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Stocks Tumble on Growing Trade-Tension Pessimism

Published: 09:46 23 Jan 2019 GMT

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Comments of the Day

23 January 2019

 

 

Video commentary for January 22nd 2019

 

 

Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Here are some of the topics covered. first sign the short-term overbought condition has run into overhead resistance. Bonds firm, gold steady, dollar steady, oil eases, risk parity is derisking. 

 

 

Stocks Tumble on Growing Trade-Tension Pessimism

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

U.S. stocks extended the biggest drop in almost three weeks as rising pessimism that trade tensions with
China will persist sent technology and multinational companies tumbling. Treasuries climbed, oil fell and the yen strengthened.

The S&P 500 sank to session lows after the Financial Times reported that the U.S. turned down an offer of preparatory discussions. Chipmakers plunged more than 3 percent, with every member of the Philadelphia Semiconductor Index in the red.

Caterpillar and DowDuPont led declines in the Dow Jones Industrial Average of more than 400 points. “Investors obviously are still a little bit edgy and therefore we would expect periods of volatility to continue,” said Mark Hackett, chief of investment research at Nationwide Funds Group, which manages $60 billion. “As the headlines continue to get more nerve wracking with regards to a global slowdown and trade wars and government shutdowns, it’s easy to spook investors, but we think those are temporary versus permanent.”

 

Eoin Treacy's view

It has been a constant refrain in the Subscriber’s video and audio over the last week that a short-term overbought condition has replaced a short-term oversold condition so the risk of at least consolidation is high.

 

 

Email of the day on global liquidity conditions

You have been emphasising the importance of liquidity as a determinant of equity market performance.  You have asked, “What is the source of liquidity to support future market gains?”.

Lawrence Fuller, publisher of “The Portfolio Architect” has provided a thorough analysis of the present unwinding of global liquidity and equity performance. On Page 4 there is a diagram showing a direct correlation in January 2019. (see attached).  I cannot locate the source of the liquidity data.

Yardeni Research Inc, January 2019 edition of its “Global Economic Briefing: Central Bank Balance Sheets” on Page 7 may be lagging but it only partially reflects the picture presented by Mr. Fuller.

Are you able to help in any way?

 

Eoin Treacy's view

Thank you for the attached reports and this question which the whole world is asking. I have to say I find it gratifying more people are using my chart of total central bank assets. I first created the measure on July 10th 2014 and immediately wished I had included it in Crowd Money.

 

 

Email of the day on UK shale gas

I have just discovered the following page from the UK Gov regarding shale gas exploration/production.

I am reminded by how President Obama tried to block shale oil and shale gas production in the US with worries about water pollution, earth tremors and many other PC excuses. Luckily corporate America ignored him and the US is now totally energy self-sufficient. I hope that British companies have the same attitude and can deliver what would be a real game changing energy situation for the UK. Oil is now circa 18% cheaper in the US than the global price, combined with their corporate tax rate, gives them a massive global advantage. With the UK being so gas dependent, I really hope we can overcome these political shenanigans and give the UK the industrial and consumer advantage that the US currently enjoy. 

 

Eoin Treacy's view

The UK became a net energy importer in 2006. It’s hard not to draw a conclusion that the difficulties the country has experience since, from falling living standards, reduced competitiveness in manufacturing, the calls for disintegration of the union and Brexit were all exacerbated by the fact the UK used to be a major exporter and now sees its imports of oil and natural gas rise every year. There is absolutely no doubt the UK needs an energy policy that makes independence a priority. The trouble is there is not much sign of urgency to tackle this issue.

 

 

Email of the day on disenfranchisement:

business was based on, out of a whim? E.g. who told them to get out of the custom union? How dare them taking that prerogative?

The vote against the Deal is a gentle reminder to those people that the prerogative is with the parliament, thank you very much. I think this was another reason for the GBP to be up... a reestablishment of some normality in governance. Conversely, hijacking the country out of the EU seeking a no deal to deprive the parliament of its authority must be avoided at all costs, needless to say that; in that case I am sure the GBP would fall hard, and the citizens represented in that parliament (or investors relying on that governance) would be greatly impoverished.

Was it for gross incompetence or because of a conscious design to move towards an illiberal regime, I maintain that the referendum and the attitude of the government until now has represented a very substantial breach of trust in UK institutions. It will take a much more competent political establishment and some time to mend the damage that has been done.

Finally, I would be very wary of someone claiming the will of the people of Norway was overridden: the country is a perfectly well functioning parliamentary democracy. And it is in parliaments were the will of the people ought to be represented. This is a lesson learnt several times in human history, and usually the hard way. Let’s please never, not even for one moment, forget that.

 

Eoin Treacy's view

Thank you for this email which I’m sure will be of interest.

If you have a vote and your side wins you feel gratified. If your side loses you understandably feel disappointed. If you lose you can campaign for the decision to be overturned. That is your right in a liberal democracy and that right needs to be protected. However, it would not be correct to say that because you lost your have been disenfranchised.

On the other hand, if you win and the decision is not then acted upon then I believe you have just cause to feel disenfranchised since your right to self determination has not been upheld.

There are legitimate arguments about whether first past the post is the right way of dealing with such a momentous issue as whether to bring about the biggest economy and political change in decades. There are also legitimate arguments about the veracity of the claims made by both sides during the campaign. However, both of these issues while serious are the equivalent of semantics when we consider the right of self-determination. I don’t remember anyone complaining about first past the post before the referendum. I agree we need much higher quality of political institutions but that is totally reliant on people voting. If we look at the trend of political discourse however, I suspect it is going to get worse before it gets better.  

I’m a believer in referenda because Parliament is not wholly reliable in getting the best people into the best positions. If it really were a true reflection of the will of the people there would be no such thing as safe seats. However, citizens have the right to a fair and honest debate on the pros and cons of any question.

 

 

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