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April 30 2019

Commentary by Eoin Treacy

Video commentary for April 30th 2019

April 30 2019

Commentary by Eoin Treacy

Alphabet Tumbles Most Since 2012 After Sales Growth Disappoints

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

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

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

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

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

Eoin Treacy's view -

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



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April 30 2019

Commentary by Eoin Treacy

Microsoft, Slack, Zoom, and the SaaS Opportunity

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

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

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

First, the company argued that Slack transforms internal communications:

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

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

Eoin Treacy's view -

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



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April 30 2019

Commentary by Eoin Treacy

The Uncomfortable Truth

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

Eoin Treacy's view -

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

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



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April 29 2019

Commentary by Eoin Treacy

Video commentary for April 29th 2019

Eoin Treacy's view -

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

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



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April 29 2019

Commentary by Eoin Treacy

Supply Side of the Economy Is Flashing Strength

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

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

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

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

Eoin Treacy's view -

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



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April 29 2019

Commentary by Eoin Treacy

Investors Search for Opportunity in Unloved Corner of Stock Market

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

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

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

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

Eoin Treacy's view -

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



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April 29 2019

Commentary by Eoin Treacy

Spanish Election Reflects Europe's Widening Political Fragmentation

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

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

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

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

Eoin Treacy's view -

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



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April 29 2019

Commentary by Eoin Treacy

Perspectives for the Clean Energy Transition

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

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

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

Eoin Treacy's view -

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



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April 26 2019

Commentary by Eoin Treacy

April 26 2019

Commentary by Eoin Treacy

Clorox and Unilever Want the Booming Bacteria Business to Thrive

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

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

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

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

Eoin Treacy's view -

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



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April 26 2019

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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

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



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April 26 2019

Commentary by Eoin Treacy

April 26 2019

Commentary by Eoin Treacy

Crypto Research report

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

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

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

Eoin Treacy's view -

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

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



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April 25 2019

Commentary by Eoin Treacy

April 25 2019

Commentary by Eoin Treacy

Fed Seems Resigned to Bubble Risk in Effort to Extend Expansion

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

But that monetary stance could store up trouble down the road should the financial threats materialize.

Such talk has since faded. “There doesn’t seem to be the same idea of having tighter monetary policy so as to lessen the risk of asset bubbles developing,” Wright said.

Perhaps that’s not surprising given the shakeout that occurred in financial markets at the end of last year and Trump’s preoccupation with the performance of stock prices.

The strong bounce-back in markets this year means that financial conditions are still accommodative, though not quite as loose as they were before the end-2018 sell-off, according to the IMF.

“There are reasons for fearing the economic consequences of very low’’ rates, former Treasury Secretary Lawrence Summers said in an April 15 presentation at the Peterson Institute for International Economics in Washington.

“These include a greater propensity to asset bubbles’’ and “incentives to substantially increase leverage,’’ the Harvard University professor said.

Eoin Treacy's view -

The immortal words of Chuck Prince “as long as the music is playing, you've got to get up and dance” seem appropriate to ruminate on at this juncture. Wall Street is back testing or exceeding all-time highs, the Dollar is reasserting its uptrend against an increasingly large number of currencies and the Fed is on hold.



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April 25 2019

Commentary by Eoin Treacy

Theresa May approves Huawei for UK 5G in snub to US

This article by for the Financial Times may be of interest to subscribers. Here is a section:

The controversial decision, taken on Tuesday at the National Security Council, comes as Philip Hammond, chancellor, prepares to travel to China to promote Britain’s participation in Beijing’s Belt and Road Initiative.

The decision to give Huawei limited access to the development of Britain’s 5G network, first reported in the Daily Telegraph, was taken despite the concerns of some ministers, including Gavin Williamson, defence secretary, over the impact on the UK’s relationship with Washington.

In February, Mike Pompeo, the US secretary of state, warned: “If a country adopts this [Huawei] and puts it in some of their critical information systems, we won’t be able to share information with them, we won’t be able to work alongside them.”

“In some cases there’s risk — we won’t even be able to co-locate American resources, an American embassy, an American military outpost.” US officials have lobbied their British counterparts against approving Huawei as a supplier.

The UK is part of the Five Eyes security alliance alongside the US, Canada, Australia and New Zealand. But while Australia and New Zealand have agreed to block or restrict Huawei, the UK has been more equivocal.

Those close to the NSC meeting say the decision was signed off collectively and that security concerns were reflected in the restrictions limiting Huawei’s involvement to non-core parts of the 5G project.

The core infrastructure is where sensitive information such as billing and customer details are stored. The non-core elements are the aerials and base stations on masts and rooftops and transmission equipment, which telecoms companies argue are passive in that data merely passes through and cannot be compromised.

Eoin Treacy's view -

The question of Huawei security is as much about the real as the imagined threat. This article from ARS Technica highlights the risks of using any hardware solution, not just Huawei’s. Here is a section: 



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April 25 2019

Commentary by Eoin Treacy

Musk Reopens Door to Tesla Capital Raise After Big Cash Setback

This article by Dana Hull and David Welch for Bloomberg may be of interest to subscribers. Here is a section: 

The company is planning as much as $2.5 billion in capital expenditures this year as it develops new vehicles including the Model Y crossover and Semi truck. That’s more than the $2.2 billion in cash and equivalents that were on the balance sheet at the end of March.


“$2.2 billion in cash is a lot of money, but not when you’re making the kinds of investments Tesla is making,” Rebecca Lindland, a longtime auto-industry analyst and founder of the car-review website RebeccaDrives.com, said on Bloomberg Television. “I’m definitely concerned about some of their
projections.”

In addition to operating cash flow worsening relative to the previous quarter, a February debt payment -- the company’s largest ever -- drained $920 million from its coffers. The company has another $566 million of convertible bonds coming due in November.

While the results were largely worse than anticipated, investors appeared to be split on what to make of them. The shares fell as much as 3.1 percent and rose as much as 2.8 percent in post-market trading before ending the session little changed. The stock was already down 22 percent this year.

The halving of a federal tax incentive for Tesla purchases starting in January dragged on U.S. demand in the quarter, and Tesla struggled to offset that drop by starting deliveries of the Model 3 in Europe and China.

Eoin Treacy's view -

Tesla is the most shorted stock in the market so it is safe to assume a lot of bad news is in the price. Tesla has at least demonstrated it is capable of reaching profitability for a couple of quarters which is a lot better than a good many other companies currently coming up for their IPOs. The big question outstanding is how well it can sustain profitability in the face of rising competition from other auto companies.



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April 24 2019

Commentary by Eoin Treacy

April 24 2019

Commentary by Eoin Treacy

The Kids Use TikTok Now Because Data-Mined Videos Are So Much Fun

This article by David Ramli and Shelly Banjo for Bloomberg may be of interest to subscribers. Here is a section: 

Separately, TikTok has faced concerns over privacy and child safety. In February, Bytedance was fined $5.7 million by the Federal Trade Commission to settle allegations that Musical.ly, which Bytedance bought and renamed TikTok, illegally collected information from minors. It was the largest FTC penalty in a children’s privacy case.

The settlement didn’t scare off Bytedance’s investors or the company itself, which is spending hundreds of millions of dollars to advertise on Facebook in the hope of luring away more users. Over the past three months, for instance, 13 percent of all the ads seen by users of Facebook’s Android app were for TikTok, says app-analytics firm Apptopia.

The result is that Bytedance has had more success outside of China than any previous Chinese internet company, including Baidu and Tencent. The TikTok app and its Chinese version have been installed more than a billion times. (It has no relation to TicToc, Bloomberg LP’s breaking news network.) Late last year, executives told investors that they expect $18 billion in revenue this year and $29 billion in 2020, according to people familiar with its finances who aren’t authorized to discuss the company publicly. Bytedance will “become a global player,” says Hans Tung, managing partner of GGV Capital, one of the company’s backers. “It’s just a matter of when.”
 

Eoin Treacy's view -

A subscriber’s son explained succinctly to me why Facebook succeeded over MySpace. He said it was because Facebook offered limitless photos and Myspace didn’t. All the girls migrated to Facebook, and all the boys followed. Within 18 months Myspace was a lifeless husk.

Musically, is where almost all young girls and young teenagers are spending their time today. It’s a streaming and video upload site where they perform songs. The company is now owned by Bytedance which is majority Chinese owned. Most of the girls in my daughters’ classes (5th and 7th grade) have accounts.



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April 24 2019

Commentary by Eoin Treacy

Geographic Diversification Can Be a Lifesaver, Yet Most Portfolios Are Highly Geographically Concentrated

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

Eoin Treacy's view -

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

The rise of populism in the world’s major democracies is being seen as a crisis by those most at risk of losing their position. However, it is above all a reflection of the elasticity of democracy, where we have the opportunity to propose solutions to problems of falling living standards. No one is under any illusion this process is easy but it will have long-term benefits for all of society. The fact we can have these kinds of discussions in democracies is a major strength because totalitarian societies have no room for discussion and are therefore more susceptible to collapse.



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April 24 2019

Commentary by Eoin Treacy

Lithium Firms Take a Near Billion-Dollar Hit as Umicore Warns

This article by Aoyon Ashraf for Bloomberg may be of interest to subscribers. Here is a sectio

The impact from a Belgian materials company’s profit warning has now spread from the European car market to the Western hemisphere.

The top three lithium producers lost almost a billion dollars in combined market-value after Umicore SA, a producer of metal products and catalysts used in vehicles, among other uses, warned that it will miss analysts’ profit estimates due to slowing demand for electric vehicles in China and South Korea.

Lithium giant Albemarle Corp.’s shares took the largest hit, down as much as 5.5 percent as it counts Umicore among its top three customers. Peer Livent Corp. declined 3.8 percent and Sociedad Quimica y Minera de Chile SA’s ADRs tumbled as much as 3.6 percent. The combined loss at its worst reached nearly $900 million in New York trading.

Eoin Treacy's view -

Lithium has been trending downwards for almost a year even as analysts have attempted to outdo one another on their demand growth forecasts. What the downtrend tells us is there is plenty of supply right now amid fears about the slowdown in the Chinese economy.



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April 23 2019

Commentary by Eoin Treacy

April 23 2019

Commentary by Eoin Treacy

Trump Stirs Alarm That He May Be Giving China a New Trade Weapon

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

Details of the U.S. commitments and how the enforcement mechanism will operate remain scant. But Mnuchin’s comments have caused plenty of raised eyebrows from legal scholars to the business community and Congress.

If the U.S. allows China reciprocal enforcement powers, it would make China “judge, jury and executioner as to whether we have honored our obligations,’’ said Daniel Price, who served as a senior economic adviser to President George W. Bush and is now at Rock Creek Global Advisors in Washington. “I don’t think the U.S. business community is sufficiently alert to the risk of constantly being exposed to unilateral enforcement action by China.”

Details of the U.S. commitments and how the enforcement mechanism will operate remain scant. But Mnuchin’s comments have caused plenty of raised eyebrows from legal scholars to the business community and Congress.

If the U.S. allows China reciprocal enforcement powers, it would make China “judge, jury and executioner as to whether we have honored our obligations,’’ said Daniel Price, who served as a senior economic adviser to President George W. Bush and is now at Rock Creek Global Advisors in Washington. “I don’t think the U.S. business community is sufficiently alert to the risk of constantly being exposed to unilateral enforcement action by China.”
 

Eoin Treacy's view -

The quid pro quo of testing and enforcement is a clear risk from the impeding trade deal between the USA and China. Perhaps most important of all is that if the deal goes ahead as suggested above it represents a clear admittance that China is on par with the USA geopolitically. That may have already been a fact but it is quite something else to codify it in a treaty governing trade.



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April 23 2019

Commentary by Eoin Treacy

Today's Europe News screen on Bloomberg

I thought this was an interesting development. The main news page on European news page on Bloomberg carries very little news on Europe.

Eoin Treacy's view -


The Eurozone has a demographic deficit, bad debts that represent a significant challenge, populations which are revolting at the ballot box, by electing populists, and a domestic economy that has been running on fumes for a decade. Sentiment is about as negative as it can be, investors are dismissive and one portfolio manager mentioned to me recently that India has more coverage from the analysts he receives research from than Europe. So how much worse can it get?



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April 23 2019

Commentary by Eoin Treacy

Brazil Digital Report

Thanks to a subscriber for this slide deck from Gartner which may be of interest.  Here is a section: 

The Brazilian economy has reached a tipping point ▪ GDP growth has returned ▪ Consumer and industry confidence are high ▪ Inflation and interest rates are at all-decade lows ▪ Country risk is on the decline ▪ Capital markets are active as ever… ▪ …and BOVESPA is at its highest point to date.

But to expand growth and make other advances, the country will need to close gaps with developed and emerging economies: ▪ Productivity has grown very little over the last decade ▪ The demographic and workforce boom is over, meaning that productivity gains will be needed to drive growth ▪ We lack innovation, patents, and a skilled workforce… ▪ … and we have not seen any sign of homegrown tech or innovation giants among our top-performing companies.

Eoin Treacy's view -

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

Corruption is a scourge Brazil has long had to contend with and it is not about to disappear overnight. In any society, the way the elite retain power is to ensure their supporters are well looked after, often at the expense of everyone else. That generally results in government employees receiving attractive pay packages and secured pensions. That is true in every country but represents a particular challenge when it represents an obstacle to recovery which is why pension reform is so important for the long-term health of the Brazilian economy. 



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April 18 2019

Commentary by Eoin Treacy

April 18 2019

Commentary by Eoin Treacy

April 18 2019

Commentary by Eoin Treacy

April 18 2019

Commentary by Eoin Treacy

On Target

Thanks to Martin Spring for this edition of his ever-interesting letter. Here is a section on the coal market which I found particularly illuminating: 

While climate-change activists make a lot of fuss about the US, where emission of greenhouse gases has been in decline, they aren’t demonstrating loudly about China -- which attacks developed countries for not doing enough, while itself doing most to worsen it,

The New York Times reports that China, the world’s leading emitter of greenhouse gases from coal, now admits it’s burning up to 17 per cent more coal than its government previously claimed when it signed up for the Paris accord.

And it’s making things worse. Across China the government is building a fleet of new coal-fired stations with 259 gigawatts of capacity, while outside the country it’s financing even more new coal plants, providing $36 billion for 399 gigawatts.

“Chinese bankers and project planners like coal-backed projects because they are cheap,” says the energy consultancy IEEFA. “While they are restricted by Chinese pollution and emissions targets at home, they are free to fund coal-backed projects abroad.”

Eoin Treacy's view -

The standard of living attained by China’s middle class has resulted in a clear call for cleaner air and the government is intent on showing progress. However, there is no getting around the fact that coal fired power stations are cheap to build and run and are very reliable. Moreover, China has plenty of experience building them and there is a ready market for coal in emerging markets, not least in India and increasingly Africa.



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April 18 2019

Commentary by Eoin Treacy

World's Cheapest Hospital Needs to Get Even Cheaper for Modicare

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

Narayana has made Shetty one of India’s best-known doctors and the proprietor of a lucrative business, with about $8 million in profit in 2017. But he now faces a problem that might be even more complex than heart surgery: how to make his hospitals cheaper still. The reason is Modicare, the national health insurance program that’s one of Prime Minister Narendra Modi’s signature initiatives. Under way since September, it’s perhaps the most ambitious public-health effort in history, intended to give basic coverage for the first time to 500 million of India’s poorest. At first it seemed no one was in a better position to gain from this flood of new patients than Shetty. But his enthusiasm gave way to anxiety last year after the government published its list of reimbursement rates, which are lower even than Narayana’s prices. Those rock-bottom payments mean that to thrive under Modicare, Narayana needs to find ways to cut costs further—and then keep cutting.

Shetty thinks he can do it and, in the process, create a model for ultralow-cost health care that can be applied anywhere. “We are trying to produce a pilot for the rest of the world to follow,” he said over a lunch of curries and fried fish after scrubbing out from the heart operation. He was still
wearing his surgical cap. “In 10 years, India will become the first country in the world to dissociate health from affluence. India will prove that the wealth of the nation has nothing to do with the quality of health care its citizens can enjoy.” It’s a noble vision, and Narayana is as well-positioned as any provider to help make it a reality. But it’s hard to overstate the scale of the challenge Shetty faces. For a surgery like the one he’d just performed, Modicare would provide only $1,300.

Eoin Treacy's view -

These kinds of good news stories were a rarity five years ago but there is no doubt momentum is building around the narrative that India is capable of fixing its most intransigent problems. That’s a complete about face from the perception before the Modi era when the only story people were talking about was the raping of women in the street and the dire conditions for athletes at the Commonwealth Games.



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April 18 2019

Commentary by Eoin Treacy

Terry Gou's Pitch for Presidency Is Massive Boost for His Stocks

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

The Taiwanese billionaire said on Wednesday he would seek the nomination of the China-friendly opposition Kuomintang party in next year’s election, a process expected to play out in the coming weeks. Current President Tsai Ing-wen’s Democratic Progressive Party advocates a more decisive break from the mainland.

“We are upholding our view and we are treating Gou’s bid neutrally for now,” Daiwa Securities Capital Markets analyst Kylie Huang said. “We will wait and see whether Gou’s move may lead to him to leave the company board and quit as chairman and if that happens, whether investors will be comfortable with management reshuffle.”

Eoin Treacy's view -

Mrs. Treacy told me last month that Guo Wengui had predicted Terry Gou would run for president of Taiwan, so this may be surprising news but it was a well-known possibility in some circles.



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April 18 2019

Commentary by Eoin Treacy

2019: The 50th year of The Chart Seminar

Eoin Treacy's view -

I have had word from the inestimable Mrs. Fuller that the London Philharmonic Orchestra are planning a memorial concert on October 5th at the Royal Festival Hall. It is envisaged that there will be drinks and canapes afterwards. Since this is the 50th year of The Chart Seminar we will be conducting the event on October 3rd and 4th.

I also plan on holding a New York event, potentially in June, and am in discussions with a partner in how best to organise it.

In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Annual subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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April 18 2019

Commentary by Eoin Treacy

Video commentary for April 17th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Nasdaq-100 makes a new high and is led higher by semiconductors, India also hit a new high, Indonesia firms and China holds its gain, Europe looks to be a on a recovery trajectory, bonds ease, oil and gold quiet, 



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April 18 2019

Commentary by Eoin Treacy

Instability at the Fed

Thanks to a subscriber for this report by Daniel Oliver for Myrmikan Research may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

There is a consensus view among bond fund managers that the ability of Fed to ease in the next recession will be constrained by the zero bound. That is supported by the belief it has nowhere near as much room for easing as it had in other cycles. In turn that will create the much foretold “pushing on a proverbial string” where efforts to stoke inflation and asset prices will be ineffectual.



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April 18 2019

Commentary by Eoin Treacy

Mapping the Global Migration of Millionaires

Thanks to a subscriber for this article by Nick Routley for Visual Capitalist. Here is a section:

Time-honored locations – such as Switzerland and the Cayman Islands – continue to attract the world’s wealthy, but no country is experiencing HNWI inflows quite like Australia.

The Land Down Under has a number of attributes that make it an attractive destination for migrating millionaires. The country has a robust economy, and is perceived as being a safe place to raise a family. Even better, Australia has no inheritance tax and a lower cost of health care, which can make it an attractive alternative to the U.S.

In 2018, Australia jumped ahead of both Canada and France to become the seventh largest wealth market in the world.

Greece, which was one of the worst performing wealth markets of the last decade, is finally seeing a modest inflow of millionaires again.

Eoin Treacy's view -

People move for all sorts of reasons but chief among them are to either benefit from the tax and economy of the destination country, to find a better place to rear children and escape an overbearing or overtaxing regime.

Personally, I moved to the USA because of its open welcome for people of all races, the weather, the time zone, the attractive tax structure for businesses as well as my belief that Wall Street is in a secular bull market. I’ve since learned the USA is one of the most attractive tax havens for overseas investors.  



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April 18 2019

Commentary by Eoin Treacy

The World's Biggest Electric Vehicle Company Looks Nothing Like Tesla

This article by Matthew Campbell and Ying Tian for Bloomberg may be of interest to subscribers. Here is a section:

In automotive circles, Wang’s predictions of the combustion engine’s imminent demise often meet profound skepticism. Chinese sales of new-energy vehicles, a category comprising plug-in hybrids, pure EVs, and fuel-cell cars, more than tripled from 2015 to 2018, but they still account for only 4.5 percent of the total. The doubters, he argues, underestimate the country’s capacity for reinvention. “The Chinese way is to replace everything at once,” Wang says. “When we switched from black-and-white to color TVs, it took three years. In the West it was 10. Going from feature phones to smartphones took about one year. In Europe it was three. Cars will be the same. It will go very fast.”

Eoin Treacy's view -

China is a massive oil and gas importer but has abundant coal reserves. It therefore has a clear incentive to use less gasoline and natural gas and more coal. Electric vehicles fit squarely into that equation. Since coal is massively polluting nuclear energy is another growth industry in China.




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April 16 2019

Commentary by Eoin Treacy

Video commentary for April 16th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: probablity of consolidation ahead of a breakout, globally oriented consumer companies leading on the upside. gold and bonds ease, oil steady, netflix is at risk of further pullback. semiconductors and resources shares turning ot outperformance,



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April 16 2019

Commentary by Eoin Treacy

Big Companies Thought Insurance Covered a Cyberattack. They May Be Wrong

This article by Adam Satariano and Nicole Perlroth for the New York Times may be of interest to subscribers. Here is a section:

Even with teams working around the clock, it was weeks before Mondelez recovered. Once the lost orders were tallied and the computer equipment was replaced, its financial hit was more than $100 million, according to court documents.

After the ordeal, executives at the company took some solace in knowing that insurance would help cover the costs. Or so they thought.

Mondelez’s insurer, Zurich Insurance, said it would not be sending a reimbursement check. It cited a common, but rarely used, clause in insurance contracts: the “war exclusion,” which protects insurers from being saddled with costs related to damage from war.

Mondelez was deemed collateral damage in a cyberwar.

The 2017 attack was a watershed moment for the insurance industry. Since then, insurers have been applying the war exemption to avoid claims related to digital attacks. In addition to Mondelez, the pharmaceutical giant Merck said insurers had denied claims after the NotPetya attack hit its sales research, sales and manufacturing operations, causing nearly $700 million in damage.

When the United States government assigned responsibility for NotPetya to Russia in 2018, insurers were provided with a justification for refusing to cover the damage. Just as they wouldn’t be liable if a bomb blew up a corporate building during an armed conflict, they claim not to be responsible when a state-backed hack strikes a computer network.

The disputes are playing out in court. In a closely watched legal battle, Mondelez sued Zurich Insurance last year for a breach of contract in an Illinois court, and Merck filed a similar suit in New Jersey in August. Merck sued more than 20 insurers that rejected claims related to the NotPetya attack, including several that cited the war exemption. The two cases could take years to resolve.

Eoin Treacy's view -

The threat from cyber crime is both real and obvious but many investors have been disappointed by the performance of the cybersecurity sector. It makes intuitive sense that with so many hacks, ransomware events and industrial espionage that the sector should be among the best performers internationally.



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April 16 2019

Commentary by Eoin Treacy

Betting on a Soft Landing: The Takeaways From the IMF Meetings

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

The IMF cut its forecast for global expansion to the slowest pace since the financial crisis a decade ago, but played down the risk of recession and predicted growth will pick up in the second half of the year to stabilize at about 3.6 percent in 2020. That would be an improvement over the 3.3. percent pace projected for this year, but below the 3.8 percent of 2017.

U.S. Treasury Secretary Steven Mnuchin stoked optimism by saying he was hopeful the U.S. and China are “close to the final round” of trade talks. U.K. Chancellor of the Exchequer Philip Hammond said the government and main opposition party could strike a Brexit deal within weeks.

Europe’s struggles again emerged as a source of worry, leaving Germany under pressure to ease fiscal policy and the U.K. to arrange its withdrawal from the European Union. Still, European Central Bank President Mario Draghi was cautiously optimistic in arguing the euro-area has shown “remarkable resilience.”

Eoin Treacy's view -

Continued announcements that the trade war is in the final stages of negotiation have resulted in a general sense among investors that this is last year’s story. Despite the fact it is not yet resolved, a successful resolution has been priced in.



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April 16 2019

Commentary by Eoin Treacy

L'Oreal's Asian Sales Just Overtook Europe for the First Time

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

"It’s true that the growth is not broad-based,” RBC analyst James Edwardes Jones said in a note to clients, “but given L’Oreal’s proven ability to identify, stimulate and capitalize on those parts of the business where the most attractive growth is to be had, we struggle to find fault with this.”

The results show luxury’s resilience, as surging demand from Chinese shoppers fueled 14 percent quarterly growth for the division selling brands like Armani, Kiehl’s, and YSL.

Meanwhile, some other manufacturers of products such as automobiles and electronics were hurt by a slowing Chinese economy.

“It’s a real appetite of the young generation in China to go directly to these luxury brands. It’s really positive for us,” Chief Executive Officer Jean-Paul Agon said on a call with analysts. Western Europe showed some signs of improvement and could post a solid year, Agon said, “but nothing that would
compete with what we see in Asia.”

Eoin Treacy's view -

The growth of the global consumer’s appetites for the trappings of modern living is likely to be an upward trajectory for decades to come. The first thing people buy when they have a little more money is soap. That feeds demand for progressively more cosmetics as incomes rise. With economic development peoples’ priorities shift from survival to enjoying life to longevity and the products tailored to those demands increases in price commensurately. 

 



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April 15 2019

Commentary by Eoin Treacy

Video commentary for April 15th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: China consolidating, India and Indonesia steady, Wall Street paused, European periphery leading on the upside, gold pauses, oil due to pause, high yield spreads contract below the trend mean, Treasuries quiet. 



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April 15 2019

Commentary by Eoin Treacy

China Stocks Fall as Better Data Dim Prospects of More Stimulus

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

"The credit data lifted expectations on market liquidity and economic fundamentals," said Wang Jianhui, a Beijing-based analyst with Capital Securities Co. "It provided an excuse for investors who wanted to bottom fish stocks after last week’s correction. But it’s more likely a technical rebound as there hasn’t been any substantial change in fundamentals."

The decline in mainland shares came after some companies issued profit warnings. In Shenzhen, Jiangling Motors Corp. sank by the 10 percent daily limit after it predicted an 84 percent decline in first-quarter net income from a year earlier.

Shandong Chenming Paper Holdings Ltd. slid 8.9 percent after saying its first-quarter profit may plunge 94 percent to 96 percent.

"While the macro numbers suggest a recovering trend, things are still looking weak in the micro segments including corporate profits," said Shen Zhangyang, a Shanghai-based strategist with
Northeast Securities Co.

Eoin Treacy's view -

The catch-22 facing policy makers is if they stimulate too much, they risk a bubble developing but if they don’t do enough, they risk a contraction. That is a clear reflection of the role liquidity has played in the evolution of the bull market over the last decade and how reliant on stimulus it is for continued expansion. They generally err on the side of caution so that is supportive of continued support.



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April 15 2019

Commentary by Eoin Treacy

Glencore's Congo Unit to Start Shipping Some Cobalt Again

This article by Thomas Biesheuvel for Bloomberg may be of interest to subscribers. Here it is in full:

Glencore Plc’s Democratic Republic of Congo unit will restart some cobalt exports after it halted sales last year due to low levels of radioactivity.

About 23 percent -- or 930 tons -- of the cobalt produced at Katanga Mining Ltd.’s Kamoto mine since January complies with regulations on uranium content, the company said in a statement. Katanga is controlled by Glencore and owns 75 percent of Kamoto.

The unit halted sales of cobalt in November after detecting radiation and said that a plant to remove the contamination would be ready this year. The suspension of sales came after prices for the metal used in rechargeable batteries collapsed on growing concerns about oversupply.

Glencore said at the time that it planned to stockpile cobalt supplies until the middle of this year. Kamoto is Glencore’s second-biggest source of the metal in Africa, producing about 11,100 tons last year.

Glencore has a long history of trimming mine supply to match demand, and has criticized rivals for producing too much and depressing prices. The Swiss commodity giant curtailed zinc output at mines in Australia, Peru and Kazakhstan in 2015 when prices languished at six-year lows.

Eoin Treacy's view -

Cobalt plummeted in value last year as substitution concerns, slowing Chinese car demand and a peaceful transition of power in Congo sapped the bubbly enthusiasm that had prevailed ahead of the peak. The relative strength of copper and nickel are additional considerations since cobalt is a by-product of mining those metals.



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April 15 2019

Commentary by Eoin Treacy

The Top Economic Challenges Facing Indonesia Election Winner

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

The current account deficit, which last year widened to almost 3 percent of gross domestic product, remains a key vulnerability for the economy. It makes Indonesia reliant on foreign capital to fund its import needs, inflows that can be volatile as investor sentiment swings.

The deficit was one of the main reasons why Indonesia was targeted in an emerging market sell-off last year, triggered by rising U.S. interest rates and a stronger dollar. The rupiah slumped more than 5 percent against the dollar in 2018, dropping to its lowest levels since the Asian financial crisis two decades prior, as investors pulled out of the nation’s stocks and bonds.

The rupiah has bounced back in 2019, helped in part by the central bank’s swift action in raising interest rates by 175 basis points and the U.S. Federal Reserve’s shift away from policy tightening this year. The current account remains a risk though, and the government has imposed a number of measures to curb imports and spur exports to lower the deficit.

Data on Monday showing a second consecutive monthly trade surplus in March suggests the current account deficit probably narrowed in the first quarter. Economists surveyed by Bloomberg had predicted a $177 million trade deficit in the month.

Eoin Treacy's view -

Any politician from a democratic country, with a population of hundreds of millions, the majority of whom are entering the workforce is unlikely to succeed without at least posing as a pro-growth candidate. Both candidates in Indonesia are running on differing platforms aimed at promoting growth. In India, both the BJP and Congress Parties are showing support for small business and credit growth. In Nigeria’s last election last February, more than a few of those who have been holding office for decades lost their seats as the youthful population demand jobs and less graft. Those are all positive stories for the long-term trend of improving standards of governance in emerging markets.



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April 12 2019

Commentary by Eoin Treacy

April 12 2019

Commentary by Eoin Treacy

Disney Leaps to Record as Investors Cheer Streaming Service

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

For Iger, Disney+ is a bit of a swan song. The company’s longtime steward reiterated Thursday that he expects to step down as CEO at the end of 2021, when his contract expires. During the presentation to investors, Disney gave a peek at how the service will work. It features five tiles devoted to key Disney brands, including Pixar, Marvel, Star Wars and National Geographic. The 4K-resolution content will be available on internet-connected TVs, smartphones, tablets and other devices. The look and feel of Disney+ isn’t radically different from Netflix’s design. But Disney is betting that its devoted fan base will find reason to add another streaming service.

DC Edge
At $6.99, Disney+ also is beating a comic-book rival: AT&T Inc.’s DC Comics introduced a service at $7.99 a month that includes material from characters like Wonder Woman, Batman and Superman.

The new product isn’t Disney’s only streaming platform. It acquired majority control of the Hulu TV service with the $71 billion Fox deal, and it’s now considering whether to expand
that product overseas.

A Hulu price cut, which lowered its entry-level, ad- supported version by 25 percent to $6 a month, helped bring a surge of customers, Disney said. Hulu expects to double its ad
revenue over the next few years.

“Hulu is doing just great,” said Kevin Mayer, chairman of Disney’s direct-to-consumer and international operations. “We are really pleased.”
 
And

“You can figure that we will bundle ESPN+ and Disney+ fairly soon,’’ Iger said.

Eoin Treacy's view -

Netflix demonstrated that it is possible for a content provider to prosper out the umbrella of the distribution networks by availing of the market access provided by broadband, mobile devices and smart TVs. That first mover advantage has allowed it to build the company into a $155 billion market cap but the allure of global market access without having to pay distribution companies ensures competition for viewers is going to be pick up quickly.



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April 12 2019

Commentary by Eoin Treacy

Chevron Buys Anadarko in $33 Billion Bet on Shale Oil, LNG

This article by By Kimberly Yuen, Javier Blas and Kelly Gilblom for Bloomberg may be of interest to subscribers. Here is a section:

"Chevron’s deal for Anadarko escalates the race with Exxon Mobil for the Permian and delivery of synergies and efficiencies will be critical in narrowing or overtaking its peer’s returns." --Fernando Valle, industry analyst, and Jonathan Mardini, associate analyst

The deal may put pressure on Shell to seek assets in the Permian, where the Anglo-Dutch company has said it wants to grow. Oil executives and bankers had in the past speculated that Shell may buy Anadarko because they have adjacent acreage. Shell has in the past several months held talks with Endeavor Energy Resources LP, the largest privately-owned company in the Permian that bankers say might be valued at $10 billion to $15 billion.

Eoin Treacy's view -

Unconventional oil and gas production is more expensive than conventional supply but there is a lot more of it. The challenge for producers is to compress the cost of production as much as possible so that they can be competitive when prices occasionally decline. That is what is driving the desire to get economies of scale through acquisitions.

 



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April 12 2019

Commentary by Eoin Treacy

PBOC Support to Stay Even Amid Credit Upswing

This article by Chang Shu and David Qu from Bloomberg Economics may be of interest to subscribers. Here is a section:

The robust rate of credit expansion this year doesn’t rule out continued monetary easing. We think that’s still needed to help the economy find a solid footing, though the focus should increasingly shift to targeted measures.

Broad-based easing is still needed to provide liquidity to the banking sector so it can sustain the expansion in credit. The need is higher in 1H and we continue to see the possibility of reductions in the reserve requirement ratio, with the first potentially coming as early as in April.

There’s less of a necessity for an interest rate cut, in our view.

Targeted measures are important for channeling funding to sectors in greater need of funding -- small, private firms -- to lower their effective borrowing costs.

Eoin Treacy's view -

The result of the People’s Congress was to declare victory in the containment of the shadow banking sector and to signal a clear willingness to boost credit growth to reinvigorate speculative activity. That has resulted in the stock market popping on the upside, reversing the pattern of deterioration that prevailed for all of 2018.



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April 11 2019

Commentary by Eoin Treacy

April 11 2019

Commentary by Eoin Treacy

Gold and Other Metals Decline on 'Surprise' U.S. Data

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

Most measures of the PPI are a bit stronger than expected, as well as jobless claims,” Tai Wong, head of base and precious metals derivatives trading at BMO Capital Markets, says in phone interview  With the “surprise positive economic data, especially the PPI, if you are thinking that the Fed’s next move is going to be a rate cut, this moves that further away” “It will probably keep the Fed neutral for longer”

Eoin Treacy's view -

The current economic environment represents the sweet spot between when the central banks of the world pause in raising rates and when economic activity continues to expand. Those are exactly the kinds of conditions in which we see cyclical sectors leveraged to the growth of the global economy turn to outperformance. So why were commodities weak today on the back of stronger economic news?



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April 11 2019

Commentary by Eoin Treacy

Made-in-India iPhone X from July 2019

This article by Bharani Vaitheesvaran for ETtech may be of interest to subscribers. Here is a section:

Sustained increase in manufacturing will depend on, among other factors, the continuation of a favourable incentive regime into the next government, the official said. Mails sent to Foxconn and Apple seeking comment remained unanswered.

The company began its India manufacturing journey through another Taiwanese company Wistron, which had started with the iPhone SE from its factory near Bengaluru two years ago and later advanced to iPhone 6S model. Wistron now makes iPhone 7, a sign analysts foresee as a bump-up in local manufacture of multinational technology companies keen on the Indian market. Around 290 million smartphones were assembled in India in 2018 up from 58 million in 2014, according to data from the Indian Cellular and Electronics Association.

"In the short-term, the Differential Duty and the Phased Manufacturing Programme worked as far as import substitution is concerned. Now the challenge is to move from 290 million to 500 million phones and then to one billion by 2025," Pankaj Mohindroo, National president for ICEA, said.

"The National Policy on Electronics, 2019, gives a broad framework, but we will have to put a robust action plan behind it, which will enable exports..."

The ICEA has as its members brands such as Apple, Xiaomi, Vivo, Oppo, and manufacturers such as Flex and Foxconn.

Eoin Treacy's view -

India has the twin advantages of a massive young population and low costs. If we think about how manufacturing generally evolves, it is usually attracted by the presence of a low cost base and regulatory change which incentivises growth. Infrastructure usually comes later but it does need to be built. That is potentially where India is today. It is successfully attracting manufacturers but will need to do what is necessary to ensure they stay.



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April 11 2019

Commentary by Eoin Treacy

Bezos Just Confirmed Amazon's Growth Is Slowing

This article by Shira Ovide and Sarah Halzack for Bloomberg may be of interest to subscribers. Here is a section:

But there’s a dark cloud in Amazon’s figure. The growth of Amazon’s total merchandise sales slowed considerably last year, according to Bloomberg Opinion calculations based on Bezos’s disclosures. This figure is not the first sign than Amazon’s retail juggernaut may have slipped a bit. 

In 2018, Amazon’s nearly $300 billion in GMV was about a 19 percent jump from the prior year. That was notably slower than the rates of increase of 24 percent and 27 percent, respectively, in 2017 and 2016. 

Eoin Treacy's view -

Elizabeth Warren is campaigning on the platform of splitting up Amazon and the more sectors it competes in the louder that call will be. However, while a populist assumption, it is not accurate to state Amazon is going to completely control retail. The shop online and pick-up market for goods is thriving and conventional retailers are outperforming Amazon. 



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April 11 2019

Commentary by Eoin Treacy

Kids Love These YouTube Channels. Who Creates Them Is a Mystery

This article by Yoree Koh and Betsy Morris for the Wall Street Journal may be of interest to subscribers. Here is a section:

Some parents say they find certain YouTube content disturbingly effective in enrapturing young children.

Johanna Peyton, an Austin, Texas, mother of three, said she initially welcomed YouTube as a distraction for her children—until her daughter, then nearly 2 years old, became fascinated with videos of adults and children opening eggs with surprises inside.

“It was disturbing to me that somebody was working so hard on the videos—intricately editing them and using so many eggs. I remember thinking, ‘What was their agenda?’ ” Ms. Peyton said. “It just felt odd that somebody would be doing this.” She no longer allows her kids to watch YouTube.

The CoCoMelon channel joined YouTube on Sept. 1, 2006, according to its “about” page, which says its goal is “to make learning a fun and enjoyable experience for kids by creating beautiful 3D animation, educational lyrics, and infectious, toe-tapping music.”

The business took off last year, when its view count jumped to 1.96 billion views in October 2018 compared with 123 million views a year earlier. It now has 43 million subscribers, according to Social Blade.

Eoin Treacy's view -

My brother and sister have pretty much banned their young children from using YouTube and their smart phones because the content accessible is clearly designed to be addictive. When conventional tv channels dominated programming the advertising aimed at children was regulated and we still yearned for the toys.

In Ireland, the Late Late Toy Show was the highlight the Christmas season when we were growing up but for marketers it was an opportunity to showcase toys and kids outside of the regimented advertising structure. In many ways it represents the forerunner of the boom in dedicated content appealing to babies and young children that pervades YouTube.



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April 10 2019

Commentary by Eoin Treacy

Video commentary for April 10th 2019

Eoin Treacy's view -

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

Some of the topics covered include: Nasdaq-100 Equal Weight Index hitting new highs, Bond yields compress, China firm, Europe steady, MDAX has broken through psychological 25,000, gold and oil steady with resources shares extending adbances. 



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April 10 2019

Commentary by Eoin Treacy

Credit Bubble Dynamics: The Bursting of an Historic Bubble

Thanks to a subscriber for this report by Doug Noland, formerly of Prudent Bear, not at McAlvany. Here is a section:

Eoin Treacy's view -

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

I feel a strong emotional identification with this argument. Surely it makes sense that continued bouts of credit creation will eventually result in the debts coming due and a massive round of defaults resulting in crashes for multiple asset classes? The increasingly vocal concerns about inequality and the rise of populism as a response to that are very real and likely to continue to be a factor that needs to be incorporated in our thinking. The biggest question is how urgent are the warnings?



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April 10 2019

Commentary by Eoin Treacy

Africa's Amazon Set for New York IPO as Online Retail Takes Off

The company, which has headquarters in Berlin and got early funding from German startup incubator Rocket Internet SE, isn’t profitable. Jumia reported a loss for 2018 of about 170 million euros and has warned prospective IPO investors that it has accumulated losses of 862 million euros since its inception and relies on external financing to compensate for negative cash flow.

Still, investors tend to give e-commerce companies leeway because customer growth and market share are seen as more important, according to Seema Shah, a consumer analyst at Bloomberg Intelligence in New York. While the company competes with the likes of Amazon’s Souq.com and Naspers Ltd. In individual markets, Jumia has said it believes it’s the only pan-African e-commerce site.

“If an online retailer develops a name and offers a good consumer experience, people feel safer to use it,” Shah said. For the IPO to be successful, investors will have to see Jumia as “a chance to play in Africa with less risk.”

Eoin Treacy's view -

This map of the median age of world with green denoting the youngest countries highlights the fact that Africa is where the growth of the middle class needs to occur if the theme is to persist over the next few decades. Major population centres like India and Indonesia are already evolving and have years of growth ahead of them but the birth of the consumer is a ground floor opportunity in the majority of Sub Saharan Africa. 



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April 10 2019

Commentary by Eoin Treacy

April 09 2019

Commentary by Eoin Treacy

April 09 2019

Commentary by Eoin Treacy

FAANG's $800 Billion Rally Has Mom and Pop Investors Cashing Out

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

After a three-month rally that’s added more than $800 billion to the value of FAANG stocks, individual investors have decided it’s time to cash out of the high-flying names.

Retail clients at brokerage TD Ameritrade increased their overall exposure to equity markets for a second consecutive month in March, yet they sold shares of Amazon Inc., Facebook Inc., Netflix Inc. and Apple Inc. All four members of the so-called FAANG cohort -- which also includes Google parent Alphabet Inc. -- have gained at least 35 percent since stocks bottomed on Christmas Eve, one-and-a-half times the S&P 500’s return.

“Taking profits isn’t the worst idea in the world,” said Joe “JJ” Kinahan, the chief market strategist at TD Ameritrade, noting clients had been buyers of Amazon for eight straight months while also showing immense interest in Netflix in recent periods. “What it makes me wonder is, they were the momentum stocks, so where do we get our new momentum?”

It’s possible the answer to that question is cannabis companies, according to Kinahan. While clients of Omaha, Nebraska-based TD Ameritrade shunned the FAANG names last month, many were buyers of Aurora Cannabis Inc. and CVS Health Corp., which recently announced that it will begin selling CBD-infused products at more than 800 of its stores. Millennial clients also scooped up shares of Canopy Growth Corp., according to a statement from TD Ameritrade.

Eoin Treacy's view -

The 20% decline in the 3-months from the early October peak was a visceral event for many investors, not just retail buyers. If we had said to anyone thinking about selling before Christmas that all they would have to was wait another three months and the market would be back at the high then at least some people would say that as soon as it gets back to that level I’m selling.  Others, who have sat through medium-term corrections before, will conclude this is nothing more than a pause within an evolving bull market. That argument between bulls and bears in the region of an all-time high contributes to at least a range forming.



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April 09 2019

Commentary by Eoin Treacy

Italy Raises Deficit Target, Risking Fresh Conflict With The EU

This article by Chiara Albanese, John Follain and Lorenzo Totaro for Bloomberg may be of interest to subscribers. Here is a section:

The wider deficit forecast could revive tensions with the Commission after months of wrestling at the end of 2018 which resulted in a promise from Italy to stick to a deficit of 2.04 percent of GDP. With growth lower than expected, the money to keep the promise isn’t forthcoming. Nor is the government keen on measures that would dampen growth, with Finance Minister Giovanni Triastating recently that restrictive fiscal moves would be “absurd.”

Italy stocks extended losses after the report, with the FTSE Mib index down 0.4 percent at 3.00 p.m. in Milan. The spread between Italian and German 10-year bonds widened by 4 basis points.

"The deficit is the most thorny issue for Italy and could spark tensions with the European Union," said Vincenzo Longo, an analyst of IG Markets in Milan. "We are expecting negative growth in the first part of the year and the numbers the government is going to debate seem too optimistic. The government isn’t likely to push the issue however until after the European vote in May."

Eoin Treacy's view -

The fiscal austerity program the EU is abiding by is designed to harmonise government debt to GDP ratios ahead of introducing pan European institutions like a deposit insurance corporation and a federal transfer mechanism. It offers no leeway for subpar economic growth which is what Italy is dealing with at the moment. That represents a significant challenge for the system because it greatly increases the potential for rebellion.



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April 09 2019

Commentary by Eoin Treacy

Israeli elections primer: Final polls and what they mean

This article by Natan Sachs for the Brookings Institute may be of interest to subscribers. Here is a section:

The polls also suggest a great deal of uncertainty: Not only is the pro-Netanyahu advantage modest, but several small parties on both right and left have seen their vote totals hover around the electoral threshold for entrance into the Knesset. If they fail to clear 3.25 percent (nearly 4 seats), their votes would be discarded, potentially upending the equilibrium between the left- and right-wing blocs.

For Netanyahu, this election presents not only a battle for his political life, but possibly a battle for his personal freedom. The Israeli attorney general has decided to indict Netanyahu in three cases, including one charge of bribery, pending a hearing with the prime minister and his lawyers in July. Bibi’s lawyers face the challenge of undoing what months and years of investigations have presented to the attorney general (a Netanyahu appointee). Barring their unlikely success, Netanyahu will need a coalition willing to keep him in power through one of two unpopular avenues. First, he could maintain the support of such a coalition while on trial for serious crimes (he would only have to resign by law if convicted). Or, better yet for Netanyahu, he could form a coalition willing to pass legislation granting the prime minister immunity from prosecution. With all these uncertain factors at play, it is possible that we see another round of elections before too long—maybe even within the year.

Eoin Treacy's view -

36% of the global population is voting this year with Israel and Turkey the most recent examples. And neither is going particularly smoothly. The underlying forces that are fomenting political populism are evident in most countries because the status quo has failed to deliver on rising standards of living, resulting in a much tighter focus on corruption and inequality. In a democracy like Israel, low turnout has exit polls showing either a dead heat of a win for the opposition which risks installing a left-wing government. Meanwhile in Turkey, Erdogan is intent on redoing the mayoral election in Istanbul because he did not like the first result which is a clear threat to the country’s democratic basis.



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April 09 2019

Commentary by Eoin Treacy

Big-Data Infusion for CPI Starts With Apparel

This research note by Jeff Kearns for Bloomberg may be of interest to subscribers. Here is a section: 

The BLS change may add volatility in clothing prices, but the impact on the main index will be relatively small, subtracting maybe 0.1 percentage point from the annual CPI rate, according to Michelle Girard, chief U.S. economist for NatWest Markets Securities and the most accurate CPI forecaster in Bloomberg’s latest ranking.

“While, theoretically, this shift should not introduce a downward or upward bias in the data, we believe that prices captured using actual transactions data are more likely to be biased lower,” Girard wrote in a report. “Transactions data could capture lower price points from a flash sale that a data collector may not have observed.”

Goldman Sachs Group economist Spencer Hill estimates the change could reduce core inflation in March by around 0.05 ppt from the monthly change. Omair Sharif, senior U.S. economist at Societe Generale, also sees a possible drag from apparel. The BLS plans to collect more alternative data directly from companies, an avenue that could ultimately account for almost 32% the index, Konny and her colleagues outlined in a February paper. Examples include scraping fuel prices from the GasBuddy website.

Eoin Treacy's view -

The clear conclusion from the introduction new data sets is the Bureau of Labor Statistics has no interest in developing a measure that does anything other than help to depress the inflation gauge.



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April 08 2019

Commentary by Eoin Treacy

Video commentary for April 8th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Continued evidence of slowing global economic activity but the market continues to price in the potential for easing and a successful resolution to the trade war. cyclicals like oil, copper, gold, semiconductors and biotech continue to rally. Mexico rallies, Wall Street somewhat overbought and in the region of its October peak.



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April 08 2019

Commentary by Eoin Treacy

Africa's emerging economies to take the lead in consumer market growth

This article by Landry Signé for the Brookings Institute may be of interest to subscribers. Here is a section:

One in five of the world’s consumers will live in Africa by the end of the next decade, and more and more of these people will fall under the category of affluent or middle-class. Growing discretionary incomes will lead to higher demand for high-quality, niche, and foreign-produced goods. Urbanization, such as in Nigeria where eight cities already host populations over 1 million people, promises to increase competition for formal retail centers and the development of efficient production and distribution chains. Rebounding oil prices in Algeria, Angola, Nigeria, and Egypt may contribute to an increased market share for luxury goods. Though, ultra-high net worth individuals(whose net assets exceed $30 million) reside throughout the continent—in South Africa, Egypt, Nigeria, Kenya, Tanzania, Ethiopia, and Morocco. Growth in GDP per capita will lead to greater purchasing power among these classes of the population, and luxury goods retailers should look to the continent for entry points.

Eoin Treacy's view -

Fast moving consumer goods companies need to be where the people are. The countries with the most favourable demographics in the world today are all either in Africa or Asia with India, Indonesia, Nigeria and Ethiopia notable for their high populations. The global birth rate has already peaked which means companies have at best the next thirty years to capitalise on the demographic dividend before the global population starts to contract.



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April 08 2019

Commentary by Eoin Treacy

BJP promises a collateral-free credit & Rs 20k cr seed startup fund in its 2019 manifesto

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

BJP has promised a new scheme to provide collateral-free credit of up to Rs 50 lakh for entrepreneurs in its manifesto for 2019 elections. It said that 50% of the loan amount will be guaranteed towards female entrepreneurs, while 25% will be for male entrepreneurs. 

BJP has also promised to create a seed startup fund of Rs 20,000 crore to back early-stage companies. It's worth noting that Prime Minister Narendra Modi had earlier announced a credit guarantee fund with a corpus of Rs 2,000 crore to provide funding facilities to startups in the country, as part of the Startup India action plan in January 2016. 

The BJP-led government had also announced a Rs 10,000-crore fund of funds managed by the Small Industries Development Bank of India (SIDBI) in 2016. However, according to the Startup India status report, less than 20% of the corpus has been allocated to alternative investment funds as of November 2018, with the total commitment standing at Rs 1,611 crore. The report also noted that around 170 startups have received funding from these investments funds. 

In its manifesto, BJP has envisioned facilitating setting up of at least 50,000 new startups and 500 new incubators and accelerators by 2024. It has also promised to create 100 innovation zones in urban local bodies. 

Eoin Treacy's view -

In every Indian election for the next twenty years there will be tens of millions of people voting for the first time. The one thing young voters need more than anything is support to help secure an income to support their family formation aspirations. Easy access to credit and entrepreneurship in a growth economy are the clearest routes to securing a stable future and they contribute to growth in the wider economy through the multiplier effect of job creation. In addition to these measure India needs infrastructure, particularly ports, roads and better railways.



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April 08 2019

Commentary by Eoin Treacy

How to invest in real estate and pay nothing in capital gains

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

The Tax Cuts and Jobs Act has created a new tax break that dangles the potential of a 0% capital-gains tax on certain investments in economically distressed areas. But you’ll need to wait 10 years to claim it.

These new investments are funds tied to Qualified Opportunity Zones — approximately 8,000 areas around the country, both urban and rural, that local officials have designated as most in need. Qualified investments can be in real estate — commercial property is an early favourite — as well as small manufacturers and service businesses.

Tax breaks on investments in Qualified Opportunity Zone funds or businesses begin kicking in after five and then again after seven years; but the most generous terms — that 0% rate — are for investments held for at least 10 years.

And

If a taxpayer keeps the investment in the QOZ fund for at least 10 years, the appreciated capital gains on the QOZ fund investment becomes tax-free income when the investment is sold or exchanged. The long-deferred capital-gains taxes owed on the investment rolled into the QOZ will still have been paid once Dec. 31, 2026 rolls around, as illustrated in the previous example.

It is only the appreciated value of the QOZ investment that is tax-free, and there is no limit on the amount eligible for this tax break. If the investment in the earlier example was sold for $600,000 after 10 years, no taxes would be owed on $300,000. But deferred capital gains would have been paid on $170,000.

Eoin Treacy's view -

I had heard of this program before but this is the first time I have seen the map of where the qualified opportunity zones are. It represents an interesting way for investors with large potential capital gains liabilities to delay payment while putting the profit to work in a tax efficient manner which could potentially earn enough to absolve the investor of the original capital gains liability.



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April 08 2019

Commentary by Eoin Treacy

Economic Think Tank Says Korea Now in Recession

This article by Choi Hyun-mook and Shin Su-ji for ChosunMedia may be of interest to subscribers. Here is a section:  

The state-run Korea Development Institute on Sunday said Korea is slowly going into recession. The KDI said Sunday that the economy is "in a phase of gradual slowdown" as demand both overseas and at home shrinks.

Until last October, the institute had said Korea's economy was improving.

According to market researcher CEO Score, investment at 855 subsidiaries of Korea's top 60 businesses fell 3.1 percent last year to W98.5 trillion (US$1=W1,139).

Some 35 of them slashed spending last year. Samsung's cutbacks were particularly drastic with 46 subsidiaries reducing investment by 25.7 percent to W28.5 trillion.

Eoin Treacy's view -

South Korea is deeply embedded in the global economy and as a major electronics and vehicle exporter its health is an important barometer for the wider global economy.



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April 05 2019

Commentary by Eoin Treacy

April 05 2019

Commentary by Eoin Treacy

My Diagnosis of Why Capitalism Is Now Not Working Well for the Majority of People

This report by Ray Dalio for Bridgewater is well worth taking the time to read. It highlights in the clearest terms the conditions that have led to the rise of populism and what that means for economic governance going forward. Here is a section:  

Eoin Treacy's view -

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

Capitalism trends towards consolidation as the strong overtake the weak. The list of Autonomies I created seven years ago is smaller now because even the largest companies with the biggest global franchises often merge to become even bigger and to capture even more market share. That’s as true of Dow Chemical as it is of Disney or Saudi Aramco.



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April 05 2019

Commentary by Eoin Treacy

Samsung Profit Drops Most in Four Years as Chip Prices Slump

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

Samsung Electronics Co. reported its worst operating-profit drop in more than four years, buffeted by falling memory-chip prices and slowing smartphone sales.

Operating income fell 60 percent to about 6.2 trillion won ($5.5 billion) in the three months ended March, according to preliminary results released Friday from the Suwon, South Korea-based company. That was the biggest decline since a similar drop in the third quarter of 2014. Analysts surveyed by Bloomberg had expected a 56 percent slump to an average of 6.93 trillion won.

Samsung issued a rare warning last month that its results would be short of estimates, reflecting slower orders from data center owners such as Amazon.com Inc. and handset makers including Apple Inc. That’s pushed down prices for both DRAM and NAND memory and compounded the struggles for the South Korean company as it counts on new devices such as the Galaxy S10 smartphone to help it fight back against increased competition.

“We do expect server DRAM demand to pick up as well as the S10 sales and foldable-phone sales to be better than expected going into the second half.” Daniel Yoo, global strategist at Kiwoom Securities, told Bloomberg TV. “Therefore the earnings pickup should lead the share price going into the future.”

Eoin Treacy's view -

Samsung Electronics trended lower for more than year from its 2017 peak but has perked up over the last three months as the potential for earning growth later in the year is priced in. The company is a bellwether for the electronics industry since it is a major supplier of chips, memory and consumer goods. It’s impressive near 200% advance from early 2016 was a clear sign of improving perception of global growth so it is continued ability to hold the region of the trend mean is an important arbiter of whether the global reflation trade can continue to animate investors’ animal spirits.



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April 05 2019

Commentary by Eoin Treacy

The great Steelmageddon debate

This report by Timna Tanners for BoA Merrill Lynch, dated March 25th which may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

There have been a lot of headlines about the surge in iron-ore prices but the chart tells a more nuanced story. Spot prices at Qingdao port have been ranging below $80 since early 2007 and have bounced from the $60 area since the initial rebound in 2016. The price is now trading back above $80 and a sustained move below the trend mean would be required to question recovery potential.



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April 04 2019

Commentary by Eoin Treacy

April 04 2019

Commentary by Eoin Treacy

Musings from the Oil Patch April 3rd 2019

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section on coal to gas power plant conversions:

With an investment of roughly 50% of the value of an operating coalfired power plant, the benefits of converting to natural gas for fuel can make economic sense, based on our estimates.  However, as every technical article we read discussing fuel conversions pointed out, each project is different and requires an extensive analysis before reaching a conclusion.  We will not bore you with the extended lists of issues to be considered.  Natural gas makes for a cleaner environment and operating facility, and also requires less ongoing maintenance.  Gas plants are also less labor intensive, which may become a greater consideration in the future with a tighter labor market and an aging labor force.  

Given the amount of natural gas resources in the world, it would be nice to say that this conversion option is a panacea for the expensive decarbonization efforts currently being proposed.  A global coal-to-gas conversion effort is not likely, even though we suspect many more switches could (may) be justified.  As the economics of the Joliet conversion highlights, the plant moved from a baseload to peaking status, which could be justified by current energy economics.  We doubt all regions have similar economics that facilitate such a move.  The world will continue to remain dependent on an “all of the above” energy slate for ensuring everyone has access to cost-effective electricity.  

Eoin Treacy's view -

Natural gas prices went negative in Texas over the last couple of days, as a result of a surge in supply from the Permian. A couple of years ago there were negative electricity prices in the same region as a result of all the wind power. These market anomalies help to highlight just how prolific production can be. Meanwhile US oil production is in excess of 12 million barrels a day.



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April 04 2019

Commentary by Eoin Treacy

Production of battery grade cobalt blows up First Cobalt's stock

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

“Producing a battery grade cobalt sulfate is one of our most significant accomplishments as the majority of refined cobalt for the electric vehicle market is produced in Asia. With no cobalt sulfate production in North America today, First Cobalt stands to become the first such producer for the American electric vehicle market," Trent Mell, President & CEO said in the press release.

“Electric vehicle demand in North America will keep growing," Henrik Fisker, First Cobalt director and CEO of electric vehicle manufacturer Fisker Inc., said. "Companies such as Fisker continue to introduce new, affordable EV models to the market. Automakers and battery manufacturers have a responsibility to ensure any materials we use in our batteries are sourced in an ethical way.  The restart of the First Cobalt Refinery is an important step towards producing battery materials in America with a clean record from mine to machine.”

Eoin Treacy's view -

Cobalt has bubbly characteristics by the time it peaked last year. One of the oldest adages in the commodity markets is “the cure for high prices is high prices” and the surge in cobalt prices encouraged new production and a drive towards greater consumption efficiency. The peaceful transition of power in Congo, the world’s largest producer, represented an additional bearish sign and contributed to the crash.



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April 04 2019

Commentary by Eoin Treacy

Fastest Electric Car Chargers Waiting for Batteries to Catch Up

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

“The charging capacities of electric vehicles have doubled in the space of a few years,’’ Wolfsburg, Germany-based Volkswagen said in an email. “We expect that fast-charging in public spaces will become the norm.’’

Tesla, which has more than 12,000 chargers globally, is boosting the speed of its own refueling units to cut time at the pump by as much as half. The upgrade promises to add as much as 75 miles of charge in five minutes -- still lagging the ultra-fast models.

The speed at which current EVs can recharge is limited by such factors as the size of their battery, the voltage the pack can accept and the charger’s current.

While it may be years before battery packs able to handle the power surge from ultra-fast chargers go mainstream, some new EVs -- including Hyundai Motor Co.’s Kona Electric and Jaguar Land Rover Automotive Plc’s I-Pace -- already can recharge faster than previous generations.

Volkswagen’s Porsche brand will introduce its electric Taycan sports car later this year. It’s the first vehicle capable of taking full advantage of the fastest chargers, with a larger battery and the ability to operate at a higher voltage.

“The cars are coming,” said Marty Andrews, CEO of Chargefox Pty, which installed ABB’s fastest units at some Australia charging stations. “The carmakers want ultra-rapid chargers because they want this to be future-proof. This is not a six-month plan, it’s a 10-year plan.”

Eoin Treacy's view -

Refueling infrastructure during the era of internal combustion engines was built out by the oil companies and they still own large parts of the filling station market. What was particularly interesting about Royal Dutch Shell’s announcement last month that it aims to become the world’s largest power producer by 2030, is that this dovetails with the proposed increase in demand from electric vehicles. 
That has little to do with the environmental impact of the move and more to do with protecting a significant portion of its business from terminal decline.



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April 04 2019

Commentary by Eoin Treacy

A Belief in Meritocracy Is Not Only False: It's Bad for You

This article by Clifton Mark for medium.com may be of interest to subscribers. Here is a section:

Perhaps more disturbing, simply holding meritocracy as a value seems to promote discriminatory behavior. The management scholar Emilio Castilla at the Massachusetts Institute of Technology and the sociologist Stephen Benard at Indiana University studied attempts to implement meritocratic practices, such as performance-based compensation in private companies. They foundthat, in companies that explicitly held meritocracy as a core value, managers assigned greater rewards to male employees over female employees with identical performance evaluations. This preference disappeared where meritocracy was not explicitly adopted as a value.

This is surprising because impartiality is the core of meritocracy’s moral appeal. The ‘even playing field’ is intended to avoid unfair inequalities based on gender, race and the like. Yet Castilla and Benard found that, ironically, attempts to implement meritocracy leads to just the kinds of inequalities that it aims to eliminate. They suggest that this ‘paradox of meritocracy’ occurs because explicitly adopting meritocracy as a value convinces subjects of their own moral bona fides. Satisfied that they are just, they become less inclined to examine their own behavior for signs of prejudice.

Meritocracy is a false and not very salutary belief. As with any ideology, part of its draw is that it justifies the status quo, explaining why people belong where they happen to be in the social order. It is a well-established psychological principle that people prefer to believe that the world is just.

However, in addition to legitimation, meritocracy also offers flattery. Where success is determined by merit, each win can be viewed as a reflection of one’s own virtue and worth. Meritocracy is the most self-congratulatory of distribution principles. Its ideological alchemy transmutes property into praise, material inequality into personal superiority. It licenses the rich and powerful to view themselves as productive geniuses. While this effect is most spectacular among the elite, nearly any accomplishment can be viewed through meritocratic eyes. Graduating from high school, artistic success or simply having money can all be seen as evidence of talent and effort. By the same token, worldly failures become signs of personal defects, providing a reason why those at the bottom of the social hierarchy deserve to remain there.

Eoin Treacy's view -

I’m a believer in hard work, commitment and ingenuity but I agree it would be hubristic to discount luck or even serendipity in some of the events that have led to personal success. Nevertheless, to discount meritocracy because it does not provide an egalitarian outcome would be folly. Attempting an equal sharing of rewards is what communist systems do and we know how that works in terms of production, personal creativity and corruption.

Meritocracy might not be perfect but it is certainly better than believing that no matter what you do,you will do nothing to better your circumstances. That would be truly disastrous but it is the risk faced by the political establishment because of the populism which has gestated from the unequal returns created by quantitative easing.



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April 03 2019

Commentary by Eoin Treacy

Video commentary for April 3rd 2019

Eoin Treacy's view -

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

Some of the topics discussed include: commodities rally, supported by a resurgent Chinese market, platinum cheap relative to palladium, bitcoin breaking out, Wall Street pauses in the region of a previous peak, peripheral Europe turning to outperformance, Australian firm.  



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April 03 2019

Commentary by Eoin Treacy

It Takes Just 3 Stickers to Make a Tesla Drive Into Oncoming Traffic

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

Tesla’s Autopilot is a level two system that’s leaning into level three, but it might not have the necessary hardware to make it work. These vehicles use cameras, radar, and ultrasonic sensors to detect lanes and nearby vehicles. The Keen Security researchers reverse-engineered the software Tesla uses to see how easy it would be to fool those sensors. They didn’t need to make any changes to the car’s software — this is not a hack. They simply used three small reflective stickers on the roadway to trick Autopilot into thinking the lane had merged when it hadn’t.

According to the report, Tesla uses a feature called “detect_and_track” to identify lane markers. It uses several factors to avoid incorrect decisions like road shoulder location, lane history, and the distance to various objects. However, the reflective stickers appear to the car like lane markers, directing it to merge. These stickers are almost invisible to drivers, and it would be trivially easy to place them on roadways.

Tesla’s Autopilot system does include emergency braking. So, it’s possible the car could stop itself in the event it swerved into oncoming traffic. However, there’s no guarantee the other cars would stop. Tesla says it is evaluating the report but notes that drivers are supposed to keep their hands on the wheel while Autopilot is engaged.

Eoin Treacy's view -

Here is a link to the original research conducted by Keen Security. Teaching a computer to see, in the way we understand that statement as humans, is an enormously difficult task which is why they route to success has been through teaching computers to react to cues. By fiddling with the cues, the computer can be fooled. That suggests a major rewrite of code for autonomous systems but if the clear fix is to simply tell the computer to take more notice of its environment and the direction of the cars travelling on its periphery.



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April 03 2019

Commentary by Eoin Treacy

CBOE Trashing Bitcoin Futures Signals Crypto Market Bottom

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

Speaking on the “Fast Money” panel, Kelly explained that a unique mixture of factors including shifting fundamentals make it likely that bitcoin is poised to break out of its prolonged bear phase which has lasted more than a year now.

In his words: “I think we could look back on this and say that was the bottom…There’s a couple of things that have gone on since the low in December. We’ve seen the underlying fundamentals improve…I think retail is exhausted. You’re starting to see sellers being exhausted and institutions come in. Fidelity is a catalyst coming up in Q2. I think with all those things combined, we might look back and say ‘You know what, in the $3000’s is a great place to buy bitcoin.’”

Eoin Treacy's view -

The CBoE is removing its bitcoin contract from trading. The introduction of the futures contract introduced leveraged to what was previously an unleveraged market. The price rallied in anticipation of the introduction, but futures were used as a way of hedging exposure and most of the positions taken out were on the short side, which contributed to the crash in classic 1987 crash fashion.



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April 03 2019

Commentary by Eoin Treacy

Palladium Sags as Prices Gyrate on Auto Demand Concern

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

Palladium headed for the first decline in four sessions as U.S. President Donald Trump’s threat to shut down the border with Mexico added to concerns over the outlook for the auto industry, the biggest consumer of the metal.

Analysts said a border closing would rapidly ripple through a U.S. economy in which supply chains are closely integrated with Mexico, especially hitting the carmakers. Volatility in palladium, used in auto catalysts to curb pollution, has surged in the past week as investors assess slowing vehicle sales against the outlook for supply shortfalls that drove prices to record highs last month.

Eoin Treacy's view -

Something that does not get discussion any longer is the fact the platinum is primarily used in diesel catalytic converters but platinum and palladium are equally useful in petrol cars. The question of whether to use one over the other is down to the cost of retooling and the relative abundance of palladium over platinum. This was subject that got some coverage back in the early 2000s but I find it peculiar that is not a topic today.

Here is a section from a report by Johnson Matthey explaining the difference:

The role of platinum in catalytic converters is to oxidise carbon monoxide (CO) and hydrocarbons. Platinum is particularly effective at this under oxygen-excessive conditions, so is often the metal of choice for diesel applications. For petrol-powered vehicles (where there is a balance between reductants and oxidants in the exhaust gas), platinum and palladium can be equally effective, and so the choice is often made on the basis of relative cost. The three-way catalyst used for petrol vehicles must also be able to reduce NOx to nitrogen as well as oxidise CO and hydrocarbons – that is why rhodium is generally used in addition to platinum or palladium.



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April 02 2019

Commentary by Eoin Treacy

Video Commentary for April 2nd 2019

Eoin Treacy's view -

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

Some of the topics discussed include: bitcoin breaks out potentially in sympathy with 5G or the continued recovery in mining stocks, gold stead, silver unwinds intraday decline, oil firm, Wall Street steady, China holds its advance, bonds steady.



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April 02 2019

Commentary by Eoin Treacy

Growing the Pie

Thanks to a subscriber for Howard Marks’ most recent memo. Here is a section:

About 50 years ago, an older friend described for me what he felt made America great.

When the worker in Britain sees the boss drive out of the factory in his Rolls Royce, he says “I’d like to put a bomb under that car” But when the worker in the U.S. sees the boss drive out of the factory in his Cadillac, he says “Someday I’ll own a car like that “.

Today, too few Americans feel they might own that Cadillac. Taken to the logical extreme, that has the potential to bring the American miracle to an end. Thus, business should do all it can to arrest the trend toward stagnant and unequal incomes…not just to be fair or generous, but to assure perpetuation of the system that got us here.

Capitalism is the most dependable route to prosperity. And it has to be responsible capitalism. The solution can’t lie in turning away the Amazons of the world, imposing extra taxes on Cadillacs or otherwise shrinking the pie.

Eoin Treacy's view -

Here here!. However, it is highly unlikely companies are going to accept reduced profit growth and a shareholder backlash unless they have no other choice. That is just not how markets function.



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April 02 2019

Commentary by Eoin Treacy

US and India versus the World

Thanks to a subscriber for this article by Joe Zidle for Blackstone which may be of interest. Here is a section:

Eoin Treacy's view -

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

India has both the institutional framework and demographics to support a much larger market economy. What it needs is deregulation, anti-corruption measures and better infrastructure. The challenge, for whatever party wins the election, will be how to employ the millions of new workers entering the economy every year for the next couple of decades. The urgency of that issue is likely to spur rapid economic development.



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April 02 2019

Commentary by Eoin Treacy

The Biggest Saudi Oil Field Is Fading Faster Than Anyone Guessed

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

The new maximum production rate for Ghawar means that the Permian in the U.S., which pumped 4.1 million barrels a day last month according to government data, is already the largest oil production basin. The comparison isn’t exact -- the Saudi field is a conventional reservoir, while the Permian is an unconventional shale formation -- yet it shows the shifting balance of power in the market.

Ghawar is so important for Saudi Arabia because the field has "accounted for more than half of the total cumulative crude oil production in the kingdom," according to the bond prospectus. The country has been pumping since the discovery of the Dammam No. 7 well in 1938.

On top of Ghawar, which was found in 1948 by an American geologist, Saudi Arabia relies heavily on two other mega-fields: Khurais, which was discovered in 1957, and can pump 1.45 million barrels a day, and Safaniyah, found in 1951 and still today the world’s largest offshore oil field with capacity of 1.3 million. In total, Aramco operates 101 oilfields.

Eoin Treacy's view -

A lot of what Saudi Arabia is producing today is heavy oil and coupled with Venezuelan production that has boosted refining capacity for high sulphur blends. That transition is reflective of the changing production profile of the Saudi Arabia’s fields even as it continues to sustain the ability to produce up to 12 million barrels a day.



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April 02 2019

Commentary by Eoin Treacy

Taipei blasts 'provocative' Chinese fighter jet incursion across Taiwan Strait line

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

However, Glaser said that the Chinese “haven’t done so for at least a decade, likely longer.”

“I’ve been told that Chinese jets approach the midline, but then veer off,” she said.

The flight came just after Taiwan President Tsai Ing-wen capped off a tour of several Pacific nations with a visit last week to Hawaii, where she said she had formally submitted new requests to the United States for F-16B fighter jets.

The U.S. has no formal ties with Taiwan but is bound by law to help it defend itself and is the island’s main source of arms. The Pentagon says Washington has sold Taipei more than $15 billion in weaponry since 2010.

China is suspicious of Tsai and her pro-independence Democratic Progressive Party and any push for the island’s formal independence.

Chinese President Xi Jinping said in January that Beijing reserves the right to use force to bring Taiwan under its control, but would strive to achieve peaceful “reunification.”

Beijing has called Taiwan “the most important and sensitive issue in China-U.S. relations” and has bolstered its military presence near the island, sailing its sole operating aircraft carrier through the Taiwan Strait in January and March of last year and holding large-scale “encirclement” exercises and bomber training throughout 2018.

Eoin Treacy's view -

Anything that promotes the notion of Taiwan declaring statehood is being met with progressively more strident efforts by China to stamp it out. Xi Jinping has succeeded in having his doctrine written into the constitution and he is economic plan is to make China the preeminent global economy. However, the crown jewel for any Communist Party leader, something that would ensure he is remembered forever in the annals of history would be to reacquire Taiwan.



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April 01 2019

Commentary by Eoin Treacy

Video commentary for April 1st 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Europe rebounds with China. Wall Street firm, Sovereign bonds trim their rally, Pound firms on soft Brexit speculation, oil firm, resources shares turning to outperformance, Philadelphia semiconductors pressuring its highs. 



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April 01 2019

Commentary by Eoin Treacy

A contrarian view on Europe

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

Eoin Treacy's view -

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

Here is a quote from the foreword by Mario Draghi in the ECB’s annual report: “Substantial monetary policy stimulus remains essential to ensure the continued build-up of domestic price pressures over the medium term,” There is virtually no prospect of the ECB raising rates and in fact the balance of probabilities is pointed towards another round of quantitative easing. The main question is how long this is going to take to action.



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April 01 2019

Commentary by Eoin Treacy

Ignore the Brexit scare stories - they have no basis in sound economics

Thanks to a subscriber for this article by Ashoka Mody for The Independent. Here is a section:

As Krugman wrote in a brilliant 1995 essay, “People believe certain stories because everyone important tells them, and people tell those stories because everyone important believes them. Indeed, when a conventional wisdom is at its fullest strength, one’s agreement with that conventional wisdom becomes almost a litmus test of one’s suitability to be taken seriously.”

British leaders must pull themselves out from the spell of storytelling and focus on their urgent responsibilities. At home, they must heed the real message of the Brexit vote: citizens being left behind by globalisation are clamouring for more protection. Prime minister Theresa May seemed briefly to recognise the primacy of that task. But she was sucked quickly into the Brexit negotiations vortex.

On Brexit, British citizens and their leaders must decide what kind of nation they want to live in. The debate must pit the value of sovereignty against the risks to global peace. Such a debate is of the utmost importance for Europe, with its history of horrific wars, especially now when ugly forms of nationalism are gaining alarming numbers of adherents. Unfortunately, instead of dealing head-on with this monumentally important challenge, which must guide the Brexit decision, global leaders are peddling frightening economic scenarios.

The Remain or Leave decision is an opportunity for Britain’s citizens to express and reaffirm their true values. Failure to protect the most vulnerable at home and redirect the Brexit debate to a higher purpose will leave underlying tensions simmering.

Eoin Treacy's view -

The European answer to sticky questions is to just stop talking about them. Europe has adopted multiculturalism and there is a clear racist undercurrent in the “respect” for other cultures which precludes people from active participation in society but that is not talked about. In the same vein, the ambition of creating a European federal union is politically untenable and so there is no champion for the idea. However, every action taken by the EU in its response to the credit crisis points towards the long-standing aim of a federal union.



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April 01 2019

Commentary by Eoin Treacy

Flooding prompts criticism of way Missouri River dams run

This article from ky3.com may be of interest to subscribers. Here is a section:

"I was told point-blank, 'Flood control is not our top priority. It is not. Period.' They were very firm on that point," Hawley said. "I said, 'You've got to be kidding me.'"

Corps officials say they work to balance all the priorities Congress approved when operating the dams, but no single priority outweighs all the others. Their operating model tries to maximize the benefit to several priorities when possible.

Hawley said Congress should consider "serious reform," such as deciding if the Corps should be taken out of the Department of Defense and placed under direction of another agency, such as the Department of Transportation or the Department of the Interior.

The Corps manages the Missouri River's system of dams and locks and decides when and how much water is released from reservoirs into the river. The severe flooding this month in Nebraska, Kansas, Iowa and Missouri has renewed criticism of the Corps' management of the river.

Officials estimate that the flooding caused more than $1 billion of damage to farms in Nebraska and Iowa, destroying stored crops and killing livestock. And the damage total will grow as floodwaters recede and other states assess conditions.

Eoin Treacy's view -

Snow melt flowing directly into rivers because the ground was still mostly flooded, coupled with rain helped exacerbate the flooding. However, it is also worth considering that the predominance of the green movement is setting priorities for river management is an additional cause of the extent of flooding.



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March 29 2019

Commentary by Eoin Treacy

March 29 2019

Commentary by Eoin Treacy

Chinese Stocks Wrap Up Best Quarter Since 2014 With a Huge Rally

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

Friday’s surge in Chinese stocks rounds up a winning quarter for the country’s investors. China’s equities have outrun every other national market in the world in the three-month period. The CSI 300 Index’s 29 percent rally is its best since the end of 2014, when the nation’s equity bubble was forming. Apart from a Taiwanese chipmaker, a Brazilian steel producer and Latin America’s largest utility, all the top 30 performers on MSCI Inc.’s emerging-market benchmark are Chinese companies.

Managing a momentum-driven investor base, where turnover is in the hands of almost 150 million retail traders, has always been a challenge for the government. China’s experienced two massive bubbles in the past decade, with a tight-grip approach to tame the rally backfiring in 2015, drawing the ire of foreign investors. Analysts predict Beijing will be more successful this time in engineering a slow bull market.

“It’s a critical time for the market,” said Liao Zongkui, an analyst at Lianxun Securities Co. “Investors are keeping a close eye on earnings from heavyweight companies. A good results season will be a big confidence boost, and will ensure the stock-market rally can continue.”

Eoin Treacy's view -

Veteran subscribers will be accustomed to our long-time contention that monetary policy beats most other factors most of the time. That’s particularly true on Wall Street and is an even more important factor in the age of extraordinary monetary policy. In China, the state dictates the fate of the market so it is clear that bull markets are state sponsored.



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March 29 2019

Commentary by Eoin Treacy

Erdogan's Real Test Comes Monday When Election Calendar Clears

This article by Cagan Koc and Selcan Hacaoglu for Bloomberg may be of interest to subscribers. Here is a section:

“We’re going to implement structural reforms that will make our economy stronger against such attacks with great speed following the election,” Erdogan said.

The question is if investors will stick around long enough to see if he delivers this time. With Turkey succumbing to its first recession in a decade and unemployment at the highest in nine years, Erdogan will have an uphill battle ahead. It will be far harder to make headway on such key challenges as overhauling the labor market now than during a period when economic growth of 5 percent or more was the norm for Turkey, according to Naz Masraff, director for Europe at Eurasia Group.

Elections Loom
“It’s almost the least likely period to do structural reforms after the elections,” Masraff said. “If Turkey hasn’t managed to do them when growth was higher and the country was doing economically better back in 2011, 2012, it’s really difficult to do it in a downturn.”

Eoin Treacy's view -

Turkey has a great deal of US Dollar denominated debt and with the Lira under pressure that is only going to be a progressively more burdensome obstacle to recovery. While extraordinary measures are underway to support the currency ahead of this weekend’s municipal elections, the broader question is what measures are going to be put in place to repair the economic fabric after the election.



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March 29 2019

Commentary by Eoin Treacy

Zombie Crypto Stocks Resurface as Bitcoin Extends Recent Gains

This article by Tatiana Darie for Bloomberg may be of interest to subscribers. Here it is in full:

Crypto-tied stocks, the former market darlings that quickly languished when the Bitcoin bubble burst, are showing signs of reawakening.

Small firms linked to blockchain and cryptocurrencies are following Bitcoin higher as it extended gains for a second month. The top digital token rose for the fourth consecutive session on Friday, reaching its highest level since late December. The price broke above its 100-day moving average for the first time since August 2018 this week, extending this quarter’s gain to 11 percent after tumbling 45 percent in the previous quarter.

Shares of Marathon Patent Group Inc. and Social Reality Inc. each rose about 6 percent in early trading, while Grayscale Bitcoin Trust BTC and Riot Blockchain Inc. gained about 4 percent.

Other tokens such as Ether and Litecoin also rose on Friday, helping push the Bloomberg Galaxy Crypto Index up as much as 2.1 percent. Despite recent gains, the gauge remains down more than 80 percent from its highs in early 2018.

Eoin Treacy's view -

Most assets get interesting again after an 80-90% decline and so it is with Bitcoin. The price has held a progression higher reaction lows since December and closed above the psychological $4000 level today for the first time since November. As long as the sequence of higher lows is intact, we can conclude a low of medium-term significance has been found.



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March 28 2019

Commentary by Eoin Treacy

Video Commentary for March 28th 2019

Eoin Treacy's view -

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

Some of the topics covered include: predicative power of the yield curve spread, bonds ease, stock steady, Eurozone weak, Brexit drama is an indictment of the political process, palladium peaks, precious metals weak, oil firms from intraday lows, India steady, China consolidating.



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March 28 2019

Commentary by Eoin Treacy

Brexit Stalemate Deepens as U.K. Fails to Agree on a Way Forward

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

The U.K. has two weeks to go to the EU with a plan for its next steps or face the prospect of leaving without a deal, something Parliament also opposes. The likeliest outcome is that May will ask for a longer delay to Brexit, but she will have to convince European leaders that Britain is on a path to solving its apparently intractable problems.

Hours after May promised her Conservative members of Parliament on Wednesday that she’d step down if they back her Brexit deal, she still looked short of having the numbers needed to win. It’s already been overwhelmingly defeated twice.

Meanwhile, votes in the House of Commons intended to break the deadlock by finding a consensus also saw every proposal rejected. The pound fell.

May must decide on Thursday if she is going to bring her deal back for another vote and meet the EU’s Friday deadline for getting it passed. The government declared that it was still the only option in play. Yet it too appears to be doomed despite the capitulation of some Brexit hard liners.

Liz Truss, a member of Theresa May’s cabinet, told ITV television that Wednesday’s votes show there are no other “serious options” than the one already negotiated with the EU, and that has “focused minds.”

“There has been a significant shift now of people recognizing the reality of the options,” she said. “What we have seen today is Parliament does not have an option apart from the prime minister’s deal that is really a viable option for the future.”

Eoin Treacy's view -

This chart from Bloomberg highlighting the range of options puts me in mind of Walter Scott’s quote from Marmion “Oh what a tangled web we weave when first we practice to deceive”



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March 28 2019

Commentary by Eoin Treacy

Indian anti-satellite missile test meets with success

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

Anti-satellite weapons aren't new. Systems capable of destroying orbital spacecraft have been around since the 1960s and include everything from specialized anti-satellite satellites packed with explosives, to repurposed shipborne anti-missile missile systems that can take out space targets without any special modifications.

However, for various technological and diplomatic reasons, very few spacefaring nations have actually developed anti-satellite weapons. Today's test makes India the fourth to do so after the United States, Russia, and China.

The Indian government says that the test was conducted by India's Defence Research and Development Organisation (DRDO) and was fully successful, demonstrating the country's ability to knock out a satellite with a high degree of precision using indigenous technology. The missile was a DRDO Ballistic Missile Defence interceptor developed as part of India's general missile defence program. It operated as expected, but carried no explosive warhead. Instead, it was what is known as a "kinetic kill," where the hypersonic velocity of the interceptor is enough to destroy the target.

Eoin Treacy's view -

The proximity of an Indian general election is a good explanation for the timing of this demonstration as well as the sorties over the Pakistani border. By pandering to the Hindu nationalist wing of the BJP, Modi needs to appear strong and is eager to demonstrate India’s technological prowess as a way of doing that.



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March 28 2019

Commentary by Eoin Treacy

Have Yield Curve Inversions Become More Likely?

Thanks to a subscriber for this note by Renee Haltom, Elaine Wissuchek, and Alexander L. Wolman for the Federal Reserve Bank of Richmond may be of interest to subscribers. Here is a section.

The flip side of the previous point is that if the term premium narrows, yield curve inversions will become more likely even if there is no increased risk of recession. And, indeed, there is reason to believe the term premium has fallen. Recently, the ACM model’s estimates of the term premium have moved persistently lower. The average values since 2006 and 2012 are 0.77 and 0.20, respectively. (See Figure 2).3

Two authors of this Economic Brief (Wissuchek and Wolman) recently evaluated how changes in the term premium affect the likely frequency of yield curve inversions.4 In principle, one could do this by conducting a statistical analysis of historical data to assess the relationship between the level of the term premium and the frequency of yield curve inversions. However, the number of inversions is too small to produce a reliable estimate using this method. Instead, Wissuchek and Wolman’s exercise involved simulating data for the short-term interest rate and then measuring how the frequency of yield curve inversions in the simulated data varies with the behavior of the term premium.

To build intuition for this simulation exercise, Figure 3 illustrates the qualitative relationship that would arise between the frequency of yield curve inversions and the level of the term premium if the term premium were fixed at different levels. For very high values of the term premium, the yield curve would never be inverted because the expected decrease in short-term rates would never be large enough to outweigh the term premium. Conversely, for very low (negative) values of the term premium, the yield curve would always be inverted because the expected increase in short-term rates would never be large enough to outweigh the term premium. And, if the term premium were fixed at zero, then over long periods the yield curve would be inverted roughly half the time. In reality, the term premium is not constant, so the simulation involves looking at how the frequency of yield curve inversion varies as the distribution of the term premium changes.

Eoin Treacy's view -

One of the most predictable outcomes of an inverted yield curve is the discussion about whether it will be a predicative tool on this occasion because so many mitigating factors have arisen since the last inversion to suggest this time is different.

What I find particularly interesting on this occasion is other Fed economists are coming out with alternative measures which support the view we are looking at an impending recession even while they contend the yield curve spread is an imperfect measure.



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March 28 2019

Commentary by Eoin Treacy

Lynas looks to WA, not Wesfarmers, for its Malay solution

This article by Hamish Hastie, Colin Kruger and Darren Gray for the Sydney Morning Herald may be of interest to subscribers. Here is a section:

"These discussions are preliminary in nature and no formal submission for any change has been presented to the EPA," a spokeswoman for the agency said.

The discussions could help solve the problems in Malaysia which threaten the company's future, and made it vulnerable to what analysts and investors described as a low-ball bid from Wesfarmers on Tuesday.

Lynas faces an uncertain future after the Malaysian  government imposed strict new conditions on its billion-dollar Malaysian operation which could force it to shut down in
September.

This includes the permanent removal of a residue with naturally occurring radiation, Water Leached Purification Residue (WLP), from Malaysia.

According to institutional investors, Lynas discussed plans last month to relocate some of its rare earths processing  back to Western Australia. All processing is currently handled
in Malaysia.

Lynas chief executive Amanda Lacaze denied there was any plan to extract and retain the controversial WLP residue in WA - the state where it is mined - but did confirm it planned to expand its processing operations outside of Malaysia.

Eoin Treacy's view -

A great deal of capital was invested in new rare earth metal projects after the price spike caused by China limiting exports in 2010. Lynas is the only one of those that made it to production and refining of heavy rare earth metals.



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March 27 2019

Commentary by Eoin Treacy

Video Commentary for March 27th 2019