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May 03 2018

Commentary by Eoin Treacy

Think innovation will save the economy? That's probably an illusion.

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

Not so fast, say critics. The negative trends affecting the economy reflect deep social problems that resist change. “Rising educational attainment during the 20th century was an important source of productivity growth,” writes Gordon, “but the pace of that increase slowed markedly after 1980.” The truth is that we’ve been trying to improve schools for decades with, at best, modest success.

Or take the drain of prime-age men from the job market. The main problem, argues Gordon, “reflects in large part the loss of stable middle-income employment opportunities.” The result has been fewer marriages, more drug use and more suicides, writes Gordon. None of this is easily altered. Among 20 advanced countries, the United States has the second-lowest labor-force participation rate of prime-age men. Only Italy is lower.

We seem to have entered a new economic era — one defined more by the limits on our economic power than by its promises. The explosion of new technologies seems to have fooled us into thinking that a burst of innovation will magically restore our economic vitality. On the evidence, this is a mirage.

Eoin Treacy's view -

I use YouTube when I want a refresher on how to wire a plug or replace a bulb in my car’s headlight. Unfortunately, my children live on YouTube, it’s a substitute for TV but they also post videos of their own. However, it is hard to justify endless videos of cats or people falling over as being beneficial to the economy beyond being a distraction. If that is your measure of technological innovation then you really should get out more.

Cancer costs the global economy about $1 trillion a year. Even today that is still a lot of money. By comparison the global economy spends about $6 trillion on energy a year.



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May 03 2018

Commentary by Eoin Treacy

Macro Morsels May 3rd 2018

Thanks to a subscriber for this edition of R.Harding’s report for Maybank. Here is a section on ETF composition and trading:

Eoin Treacy's view -

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

ETFs have been a wonderful financial innovation which have reduced upfront costs for investors and greatly increased the availability of different markets for investment. However, the size of the market, which is by definition a derivative of the total market, represents a challenge for investors particularly when so many funds employ leverage and depend on the credit worthiness of the issuer.



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May 02 2018

Commentary by Eoin Treacy

Video commentary for May 2nd 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar at key first areas of resistance against Euro, Pound and Yen, breaking out against emerging market currencies, gold and silver at lower side of the range, Treasuries continue to pause at 3%, Europe flattered by weak Euro, Wall Streets fades into the close. 



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May 02 2018

Commentary by Eoin Treacy

Email of the day on the depreciating value of fiat currencies

If you could clarify a few points you raise it would help understanding. Thank you.

1. "However, it would not be hard to see inflation higher than it has been over the last decade and that is likely to flatter nominal prices."

Perhaps this is just overstated, but does this mean inflation will result in inflation, or does "flatter" add some additional meaning?

2. "If bond yields rise there are logically going to be ramifications for the relative value argument based on the spread between the return on bonds versus equities."

"Ramifications" opens paragraphs of thought for me. Let's see...bond yields rise, so bond prices fall, but yields on equities become less attractive, so equities fall. Are those the ramifications you anticipate?

3. "The only problem I have with comparing the current environment to that which prevailed from the early 1960s is that the market spent 13 years ranging from 2000 to 2013 so it would be unusual to begin another similar range so soon after the last one ended."

The SPXPPP chart from the early 60's looks very dissimilar to the pattern from 2000-2013. The peaks and valleys of the 2000-2013 are much more pronounced on the mathematically correct log chart. It appears to me it negates the assertion "...it would be unusual to begin another similar range so soon...?" Nevertheless, unusual is usual in charts, n/est-ce pas?

Eoin Treacy's view -

Thank you for these questions which I would like to take in order.

Inflation has been absent from official statistics for over a decade because wages have been flat. Since the kinds of things we spend money on every month are often not included in how inflation is calculated, the rising cost of living has not appeared in official statistics. However, there is growing evidence of wage demand growth and more job openings. The fiscal stimulus enacted in the USA is also inflationary because is being introduced at a mature stage in the recovery although it may delay wage demand growth in the short term.



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May 02 2018

Commentary by Eoin Treacy

Email of the day on the consistency of trends

Could you give me your thoughts on Goodman Group AU GMG as it appears to be in a beautiful 10-year uptrend with more room to rise to above $10?

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. David always used this graphic from a Far Side cartoon in the preamble to talking about targets and stops.



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May 02 2018

Commentary by Eoin Treacy

Chinese Surveillance Is Literally Getting in Workers' Heads

This article by Kristin Houser for futurism may be of interest to subscribers. Here is a section: 

Here’s how it works. Lightweight sensors embedded in workers’ hats or helmets wirelessly transmit the wearer’s brainwave data to a computer — it probably works a bit like an electroencephalogram (EEG), as MIT Tech Review notes. Then, artificial intelligence (AI) algorithms scan the data, looking for outliers that could indicate anxiety or rage.

Some organizations use the sensors during routine work, while others embed them in virtual reality (VR) headsets to monitor workers’ emotions during training exercises.

We don’t know exactly how many workers have been subjected to this surveillance system, but the SCMP article does say the technology is being deployed “on an unprecedented scale” in China.

At least a dozen Chinese factories and businesses are using the emotional surveillance system to monitor workers, according to the SCMP report. Manufacturing company Hangzhou Zhongheng Electric uses it to keep tabs on production line workers, while State Grid Zhejiang Electric Power monitors workers as they help the company provide power to the Zhejiang province. The nation’s military, public transportation companies, and various state-owned businesses use it, too.

Eoin Treacy's view -

It turns out George Orwell was not imaginative enough when he came up with the premise for 1984. I have to admit my favourite book of all time is the Master and Margarita because it so expertly challenges the mores of one society with what are held out to the reader as objective facts quite beyond the lexicon of many of the characters. 



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May 02 2018

Commentary by Eoin Treacy

Race for 5G Speeds Up, Lifting West's Top Suppliers

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

Partly because of the stepped-up pace, Nokia said Thursday it now expects industrywide declines in equipment sales to carriers to come in less than feared. Nokia said those sales should fall just 1% to 3% in 2018. In February, Nokia predicted a 2% to 4% drop.

Meanwhile, Ericsson shares have risen 20% since it reported last week that its losses narrowed sharply. Investors see a turnaround effort—involving cutting jobs and divesting itself of businesses that aren’t related to selling telecom equipment—taking hold. Ericsson also sees 5G momentum rising in the U.S.

Chief Executive Borje Ekholm said carriers in North America are “investing heavily…in order to be early on 5G.

Eoin Treacy's view -

In much the same way that batteries, gene editing and the microchip are enabling technologies, 5G has the potential to deliver the connectivity speeds that will power the next wave of connected devices. Everything from the billions of sensors predicted by the Internet of Things to autonomous vehicles will depend on fast, seamless internet connectivity while mobile. That is going to require a completely new infrastructure development push to get the networks built before the reality of these expected innovations can be realised.



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May 01 2018

Commentary by Eoin Treacy

Video commentary for May 1st 2018

May 01 2018

Commentary by Eoin Treacy

Musings From the Oil Patch May 1st 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

The Bloomberg article highlighted the plight of Big Oil.  Its weighting in global equity indices is at a 50-year low.  Of the MSCI World Index’s 100 biggest stocks, only six are oil producers.  Within the Standard & Poor’s 500 Index, Exxon Mobil Corp. (XOM-NYSE), which a decade ago was the largest company, has fallen to ninth place, and investors are requiring higher dividend yields to sustain the share price.  So, what’s the problem for Big Oil?  Simple.  There is a perception that the world is awash in oil at the same time its long-term demand may be falling due to the public’s embrace of climate change policies promoting renewable energies and electric vehicles.  

Institutional money manager Kevin Holt of Invesco Ltd. was quoted in the Bloomberg article saying, “Earnings have started to come through but no one believes it’s sustainable.  That’s why the stocks haven’t worked even though the commodity has gone up.  Everyone’s saying they don’t believe it.”  

Stock market valuations are the collective view of investors as to the future earnings and dividend prospects for companies.  Current low valuations are a manifestation of the industry’s negative perception.  Mr. Holt is certainly correct about oil prices.  Since the start of this year, Brent/WTI prices have climbed 12.2%/13.3% through April 23rd.  If we go back to the oil price low of 10 months ago, prices have soared by 66.7%/61.4%.  In the past, an increase in oil prices of those magnitudes would have sparked a meaningful recovery in oil company and oil-related company share prices.  

A report by the oilfield service research team at Barclays delivered a similar message about their universe of stocks as cited by Bloomberg about Big Oil.  The most telling chart shows a nearly complete correlation (0.96) between the movement in oil prices and the value of the Philadelphia Oilfield Service Stock Index (OSX) between January 2012 and January 2016.  However, from June 2017 to April 2018, the correlation has fallen to only 0.06.  And, June 2017 marked the low price for crude oil!  

Eoin Treacy's view -

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

One of the biggest consensuses in the markets at present is that the future is going to be carbon free, and not in a couple of decades but imminently. There is no doubt that electric car penetration is rising, particularly in China, but it will still be years before it reaches even 10% of the global fleet. I think there is reason for optimism about the future of carbon emissions based on technological improvements alone but perhaps enthusiasm has overtaken the reality represented by the market.



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May 01 2018

Commentary by Eoin Treacy

U.K. Data Cast Fresh Doubt Over Strength of British Economy

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

A picture of an economy losing momentum was reinforced by figures from the BOE showing unsecured credit rose just 254 million pounds ($348 million) in March, the least since November 2012. Mortgage approvals meanwhile dipped to the lowest level this year.

An interest-rate hike this month was seen as a done deal until recently. Investors, who at one stage were assigning a more than 90 percent chance to such a move, have slashed those odds to about 20 percent after weaker-than-expected inflation, cautious comments from Governor Mark Carney and dismal growth figures for the first quarter. Only a small part of the slowdown was due to the heavy snowfalls that brought chaos to the country, statisticians estimate.

“While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance,” said Rob Dobson, director at IHS Markit. “The chances of a near-term hike in interest rates by the Bank of England look increasingly remote.”

Eoin Treacy's view -

The strength of the Pound over the last 18 months will have been at least a contributory factor in the underperformance of factory output that has been cropping up in official statistics over the last few months. The prospect of a Bank of England rate hike is receding in the near term and in turn that has been weighing on the Pound.



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May 01 2018

Commentary by Eoin Treacy

North Korea Is a Bright Spot for Billionaire Who Forecasts Crash

This article by Tamim Elyan and Manus Cranny for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump is aiding Sawiris in one way, though: If a North Korean peace deal can be reached, the Egyptian’s investments there may finally pay off. After 10 years of waiting to repatriate all his profits easily and control his mobile-phone company, Egypt’s second-richest man says an accord would let him reap some of his returns.

“I am taking all the hits, I am being paid in a currency that doesn’t get exchanged very easily, I have put a lot of money and built a hotel and did a lot of good stuff there,” said Sawiris, who founded North Korea’s first telecom operator, Koryolink. The North Korean unit’s costs and revenues aren’t currently recognized on the financial statements of Sawiris’ Orascom Telecom Media & Technology Holding SAE.

Sawiris over the years has been pressured by “every single Western government in the world” for his presence in the country hit by international sanctions for its nuclear threats, he said, but he considered himself a “goodwill investor.” His advice for governments and to Trump ahead of his expected meeting with North Korean Leader Kim Jong Un: Don’t bully him, and promise prosperity in exchange for concessions on nuclear.

Eoin Treacy's view -

Investing in North Korea is not for the faint hearted or indeed for those who wish to avoid state sponsored mischief making. However, with the prospect of improving relations between North Korea and the USA, investors will turn to thinking about how best to leverage that event in their portfolios.



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April 30 2018

Commentary by Eoin Treacy

Video commentary for April 30th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: looking at the S&P500, gold, oil and bonds reduced by the purchasing power of the Dollar, Wall Street remains in a corrective phase, further evidence of rotation, Dollar at first area of potential resistance, gold at potential area of support.



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April 30 2018

Commentary by Eoin Treacy

Email of the day on the long-term outlook and potential for inflation

In your 10/April long-term themes review, you said: "So, the big question many people have is if we accept the bullish hypothesis how do we justify the second half of this bull market based on valuations where they are today? ..... However, the answer is also going to have to include inflation. "

My thoughts, not in any particular order:

If we look at Robert Shiller's research ~1870-now, on the US share market, his studies show that historically, extreme valuations in the US share market (as assessed by cyclically adjusted P/E ratio) have always been followed by poor average real return over the following 10-20 years."
You point to inflation as to how a secular bull market (in nominal terms implied) can now occur for the US share market (by implications I think you are reflecting on the US share market) over say the next 10-15 years (say).  You use the experience of Argentina and Venezuela as justification for your argument - where from memory, there was hyperinflation in the periods to which you refer.

First, I do not think you are suggesting hyperinflation for the USA .... mismatch 1.
For Argentina and Venezuela, I think their currencies also crashed. I do not think you are suggesting the US dollar is going to crash. Possible mismatch 2.
Rather than a comparison with Venezuela and Argentina, perhaps a better analogy is to the period in the USA following the late 1960s, when US share markets where at quite high valuations (though not nearly as expensive as now on a CAPE basis). Following the peak valuations of the late 1960s, the US share market went sideways (with some large dips) over the next 16 years or so.

In summary, I am not sure that your argument is particularly robust.  Yes, the technological revolution is a critically important new phase which will have a huge impact over the next 10 and 20 years..... and there may well be a secular bull market in that sector ... but does that really mean that the technology sector by itself will take the whole S&P500 with it in a secular bull market for the next 10 or 20 years?

Your thoughts?

Eoin Treacy's view -

Thank you for this question which gave me plenty of room for thought. My first reflection is that one of the benefits of this service is the Socratic dialectical method unfolds in real time as these big topics offer endless room for discussion and revision. I spent a good deal of time talking about long-term cycles in the Big Picture Video on the 27th which you may find of interest. 



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April 30 2018

Commentary by Eoin Treacy

US-China rivalry will shape the 21st century

This article by Martin Wolf for the Financial Times may be of interest to subscribers. I found the comments section to be particularly enlightening because it highlights just how emotive this topic is. Here is a section:

China is a rival of the US on two dimensions: power and ideology. This combination of attributes might remind one of the clash with the Axis powers during the second world war or the cold war against the Soviet Union. China is of course very different. But it is also potentially far more potent. China’s rising power, economic and political, is evident. According to the IMF, its gross domestic product per head in 2017 was 14 per cent of US levels at market prices and 28 per cent at purchasing power parity, up from 3 per cent and 8 per cent, respectively, in 2000. Yet, since China’s population is more than four times as big as that of the US, its GDP in 2017 was 62 per cent of US levels at market prices and 119 per cent at PPP. Assume that by 2040, China achieves a relative GDP per head of 34 per cent at market prices and 50 per cent at PPP. This would imply a dramatic slowdown of the rate it is catching up (a fall of around 70 per cent from the rate since 2000, starting in 2023). China’s economy would then be almost twice as big as that of the US at PPP and almost 30 per cent larger at market prices. (See charts.)

Eoin Treacy's view -

China is an increasingly confident ascendant power. The investments it is making in Europe, Africa and commodity producers are well reported upon while it is also a major holder of US Treasuries. It is also a middle-income country with a well telegraphed desire to become the world’s pre-eminent power over the course of the next few decades.



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April 30 2018

Commentary by Eoin Treacy

Not Everybody's Buying the Saudi Story, Even as Money Gushes In

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

The Arab world’s biggest stock market will probably face difficulty in retaining foreign money unless companies become more transparent, according to some investors. Executives aren’t used to the level of scrutiny demanded by global funds as retail buyers, who typically focus on charts rather than financial analysis, account for about 75 percent of daily trading, according to Gary Dugan, chief investment officer at Dubai-based family office Namara Wealth Advisors Ltd.

Gary Greenberg, an investing veteran, isn’t joining the Saudi party. The London-based head of global emerging markets at Hermes Investment Management Ltd. wants more evidence of economic and political change as well as confidence in the rule of law as Crown Prince Mohammed bin Salman seeks to modernize the kingdom and wean it off its reliance on oil. Other investors including J O Hambro Capital Management are wary of adding to their emerging-market holdings as concern over the pace of U.S. policy tightening sent equities retreating from a multi-year high.

Eoin Treacy's view -

Admittance to the MSCI Emerging Markets basket is a big event for any market because it opens up one of the world’s largest cohorts of index tracking funds as potential investors.



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April 27 2018

Commentary by Eoin Treacy

April 27 2018

Commentary by Eoin Treacy

Two Koreas Agree to End War This Year, Pursue Denuclearization

This article by Kanga Kong and Andy Sharpfor Bloomberg may be of interest to subscribers. Here is a section:

Kim and Moon embraced after signing the deal during a historic meeting on their militarized border, the first time a North Korean leader set foot on the southern side. They announced plans to replace the 1953 armistice that ended hostilities with a peace treaty by year’s end.

Their statement on a “common goal of realizing, through complete denuclearization, a nuclear-free Korean Peninsula,” stopped short of the “complete, verifiable and irreversible denuclearnization” long sought by the U.S. and its allies. The statement didn’t elaborate on what the term meant and Kim didn’t personally utter the word during remarks Friday.

Eoin Treacy's view -

The International community is understandably skeptical regarding North Korea’s overtures with skepticism considering how duplicitous the country has been over it’s post war history. Some appear willing to think sanctions have played a role, others that China is more active in pressuring the regime but there is another reason why North Korea is suddenly willing to sit down to talk.



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April 27 2018

Commentary by Eoin Treacy

Trump Tax Windfall Going to Capex Way Faster Than Stock Buybacks

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

The data is a fresh rebuttal to those who warned that hundreds of billions of dollars of tax relief will head directly to the stock market and be harvested by shareholders already fattened by a nine-year bull market. While buybacks indeed got a boost from the windfall, companies increased the rate at which they unleash cash for building factories and upgrading equipment, a strategy that’s preferred by investors for the benefit of future growth.

Corporate buybacks, while increasingly a key pillar of the second-longest bull market on record, are constantly drawing criticism from politicians and money managers as being short-sighted. By their line of logic, companies take advantage of low interest rates to borrow money and buy back shares as a quick way to boost per-share earnings. In doing so, they’re forgoing investment opportunities that may benefit long-term growth.

In the past year, shares of companies with the highest layouts on repurchases and dividends relative to market value are trailing those that spend most on capital expense by almost 5 percentage points, according to data compiled by Goldman Sachs Group Inc. and Bloomberg.

Eoin Treacy's view -

Capital expenditure is an interesting topic considering how much the complexion of industrial base has changed over the last decade. Warehouses have replaced retail space, robots are replacing workers and the cloud is replacing office space. Therefore, when we think about what companies are going to be spending their tax windfall on it is probably going to be on warehouses, robots and servers.



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April 27 2018

Commentary by Eoin Treacy

Swiss National Bank Snatches Punch Bowl from its Own Share-Price Party

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

Still, it is difficult to pinpoint reasons for the rise and fall of SNB shares. Most of the SNB’s profit in 2017 went to its own reserves and provisions, with two billion francs distributed to the federal government and Cantons.

The stock is thinly traded, which tends to exaggerate price moves. It pays a small dividend of 15 francs a share that is set by law. Analysts typically see SNB shares as a bond substitute, meaning its shares are particularly attractive at a time when government bond yields are low. Indeed, the recent retreat of the SNB’s share price has coincided with a rise in global government bond yields.

Mr. Studer noted that because SNB shares are governed under a mix of public and private-sector rules, the property rights of shareholders “are heavily restricted.”

The dividend can’t be increased beyond the legally-set maximum, he said, and “even a high profit in the preceding year does not change this.”

Eoin Treacy's view -

Listed central banks are stock market oddities since shareholders have no recourse to voting rights or an ability to pressure the board for better conditions. Instead they represent an institutional ploy to extract capital from traders willing to punt on the state’s fortunes.  



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April 27 2018

Commentary by Eoin Treacy

World's lithium king is ready to unleash a flood of new supply

This article from Bloomberg appeared in Mining.com and may be of interest. Here is a section:

“There is a legitimate concern on the side of battery manufacturers about long-term availability of supply,” said Daniel Jimenez, an SQM vice president who recently estimated that the industry will require a capital investment of $10 billion to $12 billion in the next decade to meet demand.

The green light to mine vastly more lithium, combined with pending changes in its ownership structure, has suddenly put SQM in the sights of several global mining companies, including London-based giant Rio Tinto Group. Among the most aggressive bidders is China’s Tianqi Lithium Corp., which has offered to buy SQM shares at a 20 percent premium, Eduardo Bitran, the former head of government development agency Corfo, said earlier this year.

“Tianqi owning the stake would be another step towards overall Chinese consolidation of the lithium industry,” Chris Berry, a New York-based energy-metals analyst and founder of House Mountain Partners LLC., said in an email.

Eoin Treacy's view -

SQM’s growth projections have been among the chief catalysts in the decline of lithium miners over the last few months. The big question is how quickly demand picks up over the next decade to absorb additional supply. Lithium was a supply inelasticity meets rising demand market from 2013 but really only garnered interest in the last couple of years as the shares turned to outperformance. Supply is now increasing so we are likely to see more volatility in the respective shares. This story further highlights China's intention to be the dominant force in the electric car sector. 

 

 



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April 26 2018

Commentary by Eoin Treacy

Video commentary for April 26th 2018

April 26 2018

Commentary by Eoin Treacy

Amazon Holders Await Word on Sales, Costs, Trump Tirades

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

Amazon.com Inc. is expected to post a sharp rise in sales when it reports first-quarter earnings Thursday, but investors will be watching to see how much revenue it’s plowing back into its many businesses.

Revenue in the first quarter is estimated to reach $49.9 billion, up 40 percent from a year earlier, thanks in part to a big boost from last year’s acquisition of grocery chain Whole Foods. Analysts project earnings of $1.26 per share, down from $1.48 a year earlier, as Seattle-based Amazon keeps investing in international expansion, data centers for its cloud-computing division, new devices and original programming for video streaming.

Analysts at Stifel Financial Corp. anticipate sales beating estimates, given record consumer sentiment levels and an expanding Prime membership base. Bloomberg Intelligence analysts said Whole Foods’ introduction of free home delivery may lift sales, while demand for the Echo line of smart speakers could help cement Amazon’s market-share dominance.

Eoin Treacy's view -

Amazon rallied impressively during today’s session in advance of the earnings announcement not least because of renewed enthusiasm for the technology sector.



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April 26 2018

Commentary by Eoin Treacy

Draghi Insists Outlook Is Solid as ECB Skirts QE Debate Again

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

The central bank’s quest to restore sustainable inflation of just under 2 percent has been complicated by data suggesting that the euro area’s strongest growth in a decade may be faltering. As well as waning industrial output and deteriorating business confidence, the threat of a global trade war is hanging over Europe’s export-oriented economy.

“Incoming information since our meeting in early March points towards some moderation, while remaining consistent with a solid and broad-based expansion of the euro-area economy,” Draghi said. “The underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2 percent over the medium term.”

Eoin Treacy's view -

Mario Draghi’s statement “An ample degree of stimulus remains necessary.” Is what the market was expecting. The ECB and Bank of Japan remain the primary providers of liquidity to the global economy so when they eventually begin a process of quantitative tightening is likely to be an important catalyst for liquidity fueled uptrends.



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April 26 2018

Commentary by Eoin Treacy

New immunotherapy treatment for lung cancer dramatically improves survival, researchers report

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

An immunotherapy treatment — one that boosts the immune system — has improved survival in people newly diagnosed with the most common form of lung cancer (advanced non–small-cell lung cancer), according to an open-access study published in the New England Journal of Medicine.

The study results were presented last Monday, April 16, at the annual American Association for Cancer Research conference in Chicago.

Cutting the risk of dying in half. The new study, led by thoracic medical oncologist Leena Gandhi, MD, PhD, associate professor of medicine and director of the thoracic medical oncology program at NYU’s Perlmutter Cancer Center, shows that treating lung cancer by a combination of immunotherapy with Merck’s Keytruda (aka pembrolizumab) and chemotherapy is more effective than chemotherapy alone, according to a statement by NYU Langone Health.

Eoin Treacy's view -

It is easy to forget during a period of market turbulence that the capital markets cycle and the technology cycle are not the same thing. The former affects the price of securities but the latter represents the basis for long-term value.



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April 26 2018

Commentary by Eoin Treacy

Musings from the Oil Patch April 16th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section on Shell:

Eoin Treacy's view -

A link to the full report and a section from its are posted in the Subscriber's Area.

Major companies, like Exxon Mobil and Royal Dutch Shell, transitioned from being majority oil producers’ years ago. While they still report in energy equivalent barrels the reality is that the majority of their production is natural gas. As a comparatively clean fuel, which tends to see demand increase as living standards improve, the long-term outlook for gas demand appears to be relatively secure.



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April 25 2018

Commentary by Eoin Treacy

April 25 2018

Commentary by Eoin Treacy

Why High-Flying U.S. Home Prices Are About to Get Another Jolt

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

The framing of homes, or putting up roofs and walls, accounts for 15 percent of the cost of construction. A composite measure of the cost of lumber for framing rose 16 percent from December to March, according to data from Random Lengths, a publisher of information on wood products.

And it’s not just lumber. A Labor Department gauge of prices paid at the producer level for construction inputs -- everything from particleboard and plumbing to concrete and insulation -- was up 5.1 percent in March from a year earlier, the biggest annual advance in nearly eight years.

So far, neither higher home prices or a four-year high in mortgage costs have been enough to dissuade buyers. Results of the Conference Board’s consumer confidence index on Tuesday showed 1.7 percent of the group’s respondents in April planned to purchase a new home in the next six months, matching the highest share in this expansion.

Eoin Treacy's view -

The falling cost of mobile phone tariffs are what helped to keep inflationary pressures under wraps last year. However, that effect will fall off the gauge for the March reading which will be released on May 1st. Meanwhile, the range of new inflationary pressures on the horizon continue to increase.



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April 25 2018

Commentary by Eoin Treacy

Varadkar Wants Progress on Ireland Border by June

This article by Timothy Ross and Alex Morales for Bloomberg may be of interest to subscribers. Here is a section on David Davis’ testimony to Parliament today:

Davis suggested the thorny question of how to avoid a hard border in Northern Ireland might still not be resolved when the U.K. leaves the EU next March.

He said a solution for the border won’t really be needed until the end of the transition period on Jan. 1, 2021 because the U.K. will effectively remain inside the EU customs union and single market during this interim phase.

But his comment has dramatic implications for what Brexit might look like. It suggests that the U.K. accepts it may have to agree to an unpalatable backstop plan for keeping Northern Ireland -- and possibly the whole U.K. -- in many parts of the customs union and single market rules indefinitely.

If an alternative answer can’t be agreed, the U.K. will have to take a leap of faith, leave the EU next March and hope that it can reach a deal on the Irish border before the end of the following year.

Eoin Treacy's view -

I believe Davis is wise to push the issue of the Irish border out to the end of the transition arrangement for the simple reason that it may be a moot point by that stage. Parliament will have the final say on whether to accept the negotiated deal and there is a substantial cohort which wants to remain in the customs union or at least very close to it.



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April 25 2018

Commentary by Eoin Treacy

Controversial New Milk Shakes Up Big Dairy

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

Both are following the success of a2 Milk Co., a New Zealand-based company that has found fans in its home country, as well as Australia and China, and has recently entered the U.S. market. The company’s revenue is expected to grow some 70% in the year ending in June, according to S&P Global Market Intelligence. It already has more than 10% of the milk market in Australia. A similar share in the U.S. would be about $1.5 billion in annual sales, according to Euromonitor International.

A2 milk differs from regular milk because the latter contains both A1 and A2 proteins. Supporters of A2 milk contend it is the A1 protein that causes indigestion for many people, a problem that lactose-free milk won’t solve. Skeptics say there hasn’t been enough independent research to show there is any real benefit to A2 milk, which is naturally produced by cows with a particular set of genes. A DNA test can determine which cows in a herd produce A2-only milk.

Although the science behind so-called A2 milk remains disputed, the entry of big companies into the market shows how changing consumer preferences create new opportunities that dairy giants can’t afford to ignore—especially as profits have been eroded in recent years by everything from almond milk to dairy-free ice cream. In the U.S., traditional milk sales have fallen about 7% annually on average over the last four years, according to the most recent data from Nielsen.

Eoin Treacy's view -

A2 Milk is a remarkable success story and it represented part of the discussion at the recent Melbourne venue for The Chart Seminar. There is evidence of a clear acceleration for what has already been an impressive trend and the share has now posted its largest reaction to date.



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April 25 2018

Commentary by Eoin Treacy

Across the Valley

Thanks to a subscriber for this report from Pantera Capital focusing on cryptocurrencies 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.

Bitcoin crashed in no uncertain terms in the first quarter of this year; losing about 70% of its value. As the first and largest of the cryptocurrencies it represented the epicentre of risk during the crash and therefore is also likely to be the most likely to form a lengthy base formation.



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April 24 2018

Commentary by Eoin Treacy

April 24 2018

Commentary by Eoin Treacy

Quarterly Review and Outlook

Thanks to a subscriber for this report from Hoisington Investment Management which doubles down on a bullish bond view. Here is a section:

The law of diminishing returns is already evident in all major economies as well as on a global scale (Table 1). Global GDP generated per dollar of total global public and private debt dropped from 36 cents in 2007 to just 31 cents in 2017. Diminishing returns is even more apparent in the case of China’s public and private debt, largely internally owned. In terms of each dollar of debt, China generated 61 cents of GDP growth in 2007 and only 33 cents last year. In other words, in the past ten years the efficiency of China’s debt fell 45%. Thus, even in a command and control economy, the law of diminishing returns prevails. The most advanced sign of diminishing returns is in Japan, the most heavily indebted major country, where a dollar of debt in the last year produced only 22 cents of GDP growth. This economic principle applies equally to businesses.

All economies rely heavily on the business sector to lead the growth process. Yet, a sharp decline in GDP per dollar of business debt occurred in the U.S. during the past nine years, reinforcing the underlying trend since the early 1950’s. In 1952, $3.42 of GDP was generated for every dollar of business debt, compared with only $1.39 in 2017. In the corporate sector, where capital as well as technology is most readily available, GDP generated per dollar of debt fell from $4.50 in 1952 to $2.50 in 2007 to $2.21 last year. The dismal trend in productivity confirms this conclusion. The percent change for productivity in the last five years (2017-2012) was equal to the lowest of all five-year spans since 1952. It was also less than half the average growth over that period.

Conclusion Important to the long-term investor is the pernicious impact of exploding debt levels. This condition will slow economic growth, and the resulting poor economic conditions will lead to lower inflation and thereby lower long-term interest rates. This suggests that high quality yields may be difficult to obtain within the next decade. In the shorter run, in accordance with Friedman’s established theory, the current monetary deceleration, or restrictive monetary policy, will bring about lower long-term interest rates.

Eoin Treacy's view -

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

This is the most commonly espoused view for why bond yields cannot rise. After all, with so much debt, the potential for growth to underperform and quantitative tightening there is a logical argument for why interest rates should stay lower for longer. However, there are other factors at work which this view does not take account of.



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April 24 2018

Commentary by Eoin Treacy

PBoC cuts RRR to avoid over-tightening

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

The PBoC announced it will cut reserve requirement ratio (RRR) by 1 ppts for most banks by next week. RRR will be reduced to 16% for big banks and 14% for mid and small banks (Figure 1). This will inject some 1.3tn new liquidity into the banking system. Banks are asked to pay off some 900bn balances from the medium-term lending facility (MLF) on the same day. Net liquidity injection of about 400bn will largely go to small city and rural banks. Lastly, the PBC asks these banks to use the new funding mainly for lending to small businesses.

We believe the RRR cut should not be seen as a change of monetary policy stance. The economy is doing well; growth stayed strong at 6.8% in Q1, supported by consumption and property investment (see our note here). Hence there is no need to loosen monetary policy. Indeed the OMO rates were raised just last month (Figure 2). We do not expect PBC to cut policy or OMO rates in the coming months. If anything, OMO rates may be raised further.

The main purpose of the RRR cut, in our view, is to avoid over-tightening on small banks and small businesses. The PBoC will continue to tighten financial regulations and deregulate interest rates under the leadership of the new government. This will lead to higher funding costs, particularly for smaller banks who do not have large deposit base and rely on wholesale funding. Meanwhile, tightening financial regulations, including the expected new regulation on asset management, will affect the shadow banking business. Banks are pressured to move their off-balance sheet lending back on balance sheet (Figure 3). Small businesses are more severely affected in this process, as they have limited access to regular bank loans and rely more on shadow banking. The RRR cut will mainly benefit smaller banks and, with the guidance on lending, will help relieve financing difficulties faced by small businesses.

Eoin Treacy's view -

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

This statement is the first signal since Xi became dictator that the Chinese administration is paying attention to the market and role of investors in reflecting the outlook for the economy. The cut to the reserve requirement demanded of banks is a positive step for the sector since it has been in a corrective phase since the beginning of the year.



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April 24 2018

Commentary by Eoin Treacy

Email of the day on Japanese Banks

Eoin Treacy's view -

Thank you for your kind concern and this educative email. I checked the data on Bloomberg and there is very little variation with what you quoted.

The Dollar has been on a downward trajectory for most of the last two years but is now in receipt of some respite not least because the interest rate differential has moved in its favour and yields are testing the psychological 3% level. Against the Yen it has now unwound its oversold condition relative to the trend mean so this is a level where investors will be asking whether the rebound has the legs to keep going.



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April 24 2018

Commentary by Eoin Treacy

The mother of all elections

Thanks to a subscriber for this report from HSBC focusing on the upcoming Malaysia election which may be of interest. Here is a section:

Following the dissolution of parliament last week, 9 May has been set as the date for the 14th General Election (GE14). Malaysians will vote for the 222-member Dewan Rakyat (lower house) on the federal level along with 12 assemblies on the state level. The main challenge to incumbent Prime Minister Najib Razak and his Barisan Nasional (BN) coalition will come from the Pakatan Harapan (PH) coalition led by Malaysia's former and longest-serving Prime Minister Mahathir Mohamad, who has defected to the opposition.

Pakatan Harapan is similar to the Pakatan Rakyat (PR) coalition that won the popular vote in GE13, but without the Islamic party PAS, which split from PR in 2015. Thanks to a split opposition contesting many of the same seats, surveys, admittedly somewhat dated given Malaysia's fluid politics, suggest BN should retain control (The Malaysian Insight, 7 January). However, given the unreliable nature of surveys and the unprecedented nature of this election (Mahathir may have an impact on states such as Kedah, his home, plus UMNO may face competition in Malay constituencies where it faces candidates from both PH and PAS), we consider what an unlikely opposition victory might mean for the economy.

We analyse the coalition manifestos, in particular proposals relating to economic and fiscal policy. As always, the focus will be on whether or not the status quo is maintained. We note that key opposition proposals such as the abolition of GST and the reintroduction of some fuel subsidies suggest higher budget deficits in the absence of off-setting revenues. PH also pledges to review key mega-projects (mostly Chinese-financed).

Eoin Treacy's view -

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

It’s a big question whether the Malaysian electorate will demand their pound of flesh from the ruling party in retribution for the embarrassing spectacle of Najib Razak and the 1MDB scandal which has been dragged through the international press for years already. That represents a challenge for the Ringgit considering the populist tone of the emerging opposition. 



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April 23 2018

Commentary by Eoin Treacy

Video commentary for April 23rd 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar experiencing a broad based rebound, Treasury yields testing the upper side of their seven-year range, high yield ETFs rolling over, FANGs under pressure, commodities pull back, emerging markets susceptible to mean reversion.



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April 23 2018

Commentary by Eoin Treacy

Email of the day on what to own in the latter stages of a bull market

Hello Eoin, Whatever age you happen to be, it is always salutary to lose a parent. A constant pillar in one's life has gone and no more questions can be asked. It brings into relief one's own fragility and mortality in a way that few, if any, other deaths will do. I hope your mother's passing was a comfortable one. My condolences to you and your family.

While it is probably improper to revert immediately to business, I am sure you will want to re-immerse yourself in the observation and interpretation of markets without delay. On this basis, I have a question:

Given that we believe we are heading for monetary contraction, a rise in interest rates and accelerating inflation how should we be positioning portfolios? Banks and resources should be well bid for the time being and Japan should benefit from inflation.

But how about India, China and the other economies of North and South East Asia? What sectors and markets are best avoided? At what point does one accumulate cash? Gold is much talked about as an inflation hedge but that will be a shooting star - it might soar in the near future but it will then weaken once more. It is to be regarded as a hedge or a trade, not as an investment - at least that's my view.

In my own portfolio, I've trimmed China and India, reduced or eliminated high flying 'big-tech' stocks (but not touched PCT), increased my Japan weighting and increased cash. I'm probably underweight gold. I plan to accumulate more cash but at this stage, I've no idea what holdings I shall reduce or sell over the coming months. Providing one is not losing money, investment is fun but over the next two or three years, I suspect there will be plenty of opportunities to lose money which we should try to avoid. It's a tough time for you and you have plenty on your plate but if you care to comment on these musings it would be much appreciated. All best.

Eoin Treacy's view -

Thank you for your condolences. The outpouring of warmth and compassion from subscribers has been enormously gratifying for my whole family and I. My mother’s passing leaves a hole in the wider family, since she was the matriarch in no uncertain terms, but it has also encouraged us all to work harder at communicating.

This is a detailed question and there is no one simple answer. I’ll attempt to more fully explore these issues over the course of the next few days and weeks but here are some of my current thoughts.



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April 23 2018

Commentary by Eoin Treacy

Is there any venom left in the FANGs?

Eoin Treacy's view -

This is the kind of market where it feels like everything can change in a day, not to mind being absent for three days. I won’t be buying another Apple phone until my current version dies. I suspect the vast majority of people are of the same opinion. Sometimes, what you have is good enough, when the upgrade costs somewhere in the region of $700.



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April 23 2018

Commentary by Eoin Treacy

Trade War and its effects on commodities

Thanks to a subscriber for this report by Barnabas Gan from OCBC which may be of interest. Here is a section:  

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area. 

Fears about trade wars are ebbing and flowing with optimism a détente will be reached one week superseded by fears tit-for-tat measures will deteriorate further the next. The banning of ZTE from selling phones in the USA is an escalation while the potential for Mnuchin to visit China is seen as a positive. What this suggests, at least to me, is this is an ongoing situation which is still some way from a resolution. If that is the correct assumption then it is not ideal for investor sentiment.
 



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April 17 2018

Commentary by Eoin Treacy

April 17 2018

Commentary by Eoin Treacy

April 17 2018

Commentary by Eoin Treacy

April 17 2018

Commentary by Eoin Treacy

April 17 2018

Commentary by Eoin Treacy

Email of the day on the underperformance of the Topix 2nd Section Index

I have noticed re the Japanese charts that the Topix second section now seems to be leading on the downside having broken through the 7000 level. Should this be a concern?

Eoin Treacy's view -

The Topix 2nd Section was a topic of conversation at The Chart Seminar over the last few days.

It has been a reliable lead indicator for the market for as long as I can remember and it will need to bounce soon to confirm support in the region of the trend mean.



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April 17 2018

Commentary by Eoin Treacy

The de-dollarization in China

This article by Giancarlo Elia Valori for ModernDiplomacy.eu may be of interest to subscribers. Here is a section:

As further sanction, the United States has removed Iran from the SWIFT network, the well-known world interbank transfer system, which is also a private company.

Iran, however, has immediately joined the Chinese CIPS, a recent network, similar to SWIFT, with which it is already fully connected.

Basically China’s idea is to create an international currency based on the IMF’s Special Drawing Rights and freely expendable on world markets, in lieu of the US dollar, so as to avoid “the dangerous fluctuations stemming from the US currency and the uncertainties on its real value “- just to quote the Governor of the Chinese central bank, Zhou Xiaochuan, who will soon be replaced by Yi Gang.

In the meantime, Russia and China are acquiring significant amounts of gold.

In recent years China has bought gold to the tune of at least 1842.6 tons, but the international index could be distorted, as many transactions on the Shanghai Gold Exchange are Over the Counter (OTC) and hence are not reported.

Again according to official data, so far Russia is supposed to have reached 1857.7 tons.

Both countries have so far bought 10% of the gold available in the world.

Meanwhile, Saudi Arabia has already accepted payments in yuan for the oil sold to China, which is its largest customer. This is a turning point. If Saudi Arabia gives in, sooner or later all OPEC countries will follow suit.

Eoin Treacy's view -

I find these arguments about the petrodollar to be very interesting. The establishment of the Dollar’s dominance in global trade was a masterstroke of diplomacy when the Saudi Arabians agreed to exchange Dollars for investment opportunities and military security. However, that was also at a time when the importance of oil to the global economy was growing.



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April 16 2018

Commentary by Eoin Treacy

April 16 2018

Commentary by Eoin Treacy

Netflix Tops Estimates for Quarter, Projects Continued Gains

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

Netflix Inc. posted its strongest start to a year since the company went public 16 years ago, thanks to strong growth in markets across Latin America and Europe.

The company added 7.41 million subscribers in the first quarter of the year, according to a company statement Monday, easily topping analysts’ projections of 6.35 million. Netflix now has 125 million paying customers, the most of any online TV network.

The company, the best-performing stock in the S&P 500 this year, is proving one quarter at a time that investors’ confidence in its online TV service has been justified. Netflix is using its growing subscriber base and deep pockets to poach talent from the biggest program suppliers and build a Hollywood studio for the internet age.

Shares of Netflix rose as much as 8.3 percent to $333.21 in extended trading after the results were announced. The stock fell 1.2 percent to $307.78 at the close in New York and is up 60 percent this year.

Netflix said first-quarter profit rose to 64 cents a share, up from 40 cents a year earlier and meeting analysts’ projections of 64 cents. Sales for the quarter grew 40 percent to $3.70 billion, compared with Wall Street projections of $3.69 billion.

 For the current quarter, Netflix is predicting earnings of 79 cents and revenue of $3.93 billion. That compares with analysts’ estimates of 65 cents a share in profit and sales of $3.89 billion.

Eoin Treacy's view -

Netflix came out with earnings immediately after the close and successfully added more subscribers than it was forecasting while earnings were as expected. The company has also made clear it intends to fund additional growth with debt and cashflows will be negative for the foreseeable future.  

 



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April 16 2018

Commentary by Eoin Treacy

Seeking Value in Cryptocurrencies

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

April 16 2018

Commentary by Eoin Treacy

Historical charts of gold

History is not repeated but it does tend to rhyme. One of the biggest factors behind gold’s advance from the early 2000s was because of a lack on faith in the ability of fiat currencies to hold their value. The growth of markets like China and India then contributed an additional demand driver.

I am intrigued by the similarity in the saucering base formations gold put in during the early 2000s and what it is doing now. History need not repeat itself but these charts are certainly evidence that this is not the first-time gold has put in a lengthy period of ranging.

Smaller gold miners like St Barbara, Evolution Mining are outperforming at present as production ramps up and costs are kept under control.

April 13 2018

Commentary by Eoin Treacy

April 13 2018

Commentary by Eoin Treacy

The Great Cycle Debate

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

Eoin Treacy's view -

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

A section from the full report is also posted in the Subcsriber's area. 

Everyone was conditioned to expect crashes. The one thing everyone in the financial community, who has been around for more than a decade at least, has vowed is not to be caught on the wrong side of a crash again. That contributed to a lot of trading in and out of position in the aftermath of the credit crisis. That’s the first psychological perception stage of the market: disbelief.

More recently the argument that it is impossible to beat the market and that the only way to participate is with ETFs has been gaining ground. That coincides with the evolving psychological condition to accept the bullish hypothesis and to just stay long, in other words buy and hold. That’s the second psychological perception stage of the market: acceptance.

Then the market accelerated into the January peaks as people extrapolated the trend and felt they needed to buy in order to avoid losing out later. That has contributed to the corrective phase the market is now in because so much good news was priced in there wasn’t much left over. That’s the third psychological perception stage: euphoria.

This will form a major part of the conversation at The Chart Seminar in Melbourne on Monday and Tuesday next week.

So what next?



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April 13 2018

Commentary by Eoin Treacy

Chinese fans of banned parody app find each other offline using secret codes

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

Now that a popular parody and meme app in China called “Neihan Duanzi” has been shut down and its social media account on WeChat got deleted, fans of the app are gathering in solidarity offline in subtle protest.

Drivers are honking at each other in code to indicate that they’re fans, The New York Timesreports. A coded message might be a car honk, followed by a pause, and two more honks.

This week, while in the US Congress was slowly grilling Facebook CEO Mark Zuckerberg, in China, regulators brought down swift bans on offending news apps and social media apps. On Monday, China banned several big news apps including Jinri Toutiao, owned by Beijing-based Bytedance Technology. Then, the following day, authorities shut down Neihan Duanzi, a platform for users to share parody skits, citing vulgar content on the platform that “triggered strong resentment from internet users.”

Toutiao’s CEO, Zhang Yiming, issued an apology letter soon after for “publishing a product that collided with core socialist values.” While Toutiao is expected to return online by April 30th, Duanzi has been permanently shut down, according to an April 10th statement from its site. China had previously banned video spoofs and parodies in a March directive, a lot of which appeared on Duanzi.

Eoin Treacy's view -

Here is a link to a YouTube video showing the numbers of cars honking out tunes on Chang’an avenue (Beijing’s equivalent of the Champs Elysees leading up to Tiananmen Square) over the last couple of nights.



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April 13 2018

Commentary by Eoin Treacy

Banks Delivered on Earnings. So What Gives, Investors?

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

Now interest rates are rising and the money should be rolling in. But the story isn't playing out like the bank executives said it would, and investors are taking notice. The banks don't seem to be getting the benefit from higher interest rates that investors once imagined they would. Yes, interest income rose more than 10 percent in the quarter for JPMorgan and Citigroup, but interest expenses were up in the 50 percent range.

Investors can point to three reasons for disappointment. The first is loan growth, or rather the lack of it. Low unemployment and a continued rising economy and stock market, especially in an expansion as long as this one, should produce a surge of lending. The tax cut was supposed to amplify that jump. Instead, lending at the largest bank, JPMorgan, rose just 0.2 percent in the first quarter from the previous three months. Wells Fargo's loans dropped by 1 percent, though some of that can be attributed to the bank's particular problems. Citigroup's lending was up 1 percent, but that stemmed largely from a push to expand its credit card business, which hasn't been going so well. In the first quarter, the bank had to increase its provision for losses in it retail-branded cards by 16 percent. Yes, analysts were predicting that lending would be relatively weak, but it was even weaker than many forecast.

Eoin Treacy's view -

The banking sector is a liquidity provider and tends to do well in a bull market because demand for liquidity increases. However, it was also the epicentre of risk in the last crisis so the liquidity provision function has been impaired during this recovery not least because wages have not kept pace with asset prices.



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April 12 2018

Commentary by Eoin Treacy

April 12 2018

Commentary by Eoin Treacy

Metal Matters

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

Funds turn buyers again on Comex
The net long fund position (NLFP) has up until recently been declining, but this has mainly been a result of stale long liquidation, as seen by the drop in the black line in the chart above. But, while the longs have cut exposure (until recently); shorts have not been getting bearish, as seen by the declining red line. This has suggested longs have grown impatient as Gold prices have failed to break higher, but lack of upside has not encouraged bears to increase exposure. More recently, fund longs have started to increase exposure again. The gross long fund position has climbed to 259,032 contracts as of 27th March, from a recent low of 223,882 contracts. The NLFP has returned to 203,354 contracts from a low of 148,731 contracts on 20th March. This latest change was driven by 35,150 contracts of fresh buying and 19,473 contracts of short-covering.

Investors increase exposure to ETFs
Holdings in Gold ETFs are edging higher with investors adding 18.5 tonnes in March. Holdings now stand at 2,162 tonnes, up some 39 tonnes so far this year. Holdings averaged 2,068 tonnes in 2017. Given the lukewarm investor interest in Gold ETFs, it may be that the market is waiting for prices to break higher above the $1,366-$1,388/oz resistance area before increasing exposure.

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area.

ETF Holdings of Gold have shown surprising resolve over the last 18 months. The fact that all those long positions, opened when gold rallied to break its downtrend in 2016, hung around until now, and are adding to the total outstanding long position, is a testament to the bullish interest in the metal. Considering how volatile the price has been over the same period this is a particularly noteworthy development.



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April 12 2018

Commentary by Eoin Treacy

Email of the day on guest publications and lithium miners

What are your current views on lithium and lithium miners?

I continue to enjoy your tour de force reporting and analysis. Nothing stops you, not even airline travel. Amazing.

Eoin Treacy's view -

Thanks for this question which I’m sure will be of interest to other subscribers. It’s been a busy few weeks, what with an enjoyable and educative trip to Japan last week and the upcoming flight to Melbourne for The Chart Seminar and another conference next week, where I’m looking forward to chatting with Marc Faber.

Sometimes I look back with a sense of yearning on the days when David could still take a month off in August to cycle from Land’s End to John O’Groats and back again. In fact, part of the reason he brought me onboard in 2003 was to ensure the service could move to a seamless daily publication schedule.

I’m beginning to think about how to arrange taking a holiday over the summer. David used to invite guest writers to contribute copy to the site when he was away and I would like to do the same thing while I am away for perhaps two weeks in July or August. If any subscribers are interested in submitting an article during that time please let me know and I would be happy to discuss the conditions under which that might be appropriate.

Now let’s turn to lithium miners.



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April 12 2018

Commentary by Eoin Treacy

Pound Holds Four-Day Gain Amid Seasonal Flows: Inside U.K.

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

“The pound is performing well and holding its own” amid factors including seasonal flows and a broadly weak dollar, Mizuho’s head of hedge-fund sales Neil Jones said in emailed comments. “Meanwhile, the latest news flow suggests a possible swing toward a softer Brexit”

Some U.K. government officials think quitting the customs union in order to strike free trade deals with countries outside Europe may not be the best strategy, according to a new analysis

Eoin Treacy's view -

There is an increasing chance that the “deal” which the May administration will deliver to Parliament is going to give the EU the vast majority of what it wants. That means continued oversight by the European Country of Justice, participation in the Customs Union and continued contributions to the EU coffers with little leeway to negotiate trade agreements with the rest of the world, all while giving up the ability to influence EU policy. The UK will probably get greater control over its borders and perhaps agriculture and fisheries policy as well as continued access for its financial services sector, which is essential for the City.



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April 11 2018

Commentary by Eoin Treacy

April 11 2018

Commentary by Eoin Treacy

Trump Warns Russia to `Get Ready' as Syria Missiles Coming

This article by Daniel Flatley, Gregory Viscusi and Donna Abu-Nasr for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump said relations with Russia have never been worse and warned Moscow to “get ready” for a U.S. missile strike on Syria over a suspected chemical weapons attack.

“Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and “smart!,” Trump wrote on Twitter. “You shouldn’t be partners with a Gas Killing Animal who kills his people and enjoys it!”

Trump’s remarks weighed on investors already concerned about war. Oil prices surged to the highest level in more than three years in New York. Turkey, which has troops in Syria, saw its currency weaken to a record, while the Borsa Istanbul 100 Index for stocks reversed gains to drop 1.3 percent. Saudi Arabia’s main stock index also extended its decline.

Eoin Treacy's view -

Syria hosts Russia’s only Mediterranean naval base. That is a piece of real estate the country will do everything it can to protect which is why it has been such an active supporter of the Assad regime.

The Obama administration’s so-called red lines were shown to mean nothing and that may have emboldened protagonists in the region to employ even more aggressive tactics since it increased the perception of impunity.



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April 11 2018

Commentary by Eoin Treacy

Email of the day on inflationary expectations

I'm starting to think more and more that we are likely heading into an environment of inflation and slow growth - Stagflation. I emailed you back on February on this topic. Thought you would enjoy this interesting note attached from Ben Hunt’s “Epsilon Theory”.

Eoin Treacy's view -

Thank you for this edition of Ben Hunt’s letter which is always an entertaining read. Here is a section I found educational:

The inflation narrative hit markets in force after the January jobs report of February 2, where wage inflation came in “hot”. It subsided with the “Goldilocks” jobs report of March 9, where wage inflation was “contained”, and the jobs report of April 6 did little to reignite the inflation narrative. But here’s the thing. The wage inflation numbers for the past two months are wrong, crucially flawed by random differences in work-week hours from last year to this year (for more, read “The Icarus Moment”). On an apples-to-apples basis (average weekly earnings, not average hourly earnings), wage inflation in February was 2.9%, not the reported 2.6%, and wage inflation in March was 3.3%, not the reported 2.7%.

My view: the inflation narrative will surge again, as wage inflation is, in truth, not contained at all.



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April 11 2018

Commentary by Eoin Treacy

High-Flying Tiny Satellites Could Get Boost From FCC

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

New FCC rules could entice small satellite operators, such as Planet Labs Inc. and Pumpkin Inc., to expand the use of their devices and attract more customers and investors. They could also prompt other industries to consider using less-expensive satellites to comb the planet for profit-boosting opportunities—from insurers busting fraudsters to farmers tracking crop changes.

The interest in small satellites—which can range in size from postage stamp to small refrigerator—has grown rapidly in recent years. There were 335 small satellites launched in 2017, six times the total in 2012, according to a 2018 report from consultancy Bryce Space and Technology. Small satellites typically hitch a ride on rockets with other items, and their stints in space are short.

“More satellites mean more regulatory reviews. Hence the problem: our current regulations weren’t designed with these smaller satellites in mind,” FCC Chairman Ajit Pai wrote in a March 26 blog post.

The agency’s proposal also raises the question of space junk, a term that refers to millions of used fragments of rockets and satellites that crowd earth orbits. Loosening rules to allow more satellites, even small ones, could heighten such concerns.

The FCC, in its deliberations, will address “limiting orbital debris,” Pai said in the blog.

The measure is “reflecting the state of the industry—it’s changing,” Lisa Ruth Rand, a technology historian who researches space debris, told Bloomberg Law.

Regulators should keep in mind that extremely small satellites—too small for tracking technology to detect—can endanger other satellites and cause crashes, Rand said. “Hopefully these regulations will acknowledge the fact that, very literally, the landscape of outer space is changing,” she said.

Eoin Treacy's view -

The evolution of nanosatellite technology represents a significant enabler for data accumulation, monitoring, under developed countries to skip whole stages of development and for global technology companies to gain access to markets they are currently blocked from.

 



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April 10 2018

Commentary by Eoin Treacy

April 10 2018

Commentary by Eoin Treacy

Xi Warns Against Returning to a 'Cold War Mentality'

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

“Human society is facing a major choice to open or close, to go forward or backward,” Xi told hundreds of investors gathered on the resort island of Hainan, in a speech that didn’t mention Trump’s name. “In today’s world, the trend of peace and cooperation is moving forward and the Cold War mentality and zero-sum-game thinking are outdated.”

Trade talks between the world’s biggest economies broke down last week after the Trump administration demanded that China take steps to curtail support for high-technology industries, a person familiar with the situation said. The conciliatory tone of Xi’s speech helped bring risk appetite back to Asian markets as shares from Sydney to Hong Kong rose alongside oil and metals and Treasuries extended declines with gold and the yen.

Eoin Treacy's view -

As soon as Mrs. Treacy’s old school friends have children she gets a friends request on WeChat. They begin planning at birth to send their child abroad to be educated. Only last week she was approached to be a guardian for one child about to enter high school and to help arrange a scouting trip for another family whose son is now five.



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April 10 2018

Commentary by Eoin Treacy

Saudi Arabia Is Said to Signal Ambition for $80 Oil Price

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

Saudi Oil Minister Khalid Al-Falih has also sounded increasingly hawkish in public, suggesting that OPEC should keep tightening the oil market even through the cartel is close to meeting its goal of cutting crude inventories in industrialized countries back to their five-year average.

In an interview in New York last month, he said today’s price near $70 a barrel hadn’t been sufficient to stimulate investment in the industry, which remains significantly below levels seen before 2014’s price crash.

"That tells me that the pricing signals that have come out of the recovery haven’t been sufficient," he said, without giving a target for prices.

The Saudi Ministry of Energy didn’t immediately respond to a request for comment.

Domestic Policy
Riyadh’s desire for higher prices is driven by domestic policy imperatives. Although Saudi Arabia’s budget deficit has narrowed sharply as oil has recovered, Prince Mohammed has set out an ambitious and expensive economic and social reform program. He also needs to pay for the kingdom’s increasingly drawn-out military entanglement in Yemen.

While there’s little indication the Saudis are prepared to deepen their oil cuts to achieve $80, at the very least the aspiration suggests they’ll keep with the current measures until the price goal is closer. Riyadh is counting on declining Venezuelan oil production, the likely imposition of new U.S. sanctions on Iran, and continued demand growth to absorb U.S. shale production.

Eoin Treacy's view -

In addition to sanctions on Iran, the deteriorating relationship Europe and the US have with Russia is exerting an influence on oil prices which closed above $70 today and in dynamic fashion. That is going to act as an incentive to increase supply among various higher cost producers such as shale properties, tar sands and deep water, though that supply is going to take time to come to market.

 



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April 09 2018

Commentary by Eoin Treacy

Video commentary for April 9th 2018

Eoin Treacy's view -

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

Here are some of the topics discussed: the sheer number of new news items, some major emerging market currencies breaking down, Wall Street fails to hold its initial rally, many markets in the region of their trend means, Megacap tech under pressure, agriculturals with base formations, 



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April 09 2018

Commentary by Eoin Treacy

Two major crop scourges are hybridizing to produce a new mega-pest

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

Helicoverpa armigera, commonly known as the cotton bollworm, and Helicoverpa zea, the corn earworm, are two types of very hungry caterpillar that cause billions of dollars of damage to crops every year. Corn, cotton, tomato and soybean are just some of the many crops these pests can attack, with the cotton bollworm having developed resistance to all pesticides targeted at it.

In 2017, an eight-year project that mapped the entire genome of both caterpillars was completed. The study was designed to help researchers identify specific genes that cause the pests to become resistant to pesticides. A new paper has now been published showing evidence that the two moths are clearly hybridizing in a variety of novel ways.

"No two hybrids were the same suggesting a 'hybrid swarm' where multiple versions of different hybrids can be present within one population," says one of the researchers on the study, Tom Walsh.

Eoin Treacy's view -

A plague of locusts, let alone moths, is not currently a problem. However new varieties of insects that are immune to the most commonly used pesticides represents a threat to supply. That’s an important consideration for crop prices particularly since oversupply has resulted in the sector underperforming the broader commodity complex over the last few years.



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April 09 2018

Commentary by Eoin Treacy

China Is Said to Study Yuan Devaluation Amid U.S. Trade Spat

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

The analysis doesn’t mean officials will carry out a devaluation, which would require approval from top leaders, the people said, asking not to be named as the information is private.

“It seems as if Beijing is showing the full extent of policies they could deploy,” said Viraj Patel, a strategist at ING Bank NV in London.

The yuan weakened as much as 0.2 percent to 6.3186 per dollar in onshore trading on Monday, before trading little changed as of 5:49 p.m. local time. China’s central bank didn’t immediately respond to a faxed request for comment.

While Trump regularly bashed China on the campaign trail for keeping its currency artificially weak, the yuan has gained about 9 percent against the greenback since he took office and has been steady in recent weeks despite an escalation of trade tensions between the world’s two largest economies. The Chinese currency touched the strongest level since August 2015 last month.

Eoin Treacy's view -

Anyone who has been to China will not be surprised to learn that bargaining is part of the culture. I’m never prouder of Mrs. Treacy when I see her in full flight laughing and joking with sellers while also getting the best possible price and the feeling that an equitable deal has been struck by the end of negotiations. It is only by succeeding in negotiations with factories that she has been able to achieve the lowest price on Amazon for her bestselling products. The point I am aiming to make is that in China the art of the deal is engrained in the culture and in order to succeed the US negotiating team is going to need to have a very clearly defined set to objectives and what it is willing to give up.



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April 09 2018

Commentary by Eoin Treacy

Britons Back Holding a Vote on May's Brexit Deal

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

Those saying the public should have the final say on whether to accept the Brexit deal or remain in the European Union exceeded opponents by 8 percentage points, according to the poll results released on Monday by the group, whose funders include billionaire investor George Soros. Respondents said they would opt to remain in the bloc if given a second referendum.

The survey results pose a dilemma for May, who in December was forced into conceding a vote on her Brexit deal to lawmakers following a rebellion by members of her own Conservative Party. But after previous polls showed there was no appetite for a second referendum on Brexit, she’s been able to fend off demands for a new vote amid tricky divorce talks with her EU counterparts.

“The possibility of Brexit is sharpening the British public’s minds, and now there is a decisive majority in favor of a final say for the people of our country on the terms of Brexit,” said Best for Britain Chief Executive Officer Eloise Todd.

Eoin Treacy's view -

I know if I was living in the UK I would want a second vote. After all the initial question was “Should the UK remain a member of the European Union or leave the European Union”. That is a very polarising question and the answer from the public was 51.9% in favour which of course means 48.1% did not get what they wanted.

That has resulted in what can generously be described as a fudge. When the question is so black and white and the Party in power has a rather tenuous grip then they have to try and please everyone which is going to result in anything but a conclusive deal. The UK has already conceded on its so-called red lines and could realistically come back with a deal that ensures it is a rule taker from the EU far into the future while also paying into its coffers.



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April 09 2018

Commentary by Eoin Treacy

If you traded crypto on Coinbase, the IRS might be coming for you

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

Shockingly, the IRS has not updated its policies on crypto taxes since they were written in 2014. The following year, only 804 Americans declared taxes on crypto gains—despite an estimated 500,000 to 1.2 million people owning bitcoin that year. Add another three years of taxes, and that’s a lot of money that is owed.

Many people currently wrestling with their returns don’t know that they’re meant to declare their bitcoin earnings. And there’s no one to tell you: When filing taxes online through US websites like TurboTax or H&R Block, there isn’t a checkbox that asks if you sold cryptocurrency that year. And as cryptocurrency is written on top of blockchain technologies, which is an immutable public ledger, it’s likely that tax fraud will become harder to get around in a future dominated by crypto.

So let this be a warning: Declare all your wallets, even the ones the IRS can’t yet see.

Eoin Treacy's view -

Bitcoin remains in a bear market but is likely to continue to remain under pressure for at least the next week as investors weigh how to account for the bumper return bitcoin posted in 2017. The price peaked in December and quickly fell from $19,511 to $10,775 but it started the year at $994.



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April 09 2018

Commentary by Eoin Treacy

Long-term themes review March 23rd 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present, particularly in view of the events that have transpired this week:



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April 06 2018

Commentary by Eoin Treacy

April 06 2018

Commentary by Eoin Treacy

April 06 2018

Commentary by Eoin Treacy

Japan Trip Report

Eoin Treacy's view -

My daughters love visiting Japan. They adore anime and manga, and no they are nor the same thing, I’ve been reminded more than once. They love the cutsie culture coupled with the storytelling and fact that a lot of the topics covered are more mature in nature than they would be conventionally exposed to at home.

In my 10-year old’s class there are two things that every child, regardless of background, intelligence or wit loves; slime and squishes. Slime has turned every girl in the nation into a chemist and our house is full of the products my daughter has concocted from mixing varying quantities of Elmer’s glue and borax and lotion. I’m really hoping that one is a phase, the stuff is gross to my eyes. The other thing they love are Squishies. These are what many of us might think of as stress balls. The most popular are Japanese because they are of higher quality and return to their shape slowly. If you can bare it simply plug Squishies into YouTube.

Squishies, anime and manga, robotics and a range of other genres highlight the fact that Japan is still capable of capturing the imagination of popular culture. Against that insight more than a few people told me that the country is managed for old people. It is a common sight to see nonagenarians being wheeled around by their sexagenarian offspring. Massage and pain treatment for backs, necks and knees are some of the most common store fronts. Something politicians and the general public are only beginning to get grips with in Europe and North America is that older people are reliable voters and are jealous of their pensions and senior perks.



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April 05 2018

Commentary by Eoin Treacy

April 05 2018

Commentary by Eoin Treacy

Digital 49'ers: A look into the state of cryptoasset mining

Thanks to a subscriber for this report from Canaccord which I found to be one of the more comprehensive educative pieces I have read. Here is a section:

Regarding the future outlook of bitcoin miners generally speaking, our analyses above and conversations with multiple mining-focused companies indicate that as miners continue to enter the market and raise competition levels for block rewards and transaction fees, margins will as a result compress for all participants in the mining ecosystem. While this will allow the most efficient miners in bitcoin’s network to continue to operate at relatively healthy profitability levels, less efficient mining companies are likely to face considerable pressure in this future setting of higher mining difficulty and hashrates. As a result, our expectation is that we will see the less-efficient mining companies begin to diversify their businesses sooner rather than later in one of several ways. In particular, we expect that some miners will diversify their portfolio of cryptoassets that they mine to altcoins beyond bitcoin, while others will pursue different lines of businesses altogether, e.g., cryptoasset exchanges or advisory services. 

Eoin Treacy's view -

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

Bitcoin remains one of the most volatile assets in the world, digital or otherwise. It has been in a bear market since late last year and it is as yet uncertain whether the lows are in. The wild jumps and collapses in cryptocurrency prices have been chastening to many investors who must now be asking whether there is a better way of making money from what is a rapidly evolving sector where there are likely going to be more losers than winners.



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April 05 2018

Commentary by Eoin Treacy

Laying Down the Groundwork for a Knowledge-Led Society: Policy and Practice

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

Africa is increasingly becoming a generator of knowledge, innovation, creativity and technology, rather than being solely an adapter of trends produced elsewhere in the world - like it was mostly the case in the past. There is no doubt that this trend must not only be encouraged by African Governments, but it must also be accelerated with the implementation of specific proposed public policies. Why? Because the knowledge and creativity-based development model renders obsolete all other models of development as it has a unique feature that none of the other models does: its entire bedrock rests on bringing self-sufficiency, independence and self-generating mechanisms of well-being gains enshrined in each domestic economy, and that is for the entire African continent. The knowledge-based development model can charter new territory for Africa – a territory where it has never succeeded in going before - a territory where an extremely knowledgeable, creative, skilled and educated young and dynamic African population combined with the implementation of science/evidence-based public policies by African leaders, finally brings societal well-being, that is well-being to every single citizen, on the continent. The knowledge-based development model can do so in two specific ways: 1) it can ensure the continent’s self-sufficiency, independence and self-generating mechanisms of well-being gains for all segments of its population rather than depending on outside help, and 2) it can, once and for all, lift all African countries out of the natural resources curse2 or the Dutch disease or the paradox of the plenty by ushering them into an era where endowment in two new kinds of natural resources – namely knowledge and creativity -- is more closely correlated with societal well-being compared to endowment in oil and other natural resources.

Eoin Treacy's view -

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

Africa is often considered as a whole but is a continent replete with different languages, cultures and traditions that are as valuable and varied as anywhere else. There are obviously countries that are more successful than others and the record of improving standards of governance is patchy at best. I look forward to a time when any mention of the Africa does not require a preamble.



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April 05 2018

Commentary by Eoin Treacy

Email of the day on programming errors in autonomous vehicles

Now here's a thought from your friendly local software expert: Microsoft Windows has approximately 50 million lines of code and 1 defect per 2,000 lines of production code (as reported by Sogeti Labs). Industry production code is often reported to have 15-50 defects per 1,000 lines of code (Kloc). My head says Windows therefore has 25,000 defects. Not all defects can be tested out. Not all defects get "seen", because they are in rarely-executed code. Not all "seen" defects cause the blue screen of death, of course. But some do. ("The blue screen of death" is when a computer freezes up completely - on Windows machines, a blue screen is displayed with basic information intended to help an expert determine what went wrong.)

According to The Visual Capitalist, the autonomous control software in a self-driving car has about 100 million lines of code (and growing), so if a self-driving car has the same software quality as Windows, it should only have about 50,000 defects. Not all defects get "seen", because they are in rarely-executed code. Not all "seen" defects cause the blue screen of death, of course. But some do.

Oh, but but but the pointy-hair guy (the non software engineer) proclaims loudly, surely Tesla does a much better job of testing than Microsoft (with a LOT less engineers than Microsoft, maybe just to mention). And of course the other companies building similar software will also do a much better job of testing. Wow, maybe 10x better. So that self-driving car which will be hurtling you down the crowded freeway at 75 mph should only have 5,000 defects. (If you believe you can get 10x better testing results without spending a lot more than 10x the $, I have a really cool virtual bridge to sell you.) Not all defects get "seen", because they are in rarely-executed code. Not all "seen" defects cause the blue screen of death, of course. But some do...

Microsoft actually does a good job of testing. 10x better quality is really hard, and doing it with less resources, maybe not so doable. The space shuttle is the only large piece of production code that I know of where defect density was driven to near-zero - it cost many thousands of dollars per line to get that result, and the system was only 400,000 lines of code.

Hop in, let's let the car take us for a spin.

Eoin Treacy's view -

Thank you for this account which highlights the enormity of the challenge in getting self- driving cars on the road. There appears to be a “you can’t make an omelette without breaking some eggs” attitude surrounding the sector right now. However, with the number of fatalities mounting from both Tesla’s semi-autonomous features and now Uber’s killing of a pedestrian the focus of attention is likely to be turned towards the safety of these products.



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April 05 2018

Commentary by Eoin Treacy

April 04 2018

Commentary by Eoin Treacy

China's Rejoinder Shows No One Wants a Trade War, Really

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

Is the phony trade war over?

With its plans to levy 25 percent tariffs on $50 billion of U.S. products including soybeans, cars and aircraft, China looks to have stepped the simmering trans-Pacific economic battle up a gear.

The initial parries between Washington and Beijing resulted in little more than flesh wounds. There were a series of levies on steel and aluminum exports to the U.S., which largely excluded the countries that export steel and aluminum to the U.S.; an impost on China's infinitesimal imports of U.S. pork, and on a scrap trade that Beijing is already trying to stamp out; and then Tuesday's heftier $50 billion tariff list from Washington, which was nonetheless carefully crafted to be almost invisible to Joe Sixpack.

Pick apart Beijing's latest list of countervailing duties and you'll see that in many areas there's once again less than meets the eye.

To be sure, the list deals a few headline-grabbing blows to select political constituencies. There's a special levy on cranberries, which these days are mainly grown in Wisconsin, the home state of House of Representatives Speaker Paul Ryan.

Another hits the whiskey industry associated with Senate Majority Leader Mitch McConnell's base of Kentucky, borrowing a move from the European Union's tit-for-tat trade war game plan.

And let's not forget those levies on fresh orange juice, calculated to hit growers in the electorally pivotal state of Florida.

Beneath that, though, many of the details suggest a more moderate approach. The duties on aircraft exclude all planes with an operating empty weight above 45 metric tons, a provision that looks to spare every aircraft that matters to Boeing Co. -- and, in any case, aerospace companies can get around tariffs by deferring orders to China and bringing forward deliveries to lessors elsewhere in the world.

Seven of the trade categories affected relate to beef, which China resumed importing from the U.S. only last year -- in minute quantities -- after a 14-year ban due to fears of mad cow disease. New 25 percent duties on wheat and corn won't do much additional damage to a trade that's minimal given the 65 percent import tariffs that China already charges on those crops.

Eoin Treacy's view -

The big question for investors is how much of Trump’s trade tariffs are appeals to his voter base ahead of the mid-term elections in November and how much are aimed at truly disrupting the international trade web that has been such a powerful force for greater flows over the last forty years.



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April 04 2018

Commentary by Eoin Treacy

The Bank of Japan Steps Up With Record Buys of Local Stocks

This article by Min Jeong Lee and Toshiro Hasegawa for Bloomberg may be of interest to subscribers. Here is a section:

"If it hadn’t been for the BOJ’s ETF buying, the Nikkei 225 would have breached 20,000," said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd in Tokyo. "For investors, March was a month to reduce exposure to Japanese equities."

The BOJ bought 1.9 trillion in ETFs in the first quarter, which is 32 percent of its annual purchase goal. To be sure, Kuroda has said that the target isn’t set in stone at exactly 6 trillion per year, and annual purchases don’t necessarily have to be measured from January to December. On Tuesday, Kuroda said the central bank is discussing how to eventually exit from its massive monetary stimulus but that it’s still too early to reveal details.

Not that long ago, many investors expected the BOJ to join the global trend toward stimulus tapering by reducing ETF buying this year. That came after the Topix and the Nikkei 225 soared to their highest levels in a quarter century. But then the market slumped, and the situation changed.

Foreigners have muddied the picture, dumping Japanese equities as the yen gained to a 16-month high against the dollar. They yanked almost 8 trillion yen from cash equities and futures in the first quarter alone, according to data through March 23. Suddenly, not many people are expecting a BOJ taper anytime soon.

Tatsuya Oguchi, chief executive officer and president of Franklin Templeton Investments in Japan, says the BOJ won’t rush to alter its ETF purchases.

"Obviously, the BOJ has to stop buying at some point," Oguchi said. But "I think we have to wait until the Tokyo Olympics” in 2020, he said. “The BOJ won’t change their policy at least for another two three years."

Kiyoshi Ishigane, chief strategist at Mitsubishi UFJ Kokusai Asset Management Co. in Tokyo, agreed. “Of course, they won’t cut back," Ishigane said. Like the others, he doesn’t expect the bank to increase the target, either. "The BOJ would buy more if they could stop the market from falling, but it knows that it can’t."

Eoin Treacy's view -

Bank of Japan buying of stocks represents a powerful tailwind for the market. Both the Bank of Japan and the Swiss National Bank have been actively buying shares, in addition to bonds, in an effort to promote inflation. This policy has the added benefit of the central bank gaining interests in tangible assets with no fixed maturity dates. Dividend growth potential then offers at least a partial inflation hedge to central banks they might not otherwise have had.



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April 04 2018

Commentary by Eoin Treacy

Homebuilder ETFs Jump on Lennar Earnings Beat

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

Homebuilders strengthened after Lennar Corp revealed adjusted earnings of $1.11 per share, compared to expected 77 cents per share from analysts polled by Thomson Reuters, MarketWatch Opens a New Window.reports. Revenue increased 28% to $2.98 billion, compared to expectations of $2.65 billion.

"We continue to remain positive on the outlook of the housing industry in general," CEO Stuart Miller said in prepared remarks. "Although interest rates have ticked up, unemployment remains low, the labor participation rate has been increasing, and wages have been moving modestly higher, though we think, even higher than the data the government captures. Feedback from our new home consultants indicates that our customer base feels confident in both job security and compensation levels in spite of the political noise that abounds."

Eoin Treacy's view -

This attestation from the CEO of a homebuilder that he is seeing strong consumer confidence gels with the results of what we refer to in our home as the Treacy indicator.



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April 03 2018

Commentary by Eoin Treacy

Video commentary for April 3rd 2018

April 03 2018

Commentary by Eoin Treacy

Goldman Sachs: 20 Years Left of Mineable Gold

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

"The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce." He wrote in the report.

King notes that the intention behind the report was to highlight the areas of scarcity, and demonstrate how scarcity is the ultimate driver of value and investment.

"Perhaps unsurprisingly, these are the so-called precious metals (and diamonds), and that their value is derived from the fact they are rare." He writes, "Gold has been used as a measure of wealth for more than 4,000 years, as the ancient Egyptians soon worked out that gold was not only shiny and heavy, but rare."

He adds that the relative scarcity of the commodity, and "the market’s belief that new discoveries will be limited, is what drives the price of these super-rare commodities."

King’s report falls in line with the forecast made last year, estimating that 2015 will be the year when gold production would reach its peak in the mining industry, a concept known as Peak Gold.

Eoin Treacy's view -

Mineral discoveries are a function of geology, technology and price. Shale oil was known about for over a century but was completely uneconomic until technology improved and that changed the pricing structure of the gas, and later the oil markets, beyond recognition.



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April 03 2018

Commentary by Eoin Treacy

On Target April 3rd 2018

Thanks to Martin Spring for this edition of his letter which reproduces my answer to the question of differences in standards of governance between China and India. Here is a section on North Korea:

Eoin Treacy's view -

A link to the full repoort and a section from it are posted in the Subscriber's Area. 

Kim’s trip to China last week was no doubt aimed at squaring any plans he has for talks with South Korea and the USA with China. There is no chance that China would tolerate a reunification of the peninsula on the USA’s terms so the best case scenario for the talks is for a normalisation of relations between North Korea and the USA and that would represent a significant victory for both Kim and Trump.



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April 03 2018

Commentary by Eoin Treacy

Musings From the Oil Patch April 3rd 2018

Thanks to a subscriber for this edition of Allen Brooks’ everinteresting report for PPHB. Here is a section on autonomous vehicles:

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area. 

Google’s Waymo is obviously the leader based on the above statistics in what is likely to be a transformational technology; once commercialised. Nevertheless, this is still an emerging technology that, despite its potential, needs further innovation to reach the point where drivers are optional.



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March 29 2018

Commentary by Eoin Treacy

March 29 2018

Commentary by Eoin Treacy

March 29 2018

Commentary by Eoin Treacy

Amazon in Trump's Crosshairs: Here's What the President Could Do

This article by Ben Brody, Todd Shields and David McLaughlin for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump renewed his long- running assault on Amazon.com Inc. with an early morning tweet Thursday. But what measures can he actually take against the online retail giant?

He could push for probes of consumer protection, privacy and antitrust issues. He could also step up his support for allowing states to collect sales tax on third-party purchases from Amazon, or seek to have the Postal Service charge more to deliver packages. And he could thwart Amazon’s aspirations to win a multibillion dollar Pentagon contract for cloud services.

Even with those powers, Trump’s ability to act has limits. Inquiries by the Justice Department or the Federal Trade Commission could take years and bear a high burden of proof. The FTC and other enforcement agencies guard their independence, as does the board of governors of the Postal Service. Changes to the tax law would require cooperation from Congress, which just passed a tax overhaul and may have limited appetite to reopen negotiations.

The feud pits the world’s most powerful man against one of the world’s biggest corporations -- a global titan with $684 billion in market capitalization and more than half a million employees. At stake is its reputation, revenue and, potentially, ability to continue to disrupt markets as it reshapes retailing.

Eoin Treacy's view -

Capitalism trends towards consolidation, as the strong eventually consume the weak and further dominate their respective sectors. That has created a comparatively small number of companies that we refer to as Autonomies which are truly global in scale and exert considerable sway both over their national indices but the global sectors in which they reside.



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March 29 2018

Commentary by Eoin Treacy

King of the (Bond) World: Terry Duffy Makes His Biggest Trade

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

“Man, that’s a lot of power the CME now has in the U.S. Treasury market,” said Jim Greco, who co-founded the former Treasuries trading platform Direct Match Holdings Inc. “You have to be a little worried about the pricing power of the CME in the most critical asset class in the world.”

Bond traders have reason to cheer the deal. NEX, also known by its old name ICAP, comes to the table with about 80 percent of trading volumes between dealers in the $14.7 trillion market for cash Treasuries. CME is the main destination for Treasury futures trading. Instead of coughing up margins to trade in two places as they do now, customers of cash Treasuries and futures could potentially save costs by having the complementary products under the roof of one combined powerhouse.

In its essence the consolidation of some of these business and the centralization of them to a single clearer makes sense,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. “There is the economies of scale to be taken advantage of and collateral and posting type issues that will be easier to manage.”

Eoin Treacy's view -

At their roots exchanges are flow businesses and there have been concurrent stock and bond bull markets. That’s good for turnover. At the same time technological innovation has increased the speed of trading creating fees from colocation of servers. That opened up a whole new business for the sector and has helped to drive consolidation as companies compete to dominate in this new environment.



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March 29 2018

Commentary by Eoin Treacy

Anti-Corruption Crusader Is Eyeing Brazil Presidential Bid, Sources Say

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

Barbosa, a 63 year-old black man raised in poverty, became a household name in Brazil during the Supreme Court’s handling of the so-called "mensalao" corruption scandal in the government of President Luiz Inacio Lula da Silva. Of all the potential candidates for October’s presidential elections, Barbosa has one of the lowest rejection ratings, at just 14 percent, according to Datafolha polling company. That compares with 60 percent for President Michel Temer and 40 percent for Lula.

The former judge is a presidential candidate "with potentially the best profile in the field," according to a note published by Eurasia Group on March 29, adding that he has a good mix of experience, anti-corruption credentials, and credibility on social issues.

"It’s a huge movement on the electoral chess board," said Richard Back, a political analyst at XP Investimentos.

Eoin Treacy's view -

The Brazilian iBovespa Index has been the best performing major market globally over the first quarter. It has been assisted by improving perceptions that the crusade against institutional and political corruption is gaining traction and the relative stability of the Real over the same period.



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March 28 2018

Commentary by Eoin Treacy

March 28 2018

Commentary by Eoin Treacy

How Bad Could It Get, Counting the Cost of a Global Trade War

This report from Bloomberg Economics may be of interest to subscribers. Here is a section on the factors that led to the current tensions on trade and tariffs:

There were also losers:

U.S. labor groups, it turns out, were right to be suspicious of China’s arrival in the global market. Taken together with a shift toward more capital—intensive production, the result was stagnant wage growth. Between 2001 and 2016, real income for the bottom 20% of U.S. households didn’t rise at all, and wages for the middle 20% managed only a 4% increase.

Mercantilist policies in China (combined with an irresponsible approach to financial regulation and mortgage lending in the U.S.) resulted in a buildup of major global imbalances. China’s current account surplus ballooned to 9.9% of GDP in 2007 from 1.3% in 2001. U.S. current account deficit peaked at 5.8% of GDP in 2006. The recycling of China’s surplus back into U.S. Treasuries kept U.S. borrowing costs too low for too long, an important background condition for the real estate bubble and financial crisis.

For foreign policy hawks, the strategic benefits were outweighed by the costs. China didn’t democratize, in fact it doubled down on its single—party model. Worse still from Washington’s point of view, China’s rise means it now jostles with the U.S. for global influence, and on straight—line projections may overtake in terms of economic size in the next decade.

Eoin Treacy's view -

Taken in the context of the total trade between China and the USA and indeed the USA and everywhere else, the total amount announced as tariffs is comparatively small but the knock-on effect to sentiment has been severe and quick.



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March 28 2018

Commentary by Eoin Treacy

Hedge Funds Short Dollar-Yen Stare Down Fiscal Year Squeeze

This article by Michael G. Wilson and Chikako Mogi for Bloomberg may be of interest to subscribers. Here is a section:

Just as hedge funds pile into wagers betting on dollar-yen weakness, signs are emerging that the pair is poised for a resurgence in Japan’s new fiscal year.


The greenback’s failure to break below 104.50, seen by major Japanese banks as a key barrier amid a congestion of buy orders, is pointing to a potential bottom for the widely traded cross. That’s bad news for speculators that suddenly turned bearish for the first time in almost a year this month as an escalation in global trade tension and a domestic political scandal spurred demand for Japan’s haven currency.


The culmination of the country’s fiscal year this week -- which has historically capped dollar strength amid repatriation flows -- month-end fund rebalancing and easing trade tensions are creating the conditions for a dollar bounce against the yen, according to traders and strategists. The rebound looks to have already begun, with the pair climbing as high as 106.41 Wednesday as Japanese importers were seen selling the domestic currency.


“With Japan’s new fiscal year starting shortly, I expect a certain degree of yen selling flows to emerge,” said Tohru Sasaki, head of Japan markets research of JPMorgan Chase & Co. Flows related to the start of the fiscal year could push dollar- yen upward toward the 111 to 112 area, he added.

Eoin Treacy's view -

The Dollar has been among the weakest currencies in the world so far this year, amid widespread angst about the implications of fiscally profligate policy on the value of the currency. However, the USA is also raising interest rates and that interest rate differential is beginning to be meaningful, particularly as LIBOR rates for short-term paper advance.



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March 28 2018

Commentary by Eoin Treacy

Cobalt price: Automakers 'waking up too late' as China takes control

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section: 

The Democratic Republic of the Congo today has six of the top 10 cobalt mines globally. Due primarily to Chinese investment, by 2022, the central African nation will host the nine largest cobalt producers. Congo also holds half the world’s reserves.

Not only is primary production highly concentrated, but the downstream industry is beginning to resemble a monopsony. China, despite having no cobalt resources of its own, is responsible for 80% of the world’s cobalt chemical production, which overtook metal production around four years ago.

Glasenberg told FT Chinese refiners and processors "will have most of the offtake of cobalt":

They’re not going to sell batteries to the world, more than likely they’ll produce batteries in China and sell electric vehicles to the world,” Mr Glasenberg told the conference. 

Eoin Treacy's view -

Despite the fact cobalt prices have surged there is no such thing as a cobalt mine. It is almost exclusively a by-product of copper and nickel mining. The Congo/Zambian copper belt therefore is the primary source of cobalt while it is a by-product of other mining operations all over the world.



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March 28 2018

Commentary by Eoin Treacy

Video commentary for March 27th 2018

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 bounces at the MA, Euro bounces but less impressively and is still below its MA, Gold and oil pause at the upper side of thier ranges, Japanese banks bounce from the lower side of its range. Treasuries look likely to unwind their oversold condition. 



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March 27 2018

Commentary by Eoin Treacy

Security In an Unsecure World

Thanks to a subscriber for this transcript of a talk given by Benjamin Graham in the 1960s. Here is a section but it is well worth taking the time to read in full:

They are returning to the idea that for the smart investor the question of stock market fluctuations does not have to be considered to any great extent. There is a two-fold emphasis here, which slurs over the reality of stock market fluctuations. The first is the general conviction that the market can be counted on to advance so emphatically through the years that whatever declines take place are comparatively unimportant; hence if you have the true investor’s attitude you don’t have to concern yourself with them.

And

As I see it, the real truth is exactly the opposite, for the higher the stock market advance the more reason there is to mistrust its future action if you are going to consider only the market’s internal behavior. We all know that for many decades the typical history of the stock market has been a succession of large rises, in good part speculative followed inevitably by substantial falls. Consequently, the substantial upsweeps of the past have always carried with them warning signals of unhappy consequences to come. It does not necessarily follow that a large rise in the price an individual stock or in the market average must be followed by a decline; but the only reason to view with confidence the future price of a security that has already advanced substantially in the presence of external reasons, other than the actual price movement itself, which would justify such confidence. Hence a large advance in the stock market is basically a sign for caution and not a reason for confidence.

Eoin Treacy's view -

One of the benefits of being locked in a metal cylinder for 14 hours is I get to catch up on my reading. The first thing that occurred to me on reading this paper is how little things change. We might have different names for popular financial products but the basic psychology of investors does not change.



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March 27 2018

Commentary by Eoin Treacy

Electric Cars May Be Cheaper Than Gas Guzzlers in Seven Years

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

Electric cars may be cheaper than their petroleum counterparts by 2025 if the cost of lithium-ion batteries continues to fall.

Some models will cost the same as combustion engines as soon as 2024 and become cheaper the following year, according to a report by Bloomberg New Energy Finance. For that to happen, battery pack prices need to fall even as demand for the metals that go into the units continues to rise, the London-based researcher said on Thursday.

The clamor to roll out electric vehicles has grown louder as countries and companies race to clean up smog in their cities and hit ambitious climate goals set by the Paris Agreement. U.K. lawmakers started an inquiry into the market in September, probing the necessary infrastructure and trying to determine whether to bring forward the 2040 deadline to end the sale of gasoline and diesel cars.

Eoin Treacy's view -

Tesla has one major undeniable achievement to its name. It made electric cars sexy. Before Elon Musk delivered his roadster, electric vehicles were a hard sell, plagued by perceptions of inconvenience. However, in little more than a decade, they have become so desirable that just about every car company is planning on investing billions in manufacturing capacity.



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March 27 2018

Commentary by Eoin Treacy

Berlusconi Says League Plotting Government With Five Star

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

The accusation threatens to shatter the parliamentary group that won the most seats in the inconclusive March 4 general election. Both Matteo Salvini of the League and Luigi Di Maio of Five Star have claimed the premiership although they are short of a majority.

Lawmakers in each house of parliament started voting Friday to elect speakers, a clue to possible new alliances in the search for a government with a working majority.

Forza Italia had selected former minister Paolo Romani as its candidate for the Senate job, but Salvini’s senators voted against him. Salvini’s decision is seen by Forza Italia as yielding to Five Star, which had ruled out backing Romani or any candidate with a judicial conviction. Romani has been convicted of embezzlement, an offense he denies.

Salvini said the League’s choice was “a courageous and generous help to the coalition” to break a political deadlock, in remarks quoted by newswire Ansa.

Salvini and Di Maio have taken the lead in attempts to broker a deal over the speakers. The ballots could run until early next week after several rounds of voting on Friday produced no result.

Eoin Treacy's view -

These two maps of Italy, one with the income dispersion, the other with the geographical support for the various parities give us two clear conclusions. The first is that the poor people voted for the Five Star Movement. The other is by arranging a coalition between the centre right and the Five Start Movement just about the whole country is represented. Quite whether the revolutionary party is willing to share power, and therefore become more conventional, is still open to question.



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March 26 2018

Commentary by Eoin Treacy

Video commentary for March 26th 2018

Eoin Treacy's view -

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

Some of the topics covered include: Asian markets find at least near-term support, Europe under pressure as Euro strengthens, oil eases, gold firm, bonds steady, Facebook and Tesla breaking down but subscription oriented shares offer relative strength.



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March 26 2018

Commentary by Eoin Treacy

Higher Libor-OIS Is New Normal But Don't Fret, Says CS' Pozsar

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

“BEAT is forcing foreign banks to substitute FX swaps with unsecured funding and also leads to temporary overfunding on the margin,” he wrote. “BEAT explains why cross-currency bases are tighter while Libor-OIS is wider, and also introduces upside risks” to the forward Libor-OIS spread, he wrote.

The gauge measuring where Libor-OIS is seen moving in coming months -- the June FRA/OIS spread -- reached about 54 basis points this month, from around 18 at the end of last year. It retreated to 44 basis points Friday.

The impact is strongest in foreign-exchange swaps because the shift is creating excess funding for those headquarters.

That cash is being lent into the foreign-exchange swaps market, preventing the basis from narrowing for now, wrote Pozsar.

Total excess funding that may build up at headquarters of European, Japanese and Canadian banks with branches and broker- deal affiliates in the U.S. could tally as much as $450 billion, he estimates. To the extent that this money had been raised in FX swaps at headquarters, the change may reduce demand for dollars via the basis swaps market, he says.

Even without the tax effect, Libor has been rising amid a deluge of Treasury-bill issuance since the U.S. debt ceiling was raised in February, which has helped drive bill rates to the highest since 2008. The increase has forced banks to boost commercial paper rates to lure buyers.

“BEAT is redistributing pressures from the cross-currency basis to the Libor-OIS basis,” Pozsar wrote. “The pressures we should be seeing in cross-currency bases from bill issuance are showing up in the Libor-OIS basis instead. This suggests Libor- OIS could widen more from here.”

Eoin Treacy's view -

The pop is overnight index swap spreads since the beginning of the year has a lot of people thinking about what this all means. The most visceral memory everyone has of the LIBOR-OIS, or the FRA/OIS spread which is the equivalent, is the surge in unsecured paper funding costs that were associated with the credit crisis back in 2008. So, the big question is whether that is relevant today?



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