The drumbeat of recession grew louder after the US economy shrank for a second straight quarter, as decades-high inflation undercut consumer spending and Federal Reserve interest-rate hikes stymied businesses and housing.

Gross domestic product fell at a 0.9% annualized rate after a 1.6% decline in the first three months of the year, the Commerce Department’s preliminary estimate showed Thursday. Personal consumption, the biggest part of the economy, rose at a 1% pace, a deceleration from the prior period.

“The more important point is that the economy has quickly lost steam in the face of four-decade high inflation, rapidly rising borrowing costs, and a general tightening in financial conditions,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “The economy is highly vulnerable to slipping into a recession.”

It is always dangerous to say this time is different in markets. However, on this occasion there really is some justification that claim. Two consecutive quarters of negative growth meets the technical definition of a recession. However, there are some important mitigating circumstances. For one, unemployment has not risen significantly. There has also never been a recession when the PMI was among 50. That suggests muddier perspective than we might be accustomed to.

Speculators had been paring some of their bearish yen bets with net-short non-commercial positions falling to the lowest this year at the end of June, according to data from the Commodity Futures Trading Commission. But sizable shorts remain and hedging costs have continued to push higher amid a debate whether the yen could fall through the closely-watched 140 level.

Some strategists see the yen strength -- and the recent pause in the dollar’s rally -- as temporary.

“At the moment the dollar-yen looks like it could remain under further pressure in the very short term,” said Laura Fitzsimmons, executive director of macro rates and FX sales at JPMorgan’s Australian unit. But “unless you see a shift in the BOJ’s tone,” the short-yen macro trade is still on.

The short covering rally in the Yen is coincident with short covering in stock markets  and is a further sign the risk-on trade is gaining traction. The assumption this interest rate hiking cycle will be finished by the end of the year is a base case for this bullishness.

Lucapa Diamond Company has announced the discovery of what is believed to be the largest pink diamond in 300 years, Associated Press reported on July 27. Named the 'Lulo Rose', the 170-carat gemstone was found in the Lulo alluvial diamond mine in the central African country of Angola, according to a statement on the company’s website.

“Only one in 10,000 diamonds is coloured pink. So you're certainly looking at a very rare article when you find a very large pink diamond,” Lucapa chief executive Stephen Wetherall told the Associated Press. It is expected to fetch a high value when auctioned, but Wetherall suggested its colour could give it an even higher premium.

Lulo is a 3,000km2 concession in Angola’s Lunda Norte diamond heartland, approximately 630km east of the Angolan capital of Luanda. Over the past decade, exploration by Lucapa and its partners Endiama (Angola’s national diamond company) and Rosas & Petalas has been successful in proving up one of the world’s most prolific alluvial diamond fields at Lulo, along with >100 kimberlite pipes, says Lucapa’s website. 

Pink diamonds are highly prized by both consumers and investors and a stone of this size is a very rare commodity. It could fetch a price in excess of the miner’s current market cap.

Fyi, have finally bit the bullet and fixed energy price with EDF for 2 years until July 2024.

The Nord Stream pipeline 1 issue over the last few days made me make the final decision.

Would welcome Mr Treacy comment about the recent events with Russia cutting supplies and short and medium-term implications. Will we ever see the energy prices normalize? His comments are always very insightful.

Thank you for sharing your experience and this question which may be of interest to the Collective. Russia has a clear interest in Europeans being uncomfortable this winter. Wars are expensive. Quick victories are always desirable. That’s not always how things work out but eventually every war ends with some form of negotiation or withdrawal.

Good to see a personal story, and a stunning photograph. How was the fish caught?  How come an amateur could land such a catch? I used to enjoy David's opera reviews and reports of his epic cycle trips from Land's End to John O'Groats.  Livens up all the financial stuff.  We have to watch the market if we have money at stake, but it can get a bit heavy at times.

Thank you for your kind email and I am glad you liked the photo. David was an impressive athlete but had chronic arterial blockages. His doctors credited his survival for so long on his long-term commitment to his fitness regime.

For decades it was a reasonable bet the market would be quiet during July and August, so it was safe to take a month off for cycling. That ended in around 2004 as algorithmic trading took off and markets became more active all year. Our service also went from a monthly letter with a couple of short trading updates, to a daily service. 

I grew up fishing with my father and uncles on the Lakes of Killarney. I also paid my way through college by running a tour boat on the lakes during the summers.

Fishing in salt water is quite a bit easier than in freshwater. Salmon don’t eat in fresh water. That means you have to annoy one, so they swipe at your lure. It’s common to get only a few bites in a day on the lakes. Then playing a salmon takes time, effort and no small amount of skill.

In saltwater, salmon have voracious appetites. Many of the salmon we caught in Alaska had five or six small herring in their stomachs. We were using much bigger hooks, so once they are on, it’s not all that difficult to just reel them in. Size is just about luck at that point.

Fishing for halibut is about resisting the urge to jerk the rod at the first bite. They tend to munch their way along the lure so it’s better to wait until they have swallowed it before you start dragging them up; from a depth of around 200 ft. The fun part is you only get to keep halibut under certain limits, the bigger ones are breeders, so you have to let them go.

My biggest brown trout ever was just over 10lbs. I had him stuffed because he was dead on arrival, and thought I was unlikely to see another one of that size. We were fishing for salmon and a boat about a half mile away was playing him and lost him. He floated down the lake with a ball of line in his mouth, so I stuck the net out the side and pulled him in.

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.

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

Some of the topics discussed include: Fed raises rates by 0.75% again, Dollar eases as other central banks play catch up stocks rebound, oil and gold firm, 

For Slimmon, the beat-down in consumer sentiment has gone far enough to warrant betting on a turnaround.

“There’s a very low expectations in those stocks right now. What if the direction of change is actually higher for consumer sentiment?” he said. He views the risk-reward as attractive.

“Those stocks might recover dramatically because they’re down so much.” He plans to snap up shares “well into the weakness” in August, which is among historically the worst months for equities as volumes are thin and workers are on vacation.  

Stock market moves during this period are usually dominated by macro events. “The macro story this year is not very good,” he said, citing a global geopolitical crisis and the lack of an August meeting among Fed officials.

“The focus of the market shifts from what ultimately long-term drives stocks, which is earnings. And when the shift goes to other things like macro events that creates volatility.”

As for those areas he will likely stay away from, he offered two sectors. “If you think about what’s worked year-to-date on a relative performance basis, there are two groups that have really done well: energy and defensives,” he said. “It’s a little late to be selling the energy stocks. They’ve been so creamed. I wouldn’t be aggressively buying those stocks.”
 

Many investors are anticipating the Jackson Hole conference in August will be a time for central bankers to declare the peak for inflation is in. The most risk tolerant traders are initiating long positions today to ensure they have the cushion of rebound ahead of that event. There is clear scope it will be a buy the rumour and sell the news event if central bankers fail to deliver.

The Line was unveiled by HRH Crown Prince Mohammed bin Salman and no construction date or expected completion date has been announced. Indeed, given the size of complexity of such an undertaking, it would be more than fair to be a little skeptical about it ever being realized, even just the basics like transporting enough building materials and pouring the foundations seems like it would be a considerable undertaking.

But if anyone could make it happen it’s someone with the deep pockets and capability of the Saudi Crown Prince, who with an eye to a fossil fuel-free future is very keen to transform his country’s oil-dependent economy into a tourist-friendly one. With this in mind he has already unveiled a slew of ambitious projects including BIG's so-called Giga Project.

Breaking ground on the tallest building in the world has generally coincided with major market tops. It’s often referred to as the skyscraper effect by analysts of past cycles. The logic is clear. It takes an historically high sense of optimism to engage in building the tallest building a country or the world has ever seen. That peak of optimism is generally coincident with the peak of the global real estate cycle where prices have been rising for long enough to dispel any doubt they will continue to do so. 

Simandou offers a potentially huge new source of supply for Rio, the world’s largest iron ore producer, while China sees the project as key to easing its steel industry’s dependence on Australian output. The world’s top steel-producing nation recently embarked on one of the biggest shake-ups of the global iron ore market in more than a decade by setting up a new state-owned group, designed to be a hub for huge overseas mine investments and buying the steelmaking material from international suppliers.

Simandou might be a big deal of Rio Tinto but it is much more strategically important to China who chaff at their dependence on Australian exports. If the Guinea project comes online they will have greater control over iron-ore supply and will no longer be held hostage to the oligopoly of Rio Tinto, BHP and Vale.

What a catch! How did you get it back home to Dallas? I hope you didn't suffer from the notorious Alaskan mosquitoes, so ravenous at this time of year.

Thank you. It’s a 18lb beautiful king salmon. The boatman said it would have won a prize at the local fishing competition a few weeks from now. Thankfully, the processing facility was right next to the dock, so they filet and flash freeze the catch immediately. The price was reasonable and the Fedex overnight rate was only $45. Believe it or not, we did not encounter a single mosquito. It might have been too rainy/windy for them to fly.

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Some of the topics discussed include: earnings remain very mixed, natural gas breaks out in Europe, firm in US, oil and gold steady, bitcoiin weak, stocks pause ahead of Fed meeting,

I haven’t had so much fun on a business trip in years. It was an absolute pleasure to visit with some clients of Nevada Trust Company in Juneau, to participate in carving of a totem pole due to be erected in the centre of town, munch on king crab, spot prawns, salmon and halibut and get in a day of fishing with my family.

While Morgan Stanley strategists say it’s too early to expect the Fed to stop tightening its policy even as fears of a recession grow -- suggesting stocks have more room to fall before finding a bottom, JPMorgan Chase & Co. strategists say bets that inflation has peaked will lead to a Fed pivot and improve the picture for equities in the second half.

Sticky inflation is what will keep the Fed hawkish for longer this time around, according to Morgan Stanley’s Michael J. Wilson. While during the past four cycles the US central bank had stopped tightening its policy before the start of an economic contraction, triggering a bullish signal for stocks, current historic levels of inflation mean the Fed will likely still be tightening when a recession arrives, Wilson wrote in a note.

Equity markets “may be trying to get ahead of the eventual pause by the Fed that is always a bullish signal,” Wilson said. “The problem this time is that the pause is likely to come too late.”

Over at JPMorgan, Mislav Matejka said in a note on Monday that challenging activity momentum and softer labor markets could open doors to a more balanced Fed policy, leading to a peak in the US dollar and inflation.

Inflation may well have peaked or be close to a peak because the consensus is that it is entrenched. What we do not know is how quickly inflationary figures will come down and where they will subsequently stabilise.

The team says that the new potential treatment has a few advantages over other techniques currently in use or under development. Pancreas transplants are effective, but subject to organ donor shortages and other complications like rejection. Other teams have converted skin cells into stem cells and used those to produce new beta cells, and although results have been promising in mice, immune-suppressing drugs need to be given to prevent rejection.

The new treatment would work much faster, within a matter of days, and without the need for surgery. But perhaps the biggest advantage is that GSK126 is already approved by the US FDA and elsewhere in the world as a treatment for cancer. Its safety profile is already being assessed in clinical trials, which could reduce hurdles down the road for its use against diabetes.

That said, the scientists caution that it is still very early days. These experiments were conducted on cells in culture – not even in animals yet – so there’s still plenty of work to do. Nevertheless, it remains an intriguing new possible tool.

Diabetes is the ultimate money-spinning chronic disease. It is manageable for Type-2 patients if they have the personal discipline to abide by a low sugar diet. The problem is most people who end up with diabetes suffer from poor impulse control or are happy to take the drug regime prescribed to live as they please. The number of patients continues to trend higher as living standards rise and every day provides a bounty that would once have been reserved for festivals.

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

Some of the topics discussed include: oil steadies, Stocks steady, gold and silver ease back, Treasuries pause, India intervenes to support the rupee, Renminbi steadies. 

Alphabet Inc. is expected to report another quarter of slowing growth as macroeconomic headwinds and intensifying regulatory scrutiny weigh on its core advertising business.

Fears regarding a potential recession are driving many companies to scale back ad budgets, directly impacting Alphabet's growth prospects. The Google LLC parent company faces headwinds from difficult comparisons to 2021 when its revenue growth skyrocketed partly due to a rebound off early pandemic lows.

Alphabet is expected to report second-quarter revenue of $70.10 billion, up 13.3% from the prior year, according to S&P Capital IQ estimates as of July 20. The projected growth rate is down from 23% growth in the first quarter and significantly below Alphabet's performance through 2021.

"A challenging macro landscape and tougher comparisons will lead to a sharp deceleration in growth into the early parts of next year," said Angelo Zino, a senior equity analyst at CFRA Research.

Most companies understand that marketing/advertising are integral to both boosting and sustaining sales. Therefore, if revenue growth is falling at major advertising sellers, that’s a clear reflection of slowing demand within the wider economy. The disappointing manufacturing data last week’s sends the same message.

Amazon.com Inc. is starting delivery of packages to US customers using the first of as many as 100,000
electric vans built by Rivian Automotive Inc., which aims to hand over thousands of the vehicles this year.

Vehicle roll-out starts Thursday in Chicago, Dallas, Kansas City, PhoENix, San Diego, Seattle and St. Louis

Amazon expects to have Rivian vans deployed across more than 100 cities by year-ENd

Amazon has delivered 430,000 packages and drivEN 90,000 miles using Rivian pre-production battery-powered vans since 2021

Rivian CEO RJ Scaringe tells Bloomberg Television his company is working “as hard we can” to hit initial delivery target of 10,000 vans to Amazon by year-ENd
 “We’ll certainly have many thousands of vehicles on the road by the ENd of this year, but not providing a specific number,” Scaringe says in interview to air Thursday

Scaringe says forthcoming layoffs to help company “more efficiENtly structure parts of the team”

Rivian is “trying to be as intENtional and thoughtful in terms of what that means for the business, what that means for the individuals, as we work through that process”

Rivian has made “remarkable progress” since partnership betweEN with Amazon was announced in 2019, Udit Madan, a transportation executive with Amazon, says in Bloomberg
Television interview

Rivian shares pared an early gain of as much as 6.1% to trade up 3.3% at 3:11 p.m. in New York

There are more new automotive companies active today than at any time since the invention of the internal combustion engine. EVs have fewer moving parts and most of the value is in the battery. That significantly lowers barriers to entry. Those with sufficient capital have been able to start brands and those with continuing access to capital are likely to survive.

DM: The government has begun a comprehensive review of Japan’s defense strategy. Why is that important and what are the likely outcomes?

SS: A new national security strategy document is going to be issued. The first leader to issue was Shinzo Abe, in 2013. So this will be only the second statement by Japan, ever. It’s significant this is all together in one place, not just bombs and bullets. It’s about what Japan needs to do to achieve its interests in the world and how to proceed? In 2013, the language on China was pretty benign compared with what I think we will see in the next one. Russia will be near the top of concerns after the Ukraine invasion. North Korea continues to be a problem, given its missiles and the ability to launch them undetected.

There will also be a cabinet decision in December on the next 10-year defense plan. This is where we will see how serious Kishida is about defense. Within the 10-year plan will be a five-year plan on how much Japan spends and on what. The other issue that needs to be handled deftly is that of counterstrike capability.

DM: Japan is one of the most indebted economies. How does all this get financed? 

SS: I don’t know how they pay for it. Debt servicing is somewhere near 23% of Japan’s budget. Social security is about a third. The budget doesn’t have a lot of latitude. I’m not convinced about 2% of GDP, but let’s use that as a reference point. Last year, Japan spent about 1.3% of GDP on defense. You get to 2%, you are basically doubling it. That’s big.

Japan’s re-armament is unlikely to be derailed by Abe’s assassination. They look around Asia and don’t like what the geopolitical landscape is promising for the Japanese economy. That’s especially true as the USA is less reliable as a guarantor of security globally. 

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I have to admit I have a sense of caution in holding short positions when so many people have already sold, and many shares are down in excess of 70%. However, in order for a decline to reverse we need to see some evidence that hopes for better outcomes are in fact realizable.

“We are finally starting to see some weakness in the US dollar index, as gold bounces off an oversold level, recovering above $1,700 for now,” said John Feeney, business development manager at Sydney-based bullion dealer Guardian Gold Australia. “We now expect this initial flight to the US dollar to start rotating back into gold as investors search for a true and reliable hedge against inflation.”

The Federal Reserve’s willingness to increase rates has been the standout event this year. Their attempts to regain investor confidence following the failure to anticipate sticky inflation has resulted in a rare confluence of weak bond, stock and commodity markets at the same time. That has played havoc with returns for institutional investors.

The publication of the June bond figures by China Central Depository & Clearing Co. took place about a week later than in previous months. Interbank-bond-market figures released by the central bank’s Shanghai head office on Friday were also delayed, as they are typically sent out in the first half of each month. In May, China’s bond-trading platform for foreign investors quietly stopped providing data on its transactions.

Foreign investors still held 2.32 trillion yuan of Chinese debt at the end of June, well above the 221 billion yuan they owned in 2014. The opening up of China’s capital markets and the inclusion of the nation’s debt in more global bond indexes has attracted central banks and global investors eager to tap its higher yields.

“The bulk of the remaining foreign holdings of Chinese fixed-income assets reflects reserve manager, sovereign wealth fund and index tracking demand,” said Lemon Zhang, a strategist at Barclays Plc in Singapore. Looking ahead, large inflows are unlikely as investors aren’t optimistic on duration or China’s currency, while higher global yields provide alternatives, she said.

Demand for Chinese bonds has waned in recent months as US 10-year yields surged above 3%, while similar-maturity yields in China remained stuck in a range of 2.7% to 2.85% due to the People’s Bank of China’s accommodative monetary policy.

There has been a popular belief among institutional investors that China was for bonds and the US was for equities. The logic is that China is a creditor nation with vast reserves, strong growth and low debt/GDP ratios while the US is encumbered with massive debts and seems incapable of correcting the gaping deficit.

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

Some of the topics discussed include: Tesla pops, Snap disappoints, Nasdaq-100 at first area of resistance, Treasuries compress, ECB raises rates, China banks slump

"The US is not prepared,” said Paul Chinowsky, a professor of civil engineering at the University of Colorado Boulder. “While the rail system is incrementally being improved, there is significant work to do and what is being done is not being done fast enough.”

In Concord, California last month, triple-digit temperatures were the culprit behind a curve that emerged in a rail line that ultimately derailed a train, according to the Bay Area Rapid Transit Authority. And in Portland, Oregon, last year, temperatures that reached over 100°F wreaked havoc on the city’s public transport, MAX Light Rail, melting the overhead cables that power its trains. City officials had to suspend all train services for almost two days.

UK consumers are familiar with services coming to a halt because of leaves on the track or more recently heat related issues. Covering Hammersmith bridge in London with foil insulation and installing air conditioning units for the cast iron stretches the argument for preserving industrial revolution era infrastructure to the point of incredulity. At some point, it’s time to put utility ahead of sentimentality. One way or another there is going to have to be infrastructure development.

The 10% surge in Tesla Inc. shares Thursday after the electric-vehicle maker reported strong earnings is creating one notable group of losers: The pile of traders betting against the stock. 

Tesla is the most shorted stock in the world, with almost 3% of its float held in short-selling positions. S3 Partners estimates that these investors are taking in more than $1 billion in mark-to-market losses just on Thursday’s surge. That drives their losses this month to $2.67 billion, according to S3.

“Tesla short sellers were actively trimming their exposure ahead of the earnings release, covering 2.09 million shares, worth $1.55 billion, over the last 30 days,” S3’s managing director of predictive analytics Ihor Dusaniwsky wrote in a note. Short sellers could continue to get squeezed out of their positions due to such “large and sudden losses,” he wrote.

Tesla is very dependent on the recent uptick in Chinese sales persisting. That’s not something anyone has had to worry about for a long time, but it is a subject everyone will be familiar with over the coming year. Meanwhile the correction in copper and other battery metals is a positive.

The European Central Bank reckons it can defy a record of aborted interest-rate hikes as it raises borrowing costs while confronting a recession threat and Italian political turmoil.

The half-point increase delivered on Thursday allows President Christine Lagarde and her colleagues to join the global fight against inflation with a larger-than-expected initial salvo -- carrying the risk of doubling down on another policy error.

This is the third time in the near quarter-century of the ECB’s history that it’s raised rates with a crisis of some sort blazing in the background. On each occasion it did so in July -- and both prior hikes were reversed within months.

The big background question for bond markets is whether countries with a high median age population can also have high bond yields. Until now there has been a clear correlation between the aging populations of Japan, Germany and Switzerland and their low yields. The USA has a higher median age but that is not a permanent condition. The reluctance to increase immigration is not going to improve that trend.

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

Some of the topics discussed include: specualtive interest in crypto and cannabis jumps, Nasdaq jumps to new recovery high, Dollar steady, oil firm, China weak on growing property issues, Europe gas firms on less supply expected from Russia. yield curve invertions remain lead indicators for future trouble.

Stocks are advancing for a third day in four amid optimism over the earnings season and growing speculation markets may have bottomed out. While that debate continues, with Sanford C. Bernstein strategists saying markets have yet to see full capitulation, rates markets have discarded bets the Federal Reserve will hike rates by a full percentage point next week, bolstering optimism the central bank will take a more measured approach to policy tightening.

“The fact that companies are showing a certain resilience to the current environment is reassuring market operators who have now started betting on a less aggressive monetary tightening than initially expected,” said Pierre Veyret, a technical analyst at ActivTrades. “Even if we’re not out of the woods yet, more and more traders now tend to believe the worst is behind for equity markets this year.”

Recession fear is now a consensus among investors. Therefore it is reasonable to question how the market can continue to rebound. Netflix is a good example to examine. The share collapsed because subscriber growth was unrealizable. The share rebounded this week because its loss of million subscribers was less bad than had been priced in.

Several observers consider Ethereum's impending transition equivalent to three Bitcoin halvings – a programmed code that halves the per block bitcoin (BTC) currency supply every four years – that will lead to a 90% reduction in ether's annual issuance. Simply put, the transition is likely to bring a store of value or deflationary appeal to ether. The upgrade has been long pending.

Like other market participants, ether investors tend to factor in bullish developments in advance. For instance, ether rallied over 60% to $2,800 in the three weeks leading up to the London hard fork implemented on Aug. 5, 2021. The hard fork activated a mechanism to burn the portion of fees paid to miners.

The Ethereum 2.0 upgrade has been long overdue and has seen several delays. However, the recent successful merges of the Ropsten and Sepolia testnets and the Goerli testnet's planned transition to proof-of-stake on for Aug. 11 has raised hopes for the mainnet merge in September.

The foundation's strongest hint of the tentative date of the Merge on record came as the crypto market looked for reasons to bounce, having priced in much of the bad news over the past two months.

Ether tanked 60% to less than $1,000 from $2,700 in the past two months as fears of faster liquidity withdrawal by the Federal Reserve, Terra's collapse and eventual bankruptcies of crypto hedge fund Three Arrows Capital, several crypto lenders saw investors dump crypto holdings.

Predictable dates tend to magnify trader interest. That’s especially true in markets where there are no hard fundamentals, like crypto. The one thing that amplifies interest in the crypto sector better than anything else is supply inelasticity.

Canopy Growth jumps as much as 16% to a three-week high ahead of a US Senate committee meeting to explore decriminalizing marijuana next Tuesday.

The Subcommittee on Criminal Justice and Counterterrorism scheduled a hearing to “examine decriminalizing cannabis at the Federal level, focusing on necessary steps to address past harms,” set for July 26

Shares of cannabis companies jumped, including; Tilray Brands Inc. up as much as +8.8%, Cresco Labs +9.2%. Aurora Cannabis Inc. +8.2%, Curaleaf +4.5%, Green Thumb Industries Inc. +6.2%, Sundial Growers Inc. +7.2%

The ETFMG Alternative Harvest ETF rose as much as 5% to its highest point in three weeks

Pot stocks have rallied on news that Senate Democrats plan to introduce a bill to decriminalize marijuana, known as the Cannabis Administration and Opportunity Act, as early as this week

I have mixed emotions about cannabis. My libertarian instincts lead me to favour supplying people with all the information they might need and letting them do as they please. Any trouble they get into is at their own risk and personal responsibility should imbibe individuals with a sense of risk aversion.

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

Some of the topics discussed include: oil extends rebound, yield curve extends inversion but stocks are rallying as the Dollar weakens. Treasuries are still steady near 3%. 

“Boeing has been the biggest beneficiary at Farnborough to date,” said Sheila Kahyaoglu, an aviation analyst at Jefferies LLC.

Airbus Chief Executive Officer Guillaume Faury acknowledged in an interview Monday that business was “probably a bit less now than it used to be in the past because we are constrained by the supply chain.”

The Toulouse-based company has had to grapple with so-called gliders -- fully built aircraft sitting on the ground without engines that can’t be completed amid a shortage of components, from engines to computer chips The planemaker now has 26 planes without engines, six more than at the end of May, according to Faury, who said he’s optimistic the issue will be resolved by the end of the year.

Besides, the company came into the show with some major orders under its belt, including a deal from China for 292 airliners worth more than $37 billion just this month.

Even if Airbus has to cede the commercial bragging rights to Boeing this year, the European company can take solace in the fact that it has an order backlog stretching out years, giving it little reason to hunt for fresh deals. The company’s best-selling A320 family is sold out until 2027. Faury said his priority now is to serve existing customers and get the supply chain sorted.

Airlines are still buying planes with the expectation business will return to normal in due course. Of course, with the backlog of orders at Airbus and Boeing they are not under any pressure to take delivery in the short term. Meanwhile the most pressing issue is the oil price and staffing levels.

Kirk was afforded the opportunity to share his frank views and resigned from his position at HSBC less than a month later.

That helps to highlight how polarized the discussion on climate is. There is no room for a dissenting public voice. That’s despite the fact he did not deny climate change but instead suggested we need to adapt.

On Tuesday, European Parliament Vice President Nicola Beer began a three-day visit to Taipei -- leading the most senior EU legislative delegation to visit Taiwan. Beer told reporters after her arrival that the “family of democracies” need to support Taiwan after China’s crackdown on Hong Kong’s opposition and Russia’s invasion of Ukraine. 

No ‘Blind Eye’
“We won’t have a blind eye on China’s threat to Taiwan,” Beer said. “Europe was late for Hong Kong. We won’t be late for Taiwan. There is no room for Chinese aggression in democratic Taiwan. For the moment, we witness war in Europe. We do not want to witness war in Asia. And so now it’s the moment to stand firm on the side of Taiwan.” 

China’s refusal to condemn Russia’s invasion of Ukraine has complicated its efforts to shore up relations with the Europe Union. Top European leaders haven’t responded to an invitation from Xi to meet him later this year in Beijing, the South China Morning Post reported, citing a person familiar with the matter. 

This is a major escalation of rhetoric from Europe and the USA. China will bristle at what they consider direct interference in a domestic matter. The One China policy is the biggest red line the Communist Party has.

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Some of the topics discussed include: Euro rally ebbs, stocks reverse earlier advances, Treasury yields compress, commodities rebound led by oil and gas. Recession risk continues to rise. 

Of course, the specification of an absolute amount of water to each of the states and Mexico has raised a few serious problems that remain contentious. First, the river is over-allocated. The 1920’s – coincidentally the time that the Compact was negotiated was an anomalously wet period with annual flows as high as ~20 million acre-feet (Figures17-18). In contrast, the long-term mean discharge of the river is about 15 million acre-feet, yet 16.5 million are allocated. Furthermore, the river flow is highly variable and based on historical data and tree ring reconstructions, it seems that decades-long dry periods with flows less than 13-14 million acre-feet may be common. Second, climate projections indicate that the region will become drier in the long-term, and some have suggested that we have already entered an era of steadily declining river flows along the Colorado. Fourth, improved understanding and renewed interest in the environmental impact of decades of dramatically reduced flow have spurred new pressures to allocate some discharge for the natural system. Finally, demand is likely to increase as populations in the region continue to grow, further stressing the already over-allocated river (Figure 18).

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

Agriculture uses approximately 80% of the Colorado River’s water, using it to irrigate 15% of the nation’s farmland, and produce 90% of the winter vegetables. Wheat, corn, berries, and fresh produce are likely to be particularly strained by supply rationing to manage water-stress, as well as the crops, including alfalfa and hay, used by farmers to feed cattle. A recent study found that the largest consumer of river water in the Western U.S. is irrigation for cattle-feed crops. 

A new ETF-for-everything era may have just begun on Wall Street, swelling an industry that already boasts nearly 3,000 products and $6.2 trillion in assets.

The booming world of exchange-traded funds is about to get even more crowded after the very first single-equity ETFs launched Thursday -- despite a torrent of regulatory warnings over their risks while retail investors are still reeling from the crash in speculative trades from crypto to meme stocks.

The eight products from AXS Investments look like the start of a coming invasion of amped-up strategies that will seek to enhance or invert the performance of volatile companies, including Tesla Inc., Nvidia Corp. and PayPal Holdings Inc.

Another proposed lineup from Toroso Investments offers to layer on a bullish options strategy in order to boost returns. All told, at least 85 more such ETFs are currently planned, according to filings tracked by Bloomberg, covering some 37 companies.

That’s just the start. With a never-ending fee war taking costs on index-tracking ETFs to rock-bottom levels, the arrival of single-stock products opens up a lucrative avenue for issuers, with leveraged or inverse trades tracking major companies up for grabs. 

All told, the Securities and Exchange Commission may have inadvertently put new investing tools in the hands of day traders at a dangerous time with recession risk sparking bear markets. 

The rational investor is going to question the wisdom of setting up single stock ETFs. Afterall can’t you simply buy the share? The reason for setting up single stock ETFs for shares like Nvidia and Tesla is because their options are expensive. Options sell in minimum sizes of 10 contracts for retail traders. If the underlying has a lower nominal value, the options will be cheaper to buy for smaller investors.

What you were saying about the huge migration to Texas makes me wonder if this isn't the right time to buy home builders who are active in that area? Or REITs?  What about NXRT, an old favourite of mine which has now come right done (fortunately I got out)? It specialises in refurbishing multi-family properties in the sunbelt. Is it too early to buy again do you think?

Thank for this question which may be of interest to the Collective. A realtor friend of mine shared his rationale. If a buyer is worried about interest rates rising, then buy now before they go higher. If they are worried about rates falling buy now because that will inflate prices and you can always refinance. I think it is safe to say a realtor will always have a convincing rationale to buy

A link to this week's Big Picture Long-Term video is posted in the Subcsriber's Area. 

Former Treasury Secretary Lawrence Summers issued one of his harshest criticisms yet of the Federal Reserve’s slowness in moving to raise interest rates, and warned that policy makers are still presenting forecasts that are unrealistic.

“In 2021, our central bank let us down quite badly,” hurting policy makers’ credibility, Summers said on Bloomberg Television’s “Wall Street Week.” “It made mistakes in the core functioning of a central bank,” including in its failure to lean in against fiscal stimulus last year, he said.

Among the errors has been a “repeated poor forecasting record -- and I have to say that it’s not something that’s been fully fixed,” Summers said. The June median Fed official predictions showed inflation coming back toward the 2% target but unemployment only reaching a high of 4.1% by 2024 -- a “highly implausible” result, he said.

“Frankly I think in 2021 our central bank lost its way. It was talking about the environment, talking about social justice in a range of things,” Summers, a Harvard University professor and paid contributor to Bloomberg TV, said. “It was confidently dismissing concerns about inflation as transitory.”

Turning to Japan, which has seen its currency tumble to the weakest since 1998 as the Bank of Japan declines to join its peers in tightening policy, Summers said it’s likely to be a challenge to exit the current zero-yield targeting regime.

Dollar’s Impact
“Sooner or later they’re going to leave the yield curve control strategy and I’m not entirely sure what’s going to happen when they do,” Summers said. “In the meantime, the pressures are likely to build,” with the potential for “an even weaker yen,” he said.

While some emerging markets are also suffering from a strengthening dollar, Summers said that he didn’t see a “systemic” crisis along the lines of 1998. Still, countries with “particularly unsound policies” including Turkey and Argentina are a concern, he said.

The world as it is, the reactions of traders to evolving stimuli, and the world as we would like it to be, are three very different places.

The reality of massive money supply growth in 2020/21, and the subsequent decline in supply growth represent the background for market. The absence of clear sources of new liquidity suggest it is unproductive to expect sharp rebounds on par with those seen in 2021.

Historically, gold prices have often come under pressure in the early stages of a slowdown as central bank policy is still tightening or is tight and real interest rates are rising. Of course, this dynamic reverses when policy rates are cut. We expect a further lift to real interest rates this year, particularly as inflationary risk fades in 2H22. As such, additional liquidation of exchange-traded funds can be expected. We advise protecting the downside to longer-term holdings in the yellow metal into year-end. However, we see opportunities to be more positive though 2023 as the Federal Reserve pivots to an easier stance and the US dollar weakens.  

Gold is often regarded a perpetual zero coupon bond. It therefore thrives in an increasingly negative real interest rate environment and struggles when a rates trend towards positive real rates.

India’s foreign exchange reserves dropped to their lowest in 15 months as the central bank probably stepped up its intervention to support the rupee that is testing new lows amid foreign capital outflows.

The reserves fell by $8.06 billion to $580.3 billion as of July 8, data released by the central bank showed Friday. This is the second straight week of decline and comes as the rupee nears the psychologically-important level of 80 per dollar.

While most emerging markets are seeing a sell-off on the US Federal Reserve’s rate-hike outlook, the Indian currency has lost about 7% this year, staying in the middle of the regional pack where the South Korean won has weakened by over 10% and the Philippine peso has shed over 9.5%.

A bigger import bill due to high commodity prices is also boosting demand for dollars, putting pressure on the local currency.

Monetary authorities in Singapore and Philippines on Thursday responded to the situation by going for emergency tightening. Some economists in India are factoring in the possibility of an unscheduled announcement by the Reserve Bank of India too. The central bank, which is due to announce its rate decision Aug. 4, had surprised with an off-cycle move in May.

At the current level, the reserves will cover less than 10 months of imports. Investors are worried that the drop in reserves leaves the rupee vulnerable to speculators, but even now these are much larger than they were during the taper tantrum of 2013, Bloomberg’s economist Abhishek Gupta wrote on Friday ahead of the data release. 

India is in a better position to defend against surprises than at any time in its history. In 2008, reserves of $300 billion were considered healthy. Today they hold $580 billion which is down from a peak of $640 billion in August 2021. That has not done much to arrest the decline of the currency but it does provide the RBI some options.

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

Some of the topics discussed include: Dollar pause supports asset prices, Nasdaq-100 up, oil rebounds, European natural gas firm, central bank total assets trending lower, joblessness trending higher, picking ultimate winners in tech. 

I enjoy reading and listening to Mr. Treacy commentary which helps me in a number of facets of my financial decisions (I live in the UK).

Mr. Treacy has recently been commenting on commodity pricing easing as one of the by-products of early onset recession.

I have been wrestling whether to fix my electric and gas rate with current provider for 2 years (which is 52% higher than current price). Whilst pundits are predicting 65%+ rate rises Mr. Treacy’s comments suggest otherwise (commodities easing).

I would be interested in Mr. Treacy view on this matter.

Thank you for this question. It is a sign of the times that the savings from successfully deciding on what electricity plan to sign up for could pay for a subscription to this service.

You are sending out comprehensive information that I am not finding anywhere else, addressing multiple markets, which is quite helpful for me as an investor. So that brings up two questions: First, I wonder if you agree that the Fed has already reduced its balance sheet by about $1 trillion dollars? (As I heard recently from one analyst, which, given the rise in the dollar could explain the decline in values of multiple assets...) And, second, given the drop in so many assets: Bitcoin, gold, stocks, uranium recently, metals on the LME, to name a few, are we already actually in a recession, even though not officially labeled by the powers that be, is this, in fact a recessionary event we are proceeding through regardless on any official labeling, in your opinion?

Thank you for this question which may be of interest to the Collective. The Fed only began reducing the size of its balance sheet in July. They are starting at a pace of -$47.5 billion and plan to double that to $95 billion in the autumn. The bulk of global quantitative tightening so far has been achieved through the strength of the Dollar.

However, there’s a chance that despite the fiscal largess, overall infrastructure investment growth could still disappoint. First, while Beijing is letting local governments issue more bonds, it’s still telling them to reduce so-called “hidden” debt -- off-balance sheet borrowing from banks by state-owned companies, which has financed a large chunk of China’s infrastructure over the last decade.

Second, fiscal funds need to be supplemented by lending from commercial banks and private investors -- both of which may be reluctant to lend in a risky environment. Finally, local governments in recent years struggled to find infrastructure projects that could generate returns large enough to repay the special bonds. Some economists estimate local governments left 2 trillion yuan of funds unspent last year. 

While Beijing is telling local authorities to speed up spending, it remains to be seen if attitudes will shift.

“Funds are less of a constraint for infrastructure investment this year, while the bottlenecks lie mainly with project pipelines and government incentives,” Goldman Sachs Group Inc. economists including Xinquan Chen wrote in a note last week. In a sign that the fiscal push is yet to rev up construction, sales of excavators in China have been sinking since April last year. In January-June, the sales plunged 53%.

Arguing China needs more high-speed railways is a bit difficult when the national railway already has almost $1 trillion in outstanding debt and no passengers. That begs the question whether the new debt being issued will be used to retire/bring off balance sheet on balance sheet or on new projects.

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

Some of the topics discussed include: CPI surprises on the upside and investors price in another big rate hike but bonds rallied and stocks steadied. Willingness to look through trouble and buy the dip has been the hallmark of this bull market but corporate profits are peaking, unemploymenbt is about to rise and we have not felt the ill effects of a recession yet. 

Your daily talks, now focusing on the probability of a recession, are as always full of interest. I never miss them, or if I have to, I at least read the Comments of the Day.

I've been struggling to decide on some "investments" that could profit from the recession scenario, and which could remain there for the medium term, without my having to watch them every day for sudden reversals. Any suggestions? Shorting a commodity ETF?  Shorting the US banking sector? I'm sure you have other ideas.

Thank you for this long-term patronage and this question which may be of interest the other subscribers. The phrases “buy and forget” and “shorting” don’t normally go together. Shorting necessarily means leverage. You can’t walk away from a leveraged position because they can go against you in a hurry.

Should the release of the remaining Mt Gox funds have a similar effect on the price of Bitcoin, it would likely drop below $10,000. However, even in recent months, there has been equal sell pressure on Bitcoin from parties such as Luna Foundation Guard, Three Arrows Capital, and Bitcoin miners.

LFG sold several billion dollars worth of Bitcoin, which had a negligible effect on Bitcoin as the market absorbed the selling pressure. The following weeks since the event did result in Bitcoin’s price decline due to a change in market belief and overall global outlook. The markets may well absorb any selling from Mt. Gox creditors, but the social sentiment of early Bitcoiners relinquishing their coins could create a bearish psychological sentiment.

Bitcoin is a liquidity barometer. The Mt.Gox liquidator releasing additional supply into the market would be a headwind at the best of times. Doing so while interest rates are rising and liquidity is being siphoned out of the system, will only have a larger negative impact on bitcoin prices.

The payment refusals underscore how the storm engulfing China’s property sector is now affecting the country’s middle class, posing a threat to social stability. Chinese banks already grappling with challenges from liquidity stress among developers now also have to brace for homebuyer defaults.  

Now is “a critical time for social stability,” said Chan, adding that “the forgoing of down payments may bring social instability.”

A drop in home values hasn’t helped. Average selling prices of properties in nearby projects in 2022 were on average 15% lower than purchase costs in the past three years, according to Citigroup’s research. 

How much do prices have to fall before consumers give up hope they will ever recoup their down payment through a sale? I guess we have the answer in China where many of the home purchases are speculative to begin with and tens of millions of apartments stand vacant at the best of times.
 

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

Some of the topics discussed include: recession risk rising, inverted yield curves, oil weak, copper extends downtrend, financial sector weak heading into earnings, China recession risk. 

Tension is spreading through Shanghai as residents watch the Covid-19 caseload tick higher, fueling fears they’re headed back into lockdown little more than five weeks after exiting a bruising two-month ordeal.

The city reported 59 new infections for Monday, the fourth day in a row case numbers have held above 50. The sharp rise from single digits about a week ago follows the detection of the more contagious BA.5 sub-strain of the omicron variant, which has triggered two additional rounds of mass testing between Tuesday and Thursday this week across nine of the financial hub’s 16 districts, as well as other areas where cases have been found. 

China’s strict Covid Zero approach is once again being tested as outbreaks flare across the country amid the arrival of a sub-variant that has fueled rising caseloads elsewhere. Already, close to 30 million people nationwide are under some form of movement restrictions to quell transmission, but authorities have so far steered clear of strict lockdowns in key economic regions.

Quarantines work in the initial stages of an outbreak because there is still some hope the rate of infection can be contained. The only reason to sustain a quarantine during a pandemic, where there is no hope of containing the global spread, is to slow the rate of infection. The time bonus gained from slowing the rate of infection can be used to prepare treatments, vaccines and recovery areas, but no one is under any illusion that quarantines can indefinitely turn back a pandemic. Eventually everyone is going be infected.

London Heathrow is imposing a two-month cap on daily passenger traffic, a dramatic response by the UK’s busiest airport to the flight chaos gripping Europe as airlines and ground crew struggle with a surge in travel demand. 

The airport will limit daily passenger traffic to 100,000 departing people through Sept. 11, asking airlines to refrain from selling summer tickets. Current forecasts are modeling for as many as 104,000 passengers a day over the summer, still below the roughly 125,000 passengers that left daily this time before the pandemic.

Anyone who thought demand for international travel would never return to normal has been proven very wrong. If anything, pent up demand is contributing to even higher demand because people have been cooped up at home for so long. If China’s population ever get to travel again, tourist locations will be swamped.

The other constraint is the so-called ‘spot real rate’, which measures the Fed’s target rate minus current headline inflation. The premise is that the Fed cannot tighten financial conditions sufficiently to wring out inflation if it ends rate hikes with the spot real rate still negative.

Putting this together, if the Fed gets to, say, a 4.5% target rate with inflation in 2Q 2023 at the same level, maybe it can call it a day. That’s a very high inflation level but also a restrictive level of policy which will mean significant economic pain. If, for example, the US economy lapses into recession and inflation falls to 4%, the Fed might feel confident that inflation was headed down to its 2% target even if the fed funds rate is only 3.0% when this occurs.

The scenarios above are more akin to the early 1970s when the Federal Reserve allowed real yields to remain negative in the face of double digit inflation. It’s not the crushing blows that Paul Volcker administered to the US economy.

Even so, inflation is so high that there are almost no scenarios where the fed funds rate doesn’t get to at least 3 or 3.5%. More likely we go higher than that.

That’s when banks will likely face problems with defaults and net interest margins.

The 10-2-year yield curve spread is currently at negative 9 basis points. That’s the most inverted the spread has been since 2007. Jay Powell dismissed this indicator as useful and prefers to look at the 10-year – 3-month spread. That measure has contracted by 40 basis points since Friday. In early May it was at 230 basis points. Today it is at 80.

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

Some of the topics discussed include: Dollar surges, bond yields contract, recession risks jump, oil steady, stock markets weak in constant currency terms. 

What’s your view of global recession in late 2022 or 2023? thanks for given some information on this.

Thank you for this question which may be of interest to the Collective. Financial conditions are tightening almost everywhere so recession risks are certainly rising. The dilemma for investors is we are only two years on from the pandemic panic, so it is very early to think about recession risk. Nevertheless, it is a question we need to deal with because exogenous factors are more relevant today than at any time in recent memory.

The commodity complex is now seeing a collapse in prices, and this shows great similarity to what we saw in mid-2008. Although the oil price decline is slower and lagging, likely because of the Ukraine war, other industrial commodity prices are in virtual freefall. Soft-landing advocates must now face the overwhelming evidence of economic collapse and extricate their heads from the sand. ¢

Despite the fallout from the Ukraine war, agricultural prices too have also imploded, and that will sound a note of caution for those who think the oil price cannot fall as quickly as other industrial commodity prices. With the oil price having slid from $125/b to under $100 in a month, it should not be long before the yoy comparisons are negative, as with food prices.

Headline CPI inflation will likely turn negative, and the inflation narrative will then evaporate (temporarily), so trigging a collapse in US 10y yields back below 1%. What a shock that will be!  

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

Chinese stocks had their worst day in about a month as a Covid resurgence, combined with fresh fines for the country’s tech giants, sent investors running for the door.

The Hang Seng China Enterprises Index, a gauge tracking mainland firms listed in Hong Kong, slumped 3.1%, its biggest loss since mid-June. Tech heavyweights, property developers and electric-vehicle makers were among the biggest drags. 

A slew of bad news hit the Chinese market over the weekend and Monday morning, including regulatory fines on past transactions done by Alibaba Group Holding Ltd. and Tencent Holdings Ltd., a rejection by China Evergrande Group’s bondholders on a proposal to extend debt payment, and a warning by a prominent investor’s wife that a key lithium maker’s stock is overvalued. 

The selloff is a reminder that the nation’s Covid Zero policy and lingering uncertainty toward tech crackdowns remain key risks for investors betting on a sustained rebound in Chinese shares. The Hang Seng China gauge has recorded just one positive session in the last eight after rallying nearly 30% from a March low.  

The pandemic continues to be a major factor in the daily life of China, even as the rest of the world moves on. The reality of a large population with little immunity and the threat of rapidly evolving strains are growing more infectious suggests the quarantine system will slow the advance but can never overcome it.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area.

Sales growth this year should accelerate from 2021’s 24.9%, which was in dollar terms, Chairman Mark Liu said at the company’s annual shareholder meeting on Wednesday. That’s in line with executive remarks in April that gave an official outlook of topping mid- to high-20% growth in 2022.

TSMC’s projection comes as concerns persist that inflation, the war in Ukraine and Chinese lockdowns will hammer demand for gadgets. On Wednesday, executives acknowledged smartphones and computers have been hard-hit but that spending in other areas such as electric vehicles have exceeded expectations. They played down the effect of inflation, saying the rise in prices was gradually abating.

“The current inflation has no direct impact on the semiconductor industry as the demand drop is mainly for consumer devices like smartphones and PCs while EV demand is very strong and partially exceeds our supply capacity so we are making inventory adjustments,” Liu said. “Utilization rate is full for the rest of the year.”

TSMC reaffirmed previous projections for $17.6 billion to $18.2 billion of revenue this quarter, supporting gross margins of as much as 58%.

TSMC, the most advanced maker of chips for tech giants from Apple Inc. to Nvidia Corp., rose more than 1% in Taipei, after having shed more than a tenth of its value this year. While the Taiwanese company has been one of the biggest beneficiaries in past years of soaring demand for chips in a growing range of connected devices, investors fear policy tightening around the world will begin to erode consumption in 2022.

 

BMW reported today that its sales of electric vehicles are on track to double this year. That’s in line with the company’s projections even as sales of conventional vehicles decline sharply. Tesla also reported sales of vehicles in China are rebounding quickly.

The Foreign Ministry struck a softer tone on Friday. China was “shocked” by the attack, spokesman Zhao Lijian said at a regular press briefing in Beijing just before news that Abe had died, saying the nation hoped he would recover soon.

“This unexpected incident should not be linked with China-Japan relations,” Zhao added. When asked about some nationalist voices in China cheering the shooting, Zhao declined to “comment on the remarks of net users.”

The Chinese administration has been fostering a domestic nationalistic movement for years. That helps fuel domestic support for extraterritorial ambitions amid the government’s significant militarization efforts.

Germany’s vice chancellor made a public plea to the Canadian government to release a turbine that’s caught up in sanctions against Russia and critical for gas flows to Europe. 

Economy Minister Robert Habeck told Bloomberg that the turbine for the Nord Stream 1 pipeline needs to be returned before maintenance work begins on Monday. Releasing the component would remove an excuse for Russian President Vladimir Putin to keep the conduit closed.

“I’ll be the first one who will fight for a further strong EU sanction package, but strong sanctions means it must hurt and harm Russia and Putin more than it does our economy,” Habeck said in a phone interview late Wednesday. “Therefore, I ask for understanding that we have to take this turbine excuse away from Putin.”

Germany has begun rationing gas. That’s aimed at doing whatever is necessary now, so they have adequate reserves for the winter. Even then it is going to be a tight market environment.

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

Some of the topics discussed include: Dollar extends rally, Stocks rebound, oil firm, gold steady, stocks rebound on China stimulus. bond yields rise on hawkish Fed minutes.

A quarterly drop in GDP, which has only happened once before, underlines China’s slower rebound from coronavirus curbs than in 2020, providing less of a boost to a struggling global economy. Debate about the accuracy of official data will likely persist this year as President Xi Jinping urges officials to strive to meet an ambitious target for annual GDP growth of about 5.5%, while at the same time sticking with a Covid Zero policy that requires tough restrictions wherever virus cases emerge.

“There is no plausible story that GDP growth should be positive in the second quarter,” said Logan Wright, head of China markets research at Rhodium Group. “The downturn in household consumption is very significant within both the official retail sales data and other proxies. And the property sector remains a significant drag.”

The evidence from alternative indicators is overwhelming of an ongoing slump in the economy. Travel data shows passenger trips taken on China’s roads were mostly below last year’s levels into July, according to transport figures analyzed by TS Lombard. The number of domestic flights in the quarter was down 62% from the same period last year, according to data provider Variflight.

Covid cases in Shanghai doubled today. Earlier this week the newer BA5.2 subvariant was found in Xian and is now also in Beijing. The omicron variant appears to be mutating much more quickly than prior strains but is also resulting in less severe symptoms in most of the world. China has the complication of an unvaccinated population and is only now introducing vaccine mandates.

Russia’s currency is set to end four days of losses against the greenback as demand for foreign currency declined in Moscow. The country’s main stock index drops for a second day.

Ruble gains 0.1% to 63.2800/$; adds 0.9% versus euro to 64.1850

USD/RUB rate might correct to 55-60 range in the near future, George Vaschenko, head of Russian trading at Freedom Finance in Moscow, writes in a note

“Ruble weakening was not accompanied by significant trade volumes; the weakening of demand will lead to a decline in the exchange rate”

The Ruble has been supported by the strength of Russian energy exports. The $20 pullback in oil prices from between June 30th and yesterday had a knock-on effect for the currency. Despite the fact the Euro was breaking down against the Dollar, the Ruble fell faster. That’s a clear sign of how dependent Russia is on high energy prices to sustain the value of the currency.

Best wishes and greetings from Australia.  The e-mail covers 2 topics:

VOLCANOES

Several years ago (it might have been 10+ years ago) FullerTreacyMoney used to publish occasional articles and comments from ??? concerning the impact of the various volcanoes around the world on temperatures, crops etc.  I have not seen any articles lately.  Do you remember this newsletter?  Is this service still around and do you still follow it?

The reason I ask is that we have been having some weird weather in Australia recently (e.g. raining in winter when it never rains in winter) and it has been suggested to me that the volcano that erupted in Tonga at the start of 2022 is the cause.  (as opposed to global warming that seems to be the cause for everything bad these days).  It would be nice to get some more authoritative back-up before I use the example more widely.   If you still follow this line of thought, could you please point me to the reference site?  Thanks.

AISC

As you know I am the author of the textbook "Mining Economics and Strategy" which you have quoted on occasions.  I am in the process of revising and extending it for republication in 2024 (it will just be titled "Mining Economics").  Amongst the topics will be some discussion on All-in-Sustaining-Cost, not covered in the current book.  I agree there is insufficient definition of this term.

The term started to be used because investors (who knew nothing about mining) used to get perennially upset when some mining company was seemingly doing well, but then needed cash just to sustain production.  Just when the patient investors were lining up for dividends the dividends wouldn't materialize because the mining companies needed the cash themselves.  (Terms like "profitless prosperity" were common).  So mining companies - mostly gold mining companies - started to use this AISC term as an alternative to "cash" costs to indicate to investors what sort of overall margin they had over the published gold price going forward.   Now, it seems, investors are regarding this with more weight than it was ever intended.  And, according to the article you referenced, it seems some mining companies are creatively using the AISC term to present their situation in a more-favourable light than it deserves.  But you are right - the term is not well defined.  Even if the mining company is not deliberately misrepresenting their situation, there are two major short-comings in common application:

1)  A mining company might be planning a steady reduction in output over the ensuing few years as reserves get depleted, so the AISC would include (for example) replacement capital and other capital needed to fulfill this plan, but this doesn't necessarily mean that production will be sustained at current rates.  The AISC doesn't necessarily imply output will remain constant (but I'm sure that many investors think this is the case).

2)  Mines seldom produce just one product.  A gold mine almost always produces silver, for example.  But in an attempt to present things in "gold" terms - overly simplified for anyone who don't want to take the time to understand the economics properly - the silver "credits" will be subtracted from the price of gold necessary for the mine to remain viable ... with the absurd situation (if there are many by-products) where sometimes a gold mine could have an AISC of close to zero ... depending on the price of silver or other by-products used in the analysis.  Often, the selling price used for these by-products may not even be shown and probably not highlighted.

Lesson: as you highlight, investors should be wary of putting too much weight on any published AISC numbers.

Thank you for this informative email and I look forward to reading the updated version of Mining Economics. 

The Browning Letter was written by Evelyn Browning-Garriss until 2016. Unfortunately, she died of cancer in 2017. Her son, James took over the publication and is still producing it. I reached out and they kindly forwarded the June issue. (subscription details). I don’t see mention of the Tonga volcano, but he has been predicting a wet winter in eastern Australia because of the strengthening La Nina. Here is a section:

The Pacific is going to continue pushing warm water up against the east coast of Australia through winter. This will increase precipitation for the entire season in New South Wales and Victoria as well as southern Queensland. Early in the season, rainfall will also move along the southern borders of South Australia and Western Australia. Some typhoon activity could also occur thanks to the westerlies coming from Antarctica.

Eoin, what is the rationale for continuing to own GDX when it has cracked through the $30 mark which you have been very confident about holding, and you have now sold Gold? If Gold is going lower still, GDX is going to go with it, likely with higher beta. I am left with GDX which has been a horror show, now down 40% in just a couple of months, and pondering what to do with it.

Thanks for this question which I’m sure others are asking. I was hopeful the $30 area would hold because it is the upper side of the base formation. Unfortunately, the market doesn’t listen to what I think. Life would be a lot easier if it did. I bought my initial position during the pandemic panic of 2020 because I thought it was a no brainer. That was the correct instinct but my second purchase was completed at too high a level, so now my total position is running a loss.

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

Some of the topics discussed include: stocks quiet, oil and copper trim declines, gold extends decline, Treasuries pause, Dollar firm, yield curve inverts again. 

New chancellor Nadhim Zahawi has urged unity after his predecessor, the health secretary, and several junior ministers walked out.

But the prime minister has been hit by six further resignations, taking the total to 16 in the past day.

It comes as he prepares for PMQs later and a grilling by senior MPs.

Mr Johnson's premiership has been plunged into crisis following the dramatic resignations of Chancellor Rishi Sunak and Health Secretary Sajid Javid.

They quit within minutes of each other on Tuesday following a row over Mr Johnson's decision to appoint Chris Pincher deputy chief whip earlier this year.

Their departures triggered a wave of resignations from more junior roles that has continued on Wednesday.

In six further departures ahead of PMQs, education ministers Will Quince and Robin Walker, Justice Minister Victoria Atkins, Treasury minister John Glen, and ministerial aides Laura Trott and Felicity Buchan have all walked out.

Boris Johnson is a proven vote winner, but it was widely reported when he became Prime Minister that he is not well liked by his party colleagues. That later point is now becoming relevant as demand for solutions to unfolding economic issues are in high demand. Regardless of efforts to remove him, the range of possible options to mounting economic, inflationary and energy challenges will be the same.

The new rules will add gas and nuclear power plants to the EU "taxonomy" rulebook from 2023, enabling investors to label and market investments in them as green.

Out of 639 lawmakers present, 328 opposed a motion that sought to block the EU gas and nuclear proposals.

The European Commission welcomed the result. It proposed the rules in February after more than a year of delay and intense lobbying from governments and industries.

I wonder if we are seeing the end of an era of idealism and the return of harsh Cold War realism. This is particularly relevant for Germany’s Green Party. The decision by the European Parliament gives cover to the Greens to embrace nuclear as a suitable alternative to coal. That’s not to ignore the fact that it would be a monumental step. However, since Annalena Baerbock is both the leader of the Green Party and is also the German foreign minister, she has firsthand experience of the lengths Russia will go to achieve its geopolitical aims. If the Greens are to embrace nuclear, now would be the ideal time.

“The 10-year yield may have been depressed for a large part of the past 15 years or so because global central banks have increased their balance sheets substantially and have reduced the term premium at the long end of the curve. And so you can get around these possible distortions by focusing more closely on how the market is pricing central bank policy.”

“What you will see is, three to six months from now, most if not all of these recession-probability metrics that we get from the yield curve will begin to start flashing at least orange, if not red.”

No Sense
“The Fed is telling us that they want to go to 3.8% sometime in early 2023; the two-year yield is over 100 basis points below that level right now,” noted Jim Caron, chief fixed-income strategist at Morgan Stanley Investment Management.

“This doesn’t make any sense whatsoever -- unless one of two things: one, the market just doesn’t believe that the Fed is actually going to be able to hike in the way that they’re saying they will, or, something’s going to happen along the way.”

More broadly, “the markets are right now are surrendering to the fact that we’re likely to have a hard landing or a recession,” he said.

 Long-dated yields have generally tended to rise during periods of quantitative easing because the Fed crowds out other investors and reduces the risk in other asset classes. Therefore, there is less inclination to hoard bonds and more incentive to buy risk assets; both public and private. That suggests the argument QE depresses long-dated yields is wrong. 

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

Some of the topics discussed include: copper, oil, gold, silver break lower, Europe makes new reaction lows, Dollar breaking higher versus Euro and Pound, Nasdaq-100 rebounds as Treasury and Bund yields compress. 

“It is hard to find much positive to say about the EUR,” said Dominic Bunning, the head of European FX Research at HSBC. “With ECB sticking to its line that we will only see a 25bp hike in July – at a time when others are hiking much faster – and waiting for September to deliver a faster tightening, there is also little support coming from higher yields.” 

Money-market traders are betting ECB will deliver around 140 basis points this year, down from more than 190 basis points almost three weeks ago. The repricing gathered pace after a string of weak economic data last week, with traders trimming bets again on Tuesday after French services PMI was revised lower. 

Investors have also been more cautious on the euro due to the risk of so-called fragmentation, when economically weaker nations see unwarranted spikes in borrowing costs as financial conditions tighten. The ECB is expected to deliver further details of a new tool to backstop more vulnerable countries’ debt at their policy meeting later this month.

The losses Tuesday were compounded by poor liquidity and selling in euro-Swiss franc, according to three Europe-based traders. The euro fell as much as 0.9% against the Swiss franc to 0.99251, the lowest level since 2015. 

“The FX market is not back up to full liquidity given the US holiday,” said Mizuho’s Jones. “Any given size of trade is likely to have a greater impact on market movement.”

Russia’s calculus is simple enough. They are betting the economic pain European countries are enduring because of their support for Ukraine will be so great they will be willing to make a deal sooner rather than later.

Gold slumped to the lowest in more than six months as the dollar rallied amid growing recession fears that caused losses across risk assets.

The greenback surged to the highest in more than two years as investors retreated to the haven, putting pressure on bullion. US stocks briefly slumped more than 2% amid fears that the Federal Reserve’s rate hikes to damp inflation could cause a slowdown in the world’s largest economy.

A pronounced drop in the euro also aided the dollar’s gain, driven by bets that the European Central Bank will be slower to tighten monetary policy than the Fed. Recession concerns in the bloc are particularly acute due to fears Russia will cut supplies of natural gas. 

Gold fell 1.9% to $1,774.26 an ounce, after earlier touching the lowest since mid-December 2021. The Bloomberg Dollar Spot Index climbed 1.1%. Silver and platinum slid, while palladium edged lower.

The Dollar is not only rallying against the Euro and Pound. It is surging against just about every currency. The Bloomberg Dollar Index, which has less of a Euro weighting, is rallying to test the 2020 peak. The regular Dollar Index has already broken higher.

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

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.

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

Some of the topics discussed include: immuno-oncology stocks suggests judicious bargain hunting is underway, oii remains firm, European natural gas surges, stocks markets steady, bonds quiet. 

When she found out the cancer had spread to her lungs, chest bone and lymph nodes, she was given one year to live.

David spent the following six months undergoing chemotherapy, and had a mastectomy in April 2018. This was followed by 15 cycles of radiotherapy which cleared her of cancer.

However, the cancer returned in October 2019 when scans showed multiple lesions throughout David’s body.

David then decided to take part in a clinical trial where she was given experimental medicine combined with immunotherapy drug Atezolizumab, which she has injected every three weeks.

After two years on the trial, the mother-of-two has been declared cancer-free once again.

Roche acquired Genentech in 2009. Atezolizumab is the fruition of that merger and continues to make its way through clinical trials.
Immuno-oncology went through a significant bull market in 2016/17 as the promise of curing cancer looked realizable for the first time. The difficulty of creating a one-size-fits-all solution resulted in much of the enthusiasm being squeezed out of the sector. Nevertheless, the results are impressive even if the scalability is not a panacea.

Mr. Biden himself has said in recent weeks that he is considering a tariff cut, noting that the levies were introduced by the previous administration.

The U.S. and China signed a trade deal in 2020, but the U.S. kept most levies on Chinese imports as a means to ensure compliance with the accord's provisions, including promises to increase purchases of U.S. goods.

Beijing has fallen far short of that purchase commitment.

Ms. Tai, who was appointed by Mr. Biden, has repeatedly defended the tariffs as a useful tool in confronting China over its trade practices.

"The China tariffs are, in my view, a significant piece of leverage, and a trade negotiator never walks away from leverage," Ms. Tai told a Senate subcommittee meeting on June 22.

China has long pressed the U.S. to ease the tariffs, contending they hurt both countries.

"With inflation rates running high across the globe, the U.S. needs to lift all the additional tariffs imposed on China, as this will serve the interests of businesses and consumers and benefit both countries and the world at large," Chinese Foreign Ministry spokesman Wang Wenbin said at a June 15 press conference.

The Biden administration is panicking about inflation if they are truly considering removing sanctions on China. The one hallmark of this government has been the continuity of policy with regard to China so a change would likely be viewed by markets as positive and particularly so for China since they would be under much less pressure to comply with trade agreements.

Russian exports to China surged to a record in May, with the OPEC+ producer overtaking its cartel ally Saudi Arabia as the top supplier to the world’s biggest importer. While Iran has cut its oil prices to remain competitive in the Chinese market, it’s still maintaining robust flows, likely in part due to rising demand as China eases strict virus restrictions that had crushed consumption.

“The only competition between Iranian and Russian barrels may end up being in China, which would work entirely to Beijing’s advantage,” said Vandana Hari, founder of Vanda Insights in Singapore. “This is also likely to make the Gulf producers uneasy, seeing their prized markets taken over by heavily discounted crude.”

An emerging disparity between the price of oil available outside of NATO and within NATO is not sustainable over the long-term. Eventually, that arbitrage will close. In a short-term scenario, Europe will economise, everywhere else will do whatever is necessary to boost supply. That would mean building pipelines, offshore drilling and relaxation of environmental concerns. At the same time, alternatives like new nuclear will need to be unabashedly championed. Without that concerted effort, a long-term scenario is industrial capacity will migrate to where energy is cheapest. That would gut Europe’s export model.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

The latest leg of the bond-market rally came after Fed Chair Jerome Powell said on Wednesday that the risk of harm to the economy from higher rates was less important than restoring price stability. Traders continue to expect another 75-basis-point rate increase in July, and swaps referencing Fed policy
meeting dates price in a peak rate near 3.5% in March 2023, followed by a drop to about 3% by year-end.

“The market is digesting increasing odds of recession,” said Janet Rilling, senior portfolio manager at Allspring Global Investments, which manages $541bn in assets. And it’s likely that “inflation will stay pretty elevated. So the Fed will continue to be aggressive” raising rates. 

In turn, she said the extent of the recent drop in Treasury yields means shifting to a more defensive posture. “Watching today’s movement, this could be presenting an opportunity here
to reduce duration.”

The market added to gains, amassed before the US trading day began as European bond markets rallied, after the release of personal income and spending data for May. Spending rose 0.2%, half the expected increase. The price index for purchases rose 0.6% versus an expected 0.7%, supporting the view that an
inflation peak is being established. 

I’ve seen a lot of commentary in the financial media about where R-star might reside. It’s a valuable discussion. Afterall, we all want to know what the real inflation-adjusted neutral rate of interest is. However, the discussion must be grounded in accepting that it is impossible to prove until after the fact.

Money supply doubled in the month to April 2020 and remained at an elevated month-over-month level for a year. That quantity of money printing has resulted in a significant inflation scare. It overstimulated demand at a time when supply was constrained from responding as quickly. The volume of outstanding debt is higher today than during any previous cycle, so investors are understandably troubled.  

Traders abandoned bets on commodity currencies to favor the dollar on Friday as the risk of a global recession weighed on key raw-material prices. 

The Australia’s dollar declined as much as 2% against the greenback to the weakest since June 2020, while New Zealand’s kiwi slid as much as 1.5% to its the lowest in 13 months. The Canadian dollar also fell, heading for its second loss in three days.

Data showing US consumer spending fell in May for the first time this year added to ongoing fears of a global recession amid mounting expectations for aggressive Federal Reserve rate hikes. Worries over domestic growth in other developed nations are also rising, especially as New Zealand economy’s unexpectedly contracted in the first quarter. 

“Commodity currencies prices aren’t under tremendous pressure yet, but you are starting to see them turn,” said Steven Englander, global head of Group-of-10 FX research at Standard Chartered. “For the first time in a long time, inflation isn’t the market discussion right now. The market discussion is about growth.”

Central banks are expected to keep tightening with traders pricing another 225 basis points of hikes in Australia and about 180 basis points in New Zealand by year-end, according to data compiled by Bloomberg.

That combination of poor growth prospects and aggressive rate hikes translates into “the worst of all possible worlds for commodities,” said Englander. 

After spending so long in lockdown, it would have been reasonable to expect Australia to go through the same trend of revenge spending as much of the rest of the developed world. Unfortunately, events are getting in the way. Growth is falling and inflationary pressures are forcing tightening. The Australian Dollar broke lower today to extend the drop below the psychological 70¢ level.

General Motors Co. expects second-quarter sales and profit to take a hit due to supply-chain problems, but the automaker said it can make up for delayed production later this year and reaffirmed its full-year guidance. 

GM had 95,000 vehicles in inventory as of June 30 -- most of them built in June -- that can’t be sold until certain semiconductors arrive to finish assembly, according to a Friday securities filing. The carmaker expects to finish building those vehicles by the end of the year, allowing the company to keep its full-year guidance. 

The semiconductor shortage has eased, but carmakers continue to wrestle with the availability of certain chips. The shortfall has forced GM and others to either cut production at times or start assembling vehicles without some chips and finish them when supplies arrive.  

GM said second-quarter sales fell 15% due to production and supply issues. As big a drop as that is, it’s a sign of improvement from the second half of last year when supply-chain problems caused a sales shortfall of more than 40%.

Detroit-based GM said second-quarter profit will come in between $1.6 billion and $1.9 billion; the average of analysts’ estimates is $2.4 billion. 

Despite the hit to quarterly sales, GM is sticking to its expectations of 2022 net income between $9.6 billion and $11.2 billion, adjusted operating profit of $13 billion to $15 billion and adjusted earnings of $5.76 to $6.76 a share. 

GM’s issues with securing the types of chips they require for vehicles highlights the nuances within the sector and the challenges of managing global supply chains when demand ramps higher in an unpredictable manner.

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

Some of the topics discussed include: consumer finance companies trending lower is a negative signal, bond yields contract, stocks begin to steady, lumber rebounds oil weak, copper extends decline, China steadies, European gas prices surge and local industrials trend lower, Australia pulls back sharply. 

At the end of May, the latest available data, the New York Fed’s recession gauge showed only a 4% probability of an economic contraction in the next 12 months. But if the forward market has it right, the model will signal a surging odds of a downturn soon enough. According to the New York Fed, the yield curve has predicted essentially every US recession since 1950 with only one false signal in 1967.

In the underlying spot market, the 10-year yield is still more than 100 basis points above Treasury bills -- but traders in the forward market expect interest rates will be hiked into restrictive economic territory before the year is out. 

Fed fund futures suggest Powell will raise borrowing costs by a total of about 125 basis points in July and September to close to 3%, around the highest since 2008. 

The predictive ability of the yield curve has stirred debate, and Powell has downplayed its significance. In March, he noted the metric he was more inclined to look at is the difference between bets on where the three-month rate will be in 18 months’ time and that same rate today.

The simple message from the bond market is if the Fed follows through on raising rates by another 175 basis points a recession is inevitable. Then comes the job of pricing in whether that is in fact likely.

The global oil market is so tight on the cusp of the second half that a single, powerful jolt could unleash the furies and power prices toward $150/bbl within a few swift, brutal days. This is a high-risk environment for crude, as well as for global growth, inflation, and by extension for assets from equities to bonds.

Brent eased in June as the Fed stood up, recession angst built, and one or two faint signs of demand destruction crept into the mix. But the benchmark remains well up in 2Q, and wherever you look, market signals -- both esoteric and mainstream -- testify to extraordinarily tight conditions. Also of note, US stockpiles at the Cushing hub just hit the lowest since 2014, and OPEC+ (which meets today to assess policy) has scant spare capacity.

To say that a spike toward $150/bbl is entirely possible is not to say that the milestone will come to pass. But these are strange and rare times in energy markets that are being addled by war, sanctions, monetary-policy ructions, pandemic recovery, and the legacy impact of scant industry investment. Add to that roster of drivers, elevated weather risk, as well as scope for disruptions beyond those seen this week in Libya and Ecuador.

To get a sense of how much tension the market has, look at what sober-minded folk are saying. Shell CEO Ben van Beurden swung through Singapore this week and said the world is set for a “turbulent period” as spare energy production capacity is running “very low”. Significantly, he talked of a “fear factor” as a result of an “ever-tighter market”. Buckle up for the coming quarter.

There is no doubt inventories are tight and the dearth of investment means additional new supply will be slow to come online. It is, however, worth remembering the world is not running out of oil. Offshore exploration has all but disappeared. The reason there is a supply shortage is because much of the world has decided to stop attempting to produce more.

“In the short term, the market has bottomed out, but the recovery is a slow and gentle process and will take time,” China Vanke Co. Chairman Yu Liang said at the company’s annual general meeting Tuesday, according to a transcript posted on its WeChat account.
 
Yu cited a mild sales increase in May from April in first- and second-tier cities, adding that the recovery may become more distinct in June. That would be welcome news for developers, which are counting on a sales rebound to ease a crippling cash crunch that triggered a wave of defaults. 

A Bloomberg Intelligence gauge of developer stocks climbed as much as 2.7% to the highest in a month after Yu’s comments. Signs of improvement in the housing market have emerged after local governments eased some buying curbs and authorities cut mortgage rates. New-home sales in 17 cities monitored by China Index Holdings surged 89% so far in June from a month earlier, also helped by a loosening of Covid restrictions.

China Vanke is so well connected it may as well be part of the government. The fact its CEO is stepping out in front of the media and speaking up for the property market is a clear signal the government believes prices have fallen enough to begin remedial action.

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

Some of the topics discussed include: value is not what it seems as long as liquidity is tightening, oil pulls back, Treasuries steady, equities soft, gold steady, Dollar firm, EU gas breaks out on rising geopolitical tensions. 

The prospect of a bruising stretch for the pension industry at large colors the migration into the deeper end of the risk swimming pool. An analysis from Moody’s Investors Service last Wednesday projects a systemwide 12.2% loss over the 12 months through June 30, far below the assumed 6.8% return target. That shortfall would leave assets sufficient to cover 6.9 years of retirement benefits, down from 8.3 years in mid-2021 and the lowest figure since at least 2016.

Moreover, the ratings agency noted that “a persistent environment of high inflation would likely drive up wages for active employees and cost-of-living adjustments for retirees, increasing future pension obligations and governments' budget outlays.” State-directed efforts to contain raging price pressures may prove less-than-effective, as California Governor Gavin Newsom announced plans to distribute $1,050 direct stimulus checks to 23 million local residents “who are grappling with global inflation and rising prices of everything from gas to groceries,” his office declared.

Nothing a bit more leverage and alternative assets can’t fix.

The success of the FANGMANT shares is well understood. They benefitted from their all-in bets on 4G connectivity, and their market cap appreciation was amplified by the ballooning interest in ETF investing which concentrated flows in the largest names.

It is much harder to monitor the size of the private markets because they are unlisted by definition. The one thing we can be sure of is private markets have exploded in size since 2008. Their performance has been amplified by the exceptionally low interest environment.

As of June 28, the company holds about 129,699 Bitcoin bought for about $3.98 billion, or $30,664 per coin, according to the filing. 

The Tysons Corner, Virginia-based enterprise software maker is expected to reveal a significant financial hit when it releases its second quarter 10-Q this summer, given its enormous exposure to the bellwether token, which has more than halved in value this year. 

With an enterprise value of $4.3 billion almost the entire notional value of MicroStrategy is tied to an unprofitable bitcoin position. It is far from the only company to be underwater on its bitcoin purchases.

Could you please explain how the Fed US Treasury H15 Constant Maturity 10 Yr Real Yield (H15X10YR Index) is calculated?

Thank you for this question which others may have an interest in. A lot of the answer can be found by comparing the chart of the constant maturity real yield with the TIPS chart.


The only difference I can see is that the constant maturity imputes an accurate bond yield with exactly 10-years to mature even when there is no bond that matches that exact maturity. I am growing progressively more distrustful of these kinds of measures which rely on TIPS. It's a very small market and the Federal Reserve is very active in it so it is unlikely to give an accurate depiction of what the real yield in fact is.

A bill passed Tuesday by California's Senate Judiciary Committee could allow government attorneys in the state to sue social-media companies such as Meta Platforms, TikTok and Snap for the use of any design or feature that would cause children to become addicted to their platforms. This could have implications for these companies' regulatory and legal risk-management profile as they would have to pay a civil penalty of up to $25,000 per violation or up to $250,000 for a knowing and willful violation. Some 90% of teens aged 13 to 17 in the U.S have used social media, according to The American Academy of Child and Adolescent Psychiatry, which estimates that, on average, they are online almost nine hours a day, not including time for homework.

The user interface for social media apps is heavily curated to ensure it is addictive. That’s equally applicable to both adults and children. Therefore, it is reasonable to think there are going to be a large number of lawyers salivating at the chance to attack cash rich companies.

One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.

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

Some of the topics discussed include: downside key reversals for the Dow and S&P, Nasdaq 3% lower, oil firm, copper rolling over, Dollar firm, emerging currencies weak, Renminbi downside key reversal, H-Shares relative strength for now, 

Concerns about company margins have been in focus as stock prices have slid this year. Another major US corporation is reporting a miss, which may add to anxiety about the upcoming earnings season.

Nike’s fourth-quarter gross margin trailed estimates, with an 80 basis-point drop from the prior year, due to what the firm said were higher inventory “obsolescence reserves” in China, along with elevated freight and logistics costs. Production issues amid Covid shutdowns have been resolved, but shipping logjams are still an issue, boosting inventory as many items were stuck in transit.

Earlier this month, bellwether national supermarket chain Kroger also reported a profit-margin miss, because of some price cuts and higher supply-chain costs. That was exactly the combination of factors that’s been a source of worry about corporate profitability.

Nike shares initially popped in postmarket trading, but pared some gains. Watch for more from the company on its 5pm conference call. Meantime, big banks, like JPMorgan, BofA and Morgan Stanley, are announcing their shareholder payout plans in the wake of the Fed’s stress tests; shares were mixed with JPM dipping slightly.

Nike is another company dealing with high inventory levels. That’s stranded capital until the excess levels are worked off. Given the seasonal nature of many product lines and the industry practice of bringing out new designs on a regular basis, there is a clear scope that significant discounting will be required to clear stock levels. That’s good news for consumers, less so for Nike.

In an attempt to enable a compromise, Germany proposed adding in a non-binding part of the car emissions law a call on the commission to propose registering after 2035 vehicles running exclusively on carbon-neutral fuels. The addition is important to Germany and can be a bridge for the overall discussion, said Environment Minister Steffi Lemke. 

“We need a strong and fast CO2 reduction, but we need to keep openness on technologies,” she told the ministers. “We hope that this addition, which is important to the German government, hopefully this is agreeable and which can enable us to reach a joint acceptable solution.”

As a major energy importer the EU has a clear incentive to reduce dependence on imported fuels. That’s well understood. The other side of that argument is Russia is clearly of the opinion that if the EU does not wish to buy its exports, it will find customers that do.

The Indian rupee, which fell to a record low of 78.79 on Tuesday, may draw support from the rolling of over of nearly $2 billion in currency futures, positioning in the derivatives segment show, apart from central bank intervention.

The outstanding position in dollar/rupee futures contracts due to expire on June 28, have fallen by nearly $1.4 billion between Monday and Tuesday, while open positions maturing on July 27 have jumped by roughly $2 billion to $5.8 billion during the same period.

India’s monetary authority has been intervening across markets in recent months to defend the local currency with some analysts expecting it to weaken past 81 per dollar by year-end. The RBI has about $590 billion of forex reserves, after it ballooned to a record high of over $640 billion in September last year.

The Rupee might be short-term oversold but it is trending lower. This has been a significant breakdown and suggests the surprises will be on the downside even if in the short-term there is scope for a bounce.