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November 25 2022

Commentary by Eoin Treacy

World's Best Shot at Fusion Power Shows Cracks in Silver Lining

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

At issue are two South Korean-made components: thermal shields built by SFA Engineering Corp. and vacuum vessel sectors made by Hyundai Heavy Industries Co. Neither company responded to Bloomberg requests for comment outside of business hours. 

The thermal shield, which is lined with 5 tons of pure silver and designed to contain heat 10 times hotter than the sun, showed cracks along cooling pipes, ITER reported. The vacuum vessel sectors, each weighing the equivalent of 300 cars and as tall as a telephone pole, show slight differences in manufacturing that complicates the welding process used to put them together. 

So far, ITER’s governing board has taken the setbacks in its stride. At an extraordinary meeting convened this month, it ordered Barabaschi to come up with a new budget and time line to be presented next year. 

“What was remarkable at the ITER council was the lack of finger pointing,” ITER spokesman Laban Coblentz said Friday in an interview. “It has been a very solutions-oriented discussion.”

 And

“Companies have been learning enormously from this first-of-its kind project,” said ITER’s Coblentz, dismissing suggestions that the delays could dampen enthusiasm. “The goal here isn’t to build just a single machine but to show that fusion power is feasible and to make that happen.”

Eoin Treacy's view -

The quantity of money being poured into fusion continues to grow. Companies hope to repeat the success of private companies in beating the Human Genome Project to the prize of completing the first sequence of the human genome. The primary technology innovation is the shrinking of superconductors which means new reactor designs can be much smaller and therefore cheaper. The range of challenges that still need to be overcome is still quite high so while this is an exceptionally interesting sector, it is not going to provide the abundant cheap energy we require for quite some time.

Meanwhile the 5 tons of silver required for the ITER experiment suggests a new source of demand for the metal in future designs too. 



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November 21 2022

Commentary by Eoin Treacy

2023 Outlook: Bear with it

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

Eoin Treacy's view -

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

The big question for investors is whether this is a cyclical or structural bear market. The exogenous shocks that come to mind are COVID, the response to it, and the Russian invasion of Ukraine. The private sector leverage is not focused in the consumer sector, but there has been extensive use of leverage in private investment, crypto and institutional investment areas not least in pensions and endowments.



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November 14 2022

Commentary by Eoin Treacy

Cryptocurrencies Stem Losses on Binance's Recovery Fund Plan

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

Even though markets gained on Zhao’s tweet, such a fund may not be best for the industry, said Quantum Economics founder and Chief Executive Officer Mati Greenspan. Binance already has too much control in a decentralized market, he said.

“That sort of concentration of power makes me uncomfortable,” said Greenspan. “It’s the kind of thing crypto was designed to avoid and one of the lessons we should have learned from last week.”

Meanwhile, Elon Musk’s tweet that Bitcoin “will make it” also gave crypto markets a boost, said Greenspan. Dogecoin, a token the Tesla CEO has touted in the past, gained as much as 7.9%.

Eoin Treacy's view -

This is yet another example of the paradox of decentralized finance. It’s appealing in theory but the benefits of centralized control become evident during crises. A truly decentralized system does not have a buffer against bank runs. It is looking likely Binance will come through this crisis with a dominant position in the “decentralized” finance market.



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November 14 2022

Commentary by Eoin Treacy

The Age of Social Media Is Ending

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

That was a terrible idea. As I’ve written before on this subject, people just aren’t meant to talk to one another this much. They shouldn’t have that much to say, they shouldn’t expect to receive such a large audience for that expression, and they shouldn’t suppose a right to comment or rejoinder for every thought or notion either. From being asked to review every product you buy to believing that every tweet or Instagram image warrants likes or comments or follows, social media produced a positively unhinged, sociopathic rendition of human sociality. That’s no surprise, I guess, given that the model was forged in the fires of Big Tech companies such as Facebook, where sociopathy is a design philosophy.

Eoin Treacy's view -

Dancing on the grave of social media has begun but it seems to me that the rumours of the sector’s death are greatly exaggerated. There is no doubt social media has issues that range from content moderation to promoting social anxiety and depression among teenagers. However, that does not detract from the reality billions of people spend several hours a day perusing social media forums.



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November 11 2022

Commentary by Eoin Treacy

Binance Reserves Show Almost Half of Holdings Are Its Own Tokens

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

Binance holds $74.7 billion worth of tokens of which around 40% are in its own stablecoin and native coin, according data shared by Nansen.  

The world’s largest exchange released the information after its co-founder Changpeng Zhao announced earlier this week that Binance would provide proof-of-reserves to be more transparent.

The demise of Sam Bankman-Fried’s FTX.com, has raised concerns over the opacity of exchange balance sheets and is prompting companies increase disclosures. Crypto.com has also publicly shared its reserves pool on Friday.

Of the $74.6 billion termed as net worth, about $23 billion was in its own stablecoin BUSD and $6.4 billion in its Binance Coin, according to Nansen. 

The exchange has also allocated 10.5% of its holdings in Bitcoin and 9.8% in Ether, Nansen data shows. 

Binance is the first unlisted crypto exchange to come out with the details, since FTX collapsed, the latest in a series of crypto businesses to go bust this year. Crypto exchanges including OKX, KuCoin, Poloniex, Huobi this week vowed to increase transparency and provide greater clarity on their holdings. 

Eoin Treacy's view -

The promise of the fintech revolution is decentralized finance. That implies no further need for intermediaries. The ambition is consumers, businesses, creditors, and borrowers will be able to transact with one another over the network at will. That will be facilitated by whatever token is relevant to the network as a medium of exchange.



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November 11 2022

Commentary by Eoin Treacy

ASML Shrugs Off China Chip Curbs Amid Strong Demand Elsewhere

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

ASML hasn’t been able to sell its most advanced extreme ultraviolet lithography machines to China as the Dutch government refused to give it a license to do so, but the company has been able to sell its other machinery to the country. The Dutch company sees the total indirect impact from the new US measures to be about 5% of its backlog, it said on a call with investors in October. 

Meanwhile, major governments around the world have come up with subsidies and incentives to expand chip production capacities at home to avoid another round of semiconductor shortages that shaved off hundreds of billions from their economies during the pandemic. 

Even though the global chip industry is now facing a severe downturn, countries including the US and Japan have not slowed their pace in readying new plants to prepare for the next boom cycle. Taiwan Semiconductor Manufacturing Co. is even considering adding another advanced facility next to a $12 billion dollar plant that’s under construction in the US state of Arizona. 

Efforts by governments to build chip plants at home have just started and will accelerate, Wennink said Friday. “The drive for technological sovereignty is going to be very important driver for our business going forward.”

Eoin Treacy's view -

The one thing everyone learned during the pandemic is the global supply chain is lot more fragile than previously believed. That is truer of the semiconductor sector than anything else and not least because many countries gave up domestic manufacturing capacity in favour of cheaper overseas production. Reversing that trend is both expensive and time consuming.



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November 10 2022

Commentary by Eoin Treacy

US Inflation Finally Offers Relief, But There's a Long Way to Go

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

A cooling in US consumer prices offered cheer to households, investors and Federal Reserve officials, but there’s still a long way before high inflation becomes history. 

At 7.7%, annual inflation in October was the slowest since January -- before the start of Russia’s war in Ukraine that triggered a worldwide surge in commodities and pump prices. Even more importantly for the Fed, a closely watched measure that excludes food and energy decelerated by more than economists anticipated.

With slowdowns across categories including food, apparel and used cars, the report suggests that the fastest price increases in decades may finally be starting to ebb in the world’s largest economy. And it probably gives the US central bank enough assurance to moderate its aggressive interest-rate hikes if the trend is sustained.

Eoin Treacy's view -

Inflation is rolling over as predicted and it will continue to do so. The pace of tightening this year has been historic in nature and most particularly, the peak in money supply growth was in February 2021. There is a significant lag between money supply growth and tightening conditions and when they show up in the economy. That is now at hand.



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November 10 2022

Commentary by Eoin Treacy

IBM releases Osprey, the world's most powerful quantum computer

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

As impressive as this year’s updates are, IBM is looking to next year as the real turning point. The company’s roadmap says that next year’s quantum processor, the Condor, will boast a stunning 1,121 qubits. Also on the cards is a modular processor called the Heron, which can stack multiple 133-qubit units together to make more powerful quantum processors.

And finally, the IBM Quantum System Two will be released towards the end of 2023. This modular system will form the framework of the company’s quantum supercomputers, housing multiple processors with communication links between them. These are all stepping stones on the path towards IBM’s plans of building a quantum system with over 4,000 qubits by 2025.

Eoin Treacy's view -

Alphabet’s Hartmut Neven, claimed a few years ago was that quantum computing was progressing at a double exponent pace. To put that in context an exponential pace is 1,2,4,8,16,32. An exponential exponential pace is 1.2,4,16, 256, 65,536.  



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November 09 2022

Commentary by Eoin Treacy

Lucid Stock Is Falling as Reservations for Cars Drop

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

The EV maker Lucid turned in respectable third-quarter earnings and stuck with its forecast for vehicle shipments this year, but the stock is dropping. Reservations are the issue.

Tuesday evening, Lucid (ticker: LCID) reported a per-share loss of 40 cents from $195 million in sales. Wall Street was looking for a 31-cent loss from $209 million in sales., but earnings and sales don't matter much at this point.

The company is just ramping up production of its first model, the Lucid Air. Importantly, the company didn't change its full-year guidance for vehicle shipments from the 6,000 to 7,000 cars it told investors to expect back in August. The prior guidance, given in May, was for 12,000 to 14,000 units.

What seems to be raising investors' eyebrows is that management says Lucid has 34,000 reservations for its vehicles. The number given in August was 37,000.

Shares were down 3% in after-hours trading.

Lucid delivered 1,398 vehicles in the third quarter, up from 679 in the second quarter of 2022. Lucid produced 2,282 vehicles in the third quarter, which was more than triple the second-quarter production, according to the company.

The company also ended the quarter with almost $4 billion in cash.

Management scheduled a conference call for 5:30 p.m. Eastern time to discuss the results. Investors and analysts will be interested in the reservation number and whatever management has to say about demand for Lucid vehicles.

Through Tuesday trading, Lucid stock was off more than 60% so far this year, while the S&P 500 and Dow Jones Industrial Average had dropped about 20% and 9%, respectively.

Lucid stock has been hit harder than most. The cut to the forecast for deliveries didn't help. Rising interest rates, which reduce the current, discounted value of earnings expected to arrive in coming years, are an additional problem.

Eoin Treacy's view -

Flashy ads and attentional grabbing statistics, like the longest range and best battery, encouraged consumers to pay trivial down payments to secure a spot in delivery queues. Now, the question whether one does in fact have the resources to spend six figures on a car are more pressing. For Lucid it represents a significant issue because they are quite a ways from delivering a more affordable model. The share continues to trend lower.



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November 09 2022

Commentary by Eoin Treacy

Jeffrey Gundlach with David Rosenberg 10-11-22 Podcast

This video is a little outdated, particularly with regard to crypto, but it does highlight the fact bond investors finally have a yield they can base a total return strategy on. 

November 04 2022

Commentary by Eoin Treacy

Bond king Jeffrey Gundlach says any year-end stock market rally is going to be derailed by intense tax-loss selling

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

So most investors, whether they own stocks or bonds, should have plenty of opportunities to harvest losses between now and the end of the year. And that means there will be more selling pressure ahead.

"There will be pretty high tax loss selling I would think. I even got a white paper from somebody saying this was the greatest tax loss selling opportunity of a generation. I would say it might be two generations," Gundlach said.

Tax-loss selling is a tax optimization strategy that investors and financial advisors often take advantage of in taxable accounts heading into year-end. The strategy involves realizing losses by selling out of losing positions, and then buying back those portfolio positions 31 days later to avoid the tax wash-sale rule.

The strategy allows investors to realize losses that can offset future realized gains, ultimately helping reduce tax liabilities in the long term.

Eoin Treacy's view -

In a year where most people were unprepared for the severity of declines in popular shares like the mega-caps and the innovation sector, investors will be eager to preserve what benefit they can. Realising a loss reduces the tax payable on gains and stores up losses to write off on gains in the future too.



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November 04 2022

Commentary by Eoin Treacy

The Metals for Your EV Are Stuck in a 30-Mile Traffic Jam

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

Zambia, too, has ambitious expansion plans. The region could add nearly 1 million tons of annual copper production over the next decade, according to Adam Khan, copper supply analyst at CRU Group, and others are more optimistic still.

“Copper is the new oil,” Zambian Finance Minister Situmbeko Musokotwane said in an interview. “This is a very good opportunity for us.”

There’s no doubt that the region’s copper will be needed. To meet the global target of net-zero by 2050, the world may need to double supplies of what S&P Global calls “the metal of electrification.” “The green-energy transition is the biggest purchase order in history for the commodities industry,” said Benedikt Sobotka, chief executive officer of miner Eurasian Resources Group.

To be sure, logistics are not the only impediment. Corruption is rife, and disputes with governments are common. One of the largest copper and cobalt mines, Tenke Fungurume, hasn’t been allowed to export any material since July because of a dispute between its owner CMOC Group and Congolese state mining company Gecamines.

Eoin Treacy's view -

The COP27 Conference opened in Egypt today and the number of articles highlighting the plight of climate affected populations both domestically and internationally has increased significantly over the last week. The above article focuses on the supply issues of transporting resources to the coast and the additional challenge posed by the plans to increase supply before infrastructure has been built. Meanwhile Glencore was fined £281 million for bribing officials in Africa. Never mind that it is impossible to do business in the region without local partners.



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October 31 2022

Commentary by Eoin Treacy

China's Inward Turn

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

In some ways this represents an important generational change in the way China will interact with the rest of the world. As far as we know, the term “international circulation” originated in 1988 when a government researcher, Wang Jian, made the case that China should adopt an export-led growth strategy, making use of its huge surplus labor to plug the economy into the international manufacturing process. In that sense, the de-emphasis of international circulation is an important historical shift. In a People’s Daily article in November 2020, Vice Premier Liu He set out a number of objectives relating to the DCS including: (1) the priority of upgrading of China’s technological capacity, including an enhancement of China’s supply chain resilience (though referred to in this article as “optimizing the structure of supply”); (2) the need for finance to serve the needs of the real economy; and (3) the promotion of further urbanization. Any mention of external demand comes last

Eoin Treacy's view -

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

China’s stock markets are accelerating lower so that is a trend ending signal. The big question for all investors is at what point will the risk premium be fully priced in? The USA’s more aggressive attitude towards China is about the only bipartisan topic in the current administration. In fact the two parties seem to be competing for the mantle of biggest China hawk. China’s response to more activist counterparty risk is to look inwards and many people fear a repeat of the Cultural Revolution is already in play.



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October 28 2022

Commentary by Eoin Treacy

Gilead, fueled by latest approval, sees CAR-T sales takes off

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

Shares of Gilead Sciences ticked up Friday morning after the company’s latest earnings report exceeded Wall Street’s expectations.

The results were, in part, tied to growing sales from Gilead’s cell therapy business, which consists of the marketed cancer drugs Yescarta and Tecartus. Together, sales from the two drugs totaled $398 million in the third quarter, a nearly 80% increase from the same three-month period a year prior.

Gilead’s work in cell therapy, catalyzed by the $12 billion acquisition of Kite Pharma in 2017, hasn’t always sat well with investors. Early sales from Yescarta were slower than some had hoped, and Gilead ultimately acknowledged that some assets from the Kite deal were overvalued.

But in recent months, the company’s cell therapy business has ballooned. Third quarter sales of Tecartus were up 72% year over year, reaching $81 million, while those for Yescarta rose 81% to $317 million. Gilead cited the approval of Yescarta as a “second-line” therapy for a type of hard-to-treat lymphoma, which happened in April, as a main reason for the uptick.

Eoin Treacy's view -

Immunoncology involves re-educating the immune system to target cancers which typically avoid detection by the body’s defenses. Related stocks blossomed in 2015 with a huge rally. They had a brief second coming in 2018 but subsequently collapsed as the route to commercialization proved to be anything but easy.



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October 26 2022

Commentary by Eoin Treacy

Fed's Yield-Curve Barometer Starts Flashing Recession Risk

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

Inversions of this segment of the Treasury curve typically occur late in Fed tightening cycles as three-month bills track the policy rate while longer-term borrowing costs reflect expectations for economic growth and inflation. While other widely-watched yield curve segments such as the two- to 10-year and five- to 30-year have been deeply inverted for much of this year, the Fed follows this one more closely.

“We are certainly in territory with the Fed’s official barometer of the yield curve that will raise concerns,” said Gregory Faranello, head of US rates trading and strategy at AmeriVet Securities. “The Fed will definitely watch this, and there is a sense in the bond market that they will soon throttle back the pace of rate hikes and take a step back.”

Eoin Treacy's view -

The 10-year – 3-month spread spent part of today inverted following an 11.65 basis-point contraction. The spread was at 223 basis points in May so this tightening has been the fastest in decades. The fact there was such a wide divergence between the 10-year – 2-year and the 10-year – 3-month was regarded as an oddity but reflected the stresses in the bond market.



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October 26 2022

Commentary by Eoin Treacy

Tech's Big Day Tarnished as Microsoft, Google, TI Disappoint

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

The demand outlook was particularly dire in the semiconductor industry, which had been one of the hottest sectors during the pandemic. Texas Instruments, whose chips go into everything from home appliances to missiles, saw shares tumble after its weak forecast signaled that the chip slump is spreading beyond computing and phones into other businesses. The stock lost 5%, while Analog Devices Inc., ON Semiconductor Corp., and Marvell Technology Inc. also dipped.

South Korean chipmaker SK Hynix Inc. reported a 60% decline in profit and said it would cut capital expenditures by more than half. It warned of “an unprecedented deterioration in market conditions.” Hynix is joining fellow memory makers Micron Technology Inc. and Kioxia Holdings Corp. in slashing production plans as chip prices tumble. 

The silver lining for investors is that the eventual pullback in supply may ultimately prove beneficial for profits -- and stock prices. Hynix shares, which have lost 28% this year, were up as much as 2.1%. Samsung Electronics Co. climbed 3%, while Taiwan Semiconductor Manufacturing Co. added 1.4%.

“Inventory will decrease accordingly and demand will rise again,” said Greg Roh, head of technology research at HMC Investment & Securities.

Eoin Treacy's view -

At the NAAIM conference yesterday the manager of a commodity ETF quoted the statistic that there have been more backwardations in commodities this year than ever before. The point I think most people are missing is the monetary and fiscal response boosted demand for everything. New homes, stocks, bonds, commodities, semiconductors, toilet paper and a host of other products saw demand balloon between April 2020 and early 2022.



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October 25 2022

Commentary by Eoin Treacy

GM Rides Full-Size Pickups, Luxury SUVs to Big Earnings Beat

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

“We’re delivering on our commitments and affirming our full-year guidance despite a challenging environment because demand continues to be strong for GM products and we are actively managing the headwinds we face,” GM Chief Executive Officer Mary Barra said in a letter to shareholders.

Shares of the carmaker rose 2% to $36.45 as of 9:35 a.m. in New York. The stock is down about 38% this year. 

GM reported adjusted profit of $2.25 a share on Tuesday, surpassing analysts’ projection for $1.89 a share. It also maintained guidance for full-year adjusted earnings before interest and taxes of $13 billion to $15 billion, or $6.50 to $7.50 a share. 

“GM yet again affirmed the strong and until now mostly disbelieved full-year total company EBIT outlook it has maintained since introduction in February,” J.P. Morgan analyst Ryan Brinkman said in a research note. “GM is now well on the path to achieving its full year goals, despite the tougher consumer and cost backdrop.”

Eoin Treacy's view -

Auto manufacturers talk a good game of expanding EV production with stated expectations of massive increases in the number of electric vehicles manufactured. However, they continue to sell SUVs and pickup trucks. Companies like GM and Ford don’t sell large numbers of sedans so the commitment to selling EVs is moot.



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October 20 2022

Commentary by Eoin Treacy

Stocks Pare Gains Amid Hawkish Fedspeak, Earnings

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

A rally in the S&P 500 faded after Philadelphia Fed President Patrick Harker said officials are likely to raise interest rates to “well above” 4% this year and hold them at restrictive levels to combat inflation, while leaving the door open to doing more if needed.

Traders also sifted through a mixed bag of corporate earnings, with Tesla Inc.’s sales disappointing and International Business Machines Corp. surging on a bullish forecast. Several market observers remarked that the bar has been lowered quite a bit ahead of the current earnings season, boosting the odds of upside surprises. It’s also worth pointing out that there’s been no shortage of warning signals about the economy when it comes to corporate outlooks.

Alcoa Corp. -- which is a dependable barometer of US economic health across industries including construction, automotive, aerospace and consumer packaging -- said demand for the world’s heavy industries is falling. Union Pacific Corp., the largest US freight railroad, cut its forecast for volume growth to reflect a “challenging year.”

As traders wade through corporate results, “with an extra eye on guidance, expect volatility to remain elevated,” said Mike Loewengart at Morgan Stanley Global Investment Office

Eoin Treacy's view -

Earnings are holding up but guidance is being lowered. CEOs are at their most bearish in years but investors have cash to burn and are eager to salvage a dire year for their performance. Appetite for buying the dip following upside key day reversals for mega-cap stocks last week is still evident.



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October 18 2022

Commentary by Eoin Treacy

Intel Slashes Mobileye IPO Valuation Again to $16 Billion

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

Despite the drop in valuation, the listing is set to be one of the year’s biggest IPOs. Amid heightened volatility and disappointing debut performances of last year’s listings, IPO volume in the US has plummeted to $22.3 billion this year, compared with $277 billion at this point in 2021, according to data compiled by Bloomberg. Instacart Inc., another highly anticipated IPO, last week cut its valuation for the third time, to $13 billion, and is waiting for the markets to settle before going ahead with a listing. Another deterrent for new listings is the fact that many companies that went public in 2020 and 2021 are trading below their IPO prices.

But some analysts said it was reasonable for Intel to go through with the listing despite the poor market timing. Analysts at Bernstein said Intel likely needs the money it will receive from the deal, “given the way their own business is currently trending.” And Vital Knowledge analysts wrote that the “headline is negative, but keep in mind the $50B valuation was floated back in December, so no one should be shocked that the number is now lower today.” Intel shares were up about 1.4% in early trading in New York. 

Eoin Treacy's view -

At present we have straws in the wind but the issues with alternative asset valuations are going to become pressure points for investors over the next couple of years. The LDI debacle in the UK where pensions engaged in financial engineering to avoid leverage rules is the thin end of the wedge.

The reality is QE and the low interest rate environment robbed savers, like pension funds, and forced them to become speculators. At the same time it favoured risk takers and inflated their assets. That allowed both to prosper for a long time but rising rates and tighter liquidity mean the party is over.



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October 17 2022

Commentary by Eoin Treacy

Email of the day on name changes and courier services

It seems Royal Mail changed its name to International Distributions Services plc (IDS.L). I would be grateful if you would kindly share your views on the implications of this change to the price of the share and the health of the company. As always thanks for your great service.

Eoin Treacy's view -

The official name change was announced several months ago but went into effect on the 5th. The main reason posted was to highlight that Royal Mail has two businesses, domestic and international. At the time the name change was announced the company said there would be no transfers between the international and domestic businesses. In other words, they are intent on pushing through significant rationalization of the domestic mail and package service which is still called the Royal Mail.



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October 13 2022

Commentary by Eoin Treacy

ECB's Wunsch Wouldn't Be Surprised If Rates Exceed 3%: CNBC

This note from Bloomberg may be of interest to subscribers.

European Central Bank Governing Council member Pierre Wunsch said interest rates may eventually have to top 3% to get record inflation under control. 

“My bet would be it’s going to be over 2%, and I would not be surprised if we have to go to above 3% at some point,” Wunsch told CNBC in an interview in Washington. 

Wunsch also said:

The ECB’s deposit rate, currently 0.75%, will “most probably” need to exceed 2% year-end

“Frankly on the basis of our base case, which is now more or less a technical recession in Europe, I think we are going to have to go real positive somewhere”

“We’ve been claiming that what happens in Europe is different from the U.K., from the U.S. But over the last six months basically the direction we’ve been taking was not that different”

Eoin Treacy's view -

The ECB’s rate peaked at 4.25% in 2008. That suggests the anticipated peak of hiking, at 3%, will be well below that 2008 peak. That’s only relevant because the Fed Funds rate could exceed its 2007 peak at 5.25% before this hiking cycle has ended. That raises the question why is the Euro rebounding?



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October 12 2022

Commentary by Eoin Treacy

FOMC Minutes for September Meeting

This excerpt of commentary following the release of the Fed Minutes may be of interest. Here is a section:

It will take years to see inflation pressures completely recede, according to the minutes. That’s also apparent in the Fed forecasts, which don’t see headline inflation returning to 2% until 2025, and core still above that then.

Catarina Saraiva  Fed Reporter

10/12 19:26

Regarding QT, several officials said it would be “appropriate” to consider sales of agency MBS at some point so the Fed’s long-term portfolio can be composed primarily of Treasury securities.

Ian Lyngen at BMO Capital Markets comments:

“Not new information per se, but nonetheless reinforcing the idea that for the time being the status quo of QT will be maintained. Especially after the volatility experienced in the gilt market, and liquidity in both mortgages and Treasuries already becoming an issue, we don’t expect MBS sales from SOMA will be a near term issue.”

Ye Xie  Markets Reporter, New York

10/12 19:25

Here’s something to keep in mind when looking at tomorrow’s CPI report:

“Participants commented that they expected inflation pressures to persist in the near term.”

Catarina Saraiva  Fed Reporter

10/12 19:25

The median estimate of Fed officials’ projections in the September SEPs was for unemployment to climb to a high of 4.4% next year. Many economists have said this is wishful thinking, and that it will likely rise much higher if the Fed keeps raising rates. It sounds like some at the Fed are concerned about this as well.

“A few participants particularly stressed the high uncertainty associated with the expected future path of the unemployment rate and commented that the unemployment rate could rise by considerably more than in the staff forecast.”

The highest unemployment rate forecast among the 19 policymakers for 5% in 2023.

Eoin Treacy's view -

The steadier action focusing on the “calibrate” statement implies the Fed will slow down the pace of interest rate hikes after the November meeting. The thing I find most interesting about this evolving environment is the willingness of investors to pre-empt what the federal reserve will do. It’s a symptom of relying on past experience to inform future decisions. We know what has happened on every other occasion, so why not this time? That’s why buying the dip works after all.



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October 11 2022

Commentary by Eoin Treacy

Discovering novel algorithms with AlphaTensor

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

Beyond this example, AlphaTensor’s algorithm improves on Strassen’s two-level algorithm in a finite field for the first time since its discovery 50 years ago. These algorithms for multiplying small matrices can be used as primitives to multiply much larger matrices of arbitrary size.

Moreover, AlphaTensor also discovers a diverse set of algorithms with state-of-the-art complexity – up to thousands of matrix multiplication algorithms for each size, showing that the space of matrix multiplication algorithms is richer than previously thought.

Algorithms in this rich space have different mathematical and practical properties. Leveraging this diversity, we adapted AlphaTensor to specifically find algorithms that are fast on a given hardware, such as Nvidia V100 GPU, and Google TPU v2. These algorithms multiply large matrices 10-20% faster than the commonly used algorithms on the same hardware, which showcases AlphaTensor’s flexibility in optimising arbitrary objectives.

Eoin Treacy's view -

Taiwan Semiconductor initially expected to produce 3nm chips this year and now plans to mass produce next year. They expect to have 2nm chips in the market by 2024/25. A silicon atom is 0.2nm wide so the 2nm phrase is essentially marketing terminology for chips that more efficient and incorporate more transistors. 



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October 11 2022

Commentary by Eoin Treacy

China Shows Off Drone That Drops Robodog With Huge Gun Anywhere

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

A video has gone viral of a large drone dropping off a gun-wielding robot dog, a terrifying vision of what the future of warfare and policing could soon look like.

The footage shows a sizable octocopter drone dropping off its armed payload on a rooftop in an urban area. The robodog then springs to life and stretches its legs.

The robot appears to be carrying a modified, semiautomatic assault rifle, which has been the service rifle for the People's Liberation Army and paramilitary agencies in China since 1995.

The clip was shared by an account called Kestrel Defense Blood-Wing on Chinese social media. According to a rough Google translation of the account's description of the video, "war dogs" that "descend from the sky" can be "directly inserted into the weak links behind the enemy to carry out surprise attacks," be delivered "to the top of enemy buildings," or provide fire suppression.

Eoin Treacy's view -

Boston Dynamics has committed to not developing weapons, but they are certainly inspiring copycats. This kind of picture is designed to instill fear. It does not get over the issue Boston Dynamics has with battery life. A robot dog like that, has 90 minutes of usability before it runs down. Carrying a gun, it would be even less. At that point they had better explode or they will quickly be repurposed to fire back at an invading force. 



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October 08 2022

Commentary by Eoin Treacy

The Great Progression 2025-2050

This lengthy article by Peter Leyden for Wired’s bigthink.com may be of interest to subscribers. Here is a section:

We’re living through an extraordinary time in American history, and really in all human history. Once you take that big-picture historical perspective, once you look at the whole forest rather than the individual trees, the real story of our times starts to make more sense. We happen to have arrived at a juncture between two very different historical eras and that makes everything on the ground very confusing, and very traumatic.

One way to understand this is that for the last 40 years America and the world have been operating within a series of interconnected systems that add up to one mega-system. Our energy system was rooted in carbon, and our transportation system was based on the internal combustion engine. Our culture was dominated by the huge Baby Boom generation and our politics tended to be more conservative. Our economics was all about unleashing the private sector and maximizing shareholder capitalism. Work was done in physical places and production was primarily industrial. Our uber-challenge was terrorism, and our geopolitical focus was the Middle East, which made sense because we needed to keep the carbon energy flowing to keep the whole flywheel of this mega-system spinning.

That whole mega-system, and all the subsystems, arguably are now breaking down and often causing more problems than they are solving. This world that older people spent their entire careers and lives mastering is coming to an end. This world that younger people were taught is “just the way things are” increasingly does not make sense. This world that politicians proudly had policies for, and that the media confidently analyzed and explained, is soon going to be over.

Every one of those systems arguably is being superseded by new systems much better suited for the 21st century. Our uber-challenge is now climate change and so our energy system must shift to clean power and our transportation system to electric. Our culture now is dominated by the huge Millennial generation and our politics are becoming more progressive. Our economics is raising the role of the public sector and capitalism being pushed to include all stakeholders. Work is now taking place much more virtually, and production is on the cusp of becoming biological. And our geopolitics is recentering on Asia, and in particular on the new superpower, China.

Eoin Treacy's view -

There are two important cycles investors need to be aware of. First you have the technology cycle. Time marches to a different beat inside universities and labs all over the world. The market may go up and down but smart people, beavering away on their pet idea, will eventually lead to technological innovations that take everyone by surprise.



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October 08 2022

Commentary by Eoin Treacy

Overwatch 2 launch brings big hopes and woes for Activision Blizzard and OWL

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

Overwatch 2’s launch suffered from a double whammy of troubles when the servers opened for business Tuesday: Massive player interest led to equally massive login queues and a cyberattack.

Blizzard Entertainment President Mike Ybarra tweeted that the company was dealing with a Denial of Service (DDoS) attack that was disrupting servers (these stopped after Tuesday’s launch). "Server issues” and “launch day” predictably go together in gaming, so plenty of players knew to expect disruptions and wait times.

Another issue plaguing Overwatch 2’s launch was the use of Blizzard’s SMS Protect feature, which requires a mobile phone number to prevent cheaters and stop hackers from taking over player accounts. But since Tuesday’s launch, those using prepaid cellular accounts can’t use those mobile numbers to play (it's part of the SMS Protect protocol). A Blizzard spokesperson said that the company is "actively engaging with some service providers to explore if we can expand the program to cover more users while still protecting our players and game security."

Late Wednesday, Blizzard said an update it plans to roll out Friday will change SMS Protect so that any player who has logged into Overwatch since June 2021 can play without a phone number requirement (anyone who hasn't played Overwatch since that time will need to use a phone number. It’s also rolling out updates to improve online stability and long login queues. Players have also been reporting missing items and other data, and Blizzard said half of these issues are because players didn’t merge their accounts. For the rest, Blizzard said no data has been wiped or lost and it is working to restore missing items.

Eoin Treacy's view -

Activision Blizzard was in the process of collapsing before Microsoft made a bid for the company. The share is falling once more which suggests investors are wary of thinking the merger will get approval from the EU.



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October 05 2022

Commentary by Eoin Treacy

Ice Age - End In Sight

Thanks to a subscriber for this report from Morgan Stanley focusing on Asia. Here is a section:

Upgrade from Cautious to Attractive: No one knows exactly when this downturn will end and we find it difficult to get ahead of macro events, but we see signals that suggest we should no longer be overly pessimistic: (1) the cyclical sell-off has already been punitive in an historical context; (2) the magnitude of the valuation correction (YoY) is approaching extremes relative to the last two decades; (3) earnings risks are now well understood and it is surprises that will drive stocks from here; (4) green shoots are emerging while some consumer parts of tech are close to bottoming; (5) we are upgrading our top down EM strategy view on IT, Korea, and Taiwan; these are set-up for a reversal in returns in the coming weeks. What is not understood is cycle turns and the market's willingness to increasingly look through this late stage of the downturn and, hence, our focus on the other side of the cycle.

An inflection is near and we see reasons to be constructive on a 2H23 recovery. (1) Macro headwinds are fading with the bulk of the Fed’s heavy lifting likely to be done by year-end and benefits from China’s reopening; (2) demand elasticity and replacement cycles will be driven by the sharp fall in pricing, especially consumer products; and (3) supply adjustment is accelerating via significant production and capex cuts that are underway. We have clearly worked through the slowdown in the consumer and are most positive on 'first-in, first out' exposure in LCD panels bottoming now, followed by memory in 4Q22, while the trough for foundry, auto and semicap should come with a lag in 1H23.

Eoin Treacy's view -

As the fourth quarter begins and investors position for how they hope to salvage returns for 2022, questions are already arising about the prospects for 2023. There is no doubt, steep declines in asset prices, particularly within the tech sector, have improved valuations. In normal circumstances that would be sufficient to create attractive entry points. Therefore, the question is whether this is a normal correction following the excesses of the pandemic or the end of the cycle. 



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October 04 2022

Commentary by Eoin Treacy

Email of the day on looking at lots of charts

Dear Eoin, In the 1960s and 1970s subscribers to the David Fuller Chart Service received a booklet containing hundreds of charts each week or each month. I used to come into the office at 6a.m. and complete the point and figure charts each day. Thanks to this work, I gained a reputation among my colleagues for being the first one to spot changes in the long-term trends of both overall markets, sectors and individual shares. As of this morning, I am getting up one hour earlier and I will start by looking at all the daily charts of the Autonomies in the Chart Library. Let's hope that this will produce the same result. This morning's work show very small blue upward marks in almost every chart. These are tiny upward movements in the year-long major decline in all these share prices. This "summer's swallow" has not yet started chirping. Regards,

Eoin Treacy's view -

Thank you for this account. David was still having chartbooks printed in 2003, when we began working together. By that stage they were a very niche product that had become obsolete with the development of charting software. Nevertheless, the practice of looking at lots of charts is as useful today as it has ever been.

In following your program of activity, I would suggest taking one day to look at point and figure charts. They will give you clear confirmation of a change of trend.



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September 30 2022

Commentary by Eoin Treacy

Illumina Unveils DNA Sequencing Machine Delivering a $200 Genome

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

Many consumers have been introduced to their DNA through relatively low-cost tests like those marketed by 23andMe Holding Co. that analyze small snippets of the genome for clues to disease risk and ancestry. Whole-genome sequencing can provide a far clearer, more accurate view of patients’ genetic makeup that doctors can use to precisely identify some diseases, including certain forms of cancer and heart disease. However, the price of performing the tests, along with their interpretation, has been a barrier for many patients that companies have been trying to bridge.

More efficient machinery and materials reduce customer cost to sequencing one genome, or the complete set of genetic material, Illumina said, adding that costs would range from less than $200 per genome, with discounts for bulk use, to $240 for a higher-quality analysis. Slashing the price of reading DNA could allow the practice to move into the mainstream, where it might be used to better tailor medications or treatments to people or have other health benefits.

“This will be a huge force in terms of significantly increasing accessibility to genomics in a number of ways,” deSouza said in an interview ahead of the announcement. “It will democratize access to genomics by allowing sequencing to be offered to hospitals and researchers at much lower prices.”

Eoin Treacy's view -

Illumina is a highly cyclical business. They are the clear leader in developing machines for genetic sequencing. Every few years they bring out a new machine that delivers more efficient and cheaper sequencing. That kickstarts an upscaling cycle among its customers which boosts sales over the next 18 months. 



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September 28 2022

Commentary by Eoin Treacy

Biogen, Eisai Surge as Alzheimer's Drug Shows Promise in Trial

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

“There is an important cautionary note however: the magnitude of the delay – which was a slowing of decline – was small,” he said. “We can only hope that the benefit is durable and could grow with time. Those long-term properties are unknowable at this time.”

The medicine was originally licensed from Sweden’s BioArctic AB, whose shares more than doubled on the news. 

The Alzheimer’s Association welcomed the results, saying they were the most encouraging findings to date from drugs aimed at treating the underlying causes of the disease. Lecanemab has the potential to change the course of the disease and help people in the earliest stages retain their abilities, remain independent and fully participate in daily life, the group said.

Pharmaceutical and biotechnology analysts were equally bullish. “We finally have what we believe to be a clean win in Alzheimer’s disease,” Evan David Seigerman, an analyst at BMO Capital Markets, wrote in a note to clients. “The top-line data are clear to us — lecanemab slows the rate of cognitive decline.”

The trial met every goal that was set, including other measures of mental function and the ability to perform daily activities, the companies said. 

 

Eoin Treacy's view -

The biotechnology/pharmaceuticals sector is endlessly productive. It is one of the few where there is genuine potential for new products to meet unmet needs. That means there is clear scope for value creation that can contribute to both better living standards and rising productivity. 



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September 26 2022

Commentary by Eoin Treacy

Email of the day on batteries and the challenge of commodity supply

Congrats on your opinion on a larger correction and acting on it with put purchases.

Last week Double Line presentation  had a chart that showed the performance of equity and the different credit subclasses, Ags., EM, HY, ClOs and so forth. Showed  the large move by equities compare to credit over the same time period. It made me wonder how much further the equity correction can go.

You often follow interesting companies, you mention EQNR from Norway. have you ever looked a Freyr. It is also Norwegian and is involved in batteries. During  the last days because of a report on its possible growth it had a huge move , but during this correction it may be a good opportunity, let me have your thoughts. Based on your comments  how much the market has already priced in the EVs maybe it is not a good idea.

The move on copper is not a good signal  

Trust all is well for you  and your family

Eoin Treacy's view -

Thank you for these well wishes and questions which may be of interest to the Collective. Of my nine different long-dated put positions, the only one not in profit is Tesla and yet that is the one I have the greatest hopes for. They all have maturities in 2024, but I expect the point of maximum pessimism will arrive while they still have some time value.



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September 20 2022

Commentary by Eoin Treacy

Beyond Meat COO Arrested for Biting Man's Nose After College Football Game

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

His arrest is the latest blow to the plant-based protein company, which last month slashed its revenue outlook for the year and said it would cut 4% of its workforce.

Eoin Treacy's view -

The irony of a vegetarian food company executive taking bites out of unwary civilians put me in mind of Soylent Green. Afterall, the movie might have been released in 1973 but it is set in 2022. Here is a section from the Wikipedia description:  

By 2022,[3] the cumulative effects of overpopulation, pollution and an apparent climate catastrophe have caused severe worldwide shortages of food, water and housing. In New York City alone, there are 40 million people, and only the city's elite can afford spacious apartments, clean water, and natural food. The homes of the elite are fortified, with private security and bodyguards for their tenants. Usually, they include concubines (who are referred to as "furniture" and serve the tenants as slaves). The poor live in squalor, haul water from communal spigots, and eat highly processed wafers: Soylent Red, Soylent Yellow, and the latest product, far more flavorful and nutritious, Soylent Green.



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September 20 2022

Commentary by Eoin Treacy

Email of the day on graphene

Excellent reflexions in this long term view.

Have you ever talked about investing in the Graphene potential?

I have a friend convinced that the cost of producing it will come down with some innovation. And it could substitute or complement copper supply.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. I have been thinking a lot about the genesis of bull market themes. Good ideas often don’t come from nowhere. It takes a long time for product ideas to reach fruition.

For example, Mark Cuban’s first venture was Broadcast.com in 1998. Then Enron signed a deal with Blockbuster video to begin a video on demand service in 2001. Both ventures failed in epic fashion.

Netflix began by mail ordering in 1997 and only adopted streaming in 2007. That was nine years between the first attempt at streaming and the big success story everyone is familiar with. However, the model was only possible because of the growth of the internet and improving connection speeds and accessibility.

Today, every broadcaster has embraced some form of streaming which highlights that it is the interest is the enabler and no company has a defensible moat without killer content at an acceptable cost.



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September 16 2022

Commentary by Eoin Treacy

Germany Tightens Control Over Industry With Russian Oil Grab

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

Germany seized the local unit of Russian oil major Rosneft PJSC as Berlin moves to take sweeping control of its energy industry, secure supplies and sever decades of deep dependence on Moscow for fuel. 

Alongside its move for the Rosneft unit, Chancellor Olaf Scholz’s administration is in advanced talks to take over Uniper SE and two other major gas importers, Bloomberg reported on Thursday. Germany is pressing ahead with an historic overhaul of its economy just two and half years after the Covid-19 pandemic, grabbing control over a huge chunk of its industrial base to prevent shortages and blackouts this winter. 

A decision on the next moves could come within days. The need for action is urgent with Uniper losing 100 million euros ($99.7 million) a day as it tries to replace Russian gas to maintain deliveries to local utilities and manufacturers.

Eoin Treacy's view -

Germany took over all of the landesbanks during the Eurozone’s sovereign wealth crisis. Shorting individual stocks is frowned upon, with several bans being introduced over the last decade. The state has also waded into the market for failing companies, like Wirecard, and banned naked shorting. Therefore, it is not such a logical leap to think Germany will have fully nationalised the domestic gas industry within the year.



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September 16 2022

Commentary by Eoin Treacy

What it's like to eat lunch at Mezli, San Francisco's new autonomous robot restaurant

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

Of course, San Francisco is no stranger to robots at restaurants. I’m personally familiar with both coffee robot Cafe X and the ROBOJuice smoothie-making robot at the San Francisco Metreon. But neither offer a full meal — and full-service restaurants that do employ robots tend to still need humans to fulfill some tasks, such as taking orders. 

Mezli also isn’t quite fully autonomous. Real humans do the prep work for the Mediterranean menu (created by chef Eric Minnich of Michelin-starred Madera in Menlo Park) in a central kitchen offsite. 

It’s also more of a vending machine than it is a full-service restaurant — robots aren’t waiting tables. But from the moment you place your order to the moment a piping hot bowl is in your hands, the robots are in charge. 

Eoin Treacy's view -

With a law proposed in California to raise only fast-food salaries to $22 an hour, the message is clear; innovate or die. Wage growth incentivises innovation in labour saving devices. That becomes more urgent as inflation pushes up the cost of everything else too.



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September 15 2022

Commentary by Eoin Treacy

Global Recession Looms Amid Broadest Tightening in Five Decades

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

The global economy may face a recession next year caused by an aggressive wave of policy tightening that could yet prove inadequate to temper inflation, the World Bank said in a new report.

Policy makers around the world are rolling back monetary and fiscal support at a degree of synchronization not seen in half a century, according to the study released in Washington on Thursday. That sets off larger-than-envisioned impacts in sapping financial conditions and deepening the global growth slowdown, it said.

Investors expect central banks to raise global monetary policy rates to almost 4% next year, double the average in 2021, just to keep core inflation at the 5% level. Rates could go as high as 6% if central banks look to wrangle inflation within their target bands, according to the report’s model.

Eoin Treacy's view -

When quantitative easing was first introduced there was a lot of handwringing at the thought of moral hazard. The Federal Reserve waded into public markets to buy sovereign bonds with the stated aim of back stopping government spending and encouraging speculation. It was viewed as a very risky endeavour that would send the wrong signal to speculators; that they can’t lose. In 2012/13 the EU went in the opposite direction and withdrew liquidity for fear that debtor nations would not mend their ways if assistance was too generous. 



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September 14 2022

Commentary by Eoin Treacy

It Starts With Inflation

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

I think it looks like interest rates will have to rise a lot (toward the higher end of the 4.5 to 6 percent range) and a significant fall in private credit that will curtail spending. This will bring private sector credit growth down, which will bring private sector spending and, hence, the economy down with it.

Now, we can estimate what that rise in rates will mean for market prices and economic growth. The rise in interest rates will have two types of negative effects on asset prices: 1) the present value discount rate and 2) the decline in incomes produced by assets because of the weaker economy. We have to look at both. What are your estimates for these? I estimate that a rise in rates from where they are to about 4.5 percent will produce about a 20 percent negative impact on equity prices (on average, though greater for longer duration assets and less for shorter duration ones) based on the present value discount effect and about a 10 percent negative impact from declining incomes.

Now we can estimate what the fall in markets will mean for the economy i.e., the "wealth effect." When people lose money, they become cautious, and lenders are more cautious in lending to them, so they spend less. My guesstimate that a significant economic contraction will be required, but it will take a while to happen because cash levels and wealth levels are now relatively high, so they can be used to support spending until they are drawn down. We are now seeing that happen. For example, while we are seeing a significant weakening in the interest rate and debt dependent sectors like housing, we are still seeing relatively strong consumption spending and employment.

The upshot is that it looks likely to me that the inflation rate will stay significantly above what people and the Fed want it to be (while the year-over-year inflation rate will fall), that interest rates will go up, that other markets will go down, and that the economy will be weaker than expected, and that is without consideration given to the worsening trends in internal and external conflicts and their effects. 

Eoin Treacy's view -

US rail workers are about to go on strike. By now the pattern is familiar. The companies they work for are making record profits and the wages have not kept up with inflation. This will also again highlight the disparity between the benefits of union workers versus less well represented groups. This is exactly the kind of evidence of a wage price spiral the Fed is seeking to avoid by hiking rates aggressively.



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September 14 2022

Commentary by Eoin Treacy

The Future of Copper

Thanks to a subscriber for this report from S&P Global which may be of interest. Here is a section from the conclusion:

Notably, neither scenario assumes that the growth in new capacity—expansions and new mines—speeds up. Absent a major policy shift, however, regulatory, permitting, and legal challenges, combined with long timelines for new mines to come onstream, will continue to dampen the pace of supply increases. This supply-demand gap for copper will pose a significant challenge to the energy transition timeline targeting Net-Zero Emissions by 2050. The challenge will be compounded by increasingly complex geopolitical and country-level operating environments. These include

The strategic rivalry between the United States and China—over a projected period in which China will remain the dominant global supplier of refined copper, while the United States depends on imports for well over half its copper.

Russia’s invasion of Ukraine and its cascading effects on the commodities markets and energy security, which have highlighted the vulnerability of supply chains. “Supply chain resilience” policies aiming to secure reliable supplies of the materials needed for energy transition—and economies in general—are likely to be a central feature of the emerging geopolitics.

A growing tension between energy transition, social license, and ESG objectives that dramatically increase the need for minerals like copper on one hand, while raising the compliance, legal, and operational costs of mining those minerals on the other.

The risk of a significant, structural increase in copper prices as the supply-demand gap increases, with a potentially destabilizing impact on global markets and industry. While structurally higher prices incentivize international investment in new capacity, governments in sourcing countries are likely to seek to capture domestically a rising share of revenues.

The fragmenting of globalization and a resurgence of resource nationalism. The resulting challenge for all actors involved with the energy transition will be to manage often competing and seemingly contradictory priorities. It is clear that technology and policy innovation will both be critical to reducing the supply-demand gap for copper in order to help enable the net-zero goals

Eoin Treacy's view -

Every major bull market which climaxes in a mania exhibits contradictory arguments. We are fully aware of the earnings don’t matter claims from the 1990s or house prices only go up ahead of the GFC. The difficulties with fulfilment of the renewable energy idealistic dream are a fresh contradiction. It is impossible to double copper production within 13 years. Therefore, there is no possible way the zero carbon ambitions of the green lobby can be realized. 



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September 13 2022

Commentary by Eoin Treacy

Gold Slides as Hotter US Inflation Keeps Hawkish Fed on Track

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

“A shockingly hot inflation report pulled the rug for gold as investors are now starting to price in more Fed tightening. A 75-basis-point rate increase is a done deal for September and it is starting to look like we might not see a downshift in November,” said Ed Moya, senior market analyst at Oanda.

Gold fell 1.1% to $1,706.18 an ounce at 9:42 a.m. in New York, after slumping as much as 1.6% earlier. The Bloomberg Dollar Spot Index rose 0.7% after falling 0.4% on Monday. Spot silver, platinum and palladium also fell.

Eoin Treacy's view -

We have had negative real interest rates for a decade. In that time gold has gone through significant periods of strength and weakness. Intuitively, negative real interest rates should support gold because inflation is outpacing the return from cash for a prolonged period. However, that is not a sufficient condition to support a bull market.



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September 12 2022

Commentary by Eoin Treacy

Bristol-Myers Jumps Most Since 2014 on Psoriasis Drug Nod

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

“This is what one could call pipeline in a pill,” said Bristol’s Chief Medical Officer Samit Hirawat.  

Sotyktu will not carry a black box warning, the US Food and Drug Administration’s strongest communication of potential risks. Analysts were closely watching the safety language in the drug’s label since such warnings have hampered other promising autoimmune drugs. 

The label is “close to the best case scenario,” Citi analyst Andrew Baum wrote in a note to clients. Shares of Ventyx Bioscience, a biotech company pursuing TYK2 drugs, soared as much as 67.14%. 

Bristol will try to unseat Amgen Inc.’s Otezla, a top-selling psoriasis pill that Sotyktu bested in clinical trials. Shares of Amgen fell as much as 4.3%. Convincing health insurers to cover Sotyktu will take time, said Bristol Chief Commercialization Officer Chris Boerner.

Eoin Treacy's view -

It has been a busy few days for the biotech sector with drug approvals making headlines for Bristol Myers Squibb, Regeneron and Clovis Oncology. President Biden’s cancer moonshot speech today was an additional catalyst for interest in the biotech sector. Here is a section from article by NBC

"Under Dr. Wegrzyn’s leadership, ARPA-H will support programs and projects that undertake challenges ranging from the molecular to the societal, with the potential to transform entire areas of medicine and health in order to prevent, detect, and treat some of the most complex diseases such as Alzheimer’s, diabetes, and cancer, providing benefits for all Americans," the White House said.



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September 09 2022

Commentary by Eoin Treacy

CryptoSlate: Ethereum Merge is 34k blocks away, expected to happen Sept. 14

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

According to Ultrasound money, the total Ethereum supply stands at over 120 million, and the amount of staked Ethereum on the Beacon chain is 13.6 million ETH, which is over 10% of the asset supply.

The tracker predicted that Ethereum PoS would issue 1700 ETH daily if staked ETH touches 14 million. It noted that as the number of staked Ethereum increases, the number of issued assets would increase too.

Meanwhile, a Chainalysis report said the merge would entice more institutional investors to Ethereum. According to the report, ETH would behave more like bonds and commodities, boosting their confidence in the token.

Ethereum burning mechanism
Ethereum’s burning mechanism will likely ensure that the supply of the token decreases.

In the past 24 hours, 1,967.60 ETH has been burned, representing 1.37 ETH per minute, and the network has burned 38,236.53 ETH in the last 30 days.

Protocols responsible for most of the burned ETH in the last 30 days include OpenSea, Uniswap V3, Uniswap V2, Gem, and 1inch v4, meaning NFT and DeFi protocols are mostly responsible for burned ETH.

Eoin Treacy's view -

The migration of Ethereum away from mining and into a proof of stake protocol is a major event for the crypto universe. It turns the second largest token into a more transaction-ready system. It also addresses some of the power usage issues bitcoin has. The fact it is reducing supply and paying dividends to investors is akin to the practice many corporations follow with their shares.



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September 01 2022

Commentary by Eoin Treacy

Entering The Superbubble's Final Act

Thanks to a subscriber for this article by Jeremy Grantham. Here is a section:

My theory is that the breaking of these superbubbles takes multiple stages. First, the bubble forms; second, a setback occurs, as it just did in the first half of this year, when some wrinkle in the economic or political environment causes investors to realize that perfection will, after all, not last forever, and valuations take a half-step back. Then there is what we have just seen – the bear market rally. Fourth and finally, fundamentals deteriorate and the market declines to a low.

Let’s return to where we are in this process today. Bear market rallies in superbubbles are easier and faster than any other rallies. Investors surmise, this stock sold for $100 6 months ago, so now at $50, or $60, or $70, it must be cheap. Outside of the late stage of a superbubble, new highs are slow and nervous as investors realize that no one has ever bought this stock at this price before: so it is four steps forward, three steps back, gingerly exploring terra incognita. Bear market rallies are the opposite: it sold at $100 before, maybe it could sell at $100 again.

The proof of the pudding is the speed and scale of these bear market rallies.
1. From the November low in 1929 to the April 1930 high, the market rallied 46% – a 55% recovery of the loss from the peak.
2. In 1973, the summer rally after the initial decline recovered 59% of the S&P 500's total loss from the high.
3. In 2000, the NASDAQ (which had been the main event of the tech bubble) recovered 60% of its initial losses in just 2 months.
4. In 2022, at the intraday peak on August 16th, the S&P had made back 58% of its losses since its June low. Thus we could say the current event, so far, is looking eerily similar to these other historic superbubbles.

Eoin Treacy's view -

Have we seen the secular peak in this market? That’s the only real question investors need to concern themselves with. The above statistics are certainly compelling, but the size of the rebounds should also be considered relative to the size of the initial declines from the peaks. Let’s round out that data.

1. The Dow Jones Industrials Average accelerated to the peak on September 3rd 1929. It fell 47.87% to the initial low on November 13th
2. The peak in 1973 was a failed upside break from a range that had been forming since 1966; with the Dow failing at the psychological 1000 on several occasions. That failed upside break resulted in a deeper pullback than any (25% & 36%) posted during the ranging phase. The failed downside break in 1974 resulted in a 75% rebound. It was another six years before a breakout to new highs was sustained.
3. Between March 10th and May 26th 2000 the Nasdaq Composite fell 40.72%.
4. Between January 7th and the low on June 17th the S&P500 declined 24.52%.



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August 26 2022

Commentary by Eoin Treacy

Powell Talks Tough, Says Rates Likely to Stay High for Some Time

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

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said Friday in remarks at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. “The historical record cautions strongly against prematurely loosening policy.”

He said restoring inflation to the 2% target is the central bank’s “overarching focus right now” even though consumers and businesses will feel economic pain. He reiterated that another “unusually large” increase in the benchmark lending rate could be appropriate when officials gather next month, though he stopped short of committing to one.

“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.

Eoin Treacy's view -

In very simple terms, the Fed has two mandates, price stability and full employment. Right now, they have full employment and robust business capital investments. They don’t have price stability or anything approaching it. That’s a recipe for tighter monetary conditions and higher rates until downward pressure on employment becomes problematic. 



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August 25 2022

Commentary by Eoin Treacy

War and Industrial Policy

This report from Zoltan Pozsar at Credit Suisse may be of interest. Here is a section:

More broadly, the three “moments” of reckoning we discussed above mean that global supply chains, whether they produce military or civilian goods, are facing a Minsky Moment – a Real Minsky Moment. Paul McCulley’s term referred to the implosion of the long -intermediation chains of the shadow banking system that marked the onset of the Great Financial Crisis. Today, we are witnessing the implosion of the long -intermediation chains of the globalized world order: masks, baby formula, chips, missiles, and artillery shells, for now. The triggers aren’t a lack of liquidity and capital in the banking and shadow banking systems, but a lack of inventory and protection in the globalized production system, in which we design at home and manage from home, but source, produce, and ship everything from abroad, where commodities, factories, and fleets of ships are dominated by states – Russia and China – that are in conflict with the West.

Inventory for supply chains is what liquidity is for banks. In 2007 -08, big banks ran on “just -in -time” liquidity: the dominant form of liquidity was market liquidity, for which you could always sell assets into a deep market without moving prices, so you did not have to have liquidity reserves at the central bank. Similarly, big corporations today run “just -in -time” supply chains for which they assume that they can always source what they need without moving the price. But not really: the U.S. military has to wait a little bit as Raytheon “will take a little while”; Taiwan and Saudi Arabia have to wait as well until the conflict in Ukraine is over; and if your washing machine broke recently, you’ll have to wait a bit too until defense contractors are done buying them up to rip chips out to make missiles.

Eoin Treacy's view -

In propagating the Belt and Road Initiative, China has long complained that the USA’s policy towards it is one of containment. That has become more much overt since 2016. Sanctions on chip manufacturing capacity are an escalation. The rationale for such moves is obvious. The USA and Europe need time to rebuild domestic manufacturing capacity.



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August 25 2022

Commentary by Eoin Treacy

Peloton Gives Gloomy Forecast in Sign Comeback Is Still Far Off

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

The outlook follows a similarly dire fourth quarter, when sales plunged 28% to $678.7 million and the adjusted loss was $288.7 million. On a net basis, the loss was $1.2 billion -- about four times the size of the company’s loss a year earlier.

The numbers suggest that a turnaround plan under Chief Executive Officer Barry McCarthy still has a long way to go. He took the reins in February and slashed expenses – cutting thousands of jobs and shuttering operations -- but the company is facing sluggish demand and a buildup of inventory. On
Wednesday, Peloton announced plans to begin selling its bikes and accessories on Amazon.com Inc.’s site, aiming to broaden its distribution.

The Amazon news gave a boost to shares, but they remain down nearly 90% over the past year. After the company published its outlook on Thursday, the stock dropped 6.5% in premarket trading before markets opened in New York. 

Eoin Treacy's view -

I was rather puzzled at Peloton’s strength yesterday. News they are about to start selling on Amazon was greeted with enthusiasm by investors. However, Amazon takes a fee from prime of anything between 30-40%. If there is not going to be a massive price disparity, Peloton will need to eat that cost.



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August 24 2022

Commentary by Eoin Treacy

Heard on the Street: Tesla Rival Finds Its Lane

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

BYD is scouting lithium mines to protect itself from surging prices of the essential battery metal. Despite rapid sales growth, BYD's margins were hammered last year due to high raw material prices. Net margins fell to 1.4% in 2021 from 2.6% a year earlier, according to FactSet. That compares with Tesla's 10.3%.

There is some hope of that reversing however, as commodity prices retreat again and new, pricier models hit showroom floors: The models in BYD's launch pipeline are twice as expensive as prior ones, according to Goldman Sachs. The bank expects BYD's net margin to expand to 2.2% this year and 2.5% in 2023.

BYD has paid down debt rapidly in recent years and as of December had more cash and short-term investments on hand than debt according to FactSet -- a reverse of the situation as recently as June last year.

In the downside scenario of a nasty Chinese recession, that could prove to be an important cushion.

One obvious challenge at home will be getting buyers to pony up for pricier cars with China's economy, potentially at least, deep in the doldrums. But for now at least, the company seems confident. BYD, which reports on Aug. 29, said in July that first-half net income could climb as much as 207% to 3.6 billion yuan, equivalent to about $528 million.

Sustaining such heady numbers will be a challenge but with strong, cost-effective technology, an integrated supply chain and Beijing's determination to dominate the sector, it would be a mistake to count BYD out.

 

Eoin Treacy's view -

Chinese lithium carbonate prices are still close to CNY500,000 a tonne. Significant investment and political will are being devoted to boosting supply of the metal but that is a medium-term objective. Meanwhile, nickel, copper, cobalt and manganese have all retraced much of their initial price spikes. That’s more about less demand than a sudden increase in supply.  



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August 24 2022

Commentary by Eoin Treacy

Rechargeable aluminum: The cheap solution to seasonal energy storage?

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

Researchers from Switzerland's SPF Institute for Solar Technology have been studying aluminum redox cycles for many years now, and with funding from the EU's Horizon Europe program and the Swiss government, they've just kicked off a research project called Reveal, drawing in nine different partners from seven European countries, to develop what looks like a very promising idea.

As a 2020 report from the SPF team states, a single, one cubic meter (35.3 cu ft) block of aluminum can chemically store a remarkable amount of energy – some 23.5 megawatt-hours, more than 50 times what a good lithium-ion setup can do, or roughly enough to power the average US home for 2.2 years, on 2020 figures. That's by volume – going by weight, aluminum holds a specific energy of 8.7 kWh per kilogram, or about 33 times more than the batteries Tesla uses in its Model 3.

Big fat blocks like that aren't exactly practical to work with, though, so the Reveal team proposes using 1-mm (0.04 in)-diameter balls of aluminum instead. Naturally, you lose some volumetric density here, but you're still coming out over 15 MWh per cubic meter.

Eoin Treacy's view -

Redox flow batteries where the electrolyte transports free electrons during the reduction and oxidation reactions have been in the works for years without gaining critical mass.



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August 22 2022

Commentary by Eoin Treacy

Hawkish Jackson Hole Surprise Will Pop Credit's Summer Bubble

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

Any sign from this week’s Jackson Hole symposium of more aggressive rate hikes to come will whack credit markets, which have already started to give back summer gains. Misplaced optimism about the US inflation and economic outlook squeezed spreads to unsustainably tight levels, leaving debt vulnerable to a fall that will be exacerbated by dwindling liquidity.

US high-grade bonds got overbought as fund inflows chased better returns, despite a barrage of issuance which will likely resume in September. The high-duration debt stands to lose most from a more hawkish Fed.

Spreads have almost 25 bps to go before hitting the July wide at 160 bps, but investors are keeping powder dry for a move back to May 2020 levels above 180 bps. That would be a fairly extreme move for a market that tends to move in 1-2 bps daily increments, but pre-Labor Day lack of liquidity provides scope to gap out.

Junk’s summer gains were led by the riskiest bonds, which would be battered most by a higher rates/lower growth environment. Some are waiting for a pummeling to 800 bps -- from 432 bps currently -- before buying in.

Eoin Treacy's view -

The biggest factor in the underperformance of portfolios from the beginning of the year had been the strong correlation between bonds and equities. They both fell at the same time and played havoc with the 60/40 portfolio set up. That relationship stopped working from early this month. Treasury prices resumed falling but stock prices rebounded.



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August 17 2022

Commentary by Eoin Treacy

There Were Hawkish Bits in the Minutes, Too

This note from Cameron Crise at Bloomberg may be of interest to subscribers.

While the market has reacted as if the minutes were dovish, I am not sure if that’s the right interpretation. To be sure, they did repeat the line that a slower pace of tightening would likely be appropriate in the future, and of course there was the line about the risk of over-tightening.

But here’s the thing-- the minutes acknowledge that growth momentum is fairly weak and the economy will expand below trend in the second half. They even note that the headline labor market data may not represent the true state of the economy. But for now, the Fed doesn’t care. Below-trend growth is a feature, not a bug, of the current policy setting, because it is required to get demand more in line with supply to curb inflation. And while the uncertainty of the data does indeed make over-tightening a risk, the possibility of high inflation becoming entrenched was a “significant risk” if the public didn’t accept the Fed’s resolve to tighten appropriately.

In other words, fading the Fed’s commitment to tighten makes it more likely that they will fulfill it. Oh, and there is a nice bit about the need to regulate crypto as well, so perhaps the Wild West mentality of that market might find that its days are numbered.

Eoin Treacy's view -

In a bull market buying the dip always works. When it stops working, that’s about the clearest signal we have that a lengthier medium-term correction is unfolding. The majority of stock markets have rebounded over the last couple of months and sparked a lot of enthusiasm that the correction is over and new highs will be seen before Christmas.



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August 17 2022

Commentary by Eoin Treacy

Largest Bitcoin Miners Lost Over $1 Billion During Crypto Crash

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

While the shares of crypto-mining companies have enjoyed a respite in recent weeks, they are still deep in the red this year. The miners had to shift from their Bitcoin-hoarding positions and sell coins as they struggled to repay debt and cover operational costs in the recent quarter. That continued into the third quarter.

“Public miners are still dumping their Bitcoin holdings at a higher rate than their production rate,” Jarand Mellerud, an analyst at Arcane Crypto, wrote in a research note. “Public miners sold 6,200 coins in July, making July the second highest BTC selling month in 2022.”

Eoin Treacy's view -

The primary argument for supporting bull markets in crypto is limited supply. The really big bullish trends have then coincided with surging demand, fuelled by massive increases in money supply.



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August 16 2022

Commentary by Eoin Treacy

Carbon Capture Could Get $100 Billion in Credit from US Climate Bill

This report from Bloomberg New Energy may be of interest to subscribers. Here is a section:

The new legislation raises the credits for captured CO2 that is used and stored to $60/tCO2 and $85/tCO2 respectively. However, project owners must meet prevailing wage and apprenticeship requirements in order to qualify. If they do not, they will be paid a lower credit than the existing 45Q payment. Projects must be under construction by the end of 2032 to receive the credit

A new, much higher credit is available to direct air capture (DAC) projects. DAC currently costs around $600/tCO2. The credit pays $130/tCO2 for gas that is used, say, for enhanced oil recovery or to make synthetic fuels, and $180/tCO2 for CO2 that is stored permanently.

 

Eoin Treacy's view -

Regulatory arbitrage will ensure that some areas will continue to benefit from having less strict regulations than either North America or Europe. Meanwhile there is little to be gained from arguing about the sense behind carbon credit trading. We can only deal with the reality provided by the market. The regulatory regime continues to support taxes on emissions. 



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August 12 2022

Commentary by Eoin Treacy

Illumina Falls Most Since May on Outlook for Demand, Grail Costs

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

Illumina has been embroiled in a costly prolonged battle over its acquisition of Grail. In an unusual move, Illumina finalized the Grail purchase in August 2021 despite complaints from regulators in both the US and Europe. Illumina and Grail were warned last month that they risk “hefty fines.” In its earnings report, Illumina said it recognized $609 million in legal contingencies, including an accrual of $453 million during the second quarter for a potential fine.

“The $8 billion Grail purchase has shifted the story, with multiple antitrust challenges that will play out in 2022,” Bloomberg Intelligence analyst Jonathan Palmer wrote. “These have raised the stakes and shaken confidence.”

On a call with investors, Chief Executive Officer Francis deSouza gave no indication of backing down from the purchase. Meanwhile, the company expects reduced revenue growth from its core business in the second half of the year. 

Piper Sandler analyst David Westenberg said the most concerning factor behind Illumina’s guidance cut was deferred lab investments by some users of the company’s DNA sequencing machines, and customers holding less inventory.

“Some customers experienced supply chain pressures that delayed their lab expansions,” deSouza said on the call. Those who planned to launch new labs or expand existing ones were stymied by supply chain issues, while others are managing capital “more conservatively,” he said. 

Eoin Treacy's view -

Illumina is the dominant supplier of genetic sequencing machines. The purchase of Grail was about gaining entry to the blood diagnostics market with a particular focus on early cancer diagnosis. It’s a potentially high growth and complimentary market. If the purchase remains intact, it should deliver a dominant position in both markets.



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August 10 2022

Commentary by Eoin Treacy

Cooler Inflation Takes Fed's Rate-Hike Size "Down to the Wire"

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

“This is a necessary print for the Fed, but it’s not sufficient,” Pond said. “We need to see a lot more. You can think about this print as sort of like the weather -- it’s better today than it has been over the past few days. But it’s still summer. There’s still a lot of humidity out there. It’s not great. So it’s in the right direction. But we’re certainly not there yet.” 

For Diane Swonk, the chief economist at KPMG LLP, the Fed is now hedging against risk of future supply shocks as well as combating current inflation and will likely favor a 75 basis-point increase.

“The Fed is no longer willing to rest on their laurels on a one-month move,” she said. “The greater risk for the Fed is to stop too soon than stop too late. It will take a lot more cooling than this for the Fed to shift its decision rule, although in this economy, September seems an eternity away.”

Eoin Treacy's view -

The big question for investors is whether the Federal Reserve will focus on core or non-core items in how much they decide to raise rates in September. Commodity price inflation is less urgent today than earlier this year. Lumber prices have made a full round trip. Wheat has fully unwound the Ukraine invasion surge. Palm Oil is steadying in the region of the 2008, but the price has almost halved from the peak level. 



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August 09 2022

Commentary by Eoin Treacy

Micron's Warning Adds to Evidence of Collapsing Chip Demand

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

The Boise, Idaho-based company is the latest to reveal just how quickly demand for electronic components is declining, following a warning by Nvidia Corp. on Monday and weak reports by Intel Corp. and other chipmakers this earnings season. The majority of the pain is being felt by companies that make chips for personal computers. Consumer demand for those devices is drying up rapidly as pandemic lockdowns end and household budgets are hammered by inflation.

Highlighting the speed with which demand is evaporating, Micron said orders deteriorated since the company last gave an update just over a month ago. Crucially, it’s not just PC makers that are cutting back.

“Compared to our last earnings call, we see further weakening in demand because of adjustments broadening outside of just consumers to other parts of the market including data centers, industrial and automotive,” Chief Executive Officer Sanjay Mehrotra said in an interview with Bloomberg Television.

The prospects for the chip industry are dimming on a day that was supposed to herald a renaissance in semiconductor manufacturing in the US with President Joe Biden signing the Chips and Science Act. That $52 billion stimulus package is designed to make it cheaper for companies to build domestic factories and help counteract the loss of the crucial skill set to Asia. Shortages during the pandemic inspired US and European politicians to prioritize the creation of additional plants locally to create a more robust supply chain.

Eoin Treacy's view -

The chip sector has always been highly cyclical and nothing has happened to change that fact. The pattern of behaviour has repeated in several cycles. The cyclicality is driven by how capital intensive the sector is.



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August 08 2022

Commentary by Eoin Treacy

Assessing the Macroeconomic Consequences of the Inflation Reduction Act of 2022

Thanks to a subscriber for this report from Moody’s. Here is a section:

Lawmakers appear close to passing into law the Inflation Reduction Act of 2022. The legislation is born out of the Build Back Better agenda that President Biden proposed more than a year ago. It raises nearly $750 billion over the next decade through higher taxes on large corporations and wealthy individuals and lower Medicare prescription drug costs, to pay for nearly $450 billion in tax breaks and additional government spending to address climate change and pay for lower health insurance premiums for Americans benefiting from the Affordable Care Act (see Table 1). The remaining more than $300 billion goes to reducing the federal government’s future budget deficits (see Chart 1). Broadly, the legislation will nudge the economy and inflation in the right direction, while meaningfully addressing climate change and reducing the government’s budget deficits.

Eoin Treacy's view -

The renewable energy sector rebounded emphatically on the prospect of additional subsidies last week. Removing the limitation on EV rebates so every buyer gets a $7500 discount and reinstating the 30% tax credit for solar installations are both stimulative for their respective sectors.



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July 28 2022

Commentary by Eoin Treacy

US Economy Shrinks for a Second Quarter, Fueling Recession Fears

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

The drumbeat of recession grew louder after the US economy shrank for a second straight quarter, as decades-high inflation undercut consumer spending and Federal Reserve interest-rate hikes stymied businesses and housing.

Gross domestic product fell at a 0.9% annualized rate after a 1.6% decline in the first three months of the year, the Commerce Department’s preliminary estimate showed Thursday. Personal consumption, the biggest part of the economy, rose at a 1% pace, a deceleration from the prior period.

“The more important point is that the economy has quickly lost steam in the face of four-decade high inflation, rapidly rising borrowing costs, and a general tightening in financial conditions,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “The economy is highly vulnerable to slipping into a recession.”

Eoin Treacy's view -

It is always dangerous to say this time is different in markets. However, on this occasion there really is some justification that claim. Two consecutive quarters of negative growth meets the technical definition of a recession. However, there are some important mitigating circumstances. For one, unemployment has not risen significantly. There has also never been a recession when the PMI was among 50. That suggests muddier perspective than we might be accustomed to.



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July 26 2022

Commentary by Eoin Treacy

Diabetes breakthrough restores insulin production using existing drug

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

The team says that the new potential treatment has a few advantages over other techniques currently in use or under development. Pancreas transplants are effective, but subject to organ donor shortages and other complications like rejection. Other teams have converted skin cells into stem cells and used those to produce new beta cells, and although results have been promising in mice, immune-suppressing drugs need to be given to prevent rejection.

The new treatment would work much faster, within a matter of days, and without the need for surgery. But perhaps the biggest advantage is that GSK126 is already approved by the US FDA and elsewhere in the world as a treatment for cancer. Its safety profile is already being assessed in clinical trials, which could reduce hurdles down the road for its use against diabetes.

That said, the scientists caution that it is still very early days. These experiments were conducted on cells in culture – not even in animals yet – so there’s still plenty of work to do. Nevertheless, it remains an intriguing new possible tool.

Eoin Treacy's view -

Diabetes is the ultimate money-spinning chronic disease. It is manageable for Type-2 patients if they have the personal discipline to abide by a low sugar diet. The problem is most people who end up with diabetes suffer from poor impulse control or are happy to take the drug regime prescribed to live as they please. The number of patients continues to trend higher as living standards rise and every day provides a bounty that would once have been reserved for festivals.



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July 20 2022

Commentary by Eoin Treacy

The 'Merge Trade' Has Begun, Experts Say, as Ether Surges and stETH Discount Narrows

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

Several observers consider Ethereum's impending transition equivalent to three Bitcoin halvings – a programmed code that halves the per block bitcoin (BTC) currency supply every four years – that will lead to a 90% reduction in ether's annual issuance. Simply put, the transition is likely to bring a store of value or deflationary appeal to ether. The upgrade has been long pending.

Like other market participants, ether investors tend to factor in bullish developments in advance. For instance, ether rallied over 60% to $2,800 in the three weeks leading up to the London hard fork implemented on Aug. 5, 2021. The hard fork activated a mechanism to burn the portion of fees paid to miners.

The Ethereum 2.0 upgrade has been long overdue and has seen several delays. However, the recent successful merges of the Ropsten and Sepolia testnets and the Goerli testnet's planned transition to proof-of-stake on for Aug. 11 has raised hopes for the mainnet merge in September.

The foundation's strongest hint of the tentative date of the Merge on record came as the crypto market looked for reasons to bounce, having priced in much of the bad news over the past two months.

Ether tanked 60% to less than $1,000 from $2,700 in the past two months as fears of faster liquidity withdrawal by the Federal Reserve, Terra's collapse and eventual bankruptcies of crypto hedge fund Three Arrows Capital, several crypto lenders saw investors dump crypto holdings.

Eoin Treacy's view -

Predictable dates tend to magnify trader interest. That’s especially true in markets where there are no hard fundamentals, like crypto. The one thing that amplifies interest in the crypto sector better than anything else is supply inelasticity.



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July 15 2022

Commentary by Eoin Treacy

Summers Says Fed 'Let Us Down Quite Badly' and Still Unrealistic

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

Former Treasury Secretary Lawrence Summers issued one of his harshest criticisms yet of the Federal Reserve’s slowness in moving to raise interest rates, and warned that policy makers are still presenting forecasts that are unrealistic.

“In 2021, our central bank let us down quite badly,” hurting policy makers’ credibility, Summers said on Bloomberg Television’s “Wall Street Week.” “It made mistakes in the core functioning of a central bank,” including in its failure to lean in against fiscal stimulus last year, he said.

Among the errors has been a “repeated poor forecasting record -- and I have to say that it’s not something that’s been fully fixed,” Summers said. The June median Fed official predictions showed inflation coming back toward the 2% target but unemployment only reaching a high of 4.1% by 2024 -- a “highly implausible” result, he said.

“Frankly I think in 2021 our central bank lost its way. It was talking about the environment, talking about social justice in a range of things,” Summers, a Harvard University professor and paid contributor to Bloomberg TV, said. “It was confidently dismissing concerns about inflation as transitory.”

Turning to Japan, which has seen its currency tumble to the weakest since 1998 as the Bank of Japan declines to join its peers in tightening policy, Summers said it’s likely to be a challenge to exit the current zero-yield targeting regime.

Dollar’s Impact
“Sooner or later they’re going to leave the yield curve control strategy and I’m not entirely sure what’s going to happen when they do,” Summers said. “In the meantime, the pressures are likely to build,” with the potential for “an even weaker yen,” he said.

While some emerging markets are also suffering from a strengthening dollar, Summers said that he didn’t see a “systemic” crisis along the lines of 1998. Still, countries with “particularly unsound policies” including Turkey and Argentina are a concern, he said.

Eoin Treacy's view -

The world as it is, the reactions of traders to evolving stimuli, and the world as we would like it to be, are three very different places.

The reality of massive money supply growth in 2020/21, and the subsequent decline in supply growth represent the background for market. The absence of clear sources of new liquidity suggest it is unproductive to expect sharp rebounds on par with those seen in 2021.



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July 13 2022

Commentary by Eoin Treacy

Will release of $3B Bitcoin from Mt Gox cause market bottom in August?

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

Should the release of the remaining Mt Gox funds have a similar effect on the price of Bitcoin, it would likely drop below $10,000. However, even in recent months, there has been equal sell pressure on Bitcoin from parties such as Luna Foundation Guard, Three Arrows Capital, and Bitcoin miners.

LFG sold several billion dollars worth of Bitcoin, which had a negligible effect on Bitcoin as the market absorbed the selling pressure. The following weeks since the event did result in Bitcoin’s price decline due to a change in market belief and overall global outlook. The markets may well absorb any selling from Mt. Gox creditors, but the social sentiment of early Bitcoiners relinquishing their coins could create a bearish psychological sentiment.

Eoin Treacy's view -

Bitcoin is a liquidity barometer. The Mt.Gox liquidator releasing additional supply into the market would be a headwind at the best of times. Doing so while interest rates are rising and liquidity is being siphoned out of the system, will only have a larger negative impact on bitcoin prices.



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July 08 2022

Commentary by Eoin Treacy

China Tries to Tamp Down Nationalist Fervor Over Abe Shooting

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

The Foreign Ministry struck a softer tone on Friday. China was “shocked” by the attack, spokesman Zhao Lijian said at a regular press briefing in Beijing just before news that Abe had died, saying the nation hoped he would recover soon.

“This unexpected incident should not be linked with China-Japan relations,” Zhao added. When asked about some nationalist voices in China cheering the shooting, Zhao declined to “comment on the remarks of net users.”

Eoin Treacy's view -

The Chinese administration has been fostering a domestic nationalistic movement for years. That helps fuel domestic support for extraterritorial ambitions amid the government’s significant militarization efforts.



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July 05 2022

Commentary by Eoin Treacy

Euro Tumbles to 20-Year Low, Putting Parity With Dollar in Sight

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

“It is hard to find much positive to say about the EUR,” said Dominic Bunning, the head of European FX Research at HSBC. “With ECB sticking to its line that we will only see a 25bp hike in July – at a time when others are hiking much faster – and waiting for September to deliver a faster tightening, there is also little support coming from higher yields.” 

Money-market traders are betting ECB will deliver around 140 basis points this year, down from more than 190 basis points almost three weeks ago. The repricing gathered pace after a string of weak economic data last week, with traders trimming bets again on Tuesday after French services PMI was revised lower. 

Investors have also been more cautious on the euro due to the risk of so-called fragmentation, when economically weaker nations see unwarranted spikes in borrowing costs as financial conditions tighten. The ECB is expected to deliver further details of a new tool to backstop more vulnerable countries’ debt at their policy meeting later this month.

The losses Tuesday were compounded by poor liquidity and selling in euro-Swiss franc, according to three Europe-based traders. The euro fell as much as 0.9% against the Swiss franc to 0.99251, the lowest level since 2015. 

“The FX market is not back up to full liquidity given the US holiday,” said Mizuho’s Jones. “Any given size of trade is likely to have a greater impact on market movement.”

Eoin Treacy's view -

Russia’s calculus is simple enough. They are betting the economic pain European countries are enduring because of their support for Ukraine will be so great they will be willing to make a deal sooner rather than later.



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July 04 2022

Commentary by Eoin Treacy

Woman given one year to live is now cancer-free after experimental treatment

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

When she found out the cancer had spread to her lungs, chest bone and lymph nodes, she was given one year to live.

David spent the following six months undergoing chemotherapy, and had a mastectomy in April 2018. This was followed by 15 cycles of radiotherapy which cleared her of cancer.

However, the cancer returned in October 2019 when scans showed multiple lesions throughout David’s body.

David then decided to take part in a clinical trial where she was given experimental medicine combined with immunotherapy drug Atezolizumab, which she has injected every three weeks.

After two years on the trial, the mother-of-two has been declared cancer-free once again.

Eoin Treacy's view -

Roche acquired Genentech in 2009. Atezolizumab is the fruition of that merger and continues to make its way through clinical trials.
Immuno-oncology went through a significant bull market in 2016/17 as the promise of curing cancer looked realizable for the first time. The difficulty of creating a one-size-fits-all solution resulted in much of the enthusiasm being squeezed out of the sector. Nevertheless, the results are impressive even if the scalability is not a panacea.



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July 01 2022

Commentary by Eoin Treacy

GM Sees Profit Down on Inventory Woes, Reaffirms '22 Outlook

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

General Motors Co. expects second-quarter sales and profit to take a hit due to supply-chain problems, but the automaker said it can make up for delayed production later this year and reaffirmed its full-year guidance. 

GM had 95,000 vehicles in inventory as of June 30 -- most of them built in June -- that can’t be sold until certain semiconductors arrive to finish assembly, according to a Friday securities filing. The carmaker expects to finish building those vehicles by the end of the year, allowing the company to keep its full-year guidance. 

The semiconductor shortage has eased, but carmakers continue to wrestle with the availability of certain chips. The shortfall has forced GM and others to either cut production at times or start assembling vehicles without some chips and finish them when supplies arrive.  

GM said second-quarter sales fell 15% due to production and supply issues. As big a drop as that is, it’s a sign of improvement from the second half of last year when supply-chain problems caused a sales shortfall of more than 40%.

Detroit-based GM said second-quarter profit will come in between $1.6 billion and $1.9 billion; the average of analysts’ estimates is $2.4 billion. 

Despite the hit to quarterly sales, GM is sticking to its expectations of 2022 net income between $9.6 billion and $11.2 billion, adjusted operating profit of $13 billion to $15 billion and adjusted earnings of $5.76 to $6.76 a share. 

Eoin Treacy's view -

GM’s issues with securing the types of chips they require for vehicles highlights the nuances within the sector and the challenges of managing global supply chains when demand ramps higher in an unpredictable manner.



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June 29 2022

Commentary by Eoin Treacy

MicroStrategy Buys $10M Bitcoin in Middle of Crypto's Big Chill

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

As of June 28, the company holds about 129,699 Bitcoin bought for about $3.98 billion, or $30,664 per coin, according to the filing. 

The Tysons Corner, Virginia-based enterprise software maker is expected to reveal a significant financial hit when it releases its second quarter 10-Q this summer, given its enormous exposure to the bellwether token, which has more than halved in value this year. 

Eoin Treacy's view -

With an enterprise value of $4.3 billion almost the entire notional value of MicroStrategy is tied to an unprofitable bitcoin position. It is far from the only company to be underwater on its bitcoin purchases.



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June 29 2022

Commentary by Eoin Treacy

Social-Media Companies Face Regulatory Risk in California for Harming Children

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

A bill passed Tuesday by California's Senate Judiciary Committee could allow government attorneys in the state to sue social-media companies such as Meta Platforms, TikTok and Snap for the use of any design or feature that would cause children to become addicted to their platforms. This could have implications for these companies' regulatory and legal risk-management profile as they would have to pay a civil penalty of up to $25,000 per violation or up to $250,000 for a knowing and willful violation. Some 90% of teens aged 13 to 17 in the U.S have used social media, according to The American Academy of Child and Adolescent Psychiatry, which estimates that, on average, they are online almost nine hours a day, not including time for homework.

Eoin Treacy's view -

The user interface for social media apps is heavily curated to ensure it is addictive. That’s equally applicable to both adults and children. Therefore, it is reasonable to think there are going to be a large number of lawyers salivating at the chance to attack cash rich companies.



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June 28 2022

Commentary by Eoin Treacy

EU Nears Combustion Car Era's End as Italy May Drop Opposition

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

In an attempt to enable a compromise, Germany proposed adding in a non-binding part of the car emissions law a call on the commission to propose registering after 2035 vehicles running exclusively on carbon-neutral fuels. The addition is important to Germany and can be a bridge for the overall discussion, said Environment Minister Steffi Lemke. 

“We need a strong and fast CO2 reduction, but we need to keep openness on technologies,” she told the ministers. “We hope that this addition, which is important to the German government, hopefully this is agreeable and which can enable us to reach a joint acceptable solution.”

Eoin Treacy's view -

As a major energy importer the EU has a clear incentive to reduce dependence on imported fuels. That’s well understood. The other side of that argument is Russia is clearly of the opinion that if the EU does not wish to buy its exports, it will find customers that do.



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June 27 2022

Commentary by Eoin Treacy

The Return of Industrial Warfare

Thanks to a subscriber for this informative article by Alex Vershinin for RUSI (Royal United Services Institute for Defence and Security Studies). Here is a section:

Presently, the US is decreasing its artillery ammunition stockpiles. In 2020, artillery ammunition purchases decreased by 36% to $425 million. In 2022, the plan is to reduce expenditure on 155mm artillery rounds to $174 million. This is equivalent to 75,357 M795 basic ‘dumb’ rounds for regular artillery, 1,400 XM1113 rounds for the M777, and 1,046 XM1113 rounds for Extended Round Artillery Cannons. Finally, there are $75 million dedicated for Excalibur precision-guided munitions that costs $176K per round, thus totaling 426 rounds. In short, US annual artillery production would at best only last for 10 days to two weeks of combat in Ukraine. If the initial estimate of Russian shells fired is over by 50%, it would only extend the artillery supplied for three weeks.

And

The war in Ukraine demonstrates that war between peer or near-peer adversaries demands the existence of a technically advanced, mass scale, industrial-age production capability. The Russian onslaught consumes ammunition at rates that massively exceed US forecasts and ammunition production. For the US to act as the arsenal of democracy in defence of Ukraine, there must be a major look at the manner and the scale at which the US organises its industrial base. This situation is especially critical because behind the Russian invasion stands the world’s manufacturing capital – China. As the US begins to expend more and more of its stockpiles to keep Ukraine in the war, China has yet to provide any meaningful military assistance to Russia. The West must assume that China will not allow Russia to be defeated, especially due to a lack of ammunition. If competition between autocracies and democracies has really entered a military phase, then the arsenal of democracy must first radically improve its approach to the production of materiel in wartime.

Eoin Treacy's view -

China’s stated aim is to “reunite” with Taiwan politically by whatever means are necessary. This article from Taiwan News, focusing on the Koumintang’s (pro-unity party) recent stated pro-US stance may be of interest. 



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June 24 2022

Commentary by Eoin Treacy

Markets Are Losing the Anchor of a Generation

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

There was one necessary condition underlying the bond market’s ability to shrug off the worst inflation numbers in a generation after only a week; nobody is really sure if they believe the Fed. Credibility is vital to central banks, and I argued for Businessweek on Thursday that it is indeed as important an anchor to the monetary system as gold used to be. A round trip like this showed extreme hesitance to accept the Fed’s guidance; arguably, the currency of its forward guidance has been adulterated.

That said, the Fed can’t have lost all credibility. The rebound in bond yields started Thursday morning as Jerome Powell began taking his second day of questions from Congress. Unlike on Wednesday, he said that his commitment to get inflation back down to 2% was “unconditional.” That, like many central banking pronouncements in the past, had an effect. But it's still concerning that the Fed needs to be more shrill to get its message across; it does look as the coinage of forward guidance is being debased:

Meanwhile, a telling indicator of how far sentiment has swung back toward bracing for a (disinflationary) recession comes from inflation breakevens. German inflation expectations have receded after a dramatic surge over the last 12 months, although they still remain higher than they were at the beginning of the year. The same is not true of US breakevens for average inflation over the next 10 years, and for the five years starting five years hence. Both are now lower than they were in May last year — an extraordinary fact given the extent of the inflationary shock since then, and the new geopolitical drivers for inflation that have arisen this year. If you’re convinced that much higher rates of inflation are on the way, along with higher interest rates to combat them, then the market is still making it very cheap for you to bet on that outcome

Eoin Treacy's view -

There is talk of the ECB raising rates in July, but Europe is already in a recession and Germany is fearful Russia will stop natural gas exports through the original Nordstream pipeline altogether. Against that background the ensuing economic contraction would make the case for interest rate hikes moot.



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June 23 2022

Commentary by Eoin Treacy

CATL Unveils EV Battery With One-Charge Range of 1,000 Kms

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

Contemporary Amperex Technology Co. Ltd. unveiled an electric-car battery it said has a range of over 1,000 kilometers (620 miles) on a single charge and is 13% more powerful than one planned by Tesla Inc., a major customer. 

CATL, as the world’s biggest maker of electric-car batteries is known, will start manufacturing the next-generation “Qilin” next year, according to a video the Chinese company streamed online Thursday. The battery charges faster than existing cells, and is safer and more durable, CATL said. 

The Qilin battery, named after a mythical Chinese creature, has an energy density of up to 255 watt-hour per kilogram, Ningde, Fujian-based CATL said. 

“It’s an important advancement for CATL as it keeps them at the forefront on the innovation side,” said Tu Le, managing director of Beijing-based consultancy Sino Auto Insights. “Being the lowest cost provider isn’t enough to command loyalty, there needs to be more to it -- and that seems to be the Qilin battery for CATL.”

CATL’s shares climbed 5.9% in Shenzhen, closing at the highest since Feb. 9. 

The company said Wednesday it raised 45 billion yuan ($6.7 billion) in a private placement of shares, with the proceeds intended for production and upgrade of lithium-ion battery manufacturing in four Chinese cities, as well as research and development.

CATL has experienced a wave of volatility this year, grappling soaring prices of raw materials as well as rumors of trading losses. Its first-quarter net income slid 24% from a year earlier to 1.49 billion yuan. The company hasn’t explained a 1.79 billion yuan derivatives liability, the first such charge since it listed.

Eoin Treacy's view -

The massive run-up in battery metal prices has put significant pressure on companies dependent on buying them to support their businesses. Lithium, copper, cobalt and nickel prices have surged this year as projections for future demand and low available supply created an inelastic trading environment. That created problems for nickel traders which resulted in a short covering price spike and lithium prices also surged to previously unimaginable levels.



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June 17 2022

Commentary by Eoin Treacy

Crypto Lender Babel Freezes Withdrawals as Industry Pain Spreads

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

In a sign of deepening turmoil in the crypto community, Babel Finance became the second major digital-asset lender this week to freeze withdrawals, telling clients it is facing “unusual liquidity pressures” as it contends with recent market declines.

“The crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events,” the Asia-based lender and asset manager said in a notice on its website to explain the temporary measure.

Eoin Treacy's view -

Another day, another crypto exchange declines to allow withdrawals. Cryptocurrencies are pure liquidity plays so they are unlikely to recover until there is clear visibility on where the next outsized round of new money is going to come from.



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June 17 2022

Commentary by Eoin Treacy

Seagen Surges on Report Merck Eyeing Purchase of Company

This article by Caitlin Fichtel for Bloomberg may be of interest to subscribers.

Seagen jumps as much as 20% Friday, the most since February 2021, after Dow Jones reported that Merck is eyeing a purchase of the biotech firm, citing people familiar with the matter.

Merck gains as much as 1% Friday
Report adds that talks have been in progress for a while, although a deal is not imminent
Marketing agreement could be struck instead of full purchase
Other unnamed companies are also interested in Seagen

Eoin Treacy's view -

The biotechnology sector was overtaken by vaccine mania during the pandemic. A small number of companies led by Moderna quickly grew to dominate the weighting of the sector. For 18 months the biotech index behaved more like a small number of vaccine providers, than the wide array of solutions to intransigent problems the companies it is comprised by represent. The collapse of vaccine providers, as the immediate risk from this pandemic recedes, means the biotech sector is back trading on the individual merits of its companies.



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June 16 2022

Commentary by Eoin Treacy

Rheinmetall Unveils New Tank as Arms Demand Set to Surge

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

The German arms maker expects revenue to surge by as much as 20% per year driven by growing demand for military equipment, according to Chief Executive Officer Armin Papperger. Rheinmetall is boosting capacity and can at least triple ammunition production within the next twelve months, he told Germany’s Bild am Sonntag in an interview. 

The company also is able to double military truck output “because a lot of Cold War infrastructure can be reactivated fairly quickly,” the CEO said.

Rheinmetall’s first modernized Marder light tanks are also ready for delivery, Papperger said, adding that when and where the vehicles get shipped depends on the German government. Berlin has faced criticism for what some see as tepid commitments to deliver weapons to Ukraine.

Rheinmetall is currently updating 100 decommissioned Marder vehicles, 88 Leopard 1 tanks and additional Leopard 2 versions. The vehicles could potentially be delivered to Ukraine or replace equipment dispatched by other countries.

Eoin Treacy's view -

Spending money on arms is always easier when there is a war. The argument for modernizing the military apparatus of any country is more difficult without a clear urgent reason to do so. That’s especially true for democracies where competing priorities often take precedence and even more so for Europe with explicit protection guarantees from the USA. .



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June 15 2022

Commentary by Eoin Treacy

FDA Approves Historic Alopecia Treatment by Eli Lilly, Incyte

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

The Food and Drug Administration on Monday approved the first systemic treatment for alopecia areata, an autoimmune disorder that causes hair loss and affects more than 300,000 people in the US each year.

The drug is sold by Eli Lilly  & Co. and Incyte Corp. under the brand name Olumiant and comes in the form of oral tablets taken once daily. It’s approved for adult patients with severe alopecia. In two big trials, about 40% of people with severe alopecia achieved significant hair growth after 36 weeks, according to the FDA. 

Eoin Treacy's view -

Sitting around the kitchen table with most of my siblings two weeks ago, the topic of hair loss and greying was of particular interest to my sister who is turning 40 at her next birthday and my youngest brother who is 25.

Hair loss treatments are big business. Minoxidil (Rogaine) application is apparently almost more trouble than it is worth.  Finasteride is a pill but reduces testosterone and can impact libido which is not exactly ideal. Meanwhile Elon Musk’s success in tackling his male pattern baldness clearly signals that at least surgical options are available. 



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May 16 2022

Commentary by Eoin Treacy

Another Stablecoin Loses Its Peg as Algorithm Fails to Keep Pace

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

Deus Finance’s DEI token has lost its 1-to-1 peg to the dollar, becoming the latest failure of an algorithmic stablecoin during a period of crypto market stress.

DEI is currently trading at 70 cents, according to data tracker CoinGecko. With a market value of about $63.5 million, the token is tiny compared with the more than $18 billion TerraUSD stablecoin that shook crypto markets when it become depegged last week. 

Read more: Crypto Hedge-Fund Head Predicted Terra’s $60 Billion Implosion

Put out by Deus Finance, a marketplace for financial services, DEI is different from TerraUSD, or UST, in that it’s a fractional reserve stablecoin, backed by coin collateral, consisting of 20% DEUS tokens and 80% of other stablecoins, such as USDC.

Deus’s team is working to restore the peg, according to a Tweet.

The depegging comes several months after Deus Finance was hacked, with some coins stolen.

UST is currently trading at about 6 cents. Last week, even the world’s biggest stablecoin, Tether -- which is not algorithmic and claims to have full reserves -- lost its dollar peg before regaining it. Crypto bellwether Bitcoin is trading at less than $30,000, down from over its all-time high of almost $69,000 in November.

Eoin Treacy's view -

The TerraUSD coin is an algorithm based stablecoin, which relies on the value of its underlying token to support its value. That token, Luna, collapsed last week and took the stablecoin with it. The potential for contagion arises when stablecoins using money market instruments fail.



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May 13 2022

Commentary by Eoin Treacy

Capitulation

Thanks to a subscriber for this portion of a note from JPMorgan:

the bottom this time won't be a capitulatory puke, but more likely consistent selling which fades as it burns out, to wit:

... signs of a market bottom are unlikely to resemble traditional "capitulation" that’s played out in the last few years. Why? Because traditional capitulation is typically marked by a quick de-grossing by hedge funds + systematic macro strategies, where positioning is already light. Instead, the next leg of de-risking is likely to be more gradual, coming from asset allocators/real money/retail and is therefore likely slower to play out, making a precise bottom more difficult to call.

from a more tactical (i.e. very near term) standpoint, the bank writes that there are multiple metrics that suggest we could be closer to a bounce than before, including:

The magnitude of the drawdown in net and gross exposures (-33% for net and - 30% for gross) in N. America among L/S funds is now similar to the early 2016 and March 2020 declines

Retail flows in single-stocks have been very negative over the past 3 days, which has generally coincided with short-term lows over the past 6 months.

The drawdown in “risky” factors (e.g. high vol, small cap, low profitability) is one of the most extreme of the past 20+ years and the S&P has rallied over the following 1-3 months post hitting similar extremes

Buying of Defensives and selling of Cyclicals is also one of the most extreme with Staples vs. Discretionary in particular looking stretched

Eoin Treacy's view -

The significant declines seen in stocks and the return of P/E ratios to average readings have been sufficient to encourage some speculative value buying over the last couple of days. The other side of that argument is oil prices remain firm and the Fed intends to hike rates by an additional 100 basis points before the end of July. Rallies are hard to sustain when liquidity is contracting.



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May 12 2022

Commentary by Eoin Treacy

Coinbase Gives $256 Billion Reminder About Agonies of Bankruptcy

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

Coinbase Global Inc., like the rest of the cryptocurrency market, is having a really tough week. Not filing-for-bankruptcy bad, but the biggest US crypto exchange did just mention the B-word in a regulatory filing, giving its customers a painful reminder of how bad things could get for them if Coinbase ever does get seriously distressed.

In its quarterly report, Coinbase added a risk disclosure: if the company were to file for bankruptcy, the court might treat customer assets that the exchange is custodian for -- their Bitcoin, Dogecoin or whatever -- as Coinbase’s assets. And they’d be at the back of the line for repayment, forcing normal people, unaccustomed to the ins and outs of federal bankruptcy court, to claw back their money along with everybody else owed money by the exchange.

It’s a huge amount at stake. Coinbase was custodian for $256 billion of customer money on March 31, according to the filing.

Chief Executive Officer Brian Armstrong quickly took to Twitter to elaborate, saying the company is not at risk of going bankrupt and that users’ funds are safe.

Eoin Treacy's view -

Segregated accounts didn’t save MF Global’s clients in 2019. It took six months to get two thirds of their money back and it’s not clear how successful efforts have been to recover the rest. Since the crypto markets are unregulated and Coinbase is an “exchange” rather than a broker, the funds are not truly segregated. The company might not be in imminent danger of going bust, but that only exacerbates the leverage to the bitcoin price. It’s a very binary bet.



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May 11 2022

Commentary by Eoin Treacy

Dollar Won't Be Haven Currency of Choice for Long

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

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

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

Eoin Treacy's view -

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



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May 11 2022

Commentary by Eoin Treacy

TerraUSD's Struggles Are a Concern for All Markets

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

Much more important, if TerraUSD fails it will be a blow to the hopes of many traditional financial institutions that rely on liquidity to maintain stability. That includes central banks, exchange-traded funds, mutual funds, derivatives clearinghouses, securities dealers and many others.

TerraUSD is an “algorithmic stablecoin,” meaning it attempts to maintain a $1 market price via an algorithm rather than traditional methods such as backing each token with an actual dollar. TerraUSD can be exchanged for $1 worth of another cryptocurrency, in this case Luna. Therefore, if the price of TerraUSD deviates from $1, arbitragers should force it back.

The Federal Reserve, although it doesn’t officially target the value of the dollar, can use a similar strategy if it wants to influence the currency’s value. If the value of the dollar falls either in terms of purchasing power or foreign-exchange rates, the Fed’s two main policy responses are to raise interest rates to make the dollar more attractive to hold, or to sell assets to soak up dollars, reducing the supply, and pushing up the price. TerraUSD uses mainly the second strategy, selling Luna to reduce the supply of TerraUSD.

The strategy relies on there being a liquid market for the asset being sold — mainly US Treasury securities for the Fed and Luna for TerraUSD. Unfortunately for the Fed, if the dollar’s value is falling, investors may not be enthusiastic about buying Treasuries, which pay off in future dollars and whose perceived credit may be impaired if too many have to be sold to soak up excess currency. TerraUSD has the same issue, the value of Luna is tied to the success of the Terra suite of products, which would be impaired by TerraUSD’s collapse

Eoin Treacy's view -

In a bull market leverage begets leverage. From the perspective of financial engineers there is no strategy that can’t be made better with leverage. Stablecoins are the crypto market’s version of money market funds. They aim to hold parity with the Dollar by buying near-cash items that pay a slightly higher yield than the Fed. Algorithmic stablecoins try to go one better and only trade in their own tokens. That’s great during a bull market. However, the value of any money market instrument is in its ability to redeem at par in times of stress. If it folds at the first sign of trouble it is not fit for purpose.



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May 06 2022

Commentary by Eoin Treacy

In the Long Run, These Equity Losses Barely Register

This article from Bloomberg highlights the philosophical attitude being adopted following a couple of days of rather extreme volatility. Here is a section:

A momentous week has ended with a thud rather than a bang (at least on the data front) as the U.S. employment numbers came out broadly in-line with expectations. To be sure, there were some notable features of the data -- a drop in both household employment and labor participation, though perhaps that was driven by the timing of Good Friday, which fell during the survey week. 

You can cherry-pick whatever you like from the figures to support your pre-existing view, so at this point it’s hard to say that they change much of anything. For now, the growth picture remains strong enough to support the policy trajectory that’s currently priced into rates markets. That, in turn, should continue to apply pressure to equities, regardless of how “cheap” they may seem.

From a macro perspective, the issue to focus on has clearly rotated from inflation to growth. Pretty much everyone understands that base effects will drive y/y CPI and PCE figures lower, but the run-rate of inflation will remain high enough for central banks to keep worrying ... and keep (or start) tightening. That policy trajectory will change when the growth outlook deteriorates significantly enough that demand looks more correctly aligned with supply. So that’s what we’ll be watching for.

While you can point to the 353k drop in household employment as a signal that the economy is weakening, that’s a pretty tenuous hook upon which to hang your hat at this point -- particularly given that household employment growth had comfortably outstripped the establishment survey over the prior six months. Moreover, the drop in the participation rate suggests the household figure may well have been a supply, rather than demand, issue -- which is problematic if the relatively elevated level of wages can still not attract fresh workers.

Eoin Treacy's view -

The pandemic economy is not the new normal. It was an anomaly fueled by money creation on a previously unimaginable scale. It is therefore reasonable to expect that unwinding much of the bonanza will be required to get inflation back under control.



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May 05 2022

Commentary by Eoin Treacy

Email of the day on the cumulative effect on interest rate hikes

I seem to remember many years ago David saying that the time to be wary of share markets is after the third interest rate rise. Is this accurate and, if so, is it a relevant indicator for us now?

Eoin Treacy's view -

Thank you for this topical question which may be of interest to the Collective. The initial response to a new hiking cycle is generally seen as positive by investors because they prize efforts to control inflation and preserve growth. However, interest rate hikes have a lagged effect on the economy and are cumulative in nature. That means the initial enthusiasm at continued growth gives way to worry about the toll of withdrawing liquidity as the number of hikes builds. 



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April 27 2022

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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April 27 2022

Commentary by Eoin Treacy

Crypto Mortgages Let Homebuyers Keep Bitcoin, Pay Down Nothing

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

Digital wealth meant little to banks when it came to a mortgage. And Burniske, 63, wanted to keep his coins rather than trade them for dollars. 

“If you cash out, you have to pay sizable tax and you’re leaving a lot of upside on the table because you’re getting out early,” he said.

Then came an option that wasn’t available when Burniske found the properties late last year: a 30-year fixed-rate mortgage secured by part of his Bitcoin and Ethereum holdings. He nailed down the loan from Milo Credit, a Miami-based startup that’s seeking to tap into the burgeoning pool of crypto loyalists who want to diversify their wealth while hanging on to their tokens.

Crypto mortgages are the latest example of the deepening role of digital coins in the U.S. real estate market, with property buyers and lenders alike embracing the volatile currencies to underpin deals for hard assets. Last year, Fannie Mae started allowing borrowers to use crypto for their down payments. New buildings going up in tech hot spots like Miami are accepting digital tokens for deposits on condos. A house in Tampa, Florida, even sold as an NFT earlier this year. 

Eoin Treacy's view -

The conventional metrics we have available come nowhere close to measuring the extent of leverage in the system. Companies buyback shares instead of paying dividends for a variety of reasons. From an investor’s perspective buybacks are preferrable to dividends because they are a tax-free benefit.



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April 25 2022

Commentary by Eoin Treacy

SoftBank Cuts Back Spending, Leaving Startups Desperate for Cash

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

Hurt by plunging tech valuations, SoftBank is walking away from some of its loss-making portfolio firms to comply with stricter investment criteria, said the people, who asked not to be identified because the matter was not public. Many of the two Vision Funds’ portfolio of 300-plus companies are loss-making.

The Japanese investment firm offered to contribute money if Light could find another investor to lead the next fundraising round, one of the people said. But with its biggest backer offering only a token amount, other investors were wary about stepping in, the person said. The Redwood City, California-based startup has hired a consulting firm to explore options, including winding down operations.

“Their purse strings are tight as they have ever been,” the person said.

A Vision Fund spokesman and Light Chief Executive Officer Dave Grannan declined to comment. 

The adoption of prudence at SoftBank’s Vision Fund -- which rewrote the rules of venture capital by deploying billions of dollars from the sovereign wealth funds of Saudi Arabia and Abu Dhabi into startups -- is an about-face from its past freewheeling largess. 

For years, SoftBank’s founder and Chief Executive Officer Masayoshi Son persuaded startup founders to accept Vision Fund money by encouraging them to think bigger and promising continued support to help them expand. He would often invest more money than founders were looking for if they would try to accelerate growth.

Before approving the investment in Light, the billionaire made clear to Grannan that his interest was predicated on the startup’s ability to adapt its depth-sensing imaging technology for self-driving cars -- something Light’s founders never considered before.

Eoin Treacy's view -

Ambitious startups with big ideas and no path to profits are finding the Vision Fund is a fair-weather friend. That only increases the pain they experience as yields rise. The startup sector is most acutely sensitive to tighter liquidity. Some will not survive this correction.



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April 22 2022

Commentary by Eoin Treacy

Stripe Teams Up With Twitter in Renewed Crypto Payments Push

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

The move is the latest manifestation of Stripe’s renewed interest in crypto after rivals such as Block Inc., PayPal Holdings Inc. and Checkout.com made inroads in the industry. Stripe suspended support for Bitcoin payments in 2018, but began recruiting crypto talent last year and in March said it was helping digital-asset exchanges FTX and Blockchain.com with online payments and customer verification. 

Creators on Twitter will be able to receive payments initially in the stablecoin USD Coin. The payouts across the Stripe Connect platform will be made using Polygon, a blockchain network designed to make Ethereum faster and easier to use. Stripe said it chose Polygon because of its speed and low transaction fees.

Eoin Treacy's view -

Distributed ledgers and trustless networks continue to gain traction in the financial services sector. The desire to track ownership and the origin of funds has probably increased with the sanctions levied on Russia which should be positive for blockchain-based payments systems. However, that doesn’t tend to have much influence on the trajectory of crypto assets.



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April 21 2022

Commentary by Eoin Treacy

Stocks Decline as Treasury Yields Resume Climb

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U.S. stocks fell as the selloff in Treasuries resumed, with the rates market hedging the possibility that the Federal Reserve will tighten policy more aggressively. The dollar gained.

The S&P 500 dropped, reversing gains of as much as 1.2%. The tech-heavy Nasdaq 100 extended losses, underperforming major benchmarks, as the jump in yields weighed on growth-related stocks.

Treasury yields rose across the curve, with the policy-sensitive two-year rate climbing 14 basis points 2.72% as traders priced in 50 basis-point rate hikes at each of the next three meetings. The dollar gained against all of its major peers following the surge in yields.

Fed Chair Jerome Powell said he saw merit in the argument for front-loading interest-rate increases and that a half-point hike “will be on the table for the May meeting.”

Eoin Treacy's view -

Tesla’s earning buoyed sentiment this morning but the momentum was short lived. The Federal Reserve wants to kill off demand. They know as well as the rest of us raising rates will do nothing to increase oil supply, clear port congestion or boost crop yields. The tools they have at their disposal all target demand.   



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April 19 2022

Commentary by Eoin Treacy

Credit Availability Is Still High

Eoin Treacy's view -

Over the weekend I participated in a sales presentation for solar panel installation. The cost to the consumer has not come down all that much over the last few years, which suggests manufacturing efficiencies are not being passed on to consumers. However, financing for the panels is unusually attractive.

I was offered a 25-year fixed rate loan for $65980 at 1.49%. 20-year yields are at 3.17% and 30-year yields are at 2.99% so it begs the question where are they getting the cash to lend at 1.49%?



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April 14 2022

Commentary by Eoin Treacy

April 12 2022

Commentary by Eoin Treacy

Shein's $100 Billion Value Would Top H&M and Zara Combined

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

A Chinese fast-fashion company without a global network of physical stores of its own is seeking a valuation that could be more than the combined worth of high-street staples Hennes & Mauritz AB and Inditex SA’s Zara.

Shein, an online-only retailer of inexpensive clothes, beauty and lifestyle products that pumps out over 6,000 new items daily, is in talks with potential investors including General Atlantic for a funding round that could value the company at about $100 billion, Bloomberg News reported Sunday.

Should Shein succeed with the round, it would make the decade-old brand about twice as valuable as Tokyo-based Fast Retailing Co. -- the owner of Uniqlo -- which last year had more than 2,300 outlets in 25 countries and regions. It would also make Shein the world’s most-valuable startup after ByteDance Ltd. and SpaceX, according to data provider CB Insights.

Eoin Treacy's view -

I wrote about the success of direct-to-consumer Chinese fashion brands in my 2015 China trip report. Back then I was impressed by the speed with which new SKUs were churned out. The injection of capital and internet marketing savvy has grown that business model to the point where every other fast fashion brand is struggling to compete.



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April 12 2022

Commentary by Eoin Treacy

DALL-E 2 is a new AI system that can create realistic images and art from a description in natural language

This website may be of interest to subscribers.

Eoin Treacy's view -

The evolution of natural language programming is a significant trend. It holds out the promise of broadening the spectrum of people who can use innovative tools to create useful products and services. At present this is still in relative infancy, but the pace of development is sufficiently fast to suggest real world applications within the next couple of years. It might be while (decades?) before we get to Star Trek levels of voice commands but it’s not impossible.



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April 11 2022

Commentary by Eoin Treacy

'Altcoins' Lead Crypto Lower as Bitcoin Drops to Three-Week Low

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

Cryptocurrency losses accelerated, with popular Defi tokens such as Cardano and Avalanche falling more than sector bellwether Bitcoin, as risk aversion sweeps through financial markets. 

Bitcoin dropped as much as 6.1% to $40,510, the first time the largest cryptocurrency by market value has been below $41,000 since March 22. Ether, the second largest, was down as much as 9.5%, dipping below $3,000. Altcoin, or alternative coin, Luna was down around 8.4%, while Avalanche was off 10% and Cardano slumped 11%. 

Since peaking at just above $48,000 in late March, Bitcoin -- and other tokens -- have been dragged lower by concerns about tighter monetary policy. Even the buzz around last week’s Bitcoin 2022 conference in Miami wasn’t enough to reverse the trend. 

“Historically, altcoins have a tendency to over perform Bitcoin to the downside in strong bearish trading environments,” said Josh Olszewicz, head of research at crypto investment firm Valkyrie.  “Altcoin trading participants often have less longer-term conviction.” 

Eoin Treacy's view -

The Miami crypto conference concluded over the weekend with some very bullish forecasts for both the price and role of cryptocurrencies in the economy of the future. It’s not uncommon for big bullish gatherings like this to create demand for the sector. The challenge in the near-term is the market is very liquidity dependent. Bitcoin tends to do well when liquidity is both cheap and abundant. That’s not currently the case.



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April 08 2022

Commentary by Eoin Treacy

State of Venture

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

$143.9B Total funding for Q1’22. Global funding to startups reached $143.9B in Q1’22, a 19% drop compared to the record-breaking Q4’21 — the largest percentage fall since Q3'12. However, Q1’22 was still the fourth-largest quarter for funding on record and its total was 7% higher than the same quarter in 2021.

113 New unicorns. Q1'22 saw the birth of 113 new unicorns globally — a 5-quarter low and a slight drop from the 115 unicorns born a year ago in Q1'21. US and Europe accounted for most of the new unicorns, with 67 and 20 unicorn births, respectively. The highest-valued new unicorn was the US-based visual collaboration company Miro, with a valuation of $17.5B.

49% Of all funding goes to the US. US-based startups received 49% of global funding in Q1’22, with a quarterly total of $71.2B. Despite accounting for almost half of all dollars invested, Q1’22 US funding marked a 5-quarter low for the country. US-based startups also drove a significant proportion of the deal activity, accounting for 37% of all deals in Q1’22.

160% Climb in valuations. So far in 2022, companies raising new financing have gained a median valuation increase of 2.6x compared to their prior financing rounds. Median valuations of early and mid-stage deals also trended up, reaching $34M and $343M, respectively. For late-stage deals, however, the median valuation dropped to $1,054M in 2022 YTD — barely above the $1B mark crossed for the first time in 2021.

-45% Drop in public exits. The number of exits via SPACs and IPOs decreased by 45% QoQ in Q1’22, while M&A activity remained elevated with 2,983 deals in total. US-based startups accounted for 40% of all exit activity in the quarter, followed by Europe at 34%.

120 Tiger funded cos. Top investor. Tiger Global Management continued to be the most active investor in Q1’22. The firm invested in 120 companies, up from 107 in Q4’21. The largest investment Tiger participated in was a $1B Series D round to Checkout.com with 12 co-investors.

91 IPOs in Asia, more than any region. Asia led globally in terms of IPOs, which were down for every region this quarter. Asia based companies accounted for 9/10 of the top IPOs in Q1'22, including 8 China-based companies. The largest IPO came from South Korean LG Energy Solutions, which exited at a valuation of $98B.

-30% Decrease in megaround funding. Mega-rounds accounted for less total funding and fewer deals this quarter, consistent with broader VC trends. At $73.6B, total megaround funding represented just over half of all venture dollars invested in Q1'22, down from 59% in Q4'21.

71% Jump in Philadelphia funding. Quarterly funding is down across all major cities and tech hubs in the US, except for Philadelphia, Atlanta, and Dallas. Among them, Philadelphia and Atlanta based startups saw the largest jumps in funding at 71% and 30%, respectively.

20% Of funding goes to fintech. 1 out of every 5 dollars in funding went to fintech in Q1’22, despite investment in the sector shrinking quarter-over-quarter. The retail sector came second, accounting for 17% of all venture funding in Q1'22.

Eoin Treacy's view -

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

Discount rates don’t matter until they do. SPAC, IPO and every other “innovation” focused asset has experienced a deep pullback over the last six months. That’s entirely due to jumps in yields which reintroduced a discount rate to valuations.



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April 04 2022

Commentary by Eoin Treacy

Secular Themes Review April 4th 2022

Eoin Treacy's view -

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

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

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

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



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March 31 2022

Commentary by Eoin Treacy

Chinese Stocks in the U.S. Drop as Audit Dispute Drags On

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

Chinese stocks listed in the U.S. fell Thursday after Securities and Exchange Commission Chair Gary Gensler dialed down prospects of an imminent deal to allow Chinese firms to keep trading on American exchanges.

The Nasdaq Golden Dragon China Index dropped as much as 4.9%, with iQIYI Inc. and Baidu Inc. sinking more than 6% after being added late Wednesday to SEC’s growing delisting watch list. Alibaba Group Holding Ltd. fell 4.6%, while its e-commerce rivals JD.com Inc. and Pinduoduo Inc. slid more than 7%.

U.S.-listed China stocks have steadied in recent trading after authorities signaled support to overseas listings and financial markets, yet investors remain on edge amid a long-standing dispute over whether American regulators can get full access to U.S.-traded Chinese company audits. In response to the SEC chair’s comments, China said talks with the U.S. accounting
watchdog will continue.

Under the Holding Foreign Companies Accountable Act, the SEC started publishing a provisional list of companies identified as running afoul of requirements with the first
release in early March.

“The growing provision list is a reminder that there’s a risk” and a reminder to do a risk check, TH Capital analyst Tian X. Hou said in an interview, noting that as investors become more familiar with the delisting situation, they will realize this is a routine check by the SEC under the new rules.

Eoin Treacy's view -

Even at the best of times, auditors miss signs of trouble in the balance sheets of companies. They are a regulatory burden designed to ensure companies follow the rules and yet whenever a crisis develops, the conflict-of-interest argument arises because auditors missed obvious transgressions.



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March 30 2022

Commentary by Eoin Treacy

Tesla Dodges Nickel Crisis With Secret Deal to Get Supplies

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

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

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

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

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

Eoin Treacy's view -

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

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



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March 25 2022

Commentary by Eoin Treacy

A Revolution in British Meritocracy

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

Nowadays, Brampton Manor Academy regularly gets as many pupils into Oxbridge as Eton College, the alma mater of Cameron, Johnson and the majority of the privileged faces staring out from the 1987 photograph. It does this by dint of high-expectations and relentless discipline. Pupils arrive early in the morning and stay on into the evening in order to accumulate extracurricular activities. Slacking is not tolerated. Pupils are expected to be smartly dressed and always on the ball. Eton — the quintessential, privately-funded British public school — charges about £50,000 a year and selects from the whole world. Brampton Manor charges nothing and selects from one of the poorest boroughs in London. The majority of pupils are from ethnic minorities and one in five gets free school lunches because of their parents’ low incomes.

Eoin Treacy's view -

Education is a contentious subject for politicians, because everyone wants the best for their children despite the fact levels of academic ability vary widely. That desire to secure the best opportunities for one’s offspring has to be married with society’s need to find and nurture the best brains.



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March 24 2022

Commentary by Eoin Treacy

Chinese Navy Growth: Massive Expansion Of Important Shipyard

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

The incredible growth of the Chinese Navy has seen several shipyards expanded already. Jiangnan shipyard, which is situated next to the new site, has itself been expanded massively in recent years. Added to this, new facilities to build large numbers of submarines has been set up near Wuhan. And the nuclear submarine facilities at Huludao have also been massively expanded. Now the new work at Jiangnan takes this further still.

The new facilities will dramatically increase capacity at the yard. It is expected to have a basin for fitting out ships and a large multi-berth dry dock.

A Fleet of 6 Aircraft Carriers

The U.S. Navy expects that the Chinese Navy may operate 6 aircraft carriers by 2040. Currently only two are operational, built at Dalian in Northern China. But the third, the improved and enlarged Type-003, is under construction at Jiangnan. It seems likely that one or more of the additional carriers will also be built at Jiangnan.

One hypothesis is that China will build nuclear powered aircraft carriers. These may be even larger still than the Type-003, which is anyway almost the same size as the U.S. Navy’s Ford Class. The larger ship, and new technologies involved, may dictate a new construction site. This is one explanation for the new site.

Eoin Treacy's view -

There is an abundance of evidence to suggest we are going to be living in a more volatile geopolitical environment for the foreseeable future.



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March 23 2022

Commentary by Eoin Treacy

Adobe's Lackluster Forecast Suggests Growing Competition

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

While Adobe is one of the industry’s longtime success stories, the maker of creative and marketing software has faced rare investor skepticism recently over fears that businesses are reducing their spending on such tools and rivals are making in-roads among new customers. The stock has dropped 18% since its last earnings report on Dec. 16, closing Tuesday at $466.45 in New York. Shares declined about 2% in extended trading.

Adobe is in the midst of revising prices for its signature creative suite, the first major overhaul since 2017, said Chief Executive Officer Shantanu Narayen. The new structure will reflect features Adobe has added in the past five years, including new collaboration capabilities, executives said. The impact will be seen in revenue in the second half of the fiscal year, they said.

“It was time to take a very comprehensive look,” Narayen said on a conference call after the results were released. “We want to continue to attract hundreds of millions to the platform, but we also want to get value for the tremendous innovation we’ve provided.”

Eoin Treacy's view -

Adobe transformed its fortunes with investors by adopting a subscription business model. The Photoshop service that used to cost thousands of dollars was suddenly much more accessible and every upgrade was instantly available to subscribers. The transition coincided with the evolution of ecommerce and the mobile telecommunications revolution and Adobe’s profits took off.



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March 22 2022

Commentary by Eoin Treacy

Half-hearted sanctions against Russia have already failed

This article by Ambrose Evans Pritchard for the Telegraph may be of interest to subscribers. Here is a section:

Goldman’s deep-dive into the effect of sanctions ought to end all wishful thinking. The US investment bank forecasts that the Russian economy will contract by 10pc this year, a bad recession but not an economic breakdown.

Growth will then recover to 2.4pc next year and 3.4pc in 2024 as the country adjusts. Exports will be back to 98pc of prior levels by early next year. If so, Putin is not going to lose sleep over this.

Russia’s trade will mostly be diverted rather than destroyed. There may even be some short-term growth stimulus as Russia replaces western goods with home-made manufactures. Putin has been building a fortress economy ever since the annexation of Crimea. Net foreign funding is negligible. Total public debt is 18pc of GDP, one of the lowest ratios in the world. 

Over four-fifths of GDP come from sectors that import just 15pc or less of their inputs, falling to 7pc in the mining industry. This is a radically different economic structure from western states such as Poland.

“If Russia were fully integrated into global supply chains, restrictions on imports and exports would be immediately destructive. However, Russia largely exports goods that are almost fully produced locally,” said Mr Grafe.

Iran endured tougher sanctions without buckling. Cornell professor Nick Mulder, author of The Economic Weapon, said the country settled into a new equilibrium within a couple of months. “If Iran’s experience is any guide, Russia will survive and return to lacklustre growth,” he said.

“Historically, sanctions have hardly ever been successful in stopping wars,” he said. A rare exception was the Balkan ‘war of the stray dog’ in 1925. Needless to say, Putin’s war on Ukraine is not a border skirmish. It is a long-planned attempt to overturn the post-Cold War settlement and alter the world’s balance of power.  

European ministers once again grappled with a hydrocarbon embargo – the fifth package of sanctions – at an EU meeting on Monday. Once again the proposals ran into resistance from Germany, with Italy and others happy to tuck in behind.

Eoin Treacy's view -

Russia continues to make coupon payments. That indicates it has the capital available to do so and avenues are open. Without cutting Russia off from the financial system and banning energy purchases, the country can continue to operate effectively. Due to its size and dominance of several key commodity markets, Russia has ample scope to cause mischief on a grand scale.



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March 22 2022

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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



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