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December 30 2019

Commentary by Eoin Treacy

Putin's Hypersonic Nuclear Missile Stirs Fears of Arms Race

This article by Henry Meyer and Jake Rudnitsky for Bloomberg may be of interest to subscribers. Here is a section:

“This is an unprecedented situation in which we see that Russia is technologically ahead of the U.S. and the Pentagon is playing catch-up,” said Nikolai Sokov, a senior fellow at the Vienna Center for Disarmament and Nonproliferation. “The U.S. only woke up this year to this technology and has started to throw money at it.”

Russia successfully tested Avangard in December last year, firing it from a military base in the southern Urals 6,000 kilometers (3,700 miles) to the Kamchatka peninsula. After a ballistic launch, the Avangard glides toward its target with a high degree of manoeuvrability.

The difference between the hypersonic weapon and a traditional ballistic missile is that it “disappears and we don’t see it until the effect is delivered,” Hyten said in testimony before the Senate Armed Services Committee.

Claims the Avangard can evade any defenses are overblown since it can be shot down in the early ballistic phase of its trajectory, said Golts, the defense analyst. The real breakthrough will come when Russia implements the same technology in another weapon class, like cruise missiles, according to Sokov, the disarmament expert.

Abandoning New START at this juncture would be a major mistake, Democratic Senator Jeff Merkley warned this month. There’s bipartisan support in the U.S. Congress for extending the agreement, which “has successfully kept the U.S. and Russia out of a modern-day nuclear arms race,” he said on Twitter. “We cannot risk unleashing a new Cold War.”

Eoin Treacy's view -

Hypersonic weapons are first strike options that represent a clear escalation of the risk from deteriorating international relationships. The bigger picture is hypersonic vehicles are not exactly new since the Blackbird SR-71 flew in the 1950s. However, the technology has progressed enough that companies like Boeing and SpaceX are investing in bringing extremely quick transportation to commercial reality



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December 27 2019

Commentary by Eoin Treacy

December 27 2019

Commentary by Eoin Treacy

Foreign Exchange Outlook for First Quarter 2020

 Thanks to subscriber for this report from Brown Brothers Harriman which may be of interest. Here is a section on the Dollar:

Eoin Treacy's view -

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

Currencies are always a relative value argument so it is not so much about whether one currency is strong or weak but rather which is more attractive compared to the rest. There is no single fundamental that governs the foreign exchange market which leaves a great deal of room for argument about how persistent trends are likely to be. However, I think there have been three clear points in favour of the US Dollar over the last couple of years which are now worth re-examining.



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December 27 2019

Commentary by Eoin Treacy

Wheat Could Be Surprise Winner of the U.S.-China Trade Deal -

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

“The potential that China could secure an additional 5 to 6 million tons of world wheat annually is underpinning Chicago Board of Trade wheat,” Chicago-based consultant AgResource Co. said in a report Thursday.

Wheat traders expect China will soon release the quota, according to AgResource, and prices are already reacting. On Friday, futures for March delivery rose as much as 2.2% to $5.61 a bushel in Chicago, the highest for a most-active contract since August 2018. Futures traded in Paris reached the highest since June.

If Chinese purchases were to reach the quota mark of 9.6-million metric tons, that would represent a big jump in demand. In the six years through 2017, buying has averaged less than 50% of the allotment.

Eoin Treacy's view -

The partial agreement reached between the USA and China removes some uncertainty but holds out the prospect China will be a greater importer of commodities over coming years. That is helping to increase speculative interest in the commodity sector generally and not least because prices are quite low relative to their bull market peaks.



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December 27 2019

Commentary by Eoin Treacy

Japan's Topix Advances, Set for Best Quarterly Gain Since 2016

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

Japan’s Topix index advanced, set for its best quarterly gain since 2016, after the latest economic data out of the U.S. indicated the labor market is solid.

Banks contributed most to the benchmark measure’s Friday gains. The Nikkei 225 Stock Average slipped 0.4% to 23,837.72, as 30 of its components traded without rights to receive the next dividend, including Canon Inc. and Japan Tobacco Inc. Next Monday will be the last trading day of the year.

The Topix extended its gain for the quarter to 9.2%, the biggest such increase in three years. Japanese equities have rallied since September, bolstered by signs of easing tensions between the U.S. and China.

U.S. jobless claims fell to a three-week low of 222,000 in the week ended Dec. 21, in another sign of health in the U.S. economy. Major U.S. equity indexes climbed to fresh records Thursday in holiday-thinned trading.

Eoin Treacy's view -

The Yen tends to strengthen when investors are worried and seeking a safe haven. With worries about trade and geopolitics easing, demand for the Yen is moderating and that is helping to stoke demand for equities.



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December 24 2019

Commentary by Eoin Treacy

December 24 2019

Commentary by Eoin Treacy

Video commentary for December 24th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: gold firming against most currencies, Treasuries testing support in the region of the trend mean, short-term overbought conditions evident on stock markets, Europe breaking out, potential for a global reflation trade in 2020. 



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December 24 2019

Commentary by Eoin Treacy

Election Cycle Still Intact

Thanks to a subscriber for this note by Kevin Muir for his MacroTourist blog. Here is a section:

Before we examine the fourth year, remember back to the stat from the third year; since WWII there had never been a down year.  The fourth year is also tilted to the positive, but not quite as unblemished.  Bush vs. Gore at the turn of the century saw a 9.1% loss.  And then 2008 witnessed a blistering 37% decline with the Great Financial Crisis.

Yet what's interesting about both dates is that they coincided with the end of a protracted bull market.  Will 2020 prove the same?  It certainly feels like that might be a possibility.  But I warn that before those two declines, there had also not been a post-WWII fourth year of the Presidential cycle that had fallen either.  From 1948 to 2000, the returns were all to the green side of the ledger.

Perhaps both declines (2000 and 2008) were the result of a Federal Reserve bent on slowing down the economy. With Powell & Co. increasingly looking willing to let the economy run hot, the fiscal pumping from a President (and party) wanting to get re-elected might keep a bid to risk assets.

Eoin Treacy's view -

The priming of the economic pump and the Fed’s complicity in keeping monetary policy on the easy side during the last 12 months of the Presidential election cycle has been a factor in the US markets for almost a century. It also serves as evidence that Modern Monetary Theory is not all that modern. Where it differs from history is in scale rather than substance.



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December 24 2019

Commentary by Eoin Treacy

David Hume & The PBOC: He Who Laughs Last

Thanks to a subscriber for edition of Russell Napier’s letter which may be of interest. Here is a section:

Eoin Treacy's view -

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

The control the Chinese government holds over the banking sector and the various modes of production afford it a great deal of leeway in dealing with the massive build up of debt over the last decade which has fuelled continued growth in the economy. The only way that system is sustained is by containing domestic savings within the financial system. Capital flight is the biggest threat to the status quo in China’s economy which is why the government is investing so heavily in every imaginable form of control. Nevertheless, it is next to hear impossible to stop motivated individuals from moving capital overseas.



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December 24 2019

Commentary by Eoin Treacy

Email of the day on property investment

CBS MarketWatch posted an article today advising against investing in residential property.  See attached.  This runs counter to the experience of most of us in the “Anglo-sphere” since the end of World War 2, but all good things come to an end one day. 

An end to the current boom in asset prices, because of low interest rates, seems inevitable if not imminent but, more than equities, residential property is illiquid and a long-term option which may entail more risk than most contemplate.  Does Fuller Money have a view on this matter?

Eoin Treacy's view -

Thank you for this question which is not an easy one to answer. Real Estate is an incredibly diverse asset class which, as you say, tends to be illiquid. Like any asset it is best bought following a bear market but there are also individual constraints on supply that support higher prices is certain locations.



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December 24 2019

Commentary by Eoin Treacy

December 23 2019

Commentary by Eoin Treacy

December 23 2019

Commentary by Eoin Treacy

Interesting charts December 23rd 2019

Eoin Treacy's view -

We are heading into the last week of the year. Therefore, when people come back from their break in early January, it is the trading activity that occurs this week which will have the strongest bearing on their perception of where value is to be found in the first quarter of 2020.

It is quite normal for trends that begin in the last week of the year to persist into the first quarter so I thought it would be useful to simply highlight the markets exhibiting a new condition of relative strength or weakness right now.

The DJ Euro STOXX 50 found support in the region of the upper side of a six-month range at the beginning of December and continues to push up towards its 2015 peak.



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December 23 2019

Commentary by Eoin Treacy

China Denies Report of Forced Labor Over Tesco Christmas Cards

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

Such notes have been discovered in products sold by brands like Walmart Inc. and Saks Inc. in the past decade as western companies’ reliance on Chinese production has meant exposure to chains of sub-contractors that reportedly make use of prison labor. Low-cost sourcing in China has been a double-edged sword for companies caught up in questions over the provenance of the goods they sell.

Eoin Treacy's view -

Prison labour is widespread in China but it would seem to be a major lapse in judgement to use prisoners in a facility warehousing English speaking journalists who could narrate messages to inmates.



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December 23 2019

Commentary by Eoin Treacy

Saut Strategy Soooooooooooooooooo?!

Thanks to a subscriber for this report from Jeffrey Saut 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.

It’s all about the consumer. If the consumer is working, they are spending and that helps to keep the economy chugging along. Therefore, unemployment rates remaining well contained are one of the primary factors in ensuring growth remains on an upward slope.  



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December 20 2019

Commentary by Eoin Treacy

December 20 2019

Commentary by Eoin Treacy

Longtime China Watchers Predict What's Next for Slowing Economy

This article by Enda Curran and April Ma for Bloomberg may b of interest to subscribers. Here is a section:

Michael Pettis, a finance professor at Peking University and former Bear Stearns Cos. banker

My best call was probably to insist, even in 2015-16 when the market strongly expected otherwise, that as quickly as debt was rising, China was unlikely to experience a financial crisis and a sharp depreciation of the currency. I think the market didn’t understand that these are mainly balance sheet events, and as long as China’s financial system was closed and its regulators powerful, Beijing could easily extend and restructure liabilities so as to prevent a crisis.

My worst call was to propose that Beijing would recognize the extent of investment misallocation and the inexorable rise in debt by 2015-16, and would begin to lower the GDP growth target rapidly after that. I did not recognize how politically difficult this would prove, and that it couldn’t happen until Xi Jinping and the people around him had done a lot more to consolidate political power.

Every historical precedent -- and the logic of the growth dynamics -- suggests it will be another Japan. GDP growth rates will drop consistently every year until China is growing at below 3%, and the longer it takes to get there, the more debt it will have to work off and the greater the macroeconomic financial distress costs it will have to absorb.

Eoin Treacy's view -

China trades on very low multiples for many of the same reasons Russia does. It’s about governance. There is no mystery to how China has been able to maintain a high growth rate over the last decade despite increasing authoritarianism and tighter government control. The answer is debt.



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December 20 2019

Commentary by Eoin Treacy

Boeing Capsule Misses Space Station Rendezvous as Crisis Deepens

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

 

The mishap jeopardizes U.S. plans for human flights as soon as next year by Boeing, which was hired to ferry astronauts to the ISS as part of NASA‘s commercial crew program along with Elon Musk’s Space Exploration Technologies Corp. Boeing’s failure also deepens the sense of crisis around the aerospace giant as it tries to persuade regulators to end a flying ban on its 737 Max after two deadly crashes.

Boeing fell 1% to $330.04 at 10:40 a.m. in New York. The stock rose 3.4% this year through Thursday while the S&P 500 advanced 28%. NASA and Boeing officials said they were still trying to understand the cause of the timer failure. It’s too soon to assess the impact on subsequent Boeing space flights, they said. About 50 minutes after liftoff, the Starliner was out of position to begin its orbital insertion burn, the last boost into an orbit so the vehicle could dock at the space station. Had astronauts been on board, they might have been able to correct the problem, Bridenstine said.

Eoin Treacy's view -

Planes falling out of the sky and a space craft missing its rendezvous is not exactly confidence inspiring. Boeing is a major defense contractor so it is not going out of business but the catalogue of errors keeps growing and it is only a matter of time before activists starting calling for scalps.



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December 20 2019

Commentary by Eoin Treacy

December 19 2019

Commentary by Eoin Treacy

Video commentary for December 19th 2019

December 19 2019

Commentary by Eoin Treacy

A Major Shipping Change Is Coming, and So Are Higher Fuel Prices

This article by Firat Kayakiran, Jack Wittels, and Rachel Graham for Bloomberg may be of interest to subscribers. Here is a section:

It’s important to remember that oil refineries and shipping companies spent billions getting ready.

Some shipowners installed scrubbers, units that can cost several million dollars each and allow carriers to remove sulfur from fuel as it’s burnt. This enables them to keep using today’s cheaper product. Likewise, refineries have invested in technology to convert sulfur-rich crude into higher-quality fuels.

For compliant companies, cheating by others is a problem. Yet there could be non-compliance, at least initially. Industry estimates are that something like 10%-15% of the fleet won’t comply with the rules at the start.

Not every country in the world signed up to the regulations, including some large coastal states with significant refining capacity. Even among those that did, not all look likely to start with strict enforcement. There’s also a disparity between what penalties will be imposed from one nation to the next.

South Africa, which sits on a shipping lane connecting eastern and western hemispheres, doesn’t yet have the domestic laws in place to punish non-compliant vessels. The United Arab Emirates, a vital refueling hub in the Middle East, has pledged to avoid draconian enforcement.

Eoin Treacy's view -

The risk of noncompliance, the difficulty in enforcement, the expense of retrofitting aging vessels and supplying new distillates suggest there is clear potential for the IMO2020 rules to represent a period of volatility over the coming months. It is going to take time for the new system to bed down and for companies to see the reality of the sector following the change.



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December 19 2019

Commentary by Eoin Treacy

2020 Outlook The Cloud Has Four Walls

Thanks to a subscriber for this report from Credit Suisse 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. 

While the semiconductors sector has been a major outperformer over the last 18 months, the performance of the network infrastructure companies has lagged. There is some tentative evidence that decline is ending following the announcement of the trade war hiatus but it is still early days.



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December 19 2019

Commentary by Eoin Treacy

Fertilizer Rebound Depends on Break From Crummy U.S. Weather

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

“We’re going to get demand improvement,” Jonas Oxgaard, an analyst at Sanford C. Bernstein in New York, said in a phone interview. “If the only thing we’re seeing is normalization, so we go back to the trend line, that’s still a pretty good outcome.”

Fertilizer prices may ease in 2020 as new global sources of supply emerge. EuroChem Group AG and OCP Group are expected to boost potash output, and 4 million metric tons of urea capacity are forecast to come online, Maxwell of Green Markets said.

Prices dropped in 2019 in tandem with lower costs for natural gas and Chinese coal, benefiting producers including CF Industries Holdings Inc. and Sinochem.

Eoin Treacy's view -

There might have been three poor planting seasons in the US Midwest but that has not done much to support a rally in grain and bean prices. There is plenty of supply from other sources and that has helped to keep prices down. The additional impact of swine flu, cutting out demand for grains, has been an additional factor in containing price momentum.



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December 18 2019

Commentary by Eoin Treacy

Video commentary for December 18th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Gilt overvaluation and likelihood for an additional sell off in government bonds as the global economy recovers. discussion of rotation potential heading into the last couple of weeks of the year. gold steady 



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December 18 2019

Commentary by Eoin Treacy

Can I Interest You in a 100-Year Boris Bond?

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

The U.K. has the luxury of a deep investor base that hoovers up long-dated, fixed-income assets to make sure it can meet its future pension and insurance liabilities. So much so that the yield on 50-year Gilts is lower than that of their 30-year counterparts, meaning there’s a so-called inversion at the long end of the U.K. yield curve:

The average duration of British government debt is much longer than that of its main counterparts; it’s about 14 years, compared to nearly nine years for German bunds and less than seven years for U.S. Treasuries. There is evidently investor demand in the U.K. for longer stuff, but it requires a genuine commitment from the government to stay the course and not leave any ultra-long issue stranded at the end of the yield curve.

Doing a 100-year deal in concert with more 30- to 50-year issuance would make sure there was plenty of interest at various maturities at the long end of Gilts. A century bond could rapidly build scale into the tens of billions of pounds with quarterly auctions, perhaps with a coupon of about 1.5% (by comparison, Austria’s 100-year issue went for 1.17% back in June). This would be a super-cheap way to really commit to some of the biggest infrastructure projects, such as connecting rail links properly in the north of England.

Eoin Treacy's view -

Borrowing vast sums at record low rates makes sense if the proceeds are invested in growth promoting endeavours like education, critical infrastructure and primary research. If invested in glamour projects and growth hindering strategies like high cost energy or military hardware then the benefits which accrue will be less impressive. One way or another, fiscal austerity is over and that means the government will have a growing and ongoing funding requirement.



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December 18 2019

Commentary by Eoin Treacy

FedEx Slides on Profit Outlook, Pressuring Dow Transports

This note by Nancy Moran and Thomas Black for Bloomberg may be of interest to subscribers.

FedEx Corp. erased its gains for the year after cutting its profit forecast for the second straight quarter as e-commerce puts a squeeze on margins. The stock also weighed on the Dow Jones Transportation Average, where it held the third-biggest weighting prior to Wednesday. FedEx was already reeling this week after Amazon.com Inc. stoked competitive tensions by banning third-party sellers from using the courier’s services, citing poor service.

 

Eoin Treacy's view -

Fedex is being squeezed between the preferred status of UPS as an Amazon shipper but also by Amazon performing its own deliveries via its own network of shippers. The clear divergence between Fedex and UPS highlights the fact there are some clear winners and losers in the evolving ecommerce shipping landscape.



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December 18 2019

Commentary by Eoin Treacy

S&P500 Price to Book Value vs. Future Returns

I thought this graphic from Jeroen Blokland’s Twitter account was particularly interesting. 

Eoin Treacy's view -

There has been a great deal of discussion about the expected returns from stock markets over the last couple of years. The extraordinary monetary policy and increasing prevalence of deficit spending has raised valuations and compressed interest rates with the result traditional metrics for expected returns have been falling steadily for a decade.



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December 17 2019

Commentary by Eoin Treacy

Video commentary for December 17th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: bitcoin and altcoins breaking downwards, stock markets steady to rising, Pound enters consolidation, Treasuries at potential area of support, gold steady, palladium briefly hits $2000. China firming. 



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December 17 2019

Commentary by Eoin Treacy

Johnson's Brexit Is More Slow Deal Than No

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

And there’s unlikely to be any certainty until well into 2020. Neither the EU nor the U.K. have set out clear negotiating objectives nor agreed the sequencing of the talks. A shortened time-frame means plenty of thorny issues — from services to data — probably won’t be tackled. Nor is it clear that negotiators in Brussels will work in quite the same way as during the withdrawal talks. Michel Barnier is still running the discussions, but this is a new European Commission with major reforms and budget talks of its own to worry about. And trade talks offer more opportunity for differences to emerge between EU member states.

There are two slim silver linings. First, the worst-case scenario isn’t the economically cataclysmic “No Deal” we worried about for much of 2019. The terms of the divorce are already agreed, EU citizens rights secured and the Irish border question resolved (in a fashion). There have been plenty of preparations by governments and business for extra customs and regulatory checks.

What is more likely is what one might call a “low-deal Brexit” — or even a “slow-deal Brexit” since the first trade deal may agree a few basic areas and leave the door open to forging closer ties on others later. 

The second reason not to panic is that Brexit deadlines tend to be delayed. Whatever blocks against extending the transition are passed in Parliament, nobody really thinks that the EU and U.K. governments, if they chose, couldn’t find a way to give themselves more time. It’s been done before.

Eoin Treacy's view -

There are many reasons for sticking to the objective of a December 2020 timeline but perhaps the most significant is politicians work best when up against a clock. The USA’s negotiations with China and the conclusion of a first phase deal with lengthier discussions to follow offers a potential template for what a UK trade deal with the EU may look like.



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December 17 2019

Commentary by Eoin Treacy

Chinese Crypto Scam Unwind Suggests Bitcoin Risks Extending Drop

This article by Olga Kharif and Zheping Huang for Bloomberg may be of interest to subscribers. Here is a section: 

Chainalysis estimates that PlusToken conspirators have sold about 25,000 Bitcoins and another 20,000 Bitcoins are spread out across more than 8,700 anonymous crypto addresses. Additional coins such as Ether were also used to bilk investors.

“That’s certainly something to consider when you are thinking about where the price is going, at least in the short term,” Kim Grauer, senior economist at Chainalysis said in a phone interview. “It could be, according to our research, continued downward pressure.”
 

Eoin Treacy's view -

Bitcoin and the other cryptocurrencies do best when there is a clear supply inelasticity argument. The liquidation of the Mt. Gox bankruptcy hoard was a significant contributing factor in the decline posted in 2018 and the unwinding of the PlusToken stash may be a factor in the current downtrend.



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December 17 2019

Commentary by Eoin Treacy

Gundlach Sees Bad News for Treasury Bulls in This Metals Ratio

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

Rallying copper tends to indicate demand for home-building and other industrial inputs -- all signs of a reasonably strong economy, a message reinforced by range-bound gold prices, according to the billionaire bond manager. The gauge has worked “phenomenally well” as a short-term predictor of where Treasury yields are headed, Gundlach said.

“It’s one of the best indicators for near-term movement -- for the next month or next couple of months -- for 10-year Treasury yields,” Gundlach said in a phone interview. “It’s remarkable how well it’s worked and as time goes by, I feel more and more inclined to follow it and act on it.”

He said in September that markets had likely seen the low of the year in yields after the 10-year rate plunged to 1.43% that month, the lowest since 2016. So far that’s panned out.

Bond strategists largely see the 10-year Treasury yield struggling to breach 2% in 2020. On the bullish side, Citigroup Inc. predicts the rate will hit a record low of 1.25% next year, and Societe Generale predicts 1.2%.

Eoin Treacy's view -

At the American Association of Technical Analysts conference last March, when I opined 10-year yields were going all the way back down to 1.5% there was a lot of push back from delegates that a rally of that magnitude was even possible let along probable. By the time the rally peaked $17 trillion in bonds had negative yields. Today that figure is closer to $11.7 trillion and the trend points towards further contraction.



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December 16 2019

Commentary by Eoin Treacy

Video commentary for December 16th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: UK continues to extend its post election and trade war hiatus rebound, Europe following suit, Wall Street firm, commodities rebound, gold steady, bonds weak, China steady, Thailand trending downwards. 



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December 16 2019

Commentary by Eoin Treacy

Is it time for the catch-up play?

Eoin Treacy's view -

Valuations on Wall Street have been a topic of conversation for at least the last couple of years and not least because of the elevated cyclically adjusted P/E figures value investors have been decrying. In spite of that trepidation the market has continued to trend higher and has outperformed just about all other developed markets.



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December 16 2019

Commentary by Eoin Treacy

Gold M&A Spree Is All About Companies With One Big Deposit

This article by Elena Mazneva and Thomas Biesheuvel for Bloomberg may be of interest to subscribers. Here is a section:

“If there were no issues with these mines they probably would have been taken out a long time ago, or even before they came into production,” said James Bell, an analyst at RBC Capital Markets. “It gives the mid-tier miners an opportunity to get hold of large assets.”

There has been constant talk about more deals in the past year after Newmont Mining Corp.’s $10 billion acquisition of Goldcorp Inc. and Barrick Gold Corp.’s $5.4 billion takeover of Randgold Resources Ltd.

Takeover targets being mentioned include Pretium Resources Inc. and TMAC Resources Inc., which mine in Canada, said Peter Grosskopf, chief executive officer of money manager Sprott Inc. Torex Gold Resources Inc., which operates in Mexico, has also been touted as a potential target, he said.

Eoin Treacy's view -

Gold miners are still shy about spending money on speculative greenfield projects and perhaps more importantly banks are not exactly enthused at the prospect of funding commodity speculation after their experience of the last few years. That means acquisitions are the only way right now to boost supply meaningfully for individual miners and the reasonable valuations still present in the sector lends some urgency to decisions.



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December 16 2019

Commentary by Eoin Treacy

Rare Royal Thai Ceremony Caps Year When King Flexed His Power

This article by Siraphob Thanthong-Knight for Bloomberg may be of interest to subscribers. Here is a section:

Thailand continues to face political divisions that in the past led to sometimes bloody demonstrations followed by military coups. Future Forward, the most high-profile opposition party, last week warned protests could erupt again if a slew of legal cases lead to its dissolution by judges.

The reform-minded party is part of an opposition bloc that controls almost half the lower house of parliament, and which has questioned the fairness of the March election and its outcome following five years under a junta.

A pro-military coalition led by former junta chief Prayuth Chan-Ocha took office after the poll with a slim majority. It subsequently faced a complaint of illegitimacy for failing to utter the whole oath of office in a swearing in ceremony in front of Vajiralongkorn.

Eoin Treacy's view -

The more strident participation of the monarchy in Thai political life is certainly a change and suggests potential for a tripartite struggle for power between the military, opposition and king.



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December 13 2019

Commentary by Eoin Treacy

December 13 2019

Commentary by Eoin Treacy

U.K. Assets Unleashed as Tory Landslide Sweeps Through Markets

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

“To me this signals that the worst of Europe’s malaise is behind us,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management in Philadelphia. “The results take away a key risk in markets, and while there are still issues with U.S.-China trade, this U.K. election is one of the big ones. Long sterling is our biggest currency position outright.”

Investors always favored the prospect of a market-friendly Conservative government that can push through a Brexit accord, with Johnson promising all of his lawmakers will back the exit deal he struck with the European Union in October. Traders were also deeply skeptical of Labour leader Jeremy Corbyn’s plans to overhaul the economy through increased taxation, spending and nationalization of key industries. Corbyn said he will stand down as leader of the opposition after a debate over the party’s future.

Eoin Treacy's view -

Boris Johnson understood better than any other politician that you cannot go into a negotiation willing to accept the first offer. We do not accept the first price when we go to buy a car and the same skill set applies to trade negotiations. He is best placed to deliver on the UK population’s democratic wish for greater autonomy and self-determination. With an impressive majority he is now under pressure to perform.



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December 13 2019

Commentary by Eoin Treacy

Email of the day on UK base formations

thank you for mentioning up royal mail earlier this week. thanks to you I did buy this share, and so far, it did exceptionally well. once again for such a good service you are providing to your subscribers. 

Eoin Treacy's view -

Thank you for your kind words and congratulations on your successful trading. The UK is one of the few markets, globally, paying “respectable” dividends. That is a testament to just how much downward pressure there has been on valuations over the last three years.



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December 13 2019

Commentary by Eoin Treacy

Trump Approves U.S.-China Trade Deal to Halt Dec. 15 Tariffs

This article by Jenny Leonard, Jennifer Jacobs, Shawn Donnan and Saleha Mohsin for Bloomberg may be of interest to subscribers. Here is a section: 

In addition to a significant increase in Chinese agricultural purchases in exchange for tariff relief, officials have also said a phase-one pact would include Chinese commitments to do more to stop intellectual-property theft and an agreement by both sides not to manipulate their currencies.

Put off for later discussions are knotty issues such as longstanding U.S. complaints over the vast web of subsidies ranging from cheap electricity to low-cost loans that China has used to build its industrial might.

The new duties, which were scheduled to take effect at 12:01 a.m. Washington time on Sunday unless the administration says otherwise, would hit consumer goods from China including smartphones and toys.

Even amid the positive signs on trade, Chinese foreign minister Wang Yi highlighted the other confrontations between the two sides. On Friday in Beijing, Wang said that U.S. actions had “severely damaged the hard-earned basis for mutual trust” and left the relationship in their “most complex” state since the two sides established ties four decades ago.

Eoin Treacy's view -

China has been the primary target of the USA’s tariff regime and its economy has suffered as a result. The European exporters that rely on Chinese demand to fuel growth have also been deeply impacted by the tariffs and the removal of this as a concern represents a significant improvement in prospects.



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December 13 2019

Commentary by Eoin Treacy

Gold Fails to Crumble as Trade Deal Hit Meets Dollar's Decline

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

Gold’s heading for an annual advance, with its fortunes in 2019 shaped both by more accommodative monetary policy from central banks globally as well as the ebb and flow of the trade war. The removal of tariff uncertainty will return investors’ focus to signs the global economy is improving as a strong year
for risk assets heads toward a close.

Following a 0.3% loss on Thursday, bullion for immediate delivery initially fell as much as 0.5%, but was just 0.1% lower at $1,467.80 an ounce at 5:46 a.m. in London. A Bloomberg gauge of the U.S. currency was 0.4% lower, heading for the biggest weekly drop since October, as the pound rose.

In the U.K., Johnson’s win puts the country on track to leave the European Union next month. With counting complete in most districts, the Conservatives passed the threshold of 326 seats to give them a majority.

That development also contained conflicting elements for gold because while a clear majority for the Conservatives would be positive for the country’s economy, the potential for a no-deal Brexit has now increased, which could buoy the haven, according to McCarthy. “We’re locked in a bit of a vice,” he added.

Eoin Treacy's view -

Any way we look at the alternatives central banks are providing liquidity and governments are engaged in deficit spending. The supply of month is trending higher and that is positive for a bedrock asset like gold whose supply is much more difficult to increase. 



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December 13 2019

Commentary by Eoin Treacy

December 12 2019

Commentary by Eoin Treacy

Video Commentary for December 12th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: trade war potentially close to at least a partial conclusion, Wall Street breaks out led by banks and semiconductors, German wages acceleratng well ahead of growth and interest rates, Dollar testing support against a host of currencies, bonds weak across the board, Pound off its intraday lows in advance of the election result. 



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December 12 2019

Commentary by Eoin Treacy

U.S. Reaches In-Principle China Deal, Awaits Trump Signoff

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

U.S. negotiators have reached the terms of a phase-one trade deal with China that now awaits President Donald Trump’s approval, according to people briefed on the plans.

Trade advisers were set to meet with the president at 2:30 p.m. to discuss the agreement. An announcement could come by day’s end, the people said. A White House spokesperson declined to comment.

The terms have been agreed but the legal text has not yet been finalized, according to the people. The administration has reached out to allies on Capitol Hill and in the business community to issue statements of support once the announcement is made, they said.

U.S. stocks rose and Treasury yields spiked on the news. Earlier Thursday, Trump tweeted that the U.S. and China are “VERY close” to signing a “BIG” trade deal, also sending equities higher.

“They want it, and so do we!” he tweeted five minutes after equity markets opened in New York, sending stocks to new records.

Eoin Treacy's view -

Nothing seems to animate traders more than trade related tweets at present. Every negative sentiment is greeted with a couple of percent sell-off and every positive utterance is greeted with a bounce. The broad picture is the Chinese economy is slowing and the administration has been priming the populace for harder times ahead. Meanwhile the US economy is strong, but business confidence is weak. The Chinese and US businesses have a clear interest in a deal that removes barriers to trade but the Trump administration also wants to get to 2020 election without a recession. That puts the odds of a deal closer to fruition that any other argument.



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December 12 2019

Commentary by Eoin Treacy

China to Unveil Plan to Make Macau Finance Hub, Reuters Says

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

The policies include establishing a yuan-denominated stock exchange, accelerating a yuan settlement center which is currently being developed and allocating land for Macau, Reuters said, citing unidentified government officials and company executives. The measures were intended to mark the 20th anniversary of the former Portuguese colony’s return to Chinese rule, an event that will bring Xi to Macau, the report said.

The bourse would focus on bond trading first to encourage local and mainland companies to issue debt in the city, Reuters said. The exchange would also focus on startups and target companies from Portuguese-speaking countries to avoid direct competition with Hong Kong or Shenzhen, it reported, citing six Macau executives and Chinese officials.

Xi will also announce Macau’s decision to join the Beijing-based Asian Infrastructure Investment Bank. Future priorities will include tourism and finance, and for Macau to be used as venue to host international meetings like Singapore, an official told Reuters.

Eoin Treacy's view -

This is a none too subtle signal to Hong Kong that unless it gets its act together there is clear intention to excise the city from the broader plan to create a unified coastal economy which is to include Macau, Shenzhen and Guangzhou. The problem is that today some effort to offset reliance on Hong Kong’s dominance of the financial services sector is largely inevitable regardless of what happens because evidence of disruption is already in existence.



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December 12 2019

Commentary by Eoin Treacy

SNB's Jordan Defends Negative Rate Policy as Criticism Mounts

This article by Catherine Bosley and Jan Dahinten for Bloomberg may be of interest to subscribers. Here is a section:

Lenders in Switzerland and elsewhere say margins are under pressure. The Swiss Bankers Association has argued negative rates are no longer necessary, and a survey by UBS Group AG found that even export-oriented firms believed the policy was doing more harm than good.

Jordan spoke after the SNB left interest rates unchanged and reiterated its threat to intervene in currency markets if needed. He acknowledged the “challenges” of its subzero policy, but offered no sign he’s about to change tack anytime soon.

“We monitor the impact of negative interest precisely, and we take the side effects seriously. However, we remain convinced that the benefits it brings Switzerland as a whole clearly outweigh the costs. The negative interest rate and the willingness to intervene are currently the best instruments.”

The SNB’s latest forecasts bear out his concerns. Similar to their peers, Swiss policy makers have struggled to stoke price pressures, though their situation is complicated by the currency. They’ve long described the franc as “highly valued,” a key phrase they repeated on Thursday.

Eoin Treacy's view -

Negative interest rates are something Switzerland experimented with during the gold bull market of the 1970s as a measure to try and keep the value of the currency under control. Today they are doing the same thing but instead of the Franc being backed by gold it is supported by the cashflows of some of the world’s largest companies.



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December 11 2019

Commentary by Eoin Treacy

Video commentary for December 11th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar susceptible to additional weakness, Precious metals firm, coffee accelerating, sugar steady, Australian Dollar steady, New Zealand Dollar firm, Swedish Krona breaking out, UK trading at valuation discount with potential for outperformance on favourable election result.  



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December 11 2019

Commentary by Eoin Treacy

Value Stocks Are in Position to Swamp Growth: Markets Live 2020

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

* If you’re upbeat about value companies, which are cyclical in nature, then you’re probably optimistic about the global economy. The good news is central bankers are doing everything they can to help the economy get back on track

* Fidelity’s sector strategist Denise Chisholm favors cyclical stocks now that the Fed and ECB are cutting rates at the same time. “That has happened only about 10% of the time since the ECB’s inception in 1998, and when it has, the U.S. market has surged in the subsequent 12 months. Cyclical stocks have fared especially well under these conditions, outperforming the market 71% of the time.”

* Even a limited resolution to the U.S.-China trade conflict should help a global economic revival by reducing uncertainty. That should release animal spirits by boosting new orders for
machinery, industrial supplies and energy. All that would make the case for value stronger than it’s been in years

Eoin Treacy's view -

Sometimes there is a difference between cheap stocks and value stocks. For over a decade a torrent of liquidity hitting the market has rewarded risk taking and favoured growth at any cost. By comparison the slow and steady business models pursued by many classic value companies has appeared staid. The additional complication of technological obsolescence has resulted in companies with low P/Es and high dividends languishing because investors fear for their survival.



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December 11 2019

Commentary by Eoin Treacy

Chevron, Facing Fossil Fuels Glut, Takes $10 Billion Charge

This article by Christopher M. Matthews and Rebecca Elliott for the Wall Street Journal may be of interest to subscribers. Here is a section:

“We have to make the tough choices to high-grade our portfolio and invest in the highest-return projects in the world we see ahead of us, and that’s a different world than the one that lies behind us,” Mr. Wirth said.

Chevron’s shares closed up less than a percentage point at $117.90 prior to the announcement Tuesday. Reaction to the news was muted in after-hours trading.

The sobering reappraisal by Chevron, one of the world’s largest and best-performing oil companies, is likely to ripple through the oil-and-gas industry, forcing others to publicly reassess the value of their holdings in the face of a global supply glut and growing investor concerns about the long-term future of fossil fuels. Particular pressure is falling on shale producers, especially those focused on natural gas in places like Pennsylvania, which are struggling with historically low U.S. prices caused by oversupply.

Chevron’s move follows a $5 billion write-down by Spain’s Repsol SA earlier this month and an impairment of $2.6 billion by the U.K.’s BP PLC in October. Industry executives and analysts anticipate that many more oil-and-gas companies will soon write down billions in value to comply with accounting standards because low commodity prices have undermined the economics of many projects.

Eoin Treacy's view -

In last night’s audio I was searching for the term high grading when discussing the performance of mining companies but it of course also extends to any commodity market where prices have declined to such an extent that many sources of supply become uneconomic.



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December 11 2019

Commentary by Eoin Treacy

Does corporate America have a debt problem?

Thanks to a subscriber for this report by Dan Heron, Ryan Primmer for UBS Asset Management 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. 

Corporations have jumped at the once in a generation opportunity to borrow at record low levels in record amounts. That has understandably increased leverage ratios. Equity is generally more expensive that fixed income as a source of capital, so buybacks have been a logical financial engineering solution to reduce the average cost of capital.



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December 10 2019

Commentary by Eoin Treacy

Video commentary for December 10th 2019

December 10 2019

Commentary by Eoin Treacy

Email of the day on what's next for UK markets:

UK markets may rise after the election if the Corbyn treat goes away. But wouldn't there be significant differences between indices and companies?

If the pound rises it hurts profits earned overseas (when converted back into GBP), so the FTSE100 index and many of its companies may do less well than domestically focused companies. The FTSE 250 could out-perform. What's your view?

Eoin Treacy's view -

The Pound peaked well ahead of the Brexit referendum but it collapsed once the result was known. Ahead of the plebiscite $1.50 was an area of support, since 2016 it has represented resistance. The rate versus the Dollar at present is firming from the $1.30 area and has broken its almost two-year downtrend.



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December 10 2019

Commentary by Eoin Treacy

Ramaphosa Cuts Short Trip as Power Crisis Grips South Africa

This article by Paul Vecchiatto and Liezel Hill for Bloomberg may be of interest to subscribers. Here is a section:

South African President Cyril Ramaphosa cut short a trip abroad to deal with an escalating crisis at the state power company, which imposed a sixth day of blackouts that threaten to tip the economy into recession.

The rand declined the most in a month Tuesday as Eskom Holdings SOC Ltd. said there’s a high likelihood of power cuts all week and mining companies including Sibanye Gold Ltd., the world’s biggest platinum producer, temporarily halted operations. Vodacom Group Ltd., the nation’s biggest mobile operator, said the outages are disrupting its service.

Eoin Treacy's view -

The Eskom debacle is the result of graft running rampant following the end of apartheid and this is not the first time powercuts have been an issue in South Africa. The massive run-up in the price of platinum in 2007/08 was in no small part as a result of power being cut off to mines. When power was reinstated the price came back down.



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December 10 2019

Commentary by Eoin Treacy

The Great Moscow Bank Shakedown

This is an interesting article by Anna Baraulina, Evgenia Pismennaya and Irina Reznik for Bloomberg. Here is a section:

Cherkalin’s case highlights the economic footprint of the security apparatus forged during Vladimir Putin’s 20 years in power. While it doesn’t show up in official statistics or reports, the reach of the FSB and other law enforcement agencies extends across the business landscape, distorting markets and sapping investment. The vast sums of money at stake go a long way toward explaining why Putin hasn’t followed through on years of pledges to rein in the appetites of his powerful security underlings. “They’ve become one of the key elements of the economy,” says Oleg Vyugin, a former senior official at the Bank of Russia and the Ministry of Finance. “Unfortunately, they’re an element that’s an obstacle to its normal development.”

For years the banking sector was a gold mine for the security services, combining huge, often-illicit flows of cash with plenty of leeway for officials to either turn the screws or look the other way. The numbers are big even by oil-rich Russian standards. Regulators—including the central bank—say managers stole some 7 trillion rubles ($110 billion) in assets from their banks in the past decade, and the central bank has spent more than 5 trillion rubles on bailouts or to pay off depositors at those that didn’t survive, according to Fitch Ratings. Bankers fleeing the country as their institutions failed have become such a problem that Bank of Russia Governor Elvira Nabiullina asked Putin for the power to stop them at the border. He hasn’t granted it.
 

Eoin Treacy's view -

This is a well written, engaging informative piece providing facts and figures relating to the corruption of Russia’s regulatory infrastructure by the security forces. It provides a testament to how low standards of governance in Russia are and how important it is for companies to be on the winning side of an internal divisions that arise.



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December 10 2019

Commentary by Eoin Treacy

Eoin's personal portfolio: precious metals long initiated

Eoin Treacy's view -

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



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December 09 2019

Commentary by Eoin Treacy

December 09 2019

Commentary by Eoin Treacy

September stress in dollar repo markets: passing or structural?

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

This box focuses on the distribution of liquid assets in the US banking system and how it became an underlying structural factor that could have amplified the repo rate reaction. US repo markets currently rely heavily on four banks as marginal lenders. As the composition of their liquid assets became more skewed towards US Treasuries, their ability to supply funding at short notice in repo markets was diminished. At the same time, increased demand for funding from leveraged financial institutions (eg hedge funds) via Treasury repos appears to have compounded the strains of the temporary factors. Finally, the stress may have been amplified in part by hysteresis effects brought about by a long period of abundant reserves, owing to the Federal Reserve's large-scale asset purchases.

And

Since 17 September, the Federal Reserve has taken various measures to supply more reserves and alleviate repo market pressures. These operations were expanded in scope to term repos (of two to six weeks) and increased in size and time horizon (at least through January 2020). [icon]  The Federal Reserve further announced on 11 October the purchase of Treasury bills at an initial pace of $60 billion per month to offset the increase in non-reserve liabilities (eg the TGA). These ongoing operations have calmed markets.

Eoin Treacy's view -

It is easy to point the finger for the surge in repo rates last September at the feet of the big US four banks. However, that would be to ignore the fact banks have been forced, through the imposition of greater financial regulations, to hold more treasuries as insurance against another calamity. The low participation in the repo market by its traditional market markets created a dearth of liquidity. The US Treasury’s desire to increase its cash holdings, following the increase in Federal debt limit, was probably the catalyst for the subsequent squeeze.



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December 09 2019

Commentary by Eoin Treacy

Imagine 2030

Thanks to a subscriber for this report from Deutsch Bank’s Konzept team which may be of interest. Here is a section on India:

Eoin Treacy's view -

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

The easiest prediction to make is that by 2030 ten years will have passed. The 600 million people under the age of 25 now living in India will be ten years older and hundreds of millions of them will be in their prime productive years. The only country that has had a demographic boom of that scale is China. India’s population is larger and its standards of governance defined by minority shareholder interests, an independent judiciary and free press are more attractive to a long-term investor.



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December 09 2019

Commentary by Eoin Treacy

What Jobs Are Affected by AI?

This report from Brookings Metropolitan Policy Program may be of interest to subscribers. Here is a section:

These new statistics suggest that the spread of AI will not just amount to “more of the same,” and that the onset of AI will introduce new riddles into speculation about the future of work.

Given their difference from previous analyses purporting to discuss AI, Michael Webb’s novel procedures demonstrate that we have a lot to learn about artificial intelligence, and that these are extremely early days in our inquiries. What’s coming may not resemble what we have been experiencing or expect to experience.

Webb’s machine learning statistics suggest AI could bring new patterns of impact across the labor market—ones fundamentally different from those brought by previous technologies.

It’s clear that past automation analyses—including our own, with its amalgamation of robotics, software, and artificial intelligence—have likely obscured AI’s distinctive impact. Based on expert familiarity, previous analyses have almost certainly been dominated by the ways robotics and software have been able to take over numerous routine, highly structured, and repetitive tasks.13

These analyses have tended to suggest that automation’s main effects will be to displace work across the middle of the skill and wage spectrum (such as factory workers and office clerks) while leaving the status quo more or less intact for both high-pay and low-pay interpersonal or nonroutine work (such as chemical engineers and home health aides, respectively).

However, the more refined empirical research presented here suggests that AI’s ability to employ statistics and learning to carry out nonroutine work means that these technologies are set to affect very different parts of the WHAT JOBS ARE AFFECTED BY AI? 23 workforce than previous automation. Most strikingly, it now looks as if whole new classes of well-paid, white-collar workers (who have been less touched by earlier waves of automation) will be the ones most affected by AI.

Eoin Treacy's view -

Many better paying jobs rely less on expertise than on workplace protections. It is still mandatory to speak with an insurance agent in the USA when buying insurance. Many European countries dispensed with agents years ago. That single workplace rule which necessitates little more than a box ticking exercise with an agent, and the commissions that agent derives from the policy for every year it is active subsequently represent a massive cost to consumers.



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December 06 2019

Commentary by Eoin Treacy

December 06 2019

Commentary by Eoin Treacy

M&G Freezes Flagship Real Estate Fund as Withdrawals Mount

This article by Lucca de Paoli, Jack Sidders and Nishant Kumar for Bloomberg may be of interest to subscribers. Here is a section:

The asset management industry has been rocked by fears over daily-dealing funds that allow investors easy entry and exit, but hold assets that take far longer to sell. M&G’s freeze follows the shock collapse of star U.K. stock picker Neil Woodford’s empire this year, amid tougher scrutiny of managers who have been pushed to seek harder-to-sell assets in their hunt for yield.

“Woodford and M&G are different scenarios, but both point to the same thing,” Ben Yearsley, investment director at Shore Financial Planning said. “You shouldn’t hold illiquid assets in
open-ended funds.”

GAM Holdings AG, H20 Asset Management and Lime Asset Management Co. have also grappled with liquidity crises in the past two years.

The M&G money pool was one of seven major U.K. funds that halted trading in the aftermath of the 2016 Brexit vote, when spooked investors demanded their money back. In a rush to sell properties quickly in order to raise cash, many funds disposed of buildings that remained attractive to buyers even after the Brexit vote, such as London offices or warehouses.

That’s left funds like M&G with a higher relative exposure to retail properties that have proven tough to sell. Retailers have been closing stores and seeking rent cuts in an attempt to compete with online rivals, sending retail property values plunging.

Eoin Treacy's view -

Pensions hold large weightings of fixed income so they can match assets with future liabilities. That means they need to have a better return on their other holdings to ensure the total grows enough to succeed in meeting those liabilities. The low interest rate environment over the last decade, and more, has represented a major challenge for the sector and its effect is cumulative. The longer interest rates stay low the greater the pressure on pensions to find alternative ways of boosting returns.



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December 06 2019

Commentary by Eoin Treacy

Oil Surges After Saudis Surprise Market With Additional

This article by Sheela Tobben and Alex Longley for Bloomberg may be of interest to subscribers. Here is a section:

The additional supply reduction would take the kingdom’s production down to levels not seen on a sustained basis since 2014, according to data compiled by Bloomberg.

After the announcement, Prince Abdulaziz predicted that Saudi Aramco, which just completed an IPO at a valuation of $1.7 trillion, would soon soar above the $2 trillion. The kingdom plans to pump 9.7 million barrels a day, he said. That’s a reduction of about 300,000 barrels a day from its output in November and 100,000 below the year-to-date average, according to data compiled by Bloomberg.

Eoin Treacy's view -

There was always a risk that Saudi Arabia would attempt to massage energy prices in order to get the valuation for Saudi Aramco they desired. The IPO priced yesterday at $1.7 trillion which will represent a $25 billion windfall for the kingdom. If the price pops on the upside following the IPO that will give a windfall to the large numbers of domestic investors, many connected to the ruling class, who invested in the IPO. That is obviously a desirable outcome from a domestic perspective for Saudi Arabia.



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December 06 2019

Commentary by Eoin Treacy

Food Inflation Rears Its Head in Chile and Brazil in November

This article by Mario Sergio Lima and John Quigley for Bloomberg may be of interest to subscribers. Here is a section:

In Brazil, the inflation pick-up comes as economists and company executives sound the alarm on rising meat prices due to dwindling supply. China, the world’s top meat consumer, doubled pork imports and shipped in 63% more beef in October than a year earlier as the country struggles to ease shortages due to African swine fever.

“The food price shock has arrived” in Brazil, said Leonardo Costa, an economist at Rosenberg Associados. “We’re increasing our 2019 inflation call to 4% because the increase in food and
beverage costs will be even stronger in December.”
 

Eoin Treacy's view -

If inflation is rising, and this appears to be a global phenomenon that will reduce the ability of central banks to continue to cut interest rates. That was certainly a factor in the RBI’s decision to hold rates steady in India today and similar decisions are likely across emerging markets as the full impact of higher food prices rolls through.



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December 06 2019

Commentary by Eoin Treacy

December 06 2019

Commentary by Eoin Treacy

2020 outlook for markets

Eoin Treacy's view -

The research departments of major asset managers are currently putting out their expectations for what to expect in 2020. There is a great deal of commonality in what is being predicted. The reality is many investors went to cash a year ago and were slow to reinvest. They continue to feel shy about being fully committed and still feel a great deal of uncertainty. That it being reflected in the views being espoused in predictions for 2020.



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December 05 2019

Commentary by Eoin Treacy

Video commentary for December 5th 2019

December 05 2019

Commentary by Eoin Treacy

Japan Leans on Fiscal Stimulus to Keep Recession at Bay

This article by Toru Fujioka, Yoshiaki Nohara and Takashi Hirokawa for Bloomberg may be of interest to subscribers. Here is a section:

“In any country, the positive impact of extra monetary stimulus is limited, which is especially true in Japan and Europe where rates have turned negative. You have no effective choice but to execute fiscal measures to support growth,” said Harumi Taguchi, Tokyo-based principal economist at IHS Markit.

Earlier in the day, Abe described the stimulus as a three-pillared package designed to aid disaster relief, protect against downside economic risks and prepare the country for longer-term growth after the 2020 Tokyo Olympics.

He said the stimulus would be funded by a supplementary budget for the current fiscal year ending in March, and special measures in the following year. The package outlines 4.3 trillion yen in funding for the measures in an extra budget this fiscal year.

Eoin Treacy's view -

This stimulus helps to unwind some of the negative impact from the sales tax hike earlier in the quarter and is a further iteration of the global surge in fiscal stimulus as the expected positive growth effects of quantitative easing failed to materialise.



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December 05 2019

Commentary by Eoin Treacy

Precious Metals: Turning around a historically unprofitable sector

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

Eoin Treacy's view -

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

The biggest takeaway from this report is RBC, one of Canada’s largest banks, is only now re-assuming coverage of the North American gold mining sector. Nothing signals a prolonged bear market like banks culling trading desks and firing analysts. As prices deteriorate, interest evaporates, liquidity declines and coverage disappears. When a new bullish story evolves it takes time for management teams to warm up to the idea of spending the money necessary to build a business unit to profit from it. The fact more banks are now engaging with the market suggests the sales effort is also going to receive a boost.



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December 04 2019

Commentary by Eoin Treacy

Video commentary for December 4th 2019

December 04 2019

Commentary by Eoin Treacy

DoubleLine Joins IMF in Fretting About Dollar Loans Outside U.S.

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

The cost of dollar funding for non-American banks can change rapidly because it’s sensitive to monetary conditions in the U.S. and abroad. September’s repo turmoil showed the speed with which a spillover could occur between dollar funding and currency markets. Within a day of the sudden surge in the overnight rate on Treasury repurchase agreements that began Sept. 16, the cost to borrow greenbacks while lending euros for a week almost doubled.

For DoubleLine’s Campbell, “the analysis of currency mismatches and asset/liability funding mismatches is an integral part of our investment process as we evaluate these risks on a country-by-country and security-by-security basis.”

At issue is what might happen when foreign banks get caught in a liquidity squeeze, and their sources of dollar funding dry up quickly, he added.

“When we go through the next downturn, a lot of activities are going to be exposed as being problematic,” he said. “The risk is that it could contribute to an even bigger fall in economic activity.”

Eoin Treacy's view -

The IMF first started worrying about the mismatch in Dollar funding requirements and supply back in June. The freezing up of the repo market in October vindicated the view that supply of Dollars was inadequate for the needs of the global economy. The willingness of the Fed to step in and provide $300 billion, to date, is a clear indication they are aware of the problem this condition represents and will act accordingly.



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December 04 2019

Commentary by Eoin Treacy

Email of the day from a coffee insider

The estimate of the Brazilian coffee crop of 2019 is 49 million bags of 60 kg This means a 20 % drop from 2018, when Brazil produced a record crop of 62 million bags. This is a big difference. But it is due to the fact, first that Brazil is in the “off-year” of its two-year coffee production cycle, which alternates between years of high and low production cycles. The coffee trees are resting one in two years. Second, there has been irregular weather that was not good for the crop. And third, the farmers are diminishing the crop care because of prices that have fallen too low. This is happening after a bumper “on-year” which brought a collapse of prices. The influence of Brazil on the world coffee market is important because it is the largest producer. (62 million bags on a total world production of 175 million bags). But in the other countries the same causes have most of the time had the same effect.

What must be noticed also is that very low prices because of overproduction were normal to a certain extent, but as always, investment funds and speculators (or call these also investors with a euphemism) went about 51.000 contracts short (equals 12.750.000 bags) and then suddenly reduced these short positions to about 17.000. This of course amplifies the movements of the market, this time to higher but still not normal prices. In the meantime, the farmers are starving with a daily income of 3 dollars, flee their central American countries and try to get in the U.S. It’s a shame, a hard world. That’s why in my company we promote Fair Trade Coffee, now at about the double of the price of the market. We are making nearly half of our turnover with this coffee.

The Real is also an important parameter, but it is not the only one. The two charts of coffee and Real are often linked, but not always when such fundamental events are happening;

Eoin Treacy's view -

Thank you for this valuable insight into the machinations of the coffee market. The two-year cycle of coffee tree productivity is an important consideration when weighing the likelihood of a downtrend due to overproduction persisting. The fact farmers are walking off their farmers in Central America is an inhibitor to increasing supply but as you point out Brazil is the primary source of Arabica.



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December 04 2019

Commentary by Eoin Treacy

China Uses DNA to Map Faces, With Help From the West

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

The technology, which is also being developed in the United States and elsewhere, is in the early stages of development and can produce rough pictures good enough only to narrow a manhunt or perhaps eliminate suspects. But given the crackdown in Xinjiang, experts on ethics in science worry that China is building a tool that could be used to justify and intensify racial profiling and other state discrimination against Uighurs.

In the long term, experts say, it may even be possible for the Communist government to feed images produced from a DNA sample into the mass surveillance and facial recognition systems that it is building, tightening its grip on society by improving its ability to track dissidents and protesters as well as criminals.

Some of this research is taking place in labs run by China’s Ministry of Public Security, and at least two Chinese scientists working with the ministry on the technology have received funding from respected institutions in Europe. International scientific journals have published their findings without examining the origin of the DNA used in the studies or vetting the ethical questions raised by collecting such samples in Xinjiang.

Eoin Treacy's view -

This article from the Wall Street Journal details how the capturing facial recognition data is now mandatory when purchasing a new phone. Here is a section:

The new regulation gives the Chinese state, which backs the country’s three main telecom providers, the ability to better track people based on ethnicity and other factors, said Ben Cavender, Shanghai-based managing director at China Market Research Group.



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December 04 2019

Commentary by Eoin Treacy

Email of the day - on the colour of candle charts:

I hope all is well. I was wondering why if the S&P500 index fell the graphic is showing blue as per the attached screenshot? Could it be that it opened down but closed above that level and thus the chart records this as an up day? Thanks very much.

Eoin Treacy's view -

That you for this question which others may also have an interest in. Yes, that is exactly what happened. The S&P500 gapped lower off the open and improved modestly from that initial swoon.



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December 03 2019

Commentary by Eoin Treacy

December 03 2019

Commentary by Eoin Treacy

Stocks Aren't Wild About Crazy-Like-a-Fox Leaders

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

I originally used Occam’s Razor, and decided the likelier explanation lay in utter failure to understand the workings of currency markets and international trade. But it is just possible that Trump is being crazy like a fox.

Either way, stock markets disliked the new tariffs, which spoiled the good cheer that had been spread by surprisingly good Chinese manufacturing data announced over the weekend. The dollar fell, and bond yields rose. Global stocks had one of their worst days in a while, dashing the chance for the MSCI All-World index to set its first record since the January 2018 high. The index reached within 0.12% of the landmark before slipping:

On top of the Chinese news, there was also relatively encouraging news from the eurozone. Germany is particularly reliant on the auto sector, and on exports, and this has made it the most obvious victim of the trade war to date. But the latest Markit purchasing manager indexes for eurozone manufacturing show a pattern of clear recovery from a very low base. (As is usual, the indexes are set so that 50 should be the border between expansion and contraction):

All of this was enough to help European stock markets open a tad higher, and should have been enough to bring world stocks to their record. Then came the presidential tariff-by-tweet, followed by some deeply disappointing U.S. manufacturing data. Thanks to the U.S. consumer, the American economy remains in good health, but the manufacturing sector looks more and more as though it is in recession. There are some idiosyncratic factors to explain this (the troubled aircraft-maker Boeing Co. being the greatest one), but the PMI is now at 48.1, and has been below 50 for four months in a row. So far, this manufacturing downturn is comparable to the one at the beginning of 2016, which also lasted four months and bottomed at 48. That one ended with Chinese stimulus and a recovery, without a recession.

Eoin Treacy's view -

I don’t think there is any mystery to the way in which Donald Trump conducts policy. All one has to do is listen to what he is saying. He wants a level playing field for US exporters and he wants a weaker Dollar. He has said repeatedly he is not going to sign a trade deal that is not a net positive for the USA. It’s time we take him at his word. The problem is what he wants is quite disruptive to the status quo.



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December 03 2019

Commentary by Eoin Treacy

Europe Set to Overhaul Its Entire Economy in Green Deal Push

This article by Ewa Krukowska and Nikos Chrysoloras for Bloomberg may be of interest to subscribers. Here is a section:

The EU plan, set to be approved as the high-profile United Nations summit in Madrid winds up, would put the bloc ahead of other major emitters. Countries including China, India and Japan have yet to translate voluntary pledges under the 2015 Paris climate accord into binding national measures. U.S. President Donald Trump has said he’ll pull the U.S. out of the Paris agreement.

In a pitch of her Green Deal to member states and the European Parliament on Dec. 11, von der Leyen is set to promise a set of measures to reach the net-zero emissions target, affecting sectors from agriculture to energy production. It will include a thorough analysis on how to toughen the current 40% goal to reduce emissions by 2030 to 50% or even 55%, according to an EU document obtained by Bloomberg News.

Make It Irreversible
In the next step, the commission will propose an EU law in March that would “make the transition to climate neutrality irreversible,” von der Leyen told the UN meeting. She said the measure will include “a farm-to-fork strategy and a biodiversity strategy” and will extend the scope of emissions trading.

Eoin Treacy's view -

The EU’s political elite view the climate argument as a voter winner, a source of revenue for their constrained social services and an additional control on the economy that would be impossible under normal circumstances. It is also a response to the fact the region is a major energy consumer and has long had to deal with regimes it is politically at odds with because of its dependence on imports of energy commodities.



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December 03 2019

Commentary by Eoin Treacy

Email of the day on corruption in India:

Thank you for your wonderful service once again. My day starts every morning with listening in to your Video Commentary of the Day along with my tea. All other comments and blogs are seen much later after I reach office.

As I recall, from our first meeting in 2012 you have always had a strong positive view on governance in India. At a closer range the warts are more visible to us.

You may find a different viewpoint from your stance on the going-ons in India. This is an article published in the Times of India, the foremost newspaper in India and traditionally and currently pro- the current regime. You may find it interesting.

https://timesofindia.indiatimes.com/blogs/Swaminomics/how-bjp-is-fast-becoming-like-congress-in-graft/

Hope all is well at your end.

Eoin Treacy's view -

Thank you for your kind email and article on corruption in India. The issues of graft in Indian society did not evaporate with the election of Narendra Modi and might even be expected to increase because checks and balances are reduced when there is single party government.



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December 02 2019

Commentary by Eoin Treacy

December 02 2019

Commentary by Eoin Treacy

Trump Ties Brazil, Argentina Steel Tariffs to U.S. Farm Woes

This article by Brendan Murray and Joe Deaux for Bloomberg may be of interest to subscribers. Here is a section:

Linking his trade agenda with his Fed criticism in an early morning tweet, he said the two South American countries “have been presiding over a massive devaluation of their currencies, which is not good for our farmers.”

The president’s action amounts to retaliation against two nations that have become alternative suppliers of soybeans and other agricultural products to China, grabbing market share away from the U.S. Rural voters, including farmers, are a key constituency for Trump as he heads into the 2020 presidential elections.

While the steel tariffs could crimp trade, the Latin American countries gain much more shipping crops to Chinese buyers. In the first 10 months of the year, Brazil has shipped $25.5 billion in farm products including soybeans and pork to China. That’s more than 10 times the value of steel and iron product sold to the U.S.

Eoin Treacy's view -

This action is as much about the persistent strength of the Dollar as it is about pandering to farm voters in swing states. The US Dollar has been trending higher against the vast majority of international currencies for the last few years. The growth differential the USA has enjoyed has been one factor in that strength but the Fed’s policy of balance sheet contraction and hiking interest rates was more important.



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December 02 2019

Commentary by Eoin Treacy

OPEC+ Gambles That U.S. Shale's Golden Age Is Over

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

Perhaps the biggest problem for OPEC isn’t American shale but rising output elsewhere. Brazilian and Norwegian production is increasing, and will increase further in 2020. After several years of low prices, engineers have made many projects cheaper, and the results are clear.

Norway’s Johan Sverdrup oil field, the biggest development in decades in the North Sea, started up earlier this year, months ahead of schedule and several billion dollars under its original budget. And Guyana, a tiny country bordering Venezuela in Latin America, is about to pump oil for the first time.

“For OPEC, it remains a difficult first half of 2020,” Russell Hardy, Vitol’s chief executive officer, said in an interview. “U.S. production is growing strongly this quarter and in the first half of next year we’ll add non-OPEC production from Norway, Brazil and Guyana.”

The cartel knows well that’s taking a gamble. The group’s own estimates show that if it continues pumping as much as it has done over the last couple of months -- roughly 29.9 million barrels a day -- it would supply about 200,000 barrels more crude daily than the market needs on average next year. The oversupply would be concentrated in the first half, when OPEC estimates it needs to pump just 29 million barrels a day to prevent oil stocks building up.

Still, OPEC officials, speaking privately, believe the world’s supply and demand balance could be tighter than many expect -- a big change from the past three years. They see non-OPEC output growth falling short of forecasts while global demand increases could be higher than expected.

Eoin Treacy's view -

The decade long commodity bull market that began in the early 2000s encouraged massive investment in additional supply. That new supply generally came in at a higher marginal cost of production which means that while $40 was previously a peak for price rallies, it now represents a floor.



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December 02 2019

Commentary by Eoin Treacy

Consumer Conference: Strategy Sector Views + Analyst Stock Picks

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

Eoin Treacy's view -

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

The stock market is one of the best lead indicators we have. It is literally a discounting mechanism and yet a cottage industry has evolved attempting to predict when the next economic contraction is going to take place. The number of such indicators has proliferated over the last year with alarm being expressed from many corners that a recession is a virtual certainty in the near term. Let’s think instead what the consistency of the trend tells us.



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December 02 2019

Commentary by Eoin Treacy

Email of the day - on p&f charts

I am very pleased to see you resurrecting point & figure charting in your weekly commentary. A graduate of the Spring 1990 Chart Seminar, I cut my teeth on David's p&f charts, and still find them to be an extremely useful tool for filtering out the non-essential, "noisy" price movements that can cloud our judgement. As you Brits say, "well done you!"

Eoin Treacy's view -

Thank you for this supportive email and I intend to include p&f charts in the daily commentary when they provide valuable insight.



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November 29 2019

Commentary by Eoin Treacy

November 29 2019

Commentary by Eoin Treacy

German Manufacturing Job Losses Top 100,000 With Daimler Cuts

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

The full effect of the cuts -- which also affect units of German companies abroad --- may not be felt immediately. Labor laws and powerful unions make it difficult to fire workers, and many large companies have agreements banning forced dismissals, meaning job-cut programs have voluntary elements and sometimes run for years.

Still, the deteriorating prospects for employment could turn into a headache for the German government, which has been considering following countries from China to the U.K. in beefing up investments to stimulate its economy.

Here is a rundown of the main job cuts announced since the beginning of the year by German industrial companies. The tally includes foreign corporations that have announced cuts affecting staff in Europe’s biggest economy. It excludes the financial industry, cuts that remain unconfirmed, and programs where companies have not yet specified how many jobs will go.

 

Eoin Treacy's view -

The evolution of the global automotive sector represents a major challenge for the Germany economy. Electric vehicles have fewer parts and therefore require fewer component suppliers. The battery is also the biggest constituent of the vehicle’s cost and Germany does not yet have its own production facility. In fact, it is unlikely to ever become a dominant force in the production of batteries considering China and South Korea’s already huge leads.



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November 29 2019

Commentary by Eoin Treacy

China Financial Warning Signs Are Flashing Almost Everywhere

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

From rural bank runs to surging consumer indebtedness and an unprecedented bond restructuring, mounting signs of financial stress in China are putting the nation’s policy makers to the test.

Xi Jinping’s government faces an increasingly difficult balancing act as it tries to support the world’s second-largest economy without encouraging moral hazard and reckless spending. While authorities have so far been reluctant to rescue troubled borrowers and ramp up stimulus, the costs of maintaining that stance are rising as defaults increase and China’s slowdown deepens.

Policy makers are attempting to do the “minimum necessary to keep the economy on the rails,” Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs Group Inc., said in a Bloomberg TV interview.

Among China’s most vexing challenges is the deteriorating health of smaller lenders and regional state-owned companies, whose financial linkages risk triggering a downward spiral without support from Beijing. A landmark debt recast proposed this week by Tewoo Group, a state-owned commodities trader, has raised concerns about more financial turbulence in its home city of Tianjin.

Concerns have popped up across the country in recent months, often centered around smaller banks. Confidence in these institutions has waned since May, when regulators seized control of a lender in Inner Mongolia and imposed losses on some creditors. Authorities have since intervened to quell at least two bank runs and orchestrated bailouts for two other lenders.

Eoin Treacy's view -

Two years ago China’s central banks Zhou Xiaochuan gave a speech where he talked about the risk of a Minsky Moment and what could be done to avoid it. A Minsky Moment is when asset prices experience a sharp reversal following a long and prolonged advance. That kind of risk evolves from deploying procyclical policies for a prolonged period.



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November 29 2019

Commentary by Eoin Treacy

Gold Is New Obsession for East Europe's Nationalist Leaders

This article by Andrea Dudik and Radoslav Tomek for Bloomberg may be of interest to subscribers. Here is a section:

 

Instead, he said he wanted to demonstrate the strength of his nation’s $586 billion economy -- the largest in the EU’s east. Poland has doubled its gold holdings in the past two years and now has the region’s biggest stockpile.

Hungary, though, has been an active buyer too. Gold reserves surged 10-fold last year, setting the clamor for the metal in the countries around it in motion. Serbia’s strongman leader Aleksandar Vucic took note, ordering the central bank to boost reserves and prompting the purchase of nine tons in October. Vucic said last week that more should be bought because “we see in which direction the crisis in the world is moving.”

The biggest nation to emerge from the breakup of Yugoslavia still keeps some of its gold abroad, the central bank said by email. The region is buying more of the metal because of global uncertainty over trade and politics, Brexit and low interest rates, it said.

Romania had also sought to relocate some of its gold reserves from the U.K., but those plans were put on hold when the government behind them was ousted in October.

Eoin Treacy's view -

The massive investments in new gold supply made during the commodity bull market, in the decade to 2011, have resulted in mined supply of gold rising steadily. One of the reasons the gold market has been able to sustain a breakout from its base formation is because much of that supply is being acquired by global central banks. They are attempting to insure themselves against the threat of a disorderly resolution to the looming debt mountains built up over the course of a forty-year secular bull market for bonds.



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November 29 2019

Commentary by Eoin Treacy

Email of the day on margin debt balances

Eoin wanted to know the source of the margin Debt issue. it's the Felder Report. 

And

The margin data is now published by FINRA - my inexperienced eye believes that the article has over-stated the reduction of margin somewhat. (It's Ha Ha) - marginal. 


FINRA took over reporting: https://www.finra.org/investors/learn-to-invest/advanced-investing/margin-statistics  

Eoin Treacy's view -

Thank you for these educational emails covering an important subject. Margin debt balances had long been a useful indicator of appetite for risk in the markets but the NYSE stopped producing the data in 2017. Generally speaking, margin debt balances turn downwards, from a new high, ahead of a major reversal in the stock market. There has been a great deal of speculation recently about whether that is what we are seeing today.



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November 29 2019

Commentary by Eoin Treacy

November 27 2019

Commentary by Eoin Treacy

November 27 2019

Commentary by Eoin Treacy

November 27 2019

Commentary by Eoin Treacy

Modi's Labor Reform Push May Remove Key Hurdle For Investors

This article by by Bibhudatta Pradhan and Vrishti Beniwal for Bloomberg may be of interest to subscribers. Here is a section:

Prime Minister Narendra Modi is finally attempting to overhaul India’s most controversial labor laws to attract investment and make it easier to do business in a country where changing archaic rules is a challenge for any government.

After a long struggle, his government will push a crucial industrial relations bill allowing companies to hire workers on fixed-term contracts of any duration. The legislation, to be tabled in Parliament’s current winter session, does not seek to change stringent laws on hiring and firing, but allows the government the flexibility to relax the conditions through an executive order.

Unlike his last term in power, when Modi decided against bringing this labor reform bill to Parliament, this time around he knows he has the numbers needed. The current changes are part of a process to streamline 44 different federal labor laws into four codes, another step to formalize the $2.7 trillion economy.

It comes on the back of several recent reforms announced by Modi’s government to boost investment, including aggressive cuts in corporate taxes, relaxation of foreign investor rules and the biggest privatization drive in more than a decade.

Eoin Treacy's view -

Indian voters gave Modi the increased majority in both houses he asked for. India’s massive young, ambitious population is eager for change, and they knew that the only way to get it is to free the hands of government to push through much needed reform. No one is under any illusion that it will be difficult and there are going to be some vested interests in the bureaucracy who will be upset, but the need for reform is undeniable. The fact Modi is following through and tackling some of the country’s thorniest issues is about as positive sign of improving governance as anyone might hope for.



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November 27 2019

Commentary by Eoin Treacy

Biggest LNG Producer Targets 64% Jump in Capacity by 2027

This article by Simone Foxman and Verity Ratcliffe for Bloomberg may be of interest to subscribers. Here is a section:
 

Qatar’s plan for a 64% increase in LNG capacity is likely to intensify a global glut in the fuel. The nation is seeking to fend off competition from rival producers such as Australia and the U.S. that have ramped up production and eroded the Gulf state’s historic dominance of the market. Australia has exported about 70 million tons of LNG this year, compared with 71.9 million for Qatar, according to vessel-tracking data compiled by Bloomberg.

The North Field holds more than 1,760 trillion cubic feet of gas, and state-run Qatar Petroleum will “immediately” start engineering work for two additional LNG production plants, or trains, for a combined capacity of 16 million tons annually, Al Kaabi said in a statement. Qatar will be able to produce about 6.7 million barrels of oil equivalent a day by 2027, said Al Kaabi, who also serves as QP’s President and Chief Executive Officer.

Eoin Treacy's view -

The quantities of natural gas that can be brought to market, almost at will, are nothing short of astounding and suggest a price war is inevitable. With Australia now producing almost as much gas as Qatar and the USA exporting the bounty from shale wells the global market for gas is likely to continue to grow.



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November 27 2019

Commentary by Eoin Treacy

5G, Royalties, Chip Mix Turn Qualcomm to Growth

This note focusing on Qualcomm and 5G may be of interest to subscribers. Here is a section:

 

THESIS: A strong position in 5G chips, coupled with expanded royalties, may position Qualcomm for sales and EPS growth in fiscal 2020. Higher-priced 5G handsets aid its royalty business, while increased use of its advanced 5G chips will drive up chip content and average prices. This content is further enhanced by a wider portfolio of radio-frequency chip offerings. The company is set up to gain from a richer 5G handset mix and pricing, as well as a higher-end chip mix and content expansion of its own portfolio. Royalty mix aids margin, expanding EPS faster than sales. A softer, slower global 5G ramp up, especially outside China, is the key risk.

Eoin Treacy's view -

Speed and lag are two of the biggest obstacles to moving more of the global economy online. 5G is up to 100 times faster than 4G and removes lag from the equation. China switched on a national 5G network earlier this month and the majority of major economies plan to move to full roll out in 2020. Samsung and some Chinese companies are producing 5G phones but the number of models on offer will also significantly increase in 2020.



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November 26 2019

Commentary by Eoin Treacy

Video commentary for November 26th 2019

November 26 2019

Commentary by Eoin Treacy

Biotech Rallies as Novartis' $9.7 Billion Deal Revives Optimism

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

Monday’s news continues a trend of large-cap drugmakers snapping up smaller developers in an attempt to refill their depleted pipelines. Even before the Medicines Co. announcement, Basel, Switzerland-based Novartis had announced close to $16 billion of acquisitions since Vas Narasimhan took over as CEO in February 2018, according to data compiled by Bloomberg.

Alnylam Pharmaceuticals Inc., which receives milestone payments tied to Medicines Co.’s heart drug inclisiran as well as royalties on drug sales, jumped 7.6% pre-market Monday. That’s on top of last week’s 16% gain after it won FDA approval for a second drug.

Jefferies’ Yee highlighted that the $9.7 billion price tag implied a higher multiple on potential peak sales of inclisiran than historically has been seen in other biotech deals. On a deal value to peak sales comparison, he said the valuation is similar to Bristol-Myers Squibb Co.’s acquisition of Celgene Corp., which closed last week.

Eoin Treacy's view -

Large pharmaceuticals companies have effectively outsourced research and development to the speculative biotechnology sector and are prepared to pay up for those that approach commercialisation.



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November 26 2019

Commentary by Eoin Treacy

China Draws Bumper Demand for Multi-Tranche Dollar Bond

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

With the latest sale, China will have dollar securities outstanding with maturity dates ranging from 2022 to 2096 (the result of a small century bond sold in the 1990s). There will be an increasing variety of maturities off which Chinese corporate debt can price, with sovereign benchmarks at maturities from 2022 to 2048 of at least half a billion dollars each.

The total Chinese dollar bond market now tops $740 billion, according to data compiled by Bloomberg, and issuance so far this year has run at a record pace. On a single day in early November, some six property developers were selling dollar securities.

Earlier this month, China also sold euro debt, the first time since 2004 that it issued in that currency. That deal saw blowout demand, with a majority orders coming from European funds in a region that’s been beset by negative-yielding securities.

Eoin Treacy's view -

The rapid growth of the China Dollar bond market was one of the primary reasons the Chinese central bank expressed worry about local government funding mechanisms in 2018. They quickly moved into a curtail the practice but that effort now appears to be over with demand for overseas debt increasing once more. 



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November 26 2019

Commentary by Eoin Treacy

Bitcoin Pre-Halvening Dump Could Spell Disaster

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

The halving occurs every 210,000 blocks and reduces the block mining reward by half—now 12.5 Bitcoin per block. Each of the adjustments is designed to continually manage inflation on the network.

The consequence of each halvening is a massive profit slash among miners, with just half the current block reward as revenue. This leads to a massive reduction in miners, with the weak hands being forced out.

However, as miners are no longer able to continue, the total hashrate on the network drops dramatically. This leads to a subsequent reduction in difficulty for each block mined, reducing costs for miners who make it through. In the end, the genius of Nakamoto shines.

Eoin Treacy's view -

The halvening has historically been a time which attracts bulls to bitcoin because it results in the halving of the reward for minting new blocks. That highlights the limited supply argument and automatically makes the bitcoin already in existence more valuable. At least that is how the logic has played out over the last few occasions. It is also worth remembering that cryptocurrencies are a little more than a decade old so drawing long-term conclusions is still something of a spotty endeavour.



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November 25 2019

Commentary by Eoin Treacy

Video commentary for November 25th 2019

November 25 2019

Commentary by Eoin Treacy

Hong Kong's Pro-Democracy Forces Win Landslide, Rebuking China

This article by Julia Fioretti, Iain Marlow and Fion Li for Bloomberg may be of interest to subscribers. Here is a section:

Pro-democracy candidates won 86% seats of the 444 seats counted as of 9 a.m., official results showed, with eight seats still up for grabs. In the last election in 2015, they had won about a quarter of all seats. The pro-government camp won about 12% of seats this time around, versus 65% four years ago. The vote saw record turnout of 71%, with more than 2.94 million people casting ballots -- roughly double the number in the previous election.

The vote came at a time of unprecedented political polarization in the city, with divisions hardening as the protests become more disruptive and the government refuses to compromise. While the district councils are considered the lowest rung of Hong Kong’s government, the results will add pressure on the government to meet demands including an independent inquiry into police abuses and the ability to nominate and elect the city’s leader, including one who would stand up to Beijing.

“The government respects the results of this election,” Chief Executive Carrie Lam said in a statement on Monday. “I am aware there’s lots of analysis about the results among the community, which said the results are a reflection of the public’s dissatisfaction towards the current situation and deep-seated problems in society. The government will listen to the public’s feedback with humility and reflect on it.”

Eoin Treacy's view -

The success of pro-democracy candidates in the Hong Kong election puts to rest any argument the protests were not widely supported by the community. The challenge for protestors now is the absence of any real power for those elected.



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November 25 2019

Commentary by Eoin Treacy

Why the Narratives around Oil Supply and Demand are Wrong

This article by Goehring & Rozencwajg may be of interest to subscribers. Here is a section:

Investors remain very concerned about the impact of slowing economic growth on global oil demand. While Q2 did show some softening, there have been several very bullish developments that most investors seem to ignore. For example, analysts focused all of their attention on the IEA’s recent downward revision of 2020 global demand projections by 100,000 b/d over the course of the last three months. However, at the same time, the IEA quietly revised historical demand higher by 190,000 b/d in 2017 and 110,000 b/d in 2018–a fact that few people wrote about. Notably, Q4 of 2018 was revised higher by a very large 300,000 b/d.

Our models tell us that more revisions are forthcoming. As always, our analysis revolves around the “missing” barrels. For example, the IEA still claims after its latest set of historical revisions that global demand for all of 2018 equaled 99.3 mm b/d while total supply equaled 100.3 mm b/d. This suggests that inventories should have grown by 1 mm b/d or 365 mm b for the full year. Instead, the IEA reports that inventories were unchanged for the year. We refer to the “missing” barrels as oil that was produced but neither consumed nor put in storage. We have long argued that “missing barrels” are a clear indicator that the IEA will revise higher its demand figures and once again that has been correct.

The IEA has a long history of demand underestimation. In eight of the last nine years, they have been forced to revise global demand higher by 1.1 m b/d on average (a number that is creeping higher). Despite this chronic underestimation and the continued presence of “missing barrels,” investors continue to ignore the warning signs of stronger than expected demand.

Eoin Treacy's view -

The backwardation in the oil price curve suggests at least a near-term supply deficit relative to demand. That has been created either by the slowdown in the global economic which could have impacted demand growth or it is a combination of factors like the reduction in OPEC and Russia supply and the slowdown in unconventional onshore US production. Regardless of the argument, the backwardation doesn’t lie.



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November 25 2019

Commentary by Eoin Treacy

2020 Outlook What Investors Are Saying

Thanks to a subscriber for this report from Michael Wilson for Morgan Stanley. Here is a section:

Eoin Treacy's view -

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

It takes all kinds of views to make a market and that is particularly true when supply and demand have been in relative equilibrium for almost two years. When that amount of time has passed both the bullish and bearish arguments are well understood.



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