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Gundlach Disagrees with Mnuchin and Powell

Published: 09:28 15 Mar 2018 GMT

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Video commentary for March 14th 2018

Eoin Treacy's view
A link to today's video is posted in the Subscriber's Area.

Some of the topics discussed include: FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing.
[ ]   FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing,
[ ]   FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing,
[ ]   FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing,


Gundlach Disagrees with Mnuchin and Powell
Thanks to a subscriber for this article by Robert Huebsche for Advisor Perspectives summarizing Jeff Gundlach’s talk for DoubleLine clients yesterday. Here is a section:

He said that deficits have historically shrunk in non-recessionary periods and risen during recessions. “We are late in the economic cycle,” he said, “and it is unusual that the deficit is expanding.” He said that this is driven by political reasons, and noted that the fact that we are adding stimulus “has never happened before.”

Deficit problems will move to the forefront by the end of this year, he said. The deficit is getting a lot worse and there will be “a lot of bonds supplied to the market,” he said. The supply of bonds was about $650 to $700 billion in 2017, he said. It will be $1.2 to $1.3 trillion in 2018, in addition to quantitative tightening (QT) as the Fed contracts its balance sheet, according to Gundlach. There could be another $600 billion in tightening, he added.

If there is a recession the deficit will get worse, he said, but QT will stop. Either way, investors should expect $2 trillion in supply.

”If quantitative easing (QE) was a tailwind for financial assets, then QT must necessarily be a headwind,” he said.

The unique conditions that prevailed in 2017 are over, Gundlach said. The VIX is above 17, he said, which is higher than at any time in 2017. “We have lived the entire last month and a half at VIX levels higher than in 2017,” Gundlach said. As a result, the markets turned in the greatest Sharpe ratio ever in 2017, but he said that has flipped in 2018.

“We’ve gone from an easy to a very tough investing environment,” Gundlach said.

Gundlach predicted that the S&P 500 will have a negative rate-of-return this year. “My conviction is high,” he said, “higher than that the 10-year yield will break to the upside

Eoin Treacy's view
A link to the full deck of Gundlach’s slides is posted in the Subscriber's Area.


Continues in the Subscriber's Area.


Crypto Research Report
Thanks to a subscriber for this report on cryptocurrencies from the team Incrementum which may be of interest. Here is a section:

Do you see any common misconceptions about cryptocurrencies and blockchains? 

Yes, actually. There is the misconception that intangible assets do not have value. However, this is not true: some cryptocurrencies are backed by tangible assets, some provide access to potential earnings, and some provide access to a network.

We can look at this argument the other way around as well. If I am wrong, and it is the case that intangible assets have no value, then this would apply to a lot of other asset classes as well. For example, fiat currencies are mostly intangible. Although fiat currencies are backed by a government that can tax income, that does not make fiat currencies tangible in my opinion.

However, I think we are the very beginning of the blockchain revolution. At Incrementum, we believe that a lot of the cryptocurrencies that we see today are going to disappear in the short to mid-term. There is potential for some to stay, and for some to stay for a long time. If cryptocurrencies stay around, I am convinced that regulators will regulate cryptocurrencies like every other investment, which they should do in order to level the playing field for all financial assets.

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

Bitcoin was the genesis token and is still by far the largest. It is also used as a vehicle to purchase a considerable number of other cryptocurrencies, so that creates a daisy chain effect which ensures a high degree of commonality between the various tokens.


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

The cocoa price has soared by 33% in New York and by 28% in London since the beginning of the year. Thus cocoa has achieved the best price performance of all the commodities we track this year – with the exception of carbon. The Coffee and Cocoa Council (CCC) of Ivory Coast, the world’s largest cocoa producer, apparently wishes to curtail its cocoa production. The first step is to count the plantations. Depending on the result, the distribution of higher-quality seeds and plants for the 2018/19 season is then to be temporarily suspended. The aim is to combat the overproduction that saw cocoa prices forced to multi-year lows at the end of last year. According to the International Cocoa Organization, global supply exceeded demand by 300,000 tons in the 2016/17 crop year. The surplus is set to decline to a good 100,000 tons in the current crop year 2017/18. Deficits are needed to reduce the cumulative surplus, as was the case on the oil market a good year ago. OPEC brought this about by cutting production, and Ivory Coast appears to want to follow a similar strategy for cocoa. If the CCC has its way, Ivorian cocoa production will be lowered from 2 million tons now to 1.7-1.8 million tons within two years. Ivory Coast has a good 40% share of the cocoa market, which is even somewhat higher than OPEC’s share of the oil market.

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

I was trading cocoa back in August for rather modest profits because I was hoping it would complete its base formation. I grew impatient with the ranging, and probably would not have held in any case during the steep decline posted in December, but there was certainly a case for buying it back at the January lows. The price has now surged higher to emphatically complete its base formation and while increasingly overbought in the short term, a clear downward dynamic would be required to check momentum.



Eoin's personal portfolio update February 28th 2018

Eoin Treacy's view
One of the requests subscribers have asked for most over the last few years has been to have an easy way to find what positions I have open at any given time. Therefore, I repost this section on a daily basis and the title will always include the date of my most recent trade. 


Long-term themes review March 7th 2018

Eoin Treacy's view
FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.
The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.
Here is a brief summary of my view at present.


2018, the 49th year of The Chart Seminar

Eoin Treacy's view
The first venue for The Chart Seminar in 2018 will be:

Melbourne on April 16th and 17th. We are currently in the process of confirming a venue. 

I will also hold an online seminar, probably in May over the course of three or four days.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com. 

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates. Continues in the Subscriber's Area.

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