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December 16 2021

Commentary by Eoin Treacy

BOE Says 'More Persistent' Inflation Prompted Surprise Rate Rise

This article for Bloomberg may be of interest to subscribers:

“We’ve seen evidence of a very tight labor market and we’re seeing more persistent inflation pressures, and that’s what we have to act on,” Bailey told BBC News on Thursday. “We’re concerned about inflation in the medium terms, and we’re seeing things now that can threaten that.”

The remarks represent a shift in tone for the U.K. central bank, which previously said most pressures on prices were temporary, or “transitory,” and likely to pass in the next few months. Now, Bailey expects the consumer price index to top 6% in the coming months, triple the BOE’s target.

Becoming the first major central bank to hike its benchmark since the pandemic started, the BOE raised borrowing costs by 15 basis points to 0.25%. No other Group of Seven central bank has made since the start of the crisis.

Eoin Treacy's view -

The Bank of England has been in something of a pickle. They did not want to raise rates before every other country, but felt pressured to do so by persistent inflation. The most important factor is inflationary pressures are seeping into perceptions of how the public view well central banks are doing their job. Even as upward pressure on prices, on a year over year basis, will abate next year, that will do little to deter the impression that prices are running away from consumers.



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December 16 2021

Commentary by Eoin Treacy

Copper Jumps as Miner to Halt Output in Peru Amid Protests

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

It’s the second Peruvian mine to suspend production this week after Nexa Resources SA halted Cerro Lindo, although Prime Minister Mirtha Vasquez said Wednesday that police had dispersed protesters at that zinc operation. 

And

A prolonged shutdown at a mine that before the pandemic accounted for almost 2% of the world’s mined copper would further tighten global supplies that have been hit with shipping snarls and low warehouse inventories. Las Bambas has 60,770 tons of copper stranded on site. 

 

Eoin Treacy's view -

The global market remains tight and susceptible to supply disruptions. The sensitivity of the market has also been exacerbated by the surge in demand from transportation and energy infrastructure projects. In just the same way that autos are now competing with traditional demand for semiconductors, auto and wind turbine motors, recharging stations and sub-sea cables are competing with telecommunications, construction, and power line demand for copper.



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December 16 2021

Commentary by Eoin Treacy

December 15 2021

Commentary by Eoin Treacy

Video commentary for December 15th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Fed announces taper and rate hikes as expected, relief rally underway, fintech rebounds, ethereum upside key reversal, gold and oil steady, Wall Street rebounds, China property still under pressure and will require more urgent action soon. 



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December 15 2021

Commentary by Eoin Treacy

Fed Doubles Taper, Signals Three 2022 Hikes in Inflation Pivot

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

Heralding one of the most hawkish policy pivots in years, the central bank said Wednesday it will double the pace at which it’s scaling back purchases of Treasuries and mortgage-backed securities to $30 billion a month, putting it on track to conclude the program in early 2022, rather than mid-year as initially planned.

The faster pullback puts Fed Chair Jerome Powell in position to raise rates earlier than previously expected to counter price pressures if necessary, even as the pandemic poses an ongoing challenge to the economic recovery. The Fed flagged concerns over the new omicron strain, saying that “risks to the economic outlook remain, including from new variants of the virus.”

Projections published alongside the statement showed officials expect three quarter-point increases in the benchmark federal funds rate will be appropriate next year, according to the median estimate, after holding borrowing costs near zero since March 2020.

That marks a major shift from the last time forecasts were updated in September, when the committee was evenly split on the need for any rate increases at all in 2022. The new projections also showed policy makers see another three increases as appropriate in 2023 and two more in 2024, bringing the funds rate to 2.1% by the end of that year.

The abrupt change in the taper pace reflects “inflation developments and the further improvement in the labor market,” the policy-setting Federal Open Market Committee said in a statement following a two-day meeting. The Fed reiterated that it “is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”

Eoin Treacy's view -

The Fed intends to follow through on what the bond and swap markets have been pricing in for the last month. Even though this statement is headline grabbing it is not sufficiently surprising to have had an immediate negative effect on the market.



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December 15 2021

Commentary by Eoin Treacy

Email of the day on demand surges versus supply disruptions

The author of this article in the FT argues that the current rise in inflation is a demand side event and not due to supply shortages. He argues that the statistics show that global supply has risen in 2021 but not as fast as global demand.  

Eoin Treacy's view -

hank you for this insightful email and related article. Here is a section:

There may be a case for such a policy turn, but the main factual premise of the new resilience-cum-autonomy doctrine is false. The pandemic put capitalist globalisation to the test, with sudden and enormous surges in demand, and it passed with flying colours.

Take durable goods. Headlines about shortages are the only thing that seem in ample supply, and everyone is experiencing delays in obtaining items, such as cars, that could previously be had with instant gratification. But the actual supply of durable goods is at record highs. Since the summer of last year, American consumers have been obtaining them in volumes much larger than the pre-pandemic trend. Many EU economies, including Germany, Italy and the Netherlands, have also matched or exceeded 2019 levels of durable goods consumption.

What about semiconductors? In a short paper published a month ago, Daniel Rees and Phurichai Rungcharoenkitkul of the Bank for International Settlements showed that semiconductor exports from Taiwan and Korea in 2020 exceeded the volumes recorded in 2019, and 2021 exceeded 2020. Exports currently appear to be running at a good 30 per cent above two years ago. The BIS’s Hyun Song Shin has added that semiconductor sales in the US are much higher than in the years before the pandemic.



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December 15 2021

Commentary by Eoin Treacy

China's Economic Slump Fuels Calls for More Stimulus

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

The weakening of retail sales surprised analysts who were expecting a boost from the annual online “Singles Day” shopping festival. Spending in the restaurant and catering sector fell year-on-year in November, while car sales dropped for a fifth straight month. 

China has been facing persistent outbreaks of the delta-variant and recorded its first cases of the more-contagious omicron variant this week, adding to pressure on authorities to implement local lockdowns.

What Bloomberg Economics Says...
China’s November activity data suggest the economy is still under strain, though the production side appears to be stabilizing. The pressure on the demand side was clear, with growth in both fixed-asset investment and retail sales extending slowdowns. We expect fiscal and monetary policies to become more supportive in the months ahead.

The central bank refrained from easing monetary policy on Wednesday. It kept the interest rate for one-year loans to banks unchanged and only rolled over about half of the maturing debts, withdrawing liquidity from the banking system. A recently announced cut to the reserve requirement ratio for banks takes effect from Wednesday, which should make it cheaper for them to extend new loans.

There was limited reaction in financial markets to the data. The CSI 300 Index was down 0.6% as of 1:45 p.m. in Shanghai. The yield on 10-year government bonds was flat at 2.88% and the yuan strengthened less than 0.1% to 6.3644 per dollar.

A weak labor market further worsened the outlook for consumer spending. The surveyed jobless rate inched up to 5% while the average number of hours worked per week fell slightly from the previous month.

“Domestic consumption remains weak with retail sales disappointing,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “The incremental increase in the jobless rate is concerning. The authorities should pledge more support and offer a stronger signal to the market.”

Eoin Treacy's view -

The contrast between China and the rest of the world is growing increasingly stark. The demand surge during the pandemic has not yet ebbed in much of the rest of the world but is quickly receding in China. The key variable is liquidity. The USA and Europe spent inordinate sums to support their economies. China clamped down on personal freedoms and did what was necessary to ensure factories were operational, but did not engage in anywhere near the same level of monetary and fiscal accommodation.



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December 14 2021

Commentary by Eoin Treacy

December 14 2021

Commentary by Eoin Treacy

Big Tech Getting Crushed in Jittery Day for Stocks

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

“Anytime there’s a risk of easy money being taken away, that will result in some of these very expensive areas of the market to pull back,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.

“The pressure on the Fed to pick up the pace of tightening is only mounting. With higher prices permeating the marketplace, we could see a snowball effect when it comes to inflation challenges as more suppliers justify higher prices and more consumers begin to close their wallets,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial.

“The inflation trajectory remains worrisome. While we believe that price pressures will abate next year, the Fed is doing the prudent thing by tapering faster, so that it is well-positioned to hike rates if needed,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.

Eoin Treacy's view -

Liquidity is the only game in town. With a looming threat that the USA is about to close the momentary spigot, a distinct air of risk-off trading is increasingly evident. That suggests, the risk of a lengthier and deeper process of consolidation is rising.



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December 14 2021

Commentary by Eoin Treacy

Email of the day on charging station stocks

Additionally, while individuals do not have gas pumps installed at their home, they can have a level 2 ev charger installed that would seriously compromise the market share of a commercial charging station.

Eoin Treacy's view -

Thank you for this email which may be of interest to the Collective. The challenge for investors is in differentiating between the addressable market depicted in glossy pitchbooks and the real-world potential for a sector.



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December 14 2021

Commentary by Eoin Treacy

U.K. Plans Giant Battery to Manage Surge in Offshore Wind

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

The first phase of the Teesside battery is due to be completed by 2023, a Sembcorp spokeswoman said by phone, adding that the investment required would be in the “hundreds of millions” of pounds.

“Flexible energy sources play an increasingly important role in maintaining secure and reliable energy supplies,” Andy Koss, Sembcorp’s chief executive officer for the U.K. and Middle East, said in the statement. With a growing reliance on renewables, the U.K. energy system must be “able to respond

quickly to changes.”

The new storage site is expected to top the largest current planned battery -- a 100-megawatt facility by Zenobe Energy Ltd. Sembcorp said its total U.K. battery pipeline is now almost half a gigawatt. It already operates 70 megawatts and has a further 50 megawatts due to come online in early 2022.

Eoin Treacy's view -

In just the same way that fossil fuels require storage facilities, renewable energy requires batteries and storage solutions for when demand spikes amid slower supply. The building of industrial utility-scale batteries reflects a doubling down of government policy on renewable energy. That trend has been underway for a decade; since the refusal to reinvest in the Rough storage facility in 2012. 



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December 14 2021

Commentary by Eoin Treacy

December 13 2021

Commentary by Eoin Treacy

Video commentary for December 13th 2021

December 13 2021

Commentary by Eoin Treacy

Tapering on Deck-Stick with Defensive Quality in Factor Frenzy

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

Tapering is tightening for markets, if not the economy. Due to the much greater than expected rise in inflation, the Fed is pivoting to a more aggressive removal of monetary accommodation. We believe this is warranted and supported by an administration that appears less focused on the stock market as a barometer of its success. Furthermore, tapering is different than in 2014 for 3 reasons: 1) the Fed is exiting QE twice as fast this time,2) asset prices are much richer today and 3) growth is decelerating rather than accelerating. This could be important for the economy, too, given how levered consumers are to stock prices today.

Eoin Treacy's view -

The uptrend over the last 13 years has been liquidity fuelled. That’s been the abiding factor behind every correction and every recovery since the initial lows in late 2008. It is reasonable to expect the end of the latest quantitative easing program will have a similar effect on market prices as every other one.



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December 13 2021

Commentary by Eoin Treacy

Email of the day on carbon sequestration

Montreal company Carbicrete has developed a method for sequestering carbon in concrete, claiming its product captures more carbon than it emits. The technology cuts out the need for calcium-based cement, a key ingredient in traditional concrete that is responsible for around eight per cent of all global CO2 emissions. I thought you might be interested in this.

Eoin Treacy's view -

Thank you for this informative email. There is a clear incentive for innovators to come up with ways to profit from the rising cost of carbon emissions. The COP26 agreement will create a global market for emissions and will broaden the number of companies subject to carbon restrictions. That is all aimed at creating a market for alternatives in much the same way that subsidies fostered the solar and wind sectors.



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December 13 2021

Commentary by Eoin Treacy

European Gas, Power Surge to Record on Russia-Ukraine Tension

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

European gas and power prices closed at a record high as heightened tension between Russia and Ukraine threatened to further crimp supply, increasing the risk the energy crunch will persist into next winter.

The West is hardening its stance against Russia. New German Chancellor Olaf Scholz said he will “do everything” to prevent Russia from using the controversial Nord Stream 2 pipeline to cripple flows through Ukraine, while Belarus’s leader reiterated threats to halt supplies if the West presses on with sanctions in a dispute over migrants. 

The risks for Europe are mounting with gas stockpiles dropping to record lows for this time of the year and no end to the crisis in sight. Inventories are only 63% full, a level more typical for mid-January, which leaves little in reserve in case of colder weather in the coming months. If stocks fall too low, it’ll be harder to refill them in time for next winter.

Eoin Treacy's view -

The market has become accustomed to risks to the economy from an oil shock but Europe is currently going through a gas shock. The price is already multiples of where it peaked ahead of the credit crisis and closed at a new high today.



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December 10 2021

Commentary by Eoin Treacy

December 10 2021

Commentary by Eoin Treacy

Global Shortage of Fertilizers Sends Demand for Dung Soaring

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

“The arable area still requires significant tonnage of synthetic fertilizer, but this is reduced by the use of manures,” Butler said. Since the animal waste from his farm is not enough, he has been buying biosolids from utility Thames Water, which produces over 750,000 meters squared of sludge each year for farmers across Britain’s southeast. 

However, Butler said that it’s increasingly difficult to source human excrement as “there is more demand than supply for biosolid materials.”

In the U.S., biosolids are regulated by the Environmental Protection Agency, and in Europe, biosolids have been in use since 1986 when it received regulatory approval from the European Union. 

While manure is an inexpensive alternative to pricey synthetic fertilizers, it is a “poor replacement for those accustomed to traditional fertilizer products,” said Alexis Maxwell, an analyst at Bloomberg’s Green Markets. For example, the fertilizer diammonium phosphate has six times the nitrogen and 15 times the phosphate as manure on a per ton basis.

Eoin Treacy's view -

The farmer a mile from my old home in Ireland had a contract with the sewage treatment plant to buy waste. It made for a very smelly couple of days when he was spreading it on his land. However, it also meant he was not spending on costlier imports. That kind of business model has a lot more competition today, because of the surge in European natural gas prices which continue to recover from the October correction.



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December 10 2021

Commentary by Eoin Treacy

VW Boosts Future Tech Spending, Enlarges Management Board

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

Volkswagen AG raised its five-year spending plan and overhauled its management board, seeking to catch up with Tesla Inc. and end an internal dispute over the changes needed to get there.

The German company will invest 159 billion euros ($180 billion) in total in the next half decade, of which 89 billion euros are for technologies like software and electric cars. That’s more than in last year’s rolling plan, pointing to a faster departure from combustion engines. By 2026, about a quarter of all sales will be electric only, VW predicted.

VW’s aggressive transformation hasn’t been without controversy, and Chief Executive Officer Herbert Diesshas come under fire from labor representatives accusing him of plotting mass layoffs to make VW more nimble.

Diess’s position at the helm was the subject of public debate in recent weeks, and Chairman Hans Dieter Poetsch sought to quell any speculation today about his future by calling Diess an “agent of change.” At the same time, the CEO ceded some tasks to others on the management board, which has now swelled to 12 members.

“Our exceedingly robust and solid financial base enables us to finance the necessary investments on our own,” Poetsch said in a statement. “We are also therefore very confident that these investment decisions will steer the Volkswagen Group to future success.”

Eoin Treacy's view -

Tesla has leapfrogged other auto manufacturers by adopting an aggressive build schedule; funded in part by the proceeds from carbon credits sold to it competitors. In today’s environment, corporate boards are under increasing pressure to leverage their balance sheets because of the success of companies like Tesla.



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December 10 2021

Commentary by Eoin Treacy

Andreessen Horowitz Founders Begin Stepping Back

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

Their individual real estate decisions are one sign of a significant, if slow-motion, shift at their company, the prominent venture capital firm Andreessen Horowitz, or a16z. They started a16z in 2009 after selling a data center automation startup they co-founded for $1.6 billion. Over the next decade or so, the firm helped define an era in Silicon Valley’s tech and venture capital industries as they backed tiny startups that turned into multibillion-dollar businesses, with enormous economic and cultural implications. A16z has backed many of the world-beating startups of the past decade, including Airbnb, Coinbase, GitHub, Slack, and Stripe. (Bloomberg LP, which owns Bloomberg Businessweek, has invested in Andreessen Horowitz.)

The firm’s founders, while still active leaders with the ultimate responsibility for its strategy and direction, are no longer as involved in daily operations as they were in the early days, say people who have worked with the men and those around them. They’ve also begun to lower their involvement on corporate boards. Horowitz sits on 11 boards, down from 16 early last year; Andreessen’s biography lists 7 company board seats, including on Meta Platforms Inc., down from 11 three years ago. Andreessen and Horowitz declined interview requests through an a16z spokesperson, who also declined to answer questions about the firm.

Eoin Treacy's view -

Regime change at private equity firms is virtually unheard of. The most successful companies tend to be led by visionary investors with a talent for spotting market trends and that is not easy to replicate through training. Anyone who has the skillset and connections, has more incentive to start their own firm than stay on. Passing the baton of leadership is a difficult challenge.



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December 10 2021

Commentary by Eoin Treacy

Trafigura Co-Founder Moves From Oil to Lumber for Skyscrapers

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

While the idea of mass timber has been kicking around for years, increasing pressure on developers to reduce their carbon footprint may finally help propel the market. The Economist Intelligence Unit estimates that demand for cross-laminated timber, one of the most widely used mass timber products, will grow more than 13% a year through the mid-2020s. By 2025, mass timber is expected to account for about $1.4 billion of the $14 trillion global construction industry.

Norway boasts the world’s tallest wood building at 18 stories, soon to be displaced by a 25-story mass-timber tower in Milwaukee next year. Vienna has built an entire district out of the stuff. In the U.S., the number of mass-timber buildings completed or under construction soared more than seven-fold in just three years to 576 at the end of September. Another 665 are in the design phase, according to data compiled by the Softwood Lumber Board.

Not everyone is sold on mass timber. There are concerns about its resistance to moisture and fire. And critics say its environmental benefits are overstated due to the carbon that’s released from the decay of branches and tree tops left in the forest after the wood is cut, and also through the burning of waste products like sawdust. That carbon footprint swells even more when considering wood’s shorter lifespan and greater vulnerability to natural disasters than concrete buildings, said Beverly Law, a carbon-cycle scientist and emeritus professor at Oregon State University.

“The reason you might see it catching on more is because it’s being marketed heavily by the timber industry in the U.S.,” Law said.

Eoin Treacy's view -

It strikes me as a modern form of sophistry that the carbon wells represented by standing trees are now considered inefficient at best and a liability at worst. It is very convenient that improving their carbon usefulness results in logging and using them as building materials. This same argument is used for supporting wood fired power plants and pellet heating systems. Little concern is given to the potential that trees will be cut down quicker than new ones grow if this new industry takes off.



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December 10 2021

Commentary by Eoin Treacy

December 09 2021

Commentary by Eoin Treacy

Video commentary for December 9th 2021

December 09 2021

Commentary by Eoin Treacy

Evergrande Declared in Default as Huge Restructuring Looms

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

While Evergrande bondholders face deep haircuts in a restructuring that could take months or even years to resolve, there were few signs of financial contagion on Thursday. That’s partly because investors had been anticipating a default for months, but also thanks to a flurry of activity by China’s government to cushion the blow.

Policy makers have in recent weeks cut lenders’ reserve requirements, signaled an easing of real estate curbs and rolled out measures to ensure higher-rated developers retain access to funding. They’ve also taken a leading role in Evergrande’s restructuring, appointing officials from the developer’s home province to help oversee the process. 

While that’s likely to help prevent nightmare scenarios of an uncontrolled Evergrande collapse, authorities have made it clear they have no intention of bailing out the property empire started by billionaire Hui Ka Yan 25 years ago. In a pre-recorded video message at a seminar in Hong Kong on Thursday, People’s Bank of China Governor Yi Gang described Evergrande’s situation as a market event that should be dealt with in a market-oriented way. 

The Shenzhen-based developer, which disclosed more than $300 billion of total liabilities as of June, said in a brief exchange filing on Dec. 3 that it will “actively engage” with offshore creditors on a restructuring plan. But with Chinese authorities now calling the shots, the developer has stayed largely silent on details of what its restructuring might look like. 

Even Fitch has struggled to get information from Evergrande, noting on Thursday that the developer didn’t respond to its request for confirmation on this week’s coupon payments. “We are therefore assuming they were not paid,” Fitch analysts wrote in a statement. Bloomberg reported earlier this week that bondholders hadn’t received the money.

Eoin Treacy's view -

The long-expected default of China Evergrande is now underway and was preceded by the Kaisa’s default. Aoyuan’s difficulties are now also making headlines. Against a background of sensationalist media coverage, the Chinese administration is making enough liquidity available to support the wider property sector. They are also engaging in a forensic audit of local government off balance sheet vehicles to find out just how big the problem is.



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December 09 2021

Commentary by Eoin Treacy

Email of the day on cash holdings and the Wall Street leash effect

I'm a returning subscriber from the 2005-2014 timeframe. Just listened to today's commentary. I'm well positioned in commodities and emerging markets (especially Indonesia and SE Asia). When the big tech stocks and dollar do finally rollover, won't that take down everything, including what I'm holding? In effect, is it better to sit and wait where I am -- or move to cash now and buy back into commodities/emerging markets when the current bull market in tech and the dollar ends? Would be grateful for any comment or guidance you might have. Thanks.

Eoin Treacy's view -

Welcome back! I’d also like to welcome to all our new subscribers. It’s an uncertain time for many investors and I will strive to make sense of the world as markets incorporate and evolve past the pandemic era. 



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December 09 2021

Commentary by Eoin Treacy

Overview of Digital Assets and Blockchain

Thanks to a subscriber for this report from Goldman Sachs which may be of interest. Here is a section quoting Visa’s CEO: 

“And I would say that this [crypto] is a space that we are leaning into in a very, very big way and I think are extremely well positioned…So converting a digital currency to a fiat on a Visa credential, which then makes those funds available for shopping at any 1 of the 70 million Visa merchants and gives immediate utility to the digital currency. And we're the clear leader here. We've got over 35 digital currency platforms and wallets that have chosen to work with us. Coinbase, Crypto.com, BlockFi, Fold, Bitpanda are just some examples”

Eoin Treacy's view -

The major investment banks were initially among the most sceptical of the crypto bull market but with so many clients asking for service, they have little choice than to give the market what it wants. This chart-laden report does a good job of laying out the existing arguments for the evolution of the digital assets market.



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December 08 2021

Commentary by Eoin Treacy

Video commentary for December 8th 2021

December 08 2021

Commentary by Eoin Treacy

Gundlach Sees 'Rough Waters' for Market as Fed Pursues Taper

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

Gundlach, 62, said the reason why Fed Chair Jerome Powell characterizes the economy as strong, but not strong enough to allow for a rate hike at this point, is that the underlying condition is in fact weak -- artificially propped up by an unprecedented degree of stimulus.

Here are some other takeaways from Gundlach’s remarks:
He focused heavily on inflation, saying the annual pace of gains in the consumer price index could hit 7% in the next month or two. He ran through numerous inflation measures and pointed out that shelter costs have climbed significantly. He also said it’s possible that the CPI inflation gauge won’t drop below 4% throughout 2022.

Markets could face more volatility now that the Fed has said it might quicken its tapering program.

Gundlach reiterated that he bought European stocks for the first time in 12 years, which he disclosed a few months ago. He still owns some of those and they’ve done just OK until recently. He didn’t own emerging-markets equities, though he envisioned a scenario when they might outperform U.S. firms. “We’re looking for major opportunities” and emerging markets could be one over the next few years, he said.

The dollar has been in structural decline since 1985, he said, reiterating that the twin-deficit problem (that’s the current-account gap and the federal budget deficit) will cause the greenback to fall over time, which bodes well for emerging markets.

Eoin Treacy's view -

I’ve been saying for most of this year that the Dollar is the lynchpin for a migration away from US Dollar assets. Wall Street has outperformed by a wide margin from the perspective of international investors since 2008.



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December 08 2021

Commentary by Eoin Treacy

Record exports sharply narrow U.S. trade deficit

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

The trade gap plunged 17.6% to a six-month low of $67.1 billion. That was the biggest percentage drop since April 2015, reflecting an increase in the flow of goods and services following disruptions caused by the COVID-19 pandemic.

Economists polled by Reuters had forecast a $66.8 billion deficit. Exports accelerated 8.1% to an all-time high of $223.6 billion. The surge was led by goods exports, which soared 11.1% to $158.7 billion, also a record high.

Exports of industrial supplies and materials increased $6.4 billion, with shipments of crude oil advancing $1.2 billion.

Petroleum exports were the highest on record.

Capital goods exports increased $3.1 billion, boosted by other industrial machines as well as civilian aircraft. Food exports rose by $2.1 billion, with soybeans increasing $1.8 billion. Exports of consumer goods jumped $1.6 billion, lifted by increases in shipments of gem diamonds as well as motor vehicles, parts and engines.

Eoin Treacy's view -

Energy independence is an oft underestimated factor in any country’s economic health. That’s particularly true of the USA which is still unaccustomed to the benefits of being a major exporter of a commodity much of the rest of the world is in dire need of.



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December 08 2021

Commentary by Eoin Treacy

Vodafone Shares Jump After Betaville 'Uncooked Alert'

This note from Bloomberg may be of interest to subscribers. Here it is in full: 

Vodafone shares rose as much as 3.3% following a so-called “uncooked” mention in a Betaville report regarding potential private equity interest in the telecom operator. Shares pared gain to 1.8% as of 4:18 p.m.

Representatives for Vodafone were not immediately available to comment when contacted by Bloomberg via phone and email
Betaville says there is speculation that one of Europe’s largest private equity firms is looking at all of some of Vodafone, citing people following the situation
NOTE: The speculation is described as “uncooked,” a term the Betaville blog often uses to refer to market gossip
NOTE: Vodafone shares have declined 5.9% YTD vs Stoxx Telecoms Index’s 9.5% gain
READ: Private Equity Rummages in the Telco Bargain Bin: Chris Hughes

Eoin Treacy's view -

One of the biggest questions for investors today is how to hedge a portfolio against inflation. The answer is not easy. Finding a business that has strong cash flows with the possible of passing on incremental price increases is a strong contender for the most attractive contender.



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December 08 2021

Commentary by Eoin Treacy

It's official: 96 container ships are waiting to dock at SoCal ports

This article from freightwaves.com. Here is a section:

The Marine Exchange has just unveiled its new methodology for counting container ships waiting outside the 40-mile “in port” zone.

A new queuing system has been in place since mid-November that encourages container ships to wait outside of a specially designated Safety and Air Quality Area (SAQA) that extends 150 miles to the west of the ports and 50 miles to the north and south.

This has sharply reduced the number of ships closer to shore, leading to suggestions that efforts to tackle port congestion are cutting into the offshore queue — a misconception that should be dispelled by the Marine Exchange’s new counting method.

In addition to the 96 ships waiting offshore on Friday, there were 31 container ships at terminal berths, bringing the grand total to 127, at or near an all-time high. The total number of container ships either at berths or waiting offshore continues to rise: It is up 25% from the beginning of November, 41% from the beginning of October and 79% from the beginning of September.

Eoin Treacy's view -

How do politicians achieve quick results? The easiest way is to change the way the data is collected. If you don’t like how house prices distort the data, take rents instead. If oil is too volatile just leave it out. If the number of ships weighting a for a berth is embarrassing, and the problem does not have an easy fix, just change how you count. 



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December 07 2021

Commentary by Eoin Treacy

Video commentary for December 7th 2021

December 07 2021

Commentary by Eoin Treacy

Email of the day on Brazil and copper miners

In today's commentary you talked about Brazilian copper miners. Vale's chart seems to suggest a bottoming pattern. It is primarily an iron ore producer but it does have a copper interest. This may be a medium to long term level.

Eoin Treacy's view -

Thank you for this email. Unfortunately, Vale is a bit player in the copper sector. Its primary business is in the ferrous metal sector, so it is intimately related to China’s steel production. Vale is a major nickel producer following the acquisition of Inco more than a decade ago. That offers exposure to the battery metals sector but unfortunately nickel is the least supply constrained of the industrial metals.



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December 07 2021

Commentary by Eoin Treacy

Why India Beats China Hollow On Consistent Compounding

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

Why has corporate profitability not polarised in China?

Focusing on the second question, one possibility that exists is that in China economic growth has been so broad-based that smaller companies have grown faster than the top 20 PAT generators. However, we don’t have in-depth knowledge about the Chinese economy to be able to address this issue in a competent manner.

Focusing on a), the rise in corporate profitability of India’s top 20 PAT generators has been underpinned by the drivers of polarisation, which are rippling through the Indian economy. For example, over the past ten years, the length of roads in India has increased from 3.3 million kilometres to 5.9 million kilometres (CAGR of 6%). The number of mobile phone subscribers has increased over the same period from 392 million to 1161 million (CAGR of 12%). The number of broadband users has increased from 6 million to 563 million (CAGR of 57%). A decade ago, around 44 million Indians were taking flights each year. Now 3x as many Indians are flying each year (CAGR of 13%). 15 years ago, only 1 in 3 Indian families had a bank account; now nearly all Indian families have a bank account.

As a result of this networking of the Indian economy, efficient companies with strong distribution systems have pulled away from regional and local players. For example, as the economy gets integrated, lending, which was once dominated by regional players is now seeing the emergence of a few national leviathans like HDFC Bank and HDFC with both lenders entering the list of top 20 PAT generators over the last 10 years.

The global dynamic is the rise of affordable, easy-to-use enterprise technology which if implemented increases profit margins, reduces working capital cycles, and increases asset turnover. India’s best compounders are using such technology to create wealth for their shareholders.

Implications For Investors
Our research suggests that whilst China is the only other emerging market to rival India in producing consistent compounders, India’s consistent compounders mightily outgun their Chinese counterparts—both on fundamentals and on share prices—due to their ability to use the changes taking place in India to build dominant positions in the Indian market.

Eoin Treacy's view -

China offers a siren call for global investors because of the welcome they receive when they arrive and the speed with which decisions can be made. The process of making money in conjunction with local partners connected to the administration is perhaps not all that different from oiling the political wheels in other countries. It all works well when the assets remain in private hands and benefit from appreciation.



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December 07 2021

Commentary by Eoin Treacy

BoC to Walk, Not Run, Toward 2022 Rate Hike

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

Faster-than-expected job gains have been the main risk to our call that the BoC would slow-play rates liftoff. The blockbuster November report showed employment rose by 154k, more than four times as fast as the consensus expectation.

Even allowing for some reversal in contact-sensitive industries in the winter months, the remaining gap to the pre-pandemic trend has closed quickly. We estimate the economy was about 70k jobs short of the pre-pandemic employment rate in November, as shown in the chart above.

However, we expect communications may stress inflation numbers are still tracking in line with the October MPR, giving the BoC some space to gauge virus risks ahead of the January
meeting.

Firmer Inflation + Labor Gains = Hike Bets
Our policy dashboard below shows inflation well above the midpoint of the BoC’s target range of 1%-3%. Activity on a GDP basis was recovering through October, financial conditions are easy, and the U.S. recovery is still on track. As a result, market participants are pricing in more than five 25-basis point
hikes in 2022.

As hikes approach, the 2-year/10-year yield curve has flattened by about 75 basis points since April. That suggests market participants do not expect the central bank to get much beyond the peak of the last hiking cycle, which topped out at 1.75%.

Eoin Treacy's view -

Canada’s labour market is further along in its recovery than the USA so it makes sense to expect the BoC to raise rates first. It stands to reason that the market reaction to that event will be closely watched as a potential lead indicator for how investors will greet rate hikes elsewhere.



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December 06 2021

Commentary by Eoin Treacy

December 06 2021

Commentary by Eoin Treacy

Morgan Stanley Sees Fed as Greater Threat to Stocks Than Omicron

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

While “not that concerned about omicron as a major risk factor for equities,” the strategists led by Michael Wilson see headwinds building elsewhere, after Federal Reserve Chairman Jerome Powell signaled the possible accelerated tapering of asset purchases. “Tapering is tightening for the markets and it will lead to lower valuations like it always does at this stage of any recovery,” the strategists wrote in a note to clients.

Brian Nick of Nuveen, the investment arm of TIAA, with $1.3 trillion in assets under management, also said Monday that “the major risk to our outlook remains a sudden tightening of financial conditions if central banks are forced to respond to inflation driven by an overly tight labor market.” In contrast, most of the economic and market risks associated with the virus “are behind,” according to Nuveen’s outlook for 2022.

Other strategists, including those at JPMorgan Chase & Co., have also singled out a hawkish turn by central banks, and not Covid-19, as the main risk to their outlook for stocks. But while JPMorgan reiterated on Monday that its base-case scenario is for the equities rally to continue into next year, Morgan Stanley sees the S&P 500 trending lower, and valuations declining.

Eoin Treacy's view -

There is rising enthusiasm that the omicron variant is more transmissible, but less deadly than its predecessors. That lends further credence to the view the COVID virus is following the established pattern of becoming less deadly over time. From an evolutionary perspective, transmissibility is preferrable to killing the host, so this progression makes sense.

That suggests the end point of the pandemic is in sight. In just the same way we have vaccines and early treatment options for the flu, we will have the same for COVID possibly as soon as the next few months. The “bad flu” conclusion will be vindicated even if it depends on evolution to get there. That’s also the view of a group of doctors I had brunch with yesterday morning.



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December 06 2021

Commentary by Eoin Treacy

SEC probes Tesla over whistleblower claims on solar panel defects

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

Henkes, a former Toyota Motor quality division manager, was fired from Tesla in August 2020 and he sued Tesla claiming the dismissal was in retaliation for raising safety concerns. Tesla did not respond to Reuters' emailed questions, while the SEC declined to comment.

In the SEC complaint, Henkes said Tesla and SolarCity, which it acquired in 2016, did not disclose its "liability and exposure to property damage, risk of injury of users, fire etc to shareholders" prior and after the acquisition.

Tesla also failed to notify its customers that defective electrical connectors could lead to fires, according to the complaint.

Tesla told consumers that it needed to conduct maintenance on the solar panel system to avoid a failure that could shut down the system. It did not warn of fire risks, offer temporary shutdown to mitigate risk, or report the problems to regulators, Henkes said.

Tesla shares fell 5.5% at $960.25 on Monday after the Reuters report.

More than 60,000 residential customers in the U.S. and 500 government and commercial accounts were affected by the issue, according to his lawsuit filed in November last year against Tesla Energy over wrongful termination.

It is not clear how many of those remain after Tesla's remediation program.

Eoin Treacy's view -

Elon Musk’s Teflon-like ability to bait officialdom, and avoid censure, has been part of his appeal for years. He has actively cultivated the persona of a bad boy as a means of personifying the “move fast and break things” culture of Silicon Valley. So far, it has worked and by attracting legions of retail investors he has a solid backing on social media to support him if the strategy goes sideways.



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December 06 2021

Commentary by Eoin Treacy

Email of the day on lithium mining

a contact living in northern Portugal has informed me of the ecological disaster there being caused by Lithium mining. In the attached article we can read that thousands of protesters are marching in Serbia in opposition to Lithium mining there. https://www.theguardian.com/world/2021/dec/05/rio-tinto-lithium-mine-thousands-of-protesters-block-roads-across-serbia Regards A.

Eoin Treacy's view -

There is no getting around two important facts. Mining, all mining, is destructive. It is also absolutely necessary to further the goal of global economic development of every kind. There is a good reason that most mining takes place in sparsely populated areas and most particularly in emerging markets. No one wants a mine in their backyard.



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December 03 2021

Commentary by Eoin Treacy

December 03 2021

Commentary by Eoin Treacy

Secular Themes Review December 3rd 2021

Eoin Treacy's view -

A year ago, I began a series of reviews of longer-term themes which will be updated going forward on the first Monday every month. The last was on October 1st. These reviews can be found via the search bar using the term “Secular Themes Review”.

One of the most basic truisms in the financial markets is it is easier to make money in a bull market. The bull market that began in late 2008 and early 2009 has been liquidity fuelled. That was not obvious to everyone a decade ago but now everyone gets the message. Money printing inflates asset prices. As long as central banks are printing, we will have bull markets and the most speculative assets will perform best.



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December 02 2021

Commentary by Eoin Treacy

Video commentary for December 2nd 2021

December 02 2021

Commentary by Eoin Treacy

Email of the day - on deflationary risks

In today’s Audio you stated that there was an increasing risk of deflation. This is unsurprising because the capitalist system rewards the production of cheaper and better goods, while the continuing industrialization of the under-developed countries maintains downward pressure on wages. Throw in the emergence of crypto currencies and one must ask if gold will ever regain its former status in the economic system. Your views would be appreciated.

Eoin Treacy's view -

Thank you for this question which is particularly topical as we look to the year ahead. This year has been notable for a significant uptick in inflationary pressures. The extraordinarily low base level of 2021 contributed enormously to the year over year change while the tsunami of liquidity ensured readings were above even the most ambitious forecasts. This has resulted in economic statistics hitting headlines for most of the year even though most of what has happened is a product of base effects and liquidity.



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December 02 2021

Commentary by Eoin Treacy

Apple Falls on iPhone Demand Report, Weighing on Suppliers

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

Apple Inc. shares dropped after the iPhone maker was said to tell suppliers that demand for its flagship product has slowed, taking the shine off their recent record high.

Eoin Treacy's view -

Apple announced last month that it was having difficulty sourcing sufficient chips to meet demand. Today’s announcement suggests they may be under less pressure going forward as supply and demand come back into balance.



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December 02 2021

Commentary by Eoin Treacy

December Kicks Off Record Warmth in U.S. Great Plains

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

December began with record warm temperatures across the central U.S. and the promise of seasonally balmy weather for weeks ahead, holding down natural gas consumption when the world struggles with high fuel prices and inflation.

Denver reached 73 degrees Fahrenheit (22.8 degrees Celsius) on Wednesday, a record for the day, while new highs were also set in North Platte and Broken Bow in Nebraska, Bismark, North Dakota, and Rapid City, South Dakota, according to the National Weather Service. Overall, it looks like mild temperatures will dig in across the eastern two-thirds of the U.S. through at least Dec. 16.

December will likely be the third warmest going back to 1950 based on natural gas consumption, said Bradley Harvey, a meteorologist at commercial forecaster Maxar. Some of those mild trends may start to spill over into Europe and Asia as well.

“The European pattern should warm up in the middle third of the month,” Harvey said.

Atmospheric and Environmental Research updated its winter forecast earlier this week, calling for more mild conditions across the U.S. The outlook for warmer weather has killed bullish expectations that sent natural gas prices surging to the highest level in seven years in October. Traders were betting that inventories were too low to withstand a harsh winter. But warmer conditions have eroded heating demand, allowing producers to refill stockpiles to near normal levels.

Eoin Treacy's view -

I was playing tennis last night in shorts and t-shirt. It felt more like an early summer evening in Dallas than early December. That balmy weather extends across much of the USA and has contributed to natural gas prices fully unwinding the short-term overbought condition relative to the trend mean.



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December 01 2021

Commentary by Eoin Treacy

Video commentary for December 1st 2021

December 01 2021

Commentary by Eoin Treacy

China to Close Loophole Used by Tech Firms for Foreign IPOs

Companies currently listed in the U.S. and Hong Kong that use VIEs would need to make adjustments so their ownership structures are more transparent in regulatory reviews, especially in sectors off limits for foreign investment, the people said. It’s unclear if that would mean a revamp of shareholders or, more drastically, a delisting of the most sensitive firms -- moves that could revive fears of a decoupling between China and the U.S. in areas like technology. Details of the proposed rules are still being discussed and could change.

The overhaul would represent one of Beijing’s biggest steps to crack down on overseas listings following the New York IPO of ride-hailing giant Didi Global Inc., which proceeded despite regulatory concerns. Authorities have since moved swiftly to halt the flood of firms seeking to go public in the U.S., shuttering a path that’s generated billions of dollars for technology firms and their Wall Street backers.

It’s all part of a yearlong campaign to curb the breakneck growth of China’s internet sector and what Beijing has termed a “reckless” expansion of private capital. Banning VIEs from foreign listings would close a gap that’s been used for two decades by technology giants from Alibaba Group Holding Ltd. To Tencent Holdings Ltd. to sidestep restrictions on foreign investment and list offshore. It potentially thwarts the ambitions of firms like ByteDance Ltd. contemplating going public outside the mainland.
 

Eoin Treacy's view -

The era of China’s “don’t ask, don’t tell” regulation of the equity market is over. The government has been suspicious of the ease with which companies were raising capital overseas for years. The most particular concern is that foreign interests are gaining control of boards and companies are too independent from government oversight. That’s particularly true as plans become more ambitious and require national focus. Didi’s sneak listing, while regulators were away from the office, brought the issue to a head.



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December 01 2021

Commentary by Eoin Treacy

Lira Respite Will Come Down to How Far the Central Bank Can Go

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

Turkey’s direct intervention in its currency markets on Wednesday, the first in seven years, shows policy makers are intent on drawing a line in the sand on how far they are willing to tolerate weakness in the lira.

However, how long policy makers are able to buy the currency some respite will essentially come down to the size of the war chest and how willing the central bank is to run down those assets. The Turkish central bank’s gross reserves add up to $128.5 billion, with $60.5 billion coming from the bank’s swap deals, according to latest data released on Nov. 19. When swaps and other liabilities such as required reserves are stripped, Turkey’s net reserves stand at -$35 billion. The bank has repeatedly said that its gross reserves -- the total amount at its disposal at the time -- are more important than net reserves.

The central bank’s intervention this morning is significant if only for the signaling it sends. During a previous episode of similar stress in the lira back in 2018, there was no reported intervention. In other words, the policy makers may be telling the markets that their strategy to ward off any speculation on the currency will take a different tack this time. In 2018, the central bank took the benchmark rate to 24% from 8% in a short span to arrest the decline in the lira.

Last week the lira tumbled more than 11% against the dollar in a single day, representing a 10-standard deviation shock based on its moves in the past five years. The currency has weakened after the central bank slashed its benchmark by 400 basis points since the end of August. The monetary authority meets next on Dec. 16.

Eoin Treacy's view -

Erdogan seems to remain of the opinion that the answer to high inflation is low interest rates. At the same time, he has said that the central bank’s intervention in the market, to trim the currency’s decline, is lawful. Without the ability to raise rates, the central bank has even fewer resources. Eventually it will run out of money.



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December 01 2021

Commentary by Eoin Treacy

Lumber Firm Sees Shipments Plunge on Canada Floods

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

British Columbia on Monday extended a state of emergency and fuel rationing until mid-December as it braces for more heavy rain. Parts of the province are still struggling with damage from floods and landslides that closed highways and railways two weeks ago, sharply reducing the flow of goods like grain and lumber to Canada’s biggest port in Vancouver.

Rainfall warnings are in effect for Vancouver, with Environment Canada forecasting a prolonged period of heavy rain through Wednesday. Total rainfall of 60 millimeters (2.4 inches) is expected over the region, and rising freezing levels and snow melt may contribute to increased runoff.

Eoin Treacy's view -

Lumber supply was a major issue in the early part of the year and prices spiked to previously unimaginable levels. That cut into demand with many projects delayed while simultaneously encouraging additional supply into the market. It was a perfect example of the commodity market adage “the cure for high prices is high prices”.



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November 30 2021

Commentary by Eoin Treacy

November 30 2021

Commentary by Eoin Treacy

Powell Weighs Earlier End to Bond Tapering Amid Hot Inflation

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

Shortly before the comment on asset purchases, Powell said it’s time to stop using the word “transitory” to describe inflation. 

“We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation,” Powell said. “I think it’s a good time to retire that word and try to explain more clearly what we mean.”

Eoin Treacy's view -

Raising the prospect of a quicker tapering pace, after the biggest downward dynamic in stock markets in months, reveals a degree of insensitivity at the Fed. Stock market investors don’t take kindly to anything that restricts the liquidity on which valuations rely.



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November 30 2021

Commentary by Eoin Treacy

Euro-Area Inflation Tops All Forecasts With Record 4.9%

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

Anticipating a spike in inflation this month, ECB officials have redoubled efforts in recent days to reassure citizens that they are facing a once-in-a-generation cost-of-living squeeze that won’t endure, driven by energy and a series of one-time factors.

While President Christine Lagarde is sticking to that script, some colleagues are warning that price pressures might take longer to subside, stoking speculation about the future course of monetary policy. 

At a Dec. 16 gathering, the Governing Council is set to announce the end of its pandemic bond-buying plan and outline how regular purchases and interest rates will develop as the economy continues its recovery.

“While energy costs and statistical effects can explain the bulk of this month’s jump, today’s reading also revealed some stronger than anticipated underlying pressure. That will add to concern over upside risks to the outlook, but the ECB is still likely to see inflation falling below 2% by the end of next year.” - Maeva Cousin, senior euro-area economist. 

Eoin Treacy's view -

The spike in Eurozone inflation was expected even if the headline number was higher than estimates. The ECB believes inflation will drop back towards 2% once the pandemic subsides. At least they are dearly hoping that will be the case.



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November 30 2021

Commentary by Eoin Treacy

The Nazi Inspiring China's Communists

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

Jiang is also widely credited with authoring the 2014 Chinese-government white paper that gives Beijing “comprehensive jurisdiction” over Hong Kong. In a nod to Schmitt, the paper claims that the preservation of sovereignty—of “one country”—must take precedence over civil liberties—of “two systems.” Using Schmitt’s rationale, he raises the stakes of inaction in Hong Kong insurmountably high: No longer a liberal transgression, the security law becomes an existential

Chen and Jiang are “the most concrete expression thus far of [China’s] post-1990s turn to Schmittian ideas,” Ryan Mitchell, a law professor at the Chinese University of Hong Kong, wrote in a paper in July. They are the vanguard of the statist movement, which supplies the rationale for the authoritarian impulses of China’s leaders. And though it is unclear precisely how powerful they are in the upper echelons of the party, these statists share the same outlook as their paramount leader. “Xi Jinping’s big project is on reinventing and revitalizing state capacity,” Jude Blanchette, China chair at the Center for Strategic and International Studies, told me. “He is a statist.”

Why has a Nazi thinker garnered such a lively reception in China? To some degree, it is a matter of convenience. “Schmitt serves certain purposes that Marxism should have done, but can no longer do,” Haig Patapan, a politics professor at Griffith University in Australia who has written on Schmitt’s reception in China, told me. Schmitt gives pro-Beijing scholars an opportunity to anchor the party’s legitimacy on more primal forces—nationalism and external enemies—rather than the timeworn notion of class struggle.

Eoin Treacy's view -

It has been apparent for years that China is increasingly adopting a fascist doctrine of state supremacy. In just the same way that Nazi Germany was a rule by law society, China is emulating that progression.



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November 29 2021

Commentary by Eoin Treacy

November 29 2021

Commentary by Eoin Treacy

Doctor Who Saw Omicron Early Says Symptoms Milder Than Delta

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

South Africa announced the identification of a new variant on Nov. 25, saying a few cases had first been identified in neighboring Botswana and then others had followed in Tshwane, the municipal area in which Pretoria is located. The announcement caused a global panic, roiling markets and resulting in travel bans on southern African nations.

Scientists advising South Africa’s government told a media briefing on Monday that while omicron appeared to be more transmissible, cases appeared to be very mild.

Coetzee’s patients have been relatively young. A vaccinated 66-year-old patient did return a positive test on Monday but was only mildly ill, she said.

Eoin Treacy's view -

Everything we have been led to believe over the last couple of years is that cold and flu viruses mostly evolve to be more transmissible because that furthers the urge to replicate all organisms share. Becoming less deadly is often a part of that because it aids in replication. That part of the argument is complicated by the fact that COVID does not kill before it is has ample time to replicate and disperse.



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November 29 2021

Commentary by Eoin Treacy

Australia Sees Record Wheat Harvest But Warns Rains Hurt Quality

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

Early spring rainfall had helped yields across eastern states, while cropping regions in South Australia and Western Australia were boosted by rain and mild temperatures in October. The damage and losses from torrential rains in November are likely to be worst in New South Wales. 

Receivals of grain are already showing signs of reduced quality, though canola crops are indicating good oil content, the forecaster said. There is a risk that more heavy rains in December could spur further downgrades and the potential for more crop losses. The national winter crop is expected to reach a record 58.4 million tons, an increase of 6.6% from the September forecast.

Eoin Treacy's view -

Low quality wheat ends up as animal feed. Higher quality grains end up as bread and other products for human consumption. Even though the Euronext feed wheat and Chicago wheat futures have different delivery qualifications, they tend to share a great deal of commonality.



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November 29 2021

Commentary by Eoin Treacy

Europe's Cash Glut Is Spilling Into Already Stuffed U.S. Markets

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

Global central bank interventions at the onset of the pandemic are still flooding the system with reserves while removing collateral from the market. 

In the U.S., much of the excess cash is currently being mopped up by the Fed facility, but that doesn’t solve everything and the government’s attempts to stay under its legislated borrowing cap by reducing bill issuance at the moment are exacerbating imbalances.

In Europe, meanwhile, governments simply haven’t got enough bills on issue, there isn’t a real equivalent to the Fed RRP facility, and the market mismatch has become clearer as banks rush to shrink their balance sheets ahead of year-end.

If the channels in Europe become clogged, then the “collateral shortage spills over into the FX swap market as euro depositors swap into dollars to park their cash in a deeper, more flexible collateral market,” Credit Suisse strategist Zoltan Pozsar wrote in a note to clients last week. 

The remedy, in Pozsar’s view, is for Europe to create its own mechanism that helps convert cash into collateral without using dealers’ balance sheets. That could be a Fed-like overnight RRP facility from the ECB and/or an injection of bills by the central bank, he said.

Absent that kind of fix, though, the risk is that pressures will continue flowing across the Atlantic for now.

Eoin Treacy's view -

Amid all the talk of inflation and the trend towards monetary tapering, it is also worth reminding ourselves that the world is awash in liquidity looking for a home. 3-month European yields are close to -1%. That’s a powerful incentive to find anything else to invest in. With the ECB signalling they have no intention of raising rates or abandoning monetary accommodation anytime soon.



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November 26 2021

Commentary by Eoin Treacy

November 26 2021

Commentary by Eoin Treacy

What We Know About the Virus Variant Rocking Markets

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

6. How worrisome is this variant?
It’s too early to say. The World Health Organization said there are fewer than 100 whole genomic sequences of the new strain available, which could add to the time it takes to study how it compares to previous strains and its impact on Covid therapies and vaccines. Viruses mutate all the time, with the
changes sometimes making the virus weaker or sometimes making it more adept at evading antibodies and infecting humans. Covid vaccines have shown they are effective against previous variants and pills being developed by Merck & Co. and Pfizer Inc. may also provide new treatments. 

7. What should we look out for next?
In the U.S., which recently lifted a year-long ban on tourism from much of the world, top medical adviser Anthony Fauci said he wants to see more data. The European Centre for Disease Prevention and Control assigned the variant -- first detected in South Africa and Botswana -- the category “Variant of Concern.” BioNTech expects the first data from laboratory tests about how it interacts with its vaccine within two weeks.

Eoin Treacy's view -

This is the most important chart from the above article. It highlights how transmissible this variant it. From the available data, it is much more transmissible than the Delta or Beta variants and is already approaching dominance of South Africa cases. That implies it will spread around the world rapidly and within a month or at most two will be the dominant global strain.



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November 26 2021

Commentary by Eoin Treacy

Email of the day on ETF gold holdings

In the last few days, the chart for Total known ETF holdings of gold has turned up after a period of steady decline. Might this be a straw in the wind for better times regarding the gold price

Eoin Treacy's view -

Thank you for this email which may be of interest to subscribers. ETF holdings of gold have swollen to become the third largest official holders of the metal. I don’t expect that trend to change, although it has had a meaningful correction over the last year. Before this bull market is over, I expect ETFs will be the largest holders of gold and potentially by a wide margin.



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November 26 2021

Commentary by Eoin Treacy

Email of the day on emerging markets

Think, you may find interesting this story on the 20th anniversary of BRIC idea. It's fascinating how well judged it was in the 2000s (at least from the point of view of drawing investors' interest to the leading emerging markets) and how wrong in the 2010s

Eoin Treacy's view -

Thank you for this interesting account which may be of interest to subscribers. China’s entry into the WTO and the determination to devalue the Dollar after 9/11, coupled with chronic underinvestment in commodity supply helped to drive a secular bull market in emerging markets and commodities between 2000 and 2011.



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November 25 2021

Commentary by Eoin Treacy

Video commentary for November 25th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: Brazil interest rates up 565 basis poiints this year but still with negative real yields, coffee steady, soybeans finding support, copper steady, China eases property restrictions, Dollar remains firm which supports Wall Street 



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November 25 2021

Commentary by Eoin Treacy

The EU economy after COVID-19: Implications for economic governance

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

Public finances have taken a considerable hit and fiscal divergence between Member States has increased. Deficit and debt ratios have soared in all Member States (Figure 3). High debt ratios are expected to persist, remaining above pre-pandemic levels over the next decade (Figure 4).

Investment needs are pressing. The additional investment needed to achieve our climate and digital goals amounts to €650 billion per year over the next decade (public and private combined).

The COVID-19 crisis has aggravated a number of pre-existing vulnerabilities. Internal imbalances related to high government and private debt have increased, driven by the recession and measures taken to address the COVID-19 crisis. Pre-pandemic dynamic house price trends persisted and mortgage debt continued to grow significantly in some countries. Current account deficits widened in countries dependent on tourism revenues and the correction of current account surpluses has stalled. Moving forward, new risks may emerge as a result of structural transformations accelerated by the COVID-19 crisis.

The challenge of boosting socioeconomic resilience has become more apparent. Less-resilient Member States, territories and sectors found it harder to withstand and respond to the crisis. Differences in resilience across the EU have a bearing on social, economic and territorial cohesion, as well as convergence within the euro area and the effectiveness of the single monetary policy.

Addressing these challenges offers transformative opportunities but requires major investment and reforms. The €2 trillion firepower of the new Multi-annual Financial Framework and Next Generation EU, in particular the RRF, will support the recovery, while making our economies and societies more resilient. Good policies are also needed to strengthen resilience: effective and well-designed active labour market policies and social protection systems; investment in education and skills; and sound public finances.

Eoin Treacy's view -

The EU’s determination to avoid the fiscal austerity response deployed following the sovereign wealth crisis is a positive development. It reflects an awareness that debt deflation is an extremely painful process and particularly so when it is unevenly dispensed. The trajectory of fiscal correction will be slower in the post pandemic world and should help to support growth.



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November 25 2021

Commentary by Eoin Treacy

Australia Firms Ramp Up Spending Plans Signaling Strong Recovery

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

The result is likely to boost the Reserve Bank of Australia’s confidence in the economy’s prospects as the board prepares to review the A$4 billion weekly pace of its bond-buying program in February. Su-Lin Ong at Royal Bank of Canada put the odds of quantitative easing ending at that meeting at 30%.

The capex data is “likely to see markets continue to price in multiple hikes over the year ahead,” said Ong, head of Australian economic and fixed-income strategy at RBC. Money markets are wagering the RBA will start its policy tightening cycle with a 15 basis point hike to 0.25% by May 2022.

Today’s report showed the Covid lockdowns weighed on outlays, with total capital expenditure slipping 2.2% in the three months through September from the prior quarter. Spending on equipment, plant and machinery fell 4.1%, suggesting it will detract from economic growth in the period. 

Eoin Treacy's view -

Australian firms are looking around the world and see massive monetary and fiscal stimulus. Much of that spending will be focused on infrastructure and they are in line to benefit from outsized demand for resources. This is the time to invest in new supply before everyone else does.



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November 25 2021

Commentary by Eoin Treacy

Hochschild says key mines to continue operations as Peru eases stance

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

Hochschild Mining Plc jumped as much as 26% after Peru’s government appeared to back away from a plan to withhold further permitting extensions at its two most important mines

“We are pleased that our Inmaculada and Pallancata mines can continue to operate without further uncertainty and, furthermore, we reaffirm our goal to increasing our resources and extending our mine lives, in accordance with current legislation,” Hochschild Chief Executive Officer Ignacio Bustamante said Thursday in a statement.

The company’s London listed stock rose as high as 153.4 pence, before trading 15% higher as of 8:16 a.m. local time.

Hochschild lost a third of its value on Monday as investors reacted to news that the company may be forced by the government to close two silver mines in the country. That followed an announcement by Prime Minister Mirtha Vasquez on Friday that four mines in the Andean region of Ayacucho wouldn’t be allowed extensions. Vasquez’s comments sent shock waves through the local mining industry.  

Those concerns now seem to easing. Vasquez said yesterday that there will be no “unilateral shutdowns.” 

Investors have been nervous about Peru’s mining sector since the April elections were won by Pedro Castillo, a former rural union activist from a Marxist party who had vowed to nationalize assets, block projects and take a bigger share of the mineral windfall to fight poverty. 

Peru is one of the world’s biggest copper producers, with operators including BHP Group, Anglo American Plc and Freeport-McMoRan Inc.

Eoin Treacy's view -

Political uncertainty is a significant hazard for resources investors. In developed countries, it is increasingly difficult to get permitting for new operations. That’s true even in “mining friendly” jurisdictions. In emerging markets, the risk is that a new government will tear up royalty agreements or appropriate assets with little notice. That risk increases the higher prices go because profits are a powerful siren call for cash-hungry governments. The parlous state of government finances may well have aided in the Peruvian government’s decision not to rock the boat with mining groups. They need the inward investment.



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November 24 2021

Commentary by Eoin Treacy

Video commentary for November 24th 2021

November 24 2021

Commentary by Eoin Treacy

The Winds of Change

Thanks to a subscriber for this memo from Howard Marks which covers a number of topical points. Here is a section on the Nifty 50:

One of the biggest changes that did take place in the 1960s was the emergence of “growth investing” via fast-growing companies, many of which were quite new. The “Nifty Fifty” I talk about so much ruled the stock market in the late 1960s: this group included office equipment manufacturers IBM and Xerox, photography titans Kodak and Polaroid, drug companies like Merck and Eli Lilly, tech companies including Hewlett Packard and Texas Instruments, and advanced marketing/consumer goods companies such as Coca-Cola and Avon.

These companies’ stocks carried very high price/earnings ratios, reaching up to 80 and 90. Obviously, investors should only pay multiples like these (if ever) if they’re sure the companies will be preeminent for decades to come. And investors were sure. In fact, it was widely believed that nothing bad could happen to these companies and they could never be disrupted. This was one of post-war America’s first major brushes with newness and – in a good example of illogicality – investors embraced these companies, with their revolutionary newness, but somehow assumed that a newer and better new thing could never come along to displace them.

Of course, those investors were riding for a fall. If you bought the stocks of “the greatest companies in America” when I started working in 1969, and held them steadfastly for five years, you lost almost all your money. The first reason is that the multiples in the late 1960s were far too high, and they were gutted in the subsequent market correction. But, perhaps more importantly, many of these “forever” companies turned out to be vulnerable to change.

Eoin Treacy's view -

Technological innovation is highly disruptive. It upends the familiar ways in which processes were followed and creates value along the way. It also causes significant social upheaval. The 1960s were remembered by investors for the success and ultimate failure of the Nifty 50 but by everyone else for the sexual revolution, fight for equal rights and anti-war movements. Upskilling of the population was also a significant factor during this time when typing pools gave way, albeit grudgingly, to women taking greater roles in business.



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November 24 2021

Commentary by Eoin Treacy

Jamie Dimon Jokes, but Will China's Leadership Laugh?

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

“The Communist Party is celebrating its 100th year — so is JPMorgan,” the bank’s chief executive officer, Jamie Dimon, said Tuesday at a panel discussion at the Boston College Chief Executives Club. “I’d make a bet we last longer,” reported Bloomberg News. 

And

In China, business dealings often come down to narrative. One day, a foreign bank is welcome, and its presence is seen as helping China improve its financial industry. The next day, the same enterprise could be painted as a predatory vulture. Words matter, and harmless intent or humor can be misconstrued in translation. Jamie Dimon has every right to tell a joke, but it always helps to know your audience.

Eoin Treacy's view -

The longevity and persistence of the Party are not topics of conversation in China. Jamie Dimon may as well have been using cartoons of the Prophet Mohammed in his PowerPoint. That’s the closest parallel for the gaffe committed yesterday. It is reasonable to expect JPMorgan’s prospective Chinese private banking clients to think twice before the starting a relationship. Retribution may not happen immediately but it will come.



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November 24 2021

Commentary by Eoin Treacy

Chile's right rejoices after pro-Pinochet candidate wins presidential first round

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

But the result is a bracing reality check for the Chilean left after two years in which the country has followed a broadly progressive trajectory.

Since 2019, mass anti-inequality protests have rocked the country, leading to the election of a broadly leftwing assembly to rewrite Chile’s Pinochet-era constitution.

But Sunday’s result suggested that the protest movement’s ability to galvanise support has worn thin.

Kast survived a bruising final week of campaigning in which his open support for Genl Augusto Pinochet’s dictatorship and its economic legacy were the subject of intense scrutiny.

As he took to the brightly lit stage on Sunday night, he had regained some of the composure that had deserted him before the vote, presenting the runoff election as an existential fight against “the intransigent left”.

“We are going to chose between freedom and communism – between democracy and communism,” he said.

Kast’s campaign spokesperson, Macarena Santelices – a great-niece of Gen Pinochet who briefly served outgoing President Sebastián Piñera as women’s minister – also appeared on stage.

Eoin Treacy's view -

Political commentary has until recently assumed that the entire South American continent would be subsumed by a tide of progressive new governments. That conclusion is being challenged in Chile and suggests traditional arguments about law and order, health and education will be more important talking points.



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November 24 2021

Commentary by Eoin Treacy

November 23 2021

Commentary by Eoin Treacy

Video commentary for November 23rd 2021

Eoin Treacy's view -

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

Some of the topics discussed include: FANGMANT pause, unprofitable companies pull back sharply, bonds continues to trend lower, Precious metals have short-term oversold conditions, industrial metals steady, China targetting fresh stock market sectors, India begins to steady, Dollar firm, Yen and Euro weak. 



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November 23 2021

Commentary by Eoin Treacy

Prudent to file 'loss of state-owned assets' allegations despite public discontent against Lenovo continues

This article from the Global Times by Hu Xijin may be of interest. Here is a section:

However, Lenovo actually derailed from the route of trade, industry and technology. Instead of making real efforts to scientific and technological innovation after original accumulation, it gradually withdrew from the front line of national scientific and technological progress, and made fewer contributions to China's core competitiveness. Many people felt that this failed to live up to their expectations on Lenovo as a well-established enterprise.

In particular, it has been eclipsed by tech companies such as Huawei that have suffered from US crackdown, and was not as innovative in patterns compared with emerging companies such as Xiaomi. But Liu and Yang, and their likes still enjoy a high salary of hundreds of millions of yuan in the partially state-owned enterprise. As a result, both the public image of the whole company and their own personal images have become fragile. In fact, doubts emerged a long time ago.

Eoin Treacy's view -

Calling out a publicly owned company for its failure to live up to its responsibility to the state’s expectations is a warning shot from the perspective of investors in the share.



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November 23 2021

Commentary by Eoin Treacy

Email of the day - on short-term trading versus the big picture long-term outlook

Eoin, on the weekend big picture you were talking up the prospects of the Fangman, sounding more positive on the names then I can recall. One trading day later, you have shorted the Nasdaq. The message is mixed at best. Please can you help me/us understand this

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. The Big Picture Long-Term video was conceived as a way of talking about how the events of the week fit into the broader tapestry of the global macro environment. Therefore, what I try to talk about is what would need to happen for the big trends to be reversed or for new ones to begin. 



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November 23 2021

Commentary by Eoin Treacy

Oil Advances With Global SPR Release Smaller Than Expected

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

Futures in New York rose as much as 2.6%, erasing earlier losses, after Tuesday’s statement from the White House. While the headline size of the U.S. release is large, a significant chunk of the crude will be borrowed -- to be returned later -- leaving traders expecting tighter balances down the line. The U.S. is making the move in concert with China, Japan, India, South Korea and the U.K.

Oil prices have hit multiyear highs in recent months amid a global energy crisis that’s added hundreds of thousands of barrels a day to consumption, while the world economy is grappling with surging inflation. The decision puts major consumers on a collision course with OPEC+, which views such a release as unjustified and may reconsider plans to add more supply at a meeting on Dec. 2.

“From OPEC’s perspective, a cautious ramp-up is still the way to go,” said Damien Courvalin, the head of energy research at Goldman Sachs Group Inc,, in a Bloomberg Television interview on Tuesday. “OPEC has no incentive to increase production aggressively and the SPR release probably comforts them.”

Eoin Treacy's view -

COVID-19 numbers are ramping higher in Europe again. That holds out the prospect of rising case numbers in other regions as well. Against that background OPEC would be foolish to commit to spending on additional supply when it may not be used.



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November 22 2021

Commentary by Eoin Treacy

Video commentary for November 22nd 2021

Eoin Treacy's view -

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

Some of the topics discussed include: risk-off on Powell being less dovish than Brainard. Nasdaq-100 downside key day reversal, bitcoin pulls back from $60,000, ethereum tests $4000, Bonds yields continue to firm but yield curve stable, cloud computing leading on the downside. Dollar only risk-off asset breaking out suggest deleveraging.  



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November 22 2021

Commentary by Eoin Treacy

BofA Is Bearish on Stocks, Sees 'Mother of All Bubbles' in Tech

This article by Nikos Chrysoloras for Bloomberg may be of interest. Here is a section:

Rates shock” in 2022 to follow “inflation shock” of 2021 and “growth shock” of 2020

Financial conditions set to tighten, short rates to rise, QE to end, inverted yield curve a threat, and EPS growth to slow sharply; GDP growth to remain robust with China as outlier

Base case for strategists is low or negative and volatile asset returns in 2022, after “18 months of fat (latterly frothy) returns in crypto, credit and U.S. equities”
2021-2022 investment backdrop is similar to early stagflation of late-60s

Stock market upside could continue if it becomes clear in 1H that Fed is determined to keep real rates deeply negative, “the-mother-of-all bubbles in crypto & tech remains a fat tail”

Biggest downside risk is Fed staying hawkish even if Wall Street corrects, because fears of wage-price spiral grow; more extreme downside risks include a crypto-derivatives crash, geopolitical events related to China and Taiwan, and that a receding liquidity wave exposes credit-events to the detriment of a private or public equity

Eoin Treacy's view -

I have seen a noticeable uptick in talk of a crash over the last couple of weeks. It might be early to think about this is as a consensus view, but it certainly suggests some investors are wary of chasing successive new highs in steep uptrends.



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November 22 2021

Commentary by Eoin Treacy

OPEC+ Warns of Response as Biden Poised for Oil Reserve Release

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

OPEC+ officials warned they’re likely to respond to plans by the world’s largest oil consumers to release oil from their strategic stockpiles, setting up a fight for control of the global energy market.

President Joe Biden is set to announce a plan to release reserves from the Strategic Petroleum Reserve on Tuesday in tandem with China, India, Japan and South Korea, according to officials briefed on the matter. The move, weeks in the planning, is designed to ease this year rise in fuel prices for drivers and businesses.

OPEC+ delegates said the release of millions of barrels from the inventories of their biggest customers is unjustified by current market conditions and the group may have to reconsider plans to add more oil production when they meet next week.

The tussle threatens the biggest ructions in the geopolitics of oil since the price war between Saudi Arabia and Russia in early 2020. At stake is the price of the world’s most important commodity as politicians and central bankers contend with the strongest inflationary surge in more than a decade. It also shows the strained relationship between Washington and Riyadh, traditionally a cornerstone of U.S. relations in the Middle East.

Eoin Treacy's view -

Releasing supply from strategic reserves is supposed to be limited to times of emergency, not to serve political purposes. The whole purpose of having a strategic reserve is so it can be a short-term fix until a crisis passes. It is not designed as a weapon to go head-to-head with the world’s largest producers. Even a coordinated release will only inject volatility into the market and leave consumers even more exposed to supply shocks in the future.



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November 22 2021

Commentary by Eoin Treacy

World Fish Stocks Are in Worse State Than Expected, Study Shows

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

The world’s fish population is in a dire state, with about half of assessed stocks being overfished,
according to a study backed by Australian billionaire Andrew Forrest. 

The rate of depletion is worse than previous estimates of just over a third, Forrest’s Minderoo Foundation said in a report Sunday. A tenth of fish stocks worldwide is now on the brink of collapse, reduced to 10% of their original size, the study shows.

The findings are based on 48% of the total global catch for which there’s sufficient data, according to the report. The other half lacks information to say if they are sustainable or not. More than 1,400 stocks were assessed from 142 countries.

The journey to replenishing fish numbers isn’t easy. The report noted that it could take between three and 30 years for stocks to recover, and in many places that would require a major overhaul. The foundation recommended increased intervention and investment from governments, as well as better auditing and management practices from businesses.

Eoin Treacy's view -

Two important characteristics to the global fishery are worth considering. The first is overfishing which is a current problem and will likely get worse. The second is cyclicality. We have enough back data to conclude the Pacific goes through long warming and cooling cycles. Together with intense fishing, the current time is when we would expect to have lower catches of small pelagics like sardines and anchovy.



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November 19 2021

Commentary by Eoin Treacy

November 19 2021

Commentary by Eoin Treacy

When Bubble Meets Trouble

Thanks to a subscriber for this article from John Hussman may be of interest. Here is a section: 

Let’s start with a proposition that one can prove with simple (if tedious) arithmetic: every deficit of government (spending in excess of revenue) is matched by a surplus across other sectors – households, corporations, and foreign countries – where their income will exceed their consumption and net investment. The chart below shows what this looks like. I’ve excluded some very small payment items for simplicity, but the basic upshot is simple: every time the government runs a deficit, you’ll see it directly reflected in the sum of three surpluses: personal savings, retained corporate profits, and trade deficits (a surplus from the perspective of foreigners).

Think of it this way. What a government deficit does is to direct goods and services produced by other sectors of the economy toward consumption and investment (including transfer payments to individuals, subsidies to companies, and public infrastructure) that has been approved by Congress. In return, the sectors that produced those goods and services receive income for output that they did not consume. This private surplus takes the form of securities, and in equilibrium, those securities are exactly the same ones (Treasury debt and base money) that the government issued in order to finance the deficit.

The red line in the chart below is essentially the federal deficit as a share of GDP (including amounts spent on transfers to other sectors). The blue line is the sum of personal, corporate, and foreign surpluses. The two lines are mirror images of each other because this sort of equilibrium is just arithmetic.

Already, investors may feel a bit sick here. See, the deficit that the U.S. government ran during the pandemic amounted to nearly 19% of GDP, and that – in equilibrium – is exactly why corporate earnings, personal savings, and trade deficits enjoyed a record surge in recent quarters. Meanwhile, the spending bills currently on the table ($1 trillion for infrastructure and $1.8 trillion for social and climate spending) are 8-10 year spending proposals, partially offset by revenue measures. There’s nothing in current legislation that’s going to replicate the breathtaking federal deficits we’ve seen in the past 18 months. That means – purely by the force of arithmetic – that the sum of those other three surpluses must shrink. The only question is which of the three will take that hit.

Eoin Treacy's view -

The hard fundamentals point to a sharply overvalued market, but bull markets don’t die of old age. They are most often assassinated by central banks. The next most significant cause of recessions is surging oil prices. The reality is bull markets thrive on liquidity and as long as the liquidity keeps flowing, valuations will continue to expand. 



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November 19 2021

Commentary by Eoin Treacy

Solar demands to normalize in 2022, polysilicon price likely to remain high

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

While some factories have already resumed operation after the mandatory power rationing expired, for instance GCL-Poly revealed that their 36,000 tonnes polysilicon factory has already restarted production after making use of the 2-week suspension period to undergo repair and maintenance, most solar materials have also witnessed significant price increase under the adverse effect of supply reduction. One of the clear examples is the sharp price rally of silicon raw material, which is the major material for making polysilicon and on average account for 40% of polysilicon’s production cost. The silicon raw material price rose sharply from USD 2.4/kg in Aug-21 to the peak of USD 10.4/kg in late Sep-21, before gradually normalizing to USD 6/kg in Nov (See Exhibit 3), especially after the Yunnan government decided to restrict the utilization of most energy-intensive production, including silicon raw material, by 90% starting from Sep in 2021. It is noteworthy that Yunnan accounts for 20% of total silicon raw material production in China, while Xinjiang and Sichuan’s market shares are 40% and 15% respectively. In our view, the cost pressure originated from silicon raw material price rally would gradually pass down the supply chain, implying subsequent solar material price hike would continue to emerge in other segments.

Eoin Treacy's view -

China has historically been willing to do whatever it takes to capture market share in emerging industries. That helped it dominate the entire supply chain for solar panels in the last decade. Deploying excess energy from coal fired power stations into polysilicon production was a big part of that strategy.



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November 19 2021

Commentary by Eoin Treacy

Bill Gates' nuclear startup picks a Wyoming coal town for its 1st advanced reactor, which will cost $4 billion

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

Warren Buffett's power company, PacifiCorp, is working with Gates' TerraPower on the Natrium reactor project, which is expected to be finished in 2028, per the release.

The US government has agreed to pump $1.9 billion into the project, Reuters reported. This includes $1.5 billion from the infrastructure bill that President Joe Biden signed this week, according to TerraPower's press release.

TerraPower, founded by Gates 15 years ago, will contribute $2 billion for the project, per the release.

The advanced nuclear power plant in Kemmerer would be able to produce a baseload of 345 megawatts, but would also have the capacity to supply 500 megawatts of power, which is enough energy to power around 400,000 homes, TerraPower said in the release.

 

Eoin Treacy's view -

This project means molten salt reactors will become a more dominant part of the global nuclear sector over the coming couple of decades. The big selling point from a global perspective is the difficulty of using these designs to manufacture fissile material for bombs. That boosts the potential for exports to third party countries once the technology has been proofed up.



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November 19 2021

Commentary by Eoin Treacy

November 18 2021

Commentary by Eoin Treacy

Video commentary for November 18th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: RBA delays raising rates, weights on banks, stay at home champions breaking out, virus spreading in Europe again, vaccine producers mixed, China growth moderating, crypto weak, gold steady, oil firms from $80. 



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November 18 2021

Commentary by Eoin Treacy

Staples Center to become Crypto.com Arena in reported $700 million naming rights deal

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

Staples Center is getting a new name. Starting Christmas Day, it will be Crypto.com Arena.

The downtown Los Angeles home of the NBA's Lakers and Clippers, the NHL's Kings and the WNBA's Sparks will change its name after 22 years of operation, arena owner AEG announced Tuesday night.

Crypto.com is paying $700 million, according to multiple reports, over 20 years to rename the building. The parties aren't publicly announcing the financial terms of what's believed to be the richest naming rights deal in sports history.

The 20,000-seat arena has been Staples Center since it opened in October 1999, with the naming rights owned by the American office-supplies retail company under a 20-year agreement. The name will change when the Lakers host the Brooklyn Nets in the NBA's annual Christmas showcase.

Eoin Treacy's view -

Staples was an enormous 1990s success story. The share opened at $0.89 in the 1989 IPO and peaked in 1999 at $23.95. It briefly regained that peak in 2006 and was taken private in 2017. Back in 1999 it must have felt like the world was the company’s oyster. Today it represents a diminishing position in the office supplies and services market.



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November 18 2021

Commentary by Eoin Treacy

Let's Buy the US Constitution

Thanks to a subscriber for this article from notboring.co which may be of interest. Here is a section:

DAOs are not a new idea. Vitalik Buterin, Ethereum’s co-founder and unwitting figurehead, contemplated Decentralized Autonomous Organizations in the original Ethereum Whitepaper in 2013. The DAO, a doomed decentralized venture fund, launched and folded in 2016. DAOs have been on fire this year within the web3 community; becoming a DAO is the de facto long-term fate of any sufficiently serious protocol. 

In October, a16z led a $10 million round in the popular DAO Friends with Benefits. A couple weeks ago, PleasrDAO bought a 1/1 Wu-Tang album for $4 million. Last week, the Ethereum Name Service (ENS) became a DAO and airdropped $2 billion worth of ENS tokens on anyone who’d bought a .eth domain over the past few years. Many people received $10s of thousands just for being an early adopter. 

But despite the early bright spots, most people have never heard of a DAO or bought into web3 yet -- it’s still very early. There’s still a struggle going on between web3’s fans and its skeptics, including many members of the US government. That’s not how it should be. America should be the home of web3, as @punk6529 eloquently laid out here: 

Eoin Treacy's view -

I’m sure those of us with a few grey hairs remember 2008 when securitization was a dirty word that was blamed for crashing the global financial system. The reason it created such a problem was it took groups of cashflows, treated them as a whole, they spliced them up into income streams with varying degrees of risk. Then smart people took that structure, leveraged it, and kept on leveraging it until it broke. Banks went bust all over the world and regulators swore it would never happen again. That’s why banks are less than eager to participate in these new ventures.



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November 18 2021

Commentary by Eoin Treacy

Alibaba Outlook Disappoints After China Slowdown Hurt Sales

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

Revenue growth at a plethora of divisions including its Cainiao logistics arm and local on-demand services underperformed expectations, while bread-and-butter customer management revenue from platforms like Taobao and Tmall grew just 3% -- the slowest in at least five quarters.

Competition is intensifying just as China grapples with the widest Covid-19 outbreak since the virus first emerged in Wuhan. Rivals like JD.com Inc. and Pinduoduo Inc. are stepping up investments to win over Alibaba’s users, just as a resurgence in coronavirus cases dents consumer spending. Gross domestic product expanded 4.9% in the September quarter, cooling from the 7.9% growth in the previous period, partly because of lockdown measures across many cities.

“Looking ahead, we will continue to invest heavily into three growth engines of domestic consumption, globalization, cloud computing and data intelligence,” Zhang told analysts on the call.

Eoin Treacy's view -

China’s growth has slowed meaningfully as the housing market shock therapy imposed in response to Evergrande’s overleverage has weighed on sentiment. As more credit is made available to property developers, speculative interest should begin to recovery over coming quarters.



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November 17 2021

Commentary by Eoin Treacy

November 17 2021

Commentary by Eoin Treacy

Cargill CEO Says Food Prices to Stay High on Labor Crunch

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

MacLennan said in September that soaring food costs would prove transitory and should dissipate in time. Since then, the rally in energy prices and continued supply-chain snarls have made markets “a lot tighter,” he said.

“When you have limited supply, that can lead to higher prices,” MacLennan said. However, he noted that China hasn’t been buying crops as aggressively as it did last year, while North American harvests are robust. “That takes some pressure off the system.”

A search for greener airplane fuel and biodiesel is also pitting food against energy production, leading to tighter edible oil supplies. Prices for palm oil, the world’s most consumed vegetable oil, have soared about 50% in the past year, while soybean oil is up 60%. Canola, also used to make oil, is near a record.

The food-versus-fuel tension will become more intense than it’s ever been in the last 15 years, MacLennan said. The day will come when more agricultural products will be used for energy than food, so it will be incumbent upon the farmers of the world to innovate and become more productive, he added.

Eoin Treacy's view -

Using food for fuel should be a much more controversial practice. We are literally substituting political idealism for the wellbeing of millions of people. The fact that palm oil demand is soaring because of its use as both a food ingredient and a fuel is a useful example of how the environmental lobby often does more harm than good.



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November 17 2021

Commentary by Eoin Treacy

IBM unleashes the Eagle, the world's most powerful quantum processor

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

With its 127 qubits, IBM says that Eagle is the company’s first processor with power beyond the reach of traditional supercomputers, a milestone often called quantum advantage. It estimates that recreating one of the Eagle’s states on a regular computer would require more classical bits than there are total atoms in every single person on Earth.

However IBM isn’t the first to reach quantum advantage. Google claimed it back in 2019 with its 53-qubit Sycamore processor, but IBM clapped back saying that with better classical algorithms the same job could be done on existing supercomputers in a matter of days – hardly unreachable. Nevertheless, the first-generation Jiuzhang demonstrated the quantum advantage last year, conducting a certain calculation in a few minutes that would take a classical supercomputer 2.5 billion years.

Eagle is now available on the IBM Cloud to some members of the IBM Quantum Network. The company has already outlined its roadmap for future quantum processors, with plans to release the 433-qubit IBM Quantum Osprey next year, followed by the Quantum Condor in 2023, which will pack an astounding 1,121 qubits.

Eoin Treacy's view -

As I pointed out in yesterday’s subscriber’s video Rivian with no revenue has a higher valuation than Lucid Group, which just began delivering cars. In turn Lucid Group now has a higher valuation than Volkswagen which producers millions of vehicles a year. That’s a very roundabout way of saying that in this market promises are worth more than reality.



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November 17 2021

Commentary by Eoin Treacy

Mobius Bets on '50-Year Rally' in Indian Stocks as China Slows

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

“India is on a 50-year rally,” even if there are short bouts of bear markets, Mobius said in an interview on Bloomberg Television. “India is maybe where China used to be 10 years ago,” he said, adding the government policies of unifying rules across states will help the country in the long run.

Mobius’ bullish view on India clashes with those of analysts at Morgan Stanley and Nomura Holdings Inc., who have downgraded the stock market after the benchmark S&P BSE Sensex Index more than doubled from a March 2020 low.

Emerging-market equities have trailed behind their developed-nation peers this year, held back by losses in China as the government has roiled markets with a widespread regulatory crackdown.

“People say emerging-markets look bad because China is dragging down the index, but they have to look at other areas such as India that are going up,” said Mobius…

Eoin Treacy's view -

Saying that India could be on a 50-year bull market is not incompatible with the risk of a reversion towards the mean which would correct the short-term overvaluation.

India represents a significant growth opportunity but is also subject to volatility. The Nifty Index remains in a reasonably consistent uptrend but is best bought following inevitable occasional setbacks.



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November 16 2021

Commentary by Eoin Treacy

Video commentary for November 16th 2021

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 steady but speculation in new companies continues to build, Europe and Japan gains eroded by weak currencies, China recovering, oil steady, gold weak, bitcoin and ethereum pull back. 

Some of the topics discussed include: Wall street steady but speculation in new companies continues to build, Europe and Japan gains eroded by weak currencies, China recovering, oil steady, gold weak, bitcoin and ethereum pull back. 

 



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November 16 2021

Commentary by Eoin Treacy

Gold Erases Earlier Gains After Fed Officials Stir Policy Debate

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

St. Louis Fed President James Bullard said Tuesday that the U.S. central bank should be more aggressive in managing risks from price pressures. Bullard participates in the Federal Open Market Committee, which sets direction of U.S. monetary policy, and will become a voting member next year.

“I think it behooves the committee to go in a more hawkish direction in the next couple of meetings so we are managing the risk of inflation appropriately,” Bullard said in a Bloomberg Television interview with Michael McKee, Lisa Abramowicz and Tom Keene.

Eoin Treacy's view -

James Bullard will be a voting member of the Fed’s Open Market Committee next year. His pronouncements tend to carry more weight than Neel Kaskari’s, who won’t be a voting member until 2023. 



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November 16 2021

Commentary by Eoin Treacy

European Gas Prices Jump on Delay to New Russian Pipeline

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

The German regulator said Tuesday it suspended the certification procedure for the Nord Stream 2 project because the operator of the pipeline decided to set up a German subsidiary, which will be the owner of the section of the pipeline in the country. The permitting process has been halted until assets and people are transferred to the new unit.

Benchmark European gas prices surged as much as 12% after the announcement as it adds to the uncertainty over how much gas the energy-hungry market will have this winter. Many in Europe expect Russia to significantly increase supplies only when the pipeline is approved.

“This is potentially a good thing for the project for the long term, as the changes could mean it would be eventually approved,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “But it’s not helping the short-term outlook for the market where a bad, cold winter could leave us short.”

Eoin Treacy's view -

There is no doubt the Nordstream 2 pipeline will eventually be permissioned. However, that is not going to happen until German regulators have had the opportunity to feign independence in making the decision. No one likes to admit they are beholden to a foreign power but unfortunately, Europe is completely dependent on Russian gas. They need that pipeline as much as Russia wants it and therefore it will be permissioned eventually.



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November 16 2021

Commentary by Eoin Treacy

Introducing the First AI Model That Translates 100 Languages Without Relying on English

This article from Meta Platforms (Facebook) may be of interest to subscribers. Here is a section:

•Facebook AI is introducing M2M-100, the first multilingual machine translation (MMT) model that can translate between any pair of 100 languages without relying on English data. It’s open sourced here.

•When translating, say, Chinese to French, most English-centric multilingual models train on Chinese to English and English to French, because English training data is the most widely available. Our model directly trains on Chinese to French data to better preserve meaning. It outperforms English-centric systems by 10 points on the widely used BLEU metric for evaluating machine translations.

•M2M-100 is trained on a total of 2,200 language directions — or 10x more than previous best, English-centric multilingual models. Deploying M2M-100 will improve the quality of translations for billions of people, especially those that speak low-resource languages.

•This milestone is a culmination of years of Facebook AI’s foundational work in machine translation. Today, we’re sharing details on how we built a more diverse MMT training data set and model for 100 languages. We’re also releasing the model, training, and evaluation setup to help other researchers reproduce and further advance multilingual models.

Eoin Treacy's view -

The trend of artificial intelligence away from iterative learning to free associative learning is a major innovation which has also been used to by Google’s DeepMind to make substantial progress in a range of medical questions.



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November 15 2021

Commentary by Eoin Treacy

November 15 2021

Commentary by Eoin Treacy

4 Million Tons a Day Show Why China and India Won't Quit Coal

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

Meanwhile, mines across China and India have been ramping up production in recent weeks to ease a supply crunch that’s caused widespread power shortages and curbs on industrial activity. China’s miners have beaten a government target to raise output to 12 million tons a day, while India’s daily production is close to 2 million tons.

“The power cuts since mid-to-late September show that we are still not prepared enough,” Yang Weimin, a member of the economic committee of the Chinese People’s Political Consultative Conference and a government advisor, told a conference in Beijing on Saturday. Additional funding is needed to ensure coal plants can be used to complement a rising share of renewables, he said.

Coal’s share in global electricity generation fell in 2020 to 34%, the smallest in more than two decades, though it remains the single largest power source, according to BloombergNEF.

In China, it accounted for about 62% of electricity generation last year. President Xi Jinping has set a target for the nation to peak its consumption of the fuel in 2025, and aims to have non-fossil fuel energy sources exceed 80% of its total mix by 2060.

For India, coal is even more important, representing 72% of electricity generation. The fuel will still make up 21% of India’s electricity mix by 2050, BNEF analysts including Atin Jain said in a note last month.

Eoin Treacy's view -

The focus on attention right now is on the willingness and potential of both India and China to eventually limit their use of coal. Much less attention is focused on Africa where the bulk of population growth is occurring. The next couple of billion people will mostly be born in Africa. That means increasing demand for power and higher standards of living as the continent urbanises



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November 15 2021

Commentary by Eoin Treacy

Fed's Kashkari Says Policy Shouldn't Overreact to Inflation

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

Kashkari said the move was “appropriate” and stressed that moving too quickly to remove the Fed’s support could end up hurting the economy more than it helps on the inflation front.

“When we adjust monetary policy it acts with a lag,” he said. “So if we overreact to a short-term price increase, that can set the economy back over the long term.”

Kashkari, who doesn’t vote this year on the policy making Federal Open Market Committee, said he expects heightened demand connected to previous fiscal stimulus and supply constraints caused by the pandemic to slowly ease. 

Asked about President Joe Biden’s pending decision whether to reappoint Fed Chair Jerome Powell to another four-year term, or perhaps choose Fed Governor Lael Brainard to succeed him, Kashkari said both are capable and would be likely to pursue similar monetary policies.

“Both of them have been instrumental in the new framework that we’ve adopted in terms of not shortcutting the recovery, and I’m confident that either of them as chair would continue to see that through,” he said.

Eoin Treacy's view -

Kashkari is one of the biggest doves at the Fed but he is not short of company considering the trajectory of policy. Regardless of who is in charge, the set of challenges that need to be addressed will not change. The economic recovery is uneven with labour force participation declining while the number of job opens is climbing. That’s not going to be fixed by monetary policy.



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November 15 2021

Commentary by Eoin Treacy

Why AT&T Stock May Be Near a Bottom With Its Proposed Dividend Cut

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

The question remains then whether $20.23 is still too high. For example, with a 6% dividend yield, the stock has to trade at $19.17 per share. If we add $4.76 to that price, this implies that T stock should be at $23.93 per share.

That implies that T stock could fall another $1.12 or 4.5% to $23.87 if the post-split dividend yield will be at 6%.

But don’t forget this is just an estimate. We don’t know exactly what the new dividend payment will be. For example, if the dividend is reset at $1.18, then today’s price implies a new post-split yield of 5.62% (i.e., $1.18 / $20.99). That is fairly close to 6% and may imply that T stock is actually near a trough.

Until the company begins to clarify some of these issues, the market will not know exactly where to price T stock. However, all indications are that it is getting close to a trough, assuming that the new yield will be close to 6%.

Eoin Treacy's view -

An 8.38% yield is conspicuously large even for the high yielding global telecommunications sector. With a lengthy history of both paying and increasing the pay out, it is reasonable to assume a good many investors are in the share for the income and are selling because they fear their income will be reduced.



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November 12 2021

Commentary by Eoin Treacy