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May 26 2022

Commentary by Eoin Treacy

Please note - New video/audio posted May 26th 2022

I arrived in Ireland this afternoon. It's been an interesting day with windfall taxes on UK oil producers and oil prices breaking on the upside. The renminbi weakened, the Dollar was also weak, gold paused and stock markets rebounded. 

May 26 2022

Commentary by Eoin Treacy

The Chart Seminar June 6th & 7th in London sold out

Eoin Treacy's view -

Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.

This event is sold out. A waitlist has now begun. 

To reserve your place please contact [email protected]

Delegate Rates:

Full fee: £1799

Each additional delegate: £850

Fuller Treacy Money Subscriber rate: £850

Prices exclude VAT where applicable



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May 26 2022

Commentary by Eoin Treacy

May 24 2022

Commentary by Eoin Treacy

Video commentary for May 24th 2022

May 24 2022

Commentary by Eoin Treacy

Email of the day on what it is like living in Russia today

In Friday analysis, you mentioned situation on the Russian market. I would like to share with you some thoughts that can be interesting to the Collective.

The problem is, you view rouble as a market instrument. It used to be, but no longer. It was a convertible currency, but now it is not. There are several reasons for its impressive rebound and all of them have nothing to do with the market forces. First, all Russian markets were stopped in late February. Then, exporters were forced to sell 80% of foreign exchange revenues. To stop the bank run, the central bank did everything to kill demand for foreign currencies. I will not give all the measures but among them: almost all transfers abroad were banned. Foreign companies and residents could not withdraw money from Russia, Russian residents were allowed to transfer abroad only $5,000 a month. Banks were banned to sell currencies to individuals. 12% commission was introduced to buy dollars and euros on the Moscow exchange. Foreign investors were banned from transactions and withdrawing their money. Some of those restrictions were later withdrawn or reduced BUT: there is one more huge factor, and this is collapse of imports.

In April, US commerce secretary said that US exports to Russia fell 90% due to sanctions. German exports fell 60%. Even Chinese ones fell from $8 bn a month in January and February to $3.8 in March and April. Even if foreign companies are ready to sell something, it is impossible to transport products to Russia (The Wall Street Journal has a nice piece on this - https://www.wsj.com/articles/how-russian-businesses-are-skirting-sanctions-11652828497 ) At the same time, Russian exports are large due to high energy prices. So, Russia has a huge current account surplus, almost no outflow on capital account and no demand for forex on the local market. That is the reason for the rouble strength.

The Kremlin presents exchange rates as a victory over sanctions. But Robin Brooks, the Institute of International Finance chief economist, calls this an “illusion.” The economy is going to have the worst recession since the early 1990s (after the crash of the Soviet economy), GDP can fall by 10% or more. Russian analysts also call rouble strength, paradoxically, the sign of the economy weakness.

The same is with the dollar denominated RTS stock index. It rose simply because rouble rose. If you look at the rouble denominated Moscow Exchange index (IMOEX), you’ll see no growth at all. Today it is even lower than when trading resumed after a one-month pause. (I attach the IMOEX chart, the one in the Chart Library stopped renewing in 2018.)

Let me also say a couple of words on the state of the Russian economy. For example, car sales crashed 78% in April. Car sales and after sales sector employs about 2 mln people. What these people are going to do? Foreign car companies, not just western but also Korean (they were market leaders in Russia), and Japanese stopped sending spare parts. Parts prices have spiked but soon they will also come to an end.

Nothing illustrates the situation better than news headlines (Russian, not foreign ones). Here are just some from one day last week:

Government allowed to produce cars without airbags

Mercury discharge rate into Baikal lake to increase 13-fold

Russia will start importing used cellular communications equipment (By the way, Russian mobile communications are one of the best and cheapest in the world. In 2017, while in London, I bought a local SIM-card and found out that there was no mobile connection in the London tube, let alone Internet connection. Moscow metro had had free Wi-Fi for several years already. I paid $20, on the pre-war rate, a month for a family of four with unlimited calls, unlimited mobile internet, unlimited home internet, and digital TV. Mobile communications were built from scratch in the 1990s, and not by oligarchs but by genuine entrepreneurs. It was always an example, what Russian business can achieve without government interference.)

Russian airports warn of reverting to manual security screening (this is due to lack of spare parts for screening equipment)

Moscow will revive Moskvich car production (this is an awful Soviet car; Renault decided to leave Russia and the Moscow government took over its local plant; actually, the “new” car will be some Chinese)

Today’s news:
Government purchases of vaccines are in jeopardy
Imports of button phones rose 43% (because Apple and Samsung stopped selling smartphones, and Chinese producers also reduced imports significantly)
New home sales in Russian regions ground to a halt
China will leave the largest LNG project in Russia without equipment, because of sanctions
Russian clinical labs are running out of chemical reagents for tests
Aeroflot will begin to take planes to pieces, because of sanctions
Putin’s foundation will leave children with cystic fibrosis without life-saving medicine.

Hope, this helps to understand current situation in Russia.

Eoin Treacy's view -

Thank you for this generous account which I’m sure will be of value to the Collective. The pain being inflicted on regular Russian citizens is probably going to intensify. The OECD is attempting to squeeze Russia by withholding manufactured goods and technological widgets from the economy. In doing so they hope to drive living standards so low that Russia will be forced to relent.



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May 24 2022

Commentary by Eoin Treacy

In Gold We Trust May 2022

Thanks to a subscriber for this book-sized report from the team at Incrementum. Here is a section comparing the USA to Rome.

The Roman experience looks eerily similar to the present US economic situation. Just like ancient Rome, the USA enjoys the privilege and shoulders the burden of enforcing its “Washington Consensus” on the world, but like late-stage Rome, the US cannot fund its army and welfare state through taxation alone.  

As Rome had to resort to currency debasement to pay for its welfare/warfare state, the US finds itself increasingly unable to fund current expenditures through taxation. For each downcycle the US relies ever more on a complex process of bond issuance, covert, and more recently, overt inflationary policies to ensure the once mighty Empire can pay its bills.

Although the US saw expenditures soar during the world wars, large subsequent surpluses allowed the Federal fiscal house to remain in order. When the last vestiges of the old Gold Standard were abandoned in the 1970s, the spending dynamic changed as the Empire no longer needed to adhere to a sound fiscal policy. Funding was secured via the central bank. The modern-day Empire felt entitled to take full advantage of its ‘exorbitant privilege’ to keep its soldiers and plebs content, docile and obedient.

During the Global Financial Crisis (GFC), taxes covered less than 60% of outlays, down from an average of ~90% in preceding decades. In the course of the Covid-19 shutdowns the US government funded less than 50% of its outlays from taxation.

Rome found itself equally tied down by a Gordian knot. The ancient Empire had to fund its army above all else. Imperator Severus famously advised his sons Caracalla and Geta to “Be harmonious, enrich the soldiers, scorn all others” 61 to remain in power.

Similarly, the US has to placate its industrial military complex, but even more important to modern day ‘Imperators’ is to mollify the ~60% of its population who are either on state welfare or directly employed by the government.

Eoin Treacy's view -

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

The investment community has been conditioned to believe technological innovation will continue to provide sufficiently large benefits and productivity gains to compensate for rising debt levels. A powerful secular bull market delivers big gains and changes how people perceive risk and react to downdrafts. That helps to explain the rush to buy the dips at every initial sign of a relief rally taking hold.

Artificial Intelligence, robotics, synthetic biology, autonomous vehicles and nuclear fusion are being discussed as near-term realizable solutions. I don’t think investors are prepared for the possibility the timeline for these kinds of advances might stretch to a decade or more. The fact Elon Musk’s latest pronouncement that full self-driving is less than a year away fell flat is a sign enthusiasm for inevitable imminent technological disruption is waning.  



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May 24 2022

Commentary by Eoin Treacy

Lula Says Replacing Petrobras Head Won't Lower Fuel Prices

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

“It’s useless to replace the head of Petrobras, Bolsonaro needs to change his ways,” Lula said at an interview with a local radio. “He could call a meeting of the energy policy council, bring Petrobras to the table and decide that prices won’t be dollarized anymore.”

Bolsonaro sacked the third chief executive officer he had appointed to lead Petrobras, piling pressure on the company to stop raising fuel prices as inflation running above 12% becomes a major campaign issue ahead of October’s general election. Pushing Petrobras to absorb higher crude prices instead of passing them to consumers is a rare point of coincidence between Bolsonaro and Lula as they vie for the presidency.

Eoin Treacy's view -

Inflation is going to be a major election issue everywhere this year. The most successful politicians are likely to be those who make big promises like increasing wages, taxing the rich, implementing price controls on commodities and/or boosting domestic supply.



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May 23 2022

Commentary by Eoin Treacy

Video commentary for May 23rd 2022

Eoin Treacy's view -

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

Some of the topics discussed include: short covering rally underway but bond yields remains stubbornly high and Dollar is unwinding short-term overbought, natural gas and shipping companies exhibit relaitve strength, gold steady, US natural gas firm, European gas soft. 



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May 23 2022

Commentary by Eoin Treacy

How an Energy Expert Triggered Vladimir Putin With One Word

This transcript of a podcast with Daniel Yergin may be of interest. Here is a section:

He knew that US shale was a threat to him in two ways. One, because it meant that US natural gas would compete with his natural gas in Europe, and that’s what we’re seeing today. And secondly, this would really augment America’s position in the world and give it a kind of flexibility it didn’t have when it was importing 60% of its oil. 

And

That’s the question that’s really weighing now because in terms of oil, there’s enough crude oil in the world. You have to move it around, but between strategic stocks, between demand being down in China, you can manage that. When you get into products like diesel, it gets harder. And then you’re going to the hardest thing with natural gas, and that is exactly as you go into the winter. So, the big question now is can they fill storage so that they can get through the winter, and, by the way, not only stay warm, but keep industry operating. And I think we can say that Putin made a series of decisions which kind of were irrational -- that his army was really good, that Ukraine wouldn’t be able to resist, that the US had just gone through getting out of Afghanistan and was deeply divided, that Europe was so dependent on his energy that they would say, ‘OK, this is terrible, but life goes on.’ And none of that happened.

But I think he’s still calculating. And he said that ultimately this energy disruption -- and we are in a huge disruption of energy markets -- would be such a big threat to the European economy that the coalition that now exists would fall apart. I think that’s his wager right now. And the Achilles heel is what you pointed to: what happens as Europe goes into the fall and winter. And we’ve had at least one German, very prominent industrialist, who said, ‘This is too dangerous for the European economy. We should negotiate something with Putin.’

Eoin Treacy's view -

We are in a market lull for European natural gas prices as we head into summer and lower heating demand. The price of European gas (Netherlands) is down from a peak of €140 in December to €74 today. The UK price has been much more volatile and is down from a March high of £800 to £138.



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May 23 2022

Commentary by Eoin Treacy

Shipping's $500 Billion Profit Can Take on Amazon

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

Besides splurging on dividends and share repurchases, the once-scarcely profitable container lines are planning to use this once-in-a-lifetime haul for acquisitions and investments. Some aim to turn themselves into end-to-end logistics giants, in the vein of Amazon.com Inc. or FedEx Corp.

In theory, this should make them more resilient when shipping freight rates normalize, which is bound to happen one day. Shipping costs have already come down a bit, but due, in part, to the spread of omicron in China, some industry observers now don’t expect port congestion to ease until next year. 

Of course, the big risk is these hungry hippos waste their epic windfall on empire building, and an industry that’s already on the defensive due to its inflation-stoking profiteering may end up stoking an even greater political backlash.

It’s a sign of how the ambitions of the shipping industry have been transformed that a container liner joining forces with an airline no longer seems unusual: Mediterranean Shipping Co. is angling to acquire a controlling stake in Italian flag carrier ITA Airways, while the billionaire principal shareholder of Germany’s Hapag Lloyd, Klaus-Micheal Kuehne, has built a 10% stake in Lufthansa AG. In addition to expanding its own air-cargo fleet, Maersk agreed to acquire air-freight forwarding specialist Senator International in November.

Eoin Treacy's view -

The two things that bring down shipping rates are softer demand from lower economic growth and a surge in supply of new ships. If shipping companies are spending some of their windfall on logistics or airlines, that does nothing to increase the supply of new ships.



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May 23 2022

Commentary by Eoin Treacy

Bank Stocks Gain on JPMorgan's Biggest Rally Since November 2020

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

JPMorgan Chase & Co. jumped by the most in 18 months as upbeat comments from Chief Executive Officer Jamie Dimon on the US economy and improved guidance helped drive bank shares higher.

Shares of the JPMorgan rose as much as 7.1% on Monday, the most since November 2020, after the start of the company’s investor day, when it boosted its annual forecast for net interest income excluding its markets business and maintained its expense outlook. The KBW Bank Index climbed as much as 4.4%, with Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. all gaining more than 5%.

Wells Fargo banking analyst Mike Mayo said in a note to clients that the biggest takeaway from JPMorgan’s gathering so far is that it shows there’s “no recession imminent.” JPMorgan’s presentation was bullish for the company and “even more so for the industry,” he added.

Bank shares have been under extensive pressure this year as worries that an aggressive series of interest rate hikes by the Federal Reserve could plunge the US economy into a recession. The KBW Bank Index has fallen 25% since hitting a record high in early January.

JPMorgan has been the worst hit among the biggest banking stocks. While Monday’s surge has helped erase some of the decline this year, the lender is still down nearly 22%, making it the worst performing big bank stock. Still, analysts have not given up on the company, with the average 12-month price target forecasting a 23% gain, near the highest it’s been since the pandemic began.

Eoin Treacy's view -

Rising interest rates are generally considered positive for banks because they get to charge more for their services. The challenge today is the spread they rely on to profit has evaporated as the yield curve has flattened. The absolute rate on mortgages also means refinancing income has disappeared on mortgages. That implies banks will probably do better when the yield curve steepens and yields contract.



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May 20 2022

Commentary by Eoin Treacy

May 20 2022

Commentary by Eoin Treacy

Global Interest Rates in Aggregate

Eoin Treacy's view -

As inflation has continued to surprise on the upside, countries all over the world are accelerating their efforts to raise rates. Brazil’s Selic Target rate is now 12.7% and the EU is beginning to talk about moving deposit rates out of negative territory.

We tend to think of interest rates as barometers of efforts by central banks to control domestic factors. However, there is also the additional point that if interest rates are rising everywhere, the availability of cheap cash is declining and competition for what is available becomes more fervent.  



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May 20 2022

Commentary by Eoin Treacy

US Set to Block Russian Debt Payments, Raising Default Odds

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

Russia has started the process of paying holders of two foreign-currency bonds before a key carveout in restrictions expires next week.

The money isn’t due for another week, but the settlement date for both payments is two days after a temporary exemption for US bondholders to receive Russian bond funds is set to end. 

That loophole has allowed the government to get payments through the plumbing of the international financial system to US investors, staving off a foreign default. But Treasury Secretary Janet Yellen characterized the carve-out as “time-limited” last week.

Payments of $71.25 million on a note maturing 2026, and 26.5 million euros ($28 million) on debt due 2036, were transferred to the National Settlement Depository, or NSD, Russia’s Finance Ministry said Friday. It added that its obligations on the debt have been met “in full.” 

Previous fund transfers have been delayed or blocked by financial institutions amid the sweeping international sanctions imposed on Russia since its invasion of Ukraine. About $650 million of payments were made just days before a grace period was due to expire earlier this month.

Russia Dodges Default for Now as Investors Get Dollar Funds

From the NSD, the payments go to international clearinghouses, which distribute the funds to the various custodian banks where foreign bondholders have their accounts.

If that all goes smoothly, attention will turn to almost $400 million of coupons due toward the end of June. 

Without the Treasury loophole for US investors, and no alternative options arranged, the question will be whether bondholders elsewhere can still receive the funds. 

The first two coupons due June 23 have clauses that allow payment in euros, pounds sterling or Swiss francs. Their terms also stipulate that the funds will land with the local paying agent, the NSD.  

One day later, $159 million comes due that can only be paid in dollars, via a unit of JPMorgan as foreign paying agent.     

Eoin Treacy's view -

Engineering a Russian debt default is obviously part of the economic warfare the West has launched in response to the invasion of Ukraine. The impact of those measures is significantly reduced by the fact Russia has one of the lowest debt to GDP ratios in the world.



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May 20 2022

Commentary by Eoin Treacy

Email of the day on global food shortages

The media highlight the possibility / likelihood of a worldwide food shortage - could you please cover this subject and share with us your conclusion and how a smart investor could potentially take advantage of such regrettable drama for large parts of the world population.

Eoin Treacy's view -

Thank you for this question which I’m sure is of interest to the Collective. The last time we had a food shortage scare was in 2007/08 when fertilizer shares were accelerating to records, commodity prices were strong, and the rising prosperity of the global consumer was driving calorie consumption for billions of people.



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May 20 2022

Commentary by Eoin Treacy

Email of the day on moving average settings in the Chart Library.

Eoin, When I watch your daily videos, it seems the 1,000-day moving average of Nasdaq 100 is about 11,700. When I look at this on your chart library though, it seems to be nearer 10,600. Which is it? And why the difference? Thanks

Eoin Treacy's view -

Thank you for this question which pops up from time to time. The charts I use default to exponential moving averages. The system default on the Chart Library is for a simple moving average. You can change it to an exponential version by following these instructions:



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May 19 2022

Commentary by Eoin Treacy

Video commentary for May 19th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar begins to ease as growth concerns trump inflation concerns, gold, silver, bonds and the yen also strengthen. bitcoin steadies, retailer shares extend declines, oil reverses earlier decline and natural gas remains steady, copper firms.  



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May 19 2022

Commentary by Eoin Treacy

BOE Gold Trades at Rare Discount in Sign of Central Bank Selling

This article from Bloomberg may be of interest to subscribers. Here It is full: 

Gold stored at the Bank of England has been trading at an unusually low price, in a sign that central banks may be shedding some of their holdings.

The Bank of England’s vaults contain 5,676 tons of bullion, one of the largest stockpiles in the world, which it holds on behalf of other central and commercial banks. Gold held by central banks is typically bought and sold between large institutions in bilateral trades at prices usually within a few cents of the market rate.

In recent days, however, gold at the BOE traded as much as a dollar an ounce beneath benchmark London prices, according to traders familiar with the matter. Such a big discount usually indicates a big institution like a central bank selling a sizable amount of reserves to raise US dollars or other currencies, one of the traders said.

Central banks expanded their gold holdings by almost 456 tons in 2021, according to the latest World Gold Council data, in a long-running trend driven by emerging markets diversifying their reserves away from foreign currencies. Notable buyers included Brazil, Thailand and Ireland, which made its first purchase since 2009.

Buying may slow during 2022, with financial institutions looking to hold more interest bearing dollars as the Federal Reserve gears up for aggressive monetary tightening. The greenback is on track for its biggest annual increase in seven years, putting pressure on the currencies and borrowing costs of emerging market nations.

The BOE gold discount has narrowed since the dollar-an-ounce margin, but remains large by normal standards, said the people, who asked not be identified discussing private information. Bullion has slipped more than 12% since peaking in March, leaving it close to unchanged this year.

A spokesperson for the BOE declined to comment on the discount.

Eoin Treacy's view -

Central bank gold selling is a clear sign of distress at the strength of the US Dollar. The rising cost of importing commodities and dearth of new Dollars following the end of QE and impending QT mean countries are scrambling to source Dollars.



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May 19 2022

Commentary by Eoin Treacy

China Warns US a 'Dangerous Situation' Forming Over Taiwan

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

China frequently lashes out at the US over its backing for Taiwan, saying it amounts to interference in its internal affairs. Xi told Biden in the March call that the issue could “have a disruptive impact on the relationship between the two countries” if it was not properly handled, and has referred to China’s quest to gain control of the democratically ruled island as a “historic mission.” 

Earlier this week, Admiral Michael Gilday, the top American naval officer, said Taiwan must prepare itself against potential Chinese aggression through military deterrence that includes getting the right weapons and training. Gilday said this was the “big lesson learned and a wakeup call” following the Russian invasion of Ukraine.

The US has stepped up its backing for Taiwan since the war in Ukraine started, with a group of senior senators including Republican Lindsey Graham visiting last month. China responded to that trip by conducting air and naval training near the island. 

And

Last week, the State Department updated a Taiwan factsheet posted on its website, dropping a reference to not supporting the island’s independence, and describing it as “a leading democracy and a technological powerhouse.” It also said Taiwan was a key partner in the semiconductor industry and “other critical supply chains.”

On Wednesday, more than 50 senators signed a letter urging Biden to include Taiwan as a partner in the proposed Indo-Pacific Economic Framework, part of Washington’s efforts to counter China’s clout in Asia. Biden will hold a summit in Tokyo with the leaders of Japan, India and Australia as part of a trip to Asia that begins later this week.

Eoin Treacy's view -

I visited Taiwan before the pandemic because I regretted never having had the opportunity to visit Hong Kong before the handover. A large number of factors continue to converge around the Taiwan question. The country has prospered in a geopolitical grey area for decades. That is becoming progressively more difficult as geopolitical tensions amplify.



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May 19 2022

Commentary by Eoin Treacy

Bondholders Present Plan to Seize Control of Vale, BHP Venture

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

Bondholders presented a proposal to take control of Samarco Mineracao SA, a joint-venture between mining giants Vale SA and BHP Group Ltd. that’s under bankruptcy protection in Brazil, according to a plan filed in court.

The plan would slash the 24 billion reais ($4.9 billion) that Samarco said it owes the two companies to less than 960 million reais, according to Renato Franco, a partner at Integra, the consulting firm hired by the bondholders. Samarco listed about 50 billion reais in defaulted debt in its April 2021 bankruptcy filing.

An ad hoc committee of bondholders, representing 17 funds including Oaktree Emerging Market Debt Fund LP, offered Samarco creditors two options. One includes no discount on the face value of the debt, a 2% cash payment upfront and 38% converted into voting shares. Since those bondholders have about 20.6 billion reais of Samarco’s debt, and Vale and BHP would hold less than 960 million reais under their plan, creditors would take control of the firm. 

In this option, the voting shares could be sold in the future, through a private transaction or on the public markets, Franco said. The remaining 60% of the debt would be swapped into a new 10-year dollar bond paying interest rates as high as 10.5% a year, which would be capitalized in the first and second years, and decrease after that. 

Under the second option, creditors would have a 15% discount on the face value of the debt and the remaining 85% would be converted into an 18-year bond with interest rates no higher than 2.5% a year.

Samarco became unable to pay its debts after its waste dam collapsed in 2015, killing 19 people and almost destroying two villages in Mariana, Minas Gerais. The firm halted production, and it took until December 2020 before it was able to even partially restart operations. 

The creditors’ plan includes a proposal to speed up pellets and iron ore production at Samarco, at attempt to get the firm back to the 30 million tons per year it generated before the disaster, said Tito Martins, a former director at Vale SA who has been working as an adviser for bondholders. The idea is to double investments in 2023 and 2024 to $300 million a year, and get back to the previous production levels by 2026, three years before Samarco’s current plan.

Bondholders also propose making Samarco responsible for no more than $2.8 billion of the $8.4 billion that the bankruptcy-protection process allocates toward disaster repairs. Vale and BHP would pay for the rest. 

This is the first time creditors filed a restructuring plan for a company in Brazil, a possibility allowed under a new bankruptcy law, after a plan presented by the company was rejected in a meeting a month ago. The new plan must be approved at another meeting or through written and signed documents from creditors, said Marcos Pitanga, a lawyer hired by bondholders. 

Eoin Treacy's view -

This deal relates to the dam collapses in 2015 rather than the even more disastrous collapse in 2019 at a Vale facility.  The deal as laid out above sounds like a positive outcome for the creditors who will now gain control of significant iron-ore resources.



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May 18 2022

Commentary by Eoin Treacy

Video commentary for May 18th 2022

May 18 2022

Commentary by Eoin Treacy

Norway Targets Record Gas Sales This Year as Europe Shuns Russia

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

Norwegian gas sales are on course to test a record high this year as Europe seeks to reduce its dependence on top supplier Russia as soon as possible. 

Total exports from fields in the Nordic nation are poised to jump about 8% this year to 122 billion cubic meters, the government said in its updated outlook on Wednesday. The country sold similar volumes in 2017, a record year for exports.

The continent’s second-biggest supplier is pumping at full tilt, benefiting from record prices and higher demand than ever for its fuel. The European Union aims to curb imports from Russia by two thirds this year because of the war in Ukraine.

European prices spiked after Russia’s invasion in late February, deepening an energy crisis that started last year. Costs have since eased but they remain historically high and traders remain on the edge because of the uncertainty of flows and payment regimes. 

“High prices give the companies strong incentives to utilize the production capacity on the fields,” Petroleum and Energy Minister Terje Aasland said. “Companies are producing at full, or near full capacity.” 

Norwegian producers have tweaked operations at some fields, including reducing gas injections for oil recovery. Energy major Equinor ASA will also restart its Hammerfest LNG plant this month. The facility has been shut after a fire in late 2020.  

The extra volume would amount to an increase of about 9 billion cubic meters this year compared with 2021 sales. While every molecule counts, it’s just a fraction of Russia’s flows to the European Union, which exceeded 155 billion cubic meters last year. That was about 40% of the bloc’s total consumption. 

Eoin Treacy's view -

Europe has a chronic need to boost energy security. Importing from a friendly country, with a long history of sound governance like Norway, is infinitely preferable to relying on Russia. That’s great news for Norway’s balance of payments.



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May 18 2022

Commentary by Eoin Treacy

Stable Coin and the SEC

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

Current-SEC Chair Gary Gensler cuts this gordian knot by making the obvious remark that asset-backed stable coins are repackaging the securities held in the reserve, and so are derivatives hence themselves securities: ‘Make no mistake: It doesn't matter whether it's a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities ...these platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.’

In the way of the Terra/Luna collapse, he reiterated this conviction today: ‘there’s a need to bring greater investor protection to these crypto markets ... central to that are crypto trading and lending platforms, where investors buy, sell and lend around $100 billion of crypto assets a day. The crypto-related events in recent weeks have highlighted yet again how important it is to protect investors in this highly speculative asset class.’

Eoin Treacy's view -

The abrupt collapse of a $60 billion stablecoin has raised eyebrows. There has been a lot of discussion about how and whether to regulate the sector, but the size of the market and the potential for significant losses by retail investors is creating urgency. Regulation of crypto securities is inevitable. Jurisdiction is irrelevant if a country’s own citizens can purchase. That also suggests full transparency on where deposits are being invested is inevitable.



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May 18 2022

Commentary by Eoin Treacy

UK Inflation at a 40-Year High Engulfs Johnson and BOE in Crisis

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

The increase is more than double the pace of basic wage growth, squeezing consumer spending power at the sharpest pace on record. The pain is set to intensify, with the Bank of England predicting double-digit inflation by October when energy bills are almost certain to jump again. 

There was evidence of more generalized inflation, with a 6.7% jump in food and non-alcoholic drink prices. The cost of recreation and culture rose 5.9%, the largest increase since at least 2006, and restaurant and hotel prices were up 8%. Part of that was due to value added tax reverting to the normal rate after the pandemic. Furniture and household equipment rose 10.7%.

The cost-of-living crisis already has amplified the political debate about how to handle a series of shocks hitting the UK. Prime Minister Boris Johnson’s Conservatives government has targeted relief at those with jobs, while the Labour opposition is calling for an emergency budget to help pensioners and people on benefits. 

“Countries around the world are dealing with rising inflation,” Chancellor of the Exchequer Rishi Sunak said in a statement. “We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.”

Eoin Treacy's view -

The Pound came close to reversing yesterday’s rebound on global de-risking following Jerome Powell’s comments on persisting with policy tightening. Even though the price of oil was down $3 today, the weakness of the Pound has exacerbated the impact of the advance for European consumers. Brent crude in Pounds is still consolidating above the 2008 and 2012 peak. A sustained move back below £70 will be required to confirm a change of trend.



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May 17 2022

Commentary by Eoin Treacy

Video commentary for May 17th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: reversionary rally underway as China suggests support for the tech sector is forthcoming, dollar, gold and oil ease, bond yields continue to rise, high yield spreads continue to trend higher. Fed remains committed to tightening. 



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May 17 2022

Commentary by Eoin Treacy

A Bull Case Is Forming Around Bearishness at Hedge Funds, Quants

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

The violent selloff has forced many systematic macro strategies, including trend followers and volatility-targeted funds, to slash equity holdings. Last week, their exposure fell to the bottom of a five-year range that even if stocks resume selling, their unwinding would be relatively subdued, according to Morgan Stanley. 

For instance, should the S&P 500 drop 5% in one day, the cohort would need to offload less than $20 billion of stocks in the follow week, analysts including Christopher Metli estimated. That’s down from an expected disposal of over $100 billion at the start of the year.

Goldman’s long/short hedge fund clients saw their gross leverage falling 12 percentage points during the week through Wednesday, the largest reduction over comparable periods sine at least 2016, according to data compiled by analysts including Vincent Lin. 

Light positioning by hedge funds and quants is among indicators watched by Goldman’s Scott Rubner to determine whether investors have capitulated. With cash holdings elevated in mutual funds and day traders retreating, one missing ingredient to call the all-clear is a reduction of stocks in US household holdings and retirement accounts, he says.

“Tracking this cohort is my single and most important focus from the lows here,” he wrote in a note last week. “We have not capitulated, it is very slow on the way out.” 

Eoin Treacy's view -

There is still a great deal of uncertainty about the trajectory of monetary policy and the continuing impact of the war in Ukraine. The challenge for investors is to determine if this has been adequately priced in by the pullback to date.



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May 17 2022

Commentary by Eoin Treacy

Pound Jumps Most in 17 Months as Traders Eye Tight Labor Market

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

“People don’t need too strong an excuse to buy sterling right now,” said Geoffrey Yu, a strategist at BNY Mellon. “Even a modicum of good data or even data that isn’t as bad as previously expected can see them coming back because of valuations.”

The move accompanies a broader dollar decline, with the greenback underperforming all Group-of-10 currencies bar the Japanese yen as risk sentiment rebounded. The Bloomberg Dollar Spot Index slid 0.5%, a third day of declines and the longest losing streak since March.

Eoin Treacy's view -

The Pound is rebounding from the lower side of a lengthy medium-term range just as the Dollar Index is encountering some resistance at the upper side of its range. As risk appetite returns there is scope for both to unwind their respective overextensions.



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May 17 2022

Commentary by Eoin Treacy

China Economy Czar Vows Support for Tech Firms After Crackdown

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

China’s top economic official gave an unusual public show of support for digital platform companies Tuesday, suggesting Beijing may be ready to let up on a year-long clampdown on technology giants as it battles a slowing economy.

The government will support the development of digital economy companies and their public listings, Vice Premier Liu He, who is President Xi Jinping’s most senior economic aide, said after a symposium with the heads of some of the nation’s largest private firms. Baidu Inc. founder Robin Li, Qihoo 360 Technology Co.’s Zhou Hongyu and NetEase Inc. chief William Ding were among the tech luminaries spotted at the forum, according to a video posted online.

Liu’s remarks reported by state media were short on detail but signal further easing of the regulatory risk for China’s technology behemoths including Baiduand Tencent Holdings Ltd., as investors await clues on whether a rout in their shares is near an end. The Hang Seng Tech Index rallied as much as 6% Tuesday on optimism the meeting would affirm Beijing’s intention to dial back some of its restrictions.

Eoin Treacy's view -

China’s 7-day repo rate continues to trend lower. That’s supports the view the government is supporting the economy in a tacit manner. Liu He turning up to the symposium was already good news for the tech sector. Receiving overt verbal support was a bonus. Together with the supports for first time home buyers announced yesterday, this suggests China is aware of the risks from tightening too much and is ready to be more generous.



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May 16 2022

Commentary by Eoin Treacy

Video commentary for May 16th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: checken and egg of tightening financial conditions and buy the dip instinct, energy and grains break out, gold steadies, increased demand for bonds as growth fears mount, bitcoin closes below $30,000



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May 16 2022

Commentary by Eoin Treacy

Ride of the 'Volkyries'

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

As I see it, the risk of recession, whether it is real or merely implied by an inversion of the yield curve, won’t deter the Fed from hiking rates higher faster or from injecting more volatility to build up negative wealth effects, and signs of a recession might not mean immediate rate cuts to ramp demand back up …

…cuts may have to wait until the Fed is certain that inflation is surely dead.

Back to the level of the stock market under the Fed call.

According to President Daly’s comments, the recent stock market correction and the rise in mortgage rates is “great”, but not enough (“want to see more”). Chair Powell also noted in his press conference that he wants to see further tightening in financial conditions still. At face value, that implies that the Fed won’t stop shaping expectations until we see more damage to stocks and bonds.

Rallies could beget more forceful pushback from the Fed – the new game…

Eoin Treacy's view -

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

This is a welcome elucidation of the “chicken and egg” argument I have been talking about the audio/video commentary.
 
If the stock market and other financial assets sell off, the Fed will believe their policies are working which reduces the need for further tightening. However, if investors believe tightening is less likely they will buy the dip which will convince the Fed their policies are not sufficiently tight.



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May 16 2022

Commentary by Eoin Treacy

Delhi suffers at 49C as heatwave sweeps India

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

The effects are visible. Farmers say the unexpected temperature spikes have affected their wheat harvest, a development that could potentially have global consequences given supply disruptions due to the Ukraine war.

The heat has also triggered an increase in power demand, leading to outages in many states and fears of a coal shortage.

Mr Modi also flagged the increased risk of fires due to rising temperatures.

And

D Sivananda Pai, director of the Institute for Climate Change Studies, points to other challenges apart from climate change - such as increasing population and the resulting strain on resources.

This, in turn, leads to factors that worsen the situation, such as deforestation and increasing use of transport.

"When you have more concrete roads and buildings, heat is trapped inside without being able to rise to the surface. This warms the air further," Mr Pai says.

And the cost of such extreme weather events is disproportionately borne by the poor.

Eoin Treacy's view -

Anyone who has suffered through a muggy August in London will be familiar with the heat well effect created by concrete structures and air conditioners pouring hot air into the street.

That’s for a country that does not typically get temperatures approaching 40 degrees. For India, where pre-monsoon heat waves are typical, the urgency to industrialise is creating some unique issues.



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May 16 2022

Commentary by Eoin Treacy

Another Stablecoin Loses Its Peg as Algorithm Fails to Keep Pace

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

Deus Finance’s DEI token has lost its 1-to-1 peg to the dollar, becoming the latest failure of an algorithmic stablecoin during a period of crypto market stress.

DEI is currently trading at 70 cents, according to data tracker CoinGecko. With a market value of about $63.5 million, the token is tiny compared with the more than $18 billion TerraUSD stablecoin that shook crypto markets when it become depegged last week. 

Read more: Crypto Hedge-Fund Head Predicted Terra’s $60 Billion Implosion

Put out by Deus Finance, a marketplace for financial services, DEI is different from TerraUSD, or UST, in that it’s a fractional reserve stablecoin, backed by coin collateral, consisting of 20% DEUS tokens and 80% of other stablecoins, such as USDC.

Deus’s team is working to restore the peg, according to a Tweet.

The depegging comes several months after Deus Finance was hacked, with some coins stolen.

UST is currently trading at about 6 cents. Last week, even the world’s biggest stablecoin, Tether -- which is not algorithmic and claims to have full reserves -- lost its dollar peg before regaining it. Crypto bellwether Bitcoin is trading at less than $30,000, down from over its all-time high of almost $69,000 in November.

Eoin Treacy's view -

The TerraUSD coin is an algorithm based stablecoin, which relies on the value of its underlying token to support its value. That token, Luna, collapsed last week and took the stablecoin with it. The potential for contagion arises when stablecoins using money market instruments fail.



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May 13 2022

Commentary by Eoin Treacy

May 13 2022

Commentary by Eoin Treacy

Oil Climbs as Global Refining Crunch Drives Record Fuel Cost

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

Oil climbed as a global squeeze on refined products continued to pull fuel prices higher with Russian diesel exports falling sharply.  

West Texas Intermediate traded near $110 wrapping up another week of tumultuous trading where lowered liquidity exacerbated price moves. Diesel exports from Russia dropped in April from their prewar level as oil buyers seek to punish one of the world’s biggest suppliers. Investors have also been keeping a close eye on China as authorities in Beijing denied rumors that the city will go into lockdown even as new Covid-19 cases climbed.

Fuels are currently the bullish driver for crude, especially as Russian diesel exports drop, said Dennis Kissler, Senior Vice President of Trading, BOK Financial. “The path of least resistance still looks higher for all petroleum products as demand continues to outstrip supplies.”

Eoin Treacy's view -

Diesel and jet fuel prices have been making headlines this year because they are at record levels. The war in Ukraine and Europe’s reliance on Russia for 70% of its diesel have been blamed for this development. However, there is an additional consideration I have not seen mentioned elsewhere.



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May 13 2022

Commentary by Eoin Treacy

Capitulation

Thanks to a subscriber for this portion of a note from JPMorgan:

the bottom this time won't be a capitulatory puke, but more likely consistent selling which fades as it burns out, to wit:

... signs of a market bottom are unlikely to resemble traditional "capitulation" that’s played out in the last few years. Why? Because traditional capitulation is typically marked by a quick de-grossing by hedge funds + systematic macro strategies, where positioning is already light. Instead, the next leg of de-risking is likely to be more gradual, coming from asset allocators/real money/retail and is therefore likely slower to play out, making a precise bottom more difficult to call.

from a more tactical (i.e. very near term) standpoint, the bank writes that there are multiple metrics that suggest we could be closer to a bounce than before, including:

The magnitude of the drawdown in net and gross exposures (-33% for net and - 30% for gross) in N. America among L/S funds is now similar to the early 2016 and March 2020 declines

Retail flows in single-stocks have been very negative over the past 3 days, which has generally coincided with short-term lows over the past 6 months.

The drawdown in “risky” factors (e.g. high vol, small cap, low profitability) is one of the most extreme of the past 20+ years and the S&P has rallied over the following 1-3 months post hitting similar extremes

Buying of Defensives and selling of Cyclicals is also one of the most extreme with Staples vs. Discretionary in particular looking stretched

Eoin Treacy's view -

The significant declines seen in stocks and the return of P/E ratios to average readings have been sufficient to encourage some speculative value buying over the last couple of days. The other side of that argument is oil prices remain firm and the Fed intends to hike rates by an additional 100 basis points before the end of July. Rallies are hard to sustain when liquidity is contracting.



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May 13 2022

Commentary by Eoin Treacy

Email of the day on my leveraged gold positions

I was interested to see today that gold hit just below $1800 and your average buying price so far is at that level. You have had bids in the market for some time ...I wondered if they have been triggered with the $200 drop in the gold price in the last month. It feels like March 2020 when gold was swept up in the stock market declines in the rush to cash. Are we seeing a repeat now...in which case gold could make a swift recovery like it did then perhaps?

Eoin Treacy's view -

Thank you for this question which I’m sure will be of interest to the Collective. I also apologise for not speaking more about gold in yesterday’s audio commentary. It occurred to me last night that I had not mentioned gold in the broadcast and that was a glaring omission.



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May 13 2022

Commentary by Eoin Treacy

Email of the day on AI/Deep learning promises

Eoin, your comment "I feel bombarded with podcasts, YouTube videos, analysts and reports telling me about the inevitability of AI and deep learning transforming the global economy" is important. This is typical of the initial excitement about any new technology. History shows it takes 'a generation' (20-25 years) for a new technology to go through its slow and expensive development phase, with many failures in the early years despite the hype, followed by disillusionment for several years, or a decade or so, before it actually begins to pay back. I presented the data at David's Markets Now many years ago. Gartner capture this in their Hype Curve/Cycle chart. The initial hype phase is where Venture Capitalists get involved and they aim to exit before the disillusion phase sets in. Investors in public markets have to await the third phase, when the technology matures and starts to be economic. We'll get there with AI / Deep Learning - but not quite yet!

Eoin Treacy's view -

Thank you for this grounded email and I completely agree. The promise of AI will be delivered upon but that doesn’t often equate to a smooth ride for investors which is the big challenge at present. High valuations and high interest rates don’t play well together.



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May 12 2022

Commentary by Eoin Treacy

May 12 2022

Commentary by Eoin Treacy

Coinbase Gives $256 Billion Reminder About Agonies of Bankruptcy

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

Coinbase Global Inc., like the rest of the cryptocurrency market, is having a really tough week. Not filing-for-bankruptcy bad, but the biggest US crypto exchange did just mention the B-word in a regulatory filing, giving its customers a painful reminder of how bad things could get for them if Coinbase ever does get seriously distressed.

In its quarterly report, Coinbase added a risk disclosure: if the company were to file for bankruptcy, the court might treat customer assets that the exchange is custodian for -- their Bitcoin, Dogecoin or whatever -- as Coinbase’s assets. And they’d be at the back of the line for repayment, forcing normal people, unaccustomed to the ins and outs of federal bankruptcy court, to claw back their money along with everybody else owed money by the exchange.

It’s a huge amount at stake. Coinbase was custodian for $256 billion of customer money on March 31, according to the filing.

Chief Executive Officer Brian Armstrong quickly took to Twitter to elaborate, saying the company is not at risk of going bankrupt and that users’ funds are safe.

Eoin Treacy's view -

Segregated accounts didn’t save MF Global’s clients in 2019. It took six months to get two thirds of their money back and it’s not clear how successful efforts have been to recover the rest. Since the crypto markets are unregulated and Coinbase is an “exchange” rather than a broker, the funds are not truly segregated. The company might not be in imminent danger of going bust, but that only exacerbates the leverage to the bitcoin price. It’s a very binary bet.



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May 12 2022

Commentary by Eoin Treacy

Wheat Prices Spike as US Sees War, Adverse Weather Hurting Crops

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

From war to extreme weather, the world’s wheat crops are under threat, a view that’s being bolstered by a US report.

Production in Ukraine, one of the biggest growers, will fall by one-third compared to last year, according to a U.S. Department of Agriculture forecast. Other major producers are battling drought, floods and heatwaves. In all, global stockpiles in the coming season will dwindle to a six-year low. 

The smaller wheat harvests and a slow start to the US planting season is risking more food inflation ahead. Hunger is already on the rise in many parts of the globe.

Eoin Treacy's view -

Food stockpiles are low after two years of pandemic lockdowns. The war in Ukraine is an additional complication and prices are already high. The wildcard in terms of supply is Russia where farmers have access to fertilizer and oil from domestic sources. No one is going to broadcast they are buying Russia grain but that supply will reach market as prices rise.



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May 12 2022

Commentary by Eoin Treacy

India's Real 10-Year Yield Turns Most Negative Since 2020

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

India’s faster-than-expected inflation print for April has pushed the pace of consumer-price rises above the benchmark bond yield by the most since 2020. The return of the negative real yield suggests the Indian debt may suffer a deeper selloff.

India’s real policy rate -- the spread between the central bank’s main rate and inflation -- has been negative for several months, like almost all emerging markets (China, Brazil and Indonesia are exceptions). But the latest inflation data has turned the market-determined real bond yield negative too.

India might just be paying the price for its hesitation to raise interest rates. The Reserve Bank surprised markets last week with a 40-bp hike, after previously saying it would stick with a dovish policy as consumption remained below pre-pandemic levels. It had hoped oil prices might come down, but crude prices remain above $100 a barrel and the nation’s consumer-price inflation is more broad-based, including items like clothing and footwear.

Eoin Treacy's view -

The upward pressure on inflation from the rising cost of commodity imports suggests the RBI will have no choice than to accelerate interest rate hikes. The Rupee has held a succession of lower rally highs since early 2021 and broke to a new all-time low today. Considering the strength of the US dollar, this has been a better performance than other regional currencies but that does not detract from the fact a weaker currency boosts inflation.



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May 11 2022

Commentary by Eoin Treacy

Video commentary for May 11th 2022

May 11 2022

Commentary by Eoin Treacy

Dollar Won't Be Haven Currency of Choice for Long

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

This in turn takes us to an interesting observation by George Saravelos, Deutsche Bank AG’s global head of currency research, who says that “we are perhaps now reaching the tipping point where further financial conditions tightening will start to place more severe headwinds to how much more we can reprice the Fed.” This will result in the dollar becoming less responsive to risk-off due to more dovish implications for the Fed path. And while it’s still early stages, Saravelos argues that “the market is starting to behave as if we may be approaching this tipping point.”

Now, even if inflation does peak this year, that won’t mean central banks will exit their tightening path, but will adjust it accordingly. Just look at the Bank of England’s latest forward guidance and the divide within the voting committee. At the same time, and if we talk stagflation or recession, we should consider that the yen may attract haven flows once again given its low inflationary readings, Japan’s current surplus and so forth.

Eoin Treacy's view -

Today’s month over month CPI figure was 0.3%. Analysts expected 0.2% but the prior reading was 1.2%. That’s still a moderation in near-term inflation, even if it is still rising. Year over year the rate is still 8.3% which is in the middle of what was expected and the last reading.



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May 11 2022

Commentary by Eoin Treacy

Patience through Bumpy Final Leg of Bear Market

Thanks to a subscriber for this report from Morgan Stanley 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.

COVID cases are finally coming down in Shanghai which is positive news for the domestic economy. China remains exposed to the risk of further outbreaks because of the size and age of the population and the reluctance to be vaccinated. That holds out the prospect of continued lockdown phases for the foreseeable future. That’s a recipe for volatility. 



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May 11 2022

Commentary by Eoin Treacy

TerraUSD's Struggles Are a Concern for All Markets

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

Much more important, if TerraUSD fails it will be a blow to the hopes of many traditional financial institutions that rely on liquidity to maintain stability. That includes central banks, exchange-traded funds, mutual funds, derivatives clearinghouses, securities dealers and many others.

TerraUSD is an “algorithmic stablecoin,” meaning it attempts to maintain a $1 market price via an algorithm rather than traditional methods such as backing each token with an actual dollar. TerraUSD can be exchanged for $1 worth of another cryptocurrency, in this case Luna. Therefore, if the price of TerraUSD deviates from $1, arbitragers should force it back.

The Federal Reserve, although it doesn’t officially target the value of the dollar, can use a similar strategy if it wants to influence the currency’s value. If the value of the dollar falls either in terms of purchasing power or foreign-exchange rates, the Fed’s two main policy responses are to raise interest rates to make the dollar more attractive to hold, or to sell assets to soak up dollars, reducing the supply, and pushing up the price. TerraUSD uses mainly the second strategy, selling Luna to reduce the supply of TerraUSD.

The strategy relies on there being a liquid market for the asset being sold — mainly US Treasury securities for the Fed and Luna for TerraUSD. Unfortunately for the Fed, if the dollar’s value is falling, investors may not be enthusiastic about buying Treasuries, which pay off in future dollars and whose perceived credit may be impaired if too many have to be sold to soak up excess currency. TerraUSD has the same issue, the value of Luna is tied to the success of the Terra suite of products, which would be impaired by TerraUSD’s collapse

Eoin Treacy's view -

In a bull market leverage begets leverage. From the perspective of financial engineers there is no strategy that can’t be made better with leverage. Stablecoins are the crypto market’s version of money market funds. They aim to hold parity with the Dollar by buying near-cash items that pay a slightly higher yield than the Fed. Algorithmic stablecoins try to go one better and only trade in their own tokens. That’s great during a bull market. However, the value of any money market instrument is in its ability to redeem at par in times of stress. If it folds at the first sign of trouble it is not fit for purpose.



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May 10 2022

Commentary by Eoin Treacy

May 10 2022

Commentary by Eoin Treacy

Email of the day on the 60/40 portfolio:

For some time, the best-looking charts have been the yield charts, almost everywhere but particularly in Europe. They are a pure example of consistency.

Questions: with the trillions of dollars invested in these securities how are the losses going to be reconciled? My personal belief was that rates could not go to where they seem headed because of the losses it would imply. Is there a lower rate case? How does this logic chain play out? The "prisoners" that own these bonds, who are they and how many of them are there? Is the 60/40 cookie cutter approach to managing portfolios getting crushed? Is income the new oil?

Sorry for the multiple questions but intellectually the global losses in bonds has to be discussed in my opinion.

Eoin Treacy's view -

Thank you for these topical questions. I agree being short bonds (long yields) has been the most consistent breakout of any market anywhere this year. As a result there is no doubt bond portfolios have been under extraordinary stress. Reconciling losses in fixed income will mean pension contributions will have to rise, payouts will fall, recipients will need to work longer and/or assets prices will need to recover.



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May 10 2022

Commentary by Eoin Treacy

Email of the day on the Dollar and commodities

A very well-respected cotton trader in Texas told me many years ago, that amongst all the factors influencing the price of cotton, the value of the dollar is by far number one. I guess this also is true for the price of gold to some extent. I was presently surprised to see how well gold has held inspite of the dollar’s strength. Am I missing something? I would be grateful if you would share your views on gold in the current environment. As always thanks for your very valuable service. 

Eoin Treacy's view -

Thank you for your kind words and this topical question which may be of interest to the Collective. The Dollar usually trends higher when there is a wide interest rate differential with other currencies supporting it. That makes borrowing money for speculation more expensive, such liquidity out of the global economy, and reduces demand for raw commodities. That tends to weigh on commodity prices.



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May 10 2022

Commentary by Eoin Treacy

Email of the day on Rolls Royce and selling investments

Eoin, given how markets have deteriorated of late, could I be so cheeky as to ask why you have not cashed in on Rolls Royce yet? It looked like a great but when it near tripled to 140p, but it’s nearly halved now and you’ve sat tight. Surely there must have been a key technical level between then and now to warn you to sever ties with this one. I ask because I too sit on similar scenarios and I keep asking myself why I don’t cash in a while ago while the going was still good, making it more difficult to let go now, despite prices still sliding, seemingly day by day.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. The broad aerospace and airlines sector has been deeply affected by the pandemic lockdowns and is taking longer to recover than I expected. Nevertheless, I remain confident it will recover.



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May 09 2022

Commentary by Eoin Treacy

Video commentary for May 9th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: chicken and egg of higher yields and lower stocks. commodities pull back sharply as Chinese growth disappoints, the renminbi continues to accelerate lower and the dollar is firm, gold at potential support. 



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May 09 2022

Commentary by Eoin Treacy

Policy Has Tightened a Lot. Is It Enough?

Thanks to a subscriber for this article by Neel Kashkari for the Minneapolis Fed. Here is a section:

First, at a minimum, the FOMC must follow through on the forward guidance of federal funds rate increases and balance sheet reduction that we have already signaled in order to validate the repricing that has taken place in financial markets.

Second, we will need to see whether the supply issues that have contributed to high inflation begin to unwind and/or if the economy is in a higher-pressure equilibrium. I wrote about this possibility seven weeks ago. Unfortunately, the news from the war in Ukraine and the COVID lockdowns in China are likely delaying any normalizing of supply chains. If supply constraints unwind quickly, we might only need to take policy back to neutral or go modestly above it to bring inflation back down. If they don’t unwind quickly or if the economy really is in a higher-pressure equilibrium, then we will likely have to push long-term real rates to a contractionary stance to bring supply and demand into balance. The incoming data over the next several months should provide some clarity on these questions.

Finally, we will need to continue to assess where neutral is. If the economy is in fact in a higher-pressure equilibrium, that might indicate the neutral long-term real rate has increased, which would then require even higher rates to reach a contractionary stance that would bring the economy into balance.

Eoin Treacy's view -

Kashkari is not a voting member this year, so he has some leeway to speak his mind. The big takeaway is he has historically been viewed as a dove, so for him to talk about the need to create a recession to combat demand strength is notable. That is feeding into the current recession scare and financial conditions tighten.



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May 09 2022

Commentary by Eoin Treacy

Tesla's Impact Report Hints At The Future Of Battery Recycling And Battery Cost Declines

This short note from ARK Innovation ETFs may be of interest. Here is a section:

According to its Impact report for 2021, Tesla can recover raw materials from batteries with ~92% efficiency: for every 1,000 kWh worth of end-of-life batteries, Tesla recovers 921 kWh worth of raw metals to produce new batteries. The importance of recycling already is clear when cells don’t meet quality assurance during the manufacturing process. Tesla believes that “the costs associated with large-scale battery material recovery and recycling will be far lower than purchasing additional raw materials for cell manufacturing,” contributing significantly to continued battery cost declines and amplifying the importance of recycling as more electric vehicles reach end-of-life.

Eoin Treacy's view -

Here is a link to Tesla’s 2021 Impact report. It clearly states Tesla does practically no recycling at present, because its batteries have not been in the field long enough to provide adequate supply.



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May 09 2022

Commentary by Eoin Treacy

China Premier Warns of Grave Jobs Situation as Lockdowns Weigh

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

“Stabilizing employment matters to people’s livelihoods, it is also a key support for the economy to operate within a reasonable range,” Li said, urging businesses to resume production with Covid-fighting measures in place, while reiterating the government’s policy to promote the healthy development of internet platform companies to support employment. 

The premier’s warning on employment came after the nation’s surveyed jobless rate climbed to 5.8% in March, the highest since May 2020, according to data released by the National Bureau of Statistics in mid-April.

China’s top leaders last week warned against attempts to question the country’s Covid Zero strategy as newly released data for April showed the lockdown-dependent approach taking a heavy toll on the economy. The rolling out of even more intense restrictions over the weekend in Shanghai and Beijing adds further to the challenges facing policymakers seeking to shore
up growth.

Eoin Treacy's view -

Li Keqiang is often regarded as a bookish technocrat who thinks more in terms of the health of the economy than politics. Talking about rising unemployment is already sensitive when the question of the merit of the COVID-zero policy is beyond discussion. He is due to retire in a few months, and his successor is likely to be even more loyal to Xi Jinping.



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May 06 2022

Commentary by Eoin Treacy

May 06 2022

Commentary by Eoin Treacy

In the Long Run, These Equity Losses Barely Register

This article from Bloomberg highlights the philosophical attitude being adopted following a couple of days of rather extreme volatility. Here is a section:

A momentous week has ended with a thud rather than a bang (at least on the data front) as the U.S. employment numbers came out broadly in-line with expectations. To be sure, there were some notable features of the data -- a drop in both household employment and labor participation, though perhaps that was driven by the timing of Good Friday, which fell during the survey week. 

You can cherry-pick whatever you like from the figures to support your pre-existing view, so at this point it’s hard to say that they change much of anything. For now, the growth picture remains strong enough to support the policy trajectory that’s currently priced into rates markets. That, in turn, should continue to apply pressure to equities, regardless of how “cheap” they may seem.

From a macro perspective, the issue to focus on has clearly rotated from inflation to growth. Pretty much everyone understands that base effects will drive y/y CPI and PCE figures lower, but the run-rate of inflation will remain high enough for central banks to keep worrying ... and keep (or start) tightening. That policy trajectory will change when the growth outlook deteriorates significantly enough that demand looks more correctly aligned with supply. So that’s what we’ll be watching for.

While you can point to the 353k drop in household employment as a signal that the economy is weakening, that’s a pretty tenuous hook upon which to hang your hat at this point -- particularly given that household employment growth had comfortably outstripped the establishment survey over the prior six months. Moreover, the drop in the participation rate suggests the household figure may well have been a supply, rather than demand, issue -- which is problematic if the relatively elevated level of wages can still not attract fresh workers.

Eoin Treacy's view -

The pandemic economy is not the new normal. It was an anomaly fueled by money creation on a previously unimaginable scale. It is therefore reasonable to expect that unwinding much of the bonanza will be required to get inflation back under control.



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May 06 2022

Commentary by Eoin Treacy

U.K. Plans New Energy Law to Enable Renewable, Nuclear Build Out

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

The U.K. will introduce new laws for energy to enable a fast build out of renewables and nuclear power stations as set out in the government’s energy security strategy last month.

An energy bill will be included in the Queen’s Speech on May 10, according to a person familiar with the matter who asked not to be named because the information isn’t public.

The last significant set of energy legislation was in 2013 and the government has accelerated its push toward net zero significantly since then. Britain is targeting a tripling of installed nuclear power capacity by 2050 and plans to build 50 gigawatts of offshore wind farms this decade. The nation has also increased its ambition on hydrogen, solar power and measures to spur North Sea oil and gas projects.

“This country now has a raft of ambitious targets in place and the focus must now be on delivering these,” said Dhara Vyas, director of advocacy at EnergyUK. “A new Energy Bill should create a framework for a low carbon future. The energy industry is ready to deliver.”

Eoin Treacy's view -

North Sea oil allowed successive UK governments the leeway to avoid thinking seriously about energy policy. In the 15 years since the UK became a net energy importer, social cohesion has deteriorated, taxes have risen, debt has become problematic and social services have suffered. That’s not all because of energy imports but it is a factor at the margin.



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May 06 2022

Commentary by Eoin Treacy

India's Surprise Rate Hike Spurs Aggressive Tightening Bets

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

The Reserve Bank of India stunned markets Wednesday with a 40-basis point rate increase and a move to suck out billions from the banking system. That was a remarkable U-turn from February, when it announced an ultra-dovish policy, highlighting a relaxed stance toward inflationary pressures at home and U.S. tightening abroad.

“We believe the rate hike is a belated acknowledgment of the inflation risks and that policy has been behind the curve,” Nomura analysts Sonal Varma, Aurodeep Nandi and Nathan Sribalasundaram wrote in a note.

Yields on the benchmark 10-year bond jumped as much as 30 basis points on Wednesday to 7.42%, the highest since 2019, while the shorter 4-year yield saw a nearly 50 basis point jump. Yields extended gains on Thursday. 

Eoin Treacy's view -

Emerging market central banks have much more direct experience of the damage high inflation can do. They are usually alert to inflationary pressures and tend to implement remedial action quickly. Brazil hiking from 2% to 12.75% in little more than a year is a good example of that. That also helps to highlight just how out of step the RBI has been. The Repo rate was stock at 4% for nearly two years before this week’s hike.



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May 05 2022

Commentary by Eoin Treacy

Video commentary for May 5th 2022

May 05 2022

Commentary by Eoin Treacy

Pound Dives After Bank of England Signals Caution as It Raises Rates

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

Six MPC members voted for the rate rise to 1%, while three voted for a larger rise to 1.25%.

The central bank also said it has asked its staff to prepare a plan for selling some of the bonds it bought as part of its past stimulus programs. That plan is set to be outlined in August, but bond sales would start later.

However, the central bank indicated that it is likely to raise rates more slowly, if at all, in coming months, with the very high energy prices that have followed Russia's invasion of Ukraine set to squeeze household spending power and weaken economic growth.

In its statement, the BOE said further rises in its key rate "may still be appropriate" in coming months, but added that two of its policy makers didn't support that guidance and instead thought it likely the key rate would stay at 1%.

"There were risks on both sides of that judgement," the BOE said.

That greater caution is a contrast with the Fed, which Wednesday approved a rare half-percentage-point interest-rate increase to a target range between 0.75% and 1%. Fed Chairman Jerome Powell said at a news conference that officials broadly agreed that additional half-point increases could be warranted in June and July given current economic conditions.

Eoin Treacy's view -

The Pound rebounded yesterday and reversed that advance today following the reluctance of Andrew Bailey to talk about continued interest rate hikes. The decision was a long way from unanimous, which highlights the difficulty of containing inflation without causing a recession.



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May 05 2022

Commentary by Eoin Treacy

Email of the day on the cumulative effect on interest rate hikes

I seem to remember many years ago David saying that the time to be wary of share markets is after the third interest rate rise. Is this accurate and, if so, is it a relevant indicator for us now?

Eoin Treacy's view -

Thank you for this topical question which may be of interest to the Collective. The initial response to a new hiking cycle is generally seen as positive by investors because they prize efforts to control inflation and preserve growth. However, interest rate hikes have a lagged effect on the economy and are cumulative in nature. That means the initial enthusiasm at continued growth gives way to worry about the toll of withdrawing liquidity as the number of hikes builds. 



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May 04 2022

Commentary by Eoin Treacy

Video commentary for May 4th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: BoE and Fed tighten but guidance was not as hawkish as feared. Dollar eased, stocks rebounded, Treasuries steadied. oil surged, gold steadies. Upside follow through would confirm lows of at least near-term significance for most stock markets and increase scope for reversionary rallies.  
 



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May 04 2022

Commentary by Eoin Treacy

May 04 2022

Commentary by Eoin Treacy

Email of the day on value opportunities in telecoms

Your comments are often from a US perspective such as "telecom stocks are in downtrends such as Charter Communications". This is true for US telecom shares but many others, particularly in Europe have been going sideways for a number of years, potentially building bases such as KPN, Orange, Singapore Telecom, Telefonica, Vodafone and China Mobile. One or two have broken out to the upside. Would you be happy to comment on some of these charts?

Eoin Treacy's view -

Thank you for this email. I last did an extensive review of the high yielding global telecoms sector in November. Here is a link



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May 04 2022

Commentary by Eoin Treacy

EU Squeezes Hard on Russia, Sweeping In Oil, Bank, Business

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

The European Union plans to ban Russian crude oil over the next six months and refined fuels by the end

of the year as part of a sixth round of sanctions to increase pressure on Vladimir Putin over his invasion of Ukraine.

“This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined,” European Commission President Ursula von der Leyen said in remarks to the European Parliament. “We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimizes the impact on global markets.”

Hungary and Slovakia, which are heavily reliant on Russian energy and had opposed a sudden cut-off of oil, will be granted a longer timeframe -- until the end of 2023 -- to enforce the sanctions, according to people familiar with the matter.

Eoin Treacy's view -

A rumbling argument in the oil market is contributing to the evolving wedging characteristic in prices. For the bulls, the dislocation caused by Western Europe’s efforts to stop buying Russian oil, as well as leaning on other countries to do the same, is a clean support for prices. The bears believe the impending global slowdown will kill off demand, and the market will turn to surplus faster than many people expect. 



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May 04 2022

Commentary by Eoin Treacy

U.S. Cuts Quarterly Debt Sale, May Do So Again Even With Fed QT

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

The Treasury Department said in a statement Wednesday that it will sell $103 billion of long-term securities at auctions next week -- down $7 billion from February. This marks the longest string of quarterly cuts since a 2014-2015 cycle. In a surprise for some dealers, it’s also trimming sales of two-year, three-year and five-year auctions in coming months.

“The issuance plans announced today leave Treasury well positioned” with regard to necessary borrowing, the department said in its statement. However, “additional reductions in future quarters may be necessary depending on future developments in projected borrowing needs.”

Eoin Treacy's view -

The Fed hiked by 50-basis points today as expected and suggested 75 basis point hikes are not being actively considered. The pace of quantitative tightening will initially be slower than initially expected.  It will start on June 1st at $47.5 billion and ramp up to $95 billion over the next quarter instead of starting at $95 billion now.



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May 03 2022

Commentary by Eoin Treacy

Video commentary for May 3rd 2022

Eoin Treacy's view -

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

Some of the topics discussed include: stocks markets quiet ahead of Bank of England and Fed rate decisions, China rebounding on easier monetary policy, Australia weakness on tighter policy, commodities at risk from slower growth. The biggest risk to a recovery is stagflation. gold at 200-day MA, Russell 2000 at 1000-day MA. 



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May 03 2022

Commentary by Eoin Treacy

Rogoff Sees Fed Hiking Rates Up to 5% as Prices 'Out of Control'

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

Fed Chair Jerome Powell and his colleagues are expected to raise interest rates by 50 basis points on Wednesday and signal they’re on track to lift them to around 2.5% by the end of the year. But it’s not clear if that’ll be enough to tame inflation, which is running at more than three times the central bank’s 2% target. 

Rogoff spoke about the “risks of having a perfect storm” of recessions, where European economic growth contracts because of Russia’s war in Ukraine, China’s does the same due to “a failed Covid lockdown policy,” and the U.S. economy shrinks because the Fed “tightens too much, too fast.”  

“If China has a supply recession, which is really what we’re talking about, that’s going to feed inflation, it’s going to hurt demand in Europe,” Rogoff said. “I would say the risk has risen palpably, that this might happen,” he said of a U.S. economic contraction that would hit global financial markets. 

“Things could work out well, and so there’s a lot of uncertainty -- but it’s not hard to see all of these risks,” he said, adding that China “might already be bordering on recession.”

Eoin Treacy's view -

Over the last month Treasuries sold off aggressively, the Dollar surged, major stock market indices pulled back sharply, and gold contracted. Conventional energy sources like natural gas and coal surged while crude oil has been steady. 

These trends have been pricing in both the potential for successive 50-basis point interest rate hikes and the supply disruptions arising from Russia using commodities as an economic weapon. Tomorrow’s Fed meeting will deliver news on the interest rate front but will do nothing to change the Ukraine question.



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May 03 2022

Commentary by Eoin Treacy

Politburo Brightens Mood for China Stocks After Gloomy Month

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

“The meeting addressed most of the pressing issues in the economy and is intended to boost confidence and turn around negative sentiment,” said Xiong Yuan, chief economist at Guosheng Securities. “It’s a rare exception that the Politburo publishes the statement during the trading day. Clearly it’s meant to incentivize investors to hold on to positions ahead of the holiday.

China’s top leaders responded to calls from investors and analysts alike to revive an economy hurt by Covid lockdowns that this week spread to Beijing and Yiwu, disrupting business operations and roiling global supply chains. The Politburo’s readout -- which was released at the earliest time of day of any since at least January 2017 -- came ahead of a five-day break for onshore markets.

While headwinds for China’s economy and markets still remain, in particular the government’s adherence to Covid Zero, traders are now asking whether this can be the long-awaited market bottom. 

The CSI 300 Index jumped 2.4% Friday, trimming this year’s loss to 19%. That still makes it one of the world’s worst performing national benchmarks, far outpacing the 13% decline in MSCI Inc.’s Asia Pacific gauge.

Eoin Treacy's view -

Mainland Chinese stock markets are closed until Thursday for the May holiday, but Hong Kong reopened today. Faced with the political impossibility of altering the COVID-zero program, the central government have little choice but to cede some ground on its recalibration of the economy. That should represent further progress in supporting the trend of the credit impulse.



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May 03 2022

Commentary by Eoin Treacy

Rba Rate Rise Knocks the Wind Out of ASX

This article from the Sydney Morning Herald may be of interest to subscribers. Here it is in full: 

The Australian sharemarket hit a downdraft when the Reserve Bank of Australia raised interest rates by a surprisingly large 25 basis points yesterday, as the markets digested the implications of rising debt costs.

The ASX 200 dropped 0.4 per cent, or 30.8 points to close at 7316.2 with tech stocks, the health care and industrials the only sectors to close in the black. Miners like BHP, Fortescue and Rio sunk after iron ore prices slumped overnight. Fortescue led the declines with a 4.8 per cent share price drop and Rio Tinto closed 1.5 per cent lower.

Finance stocks also took a hit with ratings agency Standard & Poor's saying home loan arrears are likely to drift up from historically low levels following yesterday's increase in interest rates.

Russel Chesler, head of investments at VanEck, said higher credit costs are likely to dent big bank profits.

"Locally, we are likely to see the big banks come under pressure in the month ahead as higher rates dent the banks' earnings from mortgages and bad debts could jump on higher credit costs." He expects companies which act like an inflation hedge, like gold and infrastructure, are likely to outperform. And despite the drop yesterday, rising commodity prices are expected to support the big miners through 2022.

"In this environment, with inflation running hot and interest rates rising, companies, including cyclical stocks, that can increase their prices and keep their customers at the same time, are likely to outperform," he said.

In other news, the chief executives of Australia's two largest private employers, Woolworths and Wesfarmers have thrown their support behind an increase in workers' wages amid persistently rising inflation and a tightening labour market.

There was also good news about the pandemic recovery, Transurban chief executive Scott Charlton said toll-road traffic has fully rebounded in Australia and is almost at normal levels in the US as businesses and consumers emerge from the pandemic.

Eoin Treacy's view -

This is the first Australian interest rate hike since 2011. With CPI at 5% and testing the upper side of a 30-year base formation, the RBA can be expected to continue to hike but perhaps not as quickly as other developed markets.



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April 29 2022

Commentary by Eoin Treacy

April 29 2022

Commentary by Eoin Treacy

Point and Figure Charts for FANGMANT

Eoin Treacy's view -

P&F charts don’t typically have time stamps, but the following charts incorporate at least 20 years of data where relevant. P&F charts only measure the movement in price up and down. We typically use 3 box reversals. That means the column will proceed to rise or fall until the price move three units of scale in the opposite direction on a closing basis. The benefit of P&F charts is they cut out the noise of inert ranges.



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April 29 2022

Commentary by Eoin Treacy

Exxon Triples Share Buybacks to $30 Billion as Profits Soar

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

Exxon Mobil Corp. tripled its share-buyback program to as much as $30 billion after profits surged amid Russia’s invasion of Ukraine and a rally in worldwide energy prices.

The repurchases will be made through the end of next year, Exxon said in a statement on Friday. The oil giant more than doubled first-quarter adjusted net income to $8.8 billion, or $2.07 a share, lagging estimates by 17 cents.

Chief Executive Executive Darren Woods cited a dip in output from oil and natural gas wells stemming from adverse weather and other factors. Exxon rose 0.3% to $87.43 at 9:33 a.m. in New York.

The oil giant took a $3.4 billion writedown due to its planned exit from its Sakhalin-1 operation in Russia, compared with a previously announced estimate of as much as $4 billion. The company declared force majeure at the venture earlier this week and curtailed crude production. 

Exxon follows TotalEnergies SE and Chevron Corp. in posting first-quarter results. The French oil titan pledged to buyback as much as $3 billion in shares before the end of June while Chevron disclosed its biggest profit in almost a decade.   

Eoin Treacy's view -

In an environment where pandemic padding of balances in the tech sector rapidly waring thin, the energy sector hasn’t had a year this good in decades. In times of uncertainty, when interest rates are rising and geopolitical threats are mounting, the reliability of strong cashflows, rising dividends and a thinning supply of stock will be welcomed by investors.



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April 29 2022

Commentary by Eoin Treacy

Bank of Russia Rejects Ruble-Gold Peg Idea, Differs With Kremlin

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

Bank of Russia Governor Elvira Nabiullina dismissed the idea of pegging the ruble to gold after the Kremlin said it was a proposal under consideration.

“It is not being discussed in any way,” Nabiullina told reporters at a briefing Friday after the central bank cut the key interest rate by 300 basis points. The ruble must continue to have a floating exchange rate, she said, though volatility of the currency will be higher amid capital controls imposed after Russia began its invasion of Ukraine.

Her comment appeared to contradict President Vladimir Putin’s spokesman, Dmitry Peskov, who said earlier Friday that “this question is now being discussed.” Peskov pointed to comments by Security Council Secretary Nikolai Patrushev on linking the currency to gold and other commodities in an interview with a state-run newspaper this week, while offering no further details.

Unprecedented sanctions on Russia’s central bank over the invasion of Ukraine deprived it of access to about half of its holdings, leaving it in possession of only gold and yuan. Before the war, Putin repeatedly argued that Russia needs to cut dependence on the dollar as a global reserve currency.

Speculation has been rife that sanctions on Russia may herald a far-reaching shift that could bolster bullion. Analysts like Credit Suisse Group AG’s Zoltan Pozsar predict that the seizure of the central bank’s foreign exchange reserves will result in a new monetary paradigm where gold plays a greater role.

Speaking with Rossiyskaya Gazeta, Patrushev said experts are examining proposals to back the ruble’s value with gold and other goods as part of an alternative system of finance that guarantees a measure of sovereignty and reduces the link to the dollar.

Continuing a multi-year effort to reduce exposure to the U.S. currency, the Russian central bank cut the share of dollars in reserves to 10.9% as of Jan. 1 from from 21.2% a year earlier. Gold was down slightly at 21.5%.

Until the invasion of Ukraine forced Nabiullina to enact capital controls, the ruble was allowed to trade freely since 2014, its value determined by the market. 

Eoin Treacy's view -

Demanding payment for commodity exports in Rubles is a major escalation of the stress Russia is imposing on the EU and the rest of the world. China speaking of its relationship with Russia as a new model for world order is an additional signal that conditions are not about to go back to the pre pandemic equilibrium



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April 29 2022

Commentary by Eoin Treacy

April 28 2022

Commentary by Eoin Treacy

Video commentary for April 28th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Japanese Yen continues to accelerate lower and weighs on all regional currencies, US growth negative but earnings boosted by Meta Platforms and Visa, gold and oil steady despite the strong Dollar. 



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April 28 2022

Commentary by Eoin Treacy

U.S. Economy Posts Surprise Contraction, Belying Solid Consumer

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

Against a backdrop of quicker inflation and solid spending, Fed monetary policy is still geared for a half-point rate hike next week. Nonetheless, officials need to balance tighter policy with risks to demand. 

The economy faces other potential headwinds that include knock-on effects from Russia’s war in Ukraine. Growth prospects in Europe are deteriorating, some raw materials are in short supply and the Chinese government’s severe pandemic-related lockdown measures are leaving supply chains in disarray.

The S&P 500 rose and the yield on the 10-year Treasury note remained higher along with the dollar.

“With strong growth of consumer spending, business investment and employment in the first quarter, the U.S. economy was not in a recession at the beginning of the year,” said Bill Adams, chief economist at Comerica Bank. “Growth should resume in the second quarter as the trade deficit and inventories become smaller headwinds.”

Biden blamed the contraction on “technical factors,” saying in a statement that employment, consumer spending and investment all remain strong.

Eoin Treacy's view -

When you feel pressured by inventory shortages and rising prices, the natural response is to accelerate purchases. Orders also tend to be front loaded to forestall the trouble of having to worry about inventory in future.



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April 28 2022

Commentary by Eoin Treacy

Will China lead the world into another 2008 crisis or will they spend their way out of trouble?

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

Weijian Shan, whose group PAG manages more than $50bn, said his fund had diversified away from China and was being “extremely careful” about its portfolio in the country.

“We think the Chinese economy at this moment is in the worst shape in the past 30 years,” he said in a video of a meeting viewed by the Financial Times.

“The market sentiment towards Chinese stocks is also at the lowest point in the past 30 years. I also think popular discontent in China is at the highest point in the past 30 years.”

In the video, Shan said that large parts of the Chinese economy, including its financial centre Shanghai, had been “semi-paralysed” by “draconian” zero-Covid policies and that the impact on the economy would be “profound”.

“China feels to us like the US and Europe in 2008,” Shan added. “While we remain long-term confident in China’s growth and market potentials, we are very cautious towards China markets.”

Eoin Treacy's view -

It seems like every central bank is chasing a soft landing. China used the pandemic induced boom in demand for exports to initiate a cleansing of the Augean stables. By clamping down on property development and private equity investment in technology, they hoped to reorient the economy to sectors that would further the dream of becoming a self-reliant global superpower.



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April 28 2022

Commentary by Eoin Treacy

Email of the day on the SPAC Index

Eoin, your SPAC Index. Is that a composite that you have drawn up from active SPACs? I have looked a few indices for this, but they show nowhere the decline yours does, I suspect that is because they will have a lot of weighting towards dormant SPACs that are trading in and around the $10 level.

Eoin Treacy's view -

Thank you for this question which others may also be interested in. The SPAC Index was created by IPOX. Here is how they describe it on their website:

The IPOX® SPAC Index is designed to track the aftermarket performance of Special Purpose Acquisition Companies (SPACs) which pursued initial public offerings (IPO) in the U.S. The index is an applied market-cap weighted index measuring the performance of the top publicly traded SPACs. The index is actively reconstituted and adjusted.

 



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April 27 2022

Commentary by Eoin Treacy

April 27 2022

Commentary by Eoin Treacy

Xi's Pledge Boosts Hopes Among Jaded China Stock Traders

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

Shares of Chinese infrastructure firms rallied on Wednesday following Xi’s pledge. The smaller, growth-heavy ChiNext Index soared 5.5%, the most since March 2016.
The barrage of verbal promises has drawn comparisons to the events in October 2018, when stocks were plummeting amid the U.S.-China trade war and domestic deleveraging worries.
Despite the initial boost, profit-taking soon kicked in and stocks tanked to fresh lows less than two months later. Historically cheap valuations pulled the market out of the doldrums in 2019.
“A revelation has hit traders that Chinese policy makers are facing an impossible trinity of goals here: they’re not going to hit the 5.5% growth target and limit the amount of leverage in their system and also have a zero-Covid tolerance policy,” Eli Lee, head of investment strategy at Bank of Singapore, told Bloomberg Television. “And this means, at the margin, the thesis for the Chinese renminbi and equities is weaker.”

Eoin Treacy's view -

There is no way the Chinese administration can walk back its COVID-zero policy. That’s as much about practicality as political priorities. Therefore, to even come close to placating an increasingly restive population, the Renminbi is being sacrificed at the expense of supporting the economy.



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April 27 2022

Commentary by Eoin Treacy

GS, Doosan and Samsung to Cooperate in SMR Power Plant Business

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

A signing ceremony was held at GS Energy Headquarters in Gangnam-gu, Seoul, on April 26 with the presence of representatives from the four companies. They included GS Energy president Huh Yong-soo, Doosan Enerbility vice president Na Gi-yong, Samsung C&T vice president Lee Byung-soo, GS Energy vice president Kim Seong-won, and NuScale Power president John Hopkins.

NuScale’s SMR is the only one of its kind to receive design certification from the U.S. Nuclear Regulatory Commission (NRC). It is regarded as the most advanced SMR in the world. It can be used for hydrogen production, seawater desalination, and heat supply to industrial complexes in addition to electricity generation.

The MOU is expected to generate huge synergies by combining NuScale’s SMR technology, GS Group’s power plant operation capabilities, Doosan Enerbility’s expertise in nuclear power plant equipment production, and Samsung C&T’s power plant construction capabilities.

A power plant using NuScale SMRs will be built and put into commercial operation in Idaho of the United States in 2029.

Eoin Treacy's view -

Last month Samsung also signed a memorandum of understanding aimed at building Seaborg’s modular self-contained molten salt reactors for nearshore power production. In addition to taking a minority stake in NuScale last year, this represents a significant bet on small scale nuclear construction. It’s not an exaggeration to think South Korea is aiming to dominate the construction of small modular reactors.



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April 27 2022

Commentary by Eoin Treacy

Crypto Mortgages Let Homebuyers Keep Bitcoin, Pay Down Nothing

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

Digital wealth meant little to banks when it came to a mortgage. And Burniske, 63, wanted to keep his coins rather than trade them for dollars. 

“If you cash out, you have to pay sizable tax and you’re leaving a lot of upside on the table because you’re getting out early,” he said.

Then came an option that wasn’t available when Burniske found the properties late last year: a 30-year fixed-rate mortgage secured by part of his Bitcoin and Ethereum holdings. He nailed down the loan from Milo Credit, a Miami-based startup that’s seeking to tap into the burgeoning pool of crypto loyalists who want to diversify their wealth while hanging on to their tokens.

Crypto mortgages are the latest example of the deepening role of digital coins in the U.S. real estate market, with property buyers and lenders alike embracing the volatile currencies to underpin deals for hard assets. Last year, Fannie Mae started allowing borrowers to use crypto for their down payments. New buildings going up in tech hot spots like Miami are accepting digital tokens for deposits on condos. A house in Tampa, Florida, even sold as an NFT earlier this year. 

Eoin Treacy's view -

The conventional metrics we have available come nowhere close to measuring the extent of leverage in the system. Companies buyback shares instead of paying dividends for a variety of reasons. From an investor’s perspective buybacks are preferrable to dividends because they are a tax-free benefit.



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April 26 2022

Commentary by Eoin Treacy

Video commentary for April 26th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: contagion spreading into the commodities and megacaps as correction intensifies, gold, oil and natural gas firm, shipping comapnies steady, China promises assistance but is shy on delivering as COVID spreads, Treasuries begin to steady as growth slows. 



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April 26 2022

Commentary by Eoin Treacy

Email of the day on industrial metals miners

“All the big mining companies coming down 20-25 pct in 4 to 5 days. pretty scary to me. what am I missing? Beside talk about the Fed raising interest rates in May with 0,5 pct and a growth scare or the lockdowns in China? Any other reasons? Should we now buy the miners again with the positive future ahead? Gold and copper also look attractive now. your opinion please”

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. Ultimately, the question can be distilled down to whether we believe the rest of the world is going to invest in enough infrastructure to outpace a significant economic slowdown in China. The answer is not necessarily binary. We probably get one first, then the other.  



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April 26 2022

Commentary by Eoin Treacy

Russia to Halt Gas to Poland on Wednesday in Major Escalation

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

Moscow appears to be making good on a threat to halt gas supplies to countries that refuse President Vladimir Putin’s new demand to pay for the crucial fuel in rubles. Europe has said that doing so would breach sanctions and strengthen Russia’s hand. Poland has been particularly vociferous in its criticism of Russia and has refused to comply with the new terms.

Eoin Treacy's view -

The energy volatility from the Russian invasion will continue to be a source of worry for the global economy for as long as sanctions are in place. That’s likely to be at least a few years and will weigh more heavily on countries lying close to Ukraine.  



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April 26 2022

Commentary by Eoin Treacy

I helped build ByteDance's vast censorship machine

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

Our role was to make sure that low-level content moderators could find "harmful and dangerous content" as soon as possible, just like fishing out needles from an ocean. And we were tasked with improving censorship efficiency. That is, use as few people as possible to detect as much content as possible that violated ByteDance's community guidelines. I do not recall any major political blowback from the Chinese government during my time at ByteDance, meaning we did our jobs.

It was certainly not a job I'd tell my friends and family about with pride. When they asked what I did at ByteDance, I usually told them I deleted posts (删帖). Some of my friends would say, "Now I know who gutted my account." The tools I helped create can also help fight dangers like fake news. But in China, one primary function of these technologies is to censor speech and erase collective memories of major events, however infrequently this function gets used.

Dr. Li warned his colleagues and friends about an unknown virus that was encroaching on hospitals in Wuhan. He was punished for that. And for weeks, we had no idea what was really happening because of authorities' cover-up of the severity of the crisis. Around this time last year, many Chinese tech companies were actively deleting posts, videos, diaries and pictures that were not part of the "correct collective memory" that China's governments would later approve. Just imagine: Had any social media platform been able to reject the government's censorship directives and retain Dr. Li and other whistleblowers' warnings, perhaps millions of lives would have been saved today.

Eoin Treacy's view -

The thing I find most interesting is how these kinds of stories are proliferating. It’s not like Chinese censorship of ideas is new. It is a measure of how much the West’s relationship with China has soured that the appetite for this kind of critical content is sustaining large numbers of articles.



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April 25 2022

Commentary by Eoin Treacy

Video commentary for April 25th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: China lockdowns spreading to Beijing, CSI300 down 4%. commodities pullback, Dollar surges, stocks wobble but begin to steady on China threat reducing potential for outsized interest rate hikes.  



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April 25 2022

Commentary by Eoin Treacy

Xi Puts Ideology Before Economy With Market-Busting Lockdowns

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

China’s worst equity selloff since early 2020 reflects a growing concern about President Xi Jinping: He
can’t afford the political costs of shifting from a Covid Zero strategy that is pummeling the economy. 
In Shanghai, a weekslong Covid-19 lockdown got even worse, with workers in hazmat suits fanning out over the weekend to install steel fences around buildings with positive cases. In Beijing, the process is just getting started, as authorities on Monday began shutting down a bustling district in the capital to
quash fresh outbreaks. 

The threat of paralyzing China’s two largest and wealthiest cities with a strategy abandoned by most countries helped push the CSI 300 down 4.9%, the gauge’s steepest one-day drop since the first such lockdown in Wuhan two years ago. The spreading lockdowns have investors worried that Xi is sacrificing the Communist Party’s reputation for pragmatic economic management to defend a political narrative that portrays him as the world’s most successful virus-fighter.

“This Covid situation is really putting China into a very dark moment, perhaps the darkest moment in economic terms for the last couple of decades,” Junheng Li, JL Warren Capital founder and chief executive officer, said of the Shanghai lockdown during an interview on Bloomberg TV. “It’s a confidence
crisis in a sense that you’ve got the most affluent city in China with this consensus disappointment and resentfulness towards a very non-sensible policy.”

“People really don’t know, what’s a clear path to get China out of this Covid situation,” Li said.

Eoin Treacy's view -

Democratic capitalist systems focus on the health of the corporate/financial system to achieve social cohesion and rising living standards. Communist systems focus on sustaining political stability to achieve the same ends. That difference doesn’t become obvious until a crisis challenges it.



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April 25 2022

Commentary by Eoin Treacy

Email of the day on yield curve inversions

Thanks for this commentary Eoin, which I found very good. I think we can have an intermediate correction in commodities and equities. The equity correction might be longer lasting and deeper in my opinion given valuations, interest rates, and massive positioning but I agree totally that the Fed will loosen policy when the going gets tough. That's what the Fed did during the 1970s several times if my memory is correct. I think the Germans did the same during the 1920s with much worse results, but their position was much worse.

One thing regarding the yield curve. If the Fed raises rates 250 or 300 bps, the curve will invert mathematically if bond yields are unchanged or fall. However, once the market sees the Fed raising rates, long rates could increase depending on inflation and the economy

Eoin Treacy's view -

Thank you for this insightful email. I don’t want to put limits on how long or how deep a correction can be. We can only deal with the reality provided by markets. The one thing we do know is the correction is in response to tightening liquidity conditions, so it is unlikely to end until liquidity conditions ease.



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April 25 2022

Commentary by Eoin Treacy

Next Grocery Shock Awaits as Food Giants Face Cooking Oil Risks

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

The move by Indonesia, which accounts for a third of global edible oil exports, will add to turmoil facing emerging markets from Sri Lanka to Egypt and Tunisia. Even developed countries could see sharp rises in supermarket prices.

Palm oil is one of the most versatile staples, used in thousands of products from food to personal care items to biofuels. Prices of cooking oils have been on a tear due to drought and labor shortages. Then the war in Ukraine roiled trade of about 80% of global sunflower oil exports, boosting demand for alternatives like palm and soybean oil and sending prices to record highs. 

Indonesia’s ban applies to exports of RBD palm olein, a higher value product that has been processed. Exports of crude palm oil and RBD palm oil will still be allowed, according to people familiar with the matter. RBD olein accounts for 30% to 40% of Indonesia’s total palm oil exports. 

The move could increase costs for packaged food producers such as Nestle, Mondelez International and Unilever. Nestle declined to comment, while the other companies didn’t respond to a request for comment. It may also force governments to choose between using vegetable oils for food or biofuels. 

Eoin Treacy's view -

Palm oil prices initially popped higher on the news of Indonesia’s export ban but were not spared the decline in the wider commodity complex today. Nevertheless, the longer Indonesia’s ban persists the bigger the knock-on effect for regional consumers. Inflationary pressures may ease in industrial commodities, but agricultural prices are less susceptible to slowing Chinese growth.



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April 25 2022

Commentary by Eoin Treacy

SoftBank Cuts Back Spending, Leaving Startups Desperate for Cash

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

Hurt by plunging tech valuations, SoftBank is walking away from some of its loss-making portfolio firms to comply with stricter investment criteria, said the people, who asked not to be identified because the matter was not public. Many of the two Vision Funds’ portfolio of 300-plus companies are loss-making.

The Japanese investment firm offered to contribute money if Light could find another investor to lead the next fundraising round, one of the people said. But with its biggest backer offering only a token amount, other investors were wary about stepping in, the person said. The Redwood City, California-based startup has hired a consulting firm to explore options, including winding down operations.

“Their purse strings are tight as they have ever been,” the person said.

A Vision Fund spokesman and Light Chief Executive Officer Dave Grannan declined to comment. 

The adoption of prudence at SoftBank’s Vision Fund -- which rewrote the rules of venture capital by deploying billions of dollars from the sovereign wealth funds of Saudi Arabia and Abu Dhabi into startups -- is an about-face from its past freewheeling largess. 

For years, SoftBank’s founder and Chief Executive Officer Masayoshi Son persuaded startup founders to accept Vision Fund money by encouraging them to think bigger and promising continued support to help them expand. He would often invest more money than founders were looking for if they would try to accelerate growth.

Before approving the investment in Light, the billionaire made clear to Grannan that his interest was predicated on the startup’s ability to adapt its depth-sensing imaging technology for self-driving cars -- something Light’s founders never considered before.

Eoin Treacy's view -

Ambitious startups with big ideas and no path to profits are finding the Vision Fund is a fair-weather friend. That only increases the pain they experience as yields rise. The startup sector is most acutely sensitive to tighter liquidity. Some will not survive this correction.



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April 25 2022

Commentary by Eoin Treacy

April 22 2022

Commentary by Eoin Treacy

April 22 2022

Commentary by Eoin Treacy

Pound Hits Lowest Since Lockdown on Signs U.K. Recovery Slows

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

The readings will feed into debate about how quickly policy makers should move to calm inflation, which at 7% is more than triple the target. Investors anticipate another increase in interest rates next month, bringing the key lending rate to 1% for the first time since the global financial crisis more than a decade ago.

BOE policy maker Catherine Mann on Thursday raised the prospect of a bigger jump in interest rates to control inflation. She also said she’s focused on how well demand holds in determining how to vote in May. 

She noted that data suggested “consumers were forward-looking, which would translate into a period of softer demand growth, perhaps even retrenchment.”

“Mann put the cat amongst the pigeons yesterday by suggesting the BOE could accelerate its pace of tightening if the economy withstood the cost of living crisis,” ING analysts wrote in a note. “Today’s soft U.K. March retail sales release is a notch against such an outcome.”

Eoin Treacy's view -

The big question is whether the growth slowdown in the UK is a prelude to what we can expect from the rest of the world? My hunch is yes. The UK aggressively boosted money supply and debt issuance during the pandemic, was among the first to remove mask mandates, experienced a jump in activity immediately afterwards, and is now beginning to experience a hangover as the rising cost of all consumables bites into spending power.



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April 22 2022

Commentary by Eoin Treacy

Email of the day on commodity prices

if we are at peak inflation now, as some suggest, do you believe it's time up for the commodity trade? Freeport, Anglo, Alcoa has vicious pull backs this week from highs, with some of those having key week reversals. If you've made money, take shelter and come back another day, or stick it out because the longer-term structural story is intact?

Eoin Treacy's view -

Thank you for a topical question. The big question at present is whether we are in a cyclical or secular bull market for commodities and industrial resources in particular.  

The cyclical argument runs that the current conditions are similar to the post credit crisis rebound. From early 2009 commodities rallied from depressed levels to new highs inside of three of years. Then monetary conditions tightened as balanced budget measures were imposed in both the USA and Europe. As monetary conditions tightened, and the Dollar strengthened, commodities peaked went through a crushing bear market for the next five years.



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April 22 2022

Commentary by Eoin Treacy

Stripe Teams Up With Twitter in Renewed Crypto Payments Push

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

The move is the latest manifestation of Stripe’s renewed interest in crypto after rivals such as Block Inc., PayPal Holdings Inc. and Checkout.com made inroads in the industry. Stripe suspended support for Bitcoin payments in 2018, but began recruiting crypto talent last year and in March said it was helping digital-asset exchanges FTX and Blockchain.com with online payments and customer verification. 

Creators on Twitter will be able to receive payments initially in the stablecoin USD Coin. The payouts across the Stripe Connect platform will be made using Polygon, a blockchain network designed to make Ethereum faster and easier to use. Stripe said it chose Polygon because of its speed and low transaction fees.

Eoin Treacy's view -

Distributed ledgers and trustless networks continue to gain traction in the financial services sector. The desire to track ownership and the origin of funds has probably increased with the sanctions levied on Russia which should be positive for blockchain-based payments systems. However, that doesn’t tend to have much influence on the trajectory of crypto assets.



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April 21 2022

Commentary by Eoin Treacy

Video commentary for April 21st 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Jay Powell suggsts 0.5% hike in May, stock markets pull back across the board, Dollar firm, China devaluing renminbi stock market tests March lows, FANGMANT looks susceptible to additional weakness. Vietnam weak, India firm. 



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April 21 2022

Commentary by Eoin Treacy

Stocks Decline as Treasury Yields Resume Climb

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

U.S. stocks fell as the selloff in Treasuries resumed, with the rates market hedging the possibility that the Federal Reserve will tighten policy more aggressively. The dollar gained.

The S&P 500 dropped, reversing gains of as much as 1.2%. The tech-heavy Nasdaq 100 extended losses, underperforming major benchmarks, as the jump in yields weighed on growth-related stocks.

Treasury yields rose across the curve, with the policy-sensitive two-year rate climbing 14 basis points 2.72% as traders priced in 50 basis-point rate hikes at each of the next three meetings. The dollar gained against all of its major peers following the surge in yields.

Fed Chair Jerome Powell said he saw merit in the argument for front-loading interest-rate increases and that a half-point hike “will be on the table for the May meeting.”

Eoin Treacy's view -

Tesla’s earning buoyed sentiment this morning but the momentum was short lived. The Federal Reserve wants to kill off demand. They know as well as the rest of us raising rates will do nothing to increase oil supply, clear port congestion or boost crop yields. The tools they have at their disposal all target demand.   



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April 21 2022

Commentary by Eoin Treacy

China Stocks Plunge as Xi Offers No Respite From Covid Lockdowns

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

In a sign that authorities are keen for the slide to end, the China Securities Regulatory Commission said that on Thursday it met with institutional investors such as the National Social Security Fund, banks and insurers to ask them to boost their equity investments.

Lockdowns in major cities across the country, coupled with capital outflow risks as the Federal Reserve hikes rates, have dampened sentiment toward local Chinese shares. Investors who had expected authorities to ramp up stimulus have since been underwhelmed, with Wednesday’s decision by banks to keep lending rates unchanged serving as another setback.

“The market is flooded with pessimism,” said Wu Wei, fund manager at Beijing Win Integrity Investment Management Co. “While there have been some policies since Liu He, the greater weight on people’s minds now is the virus. No one can accurately guess the bottom. Judging from the virus situation, we could still see a further slide.”

 

Eoin Treacy's view -

As predicted early this year, China’s covid problem was the wildcard no one was properly prepared for. Politics is the primary concern of every Communist administration. The leadership question will be settled at the Party Congress in November. There is no chance of the Covid-zero policy being abandoned before then.



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April 21 2022

Commentary by Eoin Treacy

Freeport Slumps as Inflation Counters Bumper Copper Haul

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

The company lowered its sales guidance for this year to 4.25 billion pounds of copper from a previous call of 4.3 billion, and raised its annual cash cost forecast to $1.44 a pound from $1.35 and ahead of the average analyst estimate.

Freeport sees the kind of dramatic cost inflation that is affecting miners now as temporary, although “time will tell,” Chief Executive Officer Richard Adkerson said on a call with analysts.  

For now, cost increases are being offset by higher output and surging prices, translating into bumper profits. Adjusted earnings more than doubled to a better-than-expected $1.07 a share. 

Freeport produced 1 billion pounds of copper in the first quarter, exceeding the 996 million-pound average estimate of six analysts tracked by Bloomberg. The result was well ahead of the same period last year, although slightly below a three-year high clocked in the fourth quarter. Freeport also produced more gold than expected in the quarter.

Eoin Treacy's view -

Reporting bumper production but rising costs is symptomatic of the challenge facing miners. They will be reluctant to spend the money necessary to radically increase supply when they do not have visibility on inflation and interest rates. That’s particularly true when rising production threatens to put a lid of the appreciation in metal prices.



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