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October 30 2020

Commentary by Eoin Treacy

October 30 2020

Commentary by Eoin Treacy

China's Fifth Plenum: Reading the Initial Tea Leaves

This article from the Center for Strategic & International Studies may be of interest to subscribers. Here is a section:

As expected, the plenum declared that China had met the critical political goal of becoming a “moderately prosperous society” in 2020. By the end of the year, China’s GDP is expected to reach nearly 100 trillion yuan (RMB)—equivalent to $14.3 trillion—a figure higher than the plan’s forecast of RMB 92.7 trillion, which makes China’s economy in nominal terms about 66.7 percent the size of that of the United States in 2019 ($21.4 trillion), up from 40.6 percent the size of the United States in 2010. China reportedly lifted 55.75 million people out of poverty and created 60 million jobs in urban areas over the past half-decade. By the end of 2020, there will be basic medical insurance coverage for 1.3 billion and basic pension support for nearly 1 billion citizens.

Looking ahead, the plenum emphasized that the 14th Five-Year Plan will build on the 13th Five-Year Plan’s principles of innovation, regional coordination, green development, international openness, and social equity. That said, there was a distinct emphasis on strengthening the domestic economy. There was no mention of a growth rate target; instead, the country will focus on improving quality and raising productivity. The plan will highlight China’s need to gain technological independence; become a powerhouse in manufacturing, cyber, and the digital economy; and raise China’s international competitiveness. At the same time, China will need to expand domestic consumption as a share of the economy, which will be dependent on raising wages, building a more complete social safety net, and expanding economic opportunities in rural China.

Eoin Treacy's view -

The middle-income trap has been escaped by only a handful of countries. South Korea, Singapore and Taiwan spring to mind. They have mustered the wherewithal to evolve their governance structure to become more efficient and successfully transitioned to high-end manufacturing and services. Relatively small populations relative to the scale of their exports has been a significant aid in achieving those goals.



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October 30 2020

Commentary by Eoin Treacy

Gold Demand Trends Q3 2020

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

Although jewellery demand improved from the Q2 record low, the combination of continued social restrictions, economic slowdown and a strong gold price proved onerous for many jewellery buyers: demand of 333t was 29% below an already relatively anaemic Q3 2019.

By contrast, bar and coin demand strengthened, gaining 49% y-o-y to 222.1t. Much of the growth was in official coins, due to continued strong safe-haven demand in Western markets and Turkey, where coins are the more prevalent form of gold investment. Q3 also saw continued inflows into gold-backed ETFs, although at a slower pace than in the first half. Investors globally added 272.5t to their holdings of these products, taking y-t-d flows to a record 1,003.3t.

Central banks generated small net sales of gold in Q3, the first quarter of net sales since Q4 2010. Sales were generated primarily by just two central banks – Uzbekistan and Turkey – while a handful of banks continued steady albeit small purchases.

Eoin Treacy's view -

Many investors have been questioning why gold has not done better over the last few months and with good reason. Afterall, there has been no shortage of items to worry about and the trajectory of government debt is unlikely to improve anytime soon. We are on the cusp of competitive currency devaluation inside in the G-7 and yet gold has been soft.



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October 30 2020

Commentary by Eoin Treacy

'People Are Going To Be Shocked: Return of the 'Shy' Trump Voter?

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

Last question: The election ends on Tuesday. National polling has consistently shown a substantial lead for Biden. What is your message to people who think that this thing is done?

Cahaly: I don’t think it’s done. Some of these national polls are not even taking into consideration the fact that Republicans have closed the gap with voter registrations. I don’t think they’re taking into account the number of low-propensity voters who are voting and who will vote on Election Day. I don’t think they’re measuring people’s genuine opinions. And I think [pollsters] are just not going to see it coming.

There’s a lot of hidden Trump votes out there. Will Biden win the popular vote? Probably. I’m not even debating that. But I think Trump is likely to have an Electoral College victory.

Kapteyn: I will be really surprised, given our own numbers, if there isn’t a very sizable gap between Biden and Trump in the popular vote—in favor of Biden. But in the states? I don’t know.

Cahaly: I like your skepticism.

Eoin Treacy's view -

There are going to be millions of people who vote for the first time in this election. That’s not just about Gen Z but it is also because people have more time. There are millions of people out of work and it’s an excuse to get out of the house or to spend half an hour filling in a form before mailing it. Turnout is likely to be the highest in decades. California alone could ensure Joe Biden wins a popular vote majority of 3 or 4 percent. Yet, the electoral college is likely to be a lot closer.



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October 30 2020

Commentary by Eoin Treacy

Covid Spreading Faster Than U.K. Scientists' Worst-Case Scenario

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

“In England, we are breaching the number of infections and hospital admissions in the Reasonable Worst Case planning scenario” for the winter, the Oct. 14 conclusions of the panel’s sub-group that deals with modeling the pandemic said in one of the papers.

“The number of daily deaths is now in line with the levels in the Reasonable Worst Case and is almost certain to exceed this within the next two weeks.”

And

Johnson has introduced a three-tier approach where regions with the highest infection rates face tougher social-distancing rules, including a ban on household mixing and closing pubs that don’t sell substantial meals. Officials are considering an extra tier that would force restaurants and non-essential shops to close, newspapers including the Guardian reported on Friday.

Nottinghamshire was the latest area to enter the highest tier on Friday, while West Yorkshire will move to the same alert level from Monday. That will take the total number of people in England under the toughest restrictions to just over 11 million, or 19.6% of the population, according to the Press Association.

There was some good news for the government on Friday: the so-called R rate, reflecting the number of people each positive coronavirus case infects, declined to an estimated 1.1 to 1.3 from 1.2 to 1.4 a week earlier. But any number above 1 still indicates the virus is spreading exponentially.
 

Eoin Treacy's view -

If the number of deaths is trending higher, as certainly appears to be the case, then it is reasonable to conclude we are seeing a second wave. The case load appears to be rising quicker than the increased number of tests allows for. That is putting upward pressure on the number of hospitalisations and deaths. Governments are not about to back away from their playbooks so remedial action in the form of additional lockdowns is almost certain. We are seeing that in Europe now.       

This interview of Mike Yeadon makes the point that 2nd waves don't occur and that the massive movement of people after World War I contributed to the impression that pandemic had a 2nd wave. Perhaps the lockdowns did in fact slow the spread and therefore just prolong the inevitable herd immunity. The list of measures taken to date suggest economies will conitnue to be sacrifieced until a vaccine is approved, regardless of any other argument. To admit fault would be political suicide. 



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October 29 2020

Commentary by Eoin Treacy

October 29 2020

Commentary by Eoin Treacy

Biden and beyond: many a micro makes a macro

Thanks to Iain Little for this edition of his report. Here is a section on technology

In a zero-interest rate, depression-filled world, growth should be highly valued. Our technology adviser Charles Elliott, whose tech fund is up +45% in 2020, defines a growth stock as one with top line revenue growth exceeding +15% in a zero-interest rate world.

People will continue to “overpay” for +15% growth because – assuming it leads to +20/25% earnings growth – it vaporises a 40x Price Earnings Ratio (PER) down to low double digits in under 5 years. So, the real question for an investor is not “is the company’s PER too high to buy it?” but rather “will the competitive position of this growth company persist for 3-5 years?”

Distributed working, 5G, growing internet diffusion, Internet of Things, augmented reality, electric or hydrogen cell vehicles, ageing populations… these sectors and themes have saved portfolios this year. Such themes are more sustainable change-drivers than either a Biden or a Trump presidency. Since we wrote about the Covid effect of “acceleration” in March, most commentators are running the same tape. “Acceleration” is the watchword.

In our June report we advised against leaving these safer “growth” shores for more cyclical and beaten down “value” sectors like cyclicals, industrials, traditional energy and, the kiss of death, hospitality or airlines. This shift and emphasis won’t last forever.

But it’s got longer to run, at least until central banks achieve their targets of 2% inflation by over-shooting it via a combination of fiscal reflation and Modern Monetary Theory.

Eoin Treacy's view -

The pace of technological innovation is accelerating. It is being driven by big data, much greater availability of computing power via the cloud, and soon 5G. Quantum computing is in its infancy but is progressing at an exponential rate. Artificial intelligence remains on a strong growth footing and benefits from the fact that you only need to teach a computer once. After that it is all copy and paste



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October 29 2020

Commentary by Eoin Treacy

Email of the day on trading gold

 you (re-) purchased gold at 1879(as well as silver at 23.70 and platinum at the same time) as a trade as opposed to a medium to long-term investment.

(these PMs today finished slightly below your purchase prices).

At the same time, you have been saying that reaching or overshooting the 200dma on the downside which presently is at about 1780 (another 5% correction for gold from where it is today) could well be possible.

Do you intent to "stay put" in Gold and the other PM’s if such a further decline takes place or rather sell rather quickly and try to enter again at what will hopefully be the new low?

Thank you for your comments which will certainly be of interest for the collective as the mid- to long term long potential of PMs is certainly a high conviction long investment theme of yours.

Eoin Treacy's view -

Thank you for this question and I agree it may be of interest to the Collective. As I see it, the essence of the question is about the nature of uncertainty and the shape of reversions towards the mean.



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October 29 2020

Commentary by Eoin Treacy

Email of the day the on Rolls Royce rights issue

RR shares finished the day at 84.54p whilst the newly issued rights finished at 51p.

When adding back the 10/3 of 51p to the share price of 84.54p, the result is 254p which is a very nice gain from the news of your first purchase at 154.75 p you gave the collective early October (your second purchase being adroitly at 105p). Thank you for advising us!

BUT:

Yesterday you wrote regarding RR  "...The knock-on effect of the rights issue could result in the share falling between 25% and 33% which may be priced into shares over the coming two weeks..."

Three interrelated questions:

1. Do you mean by this that the share price of 84.75 could go down to 57p (-33%) to 64p (-25%) which would be equivalent to the "old share price" coming down from today's 254p to 170p?

2. What would be the reason for this heavy decline - all endogenous factors should already be priced assuming a efficient pricing...

3. If such a decline is probable would it not make more sense to take good profits and then, if the share really comes down or stays where it is, and the turn-around story still seems valid, buy again a lower or more or less unchanged price?

It seems to me that from a risk-adjusted perspective, this would be the better action.

And

Dear Mr. Tracey,
Rolls Royce web site states for shareholder living in USA:
" Due to local regulations the rights issue cannot be offered in your country. We will arrange to try and sell your rights to new ordinary shares for you, and you will be sent the profit (after expenses) if it is £5 or more."
would elaborate on this process for those of us who are not familiar with it.
Many thanks for your great service.

Eoin Treacy's view -

Thank you both for these questions. The share was rebased yesterday and halved as a result of the rights issue. It subsequently rebounded from its lows because many investors were waiting for the uncertainty of the rebasing to pass before initiating long positions. The question now is what happens next.



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October 29 2020

Commentary by Eoin Treacy

The Great Reset

This edition of Tim Price’s always enjoyable missive may be of interest to subscribers. Here is a section:

Markets were born free but are now everywhere in chains. Cash deposit rates are now derisory, but with added bail-in risk. Bond yields are likely to remain squashed indefinitely, helped by governmental funny money. So, cash and bonds are largely out of the question. The one market too big for even the world’s central banks collectively to kick around is the currency market. So, we would not be surprised to see some kind of reset develop there. Our way of anticipating that reset is to own precious metals and the shares of sensibly priced mining concerns in “safer” jurisdictions. Because we anticipate an ultimately inflationary outcome due to those aforementioned torrents of funny money, we value claims on the real economy in the form of equity ownership of cash-flow generative businesses run by principled, shareholder-friendly management with an excellent track record of capital allocation, especially when such stocks can be bought at a discount to their inherent worth. And because we frankly have no clue how the Great Suppression will necessarily play out, we hold uncorrelated (systematic trend-following) funds that offer the potential to zig when the markets finally and conclusively zag. Our watchword: if in doubt, diversify.

Not the sort of commentary we would prefer to be sending out into the world. But sometimes spades must be identified as such. On a more positive note, some wisdom from the ages: this too shall pass. It just better gets a bloody move on.

Eoin Treacy's view -

The question for investors is whether the ECB announced additional stimulative action to support the economy or arrest the advance of the Euro. The region’s plan for climbing out of the lockdown-induced recession will be founded on exports. A weaker currency would certainly help and the ECB is delivering.



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October 29 2020

Commentary by Eoin Treacy

October 28 2020

Commentary by Eoin Treacy

Video commentary for October 28th 2020

October 28 2020

Commentary by Eoin Treacy

Risk Off

Eoin Treacy's view -

The vast majority of markets pulled back today and the Dollar strengthened. The tightening on restrictions on movement and economic activity in Europe and the prospect of taxes rising in the advent of a Democrat clean sweep in next week’s election have sapped demand. The failure of the USA’s political parties to agree on additional stimulative measures represents a loss of the liquidity which has helped to support earnings and speculation.



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October 28 2020

Commentary by Eoin Treacy

Email of the day on Covid and the Trump rallies

It seems to me that the above are going to be seen as super spreading events as we see day after day thousands of his followers in close proximity not wearing masks, blindly following his mantra that the disease is turning the corner. Supporting my argument is we know an important property of the virus is that it survives in the atmosphere much better at lower temperatures thus aiding the infectivity.

Eoin Treacy's view -

Thank you for this email which may be of interest to other subscribers. I found the point you made months ago about the tendency of stressed individuals to be more susceptible to infection to be particularly insightful.



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October 28 2020

Commentary by Eoin Treacy

GE "Tough to Argue With" Results Win Over Wall Street Critics

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

General Electric shares jumped as much as 10% on Wednesday after the company’s third-quarter results
topped projections, earning the company plaudits from even the most bearish Wall Street analysts.

* Gordon Haskett analyst John Inch (hold) said GE’s EPS beat follows the pattern of mostly all other industrial companies that have beat bottom-line forecasts this earnings season

** Said overall, stronger healthcare and better free cash flow, despite still tough aviation business, “are likely to reinforce the messaging that GE has fundamentally bottomed – although the company will likely continue to face years ahead of difficult climb-back,” while Covid resurgence could arrest aviation fundamentals and future improvement in healthcare business

* JPMorgan analyst Stephen Tusa (neutral) said the across-the-board nature of the beat “is what it is, positive”

** The 4Q guide for free cash flow of over $2.5 billion suggests cash will be well ahead of JPM’s below-consensus expectations, and a “headline like that is tough to argue with”

* RBC analyst Deane Dray (outperform) said GE is still battling through a multiyear turnaround, worsened by the Covid-pandemic, but “there were encouraging signs” in the company’s EPS beat

** As is typical with a GE earnings, there are a number of moving parts involving charges/reserves, the analyst noted

** Said the most notable of those is the $100 million reserve taken for a potential settlement with the SEC for legacy accounting issues; however, since these issues date back to two CEOs ago, Dray expects investors would view it as a positive to see this issue resolved via a settlement

* GE 14 buys, 8 holds, 1 sell; avg PT $8.07: Bloomberg data

* NOTE: Earlier, GE Jumps on Surprise Profit as Culp Sees Faster Turnaround

Eoin Treacy's view -

The global economy is in a state of flux because no one can have an accurate reading what the future patterns of activity will be following the pandemic. The travel/hospitality sector obviously has a place in the economy but at what scale? The stay-at-home champions have seen a step change in demand growth for their products but how sustainable is that growth trajectory? For industrials is the economy going to bounce back on infrastructure development or be mired in political infighting?



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October 27 2020

Commentary by Eoin Treacy

Video commentary for October 27th 2020

October 27 2020

Commentary by Eoin Treacy

Email of the day - on solar/wind power to generate hydrogen

The Australian government just approved fast tracking the Asian Renewable Energy Hub (asianrehub.com) proposed to be built in the Pilbara. It will generate green hydrogen from water using solar and wind energy that can produce clean ammonia to power ships, generate power and be used as a feed-stock for industrial processes. They say it will be the world's biggest power station at 26,000MW, covering 6500 square kilometers of land. It will start exporting in 2028.

Eoin Treacy's view -

Thank you for this informative email. Among the challenges faced by renewables is the distance of the primary locations wind and solar are available from the primary consumption markets. The only way to bridge that gap is to transport the energy produced to where it is needed. Producing green hydrogen and ammonia is a solution to that challenge and both are valued added commodities with a ready evolving market.



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October 27 2020

Commentary by Eoin Treacy

JPMorgan Sees Cryptocurrency Commercialization As Bitcoin Rises

This article by Bill Peters for Investors Business Daily may be of interest to subscribers. Here is a section:

JPMorgan Chase's digital currency is in commercial use for the first time, and the bank has built a new business around the technology underpinning the coin. That follows a Bitcoin price surge over this month.

JPM Coin — a cryptocurrency JPMorgan launched last year — "is being used commercially for the first time this week" by a big technology client, which the bank did not identify, CNBC reported on Tuesday. The client is using the cryptocurrency for cross-border payments.

The bank has also created a new segment devoted to cryptocurrencies and blockchain, the record-keeping technology that enables cryptocurrency transactions. That segment is called Onyx.

JPMorgan hopes blockchain could reduce errors and rejections in cross-border payments if banks are able to verify account information was accurate and regulatory compliance, CNBC said. Such payments can slow down as they pass through the global banking system.

Takis Georgakopoulos, JPMorgan's global head of wholesale payments, told CNBC he believes the world is "shifting to a period of commercialization" of blockchain and cryptocurrency.

Eoin Treacy's view -

Banks issuing their own currency was relatively commonplace until the last few decades and the UK still has some vestiges of the practice. The ability of anyone with sufficient skill to create their own cryptocurrency is a testament to how early we are in the digital money cycle. As it matures and governments take a significant interest the range of what is possible is likely to coalesce around government sponsored digital currencies.



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October 27 2020

Commentary by Eoin Treacy

Rolls-Royce Gets Investor Nod for $2.6 Billion Equity Sale

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

The package is aimed at seeing Rolls-Royce through to 2022, when the company expects to resume sufficient cash generation alongside a gradual recovery in demand for air travel. Chief Executive Officer Warren East has also said the company could sell assets as it repositions for the future.

“We didn’t want to put the business and our shareholders’ interests at risk by gambling on the situation next year so that’s why we chose to go with this package now,” the CEO said at an investor meeting.

Even with funding secured, Rolls-Royce still faces an uphill road to recovery. The twin-aisle planes the company supplies are predicted to take until at least 2025 to recover to pre-pandemic levels and the group has announced plans to cut 9,000 jobs.

Eoin Treacy's view -

The 10 per 3 rights issue is due to close at November 11th and will ensure Rolls Royce has sufficient capital to see it through the next couple of years come what may. It’s a worst-case scenario funding raise and will take place against a background of low interest rates and high liquidity.



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October 27 2020

Commentary by Eoin Treacy

Coronavirus: Government throwing 'lit match into a haystack' by discharging Covid patients to care homes

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

The government has been warned it is throwing “a lit match into a haystack” by discharging Covid-positive patients to care homes, with politicians demanding that the safety of residents and staff is guaranteed under the new policy.

During the first wave of the pandemic, approximately 25,000 hospital patients were sent to care homes – many of whom were not tested – which helped spread the virus among residents. Around 16,000 care home deaths have been linked to Covid-19 since the start of the crisis.

The strategy was one of the government’s “biggest and most devastating mistakes” of the crisis, says Amnesty International, and questions have been raised over the decision to introduce a similar policy as the UK’s second wave intensifies.

As part of the 2020 adult social care winter plan, the government has called on local authorities and care providers to establish “stand-alone units” – so-called ‘hot homes’ – that would be able to receive and treat Covid hospital patients while they recover from the disease.

There is also an expectation that, due to housing pressures and a shortage of suitable facilities, some patients may be discharged to “zoned accommodation” within a home, before being allowed to return to normal living settings once they test negative for the virus.

Councils have been told to start identifying and notifying the Care Quality Commission of appropriate accommodation, and to ensure high infection prevention standards are met.

Eoin Treacy's view -

Battling the pandemic is as much about public relations as it is about medicine. Everyone knows elderly sick people are by far the most at-risk group. Stuffing elder care homes with people who may still be infectious is a recipe for another public relations disaster.



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October 26 2020

Commentary by Eoin Treacy

Video commentary for October 26th 2020

October 26 2020

Commentary by Eoin Treacy

What Happens Next

Thanks to Iain Little for this lengthy essay by Chris MacIintosh for Capitalist Exploits. Here is a section:

Without the freedom to say what you think, you have no freedom to think. Sharing of thoughts, opinions, data and seeking out the truth of what it all means is crucial to relationships, happiness and life. Now imagine being afraid to do that.

Everything stops.

This is so very important I can’t stress it enough. If I could, I’d do so standing on a rooftop waving my hands with spittle flying. Please understand this assault taking place across the Western world. Right now there is wealth… because it has been built, but wealth is, and always has, been in human ingenuity, what we refer to as human capital. This is what Marxists don’t understand. They see the big houses and cars… the “stuff” and think that’s wealth. It’s not. But this is what they’ll come after.

It is actually worse than that. They won’t be content simply with theft, anymore than Mao’s red guards were satisfied with destroying the jobs of intellectuals. They instead wanted to see them suffer and to bleed and die. So they beat them to death.

Eoin Treacy's view -

Governance is Everything has been a mantra at this service for decades. The most important thing is that governance is not an absolute. It’s a trend. Standards are either improving or deteriorating and that has a direct knock-on effect for risk premia in any country. The primary tools for monitoring governance are minority shareholder interests, property rights, the rule of law, independence of the judiciary and freedom of the press. Every one of these facets of governance is under threat all the time.



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October 26 2020

Commentary by Eoin Treacy

Range Bound Market as Margins Rebound; Earnings Driven Breakouts

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

Eoin Treacy's view -

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

There have been some notable earnings beats announced over the last week but SAP’s very disappointing results today raised important questions about the sustainability of tech earnings. There is a clear continued divergence between the winners and losers from the pandemic but the outlook for 2021 may be see some reallocation towards a recovery.



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October 26 2020

Commentary by Eoin Treacy

Jack Ma's Ant Seeks to Raise $35 Billion in Biggest-Ever IPO

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

The company will issue no more than 1.67 billion shares in China, equivalent to 5.5% of the total outstanding before the greenshoe, according to its prospectus on the Shanghai stock exchange. It will issue the same amount for the Hong Kong offering, or about 3.3 billion shares in total.

Alibaba Group Holding Ltd., which was co-founded by Ma and currently owns about a third of Ant, has agreed to subscribe for 730 million of the Shanghai shares, which will be listed in Shanghai under the ticker “688688,” according to the prospectus. Alibaba will hold about 32% of Ant shares after the IPO.

Eoin Treacy's view -

AliPay prospered by offering a higher interest rate than banks which was earned daily. That sensation of seeing one’s balance increasing by the day, even if only by a small amount, drove massive consumer adoption. The reason it was able to circumvent strict banking regulation on how much interest can be paid was because the government was willing to look the other way by not insisting on a banking license.



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October 23 2020

Commentary by Eoin Treacy

October 23 2020

Commentary by Eoin Treacy

A $13.5 Billion SPAC Sensation Will Buy Your House

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

When the Vision Fund last invested in 2019, it valued Opendoor at just $3.8 billion. This year, Social Capital Hedosophia Holdings Corp II, a SPAC created by former Facebook Inc. executive Chamath Palihapitiya, decided it was worth $4.8 billion (excluding its cash). Since announcing the merger with Opendoor in September, the price of shares in Palihapitiya’s SPAC has more than doubled. This means Opendoor’s enterprise value has risen to about $13.5 billion, even before the transaction is complete.

​A serial SPAC launcher, Palihapitiya thinks Opendoor’s valuation could rise tenfold. “This to me feels like Bitcoin in 2012, Amazon in 2015, Tesla in 2016, Virgin [Galactic] last year,” he said last month. Palihapitiya’s first SPAC took Richard Branson’s space-travel company public in 2019.

Palihapitiya and his investment partner Ian Osborne have put more of their own money — about $169 million — into Opendoor than is customary in a SPAC deal. At the current share price, they’re set to achieve a spectacular four-times return on that invested capital.

It’s hard to see how the company’s fundamentals justify such returns. Opendoor said the SPAC transaction valued it at a 1x multiple of its revenue (the value of the houses it sells, plus any ancillary services). But once you deduct the cost of acquiring and renovating the houses, the company generated just $300 million in gross profit last year — a paltry 6% gross margin. 

Eoin Treacy's view -

Startups have waited a decade to list on the stock market. They didn’t have to. The conventional reason to list is because it is the only large source of funding available for small companies to fuel growth. Equity is an expensive source of capital for companies and private funds were a lot easier to come by since the financial crisis.



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October 23 2020

Commentary by Eoin Treacy

Email of the day on buying Ethereum

Hello Eoin It seems to be difficult to invest in Ethereum here in Europe/Switzerland. first, there are very few providers and second, the liquidity is miserable. I want to invest appr US $ 200K, can you guide me where to go? 

Eoin Treacy's view -

Thank you for this question. Average daily volume of Ethereum is in order of about $7 billion so I suspect the markets you are looking at are not especially deep. The most expedient method to buy most cryptocurrencies is through a reputable exchange. Coinbase is the largest to the best of my knowledge. 



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October 23 2020

Commentary by Eoin Treacy

Bailed Out Indian Lender Returns to Profit After Cutting Costs

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

Yes Bank Ltd., which is emerging from India’s biggest financial bailout, returned to profit in the quarter ended September after its tax and operating costs fell.

It reported a net income of 1.3 billion rupees ($17.7 million) in the quarter, compared with a 6 billion rupee-loss a year earlier, the Mumbai-based lender said in a filing Friday. The bank was teetering on the edge of insolvency before being bailed out in March at a cost of $1.3 billion.

Yes Bank’s expenses fell 30%. The bank set aside 19.2 billion rupees as Covid-related provisions, the results showed. Yes Bank’s gross bad loan ratio was 16.9% at the end of September, compared with 17.3% three months earlier.

“The bank has been able to register a very significant improvement in the operating profit side,” Chief Executive Officer Prashant Kumar said at a briefing. “This will continue in the future also and we believe that because of our operating profits, by and large, we will be able to take care of our any credit costs which may happen due to the impact of the Covid.”

Kumar, who was brought in to turn the bank around in March, is facing one of his toughest challenges after India’s economy posted the worst contraction among major economies last quarter. Kumar has made restoring the faith of the bank’s depositors a priority and is planning to nearly double deposits to 2 trillion rupees by March 2021.

Eoin Treacy's view -

The burden from India’s non-performing loans have fallen most heavily on the private sector banks. That has necessitated a significant deleveraging cycle for the sector with a number of previously high-profile companies falling significantly.



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October 23 2020

Commentary by Eoin Treacy

Expectations and the Role of Intangible Investments

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

The primary task of an investor is to anticipate revisions in expectations. This requires an understanding of price-implied expectations and having a sound thesis for why the market will revise those expectations. The primary purpose of financial accounting is to provide a company’s external parties, including current and prospective shareholders and creditors, with the information they need to make informed economic decisions.

Earnings are deemed to be “the single most important output of financial reporting.”42 It used to be that earnings were on the income statement and investments were recorded mostly on the balance sheet. The rise of intangible investments means that the bottom line is now a mix of earnings and investment. The goal of this report is to allow an investor to untangle these pieces and assess them properly.

Earnings are less relevant for value today than in the past. This is because of the rise of intangibles and the increase in non-recurring, or ancillary, items reported in earnings.43 We focus on the former, but investors seeking to understand value must thoughtfully deal with both.

Baruch Lev, a professor of accounting at New York University Stern School of Business, argues that earnings have become less relevant for value over time.45 He supports this claim by analyzing the correlation between contemporaneous earnings and market value. He further develops a proxy for intangible investment, R&D plus SG&A spending as a percentage of assets, which allows him to separate the universe of stocks into those that are above the median, the “top spenders,” and those below, the “bottom spenders.”

Exhibit 7 show the results of this analysis by decade from the 1950s through the 1990s and from 2000 to 2016. A couple of features stand out. First, there is a monotonic decline in earnings relevance for the top spenders. This coincides with the rise of intangible investment. Second, the relevance gap between the top and bottom spenders, which was modest in the 1950s, grows over time. The earnings relevance for companies that rely mostly on intangibles is low, and reclassifying investment improves the signal.

Eoin Treacy's view -

The long-running underperformance of value versus growth has confounded many traditional fundamental investors. The continued outperformance of the technology sector, where there is a paucity of earnings but ample performance, raises important questions for value investors.



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October 22 2020

Commentary by Eoin Treacy

Video commentary for October 22nd 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: cryptocurrencies extend breakout, Bonds yields continue to climb, Dollar steadies, Renminbi susceptible to consolidation, US fiscal deal appears to be closer, continued evidence ot rotation into recovery candidates.



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October 22 2020

Commentary by Eoin Treacy

Grains Have 'Immediate Upside' Says Goldman Sachs

This note from Dow Jones may be of interest to subscribers. Here is a section:

A report from Goldman Sachs says that the commodity sector is likely on its way up in 2021 due to inflation. However, while grains futures have been traveling higher, momentum is likely to slow down for agriculture in general, the report says -- pointing to energy and metals as more likely areas of growth. "Goldman Sachs analysts acknowledged that the non-energy commodities have 'immediate upside' potential due to the strong Chinese demand and weather driven risks, but they see that momentum fizzling in 2021," says Arlan Suderman of StoneX. Corn futures on the CBOT are up 0.7% Thursday, while soybeans are up 0.4%. Meanwhile, wheat is down 0.8%. 

Eoin Treacy's view -

Drought risk, the transition to a La Nina weather system and restocking following the panic buying during the initial lockdowns, all represent tailwinds for the soft commodity sector.

Another way of looking at the base formation completions in the sector is commodities are beginning to react to the weakness of the Dollar and risk of inflation in a predictable manner. There is clear potential that commodities are acting as a lead indicator for future inflation.



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October 22 2020

Commentary by Eoin Treacy

Compton Launches Largest Universal Basic Income Program In The Nation

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

Compton, with a population of 95,000, has upwards of 1 in 5 residents living in poverty, double the nationwide average, city officials said. Local housing assistance in the city is at capacity, and 46% of its residents are renters. Since the outset of the pandemic, city officials say its unemployment rates have skyrocketed to 21.9%, and a growing segment of its population are relying on food pantries.

“People in our community are going through tough times, and I know that guaranteed income could give people a moment to navigate their situation, and have some breathing room to go back to school, explore a new career path, spend time with their children, or improve their mental and emotional wellbeing.”

A number of cities across the country are expressing more willingness to consider universal basic income, and the concept was the basis of tech entrepreneur Andrew Yang’s presidential run. The California city of Stockton launched their program last year, and Los Angeles and Long Beach exploring their own pilot programs.

Eoin Treacy's view -

Many people associate Compton with movies like Boys from the Hood or Straight Out of Compton which highlighted the city’s gang culture. Today 70% of the population is Latino and many of those people are illegal immigrants.



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October 22 2020

Commentary by Eoin Treacy

The Race to Hydrogen Goes Beyond Brexit With Italy-U.K. Deal

This article by Chiara Albanese and Alberto Brambilla for Bloomberg may be of interest to subscribers. Here is a section:

Italy’s Snam SpA will brush aside Brexit and invest 33 million euros ($39 million) in ITM Power Plc, which produces electrolyzers, a crucial component in the hydrogen technology.

The investment is part of a 150-million pound ($197 million) capital increase by ITM. The accord is part of Snam’s expansion in the technology after the European Union put hydrogen at the heart of its measures to cut greenhouse gases and become climate neutral by 2050. Hydrogen, if made with renewables, could replace coal, oil, and eventually natural gas, and help eliminate about a third of emissions from industries like steel and cement by mid-century, according to BloombergNEF.

“The hydrogen sector is like the internet before the dot com boom,” Marco Alvera, chief executive officer of Snam, said in an interview. “What matters now is to unlock potential technology and to find the right positioning.”

Eoin Treacy's view -

The EU is going to spend €2 trillion on a green new deal. China is at least talking about going carbon neutral within the next thirty years. That’s a lot of money chasing an energy transition.



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October 21 2020

Commentary by Eoin Treacy

October 21 2020

Commentary by Eoin Treacy

Bitcoin Surges to Highest Since July 2019 After PayPal Embrace

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

Bitcoin surged to the highest level since July 2019 after PayPal Holdings Inc. announced it will allow
customers to use cryptocurrencies.

The largest digital coin increased as much as 4.9% to $12,488 Wednesday, surpassing the previous high for the year of $12,473 set in August. Gains among so-called alt coins were even larger, with Litecoin jumping more than 11% and Bitcoin Cash surging 8%.

PayPal customers can use select cryptocurrencies including Bitcoin, Ether, Bitcoin Cash and Litecoin on the platform. Mike Novogratz, who runs Galaxy Investment Partners, on Twitter called it “the biggest news of the year in crypto,” adding that banks will embark on a race to service digital currencies.

“We have crossed the rubicon,” he said. The news sparked an exuberant response from crypto fans who pointed to a string of recent announcements that suggest wider acceptance by old-school financial mainstays. Two public companies -- Square Inc. and MicroStrategy Inc. -- said recently that they invested in Bitcoin. And Fidelity Investments announced in August that it’s launching its first Bitcoin fund, adding its establishment name and star power to the often-maligned asset class.

Eoin Treacy's view -

The most recent bitcoin halvening was completed in May. That means the reward for solving the algorithm halved which doubled the difficulty of mining the next one. Since the genesis of the cryptocurrency, halvenings have resulted in investors appreciating the limited supply argument and the increasing difficult of creating new bitcoins as time progresses.



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October 21 2020

Commentary by Eoin Treacy

AirbnBaller

Thanks to a subscriber for this article from SeekingAlpha by Scott Galloway. Here is a section:

Airbnb is also a better value than hotels, offering more space but with less Covid (no check-in, elevators, or common areas) at a lower cost. A crisis is a terrible thing to waste, and Covid afforded the CEO the cloud cover to cut costs and refocus on the core business. In May Airbnb laid off a quarter of its staff (1,900 employees). CEO Chesky managed to pull a Bezos and was seen as a hero for his empathetic approach to layoffs (generous severance, extended healthcare, and a website of Airbnb employees who were laid off to help them find new leads). Firing people, sending out private pics — tomato/tomahto. Chesky and co-founders relinquished their salaries, cut pay in half for executives, and slashed nearly $1 billion in marketing expenses. The firm is in fighting shape.

The reduced cost structure and market recovery mean the path to profitability has become bigger, better lit, and shorter. There are rumors the firm will accelerate into/through profitability in 2021. The story here won’t be one of distant, but burgeoning, profits.

The story stock of 2020, where the narrative rode shotgun as the numbers sat quietly in the backseat, was Tesla. Airbnb will not electrify the world, but it will host it and reshape the resources required to let people tap into a basic instinct: to explore with others. What Airbnb lacks in story (unlikely Mr. Chesky can land two Brooklyn studio apartments on dual barges concurrently), it makes up in performance. There is no better vision than performance.

Eoin Treacy's view -

I had the pleasure of virtually attending a talk by Scott Galloway last week. He’s an engaging speaker and his topic at the time was how personal priorities shape purchasing decisions. He had a lot to say about equality of opportunity in college admissions. His main point was admissions, as they are currently structured in the USA, are tantamount to a caste system. I imagine his classes at NYU are well-attended.



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October 21 2020

Commentary by Eoin Treacy

Fed Keeps Bond-Market Tantrums at Bay With Stealth Yield Control

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

“Yields are almost behaving as if we have yield-curve control already,” said Esty Dwek, head of global market strategy for Natixis Investment Managers, which oversees about $1 billion. “The yield rise will probably remain contained because the Fed is more important than anything else and they will limit it.”

Call it stealth yield-curve control, as Fed policy makers have pushed back on the idea of capping yields. It’s a step that central banks in Australia and Japan have already taken. The Bank of Japan has been pinning 10-year rates at around zero, while the Reserve Bank of Australia targets three-year yields at 0.25%.

U.S., yields have been boxed in from both directions. On the upside, the potential for Fed action should the economic picture darken, along with overseas buying and haven demand because of worries about the pandemic, are keeping long-term yields in check. On the downside, the central bank’s reluctance to drive policy rates below zero creates a floor.

Eoin Treacy's view -

The Fed might in fact be completing its promised purchases of $120 billion a month but it is not showing up on the balance sheet. The only explanation for that which makes any sense is that the purchases are being sanitised.



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October 20 2020

Commentary by Eoin Treacy

October 20 2020

Commentary by Eoin Treacy

Belt up for the coming 'Global Super Cycle' and a $100 trillion World by 2023

Thanks to a subscriber for this note from EM Capital Advisors. Here is a section:

The Emerging Market (EM) share of world output in the last 20 years doubled from 19% to 38% with the EM world growing at about double the rate of the Developed world (DM). This kept the total world growth at a 3-3.5% range over the last decade despite every region in the world growing a little slower than in the previous decade.

The implications of the swings in the global deflator and the FX on businesses and global incomes was much larger than most imagined which is visible in Fig 1 above. It breaks down the nominal world output and its components showing that the world in real terms grew at a pretty even rate of 3-3.5% through most of the last twenty years, with the swing in the ‘Deflator+FX component’ creating the big booms or bust feel in the world.

We are entering another such ‘Supercycle’ which was born about a quarter ago. Our definition of a supercycle is nominal World Output growing at 8-10% for a few years lifting most boats globally. Our view on the components of this global Supercycle are essentially building in a few key assumptions –

1. The World growth in real terms continues in the 3% +/- 1% range after normalizing to pre Covid levels in real terms by 2022. This is line with the IMF and many other estimates.

2. We expect the Global deflator to stay elevated in the 2-4% range for the next few years driven by stimulative fiscal and monetary policy by most large world economies. This would be aided by a weaker US$ and concurrent to it.

3. The US$ weakens 3-4% per annum for the next few years with rising deficits, with the Chinese Yuan doing the heavy lifting on the other side. The Yuan weakness in the previous few years had prevented this from playing out earlier. This paves the way for a strong Asian and EM FX basket which together account for about half of the world output. This is in a way similar to what happened in 2003-2005.

Eoin Treacy's view -

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

Thanks for this interesting missive which may be of value to subscribers. Here is an additional note from the sender:



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October 20 2020

Commentary by Eoin Treacy

Twitter, Responsibility, and Accountability

This article by Ben Thompson for his Stratechery blog may be of interest to subscribers. Here is a section: 

The lack of a punchline applies to many of the Facebook controversies since then: the United Kingdom’s Information Commissioner’s Office determined that the only scandal about Cambridge Analytica was the degree to which they oversold their capabilities;

 the afore-linked report from the Columbia Journalism Review highlighted how infinitesimal the scale of Russian interference on the platform was, and research shows that “fake news” makes up a fraction of American’s media diet; more recent research about voting fraud argued:

Contrary to the focus of most contemporary work on disinformation, our findings suggest that this highly effective disinformation campaign, with potentially profound effects for both participation in and the legitimacy of the 2020 election, was an elite-driven, mass-media led process. Social media played only a secondary and supportive role.

Eoin Treacy's view -

The power of the editor is at the root of the argument about which media venue carries the most weight in the cacophony of voices seeking attention at major turning points in politics and markets. Social media is a morass with so many voices competing for attention that no one account carries the weight of an established oracle of knowledge. That is where the strength of the winners in the mass media world prosper. They are still seen as the destination for truth. That is particularly true when they run a story taking a contrary angle to what they normally write.



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October 20 2020

Commentary by Eoin Treacy

Netflix 3Q Streaming Paid Net Change Misses Est

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

Sees growth reverting back to levels similar to pre-COVID as the world recovers, and sees paid net adds likely to be down year over year in 1h 2021 as compared to the big spike in paid net adds in 1h 2020
Sees 2021 free cash flow be -$1 billion to break-even
As productions increasingly restart, we expect Q4’20 FCF to be slightly negative and therefore, for the full year 2020, we forecast FCF to be approximately $2 billion, up from our prior expectation of break-even to positive
With $8.4 billion in cash on our balance sheet at the end of the quarter plus our $750m credit facility which is undrawn, our need for external financing is diminishing

Eoin Treacy's view -

Netflix is running a capital-intensive model that is entirely dependent on growth. It got a significant boost in subscriptions from the pandemic but in an increasingly crowded competitive space the ability to continue to sustain growth has to be questionable.



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October 20 2020

Commentary by Eoin Treacy

October 19 2020

Commentary by Eoin Treacy

Video commentary for October 19th 2020

October 19 2020

Commentary by Eoin Treacy

Infinite QE Was Always Unsaid by Fed. Until Now

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

Quarles is clearly uncomfortable with that kind of framing, judging by his need to interject that the Fed’s bond buying should be seen “not as a way of supporting the issuance of Treasuries, but as a way of supporting a functioning market in Treasuries.” But as much as he tries to draw a distinction, those two things are effectively one and the same. As I wrote last week, Fed Chair Jerome Powell and his colleagues could be much more forceful on the need for more fiscal spending if they wanted. All they would have to do is pledge to increase their monthly purchases of Treasuries in line with certain policy initiatives, such as extra unemployment benefits or funding for state and local governments. But that would give away the game, which is why they consistently describe their bond buying in terms like “market functioning.”

Quarles also took the rare step of walking back his remarks, saying at an event less than 24 hours later that “I wouldn’t want the comments that I made today about thinking about Treasury market structure to suggest that I think that there’s some need for some permanent backstop of the Treasury market in normal times.”

It’s hard to not interpret them in that way, but leaving that aside, I’d be curious what “normal times” means to Quarles and other Fed officials. There’s little doubt that its Treasury purchases — or even just the threat of ramping them up — helps to keep benchmark yields right about where the central bank wants them. And the Fed considers rock-bottom long-term borrowing costs as a complement to keeping the fed funds rate near zero to boost the economy. So is normal when the central bank is raising interest rates again? That, in turn, would mean U.S. inflation “has risen to 2% and is on track to moderately exceed 2% for some time,” per its new framework. That could be quite a while, indeed.

Eoin Treacy's view -

Unprecedented has the been the most overused word in 2020. However, the sheer scale of the changes that have taken place makes the current set of monetary and fiscal conditions unsuitable for direct historical comparison. In order to truly comprehend the breadth of the challenge we need to have some very long-term historical perspective.



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October 19 2020

Commentary by Eoin Treacy

Conoco to Buy Concho for $9.7 Billion to Create Shale Giant

This article by Kevin Crowley and David Wethe for Bloomberg may be of interest to subscribers. Here is a section:

Houston-based Conoco emerged from the oil market slump in a relatively strong position with about US$7 billion of cash on hand. It recently resumed share buybacks. But its growth outlook is challenged: second-quarter production was down by almost 25 per cent from a year earlier after it joined many other US drillers in curbing output in response to lower prices.

Adding Concho will dramatically alter its production profile. The Midland, Texas-based shale company is entirely focused on the Permian and pumped 319,000 barrels in the second quarter, about six times what Conoco produced there.

The combination will save US$500 million a year by 2022, and hand shareholders more than 30 per cent of cash from operations through dividends and other distributions, the companies said.

The Conoco-Concho deal may also signal further mergers and acquisitions in the sector. Despite a compelling rationale for more consolidation in order to cut costs, a lack of cash and Wall Street's antipathy toward the sector has made it hard to get deals across the line.

Eoin Treacy's view -

The USA is the global swing producer of crude oil. Not only does it have ample supply but the government is not reliant on revenues from oil to support its social programs. Together with the unique production profile of unconventional wells, supply can be tailored to the price environment. The one challenge that has impacted profitability has been the high cost of production. The large number of independent producers has been a factor in that condition.



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October 19 2020

Commentary by Eoin Treacy

Email of the day - on zombie explorers

On zombie companies. I was very interested to hear your comments on zombie companies at the start of this week’s video. It seems to me that many of the mining exploration companies would come under this umbrella.

Some weeks ago, I decided, having done some prior research, to make an investment in one of these companies. I have reached an age where I am quite willing to put a small amount of my cash resources at risk.

I was also somewhat amused by the name of the company and its ticker, Alien metals (UFO). It had had a chequered history having traded at £5 a share at one point in 2011 but over subsequent years investors deserted the company to value the assets at a fraction of a penny.

Although making no profits, it has assets in the ground in Mexico and Western Australia. I purchased early in August, one million shares at 0.22 pence per share. As the belief stage sets in on the developing bull market in metals, it seems logical that more of these companies are going to be noticed by investors in the near future.

Eoin Treacy's view -

Thank you for this email and congratulations on taking opportunities in the market. I agree there is likely to be more interest in explorers for the simple reason that there have been no big gold discoveries in the last few years. Mining is an extractive industry and miners have to expand their reserves through exploration or acquisitions.  



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October 16 2020

Commentary by Eoin Treacy

October 16 2020

Commentary by Eoin Treacy

The US is facing a dollar collapse by the end of 2021 and an over 50% chance of a double-dip recession, economist Stephen Roach says

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

Additionally, Roach said, new COVID-19 infections and higher mortality rates must be part of assessing the risk of an aftershock, Roach said.

"As we head into flu season with the new infection rates moving back up again, with mortality unacceptably high, the risk of an aftershock is not something you can dismiss," he said. "So that's a tough combination. And I think the record of history suggests that this is not a time, unlike what the frothy markets are doing, to bet that this is different."

Eoin Treacy's view -

With the stock market close to new highs it is easy to conclude that the economic recovery will follow suit. The reality is it might be a while but we are quite likely past the trough. Consumer sentiment has taken a big hit. That damage is strongly correlated with the strictness of lockdowns.



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October 16 2020

Commentary by Eoin Treacy

TSMC's Dominance Highlighted in One Single Number

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

But things started changing last year, coinciding with some important shifts in both the industry and the global political economy. Once neck-and-neck with Samsung Electronics Co., TSMC has now pulled ahead at the leading edge, while Intel Corp., formerly the world’s most-advanced chipmaker, has fallen further behind. The Hsinchu-based company now commands around 54% of the chip foundry market, according to researcher TrendForce.

At the same time, the rollout of 5G mobile technology and artificial intelligence ran smack into the tech Cold War (which includes the U.S. effectively banning TSMC from selling to China’s champion, Huawei Technologies Co.). This meant that the queue of companies wanting the best chip manufacturing in the world — such as Apple Inc., Qualcomm Inc. and Huawei — kept growing, while the supply of foundries able to meet their needs faces continued congestion.

This seems to have emboldened management to keep raising prices. Clients appear undeterred. Chips are generally the most important item in a device — be it a flashy new iPhone or high-end server — and the higher cost is far outweighed by the greater power and efficiency that superior components provide. 

I’ve warned before that TSMC ought to be careful. Regulators, clients and governments may worry that the company is becoming too powerful. Signs that it’s leveraging its power to raise prices could add those to concerns.

Right now, though, everybody still needs TSMC. That’s a nice position to be in, while it lasts.

Eoin Treacy's view -

With the release of Apple’s 5g phone today, demand for enabled devices will likely ramp higher. In a digitally connected work place where remote working plays an important role, the removal of lag is a significant development that does not get enough attention. It transforms the real-time ability of remote control of all manner of devices. Whether that is remote surgery, esports or industrial diagnostics, all are now further enhanced with the evolution of 5G.



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October 16 2020

Commentary by Eoin Treacy

RBA Inflation Twist Suggests Economy Can Run Hotter on Low Rates

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

Australian central bank chief Philip Lowe’s move to emphasize current inflation rates rather than projections suggests the economy will be allowed to run hotter with interest rates staying lower for longer.

Lowe conceded that assessing the outlook is problematic when inflation dynamics aren’t well understood and the world is so uncertain.

“We will now be putting a greater weight on actual, not forecast, inflation in our decision-making,” Lowe said, outlining the RBA’s latest thinking on prices in a speech on Thursday that hinted at further easing to come.

Annual inflation has averaged 1.7% since Lowe took the helm at the Reserve Bank of Australia in 2016, versus a target of 2%-3% over time, and has now dropped below zero.

 

Eoin Treacy's view -

Central banks have no choice but to pursue inflation with every tool they have available to them. Not only has the pandemic unleashed massive uncertainty, but their is no plan for how the debt taken on to combat it will be repaid.



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October 16 2020

Commentary by Eoin Treacy

October 15 2020

Commentary by Eoin Treacy

October 15 2020

Commentary by Eoin Treacy

Markets Without Havens Are Becoming All Too Real

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

Although volatility has collapsed in the era of quantitative easing, in those periods when it has increased, it has generally risen unusually fast and created much pain for investors. Take the CBOE Volatility Index, or VIX. Even though it is more likely to stay below 20 these days, it is twice as likely to surge above 40 when it does rise. It doesn’t help that passive investment strategies make up half of all share trading, twice as much as 10 years ago, meaning there are fewer humans at the helm to make rational decisions when markets go haywire.

What’s more, market makers hold a tenth of the trading inventories they had in 2007, according to data from the Federal Reserve Bank of New York. As a result, they are unable to act as a sort of market shock absorber during periods of rapid price swings like they had in the past. That combined with capital flocking in and out of the same trades means markets are breaking down more often.

A good example comes from March, when exchange-traded funds owning investment-grade corporate bonds experienced price declines exceeding 10%, dropping 4% to 5% below their net asset values. Worried that the episode might cause credit markets to stop functioning, the Fed stepped into the markets to buy corporate debt for the first time.
 

Eoin Treacy's view -

2019 was one of the best years ever for the balanced 60/40 portfolio. That helps to highlight that it might still be premature to suggest the age of balancing bonds versus equities is dead. Obviously 2020 has been a very difficult year where risk takers have been rewarded and savers have been denuded of income. The challenge for long-term investors is the low interest rate environment distorts valuations so that momentum strategies tend to trump everything else.



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October 15 2020

Commentary by Eoin Treacy

Shaky U.S. Hospitals Risk Bankruptcy in Latest Covid Wave

This article by Lauren Coleman-Lochner for Bloomberg may be of interest to subscribers. Here is a section:

The AHA has estimated the pandemic will cost U.S. hospitals more than $323 billion through the end of this year. U.S. hospital revenue totaled about $1.1 trillion in 2018, according to the most recent AHA data available. The industry group is asking Congress for an additional $100 billion and full forgiveness of loans made under Medicare’s accelerated payment program, among other requests for relief.


As many as half of hospitals could be losing money by year end, Wesolowski said, citing a report it released in July from Kaufman, Hall and Associates. That’s up from about a third that were operating at a loss ahead of the pandemic.

More than three dozen hospitals have already entered bankruptcy this year, adding to a similar number last year, according to data compiled by Bloomberg. More than a dozen in rural areas have also shut their doors, according to the Cecil G. Sheps Center for Health Services Research at the University of North Carolina. The AHA put the total U.S. hospital count at 6,146 in its most recent report, a decrease of 64 from the previous year.

The financial pain has flowed through to Wall Street. Many of the hospitals that entered bankruptcy this year were part of Quorum Health Corp.’s Chapter 11 filing in April. Quorum’s 24 hospitals and other facilities struggled under the demands of treating coronavirus patients. In late June, a judge approved the company’s exit plan, which wiped out shareholders and handed the chain to creditors.

Eoin Treacy's view -

Hospitals are on the frontline of dealing with the pandemic but also suffer from the less remarked upon consequences of damaging consumer confidence. People have simply stopped going to the doctor.



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October 15 2020

Commentary by Eoin Treacy

Brexit Talks Head for Crisis as Johnson Decides Whether to Walk

This article by Katharina Rosskopf and Ian Wishart for Bloomberg may be of interest to subscribers. Here is a section:

“I can’t say as we stand here that we’ll necessarily get a deal -- we have prospects of a deal,” Barnier told reporters after meeting with EU leaders, adding that, as far as he’s concerned, talks will continue in London next week and Brussels the week after. “We shall remain available until the last possible day -- the negotiations aren’t over.”

While the U.K. thinks it has gone as far as it can, and wants the EU to compromise, leaders from the bloc insisted that the onus is on the British government. It wants the U.K. to make concessions on state aid, limiting the subsidies government can hand out to businesses, before it contemplates its own compromises on fishing.

European officials brushed off Frost’s complaints and insisted they won’t persuade the bloc to shift its stance, and several voiced irritation, asking not to be identified because of the sensitivity of the negotiations. Two said they judged the comments were aimed at Frost’s domestic audience and two others said they might serve to harden the EU’s position.

Eoin Treacy's view -

It might be nice to think that the Brexit story is about the triumph of freedom and national sovereignty over an overbearing increasingly federalist bureaucracy. However, the exit negotiations are much more about money and what competition will look like afterwards. The big question is not about fishing rights, financial services or customs borders. Instead, the primary sticking points are what modes of competition the UK is willing to give up in order to retain unfettered access to the EU’s market.



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October 14 2020

Commentary by Eoin Treacy

Video commentary for October 14th 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: competitive currency devaluation and its impact on the Dollar, Renminbi and gold, oil steady, renewables continue to outperform, speculation on how autonomous Tesla's next release of software will be. 



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October 14 2020

Commentary by Eoin Treacy

Inventing Virtual Meetings of Tomorrow with NVIDIA AI Research

This video from Nvidia may be of interest to subscribers.

Eoin Treacy's view -

I’m sure I’m not the only one who has been on a Zoom meeting where the video was extremely jerky and the transitions from one speaker to the next suffered from significant lag.
 
The improvements in quality for video, achieved with less bandwidth, is a truly impressive achievement. This is the kind of innovation that will greatly enhance the product offering of social media, teleshopping and the evolution of the media streaming sector.



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October 14 2020

Commentary by Eoin Treacy

NIO, BYD Shares Hit Record on Wall Street Vote of Confidence

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

Chinese electric carmaker NIO Inc. received confidence votes from at least two Wall Street analysts on Wednesday, after JPMorgan and Citi both upgraded their ratings on the stock.

While JPMorgan’s action was based on the expectation that the use of new-energy vehicles in China will quadruple by 2025 from last year’s levels, Citi pointed to multiple factors, including a very strong order backlog during the country’s Golden Week national holiday, an increase in NIO’s market share and a drop in battery costs.

JPMorgan analyst Nick Lai expects the penetration of new- energy vehicles in China to accelerate, jumping to 20% of the market by 2025 from less than 5% in 2019. Shifting customer preferences will help drive the trend, along with an expected drop in the cost of electric-car and battery production, the
analyst wrote in a note.
 

Eoin Treacy's view -

300 miles of ranges appears to be good enough for most investors. Whether that is the case for consumers is another question entirely. The practicality of daily life means 300 miles is probably enough 99% of the time but it also depends on ready access to charging facilities.



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October 14 2020

Commentary by Eoin Treacy

Billionaire investor Howard Marks paints grim view of economic outlook: stimulus alone won't cure 'down-cycle'

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

Marks credits the Federal Reserve’s decision to cut its benchmark interest rate to a range of 0% to 0.25% and the signalling of its intention to keep uber-low levels in place for the foreseeable future for providing the most significant stimulus for financial markets in this pandemic era.

That said, investment return expectations, he insists, will be also be hurt by the current state of economy and economic policy over the longer run.

Marks explains the investment return outlook like this: 

So the lower the fed funds rate is, the lower bond yields will be, meaning outstanding bonds with higher interest rates will appreciate. And lower yields on bonds means they offer less competition to stocks, so stocks don’t have to be cheap to attract buying. They, too, will appreciate. And if high-quality assets become high-priced and thus offer low prospective returns, then low-quality assets will see buying – implying rising prices and falling prospective returns – because they look cheap relative to high-quality assets.

Eoin Treacy's view -

The default cycle during a recession tends to a long tail because businesses do not all fail at once. The supply of liquidity supported many businesses and partial re-openings will have generated some income. However, the longer reduced activity persists the greater the burden debt will have on companies. Generally, the peak of insolvencies occurs 18 months after the recession begins. That suggests continued ample sources of additional liquidity are essential to support recoveries.



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October 13 2020

Commentary by Eoin Treacy

October 13 2020

Commentary by Eoin Treacy

Email of the day - on gold and the US election

hope you are good? Interesting to hear your views on the US election today. Eoin, am I the only person who is surprised that gold and gold miners are not doing better right now - given the weaker US Dollar and the potential uncertainty surrounding the US election? Also, earlier in the Summer, I think you went on record saying you didn't think there would be a 'second COVID wave.". What is your view now please? BTW, I don't listen to the Audios, I just watch the daily/weekly video commentary. Many thanks

Eoin Treacy's view -

Thank you for this series of questions which may be of interest to subscribers. I did say that there would not be a second larger wave because I do not believe the parallels being made with the Spanish flu a century ago make sense.



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October 13 2020

Commentary by Eoin Treacy

Email of the day on outperformance following the US election:

As per JPM and Nomura   the mkt is pricing a Biden win, caution that a blue wave is necessary, otherwise will get gridlock.

Even if it happens probably get turmoil specially if we do not get clean sweep. Otherwise legal problems will be forthcoming. The groups would be HC, alternative energies, cyclical, education, infrastructure. Also China as frictions will be reduced

Can you identify possible winners, using the charts and share them?

Trust you and your family are well. Stay safe.

Eoin Treacy's view -

The narrative about who will win the US Presidential election has morphed over the last couple of weeks to pricing in a Biden victory. The catalyst for this change was the debate where the two candidates harangued each other and dropped the bar for political decorum another notch lower. Since then, confidence among Democrats has increased substantially. There has been talk of a double-digit margin of victory and a blue wave where they control both legislative branches and the Presidency.



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October 13 2020

Commentary by Eoin Treacy

Email of the day on COVID-19 death rates versus seasonal flu

Just sharing an interesting chart I got from the more complete email below, which seems to show worse numbers than what you sometimes mention in the videos?

https://twitter.com/DrTomFrieden/status/1313539632735412233?s=20&_sm_au_=iVVBSJNsJrHMj5BRsQc8jK0RGvGF3&utm_campaign=Pandemic%20update%207%20October%202020&utm_medium=email&utm_source=Eloqua

Kind regards,

Eoin Treacy's view -

Thank you for these insightful graphics which depict how much more lethal than the seasonal flu COVID-19 is. I’ve been looking for a graphic depiction of this data for a while so this very welcome and I’m sure will be of interest to subscribers.



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October 12 2020

Commentary by Eoin Treacy

October 12 2020

Commentary by Eoin Treacy

Discovering new gold

Eoin Treacy's view -

There hasn’t been a new major gold discovery in three years and the volume of new discoveries has been declining for a decade. Since mining is an extractive industry this represents a problem because if a miner is to persist, they need to replace reserves.

If new major finds are becoming more difficult to find miners have a choice. They either need to come up with a new way of finding or they need to spend a lot more money to double down on the traditional way of doing it.



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October 12 2020

Commentary by Eoin Treacy

Cannabis-Focused ETF Get Boost from Harris Comments

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

Marijuana stocks jumped Thursday, sending the ETFMG Alternative Harvest exchange-traded fund up as much as 6% after U.S. Senator Kamala Harris made a strong statement about the prospects for legalization in Wednesday night’s vice-presidential debate. “We will decriminalize marijuana and we will expunge the records of those who have been convicted of marijuana,” Harris said. Bloomberg Intelligence Analyst Ken Shea said he saw no other news to account for the broad-based rally. “Maybe her comment served as a reminder to the market, and the prospects of a democratic president and/or sweep seems increasingly possible, based on polling trends,” he said.

Eoin Treacy's view -

Four years ago there was a lot of momentum behind the cannabis movement. Money was flowing in, partnerships with established drinks and tobacco companies were flourishing and the market was awash with start-ups.

Donald Trump’s electoral success and his ambivalence towards legalisation resulted in a significant rationalisation for the cannabis sector. The market suddenly looked smaller, the challenge of banking, transportation across state lines and the battles for market share took chunks out of growth forecasts.  Many stocks went bust and even the largest experienced deep declines.



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October 12 2020

Commentary by Eoin Treacy

China Stocks Jump on Hopes Xi Will Announce Reforms in Shenzhen

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

Xi is expected to shore up plans to make southern China a global technology hub during the trip. He is scheduled to deliver an address on Wednesday, the official Xinhua News Agency said. China will take cooperation between Shenzhen and Hong Kong to a “higher level,” Xinhua reported earlier, without offering more details.

“Investors are optimistic on further reforms and upgrades for Shenzhen, which are expected to drive foreign capital inflows and enhance the tech sector,” said Patrick Shum, director of investment management at Tengard Holdings Ltd.

Eoin Treacy's view -

After imposing its security regime on Hong Kong, China now needs to do whatever it can to prevent an exodus of capital from the enclave. Efforts to boost the number of listings in Hong Kong’s stock market are already underway. Further developing the region and integrating Hong Kong into the wider Guangdong economy appears to the next step.



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October 09 2020

Commentary by Eoin Treacy

October 09 2020

Commentary by Eoin Treacy

The Challenge in Valuing Gold

Thanks to a subscriber for this well-illustrated report from Gavekal which may be of interest. Here is a section:

Yet, in periods when both budget deficits and monetary aggregates have rapidly grown, gold has historically outperformed—and it is doing so now. At such times, gold also adds diversification benefits to portfolios.

Over the past few years, we have argued in numerous pieces that gold has started a bull run. And once they start, gold bull markets tend to run until either the US dollar strengthens meaningfully, and/or the Federal Reserve tightens monetary policy. Right now, neither of these two outcomes is likely. Hence, the gold bull market looks set to continue.

Eoin Treacy's view -

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

The Dollar declined in a meaningful manner as soon as combined monetary and fiscal stimulus kicked off in March. It staged a modest rebound in September when doubt arose about the persistence of the fiscal portion of that program.



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October 09 2020

Commentary by Eoin Treacy

Waymo is opening its fully driverless service to the general public in Phoenix

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

Beginning today, October 8, we’re excited to open up our fully driverless offering to Waymo One riders. Members of the public service can now take friends and family along on their rides and share their experience with the world. We’ll start with those who are already a part of Waymo One and, over the next several weeks, welcome more people directly into the service through our app (available on Google Play and the App Store). In the near term, 100% of our rides will be fully driverless. We expect our new fully driverless service to be very popular, and we’re thankful to our riders for their patience as we ramp up availability to serve demand. Later this year, after we've finished adding in-vehicle barriers between the front row and the rear passenger cabin for in-vehicle hygiene and safety, we'll also be re-introducing rides with a trained vehicle operator, which will add capacity and allow us to serve a larger geographical area.

We’ve achieved this milestone with the thought and care that our riders expect from us. We’ve enhanced our health and safety policies and procedures throughout our fully-owned fleet, sought the feedback of our team, partners, riders, as well as federal, local, and state authorities, all while continuing to advance the Waymo Driver’s capabilities.

To our entire community: thank you for being a part of this important journey. And to all the Waymonauts who’ve worked so hard getting us here: thanks for your dedication to our mission. Together, we’re building a safe and more accessible future with every autonomous mile we drive.

Eoin Treacy's view -

Waymo’s approach to autonomous driving is piecemeal. They appear confident to drive around a 5x10 mile area in one of Phoenix’s suburbs. However, they are not confident enough to extend range beyond that well mapped area without a safety driver. That suggests this is another step on the way to full autonomy.



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October 09 2020

Commentary by Eoin Treacy

Introducing One of the Fastest Electrodes For Batteries in the World

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

Breakthrough technology, based on patented Vertically Aligned Carbon Nanotube (VACNT) design, will bring revolutionary improvements in power, energy, lifecycle and charging time

NAWA’s Ultra Fast Carbon Electrode is the fastest in the world, combining highest ionic, electrical and thermal conductivity

Revolutionary nano-sized 3D design means batteries are no longer limited by powder-based systems; increased performance for all batteries, particularly those in electric vehicles

Technology can improve power by a factor 10, energy storage by up to three, lifecycle by up to five and reduce charging time down to minutes instead of hours

Can be used with existing and advanced new battery chemistries; improved safety and more
eco-friendly with less reliance on rare-earth materials too

NAWA’s design can bring significant cost savings – electrodes account for almost 25 per cent of the cost of a battery while today’s global lithium-ion battery market is worth in excess of $35 billion (Avicenne report 2019)

Eoin Treacy's view -

There is a great deal more money being invested in battery R&D today than a decade ago. It takes time for innovations to reach commercial utility but they do come eventually. Nama Technologies expects to have the first iterations of its technology available for sale in 2022. Considering the average time of about 4.5 years to double energy density that’s about on schedule. It will also coincide when Tesla upgrades are expected to hit the market.



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October 08 2020

Commentary by Eoin Treacy

October 08 2020

Commentary by Eoin Treacy

ECB Warns Against Complacency on Depressed Prices, Euro Gain

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

European Central Bank officials agreed at their latest policy meeting to avoid any complacency in their battle against the recession, and to counter investors’ perception that the euro would inevitably strengthen.

The account of the Governing Council’s Sept. 9-10 meeting showed officials fretting that currency gains had offset some of their monetary stimulus, with a “material impact” on the outlook for consumer prices. Chief economist Philip Lane said inflation expectations were at “very depressed” levels and at risk of falling further.

“In the prevailing environment of high uncertainty, keeping a steady hand with respect to monetary policy was seen as most appropriate,” according to the document published Thursday. “At the same time, the case was made for keeping a ‘free hand’ in view of the elevated uncertainty.”
 

Eoin Treacy's view -

One of David’s most insightful adages is “no country wants a strong currency, but some need a weaker one more than others”. Between March and August, the USA did the most to devalue its currency. The massive supply of money supplied accounted for about half of all global liquidity. That has been one of the primary factors behind the Dollar’s decline. No currency exists in isolation so if the Dollar went down, a lot of currencies expressed upward pressure.



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October 08 2020

Commentary by Eoin Treacy

The Road Ahead

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

In fact, China is responding to these changes in corporate behavior using a variety of techniques, including becoming a larger and more powerful domestic economy that relies on its own production (what President Xi Jinping calls “domestic circulation”). In the current environment China may also better leverage its higher interest rate curve (both real and nominal) to try to attract capital to support this more permanent shift towards a consumption economy. A more stable currency outlook is also helping. Our bottom line: Expect a heightened rivalry across multiple facets of the relationship, including some decoupling. However, given the absolute size of the opportunity in China, now is actually the time to think through different ways to harness China’s growth in thoughtful, risk-adjusted fashion, particularly investments that reward long-term, patient capital. Specifically, we think that further implementation of domestic circulation as a policy will lead to the rise of more domestic corporate leaders, and as a result, more – not less – corporations will look to find ways to serve this emerging consumption base.

Eoin Treacy's view -

China’s golden week ends today and the market opens back up tomorrow. Over the last month there have been significant announcements about investments in infrastructure, boosting the consumer economy and championing the green energy movement. These points all likely to become actionable in the 4th quarter.



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October 08 2020

Commentary by Eoin Treacy

Email of the day on short covering

I hope you and the family are well. well done on your XXX trade. What would you do now if you are not in the shares? and why are the shares up 25 per cent today? Is that shorts closing out their positions, realisation that the company will not go bust or just volatility associated with the rights issue? Many thanks

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. I agree the most likely reason for today’s significant additional surge today was because of short covering. It’s up almost 100% this week so buying the rebound requires one to have some tolerance of volatility. The only way to deal with that and not lose sleep is to control the size of the position.



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October 08 2020

Commentary by Eoin Treacy

Tesla Lithium Foray Is Sign of Robust Demand, Top Producer Says

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

Rather than a threat to existing producers, Tesla Inc.’s push into lithium mining is a sign of future demand strength, according to the largest producer of the key ingredient in batteries for electric vehicles.

“They’re kicking the industry in the pants,” Eric Norris, head of lithium at Albemarle Corp., said in an interview. “The market interpreted it as a strong signal of value erosion, but I view it differently. It’s a sign of what needs to come to drive the vision they have for 2030.”

Tesla’s foray into mining is at the center of the carmaker’s plan to cut battery costs and deliver on a promise to bring a $25,000 electric vehicle to market. Elon Musk told investors last month that Tesla has secured access to 10,000 acres of lithium-rich clay deposits in Nevada and planned to use a new, “very sustainable way” of extracting the metal. That news helped send lithium-producer shares tumbling, with Albemarle falling 16%, the the most on record.

Eoin Treacy's view -

Tesla has set an ambitious target of compressing battery manufacturing costs faster than any of its competitors. That means sourcing materials cheaply, redesigning the bed of the vehicles and taking over responsibility for manufacturing its own cells. It’s a couple of year project and represents the same kind of scale and expense as building the original Gigafactory did.



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October 07 2020

Commentary by Eoin Treacy

October 07 2020

Commentary by Eoin Treacy

Morgan Stanley's Sheets Goes All-In on V-Shaped Recovery Trades

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

“The glass half-full view of stimulus talks is if you don’t get it today you’ll get it tomorrow from whomever wins the election,” Sheets said in an interview. “This V-shaped recovery is still intact.”

His conviction that growth will continue unabated is in contrast with other strategists who say the U.S. is facing a multitude of risks. Lawmakers have been deadlocked for weeks on the details of a stimulus package and President Donald Trump surprised allies with a unilateral call on Tuesday to halt talks on a deal.

Sheets’s recommendations are mirrored in hedge funds positioned ever more aggressively for a steeper U.S. yield curve, often seen as a bet on reflation. The latest data shows speculative net short positions in long bond futures have hit a record, while net long positions on 10-year Treasuries have climbed to their highest since October 2017.

Eoin Treacy's view -

Brinksmanship does not mean an agreement will fail to be reached. Regardless of which way the US election goes, the next administration has an interest in continuing to support the recovery. Fiscal stimulus will be a big part of that.



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October 07 2020

Commentary by Eoin Treacy

High Conviction Calls Amid Cross Currents

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

Eoin Treacy's view -

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

The fourth quarter is going to bring two strong sales events for Amazon. Prime Day usually occurs in July but was delayed because of the pandemic. It will now take place on the 13th. That might just kick off the beginning of the holiday season. Considering the extent of excess savings this year is likely to deliver a bumper holiday season for Amazon’s retail operation.



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October 07 2020

Commentary by Eoin Treacy

Email of the day on my investments

Hi Eoin, could you please state what your APPROXIMATE price objective is for XXX to know whether you see this more as an opportunistic trade or more of fundamental return to e.g., the 200dma? Thank you

Eoin Treacy's view -

Thank you for this question. I view my trades as opportunistic and my investments as holdings in a long-term portfolio. 



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October 06 2020

Commentary by Eoin Treacy

October 06 2020

Commentary by Eoin Treacy

Trump Tells His Team to Stop Talks on Fiscal Stimulus Package

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

President Donald Trump told his negotiators to stop talks with Democratic leaders on a fiscal stimulus package, hours after Federal Reserve Chair Jerome Powell’s strongest call yet for greater spending to shore up the economic recovery.

“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” Trump said Tuesday in a tweet.

Stocks tumbled after Trump’s posting effectively called an end to months of hard-fought negotiations between the administration and Congress. Democrats had most recently pushed a $2.2 trillion package that failed to garner Republican support in the House, while the White House had endorsed $1.6 trillion.

Eoin Treacy's view -

This decision clearly amps up the brinksmanship between the USA’s opposing political parties. It also lays a stark choice at the feet of American voters. If they vote for divided government, they can look forward to at least two more years of messy negotiations on economic stimulus. The Trump administration has obviously concluded they have nothing to gain by agreeing to bailouts for bankrupt states even if that is going to force municipals to raise taxes.



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October 06 2020

Commentary by Eoin Treacy

U.S. Boosts Crude Sales to China, Forcing Saudis to Find Other Markets

This article from Dow Jones Newswire may be of interest to subscribers. Here is a section:

Earlier this year, China agreed to buy U.S. crude as part of a broader deal meant to ease rising trade tensions between the two world powers. The Trump administration agreed to cut some tariffs on Chinese goods in exchange for purchases of American farm, energy and manufacturing exports. ~

China's buying so far is a long way from fulfilling commitments made in that deal, and to some extent it is simply restoring crude flows that were cut off amid the earlier U.S.-China trade tensions. As part of a deal, Beijing agreed in January to buy $52.4 billion worth of oil and liquefied-natural-gas from the U.S. by the end of 2021. The buying was delayed by the outbreak of the Covid-19 pandemic, but has ratcheted up more recently.

“The Chinese had to catch up," said Petro-Logistics Chief Executive Daniel Gerber. That is now upending traditional oil-trade routes world-wide and further depressing some prices. Global prices have been hammered by falling demand caused by the pandemic.

Amid the new U.S. shipments to China, Saudi Arabia recently cut prices for its crude for buyers in Asia, a move that could make that oil more attractive to other regional buyers. It is also now resorting to storing unsold oil at home and overseas, including at depots in Egypt, Singapore and China. Saudi Arabia's domestic crude-oil inventories rose 7% to 81 million barrels in the two weeks to Sept. 20, a level not seen since June, said Paris-based commodities-analysis company Kayrros.

Eoin Treacy's view -

China has a significant energy deficit and that is not about to change in the next few years. In fact, assuming continued economic recovery it may widen significantly. At the other end of the spectrum the USA, Russia and Saudi Arabia has large quantities of oil and gas available for export. That pretty much ensures competition for end markets will remain active and explains why Russia and the USA remain at odds on a wide number of issues. 



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October 06 2020

Commentary by Eoin Treacy

Compact Nuclear Fusion Reactor Is "Very Likely to Work", Studies Suggest

This article by Henry Fountain for the New York Times may be of interest to subscribers. Here is a section:

Scientists developing a compact version of a nuclear fusion reactor have shown in a series of research papers that it should work, renewing hopes that the long-elusive goal of mimicking the way the sun produces energy might be achieved and eventually contribute to the fight against climate change.

Construction of a reactor, called Sparc, which is being developed by researchers at the Massachusetts Institute of Technology and a spinoff company, Commonwealth Fusion Systems, is expected to begin next spring and take three or four years, the researchers and company officials said.

Although many significant challenges remain, the company said construction would be followed by testing and, if successful, building of a power plant that could use fusion energy to generate electricity, beginning in the next decade.

Eoin Treacy's view -

It’s impossible to know whether the SPARC design will work but a couple of points are worth considering. The first is they are holding to their estimate of having a prototype up and running by 2024. That at least is a positive. The second is the team behind the project only set the company up because they lost their funding at the old MIT tokomak project. Academics have no incentive to set or exceed deadlines. Commercial enterprises do.



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October 05 2020

Commentary by Eoin Treacy

Video commentary for October 5th 2020

October 05 2020

Commentary by Eoin Treacy

Regeneron Gets the 'Ultimate Validation' After Trump's Treatment

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

Regeneron Pharmaceuticals Inc. climbed the most in almost seven months on Monday after U.S. President Donald Trump received the biotech company’s antibody cocktail to treat Covid-19.

President Trump’s treatment was the “ultimate validation” for Regeneron, according to SVB Leerink analyst Geoffrey Porges. Like Regeneron, Eli Lilly & Co. and AbCellera Biologics Inc. are developing an antibody therapy, not only as a treatment for the virus but also as a preventative.

When used as a prophylactic, these products could be considered a passive vaccine as opposed to the active shots most people think of as a vaccine, Bloomberg Intelligence’s Sam Fazeli said last week. AstraZeneca Plc, as well as GlaxoSmithKline Plc and partner Vir Biotechnology Inc. are testing similar therapies.

Eoin Treacy's view -

The primary reason for the lockdowns in March was because there was no effective treatment for the virus. Considering the speed with which it was spreading there was a clear risk hospitals would be inundated with patients. As news headlines are filled with talk of second waves, we really should be looking at the response from a first principles basis.



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October 05 2020

Commentary by Eoin Treacy

Alibaba to Buy Up to 10% Stake in Duty-Free Retailer Dufry

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

Alibaba Group Holding Ltd. agreed to buy as much as a 9.99% stake in Dufry AG, giving the Swiss duty-free giant a lifeline as the pandemic hammers the business.

Dufry said Monday it’s proposing a capital increase that will raise up to 700 million Swiss francs ($763 million), and Alibaba will participate. Advent International Corp., a private equity company, also plans to invest as much as 455 million francs. Dufry shares surged as much as 16%.

The Swiss company said the proceeds from the share sale will help it buy out its Hudson Ltd. U.S. unit, as previously announced.

The capital increase will bolster the company, whose market value has dropped to 1.6 billion francs as the shares trade near the lowest in a decade. The companies are also forming a joint venture in China that will combine Alibaba’s digital capabilities and network with Dufry’s travel retail business in that market.

Eoin Treacy's view -

The absence of airline traffic gutted Dufry’s business model. That’s a condition which has been shared by every business leveraged to travel and tourism. The big question is how long air travel will take to recover. I remain of the opinion we are close to the peak of coronavirus hysteria. That suggests it can only get better from here.



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October 05 2020

Commentary by Eoin Treacy

Fed's Evans Sees Yearslong Wait Ahead for Inflation Overshoot

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

Federal Reserve officials will probably have to wait for years to see the inflation rate rise above the U.S. central bank’s 2% target, Chicago Fed President Charles Evans said.

“I expect inflation to slowly improve, reaching 2% on a persistent basis in 2023 and then moderately overshooting 2% over the following few years,” Evans said Monday in remarks prepared for a speech at a virtual conference.

“We likely have a lot of work ahead of us. And it’s crucial that we acknowledge the magnitude of the job up front to help lessen the temptation to back off the overshoot too early in the process,” he said.

Eoin Treacy's view -

Treasury yields have risen during past episodes of quantitative easing. The support given the bond market creates an incentive to move further out the risk curve in search of returns. That means less demand for Treasuries and more demand for everything else.



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October 05 2020

Commentary by Eoin Treacy

Email of the day - on listening the audio

Eoin appeared to ask subscribers to indicate whether or not they listen to his daily broadcasts. This email confirms that I do so every day without fail and find them more than useful as I still am a Trustee of a number of charitable Trusts who have benefitted from his work and I frankly don’t know what I would do without his input.

And

You asked today whether anyone still listened to the audio commentary. Well, I certainly do. I rarely miss it. I sometimes listen more than once a day, typically when I am out walking or driving. Obviously, it is not practical/possible to watch the video on those occasions.

Keep up the good work!

Eoin Treacy's view -

Thank you for this valuable input. We are in the process of upgrading our server and this will ensure we make full allowance for retaining the audio commentary in addition to the video.



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October 02 2020

Commentary by Eoin Treacy

October 02 2020

Commentary by Eoin Treacy

Pelosi Optimistic on Relief, Says Trump's Illness Alters Dynamic

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

“This kind of changes the dynamic,” Pelosi said on MSNBC Friday. “Here, they see the reality of what we have been saying all along.”

She said she was optimistic that a bipartisan bill can emerge.

The stimulus negotiations have made some halting progress over the past two months, but the two sides remain far apart on how much of a boost to provide and where it should be directed. Democrats in the House on Thursday passed a $2.2 trillion package -- down from the $3.4 million plan they passed in May -- as their offer in the latest talks. Mnuchin has proposed a plan of about $1.6 trillion.

The negotiations are taking place amid signs the U.S. economy is struggling to recover from pandemic-induced shutdowns. Job gains slowed in September and many Americans quit looking for work, suggesting the economic recovery is downshifting. Americans’ incomes fell in August by the most in three months after the government’s supplemental unemployment benefits expired, the Commerce Department reported Thursday.

Eoin Treacy's view -

The PPP moratorium on firing workers expired on Wednesday. That event was greeted with a large number of headline-grabbing layoffs announcements. The continued pace of job growth despite the layoffs got less attention. The big question for markets is when a fiscal deal will be agreed.



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October 02 2020

Commentary by Eoin Treacy

Fertilizer Prices Reach Decade High Amid Import Probe

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

Prices spiked after U.S. fertilizer firm Mosaic Co. petitioned the U.S. Department of Commerce and U.S. International Trade Commission in June, saying that fertilizer imports from Morocco and Russia were unfairly subsidized. That prompted an investigation and raised the prospect of countervailing duties. The two countries are the largest sources of the commodity for the U.S. in the most recent crop year, through June.

The U.S. imported more than 2 million metric tons of phosphate fertilizers from Morocco last year, valued at $729.4 million, according to an International Trade Administration report citing U.S. Census Bureau figures. Imports from Russia totaled more than 767,000 metric tons and were worth $299.4 million.

Russia’s largest producer, PhosAgro PJSC, recently said it stopped shipping products to the U.S. due to the investigation and is rerouting those volumes to Canada, Brazil and Russia.

The value of U.S. purchases from the fertilizer import market fell 57% from the end May to the end of July, according to U.S. Census Bureau data, sending a supply shock through the industry and driving up domestic prices.

“Russian and Moroccan suppliers have slowed imports to the U.S., and that’s tightened up supply and also contributed to rising prices,” Alexis Maxwell, research director at Bloomberg’s Green Markets, said in a phone interview.

The import slowdown means Mosaic now holds more than 90% of the production market for phosphates in the U.S. -- increasing the influence of the Tampa, Florida-based company, she said.

Eoin Treacy's view -

There has been a great deal of rationalisation in the fertiliser and agricultural chemicals sector over the last decade. Heading into the peak in 2008 there were widely publicised fears that the world would run out of food and a lot of money was spent on increasing production. The end of the commodity bull market drove a process of rationalisation. It also encouraged major producers to flood the market with supply to drive out competition.



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October 02 2020

Commentary by Eoin Treacy

In the Bit We Trust: It's Time to Put Juniors to Work!

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

Notwithstanding the volatility of the equity markets and commodity price projections, the fundamental paradigm continued under investment in the mining sector over the last decade remains an overriding factor that clouds the industry’s supply side outlook. This factor is particularly topical given the cash being generated by the sector due to better operational stewardship and as of recent, elevated commodity prices. However, the simple fact remains that discoveries supporting industry performance are made through the drill bit, and fundamentally require the ‘boots-on-the-ground’ facilitated by the junior exploration segment. As a result, we look for continued investor interest in the precious metals equities, including the junior exploration and development space, as investment capital filters downstream into higher risk opportunities supported by a renewed interest in grassroots exploration programs, further top-down industry consolidation, and the development of new projects to support the longer-term production pipelines of larger industry participants.

Eoin Treacy's view -

Many of the world’s most prolific gold producing countries are very well explored. That means just about all visible surface mineralisation has already been located. What is much less well understood is how much gold is available to be found below the ground.



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October 01 2020

Commentary by Eoin Treacy

Video commentary for October 1st 2020

October 01 2020

Commentary by Eoin Treacy

Rolls-Royce Chief Unveils $6.5 Billion Covid Survival Plan

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

The funding plans:
* A 10-for-three rights issue, which will come at a 41.4% discount to Wednesday’s closing price, has been fully underwritten
* A 1 billion-pound bond offering will proceed in the near future
* Contingent on completion of the equity offer, Rolls said it also has commitments for a two-year term loan of 1 billion pounds
* U.K. Export Finance has indicated backing for an extension of its 80% guarantee to support a 1 billion-pound increase in an existing loan, subject to completion of the rights offer

The fundraising would boost Rolls-Royce borrowings to almost 16 billion pounds, according to data compiled by Bloomberg and company announcements. BNP Paribas SA, Citigroup Inc. and HSBC Holdings Plc are coordinating the company’s bond offering and new term loan facility, according to people familiar with the matter.

The package is based on a worst-case projection where a second wave of the coronavirus leads to a slower recovery, East said. The financing should “take any liquidity questions off the table” through the crisis, he said, adding that Rolls-Royce doesn’t have any plans to seek a bailout from the U.K. government, owner of a so-called golden share.

Eoin Treacy's view -

Refocusing the company on defense innovation and renewable energy reflects the evolving market environment. The future is about hypersonic missiles and travel, airbreathing rockets and significant efficiency gains in fuel consumption. Meanwhile, the company’s daily revenue is heavily exposed to the service agreements on the existing and future number of engines flying around the world.



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October 01 2020

Commentary by Eoin Treacy

This Market Leviathan Dwarfs the Nasdaq Whale

Thanks to a subscriber for this edition of John Auther’s letter. Here is a section on seasonality:

That completes the good news. The bad news is that TDFs have become so big that, like whales splashing around in the bathtub, they are affecting markets. Deluard points to the weird
coincidence that each of the last four corrections (including the massive Covid-19 market break earlier this year) bottomed with a week to go in the quarter. All but one were even on the same day of the month — the 23rd. The exception was the Christmas Eve climax to the sell-off of winter 2018, which came after the 23rd had fallen on a Sunday. Here they are:

This could be a weird coincidence. It could be an example of the power of numerology. And it could be the basis of a very specific new market aphorism. Rather than “Sell in May and go away,” we can have “Buy on the 23rd of March, June, September or December.” Most usefully, however, we might look at it as an example of the newly minted power of the TDF whales. If the market is going down, these days it is a safe bet that a big infusion of money into stocks will be coming at the end of a quarter. TDFs’ contra-cyclicality means that they act as an accidental “put” option under the market. 
 

Eoin Treacy's view -

Seasonality in the market is an important factor because there is a clear trend for the market to do better at certain times of the year. Sell in May and come back on Labor/St. Leger’s Day has long highlighted the tendency of markets to do best in the 4th and 1st quarters. The Santa Claus rally between Thanksgiving in late November and the first week of the new year has also statistically returned positive results, albeit with some volatility.



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October 01 2020

Commentary by Eoin Treacy

October 01 2020

Commentary by Eoin Treacy

Oil Drops in Wake of Stimulus Uncertainty and OPEC Supply Fears

This article by Andres Guerra Luz and Alex Longley for Bloomberg may be of interest to subscribers. Here is a section:

Oil slid to a two-week low as conflicting signals over the prospect of U.S. fiscal relief added to concerns over rising supply from major global producers.

Futures in New York tumbled as much as 6.5% on Thursday as the dollar moved off session lows. The U.S. benchmark fell below its 100-day moving average and if futures close below the key technical level, it will signal further selling pressure ahead.

Chances for a much needed boost for demand remains uncertain, with U.S. House Speaker Nancy Pelosi saying there are still major differences to be bridged in the negotiations over a fiscal stimulus package. Meanwhile, investors are also concerned with the unexpected return of Libyan output and higher oil exports from Saudi Arabia and Iraq. Russian exports are also expected to increase.

Eoin Treacy's view -

$40 is not a high enough price to cover the costs of most oil producing nations. The ensures many OPEC members will continue to cheat on production goals and countries outside OPEC have an incentive to pump as much as possible too.



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September 30 2020

Commentary by Eoin Treacy

September 30 2020

Commentary by Eoin Treacy

U.S. Stocks Reach Two-Week High on Stimulus Hopes

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

U.S. stocks climbed as lawmakers and the White House appeared closer to reaching a fiscal stimulus deal even as a volatile presidential debate raised concerns about a chaotic election.

The S&P 500 Index rose to a two-week high after Treasury Secretary Steven Mnuchin suggested he’ll offer Democrats a proposal for $1.5 trillion in pandemic aid. Sentiment was helped by a private report that showed U.S. companies added a better-than-forecast 749,000 jobs in September, overshadowing concern about a contested election outcome.

In Europe, stocks edged higher, led by banks. Portfolio rebalancing tied to the end of the month had the potential to fuel choppy trading.

Global investors are also keeping an eye on news about coronavirus vaccines and the latest efforts to push through new stimulus measures in Washington. A reminder of the pandemic’s economic pain came from Walt Disney Co.’s announcement that 28,000 workers will be let go from its U.S. resort business.

“The market will react to headlines like last night’s debate, but at the end of the day Covid and economic statistics are more important for the longer term future of equity prices,” said Christopher Grisanti, chief equity strategist at MAI Capital Management. “The prospect of a contested election is unsettling, but it doesn’t really affect earnings.”

Eoin Treacy's view -

The tone of the debate last night was combative and deteriorated into name calling on a couple of occasions. It was anything but pretty and reflected the low base political discussion has fallen to. The good news is there were no surprises. President Trump appealed directly to his base and Joe Biden attempted to appeal more to the centre.



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