Investment Themes - Precious Metals / Commodities

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October 25 2021

Commentary by Eoin Treacy

Gold Extends Gain as Inflation Risks and Virus Concerns Persist

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

“Gold and silver’s recent strong run of gains received a temporary setback on Friday in response to a sudden bout of taper tantrum following comments by Fed Chair Powell,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in a note. “At the same time, however, he talked down the risk of raising interest rates while also expressing concern over persistently elevated inflation.” 

Eoin Treacy's view -

Around the world, central banks are raising interest rates in response to inflationary pressures that are both more persistent and intense than many anticipated. Some countries will benefit from this turn of events. They have positive balance of payments, booming exports and their currencies are appreciating. That group is concentrated among the commodity exporters.



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October 25 2021

Commentary by Eoin Treacy

Brazil Analysts Jack Up Inflation, Rate Forecasts as Woes Grow

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

Brazil analysts expect a higher interest rate both this year and next after the government said it would
circumvent the public spending cap to increase spending on the poor.

The central bank will lift the Selic to 8.75% at the end of this year and 9.5% in 2022, up from prior projections of 8.25% and 8.75% respectively, according to a survey published on Monday. Analysts also lifted their year-end inflation forecasts to 8.96% this year and 4.40% in 2022, both above target. 

President Jair Bolsonaro announced last week plans for cash transfers to the poorest that would be financed either by a waiver or changes to the spending cap rule. The increased spending, coupled with a fresh plunge in the currency, are boosting bets that policy makers will have to raise borrowing
costs faster. The central bank will meet over rates Tuesday and Wednesday.

With annual inflation running above 10%, policy makers led by Roberto Campos Neto had promised their third consecutive rate hike of a full percentage point this week. But now analysts at major Wall Street firms expect them to deliver an increase of at least 125 basis points. 
 

Eoin Treacy's view -

It’s hard to imagine that 8.5% in short-term rates still represent negative real interest rates for Brazil. Inflation running at 10% is a major challenge for any government but especially during a time when a restive population is agitating for more spending and better conditions.



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October 22 2021

Commentary by Eoin Treacy

Russia sharply raises key rate as prices soar

This article from Bloomberg may be of interest to subscribers.

Russia's central bank aggressively raised its interest rate for the sixth time in a row Friday in an
effort to slow soaring food prices, and did not rule out further hikes.

Rising prices, falling incomes and a lack of tangible government support during the pandemic have been eroding popular support for President Vladimir Putin's two-decade rule, and authorities are under pressure to ease inflation.

At a meeting on Friday, the Bank of Russia increased its key rate by 0.75 percentage points to 7.50 percent, surprising many analysts who had expected a smaller hike.

The bank said that more hikes could follow and revised up inflation predictions.

"Inflation is developing substantially above the Bank of Russia's forecast and is expected to be within the range of 7.4-7.9 percent at the end of 2021," the bank said.

The Bank of Russia said that as of October 18, inflation stood at 7.8 percent but was expected to return to 4.0-4.5 percent next year.

"The central bank continues to act decisively and proactively," Dmitry Polevoy, head of investment at Locko Invest, said in a note to clients.

After months of historically low inflation, consumer prices began to climb in March 2020, driven by a drop in the ruble's value in the middle of the coronavirus pandemic.

The central bank started raising its historically low rate the same month. Its next rate review meeting is scheduled for December 17. In September, the bank raised its interest rate by 0.25 percentage points to 6.75 percent.

Eoin Treacy's view -

Russia is a major grain producer but is also reliant on imports for many additional food stuffs. That offers a graphic representation of how everyone is susceptible to the fragility of the global supply chain. Shutting the whole world down eighteen months ago had a dire effect on the ability of producers to manage their operations. The ensuing volatility has taken much longer than anyone thought to iron out and it is not over yet.



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October 21 2021

Commentary by Eoin Treacy

Email of the day on recycled gold

How will the recycling of gold, silver and other raw materials from mobile phones affect the markets for these metals. [Times article]

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The World Gold Council estimated that about 10% of recycled gold comes from electronics at present. The method discussed in the above article suggests Excir is using both extreme heat and chemical deposition to extract precious metals from phones since they claim it can be done in seconds. There is no discussion of how dependent the process is on high prices.  



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October 18 2021

Commentary by Eoin Treacy

Radiant aims to replace diesel generators with small nuclear reactors

This article from NewAtlas may be of interest. Here is a section:

Radiant says its fuel "does not melt down, and withstands higher temperatures when compared to traditional nuclear fuels." Using helium as the coolant "greatly reduces corrosion, boiling and contamination risks," and the company says it's received provisional patents for ideas it's developed around refueling the reactors and efficiently transporting heat out of the reactor core.

Radiant joins a number of companies now working on compact nuclear reactors, and a smaller number focusing specifically on portable units, which would include the floating barges proposed for mass-manufacture by Seaborg. It'll be a while before we see one up and running, but a clean, convenient, low-cost, long-life alternative to diesel generators would be very welcome.

Eoin Treacy's view -

The evolution of small modular reactors and the increasing volume of space traffic point towards secular growth trends for helium. The terminal decline of helium supply from North America’s major source of production in Amarillo Texas was highlighted in 2018 as a major supply bottleneck. It had the potential to be a major supply inelasticity trend, as new sources of demand emerged. With so much enthusiasm about nuclear reactors in the market today, I thought it might be worth revisiting.  



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October 15 2021

Commentary by Eoin Treacy

Fertilizer Woes Paint Bleak Outlook for the Pantry

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

Fertilizer plant shutdowns in the U.K. highlighted how critical the situation is, because it cut off supplies of carbon dioxide, a byproduct that’s needed for everything from slaughtering animals to packaging food. A deal was struck this week to maintain output in the coming months, averting more chaos for the sector.

The risk is that it’s just a quick fix. The owner of the British plants, CF Industries, said that CO2 users need to look for new sources of supply. An industry group also warned that temporary fertilizer-plant closures in Europe could become permanent.

It’s a worrying sign for future harvests a time when global food prices are at a 10-year high. There are concerns that farmers in France, the European Union’s top wheat grower, may find it hard to source fertilizers next spring, regardless of the price.

In Brazil, where a lot of farmers haven’t secured their fertilizer needs or locked in prices yet, worries of non-delivery are increasing. President Jair Bolsonaro has said the nation faces the risk of fertilizer shortfalls next year due to falling Chinese output in the wake of high energy costs.

Eoin Treacy's view -

Substituting coal for natural gas is the most common-sense solution to reduces carbon emissions. Unfortunately, that is not nearly ambitious enough to satisfy the demands of carbon fanatics. The result is there is resistance to increases supply from any and all sources. That’s putting pressure on fertiliser, carbon dioxide, heating and transportation costs.



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October 13 2021

Commentary by Eoin Treacy

This Company is Reinventing the Wheel and Ditching the Rubber Tire

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

While GACW is initially targeting the OTR sector, which includes mining, the global tire market is much bigger, and the company has plans to enter that too. That said, the initial focus on mining could raise in excess of $20 million in revenue per mine site given the significant numbers of vehicles involved in each mining project.

And while the company may have competitors in the mid-sized market, it does not have any competitors in the global OTR sector.

In addition to this market, the ASW technology can be applied to all vehicles currently using traditional rubber tires, a $322 billion estimated value in 2022.

So far, the company has raised $3 million and has 4 patents with 13 others pending. It is also currently testing its ASW products with mining partners with an evaluation period of between 6 and 12 months. From 2022, it intends to ramp up its production of the ASW product with full commercialization expected in 2023.

“At this point, our plan is to expand our distribution network and really start taking the tire industry by storm,” the company said.

Eoin Treacy's view -

Mining costs are heavily dependent on energy and transportation prices and the cost of complying with increasingly stringent environmental regulations. As those costs rise, the incentive for companies to find alternatives where possible becomes progressively more urgent. Finding a cheaper alternative for a major cost centre, while also mitigating environmental liability represents an attractive sales pitch; if it works. Here is a link to Global Air Cylinder Wheels’ website. 



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October 13 2021

Commentary by Eoin Treacy

Uranium ETFs Roaring Back After $1 Billion Influx on Nuclear Bet

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

That view has been buttressed by some recent announcements. On Tuesday, the French government said it will help a state-controlled utility company develop so-called small modular nuclear reactors by 2030, a move President Emmanuel Macron signaled as key to reducing global carbon emissions. Japan’s new prime minister said that the nation should replace aging nuclear power plants with such module reactors. 

Eoin Treacy's view -

This graphic, from the 1960s, depicting German expectations for how nuclear would become the dominant supplier of electricity is particularly noteworthy. It helps to highlights how wrong expectations for the future can be, particularly when linear extrapolations are relied on. It also highlights uranium has had plenty of false dawns over the decades.



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October 11 2021

Commentary by Eoin Treacy

Lumber prices have risen 50% since August, and 2 experts say the resurgence will continue through early 2022

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

A reason for the price increase in lumber is a modest increase in renovation demand after price-sensitive buyers proceeded with home improvement projects now that wood prices have seen a substantial correction, Dustin Jalbert, senior economist at Fastmarkets, told Insider.

Though Jalbert does not expect the kind of runup in lumber prices seen earlier this year - a period when there was a backlog of homes waiting to be built and a shortage of key construction supplies - as pandemic-related supply constraints continued to ease.

"The market has finally transitioned to a more balanced state compared with being severely oversupplied in the summer months, which ultimately drove the massive correction in prices from record-high levels set in May," Jalbert told Insider.

And even if Americans wanted to build and renovate homes, the field consumption of lumber is being bogged down by shortages of other complementary materials such as windows, siding, cabinet appliances, and garage doors, he added.

The supply side, meanwhile, continues to face challenges, Jalbert said. Log costs in British Columbia, which accounts for about 16% of North American lumber capacity, remain elevated.

Eoin Treacy's view -

Commodities tend to remain in well-defined ranges for years before breaking out and rallying in a profound manner that creates an uncomfortable feeling for consumers and sets new price expectations for sellers. Lumber spiked higher between 1991 and 1993. It subsequently gave up most of the advance but never dropped back into the preceding range.



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October 08 2021

Commentary by Eoin Treacy

Strategy Data Pack October 2021

Thanks to a subscriber for this report from Mike Wilson’s team at Morgan Stanley which may be of interest. Here is a section:

Key Points:
• We are now calling for Fire AND Ice. We have been calling for a mid-cycle correction to happen one of two ways:
• Fire: tightening financial conditions as the Fed signals tapering is coming
• Ice: growth disappointment particularly on the earnings side
• We think it’s increasingly likely these scenarios happen together and we get a >10% correction. The Fed will likely announce its taper plans at its next FOMC meeting just as we expect a disappointment in earnings to materialize.

• Earnings Trouble Ahead. A number of companies have flagged serious supply chain issues in off-cycle earnings reports over the past month. Both forward earnings estimates and price de-rated after many of these reports. We think this will be a pervasive dynamic during 3Q reporting season and expect it to trigger downside in earnings revisions at the index level- a headwind for price. Beyond 3Q, we think the earnings risk comes more from (1) the inability of companies to pass on pricing (2) margin risk related more to higher wages and (3) a reversion (lower) in goods consumption

Eoin Treacy's view -

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

I don’t mind admitting I have been perplexed by the relative strength of Wall Street against a background of rising bond yields. The 5-year is trading above 1%, the 10-year hit 1.6% today and the 30-year is also running ahead. Meanwhile CPI at 5.2% is back at levels not seen since 2007.



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October 07 2021

Commentary by Eoin Treacy

Schumer Says Debt-Limit Deal Reached, With Vote Possible Today

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

The plan reached between Senate Majority Leader Chuck Schumerand GOP counterpart Mitch McConnell would raise the statutory debt ceiling by $480 billion, according to a Senate aide. The amount would allow the Treasury to meet obligations through Dec. 3, the same day that the current short term government spending bill runs out.

“We’ve reached agreement to extend the debt ceiling through early December,” Schumer announced on the Senate floor Thursday morning.

The news added fuel to a rally in stocks. The S&P 500 Index headed for its biggest three-day advance since April as the risk of an economically devastating tightening in fiscal policy receded for now.

Eoin Treacy's view -

I’m not sold on the idea that investors were waiting with bated breath on the outcome of political negotiations to lift the debt ceiling. The initial furore about debt ceilings was a decade ago. Everyone now understands, it is mostly about political theatre. There is no realistic outcome where the US will renege on its debt obligations.



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October 05 2021

Commentary by Eoin Treacy

Oil jumps 2%, hits 3-year high as OPEC+ sticks to output plan

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

Despite the pressure to ramp up output, OPEC+ was concerned that a fourth global wave of COVID-19 infections could hit the demand recovery, a source told Reuters a little before the vote.

"The (price) move looks a bit outsized given the ministers just reaffirmed the decision announced in July, but it shows how tight the market is, reinforcing our view of asymmetric price action with risks skewed to the upside at these inventory levels," Barclays said in a note. 

Investors will closely watch Wednesday's crude inventory data from the U.S. Energy Information Administration for further direction.

Eoin Treacy's view -

OPEC has a clear interest in sustaining reasonably high prices but not so high that significant additional supply is encouraged back into the market. At prices above $80, a lot of marginal supply becomes economic and it takes about 6 months to bring significant volumes online.



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October 04 2021

Commentary by Eoin Treacy

Email of the day on politically secure mining jurisdictions

Can you please give us a an update on copper producer plays for relative strength for listings in areas of good governance? As David said, we realize we need the tailwind or bull market to be successful investors.

Eoin Treacy's view -

It’s an unfortunate circumstance that many of the best sources of vital resources are located in politically unstable parts of the world. These are countries where a new government/regime may decide on a whim to massively increase royalties or retroactively charge taxes on the new laws. There is also the potential that any contracts signed with the last government may become null and void. Therefore, there is a solid argument for favouring miners with operations in politically stable parts of the world. That’s particularly relevant during bull markets because profits tend to attract the attention of governments.  



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October 01 2021

Commentary by Eoin Treacy

Secular Themes Review October 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”

Supply Inelasticity Meets Rising Demand was the phrase David coined to explain the last commodity-led bull market. After decades of underinvestment in commodity supply infrastructure, the market was not prepared for the massive swell of new demand from China; as it leaped from economic obscurity into one of the largest economies in the world. A decade of investment in new production was needed to supply China and that crested ahead of the credit crisis in 2008.

Today, we also have extreme example of supply inelasticity, and demand is breaking records for all manner of goods and services. The factors contributing to these trends are quite different from a decade though. Some will be resolved relatively quickly. Others will take years.



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September 29 2021

Commentary by Eoin Treacy

Solar ETF Drops Most in Four Months as China Rattles Sector

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

Invesco Solar ETF (TAN) falls as much as 6.5% intraday, the most since May 4, amid growing investor jitters about China’s real estate crackdown potentially sparking a financial contagion. 

Among individual stocks, JinkoSolar down as much as 10.6% during the session, Beam Global -9%, Daqo New Energy -10%, First Solar-9.3%, Canadian Solar -7.8%

Eoin Treacy's view -

China is by far the largest manufacturer of solar panels. Silica is a major component for the sector and production is being hampered by electricity supply disruptions. That’s taking a toll on the solar sector. At the same time the upward pressure on government bond yields threatens the business model of many domestic installation businesses.



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September 27 2021

Commentary by Eoin Treacy

Email of the day - on the copper/silver ratio:

The price of copper has been rising for some time now, while the price of silver, an important industrial metal now is languishing at the bottom of its recent trading range. Would there be any merit in examining a long-term historical chart of the ratio of copper to silver?

Eoin Treacy's view -

Thank you for this question which may be of interest to the collective. The outlook for both copper and silver are increasingly intertwined with that of renewable energy. Copper is required in motors, electric recharging infrastructure and wind turbines. Silver is the best-known reflective material. It’s a major component of solar panels, although there are significant efforts underway to try to substitute reliance on the metal.



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September 27 2021

Commentary by Eoin Treacy

Email of the day on investing for inflation:

Dear Eoin, Many thanks for your comment on inflation as a solution for the massive public debts. In these circumstances how would you structure your portfolio? In which sectors would you invest your funds?

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. This is a very big question because the stocks that have done best over the last decade have benefitted enormously from the massive availability of liquidity and very low rates. Divesting from the best performers runs contrary to most people’s instinct to run their winners so monitoring the consistency of their price action is particularly relevant to all portfolios over the next decade.



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September 17 2021

Commentary by Eoin Treacy

How China's Pollution Fight Is Roiling Commodities

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

The growing importance of the environment in Beijing’s policy mix has left commodities markets caught between decelerations in both supply and demand. Iron ore prices more than halved between mid-May and mid-September as the steel production limits slashed demand for the steel-making ingredient. Aluminum, meanwhile, has jumped 46% so far this year as Chinese production -- more than half the world’s total --  of the energy-intensive metal is cut. The curbs on coal are particularly eye-catching because China has been wrestling with an unprecedented spike in the cost of the fuel. Coal futures in Zhengzhou hit a record in September, defying what should be a seasonal slowdown in demand. Any further cutbacks on output would run counter to the government’s pledges to stabilize prices by encouraging more domestic supply. It also would make another round of power rationing for industry more likely. Since coal is the major energy source in China for the production of fertilizer, its price has also soared.

Eoin Treacy's view -

The big question for many commodity investors is how serious is China about curtailing emissions? Perhaps a better question is how important is it to China’s leadership that the country look good ahead of the Winter Olympics in less than five months? Very important, is probably an understatement.



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September 15 2021

Commentary by Eoin Treacy

Priciest Food Since 1970s Is a Big Challenge for Governments

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

Adjusted for inflation and annualized, costs are already higher now than for almost anytime in the past six decades, according FAO data. Indeed, it’s now harder to afford food than it was during the 2011 protests in the Middle East that led to the overthrow of leaders in Tunisia, Libya and Egypt, said Alastair Smith, senior teaching fellow in global sustainable development at Warwick University in the U.K.

“Food is more expensive today than it has been for the vast majority of modern recorded history,” he said.

Eoin Treacy's view -

It is interesting to contrast the charts of Food and Agriculture World Prices disseminated by the UN with how the commodity sector as a whole has performed.



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September 10 2021

Commentary by Eoin Treacy

Shanghai Copper Stockpiles at Lowest in a Decade, Nickel Jumps

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

Copper inventories extend a drop to the lowest level in almost 10 years, while aluminum holdings also fell and nickel inventories climbed, according to weekly data from Shanghai Futures Exchanges.

Copper -11% to 61,838 tons, lowest since Dec. 2011
Aluminum -1.6% to 228,529 tons, lowest since Dec.
Lead +3.3% to record 204,008 tons
Nickel +45% to 8,608 tons, following a more than 30% gain the previous week

Eoin Treacy's view -

The realisation that contagion risk in the property sector could bring down the whole economy has refocused the attention of the Chinese administration on easing up on liquidity tightening measures. That has helped to stabilise the high yield sector and is also helping to improve the outlook for industrial resources.



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September 03 2021

Commentary by Eoin Treacy

Secular Themes Review September 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

If it walks like a duck and quacks like a duck, it must be a duck. Wall Street is behaving like it is in a bubble. The most important thing is the bubble is still inflating.



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September 02 2021

Commentary by Eoin Treacy

Email of the day - on candlestick patterns

Dear Eoin Your monthly chart of gold shows a perfect and quite rare "Dragonfly Doji" candlestick pattern. With your considerable charting knowledge would you regard this as a bullish technical signal?

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. There are hundreds of candlestick patterns with colourful names. In order to assess how meaningful any one of them is we generally only have to ask one question. Did the price action have a big psychological impact?



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September 02 2021

Commentary by Eoin Treacy

Email of the day on food price inflation and political polarisation

I did notice the surge in fresh fish prices for the past 6 months. For example, dover soles (300-400g size) had been in the 20-25 eur/kg (with an average at +/-23 eur) for +/- 15 years with a few peaks at 30 eur and dips at 18 eur; for the past 6 months, I have never seen the price below 30 euros and it has averaged 35-37eur with peaks at 40+ eur. I wonder whether it has to do with Brexit and therefore less fish available on the EU market. In any case all fish prices have substantially increased (depending on the species 40-70%); the cost of milk, pasta, etc. has also increased, not talking about gasoline or real estate.

(Here in Luxembourg, I have been made aware that a new project outside the city -at +/- 10 km to the north- a new residential development to be delivered in 2023 has prices at 20.000 euros/sq m for flats of 65-75 sq m) ... [Ed. c.€1890/sqft]

Wages are not following, and taxes are globally up with budgets still showing too large deficits. This will fuel resentment and populism, maybe revolts when people have nothing left to lose (the situation is dire in France and the split within the have and have nots deepening by the day compounded by and immigration - whether with a French ID or not - separatism being more evident by the day. Wages are not following.

Eoin Treacy's view -

Thank you for this insightful account. The rising cost of marine products may be an unintended consequence of renewable energy, regulations and compliance. This article from the BBC profiling Grimsby may be of interest. Here is a section: 

Shell fisherman Darren Kenyon is not a fan of the wind companies, though.

"It's been a really bad thing for us," he says. "They've taken thousands of miles of sea up, and put wind poles in. They've gridded the sea with electricity cables."

Darren complains that he cannot compete with the wages the wind farm companies pay their crews. 

And

According to the environmental group, Greenpeace, just five wealthy UK families own or control nearly a third of the country's fishing quota.

Danny complains that the whole system conspires to push small players out. Retiring smaller fishermen have often sold their quota - sometimes to continental Europeans. Others rent out their allocation on a monthly basis; they're known in the trade as "slipper skippers" because it's assumed that they sit snug and warm at home while others go fishing.



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September 01 2021

Commentary by Eoin Treacy

Biden administration ramps up antitrust efforts amid worries about high prices

Thanks to a subscriber for this article from The Washington Post may be of interest to subscribers. Here is a section:

But other troubling signs have emerged in ways that threaten the administration’s political agenda. The price of gasoline rose by 2.5% in June and 2.4% in July — a rate which, if consistent over the course of the year, would amount to a more than 20% annual increase. Gas prices have risen above $3 and are at their highest level since 2014 as part of a broader increase in prices that the administration is eager to reverse. Prices could increase further as Hurricane Ida slams into Louisiana, a key hub for refineries, although that uptick will likely prove temporary.

Food price hikes also strained family budgets, rising by roughly 3.4% from last year. The Agriculture Department saw faster than expected jumps between June and July in the price of 11 different food categories — including beef and veal; seafood; fish; and dairy products — with pork and chicken prices increasing by about 2% in just one month. USDA projected jumps in poultry prices of as high as 6% over 2021.

Eoin Treacy's view -

The big question for investors is how serious are politicians about interfering to control commodity prices? There are certainly measures which can be implemented to address anti-competitive behaviour, but the reality is that many of the supply bottlenecks have arisen as a result of direct government policies.



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August 31 2021

Commentary by Eoin Treacy

How water shortages are brewing wars

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

Unfortunately, there's no one-size-fits-all solution to water scarcity. In many countries simply reducing loss and leaks could make a huge difference – Iraq loses as much as two-thirds of treated water due to damaged infrastructure. The WPS partners also suggest tackling corruption and reducing agricultural over-abstraction as other key policies that could help. Iceland even suggests increasing the price of water to reflect the cost of its provision – in many parts of the world, humans have grown used to getting water being a cheap and plentiful resource rather than something to be treasured.

Much can also be done by freeing up more water for use through techniques such as desalination of seawater. Saudi Arabia currently meets 50% of its water needs through the process. "Grey", or waste water, recycling can also offer a low-cost, easy-to-implement alternative, which can help farming communities impacted by drought. One assessment of global desalination and wastewater treatment predicted that increased capacity of these could reduce the proportion of the global population under severe water scarcity from 40% to 14%.

At the international level, extensive damming by countries upstream are likely to increase the risk of disputes with those that rely on rivers for much of their water supply further downstream. But Susanne Schmeier, associate professor of water law and diplomacy at IHE Delft in the Netherlands, says that co-riparian conflict is easier to spot and less likely to come to a head. "Local conflicts are much more difficult to control and tend to escalate rapidly – a main difference from the transboundary level, where relations between states often limit the escalation of water-related conflicts," she says

Eoin Treacy's view -

Large populations with aspirations of increasing living standards are bumping up against the reality of resource scarcity. This is particularly true for water because many people think of it as free resource that falls from the sky or flows through the city. As cities grow larger and the global population becomes further concentrated at the deltas of major rivers, it is inevitable that water is going to become an increasingly contentious issue. That’s before anyone even begins to think about the ramifications of a changing climate.



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August 27 2021

Commentary by Eoin Treacy

Fearing Inflation, Germans Load Up on Gold Bars

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

Demand for physical bullion in Germany, traditionally the biggest coin and bar buyer in Europe, was the highest since at least 2009 in the first half, World Gold Council data show.

While purchases in other Western markets have also been strong, Germans in particular are pouring into the metal as a hedge against rising inflation -- and dealers say business remains good.

“We have a long history of inflation fear in our DNA. Now the inflation risk is picking up,” said Raphael Scherer, a managing director at metals dealer Philoro Edelmetalle GmbH, whose gold sales are up 25% on what was already a strong 2020.

“The outlook for precious metals is very positive.” Germany’s love of gold has its origins in the hyperinflation seen under the Weimar Republic a century ago, which saw consumers’ buying power collapse. Last month, the reopening of the economy helped German inflation jump to the highest in more than a decade. Negative interest rates in Europe are also making non-yielding assets like gold more attractive, Scherer said.

First-half demand for bar and coins in Germany increased by 35% from the previous six months, compared with 20% in the rest of the world, WGC data show.

Eoin Treacy's view -

I just realised this is the third day in a row I have featured an article relating to Germany. Imported inflation is running at a record rate and there is no sign it is abating just yet. Taiwan Semiconductor raising prices by 20% yesterday, rising shipping rates and higher commodity prices are all conspiring to raise prices for just about everything; everywhere. Meanwhile Euro weakness is a tailwind for inflationary pressures.  



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August 25 2021

Commentary by Eoin Treacy

Supply Squeezes are Reappearing Everywhere in Key Metal Markets

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

It’s hard to think of two metals with more disparate fundamentals than copper and lead, and long-term projections for prices reflect that. In one corner, there’s a metal that looks set to soar as it powers the world’s rapidly burgeoning renewable-energy and electric-vehicle industries, and in the other corner there’s lead. The highly toxic metal has been substituted out of virtually every product it’s been used in throughout history, and now the electric-vehicle revolution is posing a manifest threat to its last major application in conventional car batteries.

Still, for buyers scrambling to get hold of spot metal on the LME, the fact that lead prices are likely to crumble in the future will be of no comfort at all. And the general rule in commodities markets is that as long as buyers are bidding up spot prices, futures are likely to follow.

Eoin Treacy's view -

Every country has some form of a recovery plan from the pandemic and so does every consumer. That points to increased spending and not least because many purchases were delayed by the pandemic. That’s helping to support the price of all industrial resources since infrastructure spending is the go-to area for government stimulus.



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August 24 2021

Commentary by Eoin Treacy

Iron Ore Spikes With Commodities Markets Set for Demand Revival

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

Iron ore’s revival came after it lost about a quarter of its value in the past month, as China’s push to curb steel production hammered demand. But steel and other industrial commodities have rebounded this week, after China’s count of daily Covid cases fell back to zero and central bankers vowed to step up support for the real economy. Coking coal in China hit a record on Tuesday, while copper has also recovered amid signs that Chinese consumers are on a buying spree. 

“Iron ore just cannot be the only one lagging while everything else in steel space is massively bid,” Xiaoyu Zhu, a metals trader at StoneX Financial Inc., said by email. “After the price spike in coal products in the last two days, it’s hard for iron ore to stay quiet.”
 

Eoin Treacy's view -

Steel is as essential to economic development as it has ever been and that makes it a important component of global economic revival. The challenge for China is they have vast oversupply of manufacturing capacity for the alloy and rationalising it is an erstwhile priority.



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August 24 2021

Commentary by Eoin Treacy

Brazil farmers remove dead coffee trees, some switching to grains

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

Adriano Rabelo de Rezende, technical head at the Minasul coffee co-op, who flew over damaged coffee fields https://www.reuters.com/world/americas/frosts-stain-brazil-coffee-belt-growers-see-nearly-third-fields-hit-2021-07-30 with Reuters after the frosts, said the recommendation is for farmers to wait for the rains before taking any action.

“With the rains some plants could recover, so it will be better to decide the best action: what type of pruning,” he said.

Rains are expected in Minas Gerais by the end of the month. They will be key not only for the trees’ ability to recover, but also for the flowering stage that will determine production potential for the next crop.

Mario Alvarenga, who has two coffee farms in Minas Gerais, said the drought remains challenging.

“You don’t find any moisture in the soil up to 1 meter (40 inches) deep. Crops that were not hit by frosts are withering,” he said.

Alvarenga estimates that 18% of his coffee crops were damaged by frosts. He has already started pruning where he thinks trees have a chance of recovering when the first rains arrive, leaving the ones that are dead to be taken out later.

Eoin Treacy's view -

Shortly after I started working with David, he was invited to speak at the World Money Show in Orlando. We used it as an experiment in direct marketing and had a booth. One of the most memorable conversations I had was with one of the delegates. He was asking about commodities and I said orange juice looked promising.



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August 23 2021

Commentary by Eoin Treacy

Powell's Jackson Hole Gamble Runs Risk of Backfiring

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

In the end, it will come down to what Powell considers the bigger longer-term risk for the U.S.: Become trapped in a disinflationary spiral like that experienced by Japan as the forces of technological advances and globalization continue to press down on prices, or enter an inflationary zone of escalating cost pressures akin to what the U.S. suffered a half century ago.

Right now, he’s betting that the former is the bigger long-run danger, and holding off from tightening credit.

“The new framework is not so much about what kind of monetary policy you would expect right now, but what you might expect over the next year or perhaps longer as this recovery continues,” Wendy Edelberg, director of The Hamilton Project at the Brookings Institution, says. “They have made a pretty convincing argument they are going to keep monetary policy accommodative for longer than they would have under a different policy rule.”

But the path ahead will be far from easy as the Fed seeks to softly land the economy in the neighborhood of on-target inflation and maximum employment.

“It’s going to very difficult,” says Blinder, who was at the Fed when it achieved what many economists consider its only perfect landing for the economy, in the mid 1990s. “If they can achieve that, they deserve more than a pat on the back.” 

Eoin Treacy's view -

The US economic expansion is slowing down. The end of stimulus coupled with the rising perception of risk from the delta variant are conspiring to restrict economic activity. That’s not the kind of environment a central bank is likely to tighten into. In fact, these conditions are only likely to confirm the Fed’s conclusion that inflationary pressures are going to be transitory.



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August 23 2021

Commentary by Eoin Treacy

World's biggest wind turbine shows the disproportionate power of scale

This article from NewAtlas may be of interest to subscribers.

China's MingYang Smart Energy has announced an offshore wind turbine even bigger than GE's monstrous Haliade-X. The MySE 16.0-242 is a 16-megawatt, 242-meter-tall (794-ft) behemoth capable of powering 20,000 homes per unit over a 25-year service life.

The stats on these renewable-energy colossi are getting pretty crazy. When MingYang's new turbine first spins up in prototype form next year, its three 118-m (387-ft) blades will sweep a 46,000-sq-m (495,140-sq-ft) area bigger than six soccer fields.

Every year, each one expected to generate 80 GWh of electricity. That's 45 percent more than the company's MySE 11.0-203, from just a 19 percent increase in diameter. No wonder these things keep getting bigger; the bigger they get, the better they seem to work, and the fewer expensive installation projects need to be undertaken to develop the same capacity.

The overall result should be a drop in offshore wind energy production prices – a sorely needed drop, too. Current levelized costs of energy, as estimated by the US Energy Information Administration for new energy generation assets going live in 2026, place offshore wind as the most expensive way of generating a megawatt-hour right now, at US$120.52, where ultra-supercritical coal is more like $72.78 and standalone solar is around $32.78 before subsidies.

Obviously, wind fills in gaps that solar can't, and it'll be a crucial part of the energy mix going forward. Scaling the industry up with these mammoth turbines is the key reason why industry experts are predicting that the cost of offshore wind will drop by between 37 and 49 percent by 2050, as reported by Renew Economy.

MingYang says the MySE 16.0-242 is just the start of its "new 15MW+ offshore product platform," and that it's capable of operating installed to the sea floor or on a floating base. The full prototype will be built in 2022, installed and into operation by 2023. Commercial production is slated to begin in the first half of 2024.

Eoin Treacy's view -

The challenge for the wind sector is that many of the best locations have been taken up by turbines that are not nearly as powerful as the models currently being marketed. In many respects the wind sector is suffering from the same dilemma as the oil sector. How do you introduce new technology to an area where you have already sunk significant resources?



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August 19 2021

Commentary by Eoin Treacy

Evergrande Slumps as Investors See No Bailout After Huarong

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

Huarong’s bailout was reassuring for investors who went through months of agony guessing just how determined the Chinese government was in combating moral hazard. But even with $300 billion in liabilities that could roil banks, suppliers and home buyers, junk-rated Evergrande is seen as a separate case as authorities crack down on excessive leverage in the property sector. 

Investor concerns grew Thursday evening after Chinese regulators demanded Evergrande resolve its debt risks and refrain from spreading untrue information. People’s Bank of China and banking watchdog officials summoned the company’s executives, telling them to maintain operations and protect the stability of financial and property markets, according to a joint statement.  

“The Chinese government’s stance to prioritize social harmony and equality over corporate profit is becoming increasingly clear,” said Anthony Leung, head of fixed income at Metropoly Capital HK. “Evergrande is completely different in the sense that it is the poster child of an industrywide reckless risk-taking culture.”

Eoin Treacy's view -

China Evergrande has been investing in a wide number of non-core businesses for years and will likely be forced to sell all of its appreciated assets in order to avoid bankruptcy. That position as a forced seller leaves it in a weak position to get fair value. Therefore, the only conclusion is the company’s management are been punished for taking on excessive leverage and favoured companies will have the opportunity to pick up renewable energy, batter manufacturing and other positions at a discount.



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August 19 2021

Commentary by Eoin Treacy

It's Not Just Poppies

Thanks to a subscriber for this article from Outcrop magazine. Here is a section:

Plus, it would be many years before any mines would be developed, even if (as now seems possible) the Chinese are allowed by the Taliban to bring their can-do attitude to the task.

China has been cosying up to the Taliban (some of their leaders were on a Beijing visit a few weeks ago) and the Chinese government made it clear this week they had "maintained contact and communication" in recent days with the bearded ones now in charge in Kabul.

China has also said it wishes to help the "reconstruction and development" of Afghanistan.

Clearly, Beijing wishes to draw Afghanistan into its Belt and Road Initiative (BRI). It is a telling detail that the 76km-long border between the two countries includes a pass that was a route on the old Silk Road, the template for the new BRI. Expect to see a highway and rail line this time rather than horses and camels.

China may be able to achieve what others have failed to do: make Afghanistan a vassal state. In that case, they will have under their control Afghanistan's mineral wealth.

The British Raj failed to subdue the Afghans — it's famous retreat from Kabul in 1842 ended with the entire 16,000-man army dying or being killed. Then the Soviet invasion came a cropper in more recent years.

And now the Americans have been humiliated.

Rare earths would be uppermost on Beijing's mind when it comes to mineral resources.

The USGS estimated that rare earths in Helmand province could contain up to 1.4 million tonnes of rare earth elements, which would dwarf what Australia could potentially supply to the world. China's control of those resources, as well as their downstream processing capabilities, would enable Beijing to maintain its stranglehold on those vital critical metals.

And presumably the Chinese would like to get their hands on the iron ore.

Eoin Treacy's view -

The mineral wealth of Afghanistan will inevitably be developed by whoever wins the looming civil war. China has a clear interest in furthering its political encirclement of India and will be eager to develop mining opportunities to fuel the high-tech sector. It is debatable how amenable the Taliban will be to China overtures when Xinjiang is only over the border from Afghanistan.



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August 18 2021

Commentary by Eoin Treacy

Shipping bottlenecks set to prolong supply chain turmoil

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

The disruptions started in the second half of last year after demand for goods sank when the pandemic struck and carriers cut sailings, but locked-down consumers then ordered products online at an unprecedented rate.

Shipping companies’ efforts to catch up have been set back by the Suez Canal blockage in March and the Yantian terminal closure, as well as border restrictions and port worker absences.

An indefinite partial shutdown at Ningbo-Zhoushan is the latest problem that could deepen the strain on global logistics. Shipping lines have already started to omit calling at the Chinese port near Shanghai.

About 350 containerships capable of carrying almost 2.4m 20ft boxes are waiting off ports globally, according to VesselsValue. The congestion has been getting worse with idle capacity reaching 4.6 per cent of the global fleet, up from 3.5 per cent last month, data from Clarksons Platou Securities shows.

Lars Mikael Jensen, head of global ocean network at Maersk, the world’s largest container shipping group, agreed that the situation had shown no signs of improvement since the Delta variant of Covid emerged.

“It’s not getting any better on aggregate,” he said, adding that maritime transport networks are “still super stretched — it only takes a small thing then you’re back to square one or square one minus”.

Eoin Treacy's view -

The influence of the pandemic has resulted in sustained pressure on global supply chains. The primary difficulty for ports is ships have been one of the primary vectors through which the virus has spread internationally and many ports are having difficulty maintaining staffing levels because of infections among workers.  



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August 17 2021

Commentary by Eoin Treacy

Inflation Tempers Americans' Enthusiasm About Red-Hot Economy

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

By global standards, the U.S. has bounced back fast. But as data on the recovery continue to pour in, there’s plenty to support the suspicion that the glass is still half-empty.

Consumer sentiment fell in early August to the lowest level in nearly a decade by one measure and U.S. retail sales fell in July by more than forecast.

The following charts help explain why Americans still aren’t clear how impressed they should be.

Eoin Treacy's view -

I was at a wholesale furniture warehouse this morning that does not deal with retail customers. The two things that employees related to me were that business was booming in the 1st and 2nd quarters, but over the last two months sales have been way down. The second was there was a big whiteboard on the wall with their monthly minimum sales target of $950,000. As of this morning they were at $431,000.



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August 17 2021

Commentary by Eoin Treacy

BHP Bets on Lower-Carbon World With Petroleum Exit, $5.7 Billion Potash Project

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

BHP and Woodside said the business would be one of the world's 10 largest producers of liquefied natural gas. Combining the businesses is expected to generate more than $400 million in annual savings, the companies said in a joint statement. They expect the deal to be completed by July next year.

Selling the petroleum business will lead to BHP focusing on mined commodities: iron ore, metallurgical coal, copper and nickel. On Tuesday, BHP confirmed that potash is on that list by approving the first stage of its Jansen project in Canada's Saskatchewan province. The operation is expected to start production in 2027, with an annual capacity of 4.35 million metric tons of potash.

Potash is one of three major fertilizer ingredients, alongside nitrogen and phosphate. BHP believes demand for potash could as much as double by the late 2040s to become a $50 billion market. Mr. Henry said mining at Jansen could last about 100 years.

"Under our 1.5-degree scenario, potash stands to be a winner, with increased biofuel production and intensified competition for land due to afforestation," Huw McKay, BHP's chief economist, said in June. Potash also doesn't generate some of the negative environmental impacts that other fertilizer nutrients do, especially the release of greenhouse gases during application, he said.

Potash is seen by farmers as an attractive resource because it tends to boost yields, aid in drought tolerance and improve crop quality.

Eoin Treacy's view -

Divesting of oil assets in the name of providing investors with a pure mining play is the opposite logic to what was used when those assets were originally acquired. Back then, it was viewed as prescient to acquire shale assets because investors would have a one stop shop to participate in the oil and iron-ore led commodity bull market.



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August 13 2021

Commentary by Eoin Treacy

Bitcoin's Surge Lacks Extreme Leverage That Powered Past Rallies

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

“Typically we look at that as more of a strong-handed rally, which implies that the leverage portion of the rally comes later,” Ouellette, FRNT’s co-founder and chief executive officer, said on Bloomberg’s “QuickTake Stock” streaming program. “If that is the case, those $100,000 targets are very reasonable, I’d suggest. The last time we saw a move of this little leverage, we were pointing towards $20,000, and we didn’t really see the leverage come into the market in an aggressive way until we got to $40,000, which took us to $65,000.”

Eoin Treacy's view -

This is how all bull markets evolve. When prices are just breaking out there is no evidence that the price is about to multiply so few people are invested. As evidence becomes apparent more people are willing to commit funds. By the time prices accelerate people are jockeying to buy as much as they can because there is already so much evidence to support the bull market hypothesis. That final stage is usually when the most leverage is present.



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August 13 2021

Commentary by Eoin Treacy

China coronavirus infection closes shipping terminal at massive Ningbo-Zhoushan Port as container rates soar

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

Nair was referring to massive delays at Shenzhen's Yantian port in May and June. Weeks of containment efforts following outbreaks of Covid-19 among dockworkers in China's Pearl River Delta caused global shipping delays, supply-chain disruptions and surging freight costs. The problems have not been fully resolved.

Lars Jensen, CEO of liner consultancy Vespucci Maritime, also said the Meishan terminal closure could have a similar impact on the Ningbo-Zhoushan Port that Yantian experienced when it was closed for more than three weeks.

"Significant problems, both for export cargo as well as for the movement of empty containers into the region, would then ensue," he wrote in a LinkedIn post on Wednesday.

With its zero-tolerance approach to the coronavirus, China is currently carrying out mass testing to contain the spread of the highly infectious Delta variant, which Ningbo authorities said the Meishan worker tested positive for.

However, the deputy director of the Ningbo Centre for Disease Control and Prevention, Yi Bo, said the worker may have contracted the virus from his interactions with foreign crewmembers of cargo freighters that he had boarded at the port. Video surveillance showed he had close contact with crews.

Meishan is one of the busiest terminals at the Ningbo-Zhoushan Port, servicing main trade destinations in North America and Europe. In 2020, it handled 5,440,400 TEUs of container throughput, or around 20 per cent of the total container throughput at the Ningbo-Zhoushan Port, according to official statistics.

Eoin Treacy's view -

Shipping rates from China to the USA and Europe are up 400% in the last year. A good part of the reason for that jump is because ports are having difficulty managing the volume of traffic. That’s both a function of outsized demand during the pandemic and the infection rates among dock workers.



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August 13 2021

Commentary by Eoin Treacy

Rand Gains as South Africa Finance Head Pledges Fiscal Restraint

South Africa’s new finance minister, Enoch Godongwana, has a difficult job ahead: convincing investors that he can help Africa’s most industrialized economy reduce debt while boosting economic growth.

He took the first step in an investor call Friday, when said there would be no changes to the fiscal framework for Africa’s most industrialized economy. The rand gained and bond yields fell after he spoke.

“I don’t see much changing in that fiscal framework,” Godongwana said on the call. “There is commitment from myself as the minister of finance and I would imagine from government.”

The rand reversed losses against the dollar, and strengthened 0.2% to 14.7576 per U.S. dollar by 4:13 p.m. in Johannesburg. Yields on the most-liquid 2026 government fell three basis points to 7.39%.

Eoin Treacy's view -

Europe adopted fiscal austerity after the global financial crisis and its sovereign wealth crisis. The result was the surge in populism and widespread disaffection with the European project. On this occasion they have resolved not to make that mistake again. In fact, it could be argued the pandemic has been the perfect excuse to ditch the failed austerity program.



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August 12 2021

Commentary by Eoin Treacy

Rio Dumped After Massive Dividend

This note from the Sydney Morning Herald may be of interest to subscribers. 

Rio Tinto stock dropped as much as 7 per cent yesterday after the mining giant's shares traded ex-dividend.

The $190 billion company fell to a near seven-week low of $120.15 a week after it reported a record first-half profit and a massive $5.61 dividend per share.

The stock closed 6.9 per cent lower at $120.26.

The mining giant has now shed 10.8 per cent of its value since hitting a record high $134.665 late last month as the outlook for iron ore demand continues to weaken amid Chinese government restrictions on steel output and a slowing housing market. Iron ore prices recovered slightly overnight, rising 1.9 per cent to $US165.48 a tonne.

Eoin Treacy's view -

Iron-ore prices surged during the pandemic and not least because China remained a bastion of uninterrupted economic activity while most other countries experienced a more difficult time with the first round of COVID. That helped boost demand while supply growth was contained.



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August 11 2021

Commentary by Eoin Treacy

Gold Gains as More Moderate U.S. Inflation Eases Taper Fears

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

“There were fears of another hot print on inflation, so there is a relief rally,” said Jay Hatfield, chief executive officer of Infrastructure Capital Advisors in New York. Expectations of the Fed tapering “won’t get worse, that was feared.”

Spot gold added 0.8% to $1,742.65 an ounce by 10:33 a.m. in New York, snapping a four-day drop. Palladium slumped, while silver and platinum rose. The Bloomberg Dollar Spot Index fell 0.1%, erasing an earlier gain.

Officials including Chairman Jerome Powell have said they see price pressures eventually easing, though remain wary of the potential for excessive inflation. Chicago Fed President Charles Evans became the latest official to discuss the prospect, saying he expects substantial progress later this year on tapering intentions.

Eoin Treacy's view -

The big question for gold investors is whether a sound money, balance budgets, controlled spending movement akin to the Tea Party movement is going to evolve any time soon. Without it there is room for gold to continue trend higher over the medium term.



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August 10 2021

Commentary by Eoin Treacy

U.S. Sanctions on Belarus Potash Leave Out Its Sole Seller

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

“The penalties against Belaruskali add negative sentiments for the global potash market, but the fact that BPC is not the subject of the sanctions may ease the situation,” said Elena Sakhnova, an analyst at VTB Capital.

BCS Global Markets analyst Kirill Chuyko also said it may be safe to continue dealings with BPC, as long as it’s not added to the sanctions list.

BPC is studying the situation and it’s difficult to estimate what impact the sanctions will have, the company told RIA Novosti. The trader said it will make every effort to fulfill its contractual obligations, adding that the sanctions will lead to higher potash prices and less availability on the world market.

Eoin Treacy's view -

The announcement of sanctions against Belarus made headlines but the substance of the measures suggest more of a warning than a shutdown of activity. Nevertheless, the measures have introduced a measure of uncertainty to the agricultural chemicals sector, of which potash is a major constituent.



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August 10 2021

Commentary by Eoin Treacy

Predicting Equity Returns with Inflation

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

In this article, we document that two derived US inflation variables—inflation cycles and inflation surprises—have been robust predictors of US equity returns. We demonstrate that this predictability translates into new sources of alpha that investors can seek to harvest. In particular, we highlight the signals’ ability to perform during the worst times in the stock market without missing upside opportunities.

The tail-hedging properties derived from inflation signals are particularly desirable. Hedging positive inflation shocks can be costly when inflation is low.9 For example, strategic allocations to alternative assets, such as commodities, or absolute return strategies as a way to protect against inflation have not all fared well in recent years, with commodity indices down more than 30% versus their 2011 levels. As a result, many asset owners may not be able to stay the course if inflation fails to materialize in the medium term. We find that inflation signals can provide a new tool for investors who wish to hedge their portfolios against inflationary and deflationary risks.

“The tail-hedging properties derived from inflation signals are particularly desirable.”

Eoin Treacy's view -

For forty years inflation is the dog that refused to bite. There have been several occasions when it looked inevitable profligate spending, overly generous social programs, supply disruptions, commodity and property booms and busts would break the trend of disinflation but they never did.



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August 09 2021

Commentary by Eoin Treacy

Gold Claws Back Some Ground After Early Morning Flash Crash

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

The recent slump highlights a worsening outlook for the bullion on fears that the strong rebound in the U.S. labor market could see the Fed pull back stimulus sooner than expected. Dallas Fed President Robert Kaplan’s said that the central bank should start tapering asset purchases sooner rather
than later.

Bullion was down 1% at $1,745.31 an ounce by 12:20 p.m. in London, after earlier touching the lowest since March, and coming close to its lowest in more than a year. In the futures market, over 3,000 contracts changed hands in a one-minute window -- equivalent to over $500 million notional value -- as
activity surged in a typically quiet trading period.

Gold “recovered in the course of trading as bargain hunters took advantage of the low price to enter the market,” said Falkmar Butgereit, a senior trader at refiner Heraeus Metals Germany GmbH & Co. KG. Still, “many investors now fear that the Fed will soon start tapering bond purchases, raising expectations of interest rate hikes in 2022/2023.”

Attention will turn to fresh economic data later this week to gauge the health of the recovery from coronavirus, as well as inflation. The consumer price index due Wednesday is expected to show a smaller increase than the previous month as pressures on supply chains caused by reopenings ease. That may lend support to the view held by the Fed that inflationary pressures will prove transitory.

Also key to the outlook is the rise of the delta variant in the U.S., which could complicate the country’s economic rebound. New Covid-19 cases have jumped to more than 100,000 a day on average, returning to the levels of the winter surge six months ago.

Eoin Treacy's view -

The primary argument for buying gold is centred on negative real interest rates and the repercussions for the purchasing power of fiat currencies. Central banks made a lot of comments a year ago about the need to ensure an economic recovery and their willingness to tolerate higher inflation to get there. That boosted gold to new all-time highs. As fears the global economy would be terminally damaged ebbed gold moved into a medium-term correction.



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August 06 2021

Commentary by Eoin Treacy

Secular Themes Review August 6th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

We are 17 months on from the panic low in 2020. At this stage it is quite normal to marvel at the speed of the advance and worry that the pace can’t possibly be sustained. The abiding sentiment is something like “surely, the world is not nearly as good as it was before the pandemic and therefore how on earth can prices be so high?”.

The world is not as good as it was before, millions of people have been deeply inconvenienced and many are traumatized by the events of the last 17 months. The counter argument is the quantity of money in circulation has only been matched during wartime and that has helped to inflate the price of everything. That’s the key to the argument. Having spent so much to achieve this recovery does anyone really believe central banks are going to endanger it? So where do we go from here?



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August 04 2021

Commentary by Eoin Treacy

Miners and Dividends

Eoin Treacy's view -

Gold prices have been ranging between $1700 and $1900 since November. That’s allowed gold miners to sell production at a consistently higher price. That margin boost has allowed a significant number of companies to pay down debt.

That’s a major achievement for the sector. Many miners were saddled with large debt piles when the last bull market peaked in 2011. They had borrowed heavily on the expectation that prices only go up. It has taken the survivors a decade to erode that burden.

An increasing number have no debt at all. When miners have no debt and increasing cash on their balance sheets, they have two choices. They either spend the money on exploration/expansion or they boost/introduce dividends or buy back stock. Often they do both.



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August 04 2021

Commentary by Eoin Treacy

Trend Compendium 2050: Six MegaTrends that will shape the world

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

Manmade global temperature increases can only be limited to 2°C if significant additional efforts are undertaken to become carbon-free in 2100

Is the limit of 2°C enough? To keep the global warming below 2°C had long been regarded as the right target measure to limit the most dangerous risks. More recently, 1.5°C has been considered safer, which requires rapid, far-reaching, and unprecedented changes across all aspects of society.

Eoin Treacy's view -

I posted a podcast featuring Jeremy Grantham a few weeks ago. He is a very vocal advocate for decarbonisation but he also echoed this prediction that limiting emissions to 2% was nowhere near enough. He also opined that the trend of climate change is irreversible anyway. Those are two extremely important considerations. 



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August 03 2021

Commentary by Eoin Treacy

Email of the day - on investing for the long term.

Would be very interested in your thoughts for positioning an investment portfolio (retirement monies) at this point in time. It is increasingly difficult for me to envision what could spark a leg up in the US equity markets in the near term. A leg down at some point feels more probable, yet I am not one for market timing. Nevertheless, increased uncertainty and volatility look to be on the menu for an extended period of time as the markets and Fed wrestle with the curtailing of the liquidity which has fueled the market's run. Is simply pruning equity positions and building cash the most reasonable course of action?

The FullerTreacy service is outstanding and all the more valuable at times like these. Thank you for your thoughts.

Eoin Treacy's view -

Thank you for this question and I am delighted you are enjoying the service. I write a long form summary of my views on the first Friday of every month so I will take this topic up again there.

The big question for investors is how long will the steady rise in the stock market persist? It’s easy to be derailed by valuations and predictions of imminent doom. Instead, let’s focus on consistency and money flows.



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July 22 2021

Commentary by Eoin Treacy

Brazil's Frost May Kill Young Coffee Trees, Hurt Crops for Years

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

The freeze will have the greatest impact on coffee trees under 4 years old. Because of their fragile root systems, trees younger than two usually need be eliminated, while trees between 2 and 4 years old often have to be drastically trimmed and won’t produce the following crop year, said Regis Ricco, a director at Minas Gerais-based RR Consultoria Rural.

The consulting firm has been providing technical loss reports to growers who are going to seek debt renegotiations due to the frost damage. In some regions, farmers lost everything they had.

“Some farmers will have a difficult situation as they got loans from banks to fund irrigation systems, plantings and machinery,” Ricco said. “The impact is stunning.”

Eoin Treacy's view -

Frost in Brazil is a rare occurrence and it has had a significant impact on coffee prices. The price spent most of 2018 through 2020 ranging around $1. It completed the base formation in April and a sustained move back below $150 would be required to question medium-term scope for continued upside.



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July 21 2021

Commentary by Eoin Treacy

Enel installs 6.1 MWh vanadium redox flow battery in Spain

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

Canada-based vanadium mining company Largo Resources has announced that its U.S.-based unit Largo Clean Energy has signed its first supply agreement for its VCHARGE ± vanadium redox flow battery system, with Enel Green Power Spain, a unit of Italian renewable energy company Enel Green Power, which is itself part of the Enel group. Under the terms of the deal, Largo Clean Energy will provide a five-hour, 6.1 MWh system for a project in Spain whose start-up is scheduled for the third quarter of 2022.

The company's VPURE and VPURE + vanadium products come from one of the three largest vanadium mines in the world, the company's Maracás Menchen mine, located in Brazil. These compounds are used to develop's Largo's  VCHARGE ± vanadium redox flow battery technology.

Largo Clean Energy began, last year, the development of its vanadium redox flow battery (VRFB) technology based on 12 patent families previously owned by U.S. storage specialist VionX Energy, whose assets it acquired for $3.8 million.

Eoin Treacy's view -

Vanadium surged in 2018 on expectations that the world would adopt redox flow batteries for utility-scale energy storage. The uptake was less enthusiastic than many expected and the price of the metal collapsed.



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July 16 2021

Commentary by Eoin Treacy

The Future of Space Is Bigger Than Bezos, Branson or Musk

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

Here are just a few of the less remarked-on recent stories out of the private space industry. First was the stock market debut of a company called Astra Space, which, backed by venture capitalists, built a viable orbital rocket in just a few years. Its goal is to fly satellites into orbit every single day. Shortly after Astra went public at a value of $2.1 billion, satellite maker Planet Labs—which uses hundreds of eyes in the sky to photograph the Earth’s entire landmass daily—announced its plans to do the same, at a value of $2.8 billion. Firefly Aerospace has a rocket on a California pad awaiting clearance to launch. OneWeb and Musk’s SpaceX are both regularly launching satellites meant to blanket the planet in high-speed internet access. Rocket Lab, in the previously spacecraft-free country of New Zealand, is planning missions to the moon and Venus.

The SPAC frenzy has been particularly kind to the private space industry, including some of the companies named above. Easier access to public markets has helped draw billions of dollars from excited investors to an industry once dependent on governments with vague military objectives or expansive views of public works. Partly as a result, the number of satellites orbiting the Earth is projected to rise from about 3,400 to anywhere between 50,000 and 100,000 in the next decade or so—and that’s even if these companies just fulfill the orders they’ve received so far.

It seems likely the estimates will slide a bit, given that those kinds of numbers would require rockets to blast off one after another from bustling private spaceports all over the globe on an extremely frequent basis. But whatever the precise timing, the message will remain unchanged: Private space is here. This month’s space tourism race is just escape-velocity window dressing on a much bigger, more transformative set of changes. The results of these shifts will be unpredictable, except that ego and greed will likely be as present as ever. Nonetheless, the evidence on the non-ground suggests we should consider the possibility that this emerging industry might turn out OK.

Eoin Treacy's view -

The pace of innovation in lift (to space) technology is blisteringly quick. The size of rockets and payloads they carry continue to introduce economies of scale to a sector that has never known them. That’s an incredible change and opens the whole sector to waterfall of new ideas on how to commercialise the space.



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July 16 2021

Commentary by Eoin Treacy

Email of the day on tin

What is your view on the tin chart?  https://uk.investing.com/commodities/tin-streaming-chart

Looking at the LSE the only tin share I can find is AFRITIN MINING who produce in the safe jurisdiction of Namibia. Additionally, they are due to release an estimate on their lithium resources mined as a by-product at the same time.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. This graphic produced by Rio Tinto Ventures goes a long way towards explaining the recent strength in the tin market. Here is also is a section from Avalon Advanced Materials website which talks about the primary uses of the metal: 

Tin is perhaps better known for its historical use in tin cans than in modern technology; however, usage of tin in coating lead, zinc and steel to prevent corrosion (i.e., tin plating) is now the second highest usage of tin worldwide. Tin is primarily used in lead-free solders for electronic circuit boards and microchips – accounting for 50% of global tin consumption.

Tin is expected to increasingly contribute to modern, clean technologies including lithium-ion batteries for autonomous and electric vehicles. For example, battery researchers are developing solid-state batteries utilizing ceramic electrolytes (versus liquid) for improved safety and performance. Silicon is a potentially attractive anode material due to its high potential capacity and abundance in nature. Recent research has shown that adding tin to the silicon-based anode enhances its performance, creating the potential for tin to be a major contributor to the next generation of lithium batteries.

Further, researchers at the Texas Material Institute have demonstrated a tin-aluminium alloy can be produced that is cheaper and double the charge capacity of today’s copper-graphite anodes for lithium-ion batteries.

The greatest growth potential for tin is likely to be found in these and other automotive battery applications. As of 2016, use of tin in lead-acid batteries approached 30 kt and, supported by further growth in vehicles sales and the further substitution of antimony, use of tin in this application is expected to exceed 50 kt by 2027 (Roskill).

Finally, indium-tin-oxide is used as a glass coating due to its electrical conductivity and optical transparency and continues to find application in renewable energy and communications, including flat panel displays, smart windows, thin film photovoltaics (solar panels) and organic light emitting diodes lights.



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July 15 2021

Commentary by Eoin Treacy

On Target July 15th 2021

Thanks to Martin Spring for this edition of his report. Here is a section on the best wartime assets to own.

Conclusion: The best in-country stores of wealth are non-ostentatious property, such as remote farmland or vineyards. Just make sure the mortgages are paid off.
Jewellery and gold are crucial since they can be readily exchanged for daily necessities.

The best out-of-country stores of wealth are equities, jewellery and land. They should be located or stored in safe jurisdictions, protected by geography, rule of law and a strong national defence. The United States, New Zealand, the United Kingdom and Switzerland come to mind.

Don’t be tempted to sell just because news goes from bad to worse. And maintain a well-diversified portfolio of stocks.

Those are the key investing lessons from the Second World War.

Eoin Treacy's view -

There is a Chinese proverb to the effect that the most dangerous thing is for a thief to know who you are. The secret to sustained wealth in a time of global crisis is to become anonymous to anyone with the power to measure your wealth and take it away. That’s never been easy but it is getting harder.



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July 14 2021

Commentary by Eoin Treacy

World Hunger Hit 15-Year High as Virus Stifled Food Access

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

 

“This is a wake-up call to the entire world,” David Beasley, executive director of the World Food Programme, said on a webcast on Monday. “We’re heading in the wrong direction. To think that we’re going to end hunger by 2030, that’s not even possible given the direction, trajectory we’re on now.”

Between 720 million and 811 million people were undernourished last year, according to the UN, which used a mid-range of 768 million due to uncertainty of the pandemic’s impact. Most of those were in Asia. Roughly a third of all people lacked access to adequate food, a figure that rose by 320 million from a year earlier, about as much as in the previous five years combined.

The report -- the first global assessment of food insecurity in the wake of the Covid-19 crisis -- was jointly produced by agencies including the Food and Agriculture Organization, the WFP, Unicef and World Health Organization.

“Famine should be consigned to history, yet in multiple countries they loom again,” Unicef Executive Director Henrietta Fore said. “Millions of children are still struggling to access the nutritious and safe diets they need to grow, to learn, to develop and reach their full potential.”

Eoin Treacy's view -

The global community made a conscious decision to increase food prices in the 1990s. The primary argument was farm subsidies were creating an unfair system that favoured farmers in Europe and North America. Subsidies contributed to poverty among poor countries as excess supply was dumped on those markets. 



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July 06 2021

Commentary by Eoin Treacy

U.S. Service Industries Expand at Slower Pace Than Expected

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

The services index of inventories also shrank, indicating that supply chain constraints continue to hold back economic activity. Supplier delivery times remain elevated due to truck availability, slower rail services, port congestion and container shortages, Nieves said on a call with reporters.

A separate gauge of inventory sentiment dropped to a record low, showing more service providers see their stockpiles as too lean. The index of prices paid for materials fell slightly, suggesting that while still elevated, the acceleration in cost pressures may be starting to cool.

Eoin Treacy's view -

The argument inflation is transitory got a boost today with services data coming in weaker than expected. The challenge is that the labour market has been distorted by massive government intervention and global supply chains are simultaneously struggling to recover from the impact of the lockdowns. The tendency to focus on year over year comparisons further muddies the economic picture in most countries.



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July 02 2021

Commentary by Eoin Treacy

Secular Themes Review July 2nd 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “secular themes review”.

News today that Johnson & Johnson’s vaccine is effective against the delta variant should help to allay fears that the world is about to experience a round of upheaval similar to early 2020.

There is no question that the pandemic has acted as an accelerant. It forced migration and adaption to new conditions in a manner that might otherwise never have happened. Some of those changes will stick, others will fade away.

Everyone seems to think that the pandemic has to mean something and that we will never again get back to normal life. I don’t believe it. The surges back into social activity whenever restrictions are lifted is confirmation that humans are social beings. We crave physical contact and fellow feeling. That’s not going to change, even if we have a better appreciation for it today than since the demise of organised religion.  

As with every other crisis, the liquidity created to deal with the shock will remain in the system for much longer than it is strictly required. Central banks cannot afford to jeopardise the recovery they worked so hard to create. Meanwhile, populations everywhere are impatient for better conditions.



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June 30 2021

Commentary by Eoin Treacy

Crop Prices Soar as Drought and Heat Grip U.S., Canada

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

The water deficit could spur a further drop in crop ratings when the U.S. Department of Agriculture updates its weekly condition scores Monday afternoon, Paris-based adviser Agritel said in a note.

Spring wheat in Minneapolis and canola trading on ICE Futures U.S. both rose for a seventh straight trading day, gaining as much as 4.1%.

Corn settled the U.S. trading day up 5.4% at $5.4725 a bushel amid concerns over a lack of upcoming rains in key growing regions. Soy oil surged as much as 5.6%. The markets had plunged Friday after a U.S. Supreme Court ruling stoked concern that upcoming biofuel policy proposals could crimp demand for the crops used to make “green” liquid fuels.
“Last week’s sell-off was overdone, especially on the Supreme Court ruling,” Arlan Suderman, chief commodities economist at StoneX, said in an email. “The market also took the weekend to assess rainfall over the past 10 days, and found it came up short for much of the northwestern crop belt. That added up to a buying opportunity in the eyes of many traders.”

Soybeans and hard winter wheat both increased almost 4% in Chicago intraday trading.
August hogs jumped by as much as 3%, buoyed by hopes China’s move to replenish pork reserves will translate to more exports of U.S. meat to Asia. American hog futures had dropped last week to the lowest levels since April, in part on worries that pork exports to China were set to fall as the herd there
recovered.

In other markets, arabica-coffee rose for the second day in a row on ICE Futures U.S. in New York amid a forecast for freezing temperatures in some Brazilian growing areas, according to weather forecaster Somar Meteorologia.

Eoin Treacy's view -

The pandemic represented a shock to the global supply chain for most commodities. Transportation networks shut down, restaurant demand evaporated and consumers stockpiled. Farmers’ production schedules were upset and the net effect is stockpiles of vital good commodities were reduced. This year’s freezes, floods and now droughts have added an additional element of uncertainty to the market.



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June 25 2021

Commentary by Eoin Treacy

The Gold Digger

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

The mining clock, is a concept originally introduced by Lion Securities and adopted by Investec. The clock on the right, gives us a sense of where we are in the mining cycle based on various liquidity indicators.

In our opinion, the clock was positioned at 6:30 as of September 2020.
Mining is one of the most cyclical industries on the planet, gains are very large on the upside, and losses are also magnified on the downside.

Why is it important?
We cover the Investec Mining Clock because it is crucial to know where we are in the mining cycle so we can properly plan for reaping the rewards the mining sector can give. Without a logic based system, investors end up doing the investment round trip making sizable money on paper only to see it vanish when the cycle turns.

You can see that there are times to look, times to buy, and times to sell. Unfortunately, most investors sell when they should be looking, look when they should be buying, and buy when they should be selling. Bull markets create bear markets, and bear markets create bull markets. The ways you look at the market must change depending on whether a primary bull market or a primary bear market is at hand.

Eoin Treacy's view -

The gold mining sector is still scarred from the previous bear market. They are not aggressively engaging in new exploration. That’s a limiting factor in how quickly supply can be increased.

Instead, they are deploying the same business development strategy deployed by pharmaceutical companies. That involves watching junior miners and acquiring promising projects as feasibility studies are completed and reserves are proofed up.



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June 24 2021

Commentary by Eoin Treacy

Copper/Gold ratio

Eoin Treacy's view -

This ratio is often looked at in the bond markets because it can be a lead indicator for yields. The logic is simple enough. Dr. Copper gives us some perspective on the health of the global economy and gold is the ultimate bond so it reflects demand for a safe haven.

At the low in 2020 the ratio tested the lows from 1986/87. The global economy had shut down so demand for commodities collapsed and safe haven surged. Since then, the ratio has trended back up to test the highs of the last decade; with copper floating higher on a tide of abundant liquidity.



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June 24 2021

Commentary by Eoin Treacy

Tilting The Odds In Your Favour

This promotional piece from Baillie Gifford may be of interest to subscribers. Here is a section:

It may come as a surprise to learn that Tel Aviv (Israel), Vilnius (Lithuania), and Tallinn (Estonia) all rank in the top 50 cities in the world in Fintech. You may not yet have heard of many of their leading companies, but I’ll wager you will in the coming decade. Lithuania ranks number one in the world in terms of broadband speed and in the top five countries for Fintech innovation. Investment in the right infrastructure has given that country a head start it is not wasting.

Access to capital and need for less of it in today’s capital-lite, ‘free money’ world means more and more entrepreneurs, the geniuses who will lead the exceptional companies of tomorrow, no longer feel anchored to the US. 20 years ago, fewer than 15 per cent of Chinese students studying abroad felt compelled to return home, filled with ideas but lacking the capital to fund their ambitions. Today closer to 80 per cent see a much more favourable environment in which to put their western education to profitable use domestically.

Adding to the earlier comments on the popularity of the Hong Kong stock market, companies are increasingly eschewing an ADR listing entirely, preferring a Hong Kong local listing, with exchange regulators encouragingly supportive. For the Chinese company of the future, a dual listing may well mean H-shares (HK) and A-shares (mainland China).

In a world obsessed with buybacks (at the wrong time) and cost-cutting (at the wrong time), we look for investment and expansion. Here, the US is no longer the world leader it once was.

Eoin Treacy's view -

There is an exceptional amount of competition for attention in today’s market. The wall of money printed in the last year has refocused attention on relative performance of assets. Interest rates and currency movements play a big part in how well international assets fare versus US assets. That’s particularly relevant for large pools of US capital that have mostly stayed at home over the last decade.



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June 23 2021

Commentary by Eoin Treacy

The monumental challenge of trying to hit climate targets

Thanks to a subscriber for this report from National Bank of Canada. Here is a section:

Eoin Treacy's view -

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

When numbers in excess of $100 trillion are bandied about most people’s eyes glaze over. The global annual GDP in 2020 was $93 trillion. That suggests to achieve the stated aim of containing temperature rises to 1.5% by 2050, we need to made big assumptions. The most important is that if we go ahead and make the sacrifices and spend the money, that it will work.



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June 23 2021

Commentary by Eoin Treacy

India to Spend $9.1 Billion on Free Rice and Wheat for the Poor

This article by Pratik Parija for Bloomberg may be of interest. Here is a section:

India’s cabinet approved Wednesday an earlier proposal to distribute 20.4 million tons of free rice and wheat to people covered under the nation’s food program for five months ending November, according to a government statement.

* Govt will spend 672.7 billion rupees ($9.1 billion) as subsidy for distribution of food grains to as many as 813.5 million people

* The beneficiaries will get 5kg of rice or wheat per person per
month: statement

** NOTE: The free allocation is in addition to the sale of same amount of subsidized food grain each month

* NOTE: The announcement was made by Prime Minister Narendra Modi on June 7, before a formal approval by the nation’s cabinet on June 23

 

Eoin Treacy's view -

India has experienced some significant challenges in tackling its coronavirus outbreak and measures to support the poor are to be welcomed. Targeting the staple food sector also suggests Narendra Modi is working towards success in the 2022 interim and 2024 general elections.



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June 21 2021

Commentary by Eoin Treacy

Raisi Victory Will Delay Return of Iran's Oil, Analysts Say

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

The election of a conservative cleric as Iran’s president will probably hold up the lifting of U.S. sanctions on the Islamic Republic’s energy exports, said analysts including Sara Vakhshouri, president of SVB Energy International LLC.

“The election of a hard-liner delays the expectation of a rapid return of Iranian oil,” she said.

Eoin Treacy's view -

The absence of Iranian oil from the international market has helped to support prices. It is also worth considering that the absence of 8 million barrels of oil from OPEC+ has been an even bigger tailwind for the price.

The spread between Brent and WTI crude has almost closed. The compression should be encouraging more onshore domestic supply into the market. However, the big question for the sustainability of the oil price rally is when will the supply discipline of OPEC+ end?



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June 18 2021

Commentary by Eoin Treacy

As good as it gets, for now

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

Eoin Treacy's view -

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

The beginning of any new bull market creates a wide dispersion of views about future potential. The most important are between the cyclical versus secular camps. Cycle bull markets are powerful but short lived while secular bull markets surprise in their persistence over years.

There is likely to be a lot more dispersion in the commodity complex on this occasion that there was at the beginning of the big bull market that began in the early 2000s. The biggest difference is there is no secular shortage of oil.



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June 17 2021

Commentary by Eoin Treacy

Seaborg plans to rapidly mass-produce cheap, floating nuclear reactors

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

Seaborg's solution is to use another molten salt – sodium hydroxide – as a liquid moderator. Thus, the core design places the fuel salt tube inside a larger tube filled with sodium hydroxide, creating a first-of-its-kind all-liquid reactor that's remarkably compact. But sodium hydroxide itself is a powerfully caustic base, often used as oven cleaner or drain cleaner; the Seaborg design has to deal with this added corrosive agent too.

And on top of all that, there's the freaky phenomenon of "grain-boundary corrosion" to boot, caused by the presence of tellurium as a fission by-product in the fuel salt stream. Tellurium atoms can merrily penetrate through metals, and swap positions with other elements, leading to embrittlement of the metals at their weakest points.

The company is well aware of its key challenges here. "Seaborg’s core IP is based on corrosion control in the moderator salt, and applying the lessons learned since the 1950s," says Pettersen. "But it is not just a question of corrosion, it is also how easy it is to put these things together. Hands-on experience is important. They need to be welded, tested, inspected, maintained. We are working towards having perhaps 20 or 30 test loops in Copenhagen, with the experiments designed, set up and executed. The conceptual design is already done; we are now working on the basic design and in that way we are working up towards a full-scale prototype."

Eoin Treacy's view -

Here is a link to the presentation Seaborg’s CEO gave at the Singapore Week of Innovation & Technology earlier this year. 

To my mind creating a nuclear energy solution that accepts that accidents do happen as the primary starting point is a significant development. The primary attraction of molten salt is it does not present a massive dispersion or bomb threat. After that everything else comes down to economies of scale.



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June 16 2021

Commentary by Eoin Treacy

Top Oil Traders Say Emissions Market Could Challenge Crude

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

Oil traders including Vitol and Trafigura, as well as a host of hedge funds have been building up trading desks to profit from one of the hottest commodities trades of the year. Traders are bracing for tighter supplies as the European Union is preparing for the markets biggest reform to date to align emissions trading with a stricter climate goal for the next decade.

“Carbon is already the largest commodity in the world, with the potential to be 10 times the size of the global crude markets,” Hauman said the FT Commodities Global Summit on Wednesday. “We see a massive potential here.”

Eoin Treacy's view -

Carbon emissions are a growing market as the willingness to enact legislation to tax fossil fuel usage goes global. That is limiting the supply response of large companies because they are unwilling to make the investments necessary to replace reserves. The global economic recovery and OPEC+’s supply discipline continue to support oil prices as a result.



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June 15 2021

Commentary by Eoin Treacy

Copper's Supercharged Rally Creaks on Signs of Softer Demand

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

“We’re at a point where a lot of the cyclical tailwinds, if they haven’t blown themselves out, are past their peak,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said by phone. “That fear that things are just going to go higher and higher and higher -- that’s come out of the market now.”

Copper has been one of the standout performers in a year-long rally seen across commodities markets as a surge in demand coincided with bottlenecks that have wreaked havoc on global supply chains. The key questions for investors across asset classes are whether the rally would prove transitory, and whether the inflationary impact on consumers would prove short-lived.

 

Eoin Treacy's view -

China wants lower commodity prices because of the upward trend of prices at the factory gate. They have a lot more ability to manipulate copper prices because they have such large stockpiles. That's not quite the same for metallurgical coal or iron ore.



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June 14 2021

Commentary by Eoin Treacy

The Impact of the NSFR on the Precious Metals Market

This letter sent by the London Bullion Market Association (LMBA) and the World Gold Council to the Bank of England for the attention of the Bank of International Settlements may be of interest to subscribers. Here is a section:

An 85% RSF charge would:

• Undermine clearing and settlement – The required stable funding for short-term assets would significantly increase costs for LPMCL clearing banks to the point that some would be forced to exit the clearing and settlement system, which may even be at risk of collapsing completely.

• Drain liquidity – The required stable funding would dramatically increase costs for remaining LPMCL members taking gold on deposit to be held as unallocated metal relative to the cost of providing custody of allocated metal. This would prevent LPMCL clearing banks from holding unallocated metal and drain essential liquidity from the clearing and settlement system. These unallocated balances are the only material source of liquidity in the clearing and transaction financing systems. Without this liquidity, there would be a material deleterious effect on the global precious metals market.

• Dramatically increase financing costs – The required stable funding would penalise LBMA members who hold unallocated balances of precious metals. This would increase the cost of short-term precious metals financing transactions as stable funding costs are passed through to non-bank market participants. Such cost increases would impact miners, restrict refining and raise the costs of an inelastic key input to industrial and consumer goods. This includes some essential medical equipment and technologies required to reduce pollutants (such as catalytic converters).

• Curtail central bank operations – Fewer LPMCL clearing banks may curtail central bank deposit, lending and swaps in precious metals. These operations are essential to offset the costs of storing gold reserves and generating income. In addition, this provides important liquidity to the market. The effects of an 85% RSF charge would not just be limited to the London OTC market, but would be felt globally across the entire gold value chain. While London acts as the default settlement location for most global OTC spot transactions, the precious metals market is international. An undermining of the clearing and settlement system, reduced market liquidity, significantly increased financing costs and curtailed central bank activity would fundamentally alter the structure and attractiveness of this market.

Eoin Treacy's view -

Most gold is trading is through fungible non allocated bars. Reducing liquidity in this over-the- counter market, while also elevating gold to a tier 1 asset could have the potential to create demand while reducing supply. That’s the recipe for a bull market; assuming the Basel III rules as they are currently envisaged pass into effect this month.



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June 09 2021

Commentary by Eoin Treacy

Inflation: The defining macro story of this decade

This is a thought-provoking report from Deutsche Bank’s new What’s in the tails? series of reports. Here is a section:

The Fed’s move away from pre-emptive action in its new policy framework is the most important factor raising the risk that it will fall well behind the curve and be too late to deal effectively with an inflation problem without a major disruption to activity. Monetary policy operates with long and variable lags, and as we have noted, it will also take time to recognize that inflation has actually overshot excessively and persistently. As inflation rises sustainably above target, forward looking expectations are likely to become unanchored and drift higher, adding momentum to the process.

By this point, the Fed will likely be moved to act, and when it does the impact will be highly disruptive to the markets and the economy. In the past, the Fed has not been able to reverse a sustained run-up in inflation without causing a recession and potentially large increase in unemployment. Being behind the curve when it starts will make the event that much more painful. Rising interest rates will also cause havoc in a debt-heavy world, leading to financial crises especially in emerging markets. If the Fed lets up and reverses rate increases in response to rising unemployment and other economic pain as occurred during the 1970s, inflation could back up again, leading to a repeat of the stop-go economic cycles that occurred during that period.

Depending on the timing of this potential inflation scenario, the 2022 midterm elections could be crucial. A surprisingly strong showing on the Democratic side could even pave the way for modifying the Federal Reserve Act to raise the inflation objective. This discussion has been brewing in academic circles for some time, not the least as a way to enhance the Fed’s power to move interest rates into negative territory when needed. But such a move could damage the Fed’s inflation fighting credibility. It could also lead to still higher inflation over time and ultimately intensifying the kind of boom-bust cycle experienced during the 1970s.

In brief, the easy policy decisions of the disinflationary 1980-2020 period appear to be behind us.

Eoin Treacy's view -

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

The response to the credit crisis resulted in massive asset price inflation which exacerbated inequality across society in most countries. The response to the pandemic is aimed at reversing that trend and providing greater opportunity to the people left behind by the last recovery. That implies massive money printing, spending and social programs.



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June 09 2021

Commentary by Eoin Treacy

Nornickel Resumes Ore Mining at Taimyrsky Mine

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

World’s largest producer of palladium and high-grade nickel and a major producer of platinum and copper Nornickel announced that on June 1 the company began to gradually restart ore mining at the Taimyrsky underground mine and plans to advance mine’s operations to full capacity in the near future. Currently, the mine has reached a daily mined volume of 5 kt, which is about 40% of the design capacity. The final stage of recovery operations at the Taimyrsky mine of 4.3 million tonne per annum of ore is expected to be fully completed by the end of June.

Norilsk Nickel Senior Vice President Mr Nikolay Utkin said “Water from the horizons of the Taimyrsky mine has been pumped out. Today, our main goal is to reinforce the underground workings to ensure the safety of our employees. We will be gradually scaling up mining as we take these measures. The mine is expected to reach its design capacity of 12,1 kt per day by the end of June 2021.”

Eoin Treacy's view -

The flooding of the Taimyrsky mine was a major support for palladium prices over the last six months. It helped the price reverse a reversion to the mean and trade out to all-time new highs. The recovery in demand from the automotive sector has been an additional factor which allowed the price to steady.



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June 08 2021

Commentary by Eoin Treacy

Where to Frack Next: La La Land

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

The exploration and production sector just reported its “best organic free cash flow since shale began,” according to an analysis of first-quarter results by Bob Brackett at Bernstein Research.

Most notably, less than half of cash flow from operations was swallowed up in capital expenditure. This not-spending-everything approach may seem like finance 101 but is actually pretty radical stuff for the shale business. Look at 2012 to 2016 on that chart. Such profligacy led investors to abandon the sector, finally forcing some discipline.

Eoin Treacy's view -

Secular bull markets in commodities are about the rising cost of marginal production. Decades of little investment in new supply in the energy sector created conditions that required a decade of overinvestment in new supply to compensate for rising demand. Ahead of the bull market in the early 2000s, the marginal cost of production was somewhere around $20, today that level is closer to $40.



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June 07 2021

Commentary by Eoin Treacy

Peru Riven in Two With Presidential Election Too Close to Call

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

Peru’s currency and stocks tumbled after incomplete results of Sunday’s presidential runoff showed the leftist candidate gaining momentum even as he trailed by a thin margin in the count.

The sol headed to its biggest drop in more than a decade at one point and the S&P/BVL Peru General Index fell as much as 6.8%, the most since November, with mining companies and financial firms among the hardest hit. Overseas bonds edged lower in light trading while the cost to insure against a default climbed.

Analysts were left to scour incomplete vote tallies for hints at who had the advantage, after investor favorite Keiko Fujimori saw her early lead over leftist opponent Pedro Castillo fade overnight and in the early morning. With almost 93% of votes counted, Fujimori had 50.1% support to 49.9% for Castillo, a former school teacher turned union organizer from the Peruvian highlands.

“The country is pretty much split down the middle,” said Alfredo Torres, director of Ipsos Peru. An unofficial quick count published earlier by Ipsos gave Castillo a 0.4 percentage point advantage over Fujimori, within the margin of error, while an Ipsos exit poll after Sunday’s voting showed Fujimori with a slight lead.

Fujimori, who is under investigation for corruption and campaigned while out on bail, gets more of her support from urban centers, while Castillo has the advantage in the countryside. She has vowed to save the country from “communism” by preserving a liberal economic model and boosting cash payments to families affected by the pandemic. The daughter of a jailed former president, it’s her third attempt at the top office.

Castillo, who launched his political bid with a Marxist party and was virtually unknown at the start of the year, ran on a platform of extracting more taxes from multinational miners and oil drillers to increase outlays on education and health. He blames the country’s inequality on the ruling elite whom he says have long been content to run Peru from Lima while ignoring swathes of the country.

Eoin Treacy's view -

The gulf between populist left and right-wing parties conspires to create volatility in all manner of financial assets prices. However, the reality of governing has been less revolutionary because most left-wing populists have achieved victory by slim margins which has curtailed their ability to implement their policy goals.



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June 04 2021

Commentary by Eoin Treacy

Secular Themes Review June 4th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic panic is now one year in the rear-view mirror. It seems to have lost its ability to scare us so that begs the question what happens next? That’s the big conundrum

Some still believe that technology will solve all our problems and that the largest companies in the world will continue get even larger. Others believe that the inflation genie has been releases so it is inevitable that bonds will collapse in value. Others believe that we are in for a long grind of subpar growth because the debt is so large, it will sap the will to live out of every speculative asset. Others believe we are in a stock, commodity and property market bubble that could pop at any moment. Still other believe that cryptocurrencies are the solution, though no one is exactly sure what the problem is. So how do we make sense of these divergent views?

Personally, I have a strong feeling of déjà vu. In late 1999 and early 2000 I was selling Optus cable connections door to door in Melbourne. When I tired of backpacking, I went to London and within three weeks had started at Bloomberg. I was amazed at the speed of the Royal Mail. I saw an ad in The Times on a Wednesday for European sales people. I posted my CV that afternoon and had a reply back from Bloomberg delivered the next day. I had an interview on Monday and started on Tuesday. To say they were desperate for sales people is a gross understatement. I was in Belgium, visiting private banks, 10 days later. That was the top of the market and it was evidence of a true mania in the TMT (Telecoms, Media and Technology) sectors.

By the end of the Nasdaq bear market in 2003 the number of Bloomberg terminals being sold to mortgage bankers was surging. I was even offered a job by one. The Dollar was pulling back, there were fears about financial repression, China’s demand for commodities was only beginning, emerging markets were breaking out and gold was completing its base formation. A year later oil broke out.



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June 03 2021

Commentary by Eoin Treacy

Global Food Prices Surge to Near Decade High, UN Says

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

Drought in key Brazilian growing regions is crippling crops from corn to coffee, and vegetable oil production growth has slowed in Southeast Asia. That’s boosting costs for livestock producers and risks further straining global grain stockpiles that have been depleted by soaring Chinese demand. The surge has stirred memories of 2008 and 2011, when price spikes led to food riots in more than 30 nations.

“We have very little room for any production shock. We have very little room for any unexpected surge in demand in any country,” Abdolreza Abbassian, senior economist at the UN’s Food and Agriculture Organization, said by phone. “Any of those things could push prices up further than they are now, and then we could start getting worried.”

The prolonged gains across the staple commodities are trickling through to store shelves, with countries from Kenya to Mexico reporting higher food costs. The pain could be particularly pronounced in some of the poorest import-dependent nations, which have limited purchasing power and social safety nets as they grapple with the pandemic.

The UN’s index is treading at its highest since September 2011, with last month’s gain of 4.8% being the biggest in more than 10 years. All five components of the index rose during the month, with the advance led by pricier vegetable oils, grain and sugar.

Eoin Treacy's view -

Farmers that survive the pandemic disruptions will want to plant as much acreage as possible for their next growing season in every agricultural zone in the world. High prices are all the incentive they need. That’s particularly true for the grains and beans where production is possible in multiple different geographically diverse regions.



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June 02 2021

Commentary by Eoin Treacy

Australia's Economy Powers On, Recouping Pandemic Losses

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

Australia’s rapid rebound has been underpinned by its ability to limit Covid-19 outbreaks, boosting consumer and business confidence. A massive fiscal-monetary injection strengthened the financial position of households and firms during the lockdown, and consumers are spending and companies hiring.

“Australia is in rare company here -- only five other countries can boast an economy that’s larger now than before the pandemic,” said Kristian Kolding, a partner at Deloitte Access Economics. “Maintaining this trajectory is now the task at hand -- the lockdowns in Victoria are a stark reminder that the pandemic is far from over.”

Deloitte noted that on average, economies in the Organisation for Economic Cooperation and Development are 2.7% smaller than they were before the pandemic. The U.K. is almost 9% smaller, the European Union is 5% smaller and the U.S. has shrunk 1%, it said.

Yet a potential risk to the outlook is the sluggish rollout of a Covid vaccine. This has been magnified by a renewed outbreak of the virus in Melbourne that prompted a lockdown in the nation’s second-largest city, and has now been extended for another week.

Eoin Treacy's view -

Victoria is back in lockdown but the number of cases is comparatively low and the rest of the country is reasonably unaffected. Investors are taking the news in their stride. After more than a decade of liquidity infusions the reality remains liquidity beats most other factors most of the time. Central bankers also understand that logic and must feel vindicated in their actions. Every time there is a problem, they boost money supply and act to depress yields and the economy rebounds. They are unlikely to do anything different until that policy stops working.



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June 01 2021

Commentary by Eoin Treacy

In Gold We Trust Q2 2021

Thanks to a subscriber for this edition of Ronald-Peter Stoeferle and Mark Valek’s heavyweight report on gold with a spattering of crypto analysis. Here is a section:

Silver’s rally is likely to continue for the rest of the decade. We could be moving into an inflationary politician-led era of universal basic income, modern monetary theory, and government-guaranteed bank loan schemes. These trends will put upward pressure on the silver price.

Silver is far and away the most heavily leveraged exchange-traded commodity. An August 2020 report by Macquarie put the ratio of derivatives to physical market at 193 for silver, compared to 86 for nickel and 74 for gold. This creates potential for a GameStop-style short squeeze on silver.

The consensus opinion of professional silver analysts is that the world will broadly go back to the way it was before 2020. They are forecasting falling investment demand and lower silver prices for 2021–25, but we think they are mistaken.

We believe the ‘go back to the way things were’ assumption will be proven wrong. The virus may have had little impact on silver sources, but it has had a profound impact on government and society.

Eoin Treacy's view -

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

Silver is both a precious and industrial metal. The growth of the solar cell industry has been one of the key industrial demand drivers over the last decade and that is likely to continue even as the marginal cost compression of solar cells moderates.

 



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June 01 2021

Commentary by Eoin Treacy

U.S. says ransomware attack on meatpacker JBS likely from Russia

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

The company, which has its North American operations headquartered in Greeley, Colorado, controls about 20% of the slaughtering capacity for U.S. cattle and hogs, according to industry estimates.

U.S. beef and pork prices are already rising as China increases imports, animal feed costs rise and slaughterhouses face a dearth of workers.

The cyberattack on JBS could push U.S. beef prices even higher by tightening supplies, said Brad Lyle, chief financial officer for consultancy Partners for Production Agriculture.

Any impact on consumers would depend on how long production is down, said Matthew Wiegand, a risk management consultant and commodity broker at FuturesOne in Nebraska.

"If it lingers for multiple days, you see some food service shortages," Wiegand added.

Two kill and fabrication shifts were canceled at JBS's beef plant in Greeley due to the cyberattack, representatives of the United Food and Commercial Workers International Union Local 7 said in an email. JBS Beef in Cactus, Texas, also said on Facebook it would not run on Tuesday.

JBS Canada said in a Facebook post that shifts had been canceled at its plant in Brooks, Alberta, on Monday and one shift so far had been canceled on Tuesday.

 

Eoin Treacy's view -

Piracy on the high seas is policed by both nation states and international organisations. A zero tolerance policy is taken to any threat to international trade and significant military and diplomatic resources are deployed to contain any threat that appears. Doing the same for cyber pirates is a lot more difficult.



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May 28 2021

Commentary by Eoin Treacy

Fed Reverse Repo Primed to Top Record Demand Level at Month-End

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

Volume at the Federal Reserve’s facility for overnight reverse repurchase agreements is poised to climb on the last trading day of the month, surpassing Thursday’s record, as global banks pull back on their balance sheet activity for regulatory purposes.

Wrightson ICAP said it’s likely demand for the Fed’s RRP moves above $500 billion level, but will be looking for some pullback in activity on June -- though any dip may be temporary

RRP usage surged to $485.3 billion Thursday, a record since the facility started in September 2013 and up from $450 billion in the prior session

The rate on overnight GC repo opened at -0.01%, according to Oxford Economics. Treasury bills out to September are yielding less than 1.5bp. On the unsecured side, three-month Libor dropped to a fresh record low of 0.13138% from 0.13463% in the previous session

The glut at the front-end has been spurred by the central bank’s ongoing asset-purchase program, commonly referred to as quantitative easing, as well the drawdown of the Treasury’s general account. The latter has been driven by the looming debt-ceiling reinstatement, which is due to take place at the end of July, and the flow of pandemic stimulus funds to taxpayers

Federal relief payments to state and local municipalities are also adding to the oversupply, and that’s being exacerbated as regulatory constraints encourage banks to turn away deposits, directing that cash into money-market funds

Eoin Treacy's view -

There was a lot of concern at the prospect of banks turning away deposits and the impact that would have on money market funds a couple of months ago. Since then, the Fed has acted to support banking operations. Additional supports are now going to be required to ensure money market funds do not see negative yields. That may require stepping up asset purchases in an effort to mop up excess liquidity.



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May 26 2021

Commentary by Eoin Treacy

Email of the day - on platinum

Dear Eoin, What is happening with Platinum please? Many thanks,

Eoin Treacy's view -

The platinum miners have been among the biggest supporters of the hydrogen fuel cycle because platinum is essential to how hydrogen fuel cells function. The loss of diesel engine demand left a hole in the market and they have been struggling to find new customers. The new energy revolution, being supported by politicians all over the world, is great news for the sector.



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May 26 2021

Commentary by Eoin Treacy

Email of the day on emissions trading

Eoin Hope you are well and settled in your new home. In your comments, you refer to companies having to purchase carbon credits and how Tesla has profited at the expense of others. Could you kindly share some more color on this or direct us to articles you may have posted. Also, could you please shed some light on carbon futures, and where they trade? Thanks much and stay safe Regards

Eoin Treacy's view -

Thank you for this timely email. Royal Dutch Shell’s failure to avoid censure in the Netherlands brings the issue of how emissions are priced into sharper focus.

Here is a section from a relevant article:

“Companies have an independent responsibility, aside from what states do,” Alwin said in her decision. “Even if states do nothing or only a little, companies have the responsibility to respect human rights.”

There are currently 1,800 lawsuits related to climate change being fought in courtrooms around the world, according to the climatecasechart.com database. The Shell verdict could have a powerful ripple effect, not least among its European peers including BP Plc and Total SE. Those companies have set similar emissions targets, which have also been criticized by campaigners for not going far enough.

Court Wins
The courts have become an increasingly successful arena for campaigners to hold governments and countries to account over pollution and climate change. This is the second time in quick succession that a Dutch court has ruled that Shell’s parent company in The Hague is liable for environmental damages in other jurisdictions.

In January, a court of appeals said that Hague-headquartered Shell had a duty of care to prevent leaks in Nigeria. The German government fell foul of a judge over its climate targets when its top court ruled that Chancellor Angela Merkel’s climate-protection efforts were falling short in April.

“Urgent action is needed on climate change which is why we have accelerated our efforts to become a net-zero emissions energy company by 2050,” a Shell spokesperson said. “We are investing billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables and biofuels.”



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May 26 2021

Commentary by Eoin Treacy

EU May Sanction Belarus's Potash Industry by This Summer

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

The EU measures will need to name specific sectors and be clearly defined so as to withstand potential legal proceedings and win the backing of all member states. Forging unanimity between EU governments has proved tricky lately, with several countries keen to avoid hurting their economies or dent controversial political alliances.

“A lot will depend of what type of sanctions are implemented,” said Elena Sakhnova, an analyst at VTB Capital. “If those are just sectoral penalties, such as limiting Belarus potash industry’s ability to get financing in European banks, this won’t cause disruption on the market as Belarus uses alternative sources of funding anyway.”

Potential Impact
More meaningful penalties would prevent European companies from trading with the Belarusian potash industry, though Belarus would still be able to divert from Europe to other markets,
mostly to Asia Sakhnova said.

That may cause a short-term increase in potash prices in Europe, as Belarus supplies about 25% of the region’s demand, though the situation should normalize fairly quickly, she said. Producers like Russia’s Uralkali PJSC may replace Belarusian volumes in Europe, she said.

Eoin Treacy's view -

A big outstanding question is how powerful is the EU’s farm lobby? Potash is an essential crop nutrient and is impossible to replace. Supply is concentrated in Belarus, Russia and Canada. Farmers have plenty of experience with exaggerated pricing for agricultural nutrients so achieving unanimity on sanctioning Belarus’ potash exports will be difficult to achieve. A further deterioration in relations would probably be required to spur action.



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May 24 2021

Commentary by Eoin Treacy

Cars Are About to Get a Lot More Expensive

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

Consider a car manufacturer with $100 billion in sales. A 10% decline in sales volume would push earnings before interest and tax down by 40%, the Boston Consulting Group has estimated. That's an optimistic scenario — and this analysis assumed the company could eliminate all variable costs such as raw materials and labor. In the current situation, that’s not quite possible.

No doubt, carmakers could digest the rising cost of production a bit longer by reducing incentives and discounts they’ve used to lure buyers. But that's already been happening in the world’s largest auto markets, the U.S. and China, and you can’t trim back enticements forever. 

Companies have few options to offset creeping manufacturing expenses. With prices already high, consumers aren’t going to be as liberal with their wallets. So far, they have been willing to
accept a 12% premium, or around $5,000 over the sticker price, according to Kelley Blue Book and Cox Automotive. But a U.S. vehicle affordability index has started ticking down, signaling people are beginning to think twice before splashing out. Almost 40% of those who were going to buy cars have now put off their purchases. 

Eoin Treacy's view -

The challenge for consumers is prices rarely go down after they go up because companies pocket margin. That’s as true of cars as it is of every other product. The additional premium companies are no enjoying will help as they redeploy resources towards developing electric replacements for their biggest sellers. That was going to happen anyway so in many regards the current go-slow on production is being welcomed by manufacturers.



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May 21 2021

Commentary by Eoin Treacy

Canadian Dollar is pick of commodity currencies

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

The Canadian dollar may fare better than other commodity currencies in the remainder of the year as resurgent growth spurs the nation’s central bank to wean the economy off stimulus.

While already perched near multi-year highs, the loonie still has potential to add to its gains given the surge in commodity prices and an economy that is forecast to grow at the fastest pace in several decades. And with the Bank of Canada having unveiled a scale-back of government debt purchases while accelerating the timetable for a possible interest-rate increase, money markets have lost no time in pricing an aggressive rate trajectory.

Other G-10 commodities, too, have fared well this year. While Norway’s central bank is likely to raise rates sooner than its Canadian counterpart, the differential between 10-year yields in the two nations is a considerable hurdle for the krone to overcome. The Australian and New Zealand dollars, meanwhile, face considerable headwinds to climb from current levels given that they are both overvalued from a fundamental perspective, especially against a backdrop where their central banks are likely to stay accommodative for a long time yet.

The Canadian dollar also stands out in relation to its peer group by its muted volatility, which reduces the overall risk in a portfolio setting. All told, it’s been plain sailing for the loonie so far this year. If the current macroeconomic backdrop prevails, 2021 may well turn out to be annus mirabilis for the currency, not only against its commodities peer group but also the wider G-10 complex.

Eoin Treacy's view -

Canada has a long history of fostering upstart companies that come to dominate their respective niches during the prevailing bull market of the time. Nortel Networks, Blackberry, Canopy Growth Corp, Brookfield Asset Management and Shopify all come to mind. Amid the significant media attention these companies receive, it is worth remembering that the oft-maligned extractive sector forms the basis for the country’s wealth and stability.



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May 21 2021

Commentary by Eoin Treacy

South African Central Bank Maintains That Next Rates Move Is Up

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

The Reserve Bank’s hawkish stance is likely to draw criticism from politicians and labor unionists, who say it should be doing more to support the economy and reduce unemployment that’s at a record high.

The central bank cut the key rate by 300 basis points last year. Its contribution to an economic recovery will now be predictable policy, according to Deputy Governor Kuben Naidoo.

“You need low, predicable rates during the recovery to support economic activity, to encourage people to lend, to encourage businesses to invest,” he told reporters. “That’s the contribution of the SARB during a crisis.”

Eoin Treacy's view -

South Africa has joined the ranks of countries signaling the lows for rates are in. Interest rate differentials are once more a factor in how currencies are valued. Commodity exporters are leading this trend because of their much-improved balance of payments and that is true of both emerging and developed markets.



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May 19 2021

Commentary by Eoin Treacy

Bitcoin Plunge Wipes $500 Billion From Value in Crypto Rout

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

Bitcoin is now down more than 50% from its record of almost $65,000 set in April. Fueling the volatility is Tesla CEO Elon Musk, whose social-media utterances have whipsawed the crypto community. A statement from the People’s Bank of China on Tuesday reiterating that digital tokens can’t be used as a form of payment added to the selloff.

The selloff dominated market chatter on a day when equities also were tumbling and the Federal Reserve was set to release minutes from its latest meeting. #Cryptotrading was trending on Twitter, where critics and fans alike were in a tither over the rout. Critics had warned for weeks that the moves in crypto assets were unsustainable and that any sign of a selloff would lead to a rout.

“This is going to be the first ‘welcome to crypto’ day for a lot of new entrants,” said Stephane Ouellette, chief executive and co-founder of FRNT Financial. “The history of these assets has been littered with aggressive rallies and sickening selloffs.”

Eoin Treacy's view -

The biggest question for the wider investment community is “who are the new entrants to crypto?”. There are two large new groups of investors. Retail investors, flush from US government stimulus checks, bought cryptos in size in the first quarter. Institutional investors, desperate for an “uncorrelated asset” also jumped in and helped fuel the appreciation in value to $1.9 trillion for the entire crypto sector at its peak.



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May 18 2021

Commentary by Eoin Treacy

Eurozone in Double-dip Recession as Mediterranean Economies Risk Another Lost Summer

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

But Robert Alster at Close Brothers Asset Management warned of a divide between industrial economies in the north and tourist-reliant nations in the south, despite the start of UK tourism to Portugal. This could spark a return to the two-speed Europe which raised questions over the stability of the bloc after the financial crisis.

Mr Alster said: “The risk now is that the north/south divide continues to widen. Germany’s economic growth is not far behind the UK’s, with its vaccination programme set to overtake, whereas Spain’s economy has been hardest hit,” he said.

“The northern countries have benefited from strong manufacturing growth, with the US and China driving global demand, whereas the Southern countries are on tenterhooks to see whether the European tourism season can go ahead.”

Two consecutive quarters of contraction mean the currency area is officially in recession again, despite not fully recovering from the initial shock of Covid.

GDP remains more than 4pc below its pre-pandemic peak at the end of 2019.

Employment fell by 0.3pc in the first quarter of 2021, meaning the number of people in work is still almost 3.6m below its pre-Covid level.

Jack Allen-Reynolds at Capital Economics said the jobs market should soon start to recover too, but that the rebound in hiring will probably be quite slow.

He said: "Many firms will be able to raise output by increasing employees’ working hours before they start taking on more staff."

Eoin Treacy's view -

Europe and the USA adopted very different methods of supporting the economy during the pandemic. The USA favoured giving direct support to workers by boosting unemployment benefits. Europe favoured supporting companies so they would not fire large numbers of workers. Both sets of policies have resulted in unintended consequences.



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May 18 2021

Commentary by Eoin Treacy

Averting Climate Crisis Means No New Oil or Gas Fields, IEA Says

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

Reducing emissions to net zero -- the point at which greenhouse gases are removed from the atmosphere as quickly as they’re added -- is considered vital to limit the increase in average global temperatures to no more than 1.5 degrees Celsius. That’s seen as the critical threshold if the world is to avoid disastrous climate change.

But it’s a path that few are following. Government pledges to cut carbon emissions are insufficient to hit “net zero” in the next three decades and would result in an increase of 2.1 degrees Celsius by the end of the century, the IEA said.

“This gap between rhetoric and action needs to close if we are to have a fighting chance of reaching net zero by 2050,” the agency said. Only an “unprecedented transformation” of the world’s energy system can achieve the 1.5 degrees Celsius target.

The IEA’s road map appears to be at odds with climate plans laid out by Europe’s top three oil companies -- BP Plc, Royal Dutch Shell Plc and Total SA. They all have targets for net-zero emissions by 2050, but intend to keep on seeking out and developing new oil and gas fields for many years to come.

“No new oil and natural gas fields are needed in our pathway,” the IEA said. If the world were to follow that trajectory, oil prices would dwindle to just $25 a barrel by mid-century, from almost $70 now.

Eoin Treacy's view -

Many of the oil majors have significantly reduced plans for additional new supply already. That decision was as much about the price structure as it was about appeasing the increasingly powerful green lobby. Today, the European oil companies in particular are attempting to reorient towards becoming utilities to boost their green credentials.



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May 18 2021

Commentary by Eoin Treacy

SGD Gains as Stock Rally Outweighs Virus Fear

This note from Bloomberg may be of interest to subscribers.

The Singapore dollar gains as buoyant Asian equities outweigh concern over the spread of coronavirus infections in the city state.

USD/SGD falls 0.2% to 1.3335 after closing up 0.3% on Monday
MSCI AC Asia Pacific Index advances 1%
Govt bonds gained across the curve on Monday, with the 10-year yield down 2bps to 1.52%
HSBC sees more room for underperformance of SGD rates versus USD rates over the next few days, according to a note on Monday

FX swaps and front-end SGD rates have shifted higher as tighter social distancing measures reduced the odds that the Monetary Authority of Singapore would tighten its currency policy stance later this year

The highly transmissible strain of Covid-19 that surfaced in India has become more prominent among Singapore’s growing number of unlinked cases
An air travel bubble between Singapore and Hong Kong has been delayed
The World Economic Forum canceled the annual meeting it was planning to hold this August in Singapore

Eoin Treacy's view -

The US Dollar has been ranging against the Singapore Dollar for six years and is now testing the lower side. Meanwhile the Straits Times Index has also been ranging for a long time. The correlation between the two assets is hardly a coincidence. If the Dollar declines, the bank-heavy Singapore market with capacity for dividend growth and a 3% yield becomes more attractive.



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May 17 2021

Commentary by Eoin Treacy

Gold Miners Rise With Prices on Weaker Dollar, Inflation Worry

This note from Bloomberg may be of interest to subscribers.

Earlier, gold was buoyed by signs that money managers and exchange-traded fund investors are turning more positive on the precious metal
Gold spot price was up as much as 1.3%, silver +2.8% intraday; U.S. Dollar Index (DXY) fell as much as 0.2%
Precious metal miners intraday gainers include HL which rose as much as 15%, EDR CN +11%, GGD CN +11%, CDE +8.9%, FR CN +7.4%, K CN +6.1%, FVI CN +6.5%
Goldman said in a note that “gold tends to perform well when realized inflation is elevated and rising, while the dollar suffers, especially as the Fed stays on hold”
Meanwhile, copper miners also got a boost as price climbed on Monday, lifted by concerns of supply disruptions in Chile and signs that Chinese demand is picking up
Some of the copper/base metals miner that gained intraday include TKO CN, FCX, FM CN
TECK also gained, which was partially helped by rise in coal equities on higher natgas prices

Eoin Treacy's view -

Negative real interest rates are the primary secular tailwind for gold prices. With inflationary measures ramping higher and central banks reluctant to raise rates, the negative real interest rate environment is being supported by that policy.



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May 14 2021

Commentary by Eoin Treacy

McDonald's, Amazon Accelerate Push Toward Higher Minimum Wage

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

McDonald’s Corp. announced Thursday it will raise hourly wages by about 10%, bringing the average wage at its restaurants to more than $13 an hour. Chipotle Mexican Grill Inc. said earlier this week it will set hourly starting wages at $11 to $18. Target Corp. and Costco Wholesale Corp. have increased theirs to $15 and $16, respectively.

McDonald’s is hiring 10,000 new employees at its company-owned stores over the next three months alone, and Walmart Inc. brought half a million people on board last year. Chipotle is hiring 20,000 workers across the U.S., and Target needs workers for the 30 to 40 stores it will open this year.

Amazon.com Inc. also upped the labor market ante Thursday by announcing plans to hire 75,000 people in the U.S. and Canada at starting pay that will average more than $17 an hour. New employees will get hiring bonuses of $1,000 and those fully vaccinated for Covid-19 will get additional $100.

Eoin Treacy's view -

The year over year change in average hourly wage growth has been massively distorted by the pandemic. It surged in 2020 because fewer people were working, and those that were got pay rises. It then plummeted to historic lows because the current growth is on par with what was witnessed a year ago.



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May 13 2021

Commentary by Eoin Treacy

Bitcoin Falls Below $50,000 as Musk Calls Energy Use 'Insane'

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

“Surely he would have done his diligence prior to accepting Bitcoin?” said Nic Carter, founding partner at Castle Island Ventures, and a leading voice among defenders of Bitcoin’s energy use. “Very odd and confusing to see this quick reversal.”

Musk’s decision in February to buy $1.5 billion in Bitcoin and plan to accept it as a form of payment has been a major catalyst in the crypto bull market. In the eyes of analysts, it helped add legitimacy to the token and usher in new investors.

Musk’s crypto tweets have often been in jest, and his attention toward Dogecoin brought the joke token into the mainstream. He’s quipped about being the “Dogefather” in the past, and tweeted on Tuesday, “Do you want Tesla to accept Doge?”

Eoin Treacy's view -

The cognitive dissonance of a clean energy visionary also promoting one of the most carbon dependent endeavours has obviously begun to weigh on Elon Musk. It may also be convenient to argue against bitcoin if he is helping to promote alternatives which certainly appears to be the case with Dogecoin.



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May 13 2021

Commentary by Eoin Treacy

Email of the day - on China's growth potential

That some manufacturing will move to other parts of Asia makes sense (especially as Chinese labour costs rise)

But the comparison some make with Japan needs to take account of the facts that:

a) Even now only 60% of the Chinese population is urbanised (93% for Japan)

b) Output per capita must still be much lower than advanced countries so they can also catch up in that? Most developing countries have the constraint that they don't have the capital to invest for that but lack of capital is not China's constraint.

Eoin Treacy's view -

Thank you for this email which raises some important points. The base effect helps to spur economic growth for frontier markets because small improvements tend to have big effects on economic potential for poor countries. Obviously, the larger a country becomes, the greater the challenge to maintain high growth rates. That’s where China is today.



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May 13 2021

Commentary by Eoin Treacy

Over 700 Barges Stuck in Mississippi River From Bridge Crack

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

“The river is the jugular for the export market in the Midwest for both corn and beans,” said Colin Hulse, a senior risk management consultant at StoneX in Kansas City. “The length of the blockage is important. If they cannot quickly get movement, then it is a big deal. If it slows or restricts movement for a longer period it can be a big deal as well.”

The New Orleans Port Region moved 47% of waterborne agricultural exports in 2017, according to the U.S. Department of Agriculture. The majority of these exports were bulk grains and bulk grain products, such as corn, soybeans, animal feed and rice. The region also supports a significant amount of edible oil exports, such as soybean and corn oils and even attracted 13% of U.S. waterborne frozen poultry exports in 2017.

Eoin Treacy's view -

Cracks in pieces of critical regional infrastructure are not encouraging. It’s another example of how much need for infrastructure replacement there is. The massive infrastructure development in the post World War 2 era boosted economic growth for decades but many countries grew complacent to the need for constant renewal and maintenance. Large numbers of roads, railways, dams, power plants and pipelines are reaching the end of their anticipated lives.



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May 12 2021

Commentary by Eoin Treacy

No Relief in Sight for World's Soy Supply Crunch, U.S. Says

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

“Something has to give,” Scott Irwin, a professor at the University of Illinois said by phone. “Either we have to find more planted acres, we have to get lucky with summer weather, or the price has to go high enough to ration usage lower than projected.”

Crop markets have skyrocketed amid record Chinese demand and rising consumption as economies recover from the pandemic. More evidence of China’s strong appetite for farm commodities emerged this week with further purchases of U.S. corn. Weather concerns persisting in major producers like Brazil also risk further straining global supplies.

The relentless rally across crop markets has stoked worries over rising food bills at a time when many consumers are still struggling from the fallout of the Covid-19 pandemic. The United Nation’s monthly gauge of global food prices has climbed for 11 straight months.

There is a scenario in which the supply crunch could see some relief.

“If we don’t see a major weather problem from September all the way through June of next year, then we should see maybe new crop prices remain below the average that we’ll probably realize for the current marketing year,” said Terry Reilly, senior commodities analyst at Futures International LLC in Chicago.

Eoin Treacy's view -

Soybean supply is dominated by the USA and Brazil. Demand is focused on Chinese consumption and cooking oil demand everywhere. The pandemic hit restaurant demand last year so there were fewer acres planted, and the surge in demand this year has resulted in a supply shortfall. US drought conditions eased over the last week which is good for crops but the Brazilian drought remains ongoing.



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May 11 2021

Commentary by Eoin Treacy

Agronomics to raise GBP50 million to invest in "cultivated meat"

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

The net proceeds of the fundraising will be used to finance further investment into current portfolio companies and projects, investment in new opportunities within the "cultivated meat" sector and development and commercialisation of intellectual property where Agronomics holds an interest.

"Agronomics has expanded rapidly over the past two years, and this financing will further accelerate its growth," said Non-Executive Chair Richard Reed.

"We anticipate it will provide the full funding to support our existing portfolio companies through their next financing rounds, while also giving us sufficient capital to pursue acquisitions of new investments in this exciting field as it enters into what we expect will be a multi-decade growth phase," added Reed.

Eoin Treacy's view -

The renewable energy sector did spectacularly well in the run-up to the oil price and credit availability peaks in 2007. There was a great sales pitch that an energy revolution was underway and renewables would take over. However, at the time the inability of the companies to breakeven was a major headwind. The rationale for owning the sector was heavily influenced by the comparison with oil. When oil prices fell, the sector collapsed.



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May 10 2021

Commentary by Eoin Treacy

Email of the day on shipping investment vehicles:

Further to your longer-term theme review on Fri., the Collective might want to consider this new shipping fund launch.

Eoin Treacy's view -

Thank you for this press release which may be of interest to subscribers. Here is a section:

The seed portfolio consists of 23 Handysize and Supramax ships, which are all fully operational and income-generating, and are expected to be purchased soon after the listing. According to the intention to float document published today, these classes of vessels have historically demonstrated average annual yields over 7%.

That will enable the investment company to target an initial dividend yield of 7% in its first year. Once fully invested, the fund managers will target a total return including dividends from the underlying portfolio of 10-12% per annum.

The seed assets have an estimated average remaining life of 17 years. Of the 23 ships, 17 are already under the commercial management of Taylor Maritime, while the rest are being sourced from vendors with established relationships with the managers. About $24m worth of the seed assets will be acquired in exchange for shares in the new fund, issued in consideration.



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May 07 2021

Commentary by Eoin Treacy

Secular Themes Review May 7th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

After a crash everyone is wary. We all seek to learn lessons from our most recent experience because it is the only way to help us emotionally move past the trauma. Coming out of the pandemic most investors wished they had sold everything at the first sight of virus news in early 2020 and bought everything back again following the crash. Today they are worried that there is another big shock waiting around the corner that will cause a repeat of pandemic panic.

The challenge for investors is less to learn from the most recent mistake but rather to know when to deploy the lessons learned. The best time to be wary about a massive decline is when no one is worried about it. The time to take precautionary action is when it seems like a waste of time and when you are most afraid of giving up on the potential for even better gains. That’s the best time to remember the experience of the crash but the interval of time and the positive reinforcement of experience in an uptrend make it difficult.



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May 06 2021

Commentary by Eoin Treacy

Americas May Lead World's Silver Mined-Supply Recovery

This note from Bloomberg may be of interest to subscribers.

Silver primary supply set to recover in 2021, following Covid-19 operational restrictions suffered last year. 2020 saw the silver mining industry's biggest fall of the last decade, down 6% to 784 million ounce, based on Metals Focus data. Mined-output may rise by 8% year-over-year to 849 million ounces in 2021, based on Metals Focus estimates. We believe the Americas, with a 58% of global supply share, will lead the recovery in 2021, thanks to higher output from Mexico, Peru and Bolivia. Mexico could stay as the world's No. 2 producer, with nearly 200 million ounces, up 12% based on BI's scenario analysis.

Fresnillo kept its crown as world's No. 1 silver producing company in 2020, followed by KGHM, Glencore, Newmont and Codelco. We calculated that these miners combined represented 23% of global mined supply.

Eoin Treacy's view -

Silver is mostly produced as a by-production of other mining activity and the majority of pureplay silver miners now concentrate on gold. Additionally, silver is more of an industrial resource than gold so it tends to elicit interest from many different sources. Those complicated supply and demand fundamentals mean significant new sources of supply or demand are required to meaningfully change the outlook for prices. The loss of photographic film demand was a major hit meanwhile the building boom in solar cells now accounts for 10% of total demand.  



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May 05 2021

Commentary by Eoin Treacy

Gold CEO Blasts 'Hysterical' Fund Managers Chasing Quick Cash

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

“I’m cautioning people not to become too obsessed with stripping the industry out of its cash, and not allowing strengthened balanced sheets to be built and investments in the future,” he said. “Whether it’s exploration or deal making, it’s got to create value and you can’t create value as a mining executive if you don’t have support from the fund managers.”

Eoin Treacy's view -

Investors have been conditioned to expect well-capitalised companies will buy back shares, pay special dividends and will not engage with capital intensive business lines. That sounds great for tech companies but it doesn’t work for miners. Mining executives that are not actively engaging with M&A targets are coming under profound pressure to distribute available cash. Meanwhile there is no tolerance for green field exploration among either large miners or investors. No one wants that kind of open-ended risk. The 10-month correction in the gold price will only have further damaged appetite for investment in new supply and particularly from banks which control the supply of liquidity. At a minimum it will require even better prospects than normal. That bolsters the limited supply argument over the medium term.



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May 05 2021

Commentary by Eoin Treacy

Colombia Coffee Exports Halted by Protests, Federation Says

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

Coffee isn’t moving to ports, including the main Buenaventura shipping hub, because of nationwide protests and road blockades, Roberto Velez, CEO at the Colombian Federation of Coffee Growers says by phone from Bogota.

The Colombian situation is fueling gains for prices in New York, which have reached the highest since 2017
Protests that started last week against a tax reform bill continued even after it was withdrawn, Velez says, adding any solution would have to come from the central government
There’s also concern that Covid-19 rates are increasing in coffee areas
Coffee pickers needed for the harvest are already on the farms
NOTE: Colombia Protests Slow Coffee Shipments to Ports, Importer Says
2021 Coffee Output Seen at 14M Bags: Trade Group

Eoin Treacy's view -

The Brazilian drought has been the primary tailwind for coffee prices over the last few months. A threat to the consistency of Colombian exports represents and additional tailwind for as long as it lasts. Coffee is one more commodity experiencing supply inelasticity. The year of lockdowns unset supply/demand fundamentals and left the commodity markets more susceptible to weather or political interruptions. The result is rising prices for just about everything.



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