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April 16 2021

Commentary by Eoin Treacy

April 16 2021

Commentary by Eoin Treacy

China opens its borders to billions of dollars of gold imports

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

 

About 150 tonnes of gold worth $8.5 billion at current prices is likely to be shipped following the green light from Beijing, four sources said. Two said the gold would be shipped in April and two said it would arrive over April and May.

The bulk of China's gold imports typically comes from Australia, South Africa and Switzerland.

The People's Bank of China (PBOC), the country's central bank, controls how much gold enters China through a system of quotas given to commercial banks. It usually allows metal in but sometimes restricts flows.

"We had no quotas for a while. Now we are getting them ... the most since 2019," said a source at one of the banks moving gold into China.

The size of the shipments signals China's dramatic return to the global bullion market. Since February 2020, the country has on average imported gold worth about $600 million a month, or roughly 10 tonnes, Chinese customs data show.

And
 
India's demand for bullion has also rebounded from a pandemic-induced slump, with record-breaking imports in March of 160 tonnes of gold, an Indian government source told Reuters this month.

Eoin Treacy's view -

India and China are the world’s largest consumers of gold. India’s demand collapsed in 2020 and China has been very quiet both about how much gold it holds and how much is imported. Those have been contributing factors in the decline of gold since the August peak.



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April 16 2021

Commentary by Eoin Treacy

Porsche's Electric Taycan Sales on Course to Eclipse Iconic 911

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

“Established models have supported this excellent result along with the latest additions to our product range, above all the new model variants of the all-electric Taycan,” Porsche sales chief Detlev von Platen said of the brand’s 36% first-quarter surge. “We can look back on a very positive start to the year.”

The Taycan, which Porsche recently flanked with a more spacious version, is a litmus test for the carmaker’s costly shift to electric vehicles. Boosting EV sales with Porsche will be key to maintaining healthy margins as the division is VW group’s biggest profit contributor by far.

Porsche’s total global deliveries rose to 71,986 vehicles in the first quarter, driven mainly by demand in China, its largest market. The compact Macan SUV was the brand’s best-selling model, ahead of the larger Cayenne. Porsche will launch a battery-powered version of the Macan next year that’s underpinned by a new platform for upscale electric cars co-developed with sister brand Audi.

Porsche remains optimistic about business prospects this year even as a global shortage of semiconductor parts disrupts production plans across the industry. Order books “continue to develop very well,” Von Platen said.

Eoin Treacy's view -

Introducing new technology at a high price point before filtering it down to cheaper models in subsequent years has been the go-to model for automakers. Nothing has changed. The positive reception the Taycan has received will fortify the mood at Volkswagen that they have made the correct decision to bet on electric vehicles.



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April 16 2021

Commentary by Eoin Treacy

U.S. Infrastructure Plan May Lift These Three Brazilian Stocks

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

Two weeks ago, Biden unveiled a $2.25 trillion plan to overhaul the country’s physical and technological infrastructure. He has said the plan needs to go far beyond bridges and roads and has called for investment in electric vehicles, renewable power and the electric grid.

Shares of Gerdau and Tupy are up 27% and 15% this year, respectively, while the benchmark Ibovespa index is down 0.6% and Weg is little changed.

“Limited geographical diversification puts a cap on Brazilian companies seizing this moment, but we can see some clear winners,” the analysts said. “Although we believe they have not gone unnoticed by the market, recent performance indicates that the impact is likely larger than what is currently priced in.”

Eoin Treacy's view -

Brazil is currently dealing with the challenge of rising pandemic case numbers and deaths. That’s a near-term challenge for the economic recovery and it might be a few months before the worst is over. 



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April 16 2021

Commentary by Eoin Treacy

April 15 2021

Commentary by Eoin Treacy

Video commentary for April 15th 2021

April 15 2021

Commentary by Eoin Treacy

A Mystery in 10-Year Treasuries Has Links to Carry Trade Blowup

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

Hedge funds are snapping up 10-year Treasury futures, and no other maturity, presenting a puzzle. The answer may lie in the collapse of a popular carry trade last year.

The highly-leveraged basis trade involved going long cash bonds and selling futures, to profit from the difference between the two, but came asunder in March 2020 when investors stampeded to buy the latter at the peak of coronavirus fears and upended the spread. Now the gap -- the so-called gross basis -- has reversed and favors shorting cash bonds and buying futures.

Of course, it’s not quite that simple. In futures markets, the counterparty who is short determines which specific cash bond traders have to deliver, adding another element of risk to the transaction. But with so-called ultra 10-year Treasury futures, there are only two bonds in the delivery pool, limiting that risk compared to other contracts.

That could be one reason why leveraged funds have built up net-long positions of almost 230,000 ultra 10-year futures, despite this year’s Treasury market slump, according to the latest data from the Commodity Futures Trading Commission. As for the original strategy -- there are no signs of it returning anytime soon.

While returns from this year’s trade are much lighter, a play based on 10-year ultra futures is most attractive, according to one trader who asked not to be identified as he isn’t authorized to speak publicly.

Cash Bond Pressure
A sense of how the cheapest-to-deliver 10-year Treasury bond has performed against futures can be seen in the implied repurchase rate for the note. It flipped from positive to negative in the first quarter, indicative of greater selling pressure on cash bonds than futures.

“With the sudden and significant rates selloff in late February, Treasuries came under pressure, underperforming futures quite noticeably,” wrote Morgan Stanley’s Kelcie Gerson in a note this week. “On an outright level, futures/cheapest-to-deliver bases reached the widest levels seen since last March/April.”

Across the rest of the Treasuries curve, hedge funds hold net short positions, though well below last year’s levels after the collapse of the original basis trade.

Market
A gauge of aggregate leveraged fund short futures positions -- which would likely be mirrored by long cash bonds in a basis trade -- has dropped by over $300 billion since last year’s February peak, according to calculations by Bloomberg.

Eoin Treacy's view -

Repositioning in the sovereign bond markets gathered pace today with a high degree of commonality across the sector. This above narrative highlights how quickly positions can be unwound when the trend changes and it represents a potent source of short covering activity.



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April 15 2021

Commentary by Eoin Treacy

JAPAN VALUE An Island of Potential in a Sea of Expensive Assets

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

Successful cost cutting, rising profits and free cash flows, and a corporate culture of risk aversion stemming from the bursting of the Japanese bubble led to an ironic side effect: over-capitalized balance sheets. As Exhibit 4 indicates, over 50% of listed nonfinancial companies are “net cash” today.3 In the U.S., that figure is less than 15%.

Carrying large amounts of cash, especially in a negative interest rate environment like today, is troublesome for shareholders. Equity investors expect companies either to reinvest surplus capital in projects that generate returns above the cost of capital or return it to shareholders so they can reallocate to value-creating investments.

These “lazy” balance sheets have drawn the attention of Japanese regulators and government, two groups that are trying desperately to spark economic growth to help address the pension burden in a country with a declining population and negative yield on government bonds. Furthermore, the Japanese equity market is filled with inefficiencies that offer upside opportunities for patient investors. The number of analysts and investors covering the Japanese market has declined following decades of disappointing returns after the bursting of the 1980s Japanese bubble. Cultural and language differences also have diminished foreign investor interest in Japanese equities.

Eoin Treacy's view -

A couple of years ago Mrs. Treacy was looking for a factory to can Akoya pearl oysters in Japan. There are a small number of companies in the prefecture around Kobe that perform the service but we ran into a recurring problem. They did not have available capacity and would not consider taking on additional customers. The feedback we received was universal, they did not want new customers. 



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April 15 2021

Commentary by Eoin Treacy

S. Africa Central Bank Governor Sees Room to Keep Rates Low

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

South Africa’s central bank is likely to maintain its accommodative monetary policy stance to support the economy for as long as it has room to do so, according to Governor Lesetja Kganyago.

“As long as inflation is remaining contained, the central bank would have no reason to remove the accommodation that we are currently providing,” Kganyago said Thursday in an interview with Bloomberg TV.

The monetary policy committee has cut the benchmark interest rate by three percentage points since the start of 2020, of which 275 basis points of easing was in response to the impact of Covid-19 on the economy. That’s taken the rate to a record-low 3.5%. Last month’s decision was the first time since the 2020 rate cuts in which no member voted for a reduction and expectations have now shifted to when the first hike will come.

While the implied policy rate of the central bank’s quarterly projection model, which the MPC uses as a guide, indicates two rate increases this year of 25 basis points each -- next month and in the fourth quarter -- policy makers see risks to the inflation outlook as balanced and feel that they can continue to offer support to the economy, Kganyago said.

Eoin Treacy's view -

South African government bonds yield 9.08%. Obviously, in a world of ultra-low rates that outlier must exist for a reason. South African growth is expected to be in the order of 3% this year but the big question for investors will be on the trajectory of governance and the speed at which the pandemic can be overcome.



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April 14 2021

Commentary by Eoin Treacy

Video commentary for April 14th 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: bitcoin pauses following coinbase IPO, Wall Street susceptible to some consolidation, Moderna firms, Russia bounces with oil and geopolitical tensions easing, emerging Europe firm, Euro firm, Bunds weak, Treasuries steady. 



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April 14 2021

Commentary by Eoin Treacy

ECB's Lagarde: Economic Support Needed "Well Into the Recovery"

Here are a couple of soundbites from Christine Lagarde’s statements today.

“We consider that both fiscal and monetary support are needed and will be needed until the pandemic crisis is over” and “will be needed well into the recovery,” ECB President Christine Lagarde says at Reuters event.

Preserving favorable financing conditions is a condition for the economy to recover -- “they go hand in hand”

Eoin Treacy's view -

The question is not whether the ECB will provide assistance but rather how much. The spectre of deflation has been hanging over Europe for most of the last decade and there is a credible argument the region is heading into a Japan-like era of lower consumption and low growth. Avoiding that potential is the primary goal of both the ECB and every Eurozone government.



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April 14 2021

Commentary by Eoin Treacy

Russia Scores New Bond Record as Yields Drop on Summit Hopes

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

Russia sold a record volume of ruble bonds as state banks continued to prop up demand and sanctions jitters faded after U.S. President Joe Biden proposed a summit with Russia’s Vladimir Putin.

The Finance Ministry sold 213 billion rubles ($2.8 billion) of fixed-coupon debt due in March 2031 in its second auction of the day, beating a record set two weeks earlier. The yield on Russia’s 10-year bonds fell the most since November as Tuesday’s phone call between the leaders appeared to reduce the possibility of penalties targeting the nation’s local OFZ debt.

“We’re seeing considerable demand once again, with big local players buying about 70% of both offerings today,” said Stanislav Ponomarev, a money manager at Transfingroup JSC in Moscow. “There’s been demand from foreigners since the morning, but it looked more like they were closing short positions rather than increasing their Russia allocations.”

The prospect of fresh sanctions has been mounting for the best part of a month and the recent troop buildup on the border with Ukraine has added to the tensions. State banks have stepped in to backstop the recent auctions as foreigners stay clear.

“The market was extremely negative on Russia,” said Sergei Strigo at Amundi Ltd. “Now there is a pullback on renewed hope of some sort of normalization in relationships, even if it’s short-term. Levels on the ruble and OFZs look much more attractive.”

Eoin Treacy's view -

How serious is the US administration in countering China? That’s the primary question for investors as they assess the potential for a normalisation of relations between the USA and Russia. As a major commodity producer, seller of advanced weapons systems and with significant experience in space, Russia is being courted by China.



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April 14 2021

Commentary by Eoin Treacy

Trafigura Sees Green Copper Supercycle Driving Prices to $15,000

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

Trafigura expects the metal to breach $10,000 a ton this year, before entering a range of $12,000 to $15,000 a ton over the coming decade. Other ardent copper bulls including Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc. have similarly strong near-term forecasts, but Trafigura has set itself apart with its lofty long-term target.

Goldman expects copper to hit $10,500 a ton within 12 months, while Citi sees it reaching $12,000 next year in its bull-case forecast. In the years to come, that’s likely to become the floor for prices as the industry revalues the metal, according to Trafigura.

“You can’t move to a green economic environment and not have the copper price moving significantly higher,” Bintas said. “How can you have one without the other?”

Eoin Treacy's view -

Every country wants its economy to recover from the ravages of the pandemic. They are all looking at the same playbook. They need to increase growth without raising taxes and need a quick way to get as many people back to work as possible which will hopefully kick start the velocity of money. Infrastructure development has been the preferred strategy to achieve those goals after every other recession and this one is now different. The only question was what kind of infrastructure would be approved.



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April 13 2021

Commentary by Eoin Treacy

April 13 2021

Commentary by Eoin Treacy

China Huarong's Plunging Bonds Point to Major Market Shift

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

The big question now confronting investors is how much pain China’s government is willing to tolerate as it tries to wean the bond market off implicit guarantees. None of the state-owned companies that have defaulted so far -- including Peking University Founder Group Corp., which is ultimately controlled by China’s education ministry -- were considered as systemically important as China Huarong.

Chinese authorities have tried to strike a balance between instilling more market discipline and avoiding a sudden loss of confidence that might spiral into a crisis. But the tumult surrounding China Huarong, some of whose bonds are now trading below 80 cents on the dollar, highlights how quickly investor sentiment can deteriorate even at a time when the economy is strengthening.

“China’s credit market is entering a new era as SOEs are emerging as the main source of stress,” said Shuncheng Zhang, an analyst at Fitch Ratings. Whatever the outcome for China Huarong, policy makers will likely allow more defaults in the state sector to reduce moral hazard and cultivate a more mature debt market, he added.

Eoin Treacy's view -

Huarong was created as a bad bank, where the defunct loans of China’s banks were dumped 20 years ago. The generally accepted business model for these kinds of entities is they end up with hard to value assets and are given the time required to sell them at profitable rates. That’s how Ireland’s bad bank functioned in the aftermath of the Global Financial Crisis for example. The fact that Huarong is now running into trouble is reflective of the fact that it long ago departed from its bad bank foundation to imitate the business model of the banks it was designed to clean up.



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April 13 2021

Commentary by Eoin Treacy

Lumber Frenzy Drives Up Home Prices as Suppliers Can't Keep Up

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

“Each part of the supply chain has different issues,” said Brooks Mendell, chief executive officer of forest-supply researcher Forisk Consulting in Georgia. “There is not a sawmill that I have talked to in two years that has all their slots filled.”

This is a big turnaround from just two years ago. In 2019, weak demand prompted a steady stream of output reductions and mill closures from companies including Canfor Corp. and West Fraser Timber Co., the world’s biggest lumber supplier. That left producers flat footed amid the unexpected demand boom as the pandemic kept people indoors, sparking a wave of do-it-yourself upgrades, full-scale renovations and purchases of bigger homes.

When demand held strong throughout the winter, typically a seasonal lull, mills didn’t have time to replenish their inventories. Now, stockpiles are “extremely lean” as North America heads back into peak building season and lumber prices will stay high “for the foreseeable future,” Devin Stockfish, the CEO of Weyerhaeuser Co., said last month.

Lumber futures have more than tripled since the pandemic started, touching an all-time high of $1,157.50 per 1,000 board feet on Monday.

Eoin Treacy's view -

The mountain pine beetle infestation has been a growing problem for more than a decade but production cuts, the closing of mills and lack of a skilled workforce are more immediate problems. The only way to encourage more workers into the sector is to offer higher wages. That suggests we have seen a step change in the price of lumber and the breakout will be sustained in just the same way as it was in 1993. 



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April 13 2021

Commentary by Eoin Treacy

Binance Launches Zero-Commission, Tradable Stock Tokens

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

Binance is delighted to announce the official launch of its zero-commission, tradable stock tokens, allowing the users to trade fractional stocks. Stock tokens are denominated, settled, and collateralized in BUSD.

The first Binance Stock Token to be listed is Tesla Inc. (TSLA). Trading for the TSLA/BUSD pair is scheduled to open at 2021-04-12 1:35 PM (UTC). Users will be able to trade fractional Tesla stock on the Binance website.

What are Binance Stock Tokens?

Binance Stock Tokens are zero-commission digital tokens fully backed by a depository portfolio of underlying securities that represents the outstanding tokens. Holders of stock tokens qualify for economic returns on the underlying shares, including potential dividends.

Binance will continue to respond to market demand by listing more stock tokens and features. Trading of stock tokens will follow traditional exchange hours and is not available for residents in Mainland China, Turkey, and other restricted jurisdictions. Interested traders will be required to pass Know-Your-Customer and other relevant compliance measures.

For more information on Stock Tokens, please refer to the guide here.

Eoin Treacy's view -

Robinhood made a splash when it began to offer fractional share sales. That allowed a large swathe of new retail traders to participate in the market than ever before. Fractional ownership is now also available for most of the primary retail brokers but the concept is borrowed from the cryptocurrency sector where fractional ownership of bitcoin has been available for years.



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April 12 2021

Commentary by Eoin Treacy

Video commentary for April 12th 2021

April 12 2021

Commentary by Eoin Treacy

Impatience

Eoin Treacy's view -

There is one theme that seems to be running through every asset class at present. Perhaps it is because we have been locked up for a year, and literally can’t wait until it is all over, but there is a distinct air of impatience in every circle of life. The pandemic has accelerated the decision-making process for everyone in every facet of our lives.

Mrs. Treacy and I have been discussing moving from Los Angeles for two years but there was never a push big enough to stir us into action. We looked at Las Vegas suburbs in 2019 and toured schools but my eldest daughter was accepted into one of the most prestigious high schools in Los Angeles, so we decided to linger.

The experience of living in Los Angeles during the lockdowns, from schooling to public safety, made us impatient for a change. Like many others we decided to move and have only been delayed by reapplying to schools for our daughters and finding a suitable home.



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April 09 2021

Commentary by Eoin Treacy

April 09 2021

Commentary by Eoin Treacy

China's Factory Price Surge Deepens Global Inflation Worries

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

“Our research has found that China’s PPI has a high positive correlation with CPI in the U.S.,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group Ltd. “The higher-than-expected PPI data could impact people’s judgment of inflation pressure in the U.S. and globally, and this impact shouldn’t be underestimated.”

And

Surging commodity prices have gained the attention of China’s top policy makers, with the Financial Stability and Development Committee -- chaired by Vice Premier Liu He -- calling this week for efforts to stabilize prices. Authorities should “keep a close eye on commodities prices,” the committee said in a statement Thursday evening.

The inflation data show consumption remains subdued, giving the central bank reason not to tighten monetary policy anytime soon, according to ANZ’s Yeung.

“If inflation pressure starts to manifest in consumer prices, policy could begin to tighten,” he said.

Eoin Treacy's view -

China’s massive stimulus bailed out the world following the Global Financial Crisis. It also contributed to a significant credit expansion, a bubble in shadow banking and risked asset prices turning into the mania. They have spent much of the last decade attempting to unwind the over stimulus which has contributed to rising defaults, stricter lending criteria and more market controls.



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April 09 2021

Commentary by Eoin Treacy

Fragile Planet 2021

Thanks to a subscriber for this report from HSBC which may be of interest. Here is a section on renewable energy materials availability:

Here we look at the 2019 share of global production and at the share of global reserves for countries around the world. We use data from the United States Geological Survey’s Mineral Resources Program, and the World Nuclear Association. While production data are considered relatively accurate, reserves data is imperfect, given lack of exploration is some areas. However, we take a view that if countries have reserves, but have zero production currently, then there are likely to be technical, financial and/or institutional factors to overcome to allow production in the near future. (Note that we were unable to access reserves data for the commodities Indium and Gallium, and only included production numbers). We create a blended metric for production and reserves values for these commodities (weighting them all equally), in order to score and rank countries in this area. South Africa is ranked first here, followed by China and Chile. Australia comes in fourth, making it the highest ranking DM country on this indicator.

Eoin Treacy's view -

Government policy, everywhere, is increasingly skewing towards the assumption that sea level rise, water insecurity, global warming and climate change are inevitable. Renewable energy assets are increasingly also being priced on the assumption that a migration to carbon-free economies is also inevitable.

Trillions of Dollars are being committed to building out carbon-free infrastructure, whether than is solar, wind, geothermal, nuclear or hydrogen. As that buildout gets under way it will require massive fiscal support, regulatory bypasses for permitting and taxation supports in the form of carbon credits. It will also result in a significant near-term boost in demand for all manner of resources from copper to lithium and from coal to oil.



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April 09 2021

Commentary by Eoin Treacy

Email of the day on COVID-19 as an endemic nuisance

Some interesting points made such as the unlikelihood of attaining herd immunity; the virus becoming endemic in society; no phase 3 China vaccine data published as of yet; and the acknowledgement that if we do have to live with this virus, then the treatments for Covid, once you have the pneumonia, are still not very good.

Eoin Treacy's view -

Thank for this educative podcast transcript which I’m sure will be of interest to the Collective. The simple fact is that 78% of people admitted to hospital for COVID were obese. That suggests the best advice for people is to live an active healthy lifestyle and to minimise sugar consumption. That’s a sound regimen regardless of what else is happening.  



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April 08 2021

Commentary by Eoin Treacy

April 08 2021

Commentary by Eoin Treacy

Email of the day on electric vehicles and reshoring

I came across this article (attached) about a new British company that has recently listed on the Nasdaq. Big questions about whether it can succeed, but it's an interesting take on the possible future of local manufacturing, and not just for vehicles. If successful, it could presumably have an impact on the issues of on-shoring, local community development and not to mention the ESG sector.

 

Eoin Treacy's view -

Thank you for this email and the attached article from the Times. Here is a section:

One reason why the prediction is more convincing this time can be found on an industrial estate in Oxfordshire. Arrival will start producing electric vans at its first small plant outside Bicester soon in what the company believes will be a turning point for global manufacturing. Avinash Rugoobur, the former General Motors executive who is Arrival’s chief strategy officer, says that not only the motor industry will be watching closely. “Many other industries will say: ‘If Arrival can do it in automotive, why can’t we do it in our sector?’ ”

Valued at about $10 billion after its recent flotation on Nasdaq, Arrival has been working for five years on the necessary technology. Denis Sverdlov, its founder, a Russian telecoms tycoon and former government minister, believes that using highly automated small plants can be dramatically cheaper than traditional large factories. A decentralised model also should reduce carbon emissions and deliver big economic benefits to the microfactories’ communities thanks to localised supply chains.

To apply this approach to vehicles has required a fundamental redesign of the products. Arrival makes its bodies from coloured composite materials, doing away with the metal pressing and painting that take up much of a traditional car plant. Although Arrival makes some use of 3D printing, Rugoobur says that “3D printing can be an enabler of decentralised manufacturing, but is not the only way of getting there”.

During the pandemic, many of these techniques were used by British companies to produce personal protection equipment and medical components when supplies from China were interrupted. In addition to fears about the resilience of supplies, companies have been worried about rising wages in China and the rising costs of transport. The Suez Canal snarl up has heightened concerns. At the same time, many western governments have said that they want to build up domestic manufacturing in critical industries, a resolve only strengthened by the vaccine wars.



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April 08 2021

Commentary by Eoin Treacy

Email of the day on the gold/silver ratio:

I have been a subscriber for a year and just renewed. Enjoying your service. Keep up the good work.

My current dilemma/question is about silver - would you say that the fact that silver recently fell more than gold means we are coming out of phase 2 of the gold/silver bull market. Or can we still expect silver to go up in the medium term? If so, Is there a trigger point one should be looking for?

Eoin Treacy's view -

Silver is a high beta play on gold but the difficulty with that statement is that the condition is most applicable in the middle and late stages of the cycle. That means gold tends to lag gold’s performance by a wide margin at the beginning of the cycle. It then tends to trend higher against gold for the entire bull market.



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April 08 2021

Commentary by Eoin Treacy

Email of the day on corporate taxes:

Hi Eoin, I am shocked that the US is attempting to get agreement on a global minimum tax. If I replace Yellen's speech with any global industry the same reasons would be justified to fix pricing which is clearly illegal. Why is no one challenging the legality of this or at least criticizing the move based on this premise? Kind regards, TG

Eoin Treacy's view -

Thank you for this email which may be of interest to the Collective. When it comes to agreements between countries there are few limits on what is possible given sufficient will. The barrier to agreement on taxation is probably lower than it is for incentives and supports because governments are broke and hungry for revenue.

Governments are curtailed from rising individual taxes or cutting back on social services because of the threat of social unrest. The rise of populism on both sides of the political spectrum is a direct consequence of the response to the credit crisis. It is the number one unintended consequence of pushing private sector debts onto unsuspecting populations. 



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April 08 2021

Commentary by Eoin Treacy

Scientists Claim To Discover 'Unexpected' New Viruses in Wuhan

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

A team of researchers claims that it found evidence of multiple viruses — including several brand-new coronaviruses — in agricultural genomes from labs in Wuhan and other Chinese cities.

Genetic sequences of crops like rice and cotton released between 2017 and 2020 contained the entire genetic sequences of new viruses that seem to be related to human diseases like MERS and SARS, according to research the team shared in the preprint server ArXiv on Sunday.

The “unexpected discovery,” as the team put it, of the presence of dangerous human diseases in these agricultural research facilities, suggests that safety protocols may not be up to par — and, as the team argues, that viruses may have accidentally been released as a result.

It’s important to note that this is all coming from preprint research that hasn’t been vetted by an academic journal or other experts in the field. While four of the six study authors are affiliated with hospitals and universities in Spain, Canada, and Japan, the first two researchers listed in the paper are independent researchers without affiliations to any research institutes, and a third is affiliated with an LLC named after himself.

Eoin Treacy's view -

China is the wild west for genetic research. The level of control and care in research is a function of standards of governance.



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April 07 2021

Commentary by Eoin Treacy

Video commentary for April 7th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: bitcoin continuers to pullback, Wall Street pauses, large caps outperform small caps when yields falls, China weak, Rupee weak but Indian market steady, Pound pulls back but UK stocks up,, Lumber extends uptrend, 



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April 07 2021

Commentary by Eoin Treacy

VanEck ViewPoint: The rhyme of history

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

We expect a catalyst to emerge in the second half of the year that could drive gold higher. The most likely catalyst would be excessive inflationary expectations. Inflation expectations have returned to pre-pandemic norms, although a number of developments listed here suggest it could spiral out of control:

• US$1.9 trillion of additional fiscal stimulus is likely to be introduced on top of previous government spending, some of which has yet to be utilised;
• The US Federal Reserve (Fed) continues to buy US$120 billion worth of Treasuries and mortgage-backed securities each month;
• Lumber, oil, copper, food staples and other commodities prices have been on the rise, many reaching multi-year highs;
• Shortages of semiconductors, shipping containers and truck drivers have been documented;
• Many people are content to stay out of the workforce, collecting generous government handouts;
• Purchasing power of American families has reached record highs. Further into 2022, once the trillions of stimulus dollars have been spent, other systemic risk catalysts could emerge, such as a weakening economy, debt problems, US dollar weakness and/or black swan events caused by radical fiscal and monetary policies. We believe the long-term bull market remains intact and expect prices to ultimately surpass US$3,000 per ounce. We also note that gold miners remain cheap relative to the price of gold.

It is worth noting that since mid-2020 it appears that Bitcoin has replaced gold as the new gold. But as cryptos have continued to soar, US real rates have now undermined gold value. To remain long Bitcoin would require a belief that real rates are going to retreat.

Eoin Treacy's view -

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

Mining companies are a hard sell in a world where investors are focused on ESG. As an extractive sector, miners can’t get around the fact that they are polluters. Even with remediation commitments, there is no way to avoid the moniker for polluter.

That also impacts the ability of the sector to source the funding they need for expansion via exploration. Finding somewhere to dig and build is an inherently uncertain prospect but the added obstacle of environmental regulations, protests and carbon costs mean the hurdles to exploration are increasingly high.



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April 07 2021

Commentary by Eoin Treacy

Hydrogen could be the future of energy - but there's one big road block

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

The hydrogen embrittlement challenge is a highly complex materials and engineering problem. There are many aspects that still need to be understood before tangible solutions can be proposed.

For example, what are the conditions for hydrogen entry into different metals? Can this be controlled? Is it possible to completely stop hydrogen entry in metals using coatings or other surface treatments? What if these coatings get a scratch? If the hydrogen does get in, under what conditions will it cause failure of the metal? How much hydrogen is too much? How quickly will it accumulate? Can we design new engineering alloys that can better resist hydrogen embrittlement for the global hydrogen economy? If so, will the new alloys be economically feasible?

These questions can only be answered through collaboration between researchers and engineers who have a deep understanding of hydrogen embrittlement.

Eoin Treacy's view -

An economy powered by liquid hydrogen is the end point of all renewable energy arguments. It is the only way that the energy by volume arguments can be overcome. The question is how to do get there from where technological solutions stand today?



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April 07 2021

Commentary by Eoin Treacy

Coinbase Will Be First Major Cryptocurrency Company To Go Public

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

Its first-quarter results passed all of 2020. Coinbase reported revenue of $1.8 billion in the quarter, with net income of approximately $730 million to $800 million, according to the filing. Last year, it brought in $1.3 billion in revenue with a profit of $322 million.

Trading volume topped $335 billion in the quarter. For all of 2020, trading volume was $193 billion.

Total assets on Coinbase's platform increased from $90 billion to $223 billion, a nearly 150% increase.

Its full-year outlook presented a range of possibilities, "given the inherent unpredictability of our business," the company said in its report.

"To state the obvious, our business is hard to forecast," Coinbase Chief Financial Officer Alesia Haas said after the earnings report. That's because it can't predict the prices of Bitcoin and other cryptocurrencies.

About 96% of Coinbase's revenue comes from transaction fees. It has several lines of business in addition to its exchange services. Among them is Coinbase Commerce, which provides online retailers with software that lets them accept cryptocurrency payments.

Eoin Treacy's view -

Unlike many of the IPOs over the last year Coinbase has clear visibility of where it sources revenue and how that is likely to grow over time. It will be one of the few pureplays on the wider cryptocurrency market once it is listed.



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April 06 2021

Commentary by Eoin Treacy

Video commentary for April 6th 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: commodities continue to firm with agriculture playing catch up, stocks pause after strong Monday performance, bond yields continue to compress, gold firm, defensives/quality outperforming. Growth steadying.



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April 06 2021

Commentary by Eoin Treacy

Email of the day on the potential for a crash:

I am a little concerned, that Bill Ackman is shorting the market and Ray Dalio and Michael Burry have predicted a market collapse. Burry recently went on record to confirm this prediction.

You have not mentioned Margin Debt for a while and my further concerns are that despite Margin Debt officially being at an all-time high - the ArchEgos scandal has demonstrated that perhaps not all of the margin debt is recorded as some hedge funds are circumventing the need to record their position by using prime banks to hold assets for them.

RLB

PS Best wishes to you and your family.

Eoin Treacy's view -

Thank you for your kind words and for this email which helps to elucidate the very real concerns of a large swathe of the market. Just over a year ago the market crashed. The decline was unlike anything we’ve seen before because it was unrelenting in its severity. Even during the crash of September/October 2008 there were weeks when the market rallied.

That did not happen in 2020. Between late February and March 24th, the S&P500 failed to rally for two consecutive days. Fear permeated market and it had a long-lasting impact on sentiment. Even today people are afraid of a repeat of this unrelenting selling. However, it would be extremely unusual to see another 35% drawdown a year after the last one.



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April 06 2021

Commentary by Eoin Treacy

Gold Rises to Eight-Session High With Dollar, Yield Gains Ebbing

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

Gold advanced to the highest in more than a week as gains in bond yields and the dollar abated.

Treasury yields edged down from a recent high, increasing the allure of bullion, which doesn’t earn interest. The dollar gave back early gains, making gold more appealing to investors holding other currencies. The ebb is taking place even as positive economic data shows rapid growth for U.S. businesses and jobs.

That’s “good news for gold,” according to Commerzbank AG analyst Carsten Fritsch.

Gold has been under pressure this year because of increasing optimism over the post-pandemic economic recovery in the U.S., which buoyed bond yields and the dollar. Investors fled bullion-backed exchange-traded funds, a major pillar in gold’s ascent to an all-time high last year, with holdings in ETFs dropping to the lowest since May.

Eoin Treacy's view -

It is not a coincidence that gold and Treasury bond prices peaked within a day of each other in August. As bond prices have declined, they have taken gold with them. The strong correlation between the two assets has raised all sorts of questions for gold investors. Let’s try and answer some of them by looking at flows.



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April 06 2021

Commentary by Eoin Treacy

Biggest Mining Buyback in Years Propels Vale to All-Time High

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

Vale’s buyback, which comes on the heels of a bigger-than-expected dividend, is the latest chapter in its turnaround story. In early 2019, a tailings dam disaster sent Vale into crisis mode, with dividends cut and operations scaled back as the company focused on shoring up safety. Now, after agreeing to a dam-collapse settlement and seeing the prices of its metals rally, Vale is repaying investor loyalty.

While metal prices have come off multi-year highs in recent weeks, they’re still well up on year-ago levels. Vale’s iron ore business generated its second-highest earnings ever and the company is focused on existing assets rather than splashing out on deals as it did in previous booms.

Shares rose as much as 6.6% in Sao Paulo Monday, closing at the highest level since trading began in 1994. The buyback should help narrow Vale’s discount to its Australian peers, according to BTG Pactual analysts led by Leonardo Correa. Vale fetches 4.8 times estimated profit versus top iron producer Rio Tinto Group’s ratio of 7.9.

Eoin Treacy's view -

The mining sector is flush with cash. The sector went through a painful rationalization between 2011 and 2016 so they have been cautious about embarking on risky behaviour. That left them well placed to benefit from the recovery in industrial metal prices from the pandemic lows.



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April 01 2021

Commentary by Eoin Treacy

April 01 2021

Commentary by Eoin Treacy

April 01 2021

Commentary by Eoin Treacy

Secular Themes Review April 1st 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic has been an accelerant. The full ramifications of what that means are becoming increasingly clear.

The pandemic took trends that have been in evidence for a while and exaggerated them. At the same time, it introduced new challenges which require new solutions.

Corporations operating without the safety net of cash on the balance sheet has been a feature of the markets for decades too. They continue to be bailed out when they get into trouble. There is no evidence that the trend of using all available means to buy back shares has ended. In fact, buybacks are back at pre-pandemic levels. Companies were touting “resiliency” last summer. It appears to have been just talk. Buybacks represent a powerful tailwind for stock markets that were absent for much of 2020 but are now back in force. 



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March 31 2021

Commentary by Eoin Treacy

Video commentary for March 31st 2021

March 31 2021

Commentary by Eoin Treacy

Voltswagen Is the Perfect Example of German Humor

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

This week Volkswagen AG provided a lesson in just how difficult it is to “be Elon.” VW’s U.S. arm claimed it was changing its corporate name to “Voltswagen,” denied it was an April Fools’ Day joke, then admitted that, um, it was in fact an April Fools’ Day joke gone wrong.  

The German giant has been riding a wave of investor excitement about its electric-car strategy. Thanks in part to some clever social media and marketing, VW seemed to have cracked Musk’s knack for share-price boosting publicity. The more frequently traded VW preference shares are close to a six-year high.

News of the purported name change helped VW’s American depositary receipts — the ones favored by U.S. retail investors — to climb as much as 12.5% on Tuesday. Which is where this cringeworthy incident goes from being a disastrous attempt at humor to something potentially more serious.

I’m not suggesting VW’s gaffe was an attempt to manipulate the stock market and I doubt the U.S. Securities and Exchange Commission would view it like that. It’s a reminder, however, that we now live in the meme-stock age where even bad jokes can add or subtract billions of dollars in market value. It’s a minefield for corporate executives to navigate.

Eoin Treacy's view -

The market liked the Voltswagen idea. That’s going to give Volkswagen’s board something to think about. Tesla prospered because it gained a near monopoly on California’s carbon credits when Karma went bust. That allowed it fund loss making operations and meet payment deadlines while it was building its first battery factory. Many people wonder at Tesla’s business model. Is it a car company, a solar company or a battery company? The most accurate description is it is a regulatory arbitrage company. That’s a consideration every company board should be discussing.



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March 31 2021

Commentary by Eoin Treacy

Deliveroo Sinks 31% After IPO as Funds Shun Gig-Worker Model

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

“It’s not a great endorsement of setting IPOs in the U.K.,” said Neil Campling, analyst at Mirabaud Securities. “You have the combination of poor timing, as many ‘at home’ stocks have been under pressure in recent weeks, and the well-publicized deal ‘strike’ by a number of A-list institutional investors.”

Investors are also souring on the fast-growing companies that benefited during the pandemic. Doordash Inc. has slumped 23% this month, and European rivals Just Eat Takeaway.com NV and Delivery Hero SE have also fallen this year.

“The window for tech-driven IPOs just couldn’t be worse,” said Oliver Scharping, a portfolio manager Bantleon AG. “Deliveroo was trying to keep the window open with brute force.” Among the losers in the IPO will be retail investors, who were given the option to buy shares via Deliveroo’s app. Retail investors will only be able to trade the stock from April 7.

Eoin Treacy's view -

Food delivery is most prevalent in China. The price war between Alibaba’s Ele.me and Meituan Dianping is aggressive and keeps prices low. However, no one is under any illusion that it is profitable. Meanwhile both rely on an army of low paid migrant workers, willing to brave traffic and the elements, to make deliveries. This group have no rights. They also reside outside of the Hukou family registry system, so they are effectively anonymous. 



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March 31 2021

Commentary by Eoin Treacy

Biden Plans $2.25 Trillion Spending, Corporate Tax Hikes

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

A major undercurrent through the infrastructure plan is addressing inequality and expanding help for segments of society that the administration judges have been left out in the past. For example, in addition to fixing the “ten most economically significant bridges in the country in need of reconstruction,” there’s $20 billion for a new program that will “reconnect” neighborhoods that were cut off by past investments, such as the I-81 highway in Syracuse, New York. And all lead pipes will be replaced, to address water-quality issues.

Eoin Treacy's view -

$2.25 trillion is still a lot of money and if it passes it will represent a significant additional surge of liquidity through the economy. At a minimum that will help to spur commodity and building materials demand growth over the next decade.



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March 30 2021

Commentary by Eoin Treacy

March 30 2021

Commentary by Eoin Treacy

Morgan Stanley's Shalett Says Market Shows Signs of "Fragility"

This note by Steve Dickson and Jonathan Ferro for Bloomberg may be of interest to subscribers. Here it is in full:

The Federal Reserve’s policy of keeping its “foot on the accelerator” to boost the economy has left the market showing signs of “fragility,” according to Lisa Shalett, Morgan Stanley’s chief investment officer for the wealth unit.

Speaking in a Bloomberg Television interview, Shalett also says:

Fallout from the implosion of Archegos Capital Management doesn’t threaten the financial system. “This, unlike some other issues, is not of an order of magnitude where there’s systemic risk,” Shalett says

Fed policy makers are making a bet that the liquidity being pumped into the financial system is more important for the economy than the “financial accidents or bubbles” that have popped up as a result, she says

“It’s time for investors to retool portfolios,” she says, arguing that the shift should be in favor of active management and shorter duration. Economic growth will be “much stronger” than it’s been, and that’s good for cyclicals and good for the labor market, but creates headwinds for the bond market and for stock multiples, she says

Eoin Treacy's view -

The only real question is what will need to happen for the Federal Reserve and other central banks to arrest the decline in bond prices. Until that happens there will be increasing stress on leveraged trades and companies.



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March 30 2021

Commentary by Eoin Treacy

Email of the day on where the most leverage resides

After Greensill and Archegos, where next? The GCC of 2008 cleaned up the banks and the Tech Bust of 2000 cleaned up non-earning tech. Leverage always lies hidden somewhere, and rising interest rates usually make the best assassins. But where's the leverage this time? Tech + Leveraged Product Roll Out? Can we put together a list of leveraged companies and sectors that will make the headlines in 2021 and 2022 as 10-year yields breach 2% and beyond? Keep up the excellent work.

Eoin Treacy's view -

Thank you for your kind words and this question which may be of interest to other subscribers. The Global Credit Crisis decapitated the banking sector and many of the tech champions of the 1990s disappeared. Both crashes exposed massive leverage and egregious abuses. The first challenge is to identify the sectors where leverage is concentrated and then what are the potential catalysts to unwind those positions.

The rush of interest in listing via SPACs is an obvious area to begin searching. Many private companies eschewed listing for years because they had no need to seek funds in the public markets. They are now eager to list because their backers want to exit while there is still time. Softbank’s wake-up call with WeWork was the catalyst for much greater interest in IPOs.



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March 30 2021

Commentary by Eoin Treacy

Elliott Management Sends Letter to Board of Directors of AT&T

This letter may be of interest to subscribers. Here is a section:

The purpose of today’s letter is to share our thoughts on how AT&T can improve its business and realize a historic increase in value for its shareholders. Elliott believes that through readily achievable initiatives – increased strategic focus, improved operational efficiency, a formal capital allocation framework, and enhanced leadership and oversight – AT&T can achieve $60+ per share of value by the end of 2021. This represents 65%+ upside to today’s share price – a rare opportunity for any company, let alone one of the world’s largest.

Eoin Treacy's view -

There is increasing appetite for the companies that were left behind in the big 2020 surge. That’s being driven by the expectation for economic revival which will help to repair earnings potential and also by the rotation away from the stocks leveraged investors have been active in.



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March 30 2021

Commentary by Eoin Treacy

Dutch Stock Benchmark AEX Set to Close at Record High

This article by Jan-Patrick Barnert for Bloomberg may be of interest to subscribers. Here is a section:

After more than 20 years, the main Dutch equity benchmark is set to reconquer its record high. The AEX Index gained 0.6% on Tuesday to 702.44, surpassing a peak reached in September 2000 during the dotcom bubble era.

And just like back then, the technology sector has driven the advance. Chip stocks ASM International NV, BE Semiconductor Industries and ASML Holding NV have all more than doubled in price over the past 12 months, in addition to the online payments firm Adyen NV. But the old economy has also helped the index. Steelmaker ArcelorMittal SA is the best-performing stock over the period, as basic material shares climb on the prospect of China’s recovery and its hunger for commodities. The gains in Royal Dutch Shell Plc and ING Groep NV have also been major contributors.

Meanwhile, Amsterdam’s initial public offering market is on track for its best-ever first quarter with $5.7 billion of proceeds after hosting the 2.8 billion-euro ($3.3 billion) listing on InPost SA, according to data compiled by Bloomberg.

Since dislodging London as the continent’s top place to buy and sell shares following Brexit, the Dutch city has emerged as a strong contender as the venue of choice for new listings. Amsterdam has also become the premier destination for SPACs in Europe. The Dutch capital has hosted three of the six blank- check listings in the region over the past year. The latest of the cohort, EFIC1, which is backed by a former chief executive officer of Commerzbank AG Martin Blessing, fell as much as 1.5% in its debut session on Friday after raising 415 million euros.

“The AEX index is definitely a rare combination of good European tech companies with the addition of other top-of-the- class names in their relative industries,” said Alberto Tocchio, a portfolio manager at Kairos Partners, adding that the benchmark gauge is “a bit the Nasdaq of Europe, with the benefit of also having an exposure to some value sectors.”

Eoin Treacy's view -

The Euro’s weakness has been a tailwind for European equities on several occasions over the last decade. That’s equally true at present with the Euro pulling back and the larger European markets breaking on the upside.



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March 29 2021

Commentary by Eoin Treacy

Video commentary for March 29th 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: liquidation of hedge fund assets raises single stock volatility but less evidence of contagion, gold weak, stay at home champions under pressure, China tech at support, bond yields continue to trend consistently higher. 



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March 29 2021

Commentary by Eoin Treacy

A Tiger Cub's Huge Margin Call Means More Pain Ahead

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

A market optimist might brush off Friday’s massive liquidation as a one-off event — a huge stumble by a fabled player now in decline. But this is no time to be optimistic. Hwang is representative of, not distinct from, the rest of the hedge fund crowd. His bets are also their bets. He may have gotten margin calls faster because he was more leveraged. But his positioning is by no means unique — and that commonality is where trouble may lie. 


Take the trades involved. Media companies such as ViacomCBS and Discovery have net exposures that are the “highest level we have seen since 2016,” according to a recent note from the prime brokerage unit at Morgan Stanley, which, alongside Goldman, managed some of the block trades on Friday. Last week, when ViacomCBS was using the steep run-up in its stock to sell new shares and bolster its balance sheet, the pressure on leveraged hedge funds must have been intense. 

Eoin Treacy's view -

Rising yields and companies selling additional shares at rich valuations puts pressure on leveraged trades. It was inevitable that the rotation out of stay-at-home champions, who saw a one-time boost to business, would see a reality check in 2021. Last week’s block trades were an example of that.

Credit Suisse and Nomura took the brunt of selling pressure in the financial sector because of their net exposure. However, exposure has been limited within the broader sector so far.



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March 29 2021

Commentary by Eoin Treacy

The return of the inflation spectre

Thanks to a subscriber for this article by Martin Wolf for the FT. Here is a section:

Manoj Pradhan in The Great Demographic Reversal. The economic regime that began in the 1980s is, they argue, coming to an end, with rising protectionism and rapid ageing in all the important economies, including China.

As labour forces shrink, this book suggests, the number of consumers will rise relative to the number of producers, thereby raising prices. Fiscal pressure will rise inexorably, as the population ages. If governments have to choose between inflation and fiscal tightening, they will choose the former. Finally, if interest rates rise too high for comfort, governments will force central banks to lower them.

Ultimately, then, these pressures would end in another era of high inflation. Some will note, against this view, that this is not how things have ended up in Japan, where decades of easy money has failed to ignite inflation.

Maybe, that will now happen in the world as a whole: we will all end up Japanese. Certainly, history never repeats exactly.

The stagflation of the 1970s, especially the squeeze on profits and stock market collapse, were due to features of the economies of that time, especially the political strength of labour. So, things may play out quite differently this time.

Inflation has not come back. It may never do so. But the political and policy shifts we are seeing today, after Covid, together with the longer-term changes in the world economy, have raised the chances of an inflationary shock of some kind. Investors must take this possibility into account.

Eoin Treacy's view -

No one factor contributes to a new secular inflationary cycle. Many trends need to coincide to shape consumer behaviour so they front load purchases rather than delay in the hope of lower prices later. That only happens when people are forced to act. It doesn’t happen voluntarily.

Disinflation, deregulation and globalisation over the last forty years contributed to the absence of an inflationary trend. Globalisation has peaked as geopolitical tensions rise. That is contributing rising support for national priorities rather than the furthering of the global community ideals.



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March 29 2021

Commentary by Eoin Treacy

The Giant Ship Blocking the Suez Canal Is Finally Freed

 This article by Jack Wittels and Ann Koh for Bloomberg may be of interest to subscribers. Here is a section:

Egyptian authorities were desperate to get traffic flowing again through the waterway that’s a conduit for about 12% of world trade and about 1 million barrels of oil a day. This has been the canal’s longest closure since it was shut for eight years following the 1967 Six Day War.

Firms including A.P. Moller-Maersk A/S and Hapag-Lloyd AG were forced to reroute their ships via the southern tip of Africa, which can add two weeks on to a journey between Europe
and Asia.

Shipping experts anticipate that the disruption will last for months because of schedules being upturned and the uneven wave of cargo that will hit ports down the line.

While the hit of the canal’s $10-billion-per-day closure will likely be small given that global merchandise trade amounts to $18 trillion a year, the prospect of hundreds of ships being thrown off schedule will ensure cargo delays in the weeks if not months ahead. The dozen or so container carriers that control most of the world’s ocean freight capacity are already charging record-high rates on some routes, and shortages of everything from chemicals and lumber to dockside labor already abound.

Eoin Treacy's view -

It seldom pays to bet against small well-funded teams who are presented with a gargantuan task. The freeing up of the Suez Canal after a week is just such an example, and the snarl in the global supply chain will be smoothed out in a week or so. That’s good news but the whole episode is representative of the stress the global supply chain is under. Everyone is exhausted after a year of strife and disruption and that raises the risk that accidents will happen.



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March 29 2021

Commentary by Eoin Treacy

March 26 2021

Commentary by Eoin Treacy

March 26 2021

Commentary by Eoin Treacy

Rio Tinto to deploy Heliogen's AI-powered industrial "solar refinery"

This article by Loz Blain for New Atlas may be of interest to subscribers. Here is a section:

That temperature can be used to generate steam and turn turbines to produce electricity, or the heat can be stored for later use outside daylight hours. It's also hot enough to be used in cheap hydrogen production – Heliogen's Bill Gross told the Abu Dhabi Sustainability Week 2021 conference in January that a 600 x 600-m (656 x 656-yd) plant could produce around a million kilograms (2.2 million lb) of green hydrogen per year at an impressively low cost around US$1.80 per kilogram (2.2 lb) – lower than the average price of dirty hydrogen today.

Rio Tinto's boron operation, rather fittingly located in Boron, California, currently uses natural gas co-generation and boilers to produce steam for its processes. The Heliogen installation will contribute up to 35,000 lb (15,876 kg) of steam per hour to the plant day and night thanks to energy storage, and Rio Tinto says this has the potential to reduce total plant emissions by about 7 percent – "equivalent to taking more than 5,000 cars off the road," says the company, neatly sidestepping the fact that it's leaving more than 70,000 cars on the road in this metaphor.

This is just a pilot, though; should it prove viable, the company will assess whether to upgrade the facility to more than three times its current production rate, and the state intention here is to pilot the technology with a view to replicating it at other Rio Tinto facilities around the world where there's enough sunlight.

Eoin Treacy's view -

Rio Tinto’s management have displayed impressive foresight in positioning the company as the supplier of materials to drive the development of a carbon free economy. Making headlines for supporting concentrated solar plants in California is another example of sound PR strategy that detracts from the destructive nature of mining.

The company concentrates on iron-ore, copper and aluminium production which has allowed them to make a big play on being the most ESG-aware miner. Pollution is one portion of the ESG gambit the other is mine safety.



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March 26 2021

Commentary by Eoin Treacy

On Target March 2021

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

Southeast Asia’s largest economy, Indonesia. is expected to see 67 per cent growth of its people becoming ultra-high-net-worth over the next five years, according to British property consultancy Knight Frank.

That’s those with personal wealth, including the value of primary residence, of more than $30 million. It’s not just the super-wealthy who are doing well. According to the World Bank Indonesia’s middle-class consumption has grown at an average annual rate of 12 per cent since 2002 and now accounts for almost half all household consumption.

The richer Indonesians get, the more they spend on cars, health, education and other services. Asia is the region where personal wealth is growing fastest and is already home to more billionaires than any other – 36 per cent of the world’s.

Eoin Treacy's view -

The rise of the middle class in ASEAN remains a secular theme because they have improving standards of governance, favourable demographics and higher growth potential. Indonesia is also a major exporter of commodities and has adopted an unobjectionable attitude towards China.



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March 26 2021

Commentary by Eoin Treacy

WeWork agrees to $9 billion SPAC deal in new path to go public

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

The company disclosed to prospective investors it had lost about $3.2 billion last year, the Financial Times reported earlier this week. The documents also show that occupancy rates fell to 47% at the end of 2020, down from 72% at the start of the year, before the pandemic hit, according to the newspaper.

In the interview in January, Claure argued the pandemic was helping WeWork. He said the work-from-home situation benefits the company and would continue to do so as people return to the workplace. “This is where WeWork suddenly becomes an incredible value proposition,” he said. “New habits have been developed during this pandemic.”

Mathrani will continue to lead the company after the deal. Vivek Ranadive of BowX and Insight Partners’s Deven Parekh will join the board.

BowX Acquisition Corp. is managed by Ranadive and Murray Rode, both former executives at TIBCO Software and co-founders of venture firm Bow Capital.

Eoin Treacy's view -

How a global work-from-home trend can be positive for a company that offers office space is beyond me. That’s particularly true for start-ups for whom rising yields represent a challenge in raising capital.



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March 26 2021

Commentary by Eoin Treacy

Message Received, Loud & Clear

This report from CIBC may be of interest to subscribers. Here is a section:

The Bank of Canada is seeing enough progress in the economy that it feels it can begin reducing outdated programs, as well as slowly begin to remove some of the considerable stimulus in the system. There should not be too much impact from the cessation of select market functioning facilities directly. The bigger news today is the strongest signal yet that the Bank is ready to conduct a taper, and begin ‘right sizing’ the QE program. This is also the first time we have been shown what the future sequencing looks like, which is: i) taper to a net-zero purchase profile; ii) enter a reinvestment phase, and; iii) normalize rates. The best trades to take advantage of this are micro in nature, though also put ‘bigger’ macro trades like receiving 2yr-to-4yr forwards versus the U.S. at risk.

Eoin Treacy's view -

As we exit the pandemic the approach being adopted by central banks to the respective challenges in their countries will help to inform us on what to expect from the late starters. Since Canada is about to begin tapering in April how the bond, currency and stock markets perform may offer a foretaste of what a taper will eventually look like in the USA and elsewhere.



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March 25 2021

Commentary by Eoin Treacy

Video commentary for March 25th 2021

March 25 2021

Commentary by Eoin Treacy

Email of the day on bidding below the market.

Thank you, Eoin, for your work and sincerity about your portfolio. If I understand correctly, you have bids under the spot for gold due to probability that the yields shoot higher, consequently pressing the gold further down?

If that's correct, would you argue the same for BTC/ETH?

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. After the flash crash in 2010 it became clear that short-term outsized moves are not only possible but also likely.

The vast majority of trading is now algorithmically based. My central point is that an algorithm can be taught what to buy using an infinity of different metrics. However, there is only a very small number of ways of telling a computer how much to buy. That’s particularly true when we are talking about very short-term trading. It basically comes down to volatility and interest rates.

This limitation in how positions are sized creates herding activity in automated markets in just the same way we would expect from human controlled markets.



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March 25 2021

Commentary by Eoin Treacy

The Euro's Viral Turn Is More Than Pseudoscience

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

Why? The clearest reason is the virus, which still dominates all of our lives. The broad narrative of the European struggle with the pandemic and how it compares with Americans’ battle on the other side of the Atlantic is roughly accurate. Neither has done as well in combating Covid as countries with wealth and advanced health systems should have done, but the EU record has been appreciably better throughout. That is now beginning to shift. The chart below shows the number of new cases recorded each five days. To allow an easy comparison, I multiplied the U.S. number to account for the EU’s larger population. Europe succumbed to its second wave a little ahead of the U.S., but this is the first time since Covid-19 appeared that new cases have risen in the EU while falling in America. This is plainly concerning.

The second big reason is wrapped up in the bond market and expectations for inflation. Treasuries tend to yield more than German bunds, and hence attract funds to the U.S., strengthening the dollar. This differential plummeted in the first month of the Covid scare — but at 2 percentage points it is now roughly back to where it started last year. The dollar has strengthened with it. The market has more confidence in the Federal Reserve’s ability to create inflation than it does in the European Central Bank’s, and so the dollar is rising:

Eoin Treacy's view -

The currency markets have spent the last year trading around the idea of the which country is doing best in the pandemic. The traditional metrics of money supply and interest rate differentials are less important at present, than the outlook for recovery.

The Renminbi trended higher from May as it became apparent China had successfully contained the spread of the pandemic. Around the same time the Euro began to trend higher because there was the perception the EU was doing better at containment. More recently the US Dollar has rebounded because it is further along in its vaccination program than other major currency issuers. That rationale also helped to power the Pound’s recovery until quite recently.



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March 25 2021

Commentary by Eoin Treacy

Shipping Giants Look at Arduous Reroute to Avoid Blocked Suez

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

Loadings scheduled from Qatar’s Ras Laffan export terminal may experience “considerable delays” if the situation doesn’t improve by the end of this week, according to Rebecca Chia, an analyst at market information group Kepler.

The congestion is also hitting bulk carriers that ship products from wheat to iron ore. There’s a long queue of bulk ships at the moment -- just shy of 40 vessels -- according to Peter Sand, chief shipping analyst at trade group BIMCO.

“Unless the situation is resolved very quickly we will soon see ships sailing south of Africa,” Sand said. “Oil tanker rates are terribly low at the moment so that’s where there’s most upside. Then some upside for dry bulk.”

Eoin Treacy's view -

The global supply chain has a number of chokepoints. Panama has invested heavily in providing additional capacity for its canal. Egypt has been much less proactive in planning for the future. The current blockage of the canal is a headache and has the capacity to cause short-term disruption.

Some estimates are stretching the solution time to weeks rather than days. Considering how essential the shortcut is to the global economy every effort will be made to ensure the delay is a short as possible. Generally speaking, teams can perform the impossible in short periods of time provided they are given the resources required so I doubt this is an issue we will be worrying about in a few weeks.



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March 24 2021

Commentary by Eoin Treacy

March 24 2021

Commentary by Eoin Treacy

PBOC, BOJ May Be Driving Some of the Stock Rout Infecting Asia

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

China hasn’t been this frugal in its cash offerings to banks in almost a year.

The People’s Bank of China has avoided net injections of short-term liquidity into the financial system since late last month, increasing concern that access to funds is becoming more difficult. The CSI 300 is headed for its steepest monthly loss in more than two years.

Japan’s Nikkei is falling for a fourth straight day after the BOJ said last Friday that it’s scrapping its annual target for stock purchases.

Stocks in both China and Japan had gotten used to these forms from the central banks. Now this backing, while not going away, is ebbing, and that could mean less central bank handholding for equities. 

Eoin Treacy's view -

The PBoC has been quite vocal in stating they do not want a bubble to form. They have very different priorities from the Federal Reserve. China’s administration wishes to preserve social harmony at all costs. In their view that is the only way to ensure the continued survival of single party rule. That means they will prioritise stability over asset price growth in the property or stock markets.

If that means restricting liquidity to the banking sector and curtailing the reach of the tech sector, those are deemed acceptable measures for China. The ChiNext Index is full of smaller companies that purportedly represent high growth. The Index has experienced it largest pullback since the lows and will need to find support soon if the benefit of the doubt is to be given to the recovery.



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March 24 2021

Commentary by Eoin Treacy

Taiwan Raises Red Alert Over Water, Cuts Chipmakers' Supply

This article by Debby Wu and Cindy Wang for Bloomberg may be of interest to subscribers. Here is a section:

Taiwan stepped up its fight against its worst drought in decades, further reducing water supplies to areas including a key hub of semiconductor manufacturing in the central part of the island in an effort to stop reserves from running dry.

The government issued its first red alert on water supply in six years Wednesday, warning that reservoirs in several parts of central Taiwan are running dangerously low. Authorities will cut the water supply to companies in two major science parks in Taichung by 15%, economics minister Wang Mei-Hua said at a briefing in Taipei.

Water will also be cut to non-industrial users across Taichung and Miaoli County two days a week, Wang said. The measures will come into effect from April 6.

While Taiwan Semiconductor Manufacturing Co. and Micron Technology Inc. both have chip-making operations in Taichung, Wang said the restrictions would not affect their production. TSMC’s headquarters further north in Hsinchu has been spared further restrictions for now.

TSMC says it plans to increase the amount of water it uses from tanker trucks but the new restrictions would not affect operations, according to an emailed statement. A Micron representative in Taiwan declined to comment, saying the company is now in a quiet period.

The relative dry spell is putting pressure on the Hua said government to ensure continued supplies to water-intensive industries, such as its crucial semiconductor manufacturing, at a time when global companies are clamoring for computer chips. A shortage of semiconductors has slowed output at automakers worldwide, prompting TSMC and its peers to run their fabs at close to full capacity to try and keep up with demand.

Taiwan’s usually ample supplies of water have plummeted after a significant drop in rainfall last year. The situation was further exacerbated by the fact that no typhoons made landfall in Taiwan in 2020.

Wang said earlier this month that Taiwan has sufficient water reserves to keep its technology companies operating smoothly until late May, when seasonal rains usually replenish supplies depleted during the drier winter months.

The meteorological situation adds to a new challenge to TSMC just as it’s grappling with competition from Samsung Electronics Co. and Intel Corp., which has unveiled a $20 billion plan to create a foundry business that will make chips for other companies.

Eoin Treacy's view -

The world is swiftly waking up to how dependent the global economy is on Taiwan. Rising geopolitical tensions, a global shortage of chips and water concerns mean there will be concerted efforts to ensure there is significant investment in additional sources of alternative supply.



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March 24 2021

Commentary by Eoin Treacy

In Copper Country, Lawmakers Want a Bigger Share of the Windfall

This article by James Attwood and Tom Azzopardi for Bloomberg may be of interest to subscribers. Here is a section:

The proposal is unnecessary and risks thwarting investment, according to government and industry representatives. Responding to criticism that Chile didn’t tax producers enough in the last supercycle, Energy and Mining Minister Juan Carlos Jobet said the current royalty system will generate more after a surge in prices pushed up earnings.

In his first term in office a decade ago, Pinera introduced a complicated system of payments that now charges large producers a variable rate on operating profit of as much as 14%. A new tax on sales wouldn’t bring in more than the current system, according to Diego Hernandez, head of mining society Sonami. Mining Council boss Joaquin Villarino warned against rushing through legislation just because copper has traded above $4 a pound for several weeks.

While consensus is building that highly profitable sectors such as mining should help finance the pandemic recovery, a heavier tax burden would add to rising costs associated with labor and the environment, BTG Pactual raw-materials analyst Cesar Perez-Novoa said.

“When doing the math, the cost competitiveness of Chile as a mining jurisdiction comes down,” he said. “So it matters.”

Eoin Treacy's view -

Copper is in a bull market and demand growth is likely to continue to increase as the focus of stimulus and economic recovery settles on renewable energy and the electric vehicles sectors. That introduces additional use cases for the metal in addition to the traditional telecommunications and infrastructure sectors.



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March 23 2021

Commentary by Eoin Treacy

Video commentary for March 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: oil unwinds its overbought condition, bond yields contract. that boosts tech but weighs on reflation trades. China tech at trend mean, no contagion from Turkey in emerging markets, mean reversion is the order of the day. 



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March 23 2021

Commentary by Eoin Treacy

A Taiwan Crisis May End the American Empire

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

Kissinger’s meetings with Zhou Enlai, the Chinese premier, were perhaps the most momentous of his career. As a fox, the U.S. national security adviser had multiple objectives. The principal goal was to secure a public Chinese invitation for his boss, Nixon, to visit Beijing the following year.

But Kissinger was also seeking Chinese help in getting America out of Vietnam, as well as hoping to exploit the Sino-Soviet split in a way that would put pressure on the Soviet Union, America’s principal Cold War adversary, to slow down the nuclear arms race. In his opening remarks, Kissinger listed no fewer than six issues for discussion, including the raging conflict in South Asia that would culminate in the independence of Bangladesh.

Zhou’s response was that of a hedgehog. He had just one issue: Taiwan. “If this crucial question is not solved,” he told Kissinger at the outset, “then the whole question [of U.S.-China relations] will be difficult to resolve.”

To an extent that is striking to the modern-day reader of the transcripts of this and the subsequent meetings, Zhou’s principal goal was to persuade Kissinger to agree to “recognize the PRC as the sole legitimate government in China” and “Taiwan Province” as “an inalienable part of Chinese territory which must be restored to the motherland,” from which the U.S. must “withdraw all its armed forces and dismantle all its military installations.” (Since the Communists’ triumph in the Chinese civil war in 1949, the island of Taiwan had been the last outpost of the nationalist Kuomintang. And since the Korean War, the U.S. had defended its autonomy.)

Eoin Treacy's view -

China is deadly serious about taking back control of Taiwan. Perhaps more importantly it is a personal mission for Xi Jinping to achieve that goal because it will cement his name in the annals of China’s history.



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March 23 2021

Commentary by Eoin Treacy

New soba noodle-making robot at Japan train station eatery can cook 150 servings an hour

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

The robot fetches soba noodles from a box with one arm, and places it in a strainer. Then with the other arm, it picks up the strainer and boils the noodles for a minute and 40 seconds, rinses off the viscous film on the surface and then dips the noodles in iced water to bring out their firmness. The robot can cook 150 servings in an hour, substituting the work of about one employee.

Connected Robotics commented, "Not only can it tackle the shortage of human resources, it can also cook without any human contact and is therefore useful in reducing the risk of coronavirus infections." JR East Foods, meanwhile, explained, "We aim to implement it (the robot) at 30 stores by the end of fiscal 2025."

Eoin Treacy's view -

Upward pressure on minimum wages creates an incentive to do away with minimum wage workers. The trend in restaurants is towards online/tablet ordering and point of sale machine payments. Humans are required to clean up, serve, prepare and cook the food. The higher wages go the more intense efforts will be to do away with unskilled work.



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March 23 2021

Commentary by Eoin Treacy

Federal Reserves Powell Says CBDCs Need to Coexist With Cash

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

In recent months, Powell has emphasized several times that the U.S. would not act fast on issuing a digital dollar because of the physical dollar’s status as the global reserve currency. 

The latest comment, though, is in line with Powell’s previous remarks about the Fed taking the prospects for a digital dollar seriously. Powell has said the Fed will engage with the public on the topic in 2021 and will seek congressional approval before issuing one. 

CBDCs are an early-stage payments innovation that governments hope can increase payments efficiency and lower costs by running them on blockchains. The details on CBDCs are still murky, and detractors argue most transactions today involve money that’s already digital. 

There’s a fear some governments may use CBDCs for increased financial surveillance. At the moment, it looks like the U.S. could favor privacy in its CBDC development.

Eoin Treacy's view -

I tuned in to this discussion on CNBC last night and what I found interesting is the eagerness central banks have in talking about digital currencies while at the same time saying they are in no rush.



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March 22 2021

Commentary by Eoin Treacy

Video commentary for March 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: Nasdaq rebounds as Treasuries show a modicum of steady trading, Turkish Lira volatile takes a toll on Eurozone banks, gold and oil steady, Japan weak, China steady, commodity producers steady.  



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March 22 2021

Commentary by Eoin Treacy

Of Cigars, Contrarians, Nerds and Herds

Thanks to Iain Little for this edition of his Global Thematic Diary series. Here is a section:

Attitudes to risk have changed. In one month, investors have relegated Covid 19 and its mutant strains to the side[1]lines. They now obsess over inflation and a shaky bond market. Those who feared an equity bubble in February, spurred on by strident warnings from market opinion formers like Jeremy Grantham and Ray Dalio, have diminished in number and are keeping their heads down.

Anyone following 10 year USD bond prices will not be surprised. The move from 0.5% in August to 1.60% in March, a near tripling, has spooked bond buyers, with a consequent hit to gold, highly priced technology shares and other interest rate sensitive assets. But a more subtle and longer term conclusion may be drawn.

If sentiment is indeed registering such a confident attitude to growth and risk, it is reasonable to assume that investment positions are now largely in place to reflect that view. If so, the next concern of the market will be its nemesis: growth below expectations. Those investors who are now positioning investments excessively on the side of recovery, value or laggard stock sectors like banks may need to think twice before abandoning their long held commitment to healthcare, FMCG, e-commerce and technology. We are positioning client portfolios accordingly.

As Mark Twain once said: “if you find yourself on the side of the majority, it is time to pause and reflect”.

Eoin Treacy's view -

A link to the full note is posted in the Subscriber's Area. The reflation trend is increasingly being priced in and only a robust recovery will satisfy expectations for what it will entail for company earnings. The challenge for markets is the majority of people making English language predictions are sitting in the places with the most advanced vaccination programs.



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March 22 2021

Commentary by Eoin Treacy

Investment Implications of a Shorter Cycle

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

Eoin Treacy's view -

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

The long expansions we have seen over the last decades have been followed by very sharp corrections with one sector or another crashing to previously unimaginable lows. That begs the question if a potential return to shorter cycles will result is less excess and shallower reactions? There is not a great deal of evidence to support that contention unfortunately.



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March 22 2021

Commentary by Eoin Treacy

Germany to Sell Record Debt of Up to $576 Billion in 2021

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

The final decision on next year’s budget will be taken by the government that takes charge of Europe’s biggest economy after Chancellor Angela Merkel steps aside following the election.

Merkel’s conservative CDU/CSU bloc is on track to lead the next administration and favors a return to frugality once the coronavirus recedes, while Scholz’s struggling SPD and the surging Greens have pledged to invest billions in technology and tackling climate change.

As things stand, Merkel’s bloc could form a coalition with the Greens, though the outcome is far from certain with discontent increasing among citizens weary of virus restrictions and unhappy with the slow pace of Germany’s Covid-19 vaccine rollout.

With the contagion rate on the rise again, Merkel is holding talks with cabinet ministers and regional leaders later on Monday to decide the next steps in the government’s pandemic strategy.

Eoin Treacy's view -

Generally speaking, the junior member of a coalition government comes out worse off after entering government. That’s because voters had faith in them to deliver on their promises, but the sacrifices they have to make to enter power mean their primary goals are unrealisable. At the same time the senior partner takes credit for any successes.



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March 19 2021

Commentary by Eoin Treacy

March 19 2021

Commentary by Eoin Treacy

Oaktree Client Memo

Thanks to a subscriber for this note by Howard Marks. Here is a section:

So today’s high asset prices may be justified at today’s interest rates, but that’s clearly a source of vulnerability if rates were to rise. (Note that today’s 1.40% yield on the 10-0year Treasury note is up from -.52% at he low in august 2020 and from 0.93% in just the last seven weeks)

The Fed says rates will be low for years to come, but are there limitations on its ability to make that happen? Can the Fed keep rates artificially low forever? On longer-maturity bonds? And what about inflation? Can the 10-year Treasury note still yield 1.40% if inflation reaches 3%? Will people buy it a negative real yield? Or will the price fall so that it yields more? Where could inflation come from? The price of goods may not rise in dollar terms, but reduced respect for the dollar (or increased quantities of dollars in circulation) could cause it to depreciate relative to the price of goods: same result.

Eoin Treacy's view -

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

These questions are seeking an answer in real time as Treasury yields trend higher. At present Treasury yields are pausing near 1.75% and the Personal Consumption Expenditure inflation measure is at 1.5%. The bond market is therefore insisting on a positive real yield to justify buying.

However, since a clear and consistent trend is in evidence bond investors are also pricing in the potential that the PCE will continue to also trend higher. Bond investors have become accustomed to central bank assistance. There was no revolt at the beginning of the quantitative easing era because the Fed was supporting the market.



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March 19 2021

Commentary by Eoin Treacy

Junk Debt Is So Hot Investors Are Giving Issuers the Upper Hand

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

“With all the features combined, you could say this is a new low,” Alastair Gillespie, an analyst at Covenant Review, said. “When deals like this close, the question must be asked whether our marketplace and investors are well served.”

Spokespeople for Foncia and Partners Group declined to comment when contacted by Bloomberg News.

The provision was likened to the so-called trapdoor stipulation that U.S retailer J. Crew used it to its advantage in 2017 and that allows the company the flexibility to pay itself dividends. It also enables the firm to transfer value away from bondholders and leave them with less collateral claim in the event of a default.

Eoin Treacy's view -

The low interest rates era is breeding all manner of market dislocations in the bond markets. When yields are negative investors will do anything to achieve a positive yield. In the debt markets that means covenant lite provisions but that has been the case for years already. That emboldened issuers to seek even better terms. It’s another example of how high yield debt has turned into a seller’s market.



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March 19 2021

Commentary by Eoin Treacy

Vietnam is 'Most Preferred Frontier Market' HSBC Says

This note quoting an HSBC report may be of interest to subscribers. Here it is in full:

Vietnam is “more investable than many think,” with positive factors including accelerating FDI, a government push on infrastructure, structurally increasing purchasing power, and the rising profitability of the banking system, HSBC wrote in a note to investors.

  • “Profitability, attractive valuations, strong balance sheets and market reforms point to the likelihood of a multi-year bull run,” HSBC said
  • Likes Vietnam growth story, citing low inflation, a stable currency and healthy earnings
  • Disagrees with common perception that Vietnam’s equity market is too small; says Vietnam now has 11 stocks with market cap of more than $5b vs 2 in 2015, while daily trading value has come close to $1b
  • Says government has passed new laws that should reduce restrictions on overseas investors and put Vietnam in line for an upgrade to emerging-market status
  • Says covered warrants and new diamond index are helping foreign investors gain exposure to companies at their foreign ownership limits
Eoin Treacy's view -

Vietnam is run by a communist party in the mould of China in the 1990s. They are primarily interested in economic development and raising living standards for the population. Dreams of global domination are not on the horizon. In fact, Vietnam’s primary concern is probably to remain independent and prosperous in an era of great power competition.



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March 19 2021

Commentary by Eoin Treacy

March 18 2021

Commentary by Eoin Treacy

Video commentary for March 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: Bond market gives no credence to dovish Fed commentary, growth and innovation plays sell off, cyclicals continue to exhibit relative strength, oil pulls back, gold steady, bitcoin fails to hold $60K. 



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March 18 2021

Commentary by Eoin Treacy

CTA, Money Manager Unwinds Could Be Behind Oil Drop

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

Crude oil has fallen the most in nearly three months, sliding as much as 4.75% today, and on its way to a test of the March 4 low at $60.52 per barrel. The move is probably linked to some unwinding of long positions from CTAs as daily price gains or losses of more than 3% can often trigger this account group to quickly unload. Watch for this unwind to continue if price action maintains this pace in the days ahead.

Beyond that, money managers could be unwinding longs. This group’s crude holdings are the longest in more than two years, according to the most recent CFTC data. Let’s not forget Iran is swamping China with oil. Also, quarter-end window dressing can also get in the way of an otherwise nice trend.

Eoin Treacy's view -

There is no shortage of oil. OPEC is deliberately restricting supply. The shale properties massively reduced drilling activity in response to low prices and rising borrowing costs have inhibited a swift recovery. However, it is not as if the world has to spend hundreds of billions to find new sources of supply. Everyone knows where the oil is. The question is only at what price it will be produced. The higher prices move the greater the sensitivity to supply gains.



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March 18 2021

Commentary by Eoin Treacy

Deutsche Bank Investment Banking Revenue Up 20% This Year

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

Deutsche Bank AG​​​ said investment banking revenue has risen about 20% so far this year, as the market volatility that spurred gains during the height of the pandemic endured into early 2021.

Chief Transformation Officer Fabrizio Campelli gave the outlook for the German lender’s largest revenue contributor at an online event hosted by Morgan Stanley on Thursday, saying also the firm has continued to win market share in investment banking. He didn’t give further details.

Germany’s largest lender earlier flagged a “good start” to 2021, signaling that trading returns are helping to offset a weak economy. Credit Suisse Group AG and Societe Generale SA each flagged strong investment banking momentum recently, with the Swiss lender seeing revenue up 50% from last year.

Eoin Treacy's view -

It’s not so long ago that investors feared Deutsche Bank would go bust or need to be nationalised. The return to profitability in trading and the steepening US yield curve is a tailwind for many investment banks. Banks are highly cyclical stocks that thrive on liquidity provision during steep yield curve phases.



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March 18 2021

Commentary by Eoin Treacy

ByteDance embarks on hiring spree in Singapore

Thanks to a subscriber for this article from the Financial Times which may be of interest. Here is a section:

Singapore is viewed as a neutral city by Chinese technology companies as tensions continue to rise between Washington and Beijing. Tencent and Alibaba both announced last year that the city would serve as a key international hub, with Alibaba spending half a billion dollars to buy a skyscraper in the heart of the financial district in May.

ByteDance has not confirmed which of its international offices is its global hub outside China but its expansion in Singapore — it moved into a larger premises in a landmark office tower late last year — comes amid setbacks in India, the US and the UK, where it has been blocked or accused of breaching privacy regulations.

“As we grow our presence in Singapore, we continue to look for the best global and local talents to support our business and augment local skills and capabilities,” the company said.

The Financial Times reported last year that ByteDance could seek to separate TikTok and other units into a global business that was separate to its Chinese entity. Joe Biden’s administration is reviewing an executive order from former president Donald Trump that sought to force the sale of TikTok’s US operations.

Eoin Treacy's view -

Hong Kong is quickly being absorbed into the Chinese economy. That means its system of governance, with a focus on rule of law and contract negotiation, is being subverted by deference to political will. There is a need for an alternative East-meets-West centre. Singapore is well placed to fulfil that role.



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March 17 2021

Commentary by Eoin Treacy

Video commentary for March 17th 2021

Happy St Patick's Day!

March 17 2021

Commentary by Eoin Treacy

BlackRock, Lombard Say Faster Inflation Calls Are Premature

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

“As the dust settles in the wake of today’s FOMC, we will be focusing upon whether any additional back-up in yields is accompanied by a further widening of breakevens,” said Richard McGuire, the head of rates strategy at Rabobank. “If so then this argues that the move higher in rates is sustainable.”

But as long as U.S. yields don’t rise in a chaotic fashion, risk assets including emerging-market and high-yield corporate debt are expected to outperform, according to BlackRock’s Seth. “Rates can drift higher and still remain a positive backdrop for the risk assets, as long as the vulnerability is under control,” he said.

A Bloomberg Barclays index on global credit returns has gained 11% over the past year, compared with a loss of 2% for a gauge tracking Treasuries. BlackRock switched to a neutral duration position in February from underweight. The fund likes notes sold by Chinese real estate companies and the nation’s onshore bonds.

“The lack of correlation with the rest of the global developed markets also provides a diversification benefit,” Seth said of Chinese debt.

Eoin Treacy's view -

The Fed remains wedded to its view nascent inflationary pressures will not last long. There is a logical argument to support the view that the bounce back from the pandemic lows is exaggerated by the base effect and everything will settle down over the course of the next year or two. Since the Fed is willing to wait and see with inflation, it could be two full years before they are willing to draw firm conclusions.



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March 17 2021

Commentary by Eoin Treacy

Lennar Shares Spike on Plan to Spin Off Startup Investments

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

Lennar Corp. soared after the homebuilder said it will create a spinoff with at least $3 billion in assets.

The new company, which will have $3 to $5 billion in assets and no debt, will include Lennar’s technology investments, according to an earnings call Wednesday.

Lennar, which said it made about $470 million on its investment in Opendoor Technologies Inc., jumped as much as 9.5% to $97.09 in New York. The stock had gained 16% this year through Tuesday’s close.

Miami-based Lennar reported orders on Tuesday that beat estimates as it benefited from the pandemic housing market. It got also a boost from Opendoor, which began trading in December.

Lennar said two other “technology-driven” companies it has invested in also have announced agreements to go public through mergers with special purpose acquisition corporations, or SPACs.

Those companies are Doma, formerly known as States Title, and Hippo, the home-insurance startup that’s merging with a blank-check company led by Zynga Inc. founder Mark Pincus and LinkedIn co-founder Reid Hoffman

Eoin Treacy's view -

It is a clear sign of the times that a home builder, which is about as brick and mortar as it gets, has upwards of $5 billion in technology investments. It’s good news that the company has made wise decisions in what are now highly valued digital assets. However, that decision to prioritise risk in non-core businesses is also a symptom of the wider lack of building new homes that has been a feature of the recovery from the 2007-12 housing recession.



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March 17 2021

Commentary by Eoin Treacy

Tinuiti Acquires Amazon Specialist Ortega Group, Adds Kevin Mayer to Board

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

Ortega will likely be the first in a string of purchases by Tinuiti, which in December became part of private-equity giant New Mountain Capital and is hungry to broaden its capabilities. Tinuiti is in talks to acquire two other companies, said Zach Morrison, its chief executive.

“We set out at the end of last year to find a partner that could take this from a hundred-and-some-million-dollar company to a billion-dollar company,” he said.

Future deals will focus on resources related to working with the “triopoly,” he said, referring to Google, Facebook and Amazon, as well as marketing services around video, digital advertising and first-party data, he said. New board members, like Mr. Mayer, will also bring expertise in those areas, Mr. Morrison said.

Mr. Mayer recently joined sports-streaming company DAZN Group as chairman. He served briefly as chief executive of TikTok and in senior roles at Walt Disney Co. Tinuiti also added Anneka Gupta, president and head of products and platforms at data company LiveRamp, to its board.

Tinuiti, with about 750 staffers, had its strongest growth last year, as businesses sped up their investments in e-commerce and digital marketing to reach consumers in the Covid-19 pandemic, said Mr. Atkinson.

Eoin Treacy's view -

Tinuiti is one of the most successful ad agencies for ecommerce companies. They offer an end-to-end marketing and advertising service with a solid track record of boosting sales right across the Amazon/Shopify/Wal-Mart universe.

They generally require a minimum advertising spend of $25,000 a month to even consider taking on a new client. That suggests a revenue base of at least $1 million in turnover and solid margins to absorb the cost.



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March 17 2021

Commentary by Eoin Treacy

March 16 2021

Commentary by Eoin Treacy

Video commentary for March 16th 2021

Eoin Treacy's view -

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

Some of the topics discussed include: bond yields continue to trend higher and represent a growing headwind for growth, global reflation candidates continue to outperform, gold and oil stable, palladium surges on mine issues. renewables ease. 



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March 16 2021

Commentary by Eoin Treacy

Email of the on solar power, desertification, and profitability

This video is very interesting. It is hard to comprehend the scale of this project.  It is part of China's ''ending poverty'' project.

Whilst the US has been engaged in adventurism in the M-E and elsewhere (right up till today) resulting in heavy losses, both financial and human cost, China has been powering ahead in leaps and bounds, spreading their sphere of influence far and wide. Interesting times.

 

Eoin Treacy's view -

Thank you for this interesting video which is both information and raises some important questions. The point they seek to get across is that solar panel power plants can create clean energy, reverse desertification, and create lucrative income streams for local populations. 

The video at no point discusses the efficiency of the solar panels, the sustainability of using the precious water resource to regularly clean them, the cost/efficiency of power lines to get the electricity to where it is needed or the desire for energy self-sufficiency.



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March 16 2021

Commentary by Eoin Treacy

Big Market Delusion: Electric Vehicles

This article by Rob Arnott for Research Affiliates may be of interest to subscribers. Here is a section: 

From the beginning, the air travel business has been capital intensive and highly competitive. During good times, new airlines emerged and drove down profits. During bad times, many less well-capitalized companies folded. Over the course of the last century, virtually every company in the business either failed or merged into a larger airline, most of which also collapsed.

The simple fact, as Warren Buffett so cleverly stated, is that technology does not translate into great fortunes for investors unless it is associated with barriers to entry that allow a company to earn returns significantly in excess of the cost of capital for an extended period. Of course, Apple, Google, and Facebook are well-known examples of such technological success, but they are the exception rather than the rule. For a host of complicated reasons, these companies have been able to build moats, or barriers to entry, around their businesses. They also benefit from the fact their products can be produced with limited capital investment.

Eoin Treacy's view -

Not every electric vehicle upstart is going to survive but they are currently priced as if they will be the ultimate successors to the global automotive industry. That’s the kind of contradiction bubbles are made of.



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March 16 2021

Commentary by Eoin Treacy

Inside Disney's Plan To Automate Half Its Ad Business Within Five Years

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

Disney is courting two sets of advertisers with its platform approach. Linear TV buyers will be able to buy across new formats more easily and with greater granularity, while programmatic buyers will finally be able to see and bid on all of Disney’s inventory.

Building its own ad tech is a key part of Disney’s strategy. A video ad server “pressure-tested” at Hulu will be extended across the rest of Disney's video inventory. The muscle behind its tech is a 500-person engineering and product team led by Jeremy Helfand, previously Hulu’s VP and head of advertising platforms. The team already built the video ad server and the video header bidding solution that allows programmatic buyers to compete for every Disney ad impression. 

The team came about last year, when Disney merged all of its Hulu and Disney ad tech talent and products into a single, centralized team. All in, Disney said it’s making a “nine-figure” investment in its ad platform.

Eoin Treacy's view -

Google’s announcement that it is shutting down the tracking of user activity across websites is going to cause ructions for many companies that rely on that data to target the ads they buy. It also hands greater control to the owners of data pools who now have greater heft in selling access to potential ad buyers.



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March 15 2021

Commentary by Eoin Treacy

March 15 2021

Commentary by Eoin Treacy

Yields, ETF Buying BOJ Set to Add Flexibility

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

The basic elements of yield-curve control will probably remain unchanged, with the short-term rate anchored at -0.1% and the BOJ aiming to keep the 10-year JGB yield around 0% -- while allowing fluctuations depending on economic and price developments.

We expect Kuroda to renew the commitment to the 10-year yield range of +/-0.2 ppt around 0%, but -- importantly -- also indicate that temporary moves beyond the range would be acceptable, as long as the effects of monetary easing aren’t disrupted and the yield curve is consistent with economic activity, prices, and financial conditions.

In operational terms, this may mean the BOJ will conduct its JGB purchases with more flexibility -- changing the frequency of the operations and the menu of its purchases, depending on market conditions.

This would help improve the functioning of the Japanese government bond market in terms of price discovery and liquidity -- increasing policy sustainability.

Eoin Treacy's view -

The question investors are likely asking is if the Bank of Japan is willing to loosen its yield curve control bands, do they believe inflation is in fact returning with sufficient vigour to initiate a trend?

One of the primary reasons for the Yen’s strength is because deflation was a surety. The supply might increase but there was no chance of inflation eroding the holding overnight. Meanwhile, the positive current account balance acted as a counterweight to the increasing money supply. If the BoJ is willing to change their perception of inflationary pressures that’s toxic for the Yen.



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March 15 2021

Commentary by Eoin Treacy

Billionaire investor Mike Novogratz says bitcoin will be like a report card that measures how the government is handling

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

"Bitcoin will literally be like a report card for how citizens think the government is doing managing their finances," the Galaxy Digital CEO said on CNBC's "Squawk Box" after the cryptocurrency hit a record high above $61,000over the weekend.

Novogratz indicated that bitcoin is an inflationary hedge and a digital store of value, rather than regular money, which is why institutions, money managers, and retail investors are piling into the digital asset. If people in the US believe Fed Chair Jerome Powell and Treasury Secretary Janet Yellen can facilitate full employment for the economy while avoiding inflation, they will stop buying bitcoin, he said.

The billionaire further said there has been a "secular shift" from the mindset that bitcoin isn't an asset class, to it now becoming one. "We're in uncharted territories in how much money we're printing and bitcoin is a report card on that," he said.

Eoin Treacy's view -

Bitcoin is the ultimate risk asset. Any delusion that it would be uncorrelated with other assets evaporated as soon as institutional investors began to participate. In that respect I agree with Mike Novogratz, people buy it as a speculative asset. When money is being printed with abandon it is the asset that has increased most in value.



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March 15 2021

Commentary by Eoin Treacy

Why in the World Would You Own Bonds

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

…History and logic show that central banks, when faced with the supply/demand imbalance situation that would lead interest rates to rise to more than is desirable in light of economic circumstances, will print the money to buy bonds and create “yield curve controls” to put a cap on bond yields and will devalue cash. That makes cash terrible to own and great to borrow. Through their powers central banks can, at least temporarily, put a lid on interest rates and keep short-term interest rates low relative to long-term rates so that it becomes profitable to buy bonds with cash, which central banks abundantly provide which makes real interest rates very negative. For example, during the 1930-45 period the Fed kept the bond yield around 2.5% and the cash yield around 1%, which made it profitable to borrow cash and use it to buy and own bonds. While that can make holding bonds financed with cash profitable at low rates, under such circumstances both the cash rate and the bond rate are bad. Naturally, because cash rates are so low it pays to borrow cash and invest it in investments that are higher-returning. Back in the 1930-45 period, the Fed was able to keep yields there, and the way they did that was also through outlawing gold and the movement of capital elsewhere. So, when I look at it, while I want to be short bonds (because they have the most terrible fundamentals), I do know that central bankers can keep cash more terrible, and I do know that they might have to prevent the movement to other storehold of wealth assets and other countries. 

Eoin Treacy's view -

There is a good reason large hedge fund managers have been buying trophy properties around the world. They wish them to be hedges against the potential for a significant devaluation in the purchasing power of their wealth. At the other extreme we have people like Elon Musk who just sold all his property (in California) because he is afraid of being taxed into oblivion. That suggests while some are betting on property as a hedge, the location in a friendly regulatory environment is likely to either make or break the trade.



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March 12 2021

Commentary by Eoin Treacy

March 12 2021

Commentary by Eoin Treacy

Treasury Yields Surge to Test Key Level in Sudden Selling Bout

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

The move started in Australia, where bond futures fell heading into the market’s close to put modest pressure on Treasuries. At around the same time, there was a block sale of 10-year ultra bond futures, followed by a buyer of downside put options -- the hedging of which tends to weigh on the market. The three combined to tip 10-year Treasury futures through Thursday’s session low, which unleashed the wave of selling.

As many as 20,000 contracts changed hands in the next five minutes, the largest activity of the day. The speed and severity of the move left many traders perplexed, with volumes in the cash market comparatively modest.

The moves there were most pronounced in the benchmark 10-year tenor, with the yield curve steepening as two-year rates only rose as much as two basis points. European bonds followed Treasuries, with U.K. 10-year yields up five basis points to 0.79%.

Eoin Treacy's view -

Macro traders make money by sniffing out logical inconsistencies and pushing them until they break. George Soros and his ilk pressuring the Pound’s ERM fix is one such notable example so are the small number of traders that correctly called the demise of the subprime markets.

These kinds of contrarian bets are aided by the fact that crowds thrive on contradiction. The biggest bull markets inevitably breed the biggest contradictions because outlandish forecasts are required to justify buying at extraordinary highs.



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March 12 2021

Commentary by Eoin Treacy

Platinum Quarterly

This report from the World Platinum Investment Council may be of interest to subscribers. Here is a section:

In 2020 the platinum market was in a deficit of -932 koz, the largest annual deficit on record albeit below the -1,202 koz deficit forecast in November 2020. This difference was due to Anglo American Platinum Converter Plant (ACP) Phase A being restarted in December 2020, three weeks earlier than expected. However, over the year, as a whole, lower supply due to COVID-19-related mine closures, ACP outages and reduced recycling far outweighed the pandemic-driven fall in demand from the automotive, jewellery and industrial sectors, which fall was partially offset by increased investment demand.

For 2021 the platinum market is forecast to remain in a deficit for the third consecutive year. The modest deficit of -60 koz results from a 17% increase in total supply and a 3% increase in total demand. Interestingly, total supply in 2021 will still be 3% lower than in 2019, with industrial, jewellery and automotive demand levels all above their respective levels in 2019.

Total platinum demand in 2020 was 7,738 koz, 7% (-569 koz) lower than in 2019. Automotive demand reduced by 17% (-474 koz) year-on-year, largely due to lower vehicle sales in the first half of the year, as measures to control the spread of COVID-19 resulted in vehicle factory and showroom closures. However, platinum automotive demand losses were cushioned by the impact of higher metal loadings on catalysts to meet tighter emissions regulations. Jewellery demand was similarly impacted in 2020, with volumes 13% (-279 koz) lower on a full-year basis despite quarter four demand returning to pre-pandemic levels. Industrial demand was 5% (-111 koz) lower, with strong glass sector demand largely compensating for weakness in all other industrial demand segments.

In 2020, weakness in automotive, jewellery and industrial demand was partly offset by strong investment demand, from bars and coins and ETFs, collectively up 24% (+295 koz) year-on-year. Heightened global risk drove investor demand for hard assets such as platinum during the first half of the year, further encouraged by the weak platinum price. Investment demand increased in line with the improving economic outlook in the second half of 2020 and was bolstered by NYMEX futures exchange physical metal stocks, that increased significantly to address the disconnect between the price of platinum futures and platinum. However, as the year progressed bar and coin demand moderated somewhat as the platinum price increased and stock shortages in North America were addressed. ETF holdings increased strongly over the year with growth in North America, Europe and Japan far exceeding declines in South Africa.

Eoin Treacy's view -

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

Platinum is more of an industrial metal than an investment vehicle. The demise of diesel engines resulted in a crash because catalytic converter demand evaporated.

That is exactly what happened to silver when digital cameras eroded demand for photographic film. The price of silver halved between 1989 and 1991 as the first digital cameras arrived on the market. Without that major source of demand, the price drifted in a range for more than a decade. It did not breakout until a new source of demand appeared. It broke out in 2003 as emerging market investment demand heated up and Western investors worried about financial repression in the aftermath of the tech bust.



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March 12 2021

Commentary by Eoin Treacy

Tencent, Baidu Fined by Antitrust Regulator for Past Deals

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

“The message is clear that seeking government approvals in deals like these are a must.” said Ye Han, a partner at Beijing-based law firm Merits & Tree, who specializes in antitrust and M&A.

“While we haven’t seen cases where companies got broke up or mergers got unwinded, such evaluations are likely going on behind the scene.”

Didi Mobility Pte, a unit of ridehailing giant Didi Chuxing, and Japan’s SoftBank Corp. were also issued fines of 500,000 yuan each -- the maximum penalty possible -- for setting up a joint venture without permission. A ByteDance unit and its partner Shanghai Dongfang Newspaper Co. were also penalized the
same amounts for a 2019 partnership that created a video-copyright venture. ByteDance said the joint venture has since been canceled.

Technology companies like Tencent had previously carried out mega mergers and acquisitions through so-called Variable Interest Entity structures, which operate on shaky legal grounds. The new antitrust rules, accompanied by the fines handed down by the regulators, are a signal VIEs are now under
their oversight.

Eoin Treacy's view -

Being a Chinese billionaire is a dangerous profession. Wang Jian, head of HNA group, fell to his death while posing for a photo in France in 2018. Richard Lu, CEO of JD.com, was accused of rape in the USA the same year. Jack Ma fell foul of the Party late last year and disappeared from view for months. Lin Qi was murdered by a business colleague in December. In the eight years up to 2011 China executed 14 billionaires for various reasons including murder and graft.    



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