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January 31 2023

Commentary by Eoin Treacy

Video commentary for January 31st 2023

January 31 2023

Commentary by Eoin Treacy

Email of the day on emerging market potential

Hello Eoin, In today's Financial Times it is stated that the IMF is concerned about the risks of debt defaults by emerging market companies and states. How does this bring into question the flow of stock market investments in these countries in recent months?

Eoin Treacy's view -

Thank you for this question which is certainly topical. Countries like Ghana, Egypt, Pakistan, Lebanon, and Turkey experienced significant stress in their respective debt markets over the last 12 months. The unfolding drama with Adani group in India is an additional sign that global liquidity conditions are tightening. I think it reasonable to assume the flow of money into “emerging markets” is either bargain hunting or avoiding some of these destinations. 



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January 31 2023

Commentary by Eoin Treacy

Europe's 1 Trillion Euro Bond Frenzy Is Reaching New Heights

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

There’s a stampede in the European bond market to buy high-quality notes paying hefty yields.

Investors have bid a total of €1 trillion ($1.08 trillion) on corporate and sovereign debt this month, fueling a ferocious comeback in markets battered by last year’s selloff. The intensity of demand is so high that the average order book is more than three times the size of what’s available to buy.

That’s the second-highest ratio for any January of the past five years, according to data compiled by Bloomberg, and shows that investors are acting fast and early to fill their portfolios, especially with investment-grade debt. 

“Investors are taking on risk and there is good appetite,” said Stephanie Besse, global head of debt capital markets for corporates at Natixis CIB. “We have seen strong demand at the long end of the curve, which is a sign of trust in credit markets.”

Eoin Treacy's view -

Investors neglected investing in Europe because of the assumption the region would experience a deep winter of discontent because of the impending energy crisis. Regional governments instead spent whatever was necessary to ensure that did not happen. That resulted in natural gas prices spiking during the summer. The price predictably collapsed when the price-insensitive inventory-build abated. 



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January 31 2023

Commentary by Eoin Treacy

Email of the day on Credit Suisse

As always thanks for your excellent service. I appreciate your comments on Volkswagon today, and am considering buying some, as I don't see how the German government would let VW go under. Can you also please comment on Credit Suisse. Do you think there is a serious risk that Credit Suisse will not survive. Thanks in advance. 

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. Credit Suisse employs over 50,000 people so I imagine the Swiss government has an interest in ensuring it remains a going concern.

The biggest challenge for all Swiss banks is they lost all their US clients when they were forced to share account details in 2012. That sharing was greatly expanded in 2017 and today Switzerland shares details with almost 100 countries. Swiss banks have struggled to tap into new markets like China and India. 



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January 31 2023

Commentary by Eoin Treacy

GM to help Lithium Americas develop Nevada's Thacker Pass mine

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

GM would supplant China's Ganfeng Lithium(002460.SZ) to become Lithium Americas' largest shareholder. GM has also agreed to buy all the lithium from Thacker Pass when it opens in 2026 - roughly 40,000 tonnes per year.

Under the agreement, GM will buy $650 million of shares in Lithium Americas in two equal parts, with the first tranche coming only if Lithium Americas prevails in an ongoing court case. A U.S. judge earlier this month said she would rule "in the next couple of months" in the case, which centers on whether former U.S. President Donald Trump erred when he approved the mine just before leaving office in 2021.

Eoin Treacy's view -

The automotive industry appears to be getting back to its roots. Fifty years ago it was common for bid industrials to control mines, processing, fabrication and manufacturing in a vertically integrated business model. The 1970s ushered in offshoring and just in time manufacturing and inventory was suddenly considering a balance sheet liability. In the aftermath of the pandemic and now war in Ukraine, the merits of controlling the supply chain are being viewed with fresh perspective. 



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January 31 2023

Commentary by Eoin Treacy

January 30 2023

Commentary by Eoin Treacy

January 30 2023

Commentary by Eoin Treacy

Adani Debts Enter Spotlight as Dollar Bond Coupon Deadlines Loom

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

There has been no suggestion that the Adani entities would struggle to make these payments, and Adani has flagged interest coverage ratios that show it has the wherewithal to meet such obligations.

But Hindenburg’s report last week alleging “accounting fraud” along with its short position in Adani’s US-traded bonds and non-Indian-traded derivatives has put the debt in the spotlight. Some of the notes have fallen to distressed levels below 70 cents on the dollar that generally show mounting concern about creditworthiness. The securities extended declines Monday after a rebuttal by the Indian conglomerate and as Hindenburg followed with its own response.

Eoin Treacy's view -

Tightening global liquidity causes liquidity issues. We’ve seen several examples of that in the last 12 months. The UK pension crisis, South Korean perpetuals, frontier country sovereign defaults, REIT withdrawal issues are all symptoms of that theme. The issues currently being explored with Adani are part of the same trend. The longer rates stay high and as liquidity tightens the more these issues will appear. Eventually we will see solvency issues arise.



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January 30 2023

Commentary by Eoin Treacy

Email of the day on inflation and interest rates hikes

In a recent article, Joseph Stiglitz argues that the current inflation is primarily due to the supply-side shock of the Covid crisis and to shifts in the demand patterns. His view is that the rate of inflation has already peaked - it is 1% higher now than in June 2022. He claims that the rise in interest rates has been largely passed on to consumers via higher prices and that any future interest rate rises would be inflationary.

Eoin Treacy's view -

Thank you for this email which may be of interest. I believe the article you referring to is Stiglitz’s one in Project Syndicate. Here is a section:

Worse, it is not even clear that there is any upside to this approach. In fact, raising interest rates could do more harm than good, by making it more expensive for firms to invest in solutions to the current supply constraints. The US Federal Reserve’s monetary-policy tightening has already curtailed housing construction, even though more supply is precisely what is needed to bring down one of the biggest sources of inflation: housing costs.

Moreover, many price-setters in the housing market may now pass the higher costs of doing business on to renters. And in retail and other markets more broadly, higher interest rates can actually induce price increases as the higher interest rates induce businesses to write down the future value of lost customers relative to the benefits today of higher prices.

To be sure, a deep recession would tame inflation. But why would we invite that? Fed Chair Jerome Powell and his colleagues seem to relish cheering against the economy. Meanwhile, their friends in commercial banking are making out like bandits now that the Fed is paying 4.4% interest on more than $3 trillion of bank reserve balances – yielding a tidy return of more than $130 billion per year.

The assumption the passthrough mechanism from costs to rents is seamless is a big leap. Without a healthy economy that delivers wage growth, rental yields increase through lower purchase prices. This article describing how robo-purchases by institutional investors in property have gone wrong, particularly Opendoor, may also be of interest. 



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January 30 2023

Commentary by Eoin Treacy

Zero-emission Steel Won't Happen Without Trade-offs, Scientists Say

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

The steel industry is working on solutions. According to the Leadership Group for Industry Transition, at least 73 green steel projects are in progress. But the researchers say the technology just isn't there yet.

"These technologies still face serious technical, economic, and social challenges, and have yet to be implemented at scale," said Takuma Watari, a researcher at the National Institute for Environmental Studies in Japan and the paper's first author, in a news release. It's still unclear whether enough electricity will be available in the future to power these innovations, he said.

Better processes for recycling steel scraps into high-quality materials are needed, the researchers write. They call for partnerships between the steel industry and users in a variety of sectors. But the current system "is incompatible with a zero-emission future," they write.

Eoin Treacy's view -

Electric arc furnaces rely on scrap steel and the major steel producers in developed countries have been busy securing scrap supplies over the last decade. If global steel production is to grow, then relying on scrap to provide carbon content is not going to be sufficient. That means either production new steel is going to have to become much more carbon efficient or the global sector will need to contract significantly to meet carbon emissions targets.



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January 27 2023

Commentary by Eoin Treacy

January 27 2023

Commentary by Eoin Treacy

Google Tries to Catch Up to Rivals Like OpenAI as They Release Viral Apps

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

Unlike OpenAI and other startups such as Stability AI, Google has released its most powerful image- and text-generation models only to a limited group of testers. Google executives in recent years have stressed the need to test new artificial-intelligence tools for signs of bias while guarding against potential misuse, concerns shared by many academics.

Such caution has at times frustrated researchers at groups such as the artificial-intelligence unit Google Brain, some of whom have left to raise money for their own startups where they can more easily release new products, said people familiar with the matter.

Last week, the head of Google's research division, Jeff Dean, published a more-than-7,000-word blog post summarizing the company's recent work in artificial intelligence, writing that the developments are "making their way into real user experiences that will dramatically change how we interact with computers."

The pressures add to a difficult business environment for Google, whose search and ad-tech operations have both been targeted by Justice Department lawsuits. Google also announced the largest layoffs in company history last week, cutting about 12,000 employees.

"We have long been focused on developing and deploying AI to improve people's lives," a Google spokeswoman said. "We believe that AI is foundational and transformative technology that is incredibly useful for individuals, businesses and communities, and as our AI Principles outline, we need to consider the broader societal impacts these innovations can have."

Eoin Treacy's view -

Google had a reservation robot system running in 2018. It automatically made calls to the restaurant when an online booking system was not available. They got so much backlash against robots taking jobs that it essentially canned the program. Today apps like Opentable or Fork have grown to capture more of the booking market but that does not negate the fact robo caller tech is at least five years old. 



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January 27 2023

Commentary by Eoin Treacy

The Fed's Preferred Inflation Gauge Cooled...or Did It?

This article from Barron’s may be of interest. Here is a section: 

But in a Nov. 30 speech at the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, Powell said he was watching something even more specific -- not core PCE, but core services PCE less housing. "[This] may be the most important category for understanding the future evolution of core inflation," Powell said at the time.

That isn't just specific, it is super specific. Core PCE already strips out food and energy. Core services PCE strips out food, energy, and the cost of physical goods. Powell wants to remove housing as well because "as long as new lease inflation keeps falling, we would expect housing services inflation to begin falling sometime next year," he explained.

When Powell refers to core services PCE less housing, he is really talking about the job market. "Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category," he said. "Thus, another condition we are looking for is the restoration of balance between supply and demand in the labor market."

Eoin Treacy's view -

The Core services ex-housing PCE inflation measure continues to hold above 4% which is higher than at any time since 1992. It does look like it has peaked so the question is how quickly it will contract. The hopes for a soft landing reside in this measure falling back to below 3% and staying there without an uptick in unemployment.  



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January 27 2023

Commentary by Eoin Treacy

Putin Braces for Long War as He Plans New Offensive in Ukraine

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

Putin’s confidence in his military’s ability to grind out a triumph - even at a cost of vast casualties and destruction - reflects a misreading of the West’s commitment to turn back his aggression, some insiders concede. The US and its allies have steadily stepped up weapons supplies to categories once considered off-limits.

Still, US and European military officials fear the conflict could soon settle into a World War I-style artillery fight with largely stagnant front lines, a scenario that could come to favor Russia, with its larger population and military industry.

Diplomatically, Russia has sought to win supporters among non-western countries with appeals for talks on a cease-fire. Even people close to the Kremlin admit those are hopeless at present, given Ukraine’s demand that Russia pull out its troops as a condition for any deal.

The minimum the Kremlin would accept would be a temporary truce that left Russia in control of the territory its forces currently hold in order to win time to rebuild its forces, the people said. Though short of the boundaries of the regions that Putin illegally annexed in September, that would still leave Russia with a large swath of land, linking the areas it occupied before the war. As a result, the idea is a nonstarter with Kyiv and its allies.

“Unless something changes, we’re looking at a war of attrition like World War I, which could go for a long time because both sides believe time is on their side,” said Andrey Kortunov, head of the Kremlin-founded Russia International Affairs Council. “Putin is sure either the West or Ukraine will grow tired.”

Eoin Treacy's view -

The route to a Russian victory lies in a war of attrition. They have more artillery, shells and tanks than NATO so they estimate a long drawn out conflict will eventually favour larger numbers. Absorbing high casualties is part of that strategy. It worked for Iran against Iraq in the 1980s and Russia appears to be following a similar strategy. 



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January 26 2023

Commentary by Eoin Treacy

Video commentary for January 26th 2023

Eoin Treacy's view -

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

Some of the topics discussed include: Intel disappoints, Tesla discounting temporarily boosts demand, carbon credits and oil firm, European banks break higher, Hong Kong resumes trading with further gains, bonds yields steady, Australian dollar firm



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January 26 2023

Commentary by Eoin Treacy

Made-in-China Cars Are Primed to Conquer the Global Market

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

“To fight the Chinese, we will have to have comparable cost structures,” Stellantis NV CEO Carlos Tavares said on Dec. 19, speaking to reporters at a powertrain plant in Tremery in northern France. “Alternatively, Europe will have to decide to close its borders at least partially to Chinese rivals. If Europe doesn’t want to put itself in this position, we need to work harder on the competitiveness of what we do.”

And

The growth in the supply chain in China has also kept pace with car manufacturing. Domestic companies now make almost all parts, including those they used to import until about a decade ago, such as high-strength steel and reinforced fiberglass. As a result, China ran a trade surplus in vehicles and vehicle parts for the first time in 2021. The assembly lines still depend on advanced machines from Japan and Germany, though.

“There seems to have been a step change,” Dyer says. “The long-term trend is for increasing sales of Chinese brands around the world.”

Eoin Treacy's view -

A decade ago it was obvious China was moving up the value chain in manufacturing. It might have not have reached heights of 3nm chip production but planes and automobile parity is now a reality. That’s as much of challenge for Airbus and Boeing as it is for Toyota, Hyundai, Volkswagen and GM. 



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January 26 2023

Commentary by Eoin Treacy

Australia's 4Q CPI Gives More Reason to End Hikes in Feb

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

Australia's surprisingly strong 4Q inflation isn't likely to phase the Reserve Bank of Australia. The headline outcome exceeded consensus estimates, but undershot the central bank's forecasts - and isn't a threat to our view that a February rate hike is likely to be the last of this cycle.

The economy’s inflationary pulse largely reflects temporary shocks, centered on utilities and airfares in 4Q. A number of other categories showed continued signs that pressures are set to subside in 2023. The central bank’s expectation for a lift in wage growth - necessary for inflation to be sustained in the target band - looks increasingly vulnerable given emerging signs of a softening labor market. Click on the Text tab for the full report.

Eoin Treacy's view -

The Australian Dollar has broken the two-year sequence of lower rally highs against the US Dollar. This is the 7th time since 1985 that the Australian Dollar has rebounded from the $0.60 area. The only time it has sustained move below that level was a brief period between 2001 and 2002. I’ll never forget that time because I felt well off from my success in door to door selling in Melbourne and only got £1 for every A$2.60 when I got to London in the spring of 2000. 



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January 26 2023

Commentary by Eoin Treacy

Intel Tumbles After Forecast Suggests Its Comeback Is Far Off

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

Intel Corp. slid in late trading after giving a dire forecast for the current period, hurt by sinking demand from PC customers and tough competition in the lucrative market for server hardware. 

First-quarter sales will be $10.5 billion to $11.5 billion, the chipmaker said in a statement Thursday. That compares with an average analyst estimate of $14 billion. Intel expects to lose 15 cents in the quarter, excluding some items. Analysts had projected a profit of 25 cents.

The outlook reflects the myriad challenges facing Intel, which was attempting to stage a comeback even before the market for personal-computer chips — its main source of revenue — fell into a slump. To get back on track, the company needs computer makers to quickly work through inventory stockpiles and return to ordering components. That would provide Intel with a revenue boost needed to help shore up its finances, which were already stretched by ambitious plans to regain technological leadership within the chip industry. 

Eoin Treacy's view -

The road to global competitive leadership is long and filled with obstacles. Above all catching up with Taiwan Semiconductor will be expensive and, even then, may not be possible. Both Intel and IBM failed to satisfy expectations for future earnings this week. 



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January 25 2023

Commentary by Eoin Treacy

January 25 2023

Commentary by Eoin Treacy

Private Equity's Loved Assets Turn Problem Children in Downturn

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

“In terms of just the macro and company performance, I think it will be much more muted as people capture the inflationary pressures,” he said. “Private equity M&A activity I think will be dampened.”

Concerns around portfolio company performance were not the only challenges up for discussion in the south of France, with private equity firms struggling to secure the debt financing they need to do big deals and juice returns and facing more competition when raising funds. 

The chief economist at German insurer Allianz SE, Ludovic Subran, said the industry had “nowhere to hide” when markets turned last year. “The private equity world has not been immune or has not defied gravity,” he said.

Banks pulling back from lending on buyouts was described as a “new reality” by Francois Jerphagnon, head of Ardian Expansion, in an interview with Bloomberg TV. This will open up an opportunity for private credit funds to step in, others said.

“There is much more interest in private credit and infrastructure where you do have that hedge against inflation and that hedge against rising rates,” said Richards at Pantheon.

Blackstone’s Eapen said private credit providers are in “the middle of a golden age” and that last year had been one of his business’s biggest ever for deploying capital. 

Eoin Treacy's view -

After the credit crisis, the vindictive wish of anyone who lost money in the crash was for banks to go broke. At the very least everyone concluded they needed to be heavily regulated. Today the burden of regulation is heavy within the banking sector and we are in our 15th year since the crash. 



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January 25 2023

Commentary by Eoin Treacy

Morgan Stanley IM Says the Decade of Emerging Markets Has Begun

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

“Every decade, there is a new leader in the market. In the 2010s, it was US stocks and mega-cap tech,” Kandhari said in a phone interview. “Leaders of this decade can clearly be emerging-market and international stocks.” Morgan Stanley IM has $1.3 trillion in assets under management.

The asset class has had a strong start to the year, with the MSCI emerging-markets index soaring 8.6% compared with a 4.7% advance for the US benchmark. The gains come as China’s pullback from its strict Covid Zero policy brightens the economic outlook, while investors position for the end of aggressive central bank interest-rate hikes. Many also still see US stocks as expensive, with those in emerging-markets trading at a nearly 30% discount.

There’s a growing disconnect between US’s shrinking share of the global economy and the size of its stock market capitalization, Kandhari said. Along with fund allocations to emerging-markets that are well below historical averages and inexpensive currencies, that gives them a lot of room to outperform, she said.

“What really drives this asset class is the growth differential, and that growth differential of the EM is improving relative to the US,” she said.

Eoin Treacy's view -

The risk of a US recession is increasingly being priced into equity markets. At the same time, China has just exited its three-year quarantine. US money supply is now negative on a year over year basis for the time. China is boosting monetary and fiscal support for its markets. Even with arguments about trade wars and competing systems, it will still be easier to make money in China this year. 



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January 25 2023

Commentary by Eoin Treacy

Jeremy Grantham Warns of a 17% Plunge in the S&P 500 This Year

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

Grantham views the process of further stock market pain playing out now as similar to the popping of bubbles following other rare “explosions of investor confidence” such as in 1929, 1972 and 2000. While many are attributing last year’s slide in stocks to the war in Ukraine and the surge in inflation, or reduced growth from Covid-19 and ensuing supply chain problems, Grantham believes the market was due for a comeuppance regardless.

While the first and “easiest” leg of the bubble’s bursting is over, Grantham says that the next phase will be more complicated. Seasonal strength in the market in January and during the current period of the presidential cycle could keep the market buoyant in the early part of the year. “Almost any pin can prick such supreme confidence and cause the first quick and severe decline,” he wrote. “They are just accidents waiting to happen, the very opposite of unexpected. But after a few spectacular bear-market rallies we are now approaching the far less reliable and more complicated final phase.”
 

Eoin Treacy's view -

I was at dinner last night with some very successful elderly investors who chastised me for being too bearish. Their contention was that the lows were posted in October and the market always bottoms ahead of earnings. So let’s consider the argument that the October nadir is unlikely to be exceeded. 



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January 24 2023

Commentary by Eoin Treacy

Video commentary for January 24th 2023

Eoin Treacy's view -

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

Some of the topics discussed include: Australia extends rebound aided by the US Dollar's decline, Japan and Hong Kong also firm, India steady, Defense companies firm, significant single stock volatiltiy on the back of earnings, gold continues to firm. 



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January 24 2023

Commentary by Eoin Treacy

The Future of Uncertainty

Thanks to a subscriber for this transcript of 3rd Atal Bihari Vajpayee Memorial Lecture delivered by Ambassador Bilahari Kausikan of Singapore in New Delhi yesterday. Here is a section: 

First, no country can avoid engaging with both the US and China. Dealing with both simultaneously is a necessary condition for dealing effectively with either. Without the US there can be no balance to China anywhere; without engagement with China, the US may well take us for granted. The latter possibility may be less in the case of a big country like India, but it is not non-existent.

Second, I know of no country that is without concerns about some aspect or another of both American and Chinese behaviour. The concerns are not the same, nor are they held with equal intensity, and they are not always articulated – indeed, they are often publicly denied -- but they exist even in the closest of American allies and in states deeply dependent on China.

Eoin Treacy's view -

This perspective gels very well with the reality on the ground I observed in Saudi Arabia on my last two visits. The simple reality is China is the country’s biggest customer and the USA the country’s greatest geopolitical ally. There is no way to play favourites the greatest risk for any country is to be taken for granted because that greatly enhances the scope for one’s interests to be trampled. 



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January 24 2023

Commentary by Eoin Treacy

Germany Set to Allow Poland's Re-Export of Tanks to Ukraine

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

As Ukraine and its allies prepare for a potential escalation in fighting in the spring, the debate over sending battle tanks to back Kyiv’s military and potentially retake territory has become a flashpoint among NATO allies. US and European officials have bridled at Scholz’s slow decision-making, saying the German leader should be more assertive, following through his promised “Zeitenwende,” or historic turning point on security. 

Scholz has insisted that Germany should not act alone in sending new categories of heavy weapons that could provoke an escalation with Moscow. He’s placed a premium on moving in lockstep with the US and NATO. 

“We never go alone,” Scholz said in an interview last week with Bloomberg. 

Eoin Treacy's view -

There are estimates Rheinmetall could send as many as 139 Leopard Type 1 and 2 tanks to Ukraine via various swap agreements over the next several months. By that time, there is a risk available inventory will be fully exhausted. 



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January 24 2023

Commentary by Eoin Treacy

Microsoft beats on earnings as cloud unit shows strong growth

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

Microsoft’s total revenue increased by 2% year over year in that quarter ending Dec. 31, the slowest rate since 2016, according to a statement. Net income fell to $16.43 billion from $18.77 billion in the year-ago quarter. The company took a $1.2 billion charge in the quarter in connection with its decision to cut 10,000 employees, revise its hardware lineup and consolidate leases.

Revenue in Microsoft’s Intelligent Cloud segment amounted to $21.51 billion, up 18% and slightly above the $21.44 billion consensus among analysts polled by StreetAccount. The unit includes the Azure public cloud, Windows Server, SQL Server, Nuance and Enterprise Services. Revenue from Azure and other public cloud services, which Microsoft does not report in dollars, grew by 31%, slightly above the estimate of almost 31% that analysts polled by CNBC and StreetAccount had expected. In the previous quarter, the category grew 35%.

Eoin Treacy's view -

Cloud computing helped to save Microsoft’s quarter since compute, which includes computer games declined by 19%.

Cloud computing is not about to disappear but the days of every cloud company doing well are over. There is not clear scope for consolidation and middle market players will either be acquired or out competed over the coming couple of years. 



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January 23 2023

Commentary by Eoin Treacy

January 23 2023

Commentary by Eoin Treacy

World Economic Forum Global Risk

This report goes to some lengths to highlight the worst possible outcome for the global economy but then goes on to say that fewer than half of participants are as gloomy as the report’s conclusions. Here is a section: 

The report describes four potential futures centred around food, water and metals and mineral shortages, all of which could spark a humanitarian as well as an ecological crisis – from water wars and famines to continued overexploitation of ecological resources and a slowdown in climate mitigation and adaption. Given uncertain relationships between global risks, similar foresight exercises can help anticipate potential connections, directing preparedness measures towards minimizing the scale and scope of polycrises before they arise.

In the years to come, as continued, concurrent crises embed structural changes to the economic and geopolitical landscape, they accelerate the other risks that we face. More than four in five GRPS respondents anticipate consistent volatility over the next two years at a minimum, with multiple shocks accentuating divergent trajectories. However, respondents are generally more optimistic over the longer term. Just over one-half of respondents anticipate a negative outlook, and nearly one in five respondents predict limited volatility with relative – and potentially renewed – stability in the next 10 years.

Indeed, there is still a window to shape a more secure future through more effective preparedness. Addressing the erosion of trust in multilateral processes will enhance our collective ability to prevent and respond to emerging cross-border crises and strengthen the guardrails we have in place to address well-established risks. In addition, leveraging the interconnectivity between global risks can broaden the impact of risk mitigation activities – shoring up resilience in one area can have a multiplier effect on overall preparedness for other related risks. As a deteriorating economic outlook brings tougher trade-offs for governments facing competing social, environmental and security concerns, investment in resilience must focus on solutions that address multiple risks, such as funding of adaptation measures that come with climate mitigation co-benefits, or investment in areas that strengthen human capital and development.

Some of the risks described in this year’s report are close to a tipping point. This is the moment to act collectively, decisively and with a long-term lens to shape a pathway to a more positive, inclusive and stable world.

Eoin Treacy's view -

The worst case scenario seldom comes to pass. That’s an important point to remember when sentiment about the future is so bearish. Some of the biggest challenges are with relation to how populations are distributed globally. That’s true because of migration within countries to the coasts and because the highest population growth countries are all in the emerging markets. These factors are stressing water resources. So is the fact that water infrastructure is hard to build and politically fraught so also hard to get paid for building it. In the end it comes down to governance. 



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January 23 2023

Commentary by Eoin Treacy

Giant Fund Buys Up Tesla and Plug Power Stock, Sells GM

This article from Barron’s may be of interest to subscribers. Here is a section: 

DNB Asset Management materially increased investments in EV maker Tesla (ticker: TSLA) and Plug Power (PLUG), a hydrogen fuel-cell technology company, while slashing its stake in General Motors (GM) in the fourth quarter. The unit of Norway's largest financial-services firm, DNB, disclosed the stock trades, among others, in a form it filed with the Securities and Exchange Commission.

Eoin Treacy's view -

Norway’s commitment to renewables is a very vocal and not least because it is such a large exporter of oil and gas. Nevertheless, one cannot argue with the timeliness of these purchases. Tesla lost 75% of its value in little more than a year. That’s a sufficiently large drop to encourage some value oriented interest. 



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January 23 2023

Commentary by Eoin Treacy

Goldilocks And The Magic Money Tree

Thanks to a subscriber for this article by Anatole Kaletsky which may be of interest. Here is a section from the conclusion: 

To call the vindication of MMT a reductio ad absurdum, as I did above, is perhaps an exaggeration. MMT economists made some interesting arguments about the interaction of monetary and fiscal policy which orthodox economists and central bankers were wrong to ignore. But what about the Magic Money Tree? If inflation is cured painlessly by the end of the year and Goldilocks returns to dominate the markets for the next decade, as investors are now expecting, then governments will revive their interest in the Magic Money Tree. I too may start to believe in fairy tales—and we can all live happily ever after.

Eoin Treacy's view -

The immortal word’s of former Citigroup CEO Chuck Prince come to mine when I see bond yields rising from already high levels, and a risk-on rally gaining traction on Wall Street. ““When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” 



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January 20 2023

Commentary by Eoin Treacy

January 20 2023

Commentary by Eoin Treacy

Spared in 2020, Debt-Heavy Companies Cede Control to Creditors

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

Many junk-rated companies will require urgent funding. They may struggle to find it at a time when investors’ demand for sky-high premiums has effectively shut public capital markets as a refinancing avenue for the most stressed firms.

While default rates are expected to increase, it may not immediately become a flood of failures. A large chunk of high-yielding debt has weak investor safeguards — loose covenants that mean highly indebted firms will be able to delay engaging with creditors until further down the line. 

Moody’s forecasts the global default rate for high-yield companies will increase to 4.9% by November, up from 2.9% a year earlier. In a “severely pessimistic scenario,” however, the rate could go up to 12.6%, it said in a report published last month. 

Eoin Treacy's view -

It stands to reason that when the artificial support for failing companies is removed, they will go bust. Interest rates have surged over the last 12 months, the availability of credit is drying up as banks withdraw from lending and money supply growth is close to contraction on a year over year basis. That suggests many highly leveraged companies will have issues refinancing. 



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January 20 2023

Commentary by Eoin Treacy

Strikes Are Bad for the UK Economy? Go Figure

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

It's a head-scratcher. According to the Office for National Statistics, some 467,000 working days were lost in November alone — and a total of 1.6 million in 2022, the most since 1990. This year is shaping up to be worse. We certainly feel poorer for it all, but with the rail sector comprising just 0.3% of GDP, it is not showing up in the data in a way that we can justifiably point a finger at it.

Network Rail estimates lost ticket revenue to date from the strikes at £400 million ($500 million), but it is very tricky to measure what might well be a permanent loss of future revenue as commuters alter their behavior. Passenger numbers are still only about 80% of pre-pandemic levels. The Royal Mail also will struggle to recover business from the postal worker strikes. UKHospitality reckons there was £2.5 billion of lost trade due to the rail strikes. The picture will be worse in city centers but that will be counterbalanced in areas where commuters live.

The Centre for Economic and Business Research estimates a £1.4 billion direct cost in lost working days over the past eight months. That seems suspiciously low, but compared to the U.K's £2.5 trillion annual GDP, the verifiable effects so far are basically a rounding error.

Eoin Treacy's view -

Just as in markets, economic correlations break down over time and efficiencies smooth out. Using the number of passengers multiplied by train journeys equates to a number of work hours lost. However, to rely on that figure one would have to assume work from home does not exist.

I remember when we got broadband internet at home in the mid ‘90s. I decided at that time I was going to go to London when I finished college and find a job I could do from anywhere. Many people came to the same conclusion during the pandemic and that is shifting the relevance of economic metrics.



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January 20 2023

Commentary by Eoin Treacy

Crypto Lending Teeters Near Extinction After Genesis Collapse

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

Being in the SEC’s cross hairs is likely to lead to a further shake-up of what little is left of the lending sector. 

“There will be two different models in the future,” said Campbell Harvey, a finance professor at Duke University. “First, certain organizations will register with the SEC and sell these products as securities. Second, investors may do this on their own by putting their crypto into decentralized liquidity pools and earning a fee for that.”

In decentralized finance, or DeFi, investors use software to automatically borrow and lend tokens, with positions being automatically liquidated if prices fall too low or they miss repayment deadlines. Some platforms such as Maple Finance organize pools where an operator can manage incoming investor funds and choose who to lend them out to, using due diligence to assess a borrower’s creditworthiness rather than asking for collateral. Such an approach has already lead to some defaults during the current crisis, in addition to plummeting volumes.

Because these types of loans are conducted on public blockchains, the collapse in lending is more visible. The total amount of value locked on DeFi networks hit a peak of $181 billion in early December, according to data from DeFiLlama, and now sits at around $45 billion — tarnished by wavering demand, declining crypto prices and several spectacular failures.

Eoin Treacy's view -

The next bitcoin halvening is due in April 2024. That will halve the reward for successful minting a new block from 6.25 to 3.125. Therefore the limited supply and rarity of the asset will become a topic of conversation again around this time next year. 



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January 19 2023

Commentary by Eoin Treacy

January 19 2023

Commentary by Eoin Treacy

Email of the day on volatility and the difference between trading versus investing

Just six or seven days ago you commented that the recovery could go on for two to three months, now (apparently) you are waiting for the Vix to hit 50 so indicating a bottom of the market.

Sometimes your commentary is as volatile as the markets you are reporting on!

Eoin Treacy's view -

Thank you for this email and I apologise for mixed messaging. Let me take this opportunity to try and be clearer.
In last night’s audio and video commentary I highlighted the fact that major lows don’t generally form until the VIX Index spikes to around 50. By major low I mean the ultimate low in a medium-term downtrend; as in 18-month to 3-year bear market. Along the way there will be several short covering rallies and they can last for a couple of months at a time. 



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January 19 2023

Commentary by Eoin Treacy

Nearly 2% of Global Copper Supply at Risk in Peruvian Unrest

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

Protests in Peru are threatening to choke off access to almost $4 billion worth of copper just as China’s emergence from Covid lockdowns promises to boost demand. 

Peru’s third-largest copper mine, Las Bambas, hasn’t dispatched copper concentrate since Jan. 3 due to security concerns. Glencore Plc’s Antapaccay is also facing restrictions. The mines, which share the same highway access to ports, together account for nearly 2% of the world’s copper output. 

Unrest has rattled Peru since the ouster and arrest of former President Pedro Castillo, upending commodity supply chains from metals to organic coffee. The disruption comes at a particularly precarious moment for copper markets. Inventories stand at historically low levels while miners warn demand for the world’s most critical metal is poised to skyrocket with the growing electrification of vehicles.  

Base-metal prices have been on a bull run since New Year’s after China, a top consumer, abruptly abandoned Covid-19 controls. Prices settled Wednesday at a seven-month high on the London Metal Exchange. Goldman Sachs Group Inc. predicts ongoing deficits and forecast a record price of $11,000 a ton within 12 months.

Las Bambas, whose operator MMG Ltd. is controlled by state-owned China Minmetals Corp., has been the target of multiple demonstrations since it opened in 2016 as indigenous groups seek greater compensation for land and roads used by mining companies.

Eoin Treacy's view -

Social unrest is a significant issue in several Latin American countries. The reality on the ground is local communities have learned to agitate for better deals from miners through tapping into global activist talking points.

Buzzwords like indigenous rights, climate activism, environmental laws, water use, remediation, road congestion and social services funding all represent themes for protestors. 



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January 19 2023

Commentary by Eoin Treacy

US Poised for Dutch, Japanese Help on China Chip Crackdown

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

“I commend the Biden administration for working with our partners to apply export controls on equipment used to make advanced semiconductors and am eager to scrutinize the specifics of what comes out of these talks,” Texas Representative Michael McCaul, who chairs the House Foreign Affairs Committee, said in a statement to Bloomberg News. “A Republican Congress is ready to use its authorities to protect U.S. national security and defend human rights, should the outcomes not substantially match the controls currently in place.”

McCaul is set to meet with Raimondo to discuss the matter on Thursday. It’s uncertain how long it will take the other countries to implement their measures. 

“It could even be something which just happens without big announcements,” Rutte said in the interview. “It’s still not clear. It depends a bit on how the discussions with various countries will evolve.”

After the US announcement in October, some American companies were forced to warn investors that they may lose out on billions of dollars in future China revenue. Since then, they’ve argued it also exposes them to losing market share, if overseas competitors are allowed to continue to operate in China relatively unrestricted.  

Tokyo Electron has said the general clampdown on its Chinese customers is already hurting business, while ASML has said that demand elsewhere in the world for its most advanced products can make up for any revenue shortfall from China.

Eoin Treacy's view -

Despite the friendlier sounds coming from Chinese and American diplomats, the trajectory of the trade war has not changed. It is still the clear ambition of the US government to curtail China’s ability to compete technologically. It is viewed by both sides of the political divide as a national security priority. 



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January 19 2023

Commentary by Eoin Treacy

Eoin's personal portfolio: trading long stopped out and reversed, commodity long closed, bond investment position increased January 18th 2023.

January 18 2023

Commentary by Eoin Treacy

Video commentary for January 18th 2023

Eoin Treacy's view -

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

Some of the topics discussed include: BoJ holds on to yield curve control fot a little longer, Yen reverses weakness, Nikkei unlikely to hold gains tomorrow, Wall Street rolls over as Treasuries rally, gold eases, oil reverses early strength in US trading, copper reverses early advance, several global markets are short-term overbought so at least some consolidation is likely. 
 



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January 18 2023

Commentary by Eoin Treacy

Bain Veteran Says 20% Private Equity Returns Have Decades to Run

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

“The private equity model works,” he said in a Bloomberg TV interview at the World Economic Forum in Davos on Wednesday. “It puts capital to work with experts that really help drive these companies.”

Pagliuca said private equity has “absolutely not” peaked and will still be able to deliver the standard 18% to 20% rate of return in the coming decades. 

“We’ve maintained those returns now every decade for 40 years,” he said. “It’s a great business model.”
Buyout firms are readjusting to an environment of higher interest rates that’s making it harder to finance deals and juice returns by loading companies with cheap debt. Valuations have tumbled in both the public and private markets.

Rising rates are bringing a reckoning for those firms that invested heavily in speculative technology companies at super-high multiples, according to Pagliuca. Bain has largely steered clear of this market and its portfolio is doing “pretty well,” he said.

Eoin Treacy's view -

There is no doubt that a version of the private equity business model continues perform. The investment practices of the world’s largest sovereign wealth funds, where the holding periods stretch from years to decades is a case in point. They have the financial resources to buy in times of market stress and hold for the long term. There will never be a time when buying low and securing growing cashflows with an infinite holding period will fail. 



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January 18 2023

Commentary by Eoin Treacy

Saudi Arabia Says Days of Unconditional Foreign Aid Are Now Ove

This article from Bloomberg confirms what I was hearing at the Future Minerals Forum last week. Here is a section: 

As part of its deal with the IMF, Egypt agreed to shrink the footprint of all state-run enterprises, including “military-owned companies,” and committed to allow for a more flexible exchange rate.

“We are also looking at our region, and we want to be a role model for the region,” Al-Jadaan said. “We are encouraging a lot of the countries around us to really do reforms,” he said.

 

Eoin Treacy's view -

The UAE’s reluctance to offer donations but attach support to investments is a model Saudi Arabia is now also following. The big oil exporters want regional stability. This change of policy suggests they now appear to believe that will best be achieved through economic reforms.

The Arab Spring shook up the Middle East more than a decade ago and resulted in significant turmoil. It now appears that the policy suite developed in response to those events has matured. Large young populations need to be offered a route to a productive life or rebellion is inevitable. 



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January 18 2023

Commentary by Eoin Treacy

BOJ Jolts Financial Markets But Risk of a Bigger Shock Remains

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

The Bank of Japan’s decision to keep its settings unchanged Wednesday gave global investors a modest jolt, leaving markets from the yen to Treasuries at risk from a potentially larger shock if officials opt to shift policy in the future.

Standing pat caught some traders by surprise, but it’s unlikely to douse speculation that the BOJ will normalize policy as inflation in Japan accelerates and Governor Haruhiko Kuroda nears the end of his term. It suggests just a temporary setback to bets on a stronger yen and a bond selloff as analysts say it’s still a question of when — not if — the central bank exits its yield-curve control policy.

Indeed, while Japan’s currency at one stage slumped more than 2% against the dollar in the wake of the decision, it clawed back some ground as the session proceeded, helped by a swath of US economic data that dented the greenback. Japanese government bonds surged as traders covered short positions and stocks pushed higher. US Treasury yields declined.

Eoin Treacy's view -

There were fireworks in Japanese markets this morning as the BoJ demurred from the tampering with its yield curve control policy. However the rebound in bonds and weakness in the Yen were short lived. Traders don’t see yield curve control lasting beyond Kuroda’s tenure. 



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January 17 2023

Commentary by Eoin Treacy

January 17 2023

Commentary by Eoin Treacy

Email of the day on the US debt ceiling

Thanks for the interesting comments about Saudi - I spent a couple of years working in Riyadh in the late eighties.

On a different subject do you see the re-occurrence of the US debt ceiling with the Senate's inability to pass (anything...) creating any problems?

Eoin Treacy's view -

Thank you for this topical question which I’m sure will be of interest to other subscribers. On another note, I suspect even veterans of living in Saudi would be surprised at the extent of progress made since MBS has taken power. 

The Tea Party movement gained traction in the aftermath of the credit crisis. They eventually gained enough sway over the Republican Party to force fiscal constraints onto the 2nd Obama administration. The Freedom caucus has given us a sneak peak at the trajectory of budget negotiations in the concessions they squeezed out of Keven McCarthy. 



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January 17 2023

Commentary by Eoin Treacy

Email of the day on rare earth metals

I have just read that in Arctic Sweden they have just discovered Europe's largest source of rare earths. It will take 10 to 15 years to bring them to market. 

Eoin Treacy's view -

Thank you for this note. I saw that news too. Here is a related article discussed the discovery. 

 The thing to remember about rare earth minerals is they are not particularly rare. The reason China dominates the mining and processing of these metals is because they are so often found in close proximity to radioactive elements. Processing is both dirty and creates harmful byproducts so many countries were only too happy for China to take over production. 



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January 17 2023

Commentary by Eoin Treacy

Email of the day on lumber

I just wondered whether you had any thoughts on Lumber given the recent price action? Thanks and keep up the excellent work, I'll definitely be renewing my annual subscription (as I have been for more years than I care to count!)

Eoin Treacy's view -

Thanks for this topical question and your long-term patronage. Serving loyal long-term subscribers is why I happily regard this service as a vocation. ​



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January 17 2023

Commentary by Eoin Treacy

January 16 2023

Commentary by Eoin Treacy

Video commentary for January 16th 2023

January 16 2023

Commentary by Eoin Treacy

Rupiah Rallies to Lead EM Currencies Higher on Slower Rate Bets

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

The Indonesian rupiah is leading a rally in Asia’s emerging-market currencies as bets grow that the US will slow rate hikes, bolstering risk sentiment. 

The rupiah gained as much as 1.3% against the dollar, the most in more than two months, while the baht climbed more than 1% to its highest level in about 10 months. Most Asian currencies are stronger. 

Easing inflationary pressures in the US have raised expectations of a smaller rate hike in the upcoming meeting of the Federal Reserve, while optimism over China’s reopening has also brightened the outlook for some of the regional currencies.

Eoin Treacy's view -

Last week’s lower CPI reading has led the wider investment community to conclude the peak of the interest hiking cycle is upon us. The Dollar took another leg lower on the news and supported everything from gold to crypto and non-US dollar denominated stock markets.



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January 16 2023

Commentary by Eoin Treacy

BOJ Opens 'Pandora's Box' for Traders on Alert for Another Shock

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

Investors are on high alert for further policy tweaks from the Bank of Japan this week after December’s shock decision to raise the bar on yield movements failed to significantly improve market liquidity.

While almost all economists surveyed by Bloomberg expect no change at the two-day meeting finishing Wednesday as their main scenario, market pressure on the central bank’s stimulus framework has intensified since last month’s efforts to ease the side effects of policy.

Another increase in the ceiling for the 10-year yield is seen as the most likely course of action, should the BOJ act, given its recent emphasis on improving bond-market functioning. 

Eoin Treacy's view -

10-year JGB yields are above the 50 basis point cap suggesting investors are willing to bet the BoJ will raise the rate at which they are willing to intervene.



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January 16 2023

Commentary by Eoin Treacy

Sunak Plans to Strengthen Anti-Protest Laws With Police Powers

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

UK Prime Minister Rishi Sunak plans to strengthen anti-protest legislation, giving police additional powers to clamp down on demonstrations even before they’ve caused any disruption.

The government on Monday will propose an amendment to its own Public Order Bill — currently working its way through the House of Lords — to broaden the definition of what constitutes “serious disruption,” according to a statement from Sunak’s office. 

“We cannot have protests conducted by a small minority disrupting the lives of the ordinary public: it’s not acceptable and we’re going to bring it to an end,” Sunak said in the statement. “The police asked us for more clarity to crack down on these guerrilla tactics, and we have listened.”

The legislation is aimed at strengthening the police’s ability to deal with protests such as those in recent years from environmental campaigners at Just Stop Oil and Extinction Rebellion, who have brought traffic and public transport to a standstill by blocking bridges, motorways and London’s subway network. But it’s provoked the ire of civil liberty groups and of the opposition Labour Party. 

Labour’s policing spokeswoman, Sarah Jones, said in a statement that the police already have powers to deal with disruptive protests. She criticized Sunak for not focusing instead on tackling “the epidemic of violence against women and girls” or on prosecuting criminals. 

The amendment will include allowing police to consider the total impact of a series of protests rather than treating them as a single incident; giving officers the right to step in even before a protest has resulted in disruption, and letting them deal with long-running campaigns designed to cause chaos repeatedly, according to the statement.

Eoin Treacy's view -

Tightening the noose of civil liberties is almost always done in a reasonable manner. Who could argue with additional measures to ensure extremist activists don’t block major roads? Of course, we need additional measures to stop activists from defacing great works of art. However, once these kinds of measures are in place, they are often applied at the discretion of the authorities in new and surprising ways. With teachers ready to strike, the government appears to be putting measures in place to combat disruptions.



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January 14 2023

Commentary by Eoin Treacy

January 14 2023

Commentary by Eoin Treacy

Futures Minerals Forum Update Part 2

Eoin Treacy's view -

I posted the first part of this update on Wednesday and saved the second part of today. The number one theme in emerging markets is governance. That’s where Saudi Arabia is clearly attempting to make an impression.

In speaking with the junior minister for investment, the decision to give opportunities to young people is very intentional. They know the only way to achieve the progress they need is through harnessing the productive capacity and thirst for invention of the young.

It’s incredibly refreshing to meet so many tenacious young people with ambitious dreams for the future. The fact they have a route to achieve their goals is even better.



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January 13 2023

Commentary by Eoin Treacy

Eoin's personal portfolio: cash rolled, investment positions opened, trading positions opened and short profits taken January 6th 2023

January 12 2023

Commentary by Eoin Treacy

January 12 2023

Commentary by Eoin Treacy

Egypt Inflation Exceeds 21% in Spreading Devaluation Fallout

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

Egypt is grappling with its worst foreign-currency crunch in years and has recently seen the emergence of a black market for dollars. It secured a $3 billion loan from the International Monetary Fund and sought help from its wealthy Gulf Arab allies. 

Core inflation, the gauge used by the central bank that strips out volatile items, accelerated to 24.4% in December from 21.5% in November. 

This week the government said it would curb state spending, including through halting costly new infrastructure projects. The central bank announced in December it was targeting inflation at an average of 7%, plus or minus 2 percentage points by the fourth quarter of 2024.

Allen Sandeep, director of research at Naeem Holding in Cairo, has said the latest bout of depreciation sets the stage for a pickup in inflation to around 23%-25% and higher government borrowing costs. 

Eoin Treacy's view -

Egypt is one of the largest food importers in the world. With a population now in excess of 100 million that is a major point of stress. The war in Ukraine threw food security into a state of flux and has contributed to the inflation spike.



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January 12 2023

Commentary by Eoin Treacy

Fed on Track for Rate-Hike Downshift After Cool Inflation Data

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

The Federal Reserve is on track to downshift to smaller interest-rate increases following a further cooling in US inflation, though it’s likely to keep hiking until price pressures show more definitive signs of slowing.

Philadelphia Fed President Patrick Harker, speaking Thursday morning shortly after the Labor Department’s release of consumer price data, said rate hikes of a quarter-percentage point “will be appropriate going forward,” following bigger increases throughout most of 2022. Harker’s comments echoed remarks a day earlier from Susan Collins, his counterpart at the Boston Fed.

Consumer prices rose 6.5% in the 12 months through December, marking the slowest inflation rate in more than a year. So-called core inflation, which excludes food and energy, was up 5.7% over the same period, the smallest advance in a year. Both figures matched median forecasts.

“The trend in services inflation seems to be abating. That’s what the Fed will be looking at in today’s report,” said Thomas Costerg, a senior US economist at Pictet Wealth Management in Geneva, Switzerland. “At the margin, this means an increased probability of a 25-basis-point rate hike on February 1st.”

Eoin Treacy's view -

The bond market is already looking ahead to when the Fed will be cutting rates so it is quite possible the next rate hike will downshift from 50 to 25 basis points.



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January 12 2023

Commentary by Eoin Treacy

Saudi Arabia Says $3 Billion Mining Funds Are Moving Target

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

Saudi Arabia’s 11.95 billion riyals ($3.2 billion) of funding for a joint venture that will invest in mining assets internationally is “going to be a moving target,” Mining Minister Bandar Alkhorayef said in an interview with Bloomberg TV.

“We are establishing a governance between this JV with the ministry to make sure that this JV allows the country to get the right minerals needed for our industrial strategy and our needs in general,” he said

In 2022, Saudi Arabia saw as much as $32 billion of investments in the mineral sector, a 50% growth in revenues from 2021, the minister said in a separate interview

Saudi Arabia had previously estimated its mineral wealth at $1.3 trillion, but that’s now considered conservative because discoveries have been better than expected, he said

Eoin Treacy's view -

Maaden is now one of the largest industrial metal miners in the world and is only beginning to invest beyond Saudi Arabia’s borders. That represents a significant source of new competition for world-class mining opportunities and suggests bidding wars will be more common.



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January 12 2023

Commentary by Eoin Treacy

Travel Schedule - Future Minerals Forum 2023

I have accepted the Saudi Arabian government's invitiation to attend the Future Minerals Forum again this year. I am due to fly out Monday evening and will arrive in Riyadh on Tuesday evening with a stop in Frankfurt along the way. I expect to be back in Dallas Friday afternoon. I expect to keep up with the publishing schedule but the time I post articles will be affected by travel. 

At present, I have meetings arranged with the CEOs of Polymetal, Alien Metals, Perseus Mining, Pyx Resources, Aurora Minerals Group, Silver X Mining, Goviex Uranium, Kuya Silver, Esper Satellite Imagery, Saudi Gold Refinery with more to come. If subscribers have any questions they would like me to ask just let me know. 

January 11 2023

Commentary by Eoin Treacy

Video commentary for January 11th 2023

Eoin Treacy's view -

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

Some of the topics discussed include: bonds yields contract, stocks rebound, crude oil rebounds, Egypt pound floats.

Some of the topics discussed include: bonds yields contract, stocks rebound, crude oil rebounds, Egypt pound floats.

 



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January 11 2023

Commentary by Eoin Treacy

Future Minerals Forum update

Eoin Treacy's view -

This year’s event has proven to be as educative an experience for me as last year’s. I had the great pleasure to sit down with one of the media minister’s advisors today. She made the decision to move home to Saudi Arabia to pursue her career, following time studying in the UK and USA, and living in Egypt.



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January 11 2023

Commentary by Eoin Treacy

Chevron-Booked Ship Laden With Venezuelan Crude Sails to US

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

The Aframax Sealeo is on its way to the US after receiving Venezuelan crude in a ship transfer off Aruba, according to ship-tracking data compiled by Bloomberg. 

Sealeo received Hamaca crude oil from tanker Caribbean Voyager in a ship-to-ship transfer ~Monday

Caribbean Voyager loaded ~500k bbl Hamaca ~Jan. 6 at the Venezuelan government-controlled port of Jose

Sealeo signals Pascagoula, Mississippi, as destination; Pascagoula is the site of the Chevron Pascagoula refinery, a facility designed to process heavy sulfurous oil like the types produced by Venezuela

Cargo is first to sail to US after the country eased sanctions against Venezuela in November

Last time US received Venezuelan crude was in May 2019 when Motiva Port Arthur refinery in Texas took ~350k bbl of Diluted Crude Oil: AHOY data compiled by Bloomberg

Other Chevron tankers sailing to/from Venezuela:

Kerala, which loaded 250k-300k bbl Boscan crude for Chevron, is currently anchored off Lake Maracaibo awaiting orders

UACC Eagle, which is bringing ~620.4k bbl of US heavy naphtha to Venezuela, is currently moored at the port of Jose to discharge.

Eoin Treacy's view -

The less remarked upon result of the shale oil revolution is it is predominately Texas light sweet. Most of the refining capacity on the Gulf coast is set up to handle heavy crude; mostly from Canada and Venezuela.



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January 10 2023

Commentary by Eoin Treacy

January 10 2023

Commentary by Eoin Treacy

Russia to Try to Limit Oil Discounts With Market Principles

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

The Urals grade, by far the country’s top export stream, was $37.80 a barrel at the Baltic Sea port of Primorsk on Friday, according to data provided by Argus Media. That was less than half where Brent futures settled on the same day.

The ballooning discount follows the European ban on almost all seaborne crude imports from Russia that imposed from Dec. 5. Simultaneously, the European Union joined with the G-7 industrialized nations in imposing a cap on the price of Russian supply. Anyone wishing access to Western services — in particular industry standard insurance, but also an array of other things — could only do so if they paid $60 of less.

The western price cap is “illegal” and will affect stability of the global energy supply, requiring “significant cooperative effort by responsible countries to remedy,” the ministry said, reiterating earlier statements by President Vladimir Putin and top Russian energy officials.

Russia is prepared to cut its crude production by 500,000-700,000 barrels a day in response to the threshold, Deputy Prime Minister Alexander Novak said last month. 

Eoin Treacy's view -

The energy markets remain in a state of flux. Europe wants cheaper energy but the USA is now an exporter with a government willing to buy at around $70. Meanwhile the perennial issue of sustaining sufficiently high prices to balance bloated budgets among OPEC members has not gone away. Russia has a challenge in reducing supply because many of its wells are in permafrost. Once shut down, these wells cannot easily be turned back on.



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January 10 2023

Commentary by Eoin Treacy

War & Peace

Thanks to a subscriber for this report by Zoltan Pozsar for Credit Suisse. Here is a section:

Eoin Treacy's view -

There are big themes at play as great power politics makes a come back. The one thing which is certain is none of what is in front of us is cheap. Re-arming, Reshoring, re-stocking and re-wiring all imply higher costs, holding more inventory and less efficient supply chains. That’s a recipe for inflation to remain persistent.



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January 10 2023

Commentary by Eoin Treacy

Who is the Mystery Gold Buyer?

Thanks to a subscriber for this report from TD Ameritrade. Here is a section:

The rally in gold prices over the past two months has defied analyst expectations for continued weakness, including TD Securities'. Yet, we see little evidence that the rise in gold prices is associated with a changing macro narrative. Given the bearish macro backdrop, speculative interest in gold has remained exceptionally lackluster as the world barrels towards a recession, especially after accounting for recent shifts in CTA positioning. Still, gold prices have continued to firm, retracing more than 50% of their significant drawdown from 2022 highs. • This begs the question: who in the world is this mystery buyer driving prices higher? Armed with a flows-based approach, we present strong evidence that behemoth Chinese and official sector purchases may have single-handedly catalyzed a $150/oz mispricing in gold markets. What is less clear is what has driven these massive purchases. • We investigate whether a sanctions-evasion war chest associated a potential invasion of Taiwan, China's reserve currency ambitions, massive pent-up demand associated with the Chinese reopening, or Chinese New Year demand could be consistent with this extreme buying activity. Chinese demand appears unrelenting for the time being, but barring a grandiose geopolitical regime change, we find that it would likely subside towards normal levels in coming months. This would leave gold prices vulnerable to a steep consolidation lower, given gold's lack of alternative buyers and its current mispricing relative to its recent historical relationship with real rates. We turn to our tracking of positioning for the top ten gold traders in China to scour for nascent signs of peaking Chinese demand, which could present a tactical signal for a noteworthy repricing lower.

Eoin Treacy's view -

Since China is the world’s largest gold producer it begs the question why they would be buying on the international market in size. There is the potential that they wish to lend credence to the Renminbi as a reserve asset in order to sway Middle Eastern governments to accept it in payment for oil.



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January 09 2023

Commentary by Eoin Treacy

January 09 2023

Commentary by Eoin Treacy

AI and the Big Five

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

Indeed, the biggest winners may be Nvidia and TSMC. Nvidia’s investment in the CUDA ecosystem means the company doesn’t simply have the best AI chips, but the best AI ecosystem, and the company is investing in scaling that ecosystem up. That, though, has and will continue to spur competition, particularly in terms of internal chip efforts like Google’s TPU; everyone, though, will make their chips at TSMC, at least for the foreseeable future.

The biggest impact of all though, though, is probably off our radar completely. Just before the break Nat Friedman told me in a Stratechery Interview about Riffusion, which uses Stable Diffusion to generate music from text via visual sonograms, which makes me wonder what else is possible when images are truly a commodity. Right now text is the universal interface, because text has been the foundation of information transfer since the invention of writing; humans, though, are visual creatures, and the availability of AI for both the creation and interpretation of images could fundamentally transform what it means to convey information in ways that are impossible to predict.

For now, our predictions must be much more time-constrained, and modest. This may be the beginning of the AI epoch, but even in tech, epochs take a decade or longer to transform everything around them.

Eoin Treacy's view -

ChatGPT and other artificial intelligence models are growing in capability and the pace of development is accelerating. There is a big question about how consumers will react to intrusive predictive models and how the sector will ultimately be regulated. However, if history is any guide these issues arise after a significant interval and prices move ahead regardless.



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January 09 2023

Commentary by Eoin Treacy

Base Metals Jump as Low Stocks Compound China Reopening Optimism

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

Metals are finding favor again after a punishing 2022 that saw most notch large losses. An improving picture for Chinese demand is coinciding with investor bets on less aggressive rate hikes by the Fed, boosting the growth outlook while weakening the dollar in which commodities are priced.

Market moves may be exacerbated by low exchange stockpiles, after supply was hobbled last year by the energy crisis. On Monday, copper climbed to the highest since June, while aluminum and rose more than 4% and zinc surged over 6%.

Metals should rally as Chinese demand picks up after the Lunar New Year holidays later this month, Goldman Sachs Group Inc. analysts including Jeffrey Currie said in a note. There’s “significant price upside,” given extremely low global stockpiles of metals, they said. 

Eoin Treacy's view -

China’s swing from strict quarantine protocols to laissez faire measures is characteristic of the binary decision making inside authoritarian regimes. The focus is no longer on social control. Instead, we are back to business as usual which infers infrastructure development and property speculation.



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January 09 2023

Commentary by Eoin Treacy

Brazil Asset Selloff on Protests Likely Short-Lived, Citi Says

This note by Maria Elena Vizcaino for Bloomberg may be of interest. Here it is in full:

Any pullback in Brazilian asset prices should revert quickly as the protests should be short-lived and not have major direct implications, Citigroup strategists led by Dirk Willer wrote in a note Monday. 

The Brazilian real was the worst performer among 23 emerging market peers tracked by Bloomberg, weakening 1.2%

The protests have been publicly criticized by far-right leaders, including former President Jair Bolsonaro, and they lack support from leaders in the executive, legislative and judiciary branches

Eoin Treacy's view -

David long ago observed “governance is everything”. That is as true to today as in the past, but there is no getting around the fact that standards are deteriorating. Peaceful hand-off of power, following a free and fair election, is the basic starting point for liberal democracies.



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January 06 2023

Commentary by Eoin Treacy

January 06 2023

Commentary by Eoin Treacy

Copper and Iron Ore Climb as China May Relax Key Property Rules

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

Copper and iron ore extended gains on a report that China may ease curbs on borrowings by developers, adding to a raft of measures to bolster real estate which is brightening the outlook for metals.

Beijing may allow some property firms to add leverage by easing borrowing caps, and pushing back the grace period for meeting debt targets, said people familiar with the matter. The moves would relax the stringent “three red lines” policy that had contributed to worsening the country’s real-estate meltdown and hit demand for steel and copper used in construction.

Copper rose as much as 1.5% and was 0.8% higher at $8,437 a ton on the London Metal Exchange as of 11:02 a.m. local time. Iron ore futures in Singapore rose 2.1% to $118.60, reversing a earlier decline.

China’s flurry of stimulus is aiding sentiment, and boosting confidence that the economy is stabilizing, Everbright Futures said in a note. But the optimism is being tempered by a severe wave of Covid-19 across China, which is crimping activity and worsening the seasonal weakness in manufacturing.

Eoin Treacy's view -

China’s three-year quarantine has helped to contain speculative interest in the commodity markets. Now that China is finally stepping in with aggressive measures to support growth and the property market, industrial resources are playing catch up with energy.



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January 06 2023

Commentary by Eoin Treacy

Wine, Lobsters Could Be Next in China-Australia Trade Thaw

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

China’s trade restrictions on Australian wine, lobsters and other commodities could be the next to ease amid a warming of diplomatic ties and expectations that Beijing will soon resume imports of coal.

Curbs on commodity imports will probably be eased gradually and in an unofficial manner, said Hans Hendrischke, professor of Chinese Business and Management at the University of Sydney. While there’s some confidence that restrictions will be lifted, there’s currently no indication of timing, he said.

“Nobody could tell you whether it will start with barley, wine producers or lobsters for Chinese New Year,” Hendrischke said.

Eoin Treacy's view -

China’s boycott of Australian products has been a burden for the economy as inflationary pressures pushed up interest rates and pressured the property market. The prospect of increasing Chinese demand is now helping to support the currency which should ease some of the inflationary pressures.



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January 06 2023

Commentary by Eoin Treacy

Summers Sees 'Tumult' in 2023 With Reckoning for Bond Market

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

“I suspect tumult” for markets in 2023, Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “This is going to be remembered as a ‘V’ year when we recognized that we were headed into a different kind of financial era, with different kinds of interest-rate patterns.” 

Eoin Treacy's view -

In every other instance where quantitative tightening has been attempted bonds yields go up first. That is fuelled by fears central bank selling of bonds will crowd out other investors which pushes down prices. That process lasts for several months, then yields come back down. The collapse in yields is driven by rising deflationary fears as liquidity is drained out of the economy.



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January 06 2023

Commentary by Eoin Treacy

January 05 2023

Commentary by Eoin Treacy

Video commentary for January 5th 2023

Eoin Treacy's view -

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

Some of the topics discussed include: Nasdaq-100 extends decline led by cloud services, dollar steady, bonds yields fail to hold advance, gold eases and silver working on a downside weekly key reversal, China extends rebound and related markets benefit. Mexico testing the upper side of a seven-year base. 



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January 05 2023

Commentary by Eoin Treacy

Byron and Joe's Ten Surprises of 2023

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

2. The Federal Reserve remains in a tug-of-war with inflation, so it puts the word “pivot” on the shelf alongside the word “transitory.” The fed funds rate moves above the Personal Consumption Expenditures price index and real interest rates turn positive, a rare phenomenon relative to the last decade.

3. While the Fed is successful in dampening inflation, it over-stays its time in restrictive territory. Margins are squeezed in a mild recession.

4. Despite Fed tightening, the market reaches a bottom by mid-year and begins a recovery comparable to 2009.

5. Every significant correction in the market has in the past been accompanied by a financial “accident.” Cryptocurrencies had a major correction and that proved not to be a systemic event. This time, Modern Monetary Theory is fully discredited because deficits have proven to be inflationary.

Eoin Treacy's view -

I liked these surprises for the coming year better when they were more risqué. I think the above four are close to consensus. The Fed has no reason to cut rates and will not do so until they have one. That implies significantly higher unemployment.

Here are some alternative surprises:



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January 05 2023

Commentary by Eoin Treacy

Email of the day on cloud computing

At the risk of representing a bottom, my hat's off to you Eoin for your call on the cloud. A year ago I remember being in a Covid tent with an investor and you had just laid out the case for the cloud glut. Roll tape on all these guys with buys a year ago including Cramer.

Eoin Treacy's view -

Thank you for this kind email. Back when I put the list of Autonomies together in 2012, the one share people asked me about more than any other was Salesforce. It did not have the big global sales footprint of the other companies. I included it anyway because I thought it would, and wanted to have some forward-looking constituents. Cloud computing subsequently went on to prosper beyond most people’s expectations.



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January 05 2023

Commentary by Eoin Treacy

January 04 2023

Commentary by Eoin Treacy

January 04 2023

Commentary by Eoin Treacy

China Markets Start 2023 With a Bang as Policy Shift Hastens

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

The world’s second-biggest stock market is looking like an investor darling again, as optimism about the eventual benefits of Beijing’s abrupt end to Covid curbs outweighs concerns over the short-term pain it inflicts. Adding to that is a series of policy developments signaling the return of economic pragmatism, including plans of fresh property support, discussions of ending a ban on Australian coal imports and progress toward concluding a crackdown on Jack Ma’s financial tech behemoth.

The euphoria has spread beyond equities. The offshore yuan strengthened 0.5% against the dollar, while dollar bonds of some of China’s distressed developers saw sharp gains.

“These directly remove some of the pillars of risks for China — property, geopolitical, and regulatory headwinds,” said Marvin Chen, a Bloomberg Intelligence analyst, referring to the slew of “active” policies. 

Concerns over a further worsening of China’s property debt crisis receded further Wednesday after Bloomberg News reported that authorities are weighing new measures to ease the cash crunch plaguing some systemically important developers. The resumption of approvals for private equity funds to raise money for residential housing developments also lifted sentiment. 

Eoin Treacy's view -

It is looking increasingly likely Chinese policy has just had a major (positive) reversal. The effusive praise Qin Gang gave for the US negotiators as he stepped down as the top Chinese envoy to Washington suggests we can expect a friendlier atmosphere for the next year.



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January 04 2023

Commentary by Eoin Treacy

Oil's New Year Slump Deepens Below $75 as China Concerns Grow

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

Crude’s dwindling levels of open interest have left it open to sharp swings in recent months, and a failed attempt to break above its 50-day moving average this week has done little to improve the technical picture. While sanctions against Moscow over Russia’s war in Ukraine dragged its oil flows to 2022 lows late last month, that’s been of little relief to bulls so far this year. 

The impact of a pre-Christmas freeze that hobbled refinery capacity in some parts of the US should also become clearer in inventory data this week, with the industry-funded American Petroleum Institute’s figures due later. In the short-term, that has lowered crude processing capacity in North America and is also weighing on prices. 

“We’ve seen these big freeze-offs in the US and that has meant that the crude balance has actually weakened,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg TV interview, referring to US refinery closures due to cold weather. “There’s a few more weeks of softness I would think.”

Eoin Treacy's view -

The weakness in the oil sector has little to do with Chinese demand questions. Instead, the illiquidity of the futures market is an increasingly troubling issue because it increases volatility. Open interest in front-month Brent Crude contracts is back at 2015 levels and trending lower.



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January 04 2023

Commentary by Eoin Treacy

Mining Stocks Rally as Gold Advances to Highest Level Since June

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

Kinross Gold and Pan American Silver are among the gold and silver miners getting the biggest boost Tuesday, as gold rose to the highest in six months.

Gold rose 1% to trade over $1,840 an ounce as the precious metal continues to gain momentum
The Bloomberg Americas Mining Index gains as much as 3.2% led by Kinross’s 7.5% rise and Pan American’s 7.4% climb, Newmont climbs 3.7% and is one of the top performer in the S&P 500 Index

Other miners rallying include: EQX CN +11%, ARIS CN +10%, SVM CN +4.3%, BTO CN +3.3%, ABX CN +3.8%, FR CN +2.8%, LUN CN +3.9%, YRI CN +3.1%

Eoin Treacy's view -

The gold price rallied in tandem with bonds yesterday, despite the relative strength of the Dollar. That suggests at least a temporary reorientation of investor focus towards the view gold is a perpetual zero-coupon bond. The implication is inflation has peaked and could easily surprise on the downside and the lagged effect of central bank tightening becomes clear in Q2/Q3.



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January 04 2023

Commentary by Eoin Treacy

Email of the day on spread-betting companies:

Eoin, I hope you have had a good break. A very happy New Year to you and yours. I apologise, as I am sure I have asked the question previously. However, I cannot find your answer. Can you direct me to a good Spread Betting company in the UK? In anticipation, many thanks.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. I primarily use IG Index and CMC Markets.

IG Index has by far the largest breadth of instruments. However, they also widen spreads in thin overnight trading. That means when the price is trading close to your stop at the end of trading, there is a strong likelihood it will be triggered in the overnight session.

CMC Markets on the other hand does not have as wide a selection, but it does not tinker with spreads in the overnight session.

The choice of which you use will be influenced by the type of trader you are. I customarily do not use stops until I have a profit I want to protect.



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January 03 2023

Commentary by Eoin Treacy

January 03 2023

Commentary by Eoin Treacy

IMF's Georgieva Expects Third of World to Suffer Recession

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

“We expect one-third of the world economy to be in recession,” Georgieva told CBS’s ‘Face the Nation’ in an interview aired Jan. 1. “Why? Because the three big economies — US, EU, China — are all slowing down simultaneously.”

The IMF already warned in October that more than a third of the global economy will contract and that there is a 25% chance of global GDP growing by less than 2% in 2023, which it defines as a global recession.

Examining the three biggest economies on CBS, Georgieva painted a mixed picture of their ability to withstand the downturn.

While “the US may avoid recession,” the European Union has been “very severely hit by the war in Ukraine — half of the EU will be in recession next year,” she said. At the same time, China faces a “tough year.”

Eoin Treacy's view -

The negative economic consequences of the war in Ukraine were rapidly priced into European stocks last year. However, a crisis needs to be seen to be getting worse, if it is to continue to exert an influence on prices.



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January 03 2023

Commentary by Eoin Treacy

How Early Exercise Order Flow Impacts Equity Option Put/Call Ratios

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

Historically, dividend related ITM [Ed. In-the-money] call exercises have resulted in some of the highest call volume days of the year, including March 15, 2012, when a record 9M calls traded in SPY, but changes to the clearing process since then have dampened that activity. 

Mathematically, the decision to exercise a call or put early is related to the extrinsic value of the contract. For calls, if the dividend(s) amount exceeds the extrinsic value, a long holder is usually better off exercising. For puts, the decision is a bit more subtle, with extrinsic value compared to the carry cost on the strike. As U.S. interest rates have increased sharply to decade-highs this year, the cost of carry for deep positions has increased, while the selloff in many popular stocks has resulted in large blocks of deep put open interest. Unlike dividend-related call exercises, which tend to happen quarterly, put exercise dynamics may repeat daily if positions are open. In practice, put exercises are more common on Wednesdays based on the timing of settlement. Puts exercised on a Wednesday result in a stock sale on Thursday, which settles Monday.

Fortunately, early-exercise candidate call and put strikes for all listed products are calculated intraday and available in a subscription product on the Cboe DataShop.

A sample from the file for December 7 shows that all the active Amazon deep put strikes were considered optimal to exercise as of 2 p.m.

Eoin Treacy's view -

Large volumes of options traded in single stock names is a function of how much liquidity is still circulating the market. Massive volume in Tesla was a major factor in the stock’s ability to defy gravity in 2021. The opposite condition has been evident in Amazon, where outsized appetite for shorts has resulted in the share being among the worst performers in Q4. 



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January 03 2023

Commentary by Eoin Treacy

War and Currency Statecraft

Thanks to a subscriber for this report by Zoltan Pozsar for Credit Suisse. Here is a section: 

December 23 2022

Commentary by Eoin Treacy

December 23 2022

Commentary by Eoin Treacy

December 23 2022

Commentary by Eoin Treacy

Rising Defaults in Private Credit Seen Cutting Into Fundraising

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

Fitch Ratings expects lenders to broadly recover less on loans to small to mid-sized companies, compared with average recovery expectations in 2017. It forecasts that for about 64% of loans it rates, investors would recover between 30 cents and 70 cents on the dollar in a default, up from around 25% of the loans five years ago.   

The rising expectations for low recoveries stem from weakening contractual lender protections over the years, Fitch report said. Though those protections have grown a bit stronger this year, most outstanding loans were made before this year. On top of that, leverage is high in many transactions. 

“These capital structures were not constructed with 4% to 5% base rates in mind. Rising rates will hurt free cash flows and eat into companies’ liquidity,” said Lyle Margolis, head of private credit at Fitch Ratings.

Eoin Treacy's view -

It is a gross misrepresentation to think the pandemic was a true test for the private credit markets. Evictions were banned, defaults were forestalled and the volume of new money that hit the market broke records. The only way we can describe the impact of the COVID panic on private credit is as a hiccup.



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December 23 2022

Commentary by Eoin Treacy

China Is Likely Seeing 1 Million Covid Cases, 5,000 Deaths a Day

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

China is likely experiencing 1 million Covid infections and 5,000 virus deaths every day as it grapples with what is expected to be the biggest outbreak the world has ever seen, according to a new analysis.

The situation could get even worse for the country of 1.4 billion people. This current wave may see the daily case rate rise to 3.7 million in January, according to Airfinity Ltd., a London-based research firm that focuses on predictive health analytics and has been tracking the pandemic since it first emerged. There’ll likely then be another surge of infections that will push the daily peak to 4.2 million in March, the group estimated.

Eoin Treacy's view -

Another story this morning quoted a Chinese health official as saying 37 million people are being infected every day. That’s a variation of exactly 10X in the above estimates. 



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December 23 2022

Commentary by Eoin Treacy

Brazil's Annual Inflation Eases to Lowest Since March 2021

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

Still, central bankers are now focused on medium-term inflation expectations. “What matters now are estimates for 2024 and 2025, which are much more impacted by fiscal concerns than inflation,” said Laiz Carvalho, an economist at BNP Paribas. 

Spending Bill
Indeed, some of President-elect Luiz Inacio Lula da Silva’s cabinet picks have fanned investor concerns over a rise in public debt during his administration.

This week, congress approved a proposal that gives the 77-year-old leftist leader an additional 168 billion reais ($32 billion) to spend in 2023. The bill was watered down from a previous version that would have cleared the way for extra spending for two years, providing some relief to financial markets.

Brazil’s central bank has warned that possible changes to fiscal rules may fuel inflation by diluting the impact of its aggressive cycle of interest rate increases. Analysts surveyed by the monetary authority see consumer prices above target through 2025.

In an interview with Bloomberg News this week, former Brazilian central bank chief Arminio Fraga said injecting a large fiscal stimulus at a time of tight labor markets and high inflation “makes no sense.” 

Eoin Treacy's view -

Brazil has some of the highest real interest rates in the world with Selic overnight rate at 13.65% and inflation at 5.9%. The central bank is reluctant to declare victory because they are wary of what the new Lula-led government is going to do with spending.



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December 22 2022

Commentary by Eoin Treacy

Video commentary for December 22nd 2022

Eoin Treacy's view -

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

Some of the topics discussed include: cross pollination between value, growth and quality factors, stocks retreat on stronger growth and personal consumption, toppy patterns in Lululemon and Costco point to peaks in consumer spending. oil eases, dollar firm, gold pauses. 



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December 22 2022

Commentary by Eoin Treacy

'Die Hard' Tower Lacks Christmas Cheer as Debt Deadline Looms

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

Debt markets are increasingly sorting US leveraged loans into two categories: money good, and distressed. 

A growing proportion of prices in the market are either very high, or very low. About 5% of the market is trading under 80 cents on the dollar, a share that has more than doubled since June, according to a JPMorgan Chase & Co. analysis. And more than half the market is trading above 96 cents on the dollar, an amount that has also more than doubled.  

With more loan prices reaching extremes, companies that run into any sort of difficulty can see their loans plunge quickly. That can translate to surging borrowing costs, boosting the chance of corporations defaulting. 

“This puts the worst companies at risk, as they’ll have a harder time refinancing,” said Roberta Goss, senior managing director and head of the bank loan and collateralized loan obligations platform at Pretium Partners LLC, in an interview.  

Eoin Treacy's view -

I used to live around the corner from “Nakatomi Plaza” and always got a kick out of driving past the setting for the Die Hard movie. This property is a prime example of the issues facing many commercial properties. Occupancy rates are spotty. Regions depending on the tech sector are most at risk of high vacancy rates. That is going to put pressure on owners are they refinance loans in a tight liquidity and high interest rate environment.



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December 22 2022

Commentary by Eoin Treacy

Quality, Value or Growth?

Eoin Treacy's view -

The underperformance of growth stocks has been the standout issue of 2022. Inflation surged and central bankers belatedly accepted it was not a transitory event. That has resulted in the swiftest pace of interest rate hikes in decades and it has also been a truly global phenomenon. This was accompanied by a swift run-up in the Dollar that tightened liquidity even more.



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December 22 2022

Commentary by Eoin Treacy

Tesla Offers $7,500 Discount in Rare Move to Lift Deliveries

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

Tesla Inc. is offering US consumers $7,500 to take delivery of its two highest-volume models before year-end, adding to indications the carmaker is struggling with demand.

The discount on new Model 3 sedans and Model Y sport utility vehicles is double what the company was offering earlier this month. It mirrors an anticipated change in how much of a tax credit certain consumers will be eligible for early next year.

It’s highly unusual for Tesla to offer such perks, as Elon Musk has for years enforced a no-discounts policy. The company also departed from its chief executive officer’s insistence against spending on traditional advertising last month by promoting its wares on a local television shopping channel in China. Tesla also has cut prices and production in that market this quarter.

Eoin Treacy's view -

Elon Musk’s infallibility is quickly eroding, evidenced by his ham-fisted management of Twitter. There is even talk some buyers are cancelling orders because of this negative coverage. Not many people want to be associated with a personality vilified by all but those on the fringe of public opinion. As if that is not enough, the continued spread of COVID in China will take a toll on demand for Tesla’s vehicles.



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December 21 2022

Commentary by Eoin Treacy

December 21 2022

Commentary by Eoin Treacy

Dirty Energy Is the Lone Junk Winner in Credit's Brutal Year

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

Junk-bond investors had almost no way to avoid losses this year, and shunning dirty energy only made the pain deeper. The best return -- one of very few gains -- was in coal, highlighting challenges for investors who need to perform but also want to be sustainable.

Junk’s 11% loss this year -- the worst since the global financial crisis -- was led by communications and consumer non-cyclical bonds, down 15% and 13%, respectively. Energy performed best in the US high-yield index, down about 5% overall.

Coal -- albeit a very small chunk of the corporate bond market -- is up 3.2%, while oil and gas services debt gained 1.7%. That compares with a global credit market that’s down double digits in most market segments this year, with particularly steep losses for longer-dated debt.

Credit markets are forecast to see a broad-based rebound next year and with many sectors trading cheap to history, junk energy probably won’t be the best again in 2023. But so long as oil prices stay supported by conflict and reopening, it should at least be a buttress for bond portfolios likely to take another beating from inflation next year.

Eoin Treacy's view -

The energy sector has been the best performer in S&P500 for two consecutive years. The fact it is also leading performance in the junk bond market is a testament to the strength of commodity prices in a geopolitically tense environment.



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