Investment Themes - Precious Metals / Commodities

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July 02 2020

Commentary by Eoin Treacy

China in counterfeit gold scandal as Wuhan company uses fake bars to gain $4.1bn in loans

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

The story broke after a Beijing-based website investigated complaints and then posted the news under the headline: “The mystery of [US]$2 billion of loans backed by fake gold”.

Kingold is denying it lodged fake bars with Chinese lenders such as China Minsheng Trust, Hengfeng Bank, Dongguan Trust and Bank of Zhangjiakou. The trust companies involved are largely what are known as “shadow banks”.

The alleged scam came to light earlier this year when Kingold defaulted on loans to Dongguan Trust. The gold bars pledged as collateral turned out to be gilded copper alloy. Minsheng Trust’s “gold” bars have also turned out to be copper alloy under the gilded surface.

 

Eoin Treacy's view -

Veteran gold watchers will remember the case of gold-plated tungsten bars which began to turn up in New York a few years ago. 82 tonnes of gold is a substantial total and highlights the lack of governance in China’s financial system.



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July 01 2020

Commentary by Eoin Treacy

Tesla China Plant Might Have Come to the Rescue Last Quarter

This article by Dana Hull for Bloomberg may be of interest. Here is a section:

“The lesson learned by now is that TSLA shares tend to ‘work’ when something new has launched,” Jeffrey Osborne, a Cowen Inc. analyst with the equivalent of a sell rating on the stock, said in a report Tuesday. “At this point both the Model Y and China built cars are ramping up.”

Musk, 49, suggested to Tesla employees early this week that the company could manage to avoid a quarterly loss.

“Breaking even is looking super tight,” the CEO wrote to staff in an email seen by Bloomberg. “Really makes a difference for every car you build and deliver. Please go all out to ensure victory!”

Eoin Treacy's view -

Tesla has done an admirable job of keeping production on line globally even as sporadic shutdowns at home impaired manufacturing. The decision by California to mandate emission free trucking by 2040 is an additional tailwind for the battery producer. 



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June 30 2020

Commentary by Eoin Treacy

Gold Climbs Above $1,800 for the First Time Since 2011

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

Goldman Sachs Group Inc. said gold could climb to a record $2,000 an ounce over the next 12 months, while JPMorgan Chase & Co. recommended investors stick with bullion.

“The Fed is being extremely accommodative and because these shutdowns are starting to reoccur globally, more central bank measures are probably going to be initiated,” Phil Streible, chief market strategist at Blue Line Futures in Chicago, said by phone.

Eoin Treacy's view -

Gold’s front month futures traded above $1800 today while the spot price has yet to achieve that goal. The difference between the short-term patterns may give us some insight into what is animating the market in the short term.



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June 29 2020

Commentary by Eoin Treacy

Australian lawmaker says he isn't a suspect in China probe

This article by Rod McGuirk for APNews may be of interest. Here is a section:

The secret service, best known as ASIO, confirmed in a statement that “search warrant activity occurred in Sydney on Friday as part of an ongoing investigation,” but would not comment on Moselmane or its involvement.

Less than two weeks ago, Morrison said that a “sophisticated state-based cyber actor” was targeting Australia in an escalating cyber campaign that was threatening all levels of government, businesses, essential services and critical infrastructure.

Most analysts said Morrison was referring to China, but the prime minister would not name the country.

Already high tensions between Australia and China have been raised by the pandemic.

China in recent weeks has banned beef exports from Australia’s largest abattoirs, ended trade in Australian barley with a tariff wall and warned its citizens against visiting Australia. The measures have been interpreted by many as punishment for Australia’s advocacy of an independent probe into the origins and spread of the coronavirus.

Australia’s foreign minister has accused China of using the anxiety around the pandemic to undermine Western democracies by spreading disinformation online, prompting China to accuse Australia of disinformation.

Eoin Treacy's view -

Australia depends on China’s demand for many of its exports. That’s represents a difficulty for the country in attempting to assert independence from China. For its part, China has a clear interest in securing its supply chains. That means ensuring Australia is at least amenable if not fully subservient to its wishes.



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June 26 2020

Commentary by Eoin Treacy

Silver Price Forecasts Increased

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

Eoin Treacy's view -

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

The extent to which mine supply has been impacted by the spread of COVID-19 in Latin America is something that had more of an effect on iron ore prices than silver. The bigger question is how much of an impact a return to production will have on prices. The supply deficit may have at least supported prices without contributing to an outsized gain. The return of supply could create a surfeit.



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June 24 2020

Commentary by Eoin Treacy

Bayer Pays Billions to Put Monsanto Legal Liabilities Behind It

This article by Jef Feeley and Tim Loh for Bloomberg may be of interest to subscribers. Here is a section:

The settlement is more comprehensive than expected, since it includes the dicamba and PCB cases, and the price will be reasonable for most investors, Sebastian Bray, an analyst at Berenberg, said by email.

It’s a “big relief,” Bray said, and “should allow investors to draw a line under the saga of the last two years.”

The Roundup agreements will resolve 75% of about 125,000 filed claims and those that were unfiled, the company said Wednesday in a statement. Bayer said it will pay $10.1 billion to $10.9 billion to resolve all lawsuits over the popular herbicide, including $1.25 billion for future claims handled as a class action.

Eoin Treacy's view -

Bayer pretty much bet the value of the entire firm on the speculation they would be better able to settle the Roundup claims than Monsanto. It’s looking increasingly likely that they were correct.



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June 22 2020

Commentary by Eoin Treacy

Investors Are Spending Fresh Billions Hedging Market Mania

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

Gold and longer-maturity bonds are getting outsized inflows. Protective equity options are outdrawing speculative contracts, while volatility markets are positioning for fresh disruptions.

It comes as signs of froth are emerging. The S&P 500 Index is on the cusp of its best quarter in more than 80 years even as fears of a second coronavirus wave grow. Speculative mania reigns among retail investors, while the likes of JPMorgan Chase & Co. are turning bullish on U.S. stocks.

But for all the fears that Wall Street is running headlong into risk in one of the fastest rebounds ever, hedging demand shows the frenzy is being met with some vigilance.

Eoin Treacy's view -

When equities yield 4% and a 10% correction is normal, then hedging with bonds that yield 6% and have less volatility makes sense. It is the relationship risk parity strategies were based on even though the original numbers were different. However today we have equities that yield 2% with 30% drawdown risk. Bonds yield 0.7% but volatility hit decade highs, more than double current levels, just a couple of months ago.



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June 19 2020

Commentary by Eoin Treacy

The Curious Case of COMEX Gold Deliveries in April and June

Thanks to a subscriber for this article by Ronan Manly for bullionstar.com which may be of interest. Here is a section:

Switzerland never normally exports gold to the US. In fact, the US usually exports gold to Switzerland gold to Switzerland – to be refined. Why was 153.3 tonnes rushed into New York during late March and April. Were these COMEX deliveries known about in advance?

Another coincidence is that the amount of gold that has flowed into COMEX since early April that is reported as eligible for the new COMEX 400 oz gold futures contract totals 155.67 tonnes of gold. Very similar to the total amount of gold ready to be delivered for the June 100 oz contract.

The next article will look at the flows into the COMEX gold vaults since 23 March, which have totaled a huge 694 tonnes, comprising 363 tonnes in eligible and 331 tonnes in registered. This has brought registered stocks up to 387 tonnes and eligible stocks to 578 tonnes, for a combined total of 965 tonnes.

Could it be that the entity or entities that were looking for gold in London on 23-24 March and didn’t get it, switched their attention back to the COMEX and demanded delivery through futures, the delivery of which is now panning out? A trans-Atlantic shock that left bullion banks scrambling.

Eoin Treacy's view -

Ensuring there is enough gold on hand to supply a newer larger contract size is just part of doing business as a commodities exchange. The spike in the spread between London and New York gold prices witnessed in March and April was probably a result of trying to source this supply during the lockdowns. The bigger questions will be if investors are now willing to take delivery, rather than roll their contracts, will that reduce supply in the physical market and where will those tons of gold be stored?



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June 15 2020

Commentary by Eoin Treacy

Global Thematic Diary June 12th 2020

Thanks to Iain Little for this edition of his investment note. Here is a section:

After the recovery from the 23rd March lows (supreme irony: the very date that many countries went into social and economic “lockdown”) and the -6% mini-crash last Thursday, we see stock markets as being in a redistribution phase as “shareholder regret” kicks in. Nervous Nellies who regret holding equities will either exit altogether (“phew, I’m out!”), or switch money into “cheaper”, lagging sectors like banks, oils, real estate, airlines. Optimists will do something similar except that they’ll be more inclined to hold onto the quality (tech, healthcare, FMCG) that has stood them in good stead. These bulls will regret not holding lower quality sectors if their relative outperformance starts to slip. So lower quality could out-perform higher quality for a while. But….Caution!

A man-made Frankenstein (Modern Monetary Theory, which means hiring monetary policy to do the job of fiscal policy) is ringing an early bell for “stagflation” (low growth plus inflation). There may not be enough global demand or monetary velocity to revive stagflation…..yet. But survivors of the 1970s know what this implies for portfolios at the end of the day: inflation-proof growth equities, index linked bonds, real assets and……gold.

Eoin Treacy's view -

We are at a very interesting point in the market. There are completely different ways of looking at the market. For those who are long, the clearest rationale is $10 trillion has been thrown into the global market and more is on the way. One way or another that is going to inflate asset prices.



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June 11 2020

Commentary by Eoin Treacy

Eoin's personal portfolio: stock market short initiated June 9th 2020

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.

 



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June 10 2020

Commentary by Eoin Treacy

Fed Sees Zero Rates Through 2022, Commits to Keep Buying Bonds

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

“We’re not even thinking about thinking about raising rates,” he told a video press conference Wednesday. “We are strongly committed to using our tools to do whatever we can for as long as it takes.”

The Federal Open Market Committee earlier said it would increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities “at least at the current pace” to sustain smooth market functioning.

A related statement from the New York Fed specified that the pace of the increase would be about $80 billion a month for purchases of Treasuries and about $40 billion of mortgage-backed securities.

“Acting on mortgage-backed securities and Treasuries underscores their belief that more support is needed,” said Diane Swonk, chief economist with Grant Thornton in Chicago. “The Fed does not see a victory in the employment bounce-back. The risk of deflation is still high and the economy needs more support to heal more fully.”
 

Eoin Treacy's view -

$120 billion a month for the next two years will add nearly $3 trillion to the size of the Fed’s balance sheet. It sounds like a lot but the Fed added nearly $500 billion to its balance sheet in May, so $120 billion is a significant deceleration of support.



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June 10 2020

Commentary by Eoin Treacy

New King of Copper Trading Sees Demand Coming Back Stronger

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

By March this year, he was stuck holding video calls with clients and colleagues from his home in Geneva. With the world on lockdown, the outlook for most industrial metals looked bleak. Yet even then, Bintas says there were early signs copper could emerge from the crisis even stronger.

If anything, he’s even more bullish today. Demand is bouncing back in China and stimulus packages being unleashed across the developed world promise to transform the long-term outlook -- particularly with spending on copper-intensive green energy infrastructure. The coronavirus has also disrupted mines and delayed new builds, throttling current and future supply.

“Copper is coming out of this crisis differently,” Bintas said by phone from Geneva. “When lockdowns were eased and people started to return to work, we were surprised to see our customers not only taking deliveries of volumes they’d already bought, but requesting more to cover themselves in case there were any further disruptions to supply.”

Eoin Treacy's view -

With the Federal Reserve talking about leaving rates on hold for more than two years, amid considerable economic uncertainty, the demand for stimulative measures is likely to increase. Infrastructure development provides jobs during the construction phase but also creates a lasting group of assets that foster economic growth in future. Of course, that latter point depends on what stimulus money is spent on but the commodity demand during construction is likely to be the same.



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June 10 2020

Commentary by Eoin Treacy

Email of the day - on carbon credits

First of all, thanks for the excellent service, I have been a subscriber since 1987. One thing that confuses me is the obsession with carbon emission in the world. This has become a political issue, and media deny to debate it. Could you please elaborate a bit on this theme, and let me know what you rely on these days, where do you get your information on this matter, or is it simply follow the money?

Eoin Treacy's view -

Thank you for your kind words and support over the years. When I think about carbon credits, I am reminded of Ronald Reagan’s quip If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”



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June 09 2020

Commentary by Eoin Treacy

Speculative Fervor in U.S. Stocks Surges to 'Stunning' Levels

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

At the heart of the speculative activity are smaller investors, according to Sundial. Small trader call buying made up more than 50% of total volume last week, the highest since 2000, it said.

Past instances when bullish small trader positions made up 45% or more of volume preceded a median loss for U.S. stocks of about 3% in two months time and 15% in a year, according to the note.

“Small traders are pushing their luck in a major way,” said Goepfert. “It seems increasingly risky to try to chase this rally along with traders who have traditionally been extremely reliable contrary indicators.”

Eoin Treacy's view -

Regardless of any mitigating argument, chasing the rally has been the right decision. The major Wall Street indices blazed through potential areas of resistance in short order. The Nasdaq Composite is now at a new all-time high and the worst performing, most at risk of bankruptcy companies, have staged spectacular rallies. The determination of retail investors to ride the coattails of the Fed while institutional investors stepped aside is a clear example of speculative fervour.



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June 08 2020

Commentary by Eoin Treacy

Email of the day - on the potential for inflation to surprise on the upside or the downside

Greetings Eoin. Firstly, thank you for the daily commentary and Big Picture Long Term view. They remain the highlight of my weekend and are greatly appreciated. I’m interested in your comments regarding future expectations of inflation.

I hope I’m summarising you accurately, but in essence the thinking runs that the provision of vast amounts of monetary liquidity from Central Banks, combined with Government fiscal spending will at some point come home to roost, and drive up inflation.

If so, why then did we not see an inflation spike following the 2007/08 GFC, where massive (at the time) injections of liquidity and fiscal spending should have delivered the same result?

One view is that we did get inflation following the GFC, just that it showed up in asset prices, not in consumer prices. Equities, bonds, property, luxury goods, art and even later on precious metal prices all benefited from the increased liquidity following 2008. As you have previously highlighted, massive advances in technology, changes to the way we work and live, outsourcing of jobs to lower wage economies, and historically low interest rates have all combined to keep consumer inflation in check over the same period.

Are we to assume that this time is different, and we should expect consumer price inflation at some point, or is it safer to expect history to rhyme and that inflation will again show up in asset prices? If so, should we presume the liquidity will chase better returns and lower P/E multiples of Europe and Emerging Economies this time around? And finally, when investing I’m always conscious of the wise words from the famous British Economist, John Maynard Keynes “The market can stay irrational longer than you can stay solvent”. Spoken nearly a century ago, and never more relevant than today! Many thanks for your time

Eoin Treacy's view -

Thank you for this important email and your kind words. The global response to the 2008 global financial crisis was to bailout the sinners, and pass the bill on to savers. The massive liquidity provided and increases in government debt loads the bailout entailed, saved the global economy. However, it also exacerbated inequality, because, as you highlight the inflation benefitted the holders of financial and physical assets. The coronavirus has laid bare that divergence and it is fanning the flames of left-wing populism.



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June 05 2020

Commentary by Eoin Treacy

The Dawning of a Golden Decade

Thanks to a subscriber for this edition of Ronald-Peter Stoferle and Mark Valek’s comprehensive report on gold. Here is a section:

 

Due to the Covid-19 crisis, monetary and fiscal policy-makers around the world are feverishly seeking new ways to stimulate the economy. Conventional quantitative easing is still part of the standard repertoire of central banks. Deflationary tendencies are once again hitting the economy with full force in the current recession. In the past, deflation could be only partially warded off by central bank purchases of securities. Spurred by the zero interest rate policy that is now widespread throughout the world, discussions have been ongoing for years as to what the next stage of stimulus will look like. Leading the race are proposals such as deeply negative interest rates, yield curve control, or the implementation of

For the global reserve currency, the US dollar, the introduction of negative interest rates would be a sacrilege. But even this breach of taboo can no longer be ruled out. Most recently, the federal funds futures have been pricing in negative interest rates for the first time. Yet, Jerome Powell has spoken out against such a move. However, many market participants have not forgotten his 2019 monetary policy U-turn. The rapid change of course at that time towards a further expansion of the Federal Reserve’s balance sheet now makes it much more difficult for him to convince the market that the next taboo could not be broken. Ultimately, the expectations of market participants could also contribute to the implementation of such a decision, because in the current fragile market environment the Federal Reserve is afraid of disappointing participants and thus triggering further financial market distortions.

In the case of longer-term yields, a so-called yield curve control based on the Japanese model would be one of the options. This is nothing more than a planned-economy price setting in the bond market in order to fix a slightly rising yield curve. This is intended to promote the creation of credit through maturity transactions and to stimulate investment through low long-term interest rates. The increasing sclerotization of the economy would be the inevitable consequence. Modern Monetary Theory (MMT).

For more and more decision-makers the ideas of Modern Monetary Theory (MMT), aka Mugabe Maduro Theory, are becoming as enticing as the apple in the Garden of Eden. We have already subjected this theory to an extensive and critical examination in several issues of our In Gold We Trust report, 453 as well as this year. The recently published book by one of the MMT’s main representatives, Stephanie Kelton, summarizes in its title the great temptation to incur debt without atonement: The Deficit Myth.

Eoin Treacy's view -

The USA embarked on a raft of procyclical fiscal policies following President Trump’s electoral success in 2016. The question that has been overhanging the market for the last few years was what would happen in a recession when so much fiscal assistance had already been expended. Now we have our answer. Open-ended massive fiscal stimulus, exceeding wartime spending is the solution to any problem.



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June 03 2020

Commentary by Eoin Treacy

Email of the day on DRD gold long base formations.

Can you add DRD Gold (ADR) to the library. It is priced just under 10 $. There is overhead resistance from the early 2000s; is this still relevant 20 years on? Can you do a comparative review of the N. American, Australian and South African gold mining sector?

Eoin Treacy's view -

Thank you for this question which may be of interest. DRD’s South African and US listing are already in the library just search for DRD. The company has focused on processing South African mining tailings for the last couple of decades. It did have a brief foray into mining in Papua New Guinea but to the best of my knowledge it fell foul of resource nationalism, along with a number of other large international companies. As you point out the share has been ranging mostly below $10 for twelve years.



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June 02 2020

Commentary by Eoin Treacy

Email of the day - on precious metals

Hello Eoin, if "liquidity trumps everything else" and assuming that governments worldwide will continue New Monetary Theory with massive deficit spending financed by monetization by central banks at essential cero or negative real interest rates, then this wall of liquidity should further propel the ongoing general "melt up" of stock and debt markets allowing a prolonged, demand driven risk-on rally.

In this case precious metals would lose their supposed unique "safe haven" status/advantage until such time that serious inflation or stagflation or a likely collapse or reset of the monetary system becomes visible to a large part of investors - if at all.

Until such (far-off?) day of reckoning, precious metals would neither be needed as protection against systemic crisis as "NMT would be working beautifully" nor for return purposes as stocks and other assets will be pushed up by abundant liquidity. For investors in precious metals/mining stocks the critical questions therefore is:

How long will stocks and other financial assets outperform and "unneeded" precious metals correct or even collapse? Looking back at 2011 and onwards, precious metals collapsed and stayed low until mid-2019 whilst continuing QE1- QEn (the predecessor for NMT) around the world made stock and debt markets boom for the next 9(!) years.

As this time round central banks and governments "shot before asking" by IMMEDIATELY providing unlimited liquidity and fiscal deficits instead of slowly finding and providing relief to financial markets as they did in 2008-2012 and onwards, the best part of the run-up in precious metals may be behind us and the place to invest is in stock markets without much regard to old fashioned valuation discipline.

Most of the performance of the past 10 years has been by way of a multiple expansion - why not have the S&P 500 trade at 25+ trailing earnings if real interest rates are negative and there is a worldwide "Powell/central bank put" as a guarantee against any serious losses?

My questions to you: 1. Why stay invested in PMs NOW and risk a serious corrections/collapse in PMs? 2. When will investors at large recognize - if at all (?!) - that NMT is and will be seriously debasing the currency and nominal values of all assets and that PMs are relatively better or at least, competitive investments/stores of value than say quality stocks (which pay at least a small dividend)?

Thank you for reflecting on the above and sharing your views with the collective. All the best, B

Eoin Treacy's view -

Thank you for this summary of the questions many investors are asking. The rationale behind any bubble is valuations don’t matter. The evolution of ETFs as trackers of indices is the clearest evidence anyone might wish for that this trend is already well underway. Market cap weighted indices are closet momentum strategies so tracking them turns everyone into a momentum investor.



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June 01 2020

Commentary by Eoin Treacy

Email of the day - on silver tracking funds

Thank you for your great service and your prescient commentaries.

I am interested in a non-leveraged silver fund structured along the lines of the PMGOLD ETF.

I would very much appreciate your views/suggestions.

Many thanks. R

Eoin Treacy's view -

Thank you for this email, your kind words and I am delighted you are enjoying the service. PM GOLD is an Australia listed covered call-backed exchange traded note. The closest thing I could find to it is the ETFS Physical Silver ETN (ETPMAG AU) which is denominated in Australian Dollars.



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June 01 2020

Commentary by Eoin Treacy

Eoin's personal portfolio - Last updated March 27th

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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May 29 2020

Commentary by Eoin Treacy

US Economic Outlook & Implications of Current Policies for Inflation, Gold and Bitcoin

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

Gold prices are well above their long-term inflation-adjusted averages. Over time gold has barely outperformed inflation with a real return of 1.0% before cost of storage and insurance, compared to 2.7% for 10-year US Treasuries.

The fascination with gold has existed since the Egyptians first used gold bars as money as early as 4000 BC. The opening paragraph of the late Peter Bernstein’s book, The Power of Gold: The History of an Obsession, captures the sentiment: At the end of the 19th Century, John Ruskin told the story of a man who boarded a ship carrying his entire wealth in a large bag of gold coins. A terrible storm came up a few days into the voyage and the alarm went off to abandon ship. Strapping the bag around his waist, the man went up on deck, jumped overboard, and promptly sank to the bottom of the sea. Asks Ruskin: ‘Now, as he was sinking, had he the gold? Or had the gold him?’

And

Even during shorter windows when inflation has been above 6%, gold only outperformed equities between January 1970 and June 1970, and then again between August 1973 and July 1982.

In other periods, when inflation has been less than 6%, equities have outperformed gold.

Eoin Treacy's view -

This report recaps some of the most common negative arguments for investing in gold and they are relevant at some points in the broad market cycle. However, there is a cyclicality to gold’s turns at outperformance and the broad machinations of the global economy are currently at least as bullish as they were in the early 2000s.



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May 29 2020

Commentary by Eoin Treacy

An Investment Only A Mother Could Love: The Tactical Case

Thanks to a subscriber for this report by Lucas White and Jeremy Grantham for GMO 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 resources sector has been somewhat challenged by the decline in some commodity prices, particularly oil, over the last months. However, they represent a hedge against potential future inflation. They also have growth opportunities from an inevitable infrastructure global growth cycle; fuelled by a desire to support growth in the aftermath of the coronavirus.



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May 28 2020

Commentary by Eoin Treacy

New York Gold Traders Are Drowning in a Glut They Helped Create

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

The seeds of the current glut were sown when the coronavirus shut down commercial flights earlier this year and forced some gold refineries to close. The shutdowns strangled the supply routes that allow physical bullion to move around the globe, and prompted banks to step back from arbitraging between the London and New York markets. At the same time, demand for gold as a haven grew amid fears of the pandemic’s economic toll.

The premium for New York futures over London surged as traders rushed to avoid delivering in April, instead buying back contracts they had sold short.

Traders trying to capture that premium were able to arrange physical delivery, swelling inventories. Key refining hub Switzerland shipped a record amount of gold to the U.S. in April, according to figures dating back to 2012. Australia’s Perth mint also ramped up production last month and shipped bars to the Comex.

“It is a seller’s market because of the premium and the buyers are stuck right now,” Peter Thomas, a senior vice president at Chicago-based broker Zaner Group, said in a telephone interview. “Do you want to deliver now, or do you want to deliver into the back, where the premium is high?”

Eoin Treacy's view -

There was an acute shortage of physical gold in New York for a few weeks in April. That resulted in the spread between the London spot rate and Comex futures surging to $70. That encouraged suppliers from around the world to charter planes to ship inventory to New York to capture the arbitrage. Now that the supply deficit has been eliminated the spread has come back down to more normal levels. However, there is now also a surfeit of physical gold in New York looking for a home.



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May 22 2020

Commentary by Eoin Treacy

China ore bust? Fortescue's record week

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

And FMG had a pretty good week this week: its share price hit a record high of $13.28 amid growth in Chinese production, an inflated iron ore price of about US$90, and a supply shock in Brazil, which is in the grip of the coronavirus and still recovering from that deadly Brumadinho dam disaster in January last year.

Nor did the decision later in the week by China to tighten inspections on iron ore imports dampen sentiment. Will FMG’s price continue to soar? It has a steely balance sheet, good projects in train, a healthy dividend payout, and chief executive Elizabeth Gaines is adamant Chinese demand for imports remains despite the Middle Kingdom’s ore stockpiles.

But can the iron ore price keep going? Morningstar director Mathew Hodge isn’t so sure. In fact, he expects it to halve over the next few years as China’s demand moderates and Brazil recovers. His fair value estimate for FMG is $6.80, which means it’s overvalued by about 100 per cent.

“Fortescue now trades at a premium to our $12.00 bull-case valuation,” Hodge says. “Our bull case incorporates an average iron ore price to 2024 of US$74 per tonne and US$60 per tonne from 2025 onwards. This compares with our base case assumptions of US$58 to end 2024 and US$43 from 2025 onwards.”

Eoin Treacy's view -

China is ramping up its steel production because they know the only way to reinvigorate the economy is through infrastructure development. That is going to have a major technology component which is likely to require significantly more power generation capacity which is positive for steel and cement demand.



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May 21 2020

Commentary by Eoin Treacy

Gold Retreats Amid Profit-Taking Before Long Weekend

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

“Looking at the U.S. weekly jobless claim data, it is clear that things are not dire as they were but the upward movement in the gold price confirms that investors are wary about the continuous claim data,” Naeem Aslam, chief market analyst at Ava Trade, says in an email

“There is no doubt we have seen a bottom in the macro data”

“Many appear keen to start taking profit on gold as it heads toward $1,750,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “We have not seen any inclinations on interest rates to move significantly lower, while the dollar looks to have broadly stabilized”

The gold market is long and is taking some profits ahead of a long weekend, according to David Govett, head of precious metals trading at Marex Spectron Investors are “probably a bit disappointed that it couldn’t make new highs yesterday”

Eoin Treacy's view -

The Monday holiday in the USA and UK ensures two of the world’s largest capital markets are closed for business. It is not all that surprising that some money is being taken off the table in overextended markets ahead of that event.



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May 20 2020

Commentary by Eoin Treacy

Musings from the Oil Patch May 2020

Thanks to subscriber for this report by Allen Brooks for PPHB which may be of interest. Here is a section on battery metals supply:

The potential for a change in battery chemistry from lithium-ion to lithium-sulfur could help.  A massive switch does not appear to be underway.  The big change in EV battery technology – a move to solid state lithium batteries – appears to have been pushed out to 2030 or beyond, versus the prior expectation that it would arrive in the early 2020s.  Now, battery research firms are focusing on how EV manufacturers may need to become involved in the procurement of battery raw materials, as well as completely revamping their supply chains to lower their cost.  

 The real challenge will be in the battery raw material procurement.  A chart from Benchmark’s webinar shows what the limitation is for EVs.  It is raw materials.  In the firm’s forecast for 34 million EVs in 2030, it is expected that there will be sufficient lithium-ion battery manufacturing capacity to produce 43 million EVs.  The challenge is that lithium supply will only meet the needs of 19 million EVs, while cobalt will only be able to supply 17.9 million EVs.  Those limitations equate to roughly a 45% supply shortage.  

One can certainly ask many questions about how investors will perceive EV manufacturers getting involved in mining operations to ensure adequate availability of raw materials for batteries.  Or, will the EV manufacturers figure they will just leave this endeavor to battery suppliers?  Who has the capital available for such new ventures?  What are the geopolitical risks, depending on where new supply sources are found?  Will the new supplies improve, or complicate the existing raw materials supply chains?  Will we be held hostage to foreign suppliers?  What are the ESG issues associated with mining rare earth minerals?  There is the possibility of another potential supply source, that being recycling old EV batteries, although such efforts are currently uneconomic.  

Eoin Treacy's view -

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

A number of the newest battery chemistries do not use cobalt. That is particularly true of the batteries Tesla is producing for its Chinese manufactured cars. The bubble in cobalt prices which peaked in 2018 alerted all manufacturers to the risk represented by supply inelasticity. The technological edge they have since developed means the metal will no longer be required to manufacture batteries or the use case will be substantially reduced. It’s a great example of the adage from the commodity markets that “the cure for high prices is high prices”.



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May 15 2020

Commentary by Eoin Treacy

Gold Climbs After 'Bleak' U.S. Data Muddy Economic Prospects

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

Silver also got a stronger bid, rallying to the highest in two months. The two precious metals have been lifted after U.S. Federal Reserve Chairman Jerome Powell warned earlier this week that the pandemic will take a heavy toll on the economy. Fears intensified on gloomy American unemployment data Thursday, and as President Donald Trump said he doesn’t want to talk to his Chinese counterpart right now.

Nations that enjoyed success quelling the virus, including South Korea and China, now face a rising number of infections. In the U.S., Texas saw its deadliest day and its biggest jump in new cases since the start of the outbreak. That comes two weeks after controversial moves to reopen the state’s economy.

“There are fears over everything from political leadership through the health outlook overall and associated economic financial and political risk,” said Rhona O’Connell, head of market analysis for EMEA and Asia at INTL FCStone. Prices are having a long-awaited breakout moment as market anxiety mounts, she said.

Eoin Treacy's view -

The Nasdaq-100 has had a V-shaped recovery. The Russell 2000, just about all of Europe, Japan and emerging markets have not. There is a lot of discussion in the media about the mismatch between Wall Street and Main Street. The fact that it doesn’t matter what governments tries to do, all they seem to succeed in is inflating asset prices and devaluing the purchasing power of their currencies.



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May 15 2020

Commentary by Eoin Treacy

Email of the day - on adjusting charts for purchasing power parity

Thanks again for the very useful audios and comment of the days. Is there a way in the chart library to compare various commodities and/or stocks to purchasing power parity like you did for gold today? If so could you please advise how. Thanks in advance.

Eoin Treacy's view -

Thank you for this question which comes up from time to time. It is possible to adjust any US dollar denominated asset for purchasing power parity by multiplying it by the PPP Index. Here is a link to a video I created a couple of years ago illustrating how to do it. 



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May 15 2020

Commentary by Eoin Treacy

Email of the day - on contagion selling

Is the contagious selling of gold and goldminers we saw march 9-22 a phenomenon only occurring in the beginning of a crash or is there a chance it could occur again if we saw a rapid further correction to the march lows on stocks? P.S. looking forward to tomorrows long term video

Eoin Treacy's view -

Thank you for this question and I am delighted you are enjoying the audios. The big question most people is whether we have seen the lows. The answer depends on what assets you are talking about.



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May 14 2020

Commentary by Eoin Treacy

Email of the day - on gold miners

Thank you for the excellent commentary at the moment. Please could you tell me how much further the Gold Miners could appreciate, in your opinion. They have already come quite a long way this year but money still seems to be going in to the big miners such as Barrick and Newmont. Yet when the stock market suffers big pull-backs- the Gold Miners can often be whipsawed

Eoin Treacy's view -

Thank for this question which may be of interest to the Collective. The lesson commodity investors quickly learn is they are much more volatile that regular stocks. The gold mining sector went through a crushing bear market and is only now recovering. Sentiment towards miners is still fragile and has contributed to volatility.



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May 11 2020

Commentary by Eoin Treacy

Bet on the V; ERP on Track; Inflation Coming?

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

Eoin Treacy's view -

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

Gold’s relative strength over the last year, coupled with a tight labour market were already starting to raise interest in inflation hedges a year ago. Then came the truce in the trade war, the halting of the Fed’s rate hikes, the repo liquidity crisis and finally the coronavirus recession. That has once again raised the spectre of deflation.



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May 07 2020

Commentary by Eoin Treacy

The Changing Value of Money

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

Then came World War I when warring countries ran enormous deficits that were funded by central banks’ printing and lending of money.  During the war years gold was international money as international credit was lacking because trust was lacking.  Then the war ended, and a new monetary order was created with gold and the winning countries’ currencies, which were tied to it, at the center of that new monetary order. 

Still, in 1919-22 the printing of money and devaluations of several European currencies were required as an extension of the debt crises of those most indebted, especially those that lost World War I.  As shown this led to the total extinction of the German mark and German mark debt in the 1920-23 period and big devaluations in other countries’ currencies including the winners of the war that also had debts that had to be devalued to create a new start.

With the debt, domestic political, and international geopolitical restructurings done, the 1920s was a boom period, which became a bubble that burst in 1929.

In 1930-45, 1) when the debt bubble burst that required central banks to print money and devalue it, and then 2) when the war debts had to increase to fund the war that required more printing of money and more devaluations. 

At the end of the war, in 1944-45, the new monetary system that linked the dollar to gold and other currencies to the dollar was created, and the currencies and debts of Germany, Japan, Italy, and China (and a number of other countries) were quickly and totally destroyed while those of most winners of the war were slowly but still substantially depreciated.  That monetary system stayed in place until the late 1960s. 

Eoin Treacy's view -

The purchasing power of fiat currencies is rapidly being debased. That is helping to support the nominal prices of stocks, property, gold and bonds. The $4 trillion surge in the total assets of central banks over the last couple of months has supported prices for just about all asset classes. The best performing assets have been those that have historically benefitted from deploying free abundant capital to fuel growth since 2009.



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May 06 2020

Commentary by Eoin Treacy

Buchse Der Pandora

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

Eurostat reports that there was roughly €2 trillion of outstanding German government debt at year end 2019. ALL German government bills (Bubills) and bonds (Bunds) have a negative yield, which simply means that bondholders are prepared to pay the German government an annual fee to lend their money to the German Government, be it at -0.65% for very short term debt to -0.52% for 10yr debt to -0.13% for 30 year debt.
Did the yesterday’s German Constitutional Court ruling just change the risk/reward for investors in European government bonds?
 
The current 10 year Bund yield of -0.52% can be broken down into two components:

+ 0.48% Inflation Breakeven Rate.
- 1.00% Real Yield. 

Eoin Treacy's view -

The German constitutional court’s ruling that central bank purchases are potentially illegal is mostly an internal affair. The extent to which the ECB is subject to German law is highly debatable but pressing that point has political consequences for any country. There remains ample room for legal two-stepping to avoid any official censure which is why the bond market has brushed away any concerns.



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May 05 2020

Commentary by Eoin Treacy

Hedge funds bet on gold as refuge from 'unfettered' currency printing

Thanks to a subscriber for this article by Laurence Fletcher and Henry Sanderson for the  Financial Times which may be of interest. Here is a section:

Paul Singer’s Elliott Management, Andrew Law’s Caxton Associates and Danny Yong’s Dymon Asia Capital are all bullish on the yellow metal, which has risen about 12 per cent this year. They are wagering that moves to loosen monetary policy and even directly finance government spending, intended to limit the economic damage from the virus, will debase fiat currencies and provide a further boost to gold.

“Gold is a hedge against unfettered fiat currency printing,” said Mr Yong, founding partner at Dymon Asia, which is up 36 per cent this year, helped by its bet on the gold price.

New York-based Elliott, which manages about $40bn in assets, told its investors last month that gold was “one of the most undervalued” assets available and that its fair value was “multiples of its current price”.

In a letter, Elliott cited the “fanatical debasement of money by all of the world’s central banks” as well as low interest rates and disruption to mining caused by coronavirus. Profits from gold positions helped the hedge fund to a gain of about 2 per cent in the first quarter.

Eoin Treacy's view -

Central banks are acting like the proverbial Dutch boy with his finger in the dyke. The assistance provided to date is a stop gap measure but is open ended. This might not be the most convenient time to think about deficits and how all this is going to be paid for, but gold investors are not hanging around. 



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May 04 2020

Commentary by Eoin Treacy

Email of the day - on gold volumes

Like you, I follow the PMs, particularly gold and silver. I noticed a remarkably consistent pattern in spot gold trading volume. Going back 10 years, the volume has picked up and dropped back on alternate months. During the summer doldrums there is a hiatus, as one would expect. The alternating pattern then resumes around the end of October each year. I am very interested to hear your explanation for this.

Eoin Treacy's view -

Thanks for this question which others may have an interest in. Spot gold does not have volume data because it is an indicative price rather than a traded price. Volume data is available on futures contracts.



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May 04 2020

Commentary by Eoin Treacy

Email of the day on junior gold miners

Is there any chance you can add Market Vectors Junior Gold Miners (GDXJ) LONDON quote to the chart library please? It seems to trade at a $5-$6 difference to the US quote. I assume this is the same underlying fund - I hope it’s not too dumb a question to ask why the difference? However, it looks like an interesting ETF but I can only by the London listed entity in my fund and therefore I'd like to be able to track it in your superb chart library. Thanks so much.

Eoin Treacy's view -

Thank you for this question and it is certainly not a dumb question. The fund is now available in the Chart Library and I will make a guess at the answer. Both funds do track the same index which is the MVIS Global Junior Gold Miners Total Return Index.



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April 30 2020

Commentary by Eoin Treacy

Email of the day on gold and negative real interest rates

Eric Basmajian has much to say about the dominant deflationary forces of the past 40 years and how the recent monetary and fiscal policies are more likely to add to that problem by suppressing the velocity of money.  Most of us, more or less, understand that argument.  He then, surprisingly, includes gold in his recommended portfolio because of falling real interest rates in either deflation or inflation.  All very difficult for average investors to comprehend. Your view would be appreciated.

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. It’s a common misconception that gold only does well during bouts of inflation or deflation. Instead, it’s really all about negative real interest rates.

Real interest rates are nominal interest rates adjusted for inflation.



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April 29 2020

Commentary by Eoin Treacy

China Rolls Out Pilot Test of Digital Currency

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

In Xiangcheng, a district in the eastern city of Suzhou, the government will start paying civil servants half of their transport subsidy in the digital currency next month as part of the city’s test run, according to a government worker with direct knowledge of the matter.

Government workers were told to begin installing an app on their smartphones this month into which the digital currency would be transferred, the worker said.

Civil servants were told that the new currency could be transferred into their existing bank accounts, or used directly for transactions at some designated merchants, the person said.

China is ahead of many other countries in preparing the launch of an official digital currency. In recent years, the use of traditional paper bills and cash has declined sharply, and smartphone payments have become so ubiquitous that many Chinese people, particularly younger urban dwellers, no longer carry their wallets or cash for shopping. Instead, they use Tencent Holdings Ltd. ’s WeChat Pay and Alipay, operated by Ant Financial Services Group, an affiliate of Alibaba Group Holding Ltd.

Eoin Treacy's view -

Parallel currencies are an oddity which highlight a government’s desire to fully control the ability of consumers to spend their own cash. The ultimate aim of these kinds of moves is to separate the use case for money so different units can be used for different purposes. The façade of wishing to curtail money laundering or terror financing is ubiquitous to all governments and this is a trend which has global appeal for heavily indebted countries.



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April 28 2020

Commentary by Eoin Treacy

'Instead of Coronavirus, the Hunger Will Kill Us' A Global Food Crisis Looms

This article by Abdi Latif Dahir for The New York Times may be of interest to subscribers. Here is a section:

The coronavirus has sometimes been called an equalizer because it has sickened both rich and poor, but when it comes to food, the commonality ends. It is poor people, including large segments of poorer nations, who are now going hungry and facing the prospect of starving.

“The coronavirus has been anything but a great equalizer,” said Asha Jaffar, a volunteer who brought food to families in the Nairobi slum of Kibera after the fatal stampede. “It’s been the great revealer, pulling the curtain back on the class divide and exposing how deeply unequal this country is.”

Already, 135 million people had been facing acute food shortages, but now with the pandemic, 130 million more could go hungry in 2020, said Arif Husain, chief economist at the World Food Program, a United Nations agency. Altogether, an estimated 265 million people could be pushed to the brink of starvation by year’s end.

While the system of food distribution and retailing in rich nations is organized and automated, he said, systems in developing countries are “labor intensive,” making “these supply chains much more vulnerable to Covid-19 and social distancing regulations.”

Eoin Treacy's view -

Transportation networks have been severely impacted by the coronavirus lockdowns and that is having a significant knock-on effect for vulnerable communities all over the world. There is no shortage of food globally, but the uncertainty the lockdowns introduced have disrupted harvest and slaughter schedules. That is putting upward pressure on some commodities prices while depressing others. The international challenge will be in ensuring commodities get to where they are needed in time to protect the lives of people in the emerging markets.



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April 28 2020

Commentary by Eoin Treacy

Don't lose sight of what you actually own

Thanks to a subscriber for this report from Canaccord Genuity focusing on Australia. Here is a section:

Eoin Treacy's view -

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

It is probably true that Australia is about to have a technical recession. The fires, lockdowns and collapse in Chinese demand are all contributing factors. However, it is also worth remembering that the medium-term response to the coronavirus is likely to be an epic infrastructure development spending spree which will be global in nature. For commodity exporters like Australia that is likely to be good news.



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April 27 2020

Commentary by Eoin Treacy

Email of the day - on dividend paying gold companies

Mr. Treacy has mentioned in one of his previous articles:

http://www.fullertreacymoney.com/general/gundlach-sounds-alarm-on-paper-gold-etfs-raking-in-billions-/    

...There are 1145 precious metals miners listed on Bloomberg and 123 of those pay dividends. Some of the largest miners have tied the size of their dividend to the gold price and almost all have All-In-Sustaining-Costs significantly below prevailing gold prices....

I searched Bloomberg for the 123 metal miners that pay dividends but could not find the list.

Would Mr. Treacy be able to point me to the list?

Eoin Treacy's view -

That you for this question which may be of interest to subscribers. If you have access to a Bloomberg try the EQS fundamentals search function. Filter for precious metals miners and then add a filter for dividend per share >0.



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April 24 2020

Commentary by Eoin Treacy

Chapter 1: The Big Picture in a Tiny Nutshell

I read the first two chapters of Ray Dalio’s latest book yesterday. Here is an important section from Chapter 1:

The quicker the printing of money to fill the debt holes, the quicker the closing of the deflationary depression and the sooner the worrying about the value of money begins.  In the 1930s US case, the stock market and the economy bottomed the day that newly elected President Roosevelt announced that he would default on the government’s promise to let people turn in their money for gold, and that the government would create enough money and credit so that people could get their money out of banks and others could get money and credit to buy things and invest. 

Eoin Treacy's view -

This latest book by Ray Dalio is well worth taking the time to read. Chapters are being released weekly via LinkedIn. His focus on governance, hard money and the credit cycle will be familiar to veteran subscribers but it is always refreshing to hear an additional perspective and not least because of the study of long-term cycles which he throws fresh light on.



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April 23 2020

Commentary by Eoin Treacy

Email of the day on Australian banks and debt

Australia has announced they are increasing petroleum reserve stocks. Small steps in the global oil market. We have lots of gas not much Oil. Government argument oil prices are low. Think I can see political / defense US / Australian ambitions in this move.

The Governor of the RBA made a speech a few months back the RBA will support all local banks. That investors should feel confident about the security of their bank deposits and securities. Can I trust these comments? I almost fell out of my chair when Glenn Stevens made this statement

Eoin Treacy's view -

Thank you for this email which may be of interest to other subscribers. It makes sense that Australia should build up an oil reserve when prices are cheap. It certainly beats doing it when prices are high and a significant reserve is a geopolitical imperative during a time when stress between the great powers of our day is only likely to increase.



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April 22 2020

Commentary by Eoin Treacy

Crude Collapse Concerns COMEX

This article by Craig Hemke for SprottMoney.com may be of interest to subscribers. Here is a section:

Consider now the potential for a diametrically opposite situation in COMEX gold. Why and how could this unfold?

COMEX gold also has "delivery month" contracts that serve as the "front month" for trading purposes until they go off the board and into delivery—at which time the trading volume rolls into the next scheduled month.
In delivery, anyone still long the contract can stand for delivery through the COMEX vaults in New York. (And now might also stand for fractional ownership of bullion bars in London, too.)
But global demand for physical gold outstrips supply at present, as many refineries, mines, and mints are closed worldwide due to Covid-19.
Thus, we are seeing a growing need/demand to hold COMEX contracts into delivery. For the current month of Apr20, total gold deliveries on COMEX exceed 3,000,000 ounces. This is more than 3X the usual demand for a "delivery month".
If an extreme shortage develops—or if any sort of "run" on the bullion bank fractional reserve system begins—demand for delivery through the COMEX and LBMA will soar.
Demand for the front/delivery month contract will surge. However, to buy a contract, you will also need a seller—someone interested in adding a short or selling an existing long.
And in this case, there may be NO SELLERS. Thus, what you may see is a true offerless market.
The potential result? The exact opposite of what you witnessed Monday in NYMEX crude oil.

Could this opposite scenario actually play out in COMEX gold? You may be reluctant to say yes, as this type of situation would seem unlikely and unprecedented. However, prior to Monday, April 20, the idea of negative pricing for the world's most important commodity was similarly unlikely and unprecedented.

Eoin Treacy's view -

The US Oil Fund ETF’s predictable roll schedule which has been gamed by hedge funds for years is the primary reason the April WTI crude oil contract hit -$40 this week. To the best of my knowledge there is no corresponding fund that is rolling over futures contracts in gold on a predictable basis. The vast majority of ETFs investors buy for gold exposure hold physical metal rather than futures.



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April 21 2020

Commentary by Eoin Treacy

Musings From the Oil Patch April 21st 2020

Thanks to a subscriber for this report from Allen Brooks at PPHB which may be of interest. Here is a section:

As George Friedman discussed in his The Storm Before The Calm, the U.S. operates on two long cycles – the socioeconomic cycle and the institutional cycle.  The first works on a 50-year time frame, while the other is about 80-years long.  The socioeconomic cycle’s last shift “happened around 1980, when the economic and social dysfunction that began in the late 1960s culminated with a fundamental shift in how the economic and social systems functioned.”  This is referred to as the Reagan Revolution, which brought lower tax rates that addressed a crucial issue facing the U.S., which was a lack of capital.  Today, we suffer from too much capital and a lack of investment opportunities, which Mr. Friedman attributes to a decline in productivity growth as we experience a falloff in innovation.  There have been a number of studies and books written about why the nation’s productivity has declined.  

The institutional cycle deals with how the federal government’s operation and relationship to society changes.  It’s first 80-year cycle began with the Revolutionary War and the drafting of the Constitution and ended with the Civil War in 1865.  The second cycle extended to World War II.  The current cycle will end around 2025, about the same time the current socioeconomic cycle will end, leading, in Mr. Friedman’s view, to extreme chaos that will force changes on the nation that will bring social calm and economic prosperity in the 2030s, and thereafter.   

Mr. Friedman makes a compelling case in studying how our economy, government, society and geopolitical role in the world have evolved and changed since the arrival of the first colonists in the late 1500s and early 1600s.  Without expounding on his discussion, the nature of cycles, something we pay attention to in the business, investment and energy worlds, has driven us to think about how the future may evolve.  

Eoin Treacy's view -

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

There is a lot of talk in financial blogs about the prospect of a debt jubilee where governments get together and decide that the liabilities have become so large that the totals will be reduced in an abrupt manner and a new money will be created. 



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April 20 2020

Commentary by Eoin Treacy

Email of the day on mean reversion risk in precious metals:

Good afternoon Eoin, I am enjoying the daily video and the written commentaries. Regarding your medium and long-term view that the price of gold is and will be reflecting the increasing and competitive debasement of currencies, but that presently gold is in an overbought phase, please explain what you would consider the maximum drawdown in gold to undo the overbought situation.

Would that imply that gold should e.g., give up about $170 (10%) and reach approximately $1530 which I believe is the 200 SMA? Same question for silver. In what time frame do you expect the undoing of the overbought situation for gold (and silver) to happen? Days, weeks, months? How quickly would the bull market resume?

It seems that the script of the last financial crisis is happening at 4-5 times the speed of 2008/2009...) What likelihood do you see that governments and central banks in the end will intervene (on an international scale) to either confiscate or prohibit the private holding of gold and silver and/or otherwise make sure that the nuisance of gold and silver as uncontrolled non-fiat money disappears? Roosevelt and others like Hitler, Soviet Union already proved that this can be successfully implemented ...Second addition to my first message/questions: To what extent did the rally in stocks trigger yesterday's and today's downdraft in the PM sector? Thank you!

Eoin Treacy's view -

Thank you for this series of questions which may be of interest to subscribers. The mantra that delivers the best returns is “don’t pay up for commodities” and that applies even in a bull market. Gold and the precious metals generally are prone to volatility and often posted failed upside breaks. Chasing the market higher will only work on the relatively rare occasions when the trend accelerates; whereas more often than not precious metals trends adopt a sawtooth profile.



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April 20 2020

Commentary by Eoin Treacy

Email of the day on the spread between Comex futures and London spot gold prices:

Hi Eoin, could you please comment on the pricing discrepancies between Comex and spot? It is playing havoc with the Gold ETFs which are not reflecting the underlying as well as they should be.

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. Speculation about what exactly is causing this arbitrage is running hot in the media. The lack of liquidity among market makers, the shortage of refined gold, the break in shipping schedules for the metal and fears about counterparty risk among London bullion banks are all contributing to the historically wide spread.



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April 20 2020

Commentary by Eoin Treacy

Email of the day on uranium

Thanks for the insightful video, as always, Eoin. Have you had a look at the uranium sector lately? The spot price has jumped along with the miners, including Cameco and Denison which jumped 26% yesterday. Is the long-awaited supply crunch coming into play and how long will the uptrend last? Your thoughts on this will be appreciated.

Eoin Treacy's view -

Thanks for this question which may be of interest to subscribers. The shutting down of both transportation and some mining operations has created a short-term supply shortage which is supporting the outperformance of uranium. It’s the number one best performing commodity this year but the supply shortage is unlikely to last beyond the lockdown phase of the virus-induced recession.



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April 15 2020

Commentary by Eoin Treacy

Email of the day - on support for the high yield debt market and who pays?

It goes beyond even this though, and the Fed now has powers to buy the actual junk rated ETFs, direct from the market. So yes, they can directly buy the debt of the fallen angels like Ford and Macy’s but pre-existing junk bond issuers also stand to benefit. There really does seem to be no end to the rescue packages served up by Governments across the world.

The question remains though as to who will ultimately pay for this? In the U.K. we have only just exited an era of deeply unpopular austerity. Do we delve straight into more of the same? With a post-election promise of massive equalisation between North and South, I can’t see how that sticks. Or are we looking at increased taxes on the wealthy through direct asset-based taxes? Someone has to pick up the tab after all.

Eoin Treacy's view -

Thank you for this question which I believe many people are asking and not just in the UK. I agree there is no appetite for higher taxes. The populist wave that has swept the status quo aside in many countries, was powered by disaffection with globalisation, austerity and the hollowing out of the middle class.



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April 09 2020

Commentary by Eoin Treacy

Looking for Leverage to Gold; Reviewing Common Metrics Used for Equity Selection

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

As we wrote in our March 24 industry note, we see extreme monetary and fiscal stimulus leading to dollar deflation. In this environment, similar to the set up in 2008, we expect gold price to trade materially higher and we have raised our gold price forecast to $2,500/oz. With higher prices, gold miners stand to benefit from substantial margin growth, assuming that industry-specific cost inflation remains low. In our opinion, investors should be looking to build positions in gold-related equities that give them exposure to gold. In our experience, investors will gravitate to large-cap producers and select those with the largest annual production of gold. Investors will also look to published gold reserves (and resources) in the ground, and selecting those equities with the largest accumulation. While neither of these section methods is without its flaws, we have reviewed our coverage and aggregated this data. As we indicated in our January 30 gold industry note (“Strategies for Outperforming the Gold Miner ETFs”), we continue to recommend investors build a concentrated portfolio of our favorite names that offer gold leverage, but also minimize exposure to production interruptions and provide exposure to the M&A cycle that historically accompanies a gold bull market.

Eoin Treacy's view -

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

This is not the time to worry about deficits” are likely to prove fateful words 18 months from now. The measures being adopted by the world’s governments, in tandem with their respective central banks, are sowing the seeds for future inflation.

That’s not a short-term risk because the velocity of money is at an unprecedented low but stimulus often proves sticky and any improvement in economic conditions is going to result in a surfeit of money sloshing around.



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April 07 2020

Commentary by Eoin Treacy

Nobody ever pressed "Stop" before

Thanks to Iain Little and Bruce Albrecht for this insightful report which may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

Let’s set aside for the moment questions of timing and think about what changes we can expect to be durable from the virus-induced recession.

The first thing that springs to mind is a loss of income which will take a while to recover. For some that will be quite soon, for others who need to find a new job it will take longer. As we go from full employment in many countries to something less that necessarily represents lower growth overall and by extension lower corporate earnings.



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April 07 2020

Commentary by Eoin Treacy

Cyclical Bear Ending; Secular Bull to Resume; Investor Feedback & FAQs

Thanks to a subscriber for this report by Mike Wilson at Morgan Stanley. Here is a section:

Eoin Treacy's view -

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

The idea of Modern Monetary Theory scandalised investors a year ago but very much the reality today as central banks fall over themselves to accommodate the efforts of governments to spend their way out of the trouble. My contention since early this year was the coronavirus will be temporary but the monetary and fiscal effects will be very long lasting.



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April 02 2020

Commentary by Eoin Treacy

Gundlach Sounds Alarm on 'Paper Gold' ETFs Raking in Billions

This article by Katherine Greifeld and John Gittelsohn for Bloomberg may be of interest to subscribers. Here is a section:

The process of swapping GLD shares for physical gold sits “outside of normal dealings,” according to State Street Global Advisors head of ETF research Matthew Bartolini. Bank of New York Mellon, the fund’s trustee, doesn’t interact with the public but only with middlemen known as authorized participants -- traders who channel assets in and out of the fund. An investor would have to work with one of GLD’s APs to acquire gold, he said.

“An individual investor wishing to exchange the Trust’s shares for physical gold would have to come to the appropriate arrangements with his or her broker and an authorized participant to receive the gold bars,” Bartolini wrote in an email.

Gundlach said earlier in March that while he was neutral on gold mining companies, the metal would ultimately go higher. The $51 billion DoubleLine Total Return Bond Fund, Gundlach’s mortgage-focused flagship fund, lost 1.3% this year through Monday and returned an annual average 2.6% over five years.

For Bloomberg Intelligence’s Eric Balchunas, that process isn’t necessarily a problem. Most investors buying gold ETFs are doing so to get exposure to bullion’s price movement, rather than to acquire physical gold, he said.

“The problem with getting physical gold is you’ve got to insure it or keep it in a safe spot,” Balchunas said. “Generally speaking, most people don’t want gold. They want the return stream that gold gives.”

Eoin Treacy's view -

There is no way to hold physical gold in a fund without incurring some form of risk. However, there is also no way of holding physical gold personally without also incurring some form of risk. Most people are satisfied to receive the diversification and potential for appreciation gold represents. However, it is inaccurate to describe gold as offering a return stream. It does not pay dividends. For that you need gold miners.



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March 31 2020

Commentary by Eoin Treacy

Copper Rises on China, Trimming Big Quarterly Slump

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

Copper climbed as a strong rebound in Chinese manufacturing bolstered the outlook for demand, trimming the industrial metal’s biggest quarterly drop since 2011.

China’s official purchasing managers’ index rose this month, up from a record low in February, signaling the world’s second-largest economy is restarting. While the outlook remains uncertain as the country faces a growing threat from slumping external demand, production cuts at major mines around the world are shoring up sentiment for copper.

The metal extended gains after President Donald Trump called on Congress to provide $2 trillion for infrastructure spending in the U.S.

Eoin Treacy's view -

On a day when Wall Street pulled back on book squaring at the end of the quarter copper prices were quite firm. China’s reported economic activity has been strengthening as the economy starts back up and commodity investors are expecting significant infrastructure development as some of the more traditional levers of growth are leaned on.



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March 30 2020

Commentary by Eoin Treacy

James Grant 'Nobody Knows Anything'

Thanks to a subscriber for the transcript of this interview conducted by Sprott Asset Management which may be of interest. Here is a section:

JG: Yes, yes. Patience is absolutely in order and also gold is … you know, I confess I’m a gold bug and I blurted it out — gold — before you even asked the question. Yes, but it’s not to the end of emulating Scrooge McDuck. That’s not the point.

The point is to have liquid wealth available when opportunity presents itself. Gold is many things but it’s not regenerative. And there’s nothing as an investment like a well-priced, successful, profitable well-financed business. So, what you want is gold for opportunities. You also want it, not so much as a hedge against monetary disorder because we have that, you want it as an investment in monetary disorder. That’s a second reason. So, I guess that’s a little bit of Scrooge McDuck reason but I hold it for those two reasons. I think that it’s going to be helpful for both.

I look forward to liquidating some of my gold bullion, as modest as that stack of coins is. I look forward to, at some point, liquidating that, if I have the nerve and the opportunity to accumulate something that is going to be yielding dividends and cash flow. But the other portion, well I think, I hope, I’ll never sell — that’s the bottom dollar: an investment in the evident tendency of monetary affairs. The arc of monetary evolution points to greater and greater interventions, more radical policy which begets still more radical policy, financial repression and more of that. We got more QE this week than they did under the Bernanke Fed.

So, to me the arc of this is very clear and you want gold, both for the inevitable spills in the market for financial assets as well as for the seemingly inevitable destruction, or certainly impairment, of the government-issued money. Those are my reasons.

Eoin Treacy's view -

Governments the world over are telling us this is not the time to worry about deficits. That begs the question, when is the best time? The Velocity of Money is cratering because of the shutting down of economic activity and the reduced number of transactions required to fulfil an online sale. That removes the inflationary bias from massive monetary and fiscal stimulus in the short term.



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March 27 2020

Commentary by Eoin Treacy

U.K. Virus Aid Package Beats Financial Crisis Stimulus

This article by Alex Morales, Lucy Meakin and Andrew Atkinson for Bloomberg may be of interest to subscribers. Here is a section:

The coronavirus crisis has transformed the fiscal landscape at a stroke. Britain was on course for a budget deficit of 55 billion pounds in the fiscal year starting April. Now, according to the Institute for Fiscal Studies, borrowing could be as much as 200 billion pounds as an economy on course to shrink at least 5% this year hammers tax revenue and drives up spending on welfare.

That could leave the deficit just below the 10% reached in the aftermath of the financial crisis and push up already elevated debt levels.

The chancellor announced his first economic package to deal with the outbreak when delivering the budget on March 11, unveiling 12 billion pounds of measures to mitigate the effects of the outbreak on the economy.

As evidence mounted that the crisis was snowballing, he followed up with a 350-billion pound stimulus package comprising government-backed loans as well as 20 billion pounds of grants and tax cuts for struggling companies.

Then, last Friday, he announced 7 billion pounds of extra welfare spending and said the government would pay 80% of salaried employees’ wages up to a maximum of 2,500 pounds a month -- a plan Bloomberg Economics estimates will cost 17.5 billion pounds.

Announcing further details of the job-retention program today, the Treasury said the government will also cover employers for the National Insurance and minimum auto-enrolment pension contributions of furloughed workers, saving firms 300 pounds a month per employee on average.

Eoin Treacy's view -

The trouble with the coronavirus is not so much in the mortality rate but in the speed with which it is spreading. Overloading hospitals with scarce resources and scary reports of tens of thousands dying has put a great deal of pressure on the economy. However, it is also worth considering that despite the scale of the challenge faced in Italy, they have seen the peak in the infection growth rate. That suggests the problem is unlikely to get worse.



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March 27 2020

Commentary by Eoin Treacy

Enevate's silicon-anode batteries promise ultra-fast EV charging

This article by Loz Blain for New Atlas may be of interest to subscribers. Here is a section:

With some US$111 million in investment from major companies, including LG, Samsung, Mitsubishi, Renault and Nissan, Enevate now says its cells are ready for the big time. In an interview with Charged EVs, Park said Enevate is designing packs for the 2024 and 2025 model years to get its cells into consumer products with major manufacturers. There are no announcements around who or what exactly they're making packs for, but the list of companies above may be instructive.

As far as we're aware, though, the infrastructure to support blast-charging at the kinds of rates we're talking about here simply doesn't yet exist. Tesla's V3 superchargers are currently capable of blast-charging a Model 3 at 250 kilowatts, which would give you around 133 km (83 mi) of range in five minutes.

These batteries would charge three times faster, at around 0.75 megawatts, which is a huge power draw. An alternative method might involve trickle-charging massive supercapacitors all day at slower rates so they've got enough energy to supply the cars super-quickly when they need it, but we're yet to see anything like that in action, and the size of those supercapacitors might end up being prohibitive.

Eoin Treacy's view -

It is almost as if I see a new story about advancements in battery technology every day. They all come with caveats but the one thing we can be sure of is the quantity of capital now devoted to solving the issue of energy density and range anxiety is growing persistently. Producing a doubling of energy density with a low charging time is the hold grail of the sector today and it is reasonable there will be a solution in the market within five years. 



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March 26 2020

Commentary by Eoin Treacy

Fed Set to Launch Multitrillion Dollar Helicopter Credit Drop

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

“The Fed has effectively shifted from lender of last resort for banks to a commercial banker of last resort for the broader economy,” said JPMorgan Chase & Co. chief U.S. economist Michael Feroli.

The coming rain of credit -- historic in both size and scope -- will be made possible by $454 billion set aside in the aid package for Treasury to backstop lending by the Fed. That’s money the central bank can leverage to provide massive amounts of financing to a broad swathe of U.S. borrowers.

“Effectively one dollar of loss absorption of backstop from Treasury is enough to support $10 worth of loans.” Fed Chairman Jerome Powell said in in a rare nationally-televised interview early Thursday morning. “When it comes to this lending we’re not going to run out of ammunition.”

He told NBC’s “Today” show that the Fed was trying to create a bridge over what may well be a substantial decline in the economy in the second quarter, to a resumption of growth sometime in the latter half of the year.

“It’s very hard to say precisely when that will be,” he said. “It will really depend on the spread of the virus. The virus is going to dictate the timetable here.”

While the Fed can help by keeping interest rates low and ensuring the flow of credit, “the immediate relief” for Americans will come from the Congressional aid package, Powell said. The bill includes direct payments to lower- and middle-income Americans of $1,200 for each adult and $500 for each child.

Combined with an unlimited quantitative easing program, the Fed’s souped-up lending facilities are set to push the central bank’s balance sheet up sharply from an already record high $4.7 trillion, with some analyst saying it could peak at $9-to-$10 trillion.

Eoin Treacy's view -

The new stimulus plan is providing money to 90% of consumers, but also to corporations, municipals and both the government and corporate bond markets. In terms of both size and scope the package is designed to provide a life line to all markets and, so far, it is having the desired effect.



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March 25 2020

Commentary by Eoin Treacy

Eoin's personal portfolio: last updated March 26th

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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March 23 2020

Commentary by Eoin Treacy

Gold Investors Are Betting It Really Is 2008 All Over Again

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

“If its price trajectory proves similar to 2008, we could see the precious metal’s benefits resurging as market stress continues to assert itself,” said Catherine Doyle, an investment specialist in the real-return team at Newton Investment Management. “We continue to have significant exposure for this very reason.”

Eoin Treacy's view -

Anyway we look at it, the efforts of governments and central banks to support economies and reflate asset prices are going to come at the expense of the purchasing power of their currencies. Therefore, any asset that offers insulation from currency devaluation, either by offering a higher yield or limited supply is likely to benefit.



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March 20 2020

Commentary by Eoin Treacy

Precious Metals: Navigating uncertain times

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

Eoin Treacy's view -

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

The Dow/Gold ratio has clearly broken its decade-long uptrend. In the last month it has broken below the 1000-day MA. That’s a monumental event because it has never happened in a secular bull market before. This has been achieved by the gold price going nowhere while the stock market has collapsed by approximately 30%



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March 16 2020

Commentary by Eoin Treacy

Fed Has Acted Yet Dollar Funding Markets Remain Under Pressure

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

Over the past week, the Federal Reserve has hit the U.S. dollar funding markets with a barrage of liquidity and tools to ensure they remain lubricated. Yet indicators of funding stress are still showing pressure.

In an emergency action Sunday, the central bank slashed interest rates to zero, adjusted the parameters of global dollar swap lines, in additional to offering trillions of dollars of liquidity via operations for repurchase agreements. Here’s what some of the key metrics have to say about the level of distress in the financial system:

Despite the Fed action, the repo market remains volatile. At one point during Monday’s trading session, the rate for overnight general collateral was around 2.50%, according to ICAP, which is well above the central bank’s new target range for the fed funds rate of 0% to 0.25%. While the bid-ask spread is now around 2%/1.25%, the central bank said it plans to conduct another overnight repo offering of up to $500 billion.

Cross-Currency Basis Swaps
The Fed on Sunday also lowered the rate on its U.S. dollar liquidity swap lines in coordination with other central banks. As a result, the three-month cross-currency basis for dollar yen -- a proxy for how expensive it is to get the greenback -- briefly spiked to its widest on record Monday in Asian trading before pulling back, according to Bloomberg data since 2011. Strategists at Bank of America believe volatility may persist until the Fed fixes the commercial-paper market and there are “more avenues available to secure USD funding.”

Libor-OIS
The gap between the London interbank offered rate and overnight index swaps expanded Monday to the widest level since 2009, led by an increase in Libor’s three-month tenor.

Widening: QuickTake
Rates on three-month commercial paper for non-financial companies reached the highest level since the financial crisis relative to OIS. This suggests companies may be having difficulty selling commercial paper, as they tend to do during times of stress. As a result, Wall Street strategists expect the Fed to announce a resurrection of a crisis-era facility for commercial paper.

Eoin Treacy's view -

The Fed reactivating swap lines between other central banks, cutting rates to zero, reducing reserve requirements for banks to zero and announcing a $700 billion quantitative easing program all point to a clear effort to ensure the financial system remains liquid as the economy shuts down. Ensuring liquidity is a priority for central banks but it is a factor that sends a signal to stock market investors that there may be something else they need to pay attention.



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March 12 2020

Commentary by Eoin Treacy

Risk Parity Trade Made Famous by Ray Dalio Is Now Ringing Alarms

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

Vontobel Asset Management’s risk-parity product has cut its stock position from 140% about a month ago to around 28%, while its bond exposure remains around 260%, says head of multi-asset Daniel Seiler.

“You reduce your volatility with a negative correlation and if that is not the case anymore, you will obviously need to reduce the volatility with a different measure and this could deleverage your whole portfolio,” he said from Zurich, referring to the link between bonds and shares.

On a positive note, for both asset classes to fall in tandem for an extended period, “what you would need is an inflationary shock and at the moment I don’t see that at all,” Seiler added.

With bond yields now so low, there are others on Wall Street who may disagree.

Eoin Treacy's view -

An inflation scare is one possible scenario where both bonds and equities fall at the same time. It is not the only one. Against a background where the pace of economic activity is taking a war-like dislocation the bigger risk is a solvency crisis or a liquidity crisis.



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March 10 2020

Commentary by Eoin Treacy

Shale's Profitability Problem Just Became Much Worse

This article by Rachel Adams-Heard and Kevin Crowley for Bloomberg may be of interest to subscribers. Here it is in full:

With West Texas Intermediate crude trading just above $30 a barrel, America’s shale producers’
profitability problem just became much worse. Only a handful of companies in two areas of the country have breakeven costs lower than the current oil price. Wells drilled by Exxon Mobil Corp., Occidental Petroleum Corp. Chevron Corp. and Crownquest Operating LLC in the Permian Basin, which stretches across West Texas and southeastern New Mexico, can turn profits at $31 a barrel, data compiled by Rystad Energy show, while Occidental’s wells in the DJ Basin of Colorado are also in the money at that price, which is where oil settled Monday. For everyone else, drilling new wells will almost certainly mean going into the red.

Eoin Treacy's view -

The most expensive segments of the oil sector focusing on higher cost production are at risk of being shut in. Even in the best of times a lot of offshore supply has a $40 cost of production but deepwater and Brazil’s pre-salt can stretch to $70. Canada’s tar sands can be among the highest cost production areas but legacy operations have lower costs. Meanwhile the low-price environment is likely to represent an acceleration in the pace of consolidation in the unconventional sector.



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March 05 2020

Commentary by Eoin Treacy

Email of the day - on volume data

I hope you and the family are enjoying a normal coronavirus free lifestyle?

I was looking at some 2 year charts recently, and I know you are not always   fan, but I noticed quite large volumes spikes on some individual co charts, but especially on the DJ and the NASDAQ. Near the end of 2018 and again last week major volume spikes. My experience over the last 50 years has taught me though it's not 100 0/0 accurate, volume spikes can be a very useful tool for gauging tops and bottoms, more so for lows. I just thought subscribers might find this food for thought!!

Eoin Treacy's view -

Thank you for your concern. I’ve got some travel coming up over the weekend which I am not especially thrilled about but it falls into the necessary category. I intend to take a number of infection prevention measures while travelling. Other than that, it has been business as usual since we have stocked up on just about everything.



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March 04 2020

Commentary by Eoin Treacy

Nobody Knows II

Thanks to a subscriber for this memo from Howard Marks which may be of interest. Here is a section:

Eoin Treacy's view -

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

There is no doubting we saw evidence of contagion selling last week with everything selling off as quantitative strategies headed for the exits en masse and ditched ETF positions in the process. The growth of passive investing and the ease with which positions can be exited is contributing factor in the speed with which declines take place in today’s market.



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March 04 2020

Commentary by Eoin Treacy

RBA Cuts Rates to 0.5% as China Slowdown Continues

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

“The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower,” Lowe said. “It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.”

In this case, though, Australia’s central bank isn’t going to have to face the downturn alone, with fiscal support in prospect.

“The Australian government has also indicated that it will assist areas of the economy most affected by the coronavirus,” Lowe said. Before the RBA meeting, Prime Minister Scott Morrison said the Treasury is working closely together with the other agencies “to address the boost that we believe will be necessary.”

Morrison urged major banks to pass on any RBA cut. The four top lenders have all since confirmed that mortgage rates will be reduced by the full amount.

The RBA now has only one 25 basis-point cut left in the locker before it reaches its effective lower bound of 0.25%. Lowe will find himself dragged toward quantitative easing, should the economy need further monetary stimulus.

Eoin Treacy's view -

The Australian Dollar has bounced over the last few days to partially unwind its oversold condition relative to the trend mean. The big question is whether the RBA will continue to hold the zero bound for interest rates and if it does that greatly increases scope for quantitative easing.



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March 03 2020

Commentary by Eoin Treacy

Treasury 10-Year Yield Sets Record Below 1% on Virus Fears

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

Though the Fed met Wall Street’s hopes for aggressive action with its half-point reduction, Chairman Jerome Powell seemed to unnerve markets by saying it’s unclear how long the virus’s impact will last. Traders were already pricing in another rate cut later this month, with more to come in June.

“The market is trading right now on a lot of fear and uncertainty,” said Gary Pollack, head of fixed income at DWS Investment Management. “The Fed certainly didn’t bring calm, and the virus continues. The Fed’s relatively large move also made people wonder what they know that we don’t.”

The central bank’s decision came a few hours after Group-of-Seven finance chiefs issued a coordinated statement saying they were ready to act to shield their economies from the virus. Policy makers faced pressure to act after the OECD warned the world economy faces its “greatest danger” since the 2008 financial crisis.

Eoin Treacy's view -

The market is pricing in the assumption the US economy is going to lock up in exactly the same fashion as the Italian or Chinese economies did as coronavirus concern/paranoia spreads. There is no doubt the virus is dangerous for at-risk groups, but the bigger question is whether its effects will persist beyond the first quarter or perhaps second quarter, not least because warmer weather will likely curtail its spread as temperatures rise.

A more urgent consideration is today is Super Tuesday. The biggest issue investors are worried about is the potential Bernie Sanders is going to be the next President of the USA. The range of proposals he has tabled include breaking up the banks, financial services taxes, capping interest rates, breaking up internet and cable companies, Medicare negotiations for drug pricing, importing foreign drugs, capping prices, end health insurance, banning fracking, insist on 100% renewable utilities and railroads, cars and manufacturing. It’s very unlikely any of these will become law without the Democrats retaining the control of the House and also winning the Senate. However, President Trump has demonstrated just how much power the executive branch has and therefore there are grounds for worry.



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February 28 2020

Commentary by Eoin Treacy

Lead Indicators of Recession

Eoin Treacy's view -

After a week characterised by selling across the board, a great deal of profit taking has taken place and many overextensions relative to the trend mean have been unwound. The question I believe many people will be concerned with is whether the coronavirus is going to be the catalyst for an economic contraction? I thought it would therefore be worth monitoring the kinds of instruments that offer a lead indicator for that kind of concern.



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February 28 2020

Commentary by Eoin Treacy

Gold Joins the Virus Bloodshed With Biggest Slide Since 2013

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

“It’s bloodshed,” Commerzbank AG analyst Carsten Fritsch said by phone Friday. “It first started with forced selling from equity investors who also sold their gold positions to cover their losses in equities and also to cover margin calls. Gold investors don’t want to sell but are forced to cover the losses in other asset classes.”

Spot gold fell the most intraday since June 2013, according to Bloomberg generic pricing. The metal was down 4.5% at $1,571.05 an ounce as of 1:35 p.m. in New York. Other precious metals including silver and platinum also dropped, with palladium sliding the most since 2008.

Fear over the economic fallout from the coronavirus has unnerved markets, sending the S&P 500 index toward its worst week since 2008. The outbreak has further undercut investor demand for raw materials, which was already wavering because of increasing supplies and concerns over global trade wars. Returns from commodities have plunged on worries that the fast-spreading virus will crush demand for raw materials, fuel and food across the globe.

Eoin Treacy's view -

The baby is currently being thrown out with the bath water, to coin a phrase. Contagion selling sets up some of the most attractive buying opportunities in assets not directly linked to the epicentre of risk. Therefore, this is an important time to monitor the precious metals sector.



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February 26 2020

Commentary by Eoin Treacy

Gold-Backed ETFs Have Never Seen a Run of Inflows Like This

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

Global investors are stashing more and more assets into gold as the coronavirus outbreak spreads and appetite for risk takes a hit.

The global tally of bullion in exchange-traded funds swelled by the most in more than a month on Tuesday as equities sank. That was the 25th consecutive day of inflows, a record. At 2,624.7 tons, the holdings are the largest ever.

After surging 18% last year, gold has extended its rally in 2020, with prices hitting the highest since 2013. The haven has been favored as the virus outbreak has spread beyond China, threatening a pandemic and slower growth.

Goldman Sachs Group Inc. has said that should the disruption from the disease stretch into the second quarter, prices may rally toward $1,850 an ounce. Spot bullion was last at $1,644.67, up 0.6%. It touched $1,689.31 on Monday.

A global recession is likely if the coronavirus becomes a pandemic, according to Moody’s Analytics Chief Economist Mark Zandi. The odds of that outcome now stand at 40%, up from 20%, he said in a note.

The threat of a prolonged downturn in growth due to the impact of the virus may keep gold elevated, according to Morgan Stanley. Further ETF inflows are likely as long as real interest rates remain negative, it said in a note.

Eoin Treacy's view -

The Total Known Holdings of Gold in ETFs hit a new all-time high yesterday. The most significant point about the advent of ETFs as a major holder of bullion is even during the bear market for gold, ETFs still held 45 million ounces. Today it’s almost 85 million ounces.



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February 24 2020

Commentary by Eoin Treacy

With Gold Up, Miners Face Payouts Versus Production Dilemma

This article by Justina Vasquez, Danielle Bochove and Steven Frank for Bloomberg may be of interest to subscribers. Here is a section:

Gold producers are “gushing cash,” said John Hathaway, senior portfolio manager at Sprott Asset Management, in support of the higher dividends. “They are in a position to raise their dividend,” he said. “And there will be boardroom pressure and shareholder pressure to do that.”

The industry has been blasted in the past for underspending on production, overspending on acquisitions and piling up debt. Now, though, after years of fat-trimming, miners and their investors are well-positioned to gain from the higher prices. That’s allowed companies including Barrick and Newmont to boost free-cash flow and, to varying degrees, reward shareholders.

Earlier this month, though, Mark Bristow, Barrick’s chief executive officer, sent a warning shot across the bow of the industry. Even if all current projects work out, he said, gold supply will still fall 30% globally by 2029. While sinking supply would be bullish for bullion prices, margins and revenues could be hit if companies are forced to mine lower-grade or hard-to-access deposits.

Eoin Treacy's view -

All-In-Sustaining-Cost estimates were introduced following the gold crash because investors were tired of seeing every available cent poured into investments in new production. It’s easy to see why miners were anxious to invest. The gold price had been in a bear market for decades and they had not been able to source capital for exploration or new projects. Higher prices ensured the survival of the sector but it came at the expense of stock market performance.



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February 21 2020

Commentary by Eoin Treacy

Japan Limits Large Gatherings to Thwart Coronavirus

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

Masahiro Kami, an infectious diseases expert, said he was skeptical that the suspension of some public events would have a significant impact on the spread of the virus. “Commuting on a packed train, for instance, is way worse than taking part in the Tokyo marathon,” he said.

Dr. Kami, who heads a nonprofit organization called the Medical Governance Research Institute, said a media focus on the few cases of serious illness from coronavirus infection in Japan had created a panic over the need to cancel events.

While Japan initially had a handful of cases involving people who had come from Wuhan, the center of the epidemic in China, or had direct contact with someone from Wuhan, a surge of cases in the past week included many whose path of infection wasn’t clear. The cases span from Hokkaido in the north to Okinawa in the far south.

More than 1,000 people disembarked from the Diamond Princess cruise ship between Wednesday and Friday, and they entered Japan without restrictions on their movements. All of those passengers tested negative for the virus, but in some cases people have tested positive after a negative test—including two cases reported Friday in Australia, which sent a flight to Japan to repatriate citizens who had been on the ship.

Eoin Treacy's view -

The coronavirus popping up in unrelated areas in Japan is not exactly good news. Additionally, the lax quarantine imposed on the passengers of the Diamond Princess cruise liner greatly increases the potential for the virus to spread even further. At a minimum the potential is for much tighter measures to contain the spread across Japan and other countries. This is also going to create a headache for Abe’s government.



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February 20 2020

Commentary by Eoin Treacy

Gold Climbs to Seven-Year High as Virus Spurs Hunt for Havens

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

“The minutes suggest that the bar to ease policy is clearly lower than to lift rates,” Colin Hamilton, an analyst at BMO Capital Markets, said in an emailed note Thursday. “In particular, they back up Powell’s recent comment that policymakers would not tolerate continued below-target inflation. This commentary was viewed as supportive gold.”

Spot gold advanced for a third straight day, rising as much as 0.7% to $1,623.73 an ounce. Holdings in global exchange-traded funds backed by bullion have risen to a fresh record, and are on course for a sixth weekly expansion, the longest streak since November.

“It looks like a self-fulfilling prophecy,” said ABN Amro Bank NV strategist Georgette Boele. As prices broke out, the move has attracted more investors into gold, she said.

Gold could reach $1,650 over the coming weeks, according to UBS Group AG’s Global Wealth Management unit. “With U.S. equity valuations elevated, any further upsets could see another bout of volatility, a further rally in government bonds and a higher gold price,” analysts Wayne Gordon and Giovanni Staunovo said in a note.

Eoin Treacy's view -

Investors are accustomed to the fiction of China’s economic statistics and therefore have little faith in the reliability of their reporting of the number of viral infections either. The one thing we can monitor with some accuracy is the success of containment efforts outside of China. So far these have been relatively successful in containing an exponential spread of the disease. The big question is how much of a toll is it taking on the Chinese economy and how much stimulus will be required to revitalise consumer demand.



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February 19 2020

Commentary by Eoin Treacy

Chinese Companies Say They Can't Afford to Pay Workers Now

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

“A week of unpaid leave is very painful,” said Jason Lam, 32, who was furloughed from his job as a chef in a high-end restaurant in Hong Kong’s Tsim Sha Tsui neighborhood. “I don’t have enough income to cover my spending this month.”

Across China, companies are telling workers that there’s no money for them -- or that they shouldn’t have to pay full salaries to quarantined employees who don’t come to work. It’s too soon to say how many people have lost wages as a result of the outbreak, but in a survey of more than 9,500 workers by Chinese recruitment website Zhaopin, more than one-third said they were aware it was a possibility.

The salary freezes are further evidence of the economic hit to China’s volatile private sector -- the fastest growing part of the world’s second-biggest economy -- and among small firms especially. It also suggests the stress will extend beyond the health risks to the financial pain that comes with job cuts and salary instability. Unsurprisingly, hiring has all but ground to a halt: Zhaopin estimates the number of job resumes submitted in the first week after the January outbreak was down 83% from a year earlier.

“The coronavirus may hit Chinese consumption harder than SARS 17 years ago,” said Chang Shu, Chief Asia Economist for Bloomberg Intelligence. “And SARS walloped consumption.”

Eoin Treacy's view -

The knock-on effect of meeting payroll when there is no money coming in is no laughing matter for the service sector; particularly when it is fuelling growth. The gravity of the threat means the range of policy options being explored is open-ended. Everything from direct payments to employees, tax holidays, relaxing regulations, cutting interest rates and boosting money supply are possible and probable.



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February 18 2020

Commentary by Eoin Treacy

BHP Sees Next Six Weeks as Key For Virus Hit to Commodities

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

If the impact of the outbreak can’t be contained this quarter, annual growth forecasts will need to be revised down, Huw McKay, BHP’s vice president of market analysis and economics, said Tuesday in a blog post. “This would then flow directly through to lower commodity demand and price expectations.”

BHP forecasts China’s growth to slow to about 6% this year and as low as 5.75% in 2021 based on a swift recovery from the virus outbreak. In a worst-case scenario that combined a lingering impact from the virus and a re-escalation of trade war tensions, the nation’s economic expansion this year could slip to 5.5%, the miner said.

Goldman Sachs Group Inc. and Macquarie Group Ltd. are among banks who’ve cut China growth forecasts for both the first quarter and the full year as a result of the outbreak. China’s gross domestic product will grow 4% in the first quarter, according to the median of 18 forecasts since Jan. 31, which would be the lowest level since 1990.

Eoin Treacy's view -

The working assumption most investment models are relying on is the trajectory of the coronavirus outbreak and recovery is going to follow that of SARS. Even though the number of cases and deaths is larger and the coronavirus is more contagious, the measures taken to contain it have been much more aggressive. Therefore, the majority of investors have concluded that a V-shaped recovery is the most likely scenario.



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February 17 2020

Commentary by Eoin Treacy

Aureus Fund Plc Factsheet

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

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

Eoin Treacy's view -

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



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February 17 2020

Commentary by Eoin Treacy

Email of the day on gold's upside potential

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

 

Eoin Treacy's view -

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



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February 14 2020

Commentary by Eoin Treacy

Email of the day on gold miners:

I hope you are well & not working too hard!

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

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

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

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

All the very best

Eoin Treacy's view -

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

 



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February 13 2020

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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February 11 2020

Commentary by Eoin Treacy

2019-nCoV Acute Respiratory Disease Response

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

Leading indicators to monitor

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

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

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

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

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

Eoin Treacy's view -

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



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February 10 2020

Commentary by Eoin Treacy

Email of the day on rare earth metal miners

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

Eoin Treacy's view -

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



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February 07 2020

Commentary by Eoin Treacy

RBA Sees Unemployment at 4.75% Next Year Amid Virus Concerns

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

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

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

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

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

Eoin Treacy's view -

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



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February 07 2020

Commentary by Eoin Treacy

Brazil Monthly Inflation Eases More Than All Analysts Expected

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

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

Eoin Treacy's view -

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



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February 06 2020

Commentary by Eoin Treacy

Goldman's Currie Likes Palladium on Potential Deficit in China

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

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

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

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

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

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

Eoin Treacy's view -

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



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February 05 2020

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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February 03 2020

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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January 31 2020

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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January 30 2020

Commentary by Eoin Treacy

Shell Dives With Scaled Down Buyback Program a Key Concern

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

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

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

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

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

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

Eoin Treacy's view -

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



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January 29 2020

Commentary by Eoin Treacy

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

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

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

Eoin Treacy's view -

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

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

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



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January 28 2020

Commentary by Eoin Treacy

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

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

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

Eoin Treacy's view -

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



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January 27 2020

Commentary by Eoin Treacy

Email of the day on corona virus outbreak.

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

Eoin Treacy's view -

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



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January 24 2020

Commentary by Eoin Treacy

Fed Seen Holding Rates Steady, Ending Bill Purchases by June

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

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

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

Eoin Treacy's view -

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



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January 23 2020

Commentary by Eoin Treacy

January 22 2020

Commentary by Eoin Treacy

Citi Says Palladium in Total Disconnect, Jump In After Slump

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

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

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

Eoin Treacy's view -

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



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January 17 2020

Commentary by Eoin Treacy

Fiat Chrysler and Foxconn plan Chinese electric vehicle joint venture

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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January 17 2020

Commentary by Eoin Treacy

Precious Metals 2020 Outlook

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

Eoin Treacy's view -

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

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



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January 16 2020

Commentary by Eoin Treacy

Hydrogen May Start Replacing Natural Gas Before 2050, Snam Says

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

 

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

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

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

Eoin Treacy's view -

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



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January 16 2020

Commentary by Eoin Treacy

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

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

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

Eoin Treacy's view -

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



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January 14 2020

Commentary by Eoin Treacy

China Iron Ore Imports Surge to Near Record as Shipments Swell

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

Iron ore imports by China surged in December to the second-highest volume on record as mills boosted purchases ahead of the earlier Lunar New Year and Australian supply picked up.

Inbound shipments totaled 101.3 million tons last month, just shy of the record 102.8 million tons in September 2017, according to customs data. The end-of-year surge saw full-year imports increase 0.5% to 1.07 billion tons.

Eoin Treacy's view -

The ramping up of the Chinese steel production sector is a positive development for the argument supporting the global reflation theme.

This report from Bloomberg highlights the capacity buildout for industrial robot, semiconductor and increasing demand for 5G enabled products is potentially one of the primary drivers behind renewed demand for Chinese steel.



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