backlash Leaves May And Corbyn Bruised

This article by Robert Hutton and Alex Morales for Bloomberg may be of interest to subscribers. Here is a section:

“I think there was a simple message from yesterday’s elections to both us and the Labour Party: Just get on and deliver Brexit,” May said in a speech to Conservatives in Wales. “An arrangement has to be made, a deal has to be done and Parliament has to resolve this issue,” Corbyn said later, in comments welcomed by May. “I think that is very, very clear.”

Eoin Treacy's view -

The Conservatives and Labour risk being eviscerated at the next general election. That gives them both a clear incentive to conclude the Brexit impasse before then. That is the real deadline, rather than October, because it represents career risk for politicians and that is all they are truly interested in.



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May 03 2019

Commentary by Eoin Treacy

Shell's Great Natural Gas Earnings Had a Helping Hand From Oil

This article by Kelly Gilblom and Dan Murtaugh for Bloomberg may be of interest to subscribers. Here is a section:

Shell is the world’s largest liquefied natural gas trader and sells most of the fuel on long-term contracts linked to oil prices. Some of those agreements are structured with a three-month lag, Chief Financial Officer Jessica Uhl told reporters on a conference call. That means that while global gas prices were tanking, Shell was still reaping benefits from a crude rally that sent Brent prices to the highest level in four years in early October.

“We have a business structured predominantly around long-term contracts, mostly oil linked,” Uhl said. “The price environment doesn’t have material impact on our business.” In addition, Shell also benefited from trading. The gas business was buoyed by a $234 million accounting gain in the value of its commodity derivatives. Shell’s rival, BP Plc, told investors on Tuesday that its strong trading earnings reflected shorting gas contracts.

Eoin Treacy's view -

Natural gas is the big winner from the demise of coal. Not only is it now cheaper than coal, because of tighter emissions regulations and unconventional drilling, but it is also less polluting. That’s particularly important for Asia which has some of the most polluted cities in the world and where standards of living are increasing most rapidly which is creating demand for clearer solutions.



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May 03 2019

Commentary by Eoin Treacy

Gold Futures Rise as Traders Focus on Stalled U.S. Wage Growth

This article by Marvin G. Perez for Bloomberg may be of interest.

Gold, coming off three straight monthly losses, got a lift as the wage data reassured investors that signs of moderate inflation will continue to stay the Fed’s hand on rates. Low rates are a boon to gold, which doesn’t pay interest. Fed policy makers reiterated their patient stance this week as Chairman Jerome Powell noted “very strong job creation’’ and said low inflation may be transitory.

“There was disappointing data on the wage-inflation side, and just puts a hint of doubt into the idea that low inflation is transitory,” Ryan McKay, a strategist at TD Securities in Toronto, said by phone. “Gold has been under a lot of pressure since the Fed comments this week, and this helps ease some of that.”

Eoin Treacy's view -

The market was disappointed the Fed did not bring forward the end of quantitative tightening from September to June but one way or the other the process will be complete by the end of the summer. With the Fed on pause it is unlikely they are going to raise rates without a good reason and quantitative tightening’s end is being priced in. The volatility on the Dollar this week, suggests indecision among investors as to its ability to continue to rally.  



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May 02 2019

Commentary by Eoin Treacy

Video commentary for May 2nd 2019

Eoin Treacy's view -

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

Some of the topics covered include: correlation between rate cuts and stock market stress, central bank balance sheet and fiscal stimulus indicators, Dollar firm, bonds ease, Wall Street pauses, industrial resources and gold ease further.



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May 02 2019

Commentary by Eoin Treacy

Melting Up Is Hard to Do

May 02 2019

Commentary by Eoin Treacy

Central Bank Total Assets and Deficit Spending

Eoin Treacy's view -

I first created the total central bank assets chart in 2014. A couple of years ago I shared the formula with Ben Hunt at Epsilon Capital in a gesture of goodwill following his mention of the size of central bank balance sheets in one of his missives. He subsequently used it and since then the measure has proliferated. I have seen it in a considerable number of investment bank reports, but I have never received a favourable mention for creating it. In future I will be keeping the calculation of indicators proprietary, for the benefit of subscribers.



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May 02 2019

Commentary by Eoin Treacy

3M Expands Medical-Products Business in Record $4.3 Billion Deal

This article by Richard Clough for Bloomberg may be od interest to subscribers. Here is a section:

3M Co. agreed to buy medical-products maker Acelity Inc. for about $4.3 billion, its biggest acquisition ever, as new Chief Executive Officer Mike Roman takes a more aggressive approach to expanding the beleaguered company.

The purchase, from a group of funds advised by Apax Partners, is spurring 3M to scale back share repurchases to conserve cash. 3M will cut buybacks to between $1 billion and $1.5 billion this year from a previous expectation of as much as $4 billion, according to a statement Thursday. The company valued the purchase at $6.7 billion including Acelity’s debt, which was $2.4 billion on Dec. 31.

Eoin Treacy's view -

Buying back shares has been the go-to strategy for many companies over the last decade because the cost of borrowing has been so low which has made debt more appealing that equity. The practice helps to improve earnings per share, helps investors avoid paying taxes on dividends received and increases the value of shares owned by senior executives. The one thing buybacks do not do is help with creating new products.



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May 01 2019

Commentary by Eoin Treacy

Video commentary for May 1st 2019

May 01 2019

Commentary by Eoin Treacy

Email of the day on crude oil prices:

Please check on my enquiry below (sent to Eoin on 16.4.2019): [On 12/4/2019, you wrote "Nevertheless, a great deal of additional supply, internationally, becomes economic above $80 so that level represents a significant Rubicon for prices." I presume the $80 refers to the Brent crude oil price. What is the equivalent Rubicon price for the WTI? Thanks in advance.] I have not seen a reply to my query above. Can you please check what happened?

Eoin Treacy's view -

Thank you for this email which I am only seeing now because of previously undiscovered issue with the contact us form on the site. If anyone sent an email which has not been replied to in the last couple of weeks please resend it.



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May 01 2019

Commentary by Eoin Treacy

Email of the day on the outlook for Wall Street:

Thank you for your analysis in Friday’s audio/video. very much appreciated. The Russell 2000 has been referred to by David and you as the canary in the coal mine. Could a break above 1600 signal the end of the consolidation in the stock market in the USA or do we maybe also need to see a further rise of the Dow Transport index? The USA banks and KBW banks index are trying to go up which is positive. As you can see, I am trying to find more reasons to signal the end of the consolidation.

We are entering the sell in May and go away period but last year September was a period to be back to sell and short the market. The value of this wisdom could be limited. could we accelerate before September? A number of USA shares as your mentioned are doing great. Can this market accelerate with a small breath basis?

My question is could the European indices follow the USA indices if and when they accelerate?

P.S. I asked Sarah some weeks ago to adjust the shares being incorporated in the Dutch AEX Imcd/Adyen have been added to the AEX and other shares were removed from the index

Eoin Treacy's view -

Thank you for this email which I am only seeing now because of previously undiscovered issue with the contact us form on the site. If anyone sent an email which has not been replied to in the last couple of weeks please resend it.



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May 01 2019

Commentary by Eoin Treacy

Powell Says Policy Appropriate With No Bias to Hike or Cut

This article by Christopher Condon and Steve Matthews for Bloomberg may be of interest to subscribers. Here is a section:

The committee repeated language from its previous meeting, saying it “will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate,’’ according to a statement Wednesday following a two-day gathering in Washington.

The unanimous 10-0 decision left the target range for the benchmark federal funds rate at 2.25 percent to 2.5 percent.

The Fed’s emphasis on subdued inflation prompted knee-jerk buying of government debt as traders added to positioning for a rate cut. However, that initial rally reversed on Powell’s comments on appropriate policy and transient inflation.

Eoin Treacy's view -

The Dollar has been particularly firm against a wide basket of currencies for the last six months and that is despite the announcement from the Fed last year that they are not going to raise rates. Therefore, there must be another reason for the currency’s strength.



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May 01 2019

Commentary by Eoin Treacy

Are Theresa May and Jeremy Corbyn About to Agree a Brexit Deal?

This article by Tim Ross and Robert Hutton for Bloomberg may be of interest to subscribers. Here is a section:

On Wednesday, May signaled she could move on one of her key red lines and allow the U.K. to sign up to some kind of permanent customs union with the EU. The pound strengthened.

“There is a greater commonality in terms of some of the benefits of a customs union that we’ve already identified between ourselves and the official opposition,” May told a parliamentary committee. “Looking at the balance of these issues is part of the discussion. Can we come to an agreement on that? I hope we will be able to.”

May invited Corbyn to work on a cross-party deal last month in a desperate attempt to get an agreement, after the blueprint she negotiated with the European Union was rejected for a third
time by Parliament.

With local elections taking place on Thursday, the talks have been low-key this week, but the government is planning one more big meeting on May 7 or 8 to decide whether a consensus
with Labour is possible.

Eoin Treacy's view -

Customs, taxation, regulation, immigration represent the key words of the Brexit debate. By conceding to a customs union, the ability to form an independent regulatory environment falls by the wayside. The opportunity to negotiate trade deals independently also disappears.



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April 30 2019

Commentary by Eoin Treacy

Video commentary for April 30th 2019

April 30 2019

Commentary by Eoin Treacy

Alphabet Tumbles Most Since 2012 After Sales Growth Disappoints

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

Another concern is whether competition is starting to limit growth. Google’s search engine is usually the first place consumers go when looking for products, letting the internet giant charge premium prices to retailers and other advertisers looking to reach customers online. But people have been increasingly going straight to Amazon.com Inc. to hunt for products and the e-commerce giant has been grabbing a larger share of the digital ad market, chipping away at Google’s lead.

In an interview with Bloomberg TV, Porat shrugged off Amazon’s foray into advertising and said there’s still lots of room for growth for all digital ad companies because so much marketing money is still spent offline.

"Nearly half of ad budgets in the U.S. are still spent offline," Porat said. "Ninety percent of commerce in the U.S. is offline and we are focused on digital playing a big role in that."

The number of clicks on Google ads rose just 39 percent, the lowest year-over-year growth since 2016. The price, or cost per click, fell 19 percent.

Eoin Treacy's view -

This figure about 90% of commerce being offline is a standard fallback that claims ecommerce is still in its infancy. However, it glosses over the fact that homebuying, healthcare and automotive sales are included in this figure and none are about to readily transition to a handy ecommerce advertising platform.



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April 30 2019

Commentary by Eoin Treacy

Microsoft, Slack, Zoom, and the SaaS Opportunity

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

The challenge for incumbents, including Microsoft and also other competitors like Citrix, Cisco, etc., is that years of building their business on leveraging their existing relationships with enterprises left them vulnerable to a company like Zoom singularly focused on delivering a superior product, at least once a SaaS architecture made distribution so much easier. Make no mistake, enterprise software still requires a sales force, but it is far easier to start with customers that have already discovered and tried the product on their own than it is to sell something without any sort of pre-existing relationship.

Slack and New Use Cases
There remains, though, one final implication of a new paradigm, and this one is the most profound: completely new use cases. This was something Slack sought to highlight in their S-1, which was made public last week.

First, the company argued that Slack transforms internal communications:

The most helpful explanation of Slack is often that it replaces the use of email inside the organization. Like email (or the Internet or electricity), Slack has very general and broad applicability. It is not aimed at any one specific purpose, but nearly anything that people do together at work.

Unlike email, however, most of this activity happens in team-based channels, rather than in individual inboxes. Channels offer a persistent record of the conversations, data, documents, and application workflows relevant to a project or a topic. Membership of a channel can change over time as people join or leave a project or organization, and users benefit from the accumulated historical information in a way an employee never could when starting with an empty email inbox. Depending on the size of the organization, this might provide tens, hundreds or even thousands of times more access to information than is available to individuals working in environments where email is the primary means of communication.

Eoin Treacy's view -

The number of IPOs of companies many people would have been eager to buy a few years ago but were given no opportunity to participate in is accelerating. The primary reason they are all coming to market at the same time is because the private equity backers that ploughed billions into these companies want to get their money out before the next recession.



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April 30 2019

Commentary by Eoin Treacy

The Uncomfortable Truth

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

Eoin Treacy's view -

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

The Fed listened to the message being sent by the market and stopped raising rates. This chart of the correlation between the median age of a population and respective government bond yield suggests there is a solid argument for thinking that yields are not going to rise meaningfully in the short term.



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April 29 2019

Commentary by Eoin Treacy

Video commentary for April 29th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Lyft finds support but a lot of additional supply is primed to hit the market with Uber and WeWork listing, Wall Street at a new all-time high but short-term overbought, China banks steady, India firms, palladium pulls back sharply, oil steady, gold eases, bonds ease.



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April 29 2019

Commentary by Eoin Treacy

Supply Side of the Economy Is Flashing Strength

Thanks to a subscriber for this article by John Hilsenrath for the Wall Street Journal. Here is a section:

On Thursday, the Labor Department will report its estimate of the productivity growth of U.S. workers in the first quarter. Given what’s already known about how many hours Americans worked and how fast output grew, economists are optimistic. Macroeconomic Advisers, a modeling firm, estimates productivity was up 2.3% in the first quarter from a year earlier. If that proves correct, it would be the largest increase since 2010, when the economy was bouncing back from recession, a time in the business cycle when productivity growth tends to be high. Between 2010 and 2017, productivity growth averaged just 1% a year.

On Friday the Labor Department will release its monthly job market report. As always, much attention will be focused on hiring and unemployment. Also deserving attention are fresh estimates of the growth of the labor force. In the first quarter, it grew 1% from a year earlier, double the rate of growth it registered between 2010 and 2017. An aging population is weighing on growth, but rising wages and more job opportunities appear to be drawing people— particularly women—off the sidelines and into the workforce, and keeping older workers on the job longer than usual.

Add productivity growth of around 2% with labor force growth of around 1%, and you might have a formula for lasting 3% growth in economic output that doesn’t require a Fed response to slow it.

Eoin Treacy's view -

Productivity growth is the holy grail for economic expansions and technological innovation is a major component in delivering it. Record low unemployment, workers staying on the job later in life coupled with artificial intelligence, cloud computing, the app-based economy and automation are driving this trend of improvement. Productivity growth is a necessary component of a secular bull market and this one will be no different.



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April 29 2019

Commentary by Eoin Treacy

Investors Search for Opportunity in Unloved Corner of Stock Market

This article by Avantika Chilkoti for The Wall Street Journal may be of interest to subscribers. Here is a section:

Tim Crockford, lead manager for Europe outside the U.K. at Hermes Investment Management, points to companies like Kion Group, the German forklift producer, which could benefit from the shift to automation in large warehouses as e-commerce groups expand.

“Europe does have some very exciting tech companies; it’s just that they tend to be somewhere in the middle of the value chain rather than the very downstream or at the top end,” Mr. Crockford said.

Some bullish investors see reasonable valuations on businesses with a global market rather than in an improvement in the regional economy itself.

Eoin Treacy's view -

There is a bearish consensus about Europe and its prospects so that alone is a reason to start examining the market.



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April 29 2019

Commentary by Eoin Treacy

Spanish Election Reflects Europe's Widening Political Fragmentation

This article by Giovanni Legorano and Marcus Walker for Wall Street Journal may be of interest to subscribers. Here is a section:

The main opposition conservative People’s Party took less than 17%, its worst showing in its 30-year history. Many of its former supporters defected to the far-right Vox party, which won 10% after taking a hard-line stance against Catalan secessionism. Vox becomes Spain’s first significant far-right movement since the end of the dictatorship of Francisco Franco in 1975.

Many European countries are becoming harder to govern as old party systems dominated by moderate conservatives and moderate social democrats give way to splintered parliaments featuring anti+ +establishment insurgents, including on the far left, the far right, the liberal center and, in Spain’s case, regional nationalists.

“This is a trend unfolding in all Europe,” said Federico Santi, an analyst at political-risk consulting firm Eurasia Group, who attributed it to “the low ability of traditional parties to face the demands of voters brought by globalization, such as immigration and rise of international trade. This has triggered the decline of mainstream parties and the emergence of other political movements, in some cases with extreme positions.”

Eoin Treacy's view -

Does this result make additional stimulative measures from the ECB more or less likely. I suspect it is the latter.



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April 29 2019

Commentary by Eoin Treacy

Perspectives for the Clean Energy Transition

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

In contrast to current trends, the Faster Transition Scenario sets out a vision for an extremely ambitious transformation of the energy sector. Energy-related emissions peak around 2020 and drop 75% to around 10 gigatonnes of CO2 (GtCO2) per year by 2050. The carbon intensity of the power sector falls by more than 90% and the end-use sectors see a 65% drop, thanks to energy efficiency, uptake of renewable energy technologies and shifts to low-carbon electricity.

Electrification plays a major role in the transition, combined with clean power generation. Electricity’s share in final energy reaches about 35% by 2050, compared to less than 20% today. That growth is mainly due to adoption of heat pumps in buildings and industry, as well as a swift evolution in transport. Efficiency improvements keep electricity demand for other end uses, such as lighting and cooling, relatively stable, while access to electricity improves worldwide.

Eoin Treacy's view -

One of the biggest challenges facing the environment is the emotionality of the debate. It is almost impossible to discuss objective facts versus subjective opinion. Until this century there was no record of a hurricane in the South Atlantic, but now there have been three. Baobab trees that stood for thousands of years in Africa are dying and coral bleaching is taking over an increasingly large percentage of the world’s reefs. These are facts that point toward a changing climate.



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April 26 2019

Commentary by Eoin Treacy

April 26 2019

Commentary by Eoin Treacy

Clorox and Unilever Want the Booming Bacteria Business to Thrive

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

In recent decades our microbiomes have been altered by poor dietary habits; overuse of disinfectants, antibiotics, and other germ fighters; dwindling contact with vital environmental microbes, including those carried by wildlife and livestock; and the rise in cesarean section births, which don’t immerse babies in the valuable bacteria found in the birth canal. According to one 2015 study, Americans’ microbiomes are about half as diverse as those of the Yanomami, an isolated Amazonian tribe. A series of studies begun in 1998 examined the relationship between bacteria and disease incidence in the Finnish-Russian border region of Karelia, where people share similar genetics. On the richer, cleaner Finnish side, people were as many as 13 times likelier to suffer from inflammatory disorders as on the Russian side, where the majority live in rural homes, keep animals, and tend their own gardens.

A comparable American study, published in 2016, examined the genetically similar Hutterites of South Dakota and Amish of Indiana. The Hutterites, who use pesticides and industrial farming techniques, had higher asthma incidence, 23 percent, than almost any other U.S. group. Among the Amish, who farm without chemicals and rely on manpower and horses, the condition is quite rare. To see whether each community’s respective bacterial populations were affecting people’s health, researchers collected dust samples from Hutterite and Amish bedrooms, mixed them with egg proteins, then gave them to mice with an egg-protein allergy. The mice exposed to Hutterite dust developed extreme asthmatic symptoms, whereas those exposed to Amish dust exhibited almost no allergic response.

These and many more studies have some scientists fearing that people, especially in the West, are cleaning themselves sick. The trick for companies hoping to cash in on the countervailing trend will be to figure out which microbes help restore human health. It won’t be easy. “Most of the species in our body don’t have names. They’ve not been cultured,” says Robert Dunn, a professor of applied ecology at North Carolina State University, whose most recent book, Never Home Alone, details the relationship between nature and health. “Nobody has studied them in any real detail.”

Eoin Treacy's view -

The cells of the organisms that make up the microbiome outnumber our own so there is a logical question as to whether we play hosts to them or they us. The rising incidence of autoimmune diseases and allergies is a serious cause for concern and recent research suggests there is a clear pathway of communication between the gut and the brain. There is also evidence that faecal transplants can improve the symptoms of autism and Parkinson’s patients.



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April 26 2019

Commentary by Eoin Treacy

1Q19 preview: Base metals buoyed on positive macro outlook, increasing supply deficit

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

Nickel reversed the downward trend from Q418 after settling at $4.73/lb to finish off 2018 the metal rallied hard in early 2019 and averaged $5.60 for the quarter.  From the early March peak of $6.20/lb, the stainless steel component metal gave back some of its gains going into quarter end.  

We see continued strength in the red metal through the year and expect the prospect of material deficits in 2019 to support our thesis. Cobre Panama which is currently in the commissioning phase is the last of the previous cycle mega projects. Modest demand growth driven by electrification of emerging markets and transportation networks should drive copper and the base metal complex higher.  

Following the strengthening base metal prices during the quarter, the base metal equities performed very well to start the year. Our coverage list was lead by ERO Copper up 69% in the first three months. Markets appear to be aligned with our thinking of strengthening prices in the base metal complex for 2019.  

Eoin Treacy's view -

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

The big question is how much damage was done to the global economy by last year’s quantitative tightening. The underperformance of industrials was brought into focus yesterday with UPS and 3M disappointing. South Korea, one of the world’s most trade dependent nations, contracted in the first quarter. It looking likely Japan did too. While central banks seem eager to help, they have so far been rather reticent to splurge in the same manner as years past.



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April 26 2019

Commentary by Eoin Treacy

April 26 2019

Commentary by Eoin Treacy

Crypto Research report

Thanks to a subscriber for this edition of Demelza Kelso Hays and Mark J. Valek’s report for Incrementum which may be of interest. Here is a section:

In the next crisis, when the negative interest rates become even more extreme and also hit private customers, they will react similarly, according to the experts of the Monetary Fund. Their "solution" is to massively restrict the use of cash in order to make it more difficult to escape expropriation through interest rate policy. Ironically, they even want to introduce an "electronic currency". With that in place, negative interest rates can be easily implemented according to economists. At the same time, they have in mind a two-tier society. Anyone who wants to pay cash in the supermarket could do so - but with a penalty surcharge. This “nudging” will herd us all into the clutches of the state electronic monetary system that they have in mind.3

Luckily, nothing is eaten as hot as it is cooked. These ideas are neither economically sound nor politically feasible. But the proposal should serve as a warning to us. By now it should be clear why Bitcoin is here to stay. Why it's needed. It's the antidote to such crazy ideas. Bitcoin makes it possible to get out of a system that is becoming increasingly hostile towards the users.

Eoin Treacy's view -

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

The same argument has been used by gold bulls over the last couple of decades but it has merit for all assets that sit outside the ability of central banks to lend into existence.



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