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May 13 2022

Commentary by Eoin Treacy

Oil Climbs as Global Refining Crunch Drives Record Fuel Cost

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

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

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

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

Eoin Treacy's view -

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



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May 13 2022

Commentary by Eoin Treacy

Email of the day on my leveraged gold positions

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

Eoin Treacy's view -

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



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May 12 2022

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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May 11 2022

Commentary by Eoin Treacy

Dollar Won't Be Haven Currency of Choice for Long

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

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

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

Eoin Treacy's view -

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



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May 03 2022

Commentary by Eoin Treacy

Rba Rate Rise Knocks the Wind Out of ASX

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

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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April 29 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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April 27 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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April 26 2022

Commentary by Eoin Treacy

Email of the day on industrial metals miners

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

Eoin Treacy's view -

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



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April 26 2022

Commentary by Eoin Treacy

Russia to Halt Gas to Poland on Wednesday in Major Escalation

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

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

Eoin Treacy's view -

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



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April 25 2022

Commentary by Eoin Treacy

Next Grocery Shock Awaits as Food Giants Face Cooking Oil Risks

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

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

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

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

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

Eoin Treacy's view -

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



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April 22 2022

Commentary by Eoin Treacy

Email of the day on commodity prices

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

Eoin Treacy's view -

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

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



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April 21 2022

Commentary by Eoin Treacy

Freeport Slumps as Inflation Counters Bumper Copper Haul

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

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

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

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

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

Eoin Treacy's view -

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



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April 20 2022

Commentary by Eoin Treacy

Sahara solar could soon rescue Britain's broken energy system

Thanks to a subscriber for this article by Ambrose Evans Pritchard for the Telegraph. Here is a section:

Such long cables would have leaked too much power to be viable in the past. Modern HVDC technology at 515 kilovolts has shaved the total loss to 15pc, including the conversion of electricity at both ends.

The coming generation of 800 or 1,000 kilovolts will shave the loss rate further. New methods of laying cables will open up the most direct deep-sea routes instead of having to hug the coasts, cutting transmission lines from Morocco by a quarter.

“We are going to see an explosion of long-distance interconnectors criss-crossing the seas. You could even link up the US and UK, since it is a similar cable distance,” said Mr Morrish.

Eoin Treacy's view -

Covering the Sahara in solar arrays has been discussed for years and very little progress has been made. It’s not exactly the most politically stable place in the world, even if Morocco is less volatile than some of its neighbours. European countries have also probably had enough of being beholden to the Middle East and oil. Transferring dependence to solar and North Africa was viewed as less than appealing. However, Russia’s invasion of Ukraine may change that calculus and introduce urgency into the discussion.  



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April 19 2022

Commentary by Eoin Treacy

Chinese Yuan Extends Drop to Six-Month Low as U.S. Yields Rise

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

The yuan slipped to its weakest level in six months, pressured by concern surrounding China’s growth outlook and a surge in U.S. Treasury yields.

China’s offshore currency weakened by as much as 0.7% to 6.4198 per dollar in New York trading, its weakest since October 2021. The decline comes as traders eye the risk that the world’s second-largest economy is becoming snarled in lockdowns, quarantine and testing rules. The yuan was also pressured by a rise in U.S. yields and the greenback on odds of even more aggressive Federal Reserve tightening. 

On Monday, China’s central bank unveiled nearly two dozen measures and promises intended to boost lending and support industries that have been beaten down by recent Covid lockdowns, including a pledge to guide banks to expand loan extensions.

“This is the strongest signal yet from Chinese authorities that they are concerned over growth conditions,” said Simon Harvey, head of currency analysis at Monex Europe. “Coupled with regulatory tightening in the tech sector, the increased level of concern over domestic growth suggests a poor year for Chinese equity returns. Today’s currency reaction is reflective of this.”

Although first-quarter GDP data showed a pick-up in growth, a deceleration in production and retail data in March as economists further worried about China’s growth outlook amid damage from lockdowns. 

In the U.S., meantime, investors are ramping up bets for the size of the Fed’s next interest rate hike. While markets are generally pricing in a 50-basis-point hike, St. Louis Fed President James Bullard said Monday that hikes of as much as 75 basis points shouldn’t be ruled out. Treasury yields surged across the curve on Tuesday, with the benchmark 30-year bond rising above 3% for the first time in three years.

That likely deepened losses for the yuan, which on Tuesday breached the key support level of its 200-day moving average. Japan’s yen also plunged, set to extend its longest losing streak in more than half a century.

Eoin Treacy's view -

Slowing consumer spending is beginning to weigh on the Chinese economy and not least as house prices post negative performance. The Chinese government has been very slow to act because they are aware of how overt stimulative action inflates asset bubbles, and prices are already high. Nevertheless, they probably fear social unrest from high unemployment and negative growth more.  



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April 12 2022

Commentary by Eoin Treacy

Stocks Rise as CPI Bolsters Bets on Inflation Peak

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

While the U.S. consumer-price index climbed by the most since late 1981, excluding volatile food and energy components, the gauge increased 0.3% from a month earlier and 6.5% from a year ago -- due in part to the biggest drop in used vehicle prices since 1969. The March CPI reading represents what many economists expect to be the peak of the current inflationary period, capturing the impact of Russia’s invasion of Ukraine.

Comments:
“There were some green shoots in the data that suggest March could potentially be the peak for inflation,” said Lindsey Bell, chief markets and money strategist for Ally. “When you couple this with the recent retreat in oil prices, improving shipping costs, a potential reduction in demand from higher prices, and the cycling of higher inflation comparisons, it’s possible that inflation could be topping out.”

“While today’s inflation print hit a four-decade high, there was a sigh of relief as some components of core inflation weakened,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “Regarding peak inflation, we have been at this juncture before where subtle shifts within the data make it appear that the level of inflation has reached its peak for the cycle only to keep marching higher.”

“It’s a red-hot number, but the market’s reaction for now suggests it’s priced in, especially with the month-over-month core read coming in below expectations,” said Mike Loewengart, managing director of investment strategy at E*Trade from Morgan Stanley.

Eoin Treacy's view -

The above headline was a bit premature as early rises were later reversed.

Used car prices have an outsized effect on the USA’s official inflation measure because they don’t look at either food or energy. The Index rallied 57.3% between June 2020 and January 2022. It is now declining. Used cars cost about the same as new vehicles with the only difference being you can get a used car today but wait for a new one. The wait is increasingly preferrable to consumers as monetary conditions tighten.



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April 11 2022

Commentary by Eoin Treacy

Two Oil Supertanker Giants Combine to Form World's Largest Fleet

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

Frontline Ltd. and Euronav NV are considering an all-stock merger that would produce the world’s biggest tanker fleet, just as Russia’s invasion of Ukraine drives a recovery in the market.

The creation of a tanker behemoth -- capable of carrying the equivalent of about 100 days of German daily oil demand -- would come at an opportune moment. With shippers shunning Russian vessels, demand for other carriers is increasing, boosting a market that’s languished for more than a year.

Shares of both Frontline and Euronav have rallied this year, valuing a combined tanker company at more than $4.2 billion.

“A combination of Frontline and Euronav would establish a market leader in the tanker market and position the combined group for continued shareholder value creation in addition to significant synergies,” John Fredriksen, who owns a 39% stake in Frontline, said in a joint statement on Thursday.

Eoin Treacy's view -

The Baltic Dirty Tanker Index remains on a recovery trajectory since Russia’s fleet is having difficulty moving around. The Index hit a new 14-year high on Friday. Meanwhile Brent crude oil prices are back below $100 and likely to fall further as China’s demand outlook worsens. That begs the question how long the surge in tanker prices will last.  



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April 06 2022

Commentary by Eoin Treacy

Copper: Supply meets demand concerns

Thanks to a subscriber for this report from UBS 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. 

Ranging prices contribute to analysts hedging their bets of which direction prices are likely to breakout and how much they are likely to move. Nevertheless, by suggesting a strike on put options of $9750, which coincides with the trend mean, they are effectively saying give the benefit of the doubt to the upside provided it continues to hold that level.



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April 05 2022

Commentary by Eoin Treacy

Email of the day on gold, gold shares and Rolls Royce

Today, there is an unusual discrepancy between GDX (-1.43%) and GDXJ (-0.27%), usually it is the other way around. Gold futures are up 0.64%.

Is there something the "big money" (presumably in GDX) knows about upcoming developments in Gold or miners?

You have not talked about your position in RR? Just keeping indefinitely?

Eoin Treacy's view -

Thank you for this email which may be of interest to subscribers. Gold continues to pause around the psychological $1900 level. In any range the bullish and bearish arguments return to equilibrium.

At present the competing arguments are that gold should do well because central banks have been backed into a corner by rampant money printing and will be unable to raise rates enough to fix the inflation issue. The competing negative view is gold faces an increasing headwind for rising yields.



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April 04 2022

Commentary by Eoin Treacy

Secular Themes Review April 4th 2022

Eoin Treacy's view -

In 2020 I began a series of reviews of longer-term themes which will be updated going forward on the first Friday or Monday of every month. These reviews can be found via the search bar using the term “Secular Themes Review”.

“Play along to get along” has been the default strategy for global peace over the past thirty years. The default proposition was that if we concentrate on commerce, and all grow wealthy together, there was no real need to focus on our political differences. Under that system globalization flourished.

A just in time global supply chain allowed components to be made in a host of different countries, assembled in China and exported to the world. The demise of subsidy regimes allowed commodities, particularly agriculture products, to be produced in the lowest cost regions and exported to the globe. The internet has allowed the dissemination of know-how and services like never before.

In attacking Ukraine, Russia expressed a willingness to risk being cut off from much of the global economy. Regardless, of any other motive, Russia’s invasion of Ukraine is a gamechanger for the global order. With evidence of war crimes emerging, the chances of Russia being welcomed back into the global trading community are growing progressively more distant. We are back in an “Us versus them” global environment.



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April 01 2022

Commentary by Eoin Treacy

California Wants to Pay Farmers to Not Farm This Year

This article from Modern Farmer may be interest to subscribers. Here is a section:

This year, California farmers have been given a financial incentive to not plant crops.

Much of the state is already experiencing extreme drought conditions. As part of a $2.9-billion plan to try to keep water flowing in California rivers, the state will pay farms to keep thousands of acres vacant this growing season. 

Both state and federal officials, as well as some major water companies in the region, signed the plan on Tuesday. Their hope is to keep upwards of 824,000 acre-feet of water every year in the Sacramento-San Joaquin River Delta. The Capital Press explains that one acre-foot of water adds up to around 325,000 gallons of water—or typically enough to supply water to two households for a year.

The most impacted sector will be the rice industry, as the plan would leave 35,000 acres of rice fields in the northern Central Valley—adding up to about six percent of the yearly crop—unused.

Eoin Treacy's view -

The conversion of acre feet quoted above doesn’t appear to be accurate but reducing the acreage of rice planted by 6% is a significant event.



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March 30 2022

Commentary by Eoin Treacy

Gold Climbs From One-Month Low After Strong U.S. Jobs Data

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

Gold climbed from its lowest in a month as real yields declined following a strong U.S. jobs report that underlined inflationary pressures in the economy.

ADP Research Institute data indicated higher wages are helping fill a near-record number of vacancies in America, potentially stoking price pressures. Market-based measures of inflation expectations climbed after the report, trimming real bond yields and supporting gold.

The Federal Reserve’s increasingly aggressive approach to curbing inflation is still weighing on the non-interest bearing precious metal. Philadelphia Fed Bank President Patrick Harker said Tuesday that he expects a series of “deliberate, methodical” rate increases this year, but is open to a half-point move in May if inflation accelerates.

Eoin Treacy's view -

The yield curve inverted during yesterday’s trading session. That started the clock on the beginning of the next recession. It’s a reliable lead indicator for future trouble with anything from a six to eighteen-month timeframe.



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March 30 2022

Commentary by Eoin Treacy

Taliban eye investment by Chinese

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

But the project got tied up in logistical and contract problems, and it never got past some initial test shafts before it ground to a halt when Chinese staff left in 2014 because of continued violence.

Months after the Taliban seized Kabul in August, consolidating power over the country, the group’s newly installed acting Minister for Mining and Petroleum Shahbuddin Dilawar urged his staff to re-engage Chinese state-run companies.

Ziad Rashidi, the ministry’s director of foreign relations, approached the consortium made up by MCC, China Metallurgical Group Corporation and Jiangxi Copper Ltd. Dilawar has had two virtual meetings with MCC in the last six months, according to company and ministry officials. He urged them to return to the mine, terms unchanged from the 2008 contract.

A technical committee from MCC is due in Kabul in the coming weeks to address the remaining obstacles. Relocating the artifacts is key. But MCC is also seeking to renegotiate terms, particularly to reduce taxes and slash the 19.5% royalty rate by nearly half, the percentage owed to the government per ton of copper sold.

“Chinese companies see the current situation as ideal for them. There is a lack of international competitors and a lot of support from the government side,” Rashidi said.

China’s ambassador to Afghanistan has said talks are ongoing, but nothing more. Acquiring rare minerals is key for Beijing to maintain its standing as a global manufacturing powerhouse. While stopping short of recognizing the Taliban government, China has stood out from the international community by calling for the unfreezing of Afghan assets and has kept its diplomatic mission running in Kabul.

For Afghanistan, the contract at Mes Aynak could bring in $250 to $300 million per year to state revenues, a 17% increase, as well as $800 million in fees over the length of the contract, according to government and company officials. That’s a significant sum as the country grapples with widespread poverty, exacerbated by financial shortfalls after the Biden administration froze Afghan assets and international organizations halted donor funds. Some have since resumed.

Eoin Treacy's view -

The Taliban needs cash and China needs resources. That suggests there is room for an agreement. China’s treatment of the Uighur minority is unlikely to get in the way of real politik. China has the capital, market and will to do what is necessary to get projects done.



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March 30 2022

Commentary by Eoin Treacy

Tesla Dodges Nickel Crisis With Secret Deal to Get Supplies

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

“What Tesla has done with nickel is a hidden competitive advantage,” said Gene Munster, managing partner of Loup Ventures. “Tesla continues to be a couple of steps ahead of the rest.”

Musk has repeatedly flagged nickel supply as the company’s biggest concern as it boosts output, and the metal’s availability is a source of anxiety throughout the EV sector.

Battery-sector demand for nickel is expected to jump to about 1.5 million tons in 2030 from 400,745 tons this year, according to Bloomberg NEF.

“Please mine more nickel,” Musk urged producers on an earnings call two years ago. “Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way.”

Eoin Treacy's view -

Tesla’s management deserves credit for ensuring they have access to the resources needed to make production targets. Tesla’s vertically integrated business model is what the conventional auto sector used to do. Ford closed its last steel plant nearly thirty years ago. Selling steel to the major US automakers now represents the bulk of Cleveland Cliffs’ revenue.

As the geopolitical environment grows progressively more complicated, and competition for access to supply of copper, nickel, lithium, manganese and cobalt intensify, inventory management is going to become more important for major industrial companies.



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March 29 2022

Commentary by Eoin Treacy

Biden Says Wait and See on a Russian Pullback

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

Ukraine and Russia failed to clinch a cease-fire in talks that ended in Istanbul on Tuesday, with Moscow saying it will reduce military operations in areas where its forces are being pushed back and Kyiv calling for security guarantees from European Union and NATO members.

U.S. President Joe Biden said he’ll see how Russia acts on a pullback and “see what they have to offer” in further talks with Ukraine.

A Ukrainian negotiator said his country is seeking guarantees for territory that doesn’t include Russian-controlled areas and that Kyiv is willing to discuss the status of occupied Crimea. Russia indicated a meeting was possible between President Vladimir Putin and his Ukrainian counterpart Volodymyr Zelenskiy.

Russia’s delegation left Istanbul, and no date or time was set for any potential future talks, according to a person close to the Moscow delegation. European nations expelled more Russian diplomats from their capitals, even as stocks rose and oil fell on optimism for progress in the negotiations.

Eoin Treacy's view -

This brief history of Finland’s fight against the Soviet Union in 1939 and again in 1944 bears some striking similarities to what is going on in Ukraine today. The most likely outcome remains that Russia will hold the territory it has already won and will negotiate hard for a land bridge to Crimea. In return Ukraine will receive new security guarantees, adopt a neutral foreign policy and will eventually be allowed to join the EU.



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March 29 2022

Commentary by Eoin Treacy

(Don't Fear) The Yield Curve, Reprise

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

It is not valid to interpret inverted term spreads as independent measures of impending recession. They largely reflect the expectations of market participants. Among various terms spreads to consider, the 2-10 spread offers a particularly muddled view. Especially in the present circumstances when the 2-10 spread is very much out of step with the near-term forward spread, which offers a much more precise view of market expectations over the next year and a half, it is difficult to concoct a reason to be concerned about the flattening of the 2-10 spread. In contrast, if and when the near-term spread does contract, we know that investors will then be expecting a cessation in monetary policy tightening. While such a shift in expectations could well be precipitated by future concerns about a recession, that need not be the case. A more benign cause would be a marked easing in inflation and inflation expectations that allow for a cessation of policy firming.

Eoin Treacy's view -

The benign outcome is more often referred to as a soft landing. The 10-2 year spread closed at 1 basis point and was inverted for a brief period intraday. The 10-year-3-month is at 189 basis points which is an historically wide diversion.



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March 24 2022

Commentary by Eoin Treacy

The Oil Crisis is Unfolding in Slow Motion

This article from Goehring & Rozencwajg which may be of interest to subscribers. Here is a section:

If an EROEI of 10:1 resulted in de minimis economic growth, what can we use this 10:1 number to infer about how high oil prices can go today? An EROEI of 10:1 means that 10% of all energy goes to sustain the energy supply. If energy is a good proxy for general economic activity, then an economy should stagnate once 10% of its GDP goes towards producing (and by extension consuming) energy. Evidence backs this up. Many academic studies suggest an economy will fall into recession once energy takes up 10% of total GDP – an empirical result that agrees with our theory.

In 2008, energy prices were approximately 10% of GDP right before the global financial crisis. If oil represents about half of all energy consumed, this means an economy will stall when oil represent about 5% of GDP. In 2008, the US consumed 18.8 m b/d. At $120 per barrel that equated to $823 bn or 5.6% of the $14.7 tr US GDP. The economy fell into recession shortly thereafter. In 2012-14, oil consumption never exceeded 3.5% of US GDP and prices stayed between $90 and $100 per barrel with no impact on either demand or economic activity.

Today, oil represents less than 3.3% of US GDP and would have to rise to $140 per barrel before approaching the critical 5% threshold. Why do we focus only on the US? Demand is the most elastic in wealthy countries with high energy intensities and the least elastic in developing countries that need energy to fuel their ongoing development. In 2008, prices spiked as high as $145 per barrel albeit temporarily. In this cycle, we believe oil prices will at some point reach, and potentially significantly exceed the previous $145 per barrel peak before we begin to see evidence of demand destruction.

Eoin Treacy's view -

How high do prices have to go to limit demand might not be the correct question. It’s well understood that oil spikes are one of the leading causes of recessions, because energy is a tax on consumption. That suggests the speed of the price rise is at least as important as the headline rate.



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March 23 2022

Commentary by Eoin Treacy

Putin Demands Ruble Payment for Gas, Escalating Energy Conflict

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

“Gazprom would need to ask buyers to agree to change the payment terms in contracts,” said Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd. “It reopens the contracts, and buyers could ask for shorter-terms for instance.”

Some 58% of Gazprom’s gross gas sales abroad were in euros as of the third quarter of last year, according to the producer’s most recent bond prospectus. Another 39% were in U.S. dollars. The press office of gas giant Gazprom PJSC declined to comment on whether its long-term supply agreements allow a switch to ruble payments.

Russia announced earlier this month a list of 48 states deemed hostile. They included the U.S., Japan, all European Union members, Switzerland and Norway. As a result, the bulk of Russian gas exports now go to “unfriendly” nations.

“At the same time, I want to emphasize that Russia will definitely continue to supply natural gas in line with the volumes and prices and pricing mechanisms set forth in the existing contracts,” Putin said.

In the first 15 days of March, Gazprom exported an average of 500 million cubic meters per day to countries outside the former Soviet Union, including those in the EU, China and Turkey. Of the total, flows toward Europe averaged 384 million cubic meters per day, the producer’s data showed.

Eoin Treacy's view -

This change of policy serves the short-term requirement of creating demand for the Ruble which will make enforcing sanctions even more difficult. That suggests the recent low of the Ruble near RUB120 is likely to be a medium-term nadir.



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March 22 2022

Commentary by Eoin Treacy

Ray Dalio's Bridgewater reportedly backing a crypto fund means the world's largest hedge fund and one of Bitcoin's former skeptics is taking it seriously

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

“It has been an amazing accomplishment for Bitcoin to have achieved what it has done, not being hacked, having it work and having it adopted the way it has been,” he told MarketWatch in December. 

“I believe in the blockchain technology. … It has earned credibility.”

Eoin Treacy's view -

This might be a case of “if you can’t beat um, join um”. The reality is as bond prices decline, money is pulling out and is looking for a home where its value will hold versus the declining purchasing power of fiat currencies.



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March 21 2022

Commentary by Eoin Treacy

Email on the day on world hunger

*Almost certainly widespread famine within a year*: _15% of world’s calories come from wheat. 1/3 of all wheat comes from Russia and Ukraine…_

Russia has banned export of wheat; a lot of wheat supply blocked. Whole planet earth operates on a 90-day food supply. Once we stop making food the world runs out in 90 days. Most vulnerable nations lose the supply first; very quickly a massive bifurcation. Already have 1bn living on under 1200 calories…

The even bigger problem is the future planting season. Wheat spring planting season is right now; not a lot of planting going on…

This is because of the fertilizer problem. All fertilizer is made up of nitrogen, phosphorus, or potassium. All farmers must use this. Without fertilizer crop does not grow. Nitrogen is made from natural gas. Nat Gas prices have doubled. The price of nitrogen-based fertilizer has gone from 200 per ton to 1000 per ton. 10% of world phosphate and 25% pf potash is from Russia and that has been banned for export. Prices on phosphate and potash have sky-rocketed too. Now it is so expensive to grow crop that farmers are pulling out of production.

The world is “scrambling” for food right now, corn, soybeans etc. skyrocketing. Strategic reserves of food being released now…

A bad weather year can be disastrous. Regardless, it will be a humanitarian disaster within 12 months and we will see hundreds of millions will go starving (think famine)

We just don’t have enough food. The way supply chains are set up just don’t work.

Eoin Treacy's view -

Wheat prices accelerated to test the 2008 peak near 1200¢ and paused over the last week. War in Ukraine and the slow start, or potential absence, of a planting season are obviously major considerations for its customers. Russia’s efforts to capture the entire Black Sea coast are an additional obvious headwind to exports.



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March 17 2022

Commentary by Eoin Treacy

Trafigura Seeks PE Funding as Commodity Surge Triggers Margin Calls

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

Trafigura Group, one of the world’s top oil and metals traders, has been holding talks with private equity groups to secure additional financing as soaring prices trigger giant margin calls across the commodities industry.

Trafigura has in recent weeks stepped up efforts to seek new funding from beyond its traditional group of bank lenders, according to people familiar with the matter.

The trader held talks with Blackstone Inc. for an investment of around $2 billion to $3 billion in preference shares or a similar hybrid instrument, but those talks ended without a deal, said the people, who asked not to be identified as the discussions were private. Trafigura has also approached Apollo Global Management Inc., BlackRock Inc. and KKR & Co., the people said.

The discussions with private equity firms have been broad-based, ranging from financing for specific projects to raising funding at a company level, the people said. There’s no certainty any of the discussions will progress to a deal, they said.

Eoin Treacy's view -

Trafigura emerged from the last commodity bull market as the leader in commodity trading. As investment banks closed desks, sold warehouses and ships, the trading house stepped in and took market share. Today, most of the big trading houses for commodities are privately owned. They also do not have the balance sheets of banks. When volatility steps out to multiple standard deviations, models go awry.



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March 16 2022

Commentary by Eoin Treacy

Fed Lifts Rates a Quarter Point and Signals More Hikes to Come

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

“The American economy is very strong and well positioned to handle tighter monetary policy,” Powell told a press conference Wednesday following a meeting of the Federal Open Market Committee. “We are attentive to the risks of further upward pressure on inflation and inflation expectations.” He also said that officials could move faster on policy tightening if needed.

The hike is likely the first of several to come this year, as the Fed said it “anticipates that ongoing increases in the target range will be appropriate,” and Powell repeated his pledge to be “nimble.”

“I saw a committee that is acutely aware of the need to return the economy to price stability,” he told reporters, characterizing the mood around the table as policy makers debated the outlook. “It is determined to use its tools to do so.”

In the Fed’s so-called dot plot, officials’ median projection was for the benchmark rate to end 2022 at about 1.9% -- in line with traders’ bets but higher than previously anticipated -- and then rise to about 2.8% in 2023. They estimated a 2.8% rate in 2024, the final year of the forecasts, which are subject to even more uncertainty than usual given Russia’s invasion of Ukraine and new Covid-19 lockdowns in China are buffeting the global economy.

Eoin Treacy's view -

The market took the first hike in this cycle in its stride and not least because it has been fully priced in over the last four months. Remaining nimble is going to be essential. Uncertainties abound, not the least of which is China’s problem with containing the omicron variant is only just beginning. Predicting 1.9% by the end of the year implies at least a 25-basis point hike at every meeting. That seems ambitious in the extreme. 



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March 14 2022

Commentary by Eoin Treacy

ESG in practice: assessing Food and Beverage companies' externalities

This report from the Candriam Academy may be of interest. Here is a section:

The market of protein foods is witnessing two key developments. The first is the efficiency drive, through new technology, among existing producers of animal protein food, such as milk, meat, fish or eggs. Better efficiency comes with smaller carbon footprint; indeed, the top 10% best performing farming businesses reduce theirs by double digits by adopting new innovative solutions.

Even more good news for companies: because most of the innovations work alongside existing production systems, their implementation will not require additional capital expenditure. There are also some products that target specific issues, such as cows belching methane – a greenhouse gas more potent in causing global warming than carbon dioxide. We now have a remarkable innovative food supplement that can suppress the production of methane by 30% in dairy cattle, and up to 90% in beef.

The second type of innovations is about finding new sources of non-animal proteins. Everything from using canola to single cell proteins. Recent study reported that “considerable progress has been made towards the development and production of meat alternatives, including cultured meat, plant-based meat alternatives, microbial protein, edible fungi, microalgae, and insect protein.”

We expect a combination of advanced scientific expertise and investment will be required in the years to come not only to develop new sources of proteins but also test how safe they are for human health and well-being. In the meantime, the diet is not the only factor that impacts our climate and other sustainability factors, it is also the operation of the supply chains themselves.

Eoin Treacy's view -

Arguably, the ESG movement found its first target in Nestle. For years activists lobbied the public to stop consuming Nestle products because of labour and business practices they found distasteful and often with good reason. Today’s the carbon footprint of the food sector is under scrutiny and the ESG model is part of every corporate communication.



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March 12 2022

Commentary by Eoin Treacy

A New World Energy Order Is Emerging From Putin's War on Ukraine

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

“The U.S. can try to make Saudi Arabia increase production, but why would they accept a break in the alliance, which is key for them?” said Paolo Scaroni, former chief executive officer of Italian oil company Eni SpA. 

There’s a political dynamic at play to explain the kingdom’s fidelity to Moscow beyond the gusher of oil revenue. 

Where Donald Trump cultivated a particularly friendly relationship with Saudi Arabia — making his first foreign trip as U.S. president to Riyadh — ties have turned colder under President Joe Biden. On the campaign trail, Biden pledged to make the kingdom a “pariah,” in part because of the killing of columnist Jamal Khashoggi. He will only deal with the elderly King Salman, relegating Mohammed bin Salman to interact with more lowly officials despite being the kingdom’s defacto ruler. 

By contrast, Riyadh’s OPEC+ partnership with Moscow calmed years of distrust between the two oil rivals, and saved the kingdom from relying exclusively on Washington.

“Saudi Arabia doesn’t want to switch horses mid-race when they do not know if the other horse is actually going to show up,” said Helima Croft, chief commodities strategist at RBC Capital Markets. 

Eoin Treacy's view -

The USA going cap in hand to countries like Iran, Venezuela and Saudi Arabia this week, with the request to boost oil supplies must have been both humbling and galling for the Biden administration. For the all the talk of a more enlightened foreign policy the arrogance, even so-called allies, have been treated with is pretty astounding. International rulers will be told not to take it seriously. Afterall they were working in service to the higher cause of abating climate change.



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March 10 2022

Commentary by Eoin Treacy

Fund Manager's Diary March 9th 2022

Thanks to Iain Little for his latest note which may be of interest. Here is a section:

Third, fixed income markets, largely reward-free risk pre-Ukraine, now face a further knock-out blow. The pressure for rate rises justified by existing 5%+ inflation will be ramped up by the commodity scarcity from sanctions on 12% of the world’s oil production and much of its strategic metals. Add a negative credit effect on bond yields derived from civil unrest in countries relying on imported wheat to feed youthful, volatile populations; Ukraine, at 30% of global total, is the world’s largest supplier. The only cure is a lighter hand on the rate rise tiller from central banks now wary of recession 12-18 months from now. This contradiction is negative for long rates.

Eoin Treacy's view -

With a supply shock, the only way to control inflationary pressures is by either quickly solving it or cutting demand. Companies are pulling out of Russia every day. The Russian government is putting together plans to take over abandoned positions in domestic companies. Russian billionaires are being both sanctioned and censured in almost every OECD market. We are not going back to normal anytime soon; if ever. The repercussions of this economic, financial, business, and social unwind are only beginning to be felt.



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March 10 2022

Commentary by Eoin Treacy

Israel's tortured choice on Russia

This article from the Jerusalem Post may be of interest. Here is a section:

So, perhaps Jerusalem is right to walk a fine line with Moscow and prioritize strategic over moral concerns. Perhaps, but it’s distressingly difficult to watch. In essence, Israel has muted its voice as Russia slaughters Ukrainian innocents, while threatening the liberal order from which Israel greatly benefits.

Strategically, Israel is heavily dependent on Russia in at least two ways. First, Russia controls most of the airspace over Syria, and has permitted Israel to strike targets there, including Iranian weapons facilities, as well as weapons convoys designed for Lebanon’s Hezbollah terrorist group, which is positioned just over Israel’s northern border.

Second, Russia is one of five permanent UN Security Council members and, as such, is participating in negotiations in Vienna over reviving the 2015 global nuclear deal with Iran. While Washington seeks to resuscitate the deal in hopes of restraining Iran’s nuclear progress, Jerusalem fears that a new deal will pose the same problems as the original one – including sunset dates for restrictions on Iranian nuclear activities, a weak international regime for inspecting Iranian nuclear sites, and no curbs on Iran’s related and growing ballistic missile program.   

Eoin Treacy's view -

Most of the financial market commentary has focused on the strategic resources and oil exports Russia represented. That tends to ignore the fact Russia is a geopolitical heavyweight with stakes in most of the world’s pressure points for strife. Cutting it off from the financial and economic world will exacerbate its appetite to cause trouble in the geopolitical theatre.



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March 09 2022

Commentary by Eoin Treacy

Ukraine Open to Neutrality But Won't Yield Territory, Aide Says

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

Ukraine is open to discussing Russia’s demand of neutrality as long as it’s given security guarantees, though it won’t surrender a “single inch” of territory, a top foreign policy aide to President Volodymyr Zelenskiy said.

“Surely, we are ready for a diplomatic solution,” Ihor Zhovkva, Zelenskiy’s deputy chief of staff, said in an interview with Bloomberg Television on Wednesday. 

The aide reinforced Ukraine’s demand for security guarantees “from the U.S., from Great Britain, from Germany” and others -- “only security guarantees from Russia will not be enough,” though he declined to spell out what those measures would entail. 

Preconditions for talks with Russian President Vladimir Putin would be a cease-fire and the withdrawal of Russian troops, Zhovka said.

Eoin Treacy's view -

When the war is over, Ukraine is most likely to follow a Finland-type solution. They may apply for membership of the EU, but not NATO. They will receive security guarantees from their neighbours, but will need to retain a significant military and constant vigilance nonetheless. Relations with Russia will be irrevocably damaged and portions of Ukraine will likely become part of Russian territory. However, the fact remains many of Russia’s pipelines flow through Ukraine’s territory. Trading relationships will be necessary.



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March 08 2022

Commentary by Eoin Treacy

Biden Says U.S. Will Ban Russian Fuels to Pressure Putin on War

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

President Joe Biden said the U.S. will ban imports of Russian fossil fuels including oil, a major escalation of Western efforts to hobble Russia’s economy that will further strain global crude markets.

“We’re banning all imports of Russian oil and gas and energy,” Biden said Tuesday at the White House. “We will not be part of subsidizing Putin’s war.”

The U.S. move will be matched in part by the U.K., which will announce a ban on Russian oil imports on Tuesday, though it will continue to allow natural gas and coal from the country. Other European nations that rely more heavily on Russian fuels will not participate. The scope of Biden’s action was not immediately clear, including exceptions and the impact on shipments already in transit.

Biden’s move is a significant step in his sanctions campaign against Russia after its invasion of Ukraine. While so-called self-sanctioning by the oil industry has limited some purchases of Russian barrels, an outright U.S. ban would further weigh on the market and increase volatility.

Eoin Treacy's view -

If sanctions are to work, they need to hit the target where it hurts. If Russia is to be chastened, more of the world needs to stop buying its products. That’s going to come with massive dislocations to the global economy. It’s a necessary sacrifice because appeasement does not work.



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March 08 2022

Commentary by Eoin Treacy

Satellite outage knocks out thousands of Enercon's wind turbines

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

Germany's Enercon on Monday said a "massive disruption" of satellite connections in Europe was affecting the operations of 5,800 wind turbines in central Europe.

It said the satellite connections stopped working on Thursday, knocking out remote monitoring and control of the wind turbines, which have a total capacity of 11 gigawatt (GW).

"The exact cause of the disruption is not yet known. The communication services failed almost simultaneously with the start of the Russian invasion of Ukraine," Enercon said in a statement.

The company said it had no further information on who or what may have caused the disruption.

Enercon has informed Germany's cybersecurity watchdog BSI and is working with the relevant providers of the satellite communication networks to resolve the disruption, which it said affected around 30,000 satellite terminals used by companies and organisations from various sectors across Europe.

Eoin Treacy's view -

Priorities change. When prices are low consumers value choice and comfort. When prices are high, they value efficiency. When supply is threatened, they will value resiliency.



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March 07 2022

Commentary by Eoin Treacy

Oil Shocks and Recessions

Eoin Treacy's view -

The two things anyone seeking to predict future trouble in the stock market looks at are the yield curve spread and oil prices.

The spread the 10-year and the 2-year is down to 23 basis points, from 120 in October. At the current pace of compression, it could be negative by the end of the week.

The 10-year - 3-month has generally moved ahead of the 10-2 spread but is not doing so on this occasion. That is because bond funds are focusing on short duration bonds because inflationary pressures take a bigger toll on long-dated issues.



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March 07 2022

Commentary by Eoin Treacy

Email of the day on lithium and rare earths

Just renewed my subscription for another year. Keep up the good work!

Reference your commentary on 25 Feb re Iain Little’s article on the effects of the Ukraine conflict and commodity supply, you may be interested in the attached research note by Maquarie on the growing strength of the lithium and rare earths supply/demand fundamentals.

Eoin Treacy's view -

Thank you for this insightful report and your long support of the service. Here is a section:

We estimate that 80% of the EVs used motors that contained rare earths, while 100% of PHEV used motors that contained rare earths. Our demand forecasts for rare earths assume one standard passenger PHEV consumes 4-6kg of rare earth magnets while a pure EV uses 5-10kg of rare earth magnets for its motors.

The demand for rare earth magnets would be supported by growth in accelerating offshore wind power capacity installation and higher penetration of inverter air conditioners, as the world is moving towards its climate change goals. We have forecast rare earth magnets intensity of 0.67 tons per MW for direct drive wind turbines and 0.1kg per unit for inverter air conditioners.

A widening deficit remains our base case in the medium-term, with the speed at which new entrants can enter the market presenting a key risk to our base case. In the longer-term the market deficit starts to widen significantly from 2027, suggesting that more new sources of supply will be required to meet the shortfall.



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March 04 2022

Commentary by Eoin Treacy

Secular Themes Review March 4th 2022

Eoin Treacy's view -

In 2020 I began a series of reviews of longer-term themes which will be updated going forward on the first Friday of every month. These reviews can be found via the search bar using the term “Secular Themes Review”.

When Wall Street indices were breaking out to new highs in 2012/13 the world looked to be on the cusp of a golden era of globalisation, co-operation, and the inevitable rise of the middle class. Higher living standards would breed a more tolerant society with greater respect for the environment and for our fellow global citizens.

In predicting a secular bull market, we were correct about the market call. Wall Street and the FANGMANT stocks have outperformed global indices by a wide margin over the last decade. It was also correct to expect oil to underperform because of the bounty arising from shale oil and gas. Predicting a decade ago that the USA would become energy independent was seen as maverick. Today it’s a fact.

The social upheaval that began with the monetary and regulatory response to the credit crisis represents a significant threat to the utopian ideal of the everyman. Exporting job security in return for cheap products has hollowed out the middle class in most developed countries. The evolution of the subscription business model has also reduced individuals to cash flows; where ownership of hard assets is marketed as an outdated concept. This has contributed to significant social upheaval and the response to the coronavirus pandemic amplified it.  

At the same time, the trend of geopolitical tension continues to rise. The concentration of wealth in the hands of a small number of people, companies and countries is creating greater competition. China is much more active in staking its claim to global trade than in the past and Russia’s current invasion of Ukraine is reflective of a desperate need for both security and relevance in a world that is actively working to use less of its primary export; oil.



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March 02 2022

Commentary by Eoin Treacy

Email of the day on The Chart Seminar and a uranium ETF

hello Eoin 1) could you please suggest a trustworthy ETF on Uran, with a well balance geopolitical profile 2) I would very much welcome a chart seminar, I hope you will be able to organize one in the not too distant future.

Eoin Treacy's view -

We are currently looking at June 6th and 7th for The Chart Seminar in London. Sarah is in the process of securing a venue at present and as soon as the location is confirmed we will begin taking bookings. I am very much looking forward to meeting subscribers in person after an internval that has been far to lengthy. 



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March 01 2022

Commentary by Eoin Treacy

Kyiv TV Tower Hit as Russia Targets the Capital

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

Russia said it would press forward with its invasion of Ukraine until its goals are met, as troops were seen moving in a large convoy toward the capital, Kyiv. In the country’s second-largest city, Kharkiv, the mayor said residential areas were being bombed in what he called “a war to destroy the Ukrainian people.”

Eoin Treacy's view -

Hitting the TV tower is aimed at attempting to put Ukraine’s ability to appeal directly to Russia’s population out of commission. The impassioned broadcasts from Ukraine’s president must be particularly annoying for the Russian aggressors. Unfortunately, the success of the initial resistance means Russia is doubling down on the bombardment.



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February 25 2022

Commentary by Eoin Treacy

Where do Ukrainian economics matter, or is it 'matter' that matters?

Thanks to Iain Little for this edition of his Global Thematic Investors’ Diary. Here is a section: 

The proximate global economic effect will be on commodity supply (the complacent West taking much of the blame). Much has been made of Ukraine and Russia as the largest (30%) breadbasket in the world and the Russian Nord Stream 2 gas pipeline dilemma facing the EU/ Germany. But few would have predicted this week’s announcement by a Democrat President to expand domestic mining in strategic metals (lithium, graphite, rare earths, cobalt, rhodium, nickel, zinc etc). This points to a supply chain challenge where ESG objections now take 2nd place. The USA is dependent on Russia for much of its strategic supply chain: C4F6 gas and neon for chips, palladium for sensors, plating material and computer memory (MRAM), titanium for engines, fans, fighter jet disks, missiles, satellites. Russia needs high end chips, where the USA has edge, but where Russia is said to be able to obstruct the USA’s chip supply chain. These squeezes, offsets and stand-offs occur at a time when inflation is already above 5% for major economies.

Eoin Treacy's view -

It currently takes 7-10 years to get a mine permitted in the USA. In Canada and Australia, the average is 2. For the last forty years, outsourcing supply of raw materials, other than oil and gas, has been the de facto position of successive US administrations.



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February 24 2022

Commentary by Eoin Treacy

The Invasion of Ukraine Is a Tragic Sin

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

I have met Putin, and I have watched him as a journalist since before he became president. My analysis of his actions was always based on the assumption of his rationality. There was always something to gain, a manageable risk of losing. Perhaps I was wrong from the start. Perhaps Putin has changed in recent years as his close circle narrowed and negative selection expelled people with a broader vision from the ranks of his advisors. Quite likely, Ukraine has long constituted an exception from Putin’s rationality, as most of its people time and time again chose the Western path, away from Putin’s vision of the Russian World.

I left Russia after the Crimea annexation because I couldn’t accept it and felt it was a great historical wrong — both for Ukraine and for Russia. But I ended up returning to that assumption of rationality. I analyzed Putin’s moves from a cost and benefit perspective. I have a lot of rethinking to do.

The invasion is an irrational move. It makes any further negotiations with Putin and his clique pointless: There is, quite clearly, nothing he won't do, no line he won’t cross, no matter what he says or what deal he makes. From this point on, autarky is the only feasible economic choice for Russia, and a retreat into isolation is the only remaining cultural and political choice. At the same time, Russia's dependence on China, which has grown in recent years, is no longer a matter of choice. Any security benefits from turning Ukraine — and neighboring Belarus, from whose territory Putin also attacked — into a buffer state are illusory since Russia also borders actual NATO member states, which now will arm themselves as heavily as possible. 

Eoin Treacy's view -

I was not expecting a full-scale invasion, but my positions benefitted anyway. I agree we are now in a new environment and it will be years before Russia’s relationship with most of its biggest trading partners is repaired.



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February 24 2022

Commentary by Eoin Treacy

Petrobras Revenue Hits Record as It Resists Cheap Fuel Calls

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

Political pressure for Petrobras to make fuel cheaper for Brazilians is mounting ahead of presidential elections in October, but the giant oil producer has instead focused on taking advantage of the windfall from crude’s rally to shore up its finances and reward investors.  

Once the world’s most indebted oil producer, Petrobras last year managed to reduce its debt below $60 billion ahead of schedule, thanks also to the sale of refineries. 

Meanwhile on the campaign trail, former president Luiz Inacio Lula da Silva is leading the polls and calling for fuel price relief and more investments in refining. This has put Bolsonaro on the defensive, though a recent rally in the local currency has helped mitigate the impact of higher international oil prices.

Under Lula’s Workers’ Party, Petrobras lost an estimated $40 billion during the 2012-2014 oil price boom because of policies to make gasoline and diesel cheaper. Since the party lost power in 2016, two pro-business administrations have transformed Petrobras into a leaner, more profitable outfit. 

Eoin Treacy's view -

Cordial relations with much of the rest of the world favour Brazilian exports of raw commodities. That’s particularly true of its oil and iron-ore exports as geopolitical tensions with Russia are amplified.



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February 24 2022

Commentary by Eoin Treacy

EMs' Vulnerability to Rising Food Prices and Political Instability

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

Using these variables, our findings show that Kazakhstan and the Philippines are the most vulnerable credits in the IG universe.1 The massive protests that broke out in Kazakhstan earlier this year in response to soaring commodity prices serve as confirmation of our analysis, and it bears watching what happens in the Philippines as the May elections approach.  On the least vulnerable side, higher-income countries, including Hungary and Uruguay, unsurprisingly fare better. Meanwhile, HY credits are much more dispersed. Kenya and Nigeria appear to be the most vulnerable, and the months leading up to the Kenyan general election in August could be a volatile period, as they have in past elections. The least vulnerable HYs, from Serbia to Sri Lanka, are very diversified from a geographical point of view. It is somewhat reassuring that Brazil, a continental giant holding elections in October, is not in the most vulnerable group. We will continue to monitor these vulnerabilities closely as part of our credit selection process.

Eoin Treacy's view -

Nothing contributes to more social stress than surging food prices. The risks to food supplies remain skewed to the upside over the medium term. However, the initial surges for food commodities were not sustained today. That suggests we are likely to see at least some unwinding of short-term overbought conditions.



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February 23 2022

Commentary by Eoin Treacy

February 22 2022

Commentary by Eoin Treacy

Stocks Plunge, Oil Prices Surge After Putin Orders Troops Into Eastern Ukraine

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

Stocks tanked amid rising tensions between Russia and Ukraine: The Dow Jones Industrial Average was down 1.3%, over 400 points, while the S&P 500 lost 1% and the tech-heavy Nasdaq Composite 1.4%.

Global stock markets took a hit after Russian President Vladimir Putin decided to recognize the separatist states of Donetsk and Luhansk in eastern Ukraine, ordering Russian troops to move into the region in order to “maintain peace.”

The move was widely condemned by the West, with the European Union and United Kingdom both unveiling economic sanctions against Russia on Tuesday, while the United States will reportedly release a new round of sanctions later in the day.

Many western officials continued to warn that Russian troops moving into eastern Ukraine to keep the “peace” could be a not so subtle pretext for a full invasion, with U.K. Health Minister Sajid Javid saying on Tuesday that “the invasion of Ukraine has begun.” 

Oil prices surged on the news, with Brent crude rising to more than $94 per barrel amid concerns that Russia’s energy exports could be disrupted.

Eoin Treacy's view -

Granting official recognition to, and moving troops into a region that has been ruled independently of Ukraine since 2014 is an escalation of tensions. However, it still falls into the brinksmanship category regardless of claims to the contrary. Russia appears to be serious about their demands that Ukraine not join NATO. They are also adamant that missile batteries not be placed within its neighborhood. 



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February 22 2022

Commentary by Eoin Treacy

Currency Speculators Shun Usual Havens Despite Ukraine Tensions

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

Leveraged funds’ net short positioning in the yen has increased in seven out of the last nine weeks and sits at its most bearish since November, according to Commodity Futures Trading Commission data released Friday. Net positioning in the Swiss franc, another preferred haven asset for currency traders, has been short since September, though it did grow less bearish in last week’s CFTC data. 

The pullback from havens was evident in the spot market on Tuesday, when the Japanese and Swiss currencies retreated while other major counterparts gained against the U.S. dollar. The moves signal that the market is comfortable with where the Russia situation is going, Brad Bechtel, a strategist at Jefferies LLC in New York, said in a Tuesday note. 

“No real downside momentum in the JPY crosses on any of these recent Russia headlines the past few weeks,” he wrote. 

“Even now, as we are on the brink of the conflict, we still do not see JPY perform. Same with the USD and CHF,” he wrote, referring to the Swiss franc.

Eoin Treacy's view -

The news flow from Ukraine is exciting but the trajectory of interest rates is much more important for markets. The defining characteristic of this earnings season was companies reporting better than expected figures for Q4 but disappointing on guidance. Home Depot was the latest example today. Markets are looking at slower growth and higher rates first and the wider geopolitical tension is a secondary concern.



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February 22 2022

Commentary by Eoin Treacy

Deadly Nigerian Oil-Blast Ship Has Peers All Over the World

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

The American Bureau of Shipping, which classifies vessels for their operating safety, last year raised the need to address safety issues such as structural integrity and maintenance challenges around the global fleet of FPSOs, with over 50 of them reaching the end of their design life in the next five years. More than half are over 30 years old and a quarter over 40 years old. 

Eoin Treacy's view -

Aging infrastructure is rarely the top priority for producers. The oil sector is reluctant to commit capital at present because there is a lot of uncertainty about how those investments will be viewed by both investors and the media.



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February 17 2022

Commentary by Eoin Treacy

Gold Fields Bet on Giant Mine Pays Off After Years of Losses

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

Gold Fields Ltd. said a turnaround at its giant mine in South Africa is starting to pay off after more than a decade of losses that’s weighed on the Johannesburg-based company.

South Deep, which sits on the third-biggest known body of gold-bearing ore, almost tripled the net cash it generated to $97 million in 2021 as production rose and the rand strengthened. Output at Gold Fields’ last South African mine is expected to climb a further 30% over the next three to four years. 

That will complete a turnaround after years of financial bleeding that was compounded by power shortages, labor unrest and regulatory uncertainty in South Africa. It vindicates the management’s decision to restructure the mine after investors pressured Gold Fields to either end the losses or sell the asset.

“I am absolutely convinced this was the right thing to do,” Chief Executive Officer Chris Griffith said in an interview. “Already in one year we have made up probably what people would have paid for the asset, so I think it absolutely makes sense to stay in the asset.”

Eoin Treacy's view -

Gold miners have had a very difficult time over the last decade. Capital has been hard to come by because they were tarred with the “capital destroyer” brush and, with falling commodity prices, investors fled the sector. The fact that South Deep can generate more revenue in a year than the company could have sold the mine for at the bottom of the cycle is a testament to just how low valuations were.



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February 16 2022

Commentary by Eoin Treacy

Gold Steadies as West Cautious on Russian Claims of Pullback

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

Gold has firmed in the opening weeks of this year as investors sought a haven from elevated inflation and the geopolitical crisis in Europe. The precious metal’s climb has been aided by renewed inflows into bullion-backed exchange-traded funds, which are on track for a second monthly gain.

That support comes even as traders up their bets on a more aggressive approach from the Federal Reserve, pushing up inflation-adjusted Treasury yields and putting pressure on gold. The latest Fed minutes, due later Wednesday, may influence views on its policy path.

“We believe investors have attached a greater emphasis to hedging geopolitics,” strategists at UBS Group AG including Wayne Gordon wrote in a note. “A break in the negative correlation between gold and U.S. real rates never really endures, and this time is no different.” 

The UBS strategists still expect gold to hit $1,650 an ounce by the end of this year.

Eoin Treacy's view -

The primary argument being made by the UBS team is that negative real rates are tightening so the logical support for gold is less compelling. They argue that in a positive real rate environment there is no way gold can hold the current higher levels.

There are a couple of issues with relying only on a real rates argument. The first is that real rates were positive and averaged about 200 basis points between 2003 and 2009. Then after the credit crisis real rates trended lower to deeply negative rates until early 2013. Gold rallied meaningfully during positive real rates and peaked even though real rates were still contracting after 2011.



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February 11 2022

Commentary by Eoin Treacy

Gold Set for Best Week Since May on Inflation Hedge Appeal

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

Gold surged, heading for its best week in more than three months as concerns over red-hot inflation boosted demand for the metal as a store of value.

A surprise jump in U.S. inflation sparked rate-hike speculation that the Federal Reserve may act more aggressively to contain rising prices. Gold extended gains Friday as U.S. stocks fell to session lows and Treasuries rose after the U.K. told its citizens in Ukraine to leave the country, adding to worries over long-simmering tensions with Russia. The Kremlin has repeatedly denied that it plans to attack Ukraine.

Bullion’s appeal as an inflation hedge is outweighing worries that rising interest rates will erode demand for the metal, which doesn’t offer a yield.

Gold’s ability to defy gravity amid rising U.S. yields is driven by its credentials as “an inflation hedge as well as a defensive asset during a period of elevated stock and bond market volatility as the market adjusts to a rising interest rate environment,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. 

Hansen sees inflation to remain elevated with rising input costs, wages and rentals being a few components that may not be lowered by rising interest rates.  This helps gold as a hedge against the view that central banks will be successful in bringing down inflation, according to him.

Spot gold gained 1.7% to $1,858.41 an ounce by 1:57 p.m. in New York, the highest intraday level since Nov. 19.  Prices are up 2.8% this week, heading for the best week since May 7. The Bloomberg Dollar Spot Index fell 0.1%. Silver and palladium also rose, while platinum was little changed.

Eoin Treacy's view -

Gold is unloved and if recent subscriber emails are any guide, even the faithful have given up hope. That’s usually an indication that leverage has been squeezed out of the market. When that kind of action occurs and prices don’t give up their gains, it suggests a willingness by other investors to buy dips and keep on accumulating regardless of volatility.



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February 10 2022

Commentary by Eoin Treacy

Goldman Commodity Veteran Says He's Never Seen a Market Like It

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

Jeff Currie, the closely-followed head of commodities research at Goldman Sachs Group Inc., says he’s never seen commodity markets pricing in the shortages they are right now.

“I’ve been doing this 30 years and I’ve never seen markets like this,” Currie said in a Bloomberg TV interview. “This is a molecule crisis. We’re out of everything, I don’t care if it’s oil, gas, coal, copper, aluminum, you name it we’re out of it.”

Futures curves in several markets are trading in super-backwardation -- a structure that indicates traders are paying bumper premiums for immediate supply. The downward sloping shape in prices is generally taken to mean commodities are severely undersupplied.

Eoin Treacy's view -

This is the time in the cycle where there is a vociferous argument between whether the strength in commodity prices is cyclical or secular in nature. If it is cyclical then we are in a repeat of the post global financial crisis episode where commodity prices surged to new highs and subsequently gave up most of the advance. On the hand, if this is the beginning of a new secular theme, we can expect the breakouts to hold and prices to multiply several times over the next decade.



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February 09 2022

Commentary by Eoin Treacy

Russia, China agree 30-year gas deal via new pipeline, to settle in euros

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

Russia already sends gas to China via its Power of Siberia pipeline, which began pumping supplies in 2019, and by shipping liquefied natural gas (LNG). It exported 16.5 billion cubic metres (bcm) of gas to China in 2021.

The Power of Siberia network is not connected to pipelines that send gas to Europe, which has faced surging gas prices due to tight supplies, one of several points of tension with Moscow.

Under plans previously drawn up, Russia aimed to supply China with 38 bcm of gas by pipeline by 2025.

The new deal, which coincided with a visit by Russian President Vladimir Putin to the Beijing Winter Olympics, would add a further 10 bcm, increasing Russian pipeline sales under long-term contracts to China.

Eoin Treacy's view -

Exporting gas is not Russia’s biggest money spinner but it creates reliance that is priceless from a geopolitical perspective. More than doubling gas exports to China might be described as an alliance of autocrats but the reality is China needs energy. That’s not an equal partnership even if the long-term pricing structure is competitive. Russia is building a network of dependency right across the Eurasian continent that will give it a lot of leeway to push for concessions in other areas.



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February 09 2022

Commentary by Eoin Treacy

Los Angeles Port Sees Chance to Ease Ship Backlog by Summer Peak

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

Seroka said he agrees with the chief executive of a major container line, A.P. Moller-Maersk A/S’s Soren Skou, who told Bloomberg TV in a separate interview earlier that ocean shipping should start to normalize in the second half of the year. Maersk, which handles almost one-fifth of the world’s container traffic, said it sees a 2%-4% expansion in the market this year, with a strong first half followed by an uncertain outlook after that. 

Eoin Treacy's view -

Supply chain disruptions forced companies to front load orders in the hope they could get enough inventory in to avoid future bottlenecks. That put upward pressure on both shipping rates and prices to consumers.



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February 08 2022

Commentary by Eoin Treacy

Email of the day on gold shares

Eoin. I've been appreciating your daily commentary and your review of the charts. You've several times mentioned that gold stocks are "cheap," and I don't disagree. Within the gold ecosystem, however, which do you think have the most promise, i.e., the biggest bargains?

Eoin Treacy's view -

Thank you for your kind words and this question which may be of interest to subscribers. The NYSE Arca Gold BUGS Index / gold ratio has been ranging below 0.2 since 2013. It is currently mid-range but the current reading is still below the nadir posted in 2000. Relative to the price of gold, miners are cheap.



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February 07 2022

Commentary by Eoin Treacy

Email of the day - on gold, governance, trading, and uncertainty

A bad back currently prevents me golfing, walking the dog, or driving the car and, in my opinion justifiably, I am feeling a grumpy.

So here are a few gripes for you:

First gold:
For several years you taught us that the gold price follows an approximate 35-year cycle between highs, although the gold price could outpace stock indexes for short periods in between those highs. We’ve not heard too much about the 35-year cycle for a while, the message now being that it is not unusual for gold to trade in a boring range for up to 18 months or so before breaking out conclusively up or down. You believe it will break to the upside taking out previous highs (which runs contrary to your 35-year cycle theory). I hold a fair chunk of gold and silver miners in ETFs but regard the holding as a hedge rather than representing a belief that gold will imminently break to the upside. It might and it would be nice if it did but I doubt it. As David said, investment options are similar to a beauty parade and for the foreseeable future, many options are likely to look superior to gold.

Second India v China:
You are very hard on China and its political system. Having lived most of my life in Asia I take a less severe view. Like most observers I was disappointed to see that XI, the reformer, had no intention of political reform but on reflection, I think he’s probably right to opt for political stability at a time when China is still struggling to bring modernity to all its people and regions; when lightening-speed technological change is taking place across the globe and when it finds itself in an inevitable struggle to assert what it regards as its rightful influence on global institutions and practices. On a smaller scale in Singapore Lee Kuan Yew did much the same thing and while there is now a little more political tolerance in Singapore than there was, the Government – and most of its people – believe that full-throated democracy would lead to economic and societal break-down. That would be Xi’s worst nightmare.

My grouse is not so much with your view on China but with your uncritical view of India. I agree with you that India should do well given its demographic advantage and talents of its people. However, I think the Modi government is quite repugnant in its covert – and not so covert – support of extremist Hindu nationalism represented by terrorisation of the Muslim and Christian communities, and by its appalling failure to do much about the abuse of women, also fuelled by Hindu extremists. In the medium term, I fear this, together with over-dependence on coal, will limit India’s investment appeal and therefore its economic potential.

To declare my investment positions, I have reduced my exposure to India and wait for an opportunity to reinvest in China. My favourite Asian market currently is Vietnam.

Third, the purpose of your ‘service’:
Under David’s direction, Fuller Money provided objective macro oversights together with some trading suggestions/recommendations and some investment suggestions/recommendations. He often put his money where his mouth was and invested in his recommendations. Towards the end of his career, he stopped publishing his investment portfolio which I regarded as a pity. Under your direction, Fuller-Treacy Money continues to provide objective (if sometimes convoluted and long-winded) macro oversights, but I find it difficult to work out whether beyond that you are offering trading hints or investment hints. I use the word ‘hints’ rather than ‘suggestions’ because in this aspect you are far more non-committal on specifics than was David. The details you provide of your own investment activities suggest that you are a trader with long(ish) term investments in gold bullion, gold miners and Rolls Royce. I made several profitable purchases based on David’s recommendations but so far have identified none under your watch.

Fourth Daily Audio and Video:
From emails you have referred to from other subscribers, I am confident that I am not alone in being irritated by several of your constant refrains. Three which particularly annoy me are ‘The big question is ….’ (to which we never get an answer); ‘[Gold (for example) has a lot of work to do’ (which is a nonsense, better to identify factors which might influence buying/selling decisions) and; ‘I can’t talk and chew gum at the same time’ (which sounds quite catchy heard for the first time, but grates increasingly after many repetitions).

So, getting that off my chest makes me feel slightly less out of sorts. I shall be renewing my subscription in March. It’s been part of my routine for too long.

Eoin Treacy's view -

Thank you for this detailed email, your long-term support and I hope you back feels better soon. If it is muscular, rather than a herniation, I strongly recommend Yunnan Baiyao. I’ve pulled muscles in my lower back on several occasions either playing tennis or lifting. If it is taken quickly after injury, it provides a powerful, quick solution with no side effects I have experienced. 

I began questioning the wisdom of relying on the Dow/Gold ratio during the early stages of the pandemic. Here is a link to Comment of the Day on April 24th 2020. It includes a large number of long-term ratios and concluded that the Dow Jones Industrials Average is no longer the best way to look at the long-term ratio, confirmed concentration of attention in the growth sector, predicted the recovery in oil prices, higher wages, and the return of inflation.



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February 04 2022

Commentary by Eoin Treacy

Secular Themes Review February 4th 2022

Eoin Treacy's view -

In 2020 I began a series of reviews of longer-term themes which will be updated going forward on the first Friday of every month. These reviews can be found via the search bar using the term “Secular Themes Review”.

The biggest trend in the world isn’t bitcoin or the FANGMAN stocks. It’s bonds. Yields peaked in 1980 and the cost of borrowing has done nothing but decline since.

That’s enabled the steady rise of leverage, debt accumulation, asset price appreciation, speculation in all manner of public and private assets and every other bull market too.

The exact mix of where the debts have accumulated most is different in each country. For the USA, fiscal excess and unfunded liabilities are the biggest debt issue. The large number of companies surviving with no profits is the second biggest debt issue.

In Australia, Canada and the UK, consumer debt ratios, household debt and property debt are the pain points. The Reserve Bank of Australia’s reluctance to raise rates, despite inflation, is a symptom of the economy’s reliance on property prices.

For China, the accumulation of debt in the property sector has been epic. The sector represents 30% of GDP. At least in Japan, the massive quantity of debt is held domestically but it is a significant hurdle to raising rates.



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February 03 2022

Commentary by Eoin Treacy

ECB Is Said to Prepare for Potential March Policy Recalibration

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

European Central Bank policy makers can envisage recalibrating their outlined policy path in March, according to officials familiar with their thinking.

The Governing Council agreed on Thursday that it’s sensible not to exclude the possibility of an interest-rate hike this year, said the people, who asked not to be identified because their discussions are private. 

An end of bond-buying under the ECB’s regular program, the APP, is possible as early as the third quarter, the officials said. No decisions have been taken. 

An ECB spokesman declined to comment. ECB President Christine Lagarde refused to repeat at her press conference that a rate increase was very unlikely this year, highlighting more persistent-than-expected inflation pressures in the 19-nation bloc. Investors brought forward bets on a liftoff while she spoke.

Eoin Treacy's view -

This graphic from the Nordea highlights the fact that European inflation is all about energy. Raising interest rates doesn’t do much more to curtail demand than high prices are doing already so the ECB is understandably reluctant to rush into action.



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February 03 2022

Commentary by Eoin Treacy

Looks Like There's a Whale Snapping Up Gold Bullion Below $1,800

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

That would suggest that whoever is buying is able to buy in scale, leave little footprint in the market and then take delivery and store the metal in secure, invisible vaults. And that points strongly toward a sovereign buyer.

Central banks normally declare to the IMF the amounts of metal they have on their books. But there are precedents where this has been done with some delay. Between 2009 and 2015, China reported no change in holdings, only to reveal that it had bought 53 million ounces of metal over the period.

Eoin Treacy's view -

Gold habitually ranges for long enough to try the patience of even the most ardent bulls. When it breaks out, it usually takes most traders by surprise. That’s the biggest lesson I’ve learned from trading the metal for nearly twenty years.



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February 02 2022

Commentary by Eoin Treacy

Euro-Zone Inflation Unexpectedly Hits Record, Pressuring ECB

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

Euro-area inflation unexpectedly accelerated to a record, overshooting expectations by the most in at least two decades and heaping pressure on the European Central Bank to pare back pandemic stimulus more quickly, like its counterparts in the U.S. and the U.K.

Consumer prices jumped 5.1% from a year ago in January, up from 5% in December. The median estimate in a Bloomberg poll of 44 economists saw a reading of only 4.4% and none predicted inflation gaining pace.

The euro climbed 0.3% against the dollar to $1.1305 while German bonds pared gains to leave the 10-year yield one basis point lower at 0.03%.

While slowing in Germany and France, the euro zone’s two biggest economies, the spike in energy costs pulled price growth higher across the 19-member currency bloc as a whole. It was more than a percentage point higher than analysts predicted in Italy, where it accelerated to 5.3%.

Stripping out energy and other volatile components like food, core inflation was 2.3%, down from last month’s 2.6% reading.

Eoin Treacy's view -

Energy prices are a multiple of where they were a year ago. That’s hitting everyone’s wallet. The issue is particularly worrisome in Europe where natural gas inventories are extremely low and consumption taxes are high. An even bigger crisis has been avoided only by virtue of winter weather being relatively warm of late.



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February 01 2022

Commentary by Eoin Treacy

Email of the day on Saudi Arabia

Your rather surprisingly positive reportage from Saudi Arabia awakened my interest in their stock market.  I found to my surprise that it is nearly perfectly correlated with a broad commodities index. This is not because it is just the oil price, as that takes up only a small part of the commodities index, and oil companies take up only a small part of the Saudi stock market.  The two markets I am comparing are IKSA and COMF, both in London.  Do you have any ideas about why this correlation is so tight?

It would be nice if you would revisit the market from time to time and give us your opinions on it.

Eoin Treacy's view -

Thank you for this email which highlights an important aspect of the Saudi market. The SASE Index is predominately weighted by banks. This being Saudi Arabia they are run on Islamic principles so loans are less leveraged relative to deposits than one might see elsewhere. Additionally, companies are not allowed to list until they have posted profits for three consecutive years.



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February 01 2022

Commentary by Eoin Treacy

Nickel Is Gripped by a Supply Squeeze That Keeps Getting Worse

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

The nickel market is showing more signs of stress. Stockpiles held by the London Metal Exchange extended their decline on Tuesday, with the last increase coming in October. Buyers are paying a massive premium for immediately deliverable futures.

The key cash three-month spread, which briefly eased on news of additional shipments from Tsingshan Holdings Group Co., notched new highs on Monday. Contracts for immediate delivery are trading at a $508-a-ton premium to those in three months, the highest such premium since a historic squeeze in 2007.

While the squeeze last month was focused on near-dated contracts, in recent days it has spread through the curve. That shows the market is now pricing in tighter nickel supplies for longer, amid strong demand from stainless steel producers and battery manufacturers.

Eoin Treacy's view -

Demand for batteries is likely to ramp higher over the coming years as more automotive manufacturers release new models. What kind of batteries will go into those cars is less discussed. Nickel is primarily used as a range extender. The downside is it is much more expensive and chemically volatile. Tesla is switching to lithium iron phosphate batteries for all its mid-range vehicles. That is going to cut into demand for nickel in the medium-term.



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January 31 2022

Commentary by Eoin Treacy

Brazil Analysts See Inflation Further Above Central Bank Target

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

Brazil analysts raised their 2022 inflation expectations further above target for the third week in a row as the central bank prepares to lift its interest rate into double digits at Wednesday’s policy meeting.
Inflation will hit 5.38% in December, above the prior estimate of 5.15%, according to a weekly central bank survey published on Monday. Analysts also lifted their 2023 year-end consumer price forecast to 3.50% from 3.40%. 

Policy makers led by Roberto Campos Neto are expected to deliver their third consecutive 150-basis point rate hike this week, lifting the benchmark Selic to 10.75%. Inflation slowed less than expected in mid-January, as factors including global supply-chain disruptions pressured prices of transportation and
durable goods. Analysts see borrowing costs at 11.75% in December. 

The central bank risks missing this year’s inflation target of 3.5%, which has a tolerance of plus or minus 1.5 percentage points.

Eoin Treacy's view -

Brazil has some of the highest short-term interest rates in the world and they are about to get even higher. Emerging markets do not have the luxury of time to wait and see what happens. They have much more recent history of inflationary problems and have tended to act much quicker to curtail growth opportunities to bring inflation under control. That’s exactly what Brazil is doing with its aggressive hikes.



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January 28 2022

Commentary by Eoin Treacy

Email of the day on the green revolution

Thanks for the great service pulling the noise out of market trends for us. We especially enjoy what my wife affectionately calls the “Big Picture Long-Winded” Friday recordings. Regarding the possible rotation into the renewable/green economy do you have any ideas on Industries/companies that could benefit from the build out? Or would the safer play be directly in the commodities needed for the grid, vehicles, batteries, and such? Hoping to get to another Chart Seminar before too long.

Eoin Treacy's view -

Thank you for your kind words. A former delegate at The Chart Seminar once described my sense of humour as “impish” and I can’t argue with that. Your better half’s turn of phrase certainly tickled me. The Friday broadcasts are often a delicate balance between trying to be pithy and attempting to cover the relevant arguments. I’m looking at a late May/early June date for a London seminar and I hope to see you there.

The question of the future of the zero carbon/green revolution/energy transition is a big one. On one hand we have high minded projections of a utopian future where the air is pristine and no economy is dependent on carbon emissions for growth. Promises of hundreds of trillions being spent to achieve that goal were a major feature of international conferences in 2021.



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January 27 2022

Commentary by Eoin Treacy

Value Stocks, U.S. Dollar Among Top Trades After Hawkish Fed

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

“The Fed’s latest update is net negative for risk assets, as it seems to show that the Fed has a lower strike put than we thought - in other words Powell would be comfortable to allow further market weakness and volatility without intervening,” said Altaf Kassam, EMEA head of investment strategy and research at State Street Global Advisors.

“Investors should continue to avoid developed markets government bonds as there is only downside there. We are rotating into defensive equities, long-dated U.S. Treasuries, commodities and VIX futures - Volatility will be here for a while.”

Eoin Treacy's view -

The Fed is talking about raising rates faster than any other developed market central bank. That represents a strong tailwind for the Dollar Index and it broke upwards to new recovery highs today. This has been a consistent rebound from the lower side of the range and nothing has yet happened to question potential for a run back towards the psychological 100 level.



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January 26 2022

Commentary by Eoin Treacy

The New Agri-Giant Invading the U.S. Heartland

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

Viterra is already the world’s largest wheat trader, thanks to its investments in major exporting regions including Canada, Australia, Argentina, and the former Soviet Union. If Gavilon in the U.S. is added to that impressive portfolio, it will be the kind of concentration — and power — that governments worry about. Indeed, Beijing may be even more concerned about the deal than Washington. China, which is spending billions of dollars to build its own state-owned agricultural trading house, is unlikely to welcome further consolidation in an industry it relies on to feed more than one billion people.

Regulatory concerns aside, the deal is a steal. Glencore, founded by the late U.S. fugitive Marc Rich in the 1970s, built its agribusiness through acquisitions. In 2012, it beat out ADM and purchased Canadian grain trader Viterra Inc. for 6.1 billion Canadian Dollars ($4.8 billion). Today, Glencore controls just under 50% of the enlarged Viterra business, with 49% owned by two Canadian pension funds and a residual percentage controlled by the staff.

Eoin Treacy's view -

Most investment banks closed their commodity trading desks during the 2011-2016 bear market. They sold their ships and warehouses too so getting back to dominant positions is not going to be easy or cheap. That handed control of market making to private trading houses which now control the market regardless of whether Glencore’s bit for Gavilon is successful.



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January 25 2022

Commentary by Eoin Treacy

These Investors Are Sticking With Gold Despite Easy Money Ending

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

The end of an easy-money era should normally spell bad news for gold. But right now, fund managers are keeping their holdings.

At a time when equities and Bitcoin -- often touted as digital gold -- are sinking as loose monetary policy draws to a close, bullion exchange-traded fund holdings are proving resilient. Despite expectations for multiple U.S. interest-rate hikes this year, bets for real rates to stay negative and demand for an inflation hedge are supporting the appeal of the time-honored haven.

Christoph Schmidt, who heads DWS Group’s 20 billion euros ($22.6 billion) Multi Asset Total Return team, is among those in no rush to sell and who has helped keep prices from falling.

“I would not expect our gold position to change in the foreseeable future,” said Frankfurt-based Schmidt, who has 8% of his funds in gold. “We don’t see a dramatic change in the interest-rate environment.”

Eoin Treacy's view -

Rumours of the death of easy money are at best exaggerated. It’s been my view for months that a succession of interest rate hikes is very unlikely. My base case is one and at most two before the end of the year. Anything else would cause havoc in the financial markets and the Fed is at pains to avoid that outcome because of the effect it would have on confidence in the economic recovery.



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January 21 2022

Commentary by Eoin Treacy

Bitcoin billionaire Mike Novogratz says plunging crypto will have a hard time rallying until stocks find a base

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

Billionaire investor Mike Novogratz has said cryptocurrencies will struggle to pull out of their sell-off if stocks keep falling, as he urged investors not to buy the dip.

Prices for bitcoin, ether and other digital currencies have fallen sharply across the board as they track Wall Street's rout in tech stocks, driven by pressure from rising bond yields.

"Crypto will have a hard time rallying until stocks find a base," Novogratz, CEO of investment company Galaxy Digital, tweeted late Thursday.

Novogratz pointed to the sharp fall in the Russell index, which is down almost 10% year to date, saying there are 1.2 trillion bad equity longs above the market.

"This is now a bear market," he said, adding: "Sell rallies.  Don't buy dips."

Eoin Treacy's view -

Doubts about whether bitcoin is a risk asset or a safe haven have been dispelled over night as bitcoin followed the stock market to new lows. That’s an important distinction because the primary comparison between bitcoin and gold over the last couple of years is they are both long-term stores of value. Recent action suggests that belief is wrong.



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January 20 2022

Commentary by Eoin Treacy

Logical inconsistencies

Eoin Treacy's view -

There are times in the market when a comparison between two assets classes serves to highlight a disparity that has become so wide that it inspires a sense of wonder, confusion and questioning

In December 2020 there was a news headline to the effect that Tesla’s market cap was greater than that of the next 9 largest car companies combined. There are two ways of thinking about that statistic. The first is enthusiasm for Tesla shares was running at fever pitch. The second was that the other auto companies were cheap by comparison.



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January 20 2022

Commentary by Eoin Treacy

China Stocks Rally With Tech, Property in Lead Amid Easing Bets

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

The Hang Seng Tech Index jumped 4.5%, with Meituan and Tencent Holdings among those leading gains. The gauge has started 2022 with an advance after losing about a third of its value last year amid Beijing’s clampdown on tech companies. 

The rally followed clarification from China’s internet regulator late Wednesday that it’s not asking to approve all investments or fundraising by big tech companies, denying an earlier media report.  

A Bloomberg Intelligence gauge of Chinese real estate developers advanced 3.6%, following reports that the government may ease access to some funds. The sector’s gains came even as Thursday’s cut in the five-year loan prime rate left some market watchers disappointed.    

Shares of Country Garden Services Holdings Co. and Sunac China Holdings Ltd. surged more than 10% each. The unwinding of some short positions also likely aided the rally in property stocks, traders said.  

Agile Group, Shimao Group and Guangzhou R&F have about 20% of their free-float shares sold short, among the highest in the MSCI Asia Pacific Index, according to data from IHS Markit. 

Eoin Treacy's view -

Chinese New Year is on February 1st and will be followed by a week-long holiday for mainland markets. At the same time the winter Olympics begins on the 4th which will focus the sporting media’s attention on Beijing. The central bank is making sure its messaging is clear ahead of the shutdown. That’s also aimed at instilling some confidence in investors that the squeeze on private property developers will be limited to that sector.



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January 19 2022

Commentary by Eoin Treacy

Barrick Gold Meets Output Guidance in 2021

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

Barrick Gold Corp. said Wednesday that it has met its production targets for 2021.

The Canadian mining giant said preliminary gold production for the full year was of 4.44 million troy ounces, within its target range of 4.4 million to 4.7 million.

Barrick said the Africa and Middle East, Latin America and Asia Pacific regions performed particularly well, at the upper end of their regional gold guidance ranges.

Preliminary copper production reached 415 million pounds for the year, toward the lower end of Barrick's target range of between 410 million and 460 million pounds.

In the fourth quarter, the company said it sold about 1.23 million ounces of gold and 113 million pounds of copper, with average market prices reaching $1,795 an ounce of gold and $4.40 a pound of copper.

Barrick is scheduled to release its fourth-quarter and full-year results on Feb. 16.

Eoin Treacy's view -

Investors are not expressing a great deal of faith in gold miners. Most related stocks have experienced significant corrections over the last year, despite the fact gold prices are only 11.5 % below the all-time peak. At current prices most miners are enjoying close to record margins and that is despite the relative strength of oil. It would appear to be only a matter of time before investors reassess the sector’s prospects.



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January 18 2022

Commentary by Eoin Treacy

Commodities Boom Sends Industry Titan Glencore to Decade High

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

Commodities giant Glencore Plc hit the highest in almost a decade, driven by rallies in everything from metals to coal and optimism for a years-long supercycle.

The world’s biggest commodity trader surpassed its 2018 intraday peak on Tuesday, valuing the Swiss company at about $74 billion. Like its mining rivals, Glencore has benefited from massive global stimulus measures that have stoked demand for raw materials, and has also been a big winner from an energy crunch that sent coal prices to a record high. 

A Bloomberg gauge of spot commodities has doubled since early in the pandemic -- reaching an all-time high in October -- as government measures to bolster economies underpinned demand while supply curbs further tightened metals markets. At the same time, a green revolution is boosting long-term prospects for metals including cobalt and nickel for products like batteries.

Glencore is expected to deliver record profits and a bumper dividend when it reports earnings in February. And as the boom draws more investors into commodities, many analysts forecast prices to remain high. Goldman Sachs Group Inc. said that a commodities supercycle has the potential to last for a decade.

Eoin Treacy's view -

The London Metals Index is testing the 2007 and 2011 highs. Those were bumper years for mining profits so this year is likely to be no different. The challenge for investors is those peaks also represented major climaxes ahead of a rapid tightening of monetary conditions and slowing global growth. The question is whether this time is different?



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January 17 2022

Commentary by Eoin Treacy

Email of the day on an expected copper supply surplus

Thanks for your insightful reports from the meeting in Saudi Arabia. Amazing to have taken part in presentations by so many important CEOs.

I was particularly interested in your story of the mining companies salivating at the thought of all the coming increased demand for copper.  Yet a number of reports I have seen recently predict that the copper price will actually fall in 2022.  For example:

https://www.indexbox.io/blog/copper-prices-to-slump-in-2022-on-rising-supply/
https://www.spglobal.com/platts/en/market-insights/latest-news/metals/120721-feature-copper-market-to-be-well-supplied-in-2022

How can I reconcile these views in your opinion?

Thanks for keeping the videos going despite time changes and jetlag. It is particularly impressive that you manage to keep the audio completely intelligible, even if one isn't watching the video at the same time.  That makes it possible to listen to it while for instance having breakfast, which is my habit.

Eoin Treacy's view -

Thank you for your kind email and this topical question. I’ve seen these same kinds of reports anticipating a surplus this year and next. Ultimately, it is going to be a question about how many of the policies committed to at COP26 and other forums will in fact be acted upon.



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January 17 2022

Commentary by Eoin Treacy

Selling Out

Thanks to a subscriber for this latest memo from Howard Marks which concentrates on selling. Here is a section:

Many people have remarked on the wonders of compounding. For example, Albert Einstein reportedly called compound interest “the eighth wonder of the world.” If $1 could be invested today at the historic compound return of 10.5% per year, it would grow to $147 in 50 years. One might argue that economic growth will be slower in the years ahead than it was in the past, or that bargain stocks were easier to find in previous periods than they are today. Nevertheless, even if it compounds at just 7%, $1 invested today will grow to over $29 in 50 years. Thus, someone entering adulthood today is practically guaranteed to be well fixed by the time they retire if they merely start investing promptly and avoid tampering with the process by trading.

I like the way Bill Miller, one of the great investors of our time, put it in his 3Q 2021 Market Letter:

In the post-war period the US stock market has gone up in around 70% of the years . . . Odds much less favorable than that have made casino owners very rich, yet most investors try to guess the 30% of the time stocks decline, or even worse spend time trying to surf, to no avail, the quarterly up and down waves in the market. Most of the returns in stocks are concentrated in sharp bursts beginning in periods of great pessimism or fear, as we saw most recently in the 2020 pandemic decline. We believe time, not timing, is the key to building wealth in the stock market. (October 18, 2021. Emphasis added)

What are the “sharp bursts” Miller talks about? On April 11, 2019, The Motley Fool cited data from JP Morgan Asset Management’s 2019 Retirement Guide showing that in the 20-year period between 1999 and 2018, the annual return on the S&P 500 was 5.6%, but your return would only have been 2.0% if you had sat out the 10 best days (or roughly 0.4% of the trading days), and you wouldn’t have made any money at all if you had missed the 20 best days. In the past, returns have often been similarly concentrated in a small number of days. Nevertheless, overactive investors continue to jump in and out of the market, incurring transactions costs and capital gains taxes and running the risk of missing those “sharp bursts.”

As mentioned earlier, investors often engage in selling because they believe a decline is imminent and they have the ability to avoid it. The truth, however, is that buying or holding – even at elevated prices – and experiencing a decline is in itself far from fatal. Usually, every market high is followed by a higher one and, after all, only the long-term return matters. Reducing market exposure through ill-conceived selling – and thus failing to participate fully in the markets’ positive long-term trend – is a cardinal sin in investing. That’s even more true of selling without reason things that have fallen, turning negative fluctuations into permanent losses and missing out on the miracle of long-term compounding.

Eoin Treacy's view -

The arguments against selling become progressively more compelling the longer prices move up and to the right. It would have been a mistake to sell everything in January 2020 when news of the coronavirus was breaking unless you were equally committed to buying it all back at the first sign of bottoming in March. That visceral experience has acted as a learning experience for many investors who will have resolved never to sell. That is most particularly evident in the crypto markets where faith in the bullish hypothesis has been rewarded time and again.



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January 13 2022

Commentary by Eoin Treacy

Ivanhoe Mines and geophysics

Eoin Treacy's view -

Robert Friedland delivered a speech at the Future Metals Forum today which caused something of a stir. The graphics detailing copper demand growth in an electrification and simple growth scenario were impressive and not least because his conclusion is the mining industry is in no position to deliver the quantity of supply required to reach anything approaching decarbonisation goals.



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January 11 2022

Commentary by Eoin Treacy

Gold and subscriptions

Eoin Treacy's view -

I lost a subscriber today. In our business losing a subscriber is not unusual. Every loss is mourned while gaining a subscriber is always celebrated. Hopefully the latter outweighs the former and, more often than not, it does. Above all we have always prized the dedication of the people who stick with us through thick and thin. For that I simply wish to say thank you.

We have an enormous wealth of experience within the Fuller Treacy Money Subscriber collective. If any of our seasoned investors would like to introduce some younger potential subscribers we would be happy to offer them free trials.

Most successful newsletters have calculated how long a subscriber remains a customer. Then they attempt to maximise revenue from that person by upselling into sequentially more expensive products; while they have the person’s attention. Ultimately, they seek to sell a lifetime subscription. We’ve never done that for better or worse. You get everything in one product: video, audio, commentary, my personal trading details for one price.

I had an email today from a soon to be former subscriber expressing frustration at the fact I do not provide enough analysis and provide too much commentary. He also expressed frustration at the sideways trend in gold. I said in yesterday’s copy that the renewed bull trend in gold will be confirmed by a move above $1850. Until then we are still in a range. I am positioned to benefit from a breakout, and based on my original entry points, my breakeven is $1800. Nothing I say or do will cause a breakout to occur sooner than the market is ready to support it.  



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January 11 2022

Commentary by Eoin Treacy

Nickel Hits Seven-Year High as Hunt for Battery Metals Heats Up

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

Nickel rallied to the highest in more than seven years as surging sales of electric vehicles leave carmakers racing to lock in supplies of the critical battery metal. 

Prices of the metal jumped as much as 3.4% to $21,500 a ton, the highest since May 2014, as Tesla Inc. moved to secure future supplies from Talon Metals Corp. That added fresh impetus to a rally built on surging sales of electric vehicles, which has also pushed other battery metals including lithium and cobalt sharply higher. 

In other major investments in the battery sector, chemicals maker LG Chem also said Tuesday it will spend 500 billion won ($420 million) by 2025 to build a battery materials plant, while BHP Group on Monday said it will pay $100 million to take a stake in an early-stage nickel project in Tanzania.  

While the race to secure future supplies is heating up, there are also growing signs of limited spot availability on the London Metal Exchange. Inventories tracked by the bourse fell for a 50th consecutive day on Tuesday, in the longest run of declines since 2000. 

“We have so many stories all pointing in the same direction,” Michael Widmer, head of metals research at Bank of America, said by phone from London. “People do realize that there is potentially a tightness in supply going on, and that is taking prices ultimately higher.”

Nickel prices traded 2.8% higher at 12 p.m. local time on the London Metal Exchange, reaching $21,375 a ton. Copper, aluminum and tin all gained.

 

Eoin Treacy's view -

Nickel contributes to battery energy density but also to combustibility. Tesla may be securing additional nickel supplies and BHP is investing in new production in Tanzania but Tesla is also now selling lithium/iron/phosphate batteries in the USA which are less energy dense but do not need nickel or cobalt.



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January 06 2022

Commentary by Eoin Treacy

The Fed Minutes That Shook the World

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

Why such angst? There’s a lot in the minutes, with much useful information for students of the economy and monetary policy. You can find the full version here. For those less interested in such studies, the passage of three sentences that accounted for more or less all of the market reaction read as follows:

it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate. Some participants judged that a less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures.

This commits the central bank to nothing, but the notion that there were hawks on the committee who thought that the Fed should reduce the size of its balance sheet (in other words, start to sell off its huge bond holdings in a move that, all else being equal, should raise yields) came as an unpleasant surprise. Those words are there for a reason. The Fed thought it a good idea to plant a reminder of hawkish intent just as markets were ramping up again after the New Year break, and it seems to have worked.

Eoin Treacy's view -

The Fed Minutes were the catalyst for the sell-off in bonds yesterday which contributed to the weakness in the growth sector. I suspect talk of being more aggressive in quantitative tightening than the 2018/19 period was the primary reason investors took fright.



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January 06 2022

Commentary by Eoin Treacy

Crackdown Deepens as Russian Troops Arrive

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

Kazakhstan’s top uranium miner, Kazatomprom, said supplies of the radioactive metal used for nuclear fuel haven’t been disrupted by the unrest and work at all company units has continued. Kazakhstan produces more than 40% of the world’s uranium; prices for the metal jumped.

“We are fulfilling all our obligations easily, there are no problems with uranium shipments and we will meet all delivery deadlines,” Kazatomprom Chief Commercial Officer Askar Batyrbayev said in a phone interview.

Russian Foreign Ministry Says Unrest ‘Inspired From Outside’ (1:51 p.m.)
The unrest in Kazakhstan is “an attempt inspired from outside to violently undermine the security and integrity of the state with the use of organized and trained armed units,” Russia’s Foreign Ministry said on Thursday in a statement.

The ministry didn’t offer further details on who was meant by outside forces. A senior Russian legislator, Konstantin Kosachyov, blamed terrorist groups from Afghanistan and the Middle East, without providing evidence.

Eoin Treacy's view -

The Arab Spring began as a series of popular protests in Tunisia, in response to the rising cost of bread. Eventually, the popular movement toppled Egypt’s government and created strife everywhere in the region. It appears likely Russia and its satellites have learned the lesson. Allowing protest movements’, a toehold can have a disastrous impact on the ability of a regime to retain control. China’s efforts to control all public discourse are also informed by the results of the Arab Spring.



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January 05 2022

Commentary by Eoin Treacy

Byron Wien and Joe Zidle Announce the Ten Surprises of 2022

Here is a link to this year’s 10 potential surprises from Blackstone. Here is a section:

6.The price of gold rallies by 20% to a new record high. Despite strong growth in the US, investors seek the perceived safety and inflation hedge of gold amidst rising prices and volatility. Gold reclaims its title as a haven for newly minted billionaires, even as cryptocurrencies continue to gain market share.

7.While the major oil-producing countries conclude that high oil prices are speeding up the implementation of alternative energy programs and allowing US shale producers to become profitable again, these countries can’t increase production enough to meet demand. The price of West Texas crude confounds forward curves and analyst forecasts when it rises above $100 per barrel.

Eoin Treacy's view -

One of the big lessons from The Chart Seminar is “ranges are explosions waiting to happen”. The longer a range persists for the lower expectations for future potential become. Even so the range stores up potential for a breakout like a spring under compression. A breakout unleashes waves of new buying and price continue to rise until a new balance is found with sellers.



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December 31 2021

Commentary by Eoin Treacy

Unloved and Uninteresting, Gold Heads for Worst Year Since 2015

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

One key factor has been a lack of interest from financial investors, who are crucial to driving gold’s rallies. Holdings in exchange-traded funds have dropped almost 9% through the year, while hedge funds trading Comex futures have kept their bullion bets muted.
 
While the prospect of monetary tightening hurt gold’s appeal, prices were supported by strong demand from Asian jewelry consumers and central bank buying.

The opposing drivers have left bullion hovering almost magnetically around the $1,800-an-ounce mark. While that’s a historically high price, it will be disappointing to those who enjoyed the surge to a record in 2020.

However, the equilibrium between dip buyers and sellers may not hold for long. More gains in the dollar could spell misery. On the other hand, signs of persistent, runaway inflation could finally provide the spark needed for a sustainable gold rally.
 
BlackRock Inc.’s Evy Hambro said earlier this month that gold could climb in 2022, driven by a combination of real interest rates, U.S. dollar performance and demand for haven assets. However, analysts at JPMorgan Chase & Co. see gold coming under more pressure as the global economic recovery continues, forecasting an average price of $1,520 an ounce in the fourth quarter.
 
On the last day of 2021, gold edged up 0.3% to $1,820 an ounce by 1:04 p.m. in London. Silver also gained, while platinum and palladium declined. The Bloomberg Dollar Spot Index weakened.

Eoin Treacy's view -

In a market accustomed to instant gratification, gold has been conspicuously quiet. 2021 delivered meme stocks with no earnings or prospects, yet they soared to unimaginable levels. We’ve also seen grainy jpegs achieve prices comparable to those of the great masters. It was also a year when the FANGMANT shares persisted in gaining market share which supported the dominance of Wall Street in currency adjusted terms.



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December 30 2021

Commentary by Eoin Treacy

China merges 3 rare earths miners to strengthen dominance of sector

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

The move is the latest step by Beijing to consolidate an industry often buffeted by wild price swings that cause headaches for end users. The merger will reduce competitive pressure in the industry by shrinking the number of Chinese rare earths producers from six to four.

The Chinese government has used the same strategy in other industries, including rail transport and shipping lines, to prevent rival groups from undercutting each other when bidding for lucrative overseas contracts.

“We can’t let market force determine how much rare earths should cost given their strategic importance,” said one person close to Ganzhou Rare Earth who asked not to be identified. “We need to keep prices stable so end users could control costs and move up the value chain.”

The Chinese government also wants to strengthen the industry as the US and other large importers of rare earths mined or refined in China seek to develop alternative supply sources, such as large mines in California and Australia.

Daan de Jonge of consultants CRU Group said the merger would see the pricing power of key rare earths, such as dysprosium and terbium, consolidated in the hands of one “super group”.
“Given that the majority of rare earths investment outside of China has centred on light rare earths, it is likely that prices and access for the historically volatile heavy rare earths will be de facto controlled by this group until new capacity can come online, which may take several years,” he said.

Eoin Treacy's view -

Moving up the value chain in manufacturing is a national priority for China. Almost every industry where the country wishes to play a leading role, whether renewable infrastructure, electronics or weapons requires rare earth metals. The result is China is consuming more of its supply of these refined products than ever before which necessarily means there is less to export.



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December 22 2021

Commentary by Eoin Treacy

Email of the day on the tin supply deficit

You have mentioned Afritin Mining as a tin miner to watch. Michael Rawlinson is new board member and believes it could become a billion $ company.

AfriTin NED - Michael Rawlinson Introduction - YouTube

Michael Rawlinson's CV in mining is impressive

Michael Rawlinson has over 25 years experience in mining finance as research analyst, corporate financier, investor and non executive Director. He as the Global Co-Head of Mining and Metals at Barclays investment bank between 2013 and 2017 having joined from the boutique investment bank, Liberum Capital, a business he helped found in 2007. Prior to that he was a Partner at Cazenove and MD at JP Morgan Cazenove.

He is currently Chairman of Balkan mining development company Adriatic Metals plc, a Senior Independent Non-Executive Director at precious metals producer Hochschild Mining and Independent Non-Executive Director at African mining services provider Capital Limited.

I am no expert but this looks like a large flag forming since April and we have now reached the apex of the triangle on the FM weekly chart.

Eoin Treacy's view -

Thank you for this information which may be of interest to the Collective. Indonesia is the primary producer of tin and they are considering a ban on exports of concentrate. The market was already in a chronic deficit and that announcement two weeks ago raised fears tin would be in even shorter supply. The inability of primary producers to increase output and the ongoing difficulties countries like Myanmar and Indonesia are having with COVID have contributed to the squeeze. 



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December 16 2021

Commentary by Eoin Treacy

Stocks Under Pressure as Megacap Tech Sells Off

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

A rout in some of the world’s biggest technology companies dragged down the broader equity market, outweighing gains in companies that stand to benefit the most from an economic rebound.

The S&P 500 fell after earlier climbing on bets that central banks can move toward tighter policies to fight inflation without derailing the economy. The Nasdaq 100 tumbled, led by losses in giants like Apple Inc. and Tesla Inc. Commodity, financial and industrial shares rose. European equities jumped as the region’s policy makers unveiled a gradual pullback of pandemic stimulus, while the pound gained as the Bank of England unexpectedly raised rates. Bitcoin slumped.

Central banks are weighing measures to fight price pressures while balancing risks to growth amid coronavirus challenges. European Central Bank President Christine Lagarde unveiled forecasts showing a strong economic rebound along with an outlook for faster inflation. The Federal Reserve said Wednesday it will accelerate the pace at which it tapers bond purchases, and projected rate hikes through 2024.

Eoin Treacy's view -

This is a very whippy environment for trading. No sooner do we see a rebound than most of its is given up. This is attributable to the divergence between central bank pronouncements about their expected rate hikes and what the market believes is possible. Short-dated bond yields contracted today to reflect the expectation that if the Fed were in fact to raise rates three times, there will be economic consequences.



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December 16 2021

Commentary by Eoin Treacy

Copper Jumps as Miner to Halt Output in Peru Amid Protests

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

It’s the second Peruvian mine to suspend production this week after Nexa Resources SA halted Cerro Lindo, although Prime Minister Mirtha Vasquez said Wednesday that police had dispersed protesters at that zinc operation. 

And

A prolonged shutdown at a mine that before the pandemic accounted for almost 2% of the world’s mined copper would further tighten global supplies that have been hit with shipping snarls and low warehouse inventories. Las Bambas has 60,770 tons of copper stranded on site. 

 

Eoin Treacy's view -

The global market remains tight and susceptible to supply disruptions. The sensitivity of the market has also been exacerbated by the surge in demand from transportation and energy infrastructure projects. In just the same way that autos are now competing with traditional demand for semiconductors, auto and wind turbine motors, recharging stations and sub-sea cables are competing with telecommunications, construction, and power line demand for copper.



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December 13 2021

Commentary by Eoin Treacy

European Gas, Power Surge to Record on Russia-Ukraine Tension

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

European gas and power prices closed at a record high as heightened tension between Russia and Ukraine threatened to further crimp supply, increasing the risk the energy crunch will persist into next winter.

The West is hardening its stance against Russia. New German Chancellor Olaf Scholz said he will “do everything” to prevent Russia from using the controversial Nord Stream 2 pipeline to cripple flows through Ukraine, while Belarus’s leader reiterated threats to halt supplies if the West presses on with sanctions in a dispute over migrants. 

The risks for Europe are mounting with gas stockpiles dropping to record lows for this time of the year and no end to the crisis in sight. Inventories are only 63% full, a level more typical for mid-January, which leaves little in reserve in case of colder weather in the coming months. If stocks fall too low, it’ll be harder to refill them in time for next winter.

Eoin Treacy's view -

The market has become accustomed to risks to the economy from an oil shock but Europe is currently going through a gas shock. The price is already multiples of where it peaked ahead of the credit crisis and closed at a new high today.



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December 10 2021

Commentary by Eoin Treacy

Global Shortage of Fertilizers Sends Demand for Dung Soaring

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

“The arable area still requires significant tonnage of synthetic fertilizer, but this is reduced by the use of manures,” Butler said. Since the animal waste from his farm is not enough, he has been buying biosolids from utility Thames Water, which produces over 750,000 meters squared of sludge each year for farmers across Britain’s southeast. 

However, Butler said that it’s increasingly difficult to source human excrement as “there is more demand than supply for biosolid materials.”

In the U.S., biosolids are regulated by the Environmental Protection Agency, and in Europe, biosolids have been in use since 1986 when it received regulatory approval from the European Union. 

While manure is an inexpensive alternative to pricey synthetic fertilizers, it is a “poor replacement for those accustomed to traditional fertilizer products,” said Alexis Maxwell, an analyst at Bloomberg’s Green Markets. For example, the fertilizer diammonium phosphate has six times the nitrogen and 15 times the phosphate as manure on a per ton basis.

Eoin Treacy's view -

The farmer a mile from my old home in Ireland had a contract with the sewage treatment plant to buy waste. It made for a very smelly couple of days when he was spreading it on his land. However, it also meant he was not spending on costlier imports. That kind of business model has a lot more competition today, because of the surge in European natural gas prices which continue to recover from the October correction.



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December 10 2021

Commentary by Eoin Treacy

Trafigura Co-Founder Moves From Oil to Lumber for Skyscrapers

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While the idea of mass timber has been kicking around for years, increasing pressure on developers to reduce their carbon footprint may finally help propel the market. The Economist Intelligence Unit estimates that demand for cross-laminated timber, one of the most widely used mass timber products, will grow more than 13% a year through the mid-2020s. By 2025, mass timber is expected to account for about $1.4 billion of the $14 trillion global construction industry.

Norway boasts the world’s tallest wood building at 18 stories, soon to be displaced by a 25-story mass-timber tower in Milwaukee next year. Vienna has built an entire district out of the stuff. In the U.S., the number of mass-timber buildings completed or under construction soared more than seven-fold in just three years to 576 at the end of September. Another 665 are in the design phase, according to data compiled by the Softwood Lumber Board.

Not everyone is sold on mass timber. There are concerns about its resistance to moisture and fire. And critics say its environmental benefits are overstated due to the carbon that’s released from the decay of branches and tree tops left in the forest after the wood is cut, and also through the burning of waste products like sawdust. That carbon footprint swells even more when considering wood’s shorter lifespan and greater vulnerability to natural disasters than concrete buildings, said Beverly Law, a carbon-cycle scientist and emeritus professor at Oregon State University.

“The reason you might see it catching on more is because it’s being marketed heavily by the timber industry in the U.S.,” Law said.

Eoin Treacy's view -

It strikes me as a modern form of sophistry that the carbon wells represented by standing trees are now considered inefficient at best and a liability at worst. It is very convenient that improving their carbon usefulness results in logging and using them as building materials. This same argument is used for supporting wood fired power plants and pellet heating systems. Little concern is given to the potential that trees will be cut down quicker than new ones grow if this new industry takes off.



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December 07 2021

Commentary by Eoin Treacy

Email of the day on Brazil and copper miners

In today's commentary you talked about Brazilian copper miners. Vale's chart seems to suggest a bottoming pattern. It is primarily an iron ore producer but it does have a copper interest. This may be a medium to long term level.

Eoin Treacy's view -

Thank you for this email. Unfortunately, Vale is a bit player in the copper sector. Its primary business is in the ferrous metal sector, so it is intimately related to China’s steel production. Vale is a major nickel producer following the acquisition of Inco more than a decade ago. That offers exposure to the battery metals sector but unfortunately nickel is the least supply constrained of the industrial metals.



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December 06 2021

Commentary by Eoin Treacy

Email of the day on lithium mining

a contact living in northern Portugal has informed me of the ecological disaster there being caused by Lithium mining. In the attached article we can read that thousands of protesters are marching in Serbia in opposition to Lithium mining there. https://www.theguardian.com/world/2021/dec/05/rio-tinto-lithium-mine-thousands-of-protesters-block-roads-across-serbia Regards A.

Eoin Treacy's view -

There is no getting around two important facts. Mining, all mining, is destructive. It is also absolutely necessary to further the goal of global economic development of every kind. There is a good reason that most mining takes place in sparsely populated areas and most particularly in emerging markets. No one wants a mine in their backyard.



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December 03 2021

Commentary by Eoin Treacy

Secular Themes Review December 3rd 2021

Eoin Treacy's view -

A year ago, I began a series of reviews of longer-term themes which will be updated going forward on the first Monday every month. The last was on October 1st. These reviews can be found via the search bar using the term “Secular Themes Review”.

One of the most basic truisms in the financial markets is it is easier to make money in a bull market. The bull market that began in late 2008 and early 2009 has been liquidity fuelled. That was not obvious to everyone a decade ago but now everyone gets the message. Money printing inflates asset prices. As long as central banks are printing, we will have bull markets and the most speculative assets will perform best.



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December 02 2021

Commentary by Eoin Treacy

Email of the day - on deflationary risks

In today’s Audio you stated that there was an increasing risk of deflation. This is unsurprising because the capitalist system rewards the production of cheaper and better goods, while the continuing industrialization of the under-developed countries maintains downward pressure on wages. Throw in the emergence of crypto currencies and one must ask if gold will ever regain its former status in the economic system. Your views would be appreciated.

Eoin Treacy's view -

Thank you for this question which is particularly topical as we look to the year ahead. This year has been notable for a significant uptick in inflationary pressures. The extraordinarily low base level of 2021 contributed enormously to the year over year change while the tsunami of liquidity ensured readings were above even the most ambitious forecasts. This has resulted in economic statistics hitting headlines for most of the year even though most of what has happened is a product of base effects and liquidity.



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December 02 2021

Commentary by Eoin Treacy

December Kicks Off Record Warmth in U.S. Great Plains

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

December began with record warm temperatures across the central U.S. and the promise of seasonally balmy weather for weeks ahead, holding down natural gas consumption when the world struggles with high fuel prices and inflation.

Denver reached 73 degrees Fahrenheit (22.8 degrees Celsius) on Wednesday, a record for the day, while new highs were also set in North Platte and Broken Bow in Nebraska, Bismark, North Dakota, and Rapid City, South Dakota, according to the National Weather Service. Overall, it looks like mild temperatures will dig in across the eastern two-thirds of the U.S. through at least Dec. 16.

December will likely be the third warmest going back to 1950 based on natural gas consumption, said Bradley Harvey, a meteorologist at commercial forecaster Maxar. Some of those mild trends may start to spill over into Europe and Asia as well.

“The European pattern should warm up in the middle third of the month,” Harvey said.

Atmospheric and Environmental Research updated its winter forecast earlier this week, calling for more mild conditions across the U.S. The outlook for warmer weather has killed bullish expectations that sent natural gas prices surging to the highest level in seven years in October. Traders were betting that inventories were too low to withstand a harsh winter. But warmer conditions have eroded heating demand, allowing producers to refill stockpiles to near normal levels.

Eoin Treacy's view -

I was playing tennis last night in shorts and t-shirt. It felt more like an early summer evening in Dallas than early December. That balmy weather extends across much of the USA and has contributed to natural gas prices fully unwinding the short-term overbought condition relative to the trend mean.



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December 01 2021

Commentary by Eoin Treacy

Lira Respite Will Come Down to How Far the Central Bank Can Go

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Turkey’s direct intervention in its currency markets on Wednesday, the first in seven years, shows policy makers are intent on drawing a line in the sand on how far they are willing to tolerate weakness in the lira.

However, how long policy makers are able to buy the currency some respite will essentially come down to the size of the war chest and how willing the central bank is to run down those assets. The Turkish central bank’s gross reserves add up to $128.5 billion, with $60.5 billion coming from the bank’s swap deals, according to latest data released on Nov. 19. When swaps and other liabilities such as required reserves are stripped, Turkey’s net reserves stand at -$35 billion. The bank has repeatedly said that its gross reserves -- the total amount at its disposal at the time -- are more important than net reserves.

The central bank’s intervention this morning is significant if only for the signaling it sends. During a previous episode of similar stress in the lira back in 2018, there was no reported intervention. In other words, the policy makers may be telling the markets that their strategy to ward off any speculation on the currency will take a different tack this time. In 2018, the central bank took the benchmark rate to 24% from 8% in a short span to arrest the decline in the lira.

Last week the lira tumbled more than 11% against the dollar in a single day, representing a 10-standard deviation shock based on its moves in the past five years. The currency has weakened after the central bank slashed its benchmark by 400 basis points since the end of August. The monetary authority meets next on Dec. 16.

Eoin Treacy's view -

Erdogan seems to remain of the opinion that the answer to high inflation is low interest rates. At the same time, he has said that the central bank’s intervention in the market, to trim the currency’s decline, is lawful. Without the ability to raise rates, the central bank has even fewer resources. Eventually it will run out of money.



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December 01 2021

Commentary by Eoin Treacy

Lumber Firm Sees Shipments Plunge on Canada Floods

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British Columbia on Monday extended a state of emergency and fuel rationing until mid-December as it braces for more heavy rain. Parts of the province are still struggling with damage from floods and landslides that closed highways and railways two weeks ago, sharply reducing the flow of goods like grain and lumber to Canada’s biggest port in Vancouver.

Rainfall warnings are in effect for Vancouver, with Environment Canada forecasting a prolonged period of heavy rain through Wednesday. Total rainfall of 60 millimeters (2.4 inches) is expected over the region, and rising freezing levels and snow melt may contribute to increased runoff.

Eoin Treacy's view -

Lumber supply was a major issue in the early part of the year and prices spiked to previously unimaginable levels. That cut into demand with many projects delayed while simultaneously encouraging additional supply into the market. It was a perfect example of the commodity market adage “the cure for high prices is high prices”.



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November 29 2021

Commentary by Eoin Treacy

Australia Sees Record Wheat Harvest But Warns Rains Hurt Quality

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Early spring rainfall had helped yields across eastern states, while cropping regions in South Australia and Western Australia were boosted by rain and mild temperatures in October. The damage and losses from torrential rains in November are likely to be worst in New South Wales. 

Receivals of grain are already showing signs of reduced quality, though canola crops are indicating good oil content, the forecaster said. There is a risk that more heavy rains in December could spur further downgrades and the potential for more crop losses. The national winter crop is expected to reach a record 58.4 million tons, an increase of 6.6% from the September forecast.

Eoin Treacy's view -

Low quality wheat ends up as animal feed. Higher quality grains end up as bread and other products for human consumption. Even though the Euronext feed wheat and Chicago wheat futures have different delivery qualifications, they tend to share a great deal of commonality.



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November 25 2021

Commentary by Eoin Treacy

Australia Firms Ramp Up Spending Plans Signaling Strong Recovery

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The result is likely to boost the Reserve Bank of Australia’s confidence in the economy’s prospects as the board prepares to review the A$4 billion weekly pace of its bond-buying program in February. Su-Lin Ong at Royal Bank of Canada put the odds of quantitative easing ending at that meeting at 30%.

The capex data is “likely to see markets continue to price in multiple hikes over the year ahead,” said Ong, head of Australian economic and fixed-income strategy at RBC. Money markets are wagering the RBA will start its policy tightening cycle with a 15 basis point hike to 0.25% by May 2022.

Today’s report showed the Covid lockdowns weighed on outlays, with total capital expenditure slipping 2.2% in the three months through September from the prior quarter. Spending on equipment, plant and machinery fell 4.1%, suggesting it will detract from economic growth in the period. 

Eoin Treacy's view -

Australian firms are looking around the world and see massive monetary and fiscal stimulus. Much of that spending will be focused on infrastructure and they are in line to benefit from outsized demand for resources. This is the time to invest in new supply before everyone else does.



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