Comment of the Day
31st January 2023
Eoin Treacy
Feb 1
Video commentary for January 31st 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Wall Street firms, China weak, bonds yields stable but volatiltiy falling, dow/gold and dow/oil comparisons. Insurance stocks at new highs outlook is for a deflation shock.
Email of the day on emerging market potential
Hello Eoin, In today's Financial Times it is stated that the IMF is concerned about the risks of debt defaults by emerging market companies and states. How does this bring into question the flow of stock market investments in these countries in recent months?
Eoin Treacy's view
Thank you for this question which is certainly topical. Countries like Ghana, Egypt, Pakistan, Lebanon, and Turkey experienced significant stress in their respective debt markets over the last 12 months. The unfolding drama with Adani group in India is an additional sign that global liquidity conditions are tightening. I think it reasonable to assume the flow of money into “emerging markets” is either bargain hunting or avoiding some of these destinations.
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Europe's 1 Trillion Euro Bond Frenzy Is Reaching New Heights
This article from Bloomberg may be of interest to subscribers. Here is a section:
There’s a stampede in the European bond market to buy high-quality notes paying hefty yields.
Investors have bid a total of €1 trillion ($1.08 trillion) on corporate and sovereign debt this month, fueling a ferocious comeback in markets battered by last year’s selloff. The intensity of demand is so high that the average order book is more than three times the size of what’s available to buy.
That’s the second-highest ratio for any January of the past five years, according to data compiled by Bloomberg, and shows that investors are acting fast and early to fill their portfolios, especially with investment-grade debt.
“Investors are taking on risk and there is good appetite,” said Stephanie Besse, global head of debt capital markets for corporates at Natixis CIB. “We have seen strong demand at the long end of the curve, which is a sign of trust in credit markets.”
Eoin Treacy's view
Investors neglected investing in Europe because of the assumption the region would experience a deep winter of discontent because of the impending energy crisis. Regional governments instead spent whatever was necessary to ensure that did not happen. That resulted in natural gas prices spiking during the summer. The price predictably collapsed when the price-insensitive inventory-build abated.
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Email of the day on Credit Suisse
As always thanks for your excellent service. I appreciate your comments on Volkswagon today, and am considering buying some, as I don't see how the German government would let VW go under. Can you also please comment on Credit Suisse. Do you think there is a serious risk that Credit Suisse will not survive. Thanks in advance.
Eoin Treacy's view
Thank you for this question which may be of interest to the Collective. Credit Suisse employs over 50,000 people so I imagine the Swiss government has an interest in ensuring it remains a going concern.
The biggest challenge for all Swiss banks is they lost all their US clients when they were forced to share account details in 2012. That sharing was greatly expanded in 2017 and today Switzerland shares details with almost 100 countries. Swiss banks have struggled to tap into new markets like China and India.
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GM to help Lithium Americas develop Nevada's Thacker Pass mine
This article from Reuters may be of interest to subscribers. Here is a section:
GM would supplant China's Ganfeng Lithium(002460.SZ) to become Lithium Americas' largest shareholder. GM has also agreed to buy all the lithium from Thacker Pass when it opens in 2026 - roughly 40,000 tonnes per year.
Under the agreement, GM will buy $650 million of shares in Lithium Americas in two equal parts, with the first tranche coming only if Lithium Americas prevails in an ongoing court case. A U.S. judge earlier this month said she would rule "in the next couple of months" in the case, which centers on whether former U.S. President Donald Trump erred when he approved the mine just before leaving office in 2021.
Eoin Treacy's view
The automotive industry appears to be getting back to its roots. Fifty years ago it was common for bid industrials to control mines, processing, fabrication and manufacturing in a vertically integrated business model. The 1970s ushered in offshoring and just in time manufacturing and inventory was suddenly considering a balance sheet liability. In the aftermath of the pandemic and now war in Ukraine, the merits of controlling the supply chain are being viewed with fresh perspective.
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Eoin's personal portfolio: trading short breakeven stop triggered January 20th 2023
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
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