Comment of the Day
27th March 2023
Eoin Treacy
Mar 28
Video commentary for March 27th 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: oil steadies, stocks eases into the close, yields rise, dollar weak
Banking Crisis Raises Concerns About Hidden Leverage in System
This article from Bloomberg may be of interest. Here is a section:
Fund managers are also concerned. A systemic credit event poses the biggest threat to global markets, and the most likely source of one is US shadow banking, according to a survey of investors published last week by Bank of America Corp (NYSE:BAC).
The US government’s top financial regulators signaled in February that they would consider whether any nonbank firms merit tougher oversight as systemically important institutions.
The Financial Stability Oversight Council will put “nonbank financial intermediation” back on the table as a priority for 2023, according to a statement from the Treasury Department. The Federal Reserve, the Federal Deposit Insurance Corp. and the Financial Stability Board declined to comment for this story.
European Central Bank Vice President Luis de Guindos warned in an interview with Business Post published on the ECB website Sunday that nonbanks “took a lot of risks” during the era of low interest rates and potential vulnerabilities “can come to the surface” as monetary policy changes.
Eoin Treacy's view
It has been my view for at least the last 2 years that the epicentre of risk resides in private markets. What does that mean? It was where leverage was focused in the bull market and where valuations have increased the most. It is therefore the most likely to experience stress as liquidity tightens. Trouble within the sector is also likely to be the catalyst for central bank easing as they move to forestall the risk of a deep recession.
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Binance, CEO Sued by US Derivatives Watchdog for Violations
This article from Bloomberg may be of interest to subscribers. Here is a section:
The agency said that Zhao, Lim, other senior managers failed to properly supervise Binance’s activities and took steps to violate US laws, including instructing American customers to use virtual private networks, or VPNs, to obscure their location and directing “VIP customers” with US ties — often institutional market participants — to open Binance accounts under the name of shell companies.
In its complaint, the CFTC also said Binance’s own documents for the month of August 2020 showed that the platform earned $63 million in fees from derivatives transactions, and that about 16% of its accounts were identified as being held by US customers.
Documents
The CFTC alleged that the company intentionally destroyed documents. At the same time, Binance makes frequent use of the encrypted messaging app Signal to communicate with US customers, at Zhao’s instruction, the agency said.
Since at least 2021, the CFTC has been probing Binance over whether it failed to keep US residents from buying and selling crypto derivatives. CFTC rules generally require platforms to register with the agency if they let Americans trade those products.
Eoin Treacy's view
I had an interesting conversation over the weekend with a former crypto exchange employee. He reported that most people are in the space to make money and the primary focus on venture capital is to come up with the next Ethereum killer. Solana’s success in doing just that has sparked a great deal of investment in trying to repeat the feat. That diversifies talent across a large number of ventures while bitcoin continues to attract a broad swathe of purists who continue to work on applications.
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EU Moves Toward Zero-Emissions Cars After German Deal on E-Fuels
This article from Bloomberg may be of interest to subscribers. Here is a section:
E-fuels, made using renewable energy and carbon dioxide captured from the air, aren’t seen as a viable solution for the vast majority of cars, given their high cost and current lack of availability. Instead, the bulk of carmakers in the region are expected to remain focused on battery-powered vehicles.
“We see e-fuels as a useful addition to the existing fleet of combustion engines and for special applications such as emergency vehicles or limited series, the Porsche 911 for example,” Volkswagen said in a statement. Europe’s biggest carmaker said that it remained committed to the electrification of its fleet.
The deal, announced on Saturday, was enough for Germany to drop its opposition to the proposal. A push by the country’s pro-business FDP party, the junior member of Chancellor Olaf Scholz’s governing alliance, for the commission to come forward with more assurances on e-fuel cars had delayed a vote earlier this month.
Eoin Treacy's view
2035 is little more than a decade from now and that is a short period of time to completely remake the industrial infrastructure of the European heartland. High performance sports cars are a niche business and e-fuels are unlikely to gain significant market share without a major breakthrough in production costs or a significant rise in energy prices more generally which would also improve competitiveness.
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© 2023 Eoin Treacy
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