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July 13 2020

Commentary by Eoin Treacy

The Thucydides Trap and the Rise and Fall of Great Powers

Thanks to a subscriber for this report from Geopolitical Futures by Jacak Partosiak which may be of interest. Here is a section:

Political scientist Joseph Nye believes that the key trigger in the Thucydides trap is an excessive reaction to the fear of losing one’s power status and prospects for future development. In the case of Washington and Beijing, the relative decline of America’s power and the rapid rise of China’s power destabilizes their relationship and makes it difficult to manage. Gen. Martin Dempsey, then-chairman of the Joint Chiefs of Staff of the U.S. Armed Forces, even admitted in May 2012 that his primary task was to ensure that the United States did not fall into the Thucydides trap.

As a result of the slow but noticeable erosion of the U.S. position in the Western Pacific, it is highly conceivable that a scenario could emerge in which the current hegemon is tempted to conduct a strategic counteroffensive in response to an incident, even a trivial one, in the South China Sea or East China Sea, believing falsely that it has the edge over its inferior rival. This would trigger a modern Thucydides trap.

An in-depth reading of Thucydides’ work reveals a second trap, even more complex and dangerous than the first. Thucydides clearly warned that neither Sparta nor Athens wanted war. But their allies and vassal states managed to convince them that war was inevitable anyway, which meant that both city-states would need to gain a decisive advantage at an early stage of the escalating confrontation. Thus, they decided to enter the war after being urged to do so by their vassal states.

Eoin Treacy's view -

The discussions of the Great Game between China and the USA and many interlinkages across the global economy has been fodder for analysts for much of the last five years. I believe a much greater intensification of the competition between the USA and China is likely. Arguably it is already underway. However, for outright war to take place a number of additional conditions would need to be met.



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July 10 2020

Commentary by Eoin Treacy

Skai revises targets for its liquid-hydrogen, long-range eVTOL

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

One challenge for anyone who wants to work with liquid hydrogen is that you need to keep it extremely cold to keep it in its liquid state. At atmospheric pressure levels, we're talking just 20.28 kelvins above absolute zero (−252.87 °C, or −423.17 °F).

That temperature can rise a little if you're willing to pressurize as well as cool (using a cryogenic system running between 250 and 700 bar of pressure), but Gunter says that's not part of Skai's plans, as "even a moderately pressurized system has significant weight penalties."

So, super-cooling it'll be, and while that entails extra energy losses in the liquefaction stage, the cooling equipment, the conversion back into gas for use in the fuel cell and in boil-off in the tank itself, the net result will still be a much longer range aircraft than anyone dealing with gaseous hydrogen – or certainly lithium batteries – will be able to deliver.

It'll be interesting to see how Skai gets the job done, as really you've got to look to NASA and other space programs to find liquid hydrogen being used in serious volumes.

"The good thing in all of this," says Gunter, "is the notable developments that occur in this space on an increasing basis. The efficiencies we’ve seen in fuel cells and the same the industry is seeing regarding H2 production all point to increasing effectiveness of any form of H2 as a future focused solution."

"There's a number of naysayers about what we're doing with hydrogen," says Hanvey, "but we believe we've gone from the question to the possible, and it's now the probable. We know we can fly with hydrogen, and the question is just how quickly we can get it to the market. And based on our experience, we think we can get there a lot quicker than perhaps the market will give us credit for."

Eoin Treacy's view -

Hydrogen’s energy density is orders of magnitude greater than any other fuel currently used in the global economy. The only reason we don’t already use it is because of the technological difficulty of containing what is a highly combustible material. The whole world knows about the Hindenburg accident 83 year ago, which put an end to transatlantic zeppelin travel. It did to the hydrogen industry what the Fukushima accident did to nuclear.



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July 09 2020

Commentary by Eoin Treacy

Email of the day on China's ascendency:

Your excellent piece today focusing on the China question arrived at the same time as an interesting counter-narrative to the "China-supreme argument". From the Telegraph. If correct, China's is not going to have it all its own way. Here is a section:

"The Huawei saga has exposed just much the country still lags, a surprise to some who have bought into the media narrative of Chinese hi-tech ascendancy. China is not yet capable of making the advanced semiconductor chips used for telecommunications or for FGPA circuits that can be programmed.

Nor has it mastered the electronic design automation needed for circuit design. It lacks the critical raw material needed to sustain its ambitions for global dominance of G5 mobile and the coming “internet of things”.

The Centre for Strategic and International Studies estimates that China has yet to crack the materials science that goes into the latest microscopic chips, despite hurling money at the challenge in successive programmes, the latest one commanding more than $20bn. Its high-end chip industry is ten years behind, but in ten years the infrastructure of global cyber dominance will already be in place.  

In short, the US controls the world’s semiconductor ecosystem, working tightly with Japan, Korea, and Taiwan. All Washington had to do in late May was to flick its fingers and Taiwan’s TCMS instantly cut off chip supplies to Huawei, dooming the company’s G5 global quest at a stroke."

Eoin Treacy's view -

Thank you for your kind words and this article which I’m sure will be of interest to the Collective. The significant investment China is making in its domestic semiconductor industry will need to be long-term and ongoing in nature to achieve the level of sophistication currently available to other countries. By some accounts they have sunk $20 billion into the project so far and it may take recurring investments of at least that much to develop the tools required to achieve technological superiority over coming decades.



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July 08 2020

Commentary by Eoin Treacy

China Has Already Declared Cold War on the U.S

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

Yet the book that has done the most to educate me about how China views America and the world today is, as I said, not a political text, but a work of science fiction. "The Dark Forest" was Liu Cixin’s 2008 sequel to the hugely successful "Three-Body Problem." It would be hard to overstate Liu’s influence in contemporary China: He is revered by the Shenzhen and Hangzhou tech companies, and was officially endorsed as one of the faces of 21st-century Chinese creativity by none other than … Wang Huning.

"The Dark Forest," which continues the story of the invasion of Earth by the ruthless and technologically superior Trisolarans, introduces Liu’s three axioms of “cosmic sociology.”

First, “Survival is the primary need of civilization.” Second, “Civilization continuously grows and expands, but the total matter in the universe remains constant.” Third, “chains of suspicion” and the risk of a “technological explosion” in another civilization mean that in space there can only be the law of the jungle. In the words of the book’s hero, Luo Ji: The universe is a dark forest. Every civilization is an armed hunter stalking through the trees like a ghost … trying to tread without sound … The hunter has to be careful, because everywhere in the forest are stealthy hunters like him. If he finds other life — another hunter, an angel or a demon, a delicate infant or a tottering old man, a fairy or a demigod — there’s only one thing he can do: open fire and eliminate them.

In this forest, hell is other people … any life that exposes its own existence will be swiftly wiped out. Kissinger is often thought of (in my view, wrongly) as the supreme American exponent of Realpolitik. But this is something much harsher than realism. This is intergalactic Darwinism.

Of course, you may say, it’s just sci-fi. Yes, but "The Dark Forest" gives us an insight into something we think too little about: how Xi’s China thinks. It’s not up to us whether or not we have a Cold War with China, if China has already declared Cold War on us. 

Eoin Treacy's view -

The Three Body Problem is an excellent read and The Dark Forest follows on well from where it left off. The third book in the series, Death’s End, was too meandering for me and I did not finish reading it. For a non-Chinese reader, the names can be a bit of an obstacle but the story is compelling.



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July 08 2020

Commentary by Eoin Treacy

Data-mining Firm Palantir Files for Stealth Public Offering

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

The Silicon Valley data-mining firm Palantir Technologies confidentially filed to go public, setting up what could be the biggest stock offering from a technology company since Uber’s debut last year.

Founded in 2004 by investors including Peter Thiel, the company works with governments, law enforcement agencies and the defense establishment to organize and analyze huge volumes of data. The technology can be used to disrupt terrorist networks or battle human trafficking. Most recently, it was used by the White House to track coronavirus infections. Last year, Palantir won army contracts potentially worth hundreds of millions of dollars.

Palantir’s clients include major banks and the U.N.’s World Food Program.

The company has stirred controversy for upgrading Immigration and Customs Enforcement software that has been used in the Trump administration’s deportation crackdown, which led to on-campus campaigns to discourage recruitment and the picketing of CEO Alex Karp’s home.

The Palo Alto company has attracted venture capital from investors including In-Q-Tel, the Central Intelligence Agency’s investment arm. It has been weighing going public for years, with reluctance coming from the added scrutiny to the secretive nature of much of its business.

In a prepared release late Monday, Palantir said it had submitted its filing to the Security and Exchange Commission for confidential review and that a public stock listing is expected afterward “subject to market and other conditions.”

With the U.S. stock market rallying in recent weeks, a number of tech companies have gone public including Vroom, which sells used vehicles online, and Lemonade, an insurance start up.

Eoin Treacy's view -

Going public is not for everyone. If a company’s margins and market niche would attract attention and competition there is a clear incentive to stay private. Therefore, when a group of companies that have long eschewed the opportunity to list decide to do so, it is often a signal of the wider market environment not least because it affords early investors an opportunity to exit the business.



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July 07 2020

Commentary by Eoin Treacy

White House Wants Stimulus by August Recess With $1 Trillion Cap

This article by Jordan Fabian and Kevin Cirilli for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump and senior White House officials have said a payroll tax cut, liability reform, tax incentives for businesses to adapt to the pandemic and a potential back-to-work bonus are priorities for the administration.

Short said the White House views liability protections as “essential” for companies to bring workers back and fully re-open the economy.

The administration wants to be sure it’s “striking the right balance between income replacement on the one hand, and ensuring that we don’t have excessively high implicit tax rates on the return to work, on the other hand,” Tyler Goodspeed, acting chairman of the president’s Council of Economic Advisers, said in a separate interview with Bloomberg Radio.

Implicit tax rates can’t exceed 100%, he said, meaning it can’t be more lucrative for workers to stay at home. But any plan will require “not allowing a big blow to household income,” which is core to the economy, Goodspeed added.

Ohio Republican Brad Wenstrup, a member of the House’s tax-writing committee, said the package should address the ability of working parents to find childcare and helping schools to reopen.

“We have a shortage of day care providers,” he said in another Bloomberg Radio interview. “I am going to look for incentives for those type of programs.”

Congress in March passed a $2.2 trillion pandemic relief program, with carve-outs for small businesses and the airline industry as well as multiple lending programs for corporations and Main Street businesses through the Federal Reserve. Treasury Secretary Steven Mnuchin sent out nearly $1 trillion in the first month after that bill became law, through checks directly to American families, forgivable loans to companies and unemployment insurance.

Still, much of that money remains unused. The Treasury Department has yet to disburse any loans from a $25 billion pool for airlines, and most of a $17 billion carve-out for firms deemed critical to national security remains untapped.

Eoin Treacy's view -

The idiosyncrasy of how data sets are reported means the rebound in economic activity probably looks better than it is. If an historic decline occurs it will necessarily result in a deep decline. If the rebound from that low is in the order of 10% it will come through as an historic percentage advance and yet the absolute level of activity may still be well below the peak.



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July 06 2020

Commentary by Eoin Treacy

Email of the day on psychological perception stages of a new bull market

Your comment on psychological perception stages. I find it most interesting that in the financial press in the UK at this point in time, the "g" word is very rarely mentioned by any of the financial journalists I follow, let alone recommending any gold mining companies. I wonder if this could be a sign that we are still in the latter stages of the "disbelief" phase regarding gold as an investment despite all the signs that a bull market is now underway.

Eoin Treacy's view -

Thank you for this question. There is a ‘stealth’ bull market underway in gold and a number of miners have posted impressive returns over the last 18 months. That is being overshadowed, right now, by the continued outperformance of large cap technology companies which are now accelerating higher.



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July 06 2020

Commentary by Eoin Treacy

Prospering in the pandemic: the market winners

Thanks to a subscriber for this article by Tom Braithwaite for the Financial Times. Here is a section:

We also ranked them. It would have been nice to use profits or sales as the gauge of success. But the lag in reporting and different calendars made that impractical, even for public companies. So we stuck with a market measure, accepting that — in the saying attributed to value investing doyen Benjamin Graham — the market is only a “voting machine” in the short run, rather than a “weighing machine”.

But which market measure? For the main rankings of the top 100, we opted for equity value added. That list included some of the clear “winners” from the pandemic, such as Netflix and Zoom Video. But it has one obvious flaw: it favoured those that were already large. Companies including Nestle, L’Oréal and Alibaba made the cut despite single-digit percentage gains in value.

If we had used percentage gains, the list would have had the opposite problem, favouring smaller companies, penny stocks that can swing wildly on trades of modest value. However, we still wanted to assemble an alternative ranking to highlight some less known but still significant winners. To do this, we used percentage gains but with a $10bn floor for market cap.

This brings into the top 100 companies that escaped the original list such as Ocado, the UK online supermarket that has reinvented itself as a global tech supplier to other grocers, and Peloton, whose stationary bikes equipped with video screens for online classes have surged in popularity as gyms closed. But otherwise the top 100 has a lot of the original big names such as Tesla, Pinduoduo and PayPal.

If the floor is $1bn, there is a lot more shuffling around. On this measure, Novavax comes top, with a 1,900 per cent rise in value. There is little mystery behind this: Novavax has a vaccine candidate for Covid-19 and is racing to expand its manufacturing capacity. 

Eoin Treacy's view -

There is no doubt that for some companies the COVID-19 crisis has been a gift. It accelerated customer acquisition efforts while also lower lowering borrowing costs and boosting liquidity. High growth companies that reside online, instead on Main Street, were already gaining market share from brick and mortar. That process has not gone into overdrive as the number of retail bankruptcies surges.



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July 03 2020

Commentary by Eoin Treacy

Psychological Perception Stages of Major Bull Markets

Eoin Treacy's view -

At The Chart Seminar we discuss the progression of investor psychology through disbelief, acceptance and into mania as bull markets develop, evolve and eventually end.  John Templeton’s quote “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.” Is relevant to that discussion.



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July 02 2020

Commentary by Eoin Treacy

Email of the day - on a stay at home index

“Are you able to create a Work From Home/Stay at Home index for you/us to track on a regular basis. Today has been another big day for many of these stocks with Shopify for example up another 7% in here today, clearing the $1,000 level, Netflix up 5%, Amazon 4%, Peloton up 4, DocuSign up 4, and Wayfair 11%! Regretfully I’m not involved in any of these as I can’t get my head around valuations. When will this madness stop?”

Eoin Treacy's view -

Thank you for this email which highlights the dilemma of many people on the side-lines of the broad market rebound. There is always a crisis of confidence for anyone who has missed a rebound and is presented with the choice of buying a breakout or waiting for a pullback. That is amplified during accelerations where the fear of missing out is weighed against the fear of sitting through a reversal.



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July 02 2020

Commentary by Eoin Treacy

Email of the day on hydrogen

I loved your article but why don't you mention the rise of hydrogen and the use of green hydrogen as being a valuable alternative as an energy storage tool for the future (we are talking about 2040!)? It's also more logical as energy source for trucks as batteries alone are far too heavy...

Eoin Treacy's view -

Thank you for your kind words and this email which raises some important points. I have been of the opinion for years that the low price of natural gas would seed a hydrogen economy. That now appears to be coming to fruition. Ultimately, the production of hydrogen will be replaced with less reliance on fossil fuels, but we are reliant on gas for at least the next decade to deliver supply.



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July 01 2020

Commentary by Eoin Treacy

The FDA Wants a Covid-19 Vaccine That Really Works

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

The path the FDA outlines is a long one. It’s going to take a while to recruit and enroll 30,000 people in a trial and give half of them two shots in the arm — as Moderna Therapeutics Inc. intends to do to test its candidate. And until a sufficient number of subjects in the placebo arm of such a trial contract Covid-19, there won’t be any firm results. Any number of variables could cause further delays: bad luck, a poor vaccine performance, or slowing case growth.

The FDA is by no means ignoring the urgency of the moment. Its guidance includes a variety of concessions on safety data and other issues that are meant to speed the process. But the world can be grateful the agency is willing to bend only so far.
 

Eoin Treacy's view -

Setting a high standard for a vaccine that will be administered to hundreds of millions of people is imperative. It is the minimum requirement to instill faith in the population that it is worth accepting. I have every expectation that the advances in genetic sequencing and editing will deliver a positive result this year and that a true second wave will be avoided.

The impatience many people feel is perhaps the biggest obstacle to containing the spread before a vaccine has been delivered. I even find myself being less vigilant now than I was a few months ago. That is despite the massive swell of community spread and the greater likelihood of contracting it as a result. That’s a good example of how even the most extreme situation can assume an air of normalcy after a relatively short period of time. That’s one of humanity’s greatest survival instincts, although it is not especially helpful in the short term.



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July 01 2020

Commentary by Eoin Treacy

Tesla China Plant Might Have Come to the Rescue Last Quarter

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

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

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

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

Eoin Treacy's view -

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



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June 30 2020

Commentary by Eoin Treacy

IOTA Takes Step Towards Decentralized Network

This article by Sead Fadilpašić for cryptonews.com may be of interest to subscribers. Here is a section:

IOTA is continuing its path towards the so-called 'Coordicide' - the death (that is, the removal) of the Coordinator, which is a node run by the IOTA Foundation for network protection and transaction confirmation. The goal of this act is to make the network decentralized.

In order to "solve blockchain’s biggest issues with scalability and decentralization," as the Foundation said in their announcement, they are launching the first testnet of the decentralized network. It is a new protocol called Pollen.

Pollen's goal is to enable the community, researchers and developers to "test and validate the concepts of IOTA 2.0, which will serve as IOTA’s Coordinator-free network," the press release said. People can now test and work independently on the components such as rate-limiting, Mana (reputation-based system), and Fast Probabilistic Consensus (new consensus algorithm that doesn't need the centralized Coordinator).

"IOTA has spent the last year researching a solution that will ultimately replace its current network in the first half of 2021," they said.

Whether the Coordinator will indeed be killed in the first months of 2021 is "always hard to say," Dan Simerman, Head of Financial Relations at the IOTA Foundation, told Cryptonews.com. "Right now IOTA's actually ahead of schedule, so it’s very well possible it could be sooner. But, IOTA always like to be safe and ensure things are at their best."

Eoin Treacy's view -

The holy grail for cryptocurrency acolytes is to have a fully automatic network, without relying on any one group that might theoretically exert control, while also being quick enough to compete with payment networks like Visa and Mastercard.



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June 29 2020

Commentary by Eoin Treacy

Growth of Working-Age Adults Hasn't Kept Up With Graying America

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

The aging population is pushing up the insolvency dates of the major trust funds that many seniors reply on. The CRFB now sees the Medicare Hospital Insurance trust fund going bust by 2023, and the combined Social Security trust funds depleted by 2031.

Almost 13 million Americans are older than 80, and the number of centenarians almost doubled from 2010 to more than 100,000 last year, according to the data.

The aging of America and low births mean that the U.S. dependency ratio has increased. The ratio looks at the size of the population younger than 15 (60,570,846 in 2019) and the 65-and-older population (54,058,263) and how their combined size compares to the population age 15 to 64 (213,610,414).

In 2019, the dependency ratio showed that for every 100 people of working age, there were almost 54 other Americans potentially needing support.
 

Eoin Treacy's view -

The age group most at risk from the coronavirus is well reported to be the over 60s. This group staying at work beyond the traditional retirement age was one of the primary reasons the US economy was able to contain inflation despite peak employment and a rising participation rate. If many of these people fail to return to work, they go from being contributors to beneficiaries of state supports.



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June 26 2020

Commentary by Eoin Treacy

Email of the day - on island reversals

Looking at the daily charts of the Dow Jones and S&P there appears to be potential "island reversals". Do these "islands" carry much weight in charting terms?

Eoin Treacy's view -

Thank you for this question which I believe will be of interest to the Collective. In order for an island reversal to form we need to first see a breakaway gap form which is generally consistent with a burst of enthusiasm. That has to be followed shortly afterwards by a breakdown gap which is consistent with a sudden bout of fear which nullifies the initial surge.



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June 23 2020

Commentary by Eoin Treacy

The 'Fed story' will win out over second wave and election fears, UBS says. It's time for investors to get off the sidelines

Thanks to a subscriber for this article by Callum Keown for MarketWatch. Here is a section:

The analysts, led by chief investment officer Mark Haefele, said three narratives were currently driving markets; the ‘Fed story’ — ongoing central bank stimulus — the second-wave story, and the U.S. election story. Fears of a second coronavirus wave have come to the fore in recent days, with spikes in Beijing, Germany and a number of U.S. states. The UBS team said that U.S.-China tensions fed into the election narrative, which would come into focus over the next four months.

“Overall we see the second-wave and U.S. election stories as contributing to market volatility as headlines feed investors’ hopes and fears about the speed and strength of the economic recovery. But it is the Fed story that will endure over the medium term,” they said in a note on Monday. They said they were positive on the outlook for both equities and credit, preferring USD high yield, Asian high yield and USD-denominated emerging market sovereign bonds as well as stocks in sectors that have so far lagged behind the market.

“Against this backdrop, we think the most important thing an investor can do is to be invested, rather than sitting on the sidelines. As earnings are likely to recover in the second half of the year and excess liquidity continues to support risk assets, we see further upside potential in global equities, in particular among sectors that have lagged the rally so far,” they added.

Eoin Treacy's view -

Monetary policy beats most other factors most of the time” was one of David’s favourite sayings and it has certainly helped to inflate asset prices over the last 12 years. The process began another upward cycle when the Fed reversed its quantitative tightening program last year in response to the illiquidity in the repo market. It went into overdrive when following the imposition of the lockdowns.



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June 23 2020

Commentary by Eoin Treacy

The New Weapon in the Covid-19 War

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

Back in 2003, when the original SARS virus started killing people in Hong Kong at a frightening rate, DeRisi sequenced its genome. But the process was too slow and expensive to be of practical use. “It’s 50,000-fold cheaper now than it was for SARS,” he told me. “What cost me $10,000 to do in 2001 now costs a penny.” And so we might now test for the virus in a way that gives us a picture that you can’t get from more conventional random sampling. Explore how the virus works in one neighborhood and you can apply what you learn to others. “Our state government should be doing this,” said DeRisi. “It should be asking: What are our social relationships and which ones lead to the transmission of disease? That’s what you would do in a rational society.”

Eoin Treacy's view -

The world was caught flatfooted with COVID-19 and many countries are still struggling to get a handle on how best to deal with a wholly new pathogen that seemed to spring out of nowhere. The big difference on this occasion is all historical comparisons are likely to be inaccurate because of the leaps in technological innovation that have taken place since the sequencing of the human genome almost twenty years ago.



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June 19 2020

Commentary by Eoin Treacy

The Anatomy of a Rally

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

Questions like these can’t tell us for a fact whether an advance has been reasonable and current asset prices are justified. Buy they can assist in that assessment. They lead me to conclude that the powerful rally we’ve seen has been built on optimism; has incorporated positive expectation and overlooked potential negative; and has bene driven largely by the Fed’s injections of liquidity and the Treasury’s stimulus payments, which investors assume will bridge to a fundamental recovery and be free from highly negative second-order consequences.

A bounce from the depressed levels of late March was warranted at some point, but it came surprisingly early and quickly went incredibly far. The S&P500 closed last night at 3,133, down only 8% from an all-time high struck in troubled-free times. As such, it seems to me that the potential for further gains from things turning out better than expected or valuations continuing to expand doesn’t fully compensate for the risk of decline from events disappointing or multiples contracting.

In other words, the fundamental outlook may be positive on balance, but with listed security process where that are, the odds aren’t in investors’ favor.

Eoin Treacy's view -

The rise of earnings-agnostic investing has been a trend which has defined the bull market since 2008. Every major bull market thrives on a financial innovation. It would be tempting to think that in this case it was cryptocurrencies, but the answer is probably more mundane. ETFs have enabled factor investing and promoted the acceptance of Modern Monetary Theory. They have allowed companies like Blackrock and Vanguard to become titans of Wall Street on the back of value-agnostic investing.  



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June 18 2020

Commentary by Eoin Treacy

Daily Observations

Thanks to a subscriber for this note from Bridgewater which includes a number of interesting discussion points on the outlook for stock market returns over coming months. Here is a section:

Eoin Treacy's view -

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

There is a solid argument that the coronavirus lockdown is this generation’s Y2K. Back in the late 1990s there was a real fear electronics would stop working when the date ticked over into 01.01.2000. It prompted substantial investment in additional tech infrastructure and accelerated the rollout of the internet.



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June 17 2020

Commentary by Eoin Treacy

More early data revealed from landmark CRISPR gene editing human trial

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

The very first patient treated with CTX001 is now at a 15-month follow-up point, and the data suggests the therapy is still efficacious with no long-term complications detected. Nine months on from treatment the first sickle cell disease patient is also displaying promising results, free of any sickle cell-related adverse events.

“In my 25 years of caring for children and young adults facing both sickle cell disease and beta thalassemia, I have seen how these diseases can adversely affect patients’ lives in very significant ways,” says Haydar Frangoul, from the Sarah Cannon Research Institute. “I am encouraged by the preliminary results, which demonstrate, in essence, a functional cure for patients with beta thalassemia and sickle cell disease.”

Eoin Treacy's view -

Genetic diseases shorten lives and represent significant drains of finances for many families. The promise of a cure has long been too much to hope for but we are likely to see sickle cell anaemia, thalassemia, cystic fibrosis and muscular dystrophy eradicated in our lifetimes.



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June 16 2020

Commentary by Eoin Treacy

Consolidation happens fast

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

Eoin Treacy's view -

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

There is no question that the pace of market action has picked up. We had the quickest drop from an all-time high in history and one of the swiftest rebounds in history. On top of that, the Federal Reserve has morphed from being reactive to proactive. In so doing its actions are pre-empting weak economic figures which has helped to support asset prices.



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June 16 2020

Commentary by Eoin Treacy

Amazon Faces a Sharp Challenge from Walmart and Shopify

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

The announcement adds another major player to Shopify’s growing alliance against Amazon.com Inc.’s e-commerce dominance. Last month, I wrote how Shopify CEO Tobi Lutke has often said his company’s goal was to “arm the rebels” against the Amazon empire. The Walmart deal comes just weeks after Shopify signed a partnership with Facebook Inc. that allows Shopify’s merchants to sell on the social-media giant’s platforms under the newly launched Facebook Shops initiative. Before these moves, the aggregated online sales of Shopify’s U.S. customer base already ranked as the second-largest in the country after Amazon, according to the company. And now with Walmart on board and the expanded deal with Facebook, they mark significant steps to expand Shopify’s eco-system, making its platform a more viable and an attractive alternative to sellers.

Eoin Treacy's view -

Amazon is a facilitator of commerce by being a destination in its own right. When people shop, they go to Amazon in much the way we go to Google for information. Anyone who completes a transaction via Shopify’s network is ignorant of the company’s existence because it facilitates trade in the background. The big challenge in competing against Amazon is in easing the route to customer acquisition for Shopify sellers.



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June 11 2020

Commentary by Eoin Treacy

Mnuchin Says U.S. Can't Shut Economy Even If Virus Resurges

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

Treasury Secretary Steven Mnuchin said the U.S. shouldn’t shut down the economy again even if there is another surge in coronavirus cases.

“You create more damage, not just economic damage -- medical problems that get put on hold,” Mnuchin said Thursday on CNBC. “We can’t shut down the economy again.”

Mnuchin added that he believed President Donald Trump made the right decision to urge states to ease social distancing rules that have crippled the U.S. economy. He said that in the event of a resurgence, it will not be necessary to impose restrictions again because Covid testing and contract tracing are improving and they understand more about how to contain outbreaks.

As restrictions are lifted across the country, signs of a second wave of coronavirus cases in the U.S. have been raising alarms. More than 2 million people in the U.S. have been infected so far.

Eoin Treacy's view -

The majority of coronavirus cases in the USA emerged on the coasts. The middle of the country was comparatively unaffected initially and was afforded the luxury of lax containment measures as a result. The uptick in locations which had large protests a week ago, like Los Angeles, and the rising infection rates in places that did not have a significant issue in March, suggest the first wave of infections is still rolling through communities.



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June 10 2020

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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June 09 2020

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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June 09 2020

Commentary by Eoin Treacy

Shell's CEO Worries About a Disorderly Energy Transition: Q&A

This interview of Shell CEO Ben van Beurden for Bloomberg may be of interest. Here is a section:

Assuming you don’t get government support to advance research in hydrogen production and carbon capture and storage, what will you have to do to make those viable?

Stay with the program a little bit longer. That’s exactly what we’re doing. You could take a negative view and say we knew that hydrogen was a good thing and we knew that CCS [carbon capture and storage] was needed, but it hasn’t happened. I’m not signing up for that approach. We need a lot of hydrogen in the mix. We need significant CCS. My prediction is that in the next few years you will see CCS projects come off the ground. You will see very large-scale hydrogen projects come off the ground as well. And I hope we will be associated and involved in each and every one of them.

Eoin Treacy's view -

Hydrogen is where traditional oil companies see their future. It does not produce emissions. That ticks a lot of boxes for companies long associated with being among the world’s biggest polluters in their own right while also facilitating emissions growth wherever there are internal combustion engines.



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June 09 2020

Commentary by Eoin Treacy

1968 Was a Horrendous Year But 2020 May Be Worse

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

As a white, middle-aged, upper-middle-class immigrant, I’m hardly the person to speak to the politics of race in America.  So I turned to an African-American friend, the economist Roland Fryer, whom I’ve known since we were colleagues at Harvard.

In 2016, he published a brilliant but controversial paper which argued that the police did not disproportionately use lethal violence against black people, though they were more likely to use non-lethal force against them. (A paper published last year in the Proceedings of the National Academy of Sciences lent strong support to Fryer’s thesis.) He has a new, unpublished paper that looks at a perverse effect of investigations into police shootings. I asked Fryer to walk me through the argument.

“If you have a police shooting that goes viral online but isn’t investigated,” he explained, “then nothing changes — levels of police activity and crime are about the same. But if you have a viral shooting that is investigated, then police activity plummets, and crime goes up dramatically.” In just five cities – Baltimore; Chicago; Cincinnati; Ferguson, Missouri; and Riverside, California -- this led to excess homicides of almost 900 people in the subsequent 24 months, 80% them black, with an average age of 28. It's a dangerous Catch-22: You're damned if you don't investigate “viral” incidents, and in even worse shape if you do.

How does Fryer interpret the current protests? “People are fed up,” he told me. “They are frustrated by the disparities they see in educational outcomes. Frustrated by the disparities they see in criminal justice. Frustrated by racial disparities in life expectancy. We are all to blame — this happened on our watch.” And when you add to that the fact that Covid-19 disproportionately affected the black community: “Folks have had enough. People are very much on edge.”

Eoin Treacy's view -

Policing and the outcomes from tough to loose methods is endlessly debatable and not least because of the credit politicians claim for successes that may or may not be attributable to their policies.

That was one of the primary topics of discussion in the book Freakonomics where the coincidence of abortion legislation and the implied reduction in the number of unwanted children implied reduced crime figures twenty years later. A similar argument is made about the impact of removing lead from gasoline and how that improved mental health outcomes and, by extension, crime rates.



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June 08 2020

Commentary by Eoin Treacy

A Million-Mile Battery From China Could Power Your Electric Car

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

CATL struck a two-year contract in February to supply batteries to Tesla, a major boon for the Chinese company as the U.S. electric-car leader has thus far mainly worked with Japan’s Panasonic Corp. and South Korea’s LG Chem Ltd. The deal followed months of negotiations, with Tesla Chief Executive Officer Elon Musk traveling to Shanghai to meet with Zeng.

The CATL batteries are set to go into Model 3 sedans produced at Tesla’s massive new factory near Shanghai, which started deliveries around the beginning of this year. Batteries are the costliest part of an EV, meaning suppliers of those components have a chance to reap a lion’s share of the industry’s profits.

Eoin Treacy's view -

A battery which does not lose its charging capacity for over one million miles is a significant technological advance for the electric car industry. One of the biggest inhibiting factors, apart from cost, which deterred consumers from buying electric cars was their low resale value. The degradation of the battery over only a couple of years basically made cars worthless. The introduction of the million-mile battery completely changes that calculus. The next obstacles are the recharging network and range on a single charge.



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June 05 2020

Commentary by Eoin Treacy

Email of the day on caution at potential areas of resistance

“You have been calling for some ‘consolidation’ for equity markets for a number of weeks now (which I expected too), but this just hasn’t come to pass. Instead we have seen a relentless charge higher in virtually every market. You’ve stated that it’s liquidity driven which until recently at least, little participation from the professional money managers. Short term yields no longer can be relied upon as a risk indicator with the Fed deliberately compressing yields at the front end. To what extent, if any, has this recent episode viewed the way you look at markets through a charting lense. A despondent sceptic of this rally here, it seems the only winning strategy is just to ride the liquidity train, and rotate one’s positions towards riskier assets (travel, emerging etc) as the new safe havens (tech) reach maturity.

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. In a response to a similar email on May 12th. I led with this observation. “The best time to buy is following a significant pullback. The next best opportunity is following the first reaction from an important low. The next will be when a breakout to new highs occurs.



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June 04 2020

Commentary by Eoin Treacy

Living on the Edge, Part 5: Enabling & Empowering Locally

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

Eoin Treacy's view -

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

Each new rollout of mobile technology has led to a new round of innovation in the global economy which has created new investment sectors. The rollout of 4G enabled social media, streaming on phones, a growth opportunity for mobile payments, financial services and online retail.



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June 03 2020

Commentary by Eoin Treacy

Latest Satoshi Nakamoto Candidate Buying Bitcoin No Matter What

This article by Olga Kharif for Bloomberg may be of interest to subscribes. Here is a section:

One reason is, Back believes Bitcoin will go to $300,000 from the current approximate price of $10,000 within five years -- without any additional adoption by institutional investors. Retail investors, who’ve carried the torch for the last 10-plus years, since Bitcoin’s debut, will continue to show support as institutions remain cautious, he said.

“It might not require additional institutional adoption because the current environment is causing more individuals to think about hedging,” Back said. “And retaining value when there’s a lot of money printing in the world.”

With more people working from home amid the Covid-19 epidemic, real-estate investments are more risky, he said. Bonds may be overvalued. And so some investors may be turning to Bitcoin, even though it too could see some headwinds as more people lose jobs, he said.

“It is causing people to think about the value of money and looking for ways to preserve money,” Back said. “It’s a difficult environment to get any yield.”

One reassuring sign of demand is that Grayscale Investments alone has bought more Bitcoin in the past few weeks than the amount of new coins that has been mined, Back said.

Eoin Treacy's view -

The rationale for owning bitcoin is it is a resource with limited supply. Much of that supply is held outside the market and the mining of new supply has just become twice as difficult. The price has increased substantially following previous having of the mining reward but on this occasion that has yet to happen.



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May 27 2020

Commentary by Eoin Treacy

Email of the day on the potential for a second wave of infections

Dear Eoin, thank you for the excellent insights into market dynamics. There is one thing which you state from time to time - viz that you do not believe there will be a second wave of the virus in the Autumn. What leads you to believe that - we don't seem to know that much about the virus. So how can you know that there will not be a second wave in the Autumn? Although I definitely agree with you that authorities will do everything in their power to avoid more lock-downs. Many thanks, A

Eoin Treacy's view -

Thank you for this question which may also be of interest to other subscribers. Coincidence does not imply causation even though as humans we are hardwired to recognize patterns. In fact, we are so desperate to make sense of inscrutable situations that our minds will latch onto anything that provides a sense of security. However, the coronavirus is the not the 1917/18 influenza.



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May 26 2020

Commentary by Eoin Treacy

Italy Says 96% of Virus Fatalities Suffered From Other Illnesses

This article by Tommaso Ebhardt and Marco Bertacche for Bloomberg may be of interest to subscribers. Here is a section:

The coronavirus outbreak in Italy has struck overwhelmingly among the nation’s older population and those with preexisting medical conditions, according to the national health authority.

Almost 96% of the country’s virus fatalities had previous medical conditions, data from Italy’s ISS health institute show. The ISS, which publishes a range of studies on the outbreak including a detailed weekly report, confirms a trend seen since the beginning of the emergency, with the average age of Italians who’ve died from the virus at around 80.

“The latest numbers show that new cases and fatalities have a common profile: mostly elderly people with previous illnesses,” ISS chief Silvio Brusaferro said at a news conference Friday.

Eoin Treacy's view -

The coronavirus pandemic forces us to engage in some grizzly calculus to try and figure out how markets are likely to respond to unfolding events. The reality of aging is we develop chronic conditions, one of which is likely to eventually kill us. Whether that is high blood pressure, heart disease, cancer or diabetes, aging contributes to the ill effects of all these ailments.



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May 26 2020

Commentary by Eoin Treacy

Elon Musk's SpaceX Readies First Astronaut Launch by Private Firm

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

SpaceX’s efforts to launch astronauts into orbit have suffered various delays, totaling about four years, including two catastrophic explosions of its Falcon 9 rocket and nagging safety concerns about the Dragon capsule riding on top.

Having a reliable American system would mean NASA astronauts no longer need to piggyback on Russian rockets and spacecraft, as they have since the aging U.S. space-shuttle fleet was retired nine years ago. Looking ahead, NASA and White House officials envision emphasizing deep-space exploration as part of a commitment to relying on similar corporate-government teams. Those would include company-led endeavors, with relatively limited federal oversight, taking astronauts to the moon as soon as 2024 and later to Mars or beyond.

Along those lines, Mr. Musk’s team has proposed a mammoth rocket carrying a companion deep-space craft—partly stainless steel and reaching some 40 stories together—intended to eventually transport large numbers of passengers. So far, NASA has committed $135 million to help develop the portion that could serve as a lunar lander.

Some longtime NASA watchers see the current mission as a crucial steppingstone, perhaps as significant in some ways as the Gemini missions of the mid-1960s that paved the way for the Apollo moon landings. But this time, making the government “a customer rather than operator is as astonishing as it is bold for NASA,” said Mark Albrecht, a former White House space adviser and retired senior industry executive. “NASA will take the blame for failure and allow SpaceX to receive most of the glory of success.”

Eoin Treacy's view -

Elon Musk will probably be remembered as the father of electric vehicles and simultaneously the father of interplanetary travel. However, while he is an engineering genius, his expertise in getting other people to pay for his aspirational dreams is truly worthy of praise. Tesla might be a battery company, but it would not exist without carbon credits where its competitors fund its expansion.



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May 21 2020

Commentary by Eoin Treacy

China's Got a New Plan to Overtake the U.S. in Tech

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

In the masterplan backed by President Xi Jinping himself, China will invest an estimated $1.4 trillion over six years to 2025, calling on urban governments and private tech giants like Huawei Technologies Co. to lay fifth generation wireless networks, install cameras and sensors, and develop AI software that will underpin autonomous driving to automated factories and mass surveillance.

The new infrastructure initiative is expected to drive mainly local giants from Alibaba and Huawei
to SenseTime Group Ltd. at the expense of U.S. companies. As tech nationalism mounts, the investment drive will reduce China’s dependence on foreign technology, echoing objectives set forth previously in the Made in China 2025 program. Such initiatives have already drawn fierce criticism from the Trump administration, resulting in moves to block the rise of Chinese tech companies such as Huawei.

Eoin Treacy's view -

China is deadly serious about becoming the global hegemon. The rest of the world has been happy to play along to get along for the last twenty years because forced technology transfer was deemed an acceptable price for the promise of benefitting from the world’s largest consumer market. The freezing out of technology companies from the Chinese market more than a decade ago should have raised red flags. Fortunately, the world is finally waking up to the fact it is dealing with a dictatorial regime intent on turning us into a series of vassal states.



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May 20 2020

Commentary by Eoin Treacy

Musings from the Oil Patch May 2020

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

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

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

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

Eoin Treacy's view -

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

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



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May 19 2020

Commentary by Eoin Treacy

Chips and Geopolitics

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

First, while we learned in 2016 that technology was inseparable from domestic politics, the lesson in 2020 should be that technology is inseparable from geopolitics. It is chips that gave Silicon Valley its name, and everything about this chip decision is about geopolitics, not economics.

Second, at some point every tech company is going to have to make a choice between the U.S. and China. It is tempting to blame the tension between the two countries on Trump, but the truth is that China, particularly under Xi Jinping, has been significantly hardening its rhetoric and actions since before Trump was elected, and has been committed to not just catching but surpassing the U.S. in technology for years. There is a fundamental clash of values between the West and China, and it is clear that China is interested in exporting theirs. At some point everyone will be stuck in the middle, like TSMC, and Switzerland won’t be an option.

Third, Intel, much like Compaq, is an allegory for where the U.S. seems to have lost its way. Locked in an endless pursuit of efficiency and shareholder value, the U.S. gave up its flexibility and resiliency in favor of top-end performance. Intel is one of the most advanced chip makers in the world, but it turns out that capability is far too constrained to its own needs to be of general applicability. Worse, to the extent Intel was willing to become a contract manufacturer, it wanted the federal government to pay for it, the better to satisfy shareholders. The government, rightly, in my mind, chose an operator that was actually used to operating in the world as it is, not once was.

At the same time, TSMC’s justifiable carefulness in building a U.S. fab gives Intel an opportunity. Back in 2013, in one of the first Stratechery articles, I urged the company to embrace manufacturing and give up its integration, margins be damned. Intel specifically, and the U.S. generally, would be in far better shape had they acted then. As the saying goes, though, the second best time to start is now — and that applies not only to Intel, which should spend the money to get into contract manufacturing on its own, but also to the U.S. The world has changed, and it’s time to act accordingly.

Eoin Treacy's view -

Resiliency is likely to be the buzz word of the 2020s. Rising geopolitical tensions have been a factor for a few years already but did not have a great deal of urgency attached to them. The lockdowns and collapse of global supply chains highlighted the fragility of the global trade network, Meanwhile, the increasingly ambivalent tone of US/China relations are unlikely to get better any time soon.



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May 19 2020

Commentary by Eoin Treacy

China Considers More Economic Pain for Australia on Virus Spat

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

The office of Australian Trade Minister Simon Birmingham declined to comment. When asked about the list, China’s foreign ministry didn’t address the specifics but said the government “has always sought to find common ground while putting differences aside, cooperate to achieve win-win results and will not harm others to benefit oneself.”

“We hope the Australian and Chinese side can meet in the middle, take more measures to improve bilateral relations and deepen mutual trust, and provide favorable conditions and atmosphere for practical cooperation in various areas,” the ministry said.

Australia’s China Addiction Leaves It Vulnerable to Trade Spat

Speaking earlier at a briefing in Beijing on Tuesday, Chinese foreign ministry spokesman Zhao Lijian said China would back a resolution at the World Health Assembly later Tuesday that calls for a “comprehensive assessment” of the pandemic that differs from “Australia’s earlier proposal of a so-called independent global review.”

“We suggest the Australia side to go through the text carefully,” Zhao said. “If Australia is willing to change its course and give up the political manipulation of the pandemic, we will welcome that.”

Eoin Treacy's view -

Asking for an independent review of the origins of a virus which has ravaged the global economy is reasonable. That’s particularly true when it comes to trying to figure out where the next pathogen is likely to arise from and acting to prevent it. China has already razed and sanitised the wet market in Wuhan. That was completed in February so they have no intention of allowing an investigation.



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May 18 2020

Commentary by Eoin Treacy

Doordash and Pizza Arbitrage

This article by Ranjan Roy for themargins is a wonderful story of life imitating art. Here is a section:

But he brought up another problem - the prices were off. He was frustrated that customers were seeing incorrectly low prices. A pizza that he charged $24 for was listed as $16 by Doordash.

My first thought: I wondered if Doordash is artificially lowering prices for customer acquisition purposes.

My second thought: I knew Doordash scraped restaurant websites. After we discussed it more, it was clear that the way his menu was set up on his website, Doordash had mistakenly taken the price for a plain cheese pizza and applied it to a 'specialty' pizza with a bunch of toppings.

My third thought: Cue the Wall Street trader in me…..ARBITRAGE!!!!

If someone could pay Doordash $16 a pizza, and Doordash would pay his restaurant $24 a pizza, then he should clearly just order pizzas himself via Doordash, all day long. You'd net a clean $8 profit per pizza [insert nerdy economics joke about there is such a thing as a free lunch].

He thought this was a stupid idea. "A business as successful a Doordash and worth billions of dollars would clearly not just give away money like this." But I pushed back that, given their recent obscene fundraise, they would weirdly enough be happy to lose that money. Some regional director would be able to show top-line revenue growth while some accounting line-item, somewhere, would not match up, but the company was already losing hundreds of millions of dollars. I imagined their systems might even be built to discourage catching these mistakes because it would detract, or at a minimum distract, from top-line revenue.

So we put in the first order for 10 pizzas.

Eoin Treacy's view -

I had to smile when I read this article because it is almost the exact plot line from an episode of HBO’s Silicon Valley Mrs. Treacy and I watched over the weekend but from two years ago. Start-ups lighting money on fire is about as clear a sign of bubbly activity one might wish for.



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May 18 2020

Commentary by Eoin Treacy

Justice Department, State Attorneys General Likely to Bring Antitrust Lawsuits Against Google

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

Both the Justice Department and a group of state attorneys general are likely to file antitrust lawsuits against Alphabet Inc.’s Google—and are well into planning for litigation, according to people familiar with the matter.

The Justice Department is moving toward bringing a case as soon as this summer, some of the people said. At least some state attorneys general—led by Texas Attorney General Ken Paxton, a Republican—are likely to file a case, probably in the fall, people familiar with the matter said.

Much of the states’ investigation has focused on Google’s online advertising business. The company owns the dominant tool at every link in the complex chain between online publishers and advertisers. The Justice Department likewise is making Google’s ad technology one of its points of emphasis. But it is also focusing more broadly on concerns that Google uses its dominant search business to stifle competition, people familiar with the matter said.

Eoin Treacy's view -

The issue of Google abusing its power to give preferential treatment to some advertisers over others has been brewing for some time. The additional charge that the company actively censures free speech and anyone who does not agree with their view of the world is an additional challenge which will be tackled eventually.



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May 14 2020

Commentary by Eoin Treacy

Email of the day on inconsistency in medium-term trends.

Eoin - appreciate your use of both the P&F and weekly chart against the moving average in your discussion of Microsoft.  When evaluating the consistency pattern of stocks (Microsoft and others), how do you "adjust" for circumstances such as COVID 19?  Clearly, Microsoft was negatively impacted like many other equities in the COVID induced meltdown, but has also rebounded more smartly than others.  Thanks, as always, for your insight and willingness to share same.

Eoin Treacy's view -

Thank you for this question which gets to the heart of a question I think most people are thinking at present. There are three important considerations when looking at market reaction. These are: where are we in the secular trend? Is liquidity expanding or contracting? What does the chart tell us about sentiment?



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May 14 2020

Commentary by Eoin Treacy

Email of the day on working from home

I can only agree with you having worked from home since the early 2000s (maybe you remember my office at home when you were with Bloomberg in Luxembourg). It fits well with businesses like ours where financial data et al. are immaterial or small ones focused on selling on internet. It is more difficult for activities where in situ interpersonal relationship is more important (journalism for example).

However, the time spent in endless and useless meetings where their organization or required presence has more to do with politics than business. Undoubtedly, working from home will increase productivity and reduce cost due to less space required at offices. As for retail, this should affect office prices.

Eoin Treacy's view -

Thank you for sharing your experience. I’ve always thought of commuting as the greatest waste of human productive capacity imaginable. Spending half an hour in the morning with my head in someone’s else armpit was never my idea of fun. If remote working becomes more acceptable, it will result in a significant loss of income for cities from corporate taxes and ancillary business income declining. That is an obvious risk in cities where property prices are at historic peaks.



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May 13 2020

Commentary by Eoin Treacy

Yelp's Link to Brick & Mortar Ad Base Keeps JMP on Sidelines

This note by Jeremy R. Cooke for Bloomberg may be of interest to subscribers. Here is a section:

Yelp shares are down as much as 15%, the most since late March, on a risk-off day for the market; JMP (market perform) in a note Wednesday highlights worries that the local search site will continue to suffer from social distancing and stay-at-home mandates affecting its advertising base.

Eoin Treacy's view -

This is another example of a company that has a reliance on brick and mortar businesses which is at severe risk of implosion. The experience of Tencent with outperformance in the Chinese gaming segment being counterbalanced by weakness in consumer finance is another example. Here is a segment from their quarterly report.



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May 13 2020

Commentary by Eoin Treacy

Twitter Says Employees Can Work From Home After Virus Recedes

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

“If our employees are in a role and situation that enables them to work from home and they want to continue to do so forever, we will make that happen,” Twitter said in the post. “If not, our offices will be their warm and welcoming selves, with some additional precautions, when we feel it’s safe to return.”

The company has more than 35 offices worldwide, including in Paris, New York and Toronto.

“We’ve been very thoughtful in how we’ve approached this from the time we were one of the first companies to move to a work-from-home model,” Twitter said in a statement. “We’ll continue to be, and we’ll continue to put the safety of our people and communities first.”

Eoin Treacy's view -

I’ve been working from home for 13 years. In fact, as soon we got the internet at home when I was 19 years old I decided I was going to find a job I could do from anywhere. Here are my two cents. 

If you someone is a self-starter in the office that will not change when they work from home. If a worker is a lay about in the office or relies on virtue signalling to the higher ups in the office. that is a lot more difficult to maintain when working from home.

Most workers will also quickly realise it is a lot easier to do two things at once on a video conference than it is in a conventional meeting. That runs the risk of tuning out in the event someone starts waffling. Generally, people are more willing to tolerate long rambling meetings in person than when at home.

For workers it is important to realise that you are not working from home. You now live at work. It is inevitable you will put in longer hours when working from home because there is always the temptation to “just check something”. Having a dedicated space or office for work is essential in my view. You need to be able to close the door on the inside world.

If more companies adopt work from home policies, as seems likely, demand for larger dwelling seems inevitable. My home has been fine for our needs for the last five years but now everyone is working from home. Just about every room in the house has been repurposed as an office, schoolroom, gym or studio. We are actively looking for a bigger home. That’s also something that will likely spur a migration from inner city smaller dwellings to larger suburban ones. That also will have a knock-on negative effect for central city office values.

Something everyone has had to deal with in lockdowns is we see a lot more of our children and spouses. That’s a good thing, the most precious thing in the world to me is the close relationship I have with my daughters. I have been priveleged to be with them for almost every day of their lives. However, many relationships survive on spouses only seeing each other for a few waking hours a day and on weekends. Prolonged interaction definitely raises the risk of partners getting on each other’s nerves and lockdowns certainly throw focus onto who does what around the house. I can say from experience that talking about these kinds of challenges is time well spent. Simultaneously accepting that one’s work life and home life are now the same is another major transition because both will be significantly affected.

Personally, I can’t see myself ever working in an office again. I am much more productive at home and I hate wasting time in meetings. The lockdowns will allow everyone to find out which they are best suited to and also whether their family life can support their preference.



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May 12 2020

Commentary by Eoin Treacy

Email of the day - on when to use point and figure charts

Thanks for your very clear and objective commentaries at moment. It is good that you are looking beyond the current crisis and thinking about what investments are likely to do best over the longer term. I notice that you have been referring to point and figure charts more recently. Under what circumstances do you find it best to use these, rather than a 'standard' daily / weekly price chart? Also, what do you recommend using for box size / reversal as an unleveraged investor, taking a medium / long term view?

Eoin Treacy's view -

Thank you for this question. It was pointed out to me at the last Chart Seminar that it had historically always been conducted using point and figure charts and that David had been known as a point and figure analyst so what caused the change.

David’s Chart Craft business produced chartbooks because they were the only way to get good charts before the internet changed everything. Point and figure allows one to look at a vast amount of history in a very condensed area and since the patterns do not change all that often, they were ideal for a monthly publication. When I started to work with David in 2003, just as we transitioned to a fully online service, the only time I saw David use p&f was at The Chart Seminar.

P&F is best in my opinion for investors rather than traders. We have always used closing prices, a 3-box reversal and the system defaults to a 2% box size. However, p&f charts need to be tailored and that is why a custom box size option is available.

I think p&f charts are most useful for clearly depicting how a trend’s consistency has broken down.



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May 12 2020

Commentary by Eoin Treacy

Email of the day - on chasing outperformers

With respect to the second note, and knowing your own preference to stay with the "winners" and cut the "losers", at what point do you look to valuations and question the sky-high prices people are willing to pay for these "winners"? I personally have a tough time chasing stocks that have already run, but for now at least, they just keep going, proving highly frustrating!

Eoin Treacy's view -

Thank you for this question which others may also have an interest in. The best time to buy is following a significant pullback. The next best opportunity is following the first reaction from an important low. The next will be when a breakout to new highs occur.



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May 12 2020

Commentary by Eoin Treacy

Email of the day on Japanese stocks and 6G:

I hope you and the family are handling the new normal? You certainly seem to, as there has been no decline in your daily's, in fact if anything they are like a good wine, getting better with age/experience.

I have recently checked all the Topix industrial indexes. Virtually all of them look like the majority of most world stock market indexes, except for two,

The Topix Telecommunication Index and the Topix Pharmaceutical Index.

They both compare more to the NASDAQ and one or two other stronger US indexes.

If you remember, late last year I sent you a list of Japanese 5G related companies, some of these are what my portfolio has consisted of most of this year. Many are performing in line with the NASDAQ, but when markets were selling off during March and April I added KDDI and DOCOMO to my list. I came across a DOCOMO white paper confirming their research into 6G!

Unfortunately, I do not have very much experience of the Pharma sector, except for the big names. So, if your collective could offer any ideas it would be much appreciated.

Thanking you in advance.

Eoin Treacy's view -

Thank you for your kind words and for highlighting the above sectors. This report from Sandvine highlights the fact 80% of all internet traffic is occupied by video streaming, gaming and social media. YouTube alone represents 15% while Netflix is 11%.



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May 11 2020

Commentary by Eoin Treacy

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

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

Eoin Treacy's view -

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

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



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May 11 2020

Commentary by Eoin Treacy

Sudden Bitcoin Crash Sparks Serious Coinbase Warning

This article by Billy Bambrough for Forbes may be of interest to subscribers. Here is a section:

The bitcoin price lost more than 10% in a matter of minutes yesterday evening, dropping to lows of $8,100 on the Luxembourg-based Bitstamp exchange before rebounding to settle around $8,600.

However, an outage on major U.S. bitcoin and crypto exchange Coinbase just after bitcoin's price plummet left many users unable to trade—the second time in less than a month Coinbase has buckled under stress.

"How many times do we have to say take your bitcoin off of Coinbase if you want to have access to it," Rachel Siegel, a bitcoin and cryptocurrency content creator, warned via Twitter, adding, "this is not the first time Coinbase has gone down and it surely will not be the last."

"Coinbase acting like the NYSE circuit breaking," joked Jason Williams, cofounder and partner at bitcoin and crypto hedge fund Morgan Creek Digital, suggesting that Coinbase outages could dampen spikes and dips in the bitcoin price.

Eoin Treacy's view -

The challenge in an illiquid market is it is often much easier to buy than sell. That is particularly true when it comes to the cryptocurrency markets because transactions times are slow at the best of times. During a high-volume selling event exchanges are not equipped to deal with the volume. That’s not a bug, it’s a feature of the market.



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May 07 2020

Commentary by Eoin Treacy

Market Keeps Distancing Itself From Economy

This article by Mohamed A. El-Erian for Bloomberg echoes a common sentiment among institutional investors. Here is a section:

The rate of labor force dislocation, albeit distressing, appears to be moderating. The weekly 3 million jobless claims number is the lowest in the last seven weeks and less than half the worst level.

The report highlights the urgent and important policy priorities of dealing both with the implications of such a terrible shock to jobs and with ensuring that short-term problems don’t become long-term ones that are much harder to solve.

With markets focusing on the improvement in the “second derivative,” that is a reduction in the rate of labor force dislocation, U.S. stocks rose. This widens an already considerable decoupling from the real economy and will fuel the debates on Wall Street versus Main Street, companies versus people and the well-off versus the marginalized. 

Eoin Treacy's view -

Didi’s CEO was quoted today stating the company has recovered to about 70% of the number of rides taken before the Chinese lockdown began. That’s an impressive rebound, particularly as we look at what the trajectory of recovery will be for countries only beginning to ease lockdowns today.



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May 07 2020

Commentary by Eoin Treacy

The Changing Value of Money

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

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

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

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

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

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

Eoin Treacy's view -

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



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May 07 2020

Commentary by Eoin Treacy

Email of the day on the need for lockdowns

This is an interesting review of Neil Ferguson's pandemic model.  If true, it obviously raises some interesting questions about UK strategy. But the biggest issue for me is the way it exposes the gulf between technology specialists and political judgement. Our politicians may be ill-equipped to make good decisions in a world when so much is dependent on good data. 

Thanks for great audios recently - much appreciated.

Eoin Treacy's view -

Thank you for this educative article and I am delighted you are enjoying the service. For the many new subscribers who have joined our ranks over the last month, the daily audio/video and the Big Picture Friday version are the most expedient ways of accessing where my current thinking is residing.

 

Debate about the efficacy of the lockdowns is predictably ramping up. That’s to be expected. The pressure on businesses, personal finances and cabin fever lend credibility to anyone who wishes to defy quarantine. For example, Mrs. Treacy’s tennis circle have been discussing how to break lockdown orders to go and view the bioluminescence at the local beaches. https://www.ecowatch.com/bioluminescent-waves-california-2645933919.html?rebelltitem=3#rebelltitem3 Cabin fever is clearly taking a toll on everyone. Here is a particularly relevant section from the article:

 

 

Conclusions. All papers based on this code should be retracted immediately. Imperial’s modelling efforts should be reset with a new team that isn’t under Professor Ferguson, and which has a commitment to replicable results with published code from day one. 

On a personal level, I’d go further and suggest that all academic epidemiology be defunded. This sort of work is best done by the insurance sector. Insurers employ modellers and data scientists, but also employ managers whose job is to decide whether a model is accurate enough for real world usage and professional software engineers to ensure model software is properly tested, understandable and so on. Academic efforts don’t have these people, and the results speak for themselves.

My identity. Sue Denim isn’t a real person (read it out). I’ve chosen to remain anonymous partly because of the intense fighting that surrounds lockdown, but there’s also a deeper reason. This situation has come about due to rampant credentialism and I’m tired of it. As the widespread dismay by programmers demonstrates, if anyone in SAGE or the Government had shown the code to a working software engineer, they happened to know, alarm bells would have been rung immediately. Instead, the Government is dominated by academics who apparently felt unable to question anything done by a fellow professor. Meanwhile, average citizens like myself are told we should never question “expertise”. Although I’ve proven my Google employment to Toby, this mentality is damaging and needs to end: please, evaluate the claims I’ve made for yourself, or ask a programmer you know and trust to evaluate them for you.



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May 05 2020

Commentary by Eoin Treacy

Peering into the post pandemic world

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

Almost every major crisis and recession has resulted in lasting implications. The 1973 oil crisis ended the Bretton Woods system and brought about the regime of floating currencies and exchange rate volatility. September 11 permanently changed the way we travel and raised the level of security in public settings and airports. Unprecedented monetary easing after the 2008 Great Financial Crisis further propelled the unlikely continuation of the 30-year rally in government bonds and facilitated the resurgence of tech stocks and credit markets. The Global Covid-19 Crisis will also leave its permanent imprints on consumers, markets and economies. Although we are only a few months into the crisis, it is key to look forward to the next economic cycle and ask: what are the structural changes created by the Covid-19 outbreak and who will be the winners and losers?

For companies, the focus will shift to building resilience
As the virus outbreak results in demand and supply shocks unprecedented in terms of speed, depth and breadth, many companies face tremendous pressure, and this will have a lasting impact on risk perception.  Companies will turn more cautious and focus on building resilience in terms of their business strategies and balance sheets, and shareholders will expect management teams to take steps to ensure that the business is strong enough to take the next big shock.

Eoin Treacy's view -

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

Consumers are wondering about what the trajectory for their earnings are going to be. Nobody knows what the outlook for their businesses is likely to be in the aftermath of the lockdowns or how long recovery is going to take. There is a temptation to think corporations are going to be as cautious as individuals.



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April 29 2020

Commentary by Eoin Treacy

Trump's 'Operation Warp Speed' Aims to Rush Coronavirus Vaccine

This article by Jennifer Jacobs and Drew Armstrong for Bloomberg may be of interest to subscribers. Here is a section:

The Trump administration isn’t alone in trying to fast-track a vaccine. One of the world’s most promising vaccine candidates has been developed by a team at Oxford University in London. Last month, scientists at the U.S. National Institutes of Health innoculated six rhesus macaques with the Oxford vaccine and then exposed them to the coronavirus, the New York Times reported.

All six were healthy more than four weeks later, according to the Times. The researchers are currently testing their vaccine in 1,000 patients and plan to expand to stage two and three clinical trials next month involving about 5,000 more people.

The Oxford group told the Times they could have several million doses of their vaccine produced and approved by regulators as early as September.

In the U.S., the Bill & Melinda Gates Foundation has meanwhile shifted much of its research effort to the coronavirus virus.

One of the people familiar with Operation Warp Speed drew a distinction with the Oxford group, describing the U.S. effort as broader in scope. It’s unclear which vaccine candidates would be part of Operation Warp Speed, or whether it would include the Oxford vaccine.

Eoin Treacy's view -

A broadly held assumption is we are going to have a second wave of infections like in 1918 later this year. China’s statement yesterday that they believe it will become seasonal is also feeding the belief that a solution will not be forthcoming in the short term. However, in much the same way that war efforts accelerate the pace of innovation, on a needs-must basis, we are seeing the same thing with the development of treatments for COVID-19.



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April 29 2020

Commentary by Eoin Treacy

China Rolls Out Pilot Test of Digital Currency

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

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

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

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

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

Eoin Treacy's view -

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



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April 23 2020

Commentary by Eoin Treacy

Facebook's $5.7 Billion Bet on Jio Is a Move Beyond Ads

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

Facebook's investment of $5.7 billion in India's top telecom operator Reliance Jio highlights a broader bet on India’s online growth beyond ads. Jio has more than 388 million subscribers with reach in content, payments and ecommerce, all of which Facebook can scale up via its 380 million WhatsApp, Facebook or Instagram users in India. Plans to integrate Jio’s small businesses to enable shopping on WhatsApp shows an acceleration in e-commerce.

THESIS: Facebook will be the hardest-hit internet company in 2020 from the virus fallout as a sharp ads decline and small and medium business exposure can take growth down to low-single digits, while surging usage hits profit harder. Yet we believe exiting this uncertainty with a higher user base and new habits means diversification into new businesses and a 2021 ad rebound will make its growth emerge the strongest among peers. More than 60% of Facebook's sales are in the U.S., the U.K., Germany, Japan, France and Italy. Small and medium business make up the majority of Facebook's 7 million advertisers. Earnings in 1Q will likely reset growth expectations, creating room for longer-term sales outperformance as Facebook pushes into diversifying its business post-virus.

Eoin Treacy's view -

Where are the largest tech companies going to find the next billion users? There are only three potential options. China, Africa and India. They have been cut out of China as it champions its domestic firms. Africa is a continent rather than a country, and on aggregate is further down on the per capita income scale. That leaves India with a massive young population, large number of English- speaking consumers, an independent judiciary, financial market norms familiar to westerners and a democracy intent on raising living standards.



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April 22 2020

Commentary by Eoin Treacy

U.K. Starts Human Trials of Coronavirus Vaccine on Thursday

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

The U.K. will begin human trials of a coronavirus vaccine Thursday, Health Secretary Matt Hancock said, as he argued that the government’s strategy for fighting the disease had succeeded.

“In the long run, the best way to defeat coronavirus is through a vaccine,” Hancock told the government’s daily news conference. “The U.K. is at the front of the global effort. We have put more money than any other country into a global search for a vaccine and, for all the efforts around the world, two of the leading vaccine developments are taking place here at home.”

The trials will be of a drug developed at Oxford University. Hancock said the government would give 20 million pounds ($25 million) to support the research. “In normal times, reaching this stage would take years,” he said. Another 20.5 million pounds will go to a separate project at London’s Imperial College.

Eoin Treacy's view -

There are 70 different teams working on vaccines around the world which highlights how urgent the need for a barrier of safety from COVID-19 is. Not only do competition, money and a willingness to break-down barriers to entry increase the scope for a breakthrough but this kind of news is positive for consumer sentiment amid lockdowns.



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April 22 2020

Commentary by Eoin Treacy

What is the Significance of the Bitcoin Block Halving?

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

The halving decreases the amount of new bitcoins generated per block. This means the supply of new bitcoins is lower.

In normal markets, lower supply with steady demand usually leads to higher prices. Since the halving reduces the supply of new bitcoins, and demand usually remains steady, the halving has usually preceded some of Bitcoin's largest runs.

In the image below, the vertical green lines indicate the previous two halvings (2012-11-28 and 2016-7-9). Note how the price has jumped significantly after each halving.

Eoin Treacy's view -

The bitcoin halvening is estimated for May 10th. In a market where supply inelasticity has been making headlines in a number of asset classes, the doubling of the work load to produce one bitcoin represents a noteworthy event.



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April 20 2020

Commentary by Eoin Treacy

Email of the day on the lead time to develop a vaccine

Eoin, you are an optimist. I hope you will be proven right! for another point of view read the article from today's New York Times: "The Coronavirus in America: The year Ahead". One factoid: the record time for producing a vaccine is 4 years, for mumps.

Eoin Treacy's view -

Thank you for this email and I agree the New York Times article certainly paints a gloomy picture of potential success rates with developing vaccines. I thought the most useful portion of the article was to highlight just how patchy information relating to the COVID-19 virus really is.



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April 16 2020

Commentary by Eoin Treacy

Early peek at data on Gilead coronavirus drug suggests patients are responding to treatment

This article by Adam Feuerstein for statnews.com may be of interest to subscribers. Here is a section:

Early peek at data on Gilead coronavirus drug suggests patients are responding to treatment - This article by Adam Feuerstein for statnews.com may be of interest to subscribers. Here is a section:

A Chicago hospital treating severe Covid-19 patients with Gilead Sciences’ antiviral medicine remdesivir in a closely watched clinical trial is seeing rapid recoveries in fever and respiratory symptoms, with nearly all patients discharged in less than a week, STAT has learned.

Remdesivir was one of the first medicines identified as having the potential to impact SARS-CoV-2, the novel coronavirus that causes Covid-19, in lab tests. The entire world has been waiting for results from Gilead’s clinical trials, and positive results would likely lead to fast approvals by the Food and Drug Administration and other regulatory agencies. If safe and effective, it could become the first approved treatment against the disease.

The University of Chicago Medicine recruited 125 people with Covid-19 into Gilead’s two Phase 3 clinical trials. Of those people, 113 had severe disease. All the patients have been treated with daily infusions of remdesivir. 

“The best news is that most of our patients have already been discharged, which is great. We’ve only had two patients perish,” said Kathleen Mullane, the University of Chicago infectious disease specialist overseeing the remdesivir studies for the hospital.

Eoin Treacy's view -

One of the biggest challenges with COVID-19 is hospitals had no treatment for it so they were flying blind with how they manage patients with severe symptoms. That has resulted in prolonged stays in hospital which has gummed up the medical systems of a significant number of countries.



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April 16 2020

Commentary by Eoin Treacy

GM Plots an EV Comeback Inside Its Secretive Battery Lab

This article by Bill Howard for Extreme Tech may be of interest to subscribers. Here is a section:

In 2019, about 3 million pickups were sold out of 17 million vehicles. Nobody knows the size of the EV pickup market initially, or how badly EV range suffers under a heavy load (Tesla owners have known range tanks when a Model S or Model X tows a trailer), or if buyers are willing to pay extra to get the large batteries that allow 300 t0 400 miles of range on pickups.

As for the market for all plug-in vehicles – battery electric vehicles and plug-in hybrids – the final 2019 US sales numbers for light vehicles amount to combustion-engine-only cars, 98.1 percent of the market, BEVs and PHEVs 1.9 percent.

There is some hope – among environmentalists, at least – that Americans, in the wake of the coronavirus slowdown, will appreciate the cleaner skies in major cities and adopt plug-in vehicles to keep the air clear and clean. GM’s battery R&D is for its worldwide markets, not just the US, and it may find more traction outside the US. Depending on how many people and businesses have money to spend on new cars in the next year.

At the Ultium rollout, GM cited forecasters who called for EV volumes to double between 2025 and 2030 to 3 million units annually – one in six vehicles sold – and added its belief the numbers could be “materially higher.”

Eoin Treacy's view -

The point in the above piece, that the global market influences the kind of cars US companies produce is an understatement. The most profitable market for conventional US automakers is the pick-up truck, which is a predominately North American vehicle. All other markets are heavily influenced by whatever China demands.



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April 08 2020

Commentary by Eoin Treacy

China Urbanization 2.0

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

April 07 2020

Commentary by Eoin Treacy

Nobody ever pressed "Stop" before

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

Eoin Treacy's view -

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

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

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



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April 06 2020

Commentary by Eoin Treacy

Facebook Strikes Deal for AR Displays, Squeezing Out Apple

This article by Alex Heath and Amir Efrati for The Information may be of interest to subscribers. Here is a section:

Facebook’s deal with Plessey illustrates how tech giants are racing to secure the building blocks needed for AR headwear—technology experts believe could be as transformational as the introduction of PCs and smartphones. Facebook CEO Mark Zuckerberg recently predicted that “we will get breakthrough AR glasses that will redefine our relationship with technology” in the 2020s. 

To create such a device, Facebook has teams building its own operating system, apps, silicon chips, and tech capable of deciphering human thoughts. It also continues to invest in VR headset maker Oculus, which it acquired for roughly $2 billion in 2014.  

In a statement, Facebook said it wants to build “a glasses form factor that lets devices melt away so we can be more present with our friends, families, and surroundings.” 

“This will take years, so across AR/VR we’re continuing to invest in extensive research on this deep tech stack and components such as small-scale displays,” the company said.

The AR devices that have been released so far from the likes of Magic Leap and Microsoft are clunky, expensive headsets with extremely limited graphics capabilities that haven’t sold well. 

Eoin Treacy's view -

Mark Zuckerberg was an early advocate of virtual reality as the next big social medium. Having tried out the Oculus Quest over the last few weeks I think he is onto something.



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April 01 2020

Commentary by Eoin Treacy

Counting the Job Cuts at Tech Startups: Fully Charged

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

The list is long, and probably doesn't come close to capturing the total job loss. In the last few weeks, there have been reported cuts at WeWork (250), Bird Rides Inc. (more than 400), ZipRecruiter Inc. (400 layoffs and furloughs) and direct-to-consumer clothing company Everlane (200 cuts and furloughs).

For now, the layoffs are affecting largely companies with a high cash-burn rate—like Bird—or companies that haven’t raised money in the last year or two—like ZipRecuiter—and thus lack a big cash cushion, or both. But many industry watchers expect the job cuts to spread as the lockdown continues. 

“This coronavirus pandemic is affecting very qualified people,” Lee said. His site also includes an option to add a documents so that laid-off employees and human resources departments can enter names and contact details, providing leads to anyone who wants use the list to make some hires. Lee added:

“It’s something that I thought might be a good service to tech.” The list may also be of service to Lee. His company Human Interest, which he co-founded with Paul Sawaya five years ago, announced on March 11 that it had raised $40 million in a round led by family office Oberndorf Enterprises LLC, bringing its total capital raised to $75 million. Now, the company is hiring, mostly engineers, Lee said. That makes it one of a rarified group of companies currently in a position to pick up talent, rather than shed workers. 

Some startups likely can put off layoffs for some time, given that venture capitalists invested $137 billion into startups last year, according to the National Venture Capital Association. But not all will want to.

Many firms, including Sequoia Capital, are urging their portfolio companies to conserve cash, and salaries are often among the biggest expenditures at startups.

 

Eoin Treacy's view -

Having a cash reserve is a nice-to-have during the good times. It’s essential during a crisis when burn rates need to be slowed in order to deal with the realisation earnings and profits are further away than ever.



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March 31 2020

Commentary by Eoin Treacy

'The common enemy'

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

Eoin Treacy's view -

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

Corporate defaults are inevitable considering the leverage in the system and the sudden disappearance of revenue for many companies. Where companies had borrowed heavily to fund acquisitions or buybacks, they now have to make debt payments with no, or much reduced, incoming revenue. That is an obvious problem particularly affecting some of the most indebted tourist, auto and aeronautics companies. The biggest challenge for banks will be in how exposed they are to small companies on a local level because many are now in dire financial straits.



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March 30 2020

Commentary by Eoin Treacy

SoftBank Drops 10% After OneWeb Files For Bankruptcy Protection

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

It is the latest blow to SoftBank founder Masayoshi Son, who last week unveiled a plan to raise $41 billion to buy back shares and slash debt. The announcement sent the shares soaring more than 50% in just a few days. The rally was interrupted when Moody’s Corp. cut its debt rating by two notches, saying the Japanese investment firm’s plan to sell off assets during a market downturn threatened its total value. SoftBank’s shares traded 6.7% lower on Monday morning in Tokyo.

Son had often pointed to OneWeb as one of the cornerstones of an investment portfolio that ranges from ride sharing, co-working and robotics to agriculture, cancer detection and autonomous driving. The startup was working on providing affordable high-speed access anywhere in the world and targeting 1 billion subscribers by 2025. Son has painted a picture of a future where satellite networks cover every inch of the Earth and a trillion devices connected to the internet disgorge data into the cloud where it is analyzed by artificial intelligence.

OneWeb listed liabilities and assets of more than $1 billion each in its Chapter 11 petition in U.S. Bankruptcy Court in White Plains, New York. The company had been in advanced discussions earlier in the year for a fresh investment, it said in a statement. But the discussions fell apart after the coronavirus pandemic sent markets into a tailspin, it said.

Eoin Treacy's view -

The unlisted unicorn sector is difficult to monitor because they have no obligation to report earnings and depend almost entirely on the private markets for funding. It is reasonable to expect many loss-making companies are going to experience significant challenges from the economic shut down, while others will likely have benefitted from the abrupt move to cloud and delivery utilisation.



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March 27 2020

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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March 26 2020

Commentary by Eoin Treacy

Gaming Boom Hides Struggle to Create New Hits in Isolation

This article by Takashi Mochizuki, Zheping Huang, Olga Kharif and Vlad Savov for Bloomberg may be of interest to subscribers. Here is a section:

At a time when Valve Corp.’s Steam online gaming service is breaking records and global gaming publishers are registering increased demand due to millions of people stuck at home, the systems designed to build those companies’ future success are faltering.

One game project that Upfall Studios was doing work for has been put on hold because its developers weren’t able to demo it at GDC and haven’t yet managed to pitch it remotely. Two other developers Amador has collaborated with are also struggling to secure remote calls with publishers.

Before the coronavirus grew into a global pandemic, it was already interrupting the supply chain for game art and assets, as many big publishers rely on outsourcing to art studios in China, which was first to suffer the effects.

Super Smash Bros. creator Masahiro Sakurai wrote in industry magazine “Famitsu” last week that the release of additional content for his blockbuster series would be delayed due to the coronavirus. Private Division, a unit of Take-Two Interactive Software Inc., said last month that its Outer Worlds action role-playing game would also be late arriving on Nintendo Co.’s Switch due to the pandemic.

Eoin Treacy's view -

We bought an Oculus Quest (untethered virtual reality headset) as a surprise for my daughter’s birthday last week. We did not realise at the time how limited supply was. It was sold out for months up till early March and sold out again within two weeks.

It is the most innovative piece of gaming technology I have seen since the Nintendo Wii came out 14 years ago. The immersive environment and visceral experience of reality lend a degree of fun and playability I was not prepared for. I boxed competitively at university and the Apollo Creed game is the closest thing anyone is likely to come to being in the ring in real life.



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March 25 2020

Commentary by Eoin Treacy

Canceled Stock Buybacks Mount, and They May Not Return for Years

This article by Phil Serafino, Kasper Viita and Sarah Ponczek for Bloomberg may be of interest to subscribers. Here is a section:

The comment suggested his distaste for the practice predates the coronavirus outbreak and echoed criticism from Democratic presidential candidates who have long viewed buybacks as a waste and social ill.

“When we did a big tax cut and when they took the money and did buybacks, that’s not building a hangar, that’s not buying aircraft, that’s not doing the kind of things that I want them to do,” Trump said on Friday. “We didn’t think we would have had to restrict it because we thought they would have known better. But they didn’t know better, in some cases.”

Trump said he would support a prohibition on buybacks for companies that receive government aid. The five biggest U.S. airlines -- prime targets for bailout funds -- spent 96% of their free cash flow on repurchases over the last decade, money that could have been used to build rainy-day funds. Overall
buybacks started to slow in the first couple of months of the year in the U.S., when they were $122 billion in January and February, down 46% from a year earlier in the slowest start to the year since 2009.

While some viewed share repurchases as one of the driving forces behind the bull market, the practice was constantly criticized, particularly in populist circles. Companies were simply inflating their stock prices inorganically, using cheap money in the process, so the argument went, exacerbating wealth inequality as the ultra-rich cashed out.

Eoin Treacy's view -

Buybacks have been the primary source of demand supporting the market, particularly during pullbacks, over the last decade. The problem with relying on buybacks as a rationale for being bullish is they are inherently procyclical. The majority of companies are not in a position to buy back shares following big declines. Additionally, since debt loads have increased, at least in part to fund buybacks, they are overleveraged at peaks and debt obligations come before equity during a downturn.  



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March 19 2020

Commentary by Eoin Treacy

Reduce/ re-orientate equities, raise cash, favour USD, EUR and CHF

Thanks to Iain Little and Bruce Albrecht for this edition of their Global Thematic Investors’ Diary. Here is a section:

The Coronavirus crisis, the most serious event since the Global Financial Crisis (“GFC”) of 2008/2009, has set in motion a series of governmental policies whose unfortunate effect is to choke both demand and supply in the global economy.  These policies - prudential measures taken by governments united in their desire to appear to be “doing something”- are likely to be worse, economically speaking, than the disease itself.  Relief comes only with the passing of time or the finding of an anti-viral remedy, the latter a distant prospect at this stage.

Earnings news, monetary news, fiscal news and pandemic news are all following the disheartening course that we feared.  An emergency Fed meeting last Sunday, slashing rates to near zero, failed to reassure.  The next day, Wall Street produced the second of 2 record points drops in a week, falling -13%.  Equity markets have fallen by an average of about -30% from their January highs.

Equity markets are now oversold and distorted by panic.  The market finds it hard, if not impossible, to “price” risk when an end to the crisis is undefined and earnings unknown. And what discount rate should one use in a global panic when rates are near zero?  Many stocks trade under “fair value” on “normalized” earnings.  But the risks being taken by governments are such that there may be worse to come: bankruptcies in directly affected sectors like leisure, hospitality, airlines, hotels and “bricks and mortar” retail.  There may even be nationalizations in troubled sectors.  On the other hand, other sectors, also hit hard by the same waves of panic selling, may emerge as new long-term leaders in a changing world where personal safety, health fears, depersonalizing technology and e-commerce may enjoy further and more widespread adoption.

Eoin Treacy's view -

Millions of people just lost their jobs in the retail and restaurants sector. Weekly jobless figures are reported with a two-week lag, so today’s 281,000 increase is reflective of the week ending March 7th. Most cities in lock down made the decision over last weekend so next week’s figure will be higher but the release on April 2nd is likely to take jobless figures to new highs. The only limiting factor is the ability of people to sign on for benefits given the system’s capacity restraints.



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March 09 2020

Commentary by Eoin Treacy

Recession Looms in Europe as French Demand 'Call to Arms'

This article by William Horobin and Fergal O'Brien for Bloomberg may be of interest to subscribers. Here is a section:

The downbeat assessments come amid a meltdown in financial markets not seen since the height of the global financial crisis in 2008. It marks a grim start to the week for European Central Bank policy makers, who meet in Frankfurt and may be forced to lower interest rates and step up bond purchases. The U.S. Federal Reserve has already acted, with an unexpected easing last week.

“I want a strong, massive, coordinated response,” Le Maire said on France Inter Radio as the central bank slashed the outlook for the country’s economic expansion this quarter to 0.1% from 0.3%.

“We should work on a stimulus plan with fiscal and budgetary measures, and tax cuts, so that when the epidemic crisis is over we can relaunch the economic machine,” he said. The virus is another blow to the euro area’s second-largest economy, after disruption from strikes caused output to shrink at the end of 2019.

“This slowdown is potentially severe but temporary,” Bank of France Governor Francois Villeroy de Galhau said in a rare statement accompanying the report.

Eoin Treacy's view -

The markets tend to test new central bankers and Christine Lagarde’s honeymoon period is definitely over. The ECB will be expected to lay out what kind of assistance it is willing to provide. While room for interest rate cuts is limited because they are already so low, there is plenty they have do to ensure ample liquidity in the system.



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March 06 2020

Commentary by Eoin Treacy

Covid-19 and Global Dollar Funding

Thanks to a subscriber for this edition of Zoltan Pozsar and James Sweeney’s report for Credit Suisse on the plumbing of the global financial sector. Here is a section:

Eoin Treacy's view -

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

The Credit Suisse team do an excellent job of highlighting where the risks are and provide a handy list of instruments to monitor to get an idea of how liquidity flows are functioning.

The repo market illiquidity in September was a signal to everyone that the tightening program had gone too far. There was nowhere near enough available capital in the system to allow the global money market to function. The Fed stepped in with a large swift injection of liquidity; inflating its balance sheet by $400 billion in four months.



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March 05 2020

Commentary by Eoin Treacy

The Coronavirus Hunter Is Racing for Answers in a Locked Lab

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

Over the last five years, Baric, working closely with Vanderbilt University infectious-disease specialist Mark Denison, tested almost 200,000 drugs against SARS, MERS and other bat coronavirus strains.  He found at least two dozen that appeared to hinder the virus.

Among the most promising was Gilead’s remdesivir, a drug that fared poorly when used against a recent Ebola outbreak in Africa. In the lab, it worked against numerous coronavirus strains, including SARS and other bat coronaviruses that are similar to the new strain. Every coronavirus it was tested on, “it had high potency and efficacy,” Denison says.

That work was fortuitous. In early January, Baric got an urgent call from an infectious-disease colleague to send his unpublished data on remdesivir to colleagues in China who were dealing with a then-mysterious outbreak. Baric says he “was shocked” to see how fast the coronavirus was spreading.

Since then, work at his lab has been virtually nonstop. Each scientist puts in from one to six hours inside two different clean rooms equipped to handle the virus. The lab’s workday begins at 6 a.m. and often goes until 11 p.m. Individual sessions are short for safety and practical reasons — researchers aren’t permitted to eat, drink or visit the bathroom once inside the lab. Everyone has to pass an FBI background check and undergo months of safety training.

Eoin Treacy's view -

The WHO has stated remdesivir is their best bet for a suitable treatment for coronaviruses. It’s another question whether Gilead will make money form that evolving market since it will be under extreme pressure to provide an affordable range of treatments ahead of a vaccine being developed over the next year. 



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March 04 2020

Commentary by Eoin Treacy

Biden Reopens Path to Nomination That Was Out of Reach Days Ago

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

In politics, you have to win to win. And in the crucial Super Tuesday primaries in 14 U.S. states, Biden did just that, and Democratic voters singularly obsessed with defeating Trump finally began coalescing around their candidate.

There’s still a long road ahead for the former vice president. His chief rival, Bernie Sanders, won California -- the biggest prize of the entire nominating race -- where a runaway victory could give the Vermont senator enough delegates to blunt Biden’s gains on Tuesday. And the former vice president’s turnaround was made all the more remarkable because of his plunge from front-runner status, bruised and battered by a meandering campaign, lackluster fundraising and trademark gaffes.

Still, the whirlwind three days following Biden’s convincing win in South Carolina -- which propelled top rivals like Pete Buttigieg and Amy Klobuchar back the former vice president -- underscored the extent to which Democrats were ready to unite behind anyone perceived as ready to take on Trump.

“Just a few days ago the press and the pundits had declared the campaign dead,” Biden told supporters in Los Angeles. “I’m here to report, we are very much alive.”

Eoin Treacy's view -

The rise of Bernie Sanders to front runner status about ten days ago was a significant catalyst for profit taking in the wider stock market and was potentially the motivating factor behind the pricing in coronavirus fears.  
 



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March 03 2020

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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

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



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February 28 2020

Commentary by Eoin Treacy

Lead Indicators of Recession

Eoin Treacy's view -

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



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February 26 2020

Commentary by Eoin Treacy

Brazil Confirms Coronavirus Case, the First in Latin America

This article by Simone Iglesias and Fabiola Moura for Bloomberg may be of interest to subscribers. Here is a section:

A 61-year-old Brazilian man who lives in Sao Paulo was infected during a recent trip to Northern Italy and tested positive upon returning to the country, Health Minister Luiz Henrique Mandetta said Wednesday at a news conference in Brasilia. The patient, who traveled via France on the way back to Brazil, is doing well and is at home, a Sao Paulo state official said.

“We’ll have to see how the virus reacts in a tropical country in the middle of summer,” Mandetta said. “We still can’t say how lethal this virus will be.”

Eoin Treacy's view -

Maybe they should ask how Singapore has successfully contained the spread of the virus? The stock market lost now time pricing in the fear of a wider spread with the iBovespa dropped nearly 8% to test the region of the trend mean and the four-year sequence of higher reaction lows.



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February 24 2020

Commentary by Eoin Treacy

Gilead Surges After WHO Comments on Coronavirus Drug Testing

This article by Drew Armstrong and Bailey Lipschultz for Bloomberg may be of interest to subscribers. Here is a section:

Remdesivir is the “one drug right now that we think may have efficacy,” Bruce Aylward, an assistant director-general at the World Health Organization, said at a briefing in Beijing. WHO officials and international scientists are in the country assessing the outbreak.

Eoin Treacy's view -

The spread of the coronavirus accelerated internationally over the weekend with exponential growth in South Korea and Italy. Right now, there are no cures for the ailment and therefore any whiff of a successful treatment is likely to be rewarded with investor interest.



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February 21 2020

Commentary by Eoin Treacy

Japan Limits Large Gatherings to Thwart Coronavirus

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

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

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

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

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

Eoin Treacy's view -

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



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February 20 2020

Commentary by Eoin Treacy

Vanishing Spreads Are Ringing Alarms in Risky Debt Markets

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

“What do you do with your cash?” said Luke Hickmore, investment director at Aberdeen Standard Investments in Edinburgh, where he helps run a number of bond funds. “Leaving it standing there makes no sense and the experience over the last 10 years is that there is no pain in buying bonds. Learnt behavior is that it is safe. Inflation is nowhere and central banks start buying every time yields go higher.”

Heavy demand for tax-exempt income drove yields on even the riskiest municipal bonds to 3.58% on Friday, the lowest since Bloomberg’s records began in 2003. The influx has compressed spreads across the country and caused some debt in high-tax states like California and New York to yield less than top-rated benchmark securities. Municipal mutual funds have reported inflows for the 58th straight week on Feb. 13.

Eoin Treacy's view -

With 30-year debt yielding 1.92% in the USA, 1.59% in Australia, 1.42% in Canada, 1.05% in the UK. 0.36% in Japan and 0.04% in Germany bond investors, and particularly pension funds, are at a loss for where to invest to generate the returns necessary to meet their future liabilities.



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February 19 2020

Commentary by Eoin Treacy

Tesla Cybertruck Pre-Orders Unofficially Top 500,000

This article by Tony Owusu for TheStreet may be of interest to subscribers. Here is a section:

Tesla (TSLA) - Get Report was roundly criticized when it debuted the Cybertruck back in November thanks to the pickup truck's unconventional design and a failed durability test that left the demonstration vehicle with a cracked window.

But three months later, the company’s gamble on the vehicle could be paying off as the unofficial Cybertrucks Owners Club released numbers suggesting the vehicle has received 522,764 preorders in just three months.

The group also compared Cybertruck preorders to Model 3 preorders, saying the Model 3 only received around 518,000 total reservations between its unveiling in April 2016 and August 2017.

Eoin Treacy's view -

This is probably an accurate representation of interest in the cybertruck not least because the deposit required was a $100 versus $1000 for the Model 3. That allowed a lot more people the opportunity to express interest with a relatively modest sum but it is a much bigger question whether they will translate into sales in the same way the Model 3 did.



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February 14 2020

Commentary by Eoin Treacy

Kraft Heinz Cut to Junk by Fitch Following Lackluster Earnings

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

Kraft Heinz Co. was downgraded to junk status by Fitch Ratings, which predicted the company’s leverage will remain high for an extended period as the maker of Jell-O and Classico pasta sauce works to stabilize declining sales.

The food company was cut to BB+ from BBB- by the credit-ratings company, with a stable outlook. Fitch said the company may need to divest a sizable portion of its business in order to reduce its debt.

The downgrade follows Thursday’s earnings report, in which Kraft Heinz reported a drop in fourth-quarter sales that sent its bonds and stock tumbling. It was the latest sign that the company’s turnaround plan still has a long way to go.

Kraft Heinz said Thursday it would release a more detailed turnaround plan around the time of its next earnings report in early May, though many investors and analysts had been looking for it sooner.
 

Eoin Treacy's view -

Kraft Heinz’ dividend was 62.5¢ in 2018, 40¢ in 2019 and is expected to be 20¢ in 2020. The decline in the share price has supported the yield, which is currently 5.98% but the outlook for additional dividend cuts puts that under question. The company is likely to be a case study in how intangible values cannot be used to underpin a credit rating during a time of technological and social upheaval.



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February 10 2020

Commentary by Eoin Treacy

Email of the day on rare earth metal miners

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

Eoin Treacy's view -

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



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February 07 2020

Commentary by Eoin Treacy

Email of the day on the coronavirus:

You will have plenty to read on this subject. But this does scare me:

Chinese financial shock gathers steam as world holds its breath on coronavirus

A major slowdown in China could trigger recession and defaults in other parts of the world

By Ambrose Evans-Pritchard

https://www.telegraph.co.uk/business/2020/02/07/china-contract-europe-near-recession-world-holds-breath-coronavirus/

Eoin Treacy's view -

Thank you for this article which highlights the acute risk to market, particularly in Europe, which rely on Chinese demand. That is as true of the automotive sector as it is of luxury goods. Here is a section:

The disturbing feature is that the European Central Bank’s emergency rate cut and renewed quantitative easing in September have gained so little traction. While it was not literally the ECB’s ‘last throw of the dice’ there is precious little left to play with.

There must now be a serious risk that China’s coronavirus crisis - if prolonged - will push Germany, Italy, and perhaps France into a technical recession, and in so doing expose both the ECB’s credible limits and the eurozone inability to launch meaningful fiscal stimulus under its deflationary ideology and spending laws.

Markets have not yet looked so many moves ahead on the global financial chess board but they might do so within two or three weeks if the corona fever is not broken, and traders tend to shoot first and ask questions later once fear takes hold.

Everything depends on the spread rate and the doubling rate, 2.68 per case and 6.4 days respectively, according to a Lancet study last week. If these figures improve markedly (and can be believed), the storm should blow over. If they do not materially change, the global recessionary dynamic may become unstoppable within weeks.



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February 06 2020

Commentary by Eoin Treacy

Japan Seen Needing U.S. Help to Check China's Digital Yuan

This article by Yuko Takeo, Emi Urabe and Toru Fujioka for Bloomberg may be of interest to subscribers. Here is a section

“We sense the digital yuan is a challenge to the existing global reserve currency system and currency hegemony,” said Nakayama, a top member of the ruling party group that drafted the proposals. “Without the U.S., we cannot counter China’s efforts to challenge the existing reserve currency and international settlement system.”

The comments indicate the heightened concern among policy makers in Japan over the likely impact of a digitized yuan expected for later this year. China’s plan and Facebook’s efforts to launch its own Libra currency have sparked central banks around the world to get up to speed on how digital currencies would function and what their impact could be.

“There are 1.4 billion people in China, so within the one belt, one road digital economic framework, the digital yuan has a high likelihood of becoming the standard within that digital economy,” 

Eoin Treacy's view -

There is no telling just yet how serious China is about setting up a digital currency system but the security and supply elasticity in how it is set up, together with how much it is used on the mainland will be determining factors is whether it is ultimately a success.



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February 05 2020

Commentary by Eoin Treacy

China's Drug Patent Grab Makes Coronavirus Scary for Pharma

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

The coronavirus outbreak in China is already threatening to undermine the global economy. It may soon create a similar shake-up in the drug industry.

I’m not talking about pharmaceutical companies’ attempts to develop a vaccine, but about intellectual property. Chinese researchers have applied for a patent on an antiviral drug candidate called remdesevir owned by Gilead Sciences Inc. The drug is being tested in clinical trials in short order, but the company could eventually be cut out. 

If the patent is granted, it will confirm long-standing drugmaker fears about China’s commitment to IP protection, raising concern about the industry’s future in a crucial market. It also could further erode the already weak incentives for pharma to invest in drugs to combat emerging infectious diseases. The risks of seizing the patent may outweigh any benefit.

Eoin Treacy's view -

The world is racing to help find a cure for the Wuhan virus with both pharmaceutical companies and philanthropists committing significant resources to finding a cure. That’s as much about helping China as it is about helping to contain the infection and creating the potential to be compensated for coming up with a solution.



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February 04 2020

Commentary by Eoin Treacy

Tech in 2020: Standing on the Shoulders of Giants

This presentation by Benedict Evans may be of interest to subscribers. Here is a slide on where he thinks the next big thing is:

Eoin Treacy's view -

Structural layers are the foundations of new technologies so 5G which is being rolled out everywhere this year is a major event. In the just the same way that 4G delivered instant connectivity, social media, app-based banking, travel, gaming etc, 5G will build on top of that layer to deliver edge computing. That means data centre access to massive computing power at the touch of a finger.



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January 31 2020

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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January 30 2020

Commentary by Eoin Treacy

Shell Dives With Scaled Down Buyback Program a Key Concern

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

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

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

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

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

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

Eoin Treacy's view -

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



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January 29 2020

Commentary by Eoin Treacy

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

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

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

Eoin Treacy's view -

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

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

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



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January 27 2020

Commentary by Eoin Treacy

Email of the day on corona virus outbreak.

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

Eoin Treacy's view -

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



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January 24 2020

Commentary by Eoin Treacy

Vaccine makers tap into virus-driven rally to raise money

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

“We don’t expect Novavax will run human trials without non-dilutive government funding,” Ladenburg Thalmann’s Michael Higgens wrote in a note. “The timing for such support in our view depends on how severe and uncontrolled the 2019-nCoV becomes.”

Moderna Inc. MRNA, -0.95%  said it is working with the National Institutes of Health on a potential vaccine response, saying its “vaccine technology could serve as a rapid and flexible platform that may be useful in responding to newly emerging viral threats.” Moderna’s stock was up 10%.

NanoViricides Inc. NNVC, +75.32%  said it has raised $7.5 million in an offering of 2.5 million shares at a price of $3 per share. Its stock was down 55% in morning trading, after gaining 153% on Monday.

The company had also worked on treatments for MERS and the Ebola virus. NanoViricides president Anil Diwan said in an email that the company believes that the drugs “we had previously developed are worth testing against the Wuhan virus and are likely to work against it.”

Eoin Treacy's view -

There isn’t a lot of money in cures because you don’t get repeat customers. The whole point of the business is to ensure you run out of customers. That’s not a great business model which is why conventional pharmaceutical companies generally eschew developed vaccines. The small companies that do concentrate on this field generally rely on fear of a global pandemic to generate the investment capital to continue working on their research. That was certainly the case with Ebola and this week saw a significant uptick in share issuance.



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January 23 2020

Commentary by Eoin Treacy

January 22 2020

Commentary by Eoin Treacy

Netflix's Decline Emphasizes Limited Value of Users Overseas

This article by Joe Easton, Kit Rees and Kamaron Leach for Bloomberg may be of interest to subscribers. Here is a section:

Netflix Inc.’s latest earnings report spurred mixed feelings across Wall Street as growth overseas was offset by a slowdown in the U.S. amid rising competition from Walt Disney Co., Apple Inc. and more forthcoming launches. Needham Co. believes the spike in streaming rivals will increase Netflix’s churn and customer acquisition costs, most likely lowering the lifetime value per subscriber as growth overseas isn’t equivalent to that domestically. Netflix would need to “add four $3-per-month subscriptions in India to offset each U.S. subscriber lost,” Laura Martin, TMT analyst at Needham, wrote in a note.

Eoin Treacy's view -

The clear conclusion from Netflix’s earnings is it is still growing where it has little to no streaming competition. Where it has competition, it is losing market share. The big question then is how quickly its competitors are going to expand abroad or how long will it take alternative streaming services to arise in Europe and India. Either would be a significant challenge as it continues to pump out mediocre content.



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January 17 2020

Commentary by Eoin Treacy

DoubleLine Round Table Prima 1-6-20 - Segment 2: Markets

This video which is the second in the three-part series highlights some of the differences between economists’ perspective on growth and the forward-looking perspective offered by the stock market. I commend it to subscribers.

Eoin Treacy's view -

The one point that jumps out to me is how eager the majority of participants are to point out the potential problems in the market. Even allowing for the fact that DoubleLine is a bond house, and therefore more predisposed to the bearish case because of the benefit that provides to bonds, the extent of the bearishness is interesting.



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January 17 2020

Commentary by Eoin Treacy

Fiat Chrysler and Foxconn plan Chinese electric vehicle joint venture

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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January 16 2020

Commentary by Eoin Treacy

Boeing Lost Its Way by Going on a Wall Street Detour

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

By the time Boeing decided to cobble together the 737 Max, its engineering culture was completely broken. Here’s how Aboulafia described it to Useem in the Atlantic:

It was the ability to comfortably interact with an engineer who in turn feels comfortable telling you their reservations, versus calling a manager [more than] 1,500 miles away who you know has a reputation for wanting to take your pension away. It’s a very different dynamic. As a recipe for disempowering engineers in particular, you couldn’t come up with a better format.

You can see that disempowerment — and its consequences — in the recently released emails. Instead of bringing their fears and complaints to superiors, the engineers grouse to themselves about the problems they see with the plane. They are bitter about management’s unwillingness to slow things down, to build the plane properly, to take the care that’s required to prevent tragedy from striking.

There is one email in particular from an unidentified Boeing engineer that I can’t get out of my head. It was written in June 2018, about a year after the company had begun shipping the 737 Max to customers:

Everyone has it in their head that meeting schedule is most important because that’s what Leadership pressures and messages. All the messages are about meeting schedule, not delivering
quality…

We put ourselves in this position by picking the lowest cost supplier and signing up to impossible schedules. Why did the lowest ranking and most unproven supplier receive the contract? Solely based on bottom dollar…. Supplier management drives all these decisions — yet we can’t even keep one person doing the same job in SM for more than 6 months to a year. They don’t know this business and those that do don’t have the appropriate level of input… .

I don’t know how to fix these things … it’s systemic. It’s culture. It’s the fact that we have a senior leadership team that understand very little about the business and yet are driving us to certain objectives. It’s lots of individual groups that aren’t working closely and being accountable …. Sometimes
you have to let things fail big so that everyone can identify a problem … maybe that’s what needs to happen instead of continuing to just scrape by.

Of course that’s exactly what happened: the 737 Max failed big — at a cost of 346 lives. Shareholder value has caused much harm in the three decades since it became the core value of American capitalism: diabetics who can’t afford insulin; students ripped off by for-profit universities; patients gouged by hospital chains; and so much else. But none worse than this.
 

Eoin Treacy's view -

General Electric basically invented financial engineering and built a massive business based on moving money around while its industrial core withered. That resulted in unique exposure, for an industrial company, to the credit crisis. The erasing of goodwill, forced sell-off of prime income producing assets and failure to reinvent a business model, resulted in the complete collapse of the share down to the low in late 2018.



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January 15 2020

Commentary by Eoin Treacy

U.S. and China Sign Phase One of Trade Deal

This article by Shawn Donnan, Josh Wingrove, and Saleha Mohsin for Bloomberg may be of interest to subscribers. Here is a section:

The U.S. and China signed what they’re billing as the first phase of a broader trade pact on Wednesday amid persistent questions over whether President Donald Trump’s efforts to rewrite the economic relationship with Beijing will ever go any further.

The deal commits China to do more to crack down on the theft of American technology and corporate secrets by its companies and state entities, while outlining a $200 billion spending spree to try to close its trade imbalance with the U.S. It also binds Beijing to avoiding currency manipulation to gain an advantage and includes an enforcement system to ensure promises are kept.

Eoin Treacy's view -

The most important point about the trade deal is the stock market did not sell off immediately following the signing. Considering the rally that has been underway for the last three and half months there is clear risk of some consolidation on a buy the rumour to sell the news, but no evidence it has started just yet.



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