Investment Themes - General

Search all article by their themes/tags in the search area
below for example “Energy” or “Technology”.

Search Results

Found 1000 results in General
February 17 2020

Commentary by Eoin Treacy

Video commentary for February 17th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: potenital for synchronised monetary and fiscal stimulus continues to support asset prices, it is also feeding short positions in the Euro and Yen while supporting the Dollar, gold and treasuries. 



This section continues in the Subscriber's Area. Back to top
February 17 2020

Commentary by Eoin Treacy

China's Coffers Are Depleted Just as Virus Spurs Spending

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

China’s top leaders have kept their official deficit target below 3%, partly through belt-tightening, as a gesture to deter excessive borrowing as the nation fights debt on multiple fronts. Yet it has also given way to all types of off-balance sheet borrowing, a problem S&P Global Ratings said may re-emerge this year.

Signs of more proactive fiscal policy have already appeared. The Ministry of Finance allowed local governments to sell more than 1.8 trillion yuan ($258 billion) of debt before the annual budget has been approved. The ministry has also announced targeted tax cuts to help companies and households hit by the virus, partially waived social security premiums or delayed taxes.

“Fiscal policy ought to be counter-cyclical, and the tension between revenue and expenditure shouldn’t be a reason to constrain it,” said Xu Gao, chief economist at BOCI Securities Ltd. in Beijing. “The government should increase the fiscal deficit to cope with the virus, and ease spending pressure by selling more debt.”

 

Eoin Treacy's view -

Economic activity in much of China has ground to a halt. Factories are struggling to get back to full capacity, where they can open at all, and consumer confidence has taken a significant hit so discretionary spending is cratering. That is particularly true in the leisure and travel sectors. There was news today that casinos in Macau are now allowed to open again but it will be a while before consumers have the confidence to go back. We were at lunch with another expat Asian couple yesterday and they are going to skip visiting Asia this year. That’s a pretty common reaction to the evolving scenario. Most people’s conclusion is why take the risk?



This section continues in the Subscriber's Area. Back to top
February 17 2020

Commentary by Eoin Treacy

U.K. Fires Broadside at EU Before Future-Ties Talks Even Begin

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

The EU says any agreement hinges on the U.K. signing up to commitments to prevent it undercutting the European economy. But  the U.K. says sticking to the EU’s rules -- known as the “level
playing field” because it would force Britain to accept EU standards in areas such as public subsidies, environmental rules, and labor conditions -- is unfair and goes beyond the conditions the EU imposed in other trade deals.

“It is central to our vision that we must have the ability to set laws that suit us -- to claim the right that every other non-EU country in the world has,” Frost said. “To think that we might accept EU supervision on so called level playing field issues simply fails to see the point of what we are doing. It isn’t a simple negotiating position which might move under pressure -- it is the point of the whole project.”

Under Johnson, the U.K. is taking a less conciliatory approach to its EU negotiations than under his predecessor Theresa May. Frost’s outlining of Britain’s strategy in public contrasts sharply with the secretive way the government conducted talks from 2017-2019 on the country’s withdrawal.

The EU is still concluding its own position on the negotiations, with a series of internal discussions by diplomats scheduled to end on Wednesday. The bloc is considering demanding the U.K. stick to EU rules -- and, in some cases, make them tougher if the EU does -- in a whole host of areas from food hygiene to data protection to labor law.

In a signal of where a compromise might eventually come, Frost said the U.K wants “open and fair competition provisions” based on precedents in other free trade deals.

Eoin Treacy's view -

If the UK is going to succeed in developing a successful economic model capable of competing with the EU and everyone else for that matter, then the ability to set its own rules, regulations and incentive programs is essential. It’s a good thing the current UK administration understands that but it is also a recipe for acrimonious negotiations where brinksmanship is to be expected. The deadline of December 31st ensures this is going to be a topic of conversation for the rest of the year.



This section continues in the Subscriber's Area. Back to top
February 17 2020

Commentary by Eoin Treacy

Aureus Fund Plc Factsheet

Thanks to a subscriber for this factsheet which may be of interest.

The Aureus Fund (Ireland) plc. is an accumulating fund under Irish Law. The physical allocated gold investment will at all times between 51% and 60% of the Net Assets. Although the focus is on Gold, the Aureus Fund aims to invest in physical precious metals (Silver, Platinum and Palladium) to diversify risk. As an ancillary investment policy the investment manager has the option to invest in gold derivates for hedging and gold mining funds.

Eoin Treacy's view -

This fund popped up in a search I performed on Bloomberg of gold mining funds but it carried no additional details of holdings. My supposition on Friday that it is heavily weighted in platinum miners was incorrect and I am thankful to a subscriber for clearing up this misunderstanding. Instead, it has a heavy weighting in palladium; directly through its physical holdings. That has helped to supplement returns over and above the price if gold in Euro.



This section continues in the Subscriber's Area. Back to top
February 17 2020

Commentary by Eoin Treacy

Email of the day on gold's upside potential

The long run outlook for gold is very encouraging. Even in the short run, competitive devaluations by CBs are supportive.  Coronavirus is also supportive.  Do you think that investing in a gold ETF is a reasonable hedge against a short-term correction on the S&P500? Are frightened investors likely to seek the security of gold or are they more likely to flock to cash?

 

Eoin Treacy's view -

Thank you for these questions which may be of interest to other subscribers. Gold and the Dollar have been rallying together against a background of increasing virus-hedging activity. That suggests investors have a preference for classic hedges rather than cash at present.



This section continues in the Subscriber's Area. Back to top
February 17 2020

Commentary by Eoin Treacy

Email of the day on personal hygiene habits as a best defence against viral infection:

Please take a few minutes to watch the attached video.  Great information to know if the epidemic ever comes our way.  Please share with others.  This could get worse before a solution is found

Eoin Treacy's view -

Thanks to a subscriber for this video which may be of interest. The prevalence of this kind of advice also tells us the risk from the virus is increasingly well understood and therefore increasingly priced into markets.



This section continues in the Subscriber's Area. Back to top
February 14 2020

Commentary by Eoin Treacy

February 14 2020

Commentary by Eoin Treacy

Play Your Game

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

Today, we see the global capital markets through a different lens — one that is certainly less rose colored than the ones we were wearing last year. Indeed, unlike last January, we now think that the U.S. stock market has already priced in a robust economic recovery in the first half of 2020. By comparison, our predictive earnings model (Exhibit 4) suggests only a modest recovery occurring by the second half of this year. We also think that there may not be enough political risk priced into the U.S. market at current valuations, and believe the private growth markets still need to unwind further.

However, unlike the slowdowns of 2008, 2012, and 2016, credit conditions did not unravel during the recent economic turbulence that occurred in the second half of 2019 (when we essentially had a global manufacturing recession). In fact, during this period global central banks not only supplied ample liquidity to the market again but also expanded their balance sheets. These initiatives have, in turn, helped to suppress bond yields and support credit, leaving financial conditions today as favorable as they have been since the beginning of the prior decade, according to the investment bank Goldman Sachs. Renewed financial easing is an important input in our thinking because it ought to be a net positive both for economic growth and risk asset performance in the near-term.

So, what are investors to do? Despite mounting headwinds, our call is certainly not to head to the sidelines and wait for a major pullback. As we show in Exhibits 7 and 8, we forecast global liquidity to continue to improve consistently in 2020 at a time when our research shows that many individual investors and endowments are not yet at their target risk levels. Central bank balance sheets too should increase again (Exhibits 9 and 10). Moreover, while the cycle is running long in duration, the risk premium relative to the risk-free rate on quite a few asset classes, including Equities, is still attractive in many areas of the global markets. One can see this in Exhibit 75, which shows that the current earnings yield on U.S. stocks is just only now back to the historical average relative to the current yield on the 10-year U.S. Treasury.

Eoin Treacy's view -

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

The people where I am from in Ireland are often accused of answering a question with a question. I was reminded of that this morning because there is a persistent question asked by value investors which is “How can anyone justify paying close to record high cyclically adjusted P/Es for the stock market today?” The corollary is “Why is value underperforming so dismally?” the answering question is “How do you go about developing an algorithm that has any hope of performing in line with the market? 



This section continues in the Subscriber's Area. Back to top
February 14 2020

Commentary by Eoin Treacy

Kraft Heinz Cut to Junk by Fitch Following Lackluster Earnings

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

Kraft Heinz Co. was downgraded to junk status by Fitch Ratings, which predicted the company’s leverage will remain high for an extended period as the maker of Jell-O and Classico pasta sauce works to stabilize declining sales.

The food company was cut to BB+ from BBB- by the credit-ratings company, with a stable outlook. Fitch said the company may need to divest a sizable portion of its business in order to reduce its debt.

The downgrade follows Thursday’s earnings report, in which Kraft Heinz reported a drop in fourth-quarter sales that sent its bonds and stock tumbling. It was the latest sign that the company’s turnaround plan still has a long way to go.

Kraft Heinz said Thursday it would release a more detailed turnaround plan around the time of its next earnings report in early May, though many investors and analysts had been looking for it sooner.
 

Eoin Treacy's view -

Kraft Heinz’ dividend was 62.5¢ in 2018, 40¢ in 2019 and is expected to be 20¢ in 2020. The decline in the share price has supported the yield, which is currently 5.98% but the outlook for additional dividend cuts puts that under question. The company is likely to be a case study in how intangible values cannot be used to underpin a credit rating during a time of technological and social upheaval.



This section continues in the Subscriber's Area. Back to top
February 14 2020

Commentary by Eoin Treacy

Email of the day on gold miners:

I hope you are well & not working too hard!

Just completed the ‘corporate action’ required to take the shares for Sibanye. To me all your excellent recommendations are just exotic names & lines on a screen, and whatever spare brain processing power I have these days perhaps best left for other things.

Please may I ask a favour? Do you have any ideas for an ETF or even generalist fund which I could use to provide gold miner ‘sector’ exposure? In broad terms would you suggest something holding larger cos or junior miners? If you have any thoughts, I would be grateful. I know you cannot give advice & it would never be construed in that way.

On gold miners shares per se, can you clarify a point? I was talking to the manager of a UK listed investment trust the other day, managed on what used to be called an ‘absolute return’ basis, which actually has delivered a consistent return. They look at things very simply & believe that at some unknown point in the future, there will simply be a tipping point where the discount rate applied (across all asset class valuations) spikes.  They don’t speculate how this will unfold. I think I can guess what this will do to Netflix or Tesla but in broad terms, what happens to gold miners? Do you take the view that in essence the (future) value of their gold in the ground will likely mitigate a higher interest rate assumption? Perhaps what I am really meaning to ask is that if the equity bull market bubble bursts, do you have a view on what might happen to gold miners as a sector in terms of correlation?  

I really don’t like to ask you questions like this as you probably add me to the list of bears to assist with the calculation of your contrarian market indicators,

All the very best

Eoin Treacy's view -

Thank you for this question which I believe will be of interest to other subscribers. I think you will agree that it is not hard work when you are doing something you love, though sometimes Mrs. Treacy may beg to differ.

 



This section continues in the Subscriber's Area. Back to top
February 14 2020

Commentary by Eoin Treacy

February 13 2020

Commentary by Eoin Treacy

February 13 2020

Commentary by Eoin Treacy

China's Coronavirus Is Bringing Alibaba to Its Knees

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

Yet investors ought to examine the December quarter because it gives clues about how the e-commerce giant was faring before the COVID-19 virus appeared on the scene. Although revenue continued to grow at a respectable 38%, that was the slowest in almost four years and the smallest beat against estimates in at least a year. Its earnings-per-share beat was the slimmest in more than a year.

Importantly, its bread-and-butter core commerce business, which accounts for 88% of sales, continues to weaken. This division was propped up by acquired units in the physical retail space. Stripping those out, customer management (advertising) revenue and commissions combined climbed 21%, almost 4 percentage points slower than the prior quarter and 5.5 percentage points less than a year ago. Bear in mind, the December quarter includes Alibaba’s big Nov. 11 Single’s Day bonanza, which is supposed to push revenue skyward. Clearly, this event is losing its luster.

Eoin Treacy's view -

Alibaba sells or facilitates the sale of all manner of stuff. That’s its primary business. The economic slowdown brought on by central bank tightening and the war on shadow banking were the reasons behind slower growth in the fourth quarter. Meanwhile the delay in factories reopening after the Lunar New Year holiday, justified fears about viral contamination, restrictions on travel and the impact on the migrant workers ecommerce companies rely on for deliveries are all going to weigh on earnings in the first quarter. So why is the stock so steady?



This section continues in the Subscriber's Area. Back to top
February 13 2020

Commentary by Eoin Treacy

Health insurer stocks surge as Bernie Sanders' primary win seen boosting Trump's chances

This article by Tomi Kilgore for MarketWatch may be of interest to subscribers. Here is a section:

Basically, Medicare for All would be bad for health insurers.

But as MarketWatch's Victor Reklaitis wrote Tuesday, Sanders' New Hampshire victory is like a double negative, as while it might appear as a negative for insurers, Wall Street seems to believe Sanders would lose to Trump in a general election, which would be a positive for insurers.

Eoin Treacy's view -

Bernie Sanders won New Hampshire by a wide margin in 2016 and only by 4000 votes in 2020. That’s not a particularly encouraging signal. There is a historical comparison circulating that any candidate who won both Iowa and New Hampshire went on to win the Democratic nomination. I’m not convinced by that considering how many historical comparisons have been challenged over the last few years. The results from Super Tuesday in a few weeks will be a better picture.



This section continues in the Subscriber's Area. Back to top
February 13 2020

Commentary by Eoin Treacy

China's Record Car-Sales Slump Throws a Curve Ball on Palladium

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

Output in the world’s largest auto market could be cut by more than 1.7 million cars should the spreading virus resulted in more shutdowns of manufacturing facilities across China, lasting into mid-March, according to an IHS Markit estimate last month.

The auto industry accounts for more than 80% of demand for the precious metal, according to a Johnson Matthey report released Wednesday. That makes it difficult for the market to ignore the shutdowns in China.

“The effects on the wider, global supply-chain are also starting to show,” refiner Heraeus Holding GmbH said in a research note. “Plants across Europe and the wider Asia region are also at risk now because of problems sourcing Chinese-made parts.”

Eoin Treacy's view -

The palladium market is another area where investors and traders are paying scant regard to the risk of a Chinese slowdown despite the fact prices are at elevated levels.



This section continues in the Subscriber's Area. Back to top
February 12 2020

Commentary by Eoin Treacy

February 12 2020

Commentary by Eoin Treacy

All Your Favorite Brands, From BSTOEM to ZGGCD

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

Almost half of top Amazon sellers — those selling more than $1 million in the U.S. — are in China; about a third of Amazon’s Chinese sellers overall are estimated to be in Shenzhen. (This according to Marketplace Pulse, which tracks e-commerce marketplaces.)

Amazon shuttered its Chinese store, Amazon.cn, in 2019, after it failed to crack a market dominated by domestic giants like JD and Alibaba.

But it has been much more successful in recruiting Chinese entrepreneurs to sell abroad, opening “cross-border e-commerce parks,” where sellers can get assistance with logistics, branding, and navigating Amazon’s platform. For the last five years, the company has also hosted summits for Chinese cross-border sellers. Last year’s conference, held in Shanghai, was attended by more than 10,000 sellers, many of whom see, in Amazon, an alternative to increasingly saturated domestic platforms like Taobao.

A seller in America might start with a brand idea and need to figure out how to get it manufactured; a seller connected to a factory in China’s manufacturing capital needs to figure out how to sell to Americans, which Amazon has been working hard to facilitate.

Eoin Treacy's view -

The vast majority of household and personal use products sold in Wal-Mart, Amazon, Target and elsewhere are manufactured in China. Most of the electronics, clothing, and jewellery in stores come from Guangdong. The majority of paper bags, nuts and bolts, toys and other small items come from Zhejiang which is just outside the quarantine area. Manufacturing is also spread over the rest of the country. That suggests the ability of companies to fulfil orders is going to be spotty if they don’t get back to work soon.



This section continues in the Subscriber's Area. Back to top
February 12 2020

Commentary by Eoin Treacy

BP Sets Bold Agenda for Big Oil With Plan to Eliminate CO2

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

For BP to survive the energy transition in a world that’s gradually falling out of love with oil, it will need to make big investments in new sources of clean energy, ensure cash keeps flowing from its fossil fuel assets, while also funneling generous returns to investors. It’s a tricky balancing act that its closest peer Shell is already struggling to master.

BP’s commitment to do all this while still boosting free cash flow and shareholder returns is “really the key challenge,” said RBC Capital Markets analyst Biraj Borkhataria.

The company announced structural changes alongside its emissions target. Looney will dismantle its upstream and downstream businesses and reorganize them into an entity made up of 11 new teams that will be more integrated and focused.

“For us the statement represents a step change in terms of vision for the company and one that moves the group toward the biggest reorganization and modernization in at least two decades, if not a century,” analysts at Barclays said in a note. “The magnitude and radical nature of this shift should not be underestimated.”

Eoin Treacy's view -

The trend of public opinion relating to climate change has put most conventional energy companies in a bind. They have been the subject of vitriol from the green lobby for as long as I can remember but that was manageable when the environment was not an election issue. Today, the situation could not be more different. Wild fires, everywhere, droughts, floods, extinction angst and teenagers lecturing world leaders all point to a very hostile backdrop for oil, gas and coal companies.



This section continues in the Subscriber's Area. Back to top
February 12 2020

Commentary by Eoin Treacy

Zombie Crypto Coins Beat Bitcoin During This Year's Resurgence

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

“There appears to have been a large mass of early investors (including many VC firms) who have a vested interest in seeing some of these tokens reach a certain price point so they can realize their gains or break even,” said Sid Shekhar, co-founder of London-based market tracker TokenAnalyst. “As such, with the overall market rally, there are definitely select institutional players who are effectively spurring price action.”

Eoin Treacy's view -

Bitcoin has tended to rally ahead of halvenings (the occasions when the reward for minting a new block halves). Even though there are any number of arguments about the sustainability of bitcoin’s first mover status it remains the biggest crypto market and all others tend to move in a high beta nature relative to it.



This section continues in the Subscriber's Area. Back to top
February 11 2020

Commentary by Eoin Treacy

Video commentary for February 11th 2020

February 11 2020

Commentary by Eoin Treacy

3 Trillion Can't Buy China Out of Virus Trouble

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

Finally, the economic model underlying the reserves creates a complex financial interdependence between Asian central banks and advanced economies, termed the “fatal embrace” by the late Paul Volcker, former chairman of the Federal Reserve. Foreign-exchange reserves represent advances allowing the importing country to buy the exporter’s goods and services on credit. Withdrawing support would risk destroying the value of existing investments and damaging the borrowers’ real economy and export demand.

The interdependence runs deeper. Since 2009, the growth of developing-country reserves is highly correlated to the growth of the balance sheets of advanced-economy central banks, which has been driven by quantitative easing. Attracted by higher returns than available at home, investors moved capital into emerging markets, which in turn supported demand and economic activity in developed economies. This is evident in the increased reliance of many North American, European and Japanese businesses on emerging economies for growth and earnings.

Unfortunately, this cheap capital encouraged rapid rises in debt and increased the risk of future financial instability in many emerging countries. The solution lies in international co-operation to create a new international monetary system and for surplus countries to boost domestic demand.

In a world of rising political tensions, trade wars and adherence to debt and export driven economic models, the prospects for that may appear bleak. Still, this is unfinished business the world will have to return to — once it has got past the economic shock of the coronavirus epidemic.

Eoin Treacy's view -

The strength of the US Dollar over the last ten sessions is at odds with the efforts by the US government and Federal reserve to increase the supply of the currency relative to just about all others. That suggests both repatriation of funds invested overseas as well as the proceeds of carry trades being invested in the USA are supporting the currency. This trend coupled with continued fears about the knock-on effects of the virus scare on economies dependent on China is weighing on Asian markets.



This section continues in the Subscriber's Area. Back to top
February 11 2020

Commentary by Eoin Treacy

Saxo Q1 Outlook: The Great Climate Shift

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

Eoin Treacy's view -

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

The long running argument against green energy investing has been that the cost and intermittency of supply do not come close to compensating for the ease of relying on fossil fuels. That meant the sector has long been confined to a high beta position relative to oil prices because it relied on high energy prices to justify investment. The question that now needs to be addressed is whether this valuation model is still relevant?



This section continues in the Subscriber's Area. Back to top
February 11 2020

Commentary by Eoin Treacy

2019-nCoV Acute Respiratory Disease Response

This report from McKinsey & Company may be of interest to subscribers. Here is a section:

Leading indicators to monitor

Situation: Confirmation of sustained transmission outside of China
Implication: Most cases outside China have been linked to recent travelers. If evidence emerges of ongoing acquisition of disease in patients who did not travel or have contact with someone returning from China, the potential public health impact of the disease will rise significantly.

Situation: Rapid increase in case numbers in affected countries
Implication: Many unknowns remain. Rates of transmission in asymptomatic individuals, viral mutations, and decreased efficacy of protective measures, for example, could lead to increases in infection rates. Weaker health systems, in particular, could be at higher risk. This would increase uncertainty on potential recovery.

Situation: Signals of supply chain restart
Implication: Signals of supply chain restart in China would be an early sign of recovering markets. Early markers could include government reports, social media chatter, firms conversations and / or communications with their customers.

Situation: Changes in consumer spending indicators
Implication: In epidemic settings with containment measures, consumer spend decreases. Changes in consumer spending indicators, especially in China, India, and broadly globally, may point to potential recovery and / or protracted nature of the situation.

Situation: US treasury yield curve
Implication: Overall market fluctuations and associated treasury yield curve, especially in the US, will point to overall confidence in market and expected trajectory. Increasingly negative curves may hint to longer economical impacts.
 

Eoin Treacy's view -

The number of reported “official” cases continues to trend lower which is seen as positive by investors. The question of how much the official figures can be trusted amid a reclassification of how China defines a confirmed case does not appear to be priced into markets.



This section continues in the Subscriber's Area. Back to top
February 10 2020

Commentary by Eoin Treacy

February 10 2020

Commentary by Eoin Treacy

Consumer Insolvencies Approach Record in Debt-Weary Canada

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

“I think we’re still going to see a slight increase in 2020,” André Bolduc, an executive board member at the Canadian Association of Insolvency and Restructuring Professionals, said in a phone interview from Ottawa. “We’re hoping the economy stays strong so that the increases stay healthy and it doesn’t become a crisis.”

On the less alarming side, adjusting the number of insolvencies to account for population growth shows the increase isn’t as dramatic. As a share of total debt, the rate of filings also appears to be more stable.

In addition, the lion’s share of the increase in the past decade has been so-called consumer proposals, where the debtor agrees with creditors to pay back a proportion of what’s owed. Proposals are considered less severe than bankruptcies, the other form of insolvency reported by the Ottawa-based OSB.

Eoin Treacy's view -

Canada depends on exports to both the USA and China for its prosperity. The slowdown in US manufacturing as a result of the trade war will have had some impact which should now be moderating from the signing of the USMCA. However, the knock-on effect from China’s freezing of economic activity on commodity demand represents a significant challenge that is only now being considered.



This section continues in the Subscriber's Area. Back to top
February 10 2020

Commentary by Eoin Treacy

Merkel Succession Crumbles, Blowing Open Race to Run Germany

This article by Arne Delfs and Patrick Donahue for Bloomberg may be of interest to subscribers. Here is a section:

AKK’s downfall was ultimately triggered when the CDU in Thuringia voted alongside the AfD to elect a state premier last week. Local leader Mike Mohring has been forced to back track, but other CDU officials in the east have signaled sympathy for his maneuver as he tries to maintain support for the party.

The CDU’s flirtation with the AfD is “very worrisome,” said Norbert Walter-Borjans, the co-leader of the Social Democrats, Merkel’s junior coalition partner, which is also searching for a candidate to lead its next national election campaign.

AKK told party colleagues at a meeting in Berlin that one reason for her decision is the unclear relationship between parts of the CDU and the far-right AfD and the anti-capitalist Left party. At a press conference in Berlin, she underscored her stand that the CDU needs to be strictly opposed to any cooperation with the two fringe parties.

Eoin Treacy's view -

So is the enemy of my enemy my friend or not? The far- left Die Linke party secured the most votes but the far right AfD supported the CDU candidate instead of its own to ensure Die Linke were defeated.



This section continues in the Subscriber's Area. Back to top
February 10 2020

Commentary by Eoin Treacy

Email of the day on rare earth metal miners

Maybe 18 months ago you were looking at Rare Earths outside China. One you mentioned in Australia - Alkane Resources - has recently perked up considerably on gold exploration but also on the likely demerger of its Rare Earths project at Dubbo. I'm a shareholder so noticed(!) You might like to re-visit some time as it is a happy graph for holders

Eoin Treacy's view -

Congratulations on taking the opportunity in Alkane Resources. The company found new gold in September, which was the reason for the initial break higher. Meanwhile the strength over the last couple of days is based on the appointment of a new managing director to the Dubbo project which is a step closer to developing the mine into a commercial reality.



This section continues in the Subscriber's Area. Back to top
February 07 2020

Commentary by Eoin Treacy

February 07 2020

Commentary by Eoin Treacy

Email of the day on the coronavirus:

You will have plenty to read on this subject. But this does scare me:

Chinese financial shock gathers steam as world holds its breath on coronavirus

A major slowdown in China could trigger recession and defaults in other parts of the world

By Ambrose Evans-Pritchard

https://www.telegraph.co.uk/business/2020/02/07/china-contract-europe-near-recession-world-holds-breath-coronavirus/

Eoin Treacy's view -

Thank you for this article which highlights the acute risk to market, particularly in Europe, which rely on Chinese demand. That is as true of the automotive sector as it is of luxury goods. Here is a section:

The disturbing feature is that the European Central Bank’s emergency rate cut and renewed quantitative easing in September have gained so little traction. While it was not literally the ECB’s ‘last throw of the dice’ there is precious little left to play with.

There must now be a serious risk that China’s coronavirus crisis - if prolonged - will push Germany, Italy, and perhaps France into a technical recession, and in so doing expose both the ECB’s credible limits and the eurozone inability to launch meaningful fiscal stimulus under its deflationary ideology and spending laws.

Markets have not yet looked so many moves ahead on the global financial chess board but they might do so within two or three weeks if the corona fever is not broken, and traders tend to shoot first and ask questions later once fear takes hold.

Everything depends on the spread rate and the doubling rate, 2.68 per case and 6.4 days respectively, according to a Lancet study last week. If these figures improve markedly (and can be believed), the storm should blow over. If they do not materially change, the global recessionary dynamic may become unstoppable within weeks.



This section continues in the Subscriber's Area. Back to top
February 07 2020

Commentary by Eoin Treacy

RBA Sees Unemployment at 4.75% Next Year Amid Virus Concerns

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

The RBA reiterated Governor Philip Lowe’s comments Wednesday that the current balance in the economy favored a policy pause, but this could change in the event of a weakening in the labor market and inflation moving away from target. It acknowledged that coronavirus is “a significant near-term risk” to the outlook for China and Australia’s other key trading partners.

The currency ticked down to 67.23 U.S. cents after the release from 67.29 just prior, and was trading at 67.20 cents at 12:03 p.m. Traders are pricing in a less than 50% chance of a rate cut this half, before climbing to 55% in July and higher thereafter.

Australia’s linkages to China are broad and deep: it’s the biggest buyer of Australian iron ore and Chinese tourists and students lead those sectors, taking more than one-third of exports from Down Under.

The RBA is basing its expectations of a quick rebound from the virus on the SARS epidemic of 2003. But it is clear that this will require rapid containment of the outbreak.

Eoin Treacy's view -

Continued stimulus and a reluctance to raise interest rates not least in response to the impact of the wildfires and the need to rebuild are likely to ensure abundant liquidity for the Australian economy outside of the threat from the coronavirus and China.



This section continues in the Subscriber's Area. Back to top
February 07 2020

Commentary by Eoin Treacy

Brazil Monthly Inflation Eases More Than All Analysts Expected

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

Policy makers capped their easing cycle this week in a bet that aggressive borrowing cost reductions will help fuel growth without jeopardizing inflation control. Central bank President Roberto Campos Neto has said he’s comfortable with the consumer price outlook despite a recent spike in meat costs and possible pressures from a weaker real. Economists surveyed by the monetary authority expect inflation to ease well below target by year-end.

Eoin Treacy's view -

Brazil cut interest rates this week and now has negative real interest rates. Water shortages in Rio de Janeiro are only going to make the case for additional stimulus more compelling since repairing vital infrastructure is unlikely to meet which much local opposition.



This section continues in the Subscriber's Area. Back to top
February 07 2020

Commentary by Eoin Treacy

Email of the day - errata

I would just like to correct an error you made in today’s commentary. Ebola is not in the coronavirus family. Ebola is an RNA filovirus virus in the family Filoviridae, their natural carrier hosts in the animal world are African fruit bats.

Eoin Treacy's view -

Thank you for this informative email which certainly helped improve my knowledge. 



This section continues in the Subscriber's Area. Back to top
February 07 2020

Commentary by Eoin Treacy

Email of the day on currency transfers

The question about money transfer services was interesting to me because I went through the same investigation back in 20215. My experience may be useful to other subscribers.

Although I was, of course, keen to avoid exorbitant Bank charges, the key issue for me ended up being the ability to do what I wanted. I looked at TransferWise and also tried CurrencyFair, but none quite did the job. I live in the UK but I have financial assets generating annual income in Canada. I have a simple deposit account there with CIBC, where that income is accumulated. From time to time I need to transfer cash from Canada to the UK. My requirement was to initiate from the UK but have the funds deducted automatically from the Canadian CIBC account and transferred to my account in the UK. Once set-up, I wanted this to be automatic from the point where I initiated.

I eventually found a service called OFX https://www.ofx.com/. 

Part of the transfer costs can arise from fees at the receiving bank when funds are from overseas. OFX gets around this by having 115 local bank accounts. There are no fees to retrieve the cash (in Canada) or to deposit in the UK.  Exchange rates are determined by spot prices when you initiate. Rates are locked once initiated and you can do forward pricing. Some other useful  facts about pricing at https://www.ofx.com/en-gb/faqs/whats-the-cheapest-way-to-send-money/

The setup is a bit more stringent and time-consuming because of the need to set up a Direct Debit facility (in Canada, a Pre-Authorised Debit) so OFX can access your account. The security checks are inevitable.

https://en.wikipedia.org/wiki/Direct_debit#Canada

However, once it's all done, I can say it works very well, and the OFX people are very helpful on the phone if there are questions. They have even been forgiving when I mistakenly tried to send more than the $50K per-transaction amount.

Eoin Treacy's view -

Thank you for this informative email. 



This section continues in the Subscriber's Area. Back to top
February 06 2020

Commentary by Eoin Treacy

Video commentary for February 6th 2020

February 06 2020

Commentary by Eoin Treacy

Wall Street Warnings Grow Louder for Investors Defying Virus

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

“Pretty much every client we talk to wants to buy the dip,” wrote Tobias Levkovich, Citigroup Inc.‘s chief U.S. equity strategist in a note. “And that is not comforting.”

The S&P 500 edged higher Thursday, extending the week’s gains to more than 3.5%, as the Stoxx Europe 600 Index climbed to a record and stocks soared in Asia. A gauge of European credit risk hit its lowest since 2007.

Yet the battle against the virus could suffer a setback as factories reopen in China in the coming days and more people come into contact with each other. On the other hand, if factories fail to reopen, the economic impact could prove much more severe.

At Robeco, money manager Jeroen Blokland is eyeing the rally warily. The head of multi-asset funds at the Rotterdam-based firm recently cut an overweight allocation to stocks to neutral because of the spread of coronavirus. He says it’s not yet time to dive back in.

“Every investor is looking for the bottom and wants to find it a little bit earlier than his neighbor,” he said. “We need a little bit more confirmation that the outbreak will be contained before moving again.”

Eoin Treacy's view -

The stock market responds to liquidity because that has an influence on all asset prices and regardless of other short-term factors the Treasury yield is below that of the S&P500 which is generally supportive of the buy the dip strategy. Nevertheless, the stresses coming to bear as a result of the Wuhan Acute Respiratory Syndrome (WARS) are significant and need to be taken seriously.



This section continues in the Subscriber's Area. Back to top
February 06 2020

Commentary by Eoin Treacy

Japan Seen Needing U.S. Help to Check China's Digital Yuan

This article by Yuko Takeo, Emi Urabe and Toru Fujioka for Bloomberg may be of interest to subscribers. Here is a section

“We sense the digital yuan is a challenge to the existing global reserve currency system and currency hegemony,” said Nakayama, a top member of the ruling party group that drafted the proposals. “Without the U.S., we cannot counter China’s efforts to challenge the existing reserve currency and international settlement system.”

The comments indicate the heightened concern among policy makers in Japan over the likely impact of a digitized yuan expected for later this year. China’s plan and Facebook’s efforts to launch its own Libra currency have sparked central banks around the world to get up to speed on how digital currencies would function and what their impact could be.

“There are 1.4 billion people in China, so within the one belt, one road digital economic framework, the digital yuan has a high likelihood of becoming the standard within that digital economy,” 

Eoin Treacy's view -

There is no telling just yet how serious China is about setting up a digital currency system but the security and supply elasticity in how it is set up, together with how much it is used on the mainland will be determining factors is whether it is ultimately a success.



This section continues in the Subscriber's Area. Back to top
February 06 2020

Commentary by Eoin Treacy

Goldman's Currie Likes Palladium on Potential Deficit in China

This article by Elena Mazneva, Francine Lacqua and Tom Keene for Bloomberg may be of interest to subscribers. Here is a section:

Palladium could be an interesting trade given potential supply disruptions to China because of the coronavirus, Jeffrey Currie, head of global commodities research at Goldman Sachs, told Bloomberg TV.

“The one I like right now that we are watching in the commodity market is palladium -- when palladium gets so tight that you actually start to shut down auto manufacturing.”

Yet, “you don’t know when you hit one of these physical shortages until you actually hit them.”

NOTE: Spot palladium traded near $2,412/oz Thursday, heading for a ~5% weekly gain after dropping a week earlier from record highs.

Currie said last month he sees the potential for palladium to test $3,000/oz, then slide.

Eoin Treacy's view -

With auto manufacturers shutting down production because of a lack of Chinese manufactured intermediate parts, the most bullish forecasts for palladium are being questioned.



This section continues in the Subscriber's Area. Back to top
February 06 2020

Commentary by Eoin Treacy

Email of the day on currency exchange sites:

Can you please add Trade Desk, TTD NAS, to the Chart Library? Any ideas on good economical services to use for transferring money (from AUD to GBP & the reverse)? (I suspect some sectors of the UK post Brexit economy to do well. Also, I've a son studying in Cambridge.)

Eoin Treacy's view -

- Congratulations on your son at Cambridge. Our family have spent the last few months applying and interviewing at high schools for my eldest daughter. The range of offerings and the difference in ethos between the schools is dizzying. It has occupied more time that I bargained for but thankfully we had our last interview today.

Our family’s income comes from both British Pound and US Dollar sources. Managing exchange rates is therefore something we are more than familiar with. One of the primary reasons Mrs. Treacy set up her online business was so she could recycle Pounds into inventory and sell it for Dollars which was a handy way to earn a return on devalued Pounds following the Brexit referendum.

The service I use to transfer money is CurrencyFair.com. It is a peer to peer matching service and has the tightest spreads for the quantities I deal in, I have been able to find. 



This section continues in the Subscriber's Area. Back to top
February 05 2020

Commentary by Eoin Treacy

February 05 2020

Commentary by Eoin Treacy

Why Tesla could become world''s first 10 trillion dollar company

This article from The Driven may be of interest. Since it was released yesterday the title has been edited to "Why Tesla could soon become world’s most valuable company"; reflecting a quick moderation of sentiment. Here is a section:

“There’s a lot of growth opportunities from that plant going forward,” Baron said on CNBC. “[Tesla] could be one of the largest companies in the whole world.”

A day earlier, Ark Invest suggested the stock could be worth $US7,000 a share within five years. That equates to a market value of around $US1.5 trillion – making it more valuable than the current top stocks, Apple and Saudi Aramco. (And there’s a lot of Apple in the way Tesla proposes to managed its EV and batteries).

Ark Invest’s reasons for this are worth repeating.

“Based on our updated expectations for electric vehicle (EV) cost declines and demand, as well as our estimates for the potential profitability of robotaxis, our 2024 expected value per share for TSLA is $7,000,” it wrote in a note to investors over the weekend.

This, essentially, is a massive bet on the success of Tesla’s Full Self Driving, and Musk’s dream of potentially turning every Tesla with the appropriate software into a robotaxi, and his own dreams of building a huge fleet of robo-taxis that will revolutionize the way we do road travel.

Stanford University’s Tony Seba has been talking about the arrival of self-driving for a few years now.

Eoin Treacy's view -

Analyst estimates for Tesla’s future potential upside have been significantly upgraded over the last couple of weeks. This might be tongue-in-cheek but some analyst expectations are now even above where the price is currently trading. In June there was a consensus the company was going broke and today there are some floating the idea it will be worth more than ten times what Amazon is currently trading at. I think it is safe to say the truth is somewhere in between.



This section continues in the Subscriber's Area. Back to top
February 05 2020

Commentary by Eoin Treacy

Trump's Farmer Base Will Make More Money Thanks to Trade Deal

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

Still, a last taste of aid is creating a temporary buffer. Payments of the final tranche started in January, contributing to the gains for this year’s profit projection. The USDA forecasts farmers will receive $15 billion in direct government payments in 2020, down from $23.7 billion in 2019 but still above the $11.5 billion received in 2017, before the trade war started.

While the USDA’s estimates take into account the trade pact, they may not reflect the true scope of the impact, according to Carrie Litkowski, a senior economist with the USDA’s Economic Research Service.

The projected gain for income also doesn’t reflect any potential blow-back from the outbreak of the deadly coronavrius in China, the world’s biggest food importer. The health crisis has in recent days called into question whether the Asian nation will meet the purchase targets established in the trade deal.

Eoin Treacy's view -

Soybeans has been ranging mostly above 850¢ since 2018 and returned over the last month to test the lower side of its range. This area represents the lower side of the volatile trading pattern which has evolved since the breakout in 2007. Bull markets in commodities are defined by an increase in the marginal cost of production and prior to 2007 the price failed to hold moves above 850c. That suggests we are seeing a long-term example of past resistance offering future support.



This section continues in the Subscriber's Area. Back to top
February 05 2020

Commentary by Eoin Treacy

China's Drug Patent Grab Makes Coronavirus Scary for Pharma

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

The coronavirus outbreak in China is already threatening to undermine the global economy. It may soon create a similar shake-up in the drug industry.

I’m not talking about pharmaceutical companies’ attempts to develop a vaccine, but about intellectual property. Chinese researchers have applied for a patent on an antiviral drug candidate called remdesevir owned by Gilead Sciences Inc. The drug is being tested in clinical trials in short order, but the company could eventually be cut out. 

If the patent is granted, it will confirm long-standing drugmaker fears about China’s commitment to IP protection, raising concern about the industry’s future in a crucial market. It also could further erode the already weak incentives for pharma to invest in drugs to combat emerging infectious diseases. The risks of seizing the patent may outweigh any benefit.

Eoin Treacy's view -

The world is racing to help find a cure for the Wuhan virus with both pharmaceutical companies and philanthropists committing significant resources to finding a cure. That’s as much about helping China as it is about helping to contain the infection and creating the potential to be compensated for coming up with a solution.



This section continues in the Subscriber's Area. Back to top
February 04 2020

Commentary by Eoin Treacy

February 04 2020

Commentary by Eoin Treacy

Email of the day - on inverted yield curves

how is the Yield Curve inversion? The famous inverted US yield curve - only when measured by 3mth/10y (NOT 2y/10y) - has been a reliable predictor of US recession 12-24 months ahead when measured from start point and provided inversion lasted more than 3mths. So somewhere between May 2020-May 2021 we should expect recession. History suggests that this inversion always reverses well before recession arrives. Mainly because Fed eases short rates to avoid recession. So, déjà vu?? Regards

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The question of the yield curve and how good a lead indicator it is tends to be discussed and dismissed before every recession. This occasion has been no different and it would be foolhardy to think boom and bust have been banished just because some Davos attendees have proclaimed it so.



This section continues in the Subscriber's Area. Back to top
February 04 2020

Commentary by Eoin Treacy

Where a Brexit Trade Deal Matters Most to Boris Johnson

This article by Joe Mayes and Sam Dodge for Bloomberg may be of interest to subscribers. Here is a section:

“The government is going to have to make sure these voters are looked after,” said Seamus Nevin, chief economist at MakeUK, the U.K.’s largest manufacturing organization. “Investment in our sector is going to be key.”

Britain’s business groups are already drawing up maps like these, hoping to gain leverage in the coming negotiations by showing the U.K. government how the lack of a deal, or one with only a limited scope, would cost jobs in what are now marginal Conservative seats, according to two people familiar with the matter.

Johnson hopes to secure a zero-tariff, zero-quota deal with the EU, similar to the bloc’s existing agreement with Canada. It would mean extra customs paperwork for importers and exporters—but it would avoid tariffs on goods. The problem is that Johnson has ruled out meeting the EU’s condition that the U.K. plays by its rules on state aid, workers’ rights and the environment.

Eoin Treacy's view -

Negotiating with the EU is in no way easy. Right now, Boris Johnson has both a strong mandate and a long runway until the next election. He has every incentive to play hardball now so that any potential drawdown will be smoothed out by the time he needs to go back to the people for another election.



This section continues in the Subscriber's Area. Back to top
February 04 2020

Commentary by Eoin Treacy

Tech in 2020: Standing on the Shoulders of Giants

This presentation by Benedict Evans may be of interest to subscribers. Here is a slide on where he thinks the next big thing is:

Eoin Treacy's view -

Structural layers are the foundations of new technologies so 5G which is being rolled out everywhere this year is a major event. In the just the same way that 4G delivered instant connectivity, social media, app-based banking, travel, gaming etc, 5G will build on top of that layer to deliver edge computing. That means data centre access to massive computing power at the touch of a finger.



This section continues in the Subscriber's Area. Back to top
February 03 2020

Commentary by Eoin Treacy

Video commentary for February 3rd 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Tesla clearly accelerating, oil prices break downwards, copper fails to hold intrady rally, CSI300 drops to mirror the decline in H-Shares last week, China ramps up liquidity, Wall Street steadies, Gold eases. 



This section continues in the Subscriber's Area. Back to top
February 03 2020

Commentary by Eoin Treacy

China Cuts Rates, Injects Liquidity as Mainland Markets Sink

This article by Tian Chen, Yinan Zhao and Miao Han for Bloomberg may be of interest to subscribers. Here is a section:

“We are fully capable and confident to minimize the impact of the epidemic on the economy.”

Lian also said that while the government would work to ensure the coronavirus didn’t spread further, it would encourage major projects and enterprises in good condition to resume work and production. Policy makers will also roll out measures to soften the impact of the epidemic on a case-by-case basis, especially to try to help industries that have been hit hard, Lian said.

Vice Commerce Minister Wang Bingnan said at the same press conference that many exporters in China have been resuming production, and local governments have been issuing policies to help small and medium-sized companies.

Authorities have pledged to provide abundant liquidity and there seems to be more easing measures in the pipeline. In an interview with the PBOC’s Financial News newspaper, central bank adviser Ma Jun said he expects the PBOC to push the interest rate for new loans lower and to also cut the rate for medium-term funding in February if it uses that facility mid-month, as it usually does.

If that were to happen, it would be a change to a “rather strong” easing bias for the central bank, according to Peiqian Liu, China economist at Natwest Markets Plc in Singapore.

Eoin Treacy's view -

The Chinese CSI300 Index opened down 9.1% today with the majority of issues down the 10% limit. While this is a headline grabbing phenomenon, which draws parallels with the pullback in 2015 and also in 2007, the reality is the mainland market is just catching up with the H-Shares in Hong Kong following an extended break to trading.



This section continues in the Subscriber's Area. Back to top
February 03 2020

Commentary by Eoin Treacy

Saut Strategy February 4th 2020

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

Eoin Treacy's view -

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

The impeachment argument was indeed a source of worry for the media but the market never seemed to pay it much attention for the simple reason the Republicans have a solid majority in the Senate. Therefore, the entire spectacle was nothing more than crowd pleasing electioneering which did little more than to further emphasise the trend of political polarisation



This section continues in the Subscriber's Area. Back to top
February 03 2020

Commentary by Eoin Treacy

Gas Rout Puts 60% of Output at Risk, Tudor Pickering Says

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

Almost two-thirds of U.S. natural gas production is at risk of being cut as prices tumble, according to Tudor, Pickering, Holt & Co.

About 55 billion cubic feet a day of gas in basins from Texas to Appalachia could be curtailed, analysts at Tudor Pickering wrote Monday in a note to clients. That’s roughly 60% of current dry gas output, based on BloombergNEF estimates.

Mounting debt, a lack of access to capital markets and a drop in hedging will lead to a decline in drilling starting in the second half of this year, Tudor Pickering said. The energy-focused investment bank says only two or three companies, including Cabot Oil & Gas Corp., can afford to keep output flat with prices below $2.25 per thousand cubic feet, or about $2.17 per million Btu.

“We do expect to see a significant number of bankruptcies if gas prices stay this low,” Matthew Portillo, managing director of upstream research at Tudor Pickering, said by phone. Producers have no gas hedges in place beyond 2021, he said.

Gas has lost about a third of its value since early November, sinking below $2 per million British thermal units for the first time in almost four years as production from shale basins overwhelms demand amid a mild winter.

“What you’re starting to see is the forward curve not only in 2020 but in 2021-plus has moved to such a low price that companies are not able to drill within cash flow to hold drilling steady,” Portillo said.

Drilling in the Haynesville shale in Louisiana is set for a “significant collapse” if prices remain low, he said.

Eoin Treacy's view -

Unconventional supply is prolific but expensive. The vast majority of companies rely on continued high prices to support their drilling activities. That ensures the cyclicality of prices. The higher prices are the more oil and gas can be produced but declines in prices mean drillers can no long source funding and some will inevitably go bankrupt. That will temporarily withdraw supply from the market which will support prices and open the way for new drilling to take place.



This section continues in the Subscriber's Area. Back to top
January 31 2020

Commentary by Eoin Treacy

January 31 2020

Commentary by Eoin Treacy

China Says U.S. Response Harmful; Flights Halted: Virus Update

This summary of today’s news from Bloomberg may be of interest. Here is a section:

Chinese officials took issue with U.S. comments about the country’s response to the coronavirus outbreak, and promised they would bring the infection under control.

“U.S. comments are inconsistent with the facts and inappropriate.” Chinese Ministry of Foreign Affairs Spokeswoman Hua Chunying said in statement posted online Friday. The World Health Organization “called on countries to avoid adopting travel bans. Yet shortly afterward, the U.S. went in the opposite direction, and started a very bad turn. It is so unkind.”

U.S. officials said this week that they had difficulty getting specialists from the Centers for Disease Control and Prevention to the front lines of the outbreak in China, and late Thursday the State Department advised Americans traveling in China to come home. Commerce Secretary Wilbur Ross on Thursday also said the outbreak may help bring jobs back to the U.S.

China’s ambassador to the United Nations, Chen Xu, said during a press conference in Geneva that the country had been transparent about the disease.

“We have conducted our business in an open and transparent manner with the outside world,” he said.

Xu said that China would work with the World Health Organization to bring the disease under control, following a declaration by the WHO that the outbreak was an international emergency. The declaration will “not only coordinate global prevention control measures but enables us to mobilize international resources to respond to the epidemic,” he said.

Eoin Treacy's view -

“Official” figures are just below 10,000. This Lancet article suggests 76000 infections. The death toll is reported at around 200 but if that is the case why are crematoria running 24/7? The biggest challenge the Chinese administration has is their claims of full disclosure are being met with doubt because they have such a poor record of reporting accurate facts about any part of the economy. Little wonder that other countries are taking more forceful measures to isolate the country until the infection rate peaks and begins to decline.  



This section continues in the Subscriber's Area. Back to top
January 31 2020

Commentary by Eoin Treacy

Seven Market Gurus Answer the Seven Big Post-Brexit Questions

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

What will the U.K. look like after Brexit? Stephen Jen, CEO of Eurizon Slj Capital:

Britain will probably face a “J Curve” effect after Brexit, with challenges ahead before taking off.

The world is experiencing disruptive shocks that require countries to re-invent themselves and stay competitive. There is a big scope for the U.K. to achieve that outside the EU given that it will have a greater degree of freedom. It’s already number three next to the U.S. and China in terms of technology innovations such as AI, biomedicine and robotics. There is a good opportunity that it could leap-frog its competitors. I don’t think it’s a stretch of the imagination that it’s a very exciting future that the U.K. is facing.

As an investor, I would not focus on the negotiation status of various parties or quarter-by-quarter developments, but on the long-term vision of the U.K. government. We are now talking about a different set of considerations -- structural, strategic, forward-looking, institutional. Think Abenomics. Think Singapore-type vision. The government will have to put the country on a very different path than before.

Eoin Treacy's view -

I believe David would have been chuffed to see the UK leave the EU and today marks a momentous occasion for all Britons. Regardless of how one feels about the exit from the EU the real work is only about to get started. The UK needs a clear growth strategy and is going to require visionary thinking on energy, regulation, taxation, immigration and trade.



This section continues in the Subscriber's Area. Back to top
January 31 2020

Commentary by Eoin Treacy

Amazon Set to Break Record for One-Day Gain in Market Cap

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

If its pre-market trading holds up, Amazon Inc. is about to break a bigger record than just its own peak share price.

The largest U.S. e-commerce company saw its shares jump by more than 10% after Thursday’s earnings report crushed Wall Street estimates. If that gain stands through Friday’s close of trading, the company could see its market capitalization surge by more than $90 billion, and push the total value above $1 trillion -- a level the stock has flirted with intraday, but never held through the market close. The company’s market capitalization gain stood at $91.7 billion as of 9:30 a.m. in New York when trading began.

That’d be the biggest single-day gain on record for a U.S. company, according to data compiled by Bloomberg. The previous record was $78 billion, set by Alphabet Inc. on July 26, after its shares surged on its own strong results and a $25 billion share-buyback program.

To be sure, with markets near all-time highs, marks such as this are bound to be challenged. But it’s also not every day that one of the largest companies in the world gains 10% or more in a single session. Over the last five years, the six companies in the S&P 500 Index with current market caps exceeding $500 billion have had just 10 such days combined. Today would be the 11th such occurrence, and the fourth time Amazon has done so, the most of any company in the group.

Even if it doesn’t break the market value record today, the company has already set another new high-water mark for itself. Shares opened trading $181 above Thursday’s closing price, its biggest ever gain in dollars per share.

Eoin Treacy's view -

Amazon has been a notable laggard as both mega-caps and the equal weight S&P500 have broken on the upside over the course of the last month. Last night’s surprisingly good results highlight the robust position of the US consumer in the 4th quarter and Amazon’s success in implementing 1-day delivery.



This section continues in the Subscriber's Area. Back to top
January 30 2020

Commentary by Eoin Treacy

Video commentary for January 30th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: stock markets rebound following WHO announcement, Hong Kong shares extend pullback ahead of the mainland markets reopening Monday, Negative yielding debt total increases to $13 trillion, high yield spreads pop on the upside. oil and gold steady.



This section continues in the Subscriber's Area. Back to top
January 30 2020

Commentary by Eoin Treacy

Carnival Ship in Italy Lockdown as Suspect Virus Traps 7,000

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

The ship was bound for La Spezia in the Liguria region, with 1,000 crew and 6,000 passengers, 750 of whom came from China, a port spokesman said.

Eoin Treacy's view -

It is looking like the ill person did not in fact have the coronavirus but the fact that 1/8th of the passengers are from China highlights just how influential Chinese tourists are for the global sector. The cancelling of flights both to and from China is going to have a material effect on all tourist destinations and the longer it lasts the greater the impact will be.



This section continues in the Subscriber's Area. Back to top
January 30 2020

Commentary by Eoin Treacy

World's First Sub-Zero 10-Year Sovereign Syndication Is Popular

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

The order deluge meant Austria joined the likes of Spain and Italy in setting demand records this month as investors chase the safety of bonds. Fears that the spread of the coronavirus will derail an economic recovery have sent yields tumbling, fueling a huge jump in the world’s stockpile of
negative-yielding bonds.

Austria’s Treasury ended up placing 3 billion euros of the 10-year bonds Wednesday with a yield of minus 0.111%. For investors, that’s still more appealing than equivalent German debt trading at around minus 0.40%. The European Central Bank has a minus 0.50% deposit facility rate.

“Despite the negative interest rate, the issue was met with very strong demand and the transaction was 10-times oversubscribed,” Markus Stix, managing director of Austria’s Treasury, said in a statement.

Eoin Treacy's view -

The total of negative yielding debt continues to rebound, led by a surge in demand for Eurozone sovereign bonds. The total now sits above $13 trillion and has clearly broken the downtrend evident since August. 



This section continues in the Subscriber's Area. Back to top
January 30 2020

Commentary by Eoin Treacy

Shell Dives With Scaled Down Buyback Program a Key Concern

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

Morgan Stanley (equal-weight, PT 2,270p) says 4Q results should trigger “a negative response,” as both earnings and cash flow were lower than consensus expectations and gearing increased on a quarterly basis

Analysts Martijn Rats and Sasikanth Chilukuru say that while integrated gas was largely hit by lower trading profits, margins within chemicals appear to have been hit more than expected by the weaker macro

Oil products and upstream seen benefiting from strong marketing results and higher production volumes, respectively

RBC (sector perform, PT 2,600p) says the decision to reduce the quarterly run rate for its buyback to $1b from $2.75b into 2020 was largely factored into the stock’s recent performance and the new rate “looks well covered,”

Given gearing is 29%, analyst Biraj Borkhataria says that “Shell is right to be more cautious”

Eoin Treacy's view -

Royal Dutch Shell took a big bet on natural gas and has succeeded in getting the product to market from its massive Australian offshore facility. The challenge is there is no intense competition in the LNG market as major producers vie for market share. Meanwhile Shell is also looking at lower oil prices and increasingly aggressive emissions regulations all over the world.



This section continues in the Subscriber's Area. Back to top
January 29 2020

Commentary by Eoin Treacy

Video commentary for January 29th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street eases, Hong Kong pulls back, gold pause, Bitcoin holds breakout, risk of further consolidation from slowing virus related economic activity but that also boosts the prospect of additional stimulus. 
 



This section continues in the Subscriber's Area. Back to top
January 29 2020

Commentary by Eoin Treacy

Part 2: Fiat Money vs. Cryptocurrencies Private vs. Public digital currencies

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

5. Electronic money (E-MONEY) and cryptocurrencies (C-MONEY) vs. central bank money (CB-MONEY): the death knell for paper money? Credit cards or electronic money in general are being used for an increasing number of ever smaller payments due to better, quicker, easier and more widespread infrastructure. The dissemination of electronic payments, and of cryptocurrencies to a lesser extent has reduced the use of notes and coins, i.e. central bank money. Central banks accompany this trend, by removing high-denomination notes from circulation and / or by taking steps to limit payments in cash. With new forms of E-MONEY and C-MONEY, it is evident that payments are currently seeing another period of rapid innovation and transformation. The use of e-payments is booming, while technology companies and financial institutions are investing heavily to be the payment providers of tomorrow. However, despite the continuing digitalisation of the financial system, cash in circulation is not dropping for most countries. The demand for cash still increase in several advanced economies since the Great Financial Crisis, driven by store-of-value motives. Negative rates represent another factor for accumulation of cash. The total elimination of paper money is nevertheless being seriously discussed, for at least two reasons: • The rapid expansion of e-payments, it would help fight the black market and organised crime, • It would free central banks from any constraints on how deeply they can cut interest.

Eoin Treacy's view -

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

The war on cash is a well understood theme. Governments have a clear incentive to ensure all transactions are recorded on a digital ledger so they can be taxed and the wealth of individuals monitored.

The motivation for that level of oversight is only exacerbated by the need to pay for all of the unfunded liabilities built up over decades of social democratic crowd-pleasing budgets. Meanwhile the ease of doing business online and the competitive advantage online retail has over physical stores.



This section continues in the Subscriber's Area. Back to top
January 29 2020

Commentary by Eoin Treacy

January 29 2020

Commentary by Eoin Treacy

Byron Wien and Joe Zidle: No Recession or Bear Market in Sight

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

The bond market has confounded investors for the past several years as rates have declined or stayed low when almost everyone expected them to rise. The consensus now is that there won’t be much change in intermediate rates this year, with the 10-year U.S. Treasury yield remaining about 2% because the economy is sluggish and inflation continues to be low. While we agree that traditional economic factors will not drive rates higher, we believe supply and demand will play an important role. The big buyers at the Treasury auctions are the Social Security Administration, the Federal Reserve, Japan and China. The Federal Reserve will probably do some buying, but we should realize that their bond ownership has climbed recently from $3.8 trillion to $4.2 trillion, even as the Fed’s stated objective has been to shrink its balance sheet. China and Japan have been upset with Trump’s trade policy and have been less-than-enthusiastic buyers at recent auctions. The Social Security Administration, which has been a perennial buyer of Treasuries, may pull back since its benefits payments will exceed its inflows in 2020. These conditions suggest to us that the yield on the 10-year U.S. Treasury will move somewhat higher to 2.5% during the year, and that is the ninth Surprise.

Eoin Treacy's view -

Funding social security as the total sum set aside for future liabilities is drawn down is going to represent a significant drag on government finances in the USA for the foreseeable future.



This section continues in the Subscriber's Area. Back to top
January 28 2020

Commentary by Eoin Treacy

Video commentary for January 28th 2020

January 28 2020

Commentary by Eoin Treacy

China Pledges Liquidity, Asks for Rational Investor Reaction

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

China pledged to provide abundant liquidity for money markets and urged investors to evaluate the impact of the coronavirus objectively, as the nation prepared for a potentially tumultuous resumption of trading next Monday.

Along with a potential sell-off in Chinese stocks, which haven’t traded onshore since Jan. 23, there’s a “large amount of funds” coming due Feb. 3, the People’s Bank of China said in a statement. It will conduct operations “to provide abundant liquidity in a timely manner to maintain reasonable and sufficient liquidity in the banking system,” it said.

China’s top securities regulator separately told brokerages to prepare for off-site trading as the country’s market infrastructure girds for strained conditions as a result of measures aimed at containing the coronavirus epidemic.

Eoin Treacy's view -

The question of what would be required for China to kickstart meaningful stimulus again now appears to have been answered. The coronavirus and the economic shutdown it has necessitated are going to result in a meaningful hit to growth in the first quarter. With the extension of its holiday season into early February, China is taking advantage of the break to announce market calming measures aimed at averting a crash once the market opens up again. That means a significant stimulus infusion to allay growth fears.



This section continues in the Subscriber's Area. Back to top
January 28 2020

Commentary by Eoin Treacy

Email of the day - on the size of the Fed's balance sheet:

Midst all the alarm regarding corona virus, I was surprised that the financial media has paid so little attention to the following:  https://thesoundingline.com/feds-balance-sheet-has-shrunk-20-billion-since-the-start-of-january/

If an over-extended was looking for an excuse to correct, surely this was it!

Your comment would be appreciated.

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. I covered the topic of balance sheet expansion in the Big Picture Friday audio but I’m happy to revisit the question here.

The Fed has added $400 billion to its balance sheet over the last four months by purchasing short-dated Treasuries. That has the same effect on the stock market as the liquidity infusions back in 2017 had. We have just had one of the most inert advances in years where volatility remained low for a prolonged period, just like in 2017.



This section continues in the Subscriber's Area. Back to top
January 28 2020

Commentary by Eoin Treacy

Gold down, silver hammered as U.S. equities see solid rebound

This article by Jim Wychoff for Kitco may be of interest to subscribers. Here is a section:

March silver futures hit a four-week low. The silver bears have gained the overall near-term technical advantage as a downtrend has been restarted on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $18.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $17.00. First resistance is seen at $17.75 and then at $18.00. Next support is seen at $17.42 and then at $17.25.

Eoin Treacy's view -

Buying the dip on the promise of Chinese stimulus has been the primary story in today’s market. It helped to support stock markets and removed some of the impetus from safe havens.



This section continues in the Subscriber's Area. Back to top
January 27 2020

Commentary by Eoin Treacy

Video commentary for January 27th 2020

Eoin Treacy's view -

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

Some of the topics covered include: coronavirus news likely to get worse before it gets better. demand for safe havens jumps but stock markets down less than they could have been which suggests hedging. oil short-term oversold, Treasuries firm



This section continues in the Subscriber's Area. Back to top
January 27 2020

Commentary by Eoin Treacy

Email of the day on corona virus outbreak.

Two aspects of the current outbreak I find especially concerning, speaking as a retired veterinarian of some fifty years’ experience. I understand the symptoms can vary from barely perceptible with no fever to severe and fatal Some. people with the virus may be unaware they have it but may be very infectious to others, acting as symptomless carriers. My experience with animals which are subject to lockdown on account of infectious disease is that they tend to become very stressed and anxious, this in turn tends to make them more liable to spread infection on account of diminished resistance. I would suggest bottling up millions of Chinese in these cities has its own hazards regarding virus spread.

Eoin Treacy's view -

Thank you for this insight which I believe will be of interest to other subscribers. The reaction of the Chinese administration to the speed of the outbreak has been panicky. The long gestation period where no symptoms are evident but where transmission is possible represents a significant challenge to containment. That was the reason for the quarantine but it is impossible to corral that many people. On top of that 5 million left the city before the quarantine and very little comment has been made on how migrant workers are counted.



This section continues in the Subscriber's Area. Back to top
January 27 2020

Commentary by Eoin Treacy

Amazon Has Long Ruled the Cloud. Now It Must Fend Off Rivals

This article by Dana Mattioli and Aaron Tilley for the Wall Street Journal may be of interest to subscribers. Here is a section:

Some of the sharpest barbs are now coming from Amazon, long the dominant provider of data storage to large multinationals. Andy Jassy, chief executive of Amazon Web Services, targeted Microsoft in remarks last month to attendees of the company’s annual cloud-computing gathering in Las Vegas.

“They are not prioritizing what matters to you guys as a customer,” said Mr. Jassy of Microsoft. Rivals, he said, were often mere copycats. “There are a lot of companies that have become pretty good at being checkbox heroes, where they kind of look at something we have and they rush to have it out there and say we have it too.”

Some of Mr. Jassy’s customers took note. In a private dinner involving some CEOs of companies that use Amazon’s cloud services, attendees discussed Amazon’s apparent anxiety about rivals, particularly crosstown rival Microsoft. Now No. 2 in the cloud, Microsoft last year won a giant Pentagon cloud-computing contract for which Amazon was favored. The deal is valued at up to $10 billion over the coming decade. Amazon is contesting the outcome in court.

Eoin Treacy's view -

Competition in supplying cloud and support services has been one of the primary factors in why Amazon’s share price has not broken out while Microsoft, Apple and Google have surged of late. The message here is it appears a lot less difficult for big companies to compete in data warehousing than in the online retail business and it also tends to be a higher margin business than ruthlessly competitive retail.



This section continues in the Subscriber's Area. Back to top
January 27 2020

Commentary by Eoin Treacy

Bernie Can Win. So Can His Revolution

This article by Ramesh Ponnuru for Bloomberg may be of interest to subscriber’s Here is a section:

Here’s what this way of thinking misses: If Sanders wins, it will mark a huge change in American politics. Self-described socialists have been elected in other developed countries; never in this one. Here, “socialism” has been an accusation, not a boast. Politicians on the left wing of the Democratic Party have considered the label, and the associations that come with it, deadly to their electoral chances. Republicans hope it still is. If Sanders beats them, the taboo will be broken.

It’s not just a matter of the label. The limits of what’s politically possible will shift left as the political world adjusts to the new reality. Politicians, strategists, journalists, activists and voters who thought that certain ideas were too far left to make it in America would revise their sense of the country, and of what counts as extreme or as realistic within it. The ground on which future races for president, governor and Congress are contested would move left. That doesn’t mean the U.S. would be Venezuela, or even Denmark, by the start of 2022. But it is reasonable to expect that government policy 10 or 20 years from now would be considerably more socialistic than it would be if Trump were re-elected — or if Biden were elected.

In that sense, Sanders’s election really would live up to the billing. Just by taking office, he would have delivered his political revolution.

Eoin Treacy's view -

During the 2016 election no one knocked on my door ahead of the election, but a Bernie Sanders electioneer paid us a visit on Saturday and was full of revolutionary zeal. The promise of free health care and free tuition, while leaving responsibility for paying for it to someone else, has a siren quality for many young people.



This section continues in the Subscriber's Area. Back to top
January 24 2020

Commentary by Eoin Treacy

January 24 2020

Commentary by Eoin Treacy

January 24 2020

Commentary by Eoin Treacy

Fed Seen Holding Rates Steady, Ending Bill Purchases by June

This article by Christopher Condon and Sarina Yoo for Bloomberg may be of interest to subscribers. Here is a section:

Economists had a broad range of forecasts for when the Fed would stop buying Treasury bills, though June 2020 received the highest response at 43%. Respondents overwhelmingly expected officials will taper the monthly purchases rather than stop them suddenly. The Fed has been buying $60 billion in T-bills each month since October.

A scarcity of bank reserves was blamed for an unexpected spike in overnight funding rates in September. This led the fed funds rate to stray briefly out of its target range. The new cash created by the Fed’s T-bill purchases has since relieved that scarcity. The Fed, intent on ensuring an ample supply of reserves, has said it will continue the purchases at least into the second quarter.

Eoin Treacy's view -

The news headlines are full of news about the coronavirus and the number of countries where it has been found continues to rise every day. That injected a degree of caution in the markets that was not present a week ago. The clearest effects are evident in safe haven assets where Treasuries, precious metals and the Dollar have steadied.



This section continues in the Subscriber's Area. Back to top
January 24 2020

Commentary by Eoin Treacy

The Last Straw? China Tries to Trash Single-Use Plastic

This article by Stephanie Yang for the Wall Street Journal may be of interest to subscribers. Here is a section

China will introduce new measures to aggressively cut back on its use of plastic, its first such move in more than a decade as booming e-commerce and food deliveries dramatically increase the country’s production of plastic waste.

In recent years, Beijing has stepped up efforts to reduce waste and pollution, introducing measures such as trash sorting and halting imports of recycling.

“China has used too much plastic,” said William Liu, senior consultant at energy consulting firm Wood Mackenzie. “Everyone is calling for more environment-friendly development.”

By the end of this year, nonbiodegradable plastic bags will be largely banned from major cities, and single-use straws will be prohibited in restaurants across the country, Beijing’s top economic-planning office and its Environment Ministry said on Sunday. The ban will extend to all cities and towns by 2022 and to markets selling fresh produce by 2025.

Eoin Treacy's view -

The spectacle of business titans fawning over Greta Thunberg and feigning concern at the issues she champions while simultaneously giving a warm welcome to President Trump is yet another example of the virtue signalling designed to impress electorates all over the world.



This section continues in the Subscriber's Area. Back to top
January 24 2020

Commentary by Eoin Treacy

Vaccine makers tap into virus-driven rally to raise money

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

“We don’t expect Novavax will run human trials without non-dilutive government funding,” Ladenburg Thalmann’s Michael Higgens wrote in a note. “The timing for such support in our view depends on how severe and uncontrolled the 2019-nCoV becomes.”

Moderna Inc. MRNA, -0.95%  said it is working with the National Institutes of Health on a potential vaccine response, saying its “vaccine technology could serve as a rapid and flexible platform that may be useful in responding to newly emerging viral threats.” Moderna’s stock was up 10%.

NanoViricides Inc. NNVC, +75.32%  said it has raised $7.5 million in an offering of 2.5 million shares at a price of $3 per share. Its stock was down 55% in morning trading, after gaining 153% on Monday.

The company had also worked on treatments for MERS and the Ebola virus. NanoViricides president Anil Diwan said in an email that the company believes that the drugs “we had previously developed are worth testing against the Wuhan virus and are likely to work against it.”

Eoin Treacy's view -

There isn’t a lot of money in cures because you don’t get repeat customers. The whole point of the business is to ensure you run out of customers. That’s not a great business model which is why conventional pharmaceutical companies generally eschew developed vaccines. The small companies that do concentrate on this field generally rely on fear of a global pandemic to generate the investment capital to continue working on their research. That was certainly the case with Ebola and this week saw a significant uptick in share issuance.



This section continues in the Subscriber's Area. Back to top
January 24 2020

Commentary by Eoin Treacy

January 23 2020

Commentary by Eoin Treacy

January 23 2020

Commentary by Eoin Treacy

January 23 2020

Commentary by Eoin Treacy

Federal Reserve's Repo Market Fix Is No Fix at All

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

Unfortunately, the Fed made a critical design error in its daily interventions. They are offering to supply repo to the dealers at prevailing market rates. In other words, they are giving the dealers every incentive to take repo from the Fed as opposed to the market. In essence, the Fed has become the lender of first resort when it should be the lender of last resort and offer repo at a penalty rate. The Fed should be willing to help a dealer in need, but it should come at a price.

So, after four months of these Fed repo operations, new problems are emerging. More specifically, the Fed might be going too far and oversupplying this market. The effective federal funds rate is signaling there are enough reserves in the banking system. This month it traded at 1.54%, breaking below the interest on excess reserves (IOER) floor of 1.55% for the first time in 14 months. This is happening as the Fed announces it will continue to plow ahead with Treasury bill purchases and supplying hundreds of billions of dollars of repo supply until April, if not later.

What should the Fed do? It has already telegraphed it will raise the IOER rate by five basis points to 1.60% at the Federal Open Market Committee meeting next week. Presumably, it will also raise the repo offered rate by five basis points to 1.60%. Policy makers should raise the repo rate even higher. Stand ready to offer liquidity, but at a penalty rate.

This won’t fix the problems in the repo market; only rule changes can do that. But at least this will allow the Fed to identify how much supply is needed to get the market back in balance rather than risking a loss of control of the federal funds rate altogether.

The Fed should not be looking to permanently insert itself into the repo market via a standing repo facility. Repo is still a credit market, and, in times of stress, it requires a credit decision when deciding who gets a collateralized loan and at what terms. Central banks are not equipped to make these decisions, and their involvement could create a moral hazard, making things worse.

Eoin Treacy's view -

The Fed panicked with their response to the repo market freeze in September. The “short-term” fix introduced had the desired effect and the monetary markets are once again flowing freely. However, the cost has been prohibitive and the big question today is whether this action is an example of what we can expect from the future or is it a once-off deal.



This section continues in the Subscriber's Area. Back to top
January 23 2020

Commentary by Eoin Treacy

Email of the day - on liquidity and markets

you wrote "liquidity remains the fuel on which the advance depends". my question is as follows. Could the benefits of the refinancing of the US home mortgages give consumer spending a boost and thus the stock market and secondly will investors take capital out of bonds into the stock market to fuel this market even further. It looks key to be able to measure the importance and condition of all the different fuels and knowing when we run out of fuel. looking forward to your long-term analyses.

Eoin Treacy's view -

Thank you for this question which may also be of interest to subscribers. The impetus to refund mortgages picked up pace last quarter with the 30-year Freddie Mac rate bottoming in September around 3.5%. It generally takes a few months for the refinancing to be approved and then a few more months for personal savings to accrue enough to boost spending. That does suggest we should begin to see growth picking up by the beginning of the 2nd quarter.



This section continues in the Subscriber's Area. Back to top
January 22 2020

Commentary by Eoin Treacy

Video commentary for January 22nd 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Acceleration as a trend ending, the evolution of a mania, the progression of markets following an inverted yield curve. palladium's acceleratoin, Wall Street steady, bonds stable, Dollar eases, China steadies, India weak.



This section continues in the Subscriber's Area. Back to top
January 22 2020

Commentary by Eoin Treacy

Bridgewater Co-CIO Bob Prince Says Boom-Bust Cycle Is Over

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

The tightening of central banks all around the world “wasn’t intended to cause the downturn, wasn’t intended to cause what it did,” Prince, the co-chief investment officer of Bridgewater, said in an interview with Bloomberg TV at the Swiss resort of Davos. “But I think lessons were learned from that and I think it was really a marker that we’ve probably seen the end of the boom-bust cycle.”

Eoin Treacy's view -

The realization of how sensitive the financial markets now are to interest rates during the freezing up of the high yield market in December 2018 and the repo market in September 2019 is leading to a range of conclusions among policy makers and investors.



This section continues in the Subscriber's Area. Back to top
January 22 2020

Commentary by Eoin Treacy

Netflix's Decline Emphasizes Limited Value of Users Overseas

This article by Joe Easton, Kit Rees and Kamaron Leach for Bloomberg may be of interest to subscribers. Here is a section:

Netflix Inc.’s latest earnings report spurred mixed feelings across Wall Street as growth overseas was offset by a slowdown in the U.S. amid rising competition from Walt Disney Co., Apple Inc. and more forthcoming launches. Needham Co. believes the spike in streaming rivals will increase Netflix’s churn and customer acquisition costs, most likely lowering the lifetime value per subscriber as growth overseas isn’t equivalent to that domestically. Netflix would need to “add four $3-per-month subscriptions in India to offset each U.S. subscriber lost,” Laura Martin, TMT analyst at Needham, wrote in a note.

Eoin Treacy's view -

The clear conclusion from Netflix’s earnings is it is still growing where it has little to no streaming competition. Where it has competition, it is losing market share. The big question then is how quickly its competitors are going to expand abroad or how long will it take alternative streaming services to arise in Europe and India. Either would be a significant challenge as it continues to pump out mediocre content.



This section continues in the Subscriber's Area. Back to top
January 22 2020

Commentary by Eoin Treacy

Citi Says Palladium in Total Disconnect, Jump In After Slump

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

The raw material used in autocatalysts has soared in the opening weeks of 2020 amid a sustained global deficit, with the extraordinary rally seeing prices hit records day after day before a pullback on Tuesday. Over the past 15 years, mine supply of palladium has shrunk by 1 million ounces, or 12%, while demand has risen 4 million ounces, or 57%, according to estimates from UBS Group AG. Palladium’s sister metal, rhodium, has jumped too.

“Commodity prices can completely disconnect from their marginal cost of production when inventories run down to critical levels, and this is precisely what is occurring in palladium and rhodium at present,” Citi said. “Palladium has for some time now presented the hallmarks of a genuinely tight market, including an extreme backwardation.”

Eoin Treacy's view -

Another day, another $100+ advance in palladium. This speed of the acceleration since the announcement of the trade deal is nothing short of historic. There has been a lack of a supply response to date not least because of the uncertainty about the trajectory of global growth. If the continued supply of liquidity has the desired effect of confirming the trough in global growth, it will both be a boon for palladium demand but will also encourage additional supply into the market.



This section continues in the Subscriber's Area. Back to top
January 21 2020

Commentary by Eoin Treacy

Video commentary for January 21st 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Boeing trading halted, Hang Seng pulls back sharply, Wall Street and global markets steady, gold holds the $1550 area, Treasuries firm, Dollar and Yen steady, risk of some consolidation on Wall Street is rising but no sign of its yet amid continued monetary largesse. 



This section continues in the Subscriber's Area. Back to top
January 21 2020

Commentary by Eoin Treacy

Boeing Sees 737 Max Approval Slipping to Mid-2020 in New Delay

This article by Alan Levin and Julie Johnsson for Bloomberg may be of interest to subscribers. Here is a section:

Boeing Co. is telling 737 Max customers that the grounded jet won’t be approved to fly until June or July, months later than previously anticipated, said people familiar with the matter.

The new delay comes after two recent discoveries, a software flaw that will require more work than expected and an audit that found that some wiring on the plane needs to be rerouted. The timetable also includes a buffer for unanticipated complications, said one of the people, who asked not to be named because the discussions are private.

The new expectations mean that Boeing’s best-selling jet would miss the busy summer travel season for the second straight year, adding to the compensation that the U.S. planemaker is likely to pay airlines. The Max was grounded in March 2019 after two deadly crashes that killed 346 people.

Eoin Treacy's view -

Trading was halted on Boeing’s shares ahead of the above announcement. The retort from the FAA that no timetable for the recertification of the aircraft has been set and that safety remains the top priority represents an additional blow.



This section continues in the Subscriber's Area. Back to top
January 21 2020

Commentary by Eoin Treacy

China Virus Spreads to U.S. With Health Officials on High Alert

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

The new virus “could be No. 2 or 3, that’s the concern,” Heymann said in an interview. “We need enough information to make a proper risk assessment.”

Despite the worries, the new virus is likely less deadly than SARS, said University of Sydney associate professor Adam Kamradt-Scott.

“It’s important to stress that this virus at the moment has been causing mild illness in the vast majority of people that have been affected,” he said in an interview on Bloomberg TV. “There’s around 10% of cases that have ended up in critical condition and there’s been deaths, but the vast majority of the 200-plus people infected have resulted in mild illness.”

Eoin Treacy's view -

The Chinese New Year Holiday begins Friday evening and lasts about a week. Internally, it is a time for families to get together but the length of the break affords many people the opportunity to travel abroad which is why there is so much concern being expressed at present. The reality however is that there are probably about 300 confirmed cases and perhaps triple that which have gone unreported, but there will be hundreds of thousands of people travelling abroad over the next couple of weeks. There is obviously risk of further contagion but it is unlikely to represent the pandemic many fear.



This section continues in the Subscriber's Area. Back to top
January 21 2020

Commentary by Eoin Treacy

Davos 2020: Sanjiv Bajaj Sees 'Some Uptick' In Consumer Lending Business

This article from Bloomberg quoting the CEO of Bajaj Finserv may be of interest to subscribers. Here is a section:

For the non-bank financial sector as a whole to turn around, the government needs to put aside fiscal discipline for around two years and jump-start the economy, said Bajaj.

“We need the tailwind from the government to rebuild the sector.” Sanjiv Bajaj, MD, Bajaj Finserv
India’s non-bank lenders have been reeling since the latter half of 2018, when IL&FS Ltd. group companies defaulted on debt and triggered an industry-wide credit squeeze, raising borrowing costs for small lenders. The government and the RBI stepped in to support by assuring increased liquidity and a provision for a partial guarantee to help these firms sell loans.

Bajaj said midsize players which aren’t perceived as being “pristine” have had trouble raising funds, especially from banks. “The only answer is either economy to pick up or more equity to come in or the liquidity problem will become a solvency problem in their case.”

“If the government help doesn’t come, we’ll see some deterioration or stagnation,” said Bajaj.

Eoin Treacy's view -

The big question for India watchers in the aftermath of the IMF downgrading growth yesterday is how long it will take for measures taken in the third and fourth quarters of last year to transmit into economic growth.



This section continues in the Subscriber's Area. Back to top
January 20 2020

Commentary by Eoin Treacy

January 20 2020

Commentary by Eoin Treacy

Amazon Is Left Out of Mega-Cap Tech Surge to Records

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

Because of its long-term prospects, Amazon is about as close as a stock can be to a consensus choice among Wall Street firms. Over the near term, though, it is “the most hotly debated among investors” as “debates persist on both AWS and next day shipping efforts,” according to UBS analyst Eric Sheridan, referring to its Amazon Web Services cloud-computing business.

Since the start of 2019, Amazon shares are up about 24%, below the 32% rise of the S&P 500, as well as the much larger gains seen in other bellwethers. Microsoft and Facebook are both up more than 60% since the start of last year, while Apple has doubled. The rally resulted in trillion-dollar valuations for Apple, Microsoft and Google-parent Alphabet, a milestone that Amazon briefly eclipsed in 2018.

The underperformance reflects concerns over Amazon’s earnings trends, even as it has continued to grow revenue at a double-digit clip. Major investments into initiatives like one-day shipping are seen as headwinds, and shares “may be range bound ‘tactically’” given the impact of this spending, Morgan Stanley wrote on Thursday. The firm added that “near-term profitability is likely to still disappoint” because of these investments, even as it sees the effect as temporary and one-day shipping deepening Amazon’s competitive moat within e-commerce.

Another key issue is the waning dominance of Amazon Web Services, which has long been a major driver for earnings and margins, but has faced growing competition from rivals like Alphabet and especially Microsoft. According to Bloomberg Intelligence, which cited IDC data, Amazon Web Services was 12 times larger than Microsoft’s cloud business in 2014. By 2018, the most recent year for which data is available, it was just four times larger.
 

Eoin Treacy's view -

Amazon is dependent on both the dominance of its cloud business and the online retail sector. There are not many real competitors for the online market because of the high barrier to entry. The cloud business is a different story. It depends on server farms and internet connections and is easier for well-funded large companies to build a position in. Microsoft and Alphabet in particular are competing heavily with Amazon in this sector.



This section continues in the Subscriber's Area. Back to top
January 20 2020

Commentary by Eoin Treacy

January 20 2020

Commentary by Eoin Treacy

Why palladium prices keep hitting new highs and rhodium has already rallied by over 40% this year

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

Kavalis of Metals Focus, meanwhile, says original equipment manufacturers “will be wary to make such dramatic changes to their after-treatment systems and risk failing regulatory compliance for a saving which, while significant, is only a small part of their overall costs.”

Still, if the gap between platinum and palladium prices continues to widen, Kavalis says he wouldn’t rule it out, but it’s unlikely to happen in the near term.

Palladium is likely to continue to make new highs this year, and probably beyond, even though “short-term and short-lived corrections are also in the cards,” says Kavalis. Rhodium may reach a new high this year, he says, with the metal’s fundamentals so strong that he struggles to pick a top for the market. Rhodium peaked at more than $10,000 an ounce in 2008.

Eoin Treacy's view -

The continued surge in palladium pricing is picking up pace. The global economic recovery supports demand for vehicles even as tighter environmental regulations ensure more palladium is required for each catalytic converter. 



This section continues in the Subscriber's Area. Back to top
January 17 2020

Commentary by Eoin Treacy

January 17 2020

Commentary by Eoin Treacy

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
January 17 2020

Commentary by Eoin Treacy

Fiat Chrysler and Foxconn plan Chinese electric vehicle joint venture

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
January 17 2020

Commentary by Eoin Treacy

Precious Metals 2020 Outlook

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

Eoin Treacy's view -

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

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



This section continues in the Subscriber's Area. Back to top
January 16 2020

Commentary by Eoin Treacy

Video commentary for January 16th 2020

Eoin Treacy's view -

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

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



This section continues in the Subscriber's Area. Back to top
January 16 2020

Commentary by Eoin Treacy

Hydrogen May Start Replacing Natural Gas Before 2050, Snam Says

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

 

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
January 16 2020

Commentary by Eoin Treacy

Boeing Lost Its Way by Going on a Wall Street Detour

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

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
January 16 2020

Commentary by Eoin Treacy

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top