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January 17 2020

Commentary by Eoin Treacy

January 17 2020

Commentary by Eoin Treacy

DoubleLine Round Table Prima 1-6-20 - Segment 2: Markets

This video which is the second in the three-part series highlights some of the differences between economists’ perspective on growth and the forward-looking perspective offered by the stock market. I commend it to subscribers.

Eoin Treacy's view -

The one point that jumps out to me is how eager the majority of participants are to point out the potential problems in the market. Even allowing for the fact that DoubleLine is a bond house, and therefore more predisposed to the bearish case because of the benefit that provides to bonds, the extent of the bearishness is interesting.



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January 17 2020

Commentary by Eoin Treacy

Fiat Chrysler and Foxconn plan Chinese electric vehicle joint venture

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

Fiat Chrysler and Foxconn plan Chinese electric vehicle joint venture - This article from Reuters may be of interest to subscribers. Here is a section:

FCA last month reached a binding agreement for a $50 billion tie-up with France’s PSA (PEUP.PA) that will create the world’s No. 4 carmaker. FCA said that the proposed cooperation was initially focused on the Chinese market.

It “would enable the parties to bring together the capabilities of two established global leaders across the spectrum of automobile design, engineering and manufacturing and mobile software technology to focus on the growing battery electric vehicle market,” it said.

FCA said it was in the process of signing a preliminary agreement with Hon Hai, aiming to reach final binding agreements in the next few months.

However, it added there was no assurance that final binding agreements would be reached or would be completed in that timeframe.

Foxconn has been investing heavily in a variety of future transport ventures for several years, including Didi Chuxing, the Chinese ride services giant, and Chinese electric vehicle start-ups Byton and Xpeng.

Foxconn also has invested in Chinese battery giant CATL and a variety of other mostly Chinese transportation tech start-ups.

Eoin Treacy's view -

This is an example of the most profound change batteries are bringing to the automotive sector. They are rapidly commoditizing the car. The difference between an Apple, Samsung or Google phone is less about what is on the inside than familiarity with the brand, ease of operation. software, the app ecosystem and the camera. Other than that, they all have pretty much the same internal composition with some minor differences in the design of the chips while manufacturing is outsourced to a third party.  



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January 17 2020

Commentary by Eoin Treacy

Precious Metals 2020 Outlook

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

Eoin Treacy's view -

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

Gold miners are more interested in M&A activity at present than borrowing a pile of money to plough into the uncertain prospect of exploration and development. Even if they were eager, banks are in no mood to lend them the requisite capital considering how fresh the memory of malinvestment is. That’s good news from the perspective of investors because it allows miners to accrue profits so they can pay down debt, raise dividends and buy back shares.



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January 16 2020

Commentary by Eoin Treacy

Video commentary for January 16th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street extends its breakout to new all-time highs, supporting by the pause in the trade war, hydrogen stocks breaking out supporting platinum, gold steady, oil weak, liquidity remains the fuel on which the advance depends. 



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January 16 2020

Commentary by Eoin Treacy

Hydrogen May Start Replacing Natural Gas Before 2050, Snam Says

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

 

“There is already a transition going from coal to gas, which is very beneficial for the environment,” Alvera said. “The next step of the transition is getting away from oil and replacing to gas. After we do that phase one, we can ramp up electrolyzers and have green gas.”

The executive’s view about hydrogen reflects concern within the gas industry that governments are moving to limit fossil-fuel emissions and will hit gas soon. That raises the risk that the investments they’ve made in pipelines, compressors and storage tanks could become stranded assets.

In Italy, Snam decided to double the amount of hydrogen it blends into the grid to 10%. Alvera believes hydrogen could supply a quarter of Italy’s energy demand by 2050 and announced in November a new round of investments to boost transition toward clean energy.

Eoin Treacy's view -

Hydrogen stocks are having a moment. In any bull market there needs to be a demand narrative which encourages a supply response. The element’s energy density and clean burning characteristics are burnishing the argument for using more hydrogen as the desire to promote a zero carbon energy sector gains ground. The future of air travel is probably going to include cryogenic hydrogen but that is still a ways off. Meanwhile the low price of natural gas encourages experimentation because the cost of producing hydrogen is compressing.



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January 16 2020

Commentary by Eoin Treacy

Boeing Lost Its Way by Going on a Wall Street Detour

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

By the time Boeing decided to cobble together the 737 Max, its engineering culture was completely broken. Here’s how Aboulafia described it to Useem in the Atlantic:

It was the ability to comfortably interact with an engineer who in turn feels comfortable telling you their reservations, versus calling a manager [more than] 1,500 miles away who you know has a reputation for wanting to take your pension away. It’s a very different dynamic. As a recipe for disempowering engineers in particular, you couldn’t come up with a better format.

You can see that disempowerment — and its consequences — in the recently released emails. Instead of bringing their fears and complaints to superiors, the engineers grouse to themselves about the problems they see with the plane. They are bitter about management’s unwillingness to slow things down, to build the plane properly, to take the care that’s required to prevent tragedy from striking.

There is one email in particular from an unidentified Boeing engineer that I can’t get out of my head. It was written in June 2018, about a year after the company had begun shipping the 737 Max to customers:

Everyone has it in their head that meeting schedule is most important because that’s what Leadership pressures and messages. All the messages are about meeting schedule, not delivering
quality…

We put ourselves in this position by picking the lowest cost supplier and signing up to impossible schedules. Why did the lowest ranking and most unproven supplier receive the contract? Solely based on bottom dollar…. Supplier management drives all these decisions — yet we can’t even keep one person doing the same job in SM for more than 6 months to a year. They don’t know this business and those that do don’t have the appropriate level of input… .

I don’t know how to fix these things … it’s systemic. It’s culture. It’s the fact that we have a senior leadership team that understand very little about the business and yet are driving us to certain objectives. It’s lots of individual groups that aren’t working closely and being accountable …. Sometimes
you have to let things fail big so that everyone can identify a problem … maybe that’s what needs to happen instead of continuing to just scrape by.

Of course that’s exactly what happened: the 737 Max failed big — at a cost of 346 lives. Shareholder value has caused much harm in the three decades since it became the core value of American capitalism: diabetics who can’t afford insulin; students ripped off by for-profit universities; patients gouged by hospital chains; and so much else. But none worse than this.
 

Eoin Treacy's view -

General Electric basically invented financial engineering and built a massive business based on moving money around while its industrial core withered. That resulted in unique exposure, for an industrial company, to the credit crisis. The erasing of goodwill, forced sell-off of prime income producing assets and failure to reinvent a business model, resulted in the complete collapse of the share down to the low in late 2018.



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January 16 2020

Commentary by Eoin Treacy

Germans Rush to Buy Gold as Draft Bill Threatens to Restrict Purchases

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

In a tweet posted Wednesday, precious metals consultant and analyst Dan Popescu shared a picture of a long line of people waiting in front of “Degussa store to buy gold in Köln.” Popescu described, “From Jan. 1, 2020, the limit to buy gold anonymously drops from €10,000 down to €2,000. Only two years ago the limit was €15,000.” One user posted his own photo and replied “This is me line at Degussa in 23rd. The employees said they haven’t seen anything like it before.” To give an idea of the relatively small amount of gold €2,000 (~$2,224) can buy, even a 50g gold bar is currently too expensive.

Eoin Treacy's view -

Negative rates are currently only being imposed on depositors with more than €300,000 because the authorities believe wealthier people are less likely to put cash under the mattress. What they fail to understand is many people choose to hold their cash in gold when the risk of debasement is running high.



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January 15 2020

Commentary by Eoin Treacy

January 15 2020

Commentary by Eoin Treacy

U.S. and China Sign Phase One of Trade Deal

This article by Shawn Donnan, Josh Wingrove, and Saleha Mohsin for Bloomberg may be of interest to subscribers. Here is a section:

The U.S. and China signed what they’re billing as the first phase of a broader trade pact on Wednesday amid persistent questions over whether President Donald Trump’s efforts to rewrite the economic relationship with Beijing will ever go any further.

The deal commits China to do more to crack down on the theft of American technology and corporate secrets by its companies and state entities, while outlining a $200 billion spending spree to try to close its trade imbalance with the U.S. It also binds Beijing to avoiding currency manipulation to gain an advantage and includes an enforcement system to ensure promises are kept.

Eoin Treacy's view -

The most important point about the trade deal is the stock market did not sell off immediately following the signing. Considering the rally that has been underway for the last three and half months there is clear risk of some consolidation on a buy the rumour to sell the news, but no evidence it has started just yet.



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January 15 2020

Commentary by Eoin Treacy

Decisions, decisions

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

In the next 10 years, demographic changes will have major effects. Millennials, the largest US generation, will be approaching age 50, while the last of the baby boomers will all be at retirement age. Artificial intelligence and virtual reality are expected to be mainstream. Automation will impact the labor force. Environmental disruption will likely continue, and sustainable investing will be mainstream.

Investors see these “mega-trends”— an aging population, technology and automation, diminishing resources— creating opportunities for the future.  In fact, seven in 10 want to take advantage of these trends to seek better returns.

As they look ahead, investors have an opportunity to ensure they are well positioned for the future—a future that will be here before we know it.

…In today’s challenging environment, investors seek various strategies to cope

To cope with this environment, 64% of investors are considering adding high quality stocks to their portfolios, while others would increase diversification and raise cash. Already, investors are holding 25% of their assets, on average, in cash. There is a clear connection between investor confidence and planning. Two-thirds of investors with a long-term plan in place are highly confident they will achieve their goals, compared to only 51% of investors without a plan. In addition, eight in 10 plan to discuss the impact of the US Presidential election with their advisors.

Eoin Treacy's view -

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

The “challenging environment” rhetoric, that has permeated just about all of the 2020 forecasts I have seen, is more a reflection of what people have in their portfolios rather than the background of markets.



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January 15 2020

Commentary by Eoin Treacy

Pound Struggles After Inflation, Saunders Spur BOE Rate-Cut Bets

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

The pound faltered and gilts rallied after inflation data backed up Bank of England policy maker Michael Saunders’ call for urgent stimulus to boost the U.K. economy.

Sterling weakened against the euro and 10-year government bond yields dropped to the lowest in seven weeks after the data fueled bets that the central bank will lower interest rates this year. Money markets are now fully pricing in a full 25-basis-point rate cut for May, compared to November a day ago, and see a 65% chance of a move this month.

Saunders’ view on the need for more accommodative policy comes just days after BOE Governor Mark Carney said Britain’s economic growth had slowed below potential and that the Monetary Policy Committee had discussed the merits of near-term stimulus.

“There is more room for easing expectations to rise should incoming data disappoint and that could keep short-term sterling downside risks intact,” said Manuel Oliveri, a currency strategist at Credit Agricole AG.

Eoin Treacy's view -

The UK is determined to avoid the deflationary environment that has seen negative rates prevail in the Eurozone. That entails a willingness to let inflation run hot. Cutting interest rates now can be justified based on Brexit uncertainty as the end of the transition agreement is clearly within sight on December 1st.



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January 14 2020

Commentary by Eoin Treacy

Video commentary for January 14th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: risk-on environment supported by global liquidity is spurring demand for high yield bonds, some of last year's worst performing tech ventures, gold remains steady and accelerating trends in the stock market persist at least for now. 



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January 14 2020

Commentary by Eoin Treacy

Hedge Funds Could Make One Potential Fed Repo-Market Fix Hard to Stomach

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

The political backlash that followed crisis-era bank rescues hangs over policy makers’ approach to the current problem, analysts said, even as officials work to ensure the smooth functioning of a key piece of the infrastructure underpinning financial markets. Some fear that lending directly to hedge funds could lead to the perception the Fed is fueling risky bets.

“There’s a strong aversion to fat cat bailouts,” said Glenn Havlicek, chief executive of GLMX, which provides technology to repo trading desks.

Many hedge funds trade in the cash market through sponsored repos. The clearinghouse sits between buyers and sellers to ensure that neither party backs out of the transaction. Records of cleared trades also are publicly available, improving the market’s transparency.

The idea of using the clearinghouse appeals to some investors and analysts because the Fed has had trouble getting cash into the hands of the smaller banks, securities dealers and investors who need it the most.

That is because the Fed trades exclusively with a small group of large banks and securities firms, known as primary dealers. Even among these firms, activity is tightly concentrated. A study recently published by the Bank for International Settlements said that liquidity in the repo market rests in the hands of the four largest banks in the U.S. system.

Eoin Treacy's view -

Every time a central bank reduces interest rates, holds them down for a prolonged period and increases the size of its balance sheet, part of the rationale is to support the kind of speculative activity which can get the growth multiplier moving again. The side effect is to encourage simultaneous financial market speculative activity in both public and private assets.



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January 14 2020

Commentary by Eoin Treacy

ARK Invest Big Ideas 2020

Thanks to a subscriber for this bluesky report focusing on technological innovation. Here is a section:

1. Deep Learning — From Vision to Language
2. Streaming Media — The Primary Technology Behind Content Distribution
3. Electric Vehicles — Faster Adoption Than Most Think
4. Automation — Increased Productivity and More Jobs
5. 3D Printing — An Underestimated Technology
6. Autonomous Ridehailing — The Future of Transportation
7. Aerial Drones — A Cost Saver and Potential Life Saver
8. Next Generation DNA Sequencing — The Transformation of Oncology
9. Biotech R&D Efficiency — The Convergence of Technologies in Healthcare
10.Digital Wallets — The Transformation of Banking
11.Bitcoin — An Evolution of Monetary Systems

Eoin Treacy's view -

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

Technology and the accelerating pace of innovation has been the driving theme behind the bull market for more than a decade. The first commercial reality of the secular trend has been the monetisation of social media, the introduction of 4G, streaming, the adoption of subscription business models, control of the cloud and a for a brief period a cryptocurrency mania.



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January 14 2020

Commentary by Eoin Treacy

China Iron Ore Imports Surge to Near Record as Shipments Swell

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

Iron ore imports by China surged in December to the second-highest volume on record as mills boosted purchases ahead of the earlier Lunar New Year and Australian supply picked up.

Inbound shipments totaled 101.3 million tons last month, just shy of the record 102.8 million tons in September 2017, according to customs data. The end-of-year surge saw full-year imports increase 0.5% to 1.07 billion tons.

Eoin Treacy's view -

The ramping up of the Chinese steel production sector is a positive development for the argument supporting the global reflation theme.

This report from Bloomberg highlights the capacity buildout for industrial robot, semiconductor and increasing demand for 5G enabled products is potentially one of the primary drivers behind renewed demand for Chinese steel.



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January 13 2020

Commentary by Eoin Treacy

Video commentary for January 13th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: momentum remains a significant force with stock markets almost universally breaking on the upside and led by large cap tech, global reflation trade gaining traction with Dollar weak, gold and Treasuries easing. 



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January 13 2020

Commentary by Eoin Treacy

South Korea's Chip Exports Headed for Rebound as Trade War Eases

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

Semiconductor shipments, South Korea’s biggest source of income, rose 12% in the first 10 days of January from a year earlier, data from the Customs Service showed Monday. That’s the first time the preliminary figure posted growth since October 2018.

While the expansion benefits from a base effect of poor performance last year, it suggests global tech demand is improving after being battered by the U.S.-China trade war. The two countries entering a phase-one trade deal later this week should further support demand.

“It’s definitely a positive signal,” said Lim Hye-youn, an economist at KTB Investment & Securities, referring to the chip shipment in South Korea’s preliminary trade data. “But it’s still difficult to see the growth big enough to be leading Korea’s strong economic recovery. The base effect played a large role.”

Eoin Treacy's view -

The global semiconductor sector is a lead indicator for corporate spending and tends to suffer when expectations for future economic potential are weak. All we hear right now is about the negative expectations for future growth among CEOs. If that were the full story then chips sales would not be turning higher.



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January 13 2020

Commentary by Eoin Treacy

Concentration Should Lead to Opportunities

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

January 13 2020

Commentary by Eoin Treacy

China's Strengthening Yuan Is Smashing Every Key Level in Sight

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

While analysts say the exchange rate is being driven by improving market sentiment as China’s economy steadies and trade tensions ease, the recent bout of strength comes at a pivotal time for U.S.-China negotiations. Chinese Vice Premier Liu He is expected to sign the long-awaited phase one agreement in Washington Wednesday.

Some now predict the currency will touch 6.8 per dollar within three months -- a level not seen since May last year.

“Having a stronger currency is one way to show good will,” said Mitul Kotecha, a senior emerging-markets strategist at Toronto-Dominion Bank in Singapore. “Signs of a gradual, as opposed to rapid, slowdown in China’s economy and limited decline in China rates will provide support to the currency.”

Eoin Treacy's view -

I did not think we were going to see the Renminbi trade stronger than the trend mean but it is now clearly breaking out. That is as much about the willingness of China to tolerate a stronger currency as it is about the supply of Dollars resulting from the ongoing repo operations.



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January 10 2020

Commentary by Eoin Treacy

January 10 2020

Commentary by Eoin Treacy

January 10 2020

Commentary by Eoin Treacy

Gilts Leave Bunds Behind After Policy Makers Signal Easing Bias

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

Gilts outperformed German bonds as money markets ramped up bets the Bank of England will ease monetary policy.

The yield premium of benchmark U.K. government bonds over their German peers fell to the narrowest since December 2018 after BOE policy maker Silvana Tenreyro said Friday she may support an interest-rate cut if the economy doesn’t strengthen. This came a day after Governor Mark Carney said economic growth in the U.K. had slowed below potential and that the Monetary Policy Committee had discussed the merits of near-term stimulus.

While the BOE was likely to keep rates on hold “Carney’s comments highlight the risk that the MPC may cut if data is weak or take its time before hiking,” said Morgan Stanley analysts including Jacob Nell, in a client note dated Jan. 10.

Money markets on Friday were pricing in a 24% probability of a quarter-point interest-rate cut from the U.K. central bank as early as the upcoming Jan. 30 meeting. That compared to a negligible chance on Wednesday before the policy makers’ comments. The probability of a rate cut by May 2020 doubled to 56% in the same period.

Eoin Treacy's view -

The Bank of England’s statements to the effect that they are willing to cut rates if necessary was a clear signal to traders they are worried about the speed with which the Pound has rallied since the General Election.



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January 10 2020

Commentary by Eoin Treacy

Gilead Tops List of Drugmakers That Need to Make M&A Splash

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

Gilead Sciences Inc. has so far been silent on plans to diversify its pipeline as investors clamor for a repeat of last year’s biotech deal boom.

The drug developer leads a group of biopharmaceutical companies that Wall Street expects to join in the sector’s acquisition spree. Earlier on Friday, Eli Lilly & Co. snatched up Dermira Inc. and its skin disorder drug for $1.1 billion.

That news comes as investors and management flock to San Francisco for the JPMorgan Healthcare Conference, which kicks off on Monday. The meeting is viewed as the crown jewel of sell-side events and is a hotbed for companies to announce deals and provide product updates.
 

Eoin Treacy's view -

The biotech sector is busy commercialising a range of novel therapies to treat cancers and chronic conditions like diabetes, Alzheimer’s and arthritis. The road to full approval and the scope for failure along the way means it is a high-risk strategy to invest in start-ups. Therefore, the bigger companies wait for some verifiable proof a nascent product works and then investigate buying it. 



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January 09 2020

Commentary by Eoin Treacy

January 09 2020

Commentary by Eoin Treacy

China's Steadying Inflation Leaves Door Open for Monetary Easing

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

“The PBOC is likely to continue to use interest rate and liquidity tools to loosen monetary conditions in 2020, though the easing will probably be less pronounced than last year,” David Qu, a China economist at Bloomberg Economics in Hong Kong, wrote in a note. “We expect the PBOC to stick to a stance of measured easing to counter the economic slowdown.”

For the year, consumer inflation for 2019 stood at 2.9%, in line with the government-set target of 3%, while producer prices declined 0.3%. Core inflation, which removes the more volatile food and energy prices, stabilized at 1.4% in December, signaling ongoing weakness in the broader economy.

China’s economy has shown signs of recovery in recent months as global demand steadies and trade tensions ease. As commodity prices rise and factories start restocking, PPI deflation is set to continue to moderate and some see it turning positive as soon as January.

Eoin Treacy's view -

The outlook for the Chinese economy represents the lynchpin for the global reflation trade and the prospects of steadying growth and continued stimulus are helping aid in the positivity surrounding the hiatus in the trade war.



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January 09 2020

Commentary by Eoin Treacy

Deloitte-Ballard Joint White Paper Assesses Hydrogen & Fuel Cell Solutions for Transportation

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

Randy MacEwen, Ballard President and CEO said, "In less than 10 years, it will become cheaper to run a fuel cell electric vehicle (FCEV) than it is to run a battery electric vehicle (BEV) or an internal combustion engine (ICE) vehicle for certain commercial applications."

Although FCEVs are currently more expensive to run per 100 kilometers (km) than BEVs and ICE commercial vehicles, they are set to become much cheaper as manufacturing technology matures, economies of scale improve, hydrogen fuel costs decline and infrastructure develops. Indeed, the white paper conservatively estimates the Total Cost of Ownership (TCO) for commercial hydrogen vehicles will fall by more than 50% in the next 10 years.

Eoin Treacy's view -

Economics 101 dictates that when the price of a vital commodity falls precipitously industrious people find a way to use more of it and particularly as a substitute for higher priced commodities. Natural gas is the primary feedstock for creating hydrogen. The price is back testing the $2 level which is close to the lows of the last decade and approximately levels seen ahead of the commodity bull market.



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January 09 2020

Commentary by Eoin Treacy

Fiat Will Effectively Fund Tesla's German Factory, Baird Says

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

Chief Executive Officer Elon Musk announced in November that Tesla planned to build a plant outside Berlin. The facility is expected to produce Model 3 sedans and Model Y crossovers starting in 2021.

Fiat Chrysler is going to launch a new version of its Fiat 500 battery-powered vehicle in Europe this year, along with plug-in hybrid versions of its Jeep Compass, Renegade and Wrangler models. That, combined with the Tesla credits, should make the company compliant with Europe’s emissions rules, CEO Mike Manley told analysts in July.

While Fiat Chrysler would otherwise struggle to meet new carbon-dioxide emissions standards in Europe, the so-called open-pool option available in the European Union allows automakers to group their fleets together to meet targets.

Compliance has gotten harder for automakers as consumers have shifted toward gasoline cars, which emit comparatively more CO2, following Volkswagen AG’s diesel-emissions scandal that first erupted in 2015.

Eoin Treacy's view -

Getting your competitors to pay for a factory, which you will then use to produce cars aimed at putting them out of business is a narrative that is so farfetched it would be unlikely to ever pass muster as a movie script. Yet, it is reality in the growth killing market designed by the bureaucrats ruling the EU. Is it any wonder the UK voted to leave?



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January 08 2020

Commentary by Eoin Treacy

Video commentary for January 8th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: geopolitcal tensions easing leads to all change in safe have assets, key reversals in oil and US Treasuries, stock markets breakout, changing geopolitical calculations suggest a more beligerent US is inevitable. 



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January 08 2020

Commentary by Eoin Treacy

Trump Backs Away From Conflict With Iran After Harmless Attack

This article by Josh Wingrove and Jennifer Jacobs may be of interest to subscribers. Here is a section:

Iran fired more than a dozen guided missiles at two U.S. bases in Iraq in retaliation for the killing of Qassem Soleimani. But a Pentagon analysis of the attack suggested the missiles were aimed at unpopulated parts of the bases, according to people familiar with the matter.

Satellite imagery of the bases provided by Planet Labs showed damaged aircraft hangers and other structures at the Al Asad airbase in western Iraq following the strike.

“Iran appears to be standing down,” Trump said. “Which is a good thing for all parties concerned and a very good thing for the world.”

Iran’s restraint and Trump’s measured remarks in response suggest a path toward easing tensions with Tehran, which surged after Soleimani’s killing in a U.S. drone strike near the Baghdad airport last week.

Iranian Foreign Minister Javad Zarif said on Twitter earlier Wednesday that the missile attack “concluded” Iran’s retaliation for Soleimani’s killing. Even if Tehran refrains from further direct attacks, it might still seek reprisals through more covert means, such as attacks by proxy militias or in cyberspace.

Eoin Treacy's view -

The de-escalation of the tensions with Iran resulted in a reversal of a number of short-term overbought conditions overnight. Attention will now likely turn to the conclusion of the first phase of the trade deal next week and the continued actions of the Federal Reserve in addressing the liquidity constraints of the repo market.



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January 08 2020

Commentary by Eoin Treacy

Byron Wien and Joe Zidle Announce the Ten Surprises of 2020

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

1. The economy disappoints the consensus forecast, but a recession is avoided. Federal Reserve Chair Powell lowers the Fed funds rate to 1%. Without a comprehensive trade deal in hand, President Trump exercises every executive authority he has to stimulate growth and ward off recession. He cuts payroll taxes to put more money in the hands of consumers.

Eoin Treacy's view -

This year I was struck by how close to consensus the majority of the forecasts are, but the first one is certainly headline grabbing. The consensus in the bond market suggests one additional rate cut this year, not three. If the 9th surprise of Treasury yields at 2.5% were to come to fruition it would represent a massive steepening of the yield curve.



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January 08 2020

Commentary by Eoin Treacy

Eoin's personal portfolio - profits taken in commodity longs

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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January 08 2020

Commentary by Eoin Treacy

Pandora Soars as Investors Get Early Glimpse of Results

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

The world’s biggest maker of jewelry added roughly a tenth to its market value on Monday after reassuring investors it would reach the upper end of its profit forecast for 2019.

Shares in Pandora A/S rose as much as 12%, as the Copenhagen-based company released some preliminary figures ahead of its Feb. 4 annual results. It now expects its profit margin for 2019 to be in the higher end of the previously guided range of 26-27%.

The update was “definitely good news,” said Per Fogh, an analyst at Sydbank. “Many people had expected Pandora to miss that guidance altogether, so a margin in the upper end of the range shows that Pandora has been able to get its costs under control under its turnaround plan.”

Eoin Treacy's view -

This video has been following me around the internet for much of the last month and its touching sentiment may have been enough to help boost sales in the critical fourth quarter for jewelry sales.



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January 08 2020

Commentary by Eoin Treacy

Email of the day - on gold's fair value

Thank you for the interesting article about golds "fair" value. I remember many many years ago David once mentioned that somebody he respects mentioned that the fair value of a certain British gold coin is a dinner for two at Claridges in London. Unfortunately, I do not remember which coin it was.

Eoin Treacy's view -

Thank you for this reminder. I believe the coin in question is a gold sovereign which currently retails for £294. By that measure it would difficult to conclude gold is overvalued, particularly if the diners wish to have a glass of wine with their dinner.   



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January 07 2020

Commentary by Eoin Treacy

January 07 2020

Commentary by Eoin Treacy

Gold's Next Big Bull Market May Be Upon Us

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

If gold’s implicit prediction is right, it has two implications. The first and most important one is a belief that inflation is at last due to return, after many false alarms. The second is that gold is now settled in a bull market. 

So, is gold good value? The metal doesn’t throw off any income streams, and has very few industrial uses, so it is very hard to come up with a measure of fair value. But the following chart, using data drawn up by Charlie Morris of Catley, Lakewood and May in London, is a heroic attempt to arrive at one. Morris devised a formula for fair value using the consumer price index and the average of 10- and 30-year inflation expectations. This indicator briefly showed that gold was wildly overpriced during the worst of the 2008 crisis, a phenomenon that may have been driven by the illiquid markets of the time, that created an unrealistic inflation forecast. Exclude this incident, and we see a steady bull market for gold from 2005 to 2011, followed by a steady bear market, where it moved to a discount. In the last two years, it looks as though it may have started another bull market. By Morris’ calculations, gold is now about 11% over fair value. 

Gold is still far from the confident prediction of runaway inflation that it briefly produced for a few years after the crisis, even though it is buoyed by safe haven demand at present, along with seasonal interest in gold jewelry, notably from China where the lunar new year is almost here, and by resumed interest from central banks.

On the supply side, gold-mining groups are merging, creating a reasonable hope of avoiding over-supply in the near future. So, if this move in gold prices is confirmed by a move down in real yields, followed even by an increase in inflation, then this could be part of a bull market to match the one from 2005 to 2011. The critical question is whether the gold market proves to be right this time in its forecast of inflation.

Eoin Treacy's view -

Gold is often viewed as a hedge against inflation but that is a largely a corollary to its prime position as a monetary barometer. The foreign markets are relative value oriented. One can’t really say a currency is strong or weak unless it is compared to whatever it can be converted into. All fiat currencies are subject to the tendency of governments to print with abandon at the first sign of trouble. Gold does best in periods when competitive devaluation becomes a factor, which is exactly what we have today; with a growing trend of synchronised monetary and fiscal stimulus. Inflation is a side effect of that profligacy.



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January 07 2020

Commentary by Eoin Treacy

Iron Ore Set for 'Major Surplus' as Inventories Build, Citi Says

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

The global iron ore market “is expected to shift into a major surplus with inventories expected to recover to pre-Brumadinho levels by early 2021,” Citigroup Inc. says in note, referring to the Vale SA operation that experienced a dam burst last year.

“We maintain our directional convictions on iron ore and coking coal, while acknowledging that big price moves might not happen until post-Chinese New Year,” bank says in note, which in part recaps analysis on bulks market issued last month

“Most market participants agree that iron ore prices will likely drift lower during 2020, with the primary debate being about the timing and extent of any sell-off,” bank says

“Concerns about 1Q Australian supply-disruption risks and weak Brazilian exports are already reflected in iron ore prices,” it says

After Lunar New Year, “we see iron ore supply recovering and potential profit-taking by Chinese steel longs,” Citi adds

Eoin Treacy's view -

Vale believes it will return to full production next year so market participants are beginning to position for that outcome. The clear outperformance of iron-ore last year was certainly due to supply constraints but the question for 2020 will be in how much demand for industrial resources picks up with global growth improving.



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January 07 2020

Commentary by Eoin Treacy

Sony Shocks CES 2020 With Unveiling of Electric Car

This article by Michael Cogley for the Telegraph may be of interest to subscribers. Here is a section: 

Tech giant Sony shocked attendees at this year’s CES by unveiling a new electric car.

The Japanese company, which is best known for its PlayStation games consoles and high-end televisions, revealed the Vision S concept saloon.

The prototype boasts 33 sensors to monitor inside and outside of the car, as well as an ultra-wide monitor which will be used for entertainment and information purposes.

Sony chief executive Kenichiro Yoshida said that cars will be redefined as a “new entertainment space”.

“To deepen our understanding of cars in terms of their design and technologies we gave a shape to our vision,” Mr Yoshida told the tech conference in Las Vegas.

“This prototype embodies our commitment to the future of mobility and contains an array of Sony technologies.”

The new concept car also features “360 reality audio”, which Mr Yoshida says will give users an “immersive experience”.

Eoin Treacy's view -

The Consumer Electronics Show is where companies go to showcase their most aspirational vision of what they hope to bring to market in coming years. Electric cars started popping up a few years ago but this year electric vehicles dominated the product line. Sony, Mercedes Benz and Fisker debuted electric vehicles, with the latter production ready.



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January 07 2020

Commentary by Eoin Treacy

Eoin's personal portfolio: precious metals long increased December 11th

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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January 06 2020

Commentary by Eoin Treacy

Video commentary for January 6th 2020

January 06 2020

Commentary by Eoin Treacy

Global Money Notes #26 Countdown to QE4

Thanks to a subscriber for this edition of Zoltan Pozsar’s money market notes for Credit Suisse. Here is a section:

Eoin Treacy's view -

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

The surge in repo rates was not a blip. It was the result of a combination of factors that conspired to drain liquidity from a vital part of the financial system. The solution has been for the Fed to step in as lender of first and last resort because traditional market makers are constrained by regulation and requirements to hold higher cash reserves.



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January 06 2020

Commentary by Eoin Treacy

Eye on the Market 2020

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

Eoin Treacy's view -

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

Valuation expansion is one of the most commonly voiced concerns among investors looking at predicting what stock market returns are likely to be in 2020. They have a point. Earnings have not risen to nearly the same extent as prices and profits have been rangebound for nearly five years. However, it is also worth considering that much of the valuation expansion seen last year was an unwinding of the decline posted in 2018.



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January 06 2020

Commentary by Eoin Treacy

Newmont Starts 2020 With New Name and Big Gift for Shareholders

This article by Danielle Bochove for Bloomberg may be of interest to subscribers. Here ii is in full:

With gold at the highest in more than six years, Newmont Corp. is promising shareholders a 79% hike in its quarterly dividend.

It’s also streamlined its name. The 2019 mega-merger that created Newmont Goldcorp Corp. also set up a clunky word echo in its moniker which has finally been fixed by dropping “Goldcorp.” The Greenwood Village, Colorado-based miner said Monday it plans to increase its quarterly dividend to 25 cents a share, from 14 cents, starting in April, subject to board approval. The miner also said it will continue to buy back stock, as previously announced, up to a total of $1 billion. Newmont retired $506 million in stock through the program in the fourth quarter.

“Our first quarter dividend will offer investors a highly competitive dividend yield and enhanced returns from owning shares of the world’s leading gold company,” Chief Executive Officer Tom Palmer said in a statement. In an interview last month, Palmer said the stock repurchase plan was a “unique opportunity” and signaled that Newmont would likely use dividends to reward shareholders in 2020, provided gold prices stayed elevated. Gold hit its highest level since 2013 on Monday amid soaring tensions between the U.S. and Iran.

Eoin Treacy's view -

The prospect of gold miners with competitive dividends is the kind of development that can help them outperform the metal price for as long as dividend growth is possible. If companies are increasing their dividends and buying back shares, they are less likely to abandon plans to focus on free cashflow or to borrow extraordinary sums to fund vanity fueled takeovers.



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January 03 2020

Commentary by Eoin Treacy

January 03 2020

Commentary by Eoin Treacy

U.S. Strike Ordered by Trump Kills Key Iranian Military Leader in Baghdad

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

Iraqi Prime Minister Adel Abdul-Mahdi condemned the targeted killing as a violation of the terms underpinning the U.S. troop presence in the country.

Mr. Abdul-Mahdi said he had submitted a formal request for parliament to convene in order to adopt necessary measures “to protect Iraq’s dignity and sovereignty.” He didn’t say what those measures would be.

The killing of the two men is likely to mark the beginning of a dangerous new chapter in the rivalry between the U.S. and Iran, which escalated after supporters of an Iran-backed Shiite militia attempted to storm the U.S. Embassy in Baghdad earlier this week. Mr. Mohandes was deputy leader of the Popular Mobilization Forces, an umbrella group that led the embassy attack.

Eoin Treacy's view -

Anyway we look at it, the geopolitical risk premium just racketed up. Iran’s response to losing the commander of the Revolutionary Guard can be expected to be bloody and will probably splash around the entire region considering how broad Iran’s terrorist network is.



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January 03 2020

Commentary by Eoin Treacy

Global Bonds Rally After Tensions Flare Between U.S., Iran

This article by James Hirai and Vivien Lou Chen for Bloomberg may be of interest to subscribers. Here is a section:

“The data will probably prove to be an anomaly, but the initial market reaction is that it’s bad enough to at least consider the possibility of a Fed rate cut,” said Chris Low, chief economist at FHN Financial. “The combination of geopolitical tensions on top of unexpectedly weak data increases the likelihood of a 2020 Fed rate cut.”

Yields on 10-year Treasuries dropped as much as 8 basis points to 1.79% and remain within 2 basis points of that level. Rates on their German counterparts were down 6 basis points at minus 0.28%. Yields tumbled in most major markets around the world.

Eoin Treacy's view -

I agree that it is unlikely the Iran news is enough to justify a rate cut but the bond market rallied nonetheless. 10-year Treasury yields are now testing the sequence of higher reaction lows evident since September, having found paused in the region of the trend mean. A sustained move above 2% will be required to signal a return to supply dominance beyond the short term.



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January 03 2020

Commentary by Eoin Treacy

Tesla Cuts Price on Model 3 Cars Built at New Shanghai Plant

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

Tesla plans to increase local sourcing to 100% in Shanghai by the end of the year, from about 30% now, Song said. That should help lower costs as Tesla and other ambitious EV makers face a challenging market in China, where auto sales have been slowing.

Last month, people familiar with the matter said localization would help Tesla cut prices by 20% or more in 2020. The company has been exempted from a 10% purchase tax for its locally built sedans, posing more of a threat to the likes of NIO, Xpeng and BYD Co.

Eoin Treacy's view -

Tesla’s primary success has been in creating electric vehicles consumers aspire to own. The defining characteristic in how well the company survives the challenges of achieving the scale of a major manufacturer will be in how well they keep costs under control. A 20% decline in costs through local sourcing is a major step in the right direction and provides the company the leeway to compete on price with China’s myriad domestic companies.



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January 02 2020

Commentary by Eoin Treacy

Video commentary for January 2nd 2020

January 02 2020

Commentary by Eoin Treacy

Gold Rally Not Over Yet and May Reach $1,700 in 2021, RBC Says

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

The price of gold could rally another 11% over the next two years, tacking on to last year’s 19% gain, according to RBC Capital Markets.

Gold prices have historically been volatile and may see some fluctuations in 2020 and 2021 on quarterly basis. On a yearly basis, however, the trajectory is likely higher, the bank’s strategists led by Christopher Louney wrote in a note.

RBC is expecting an average gold price of $1,552 per ounce in 2020, with a bear-case of $1,437 per ounce and bull-case of $1,613 per ounce. By 2021, they forecast the average price to reach $1,625 per ounce with a bull-case of as much as $1,700 per ounce.

Meanwhile, the Street is forecasting a much dimmer outlook. The median estimate for 2020 is $1,532 per ounce and $1,561 per ounce for 2021, according to data compiled by Bloomberg. Spot
gold is currently at $1,528 per ounce.

The bullion, last year, was able to seal its best year since 2010 due to loose global monetary policy, a buying spree from central banks, the U.S.-China trade dispute and other geopolitical unrest. The rally marked a positive shift in investor attitude toward gold, which is among the main reasons why RBC is bullish on the precious metal. “Sentiment almost always plays an outsized role for gold compared to other asset classes given its unique nature,” the strategists wrote.
 

Eoin Treacy's view -

China announced over the New Year break it is cutting its reserve requirements and injecting additional liquidity to the economy to support growth. The clear message is we are moving progressively closer to synchronised global monetary and fiscal stimulus. That is designed to continue to support asset prices but comes at the expense of the purchasing power of fiat currencies



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January 02 2020

Commentary by Eoin Treacy

China Approves New GMO Soybeans in Positive Sign Amid U.S. Talks

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

China approved a new strain of genetically modified soybeans developed by a U.S. company, a move that could bolster looming trade talks.

The variety approved for import is an insect-resistant soybean from Dow AgroSciences LLC, according to a list published by China’s agriculture ministry on Monday. The nation also approved a new type of GMO papaya and renewed permits for 10 crop varieties, including corn and canola.

China and the U.S. are gearing up to sign the first phase of a trade deal, with the South China Morning Post reporting Chinese Vice Premier Liu He is set to lead a delegation to Washington on Jan. 4. The countries agreed to speed up the approval process for imports of GMO crops as part of efforts to boost bilateral trade.

“The news helps confirm China’s opening of its market to U.S. GMO products and dropping additional non-tariff barriers,“ said John Payne, senior futures and options broker at Daniels Trading in Chicago.

GMO crops have been a source of tension with the U.S. arguing China’s stance isn’t based on science and has been used as a non-tariff barrier. In 2013, China rejected several cargoes of corn and distillers dried grain from the U.S. due to the presence of a GMO variety that took the Asia nation almost five years to approve, said Darin Friedrichs, a senior analyst at INTL FCStone in China.
 

Eoin Treacy's view -

The Phase 1 agreement to at least usher in a hiatus in the trade war means China will be buying a lot more US agricultural products. The challenge is that will bring the total to a record and there are questions about how sustainable that is with the USA’s current production figures. The move to accept more genetically modified grain is reflective of the efforts under way to lower barriers to additional imports.



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January 02 2020

Commentary by Eoin Treacy

Oilfield Services Ends 2019 With a Bang, Whimper

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

“When does it end?” is a perfectly reasonable question for New Year’s Eve. And in the case of anyone still holding onto oilfield services stocks, it is more than rhetorical.

Core Laboratories NV, which offers services to enhance output from oilfields, dropped the ball early on Monday evening, or New Year’s Eve Eve if you will. It cut guidance for the quarter just about to end, issued underwhelming guidance for the quarter about to begin and, to cap it off, slashed its dividend by more than half. The latter was declared “sacrosanct” by management only two months ago — which, in hindsight, is one of those overwrought words that should set alarm bells ringing.

Throw in Tuesday’s pre-drinking trading volumes, and the stock looks set to see out 2019 with a bang (not the good kind). The ostensible reason for the sudden about-face is sluggish activity in international markets, which were hoped to offset the drag from the slowdown in U.S. fracking. The underlying reason is one that blends the oil business with New Year’s Eve seamlessly: the triumph of hope over experience.

Eoin Treacy's view -

The demise of the drilling sector is reflective of the high cost of production from offshore reserves relative to onshore unconventional sources. That has contributed to acute rationalisation of the sector and contraction in prices for services provided. Seadrill for example declared bankruptcy and only exited that condition in 2018. Meanwhile McDermott International remains in what could be a terminal downtrend. The question for investors is whether the contraction of the wider sector has run its course?



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December 31 2019

Commentary by Eoin Treacy

December 31 2019

Commentary by Eoin Treacy

The Economy Is Getting Harder to Forecast

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

Disinflation has reigned since 1980, but real interest rates were positive until the last decade.  But for 10 years now, real 10-year Treasury note yields have been flat at zero (see my Nov. 19, 2018 column, “Zero Real Yields Are Tripping Up Investors”).  This and the flat yield curve have pushed state pension funds and other investors far out on the risk curve in search of real returns, bidding up stocks to vulnerable levels.
 
Earlier, the Fed was run by Ph.D. economists who clung to widely-held theories even though they didn’t work. Fed Chairman Jerome Powell is proving to be much more practical, backing away from rigid Fed policies such as the 2% inflation target and a zero-bound policy rate as well as unsuccessful forward guidance.

In this different economic climate, it’s hard to time the end of the current recovery. Still, it will end, due either to Fed overtightening or a financial crisis, like the 2000 dot-com blow-off or the 2007-2009 subprime mortgage collapse. In the current excess supply-savings glut-deflationary world, it’s likely a recession will unfold due to a shock before the Fed overtightens.

Eoin Treacy's view -

The distortions quantitative easing and other extraordinary monetary measures have created will be debated for decades. There is no arguing with the fact that relationships between asset classes which were reliable lead indicators in the past are less relevant in an environment where central banks are manipulating the yield curve. However, we need to remember that bull markets thrive on liquidity and price charts tell us what people are doing with their money.



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December 31 2019

Commentary by Eoin Treacy

Hong Kong Imports of Gold Coins From China Jump on Haven Demand

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

Hong Kong’s purchases of gold coins from China surged last month as demand for haven assets soared amid the ongoing social unrest.

Imports of coins jumped to 3,246.5 kilograms in November from 14 kilograms a month earlier, according to data from the city’s Census and Statistics Department obtained by email.

“The import of gold coins by Hong Kong shows that its citizens are worried about the situation in Hong Kong and prefer to have gold coins as safe haven,” said Georgette Boele, senior FX and precious metals strategist at ABN Amro Bank NV.

The increasingly violent pro-democracy protests have undermined Hong Kong’s economy, discouraging tourists from visiting and slashing retail sales. Gold demand typically strengthens ahead of the Lunar New Year, which will fall in late January.

Data from the department also showed that total exports of gold from Hong Kong to China continued their decline from a peak in 2013. Figures for November showed shipments dropped to 5,717 kilograms from 14,896 kilograms in October. Hong Kong’s total imports from China were 5,824.5 kilograms, bolstered by the surge in gold coin purchases, which meant Hong Kong had net imports of gold from China for the first time since January 2011.

Eoin Treacy's view -

Gold coin imports suggest retail demand rather than from institutions. That’s hardly surprising considering the strife on the streets but is also representative of the fact China is the world’s largest producer and the price is rising. Demand for gold as a safe haven against the concerted efforts of governments to debase their currencies is more relevant today than it has been in years as the trend of synchronised global fiscal stimulus progresses.



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December 30 2019

Commentary by Eoin Treacy

Video commentary for December 30th 2019

December 30 2019

Commentary by Eoin Treacy

China to Scrap Benchmark as Rates Shift Toward Market-Led System

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

Most central banks govern the price of money in an economy via the rate that banks are charged to borrow cash over short time periods. In China, that approach had been divided into two steps. First, the PBOC guided prices for funding in the inter-bank market via its reverse repurchase agreements and medium-term lending facility. Then, it set the benchmark rates that were used to price mortgages, business loans and other commercial lending -- the one-year and five-year lending rates.

While the interest rate of home mortgages should also be converted to the LPR, the new borrowing cost must be the same as the current charges to “reflect the request to regulate the property market,” the central bank said in the statement. Home mortgages could be repriced in the future, based on the LPR, it
said.

The PBOC’s latest efforts show its commitment to making the interest-rate system more market-driven, though controls on deposits remain for now. The step-by-step approach appears to be trying to open up the system without shrinking interest margins too rapidly and adding more pressure to smaller lenders.
 

Eoin Treacy's view -

China has long run different interest rate regimes for different parties, with state owned firms receiving the most favourable terms by far. The introduction of a simplified system is a positive for the corporate sector and suggests availability of cheaper credit is being lined up ahead of the traditional first quarter binge where most of the loans for the year are secured. The additional aim of this reform is to encourage deposits to stay at home to support the domestic economy.



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December 30 2019

Commentary by Eoin Treacy

Korean Won Surges to Become Asia's Best-Performing Currency

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

South Korea’s won has surged through the pack to become the best-performing Asian currency for December after being the outright worst over the previous 11 months.

The catalysts behind its revival: the agreement of an initial trade deal between the U.S. and China -- South Korea’s two largest trading partners -- and improving local data that suggest that economy is turning the corner following a series of interest-rate cuts.

The won has jumped 1.7% this month after President Donald Trump said Dec. 13 the U.S. and China had reached a phase-one trade deal, helping to limit any further escalation of the dispute that has pummeled emerging-market assets this year.

Eoin Treacy's view -

Investors are clearly willing to give a trade deal the benefit of the doubt and that is now being reflected in the outperformance of Asian and European markets relative to Wall Street. The recent weakness of the US Dollar is an additional indication of capital moving out of US assets.



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December 30 2019

Commentary by Eoin Treacy

Putin's Hypersonic Nuclear Missile Stirs Fears of Arms Race

This article by Henry Meyer and Jake Rudnitsky for Bloomberg may be of interest to subscribers. Here is a section:

“This is an unprecedented situation in which we see that Russia is technologically ahead of the U.S. and the Pentagon is playing catch-up,” said Nikolai Sokov, a senior fellow at the Vienna Center for Disarmament and Nonproliferation. “The U.S. only woke up this year to this technology and has started to throw money at it.”

Russia successfully tested Avangard in December last year, firing it from a military base in the southern Urals 6,000 kilometers (3,700 miles) to the Kamchatka peninsula. After a ballistic launch, the Avangard glides toward its target with a high degree of manoeuvrability.

The difference between the hypersonic weapon and a traditional ballistic missile is that it “disappears and we don’t see it until the effect is delivered,” Hyten said in testimony before the Senate Armed Services Committee.

Claims the Avangard can evade any defenses are overblown since it can be shot down in the early ballistic phase of its trajectory, said Golts, the defense analyst. The real breakthrough will come when Russia implements the same technology in another weapon class, like cruise missiles, according to Sokov, the disarmament expert.

Abandoning New START at this juncture would be a major mistake, Democratic Senator Jeff Merkley warned this month. There’s bipartisan support in the U.S. Congress for extending the agreement, which “has successfully kept the U.S. and Russia out of a modern-day nuclear arms race,” he said on Twitter. “We cannot risk unleashing a new Cold War.”

Eoin Treacy's view -

Hypersonic weapons are first strike options that represent a clear escalation of the risk from deteriorating international relationships. The bigger picture is hypersonic vehicles are not exactly new since the Blackbird SR-71 flew in the 1950s. However, the technology has progressed enough that companies like Boeing and SpaceX are investing in bringing extremely quick transportation to commercial reality



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December 27 2019

Commentary by Eoin Treacy

December 27 2019

Commentary by Eoin Treacy

Foreign Exchange Outlook for First Quarter 2020

 Thanks to subscriber for this report from Brown Brothers Harriman which may be of interest. Here is a section on the Dollar:

Eoin Treacy's view -

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

Currencies are always a relative value argument so it is not so much about whether one currency is strong or weak but rather which is more attractive compared to the rest. There is no single fundamental that governs the foreign exchange market which leaves a great deal of room for argument about how persistent trends are likely to be. However, I think there have been three clear points in favour of the US Dollar over the last couple of years which are now worth re-examining.



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December 27 2019

Commentary by Eoin Treacy

Wheat Could Be Surprise Winner of the U.S.-China Trade Deal -

This article by Isis Almeida and Michael Hirtzer for Bloomberg may be of interest to subscribers. Here is a section:

“The potential that China could secure an additional 5 to 6 million tons of world wheat annually is underpinning Chicago Board of Trade wheat,” Chicago-based consultant AgResource Co. said in a report Thursday.

Wheat traders expect China will soon release the quota, according to AgResource, and prices are already reacting. On Friday, futures for March delivery rose as much as 2.2% to $5.61 a bushel in Chicago, the highest for a most-active contract since August 2018. Futures traded in Paris reached the highest since June.

If Chinese purchases were to reach the quota mark of 9.6-million metric tons, that would represent a big jump in demand. In the six years through 2017, buying has averaged less than 50% of the allotment.

Eoin Treacy's view -

The partial agreement reached between the USA and China removes some uncertainty but holds out the prospect China will be a greater importer of commodities over coming years. That is helping to increase speculative interest in the commodity sector generally and not least because prices are quite low relative to their bull market peaks.



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December 27 2019

Commentary by Eoin Treacy

Japan's Topix Advances, Set for Best Quarterly Gain Since 2016

This article by Min Jeong Lee and Shingo Kawamoto for Bloomberg may be of interest to subscribers. Here is a section:

Japan’s Topix index advanced, set for its best quarterly gain since 2016, after the latest economic data out of the U.S. indicated the labor market is solid.

Banks contributed most to the benchmark measure’s Friday gains. The Nikkei 225 Stock Average slipped 0.4% to 23,837.72, as 30 of its components traded without rights to receive the next dividend, including Canon Inc. and Japan Tobacco Inc. Next Monday will be the last trading day of the year.

The Topix extended its gain for the quarter to 9.2%, the biggest such increase in three years. Japanese equities have rallied since September, bolstered by signs of easing tensions between the U.S. and China.

U.S. jobless claims fell to a three-week low of 222,000 in the week ended Dec. 21, in another sign of health in the U.S. economy. Major U.S. equity indexes climbed to fresh records Thursday in holiday-thinned trading.

Eoin Treacy's view -

The Yen tends to strengthen when investors are worried and seeking a safe haven. With worries about trade and geopolitics easing, demand for the Yen is moderating and that is helping to stoke demand for equities.



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December 24 2019

Commentary by Eoin Treacy

December 24 2019

Commentary by Eoin Treacy

Video commentary for December 24th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: gold firming against most currencies, Treasuries testing support in the region of the trend mean, short-term overbought conditions evident on stock markets, Europe breaking out, potential for a global reflation trade in 2020. 



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December 24 2019

Commentary by Eoin Treacy

Election Cycle Still Intact

Thanks to a subscriber for this note by Kevin Muir for his MacroTourist blog. Here is a section:

Before we examine the fourth year, remember back to the stat from the third year; since WWII there had never been a down year.  The fourth year is also tilted to the positive, but not quite as unblemished.  Bush vs. Gore at the turn of the century saw a 9.1% loss.  And then 2008 witnessed a blistering 37% decline with the Great Financial Crisis.

Yet what's interesting about both dates is that they coincided with the end of a protracted bull market.  Will 2020 prove the same?  It certainly feels like that might be a possibility.  But I warn that before those two declines, there had also not been a post-WWII fourth year of the Presidential cycle that had fallen either.  From 1948 to 2000, the returns were all to the green side of the ledger.

Perhaps both declines (2000 and 2008) were the result of a Federal Reserve bent on slowing down the economy. With Powell & Co. increasingly looking willing to let the economy run hot, the fiscal pumping from a President (and party) wanting to get re-elected might keep a bid to risk assets.

Eoin Treacy's view -

The priming of the economic pump and the Fed’s complicity in keeping monetary policy on the easy side during the last 12 months of the Presidential election cycle has been a factor in the US markets for almost a century. It also serves as evidence that Modern Monetary Theory is not all that modern. Where it differs from history is in scale rather than substance.



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December 24 2019

Commentary by Eoin Treacy

David Hume & The PBOC: He Who Laughs Last

Thanks to a subscriber for edition of Russell Napier’s letter which may be of interest. Here is a section:

Eoin Treacy's view -

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

The control the Chinese government holds over the banking sector and the various modes of production afford it a great deal of leeway in dealing with the massive build up of debt over the last decade which has fuelled continued growth in the economy. The only way that system is sustained is by containing domestic savings within the financial system. Capital flight is the biggest threat to the status quo in China’s economy which is why the government is investing so heavily in every imaginable form of control. Nevertheless, it is next to hear impossible to stop motivated individuals from moving capital overseas.



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December 24 2019

Commentary by Eoin Treacy

Email of the day on property investment

CBS MarketWatch posted an article today advising against investing in residential property.  See attached.  This runs counter to the experience of most of us in the “Anglo-sphere” since the end of World War 2, but all good things come to an end one day. 

An end to the current boom in asset prices, because of low interest rates, seems inevitable if not imminent but, more than equities, residential property is illiquid and a long-term option which may entail more risk than most contemplate.  Does Fuller Money have a view on this matter?

Eoin Treacy's view -

Thank you for this question which is not an easy one to answer. Real Estate is an incredibly diverse asset class which, as you say, tends to be illiquid. Like any asset it is best bought following a bear market but there are also individual constraints on supply that support higher prices is certain locations.



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December 24 2019

Commentary by Eoin Treacy

December 23 2019

Commentary by Eoin Treacy

December 23 2019

Commentary by Eoin Treacy

Interesting charts December 23rd 2019

Eoin Treacy's view -

We are heading into the last week of the year. Therefore, when people come back from their break in early January, it is the trading activity that occurs this week which will have the strongest bearing on their perception of where value is to be found in the first quarter of 2020.

It is quite normal for trends that begin in the last week of the year to persist into the first quarter so I thought it would be useful to simply highlight the markets exhibiting a new condition of relative strength or weakness right now.

The DJ Euro STOXX 50 found support in the region of the upper side of a six-month range at the beginning of December and continues to push up towards its 2015 peak.



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December 23 2019

Commentary by Eoin Treacy

China Denies Report of Forced Labor Over Tesco Christmas Cards

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

Such notes have been discovered in products sold by brands like Walmart Inc. and Saks Inc. in the past decade as western companies’ reliance on Chinese production has meant exposure to chains of sub-contractors that reportedly make use of prison labor. Low-cost sourcing in China has been a double-edged sword for companies caught up in questions over the provenance of the goods they sell.

Eoin Treacy's view -

Prison labour is widespread in China but it would seem to be a major lapse in judgement to use prisoners in a facility warehousing English speaking journalists who could narrate messages to inmates.



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December 23 2019

Commentary by Eoin Treacy

Saut Strategy Soooooooooooooooooo?!

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

Eoin Treacy's view -

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

It’s all about the consumer. If the consumer is working, they are spending and that helps to keep the economy chugging along. Therefore, unemployment rates remaining well contained are one of the primary factors in ensuring growth remains on an upward slope.  



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December 20 2019

Commentary by Eoin Treacy

December 20 2019

Commentary by Eoin Treacy

Longtime China Watchers Predict What's Next for Slowing Economy

This article by Enda Curran and April Ma for Bloomberg may b of interest to subscribers. Here is a section:

Michael Pettis, a finance professor at Peking University and former Bear Stearns Cos. banker

My best call was probably to insist, even in 2015-16 when the market strongly expected otherwise, that as quickly as debt was rising, China was unlikely to experience a financial crisis and a sharp depreciation of the currency. I think the market didn’t understand that these are mainly balance sheet events, and as long as China’s financial system was closed and its regulators powerful, Beijing could easily extend and restructure liabilities so as to prevent a crisis.

My worst call was to propose that Beijing would recognize the extent of investment misallocation and the inexorable rise in debt by 2015-16, and would begin to lower the GDP growth target rapidly after that. I did not recognize how politically difficult this would prove, and that it couldn’t happen until Xi Jinping and the people around him had done a lot more to consolidate political power.

Every historical precedent -- and the logic of the growth dynamics -- suggests it will be another Japan. GDP growth rates will drop consistently every year until China is growing at below 3%, and the longer it takes to get there, the more debt it will have to work off and the greater the macroeconomic financial distress costs it will have to absorb.

Eoin Treacy's view -

China trades on very low multiples for many of the same reasons Russia does. It’s about governance. There is no mystery to how China has been able to maintain a high growth rate over the last decade despite increasing authoritarianism and tighter government control. The answer is debt.



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December 20 2019

Commentary by Eoin Treacy

Boeing Capsule Misses Space Station Rendezvous as Crisis Deepens

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

 

The mishap jeopardizes U.S. plans for human flights as soon as next year by Boeing, which was hired to ferry astronauts to the ISS as part of NASA‘s commercial crew program along with Elon Musk’s Space Exploration Technologies Corp. Boeing’s failure also deepens the sense of crisis around the aerospace giant as it tries to persuade regulators to end a flying ban on its 737 Max after two deadly crashes.

Boeing fell 1% to $330.04 at 10:40 a.m. in New York. The stock rose 3.4% this year through Thursday while the S&P 500 advanced 28%. NASA and Boeing officials said they were still trying to understand the cause of the timer failure. It’s too soon to assess the impact on subsequent Boeing space flights, they said. About 50 minutes after liftoff, the Starliner was out of position to begin its orbital insertion burn, the last boost into an orbit so the vehicle could dock at the space station. Had astronauts been on board, they might have been able to correct the problem, Bridenstine said.

Eoin Treacy's view -

Planes falling out of the sky and a space craft missing its rendezvous is not exactly confidence inspiring. Boeing is a major defense contractor so it is not going out of business but the catalogue of errors keeps growing and it is only a matter of time before activists starting calling for scalps.



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December 20 2019

Commentary by Eoin Treacy

December 19 2019

Commentary by Eoin Treacy

Video commentary for December 19th 2019

December 19 2019

Commentary by Eoin Treacy

A Major Shipping Change Is Coming, and So Are Higher Fuel Prices

This article by Firat Kayakiran, Jack Wittels, and Rachel Graham for Bloomberg may be of interest to subscribers. Here is a section:

It’s important to remember that oil refineries and shipping companies spent billions getting ready.

Some shipowners installed scrubbers, units that can cost several million dollars each and allow carriers to remove sulfur from fuel as it’s burnt. This enables them to keep using today’s cheaper product. Likewise, refineries have invested in technology to convert sulfur-rich crude into higher-quality fuels.

For compliant companies, cheating by others is a problem. Yet there could be non-compliance, at least initially. Industry estimates are that something like 10%-15% of the fleet won’t comply with the rules at the start.

Not every country in the world signed up to the regulations, including some large coastal states with significant refining capacity. Even among those that did, not all look likely to start with strict enforcement. There’s also a disparity between what penalties will be imposed from one nation to the next.

South Africa, which sits on a shipping lane connecting eastern and western hemispheres, doesn’t yet have the domestic laws in place to punish non-compliant vessels. The United Arab Emirates, a vital refueling hub in the Middle East, has pledged to avoid draconian enforcement.

Eoin Treacy's view -

The risk of noncompliance, the difficulty in enforcement, the expense of retrofitting aging vessels and supplying new distillates suggest there is clear potential for the IMO2020 rules to represent a period of volatility over the coming months. It is going to take time for the new system to bed down and for companies to see the reality of the sector following the change.



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December 19 2019

Commentary by Eoin Treacy

2020 Outlook The Cloud Has Four Walls

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

Eoin Treacy's view -

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

While the semiconductors sector has been a major outperformer over the last 18 months, the performance of the network infrastructure companies has lagged. There is some tentative evidence that decline is ending following the announcement of the trade war hiatus but it is still early days.



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December 19 2019

Commentary by Eoin Treacy

Fertilizer Rebound Depends on Break From Crummy U.S. Weather

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

“We’re going to get demand improvement,” Jonas Oxgaard, an analyst at Sanford C. Bernstein in New York, said in a phone interview. “If the only thing we’re seeing is normalization, so we go back to the trend line, that’s still a pretty good outcome.”

Fertilizer prices may ease in 2020 as new global sources of supply emerge. EuroChem Group AG and OCP Group are expected to boost potash output, and 4 million metric tons of urea capacity are forecast to come online, Maxwell of Green Markets said.

Prices dropped in 2019 in tandem with lower costs for natural gas and Chinese coal, benefiting producers including CF Industries Holdings Inc. and Sinochem.

Eoin Treacy's view -

There might have been three poor planting seasons in the US Midwest but that has not done much to support a rally in grain and bean prices. There is plenty of supply from other sources and that has helped to keep prices down. The additional impact of swine flu, cutting out demand for grains, has been an additional factor in containing price momentum.



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December 18 2019

Commentary by Eoin Treacy

Video commentary for December 18th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: Gilt overvaluation and likelihood for an additional sell off in government bonds as the global economy recovers. discussion of rotation potential heading into the last couple of weeks of the year. gold steady 



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December 18 2019

Commentary by Eoin Treacy

Can I Interest You in a 100-Year Boris Bond?

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

The U.K. has the luxury of a deep investor base that hoovers up long-dated, fixed-income assets to make sure it can meet its future pension and insurance liabilities. So much so that the yield on 50-year Gilts is lower than that of their 30-year counterparts, meaning there’s a so-called inversion at the long end of the U.K. yield curve:

The average duration of British government debt is much longer than that of its main counterparts; it’s about 14 years, compared to nearly nine years for German bunds and less than seven years for U.S. Treasuries. There is evidently investor demand in the U.K. for longer stuff, but it requires a genuine commitment from the government to stay the course and not leave any ultra-long issue stranded at the end of the yield curve.

Doing a 100-year deal in concert with more 30- to 50-year issuance would make sure there was plenty of interest at various maturities at the long end of Gilts. A century bond could rapidly build scale into the tens of billions of pounds with quarterly auctions, perhaps with a coupon of about 1.5% (by comparison, Austria’s 100-year issue went for 1.17% back in June). This would be a super-cheap way to really commit to some of the biggest infrastructure projects, such as connecting rail links properly in the north of England.

Eoin Treacy's view -

Borrowing vast sums at record low rates makes sense if the proceeds are invested in growth promoting endeavours like education, critical infrastructure and primary research. If invested in glamour projects and growth hindering strategies like high cost energy or military hardware then the benefits which accrue will be less impressive. One way or another, fiscal austerity is over and that means the government will have a growing and ongoing funding requirement.



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December 18 2019

Commentary by Eoin Treacy

FedEx Slides on Profit Outlook, Pressuring Dow Transports

This note by Nancy Moran and Thomas Black for Bloomberg may be of interest to subscribers.

FedEx Corp. erased its gains for the year after cutting its profit forecast for the second straight quarter as e-commerce puts a squeeze on margins. The stock also weighed on the Dow Jones Transportation Average, where it held the third-biggest weighting prior to Wednesday. FedEx was already reeling this week after Amazon.com Inc. stoked competitive tensions by banning third-party sellers from using the courier’s services, citing poor service.

 

Eoin Treacy's view -

Fedex is being squeezed between the preferred status of UPS as an Amazon shipper but also by Amazon performing its own deliveries via its own network of shippers. The clear divergence between Fedex and UPS highlights the fact there are some clear winners and losers in the evolving ecommerce shipping landscape.



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December 18 2019

Commentary by Eoin Treacy

S&P500 Price to Book Value vs. Future Returns

I thought this graphic from Jeroen Blokland’s Twitter account was particularly interesting. 

Eoin Treacy's view -

There has been a great deal of discussion about the expected returns from stock markets over the last couple of years. The extraordinary monetary policy and increasing prevalence of deficit spending has raised valuations and compressed interest rates with the result traditional metrics for expected returns have been falling steadily for a decade.



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December 17 2019

Commentary by Eoin Treacy

Video commentary for December 17th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: bitcoin and altcoins breaking downwards, stock markets steady to rising, Pound enters consolidation, Treasuries at potential area of support, gold steady, palladium briefly hits $2000. China firming. 



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December 17 2019

Commentary by Eoin Treacy

Johnson's Brexit Is More Slow Deal Than No

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

And there’s unlikely to be any certainty until well into 2020. Neither the EU nor the U.K. have set out clear negotiating objectives nor agreed the sequencing of the talks. A shortened time-frame means plenty of thorny issues — from services to data — probably won’t be tackled. Nor is it clear that negotiators in Brussels will work in quite the same way as during the withdrawal talks. Michel Barnier is still running the discussions, but this is a new European Commission with major reforms and budget talks of its own to worry about. And trade talks offer more opportunity for differences to emerge between EU member states.

There are two slim silver linings. First, the worst-case scenario isn’t the economically cataclysmic “No Deal” we worried about for much of 2019. The terms of the divorce are already agreed, EU citizens rights secured and the Irish border question resolved (in a fashion). There have been plenty of preparations by governments and business for extra customs and regulatory checks.

What is more likely is what one might call a “low-deal Brexit” — or even a “slow-deal Brexit” since the first trade deal may agree a few basic areas and leave the door open to forging closer ties on others later. 

The second reason not to panic is that Brexit deadlines tend to be delayed. Whatever blocks against extending the transition are passed in Parliament, nobody really thinks that the EU and U.K. governments, if they chose, couldn’t find a way to give themselves more time. It’s been done before.

Eoin Treacy's view -

There are many reasons for sticking to the objective of a December 2020 timeline but perhaps the most significant is politicians work best when up against a clock. The USA’s negotiations with China and the conclusion of a first phase deal with lengthier discussions to follow offers a potential template for what a UK trade deal with the EU may look like.



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December 17 2019

Commentary by Eoin Treacy

Chinese Crypto Scam Unwind Suggests Bitcoin Risks Extending Drop

This article by Olga Kharif and Zheping Huang for Bloomberg may be of interest to subscribers. Here is a section: 

Chainalysis estimates that PlusToken conspirators have sold about 25,000 Bitcoins and another 20,000 Bitcoins are spread out across more than 8,700 anonymous crypto addresses. Additional coins such as Ether were also used to bilk investors.

“That’s certainly something to consider when you are thinking about where the price is going, at least in the short term,” Kim Grauer, senior economist at Chainalysis said in a phone interview. “It could be, according to our research, continued downward pressure.”
 

Eoin Treacy's view -

Bitcoin and the other cryptocurrencies do best when there is a clear supply inelasticity argument. The liquidation of the Mt. Gox bankruptcy hoard was a significant contributing factor in the decline posted in 2018 and the unwinding of the PlusToken stash may be a factor in the current downtrend.



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December 17 2019

Commentary by Eoin Treacy

Gundlach Sees Bad News for Treasury Bulls in This Metals Ratio

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

Rallying copper tends to indicate demand for home-building and other industrial inputs -- all signs of a reasonably strong economy, a message reinforced by range-bound gold prices, according to the billionaire bond manager. The gauge has worked “phenomenally well” as a short-term predictor of where Treasury yields are headed, Gundlach said.

“It’s one of the best indicators for near-term movement -- for the next month or next couple of months -- for 10-year Treasury yields,” Gundlach said in a phone interview. “It’s remarkable how well it’s worked and as time goes by, I feel more and more inclined to follow it and act on it.”

He said in September that markets had likely seen the low of the year in yields after the 10-year rate plunged to 1.43% that month, the lowest since 2016. So far that’s panned out.

Bond strategists largely see the 10-year Treasury yield struggling to breach 2% in 2020. On the bullish side, Citigroup Inc. predicts the rate will hit a record low of 1.25% next year, and Societe Generale predicts 1.2%.

Eoin Treacy's view -

At the American Association of Technical Analysts conference last March, when I opined 10-year yields were going all the way back down to 1.5% there was a lot of push back from delegates that a rally of that magnitude was even possible let along probable. By the time the rally peaked $17 trillion in bonds had negative yields. Today that figure is closer to $11.7 trillion and the trend points towards further contraction.



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December 16 2019

Commentary by Eoin Treacy

Video commentary for December 16th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: UK continues to extend its post election and trade war hiatus rebound, Europe following suit, Wall Street firm, commodities rebound, gold steady, bonds weak, China steady, Thailand trending downwards. 



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December 16 2019

Commentary by Eoin Treacy

Is it time for the catch-up play?

Eoin Treacy's view -

Valuations on Wall Street have been a topic of conversation for at least the last couple of years and not least because of the elevated cyclically adjusted P/E figures value investors have been decrying. In spite of that trepidation the market has continued to trend higher and has outperformed just about all other developed markets.



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December 16 2019

Commentary by Eoin Treacy

Gold M&A Spree Is All About Companies With One Big Deposit

This article by Elena Mazneva and Thomas Biesheuvel for Bloomberg may be of interest to subscribers. Here is a section:

“If there were no issues with these mines they probably would have been taken out a long time ago, or even before they came into production,” said James Bell, an analyst at RBC Capital Markets. “It gives the mid-tier miners an opportunity to get hold of large assets.”

There has been constant talk about more deals in the past year after Newmont Mining Corp.’s $10 billion acquisition of Goldcorp Inc. and Barrick Gold Corp.’s $5.4 billion takeover of Randgold Resources Ltd.

Takeover targets being mentioned include Pretium Resources Inc. and TMAC Resources Inc., which mine in Canada, said Peter Grosskopf, chief executive officer of money manager Sprott Inc. Torex Gold Resources Inc., which operates in Mexico, has also been touted as a potential target, he said.

Eoin Treacy's view -

Gold miners are still shy about spending money on speculative greenfield projects and perhaps more importantly banks are not exactly enthused at the prospect of funding commodity speculation after their experience of the last few years. That means acquisitions are the only way right now to boost supply meaningfully for individual miners and the reasonable valuations still present in the sector lends some urgency to decisions.



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December 16 2019

Commentary by Eoin Treacy

Rare Royal Thai Ceremony Caps Year When King Flexed His Power

This article by Siraphob Thanthong-Knight for Bloomberg may be of interest to subscribers. Here is a section:

Thailand continues to face political divisions that in the past led to sometimes bloody demonstrations followed by military coups. Future Forward, the most high-profile opposition party, last week warned protests could erupt again if a slew of legal cases lead to its dissolution by judges.

The reform-minded party is part of an opposition bloc that controls almost half the lower house of parliament, and which has questioned the fairness of the March election and its outcome following five years under a junta.

A pro-military coalition led by former junta chief Prayuth Chan-Ocha took office after the poll with a slim majority. It subsequently faced a complaint of illegitimacy for failing to utter the whole oath of office in a swearing in ceremony in front of Vajiralongkorn.

Eoin Treacy's view -

The more strident participation of the monarchy in Thai political life is certainly a change and suggests potential for a tripartite struggle for power between the military, opposition and king.



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December 13 2019

Commentary by Eoin Treacy

December 13 2019

Commentary by Eoin Treacy

U.K. Assets Unleashed as Tory Landslide Sweeps Through Markets

This article by Charlotte Ryan and Sam Potter for Bloomberg may be of interest to subscribers. Here is a section: 

“To me this signals that the worst of Europe’s malaise is behind us,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management in Philadelphia. “The results take away a key risk in markets, and while there are still issues with U.S.-China trade, this U.K. election is one of the big ones. Long sterling is our biggest currency position outright.”

Investors always favored the prospect of a market-friendly Conservative government that can push through a Brexit accord, with Johnson promising all of his lawmakers will back the exit deal he struck with the European Union in October. Traders were also deeply skeptical of Labour leader Jeremy Corbyn’s plans to overhaul the economy through increased taxation, spending and nationalization of key industries. Corbyn said he will stand down as leader of the opposition after a debate over the party’s future.

Eoin Treacy's view -

Boris Johnson understood better than any other politician that you cannot go into a negotiation willing to accept the first offer. We do not accept the first price when we go to buy a car and the same skill set applies to trade negotiations. He is best placed to deliver on the UK population’s democratic wish for greater autonomy and self-determination. With an impressive majority he is now under pressure to perform.



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December 13 2019

Commentary by Eoin Treacy

Email of the day on UK base formations

thank you for mentioning up royal mail earlier this week. thanks to you I did buy this share, and so far, it did exceptionally well. once again for such a good service you are providing to your subscribers. 

Eoin Treacy's view -

Thank you for your kind words and congratulations on your successful trading. The UK is one of the few markets, globally, paying “respectable” dividends. That is a testament to just how much downward pressure there has been on valuations over the last three years.



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December 13 2019

Commentary by Eoin Treacy

Trump Approves U.S.-China Trade Deal to Halt Dec. 15 Tariffs

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

In addition to a significant increase in Chinese agricultural purchases in exchange for tariff relief, officials have also said a phase-one pact would include Chinese commitments to do more to stop intellectual-property theft and an agreement by both sides not to manipulate their currencies.

Put off for later discussions are knotty issues such as longstanding U.S. complaints over the vast web of subsidies ranging from cheap electricity to low-cost loans that China has used to build its industrial might.

The new duties, which were scheduled to take effect at 12:01 a.m. Washington time on Sunday unless the administration says otherwise, would hit consumer goods from China including smartphones and toys.

Even amid the positive signs on trade, Chinese foreign minister Wang Yi highlighted the other confrontations between the two sides. On Friday in Beijing, Wang said that U.S. actions had “severely damaged the hard-earned basis for mutual trust” and left the relationship in their “most complex” state since the two sides established ties four decades ago.

Eoin Treacy's view -

China has been the primary target of the USA’s tariff regime and its economy has suffered as a result. The European exporters that rely on Chinese demand to fuel growth have also been deeply impacted by the tariffs and the removal of this as a concern represents a significant improvement in prospects.



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December 13 2019

Commentary by Eoin Treacy

Gold Fails to Crumble as Trade Deal Hit Meets Dollar's Decline

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

Gold’s heading for an annual advance, with its fortunes in 2019 shaped both by more accommodative monetary policy from central banks globally as well as the ebb and flow of the trade war. The removal of tariff uncertainty will return investors’ focus to signs the global economy is improving as a strong year
for risk assets heads toward a close.

Following a 0.3% loss on Thursday, bullion for immediate delivery initially fell as much as 0.5%, but was just 0.1% lower at $1,467.80 an ounce at 5:46 a.m. in London. A Bloomberg gauge of the U.S. currency was 0.4% lower, heading for the biggest weekly drop since October, as the pound rose.

In the U.K., Johnson’s win puts the country on track to leave the European Union next month. With counting complete in most districts, the Conservatives passed the threshold of 326 seats to give them a majority.

That development also contained conflicting elements for gold because while a clear majority for the Conservatives would be positive for the country’s economy, the potential for a no-deal Brexit has now increased, which could buoy the haven, according to McCarthy. “We’re locked in a bit of a vice,” he added.

Eoin Treacy's view -

Any way we look at the alternatives central banks are providing liquidity and governments are engaged in deficit spending. The supply of month is trending higher and that is positive for a bedrock asset like gold whose supply is much more difficult to increase. 



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December 13 2019

Commentary by Eoin Treacy

December 12 2019

Commentary by Eoin Treacy

Video Commentary for December 12th 2019

Eoin Treacy's view -

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

Some of the topics discussed include: trade war potentially close to at least a partial conclusion, Wall Street breaks out led by banks and semiconductors, German wages acceleratng well ahead of growth and interest rates, Dollar testing support against a host of currencies, bonds weak across the board, Pound off its intraday lows in advance of the election result. 



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December 12 2019

Commentary by Eoin Treacy

U.S. Reaches In-Principle China Deal, Awaits Trump Signoff

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

U.S. negotiators have reached the terms of a phase-one trade deal with China that now awaits President Donald Trump’s approval, according to people briefed on the plans.

Trade advisers were set to meet with the president at 2:30 p.m. to discuss the agreement. An announcement could come by day’s end, the people said. A White House spokesperson declined to comment.

The terms have been agreed but the legal text has not yet been finalized, according to the people. The administration has reached out to allies on Capitol Hill and in the business community to issue statements of support once the announcement is made, they said.

U.S. stocks rose and Treasury yields spiked on the news. Earlier Thursday, Trump tweeted that the U.S. and China are “VERY close” to signing a “BIG” trade deal, also sending equities higher.

“They want it, and so do we!” he tweeted five minutes after equity markets opened in New York, sending stocks to new records.

Eoin Treacy's view -

Nothing seems to animate traders more than trade related tweets at present. Every negative sentiment is greeted with a couple of percent sell-off and every positive utterance is greeted with a bounce. The broad picture is the Chinese economy is slowing and the administration has been priming the populace for harder times ahead. Meanwhile the US economy is strong, but business confidence is weak. The Chinese and US businesses have a clear interest in a deal that removes barriers to trade but the Trump administration also wants to get to 2020 election without a recession. That puts the odds of a deal closer to fruition that any other argument.



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