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October 18 2018

Commentary by Eoin Treacy

Video commentary for October 18th 2018

October 18 2018

Commentary by Eoin Treacy

Stocks Tumble, Treasuries Surge as Concerns Mount

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

Earnings remain in focus though the depth of the sell-off overshadowed most major reports. Weak results from Germany’s SAP and Taiwan Semiconductor dragged American tech indexes lower.

Earnings misses from several U.S. industrial firms and a Bank of America downgrade of the housing sector fueled worries that higher interest rates and the trade war are hitting profits.

Philip Morris surged on strong demand, buoying consumer shares. Elsewhere, emerging-market assets also fell after declines in Europe and Asia. The Japanese yen gained the most in a week and gold traded near three-month highs.

Eoin Treacy's view -

I’ve been clicking through a lot of charts over the last couple of days and there are some very clear conclusions that jump out. The most important of these is that a major rotation is underway. The big momentum trades than really animated markets in the early part of the year are underperforming whereas a good many that have been out in the wilderness for the last couple of years are increasing showing signs of activity.



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October 18 2018

Commentary by Eoin Treacy

Ericsson profit smashes forecasts as 5G buzz grows

This article by Dominic Chopping for MarketWatch may be of interest to subscribers. Here it is in full:

Ericsson AB's ERIC, +5.15% third-quarter net profit exceeded estimates by a significant margin as the telecommunications equipment company continued to keep a tight rein on costs while seeing strong demand from operators racing to launch new fifth-generation networks.
 

Ericsson's quarterly net profit ballooned to 2.75 billion Swedish kronor ($307.7 million) from a loss of SEK3.56 billion as sales rose 8.9% to SEK53.81 billion.

Analysts polled by FactSet had expected a net profit of SEK630 million on sales of SEK50.28 billion.

The gross margin rose to 36.5% from 26.9% while the operating margin grew to 6.0% from a negative margin of 7.4%.

"We continue to invest in our competitive 5G-ready portfolio to enable our customers to efficiently migrate to 5G," said Chief Executive Borje Ekholm. "Strong sales were mainly driven by a continued high activity level primarily in North America."

Eoin Treacy's view -

Amid the furore about new technology there are some that we should pay particular attention to because of their enabling characteristics which can boost personal productivity. These are 5G, batteries, cancer therapy, automation and artificial intelligence.  



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October 18 2018

Commentary by Eoin Treacy

Email of the day on technological innovation

I continue to be amazed at the tremendous pace of technological advances in the EV and EV battery sector, including critical improvements in the time required to recharge, the longevity of the charge and the methods available to charge.  You may have already seen the following announcement as it is a few months old, and may well be aware of these developments. However, I have personally only just seen this article today, stating that China is in the process of building sections of a motorway that is electrically conductive and can recharge vehicles whilst continuing to drive at speeds up to 120km/hr (75mph). 

http://smarthighways.net/china-to-build-a-motorway-that-charges-electric-cars-as-they-drive/

Looking further into the process that enables such a development, apparently adding graphene to the concrete renders the road surface electrically conductive and enables it to recharge vehicles.  

https://www.energymatters.com.au/renewable-news/electric-cars-charge-driving/

There is also a pilot road currently being tested in Sweden that charges specially designed vehicles from an electrified track in the surface of the road.  I dare to venture that the latest technology being utilised in China would already render obsolete the cumbersome Swedish system!  

https://www.energymatters.com.au/renewable-news/electric-cars-charge-driving/

You often mention how the pace of technological developments influences markets and economies, however I am struggling to keep up with so many new developments in the various sectors. 

Eoin Treacy's view -

Thank you for this email and the attached links. I certainly sympathise with the feeling of occasionally being overwhelmed by the pace of innovation but if we focus on enabling technologies as a first principle exercise I don’t think we will go far wrong.



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October 18 2018

Commentary by Eoin Treacy

Long-term themes review October 4th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.



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October 18 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

The next Chart Seminar will be held on 12 and 13 November 2018 at The Army and Navy Club in London.

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

I am also in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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October 17 2018

Commentary by Eoin Treacy

October 17 2018

Commentary by Eoin Treacy

China May Have $5.8 Trillion Hidden Debt With 'Titanic' Risk

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

The focus on funding to sustain growth at the local level echoes a broader shift in the central government, which last year was focused on reducing leverage in the financial system. That phase is essentially over, thanks in part to an escalating trade war with the U.S., according to Citigroup Inc. analysts.

“The markets are right, in our view, to feel more concerned about the sustainability of China’s debt and the increased financial risks,” said Liu Li-Gang, chief China economist at Citigroup in Hong Kong. He also saw “renewed pressure” on the yuan.

Even with the central government’s shift toward stimulus, however, S&P sees Beijing determined to “bring discipline to the financing practices of local governments and their LGFVs.” That ultimately may mean local authorities aren’t fully able to keep LGFVs afloat, however, and the bottom line is “the default risk of LGFVs is increasing.”

Eoin Treacy's view -

Last week China announced it was increasing the number of Systemically Important Financial Institutions (SIFIs). That measure is aimed at clearly signaling there is a group of banks the government is going to support come what may. That’s not so unusual but it does raise the broader question of what about the rest?



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October 17 2018

Commentary by Eoin Treacy

Trump Opens New Front in His Battle With China: International Shipping

This article by Glenn Thrush for the New York Times represents a further deterioration in the US/China international relationship. Here is a section:

The withdrawal is part of a concerted push by Mr. Trump to counter China’s dominance and punish it for what the administration says is a pattern of unfair trade practices. The move is expected to be announced on Wednesday, according to senior administration officials.

The Universal Postal Union treaty, first drafted in 1874, sets fees that national postal services charge to deliver mail and small parcels to countries around the world. Since 1969, poor and developing countries — including China — have been assessed lower rates than wealthier countries in Europe and North America.

While the lower rates were intended to foster development in Asia and Africa, Chinese companies now make up about 60 percent of packages shipped into the country, taking advantage of the lower rates to ship clothing, household gadgets and consumer electronics. Many websites now offer free shipping from China, in part because of the cheap postal rates, administration officials say.

Eoin Treacy's view -

Privately-owned Chinese companies are among the largest third-party sellers on major internet venues like eBay and to a lesser extent Amazon. A US based seller pays a minimum of $2.66 for a small package with tracking from the US Postal Service. Sellers from China pay domestic local rates on international shipping. It might take longer to arrive but there is no way to beat Chinese sellers on price and particularly for small-sized goods.



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October 17 2018

Commentary by Eoin Treacy

Brexit Used to Mean Brexit. What Does it Mean Now?

This article by John Authers, formerly from the FT, now at Bloomberg may be of interest. Here is a section:

It is only in the last few weeks that the FTSE 250 has dropped meaningfully further behind the rest of the world’s stock markets compared with its position immediately after the referendum. There is a similar outcome if we look at the pound on a trade-weighted basis as calculated by Deutsche Bank AG:

On this basis, the pound remains almost 20 percent weaker than its 2015 peak, but it is also some 5 percent stronger than at its recent low in October 2016, when May first unveiled her plan to seek what is now known as a “hard Brexit,” in which the UK left the EU without attempting to stay in the EU’s tariff-free single market, in a speech to the Conservative party’s conference.

The pound’s resilience is remarkable given the great level of uncertainty. This is in large part because the issues now rest almost entirely on U.K. politics. Broad outlines of a deal have been thrashed out. The risk that the EU, a cumbersome body if ever there was one, rejects a final deal are not trivial, but by far the greatest risk is that no deal can pass the U.K. parliament. Foreign-exchange strategy notes on sterling are now almost entirely taken up with the mathematics of Westminster.

So, avoiding the technical niceties of trade and immigration policy, the source of greatest uncertainty is the U.K.’s parliament, where four broad political options remain
possible:

* It agrees to a “deal” on its future relationship with the EU;
* It goes ahead with a “no deal” option, with future trading relations with the EU bloc set by World Trade Organization rules;
* It votes down a deal and a general election (to vote in an entirely new House of Commons) is called; 
* It votes down a deal and another referendum on Brexit (known as a “People’s Vote” to its supporters) is called.

There is great difference between these options, and great political risk. But neither the stock market nor the foreign-exchange market appears to see the situation as much more alarming than it was at the end of June 2016.

Eoin Treacy's view -

None of the negotiating parties have much of an incentive to conclude the talks so offering the UK an additional year for a transition agreement is a fresh sign that the Europeans see talks going on even longer than previously anticipated. For Theresa May’s part she has to take any deal agreed back to parliament where her weakened government faces the real threat of being defeated or relying heavily on the opposition. This is not new news which is why the Pound has been relatively stable against the Euro.



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October 17 2018

Commentary by Eoin Treacy

'Wake 'n Bake,' Plunging Stocks Greet Canada's Legal Pot Debut

This article by Kristine Owram, Doug Alexander and Jen Skerritt for Bloomberg may be of interest to subscribers. Here is a section:

“The eyes of the world are on Canada and Canadians should feel very proud, because people have been fighting for decades to make this moment a reality,” said Brendan Kennedy, chief executive officer of Tilray Inc., the largest cannabis company by market value.

After running up dramatic gains in the lead-up to legalization, cannabis shares failed to join the party Wednesday. Aurora Cannabis Inc. had slumped as much as 15 percent by 10:17 a.m. in Toronto for the worst drop since February, before paring losses. Canopy Growth Corp. was down 3.4 percent at 1:15 p.m. and Tilray Inc., the world’s largest pot company by market value, fell 6 percent.

Medical marijuana has been legal in Canada since 2001 but it’s only been about four years since the first cannabis companies began to list on Canadian exchanges. In that short time, about 140 pot companies have gone public in Canada, with a combined market value of more than C$60 billion ($48 billion).

Eoin Treacy's view -

I’m reminded of Mark Twain’s quip that reports of his death are greatly exaggerated. There was certainly some evidence of buy the rumour, sell the news today as some people took the day of legalisation as an opportunity to realise profits but the declines seen need to be put in the context of the advances seen over the last couple of months and the broad consistency of the medium-term trends.



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October 16 2018

Commentary by Eoin Treacy

Video commentary for October 16th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: impressive rebound by the Nasdaq-100 from a key area of previous support, Europe firms which increases scope for a reversion to the mean, China remains weak with property leading lower, India steady, oil steady, commodities stable.



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October 16 2018

Commentary by Eoin Treacy

Chew on This. Cheap China Food Deliveries Won't Last

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

Underpinning Meituan’s success is what the company calls “abundant labor supply.” The cost of paying workers for each food order is about $1, or 20 percent of the expense incurred by delivery services in the U.S. An average order takes about 35 minutes, versus more than an hour in America.

For that, China’s urban consumers can thank the army of rural migrants who have crowded into cities in search of work. A deep pool of more than 280 million such workers exists to service the needs of middle-class city dwellers, enabling fast e-commerce and offline-to-online businesses.

But don’t take them for granted. Soon, there may be no cheap labor left in China’s large cities. 

To fight pollution and traffic jams, mega-cities have started to restrict and even kick out migrant workers. Beijing plans to cap its population at 23 million in 2020, only 1.3 million more than its current size. Meanwhile, Shanghai has a target of 25 million by 2035, leaving room for only 800,000 newcomers. Meituan, which is battling Alibaba Group Holding Ltd. for food delivery customers, alone deploys more than half a million of delivery riders daily, over half of whom are based in the four tier-1 cities of Shanghai, Beijing, Shenzhen and Guangzhou.

Eoin Treacy's view -

As the author above states it can be pretty cozy to live in China’s major cities. The quality of restaurant food is excellent and deliveries, which are essentially free, means you do not have to wait in line. However, this situation is predicated on cheap labour and even in China that is an exhaustible resource. 



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October 16 2018

Commentary by Eoin Treacy

Email of the day on investing in soft commodities

I'm a big fan of your service. I would like to buy soft commodities somehow but not sure what good vehicles there are to do so. I think if I buy futures there are high costs involved? Do you have any ideas? I already own water/fertiliser/agricultural equipment companies. All the best

Eoin Treacy's view -

Thank you for this email and I am delighted you are enjoying the service. I agree, investing in futures carries the considerable risk of loss if contangos are not managed; particularly if prices range or trend lower. The ETFS Agriculture ETF is a good example of that phenomenon and has been trending lower since early 2011.



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October 16 2018

Commentary by Eoin Treacy

Email of the day on the effects of a weaker Rupee

Is a crashing Rupee good or bad for India? Big debates here. Exports more competitive, of course, but how far is these external accounts a driver of Indian growth? Isn't India one giant domestic economy and isn't therefore a stronger Rupee good in the shape of lower oil and energy prices (rural villages) and overall business and consumer confidence? Happy for the community to discuss

Eoin Treacy's view -

Thank you for this question which has a number of facets and is likely to be of interest to the Collective. India has a large domestic economy and a large current account deficit. The reason it has such a large and persistent current account deficit is because its export sector is not sufficiently developed to counter balance domestic demand. That contributes to the persistent weakness of the Rupee.



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October 16 2018

Commentary by Eoin Treacy

Tumbling Car and House Sales Pose Fresh Challenge to Chinese Markets

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

China Galaxy International analyst Tony Li said the U.S.-China trade dispute and a stock-market selloff were weighing on consumer sentiment. “Consumers have turned more cautious and are less willing to spend much on luxury items,” he said.

The holiday slowdown was bigger than expected, and investors should closely watch for any further weakening this year, he added.

Meanwhile, Goldman Sachs said escalating trade tensions, slowing growth and policy uncertainty have weighed on Chinese stocks. In a pessimistic case, if annual growth slows to 6% and the yuan falls a further 5% against the dollar, shares could decline 10% more, the bank said.

Eoin Treacy's view -

I was chatting with Mrs. Treacy yesterday about the slowdown in China and she passed along this link to a story from epochtimes.com detailing how recent homebuyers are disgruntled with the steep discounts’ developers are now offering on properties. Here is a section:

On Oct. 2, more than 40 new homeowners in the city of Jingdezhen in Jiangxi Province gathered in protest outside the sales office of a property developer, and angrily shouted complaints such as “refund our money” and “we bought in the evening, and the price dropped in the morning.”

The next day, in Shanghai’s high-end Pudong District, dozens of new homeowners congregated in front of a housing development, carrying signs emblazoned with the slogan “Refund my hard-earned money.” The developer, Country Garden, had lowered prices from 35,000 yuan per square meter ($470 per square foot) to 26,000 yuan overnight.



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October 15 2018

Commentary by Eoin Treacy

Video commentary for October 15th 2018

October 15 2018

Commentary by Eoin Treacy

The next recession

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

Yet this is where the bad news comes in. As our special report this week sets out, the rich world in particular is ill-prepared to deal with even a mild recession. That is partly because the policy arsenal is still depleted from fighting the last downturn. In the past half-century, the Fed has typically cut interest rates by five or so percentage points in a downturn. Today it has less than half that room before it reaches zero; the euro zone and Japan have no room at all.

Policymakers have other options, of course. Central banks could use the now-familiar policy of quantitative easing (QE), the purchase of securities with newly created central-bank reserves. The efficacy of QE is debated, but if that does not work, they could try more radical, untested approaches, such as giving money directly to individuals. Governments can boost spending, too. Even countries with large debt burdens can benefit from fiscal stimulus during recessions.

The question is whether using these weapons is politically acceptable. Central banks will enter the next recession with balance-sheets that are already swollen by historical standards—the Fed’s is worth 20% of GDP. Opponents of QE say that it distorts markets and inflates asset bubbles, among other things. No matter that these views are largely misguided; fresh bouts of QE would attract even closer scrutiny than last time. The constraints are particularly tight in the euro zone, where the ECB is limited to buying 33% of any country’s public debt.

Eoin Treacy's view -

We are living today in a world that was previously unimaginable. Negative interest rates have been with us for a decade and about $7 trillion has negative yields. Investors would literally rather pay to own bonds. Meanwhile some of the largest privately held companies continue to attract tens of billions in capital with little prospect of near-term or even medium-term profits. Therefore, I find it hard to fathom why people are so reticent about embracing the possibility that even more drastic action will not be embraced if the current suite of policy tools is exhausted.  



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October 15 2018

Commentary by Eoin Treacy

Plenty of Oil, Just Not in the Right Places

This article by spencer Jakab for the Wall Street Journal may be of interest. Here is a section:

The market isn’t tight everywhere, though. As evidenced by prices, there are localized gluts and producers who would gladly put more supply on the market if logistics would oblige. U.S. benchmark crude futures, priced at Cushing, Okla., are $9.00 a barrel below Brent and cash prices in the prolific Permian Basin are even cheaper. A lack of pipeline capacity is to blame.

None of that holds a candle to western Canada at the moment. Western Canada Select crude cash prices are now $46 a barrel below Brent. Pipeline and rail capacity already was stretched and, according to JBC Energy, a gas pipeline incident in the Pacific Northwest has worsened the situation significantly. Refineries in the region have had to scale back operations and thus crude purchases.

Eoin Treacy's view -

West Canada crude is trading at its widest discount to Brent Crude since at least 2013. At $57, as of Friday’s close, that is enough of an incentive to use any means available to get the oil to market. If previous spikes in the spread are any guide that is exactly what we can expect over the coming months.



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October 15 2018

Commentary by Eoin Treacy

Email of the day on the sustainability of electric vehicle batteries

I find little information published about the lifespan of a battery pack. Today’s IC engines easily last for 10 years or 150,000 mi., frequently longer. I've seen no comparable information for battery packs or what the rate of decline in charge acceptance is over time. If that lifespan is considerably less than that of an IC engine, that price difference would have to be significant to be economic.

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The cost of electric vehicle batteries has been trending lower and is likely to continue to do so as global manufacturing capacity scales up. However, as you highlight lithium batteries suffer from losing degradation over time and with repeated recharging and that represents an issue for consumers. Here is a section from ez-ev.com:

Electric cars run on lithium-ion batteries that are drained and recharged repeatedly, which causes natural degradation of the battery, leading to range loss over time. Most estimates have projected that a typical lithium-ion electric battery car can be driven about 100,000 and maintain a good driving range. But if you realize you are needing to recharge your battery too often, you may want to take it in and see whether it needs to be replaced.

Electric Car Battery Warranties
All of the top-selling electric vehicles come with battery warranties. While electric car batteries do lose capacity over time, it does not happen as fast as the average electric consumer device, which has a 1-4 year expected battery life. Most car companies will offer a warranty based on a number of years from purchase, or the number of miles driven, whichever is reached first. If within the warranty period, the car’s battery is unable to charge above a certain capacity, the battery can be replaced. Here are a few examples of today’s popular EV battery warranties:

That suggests to me that if one is thinking about buying an electric vehicle it is much smarter to lease since one can avoid the cost of replacing batteries while availing of new technology as it becomes available. That point is also highlighted by the fact that electric cars like the Nissan Leaf and Chevrolet Volt have among the steepest depreciation profiles.

One of the primary business models being explored by car manufacturers, is to redeploy older batteries that are no longer fit for transportation, into household and industrial use. Nissan in particular has been actively pursuing this route.



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October 12 2018

Commentary by Eoin Treacy

October 12 2018

Commentary by Eoin Treacy

Tesla's Model 3 Sedan Production Cruises Past the 100,000 Mark

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

Expanded production comes with downsides, however. Tesla posted on its website Friday that buyers must place their orders by Oct. 15 to get their car by the end of the year and qualify for the expiring U.S. federal tax credit. Tesla was the first company to sell 200,000 electric cars cumulatively in the U.S., which triggers the gradual phase-out of the subsidy. The $7,500 credit will drop by half for Tesla on Jan. 1.

Musk boasted in 2016 that Tesla would make more than 100,000 Model 3s by the end of 2017. It didn’t work out that way. As often happens on Musk time, Tesla arrived late to an impossible goal. But Model 3 production now appears to be cruising—from the first cars off the line in July 2017, it took about 14 months for the company to build the initial 100,000 Model 3s. At the current rate of production, it will build the second 100,000 in less than six months.

Eoin Treacy's view -

This is a good news story for Tesla. Getting production numbers up is essential if the company is going to reach the economies of scale necessary to ever make a profit. The big question which I have seen addressed is what that number is? Musk has stated on more than one occasion that he wants to get the price of a Model 3 down to around $35,000 but how many of them will the company have to make to make a profit at that price?



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October 12 2018

Commentary by Eoin Treacy

U.S. Treasury Staff Said to Find China Isn't Manipulating Yuan

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

Treasury said in its April report that it is considering expanding the number of countries it examines from 13, with analysts speculating that the number could go as high as 20. Such a move would be a sign of the Trump administration ramping up its use of the currency channel to negotiate better trade deals for the U.S.

Mnuchin has said since July that Treasury is concerned about the yuan’s recent drop. The currency has slid more than 9 percent against the dollar in the last six months, raising speculation that China has been deliberately weakening its currency as tensions with the U.S. escalate.

The Trump administration has pivoted to a more aggressive stance toward China since the president said last month the country is interfering in U.S. elections. Vice President Mike Pence delivered a speech last week in Washington signaling a firmer U.S. push-back against Beijing as trade anxiety weighs on the looming midterm congressional elections.

Eoin Treacy's view -

The US administration imposed 10% tariffs on Chinese imports and the Renminbi dropped by about the same amount. If we are to conclude this is the market being particularly efficient then so be it, but Ockham’s Razor suggests the Chinese administration is managing the currency lower. That might be justified based on the slowing growth trajectory of the economy but the bigger issue is the Renminbi is weakening and that is putting downward pressure on just about all regional currencies.

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



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October 12 2018

Commentary by Eoin Treacy

Fear Not, ETFs Control the Price of Gold

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

That matches the big picture portrayed in demand statistics from the World Gold Council, an industry group. Bar and coin investors, industrial users and jewelry buyers purchase the yellow metal year-in and year-out; and central banks have been doing the same thing ever since they gave up their selling spree in 2009. As a result, ETFs and related funds are the key swing factor in the gold market, driving its slump from 2013 through 2015 when they became net sellers, and helping support its modest revival by turning into buyers in the years since.

That relationship seems to have intensified of late. The raw beta when gold is the dependent variable jumped to 1.65 in the past three months, suggesting moves in ETF holdings are now having an even bigger influence on the spot metal than usual. 

In some ways this doesn’t change the old argument for investing in gold, which is that the important beta isn’t related to ETF holdings but to stock-market returns. When fear rises and the value of your equity portfolio falls, the yellow metal still has a mild tendency to climb and offset the losses
elsewhere.

Still, those who look on gold as a refuge from the madness of crowds shouldn’t get ahead of themselves. These days, the crowds are in the driver’s seat.

Eoin Treacy's view -

ETF Holdings of gold peak at 72 million ounces in May and the total fell by 5 million ounces by early October. That represented a 6.86% decline in the total but perhaps more significantly it represented the reversal of what had been a source of demand for the metal.



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October 11 2018

Commentary by Eoin Treacy

October 11 2018

Commentary by Eoin Treacy

J.P. Morgan Early Look at the Market

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

Eoin Treacy's view -

A link to the full note and section from it is posted in the Subscriber's Area.

There is no one factor that investors can point to that offers a clear reason for why the market pulled back so sharply on Wednesday. Instead a confluence of events triggered stops which has resulted in a significant number of US large cap shares closing what were somewhat overbought conditions relative to their respective trend means.



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October 11 2018

Commentary by Eoin Treacy

Gold Gets a Second Look as Equities Reel and Inflation Cools

This article by Marvin G. Perez for Bloomberg may be of interest to subscribers.

Gold may have finally snapped out of its inertia.

Prices headed for their biggest gain since March 2017 as of 10:51 a.m. in New York after a slump in global equity markets and data showing slower-than-expected U.S. inflation stoked demand for the metal as a store of value. Futures were set for a third straight gain, the longest rally since Aug. 22.

Bullion, which touched a six-week-high $1,218.60 an ounce on Thursday, has traded near $1,200 since late August as traders weighed geopolitical risks that could boost the metal’s allure as a haven against rising interest rates that dampen its appeal.

The inflation data may spur the Federal Reserve “to pump the brakes on further hikes,” Phil Streible, a senior commodity broker at RJO Futures, said in a telephone interview. The slump in global equities is also luring investors to “safe-haven” assets, he said.

Eoin Treacy's view -

Gold has been trading in an inert manner for more than a month following a persistent decline from this year’s peak near $1350. To pause in such a narrow band is not characteristic for such a volatile instrument, and gold finally broke up and out to new recovery highs today.



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October 11 2018

Commentary by Eoin Treacy

China Shares Sink Most Since 2016 as 1,000 Stocks Fall by Limit

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

Hong Kong didn’t fare much better, with the Hang Seng Index dropping 3.5 percent, the biggest in eight months. Tencent Holdings Ltd., the most valuable stock listed in Asia, slid 6.8 percent to extend a record losing streak to a 10th day.

Chinese shares have been the ground zero for the trade war with the U.S. The Shanghai Composite has lost 24 percent in the past 12 months, one of the worst performers among 94 global gauges tracked by Bloomberg, with the majority of the decline happening this year. A slowing economy and weakening currency is only adding to the gloom.

"Panic? The general mood among fund managers is more like ‘playing dead,’" said He Qi, portfolio manager at Huatai Pinebridge Fund Management.

Telecom and technology shares led declines on the mainland, with ZTE Corp. and 360 Security Technology Inc. tumbling more than 9 percent. Tech shares also dropped the most in Hong Kong, following the sector’s rout in New York.

Volume on the Hang Seng Index and China’s large-cap CSI 300 Index was about 70 percent more than their 30-day intraday average, according to data compiled by Bloomberg. Foreign investors dumped 3.6 billion yuan ($520 million) onshore shares through Hong Kong-China stock links. "It’s been a rough day," said William Wong, head of institutional sales trading at Shenwan Hongyuan Securities HK Ltd.  

Institutional investors have been reducing their portfolio, while we see hedge funds shorting in Hong Kong." A crackdown at Chinese borders on undeclared goods also hurt luxury goods companies, with Prada SpA tumbling 10 percent, the most since September 2017. Jiangxi Ganfeng Lithium Co. dropped as much as 33 percent on its trading debut.

"Negative sentiment is outweighing any positive catalysts, and investors would take any rebound as a chance to sell," said Louis Tse, Hong Kong-based managing director at VC Asset Management Ltd., adding that Shanghai shares may fall further after breaking the key support level. "If we’re talking about seeing an end of the tunnel -- I don’t think so."

Eoin Treacy's view -

There is no doubt that increasing tensions between China and the USA have been one of the factors contributing to the underperformance of the Chinese market so far this year. However, the tightening of credit standards, particularly cutting off funding lines for the shadow banking sector and regional banks has also been an important consideration in the underperformance.



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October 11 2018

Commentary by Eoin Treacy

Email of the day on immigration and retiring to Dubai

Yes I know some expats who have retired in Dubai but I doubt if any labourer will be allowed to do so.
2) Re Japan's immigration: I thought Germany used to have "guest" workers for it's factories who were there for as long as their work permits lasted and no citizen rights.

And this from another subscriber

I note you state in your comment that it is impossible to retire in Dubai when you stop working. This is no longer the case. The Dubai government has recently introduced new legislation that will allow anyone over 55 to remain in the country provided they qualify under certain monetary thresholds.

Eoin Treacy's view -

Thank you both for these insightful comments which certainly helped to boost my knowledge. Germany’s guest worker program was originally designed to rebuild the country after the WWII but the net result was that the workers stayed and the country now has a 3 million strong ethnic Turkish population.



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October 10 2018

Commentary by Eoin Treacy

Video commentary for October 10th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Volatility breaks out, Wall Street falls in a dynamic manner, led lower by small caps and the NYSE FANG Index, Europe breaking lower, China steady, India steady, oil weak, gold steady and bonds firming. Risk off.



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October 10 2018

Commentary by Eoin Treacy

U.S. Stocks Plunge as Yield, Trade Worries Deepen

This article by Jeremy Herron and Sarah Ponczek for Bloomberg may be of interest to subscribers. Here is a section:

U.S. stocks tumbled the most since April as fresh concern about the impact of the trade war with China roiled technology and industrial shares. Treasuries rose with the yen demand for haven assets.
The S&P 500 fell to the lowest in almost two months, the Dow Jones Industrial Average plunged as much as 640 points and the Nasdaq 100 Index tumbled more than 3 percent in a broad selloff in U.S. equities. Boeing and Caterpillar dropped at least 2.9 percent, while computer companies kept the broader measure on its longest slide since Donald Trump’s election win.

Fastenal Co. added to angst that the trade war with China is raising materials costs that will crimp profit margins. Estee Lauder and Tiffany led losses after French luxury goods maker LVMH confirmed China is enforcing customs rules more strictly as trade tensions remain high. The Cboe Volatility Index rose past 20 for the first time since April. Oil fell from $75 a barrel even as a major hurricane headed for the Florida Panhandle.

“The biggest thing going on in markets is you’re seeing an unwind,” Sameer Samana, a global quantitative and technical strategist for Wells Fargo Investment Institute, said by phone. “You had stocks doing really well, rates for the most part were very well-behaved. When you’ve got these risk-off moments, especially when you’re later in the cycle, there is some concern on the part of investors where it’s like, ‘Is this the beginning of the end?”’

Eoin Treacy's view -

The VIX Index popped on the upside today, for the first time in months, to break the sequence of lower rally highs that has been in evidence since the January spike. Perhaps more importantly it has held the advance through the close which suggests an absence of traders buying the dip.



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October 10 2018

Commentary by Eoin Treacy

Email of the day on Brazil's upcoming Presidential election

Lula, Dilma and the labor party known as Partido Trabalhista PT, ruined Brazil. They robbed state companies and pension funds blind and ruined them. They instituted massive corruption as a means to collect funds in order to stay in power. They used the Development Bank BNDES to finance tin pot dictators in Africa and Latin America so as to be able to siphon off money for the party. PT caused Brazil’s worst recession in history, the highest rate of unemployment ever and a large reduction in GDP per capita. Wide spread corruption in all three branches of government and large scale hiring of public servants for electoral purposes were made a state policy. Public schools and universities were used for ideological purposes. Their quality dropped to astonishing levels, such that students are science ignorant and can neither interpret a text nor think clearly. They are unemployable. Laws were put up for sale. Of 1000 Medidas Provisorias (express approval laws) proposed by PT, 900 correspond to the sale of privileges (exemptions, subsidies, etc) The media was put under control through the tap of state publicity so that PT and sympathizers control TV, newspapers all NGOs and opinion pollsters. PT allied itself with Organized Crime which now controls Rio, is a major threat all over the country and recently tried to murder Bolsonaro. All this has caused a massive revolt, so that the Bolsonaro vote is far more an expression of anti-PT disgust than for the candidate himself. He was the only one to voice matters clearly. By far the least bad choice.

Eoin Treacy's view -

Thank you for this on ground perspective from Sao Paolo. A bull market paves over a lot of cracks in people’s willingness to tolerate declining standards of governance. No one was worried about all of the issues you detail above when commodity prices were surging and there was money for everything. It was only when commodity prices collapsed and funding evaporated that the extent of corruption was revealed. This is about as close to Warren Buffett’s adage “you don’t know who has been swimming naked until the tide goes out”.



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October 10 2018

Commentary by Eoin Treacy

Email of the day on cybersecurity

In the context of today's comment on the hacking of Supermicro, should we not be looking to invest in Purefunds ISE Cyber Security ETF now that it has pulled back to the moving average?

Eoin Treacy's view -

Thank you for this question and it was something I was thinking about yesterday when I was writing about the implication of the Chinese hardware hack.



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October 10 2018

Commentary by Eoin Treacy

Email of the day on access to RiverFront's letter

How are you? RiverFront has been a useful source of information for our community. It will no longer provide its newsletter to those living outside the USA. Are you able to receive it where you live? Regards

Eoin Treacy's view -

Thank you for this request. Yes, I can receive it and I will post it more regularly in Comment of the Day in future.



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October 10 2018

Commentary by Eoin Treacy

Email of the day on Japan

Greetings from Japan. You have observed that this country seems to be opening up to foreign workers to offset its demographic decline. Indeed, most restaurants and convenience stores employ Asians nowadays. However, as you know, Japan is an insular, monocultural country and there is a great deal of resistance to immigration. Having lived here for over 30 years I'm convinced that the cultural shock of absorbing huge numbers of foreign workers will be too much for Japanese society. I'm therefore encouraged to hear that the government intends to be very selective over which countries' nationals it intends to accept. Those which refuse to take back their nationals if Japan wishes to expel them will not be considered, Iran being one example cited. Hopefully, this indicates that the government has taken the abject lessons of Europe on board and will be stringently selective, including cultural and religious factors in deciding their eligibility. You have also mentioned that immigrants will boost the economy through their spending. I doubt this, as many will be low-skill workers who will be intent on sending as much of their earnings as possible back home rather than on buying furnishings and goods for their small, rented accommodations.

Eoin Treacy's view -

Thank you for this insightful email and I agree it is going to be a massive culture shock for Japan to absorb large numbers of migrants but it is also true that those people have to live. The big question about projections for future spending will rest on the argument for family reunifications. Children are expensive and spur spending. Meanwhile Japan has a declining birth rate and needs young people. The insular nature of Japanese society may attempt to avoid that solution and instead adopt a similar policy to Dubai where it is impossible to retire in the emirate so when the work runs out you have to leave.



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October 09 2018

Commentary by Eoin Treacy

Video commentary for October 9th 2018

October 09 2018

Commentary by Eoin Treacy

The Markets Are a Jungle. Good Thing Felix Zulauf is Your Guide

Thanks to a subscriber for this interview of Felix Zulauf which appeared in Barron’s. Here is a section:

Eoin Treacy's view -

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

China is busy trying to paint itself as the protector of the global trade network but this amounts to doublespeak when we look at their actions rather their words. China has abused the international web of trade relationships to boost its own economy and was allowed to do so because of a mistaken belief that prosperity would breed liberalism. Western leaders bet the livelihoods of millions of their own citizens on China eventually evolving into a free market liberal democracy but that has failed to materialise. If anything, China’s authoritarianism is becoming even more engrained.



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October 09 2018

Commentary by Eoin Treacy

New Evidence of Hacked Supermicro Hardware Found in U.S. Telecom

This article by Jordan Robertson and Michael Riley for Bloomberg may be of interest to subscribers. Here is a section:

The more recent manipulation is different from the one described in the Bloomberg Businessweek report last week, but it shares key characteristics: They’re both designed to give attackers invisible access to data on a computer network in which the server is installed; and the alterations were found to have been made at the factory as the motherboard was being produced by a Supermicro subcontractor in China. 

Based on his inspection of the device, Appleboum determined that the telecom company's server was modified at the factory where it was manufactured. He said that he was told by Western intelligence contacts that the device was made at a Supermicro subcontractor factory in Guangzhou, a port city in southeastern China. Guangzhou is 90 miles upstream from Shenzhen, dubbed the `Silicon Valley of Hardware,’ and home to giants such as Tencent Holdings Ltd. and Huawei Technologies Co. Ltd.

The tampered hardware was found in a facility that had large numbers of Supermicro servers, and the telecommunication company's technicians couldn’t answer what kind of data was pulsing through the infected one, said Appleboum, who accompanied them for a visual inspection of the machine. It's not clear if the telecommunications company contacted the FBI about the discovery. An FBI spokeswoman declined to comment on whether it was aware of the finding.

Eoin Treacy's view -

There is an air of “shutting the barn door after the horse has bolted” to this reporting since the revelations date from earlier this year and whatever data was available has likely already been stolen. It is reasonable to assume that China has as much data about everyone in the West as it could want and that cyberwarfare is certainly going to be a part of any future conflagration.



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October 09 2018

Commentary by Eoin Treacy

Rocketing vanadium price primed for 'Elon Musk moment'

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

Vanadium pentoxide (V2O5) which makes its way into so-called vanadium redox flow batteries used in energy storage systems breached $20 a pound for the first time since 2005 this month. That’s a four-fold increase from the start of 2017.

Simon Moores of Benchmark Mineral Intelligence, a battery materials research and price discovery provider based out of London, says the recent success of lithium ion batteries being deployed in increasing larger systems that are exceeding 1GWh has brought to light the huge potential of the market for all types of battery technologies.

Vanadium flow batteries have lifespans of over 20 years without capacity loss, are non-flammable and can operate at any temperature. Another advantage over lithium ion is that this type of battery can be charged and discharged simultaneously making it highly suitable for large-scale storage from renewable sources such as solar and wind when connected to an electricity grid. Main downside is low energy density which means comparatively large installations needed.

“If a vanadium battery producer steps forward with bold plans to produce vanadium flow at mass scale, giving the industry its Elon Musk or lithium ion moment, the potential for the technology to be the second most deployed ESS battery in the world is there,” says Moores.

“Raw material self-sufficiency is a critical component to this. At least a third of the cost of a vanadium flow battery is vanadium pentoxide which makes up the liquid electrolyte.

“If companies are thinking of creating the Gigafactory of vanadium flow batteries, they will either need to own a mine or implement a new pricing system where the fully recyclable vanadium in the battery is leased."

Eoin Treacy's view -

Battery technology is improving all the time and a race is on to develop models which will be the foundation of an electric vehicle. Concurrently, efforts are underway to develop batteries that can perform at scale for utilities which are increasingly reliant on renewables are inherently intermittent sources of energy. Those are two completely different growth trajectories and given the different priorities it is quite likely there will be a number of potential solutions that eventually make it to market. 



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October 08 2018

Commentary by Eoin Treacy

Video commentary for October 8th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: China remains weak and in need of stimulus to reignite bullish interest, Europe weak, Italian yields break out, India pause, gold weak, oil steady, Wall Street steady but evidence of rotation increasingly evident. 



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October 08 2018

Commentary by Eoin Treacy

Brazil's Strongman Closes in on Presidency After Round-One Rout

This article by Mario Sergio Lima, Raymond Colitt and David Biller for Bloomberg may be of interest to subscribers. Here is a section:

The next three weeks promise to be intense. For while Bolsonaro’s lead appears almost insurmountable, the millions of Brazilians who vehemently oppose his populist candidacy – and its undertones of misogyny, homophobia and dictatorship denial - will make a furious, last-ditch effort to halt his march to the presidency. But they will be fighting against powerful forces not entirely dissimilar to those that helped put Donald Trump in office in the U.S. and Andres Manuel Lopez Obrador in Mexico and gave the U.K. its Brexit shock.

“It’ll be three weeks of a dangerous and highly polarized scenario,” said Mauricio Santoro, a political scientist at the State University of Rio de Janeiro. “The level of conflict will be very high,” he said, adding that both have to overcome very high rejection rates to win.
 

Eoin Treacy's view -

The rise and success of fringe candidates is a not a coincidence but is rather a reflection of the global revolt against the status quo which is direct result of the failure of quantitative easing to fuel growth for asset owners at the expense of savers. The most recent symptom of that reaction is in Brazil where it has been the catalyst for millions of people to protest at the pattern of corruption which has been a fact of life for decades.



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October 08 2018

Commentary by Eoin Treacy

Shell Approves Long-Awaited Canadian LNG Project

This article by Sarah Kent and Sarah McFarlane for The Wall Street Journal may be of interest to subscribers. Here is a section:

Shell and its partners’ commitment to the project, which will cost roughly $14 billion to construct, signals growing confidence in global gas markets, as rising demand diminishes the threat that new supplies entering the market will cause a glut. It marks the end of a seven-year effort, blighted by weak prices that pushed back the final investment decision on the project by two years.

The decision suggests the prospects are positive for other large gas-export projects. A cluster of developments are currently vying for approval in Qatar, Russia, Mozambique and the U.S. Yet in the U.S. the outlook is dimming.

Earlier this month, China imposed a 10% tariff on imports of super-chilled gas from the U.S. in retaliation to levies imposed by the Trump administration. China is the biggest source of new global LNG demand and is expected to be a voracious consumer in the coming years as a result of efforts to move away from smog-inducing coal-fired power. Its demand rose around 50% in 2017.

“Right now, this is not very good for American LNG projects working hard to take final investment,” said Morten Frisch, a U.K.-based independent gas industry consultant.

More than a dozen LNG projects are awaiting regulatory approval in the U.S., though analysts say only a few are likely to get the go ahead before the end of next year. If Chinese buyers fall away, those projects could become more difficult to finance.

Eoin Treacy's view -

Natural gas is abundant and is the natural alterative to coal as economies develop and urbanisation concentrates demand within cities which are easier to run utilities to. It is the clearest bridging commodity which has any hope of meeting emissions goals before next generation batteries eventually transform the economics of renewables. That could be a decade from now and even then, gas will remain an important resource for cooking, heating and cooling. 



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October 08 2018

Commentary by Eoin Treacy

Email of the day on China's domestic semiconductor industry

Picking up on today’s big picture commentary, as well several recent comments about China’s mission to create a semiconductor sector, I attempted to identify the largest Chinese based semiconductor manufacturers and assess whether they might benefit from such an initiative. I noted that SMIC (Semiconductor Manufacturing International Corporation) based in Shanghai is listed in HK ((981:HK) and the US (SMI:US).   Do you feel that Chinese semiconductor manufacturers, such as SMIC, might stand to benefit from further state investment in the local sector to enable more independent control over their supply chain of semiconductors? The SMIC Chart at this stage would certainly not support this hypothesis as it has underperformed the SOX Index, but seems to be quite oversold.  Your insight into this topical issue would be much appreciated.

By the way, for whatever reason, code 981:HK is shown in the Chart Library as China Green Holdings Limited (actual stock code 904:HK) and not SMIC! 

Thank you for the excellent service - I look forward to starting virtually every day here in Sydney with your valuable and insightful video commentaries. 

Eoin Treacy's view -

Thank you for this email and I am delighted you are enjoying the daily video commentaries. I've also amended the ticker for SMIC.

China has demonstrated time and again that it has no interest in importing chips that could offer a backdoor for foreign governments into its IT networks. At the same time, it has pioneered a major offensive to insert its own devices into the bones of the global IT infrastructure so it can do its own listening. Both of those objectives mean having a domestic chip manufacturing industry is essential to Chinese government policy.



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October 05 2018

Commentary by Eoin Treacy

October 05 2018

Commentary by Eoin Treacy

China Used Tiny Chip in Hack That Infiltrated U.S. Companies

This article by Jordan Robertson and Michael Riley for Bloomberg may be of interest to subscribers. Here is a section:

A notable exception was AWS’s data centers inside China, which were filled with Supermicro-built servers, according to two people with knowledge of AWS’s operations there. Mindful of the Elemental findings, Amazon’s security team conducted its own investigation into AWS’s Beijing facilities and found altered motherboards there as well, including more sophisticated designs than they’d previously encountered. In one case, the malicious chips were thin enough that they’d been embedded between the layers of fiberglass onto which the other components were attached, according to one person who saw pictures of the chips. That generation of chips was smaller than a sharpened pencil tip, the person says. (Amazon denies that AWS knew of servers found in China containing malicious chips.)

And

One Friday in late September 2015, President Barack Obama and Chinese President Xi Jinping appeared together at the White House for an hourlong press conference headlined by a landmark deal on cybersecurity. After months of negotiations, the U.S. had extracted from China a grand promise: It would no longer support the theft by hackers of U.S. intellectual property to benefit Chinese companies. Left out of those pronouncements, according to a person familiar with discussions among senior officials across the U.S. government, was the White House’s deep concern that China was willing to offer this concession because it was already developing far more advanced and surreptitious forms of hacking founded on its near monopoly of the technology supply chain.

In the weeks after the agreement was announced, the U.S. government quietly raised the alarm with several dozen tech executives and investors at a small, invite-only meeting in McLean, Va., organized by the Pentagon. According to someone who was present, Defense Department officials briefed the technologists on a recent attack and asked them to think about creating commercial products that could detect hardware implants. Attendees weren’t told the name of the hardware maker involved, but it was clear to at least some in the room that it was Supermicro, the person says.

The problem under discussion wasn’t just technological. It spoke to decisions made decades ago to send advanced production work to Southeast Asia. In the intervening years, low-cost Chinese manufacturing had come to underpin the business models of many of America’s largest technology companies. Early on, Apple, for instance, made many of its most sophisticated electronics domestically. Then in 1992, it closed a state-of-the-art plant for motherboard and computer assembly in Fremont, Calif., and sent much of that work overseas.

Over the decades, the security of the supply chain became an article of faith despite repeated warnings by Western officials. A belief formed that China was unlikely to jeopardize its position as workshop to the world by letting its spies meddle in its factories. That left the decision about where to build commercial systems resting largely on where capacity was greatest and cheapest. “You end up with a classic Satan’s bargain,” one former U.S. official says. “You can have less supply than you want and guarantee it’s secure, or you can have the supply you need, but there will be risk. Every organization has accepted the second proposition.”
 

Eoin Treacy's view -

China aspires to global domination and the Communist Party is willing to deal, cajole, bribe, beg, borrow and steal to get what it wants. The Belt and Road Initiative is a big part of that. Whereas attempting to create a domestic semiconductor sector is major part of the Made In China 2025. The interruption of the supply chain for the global chip manufacturing sector has been underway for years and is only now becoming public. It represents further evidence that there is no lower limit to what China is willing to do to achieve its goals.



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October 05 2018

Commentary by Eoin Treacy

Einhorn Assails Tesla, Saying Carmaker's Woes Resemble Lehman's

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

David Einhorn, a prominent critic of Tesla Inc., bashed the carmaker, saying its woes resemble that of Lehman Brothers Holdings Inc. before the bank failed.

“Like Lehman, we think the deception is about to catch up to TSLA,” Greenlight Capital said in a quarterly letter Friday seen by Bloomberg. “Elon Musk’s erratic behavior suggests that he sees it the same way.”

Einhorn pointed to parallels by saying “Lehman threatened short sellers, refused to raise capital (it even bought back stock), and management publicly suggested it would go private” in the months leading up to the bank’s collapse.

Einhorn said in the letter his short position on Tesla was his second biggest winner in the third quarter. Greenlight’s main fund has lost 26 percent this year.

Eoin Treacy's view -

Tesla is a CCC+ rated credit and trades at an eyewatering valuation. It is now one of the top sellers of sedans in the USA but that is likely only because many companies are no longer selling sedans. The biggest redeeming quality the company has is that the battery factory is built and production is underway but that does not surmount the fact the company loses money on every vehicle.



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October 05 2018

Commentary by Eoin Treacy

EU Ready to Offer U.K. "Super-Charged" Free-Trade Deal

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

The offer falls short of what May wants, potentially making it harder to get the deal approved in the U.K. Parliament, where she faces opposition on all sides. However, the document is expected to be vaguely worded, and with as much positive language as possible to help her sell it at home. Hardline Brexit-backers in her party might find it easier to vote for the EU’s offer instead of the tighter ties sought by May, since they have been pushing for a regular free-trade deal all along.

The risk is that because the EU’s plan doesn’t include frictionless trade across the EU-U.K. border, it will focus more attention on the most controversial part of the divorce deal -- how to keep the Irish border open. It will make it even more important that the so-called Irish backstop is acceptable to the U.K. government and its Northern Irish allies.

Eoin Treacy's view -

If the DUP were still controlled by Ian Paisley the mere suggestion that the Irish border be moved to the Irish Sea rather than between the six counties and the Republic would be a complete non- starter. As it stands, it’s an open question to what extent Arlene Foster is willing to bend on the Unionist ideal of a progressively sharper focus on the united part of United Kingdom.



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October 04 2018

Commentary by Eoin Treacy

Video commentary for October 4th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: China hacking of global supply chain is a problem, Treasury yields extend rally with high commonality internationally, China weighs on emerging markets, but Brazil outperforms, FTSE-100 among leading decliners and industrial metals under pressure,



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October 03 2018

Commentary by Eoin Treacy

October 03 2018

Commentary by Eoin Treacy

Treasuries Slide Pushes 10-Year U.S. Yield to Highest Since 2011

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

The yield on 10-year Treasuries, a benchmark for global borrowing, rose to the highest level since 2011 amid growing optimism about the U.S. economy. The rate on 30-year securities reached a four-year high and the dollar gained.

Improved investor appetite for riskier assets drove the leap in yields, with stocks rising toward records on upbeat news about American jobs and ebbing concern about the fiscal situation in Italy. The jump in yields Wednesday, which pushed them above previous 2018 highs set in May, followed stronger-than-anticipated reports on U.S. services and private payrolls and came after the Federal Reserve lifted interest rates last week.

The government reports payroll figures for September on Friday, and economists forecast a decline in the jobless rate to 3.8 percent. It hasn’t been lower since 1969.

Treasuries are extending a September swoon that was triggered in part by quicker-than-forecast wage growth in employment data released early last month.

“This started overnight with the Italian risk-on trade and the U.S. data today was definitely stronger” than forecast, said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald in New York. “After last month’s payroll, the market started to catch up to the Fed and it’s a continuation of that. There is reason to be believe we can continue to trickle to higher yields.”

The yield on the 10-year borrowing benchmark climbed as much as 7 basis points Wednesday to 3.1343 percent, surpassing the May intraday high of 3.1261 percent. The yield on the 30-year increased as much as 7 basis points to 3.29 percent.


Money-market traders are now pricing in more than two Fed hikes in 2019, seeing about 0.54 percentage point of tightening, approaching policy makers’ projections for three rate increases next year. About two months ago, the market saw just slightly
more than one increase.

The yield curve, which has been on a flattening trend for much of this year, steepened sharply amid Wednesday’s break-out in long-term yields.

The gap between 2- and 10-year yields surged more than 3 basis points to about 28 basis points, reaching its steepest since August.

Eoin Treacy's view -

The yield curve spread popped on the upside today with the yield on the 10-year breaking out. The last 10 basis point rally was between April and May so right now this is an equal sized rally within the downtrend but it will likely be enough to allay fears on an imminent inversion.



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October 03 2018

Commentary by Eoin Treacy

IPO Market Has Never Been This Forgiving to Money-Losing Firms

This article by Corrie Driebusch and Maureen Farrell for the Wall Street Journal may be of interest to subscribers. Here is a section:

The euphoria has powered a surge in new listings. More than 180 companies raised over $50 billion in IPOs in the U.S. in the first three quarters, putting 2018 on track to be the busiest year for new issuance by both measures since 2014, according to Dealogic. That year, IPOs jumped thanks in part to Alibaba Group Holding Ltd.’s $25 billion offering as well as a surge in biotech companies going public.

This past Wednesday, online-survey provider SurveyMonkey’s parent SVMK Inc., which hasn’t had a profitable year and posted a $24 million net loss in 2017, jumped more than 40% in its debut after pricing above its targeted range. Shares of Tilray Inc. an unprofitable Canadian cannabis retailer that is one of the few pot companies listed in the U.S., soared more than 800% since its Nasdaq debut this summer.

Meanwhile, biotechnology company Solid Biosciences Inc., which hadn’t yet generated revenue—let alone earnings—informed the market ahead of its January IPO that one of its clinical trials was put on hold. Investors ignored that potential red flag and the company raised $144 million. Its stock has nearly tripled since then.

Eoin Treacy's view -

It’s a good time to list a company. Interest rates are not so high as to inhibit risk appetites. Financial conditions are still accommodative. The world’s largest economy is “almost too good to be true” in the words of the Fed chair and investors are chasing growth because the returns on value have been lacklustre.



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October 03 2018

Commentary by Eoin Treacy

Email of the day on half the world is now middle class

This article in today's Times of London gives statistical baking to your theory of rising real living standards in the developing world. It also backs up Stephen Pinker's arguments in Enlightenment Now

Half the world now middle class as living standards rise in East by Greg Hurst

With more consumers having money for white goods and entertainment, the number of people regarded as middle class has outstripped other demographic groups for the first time With more consumers having money for white goods and entertainment, the number of people regarded as middle class has outstripped other demographic groups for the first time

More than half the world’s population is now middle class, researchers have calculated. The tipping point was reached when the number of people who qualify as middle class nudged to just short of 3.6 billion, presenting vast new markets for businesses but creating rising expectations of public services.

The proportion is higher than the 3.1 billion considered to be economically vulnerable and the 630 million who live in poverty. A further 200 million people were classed as rich. The analysis was done by World Data Lab, a social enterprise based in Austria that provides economic and demographic forecasts.

It classified people as middle class if they had discretionary income to spend on large consumer items such as refrigerators, washing machines or motorcycles, if they paid to go to the cinema or for other forms of entertainment, and if they went on family holidays.

Researchers assumed that this group had accrued enough resources to be reasonably confident that they could withstand an economic shock, such as illness or a period of unemployment, without slipping into financial insecurity.

Researchers used information about income and spending surveys from 188 countries to classify all households as rich, middle class, financially vulnerable or poor. They argued that too little attention has been given to the global phenomenon of the rise of the middle classes.

While rising living standards mean that one person escapes extreme poverty every second, the analysts calculated that five people a second were entering the middle classes. By 2030, the researchers forecast that the number classed as rich will have grown to 300 million, but the middle classes will have expanded by 1.7 billion to 5.3 billion people.

The number who are financially insecure or vulnerable will have shrunk to 2.3 billion and those living in extreme poverty to 450 million, they predict. They categorised the poor as those living on or below $1.90 (£1.50) a person a day; the financially vulnerable are those living on $1.90 to $11 a day, using figures on purchasing power from 2011. Middle-class spending could go up to $110 a day, above which level people were classified as rich.

Rising incomes in Asia account for the march of the middle classes, with nine in ten of the new middle-class consumers predicted to be in China, India and south and east Asia. Kristofer Hamel, chief operating officer of World Data Lab, said: “We are living through a landmark moment in human history: the first time since agricultural civilisation began when the majority of the world’s population does not live in considerable poverty. “While spending $11 a day or more may not seem like much to those who live in developed economies, crossing this threshold often constitutes the beginning of basic middle-class behavior and lifestyle; having a basic standard of sanitation and healthcare, decent housing and the possibility of improved educational outcomes.”

Eoin Treacy's view -

Thank you for this email which as you say gels with our view that the glass is half full for an increasingly large number of people. China is now one of the largest countries in the world and on any gauge that matters approximately a middle-class standard of living for an increasingly large swathe of the population.



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October 03 2018

Commentary by Eoin Treacy

May Tells U.K. Conservatives End of Austerity Is in Sight

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

“A decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off,” May told the Conservative Party conference in her keynote speech in Birmingham Wednesday.

Chancellor of the Exchequer Philip Hammond has faced months of calls to end the squeeze after a backlash cost the Conservatives their parliamentary majority last year. The government has already relaxed a 1 percent cap on pay increases in place since 2010 and promised extra funding for the National Health Service, a response to the electoral threat from the opposition Labour Party led by socialist Jeremy Corbyn, who has pledged to increase spending.

Eoin Treacy's view -

The biggest question for establishment politicians is how to blunt the rising tide of populism. Social democracy has prospered for decades not least because workers have been compensated with social services following the loss of manufacturing and heavy industry jobs.



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October 03 2018

Commentary by Eoin Treacy

Long-term themes review August 15th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities. 



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October 02 2018

Commentary by Eoin Treacy

Video commentary for October 2nd 2018

October 02 2018

Commentary by Eoin Treacy

Beijing axes coal and steel production curbs as economy slows

This article by Emily Feng for the Financial Times may be of interest to subscribers. Here is a section:

However, experts said that even the lower targets were ambitious because last year’s air pollution levels had already dropped significantly. 

“Both a 3 per cent or 5 per cent reduction from last winter’s PM2.5 levels would be a tough target to reach because levels already fell 25 per cent last winter thanks to very strict policies and very favourable weather conditions,” said Lauri Myllyvirta, a campaigner at Greenpeace, the environmental group. 

The easing may have been prompted by a public outcry. Winter curbs on coal, including on heaters used by many residents in smaller cities and villages, left millions freezing as local governments scrambled to provide gas heating. 

By imposing emissions targets rather than specific production cuts, China shifted responsibility to local rather than central officials which could also weaken enforcement. “Notably, policies and enforcement this year is left largely to local governments, leaving them to choose between the risk of missing pollution targets or disrupting the newest construction splurge,” said Mr Myllyvirta.

Eoin Treacy's view -

Just how committed is China to environmental protection? China does not have the same green lobby we have in the West. Rationing coal without supplying alternatives was a heavy burden for people in Northern China last winter. That makes the point clearly to consumers that if they want clean air it comes with sacrifice. On a day to day basis most people would rather be warm with bad air than freezing.



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October 02 2018

Commentary by Eoin Treacy

Italy Contagion Fears Bubbling Beneath Surface of Apparent Calm

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

For others, Italy’s euroskeptic government is just the embodiment of the populist sentiment taking root across Europe, which could threaten the bloc’s future and weigh on the euro for the months or even years to come.

Borghi, head of Italy’s lower house budget committee and a well-known euroskeptic, said in an interview on Radio Anch’io that “Italy, with its own currency, would be able to resolve its problems.”

“The comments about Italy having its own currency have touched a sore point,” said Jane Foley, head of foreign-exchange strategy at Rabobank International. “While the return of the lira would be almost impossible and hugely inflationary even if it could happen, the fact that the remarks can be read as anti-EMU sentiment are worrisome.”

Eoin Treacy's view -

The response of the market to the Italian government’s decision to splurge on its budget has been predictable and yields broke out to new recovery highs today. Populist rhetoric has been very vocal in saying they are not afraid of the spread but they have not yet had a taste of what higher borrowing costs will mean for the economy.



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October 02 2018

Commentary by Eoin Treacy

Brazil Coffee Supplies Swell After Ships for Exports Dwindle

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

Brazil’s coffee growers just can’t catch a break.

In May, a national strike by truckers stranded beans on the farm, and prices last month tumbled to a 12-year low amid a global glut. Now, a dearth of container ships at Brazil’s top ports is stalling exports of a bumper coffee crop.

For the world’s top exporter, a shift in the global freight market means container ships arrive at ports less frequently, limiting space for less-appealing commodity cargoes including coffee, and warehouses are bulging with bean inventory.

“Shipments have been postponed for days or weeks,” Nelson Carvalhaes, the president of export group CeCafe in Sao Paulo, said in a telephone interview.

Luiz Alberto Azevedo Levy Jr., the superintendent director at Minas Gerais-based Dinamo, one of the largest warehouse operators, said, “If shipments won’t flow faster, we’ll see storage issues escalating in the next 30 days” at terminals scattered across the country, he said. “The harvest has been finished, but most of the beans are still being dried and prepared,” leaving a “huge volume” heading for depots in the coming months, he said in a phone interview.

 

Eoin Treacy's view -

There is no shortage of coffee but bottlenecks in the supply chain from the rising cost of fuel for truckers to the dearth of ships is contributing to a lack of available supply which is finally beginning to pressure shorts.



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October 01 2018

Commentary by Eoin Treacy

Video commentary for September 1st 2018

Eoin Treacy's view -

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

Some of the topics covered include: Oil extends breakout, Wall Street steady, Biotech pauses, commonality breaking down in semiconductors, Bonds steady, China leverage highest in the world. Indian banks volatile but reasonably steady on aggregate.



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October 01 2018

Commentary by Eoin Treacy

Trump Lauds Nafta Successor Accord, Chides Tariff 'Babies'

This article by Shannon Pettypiece and Andrew Mayeda for Bloomberg may be of interest to subscribers. Here is a section:

The new agreement makes modest revisions to a trade deal Trump once called a “disaster,” easing uncertainty for companies reliant on tariff-free commerce among the three countries. U.S. stocks climbed on Monday toward records, while the Canadian dollar and the Mexican peso gained. The S&P 500 Index climbed 0.6 percent by 12:29 p.m. in New York.

Trump cited in particular provisions governing automobiles, raising the portion of their content that must originate within the region to 75 percent, from 62.5 percent, and requiring at least 40 percent of a car to come from workers whose pay averages more than $16 per hour. The president called those rules “the most important thing” for him.

Eoin Treacy's view -

The cosmetic changes to the NAFTA agreement provide some protections for workers but no so much that the fabric of the agreement is going to be fundamentally changed. That’s a significant development of North American markets since the trade they do with each other is at least as significant as what is done with the rest of the world.



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October 01 2018

Commentary by Eoin Treacy

India Seizes Control of Indebted Lender in Surprise Move

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

India’s government will immediately seize control of a shadow lender whose defaults have caused widespread upheaval at mutual funds, a rebuke that’s only happened to one
other firm.

Government officials were granted approval to oust Infrastructure Leasing & Financial Services Ltd.’s board and a new six-member board will meet before Oct. 8, the National Company Law Tribunal said on Monday. India’s richest banker Uday Kotak and ICICI Bank Chairman G.C. Chaturvedi will be part of the proposed board, which will elect a chairperson themselves.

The nation’s corporate affairs ministry has sought to take control of a company on just two prior occasions, and only followed through once, with Satyam Computer Services Ltd. in
2009.

The dramatic move, which unfolded within the span of a hectic day in Mumbai, underscores the government’s concern about IL&FS’s defaults spreading to other lenders in the world’s fastest-growing major economy. Considered systemically important, the group has total debt of $12.6 billion, 61 percent in the form of loans from financial institutions. The ripple effects of its defaults have already seen mutual funds post mark-to-market losses, a slump in corporate bond issuance and a brief but sharp sell-off in equities.

Eoin Treacy's view -

Containing the rot from IL&SF’s default is national priority for India considering the extent to which banks, particularly Yes Bank, have pulled back. India has the world’s fastest growing economy right now but valuations are rather elevated, the currency remains weak and the continued uptrend in oil prices is a headwind. Against that background the question of nonperforming loans and how the banking sector can be cleaned up is the primary topic of conversation among international investors.



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October 01 2018

Commentary by Eoin Treacy

Australia's Property Downturn Chalks Up One-Year Anniversary

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

Australia’s property slump has reached the one-year mark as the nation’s two major cities have become the biggest drag.

National dwelling values dropped 0.5 percent last month, weighed by declines in Sydney and Melbourne, according to CoreLogic Inc. data released Monday. Prices in the two east coast cities, which make up more than half of the national value of housing, have fallen 6.1 percent and 3.4 percent respectively from a year earlier.

“Sydney and Melbourne are now the primary drag on the national housing market performance,” taking over from regions that were impacted by the mining downturn, CoreLogic’s head of research Tim Lawless said. Values have fallen greatest among the most expensive properties as lenders curb their appetite for high debt to income ratio lending, he said.

Eoin Treacy's view -

The RBA has been reticent to raise interest rates because the Australian mortgage market is dominated by floating rate loans. With prices already elevated and private sector debt as a percentage of GDP among the highest of any developed market the fate of the property market is a major arbiter in how well Australia’s economy can be expected to perform.



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September 28 2018

Commentary by Eoin Treacy

September 28 2018

Commentary by Eoin Treacy

Biotech returning to outperformance

Eoin Treacy's view -

The Nasdaq-Biotechnology Index broke out of a long base in 2011 and hit a medium-term peak in 2015. It found a medium-term low in 2016 and has held a choppy uptrend since; with two yearlong ranges one above another. The Index rallied this week to test its recovery high and a clear downward dynamic would be required to check the upward bias.



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September 28 2018

Commentary by Eoin Treacy

Italy's government agrees sharply higher public spending plan

This article by Miles Johnson and Davide Ghiglione for the Financial Times may be of interest to subscribers. Here is a section:

Mr Di Maio hailed the agreement as a “historic day”. “We made it!,” he said as he emerged from a balcony at Rome’s Palazzo Chigi, where the meeting took place.

“Today we have changed Italy! . . . For the first time the state is on the side of the citizens,” he said as ministers and members of parliament from his party hugged each other on the square outside.

Matteo Salvini, leader of the hard right League, part of the coalition and deputy prime minister alongside Mr Di Maio, also welcomed the agreement on spending, saying he was “fully satisfied with the objectives achieved”, which would include his party’s pledges for tax cuts and a reversal of unpopular pension reforms dating back to 2011.

Mr Tria, who is not affiliated with either party and was installed only after Italian president Sergio Mattarella rejected the coalition’s first choice for finance minister, had been pressing for a deficit number as low as 1.6 per cent of GDP going into the meeting.

A 2019 deficit of 2.4 per cent of GDP would represent a significant fiscal expansion from the 1.6 per cent target for this year agreed by the last centre-left government, and would be three times the 0.8 per cent number previously planned for next year.

Eoin Treacy's view -

Italy’s debt is BBB, which is still investment grade, but the yield trades like it is rated BB which is not investment grade. The populist administration has stated they are not afraid of the spread but one wonders if they have any conception what a downgrade to junk would do to demand for Italian debt. Large pension funds which have been gobbling up Italian debt to capture the higher yield would be forced to sell in the event of a downgrade. Meanwhile the ECB is winding down its purchase program so there will be a hole in demand for the bonds.



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September 28 2018

Commentary by Eoin Treacy

Tax Court of Canada rules in favour of Cameco

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

The Tax Court ruled that Cameco's marketing and trading structure involving foreign subsidiaries and the related transfer pricing methodology used for certain intercompany uranium sale and purchase agreements are in full compliance with Canadian laws for the tax years in question.

"We are very pleased with the Tax Court's clear and decisive ruling in our favour," said Tim Gitzel, Cameco's president and CEO. "We followed the rules, yet this dispute has caused significant uncertainty for our investors during a period of prolonged weakness in markets for our products. Now we hope CRA accepts the decision and applies it to other tax years in dispute, so we can focus on managing our business for the benefit of all our stakeholders."

The court has referred the matter back to the Minister of National Revenue in order to issue new reassessments for the 2003, 2005 and 2006 tax years in accordance with the court's decision. The timing for the issuance of the revised reassessments along with refunds plus interest is uncertain.

And

Cameco will be making an application to the court to recover the substantial costs incurred over the course of this case.

Eoin Treacy's view -

The favourable tax judgement Cameco has received has certainly enabled the share to rally but it also helps to throw focus onto the depressed nature of the uranium mining sector which has been struggling since the Fukushima accident resulted in a large numbers of reactor closures and cancelled projects.



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September 28 2018

Commentary by Eoin Treacy

Oil on Biggest Tear in Decade as Global Supply Cushion Vanishes

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

Fears are growing that the constriction of Iranian exports by U.S. sanctions and the collapse of Venezuela’s oil industry will leave a deep shortfall in the market. Those worries have only been stoked this week as key producers from Saudi Arabia to Russia and the U.S. signaled their reserves are off limits.

Some of the world’s largest oil producers and traders are warning that triple-digit prices could soon return, with negative consequences for the economy.

“There is concern in the market that the loss of barrels from Iran and Venezuela is not going to be made up for through extra supplies from particularly Saudi Arabia and Russia,” said Gene McGillian, manager of market research at Tradition Energy. “Worries about trade relations affecting economic growth have fallen away.”

Eoin Treacy's view -

Venezuela is unlikely to reverse supply declines under the current administration. Iran’s export capacity has bene constrained by sanctions. Libya is also struggling to increase supply. Meanwhile we seldom hear that Mexico’s supply has been trending lower for years and shows little sign of improving. The bright spot is Texas supply bottlenecks may be easing with a tightening spread between Midland and Cushing prices.



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September 27 2018

Commentary by Eoin Treacy

Video commentary for September 27th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar rallies from the MA against the Euro and breaks out against the Yen, Japan pauses, Indian banks remain under pressure, Wall Street steadies and is led higher by megacap tech shares and biotech. High yield spreads remain contained. 



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September 27 2018

Commentary by Eoin Treacy

H&M Soars Despite Record Inventories as CEO Says Worst Is Over

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

H&M’s inventories have been a persistent problem, rising steadily as the Stockholm-based fast-fashion chain failed to keep up with consumers’ tastes and was struck by logistics woes.

The company says it’s working through the excess stocks and will be able to scale back discounting as a result, even as it irons out its supply problems. “We are in a better position now than we were last year,” CEO Karl-Johan Persson said on a conference call Thursday. “We’re buying less and being smarter about our purchases.”

The shares soared as much as 13 percent in Stockholm trading. Analysts at RBC Capital Markets pointed to H&M’s forecast that fourth-quarter markdowns will be about flat with last year’s, as well as a third-quarter gross margin that beat estimates.

Eoin Treacy's view -

Fast fashion has relied on footfall at its stores but faces the twin challenges of discounters like TJMaxx and Ross Stores as well as the evolution of online sales like Amazon’s own brand goods and Stitch Fix. The challenge for the sector is not simply to ensure they are on trend but to contain prices in order to remain competitive. That has represented a painful challenge for companies like H&M and Inditex.



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September 27 2018

Commentary by Eoin Treacy

Trump Is Looking for Quick Fix in Japan Talks, Abe Ally Says

This article by Connor Cislo and Emi Urabe for Bloomberg may be of interest to subscribers. Here is a section:

Abe and Trump agreed to open limited bilateral trade talks. Japan had resisted U.S. efforts at a more comprehensive bilateral trade deal, saying it preferred that the U.S. return to the TPP.

The two leaders agreed to work to increase car production and auto-related jobs in the U.S., and that Japan wouldn’t be pressed to offer better access to its agricultural markets than it did under the original TPP. Trump also agreed not to place tariffs on imports of Japanese cars while the talks are taking place. The talks, limited to trade in goods, are aimed at seeking to "produce early achievements," according to a joint statement released by the White House.

Amari also said Trump’s focus on selling autos in Japan is misplaced, noting that Japan does not levy tariffs on auto imports, unlike the U.S. He said Japanese consumers simply don’t want American cars, making talks on the subject "pointless."

As Trump takes on China’s trade practices, it’s still possible that he brings the U.S. back to the TPP, given that it addresses many of the U.S. concerns -- such intellectual property theft, forced technology transfers and state-owned enterprises, Amari said.

"But that’s just my modest hope," he said. "I’d put the odds at less than 50 percent."

Eoin Treacy's view -

The Japanese market has been outperforming its developed market peers over the last couple of weeks as the Nikkei-225 broke upwards from its range between the trend mean and 23000 that persisted between May and September.



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September 27 2018

Commentary by Eoin Treacy

DARPA's New Brain Chip Enables Telepathic Control of Drone Swarms

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

"As of today, signals from the brain can be used to command and control… not just one aircraft but three simultaneous types of aircraft," Justin Sanchez, director of DARPA's biological technology office, said Thursday at the agency's D60 Symposium in National Harbor, Maryland.

"The signals from those aircraft can be delivered directly back to the brain so that the brain of that user [or pilot] can also perceive the environment," Sanchez said at the symposium, which celebrated DARPA's 60th birthday. "It's taken a number of years to try and figure this out."

"We've scaled it to three [aircraft], and have full sensory [signals] coming back. So, you can have those other planes out in the environment and then be detecting something and send that signal back into the brain," he said, according to Defense One.

Eoin Treacy's view -

The Reaper drones of today are the face of modern warfare. They have inspired the retail drone market but the final objective of these experiments is to eventually remove pilots from the flight equation entirely.



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September 26 2018

Commentary by Eoin Treacy

Video commentary for September 26th 2018

Eoin Treacy's view -

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

Some of the topics covered include: Fed raises interest rates and inflation will be updated on Friday, Treasuries rally, Dollar steadies, gold weak, industrial metals have steadied, Europe at the first area of potential resistance, Japan remains firm, China and India steady. 



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September 26 2018

Commentary by Eoin Treacy

Neutral Fed Funds, Dead Ahead

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

Given the lagged and variable impact of monetary policy on economic conditions -- further complicated in the current cycle by the Fed’s balance-sheet unwind -- policy makers will need to navigate with caution when in the proximity of neutral. Fed Chairman Jerome Powell, in his Jackson Hole speech, sounded dual warnings about this: First, he stressed economists’ inability to estimate the neutral level of interest rates in real-time and cautioned against the “mistake of overemphasizing imprecise estimates of the stars”; second, he invoked the Brainard principle, which advocates moving conservatively on policy when the effects of action are unknown.

If growth is moderating toward trend and inflation appears to be centering around policy makers’ objective as the fed funds rate probes neutral territory, a significant portion of the FOMC should be willing to slow -- if not pause -- the pace of interest-rate increases in order to assess economic conditions. Policy makers may not be able to precisely identify the neutral policy rate in real time, but a continual decline in the terminal fed funds rate over the past several tightening cycles (shown below) serves as a cautionary reminder that, as Powell quipped at Jackson Hole, a “smaller dose” of normalization may prove adequate.

Eoin Treacy's view -

The PCE Core inflation gauge, which is the Fed’s preferred measure currently stands at 2%. Chained PCE inflation is at 2.3%. The Fed’s Funds rate is now 2.25% so it is becoming increasingly clear that after 8 rate hikes policy is moving from accommodative to neutral.



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September 26 2018

Commentary by Eoin Treacy

Sony finally gives into 'Fortnite' PS4 cross-play demands

This article by Swapna Krishna for engadget.com may be of interest to subscribers. Here is a section:

PlayStation gamers have been frustrated by the lack of cross-platform support for the popular game Fortnite. But now Sony has some good news. Today, the company announced an open beta that will allow for Fortnitecross-platform play between the PlayStation 4 and iOS, Android, the Nintendo Switch, Xbox One, Microsoft Windows and Mac.

The aim of the beta is to test the user experience on this kind of cross-platform play, which is the first time Sony Interactive Entertainment has experimented with this feature. The release makes clear that, if this test goes well, the company may be open to cross-platform play on other games in the future.

Part of the appeal of Fortnite has been the ability to play with other gamers, regardless of the platform you are on. PlayStation users were unable to partake in that aspect of the game. To make matters worse, SIE's restrictive policies ensured that players weren't able to sign into an Epic Games account linked to PSN from their Nintendo Switch.

Eoin Treacy's view -

This is a watershed moment for the computer gaming sector because it highlights that games are more important than platforms. For years consumers have had to choose between Microsoft’s Xbox, Sony’s PS4, Nintendo’s Switch, PC or now mobile with each representing a significant outlay in terms of capital investment.

However, if you only had one of these platforms you were restricted in what games you could play. Even when the games had online group-play features participants had to all have the same hardware and software. Fortnite changed that. It has been such a wildly successful game, built exclusively on a Battle Royale/Lord of Flies group play model that companies have been forced to cave to consumer demand for cross platform solutions.



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September 26 2018

Commentary by Eoin Treacy

How China Is Losing the World

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

But to the more attentive, a new counternarrative is also starting to emerge, which stands against this tale of an ever more powerful China that can name its terms and act without restraint or pretense. As more and more people start to know far more about the China model, and to see it manifested in their daily lives, doubts start to grow. The sharp treatment of Taiwan, the actions in Xinjiang, the incredible, pervasive growth of the surveillance state in China and its annexation of almost every aspect of life without any institutional or legal restraint – all these register in some form and shape a little resistance.

In the past, issues about China were once disparate; now they are being linked and form the basis of a critical counternarrative. Suddenly, there is more sympathy for Taiwan, for example. More people in Europe and the United States are starting to be uneasy about the ways in which Confucius Institutes are allowed to operate in Western establishments without similar freedoms for Western equivalents in Chinese ones. They wonder why Chinese can buy, invest, and work so freely in their environments while it is so difficult for foreigners to do the same back in China. They wonder why Chinese lobbyists and activists are able to freely express their ideas in London, Sydney, or Washington, and seek to influence outcomes that matter to them there, when there is precious little space for this sort of activity back in China.

Eoin Treacy's view -

The true talent in a kleptocracy is knowing who to bribe. Afterall there is no point spending the money if the person taking the payment is not in a position to effect the result you wish or is subject to dismissal. Something China is finding out is that in a democracy, politicians who are seen to mortgage the future of the country to a foreign power are less than likely to win the next election.



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September 26 2018

Commentary by Eoin Treacy

Glencore to double size of $1B share buyback program

This article by Cecilia Jamasmie for Mining.com which may be of interest. Here is a section: 

Glencore’s move falls in line with what an increasing number of top miners have been doing lately, that is, handing money back to shareholders. The trend follows a recovery from the commodity rout of 2015-16 and increasing pressure from investors to not buy assets that may never deliver returns.

Less than a week ago, world’s second largest miner Rio Tinto (ASX, LON:RIO) unveiled a $3.2 billion share buyback following an asset-sale spree. Previously, BHP paid out a record dividend and promised it would give its shareholders most of the $10.5 billion it obtained from the sale of its US shale oil and gas assets.

Glencore said it has almost completed its first buyback, acquiring $940 million of its own stock after the shares fell to a 14-month low in September as part of a wider commodity sell off.

Eoin Treacy's view -

The big takeaway from the trend of miners buying back their own shares and increasing dividends is they are spending less on capital investments. That means they are more profitable but also that their ability to rapidly increase supply will be constrained in future should the need arise.



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September 25 2018

Commentary by Eoin Treacy

Video commentary for September August 7th 2018

September 25 2018

Commentary by Eoin Treacy

Gold Is Cheap. Inflation Is Coming. You Do the Math

Thanks to a subscriber for this article from Barron’s which may be of interest. Here is a section:

Compared with stocks and other financial assets, gold looks inexpensive. More important, inflation is starting to pick up in the U.S. and in much of the world as central banks shrink their enormous balance sheets. And gold has represented a good defense against inflation eroding the value of a stock or bond portfolio. Over time, it has held its value against the dollar. Gold was $20.67 an ounce 100 years ago and that bought a good men’s suit. At $1,200 an ounce, the same is true today.

“Gold is rare, and it’s hard to rapidly increase the supply of it,” says Keith Trauner, co-portfolio manager of the GoodHaven (ticker: GOODX) mutual fund, which holds Barrick Gold(ABX), a leading mining company. “People have historically viewed it as a hedge against government depreciation of local currency.”

There are an estimated six billion ounces of gold in the world, worth more than $7 trillion, about 30% of the value of the S&P 500. Annual new mined supply adds less than 2% to the global total.

“Virtually every government in the world is trying to promote inflation partly because there is so much sovereign debt,” Trauner says. When there is so much debt, he contends, governments have three choices: default, restructure, or inflate the currency. “Politicians, when given the chance, will choose the latter.”

Naysayers point to higher interest rates as a negative for gold because it increases the allure of holding cash. But gold had one of its best decades during the inflationary 1970s, when rates soared.

Eoin Treacy's view -

Whereto for precious metals? A big decline has taken gold back to the $1200 level from it’s January peak of $1366 and sentiment is torn between those hungry for bargains and those worried about the trajectory of interest rates and the strength of the Dollar.



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September 25 2018

Commentary by Eoin Treacy

Farm to Cradle: Nestle Experiments with Tracking Gerber Baby Food on the Blockchain

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

Food Trust members in the past year or so have tested various segments of the food supply chain, including Walmart’s mango logistics, aiming ultimately for a farm-to-grocery aisle view of how food moves.

Last fall, Nestlé tested the traceability of its Libby canned pumpkin on Food Trust, learning that tracking a single-ingredient food from a limited number of U.S. growers is relatively simple, Mr. Tyas said.

The baby food experiments involve multiple ingredients and some cross-border transactions. In one test, Nestlé is working with farmers and processors of apples, sweet potatoes and pumpkin. In another, the partner is a mango provider in Colombia.

A challenge for Nestlé in adopting the Food Trust blockchain is having to build interfaces to connect its many shipping, trucking, processing and other software systems related to managing its fruits, vegetables and other ingredients to the new technology, Mr. Tyas said.

Eoin Treacy's view -

E coli might as well be uranium when it comes to the damage it can do to the bottom line of food companies. In an era where food companies depend on a complex global supply chains and where antibiotic resistant microbes are proliferating, delivering a clean supply chain record both for consumers and to trace problems is increasingly important. Blockchain’s public ledger is an elegant solution to that particular problem.



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September 25 2018

Commentary by Eoin Treacy

Argentine Bonds Back Where They Began After Wild Day for Traders

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

For Argentine bond investors, Tuesday has been a wild day. Luis Caputo, who was a trader himself for years at JPMorgan and Deutsche Bank before running an asset manager in Buenos Aires and heading finances for President Mauricio Macri, was liked and respected by the market. Some even joked about the need to build a statue or rename an avenue after him. The Lionel Messi of the administration, according to others.

So when the “fixer,” who negotiated with hedge fund titan Paul Singer to end a decade-long debt holdout battle, and the guy who convinced emerging-market debt investors to buy into a 100-year bond, resigned as central bank chief, the initial reaction was slight panic.

Bond yields, which had been tightening for days, swung higher in the immediate aftermath of the news. The idea that a vulnerable economy was about to lose one of its leaders didn’t sit well with investors.

At least for a little while. In the end, traders calmed down and decided that the new leadership wasn’t so bad: Guido Sandleris is viewed as a technocrat well versed in the ongoing
talks with the International Monetary Fund.

Yields have ended up not too far from where they started: To be sure, the peso is down more than 3 percent and it still isn’t clear what additional help Argentina can expect from the IMF. But in the words of Economy Minister Nicolas Dujovne, “the deal is imminent” and Sandleris is “brilliant.”

Eoin Treacy's view -

60% interest rates and inflation of 40% is still a real return of 20%. That simple equation has so far helped the Peso to hold the low near ARS40 and it bounced from a retest of that level today. As long as Argentina is willing to abide by the conditions laid down by the IMF it is likely to continue to expect support from the lender.



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September 24 2018

Commentary by Eoin Treacy

Video commentary for September 24th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Brent crude oil breaks on the upside. palladium firm, sugar weak, Wall Street steady, Euro fails to hold its intrade gain, Indian banks under pressure, Treasuries ease, negative yielding bonds at grave risk from inflationary pressures.



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September 24 2018

Commentary by Eoin Treacy

ECB's Draghi Sees Vigorous Pickup in Core Euro-Area Inflation

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

Mario Draghi said he sees a “relatively vigorous” pickup in underlying euro-area inflation, signaling
that the European Central Bank is well on track to raise interest rates late next year.

In testimony to the European Parliament, the ECB president said while headline consumer-price growth will only average around 1.7 percent a year through 2020, still below the goal of just under 2 percent, that stable outlook “conceals a slowing contribution from the non-core components” such as energy and food prices.

“Underlying inflation is expected to increase further over the coming months as the tightening labor market is pushing up wage growth,” he said in Brussels on Monday. “Domestic price pressures are strengthening and broadening.”

The euro jumped half a cent on the remark, reaching the highest level since June. It traded at $1.1800 at 3:16 p.m. Frankfurt time. Bunds extended losses and the Stoxx 600 index fell to a session low.

The ECB will end its bond-buying program in December and expects to keep interest rates at record lows at least through the summer of 2019. Policy makers have acknowledged market expectations for a hike around the final quarter of next year.

Eoin Treacy's view -

The ECB has taken on a lot of additional responsibilities since the credit crisis but its one core mandate is to target an inflation rate close to 2%. With inflation rising and the ECB’s quantitative easing program ending the big question is whether the European economy will be able to grow quick enough to absorb inflationary pressures or whether stagflation is more likely?



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September 24 2018

Commentary by Eoin Treacy

India Needs to Stop the IL&FS Rot From Spreading: Andy Mukherjee

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

Infrastructure Leasing & Financial Services Ltd. is a sprawling nonbank institution that used its highly rated paper to chalk up $12.5 billion of debt, which it funneled into the financing of long-term assets like roads, townships and water-treatment plants. Most of these businesses are owned by IL&FS-linked operating companies.

The opacity masked growing liquidity problems, though only up to a point. Some of the group’s finance companies are now missing repayments on short-term paper, even as the unlisted parent’s owners, including state-run Life Insurance Corp. of India, dawdle over an emergency infusion of funds. 

The task of highlighting the systemic risks fell to equity markets. Dewan Housing Finance Corp. led the carnage on Friday when its shares fell more than 42 percent. (They were down almost 60 percent at one stage.) Most other shadow lenders, which make retail loans but don’t take deposits, also dropped between 12 percent and 17 percent.

The bloodbath was sparked by the money market, where a mutual fund sold Dewan’s notes at a yield of 10.75 percent, compared with 8.6 percent for other corporate debt locally rated as AAA.

Eoin Treacy's view -

Investors have been worried about India’s high valuations and highly leverage banking sector for more than a decade but the more robust attitude of the RBI coupled with the bankruptcy of IL&FS have been catalysts to bring these issues to the fore.



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September 24 2018

Commentary by Eoin Treacy

Oil Traders Say $100 Coming as OPEC Strains to Fill Iran Gap

This article by Javier Blas, Heesu Lee, Alfred Cang and Dan Murtaugh for Bloomberg may be of interest to subscribers. Here is a section:

Major oil trading houses are predicting the return of $100 crude for the first time since 2014 as OPEC and its allies struggle to compensate for U.S. sanctions on Iran’s exports.

With Brent crude already jumping to an almost four-year high on Monday, that’s exactly the kind of price surge President Donald Trump has been seeking to prevent by pressuring the Organization of Petroleum Exporting Countries to raise production. Yet the cartel and its allies gave mixed signals at a meeting in Algiers on Sunday, ultimately showing little sign they would heed U.S. demands to rapidly push down crude prices.

OPEC’s reticence, combined with signs of accelerating supply losses from Iran, created a bullish mood the annual gathering of the Asian oil industry, traders, refiners and bankers in Singapore on Monday.

“The market does not have the supply response for a potential disappearance of 2 million barrels a day in the fourth quarter,” Mercuria Energy Group Ltd. co-founder Daniel Jaeggi said in a speech at the S&P Global Platts Asia Pacific Petroleum Conference, knows as APPEC. “In my view, that makes it conceivable to see a price spike north of $100 a barrel.”

Eoin Treacy's view -

Saudi Arabian official stated only last week that they are comfortable with the idea of oil trading above $80 so it is not so surprising that OPEC is not racing to increase supply not least since its members all rely on high oil prices to balance their budgets.



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September 24 2018

Commentary by Eoin Treacy

Fish-Oil Heart Medicine Is Rarest of Drug Successes

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

It’s been easy to doubt Amarin, which has been working on this trial for the better part of a decade. The scientific rationale is there: Omega-3 fatty acids like the one Amarin is testing can reduce high triglycerides, a risk factor for cardiovascular disease. But many previous fish-oil trials have failed. Vascepa’s purity enables a higher dose without raising cholesterol, as other fish oils can. Amarin bet that focusing on high-risk patients with persistently high triglycerides would
reveal the benefit of that higher dose, and was proven correct.

Insurers already approve coverage of the drug for use by a small group of patients with very high triglicerides, but there is a strong case to be made to expand coverage more broadly. Cardiovascular disease is the leading cause of death in the U.S., and heart attacks and strokes are incredibly expensive for the health-care system. Preventing them not only saves lives, it saves money.  

Other drugmakers have tried and failed to make a similar argument with other treatments, most notably so-called PCSK9 inhibitors drugs from Amgen Inc. and Sanofi and Regeneron Pharmaceuticals Inc. These medicines are able to dramatically lower bad cholesterol beyond what older statins can manage, and can significantly reduce cardiovascular events in a high-risk population. But their list price of more than $14,000 at launch has caused insurers to substantially restrict availability.

Amarin said on a Monday morning conference call that it will revisit its pricing, but right now Vascepa’s list price is about $2,400 a year, much lower than those other drugs. That kind of price, combined with the number of people that could benefit and the size and rigor of the trial, will make aggressive restriction difficult. 

Eoin Treacy's view -

When Mrs. Treacy developed pancreatitis in her first pregnancy our doctor referred us to a cardiologist for her second pregnancy. At the time her triglycerides were 10 times the normal amount and labs had to recalibrate their machinery to test the levels of fats in her blood, which was separating like oil and water in the vials. He gave her a strict diet of no saturated fats and high does of cod liver oil daily for the last five months of the pregnancy. That mix of Omega 3 fats did not eliminate the hypolipidemia but it ensure she did not develop pancreatitis again. The big question for consumers is whether the $200 a month for Vascepa is that much better than simply taking fish oil supplements?



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September 21 2018

Commentary by Eoin Treacy

Commodities Set for Best Week Since April, Fueled by Copper, Oil

This article by Rupert Rowling and Mark Burton for Bloomberg may be of interest to subscribers. Here is a section:

After a months-long rout, commodities are starting to show signs of life.

The Bloomberg Commodities Index has climbed 2.1 percent this week, on track for the best performance since April. Copper, oil, soybeans and silver are all poised set to end the week higher, helped by a combination of tight supplies, speculation that recent losses are overdone and a weaker dollar.

The gains are small, but it’s clear that the selloff that started in May has dissipated and sentiment is turning bullish. Barclays Plc said in a report today that copper has bottomed. Commodity bull Goldman Sachs Group Inc. predicted gains in raw materials through the end of the year.

“The two main factors behind commodities rising are the end of the dollar strength, with the dollar seeming to have peaked, and risk appetite rising,” said Carsten Fritsch, commodity analyst at Commerzbank AG.

It’s a shift from earlier this year, when the Bloomberg Commodities Index plunged about 10 percent over three months. Copper entered a bear market in August, and assets like arabica coffee and platinum are still near decade-lows.

Eoin Treacy's view -

The Continuous Commodity index has been ranging between 400 and 450 since early 2016. Its failed upside break out in May is a good example of a rule of thumb from The Chart Seminar; when the dynamic of the failure is greater than the dynamic of the breakout, the chances are it will go back down and test the lower side of the range.



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September 21 2018

Commentary by Eoin Treacy

India Stock Market Rocked by Sudden Plunge in Financial Shares

This article by Santanu Chakraborty, Abhishek Vishnoi and Nupur Acharya for Bloomberg may be of interest to subscribers.

Some investors are speculating that the Reserve Bank of India may tighten rules for housing finance firms after a long legacy of shoddy lending that’s resulted in ballooning bad debts. This comes after the central bank said Yes Bank’s chief executive officer will have to step down at the end of January.

“Investors are speculating that more bad loans may come to light as RBI may take stricter action,” said Soumen Chatterjee, head of research at Guiness Securities. The RBI has also taken a tough line with other private-sector bank CEOs in recent months. The central bank refused to extend the tenure of Axis Bank Ltd. chief Shikha Sharma, who said she would step down at the end of 2018 despite support from
shareholders.

The IL&FS downgrade and default may have nudged investors to avoid potential collateral damage in other financial stocks. “Downgrades are a serious possibility” for non-bank financial companies, Aneesh Srivastava of IDBI Federal Life Insurance Co. said.

Eoin Treacy's view -

India’s bad loans have been a rumbling background issue for a long time and there have been announcements over the last year that the RBI was going to take a more robust approach to the problem. That issue may now be coming to the fore with the prospect of defaults rising.



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September 21 2018

Commentary by Eoin Treacy

Global Top 100 companies by market capitalisation

This report from PWC was dated March 31st but only crossed my desk this week and I thought it still worth highlighting not least because of the buyback figures for 2016 and 2017 which have been superseded this year. Here is a section:

Apple distributed $31bn to shareholders in dividends and share repurchases in 2017 - an increase from the $29bn distributed in 2016.

A total of $704bn has been distributed to shareholders by the Top 100 companies.

US companies, representing 54 of the Top 100 companies, accounted for $476bn of the total value distribution.

Unchanged from last year, companies in the Financial sector continued to return the highest total amount of $183bn (2016: $153bn) to shareholders, followed by companies in the Technology sector which returned a total of $121bn (2016: $110bn).

Share buybacks boosted the 2.2% dividend yield to an overall of 3.5% by reference to market capitalisation.

Eoin Treacy's view -

The relative attraction of cash with interest rates at 2%, and soon to be 2.25%, is now better than the dividend yield on the S&P500 which is 1.79%. However, since so many companies are buying back their shares it is arguable whether this is a fair comparison. The total return on the stock market compared to a rolled yield on money market funds highlights how much of a spread in return there is between the two asset classes and the premium investors pay for safety outside of crises.



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September 21 2018

Commentary by Eoin Treacy

September 20 2018

Commentary by Eoin Treacy

Video commentary for September 20th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Dow Jones Industrials hits new high, S&P 500 surges to new high, Japan and Europe firm and have cheaper valuations, smaller emerging markets have more consistent chart patterns than the large weightings in MSCI Emerging Markets, Dollar weak, Treasuries fall to test the April low, gold unchanged but platinum in the process of breaking its downtrend. 



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September 20 2018

Commentary by Eoin Treacy

S&P, Dow Hit Record Highs as Trade Fears Abate

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

China is said to be planning to cut the average tariff rate it charges on imports from the majority of its trading partners as soon as next month. On Wednesday, Premier Li Keqiang his government wouldn’t devalue the currency in order to boost its exports amid the trade war.

“When we get days where there isn’t trade and tariffs escalation, which is in the news with us every day, market participants can focus more on fundamentals, and fundamental drivers continue to paint a pretty equity picture,” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, said by phone. “We’re striking a nice balance between good economic news and not becoming concerned yet about inflation.”

Eoin Treacy's view -

The Dow Jones Industrials Average hit a new high and the Dow Jones Transportations Average is trading within striking distance of another new high. While Dow Theory does not tend to get a lot of coverage these days it would be hard to argue that we are presented with anything other than at least a short-term bullish environment.



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September 20 2018

Commentary by Eoin Treacy

Dollar Tumbles to Lowest Level Since July as Euro Surges

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

The market views a 25 basis point Fed rate hike next week as a near certainty, based on fed fund futures. Contracts on Thursday showed more than 45 basis points of total tightening by the end of 2018. Focus is increasingly shifting to the outlook for next year, with investors moving closer to the central bank’s projected path of three rate hikes for 2019.

That won’t be enough to prop up the greenback, according to Noelle Corum, an Atlanta-based portfolio manager in Invesco Ltd.’s fixed-income group. As global growth improves and market participants start to speculate about policy changes from the European Central Bank and Bank of Japan, the dollar’s support from Fed hikes and trade tensions will wear off, she said.

“Going into year-end, we would expect fundamentals will begin to drive markets again, and this will drive the dollar weaker,’’ said Corum, whose group manages $235 billion. She forecasts the greenback will depreciate to $1.20 per euro and weaken to 104 yen per dollar by year-end.

Eoin Treacy's view -

US Treasury yields popping above 3%, not least because of the dearth of demand following the front loading of pension contributions that ended on September 15th, has been a catalyst for both bond and Dollar weakness this week.



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September 20 2018

Commentary by Eoin Treacy

Best Week in Two Years Leaves Japan Stock Bulls Feeling Redeemed

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

A deeply-rooted “misperception” that the Japanese economy will give way to deflation and lead to an eventual collapse of local equities has been a drag, keeping investors blind to positive developments, according to Musha. Most recently, belief that Japan will be crushed in the escalating trade conflict between the U.S. and China has propelled bearish views, he said.

Japan’s economy grew at the fastest pace in more than two years during the second quarter, as companies cranked up capital spending to meet global demand and cope with a severe labor shortage. Growth is expected to slow during the second half but remain steady well into 2019, when a sales-tax increase slated for October will pose a challenge to consumers.

The better than expected 11 percent jump in July core machinery orders helped highlight that robust capital expenditure is Japan’s driving growth, according to Jonathan Allum, a strategist at SMBC Nikko Capital Markets Ltd. In London. This is one factor that stock bears may have been missing and could prove to be a catalyst for a rebound, he said.

Eoin Treacy's view -

There are three points that are worth keeping mind with regard to the Japanese market. The first is the Bank of Japan is still engaged in quantitative easing and is actively buying stocks. The second is the economy is doing well with low unemployment and a high participation rate. The third is valuations are not demanding and compare favourably with both Wall Street and Europe.



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September 19 2018

Commentary by Eoin Treacy

September 19 2018

Commentary by Eoin Treacy

The End of the Incessant U.S. Big?

This article by Kevin Muir at East West Bank may be of interest to subscribers. Here is a section:

According to Bloomberg’s Brian Chappatta, Friday was the last day U.S. corporations could deduct pension contributions at the 2017 corporate tax rate of 35 percent and will now only be eligible for the new 21 percent rate.

There has been considerable debate amongst the fixed-income community regarding the amount of curve flattening that has been the direct result of corporations accelerating their pension contributions. In fact, Brian’s article is named, “The Yield Curve’s Day of Reckoning is Overblown”and is mostly a rebuke of the idea that this factor has been the driving force to the recent flattening.

I don’t agree with all of Brian’s conclusions - but hey - that’s what makes a market!

The U.S. has been flattening at a vicious pace, while most other major bond market curves have been treading water.

Eoin Treacy's view -

The yield curve spread has widened from 20 basis points to 26 over the last week. That is not enough to break the downtrend but it does suggest a moderation in the trend of curve flattening. The transition from being able to write down 35% of pension contributions to 21% is a significant evolution for corporations and it makes sense that they would accelerated contributions to plans ahead of the move. The biggest question is how many people were buying treasuries in sympathy with the view that pension contributions were supporting the market?



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September 19 2018

Commentary by Eoin Treacy

India's Gen Z Voters Have a Simple Message for Politicians

This article by Vrishti Beniwal and Bibhudatta Pradhan for Bloomberg may be of interest to subscribers. Here is a section:

India’s Gen Z, a key swing constituency in the 2019 general elections, has a simple message for politicians: more jobs, please.

As many as 130 million first-time voters -- more than the population of Japan -- will go to the polls due by May. A key issue for this electorate is Prime Minister Narendra Modi’s failure to deliver on his promise of creating 10 million jobs a year -- a pledge that won him the hearts of India’s youth in the 2014 election.

Yet with barely eight months to go to national polls, voters who believe job creation is Modi’s biggest failure have risen to 29 percent from 22 percent in January 2018, the Mood of the Nation survey by India Today found.

"The youth will certainly be a key demographic,” said Harsh Pant, professor of International Relations at King’s College in London. "While the issue of jobs may hurt Modi in the coming elections, it is also a reality he remains hugely popular with the youth compared to any other politician."

Eoin Treacy's view -

India has the potential for a massive demographic dividend considering half the population of over 1 billion is younger than 25 years old. However, in order to reap that benefit it needs to get busy with infrastructure development and manufacturing.



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September 19 2018

Commentary by Eoin Treacy

Bezos Unbound: Exclusive Interview With The Amazon Founder On What He Plans To Conquer Next

This article by Randall Lane for Forbes.com may be of interest to subscribers. Here is a section:

Nevertheless, during the morning he spent with Forbes outlining how he channels innovation and chooses where to expand, a road map for Amazon's future emerged. Given Amazon's size, it moves both vertically and horizontally, each direction portending a lot more disruption. Even five years ago, Bezos seemed content merely to try to sell everything to everybody, becoming the bane mostly of retailers and wholesalers. But this master innovation artist now has the ultimate palette: any industry he chooses.

For this unconstrained era, the most important word at Amazon is yes. Bezos explains, correctly, the traditional corporate hierarchy: "Let's say a junior executive comes up with a new idea that they want to try. They have to convince their boss, their boss's boss, their boss's boss's boss and so on—any 'no' in that chain can kill the whole idea." That's why nimble startups so easily slaughter hidebound dinosaurs: Even if 19 venture capitalists say no, it just takes a 20th to say yes to get a disruptive idea into business.

Accordingly, Bezos has structured Amazon around what he calls "multiple paths to yes," particularly regarding "two-way doors": decisions that are often based on incremental improvements and can be reversed if they prove unwise. Hundreds of executives can green-light an idea, which employees can shop around internally. "He knows and we know that you can't invent or experiment without some failure," says Jeff Wilke, the long-time Bezos lieutenant who runs Amazon's consumer and retail operations. "Those we sort of celebrate. In fact, we want them to occur all over the place. Jeff doesn't need to review those. I don't need to review those."

Eoin Treacy's view -

The bigger Amazon gets and the more industries it disrupts the greater the potential there is for antitrust advocates to gain traction. Amazon currently accounts for about half of all ecommerce traffic in the USA so it is no exaggeration to state that if you are not selling on Amazon you are leaving half the population untapped. That position lends the company enormous power and the EU is currently investigating how much advantage it gets from knowing product segments its third-party sellers are succeeding in. 



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September 18 2018

Commentary by Eoin Treacy

Video commentary for September 18th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: stock markets rally following tariff announcement, Treasuriy yields break above 3%, gold quiet, platinum firm, oil back testing the upper side of its range, smaller market cap emerging markets turning to outperformance.



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September 18 2018

Commentary by Eoin Treacy

September 18 2018

Commentary by Eoin Treacy

Asia EM Strategy

Thanks to a subscriber for this report from Morgan Stanley. Here is a section on Malaysia:

Eoin Treacy's view -

A link to the full report and section from it are posted in the Subscriber's Area.

Governance is Everything and this is doubly true in emerging markets. The Mahathir administration has made a point of trying to recoup some of the losses due to graft, not least 1MDB, and is taking a more forthright stand against the debt trap infrastructure projects the last government signed with China. These are positive outcomes and suggest standards of governance are improving.



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