Investment Themes - Precious Metals / Commodities

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

Search Results

Found 1000 results in Precious Metals / Commodities
July 22 2021

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
July 21 2021

Commentary by Eoin Treacy

Enel installs 6.1 MWh vanadium redox flow battery in Spain

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
July 16 2021

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
July 16 2021

Commentary by Eoin Treacy

Email of the day on tin

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

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

Eoin Treacy's view -

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

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

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

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

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

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



This section continues in the Subscriber's Area. Back to top
July 15 2021

Commentary by Eoin Treacy

On Target July 15th 2021

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
July 14 2021

Commentary by Eoin Treacy

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

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

 

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
July 06 2021

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
July 02 2021

Commentary by Eoin Treacy

Secular Themes Review July 2nd 2021

Eoin Treacy's view -

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

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

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

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

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



This section continues in the Subscriber's Area. Back to top
June 30 2021

Commentary by Eoin Treacy

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

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

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 25 2021

Commentary by Eoin Treacy

The Gold Digger

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

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

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

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

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

Eoin Treacy's view -

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

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



This section continues in the Subscriber's Area. Back to top
June 24 2021

Commentary by Eoin Treacy

Copper/Gold ratio

Eoin Treacy's view -

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

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



This section continues in the Subscriber's Area. Back to top
June 24 2021

Commentary by Eoin Treacy

Tilting The Odds In Your Favour

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 23 2021

Commentary by Eoin Treacy

The monumental challenge of trying to hit climate targets

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

Eoin Treacy's view -

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

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



This section continues in the Subscriber's Area. Back to top
June 23 2021

Commentary by Eoin Treacy

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

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

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

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

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

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

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

 

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 21 2021

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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

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



This section continues in the Subscriber's Area. Back to top
June 18 2021

Commentary by Eoin Treacy

As good as it gets, for now

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

Eoin Treacy's view -

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

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

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



This section continues in the Subscriber's Area. Back to top
June 17 2021

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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

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



This section continues in the Subscriber's Area. Back to top
June 16 2021

Commentary by Eoin Treacy

Top Oil Traders Say Emissions Market Could Challenge Crude

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 15 2021

Commentary by Eoin Treacy

Copper's Supercharged Rally Creaks on Signs of Softer Demand

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

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

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

 

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 14 2021

Commentary by Eoin Treacy

The Impact of the NSFR on the Precious Metals Market

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

An 85% RSF charge would:

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 09 2021

Commentary by Eoin Treacy

Inflation: The defining macro story of this decade

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

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

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

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

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

Eoin Treacy's view -

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

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



This section continues in the Subscriber's Area. Back to top
June 09 2021

Commentary by Eoin Treacy

Nornickel Resumes Ore Mining at Taimyrsky Mine

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 08 2021

Commentary by Eoin Treacy

Where to Frack Next: La La Land

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 07 2021

Commentary by Eoin Treacy

Peru Riven in Two With Presidential Election Too Close to Call

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

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

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 04 2021

Commentary by Eoin Treacy

Secular Themes Review June 4th 2021

Eoin Treacy's view -

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

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

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

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

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



This section continues in the Subscriber's Area. Back to top
June 03 2021

Commentary by Eoin Treacy

Global Food Prices Surge to Near Decade High, UN Says

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 02 2021

Commentary by Eoin Treacy

Australia's Economy Powers On, Recouping Pandemic Losses

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
June 01 2021

Commentary by Eoin Treacy

In Gold We Trust Q2 2021

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

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

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

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

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

Eoin Treacy's view -

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

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

 



This section continues in the Subscriber's Area. Back to top
June 01 2021

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

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

 

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 28 2021

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 26 2021

Commentary by Eoin Treacy

Email of the day - on platinum

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 26 2021

Commentary by Eoin Treacy

Email of the day on emissions trading

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

Eoin Treacy's view -

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

Here is a section from a relevant article:

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

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

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

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

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



This section continues in the Subscriber's Area. Back to top
May 26 2021

Commentary by Eoin Treacy

EU May Sanction Belarus's Potash Industry by This Summer

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 24 2021

Commentary by Eoin Treacy

Cars Are About to Get a Lot More Expensive

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 21 2021

Commentary by Eoin Treacy

Canadian Dollar is pick of commodity currencies

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 21 2021

Commentary by Eoin Treacy

South African Central Bank Maintains That Next Rates Move Is Up

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 19 2021

Commentary by Eoin Treacy

Bitcoin Plunge Wipes $500 Billion From Value in Crypto Rout

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 18 2021

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 18 2021

Commentary by Eoin Treacy

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

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

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 18 2021

Commentary by Eoin Treacy

SGD Gains as Stock Rally Outweighs Virus Fear

This note from Bloomberg may be of interest to subscribers.

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 17 2021

Commentary by Eoin Treacy

Gold Miners Rise With Prices on Weaker Dollar, Inflation Worry

This note from Bloomberg may be of interest to subscribers.

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 14 2021

Commentary by Eoin Treacy

McDonald's, Amazon Accelerate Push Toward Higher Minimum Wage

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 13 2021

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 13 2021

Commentary by Eoin Treacy

Email of the day - on China's growth potential

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 13 2021

Commentary by Eoin Treacy

Over 700 Barges Stuck in Mississippi River From Bridge Crack

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 12 2021

Commentary by Eoin Treacy

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

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

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 11 2021

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 10 2021

Commentary by Eoin Treacy

Email of the day on shipping investment vehicles:

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

Eoin Treacy's view -

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

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

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

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



This section continues in the Subscriber's Area. Back to top
May 07 2021

Commentary by Eoin Treacy

Secular Themes Review May 7th 2021

Eoin Treacy's view -

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

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

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



This section continues in the Subscriber's Area. Back to top
May 06 2021

Commentary by Eoin Treacy

Americas May Lead World's Silver Mined-Supply Recovery

This note from Bloomberg may be of interest to subscribers.

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 05 2021

Commentary by Eoin Treacy

Gold CEO Blasts 'Hysterical' Fund Managers Chasing Quick Cash

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
May 05 2021

Commentary by Eoin Treacy

Colombia Coffee Exports Halted by Protests, Federation Says

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

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

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

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
April 30 2021

Commentary by Eoin Treacy

Copper Boom Is Just Beginning for the CEO of Biggest Gold Miner

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

Copper may be flirting with record highs but the metal is far from peaking as the energy transition revs up, according to Newmont Corp. Chief Executive Officer Tom Palmer.

Futures hit $10,000 a metric ton on Thursday for the first time since 2011 as mines struggle to keep up with surging demand. Newmont, the world’s largest gold producer, is increasing exposure to copper through several “mega projects,” Palmer said on an earnings call. Even if just one materializes, copper will account for 15-20% of the company’s total output by the end of the decade, he said.

“I’m pretty excited about having good exposure to copper at that time when the world is going through the energy transition,” Palmer said on an interview with Bloomberg TV following the earnings call. “Copper’s got a pretty good story in front of it. I think its day in the sun is more towards the end of this decade.”

The copper push doesn’t mean Palmer has a downbeat view on gold. He sees bullion prices holding their current “very healthy levels” or even moving higher given fiscal and monetary stimulus. India should remain one of the key sources of demand after the country recovers from the Covid-19 tragedy, Palmer said.

Eoin Treacy's view -

Mining executives have been slow to invest in new supply because they are still scarred from the negative experience of the last bear market. Green field mining is expensive and uncertain and they now wish to preserve their balance sheets and strong cash positions. Investors are certainly not complaining at the rising dividends either. There is a growing belief among gold mining CEOs that copper/gold deposits are the most attractive for new investment. That might also be considered a hangover from the mining bust because it hedges exposure to the gold price and diversifies income streams.  



This section continues in the Subscriber's Area. Back to top
April 30 2021

Commentary by Eoin Treacy

Biden = Roosevelt: The Analogue

This side by side comparison by Ray Dalio may be of interest to subscribers. Here is a section on corporations:

Roosevelt, 1935: “We have established the principle of graduated taxation in respect to personal incomes, gifts, and estates. We should apply the same principle to corporations. Today the smallest corporation pays the same rate on its net profits as the corporation which is a thousand times its size.”

Biden, April 2021 Speech to Joint Session of Congress: “Recent studies show that 55 of the nation’s biggest corporations paid zero in federal income tax last year. No federal taxes on more than $40 billion in profits. A lot of companies also evade taxes through tax havens from Switzerland to Bermuda to the Cayman Islands. And they benefit from tax loopholes and deductions that allow for offshoring jobs and shifting profits overseas. That’s not right. We’re going to reform corporate taxes so they pay their fair share and help pay for the public investments their businesses will benefit from.”

Treasury Report on Biden Tax Plan, 2021: “The President’s Made in America tax plan is guided by [six principles, including] requiring all corporations to pay their fair share. To ensure that large, profitable companies pay a baseline amount of taxes, the President’s plan would impose a minimum tax on firms with large discrepancies between income reported to shareholders and that reported to the IRS. It would also provide the IRS with resources to pursue large corporations who do not meet their tax obligations, reversing a trend toward fewer corporate audits.”

Eoin Treacy's view -

When there are thousands of people on the street and parliament buildings are under siege, politicians tend to wake up to the public mood. The harrowing experience, many elderly politicians experienced in the USA during the Capitol riot, is likely to inform their decision making going forward. That’s true regardless of whether they are aware of it or not. Giving the people what they want, which is more money, is going to be high on the list of priorities.



This section continues in the Subscriber's Area. Back to top
April 27 2021

Commentary by Eoin Treacy

OPEC+ Confirms Plan to Gently Hike Supply as Demand Recovers

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

The global oil market “is on the one hand positive, we see a recovery of demand and higher global GDP estimates,” Russia’s Deputy Prime Minister Alexander Novak told Rossiya 24 television after the OPEC+ committee’s conference call. Nevertheless, the group must keep monitoring the coronavirus situation across many regions, including Asia, he added.

“We see that some countries record higher coronavirus numbers, like in India and Latin America, which raises some concerns about further growth of demand,” Novak said.

Crude futures held gains after the OPEC+ gathering, trading 0.4% higher at almost $66 a barrel in London.

Strong Demand

It was the OPEC+ Joint Ministerial Monitoring Committee that initially recommended sticking to their planned output increase. Ministers from the panel then asked other OPEC+ members to cancel the full meeting scheduled for Wednesday, and instead they drafted Tuesday’s statement by exchanging diplomatic messages.

Eoin Treacy's view -

There is no shortage of oil and there is no mystery about where to find more if it is needed. The drop off in domestic US drilling and the combined efforts of OPEC+ to curtail supply have shaved at least 7 million barrels a day from the market. That has been instrumental in the rebound for oil prices.



This section continues in the Subscriber's Area. Back to top
April 27 2021

Commentary by Eoin Treacy

'Like science fiction,' Seattle startup sends laser-equipped robots to zap weeds on farmland

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

Over the next decade, the Western Growers Association aims to automate half of the harvest of specialty crops, which include fruits, vegetables and nuts. A Florida company has been developing a strawberry-picking robot. At Washington State University Tri-Cities, scientists are working on an apple-picking robot — an idea some farmworker advocates met with skepticism. 

Edgar Franks, political director at the union Familias Unidas por La Justicia, based in Burlington, Washington, said that, generally speaking, the rise of automation is concerning. Farm work is grueling “because of the exploitation of labor,” he said.

“From our point of view, it’s all about labor control and cutting labor costs down…What’s going to happen to the workers who made the industry so profitable, all of a sudden to be kicked out?” Franks said.

Myers said it has become more difficult to hire people for work like weeding. This year, 80% of the migrant workers he planned to hire on temporary H-2A visas are delayed at the U.S.-Mexico border, he said.

“It’s harder to find people to do that work every single year,” he said. 

Mikesell declined to provide an exact cost of the robot, but said its price is in the hundreds of thousands of dollars, comparable to the cost of some tractors. 

The weeding robot, manufactured in Mukilteo, uses GPS technology to stay within a geofence at the edge of the field. Cameras underneath the robot scan the ground and artificial intelligence identifies the weeds among the crops. 

Then a carbon dioxide laser (the same kind used to cut metal) “targets the weeds for destruction,” in the words of the company’s website. The company says the machine can weed 15-20 acres per day. 

Developing the machine meant troubleshooting to ensure that the lasers and robot could withstand hot and freezing temperatures, plus rain, dust and lightning – to match the “general ruggedness of farm equipment,” Mikesell said.

Eoin Treacy's view -

Unskilled heavy labour is often performed by uneducated migrant workers. The necessity of this work has been a cornerstone of immigration policy in many parts of the world for a long time. If there is no longer a need for large numbers of people to tend crops the route to entry to many countries is likely to become tighter over time.



This section continues in the Subscriber's Area. Back to top
April 26 2021

Commentary by Eoin Treacy

Container Shipping Insights The 'mega' trend to continue

Here is a section from a JPMorgan report focusing on shipping costs.

Global liners are stepping up de-carbonization efforts and experimenting with alternative fuels
To achieve the industry target, many global liners such as A.P. Moller Maersk (viewed an industry bellwether) are stepping up de-carbonization efforts, recently unveiled plans to fast-track its de-carbonization efforts, with a target to put the world’s first vessel powered by carbon-neutral fuel into operation in 2023, seven years ahead of its original schedule. Specifically, Maersk will install its smaller feeder vessels (capacity of around 2,000 TEUs) with dual fuel technology, power them using alternative fuels including methanol (produced from plant waste) while retaining the option to use VLSFO if necessary. Maersk is also currently experimenting with other alternative fuels including ammonia. Looking ahead, Maersk targets to operate more methanol-fueled vessels in the future and expects methanol and ammonia to emerge as more viable future fuel options.

Adoption of new technology and alternative fuels will take time to achieve commercial feasibility. There are inherent limitations towards adopting alternative fuels. Referencing remarks made by Mr. Morten Bo Christiansen (Maersk head of de-carbonization), methanol has the potential to reduce CO2 emissions by up to 15% vs conventional marine fuels while enjoying other advantages including having well-established infrastructure and manageable vessel retrofitting cost. Having said that, methanol has inherent limitations including low energy density and certain safety-related challenges. With respect to ammonia, Maersk expects ammonia to be an ideal replacement from a net zero carbon perspective, but overall technology capability remains at a nascent stage and no vessels today are equipped to utilize this fuel type. Maersk also takes a contrarian view compared to its peers and does not view Liquefied Natural Gas (LNG) as a viable alternative, given its upstream and onboard emissions.

Eoin Treacy's view -

The IMO 2020 regulations on emissions for the global shipping sector took more than a decade to agree and finally to implement. That was emblematic of an era when there was some commitment to reducing emissions but no real sense of urgency and where industry lobby groups were given priority. Today, the situation could not be more different. Shipping companies see the future of regulation and taxation and expect to be able to pass on green premiums to customers. That will put an additional cost on everything and represents an even bigger tax on global activity than an oil price spike because it is permanent in nature.



This section continues in the Subscriber's Area. Back to top
April 23 2021

Commentary by Eoin Treacy

Longer-Run Economic Consequences of Pandemics

This report from the San Francisco Fed may be of interest to subscribers. Here is the conclusion:

Summing up our findings, the great historical pandemics of the last millennium have typically been associated with subsequent low returns to assets, as far as the limited data allow us to conclude. These responses are huge. Smaller responses are found in real wages, but still statistically significant, and consistent with the baseline neoclassical model.

Measured by deviations in a benchmark economic statistic, the real natural rate of interest, these responses indicate that pandemics are followed by sustained periods—over multiple decades—with depressed investment opportunities, possibly due to excess capital per unit of surviving labor, and/or heightened desires to save, possibly due to an increase in precautionary saving or a rebuilding of depleted wealth. Either way, if the trends play out similarly in the wake of COVID-19 then the global economic trajectory will be very different than was expected only a few months ago.

Should we expect declines of 1.5%–2% in the real natural rate, however? There may be at least three factors that could possibly attenuate the decline of the natural rate predicted by our analysis, but their presence and magnitude is uncertain and unknowable until therapies to fight COVID-19 are more developed. First, the death toll of COVID-19 relative to the total population might be smaller than in the worst pandemics of the past, but we cannot know for sure at this point. Second, COVID-19 primarily affects the elderly, who are no longer in the labor force and tend to save relatively more than the young, so the demographic channels could be altered, although the recent pick up in infections is now affecting younger individuals. Third, aggressive counter-pandemic fiscal expansion will boost public debt further, reducing the national savings rate and this might put upward pressure on the natural rate, even though our analysis suggests that this expansion of public debt should be easier to sustain in the long-run.

Eoin Treacy's view -

This report has obviously helped to inform the view of the Fed in how they expect the path of interest rates to play out. They are worried that the rebound from the pandemic will not translate into a sustained path of outsized growth because of the damage done to the economy and animal spirits will take time to overcome.



This section continues in the Subscriber's Area. Back to top
April 23 2021

Commentary by Eoin Treacy

A Chipmaker's Advice to the Auto Industry

This interview with the head of automotive at Global Foundries (ahead of the company’s IPO) may be of interest to subscribers.

Fixing The Chip Crisis
It’s been almost five months since the global chip shortage surfaced as a serious problem for the auto industry. Some experts say it could take a year before automakers emerge from this expensive supply-chain hell.

The consequences will last much longer as the pandemic forces car companies to rethink how they manage their supply chains. Lead times for automotive chips already were lengthening before Covid-19 lockdowns, as the auto industry became a bigger semiconductor customer than ever before. That's because systems that alert drivers when they drift out of a lane and better harness an EV battery require more data processing than yesterday’s power windows and car radios.

I recently spoke with Mike Hogan, the head of automotive at Global Foundries, a chipmaker that has plants in the U.S., Europe, and Asia. Since autos consume just 10% of global chip production, car companies usually buy consumer electronics chips off the shelf. Hogan says that with electrification and autonomy transforming vehicles, automakers have to look more deeply into their supplier networks.

Here are excerpts from our discussion, edited for length and clarity:
Where are we now, is this going to get worse? When will the shortage ease?
The first wave of help [for automakers] is probably a third-quarter thing.

It’s very hard to tell if there’s a shortage hiding behind a worse shortage. Because auto is so diverse, there are so many different kinds of semiconductors that go in there — if the auto guys don’t know what they need, how do they know they don’t need something else that they don’t see yet? That’s the real concern.

So I think it could be very lumpy trying to get out of this. Is that unique to the auto guys — versus someone who makes a smartphone or an iPad?

The folks who make smartphones, they don’t outsource the design to a bunch of people. They tightly control everything that goes in that smartphone. Even to the point where they say, ‘Look, Global Foundries, I want to make sure it’s there, so I’ll prepay for it, I will reserve the capacity. If I don’t take it on the day, you thought I was showing up, it doesn’t go anywhere because we’ve already pre-paid.’
People often talk about how making cars is such a low-margin business, it has to be done this way.

Do you think that’s true?
If you can’t build a $50,000 car and ship it and put all those people to work because you don’t have $15 worth of semiconductors...I think it’s time to shift that and say, ‘No, we’re the auto market, we have very unique needs, we need an architectural approach to building our cars, we don’t need to
buy retail off-the-shelf stuff.’ Then you have the real conversation ahead of time, versus, ‘Hey you don’t know me but I’m out of chips and it’s your fault buddy.’

Is that starting to happen?
There are a lot of good, smart people in auto that have seen this. This is the moment that gives that cohort within those companies the voice to say, ‘This is exactly why we needed to think different.’ I think you’ll see more of this direct relationship between autos and semiconductors.

Can chip factories in the U.S. compete with lower-cost producers in Asia?
We built a factory from the ground up in upstate New York. It cost billions, but there’s over 3,000 people working there. Are those 3,000 people getting paid a little more than the 3,000 people in Korea? Yeah, probably. But if you build enough wafers, it’s still very competitive. Part of this might be tilting some advantage for folks to use the domestic supply that we create, but that’s how it is everywhere in the world.

Eoin Treacy's view -

The global automotive sector is totally reliant on just in time sourcing of materials and components. They don’t hold inventory and are used to squeezing suppliers so they don’t have to. As they stray into the world of technology where there is competition for supply, they will have no choice but to compete. That means investing in additional supply and paying upfront.



This section continues in the Subscriber's Area. Back to top
April 22 2021

Commentary by Eoin Treacy

China Blasts Australia's Decision to Cancel Belt and Road Deal

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

The Australian federal government scrapped both the memorandum of understanding and framework agreement signed between Victoria and China’s National Development and Reform Commission, Beijing’s top economic planning body, Foreign Minister Marise Payne said in an emailed statement Wednesday. She described the deals as “inconsistent with Australia’s foreign policy or adverse to our foreign relations.”

The step “is another unreasonable and provocative move taken by the Australian side against China,” the Chinese embassy in Canberra said in an emailed statement. “It further shows that the Australian government has no sincerity in improving China-Australia relations -- it is bound to bring further damage to bilateral relations, and will only end up hurting itself.”

Australia “basically fired the first major shot against China in trade and investment” conflicts, Chen Hong, director of the Australian Studies Center at East China Normal University in Shanghai, told the Communist Party-backed Global Times. “China will surely respond accordingly.”

China has lodged stern representations with Australia over the issue and reserved the right to take more action, Foreign Ministry spokesman Wang Wenbin said at a regular press briefing Thursday in Beijing.

Eoin Treacy's view -

China may successfully be able to cow smaller countries into submission by following a carrot and stick approach to infrastructure and trade development. Australia is a different story.



This section continues in the Subscriber's Area. Back to top
April 22 2021

Commentary by Eoin Treacy

Corn, Soybeans, Wheat Surge on Chinese Demand, Weather Woes

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

Corn jumped by the exchange limit and soybeans topped $15 a bushel for the first time since 2014 as China’s rampant demand and adverse weather around the world threaten to further tighten supply.

Brazil’s second-corn crop is suffering from drought, and U.S. planting has been slowed by a record cold snap that may also have damaged some winter wheat. Meanwhile, western Europe lacks moisture for early growth of the grain, helping push up wheat futures and adding to worries about global food-price inflation as consumers still contend with the coronavirus pandemic.

The weather concerns in major growers come amid signs of continued strong demand, particularly in China, which the U.S. Department of Agriculture expectsto import a record 28 million metric tons of corn. The country is already scooping up the next U.S. crop. Soybean oil futures jumped by the most allowed, amid growing demand for renewable diesel.

“It’s an incredible rally. It is primarily the weather and demand and low stocks that are really driving this thing, and the realization that Brazil could have a poor second corn crop,” said Jack Scoville, a vice president for Price Futures Group in Chicago. “There’s just nothing going on that says sell the market.”

Eoin Treacy's view -

The supply disruptions resulting from the pandemic continue to represent challenges for the global supply chain. That’s particularly true for the agriculture sector where weather is having an outsized influence after years of low prices and less investment in additional new supply.



This section continues in the Subscriber's Area. Back to top
April 20 2021

Commentary by Eoin Treacy

April 20 2021

Commentary by Eoin Treacy

Oatly Reveals Growing Losses, Revenue in U.S. IPO Filing

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

Oatly Group AB, the vegan food and drink maker, has filed for a U.S. initial public offering.
The Malmo, Sweden-based company, in a filing Monday with the U.S. Securities and Exchange Commission, listed an IPO size of $100 million, a placeholder that will likely change.

Oatly reported a $60 million loss on $421 million revenue in 2020, compared with a loss of $36 million on revenue of $204 million a year earlier.

The company counts Chinese conglomerate China Resources Co., Swedish private equity firm Verlinvest and Blackstone Group Inc. among its biggest shareholders, the filing showed. Morgan Stanley, JPMorgan Chase & Co. and Credit Suisse Group AG are leading the offering. Oatly plans to list on Nasdaq Global Select Market under the symbol OTLY.

Eoin Treacy's view -

Oatly has spent a great deal of money already on getting into supermarkets and cafes. That begs the question where the additional money from an IPO will be spent? Perhaps it will simply compensate the initial backers as they transfer ownership before it eventually goes bust. There is certainly an increasingly active health food market but Oatly does not own a patent on producing oat milk. Competition is inevitable and will be expensive to fend off.



This section continues in the Subscriber's Area. Back to top
April 20 2021

Commentary by Eoin Treacy

Chemical Maker Elementis Rejects Third Deal Offer in Five Months

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

U.K. specialty-chemical company Elementis Plc turned down a third acquisition offer in five months, a move that risks further irritating investors who have missed out on potential deals.

Rival Innospec Inc. said Tuesday it is no longer considering an acquisition of Elementis after the latter company’s board rejected a 160 pence per share offer made late last month. Elementis shares pared a gain of as much as 22% to trade up just 1% at 137 pence.

Elementis rebuffed two earlier offers that another U.S. foe, Minerals Technologies Inc., made in November of last year. J O Hambro Capital Management Ltd., a top investor in Elementis at the time, told Bloomberg News it had concerns about management’s strategy and the board’s refusal to enter into discussions with Minerals Technologies. Sky News first reported on Monday that Elementis had
received takeover interest from Innospec.

Eoin Treacy's view -

Refusing three takeover offers in the space of a year raises big questions for the current management team at Elementis. They are either going to have to come up with a plan to realise the value these suitors see or fire the CEO and accept an offer. Either way, significant corporate changes lie ahead.



This section continues in the Subscriber's Area. Back to top
April 19 2021

Commentary by Eoin Treacy

Midas Touch

Thanks to a subscriber for the report from Celtic Gold which may be of interest to subscribers. Here is a section on seasonality:

In the current year, the gold price seems to be running two months ahead of its seasonal pattern established over decades. The top on January 6th was followed by a clear wave down lasting almost three months until the end of March. This correction would actually have been more typical for the period March to June. With the double low reached at the end of March, the beginning of the usually strong summer phase would be conceivable from May or June this year. In the short term, seasonality continues to urge patience. At the very latest, the gold price should be able to take off again from the beginning of July.

Eoin Treacy's view -

The re-opening of the Chinese gold import window and the bottoming in demand from India represent examples of Asian buying looking to accumulate on weakness. Meanwhile, investment demand continues to moderate as ETF holdings remain under pressure. That suggests institutional buyers have been sufficiently chastened by the decline to want to wait of clear evidence of a bottom before recommitting.



This section continues in the Subscriber's Area. Back to top
April 16 2021

Commentary by Eoin Treacy

China opens its borders to billions of dollars of gold imports

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

 

About 150 tonnes of gold worth $8.5 billion at current prices is likely to be shipped following the green light from Beijing, four sources said. Two said the gold would be shipped in April and two said it would arrive over April and May.

The bulk of China's gold imports typically comes from Australia, South Africa and Switzerland.

The People's Bank of China (PBOC), the country's central bank, controls how much gold enters China through a system of quotas given to commercial banks. It usually allows metal in but sometimes restricts flows.

"We had no quotas for a while. Now we are getting them ... the most since 2019," said a source at one of the banks moving gold into China.

The size of the shipments signals China's dramatic return to the global bullion market. Since February 2020, the country has on average imported gold worth about $600 million a month, or roughly 10 tonnes, Chinese customs data show.

And
 
India's demand for bullion has also rebounded from a pandemic-induced slump, with record-breaking imports in March of 160 tonnes of gold, an Indian government source told Reuters this month.

Eoin Treacy's view -

India and China are the world’s largest consumers of gold. India’s demand collapsed in 2020 and China has been very quiet both about how much gold it holds and how much is imported. Those have been contributing factors in the decline of gold since the August peak.



This section continues in the Subscriber's Area. Back to top
April 16 2021

Commentary by Eoin Treacy

Porsche's Electric Taycan Sales on Course to Eclipse Iconic 911

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

“Established models have supported this excellent result along with the latest additions to our product range, above all the new model variants of the all-electric Taycan,” Porsche sales chief Detlev von Platen said of the brand’s 36% first-quarter surge. “We can look back on a very positive start to the year.”

The Taycan, which Porsche recently flanked with a more spacious version, is a litmus test for the carmaker’s costly shift to electric vehicles. Boosting EV sales with Porsche will be key to maintaining healthy margins as the division is VW group’s biggest profit contributor by far.

Porsche’s total global deliveries rose to 71,986 vehicles in the first quarter, driven mainly by demand in China, its largest market. The compact Macan SUV was the brand’s best-selling model, ahead of the larger Cayenne. Porsche will launch a battery-powered version of the Macan next year that’s underpinned by a new platform for upscale electric cars co-developed with sister brand Audi.

Porsche remains optimistic about business prospects this year even as a global shortage of semiconductor parts disrupts production plans across the industry. Order books “continue to develop very well,” Von Platen said.

Eoin Treacy's view -

Introducing new technology at a high price point before filtering it down to cheaper models in subsequent years has been the go-to model for automakers. Nothing has changed. The positive reception the Taycan has received will fortify the mood at Volkswagen that they have made the correct decision to bet on electric vehicles.



This section continues in the Subscriber's Area. Back to top
April 16 2021

Commentary by Eoin Treacy

U.S. Infrastructure Plan May Lift These Three Brazilian Stocks

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

Two weeks ago, Biden unveiled a $2.25 trillion plan to overhaul the country’s physical and technological infrastructure. He has said the plan needs to go far beyond bridges and roads and has called for investment in electric vehicles, renewable power and the electric grid.

Shares of Gerdau and Tupy are up 27% and 15% this year, respectively, while the benchmark Ibovespa index is down 0.6% and Weg is little changed.

“Limited geographical diversification puts a cap on Brazilian companies seizing this moment, but we can see some clear winners,” the analysts said. “Although we believe they have not gone unnoticed by the market, recent performance indicates that the impact is likely larger than what is currently priced in.”

Eoin Treacy's view -

Brazil is currently dealing with the challenge of rising pandemic case numbers and deaths. That’s a near-term challenge for the economic recovery and it might be a few months before the worst is over. 



This section continues in the Subscriber's Area. Back to top
April 15 2021

Commentary by Eoin Treacy

A Mystery in 10-Year Treasuries Has Links to Carry Trade Blowup

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

Hedge funds are snapping up 10-year Treasury futures, and no other maturity, presenting a puzzle. The answer may lie in the collapse of a popular carry trade last year.

The highly-leveraged basis trade involved going long cash bonds and selling futures, to profit from the difference between the two, but came asunder in March 2020 when investors stampeded to buy the latter at the peak of coronavirus fears and upended the spread. Now the gap -- the so-called gross basis -- has reversed and favors shorting cash bonds and buying futures.

Of course, it’s not quite that simple. In futures markets, the counterparty who is short determines which specific cash bond traders have to deliver, adding another element of risk to the transaction. But with so-called ultra 10-year Treasury futures, there are only two bonds in the delivery pool, limiting that risk compared to other contracts.

That could be one reason why leveraged funds have built up net-long positions of almost 230,000 ultra 10-year futures, despite this year’s Treasury market slump, according to the latest data from the Commodity Futures Trading Commission. As for the original strategy -- there are no signs of it returning anytime soon.

While returns from this year’s trade are much lighter, a play based on 10-year ultra futures is most attractive, according to one trader who asked not to be identified as he isn’t authorized to speak publicly.

Cash Bond Pressure
A sense of how the cheapest-to-deliver 10-year Treasury bond has performed against futures can be seen in the implied repurchase rate for the note. It flipped from positive to negative in the first quarter, indicative of greater selling pressure on cash bonds than futures.

“With the sudden and significant rates selloff in late February, Treasuries came under pressure, underperforming futures quite noticeably,” wrote Morgan Stanley’s Kelcie Gerson in a note this week. “On an outright level, futures/cheapest-to-deliver bases reached the widest levels seen since last March/April.”

Across the rest of the Treasuries curve, hedge funds hold net short positions, though well below last year’s levels after the collapse of the original basis trade.

Market
A gauge of aggregate leveraged fund short futures positions -- which would likely be mirrored by long cash bonds in a basis trade -- has dropped by over $300 billion since last year’s February peak, according to calculations by Bloomberg.

Eoin Treacy's view -

Repositioning in the sovereign bond markets gathered pace today with a high degree of commonality across the sector. This above narrative highlights how quickly positions can be unwound when the trend changes and it represents a potent source of short covering activity.



This section continues in the Subscriber's Area. Back to top
April 15 2021

Commentary by Eoin Treacy

S. Africa Central Bank Governor Sees Room to Keep Rates Low

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

South Africa’s central bank is likely to maintain its accommodative monetary policy stance to support the economy for as long as it has room to do so, according to Governor Lesetja Kganyago.

“As long as inflation is remaining contained, the central bank would have no reason to remove the accommodation that we are currently providing,” Kganyago said Thursday in an interview with Bloomberg TV.

The monetary policy committee has cut the benchmark interest rate by three percentage points since the start of 2020, of which 275 basis points of easing was in response to the impact of Covid-19 on the economy. That’s taken the rate to a record-low 3.5%. Last month’s decision was the first time since the 2020 rate cuts in which no member voted for a reduction and expectations have now shifted to when the first hike will come.

While the implied policy rate of the central bank’s quarterly projection model, which the MPC uses as a guide, indicates two rate increases this year of 25 basis points each -- next month and in the fourth quarter -- policy makers see risks to the inflation outlook as balanced and feel that they can continue to offer support to the economy, Kganyago said.

Eoin Treacy's view -

South African government bonds yield 9.08%. Obviously, in a world of ultra-low rates that outlier must exist for a reason. South African growth is expected to be in the order of 3% this year but the big question for investors will be on the trajectory of governance and the speed at which the pandemic can be overcome.



This section continues in the Subscriber's Area. Back to top
April 14 2021

Commentary by Eoin Treacy

Russia Scores New Bond Record as Yields Drop on Summit Hopes

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

Russia sold a record volume of ruble bonds as state banks continued to prop up demand and sanctions jitters faded after U.S. President Joe Biden proposed a summit with Russia’s Vladimir Putin.

The Finance Ministry sold 213 billion rubles ($2.8 billion) of fixed-coupon debt due in March 2031 in its second auction of the day, beating a record set two weeks earlier. The yield on Russia’s 10-year bonds fell the most since November as Tuesday’s phone call between the leaders appeared to reduce the possibility of penalties targeting the nation’s local OFZ debt.

“We’re seeing considerable demand once again, with big local players buying about 70% of both offerings today,” said Stanislav Ponomarev, a money manager at Transfingroup JSC in Moscow. “There’s been demand from foreigners since the morning, but it looked more like they were closing short positions rather than increasing their Russia allocations.”

The prospect of fresh sanctions has been mounting for the best part of a month and the recent troop buildup on the border with Ukraine has added to the tensions. State banks have stepped in to backstop the recent auctions as foreigners stay clear.

“The market was extremely negative on Russia,” said Sergei Strigo at Amundi Ltd. “Now there is a pullback on renewed hope of some sort of normalization in relationships, even if it’s short-term. Levels on the ruble and OFZs look much more attractive.”

Eoin Treacy's view -

How serious is the US administration in countering China? That’s the primary question for investors as they assess the potential for a normalisation of relations between the USA and Russia. As a major commodity producer, seller of advanced weapons systems and with significant experience in space, Russia is being courted by China.



This section continues in the Subscriber's Area. Back to top
April 14 2021

Commentary by Eoin Treacy

Trafigura Sees Green Copper Supercycle Driving Prices to $15,000

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

Trafigura expects the metal to breach $10,000 a ton this year, before entering a range of $12,000 to $15,000 a ton over the coming decade. Other ardent copper bulls including Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc. have similarly strong near-term forecasts, but Trafigura has set itself apart with its lofty long-term target.

Goldman expects copper to hit $10,500 a ton within 12 months, while Citi sees it reaching $12,000 next year in its bull-case forecast. In the years to come, that’s likely to become the floor for prices as the industry revalues the metal, according to Trafigura.

“You can’t move to a green economic environment and not have the copper price moving significantly higher,” Bintas said. “How can you have one without the other?”

Eoin Treacy's view -

Every country wants its economy to recover from the ravages of the pandemic. They are all looking at the same playbook. They need to increase growth without raising taxes and need a quick way to get as many people back to work as possible which will hopefully kick start the velocity of money. Infrastructure development has been the preferred strategy to achieve those goals after every other recession and this one is now different. The only question was what kind of infrastructure would be approved.



This section continues in the Subscriber's Area. Back to top
April 13 2021

Commentary by Eoin Treacy

Lumber Frenzy Drives Up Home Prices as Suppliers Can't Keep Up

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

“Each part of the supply chain has different issues,” said Brooks Mendell, chief executive officer of forest-supply researcher Forisk Consulting in Georgia. “There is not a sawmill that I have talked to in two years that has all their slots filled.”

This is a big turnaround from just two years ago. In 2019, weak demand prompted a steady stream of output reductions and mill closures from companies including Canfor Corp. and West Fraser Timber Co., the world’s biggest lumber supplier. That left producers flat footed amid the unexpected demand boom as the pandemic kept people indoors, sparking a wave of do-it-yourself upgrades, full-scale renovations and purchases of bigger homes.

When demand held strong throughout the winter, typically a seasonal lull, mills didn’t have time to replenish their inventories. Now, stockpiles are “extremely lean” as North America heads back into peak building season and lumber prices will stay high “for the foreseeable future,” Devin Stockfish, the CEO of Weyerhaeuser Co., said last month.

Lumber futures have more than tripled since the pandemic started, touching an all-time high of $1,157.50 per 1,000 board feet on Monday.

Eoin Treacy's view -

The mountain pine beetle infestation has been a growing problem for more than a decade but production cuts, the closing of mills and lack of a skilled workforce are more immediate problems. The only way to encourage more workers into the sector is to offer higher wages. That suggests we have seen a step change in the price of lumber and the breakout will be sustained in just the same way as it was in 1993. 



This section continues in the Subscriber's Area. Back to top
April 12 2021

Commentary by Eoin Treacy

Impatience

Eoin Treacy's view -

There is one theme that seems to be running through every asset class at present. Perhaps it is because we have been locked up for a year, and literally can’t wait until it is all over, but there is a distinct air of impatience in every circle of life. The pandemic has accelerated the decision-making process for everyone in every facet of our lives.

Mrs. Treacy and I have been discussing moving from Los Angeles for two years but there was never a push big enough to stir us into action. We looked at Las Vegas suburbs in 2019 and toured schools but my eldest daughter was accepted into one of the most prestigious high schools in Los Angeles, so we decided to linger.

The experience of living in Los Angeles during the lockdowns, from schooling to public safety, made us impatient for a change. Like many others we decided to move and have only been delayed by reapplying to schools for our daughters and finding a suitable home.



This section continues in the Subscriber's Area. Back to top
April 09 2021

Commentary by Eoin Treacy

Fragile Planet 2021

Thanks to a subscriber for this report from HSBC which may be of interest. Here is a section on renewable energy materials availability:

Here we look at the 2019 share of global production and at the share of global reserves for countries around the world. We use data from the United States Geological Survey’s Mineral Resources Program, and the World Nuclear Association. While production data are considered relatively accurate, reserves data is imperfect, given lack of exploration is some areas. However, we take a view that if countries have reserves, but have zero production currently, then there are likely to be technical, financial and/or institutional factors to overcome to allow production in the near future. (Note that we were unable to access reserves data for the commodities Indium and Gallium, and only included production numbers). We create a blended metric for production and reserves values for these commodities (weighting them all equally), in order to score and rank countries in this area. South Africa is ranked first here, followed by China and Chile. Australia comes in fourth, making it the highest ranking DM country on this indicator.

Eoin Treacy's view -

Government policy, everywhere, is increasingly skewing towards the assumption that sea level rise, water insecurity, global warming and climate change are inevitable. Renewable energy assets are increasingly also being priced on the assumption that a migration to carbon-free economies is also inevitable.

Trillions of Dollars are being committed to building out carbon-free infrastructure, whether than is solar, wind, geothermal, nuclear or hydrogen. As that buildout gets under way it will require massive fiscal support, regulatory bypasses for permitting and taxation supports in the form of carbon credits. It will also result in a significant near-term boost in demand for all manner of resources from copper to lithium and from coal to oil.



This section continues in the Subscriber's Area. Back to top
April 07 2021

Commentary by Eoin Treacy

VanEck ViewPoint: The rhyme of history

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

We expect a catalyst to emerge in the second half of the year that could drive gold higher. The most likely catalyst would be excessive inflationary expectations. Inflation expectations have returned to pre-pandemic norms, although a number of developments listed here suggest it could spiral out of control:

• US$1.9 trillion of additional fiscal stimulus is likely to be introduced on top of previous government spending, some of which has yet to be utilised;
• The US Federal Reserve (Fed) continues to buy US$120 billion worth of Treasuries and mortgage-backed securities each month;
• Lumber, oil, copper, food staples and other commodities prices have been on the rise, many reaching multi-year highs;
• Shortages of semiconductors, shipping containers and truck drivers have been documented;
• Many people are content to stay out of the workforce, collecting generous government handouts;
• Purchasing power of American families has reached record highs. Further into 2022, once the trillions of stimulus dollars have been spent, other systemic risk catalysts could emerge, such as a weakening economy, debt problems, US dollar weakness and/or black swan events caused by radical fiscal and monetary policies. We believe the long-term bull market remains intact and expect prices to ultimately surpass US$3,000 per ounce. We also note that gold miners remain cheap relative to the price of gold.

It is worth noting that since mid-2020 it appears that Bitcoin has replaced gold as the new gold. But as cryptos have continued to soar, US real rates have now undermined gold value. To remain long Bitcoin would require a belief that real rates are going to retreat.

Eoin Treacy's view -

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

Mining companies are a hard sell in a world where investors are focused on ESG. As an extractive sector, miners can’t get around the fact that they are polluters. Even with remediation commitments, there is no way to avoid the moniker for polluter.

That also impacts the ability of the sector to source the funding they need for expansion via exploration. Finding somewhere to dig and build is an inherently uncertain prospect but the added obstacle of environmental regulations, protests and carbon costs mean the hurdles to exploration are increasingly high.



This section continues in the Subscriber's Area. Back to top
April 06 2021

Commentary by Eoin Treacy

Email of the day on the potential for a crash:

I am a little concerned, that Bill Ackman is shorting the market and Ray Dalio and Michael Burry have predicted a market collapse. Burry recently went on record to confirm this prediction.

You have not mentioned Margin Debt for a while and my further concerns are that despite Margin Debt officially being at an all-time high - the ArchEgos scandal has demonstrated that perhaps not all of the margin debt is recorded as some hedge funds are circumventing the need to record their position by using prime banks to hold assets for them.

RLB

PS Best wishes to you and your family.

Eoin Treacy's view -

Thank you for your kind words and for this email which helps to elucidate the very real concerns of a large swathe of the market. Just over a year ago the market crashed. The decline was unlike anything we’ve seen before because it was unrelenting in its severity. Even during the crash of September/October 2008 there were weeks when the market rallied.

That did not happen in 2020. Between late February and March 24th, the S&P500 failed to rally for two consecutive days. Fear permeated market and it had a long-lasting impact on sentiment. Even today people are afraid of a repeat of this unrelenting selling. However, it would be extremely unusual to see another 35% drawdown a year after the last one.



This section continues in the Subscriber's Area. Back to top
April 06 2021

Commentary by Eoin Treacy

Gold Rises to Eight-Session High With Dollar, Yield Gains Ebbing

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

Gold advanced to the highest in more than a week as gains in bond yields and the dollar abated.

Treasury yields edged down from a recent high, increasing the allure of bullion, which doesn’t earn interest. The dollar gave back early gains, making gold more appealing to investors holding other currencies. The ebb is taking place even as positive economic data shows rapid growth for U.S. businesses and jobs.

That’s “good news for gold,” according to Commerzbank AG analyst Carsten Fritsch.

Gold has been under pressure this year because of increasing optimism over the post-pandemic economic recovery in the U.S., which buoyed bond yields and the dollar. Investors fled bullion-backed exchange-traded funds, a major pillar in gold’s ascent to an all-time high last year, with holdings in ETFs dropping to the lowest since May.

Eoin Treacy's view -

It is not a coincidence that gold and Treasury bond prices peaked within a day of each other in August. As bond prices have declined, they have taken gold with them. The strong correlation between the two assets has raised all sorts of questions for gold investors. Let’s try and answer some of them by looking at flows.



This section continues in the Subscriber's Area. Back to top
April 06 2021

Commentary by Eoin Treacy

Biggest Mining Buyback in Years Propels Vale to All-Time High

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

Vale’s buyback, which comes on the heels of a bigger-than-expected dividend, is the latest chapter in its turnaround story. In early 2019, a tailings dam disaster sent Vale into crisis mode, with dividends cut and operations scaled back as the company focused on shoring up safety. Now, after agreeing to a dam-collapse settlement and seeing the prices of its metals rally, Vale is repaying investor loyalty.

While metal prices have come off multi-year highs in recent weeks, they’re still well up on year-ago levels. Vale’s iron ore business generated its second-highest earnings ever and the company is focused on existing assets rather than splashing out on deals as it did in previous booms.

Shares rose as much as 6.6% in Sao Paulo Monday, closing at the highest level since trading began in 1994. The buyback should help narrow Vale’s discount to its Australian peers, according to BTG Pactual analysts led by Leonardo Correa. Vale fetches 4.8 times estimated profit versus top iron producer Rio Tinto Group’s ratio of 7.9.

Eoin Treacy's view -

The mining sector is flush with cash. The sector went through a painful rationalization between 2011 and 2016 so they have been cautious about embarking on risky behaviour. That left them well placed to benefit from the recovery in industrial metal prices from the pandemic lows.



This section continues in the Subscriber's Area. Back to top
April 01 2021

Commentary by Eoin Treacy

Secular Themes Review April 1st 2021

Eoin Treacy's view -

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

The pandemic has been an accelerant. The full ramifications of what that means are becoming increasingly clear.

The pandemic took trends that have been in evidence for a while and exaggerated them. At the same time, it introduced new challenges which require new solutions.

Corporations operating without the safety net of cash on the balance sheet has been a feature of the markets for decades too. They continue to be bailed out when they get into trouble. There is no evidence that the trend of using all available means to buy back shares has ended. In fact, buybacks are back at pre-pandemic levels. Companies were touting “resiliency” last summer. It appears to have been just talk. Buybacks represent a powerful tailwind for stock markets that were absent for much of 2020 but are now back in force. 



This section continues in the Subscriber's Area. Back to top
March 31 2021

Commentary by Eoin Treacy

Voltswagen Is the Perfect Example of German Humor

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

This week Volkswagen AG provided a lesson in just how difficult it is to “be Elon.” VW’s U.S. arm claimed it was changing its corporate name to “Voltswagen,” denied it was an April Fools’ Day joke, then admitted that, um, it was in fact an April Fools’ Day joke gone wrong.  

The German giant has been riding a wave of investor excitement about its electric-car strategy. Thanks in part to some clever social media and marketing, VW seemed to have cracked Musk’s knack for share-price boosting publicity. The more frequently traded VW preference shares are close to a six-year high.

News of the purported name change helped VW’s American depositary receipts — the ones favored by U.S. retail investors — to climb as much as 12.5% on Tuesday. Which is where this cringeworthy incident goes from being a disastrous attempt at humor to something potentially more serious.

I’m not suggesting VW’s gaffe was an attempt to manipulate the stock market and I doubt the U.S. Securities and Exchange Commission would view it like that. It’s a reminder, however, that we now live in the meme-stock age where even bad jokes can add or subtract billions of dollars in market value. It’s a minefield for corporate executives to navigate.

Eoin Treacy's view -

The market liked the Voltswagen idea. That’s going to give Volkswagen’s board something to think about. Tesla prospered because it gained a near monopoly on California’s carbon credits when Karma went bust. That allowed it fund loss making operations and meet payment deadlines while it was building its first battery factory. Many people wonder at Tesla’s business model. Is it a car company, a solar company or a battery company? The most accurate description is it is a regulatory arbitrage company. That’s a consideration every company board should be discussing.



This section continues in the Subscriber's Area. Back to top
March 30 2021

Commentary by Eoin Treacy

Email of the day on where the most leverage resides

After Greensill and Archegos, where next? The GCC of 2008 cleaned up the banks and the Tech Bust of 2000 cleaned up non-earning tech. Leverage always lies hidden somewhere, and rising interest rates usually make the best assassins. But where's the leverage this time? Tech + Leveraged Product Roll Out? Can we put together a list of leveraged companies and sectors that will make the headlines in 2021 and 2022 as 10-year yields breach 2% and beyond? Keep up the excellent work.

Eoin Treacy's view -

Thank you for your kind words and this question which may be of interest to other subscribers. The Global Credit Crisis decapitated the banking sector and many of the tech champions of the 1990s disappeared. Both crashes exposed massive leverage and egregious abuses. The first challenge is to identify the sectors where leverage is concentrated and then what are the potential catalysts to unwind those positions.

The rush of interest in listing via SPACs is an obvious area to begin searching. Many private companies eschewed listing for years because they had no need to seek funds in the public markets. They are now eager to list because their backers want to exit while there is still time. Softbank’s wake-up call with WeWork was the catalyst for much greater interest in IPOs.



This section continues in the Subscriber's Area. Back to top
March 26 2021

Commentary by Eoin Treacy

Rio Tinto to deploy Heliogen's AI-powered industrial "solar refinery"

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

That temperature can be used to generate steam and turn turbines to produce electricity, or the heat can be stored for later use outside daylight hours. It's also hot enough to be used in cheap hydrogen production – Heliogen's Bill Gross told the Abu Dhabi Sustainability Week 2021 conference in January that a 600 x 600-m (656 x 656-yd) plant could produce around a million kilograms (2.2 million lb) of green hydrogen per year at an impressively low cost around US$1.80 per kilogram (2.2 lb) – lower than the average price of dirty hydrogen today.

Rio Tinto's boron operation, rather fittingly located in Boron, California, currently uses natural gas co-generation and boilers to produce steam for its processes. The Heliogen installation will contribute up to 35,000 lb (15,876 kg) of steam per hour to the plant day and night thanks to energy storage, and Rio Tinto says this has the potential to reduce total plant emissions by about 7 percent – "equivalent to taking more than 5,000 cars off the road," says the company, neatly sidestepping the fact that it's leaving more than 70,000 cars on the road in this metaphor.

This is just a pilot, though; should it prove viable, the company will assess whether to upgrade the facility to more than three times its current production rate, and the state intention here is to pilot the technology with a view to replicating it at other Rio Tinto facilities around the world where there's enough sunlight.

Eoin Treacy's view -

Rio Tinto’s management have displayed impressive foresight in positioning the company as the supplier of materials to drive the development of a carbon free economy. Making headlines for supporting concentrated solar plants in California is another example of sound PR strategy that detracts from the destructive nature of mining.

The company concentrates on iron-ore, copper and aluminium production which has allowed them to make a big play on being the most ESG-aware miner. Pollution is one portion of the ESG gambit the other is mine safety.



This section continues in the Subscriber's Area. Back to top
March 26 2021

Commentary by Eoin Treacy

Message Received, Loud & Clear

This report from CIBC may be of interest to subscribers. Here is a section:

The Bank of Canada is seeing enough progress in the economy that it feels it can begin reducing outdated programs, as well as slowly begin to remove some of the considerable stimulus in the system. There should not be too much impact from the cessation of select market functioning facilities directly. The bigger news today is the strongest signal yet that the Bank is ready to conduct a taper, and begin ‘right sizing’ the QE program. This is also the first time we have been shown what the future sequencing looks like, which is: i) taper to a net-zero purchase profile; ii) enter a reinvestment phase, and; iii) normalize rates. The best trades to take advantage of this are micro in nature, though also put ‘bigger’ macro trades like receiving 2yr-to-4yr forwards versus the U.S. at risk.

Eoin Treacy's view -

As we exit the pandemic the approach being adopted by central banks to the respective challenges in their countries will help to inform us on what to expect from the late starters. Since Canada is about to begin tapering in April how the bond, currency and stock markets perform may offer a foretaste of what a taper will eventually look like in the USA and elsewhere.



This section continues in the Subscriber's Area. Back to top
March 24 2021

Commentary by Eoin Treacy

In Copper Country, Lawmakers Want a Bigger Share of the Windfall

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

The proposal is unnecessary and risks thwarting investment, according to government and industry representatives. Responding to criticism that Chile didn’t tax producers enough in the last supercycle, Energy and Mining Minister Juan Carlos Jobet said the current royalty system will generate more after a surge in prices pushed up earnings.

In his first term in office a decade ago, Pinera introduced a complicated system of payments that now charges large producers a variable rate on operating profit of as much as 14%. A new tax on sales wouldn’t bring in more than the current system, according to Diego Hernandez, head of mining society Sonami. Mining Council boss Joaquin Villarino warned against rushing through legislation just because copper has traded above $4 a pound for several weeks.

While consensus is building that highly profitable sectors such as mining should help finance the pandemic recovery, a heavier tax burden would add to rising costs associated with labor and the environment, BTG Pactual raw-materials analyst Cesar Perez-Novoa said.

“When doing the math, the cost competitiveness of Chile as a mining jurisdiction comes down,” he said. “So it matters.”

Eoin Treacy's view -

Copper is in a bull market and demand growth is likely to continue to increase as the focus of stimulus and economic recovery settles on renewable energy and the electric vehicles sectors. That introduces additional use cases for the metal in addition to the traditional telecommunications and infrastructure sectors.



This section continues in the Subscriber's Area. Back to top
March 17 2021

Commentary by Eoin Treacy

BlackRock, Lombard Say Faster Inflation Calls Are Premature

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

“As the dust settles in the wake of today’s FOMC, we will be focusing upon whether any additional back-up in yields is accompanied by a further widening of breakevens,” said Richard McGuire, the head of rates strategy at Rabobank. “If so then this argues that the move higher in rates is sustainable.”

But as long as U.S. yields don’t rise in a chaotic fashion, risk assets including emerging-market and high-yield corporate debt are expected to outperform, according to BlackRock’s Seth. “Rates can drift higher and still remain a positive backdrop for the risk assets, as long as the vulnerability is under control,” he said.

A Bloomberg Barclays index on global credit returns has gained 11% over the past year, compared with a loss of 2% for a gauge tracking Treasuries. BlackRock switched to a neutral duration position in February from underweight. The fund likes notes sold by Chinese real estate companies and the nation’s onshore bonds.

“The lack of correlation with the rest of the global developed markets also provides a diversification benefit,” Seth said of Chinese debt.

Eoin Treacy's view -

The Fed remains wedded to its view nascent inflationary pressures will not last long. There is a logical argument to support the view that the bounce back from the pandemic lows is exaggerated by the base effect and everything will settle down over the course of the next year or two. Since the Fed is willing to wait and see with inflation, it could be two full years before they are willing to draw firm conclusions.



This section continues in the Subscriber's Area. Back to top
March 15 2021

Commentary by Eoin Treacy

Why in the World Would You Own Bonds

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

…History and logic show that central banks, when faced with the supply/demand imbalance situation that would lead interest rates to rise to more than is desirable in light of economic circumstances, will print the money to buy bonds and create “yield curve controls” to put a cap on bond yields and will devalue cash. That makes cash terrible to own and great to borrow. Through their powers central banks can, at least temporarily, put a lid on interest rates and keep short-term interest rates low relative to long-term rates so that it becomes profitable to buy bonds with cash, which central banks abundantly provide which makes real interest rates very negative. For example, during the 1930-45 period the Fed kept the bond yield around 2.5% and the cash yield around 1%, which made it profitable to borrow cash and use it to buy and own bonds. While that can make holding bonds financed with cash profitable at low rates, under such circumstances both the cash rate and the bond rate are bad. Naturally, because cash rates are so low it pays to borrow cash and invest it in investments that are higher-returning. Back in the 1930-45 period, the Fed was able to keep yields there, and the way they did that was also through outlawing gold and the movement of capital elsewhere. So, when I look at it, while I want to be short bonds (because they have the most terrible fundamentals), I do know that central bankers can keep cash more terrible, and I do know that they might have to prevent the movement to other storehold of wealth assets and other countries. 

Eoin Treacy's view -

There is a good reason large hedge fund managers have been buying trophy properties around the world. They wish them to be hedges against the potential for a significant devaluation in the purchasing power of their wealth. At the other extreme we have people like Elon Musk who just sold all his property (in California) because he is afraid of being taxed into oblivion. That suggests while some are betting on property as a hedge, the location in a friendly regulatory environment is likely to either make or break the trade.



This section continues in the Subscriber's Area. Back to top
March 08 2021

Commentary by Eoin Treacy

Email of the day - on gold ETF holdings

On gold, I notice there is now significant weakness in the chart for Total known holdings of gold ETF. Will we need to see this stabilize and turn up before any rise is likely in spot gold prices?

Eoin Treacy's view -

There is undoubtedly some liquidation of gold longs going on at present as investors price in the potential for outsized swift economic recovery. That’s also the main rationale for selling bonds since there is less need for a safe haven.



This section continues in the Subscriber's Area. Back to top
March 05 2021

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review March 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The rollout of vaccines to COVID-19 continues to accelerate and that will continue through the balance of the year and 2022. There is encouraging news about the number of different vaccines which have been approved and their success against variants. By the end of the year, the world will be inundated with doses which will provide at least some protection from the virus for anyone who wants it. That’s all the rationale any government needs for reopening the economy.

On Valentine’s Day 2020 Mrs Treacy and I went out for dinner with another couple. We talked about the news of a virus threat from China and how it could potentially cause ructions further afield. We told them we had stocked up on rice, meat, protein bars and batteries just in case. They thought we were crazy crackpots jumping at shadows.

It was hard to imagine then just how disruptive the decision to lockdown was going to be. A similar condition exists today. After a year of being confined to our immediate vicinity it is tempting to think this is how it will always be. The reality, however, is we are going to see a surge back to normalcy much quicker than most believe possible.

Humans are social animals and we yearn for social contact. We’ve been starved of that basic need for a year and we’ll overdose on it when we are able. That suggests we are looking at a boom in consumer activity over the coming couple of years.



This section continues in the Subscriber's Area. Back to top
March 03 2021

Commentary by Eoin Treacy

Gold ETF Exodus Quickens in Ominous Sign for Faltering Metal

This article by Yvonne Yue Li and Eddie Spence for Bloomberg may be of interest to subscribers. Here is a section: 

Gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs,” Carsten Fritsch, an analyst at Commerzbank AG, said in a note. “A shift in sentiment among investors would be needed for gold to free itself from its extremely difficult predicament.”

Federal Reserve officials slated to speak this week may give more insight into the economic outlook and how the central bank might respond to the recent tumult in bond markets. Higher yields dim the appeal of the non-interest-bearing metal.

“Gold remains vulnerable to a further tightening from real rates,” TD Securities analysts led by Bart Melek said in a note.

Eoin Treacy's view -

Sentiment towards gold is rapidly deteriorating as the pace of the decline from the August peak picks up. The trend of gold holdings in ETFs is also now below its trend mean as investors migrate away from the yellow metal in favour of better performing assets. The big question for investors is whether this is a temporary or major correction.



This section continues in the Subscriber's Area. Back to top
February 26 2021

Commentary by Eoin Treacy

Copper Crunch Set to Ease With More Supply Heading to China

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

Chinese copper smelters grappling with a shortage of semi-processed material are set to see an influx of supply from South America, a sign that the tightness helping supercharge the metal’s rally may be easing.

Starting next month, there’ll be a large number of ships arriving at Chinese ports from Chile and Peru, the nation’s main suppliers, as bottlenecks ease, according to IHS Markit lead shipping analyst Daejin Lee. The amount of concentrate expected to reach the Asian nation may climb almost 60% from February’s volume, he estimated.

“The narrative could be shifting from very tight supply on account of port congestion and logistics difficulties, and even the waves in Chile, to more easier supply,” said Ed Meir, an analyst with ED&F Man Capital Market. That could take a little bit of the air out of copper’s rally, he said.

Eoin Treacy's view -

Commodities are volatile and chasing prices that are already at elevated levels is seldom a useful exercise. One of the oldest adages in the commodity markets is “the cure for high prices is high prices.” The surge in copper prices has begun to encourage supply into the market. At least some further consolidation of recent gains appears likely.



This section continues in the Subscriber's Area. Back to top
February 24 2021

Commentary by Eoin Treacy

Email of the day on paying up for commodities

Thanks again for your very calm analysis of these volatile times. I appreciate it a lot. I enjoyed very much your comments about the tendency of remembering the end of the events/experiences. There is a very good experiment on this done by Daniel Kahnemann. On a different note; you seem to be very bullish on copper, but it seems not enough to invest on that theme yet. Are you planning to invest? Otherwise, what would be a good instrument to invest for the medium/long term on that theme. Thanks in advance

Eoin Treacy's view -

Thank you for this email which may be of interest to subscribers. I have been conditioned through the decades to refuse to pay up for commodities. It’s a volatile sector that tends to have outsized moves in both directions. I am very bullish on industrial commodities overall and copper in particular.

Seeing outsized new sources of demand emerge for a commodity is a once in a couple of decades event. It will require a massive supply response to bring the market back into equilibrium. At present commodities are rallying because investors are pricing in an epic rebound in economic activity as fear about the pandemic subsides and people embrace fun and joie de vivre.



This section continues in the Subscriber's Area. Back to top
February 24 2021

Commentary by Eoin Treacy

Long-End Yields Surge in Biggest Treasury Selloff Since January

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

The selloff in Treasuries sent the yield on the 30-year bond surging on Wednesday, putting the long-end
benchmark on track for its biggest one-day advance since early January.

Rates climbed across notes and bonds, with the long-end increasing most and the curve steepening. The 30-year yield jumped by around 11 basis points at one stage, hitting a one-year high of 2.29%, while the 10-year rate rose as much as 9 basis points to 1.43%.

Global bond markets are suffering this year amid the prospects for U.S. stimulus and a surging reflationary narrative, with volatility gauges climbing to multi-month highs. That’s prompted fears over a potential tantrum in havens, such as Treasuries and German bonds. While Federal Reserve Chairman
Jerome Powell this week called the recent run-up in bond yields “a statement of confidence” in the economic outlook, the move raises pressure on central banks to keep financing conditions easy.
 

“The market is nervous about additional stimulus, worried about the risks of higher inflation, and concerned about QE tapering,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. “The selloff is likely being exacerbated by convexity hedging and positioning stop-outs.”

Eoin Treacy's view -

Demand for save havens is waning. That’s perhaps the easiest way to explain the run-up in yields; globally. The scale of the flight to quantity because of angst at the lockdowns drove yields down to historic lows almost everywhere.



This section continues in the Subscriber's Area. Back to top
February 22 2021

Commentary by Eoin Treacy

Gold Extends Rebound on Wavering Dollar, Inflation Concerns

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

“I think the strong buying in gold stems from a sharp bounce from new lows and strong close on Friday,” said Tai Wong, head of metals derivatives trading at BMO Capital Markets. “And a softer dollar negates the impact of higher U.S. yields.”

A revival in Indian gold imports could also indicate some physical dip buying of bullion, according to Marcus Garvey, head of metals and bulk commodity strategy at Macquarie Group Ltd.

Meanwhile, Democrats begin the final push for President Joe Biden’s $1.9 trillion stimulus bill this week, and the Biden administration may unveil a multitrillion-dollar recovery package in March centered on infrastructure.

Eoin Treacy's view -

Perhaps gold has been overshadowed by bitcoin during the latest bull run. The continued strength in cryptocurrencies is attracting interest from all manner of sources internationally. Everyone is aware of the strength the sector is capable of but few are willing to consider bitcoin is also capable of pulling back by 90% following its accelerations.



This section continues in the Subscriber's Area. Back to top
February 19 2021

Commentary by Eoin Treacy

Email of the day on silver's relative strength

Silver price appears to be holding up much better vs. gold price. Any idea why?

Eoin Treacy's view -

Thank you for this question which I have been pondering over for the last few days. The easy answer is that silver has more industrial uses than gold. As industrial metals continue to price in additional infrastructure growth and new use cases in transportation and electricity generation they may be lending some support to silver versus gold.



This section continues in the Subscriber's Area. Back to top
February 18 2021

Commentary by Eoin Treacy

Peak oil demand is coming - but first brace for an almighty supply crunch

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

The world has turned its back on austerity. Keynesian reflation doctrines are triumphant. The Biden administration explicitly aims to run the US economy hot, with the help of the Federal Reserve.

Global "green deals" amount to $16 trillion. “It’s going to turbo-charge oil demand in 2022,” said John Hess, head of Hess Corp.

This spending may be low-carbon in ultimate effect but in the short-run it is brown. The transition requires infrastructure. It requires bulldozers and trucks. It requires the mining of iron ore and thermal coal, and the shipment to steel foundries. It trumps the $10 trillion infrastructure blitz by China, India, Brazil. and the emerging market "mini-BRICs" of the last commodity supercycle.

If future demand is large, the shortfall in future supply is even larger. Investment of $600bn a year in non-Opec exploration and drilling is needed to keep the global show on the road. Spending collapsed after 2014 and has never recovered. Last year it was $300bn. It has been running at just 35pc of levels reached in the boom.

This catches up with you in the end. The last two super projects to enter supply were Norway’s Johan Sverdrup and the Exxon-Hess Guyana venture. Henceforth it is a drought.

Goldman Sachs estimates that 9m to 10m barrels a day of future supply have vanished. That is a tenth of the world’s 100m barrels a day production. Remember that a swing of just 1m either way in normal times can flip the market from slump to price spike. Short-term demand is inelastic.

The elephant in the room is falling supply from non-Opec producers. These companies and regions (excluding US shale) were gently adding 500,000 barrels a day annually a year until recently. Goldman Sachs thinks they will soon be subtracting up to 1m barrels a day each year.

The pandemic has distorted the immediate picture but not the underlying dynamics. Global demand has fallen by 6m barrels a day. Two thirds of that is jet fuel. Aviation will come back fast as soon as the flying world is vaccinated.
 
The world has turned its back on austerity. Keynesian reflation doctrines are triumphant. The Biden administration explicitly aims to run the US economy hot, with the help of the Federal Reserve. Global "green deals" amount to $16 trillion. “It’s going to turbo-charge oil demand in 2022,” said John Hess, head of Hess Corp.

Eoin Treacy's view -

The commodity supercycle argument has become very popular all of a sudden among institutional investors. The trillions devoted to green tech commitments are expected to fuel a global infrastructure boom which is positive for industrial resources. 

When China entered the WTO, it embarked on the biggest building boom the world has ever seen. That primarily drove demand for oil, coal, iron-ore, copper and cement.

Secular bull markets or supercycles depend on supply inelasticity and rising demand. Twenty years ago, oil had both. Today, we have short-term supply inelasticity and the potential for a rebound in demand.



This section continues in the Subscriber's Area. Back to top
February 12 2021

Commentary by Eoin Treacy

Vestas reveals offshore turbine with world's largest sweep

This article by Paul Ridden for NewAtlas.com may be of interest to subscribers. Here is a section: 

Each turbine is expected to deliver around 80 GWh of energy per year, depending on site-specific conditions, which is said to work out as being enough to power 20,000 European homes.

The V236-15.0 MW also offers the potential to reduce the number of turbines deployed at offshore windfarm level – with Vestas calculating that the "offshore turbine offers 65 percent higher annual energy production than the V173-9.5 MW, and for a 900-MW wind park it boosts production by five percent with 34 fewer turbines."

The company expects the first V236-15.0 MW prototype to be built in 2022, with serial production following two years later. It has a design lifetime of 25 years.

“With the V236-15.0 MW, we raise the bar in terms of technological innovation and industrialization in the wind energy industry, in favor of building scale," says Anders Nielsen, Vestas CTO. "By leveraging Vestas’ extensive proven technology, the new platform combines innovation with certainty to offer industry-leading performance while reaping the benefits of building on the supply chain of our entire product portfolio. The new offshore platform forms a solid foundation for future products and upgrades.”

Eoin Treacy's view -

Boosting production and needing to build fewer towers suggests there should be cost savings in construction. The big change in renewable energy occurred in late 2019 when economies of scale improved enough that the wind and solar sectors could survive without subsidies. That has led to a complete reappraisal of the rationale for investing in the sector. More recently it has allowed the renewable energy sector focus on the subsidies provided to fossil fuel companies across the energy supply chain.



This section continues in the Subscriber's Area. Back to top
February 11 2021

Commentary by Eoin Treacy

Lithium | 2021 supercharge?

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

We estimate 2020 supply lifted 11% YoY to 340kt, noting lower capacity utilisation as largely a function of bottom-of-the-cycle pricing through 2020. We anticipate that a majority of the ~460kt of cumulative potential capacity that was delayed/deferred over the last ~18 months could remain suspended pending a recovery in pricing to higher levels. Recent consolidation among concentrate operations (i.e. Altura>Pilbara, Wodgina>Albemarle) now sees control of large scale, marginal cost production lies with a small number of established producers who, in our view, lack incentive to switch on large volumes of new supply.

We further note that long lead times to delivering new capacity means that the +US $4.4bn in new equity raised by lithium companies since the start of 2020 is unlikely to lead to a meaningful supply response until the mid-2020s, by which point we expect the market to move into deficit. Our revised market balance forecasts now call for more modest market surpluses (5-7% over 2021-23), with our higher rates of demand growth now expected to outpace supply growth out to 2025. Beyond 2025, we continue to forecast significant market deficits, noting a ~7x increase in supply (i.e. ~240ktpa average increase in capacity) is required to meet our 2030 demand forecast.

Eoin Treacy's view -

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

Supply Inelasticity Meets Rising Demand is the foundation of commodity bull markets. Lithium has been through one big boom and bust cycle already and perhaps the major producers have learned their lesson. The initial mining investment boom occurred almost a decade ago. That resulted in a lot of new supply hitting the market which depressed prices. It has taken significant growth in demand for electric vehicles to soak up that surfeit.



This section continues in the Subscriber's Area. Back to top
February 09 2021

Commentary by Eoin Treacy

Marijuana Legalization Is Now in Sight. Here's How to Play It With Options

This article from Barron’s may be of interest to subscribers. Here is a section:

A trio of U.S. senators has given investors the green light to invest in marijuana stocks, an endorsement that suggests the volatile sector might finally blossom into something as acceptable and regulated as alcohol.

More details will emerge when Sens. Cory Booker (D., N.J.), Ron Wyden, (D., Ore.), and Chuck Schumer (D., N.Y.) introduce legislation to legalize and tax marijuana.

“In the early part of this year, we will release a unified discussion draft on comprehensive reform to ensure restorative justice, protect public health and implement responsible taxes and regulations,” they announced Feb. 1 in a joint statement.

Eoin Treacy's view -

The cannabis sector went through a painful rationalisation as early efforts to increase supply suppressed the margins. That led of a significant decline in 2018/19 for many of the more leveraged companies. With the Presidential election in the USA ushering in a new administration speculation began to ramp up that cannabis legalisation was back on the menu.



This section continues in the Subscriber's Area. Back to top
February 08 2021

Commentary by Eoin Treacy

Email of the day on gold and fighting the Fed

Thursday's article, “Gold Plunges the most in Four Weeks…” is greatly appreciated.  Despite all the uncertainties and volatility of the past two months you report that you have retained your gold investments and are looking forward to “increase [your] position”.  You express even more confidence in silver.

The attached St Louis Fed Chart showing an accelerating measure of inflation provides good evidence to support your position, long term, but long-term charts, both weekly and monthly show gold is still over-extended. 

If “fighting The Fed” is to be avoided, a bullish gold position may be a courageous act when the world’s central banks will be united in their determination to frustrate gold investors.  There may have been some evidence of that last year.  Also, since silver prices are more easily manipulated, that market seems to be more vulnerable to a combined central bank manoeuvre?

Common sense says that the present world-wide, money creation will end in disaster.  In that situation, precious metals are a safe haven but, in the short term, and even the medium term, risks in those markets appear to be very high. A prudent plan to cover both outcomes seems desirable.  That plan should, perhaps, also incorporate different allocations to gold and silver. Further guidance by you would be invaluable.

Eoin Treacy's view -

Thank you for this email. Fighting the Fed would be holding a gold position in a positive real interest rate environment where one can easily anticipate a positive return from other asset classes. That is not at all what we have at present. We could be looking at a negative real yield for years to come as central banks attempt to loot savings to pay off massive unfunded debts.



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