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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

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

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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March 18 2022

Commentary by Eoin Treacy

'Dash for Trash' Fuels Big Bounce for Money-Losing Growth Stocks

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

No earnings? No problem.

That was the message from investors this week who stormed back into the shares of faster-growing companies with little in the way of profits after months of chasing value stocks. While major benchmarks rallied, a Goldman Sachs index of unprofitable tech companies was up 18% over the five sessions. That compares with a gain of 6.2% for the S&P 500 and 8.4% for the Nasdaq 100.

“A straightforward dash for trash” is how Bespoke Investment Group described it when explaining why smaller companies with the lowest return on assets and no dividends were among this week’s biggest gainers.

Eoin Treacy's view -

The Ark Innovation ETF bounced this week in an emphatic manner from the region of the of the pre pandemic peak. In doing so it fully unwound the big bull market and the upside weekly key reversal suggests investors are willing to bargain hunt.



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March 17 2022

Commentary by Eoin Treacy

Moderna kicks off Phase 1 trial of 3 different mRNA HIV vaccines

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

“Finding an HIV vaccine has proven to be a daunting scientific challenge,” said NIAID director Anthony Fauci, in a statement announcing the Phase 1 trial. “With the success of safe and highly effective COVID-19 vaccines, we have an exciting opportunity to learn whether mRNA technology can achieve similar results against HIV infection.”

The Phase 1 trial will enroll around 100 healthy adults, with the initial goal of evaluating the safety and immune responses to three different mRNA vaccine formulations. Each subject will receive three doses of their assigned mRNA formulation over a six-month period.

In the same way mRNA COVID-19 vaccines are designed to train the immune system to respond to the spike protein on the surface of SARS-CoV-2, these experimental vaccines focus on the HIV equivalent of the spike protein antigen target, known as an envelope glycoprotein trimer.

This protein on the surface of HIV particles is much more complex that the coronavirus spike protein, so Moderna has developed three different mRNA formulations to test, each encoding for a slightly different protein architecture.

The trial is expected to run until mid-2023. By that point it is hoped one of the three formulations will have demonstrated robust immune responses and Phase 2 trials can commence.

Eoin Treacy's view -

This announcement holds out promise that an intransigent health issue can be addressed with a shot. It also highlights the fact that rushed permitting for COVID-19 vaccines is not about to be repeated. If the trials schedule discussed in the above article is followed, it will be a decade before a potential solution reaches market. It is also likely to be held to a much higher standard of proof.



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March 16 2022

Commentary by Eoin Treacy

Wait Times for Chip Deliveries Grow Again as Shortages Persist

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

Lead times -- the lag between when a chip is ordered and delivered -- increased by three days to 26.2 weeks last month, according to research by Susquehanna Financial Group. In January, the group reported that delays were getting shorter, the first sign of improvement since 2019.

Though the lag times have now increased again, they aren’t growing quite as quickly as during much of 2021. But certain sectors were hit worse than others. Delivery times for microcontrollers reached a high of 35.7 weeks in February, according to Susquehanna’s research. Lead times also increased by a week and a half for power-management components. Both are essential parts of many electronics, including car components.

The global shortage of semiconductors began in the first half of 2020, driven by pandemic-fueled demand for consumer technology and vehicles. The scarcity of chips has held back production of everything from smartphones to pickup trucks, leading to billions in lost revenue and contributing to inflation by raising costs.

Eoin Treacy's view -

Ukraine is a major supplier of neon gas. It’s an essential component for the production of semiconductors. The war in Ukraine is therefore contributing to the shortfall in supply. At the same time, the increased demand for all sources, including military are inhibiting the balancing out of the market.



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March 15 2022

Commentary by Eoin Treacy

Powering Up

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

For the grid to work, supply must match demand – all the time. “There are already times when we produce so much green electricity, we don’t know what to do with it,” says Hartman. “That can be in the middle of the day when the sun is shining, or in the middle of the night when we are not using so much electricity, but we are producing a lot from wind turbines.” At certain times, energy goes to waste; producers are paid to take capacity offline.

On the other hand, the vagaries of the weather mean generation can fall short of expectations as well. For instance, on rare occasions both Germany and the UK have experienced ‘not much sun’ and ‘not much wind’, so respective energy outputs slumped at the same time. Hence the hive of research activity around energy storage. Behind it is a key idea: if storage can be made cheap enough, dense enough and extensive enough, it becomes viable to operate an energy mix with a much higher percentage of renewables.

This is driving deployment of grid-scale storage; something companies like Tesla, LG Chem and Samsung are anticipating as they construct battery megafactories around the world15 (see Figure 4). Combining renewables with large, preassembled battery units to store excess power, with energy fed back into the grid when demand requires it, has taken off.

The relative attractiveness of this has shifted “seismically” recently, according to energy consultancy Wood MacKenzie.17 Producing energy using solar and wind power already undercuts natural gas on a levelised cost basis (see Figure 5) and recent discoveries suggest further efficiency gains are possible.

Henry Snaith, professor of physics at the University of Oxford, describes solar “being in 1965 in silicon technology terms,” for example, with “lots of room to improve”. (In Search of Wild Solutions has more details.) Now battery costs have fallen rapidly as well, so ‘solar PV + large-scale battery storage’ are cheaper than ‘solar PV + natural gas’ as back-up to meet peak demand.

Eoin Treacy's view -

Large numbers of battery factories are under construction. When they come on line, it will represent a voracious appetite for everything from copper, nickel, manganese and lithium to steel and aluminium. Between now and then there is still time to argue about the extent of the bull market.



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March 14 2022

Commentary by Eoin Treacy

Apple Supplier Foxconn in Talks to Build $9 Billion Factory in Saudi Arabia

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

The Saudis are conducting due diligence and benchmarking the offer against others that Foxconn has made for similar projects globally, one of the people said.

Besides Saudi Arabia, Foxconn is also talking with the United Arab Emirates about potentially siting the project there, one of the people said.

The Taiwan-based company has looked to diversify its manufacturing sites amid rising tensions between China and the U.S. that put it in a potentially vulnerable spot.

Riyadh wants the company to guarantee that it would direct at least two-thirds of the foundry's production into Foxconn's existing supply chain, one of the people said, to ensure there are buyers for its products and the project is ultimately profitable.

Foxconn is seeking large incentives including financing, tax holidays and subsidies for power and water in exchange for helping set up a high-tech manufacturing sector in the kingdom, the people said, as Saudi Arabia seeks to diversify its economy away from oil.

The Saudis could offer direct equity co-investment, industrial development loans, low-interest debt from local banks and export credits to compete with other jurisdictions that Foxconn might consider, said another person familiar with the talks.

Saudi authorities and Foxconn didn't respond to requests for comment.

Eoin Treacy's view -

Pandemic exiles leaving Hong Kong brought COVID-19 with them to Shenzhen. The city and its environs have been locked down which is impacting the ability of component suppliers to perform at peak capacity.



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March 12 2022

Commentary by Eoin Treacy

Cathie Wood's ARKK Lures Almost $1 Billion Even as ETF Sells Off

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

But for some investors, “it’s opportunistic investing,” said Chris Gaffney, president of world markets at TIAA Bank. “Maybe it’s an opportunity to rebalance and buy some of these big-name, good companies that have been in this correction and the prices are cheaper.”

The S&P 500 is on pace to notch its second consecutive week lower, but retail traders haven’t been deterred by the volatility. They’ve become a reliable support pillar for the market, plowing cash toward stocks for nine straight weeks.

Partly, it’s a habit developed during the Covid-19 crash -- and one that’s proving stickier than many expected. Back then, buying during the March lows proved very profitable, including
for ARKK enthusiasts. 

Gaffney says there’s a swath of investors who are wary of missing out on any other potential big run-ups in prices. “You always get some people who feel like, ‘I missed out on the last big run, and I’m not going to miss that again, so I’m going to get in now when prices are cheap.’”
 

Eoin Treacy's view -

In a secular bull market buying the dip always works. It becomes engrained as the go-to strategy for investors to get a position at a discount. As interest returns, the assets leading the secular trend break higher, the decision is vindicated and buying the next dip becomes an even easier decision. One way to know that a bull market is over, is the buy-the-dip trade fails.



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March 10 2022

Commentary by Eoin Treacy

Volatility Grips Chinese Tech Shares Again as Traders On Edde

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

Chinese tech giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. in the past year. Beijing’s clampdown on private enterprise appeared to intensify in recent weeks after authorities required food delivery platforms to cut fees they charge restaurants and warned of risks in investing in products
linked to the metaverse.

Since its February 2021 peak, the China tech gauge has slumped nearly 60%. Adding to the fragile sentiment are concerns about a potential interest rate hike from the U.S. Federal Reserve next week and elevated commodity prices fueled by the war in Ukraine.
 
“Investors may be looking to sell growth names into the brief rallies to reduce their risk exposure, given multiple headwinds including Russia and the upcoming rate hikes,” said Vey-Sern Ling, a senior analyst at Union Bancaire Privee.

Eoin Treacy's view -

JD.com reported strong 2021 earnings but guidance was the share’s downfall today. This is a trend which troubled many US growth companies during earnings season as well. Keeping up pandemic era growth when liquidity is less available, and the real world is competing for attention versus screens, is a tall order. JD.com broke lower on the news.



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March 09 2022

Commentary by Eoin Treacy

President Biden to Sign Executive Order on Ensuring Responsible Development of Digital Assets

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

Explore a U.S. Central Bank Digital Currency (CBDC) by placing urgency on research and development of a potential United States CBDC, should issuance be deemed in the national interest. The Order directs the U.S. Government to assess the technological infrastructure and capacity needs for a potential U.S. CBDC in a manner that protects Americans’ interests. The Order also encourages the Federal Reserve to continue its research, development, and assessment efforts for a U.S. CBDC, including development of a plan for broader U.S. Government action in support of their work. This effort prioritizes U.S. participation in multi-country experimentation, and ensures U.S. leadership internationally to promote CBDC development that is consistent with U.S. priorities and democratic values.

Eoin Treacy's view -

This announcement does not propose anything new. The Federal Reserve has been investigating the merit of a central bank digital currency for years already. The reason the crypto sector responded favourably to this announcement is because of its enthusiasm about the future of digital assets. 



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March 08 2022

Commentary by Eoin Treacy

Satellite outage knocks out thousands of Enercon's wind turbines

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

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

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

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

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

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

Eoin Treacy's view -

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



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March 04 2022

Commentary by Eoin Treacy

Secular Themes Review March 4th 2022

Eoin Treacy's view -

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

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

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

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

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



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March 03 2022

Commentary by Eoin Treacy

Hacktivists Are Piercing Russia's Propaganda Bubble

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

 

Moscow users of Google Maps were greeted earlier this week with something they rarely see: photos of horrific scenes from Ukraine, including bombed out homes and injured civilians, and of captured Russian soldiers. The images showed up in the “latest photos” tab of landmarks on the app until Google blocked new photos from its maps of the region this week.  

While a blockbuster cyber-attack from Russia has so far failed to materialize, hacktivists have waged dozens of digital skirmishes. The Ukrainian government has created a volunteer “IT Army,” attracting hundreds of thousands of people who have knocked major Russian websites offline and helped distribute an air raid siren app. Never before has a government crowdsourced hacktivists in this way, and in a country already teeming with expertise; Ukraine is one of the world’s biggest markets for remote software engineers, with an estimated 200,000 tech employees. 

Eoin Treacy's view -

Foreign citizens willing to sign up to the cause of freedom from oppression or the cause of standing up for their common values is as old as war itself. Legions of people all over Europe signed up to fight in the Spanish civil war, on both sides. ISIS successfully recruited adherents through YouTube videos.

In the digital age, the ability of individuals to harry countries is amplified by the skill sets of IT workers. Only two weeks ago there was the story of the IT professional who was waging war on the North Korea internet single-handedly. His efforts were in retribution for them hacking him and the FBI doing nothing to held.



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February 25 2022

Commentary by Eoin Treacy

China Boosts Liquidity by Most Since 2020 Amid Ukraine Conflict

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

“The injection is in response to tighter liquidity condition at month-end and also to send a reminder that the easing cycle is still under way,” said Ken Cheung, chief Asia FX strategist at Mizuho Bank Ltd. “The geopolitical tensions posed mounting uncertainties and banks may have preference to keep extra liquidity.”

China’s seven-day repo rate had risen to its highest in nearly a month on Thursday, signaling cash tightness in the financial system. The demand for cash typically increases toward the end of the month as corporates borrow to pay taxes and banks hoard funds for regulatory checks.

The PBOC made net injections of 190 billion yuan each into the banking system in the previous two sessions to alleviate the cash crunch. It had been draining liquidity in the last two weeks, which is what it tends to do after the Lunar New Year holiday.

Eoin Treacy's view -

The post Lunar New Year period is traditionally when China makes liquidity available. This year it has the added need to support the ailing property sector and the wider economy from the uncertainty of war in Europe. Alibaba’s weak guidance also suggests the Chinese consumer is becoming more risk averse. That puts China’s growth target in jeopardy and suggests more liquidity will be made available than usual.



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February 23 2022

Commentary by Eoin Treacy

Intel Chip Challenges Reign of China's Bitcoin-Mining Firms

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

Bitcoin mining, which is earning rewards in Bitcoin by using computers to secure the cryptocurrency’s network, has become a lucrative business amid the surge in the price of Bitcoin in recent years, enriching the rig makers along the way. The mining industry raked in $15 billion in revenue in 2021, more than double the previous year, according to research from The Block. 

Intel’s entry could weaken the Chinese manufacturers’ pricing power and offer better maintenance services given the company’s close proximity to the miners in North America, industry participants said. The region dethroned China as the world’s Bitcoin mining hub as Beijing banned crypto mining last May.

“Having a U.S.-based manufacturer with the size, scale and credibility like Intel is fantastic for the entire crypto industry,” said Dave Perrill, chief executive of Eden Prairie, Minnesota-based Compute North, which provides Bitcoin miners with data centers to operate their machines. “Competition is a good thing.”      

Eoin Treacy's view -

NVidia has prospered because GPUs are deployed in mining cryptocurrencies. That has been one of the primary factors in supporting the outsized valuation for the company despite the fact its primary business is in gaming and datacentres. Intel directly exploring the market for crypto mining, as well as launching its own suite of GPUs last month is an attempt to steal market share.



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February 23 2022

Commentary by Eoin Treacy

February 21 2022

Commentary by Eoin Treacy

Google Search Is Dying

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

Appendix 3: Seriously, what are you talking about? My search results are perfect.

If you think your search results are perfect (without appending reddit), then you're probably right. If every single person agreed that Google search results were trash, then Google would already be bankrupt.

Perhaps it is more likely that 80% of people think Google is good enough, and 20% think Google sucks.

I do suspect that the 20% will be growing in number though.

Appendix 4: *Yawn*, this is the 87th time someone has claimed that Google search is dying in the last 20 years. This is a big meme in the SEO world.

"The reports of my death are greatly exaggerated" - Google, probably

You're right, there's been a new article bashing Google every few months for the last 20 years straight. It's probably nothing.

Still, it is a bit interesting that this short and simple post is now one of the most upvoted things of all time on Hacker News. There must be a lot of people who resonate with it this time around.

Hard to tell if something significant has changed.

Appendix 5: Random redditor explains it succinctly

u/a_latvian_potato:

I think I understand what this article is trying to say. It's not saying that Google's search technology is worse or that people don't use Google to search. It's saying that people trust less of the results Google shows compared to seeing discussions of it on Reddit.

For instance, if I'm looking to see reviews of the Honda Civic 2022 or whatever, I do find myself typing "Honda Civic review reddit" instead of "Honda Civic review". This is because I want to see what real people and enthusiasts (on r/cars or whatever) are talking about the car, rather than the top results at Google which are basically just paid reviews advertising the car anyway.

Even though I kinda know people in Reddit are just as capable of spouting BS that are completely wrong, I find the discussions more authentic anyway than the corporate speak the "big websites" have on their articles that Google shows me.

Eoin Treacy's view -

I have also noticed the quality of search results on Google has deteriorated. A great deal of scrolling is required to get past ads. That’s particularly true for commercial search terms.



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February 18 2022

Commentary by Eoin Treacy

Lithium Stock Livent Is Soaring. Strong Earnings and Guidance Looked 'Easy

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

Looking ahead for 2022, Livent expects to generate about $180 million in Ebitda, short for earnings before interest, taxes, depreciation, and amortization, on about $570 million in sales. Analysts were projecting closer to $160 million in Ebitda on $515 million in sales.

“Sometimes it’s really that easy,” wrote Evercore ISI analyst Stephen Richardson in a Thursday report. He was referring to the relatively clean quarter Livent just reported.

Albemarle’s quarter wasn’t as easy to digest. Richardson wrote earlier on Thursday that Albemarle’s volume and earnings guidance was better than he expected, but that the company’s guidance for costs and capital spending would be a drag on 2022 cash flow.

He is staying positive on both stocks. He rates Albemarle stock at Buy with a $295 price target. He didn’t adjust he price target after the company’s quarterly hiccup. Richardson actually put Albemarle stock on his “tactical outperform list” Friday.

“The confusion from [Albemarle] investors came largely on the cost line which lead some to believe this was a structural step-up in costs [and] lower margins, and was a new permanent aspect of the business,” wrote the analyst. “We think none of this is indeed true.”

Eoin Treacy's view -

The lithium price has been accelerating higher. It’s a classic supply inelasticity meets rising demand market. Growing demand for electric vehicles and energy storage solutions is bumping up against a slow supply response.



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February 18 2022

Commentary by Eoin Treacy

Beware PayPal's New Fees for $100 Crypto Trades

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

Got some pocket change you want to throw at crypto? It won’t go as far on Venmo.

Venmo and its parent PayPal Holdings Inc. alerted their users earlier this week that they’re changing their fees for crypto transactions under $200. While the companies said the pricing adjustments were just an effort to provide investors with more transparency, a closer look shows any customer making transactions of $100 or less will be a lot worse off.

The online payment platforms started offering customers the ability to buy, sell and hold four cryptocurrencies (Bitcoin, Ethereum, Litecoin and Bitcoin Cash) last year. Since then, Venmo’s cryptocurrency wallet has nabbed 18% of global market share for active wallets with payment features, making it the third most popular site as of late last year. PayPal was No. 1.

Eoin Treacy's view -

How many crypto trading venues will ultimately survive is an open question but it is certainly likely to be fewer than exist today. One thing is certain, raising fees isn’t likely to encourage users to use the platform, much less find new customers. That’s doubly true in a troubled pricing environment for the sector.



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February 17 2022

Commentary by Eoin Treacy

Margin-Growth Fatigue a New Pressure Point for S&P: Taking Stock

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

Analysts have cut their profit-margin expectations for 75% of industries and about half of companies in the S&P 500 for the first and second quarters, data compiled by Bloomberg Intelligence show. Companies’ wherewithal to defend profitability amid mounting pricing pressures is becoming a growing issue at a time when the hottest inflation in four decades and higher borrowing costs threaten to crimp growth.

Anxiety about a faster-than-expected wind-down to the Federal Reserve’s asset-buying program and a quicker pace of rate hikes has pushed sell-side analysts to cut their first-quarter profit growth expectations to 5.4% last week from 6.7% in the first week of January. That figure, too, looks set to drop further to 3.5%, according to a Bloomberg Intelligence model that tracks the correlation between analysts’ pre-season forecasts and actual profit growth in the past two years.

“Negative revision momentum may remain a weight on stocks in the weeks ahead,” said Gina Martin Adams, chief equity strategist at Bloomberg Intelligence. “Improving top-line growth views are still offset by inflation pressure.”

More than 70% of S&P 500 companies are done with their earnings announcements. Among those that have already reported, 76% have outpaced analysts’ profit estimates, the lowest rate of beats since the first quarter of 2020.

Eoin Treacy's view -

Over the last few quarters companies have been comfortable passing on costs to consumers. Many have also taken the opportunity to increase margins at the same time. Politicians taking to social media and blaming inflation on record high corporate profits strikes a chord with the personal experience of many consumers. It suggests companies have seen the easy part of raising prices, continuing from here is going to be more difficult.



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February 17 2022

Commentary by Eoin Treacy

The rise of private markets

This report from the Bank of International Settlements may be of interest to subscribers. Here is a section: 

External financing is increasingly intermediated outside traditional channels. Banks and other institutions active in public capital markets, such as equity and corporate bond mutual funds, remain key financing sources for large and mature corporates. That said, “alternative asset managers” (AAMs) have become pivotal for smaller firms globally, including in emerging market economies (EMEs). Many AAMs were established as private equity firms that later expanded into credit, thus turning themselves into one-stop capital providers for firms less able or willing to access traditional sources.

Private markets have three features that distinguish them from public markets. First, there is limited liquidity transformation because investors commit capital for extended periods. Second, these investors tend to be large and sophisticated entities such as pension funds, whose focus on long-term returns enables target companies to confront significant earnings volatility. Third, the regulation of private market investment vehicles is relatively light, partly reflecting the lesser degree of liquidity mismatches and also the limited presence of retail investors.

Eoin Treacy's view -

The lack of regulation in the private markets is seen by many investors as a positive aspect. The challenge for the future is large pension funds are highly active in the sector. They might have long-term liabilities but they also have a long-term need for yield. The private sector has been particularly attractive because they have gained both portfolio diversification and higher returns. 



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February 16 2022

Commentary by Eoin Treacy

Shopify Plummets Most Since 2020 on Slowing Growth Outlook

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

Shopify Inc. plunged the most in almost two years after giving a weaker outlook for growth this year, as online spending resets after the Covid-19 induced boom and consumers face higher inflation. 

“The Covid-triggered acceleration of ecommerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022,” the Canadian ecommerce giant said in a statement on Wednesday. “There is caution around inflation and consumer spend near term, for the full year.”

As a result, Shopify said full year revenue growth will be lower than the 57% increase in 2021. The U.S.-traded shares tumbled as much as 16% as the market opened in New York. It was the biggest intraday decline since March 2020. 

Shopify, which provides software and other services that underpin the websites of many small businesses, grew dramatically during the early stages of the pandemic, with sales jumping 86% in 2020. Investors, however, fear the company can’t sustain its growth as shoppers return to more normal buying patterns. Those concerns intensified last month when Shopify said it had terminated contracts with several warehouse and fulfillment partners, sending shares to a 16-month low. 

Eoin Treacy's view -

The justification for Shopify’s heady valuation was that it would become a true competitor for Amazon. The folly of that has been exposed by the pullback from fulfilment centres. From a broader perspective the big question is about a central hub versus distributed model.



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February 15 2022

Commentary by Eoin Treacy

Tech Questions for 2022

This article by Benedict Evans may be of interest to subscribers. I found the summary of the outlook for electric and autonomous vehicles to be about the best I’ve seen recently:

The car industry is shifting to electric, and that changes a lot of what a car is - there’s an order of magnitude fewer moving parts, a very different supplier base, and much of the sophistication moves to software. We go from complex cars with simple software to simple cars with complex software. 

Seen from tech, this looks a lot like the smartphone take-over of mobile phones, and there’s a lot of pattern recognition, right down to the dumb old industrial companies that think software is easy and they can just hire some developers. But it’s not yet entirely clear whether this really is disruption. An electric car is a better car but an iPhone is not a better Blackberry - it’s an entirely different thing that happens to be roughly the same size. So how much does electric really rewrite car manufacturing? Bulls think Tesla is a software company (and lots of other things), but bears think that no, it’s still a car company. 

Autonomy is potentially much more profound and disruptive, and really does change what a car is - a car with no steering wheel is not really a car anymore. That raises as many questions as cars themselves did (it was much easier to predict mass car-ownership than to predict Walmart), and the tech itself remains full of questions. Can Tesla boot-strap its way through to something that works well enough? Will Waymo get there first going top-down? Are there winner-takes-all effects?

But more importantly, we don’t know when, how or where any of this will work. There was a period of euphoria a few years ago when AVs looked imminent, but it may now be that autonomy is like the old joke that AI is anything that doesn’t work yet. ‘Full’ autonomy may be as many decades away as ‘general AI’ (indeed it might require general AI!) but we’ll get all sorts of much more limited automation in the meantime. 

Eoin Treacy's view -

The reason Tesla has achieved a $1 trillion valuation is because it is a favoured trading vehicle (pardon the pun) for options traders. That has created synthetic demand for the shares and supported the valuation. Nevertheless, promise of “full self-driving” keeps being pushed back. The company’s autonomy day was nearly 3 years ago



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February 15 2022

Commentary by Eoin Treacy

Coinbase Swears This All Isn't Like the Dotcom Bubble After Super Bowl Ad SNAFU

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

Coinbase, in one ad named WAGMI (“we're all going to make it”), crafted an advertisement that bounced a QR code around the screen, changing colors each time it hit the edge like an old-school DVD menu. Scanning the QR code―which immediately forfeits your right to enter heaven―takes the user to this page, where Coinbase offers $15 in Bitcoin for signing up as well as a chance to enter a contest to win one of three prizes for $1 million worth of Bitcoin.

The linked webpage went down almost immediately thanks to the increased traffic from the ad, and ridicule at the idea of paying millions of dollars to send millions of viewers to a down site poured in from around the web.  “Coinbase spending $16,000,000 on a Superbowl ad to direct people to their website and $0 to make sure that website doesn't crash 10 seconds after the ad starts is so very internet,” tweeted Edward Snowden amid the outage.

To Coinbase, though, the ad was a success. In a blog post congratulating itself on the advertisement and interviewing Coinbase Chief Marketing Officer Kate Rouch about why the ad was so good, the company revealed it saw "20M+ hits on our landing page in one minute" which "led to us temporarily throttling our systems." Chief executive Brian Armstrong took to Twitter to gloat about the ad: ranked #1 by AdWeek and peaking at #2 in the Apple App Store, just ahead of apps for the Pepsi Super Bowl Halftime Show and the NFL.

Eoin Treacy's view -

The offer was still live today when I visited it and offers $15 in bitcoin for signing up. For anyone looking for why bitcoin popped on the upside yesterday, despite stocks falling, we don’t have to look much further than the Superbowl ad.



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February 09 2022

Commentary by Eoin Treacy

EU rolls out a red carpet for TSMC and other semiconductor giants

This article from the South China Morning Post may be of interest to subscribers. Here is a section:

The European Union announced a blueprint on Tuesday to make one-fifth of the world's microchips, saying it was "open for business" to semiconductor giants from Taiwan and other industry leaders.

The European Chips Act provides at least Euro42 billion (US$48 billion) by 2030 in public and private sector capital behind an ambitious plan to effectively double the bloc's chip production, to 20 per cent of the global supply of semiconductors, the tiny processing units that will power the industries of the future.

Currently, the bloc produces 10 per cent of the world's supply, few of which are considered to be cutting-edge.

Eoin Treacy's view -

$20 billion from Intel, $38 billion from Taiwan Semiconductor, $40 billion from Taiwan Semiconductors this year represents a massive increase in potential supply of both chips and memory.



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February 07 2022

Commentary by Eoin Treacy

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

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

So here are a few gripes for you:

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

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

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

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

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

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

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

Eoin Treacy's view -

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

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



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February 07 2022

Commentary by Eoin Treacy

Bitcoin Notches Longest Rally Since September; Shiba Inu Jumps

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

The break above $43,000 could cause the current up move to target toward the $45,000 level, according to Nathan Batchelor, lead Bitcoin analyst for SIMETRI Research. 

“People are starting to feel a little more comfortable dipping their toes back into some of these riskier asset classes after the pullback,” Lindsey Bell, chief markets, and money strategist at Ally Financial Inc., said. However, Bell says the market in general isn’t necessarily out of the water yet with lingering uncertainty on multiple fronts, including the speed at which the Federal Reserve and central banks could act to quell rising inflation.

A strengthening relationship between Bitcoin and the stock indices has emerged in recent months, particularly with the technology heavy Nasdaq 100 index. The correlation between the Nasdaq and Bitcoin currently stands at 0.43.

Gritt Trakulhoon, an investment analyst at Titan Global Capital Management USA Inc., said the dramatic rise in Shiba Inu could be attributed to development progress on a blockchain add-on, known as a layer-2 network, specifically designed for the token called Shibarium. The memecoin is based on the Ethereum blockchain.

“It doesn’t take a lot of effort to push them higher or lower,” Bell said. “Because Bitcoin is such a large market cap and more liquid than some of these other ones, in a way -- it’s not necessarily stable -- but it’s more stable than some of the other ones.”

Eoin Treacy's view -

Buying the dip is an almost instinctual action for investors and particularly following 50% in bitcoin. There is still a great deal of cash in the financial system and dry powder in the private equity sector totals trillions. At least some of that money is now flowing back into the crypto sector as risk appetite begins to recover.



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February 04 2022

Commentary by Eoin Treacy

Secular Themes Review February 4th 2022

Eoin Treacy's view -

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

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

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

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

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

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



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February 03 2022

Commentary by Eoin Treacy

Meta Faces Historic Stock Rout After Facebook Growth Stalled

This article from Bloomberg may be of interest to subscribers. Here is a section:https://www.bloomberg.com/news/articles/2022-02-02/facebook-shares-plunge-as-users-stall-forecast-falls-short?sref=g4EhC0E7

This quarter’s sales forecast also disappointed Wall Street and Chief Executive Officer Mark Zuckerberg, who saw his personal wealth potentially plummet about $24 billion, acknowledged that Meta is facing serious competition for user time and attention, particularly from viral video-sharing app TikTok.
 
The dour outlook and stalled user momentum mark a dramatic turnaround for a company that has posted share gains in every year but one since its 2012 IPO, stoking concern that Meta Platforms flagship product and core advertising moneymaker has plateaued after years of consistent gains. 

“These cuts run deep,” wrote Michael Nathanson, an analyst at brokerage Moffett Nathanson, who titled his note “Facebook: The Beginning of the End?” The results were “a headline grabber
and not in a good way.”  Zuckerberg said Meta’s rival to TikTok, Reels, is growing quickly, but monetization has been slow. He asked investors for patience as the product ramps up.

“Over time we think that there is potential for a tremendous amount of overall engagement growth” with Reels, he said on a conference call Wednesday. “We think it’s definitely the right thing to lean into this and push as hard to grow Reels as quickly as possible and not hold on the brakes at all, even though it may create some near-term slower growth than we would have wanted.”

 

Eoin Treacy's view -

Does anyone remember Vine? It was the big short form video app of the early social media age and folded because it could not think of a way to make money. Musical.ly and later TikTok slid into that niche and effectively captured the generation Z demographic.



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February 02 2022

Commentary by Eoin Treacy

Mega-cap Influence

This note from a Bloomberg blog helps to put today’s price action into perspective.

Alphabet Inc.’s brisk rally on Wall Street on Wednesday is giving a boost to the Nasdaq 100 Index, still reeling from last month’s selloff in tech stocks. Shares in the Google parent are surging after it announced a stock split and posted quarterly sales and profit that topped analysts’ projections, signaling the resilience of its advertising business. The gains in Alphabet shares -- the third biggest stock on the Nasdaq 100 with a weighting of 7.4% -- account for most of the rise on the index on the day.

Eoin Treacy's view -

Apple warned about its ability to fulfill orders before Christmas and subsequently was able to beat that projection. The share jumped on the news but guidance was for slower growth in Q2.



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