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February 27 2019

Commentary by Eoin Treacy

India and Pakistan Have Lost Control of the Story

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

 

There was a brief moment after the Indian Air Force’s strike in Pakistani territory in the early hours of Tuesday when it appeared that a way to thread that needle had been discovered. Rather than restricting itself to attacking terrorist training camps just across the Line of Control that divides Kashmir, India for the first time in decades struck areas that were undisputedly part of Pakistan itself. Strategists in New Delhi seemed confident that they’d fundamentally shifted the red lines in Kashmir and expanded India’s arsenal of possible retaliatory measures against Pakistan-backed militant attacks.

For that to be true, however, both Indian and Pakistani politicians would need to retain control of their (mutually incompatible) domestic narratives. The Indian government -- facing a tough re-election campaign in just a few weeks – had to be able to tell its electorate that it had made Pakistan pay, claiming unofficially to have killed as many as 300 terrorist recruits. Pakistan had to be able to assert the opposite – that the Indians had hit nothing but a forested hilltop before being chased off by Pakistani fighter jets.

That’s why the Indian government was initially very careful to have its chief diplomat brief the press, rather than anyone connected with the military. India’s foreign secretary also stressed that this was a “non-military” action, meaning that it wasn’t directed at the Pakistani military, and that a central aim of the planning was to ensure there were no civilian casualties. Meanwhile, Pakistan’s ruling party was busy mocking the Indian media’s claims on Twitter, accusing journalists of watching too many Bollywood movies.

In general, as long as both sides focus on reassuring their domestic constituencies rather than contradicting each other’s version of events, the chances of conflict are paradoxically lower. The problem is that in this crisis like any other, facts inevitably intrude.

Eoin Treacy's view -

The escalation in tit for tat attacks is not great for sentiment but both Pakistan and India have been very clear not to call these examples of aggression acts of war. That suggests there is a clear aim to contain the situation and they despite the requirement to placate domestic firebrands, the respective administrations are interested in de-escalating the situation.



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February 27 2019

Commentary by Eoin Treacy

Email of the day on global liquidity:

The emphasis you have given to liquidity as a principal driver of equity markets is being vindicated as prices continue to rise despite slowing money supply.  See attached article from Mises.

Eoin Treacy's view -

Thank you for this interesting article. Here is a section:

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of falling money-supply growth.

Many factors contribute to these trends. In recent months, money supply growth — in both M2 and TMS — has likely been impacted by falling growth rates in real estate loans at commercial banks. In January, real estate loans grew 2.9 percent, year over year, which was a 49-month low. The demand for mortgage loans has softened as mortgage rates have risen. In January, the 30-year, fixed average mortgage rate reached 4.46 percent, which was down from November's recent high of 4.87. January 2018's average mortgage rate was much lower, however, coming in at 4.03 percent. 

The problem with relying on the expectation that bank loan growth is a reflection of economic activity is banks have been hindered in their ability to make loans because of the damage done to their balance sheets during the credit crisis. Instead of lending they have been lodging excess reserves at the Fed in return for a modest, but risk-free interest rate.



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February 27 2019

Commentary by Eoin Treacy

Barrick-Newmont merger would leave up to $7B of assets up for grabs

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

Canada’s Barrick Gold's (TSX:ABX)(NYSE:GOLD) hostile $17.8 billion bid for rival Newmont Mining (NYSE:NEM) could free up a group of assets the combined company would no longer consider key, such as their Kalgoorlie super pit 50/50 joint-venture in Western Australia.

After launching the offer on Monday, Barrick chief executive officer Mark Bristow said he had already been contacted by parties that have expressed interest in the company’s Australian assets.

The divestment goals announced by the Newmont-Goldcorp tie-up and the recent Barrick-Randgold merger provide “a significant opportunity” for ASX-listed names to acquire assets, according to UBS analysts.

“Australian gold producers have stronger balance sheets than their North American peers. We think Evolution and Northern Star are best placed to make accretive acquisitions given their strong track records in this area,” said UBS in a note last month.

Market rumours indicate that one of the potential buyers could be Melbourne-based Newcrest Mining (ASX:NCM), especially after Bristow said there was “a very good chance” of some Australian operators becoming involved.

Eoin Treacy's view -

The pace of M&A activity in the gold mining sector remains brisk. There is a good reason for that. Many miners have all-in sustaining costs in the order of $800-$900 and the price of gold is north of $1300. Considering the share prices of many gold miners are still reasonably close to multi-year lows it makes a lot more sense to buy and established company with production capacity already paid for than to engage in the expensive and risky business of exploration and development of greenfield sites.



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February 26 2019

Commentary by Eoin Treacy

Video commentary for February 26th 2019

Eoin Treacy's view -

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

Some of the topcis discussed include: Pound rallies on soft Brexit enthusiasm, FTSE-250 in the region of the MA, Treasuries pricing in no rate hikes in the next two years, Wall Street pauses in the region of previous peaks, gold steady but coffee and wheat break downwards. 



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February 26 2019

Commentary by Eoin Treacy

Berkshire Hathaway Annual Letter 2019

Thanks to a subscriber for this issue of Warren Buffett’s annual missive. Here is a section:

Berkshire will forever remain a financial fortress. In managing, I will make expensive mistakes of commission and will also miss many opportunities, some of which should have been obvious to me. At times, our stock will tumble as investors flee from equities. But I will never risk getting caught short of cash.

In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.

That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.)

Eoin Treacy's view -

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

Buffett suggests he is thinking about buying back shares because they do not see suitable opportunities for their cash in the public markets. That is a testament to the fact that valuations are high by many historical standards and liquidity is not as abundant as it was earlier in this bull market. It is also a reflection of the fact that he is aware of the risks to a number of Berkshire business from competition and obsolescence and that there is a risk perception of the conglomerate’s fortunes will sour.



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February 26 2019

Commentary by Eoin Treacy

Your Avocados and Olives Are Pricier Because Fat Is In Fashion

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

The average prices of avocados, butter, olive oil and salmon have climbed as much as 60% since 2013, after stripping out seasonal price patterns and the effects of unusual weather events, according to various sources. Over the same period, prices of corn, soybeans, sugar and wheat either fell or didn’t change significantly.

These changes in fortune reflect the broad dietary shifts of recent years. Many people have switched to eating more foods that are high in natural fats from high-carbohydrate, low-fat diets. And government agencies and nutritionists are recommending that people avoid consuming industrial-made fats and margarines and instead eat more fish, nuts and healthier oils.

Stephan Hubertus Gay, a senior agricultural policy analyst at the Organization for Economic Cooperation and Development, said consumers are eating products that contain fat again. But he said “we were a bit surprised that it came so fast,” referring to the sharp increase in demand.

Eoin Treacy's view -

The write down of goodwill in Kraft Heinz is a clear signal sugar is out of fashion and the foundation of many snack food brands is based on the addictive qualities of the sweetener.

Kraft Heinz remains weak and a clear upward dynamic will be required to check momentum beyond a pause.



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February 26 2019

Commentary by Eoin Treacy

To Save Capitalism, We Need to Save Communities

This excerpt from Raghuram Rajan, former head of the Reserve Bank of India, new book may be of interest to subscribers. Here is a section:

When it comes to trade, on the other hand, the losers are clear: In developed countries, they are the workers with a moderate education. When manufacturing supply chains were entirely contained within those nations, their jobs were safe; the indivisibility of the production process allowed them to bargain for higher pay, lower and more pre­dictable work hours, and more safeguards at work. As the production process has fragmented, though, with each segment undertaken in the most appropriate country, they have been exposed to the full force of competition from cheaper, more flexible, and equally competent labor elsewhere.

Well-paying unionized jobs in low-tech manufac­turing industries have been most adversely affected. Such jobs have typically been located near smaller towns and rural areas in the interior of countries, where the cost of living and thus of labor has been low. The incomes these jobs provided also helped
keep local hairdressers, laundries and shops in business.

Moderately educated workers whose firms close because of trade competi­tion typically have few palatable alternatives. With few new jobs near the small towns or semirural areas where they live, and most such jobs to be found in companies beset by the same competitive woes, workers have bleak prospects if they stay put. Yet, according to one U.S. study, that’s exactly what
they do.

Why? Retraining is hardly easy, espe­cially for manufacturing workers who went to work after high school many years ago and who really have not used computers at work or at home. Cities offer service jobs but also demand higher rents. For many, not moving and hoping old jobs return seems the best bet; after all, there are still friends and family nearby.
 

Eoin Treacy's view -

I consider this to be a very accurate characterisation of the root causes of populism. Rajan knows this better than most since he was forced out of his job at the RBI because he was unwilling to acquiesce to the demands of Narendra Modi’s populist administration.



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February 25 2019

Commentary by Eoin Treacy

Video commentary for February 25th 2019

February 25 2019

Commentary by Eoin Treacy

Wild Week Ahead for Trump, Kim, Brexit, Cohen and Fed's Powell

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

After days of buildup, Trump kicked off the week by delaying a threatened increase in U.S. tariffs on Chinese imports and dangling a summit with President Xi Jinping at Mar-a-Lago, his Florida retreat, if “both sides make additional progress.” Along the way, he slapped down Lighthizer on a semantic point. Earlier, the two sides were haggling over how to ensure Beijing lives up to its promise to not weaken the yuan. Trump then reported substantial progress, including on currency.

And

Look for Powell to offer signals on what’s next for the Fed during two days of congressional testimony. When they last met, policy makers broadly backed ending the runoff of the central bank’s balance sheet. Lighthizer, who testifies Wednesday, may give a sense of how likely the U.S. is to impose tariffs on auto imports. The European Union is threatening to hit back. U.S. fourth-quarter gross domestic product, due Thursday, is expected to show 2.5 percent expansion last year, short of the Trump administration’s ambitious goal.

Eoin Treacy's view -

The Shanghai A-Share Index rose 5.95% as investors raced to price in the conclusion the trade war is over. The Index has been trending downwards for more than a year but broke its sequence of lower rally highs two weeks ago and extended that advance today.



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February 25 2019

Commentary by Eoin Treacy

Corbyn Bows to Pressure, Agrees to Back Second Brexit Referendum

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

“One way or another, we will do everything in our power to prevent no-deal and oppose a damaging Tory Brexit based on Theresa May’s overwhelmingly rejected deal,” Corbyn was due to tell a meeting of Labour MPs on Monday evening, according to his office.

“That’s why, in line with our conference policy, we are committed to also putting forward or supporting an amendment in favor of a public vote to prevent a damaging Tory Brexit being forced on the country.”

Eoin Treacy's view -

This decision will cast the next election as an in or out referendum regardless of the other policies propagated during the campaign. Perhaps more importantly in the short-term it poses a very clear decision to Tory lawmakers. They either have to accept Theresa May’s deal or face the real possibility of both losing the next election and the chance to leave the EU at all. Even if the vote of the 12th does not support the agreement it increases the potential for a delay. 



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February 25 2019

Commentary by Eoin Treacy

Novartis Therapy Seen as Cost-Effective at Up to $1.5 Million

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

The experimental treatment, which could be launched in the first half of 2019, would be an alternative to Biogen Inc.’s Spinraza, a treatment given in regular doses that patients must take for the rest of their lives. Spinraza costs $750,000 in the U.S. for the first year and $375,000 a year thereafter.

Switzerland-based Novartis is now wrestling with the question of how to price a potential cure. As a number of drugmakers advance into gene therapy in a bid to fix potentially lethal DNA flaws, governments, insurers and other payers are trying to figure out how to pay for the revolutionary treatments meant to be given to patients a single time.

Eoin Treacy's view -

Genetic sequencing, editing and synthetic biology represent some of the most profound innovations for the healthcare sector in generations because they hold out the increasingly likely possibility of delivering cures. That’s terrible news for the conventional pharmaceutical industry which has historically depended on treating the symptoms of chronic conditions.



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February 22 2019

Commentary by Eoin Treacy

February 22 2019

Commentary by Eoin Treacy

U.S. Bets on China's Special Envoy in Trade Talks

This article by Lingling Wei and Bob Davis for the Wall Street journal may be of interest to subscribers. Here is a section:

While Chinese negotiators offered to stop providing government subsidies that distort prices and put Western rivals at a disadvantage, they haven’t so far produced a list of subsidies they would be willing to eliminate, the people said.

Instead, the Chinese side so far has focused its offer on greater purchases of U.S. agricultural and energy products such as soybeans, crude oil and liquefied natural gas, they said.

Whatever deal is struck, the U.S. is also seeking guarantees it will be enforced and a means to resolve disputes.

“It’s one thing to write something on a piece of paper,” said Secretary of State Mike Pompeo on Fox Business Network on Thursday. “It’s another thing to have enforcement mechanisms. And I know our trade team is hard at work, making sure that the American people get that.”

Eoin Treacy's view -

How likely is it that the USA and China will reach a trade agreement? I think it comes down to two factors. What is it that the USA wants from a deal and what is China willing to give up?



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February 22 2019

Commentary by Eoin Treacy

Walmart's US e-commerce sales up 43% in Q4, thanks to growing online grocery business

This article by Sarah Perez at Techcrunch.com may be of interest to subscribers. Here is a section:

Walmart has also made shipping to your home more affordable. In 2017, Walmart introduced an alternative to Amazon’s pricier Prime membership with free, two-day shipping on orders of $35 or more. This past year, it expanded free, two-day shipping to its marketplace items by working with hundreds of its top sellers and third-party fulfillment providers, like Deliverr.

The company last year also launched a new, more personalized website, which included a revamped Home section, as well as a cleaner, more modern design and sections that showcased items trending in the shoppers’ local area. The redesigned website made it easier to order groceries and reorder favorites, too.

In November, eMarketer noted Walmart had overtaken Apple to become the No. 3 online retailer in the U.S., with Walmart (including its Jet and Sam’s Club brands) poised to capture 4 percent of all online retail by year-end. Amazon, of course, remained No. 1, followed by eBay.

Eoin Treacy's view -

Walmart is making a big push into free 2-day shipping which is effectively the gold standard of online service provision. I sat in on a conference call last week with the company and the CEO of Deliverr, which is offering third party sellers the opportunity to circumvent Walmart’s own criteria for two-day shipping by sending inventory directly to Deliverr’s warehouses. That is an analogue for the Fulfilled by Amazon program which is the foundation of Prime delivery.



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February 22 2019

Commentary by Eoin Treacy

South Africa Mining Industry Warns on Week-Long Strike Threat

This article by Paul Burkhardt and Renee Bonorchis for Bloomberg may be of interest to subscribers. Here is a section:

South Africa’s precious-metals mines are among the world’s deepest and most labor intensive and companies are under constant pressure to contain costs. Yet high unemployment and inequality mean labor relations are inevitably fraught.

AMCU’s plans for an industry-wide strike marks a return to escalated conflict between South African mining companies and workers. In 2014, the union held the longest-ever strike in the world’s largest platinum industry. Wage negotiations for producers of the metal are expected this year.

“It is unfathomable that AMCU would willingly call for secondary strikes in an industry that is already in jeopardy,” Minerals Council Chief Executive Officer Roger Baxter said in an emailed statement on Friday. “This would undermine employment and the livelihoods of millions of dependents.”

 

Eoin Treacy's view -

The primary reason there is an uptick in South African worker activism is probably more to do with the impending election in May rather than any other single factor. There is a war going on for the heart of the ANC and Ramaphosa has a clear challenge ahead of him in trying to improve the efficiency of the economy. The mining unions are a significant force politically, but also have a vested interest in securing as good a deal as they can from mining companies before the uncertainty of the election.



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February 21 2019

Commentary by Eoin Treacy

Video commentary for February 21st 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Large impending IPOs could cause stock market indigestion, likelihood of Chinese stimulus improves, Australian Dollar still trending down which is a nominal support for Australian resources, EV materials discussion, Bonds and stocks ease with risk of consolidation increasing, gold pulls back from upper side of its range.   



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February 21 2019

Commentary by Eoin Treacy

Sustainability - Energy & Power Technologies

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

Eoin Treacy's view -

There is plenty of evidence of renewed interest in the commodity sector this year and most particularly because of the perception that China is on the cusp of renewing stimulative measures following at least two years of combating leverage in the shadow banking sector.

The significant dip in the Baltic Dry Index over the last few months is a testament to the slowdown in global economic activity and is further evidence of the need for stimulative measures lest China experience a recession.



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February 21 2019

Commentary by Eoin Treacy

On Target February 23rd 2019

Thanks to a Martin Spring for this edition of his letter which may be of interest to subscribers. Here is a section:

Central banks seem to reckon that the yellow metal is a good investment. They’re buying it for their reserves at the highest rate for almost half a century. Last year their net purchases reached $27 billion – 74 per cent more than in 2017.

Russia, Turkey and Kazakhstan were the biggest purchasers as the deteriorating political climate spurred them to convert some of their foreign reserves out of dollars. Hungary increased its bullion holdings tenfold. Even Poland is buying tons of gold.

It’s clear that the down-trend in gold prices since 2011 came to an end last year. The metal’s price has been rising steadily since mid-August. Where is it heading this year?

“The macroeconomic and geopolitical climate is conducive to continued gains in both gold and silver, and the precious metals equities,” says American stockbroker Cantor Fitzgerald, given:

Gold’s recent and historical strong performance in a rising interest-rate environment.

Should inflation expectations rise, this typically is a very bullish leading indicator for gold and silver.

The inflection point where physical gold outflows from ETFs ceases and inflows resumed was reached in the final quarter of last year and inventory holdings have continued to climb.

Uncertainty and volatility in global equity, debt and currency markets draw investors to safe havens. There is considerable upside potential as “precious metals equities are still widely under-owned by sophisticated international investors.”

Eoin Treacy's view -

Gold is one of the most popular and yet misunderstood of all alternative assets. It is commonly perceived as a hedge against inflation but also does well during periods of deflation. It is perhaps better to think of it as a hedge against stealth inflation when negative real interest rates prevail.



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February 21 2019

Commentary by Eoin Treacy

Lyft Is Planning to List Shares on Nasdaq

This article by Corrie Driebusch and Maureen Farrell for the Wall Street Journal may be of interest to subscribers. Here is a section:

There will be plenty more battlegrounds as many private technology companies plan for IPOs. That has prompted predictions that 2019 could be the busiest year ever for new issues, as measured by money raised. Other big names in the queue, besides Uber, are data-mining giant Palantir Technologies Inc. and Slack Technologies Inc.

Lyft is expected to pitch itself to potential investors as a comprehensive ride-hailing service offering access to cars, bikes and scooters, mostly in the U.S., and one that won’t be saddled with losses from competing globally.

Like many fast-growing technology companies, Lyft is planning to debut with supervoting shares that will give the company’s founders near-majority control, despite together owning a stake of less than 10%, The Wall Street Journal has reported.

Eoin Treacy's view -

Many of today’s unicorns have been able to stay private for much longer than would normally have been the case because of the flood of capital that has been available from private equity firms.

If we think about the successes and failures of extraordinary monetary policy the surge in private capital into speculative ventures is a success if at least some of these companies can transition to commercial successes. Ridesharing, reusable rockets, electric vehicles have all been made possible with abundant liquidity. On the other hand, there are certainly going to be some spectacular failures once access a lack of abundant liquidity truly tests business plans.



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February 20 2019

Commentary by Eoin Treacy

February 20 2019

Commentary by Eoin Treacy

The Reasons Why China's Stock Rally Is Nearing $1 Trillion

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

The rally since January has added more than $893 billion to the value of the country’s equities, lifting Shenzhen’s risky startups and state-backed giants alike. The rebound has been so quick and widespread that it’s already triggered signs of overheating in four of China’s major benchmarks. The CSI 300 Index’s 15 percent rally is its best start to any year in a decade, and turnover across all exchanges is near the highest since March.

While valuations have been low for months, Chinese equities really took off only after another set of weak economic data made monetary policy easing almost a certainty. Gains intensified when the new securities watchdog eased restrictions on trading, encouraging an increase in leveraged bets. Ample liquidity and a streak of foreign buying have fueled volumes.

“It’s essentially a reflection of change in investor expectations,” said Wang Chen, a Shanghai-based partner with XuFunds Investment Management Co. “The rally’s been driven by a return in risk appetite and a valuation catch-up.”

Eoin Treacy's view -

Bull markets in China tend to be state sponsored. China’s stock market is dominated by the actions of huge numbers of retail investors who are accustomed to taking cues from the government on when to participate.



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February 20 2019

Commentary by Eoin Treacy

Email of the day - don't pay up for commodities

I hope we can continue this discussion if we see further money flows into the gold sector. Taking note of Fullerisms " Never pay up for resources", "the need to be invested in case mania/euphoria occurs" and with reference to speculative investments "buy when sold down & sell when towering high above their EMA." As other subscribers will know, gold bull markets have strong drawing power and many of us need a sign on the wall "what the wise man does in the beginning the fool does in the end" from Howard Marks "Mastering the Market Cycle."

Eoin Treacy's view -

Thank you for this summary of adages focusing on the commodities sector. Gold continues to march towards the upper side of its seven-year base formation just below $1400. Investors are understandably getting excited about the prospect of a bull market that persists for more than a few months. That is particularly true because of the hedge gold offers against the potential for governments to blow out the debt markets with deficit spending and the impact that will have on their currencies.



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February 20 2019

Commentary by Eoin Treacy

Global Tin Giant Urges Government to Start Stockpiling Program

This article by Eko Listiyorini and Yoga Rusmana for Bloomberg may be of interest to subscribers. Here is a section:

“Indonesia wants exports to be more properly managed, if there’s an excess supply it’s better to set them aside as state reserves,” Jabin Sufianto, secretary-general of the Association of Indonesian Tin Exporters, said in an interview in Jakarta on Monday. “We currently export 100 percent of production, which means that we accept spot prices even if prices are bad.”

Southeast Asia’s largest economy has tried repeatedly in recent years to shore up prices of the metal used in electronics and tins by curbing production and sales, as well as making it mandatory for exporters to trade the commodity on a local exchange before shipment. Exports must also be inspected by government-appointed surveyors to check the quality and origin of ore used.

The plan from the association for a stockpiling program comes at a time of rising prices and predictions for a run of global deficits. It’s also been made just ahead of a presidential election in which resource nationalism is expected to feature as an issue in the campaigns. The trade minister will review the proposal and “there’s still a lot of discussion,” according to Jabin.

 

Eoin Treacy's view -

Producers don’t generally campaign so hard for market controls and supports unless their profitability is in danger. 



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February 19 2019

Commentary by Eoin Treacy

Video commentary for February 19th 2019

February 19 2019

Commentary by Eoin Treacy

Facebook's AI Chief Researching New Breed of Semiconductor

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

"We don’t want to leave any stone unturned, particularly if no one else is turning them over," he said in an interview ahead of the release Monday of a research paper he authored on the history and future of computer hardware designed to handle artificial intelligence.

Intel Corp. and Facebook have previously said they are working together on a new class of chip designed specifically for artificial intelligence applications. In January, Intel said it planned to have the new chip ready by the second half of this year.

Facebook is part of an increasingly heated race to create semiconductors better suited to the most promising forms of machine learning. Alphabet Inc.’s Google, which has created a chip called a Tensor Processing Unit that helps power AI applications in its cloud-computing datacenters. In 2016, Intel bought San Diego-based startup Nervana Systems, which was working on an AI specific chip.

In April, Bloomberg reported that Facebook was hiring a hardware team to build its own chips for a variety of applications, including artificial intelligence as well as managing the complex workloads of the company’s vast datacenters.

Eoin Treacy's view -

There is a growing understanding that deep learning and artificial intelligence are developing to such an extent that the future of computing is not going to be based on programming and programming languages.



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February 19 2019

Commentary by Eoin Treacy

Kuroda Says Stronger Yen Could Force BOJ's Hand on Stimulus

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

In a rare explicit coupling of policy and the yen, Governor Haruhiko Kuroda said the Bank of Japan would have to consider additional stimulus if the exchange rate affected Japan’s inflation and economy.

He was responding to a lawmaker’s question about the BOJ’s options if the yen rose further. The yen fell afterward, trading at 110.70 versus the dollar at 1:29 p.m. in Tokyo.

Former BOJ officials have warned in recent weeks of more yen strength, saying there would be little the BOJ could do about it.

Speaking to parliament on Tuesday, Kuroda said the BOJ’s options included lowering bond yields and increasing asset purchases. He told lawmakers that currency manipulation isn’t a goal of BOJ policy, but Japan’s trading partners might not be convinced if the BOJ does act to offset a stronger yen.

Eoin Treacy's view -

This is a very good example of the central bank talking the Yen down. It doesn’t have to initiate a large sale of Yen to weaken it but it does sent a clear message to the market that the flash rally posted at the beginning of the year is not something they are going to sit idly by and tolerate. 



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February 19 2019

Commentary by Eoin Treacy

Walmart Allays Retail Jitters With Best Holiday Quarter in Years

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

This was the first holiday season for Walmart’s redesigned website, plus its expanded home delivery and curbside pickup options. E-commerce sales in the U.S. rose 43 percent, in line with the gains most analysts had been expecting, helped by a broader assortment of brands and increased online grocery sales.

But some of the gains in the quarter were more related to timing: The early release of government food-stamp payments that were supposed to have become available to American shoppers in February boosted U.S. same-store sales by 0.4 percentage points
in the quarter, the company said.

The company reiterated the full-year sales and profit guidance it gave in October, including same-store sales growth at U.S. Walmart stores of between 2.5 and 3 percent -- a slight slowdown from the fiscal year that just ended. Retailers are bracing for a pullback in consumer demand this year, especially if the U.S. follows through on its threat to more than double tariffs on many Chinese goods, forcing retailers to raise some prices in
response.

Eoin Treacy's view -

In the Treacy household we refer to the Mrs. Treacy’s sales of jewellery and jewellery packaging on Amazon, Walmart, eBay, Etsy and lilytreacy.com as our family indicator. If retails were truly in trouble then the real-time demand for consumer discretionary items we receive from these venues would turn down long before it became apparent in quarterly earnings reports.



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February 18 2019

Commentary by Eoin Treacy

Video commentary for February 18th 2019

February 18 2019

Commentary by Eoin Treacy

Central Banks and other institutions

This article from the World Gold Council may be of interest to subscribers. Here is a section:

Central bank net purchases reached 651.5t in 2018, 74% higher y-o-y. This is the highest level of annual net purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record.1 These institutions now hold nearly 34,000t of gold.

Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and re-focus their attention on the principal objective of investing in safe and liquid assets. 

Eoin Treacy's view -

Many investors now pay a great deal of attention to ETF holdings of gold but governments remain significant accumulators of the metal. That is particularly true of Russia and China which are acquiring gold to insulate themselves from the US Dollar as geopolitical tensions bubble up.



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February 18 2019

Commentary by Eoin Treacy

China Stock Rally Accelerates as Momentum Hits Three-Year High

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

A rally in Chinese equities steepened Monday as bumper credit figures for January added to signs of increased stimulus.

The Shanghai Composite Index jumped 2.7 percent by the close, taking its rebound since a Jan. 3 low to 12 percent, as turnover on mainland exchanges reached a 10-month high. The small cap ChiNext index in Shenzhen, typically the most speculative part of the market, soared more than 4 percent. The surge weighed on government bonds, with the 10-year yield climbing the most in two months.

The nation’s equities, which were the world’s worst performing in 2018, are starting to take off as the new securities regulator eases curbs on trading and an economic slowdown spurs monetary easing. In a sign of how broad the rally has been, the relative strength of four major indexes have all climbed above 70 -- a level that signals to some traders an asset may be overheating. The last time that happened was May 2015, when the equity market was in a bubble.

Eoin Treacy's view -

I posted this chart of the impact tightening measures have had on the Chinese shadow banking sector a month ago. It is a clear signal both of the reasons for the slowdown in economic activity and the rationale the authorities now have to declaring the policy a success. It is increasingly likely that the Chinese authorities are now willing to start stimulating the economy again.



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February 18 2019

Commentary by Eoin Treacy

Germany Bans New Wirecard Short Sales in Unprecedented Move

This article by Nicholas Comfort and Karin Matussek for Bloomberg may be of interest to subscribers. Here is a section:

Germany’s financial regulator took the unprecedented step of temporarily banning short sales of Wirecard AG shares following reports of suspicious accounting practices, while prosecutors in Munich expanded their investigation to include a Financial Times journalist.

Investors globally are immediately prohibited from taking new short positions or increasing existing ones through April 18, according to watchdog BaFin. That’s the first time it has banned short-selling on a single stock and harks back to the financial crisis, when the regulator prohibited naked short sales on 11 financial firms.

The short-selling ban was coordinated with Munich prosecutors, who have already launched a probe over potential market manipulation in Wirecard shares. In a statement Monday, the prosecutor said it was investigating a complaint by an investor against an FT journalist.

Eoin Treacy's view -

Wirecard was the best performing company on the DAX last year and is one of Europe’s only technology success stories. Its fall from grace has been particularly swift but the move to ban shorting on an individual share is disingenuous. Rather than protect the perception of the German economy it is going to raise questions among foreign investors about their ability to express a view through investing in the region generally. 



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February 15 2019

Commentary by Eoin Treacy

February 15 2019

Commentary by Eoin Treacy

Earnings Recession Is Here

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

Eoin Treacy's view -

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

Is the trade war the primary reason behind lower expectations for earnings in 2019? That’s a big question for the wider market because if the USA and China can come to an accord that will improve confidence which will allow companies to begin to make plans on a sounder footing than they have today. However, there are other important factors that are worth considering.



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February 15 2019

Commentary by Eoin Treacy

Email of the day on gold miner mergers

Thank you for your efforts in providing this valuable information and analysis of the markets to the collective. With the expectation of increasing M&A activities in the gold miners, what would you look for as candidates for take overs can you provide some suggestions.

Eoin Treacy's view -

Thank you for your kind words and this email which raises a question I have also been pondering. When we think about where the tide of M&A activity is heading in the gold mining sector, we can look at potential acquirers and their motivations for why they are buying. We can then look at what they might be interested in buying and whether there is likely to be competition for that asset.



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February 15 2019

Commentary by Eoin Treacy

ECB Moves Closer to Global Dovish Shift as Coeure Mulls Loans

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

The European Central Bank took a step closer to injecting fresh stimulus into the weakening euro-area economy as one of its top policy makers said discussions are under way on offering banks new long-term loans.

The comments by Benoit Coeure, the ECB Executive Board member in charge of markets, provided the strongest signal yet that euro-area policy makers are considering another round of funding. He also echoed ECB President Mario Draghi that there must be a monetary policy case for such action.

Central banks around the world are following the Federal Reserve in reining in plans to tighten monetary policy. The ECB itself has already changed its language to warn of downside risks to the outlook, while India’s central bank unexpectedly cut interest rates last week and easing inflation bolstered bets that more reductions could be on the cards.

With the euro-area outlook deteriorating, the ECB is expected to cut its economic growth forecasts at its next meeting in March. That gathering is also at the center of speculation about new loans, known as TLTROS.

Eoin Treacy's view -

With Mario Draghi exiting his position as head of the ECB later this year, a policy hawk is very unlikely to replace him. There is no way the ECB can return to anything approximating normal monetary policy against a background where the banking sector is hobbled by a legacy of Japan-style bad loans which will take years to come to terms with.



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February 14 2019

Commentary by Eoin Treacy

Video commentary for February 14th 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: Coca Cola pulls back, Bond rally, oil breaks out of its short-term range, gold steadies, emerging market currencies encounter resistance in the region fo the trend mean. Europe steady in the region of the trend mean. India's oversold banks rebound, China steady, Mexico at risk of further deterioration. 



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February 14 2019

Commentary by Eoin Treacy

For This Top Gold Miner, Joining M&A Rush Is A Last Resort

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

Newcrest Mining Ltd. could jump aboard the multi-billion dollar, deal-making rush that’s reshaping the top ranks of the gold sector -- but only if it has to.

The No. 3 gold producer by market value has set a deadline for the end of 2020 to increase its exposure to five so-called tier-one assets, meaning that it’s hunting for a project or mine to add to a roster of four mainstay operations and investments in Australia, Papua New Guinea and Ecuador.

Mergers and acquisitions are ranked as a “final pathway” to growth behind exploration work and partnerships with smaller companies on early-stage projects, Chief Executive Officer Sandeep Biswas said Thursday on an earnings call with analysts.

“We don’t need to do M&A, we are in the enviable position of owning two of the world’s premier long-life gold assets.”

Eoin Treacy's view -

New long-life, high grade gold assets are like unicorns. You just don’t see them very often. That is why the major gold miners have been so active in M&A recently. On top of that mines are wasting assets so miners have a proclivity for shopping for replacements. It seems inevitable Newcrest will deal at some stage but if they continue to wait, they will likely end up paying more for attractive assets later.



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February 14 2019

Commentary by Eoin Treacy

Yes Bank Soars Most in 14 Years on RBI Assessment of Bad Loans

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

Yes Bank Ltd. rose the most in fourteen years after an audit by India’s banking regulator found no undisclosed bad debt for the last financial year.

The lender’s shares surged as much as 30 percent, the most since July 2005, before trading 20 percent higher at 203.65 rupees as of 9:43 a.m. in Mumbai. The gains pared the past year’s losses to 36 percent.

The green-light on its asset quality assessment for the 12 months that ended March 2018 comes as a relief for Yes Bank as it emerges from a leadership crisis that had helped halve its share price. India’s central bank twice rejected the lender’s request to extend founder and former CEO Rana Kapoor’s tenure after saying the bank repeatedly under-reported bad loans. Kapoor’s successor Ravneet Singh Gill, who has been heading Deutsche Bank’s India franchise, will take over from March 1.

Eoin Treacy's view -

Yes Bank collapsed in September because the RBI intervened to oust Kapoor following concerns about weak governance and issues with asset qualification. I’ve also heard that one of the reasons Kapoor has been singled out is because of the way in which his personal holding in the company was structured through trusts against which he had been borrowing money. That represented an additional governance risk to the bank.



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February 14 2019

Commentary by Eoin Treacy

Bond Market Shows Traders Putting Mexico on the Edge of Junk

This article by Aline Oyamada, Justin Villamil, and Aviel Brown for Bloomberg may be of interest to subscribers. Here is a section: 

Mexico has promised a capital injection of $1.25 billion to Pemex, while Lopez Obrador has floated a plan for $3.5 billion in tax breaks over the next six years. Not only did the measures fail to assuage market fears, they stoked concern that the government hasn’t grasped the extent of Pemex’s problems. Others worried that further capital injections could erode Mexico’s fiscal position.

“There’s risk of contamination as there’s basically one pocket of money,” said Shamaila Khan, the director of emerging-market debt at AllianceBernstein in New York. “To the extent Pemex support comes at the expense of fiscal performance, that is going to impact sovereign ratings.”

Eoin Treacy's view -

The biggest challenge for Mexico is it now has a left leaning populist administration. One of AMLO’s first acts as President was to cancel reforms at Pemex that would have allowed foreign investors access to the nation’s oil. That sent the wrong kind of message to the market because it eroded confidence in the administration’s commitment to meeting its debt obligations let along balancing the budget.



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February 13 2019

Commentary by Eoin Treacy

Video commentary for February 13th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street testing potential resistance, Euro pulls back and Europe is reliant on how China plays out. Shanghai A-Shares bounced with H-Shares leading, South African Rand weak, gold weak, oil firm, coffee breaking down. Treasuries continue to ease.



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February 13 2019

Commentary by Eoin Treacy

RBNZ Remains On Hold And The Kiwi Strengthen

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

As was widely expected, RBNZ remained on hold at +1.75%, yet may have sounded less dovish than expected. Despite the bank being cautious, its forecasts include the official cash rate remaining at +1.75% for 2019 and implied a rate hike in 2020. The bank also expects the core inflation rate to gradually rise to 2% yoy mid-point which necessitates a continued supportive monetary policy. Analysts pointed out that the bank seems to have time at its side, albeit they expect that as the year progresses growth could undershoot the bank’s projections causing for a more dovish stance. Governor Orr in his press conference stated that the chances of a future rate cut have not increased.

Eoin Treacy's view -

Island nations generally tend to have higher interest rates because of the cost of imports, exports and isolation push up inflation. At 1.75% New Zealand’s rates are unusually low from a long-term perspective reflecting the need for a stimulus following the Christchurch earthquakes and the competitive forces of devaluation where just about every other developed economy in the world is running low interest rates.



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February 13 2019

Commentary by Eoin Treacy

Worst Korean Jobs Figures in Nine Years Undermine Moon's Agenda

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

 

South Korea’s jobless rate hit the highest level in nine years, adding to evidence that President Moon Jae-in’s minimum wage hikes are doing more to harm employment growth than they are to raise incomes.

The seasonally-adjusted unemployment rate reached 4.4 percent in January, the worst figure since January 2010, when it was 4.7 percent. The median forecast of economists was for 3.8 percent. Meanwhile, jobs growth slowed to 19,000, down from 34,000 jobs in December.

Moon’s administration hiked the minimum wage by 11 percent this year, following a 16 percent increase last year.

Eoin Treacy's view -

South Korea is the world’s 11th largest economy so it does not tend to be factored in when analysts talk about synchronised global economic expansion. However, it is often a lead indicator for the global economy because of the nation’s focus on exports like cars and consumer electronics and its proximity to China. South Korea’s slowdown in late 2017 presaged the global slowdown concerns that animated markets for much of 2018.



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February 13 2019

Commentary by Eoin Treacy

A record 7 million Americans have stopped paying their car loans, and even economists are surprised

This article by Tanza Loudenback for Business Insider may be of interest to subscribers. Here is a section:

The delinquency figure represents a new high in the auto-loan market — more than 1 million more people are behind on auto-loan payments now than at the end of 2010. More people have auto loans now than in 2010, so while the overall rate of delinquency is down, the total number of people who have fallen at least 90 days behind their payments is higher.

The Fed has been tracking the auto-loan industry for more than five years, the economists said in the blog post, and it's not the first time the group has sounded the alarm. In 2017, a quarterly report from the Fed highlighted the near doubling of the rate of delinquencies in subprime auto loans originated by auto-finance companies since 2011, Business Insider's Matt Turner reported.

Turner also reported at the time that Wall Street was expressing concern over the subprime-auto-loan market as well. Meanwhile, Business Insider's Lauren Lyons Cole reported that Americans borrowed more money to buy cars than to attend college between 2016 and 2017.

Eoin Treacy's view -

There are a couple of points that immediately come to mind on reading this article. The first is that the delinquency rate for auto loans is definitely climbing and number of auto loans outstanding has increased substantially.



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February 12 2019

Commentary by Eoin Treacy

Video commentary for January 12th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: fears continue to abate on the trade and government shutdown fronts, Wall street firm, Amazon rebounds, Euro rebounds, Europe and China steady, H-Shares firming, oil tests the upper side of its range,  



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February 12 2019

Commentary by Eoin Treacy

Trump Open to Letting March 1 Deadline for China Tariffs Slide

This article by Saleha Mohsin and Margaret Talev for Bloomberg maty be of interest to subscribers. Here is a section:

President Donald Trump said he is open to letting a March 1 deadline to raise tariffs on Chinese products pass without penalty if the two sides are near an agreement, sending a conciliatory signal as talks to resolve a trade war between countries continue.

“If we’re close to a deal where we think we can make a real deal and it’s going to get done, I could see myself letting that slide for a little while,” Trump said to reporters during a cabinet meeting on Tuesday. “But generally speaking I’m not inclined” to delay raising tariffs, he added.

Negotiators from the world’s two largest economies began their latest round of talks this week ahead of the March 1 deadline for additional U.S. tariffs on Chinese goods. Trump has threatened to more than double the rate of tariffs on $200 billion in Chinese imports.

Eoin Treacy's view -

It would really be bad form to introduce new tariffs while productive discussions are still ongoing so it is quite likely the March 1st deadline will be exceeded. That does not guarantee a deal will be struck but it is in the interests of both parties to make some form of agreement. What is almost certain is there will be an agreement to hold further talks.



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February 12 2019

Commentary by Eoin Treacy

Overheard Aide Says May to Offer Deadline Delay

This note from Bloomberg by Alex Morales, Tim Ross, Ian Wishart and Robert Hutton may be of interest to subscribers. Here is a section:

The U.K.’s chief Brexit negotiator Olly Robbins was overheard by an ITV news reporter in a Brussels bar talking about strategy. According to the broadcaster, he said the plan is to delay the vote on the divorce deal until the final week of March, and then give Parliament a choice between a revised version of May’s deal and a very long extension of Article 50 talks.

The goal would be to scare Brexit supporters into line. A government spokesman said: “We don’t propose to comment on alleged remarks from a private conversation. The government’s focus is on securing the improvements Parliament needs to pass a deal so we leave the EU on March 29.”

Eoin Treacy's view -

Regardless of how we might personally feel about the Brexit saga, the reality is a comparatively small number of politicians are willing to support a clean break from the EU. Moreover, they are outweighed by those who will accept any deal if it avoids that particular outcome. As the manoeuvring between the Conservatives and Labour persists that imbalance is likely to be the deciding factor in the UK seeking to delay Article 50. It also increases the potential any eventual deal with the EU will be membership in all but name.



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February 12 2019

Commentary by Eoin Treacy

The Weak Spot in the Oil Market That Traders Are Missing

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

Faltering demand in Germany has preceded weak industrial data, which raised fears of a continued slowdown in Europe’s largest economy. Industrial production dropped for the fourth straight month in December, and Germany’s economy contracted in the third quarter of 2018 for the first time since 2015.

Standard Chartered analysts warn that the weakness could spread to other parts of Europe, further undermining demand for oil.

German demand makes up a minor fraction of the world’s oil consumption; the country was the 10th largest oil consumer in 2016, accounting for 2% of the global total, according to the U.S. Energy Information Administration. Since China made up 13% of oil consumption as of 2016, a drop in Chinese demand growth would likely have a comparatively larger impact.

Additionally, signs of slowing demand in other parts of Europe haven’t materialized, Mr. Horsnell noted.

Eoin Treacy's view -

Saudi Arabia continues to cut back on supply which buoyed the market today. However, the reasons for this move are not only to support prices but also in response to the slowdown in the global economy which is being led by Europe and China.



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February 12 2019

Commentary by Eoin Treacy

Our 2019 Annual Letter

Bill and Melinda Gates’ annual letter is a tonic for anyone doubting the progress people can make to help people when they want to. Here is a section:

Melinda: When economists describe the conditions under which countries prosper, one of the factors they stress is “human capital,” which is another way of saying that the future depends on young people’s access to high-quality health and education services. Health and education are the twin engines of economic growth.

If sub-Saharan Africa commits to investing in its young people, the region could double its share of the global labor force by 2050, unlocking a better life for hundreds of millions of people.

Girls’ education, especially, is among the most powerful forces on the planet. Educated girls are healthier. They are wealthier. (If all girls received 12 years of high-quality education, women’s lifetime earnings would increase by as much as $30 trillion, which is bigger than the entire U.S. economy.) And their families benefit, too. The more education a woman has, the better equipped she is to raise healthy children. In fact, UNESCO estimates that if all women in low- and middle-income countries finished secondary school, child mortality in those countries would fall by about half.

Eoin Treacy's view -

The central themes to this letter and the foundation generally are innovation can solve most of our problems and educating girls educates future families. That is a return on investment anyone can understand.



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February 11 2019

Commentary by Eoin Treacy

Video commentary for February 11th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar firm, bonds ease, stock markets steady, gold pauses, discussion of Chinese easing, the outlook for inflation and the need for a higher reaction low before concluding the corrective phase has ended.  



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February 11 2019

Commentary by Eoin Treacy

Swiss Franc Slumps in Mini 'Flash Crash' as Japan Curse Strikes

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

The Swiss franc swooned almost 1 percent at the start of Asian trade Monday as thin liquidity caused by a Japan holiday led to a mini recurrence of the “flash crash” that roiled FX markets early last month.

The Swissie slid from 1.0004 per dollar around 7 a.m. in Tokyo to as weak as 1.0096, the lowest since November, within a matter of minutes before almost as suddenly reversing the move to trade 0.2% stronger on the day. The round trip created a trading range for Monday of almost 110 pips, about double this year’s daily average of 56.

The move was a smaller cousin of the whiplash that saw the yen jump almost 8 percent against the Australian dollar early on Jan. 3, when Japanese markets were nearing the end of a week-long New Year holiday break. A spokesman at the Swiss National Bank declined to comment on the franc’s drop on Monday.

“Lack of liquidity is a common factor in these events,” said Rodrigo Catril, a senior foreign-exchange strategist at National Australia Bank Ltd. in Sydney. “Traders and strategists now have Japan holiday calendars printed in a big font at their desk!"

Eoin Treacy's view -

Currency markets are generally very liquid so when we witness two major moves in the space of a month, both tied to illiquidity around Asian trading that tells us there is a lot of money chasing a very specific type of trade. Generally speaking it is only through the use of algorithms that these inefficiencies can be spotted and by now everyone knows to watch Yen crosses during Japanese holidays.



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February 11 2019

Commentary by Eoin Treacy

Trump Has China Where He Needs It

This article by J. Kyle Bass and Daniel Babich may be of interest to subscribers. Here is a section:

“Water keeps the boat afloat but can also sink it” is a Chinese proverb that neatly summarizes the nation’s current economic predicament. The debt that has hydrated the Chinese financial system for the past 10 years is now drowning it.

During the darkest days of the financial crisis in 2008, China launched a 4 trillion renminbi ($593 billion in today’s dollars) infrastructure plan that was accurately described as pulling the global economy out of recession. This infrastructure stimulus plan never ceased, and by 2017 the 4 trillion of spending ballooned to 14 trillion, according to China’s National Bureau of Statistics.
 
At first, China benefited from the economic reforms of the 1990s, its ascension into the World Trade Organization and the resultant inflow of foreign investment by Western companies. By 2009, the previous decade of strong growth meant wages and price levels had risen such that China was no longer a low-cost manufacturer. This made it implausible that exports could drive economic growth. Therefore, China’s central bank printed money to fund a gargantuan stimulus program. 

History tells us that growth that is funded by excessively rapid credit and money creation can lead to a variety of asset bubbles and to financial, credit and currency crises. A broad measure based on data from the People’s Bank of China and other agencies that includes both bank assets and shadow banking assets such as wealth management products, trust beneficiary rights and trust loans, places China’s total credit at $48 trillion, about 3.7 times its gross domestic product. That compares with $24 trillion for the U.S. despite China having an economy that is 37 percent smaller. China’s decade of rapid credit creation and investment spending has led to soaring property values, despite high vacancy, and low wage levels. These led to tepid export growth and a stagnating economy as the export industry lost competitiveness.

Eoin Treacy's view -

China has a mountain of debt that is concentrated in the regional banking sector and municipal governments. In attempting to wean the economy off of reliance on stimulus they have closed off successive avenues of credit ranging from interbank loans, P2P lending/shadow banking, US Dollar denominated debt. That withdrawal of credit has been one of the primary contributing factors in the underperformance of Chinese assets over the last 18 months.



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February 11 2019

Commentary by Eoin Treacy

Fear of Filing? Some Taxpayers Finding Tax Bills, Not Refunds

This article by Ben Steverman and Laura Davison for Bloomberg may be of interest to subscribers. Here is a section: 

“Most people don’t know how much they pay in taxes,” said Bob Kerr, who leads the National Association of Enrolled Agents, a trade group for tax preparers. “But the refund is the wrong
metric to measure it.”

Right or wrong, the drop in expected refunds is creating fear and anger in accountants’ waiting rooms. “Every single person” who walks in is dreading how much they’re going to owe the IRS, said CPA Gail Rosen, who heads the Martinsville, New Jersey, office of WilkinGuttenplan. “They come in and they worry.”

But telling people they paid fewer taxes throughout the year doesn’t help the sticker shock felt by filers who’ve become accustomed to getting a check, not writing one. Only about 5 percent of taxpayers -- about 7.8 million people -- are expected to pay more under the new law. But about 5 million, according to the Government Accountability Office, will find their typical tax refund replaced by a tax liability. “A lot of people are going to be surprised,” Rosen said.

Eoin Treacy's view -

Every politician knows that when it comes to policy, perception is often much more important than substance. If people had been asked whether they would prefer more money every month in lieu of receiving a chunky refund cheque they might not be nursing a surprise now. The reality is many people are likely coming out better off. However, if they had been using the refund as a saving mechanism, instead of saving monthly from their paycheques, this situation is going to feel like a tax hike.



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February 10 2019

Commentary by Eoin Treacy

February 07 2019

Commentary by Eoin Treacy

Video commentary for February 7th 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: High yield spreads have unwound their overextension relative to the trend mean. Treasuries traders are more interested in pricing in a recesssion than the looming wall of new supply, S&P500 pauses, Germany weak, oil and commodity weak but gold steady, Australia surges following strong financials results. 

Some of the topics discussed include: High yield spreads have unwound their overextension relative to the trend mean. Treasuries traders are more interested in pricing in a recesssion than the looming wall of new supply, S&P500 pauses, Germany weak, oil and commodity weak but gold steady, Australia surges following strong financials results. 

 



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February 07 2019

Commentary by Eoin Treacy

Please note - There will no commentary on Friday

I will be travelling to the UK today for David’s funeral service. That may mean the Comment of the Day and Subscriber’s audio and video will be posted at an irregular time on Thursday. There will be no commentary on Friday as I will be on the road all day, but I will attempt to record the Big Picture video at some point over the weekend.

February 07 2019

Commentary by Eoin Treacy

Musings From The Oil Patch February 5th 2019

Thanks to a subscriber for this particularly detailed edition of Allen Brooks’ report for PPHB. Here is a section oil related equities:

Eoin Treacy's view -

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

There is a mismatch between the statements from many politicians that the future of energy is in renewables and the statements from industry insiders that confirm the profit margins from these businesses are nowhere near those of conventional fossil fuels. That virtually ensures the continued success of renewables is dependent on subsidies and/or priority offtake agreements to justify the considerable expense in building these operations.



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February 07 2019

Commentary by Eoin Treacy

India's New Central Bank Head Delivers 'Election Cut' for Modi

This article by Anirban Nag, Rahul Satija and Vrishti Beniwal for Bloomberg may be of interest to subscribers. Here is a section:

India’s new central bank chief delivered an unexpected interest rate cut, providing Prime Minister Narendra Modi with the kind of stimulus he needs to stoke economic growth in an election year.

In a sharp reversal from October, when the Reserve Bank of India took rate cuts off the table, Governor Shaktikanta Das -- who took office in December -- opened the door to more policy easing and brought growth back into the Monetary Policy Committee’s focus. That was a departure from his predecessor Urjit Patel, whose singular aim was to meet the RBI’s 4 percent inflation mandate.

Eoin Treacy's view -

Narendra Modi was the first in what has become a long line of upstart political populists which have achieved some outstanding electoral results over the last five years. Buying elections is about the most effective strategy used by politicians everywhere and India is no different. In fact, one of the primary reasons for appointing a new central banker was to ensure compliance with the wishes of the ruling party to ease heading into the election.



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February 07 2019

Commentary by Eoin Treacy

Thorburn Quits as National Australia Bank CEO After Inquiry Lashing

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

The yearlong inquiry uncovered a litany of wrongdoing across the industry, from charging dead people fees to advisers pushing customers into bad investments to meet bonus targets. National Australia staff accepted cash bribes to approve fraudulent mortgages and misled the regulator over a fees-for-no-service scandal.

“I acknowledge that the bank has sustained damage as a result of its past practices and comments in the Royal Commission’s final report,” said Thorburn, who will leave Feb. 28. “I recognize there is a desire for change.”

His replacement will have to restore customer trust in the lender and steer it through a tougher landscape of falling earnings, a sinking housing market and rising funding and compliance costs. The nation’s big-four banks also face more muscular regulators intent on punishing wrongdoers in court.

In further fallout from the inquiry, National Australia said it will delay the planned IPO of its MLC wealth management unit as fee income and commissions come under pressure.

Eoin Treacy's view -

David used to say he would not invest in banks on moral grounds. That is a clear reflection on the rather nefarious reputation of the industry to fall victim to its worst impulses to generate profits. Nevertheless, banks are important sources of credit for the economy; in every country. When they are under pressure either from reputational, regulatory or market risk their ability to create credit is inhibited and that represents a challenge for the market. The integral part they play in supplying credit also contributes to their knack of avoiding hefty fines.



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February 07 2019

Commentary by Eoin Treacy

David Fuller died on Tuesday, January 15th 2019

Thank you to everyone has written in. All your messages have been passed on to David's family and we would like to extend our deepest thanks for the upwelling of sympathy and well wishes the Collective have offered. I will continue to renew this post until February 8th. 

Eoin Treacy's view -

David Fuller died on Tuesday, January 15th.

It is with the deepest regret I inform you David passed away on the 15th at his home in Devon surrounded by family, which is where he wanted to be. He is survived by his wife Graham, and his two daughters, Grayson and Laurel.

He had been battling a heart condition for the last several years. Unfortunately, the muscle was too weak to operate on, so he had been balancing medications in an effort to keep swelling under control and succumbed on the night of Tuesday the 15th. The delay in releasing this information publicly was in an effort to give the family and I time to begin to process the loss and to have some details of when the funeral might be.

Here are those details: 

Celebrating David Fuller's life

Graham, Grayson and Laurel warmly invite you to remember & celebrate David with us at his funeral service on Friday 8 February. 

Service at 2.30pm at Rowan Chapel, North Devon Crematorium, Old Torrington Road, Barnstaple, Devon EX31 3NW.  Parking on site.

https://www.northdevon.gov.uk/media/377527/site-map-2016.pdf

Gathering from 4pm at Har-Leigh, Rectory Rise, Petrockstowe, Devon EX20 3HQ. (Please avoid parking at the house or on the road - we have use of the car park a few hundred yards further into the village, at Baxter Hall, The Village, Petrockstowe, Devon EX20 3HJ, opposite the Laurel’s Inn and adjoining the playground.)

In lieu of flowers it is requested that anyone who wishes to, makes a donation to the London Philharmonic Orchestra, which David loved, attended and supported for many years. Contact Rosie Morden on 020 7840 4212. 

Please feel free to wear whatever you feel most comfortable in, whether smart or casual, sombre or colourful. 

RSVP to Grayson please, ideally before Monday 3 February, confirming numbers. We look forward to welcoming you to the service and the gathering at the house afterwards.  Please don’t hesitate to get in touch if you have any questions about transport, accommodation or anything else. 

Details will also follow about the memorial service to be held for David in London later in the year.  

If you knew David personally and wish to attend the funeral then of course you are welcome. If you would like to contact the family just drop Sarah a line and she will forward it along.

The family, old friends and I are very eager to organize a memorial service which we envisage will take place in conjunction with the dates of one of our London venues for The Chart Seminar. 2019 will be the 50th anniversary of The Chart Seminar and I think it would be fitting to time the memorial to occur around that time, since Behavioural Technical Analysis is the timeless legacy David is leaving to the world. 

Anyone who knew David will be familiar with how committed he was to a fit and healthy lifestyle. Unfortunately, he was dealt a poor hand genetically, but it was his lifelong fitness regime which likely allowed him to persist for as long as he did.

It’s all the more ironic because he had a giant heart, with room in it for everyone he met, and it was that trait which I personally found most inspiring from our years of working together. David was always willing to give anyone the benefit of the doubt and gave many successful financial professionals their first leg-up in the industry, most particularly, at his original company Chart Analysis. 

I’m certainly one of those David championed and I owe everything I have achieved to his kind and encouraging tutelage.

In speaking with people over the last couple of weeks one sentiment came through above all others, that life might not be eternal but his legacy is. David was a pioneer in the field of behavioural analysis and was among the most noted proponents of point and figure charting. Cutting through the jargon, messiness and, often, intentional complication he travelled the world teaching financial professionals the merits of looking at markets from a behavioural perspective. That idea was iconoclastic 50 years ago but it is widely accepted as common sense today.

David’s chief insight into the rhyme and rhythm of trends probably originated from his great love of the arts. More than a few subscribers looked forward to his reviews of the London Philharmonic and the Royal Opera’s performances but it was also that regard for music which helped inspire the exploration of the consistency of trends and how that reflects the crowd.

The one thing I believe everyone who ever met David would have been impressed by was his infectious optimism. He believed in the best in people and the ability of humanity to continue to progress despite the obstacles we put in our own way. Even that is a contrarian view in the financial industry today, where we are assailed with negativity and the view the future will be worse than the past. That optimism, however, was not blind, but tempered by the belief in sustaining power of improving standards of governance. His clear belief in the ability of emerging markets to in fact emerge formed the basis for his long-time optimism on the potential for Asia to develop while never forgetting that “Governance is Everything”. 

I’m reminded of his self-styled Fullerisms which are the soundbites that encapsulated his thinking over the years. His exhortation to “pose as the judge at an international beauty contest” and to “adopt the perspective of the naturalist” are among the most memorable. The simple conclusion that a consistent trend is the most reliable continuation pattern so one should scour the world for the best trends is the rationale behind a global strategy service. Remember “a consistent trend is a trend in motion”.

The view that “markets are manmade resources for us to harvest when the timing is right” was a fringe opinion back when David was starting out and arguably still is today in many segments of the market.

David had no time for theory, he was only concerned with objective facts and believed everything valuable to know about an instrument was right there on the chart, if only we allow ourselves to see it. His ‘mistakes people make with charts’ lesson was aimed at trying to foster the ability to see what is in fact there. His exhortation that “we need to adopt the humility to accept the reality provided by the market” is an appeal to develop the emotional intelligence necessary to know ourselves. That also reminds me of another thing he used to say which “behavioural analysis of markets is not academically difficult, but it is emotionally subtle”.

David’s willingness to go against popular opinion and to air views that were truly iconoclastic is a clear example of his rare ability to be absorbed by the markets, while simultaneously sustaining a big picture perspective. That commitment to rely on the evidence provided by the charts rather than to be ruled by emotions led to some of his best calls and was a constant feature of his commentary.  

David had more than a few ways of highlighting the importance of monetary policy ranging from “Central banks are serial bubble blowers” to “the Fed has killed off more bull markets than all other factors combined”, “bull markets don’t die of old age; they are assassinated by central banks” and “monetary policy beats most other factors most of the time”. A related but opposite sentiment is “happiness in the markets is having the trend and the central bank on your side”.

The thing I miss most is our daily discussions and our shared passion for the markets and everything they represent about the prospects for improvements in the standards of living for billions of people. It is hard to express the Greek term philia satisfactorily in English but the fellow feeling we experienced for one another is not something one hopes to replace and its absence represents a void.

David led by example. He had a deep regard for our subscribers and felt a keen responsibility for their welfare. He spent long hours in the evening perfecting his written copy because for him nothing less than his best work was acceptable. He turned down numerous opportunities to manage money over the years because he believed taking responsibility for other people’s money was too onerous a burden to accept. Instead he took the revolutionary step to tell people exactly what he was doing with his own money, warts and all, so they could draw their own conclusions about to do with their money. That is still not a popular strategy in the market today.

This Service was a vocation for David and it was his fondest wish that it persist without him. It’s as much a vocation for me as it was for David and I look forward to taking it onward for the next generations.



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February 06 2019

Commentary by Eoin Treacy

Video commentary for February 6th 2019

February 06 2019

Commentary by Eoin Treacy

Announcing: Sewbots as a Service

This press release from Softwear may be of interest to subscribers. Here is a section:

SEWBOTS-as-a-Service creates immediate ROI benefits while enabling scale across retailer, brand, and manufacturer.  For a monthly fee starting at $5,000 per month per robot, a factory can add annual production capacity of up to 1M units (product dependent). This enables a manufacturer to bring on a Sewbot for just over $55/shift (based on 7 days a week and 3 shifts a day).

SEWBOTS-as-a-Service is focused on bringing scale to basic sewn good production within the country of destination (a local supply chain).  This focus allows manufacturers to move current seamstresses to premium products while creating a more reactive, reliable and sustainable textile ecosystem.

Eoin Treacy's view -

One million units probably refers to the production of pillow cases rather than t-shirts so let’s estimate that a machine can produce a garment one can actually wear at a rate of 300,000 units per year. That’s 20 cents per garment, which is still high compared to what be achieved internationally. However, it is ideal for short runs and on demand applications. It also reduces the time to customer and the requirement for a global logistics network.  



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February 06 2019

Commentary by Eoin Treacy

Email of the day on lithium battery components

Following up to your recent post on Nickel strength, this article highlights the potential for major upcoming demand in the industrial metal and is potential good news for the related Sherritt & Norilsk shares noted in your post. 

Eoin Treacy's view -

Thank you for this email which may be of interest to subscribers. Here is a section from the article:

“This means the supply of lithium, cobalt, nickel and manganese to produce the cathode for these cells, alongside graphite to produce battery anodes, needs to rapidly evolve for the 21st century," Moores testified.

Moores presented a chart based on the assumption that all of these megafactories are built and run at 100% capacity utilization.

"Under this scenario, lithium demand will increase by over eight times, graphite anode by over seven times, nickel by a massive 19 times, and cobalt demand will rise four-fold, which takes into account the industry trend of reducing cobalt usage in a battery," Moores testified.



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February 06 2019

Commentary by Eoin Treacy

Iron Ore Rises Near Two-Year High as Vale Disruption Spreads

This article by Jake Lloyd-Smith and Lynn Thomasson for Bloomberg may be of interest to subscribers. Here is a section:

As Vale’s troubles spread, analysts have said iron ore could keep heading higher and drive up costs for steelmakers. Commonwealth Bank of Australia predicted prices could rise above $100, adding that the move would be temporary if Vale successfully challenged the court order.

“Iron ore prices are likely to continue trending higher, as production is clearly being impacted above and beyond just the roughly 8 million tons per year from the Feijao mine, where the tragedy first occurred,” Jeremy Sussman, an analyst with Clarksons Platou Securities, said in an email.
Shares of other iron ore producers have rallied in response to higher iron ore prices. For example, Rio Tinto Group is on a 10-day streak of gains, with the shares up 15 percent this year.  Ferrexpo Plc has notched a 26 percent advance since the Vale dam breach.
 

Eoin Treacy's view -

The chances are that the damage done to Brazilian supply is temporary in nature and Vale will get back to close to full production at is other mining facilities relatively quickly. The broader point, however, is that the market is relatively tight following a quiet couple of years since the early 2016 rally.

 



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February 05 2019

Commentary by Eoin Treacy

Video commentary for February 5th 2019

February 05 2019

Commentary by Eoin Treacy

Morning Tack February 5th 2019

Eoin Treacy's view -

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

Since the dawn of the first industrial revolution 250 years ago there has been a clear correlation between the energy intensity of economies and economic growth. That is certainly still true in many emerging markets. However, when we look at highly developed economies like the USA and parts of Europe the energy intensity of the economy is declining, but data intensity is rising.



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February 05 2019

Commentary by Eoin Treacy

How Bezos Lost Out to Billionaire Ambani in Poll-Bound India

This article by P R Sanjai and Saritha Rai for Bloomberg may be of interest to subscribers. Here is a section:

Modi’s Bharatiya Janata Party is still licking its wounds after being trounced in three key recent state polls and a year ago fighting an unexpectedly close contest in Gujarat -- Modi’s home state. Among small businesses, which are a traditional support base, the government’s popularity has been eroded by 2016’s surprise cash ban and the subsequent chaotic roll out of a new sales tax.

The rules now bar Amazon and Flipkart Online Services Pvt. Ltd. from owning inventory, and require them to treat all vendors equally, throttling discounts and exclusives -- a huge advantage to homegrown companies including Ambani’s new venture. His Reliance Industries Ltd., which owns India’s largest retail chain and third-biggest telecom network, has the potential to evolve into a local version of Amazon or Alibaba Group Holding Ltd., UBS AG said last month.

“Whether serendipitous or not, India’s tightened regulatory regime for online retailers is a huge win for Reliance with its new retail ambitions,” said Sanchit Vir Gogia, chief executive officer of consultancy Greyhound Research. “This could be a field leveler for them.”
 

Eoin Treacy's view -

Under Mukesh Ambani, Reliance industries has morphed from a focus on oil refining to become India’s primary provider of broadband, a major retail force and is now embarking on becoming the online retailer of choice for India’s burgeoning young community.

The failure of his brother, Anil Ambani’s Reliance Communications to gain traction following a bad bet on fibre optics looks likely to further concentrate control of the broadband network in Reliance Industries’ hands.



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February 05 2019

Commentary by Eoin Treacy

Email of the day on Modern Monetary Theory

Thank you for mentioning MMT in the service

The most of us agree that applied MMT not necessarily leads to more growth (especially because in the reality part of the government spending is wasted in less than transparent submission processes, bureaucracy and corruption, hence it does not flow 100% into the economy process) but to more debt for future generations

However, it gives a useful framework for investors to better understand our modern world of FIAT currencies. A world in which classic economical doctrine and orthodoxy as I (we) learnt at university (pure monetarism, Fisher Theory and Schumpeterist “creative destruction”) fails to explain the modern world and the political influence

As you point out populism gels perfectly with MMT. And as long as populism is on the rise, we should maybe devote more time to understand MMT and try to profit as investors.

Interesting are the aspects related to the effect of interest rate hikes by the FED which MMT claims are inflationary and not disinflationary because hikes add income to the private sector that holds the government securities. In the same way they claim QT add interest bearing securities to the economy (via the banking system) and are also not disinflationary.

Also interesting is the stress on government spending as a source of Aggregate Demand and not just on the Debt with which this demand is financed. So national debt is the “private sector” asset.

I don’t know if I am a correct but from the perspective of an investor MMT is insofar useful as it opens a new perspective and try to explain markets behavior by looking at what is happening.

For example, from an MMT perspective we should continue have a strong economy as long as government spending is on the rise (i.e. the corporate sector profits and equities are a buy), the USD should weaken the more debt is added and the more the FED tries to stem inflation by hiking rates and engaging in QT (latter is counterintuitive) because it adds income to the system. Likewise, Bonds are a sell because of rising inflation while gold and hard assets are a buy.

Actually, if we look at reality and at countries that control their own currency that involve in profligate fiscal policies, they all tend to have depreciating currencies, high interest rates and a rising national debt. To me Turkey, Argentina, Venezuela come to mind first. However even the US under Trump is moving in this direction. Hence the USD bearishness (the US have still a big advantage though i.e. that they are reserve currency)

On the other end countries with a tight fiscal discipline, that apply QE and ZIRP or NIRP tend to have deflationary economies, zero or negative yields and strong currencies. Examples are Switzerland and the EU (where the leading countries impose deflationary austerity and real deflation on the weakest Union members). Indeed, notwithstanding all the problems in some members of the EU, the EUR has been extremely resilient over the years.

What do you think?

Eoin Treacy's view -

Thank you for this wide ranging and thought-provoking email. I agree with most of the points you make although I believe the reason for the Euro’s stability has to do with a lack of supply rather than inherent strength in the domestic Eurozone economy. The biggest issue right now is there is a clear trend towards profligate spending, fiscal stimulus, deficit spending or however you might wish to describe it. Modern Monetary Theory is the academic rationale for this spending which is being latched onto by politicians. In ages past this was referred to as devaluing the currency to point where it causes a rebellion from the bond market. 



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February 04 2019

Commentary by Eoin Treacy

Video commentary for February 4th 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: FANG stocks steadying, nickel firm, commodity currencies and industrial resources at important points of potenital resistance, gold and oil steady, Dollar steady particularly against the Yen, European bank underperformance hampers the Euro.. 



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February 04 2019

Commentary by Eoin Treacy

Alphabet 4Q Operating Margin Down YOY; Shares Fall

This note by Cara Moffat for Bloomberg may be of interest to subscribers. Here it is in full: 

Alphabet 4Q operating margin +21% compared to +24% YOY.

4Q revenue ex-TAC $31.84 billion, estimate $31.33 billion (range $30.35 billion to $31.81 billion) (Bloomberg data)
4Q paid clicks on Google properties +66%
4Q cost-per-click on Google properties -29%
4Q EPS $12.77
4Q operating income $8.20 billion
4Q capital expenditure $7.08 billion, estimate $5.66 billion (range $4.74 billion to $6.33 billion) (BD)
4Q Google advertising revenue $32.64 billion
4Q Google properties revenues $27.02 billion
4Q Google other revenue $6.49 billion
4Q Other Bets revenue $154 million
4Q other bets operating loss $1.33 billion
Shares down 3.5% post-market

Eoin Treacy's view -

When one of the most consistent trends in the world becomes inconsistent, we have no choice but to sit up and pay attention. In the run-up from 2009 Alphabet/Google never pulled back by more than $100. The reactions were all of different durations but the staircase step sequence uptrend was undeniable. Additionally, it paused continually at big round numbers like $600, $800, $1000 and $1200. Investors had come to expect a $100 pullback to be followed by a $200 rally. That sequence ended in 2018 when it pulled back first by $200 and then by $300. That represented a significant loss of consistency for what had been among the most consistent trends in the world.



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February 04 2019

Commentary by Eoin Treacy

Nickel Extends '19 Surge as Supply Concerns Mount

This note from Bloomberg may eb of interest to subscribers. Here is a section:

Nickel prices rose Friday, extending gains from the best January in more than two decades, amid signs stockpiles would decline further. A robust U.S. jobs report eclipsed weak Chinese economic data to bolster the industrial-metal demand outlook.

Nickel holdings in Shanghai Futures Exchange warehouses fell for a fifth week to the lowest since June 2015, according to data from the bourse. Nickel prices climbed this week amid speculation a fatal dam disaster at one of Vale SA’s Brazilian iron-ore operations could have a ripple effect on other metals supplied by the miner. U.S. stocks climbed Friday morning on the better-than-expected jobs report and signs of progress in trade talks.

Eoin Treacy's view -

Nickel was the best performing industrial metal until the middle of last year when it succumbed to global growth fears and the wider malaise in the industrial metals complex. It subsequently gave up the majority of its advance before finding support in December with the wider stock market.



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February 04 2019

Commentary by Eoin Treacy

Foxconn Says It Will Move Forward With Wisconsin Plant After Conversation with Trump

This article from the Wall Street Journal may be of interest to subscribers. Here is a section: 

On Wednesday, a top aide to Mr. Gou said high labor and production costs in the U.S. would make it difficult for Foxconn to compete with rivals if it manufactured LCD displays in Wisconsin. Louis Woo, a special assistant to Mr. Gou, said Wednesday that roughly three-quarters of Foxconn’s Wisconsin jobs would be in research, development and design, instead of manufacturing.

The back and forth came after the Taiwanese contract manufacturer fell short of a job-creation target in Wisconsin last year to obtain tax credits, amid a tight U.S. labor market. The Wall Street Journal reported in November that Foxconn considering bringing in engineers from China to Wisconsin as it struggled to find personnel locally.

Wisconsin state lawmakers lauded Foxconn’s announcement Friday. “We want to thank President Trump for his commitment to Wisconsin workers—our state has an ally in the White House,” said state Assembly Speaker Robin Vos and state Senate Majority Leader Scott Fitzgerald, both Republicans.

Eoin Treacy's view -

The performance of the share epitomises just how exposed the company is to the deteriorating relationship between the USA and China, hence the willingness to persist with building its factory in Wisconsin.  



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February 01 2019

Commentary by Eoin Treacy

February 01 2019

Commentary by Eoin Treacy

China Meets Foreign Investors' Demands With Latest Rule Changes

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

China’s authorities have given international investors an early Spring Festival gift: ready access to almost all areas of the country’s capital markets.

Proposed changes announced late Thursday as part of a slew of new regulations include letting offshore funds trade more types of futures and options. Just days before the biggest holiday in the Chinese calendar, regulators also had something for domestic investors, including scrapping an automatic margin call threshold, allowing more types of collateral for certain loans and lowering capital requirements for riskier assets.

The measures targeting overseas firms will greatly expand the scope of the Qualified Foreign Institutional Investor program, one of the key channels into China, highlighting the authorities’ determination to open up their financial system and meet demands from international institutions for broader access.

The moves will give foreigners the same range of investment options as local players, said Yang Hai, an analyst at Kaiyuan Securities Co.

“Institutions looking to hedge and even short-sell Chinese stocks are likely to enter the market in future,” as a result of the changes, said Yang. “I think it has something to do with the China-U.S. trade negotiations, but it’s also about the financial opening promise.”

Eoin Treacy's view -

China is willing to open up its financial system to overseas investment but not its technology, communications, online retail or other sectors. There is a clear reason for that delineation. The risks to China’s economy reside within the financial system. The most basic premise of insurance is to pool risk. By giving overseas investors access to the financial system the risk from overleverage is shared and therefore the risk attached to the domestic market is reduced. The same rationale does not apply to other sectors which is why opening up continues to remain slow.



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February 01 2019

Commentary by Eoin Treacy

Modi Woos Voters With $13 Billion Largesse Before India Election

This article by Abhijit Roy Chowdhury, Bibhudatta Pradhan, Shruti Srivastava and Siddhartha Singh for Bloomberg may be of interest to subscribers. Here is a section:

The government will allocate 750 billion-rupee ($10.6 billion) a year for the cash plan for about 120 million farmers and give taxpayers 185 billion rupees of relief in the year to March 2020, Finance Minister Piyush Goyal said in his budget speech in New Delhi on Friday.

In the process, the government will widen its fiscal deficit targets for the current financial year and next to 3.4 percent of gross domestic product and borrow more. Bonds and the rupee fell on news of the debt plans, while the tax cuts helped to buoy stocks.

“Ongoing slippage from the government’s budgeted fiscal deficit targets over the past two years, and our expectation that the government will face challenges meeting its target again this coming fiscal year does not bode well for medium term fiscal consolidation,” said Gene Fang, an associate managing director at Moody’s Investors Service. “We view this continued slippage as credit negative for the sovereign.”

Eoin Treacy's view -

Narendra Modi made history by getting an outright majority for the BJP at the last election and was the first person from a low caste to become Prime Minister. The big challenge heading into the election this year will how to hold onto those gains. The answer so far has been to emphasise Hindu nationalism and to boost spending. It was inevitable Modi would try to buy the election and the budget is the clearest signal how much he is willing to spend.



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February 01 2019

Commentary by Eoin Treacy

Wirecard Shares Drop After New Report on Law Firm's Findings

This note by Stefan Nicola for Bloomberg may be of interest to subscribers. Here it is in full:

Wirecard AG shares fell as much as 16 percent Friday after a report that a law firm found evidence
indicating alleged forgery at the German payment company’s Singapore office.

An external law firm commissioned by Wirecard found evidence indicating “serious offenses of forgery and/or of falsification of accounts,” the Financial Times wrote Friday, citing the law firm’s report. The Rajah & Tann lawyers identified potential civil and criminal violations in Singapore, Hong Kong, India, Malaysia, and Germany, the newspaper said.

A Wirecard spokesman denied the report in an emailed statement. Wirecard earlier this week denied claims made in a story by the Financial Times that alleged executive fraud originating at the Singapore office, fueling concerns about the fast-growing company’s business practices that knocked as much as 25 percent off its value on Wednesday.

Eoin Treacy's view -

Wirecard has been one of Europe’s few true technology success stories over the last few years so it is quite disappointing that it has succumbed to a worrying trend of German corporate malfeasance. This is the latest in a long line of governance problems at some of Germany’s largest companies and puts another dent in the country’s façade of corporate excellence.



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January 31 2019

Commentary by Eoin Treacy

Video commentary for January 31st 2019

January 31 2019

Commentary by Eoin Treacy

Everything you wanted to know about MMT (but were afraid to ask)

Thanks to Kevin Muir for this post from his themacrotourist.com blog which is relevant to the current discussion on Fed policy, fiscal policy and political jockeying. Here is a section:

If I am correct, I suspect we will see many Democrat candidates (perhaps all?) adopt MMT as a tenant of their platform. And here is a crazy thought for you - what if Trump beats them to it?

I have long argued that eventually we will hit a period where governments will spend and Central Banks will facilitate their deficits. MMT provides academic justification of where we all know we are headed anyway.

In one of the interviews I watched with Professor Kelton, she said that the idea of deficits being funded with bond issuance is purely a self-imposed limitation. It’s required by law, but in reality, it doesn’t need to be done. The law can be changed. The government could simply spend $100 while only taking in $90 and directly writing cheques against the Federal Reserve to pay for the $10.

Think about how inflationary this will be! But isn’t that the whole goal?

I have always chuckled at the idea that governments were powerless to create inflation. If they want to create inflation - they can. There just needs to be the political will. And it looks like that will has finally arrived.

Eoin Treacy's view -

Left-wing politicians in the USA are jockeying for who can announce the largest tax on the “super-rich”. Last week the media were discussing an upper band of 70%, today Bernie Sanders is suggesting a 77% tax and the re-imposition of a heavy estate tax on fortunes over $3.5million. Meanwhile more and more politicians are adopting President Trump’s mantra that deficits don’t matter.



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January 31 2019

Commentary by Eoin Treacy

Email of the day on gold and UK listed gold miners

With gold sustaining its position above $1300, and also holding its own against the other major currencies, as you have highlighted in recent audios, can you please comment on the UK listed gold miners and their potential for some improvement p.s. the service has its finger on the market pulse, and the written and audio delivery is spot on.

Eoin Treacy's view -

Thank you for your kind words and this email which I believe will be of interest to subscribers. Barrick Gold acquired Randgold Resources recently so that removes one of the more attractive gold miners from the universe of UK listed miners. Of course, the UK is one of the most active markets for resources shares so there are plenty of others to choose from.



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January 31 2019

Commentary by Eoin Treacy

BAT Upgraded to Overweight at Piper; Risks Look Priced In

This note by Lisa Pham for Bloomberg may be of interest to subscribers. Here it is in full:

Philip Morris’s patent lawsuit against British American Tobacco in Japan, which is seeking a sales injunction of BAT’s Glo heated tobacco product, is still a risk, but BAT has “several methods of defense” and the earnings impact would probably be modest, Piper Jaffray analyst Michael Lavery writes in a note.

Risk on possible U.S. menthol cigarette ban looks priced in and Piper doesn’t see any operational impact “for years and years”

Also notes that consumers can adapt

Piper doesn’t see any risk to dividend growth, allaying concerns from investors; says BAT’s cash flows don’t seem to be at risk in a way that would hurt the dividend

Upgraded to overweight from neutral; PT kept at GBP30

NOTE: BAT shares down 51% in last 12 months vs 19% drop for Imperial Brands, 31% decline for Philip Morris and 35% fall for Altria

Eoin Treacy's view -

The tobacco sector is not for everyone but it is inherently defensive considering they are selling an addictive product and therefore have reliable cashflows. The performance of defensive sectors is something that is important to monitor in the latter stages of a cyclical bull market because they typically tend to be depressed by disinterest when growth stocks are outperforming but turn to outperformance when investors start to value security.



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January 30 2019

Commentary by Eoin Treacy

January 29 2019

Commentary by Eoin Treacy

Video commentary for January 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: gold and precious metals resurgent, S&P500 pausing in anticipation of trade war and monetary policy news, industrial metal miners turning to ourperformance, Treasuries and investment grade bonds are rallying. oil prices firm, ASEAN pauses, 



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January 29 2019

Commentary by Eoin Treacy

Iron Ore Market Shudders as Dam Disaster Spurs Supply Concerns

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

Iron ore investors are attempting to gauge the fallout from the dam burst at one of Vale SA’s mines, amid concerns the disaster will have ramifications beyond the affected operation in Brazil that could tighten the market in the short term and offset weakness from a slowdown in China.

Futures on the Dalian Commodity Exchange extended gains on Tuesday to head for the highest close in more than a year, after the benchmark price for immediate delivery surged to $78.80 a ton on Monday, the highest level since March. Shares of Australia-based miners rallied, with gains for BHP Group, Rio Tinto Group and Fortescue Metals Group Ltd.

In Brazil, “it seems likely that there will be an extensive increase in safety tests over the coming weeks and months,” Capital Economics Ltd. said in a note, raising its end of first quarter forecast to $75 a ton. “These tests may highlight other vulnerabilities in the system that could lead to temporary
cutbacks at one or more mines until the issues are addressed.”

Eoin Treacy's view -

This is not the first time a dam breach has impacted Brazilian supply and led to loss of life. In fact, BHP and Vale have only just reached a settlement with the communities affected by the Samarco accident in 2015. 



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January 29 2019

Commentary by Eoin Treacy

Mnuchin Signals Chance to End China Tariff War Ahead of Talks

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

U.S. Treasury Secretary Steven Mnuchin said that if China presents enough trade concessions to President Donald Trump, there is a chance that the administration may seek to lift all tariffs. “Everything is on the table,” Mnuchin said early Tuesday during an interview on Fox Business News “Mornings With Maria” program. The Treasury chief is set to meet with top Chinese officials in Washington on Wednesday and Thursday alongside U.S. Trade Representative Robert Lighthizer about a month before the U.S. is set to escalate the trade war with China with fresh tariffs.

Trump and China’s Xi Jinping gave their officials until March 1 to work out a deal on “structural changes” to China’s economic model. If they fail, Trump has promised to raise the tariff rate on $200 billion in Chinese imports to 25 percent from 10 percent. The collapse of talks would dash hopes of a lasting truce that would remove one of the darkest clouds hanging over the world economy.

 

Eoin Treacy's view -

Considering what is at stake in terms of economic growth for both China and the USA and the impact a deterioration in relations would have on an already edgy stock market, at least a commitment to continue talking is likely. It would be unreasonable to raise tariffs further while that is ongoing.



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January 29 2019

Commentary by Eoin Treacy

Gold: 32 trading days and counting

Thanks to a subscriber for this report which highlights increasing speculative interest in gold and growing competition to become the biggest bull. 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. 

There are lots of reasons to own gold but one I think is more relevant than others right now. The governments of the world are getting ready to spend their way out of trouble and historically that has meant debasing their currencies. Gold cannot simply be lent into existence and is therefore a supply inelasticity asset compared to the rapacious appetite for debasement the world’s governments represent.



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January 28 2019

Commentary by Eoin Treacy

Video commentary for January 28th 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 still trending down and pressuring NVidia, Is the market so steady because we now have evidence of a Powell Put? Gold steady, Wall Street rebounds off its low, Dollar eases, China quiet, Brazil pauses, India weak and led lower by its financials, oil at the lower side of a short-term range. 



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January 28 2019

Commentary by Eoin Treacy

Fed Officials Weigh Earlier-Than-Expected End to Bond Portfolio Runoff

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

The latest discussions indicate the runoff could end much sooner.

The shrinking portfolio faced new scrutiny last month after some market commentators and President Trump blamed it for increasing market volatility. While many Fed officials don’t see much evidence to support those claims, the balance sheet is nevertheless getting increased attention inside the central bank.

Some officials have contemplated whether Mr. Powell or other top officials, short of announcing a complete road map for when the portfolio wind-down would end, could provide an update.

As officials reach agreement on their plans, “we may be able to say upfront, ‘Hey, the destination is going to be ‘X,’” said Minneapolis Fed President Neel Kashkari in a Jan. 17 interview. “Or we might say, ‘Hey, this is the plan [for how] we’re going to go to explore where that destination is.’”

Mr. Powell will hold a press conference after next week’s meeting. Whether he provides such a road map will depend on the progress of discussions at the meeting. Mr. Powell said this month he doesn’t think the Fed’s portfolio changes are a major culprit in recent volatility but that the central bank would change its drawdown, if officials came to a different conclusion.

Eoin Treacy's view -

The primary indices were volatile today following negative earnings from both Caterpillar and Nvidia. The first is largely due to fears about the Chinese economy, the latter probably more to do with declining interest in bitcoin mining. However, the much bigger question is monetary policy



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January 28 2019

Commentary by Eoin Treacy

Industrial Metals & Precious Metals

Thanks to a subscriber for this report from Eight Capital which may be of interest. Here is a section on battery related resources:

Eoin Treacy's view -

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

There are very clear logical reasons for why lithium demand should continue to trend higher for the foreseeable future and they were equally relevant six years ago when it was a truly supply constrained market. Since then there has been a great deal of investment in additional lithium recovery projects with the result supply has increased substantially.



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January 28 2019

Commentary by Eoin Treacy

GMO Quarterly Letter Q4 2018

Thanks to a subscriber for ths report which may be of interest. Here is a section on the outlook for 2019:

Eoin Treacy's view -

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

There are two particularly pervasive views among institutional investors right now. The first is that emerging markets are due a period of outperformance and are cheap on relative value measures, particularly versus the USA. The second is the Dollar is going down in a big way from here, which of course would boost the prospects for emerging market currencies



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January 25 2019

Commentary by Eoin Treacy

January 25 2019

Commentary by Eoin Treacy

Email of the day on reliable dividend companies

Your copy on global pay-out ride is coming back to earth is timely. The well-regarded fund manager Neil Woodford has given Imperial Brands a significant 8% asset allocation in his flagship income fund. Imperial pays a hefty dividend, growing at 10% rate. It generates good cash, but has huge BBB+ debt outstanding. It has come down quite a bit from its peak, but it’s valued at 17 times earning which may roll back to the 10 times earnings it had around 2000. Is there a case for holding Imperial Brands as primary source for dividends for the long run? I wonder if you could review some good dividend paying companies, net cash global companies with strong balance sheets, that will not get caught in the pending investment grade bond crunch. Thanks!

Eoin Treacy's view -

Thank you for this question which I’m sure is something a number of subscribers are pondering. More than half of all investment grade bonds are rated BBB and approximately $600 billion are up for refinancing this year. Against a background of tightening liquidity conditions that represents a risk some companies are going to have issues sourcing funding at the highly attractive rates which have been on offer for the last decade.
 



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January 25 2019

Commentary by Eoin Treacy

Email of the day on the Rand and governance:

Hello Eoin, First of all I would just like to say I have no problem with the way you have organised your video commentaries. I find them very perceptive and thought provoking. I would hazard a guess that 95% of your subscribers are of the same opinion.

On your comments on South Africa, having spent the past 16 years here, I would advise investors not to hold their breath as regards the new president Cyril Ramaphosa instituting much in the way of improved governance here. Corruption in this country is all pervasive and is now penetrating certain personnel in the judiciary. I know this from various contacts I have with regards to the Rhino poaching problem. The Zuma faction still wields huge influence within the ANC. The black economic empowerment policy has led to totally unsuitable and unqualified people being placed in key positions both in government and in the private sector. Given the current state of the world economy, I would indeed be surprised if the ZAR is not the currency to lose most in value among the emerging markets over the next year.

Eoin Treacy's view -

Thank you for this informative email and your on the ground perspective from South Africa.

The simple conclusion reached by investors is Ramaphosa is better than Zuma which is good news. The monumental challenge of tackling corruption is a long-term challenge and if the trend toward deterioration can be allayed that can be considered progress. It is too early to conclude whether the new administration can make progress on that front but I think everyone is aware of just how difficult that could be.



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January 25 2019

Commentary by Eoin Treacy

Email of the day on gold and key reversals

Would today's precious metal charts indicate weekly key reversals?

Eoin Treacy's view -

Thank you for this question. An upside weekly key reversal occurs when the price moves to a new low intraweek but rallies to close above the high of the previous week. If that were the only consideration then this week would fulfil those characteristics. However, for a reversal to occur you need first to have had a decline and gold has been ranging between $1280 and $1300for the last four weeks. Therefore, this is a clear upward dynamic and, technically speaking, an outside week rather than a reversal which reasserts demand dominance.



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January 25 2019

Commentary by Eoin Treacy

Tencent Scores Twin Game Approvals After Months-Long Freeze

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

China’s gaming industry, which generates more than $30 billion of revenue, was hammered in 2018 after regulators froze approvals for new games, preventing companies from making money off their hits. That spurred Tencent’s first profit drop in at least a decade and helped wipe about $200 billion off its market value at one point. Regulators are now working through a backlog of thousands of games that accumulated as a result -- more than 350 have been cleared since December.

“Although the news flow on game approvals remains positive, we view the most important games in the pipeline are PUBG and Fortnite,” Mizuho analysts led by James Lee wrote. “These games are likely in the back of the queue due to political tension with Korea and the U.S.”

Eoin Treacy's view -

Computer games are engrossing but more importantly the trend of online play creates diverse communities of people that identify with one another outside of racial, class, gender, age or other stereotypes. The banning of the Nei Han Duan Zi jokes site last April was initiated because it offered an outlet for people who laugh at authority and it had become a forum for nonconfirmism. The banning of new computer games was less about protecting childrens’ eyesight and more about controlling social interaction. 



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January 24 2019

Commentary by Eoin Treacy

Video commentary for January 24th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Eurozone comparison with Japan and potential for ECB QE3, stock markets generally steady with semiconductorsr and homebuilders doing well, continued demand for Treasuries, the Dollar and gold is steady, Governance is Everything.



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January 24 2019

Commentary by Eoin Treacy

Mario Draghi Is Watching His ECB Rate Hike Slip Over the Horizon

This article by Brian Swint and Carolynn Look for Bloomberg may be of interest to subscribers. Here is a section:

With the economy threatened by trade tensions, European politics and temporary factors such as a slump in German car production, “we’ll probably have to wait until the June meeting before the dust has settled,” said Carsten Brzeski, an economist at ING. “However, it will require a very benign outcome on all these risk factors to see Draghi hiking rates before he leaves office.”

UBS Group AG President Axel Weber, a former ECB policy maker and Bundesbank president, said at the World Economic Forum in Davos this week that the ECB has already missed its chance to normalize policy in this cycle.

Eoin Treacy's view -

Mario Draghi is unlikely to raise rates during his tenure at the ECB and his successors are going to have equally grim prospects of returning to normal monetary policy



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January 24 2019

Commentary by Eoin Treacy

Wilbur Ross on the trade Negotiations

This quote may be of interest to subscribers:

...We're miles and miles from getting a resolution and that shouldn't be too surprising. Trade is complicated. There are lots and lots of issues, not just how many soybeans and how much LNG but even more importantly, structural reforms that we really think are needed in the Chinese economy. And then, even more important than that, enforcement mechanisms and penalties for failure to adhere to whatever we agree to.

People shouldn't think the events of next week will be the solution to all of the issues between the United States and China. It's too complicated a topic. Too many issues. That's different from saying we won't get to a deal. I think there's a fair chance we do get to a deal.

Eoin Treacy's view -

How confident is China in its claims to be a global superpower? That’s the only real question in measuring how likely they are to agree a meaningful trade deal with the USA.



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January 24 2019

Commentary by Eoin Treacy

The Investor Seth Klarman, in a Rare Interview, Offers a Warning. Davos Should Listen

Thanks to a subscriber for this article by Evan Osnos for The New Yorker may be of interest.

In his view, companies that operate with integrity rarely get enough credit for it from investors or the press. “You have people who are princes, who have good values, who treat people right. We don’t tend to pay a lot of attention; we don’t get a lot of stories about them. The surveys of the most admired businesses—how much do those evolve over time based on your market cap? What’s in vogue and in favor is ‘admired.’ ” He has watched, with chagrin, as Wall Street firms pocketed billions in fees and commissions by steering clients to bad deals that they dismiss as “O.P.M.”—Other People’s Money. “Talking about clients as though they are to be taken advantage of rather than to be honored, and respected, and cherished, as your lifeblood—it’s disgusting, but you see that in individual behavior.” He added, “When one person does that, it’s bad for all the rest of us.”

He told me, “I don’t think it’s too late for business leaders to start doing the right thing for their employees, their clients, and their communities.” And if they don’t? It could lead to regulations that, in his mind, would go too far in constraining corporate behavior. In his speech, he said, “When capitalism goes unchecked and unexamined, and management is seduced by a narrow and myopic perspective, the pendulum can quickly swing in directions where capitalism’s benefits are discounted, and its flaws exaggerated.” Klarman hopes that politicians in Washington will hear his message, but, more to the point, he wants fellow-practitioners to hear him. “If every businessperson, or enough businesspeople, don’t act as stewards of more than just the bottom line, somebody’s going to come along and do it for them.

Eoin Treacy's view -

The rising tide of progressives, socialists, unions, social justice advocates and totalitarians are all clambering for the mantle of biggest redistributionist in a crowded field. That’s not a trend individual to a single country, it’s a global phenomenon.



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January 23 2019

Commentary by Eoin Treacy

Video commentary for January 23rd 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: stock markets quiet with positive earnings counter balancing trade and growth fears. Central Bank assets tick higher, 2019 outlook for Wall Street, ASEAN markets continue to outperform, crude oil and gold quiet, Bonds steady, discussion of risks in China.



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January 23 2019

Commentary by Eoin Treacy

The $1.8 Trillion Global Payout Ride Is Coming Back to Earth

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

In the new era of prudence, shareholders who’ve enjoyed fatter and fatter dividend checks can rest easy no longer.

IHS Markit Ltd. last week projected a “significant slowdown” in global dividend growth this year, at 5.9 percent, totaling $1.8 trillion, according to a bottom-up analysis of over 9,500 firms. Thanks in part to mounting geopolitical risks, that’s a shift from the 14.3 percent boom in 2018 and 9.4 percent the year before.

The business-information provider reckons about 11 percent of firms will announce a dividend cut this year -- an uptick of almost 100 names relative to 2018.

“I believe that dividends of leveraged companies can suffer more,” said Willem Sels, a London-based chief market strategist at HSBC Private Bank. “The excessive focus on the shareholder
value at the expense of bondholder value will be more muted.”

Eoin Treacy's view -

2017 represented the best of all possible worlds for investors. The tax cuts had been passed and investors got busy pricing that into the market. There was money for everything from buybacks to dividend increases and it was being paid for with tax savings, repatriated profits from overseas and fresh debt.



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January 23 2019

Commentary by Eoin Treacy

China Risks Real Hard Landing This Time

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

In other words, in the past year, banking-system liquidity has risen by about a fifth, but net credit growth has fallen by about a third. The reason is clear. Shadow finance outstanding fell by a full 10% in 2018—by far the sharpest contraction on record.

Regulators realize they have a problem. They are now trotting out new central bank lending facilities to goad banks into extending credit to small enterprises. And the economy still has some cushions. Infrastructure investment is rising again. Consumers are struggling, but less than headlines would suggest.

Both of these bulwarks aren’t as strong as a couple of years ago—consumers are more indebted and a separate campaign against off-balance sheet infrastructure fundraising is still crimping investment. If the property market falls apart, China will be in serious trouble.

China’s inefficient financial system has long needed surgery. By excising the shadow banking system without a proper transplant to replace it, regulators risk killing the patient.

Eoin Treacy's view -

China’s headline government debt is comparatively small by international standards. However, its private sector debt is larger than the USA’s government debt. By first cutting off access to funding from the state banks, then cutting off shadow banking, then banning US Dollar loans, successive windows for funding have limited access of businesses to capital.



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