Comment of the Day
8th May 2023
Eoin Treacy
May 9
Video commentary for May 8th 2023
A link to today's video commentary is posted in the Subscriber's Area.
Soime of the topics discussed include: bitcion pulls back on Binance woes, gold and oil steady, robusta coffee breaks out, sugar pausing, cocoa pressuring the upper side of a long-term range, China banks surge, platinum firms on South Africa electricity fears.
Chinese Bank Stocks Soar, Adding $166 Billion in Trading Frenzy
This article from Bloomberg may be of interest to subscribers. Here is a section:
With China’s reopening trade stalled, Chinese investors are betting on a pledge by Beijing to let state-owned firms have access to more capital and play a bigger role. New guidelines on bond sales by SOEs is seen as another step in the reform as President Xi Jinping reshapes the economy. The frenzied trading has also been attributed to moves by three nationwide lenders to cut deposit rates to boost profit margins.
It’s a “valuation system with Chinese characteristics” story, said Willer Chen, a senior analyst at Forsyth Barr Asia Ltd. Some investors are also “seeing value in bank stocks because their valuation is cheap and dividend yields are attractive, despite the shrinking net interest margins and weak Q1 results.”
For now, much of the gains may be driven by sentiment, rather than fundamentals. Chinese lenders posted a tepid set of first-quarter earnings as they faced deeper margin woes despite being sheltered from the recent global banking jitters. Analysts say the pressure may persist through the year as lending rates are lowered to revive the economy.
Eoin Treacy's view
This is very defensive action from Chinese investors. The primary rationale for overweighting banks is the assumption that the government, through the state-owned enterprises (SOEs), is going to take a much more dominant position in the economy. That’s positive short-term but raises important questions about the welcome private enterprise will receive in China over coming years.
This section continues in the Subscriber's Area.
Bitcoin Based-Memecoin Surge Seen Driving Binance Anxiety
This article from Bloomberg may be of interest to subscribers. Here is a section:
These Bitcoin-based tokens are queuing up along with regular Bitcoin transactions to be processed by miners. One of the most popular such coins, which are also known as BRC 20 tokens, is Ordi. Its market capitalization has reached more than $500 million since its recent introduction.
“The high network fees have been caused by the en-masse minting of BRC-20 token,” said Jaime Baeza, founder and managing partner at digital asset hedge fund ANB Investments. Until recently, memecoins and NFT collections such as Bored Apes and CryptoPunks were predominately based on Ethereum and served as a catalyst that helped to make that platform the world’s most commercially important blockchain.
Eoin Treacy's view
The introduction of the Lightning network last year was supposed to speed up transactions. It was also the innovation that enabled the creation of bitcoin offshoots which has boosted traffic across the bitcoin network over the last six months.
The creators of the add-on network obviously did not rely on their experience of meme popularity to build sufficient capacity. One of the biggest challenges to the claim bitcoin will eventually be a major vehicle of exchange is the inadequacy of the network capacity. The Lightning network was hailed as a solution to that problem and it is obviously not working.
This section continues in the Subscriber's Area.
Platinum investors are finally taking note of South Africa's power problems
This note from Heraeus may be of interest to subscribers. Here is a section:
Platinum ETFs saw heavy buying at the end of April from South Africa based funds. Year-to-date regional inflows into platinum funds in South Africa (+333 koz) are the standout when compared to the US (-107 koz), the UK (-18 koz) and Switzerland (-17 koz). Net flows have been positive every month this year so far, as South African investors are more acutely aware of the electricity supply issues being faced by PGM producers. Total global holdings stand at 3.3 moz, up from 3.0 moz at the beginning of the year, although that was down 1 moz from the peak level of holdings in July 2021.
These investors bought into the recent price rally and hope for more. The platinum price had risen more than 20% since late February before the recent correction. Supply issues in South Africa (~75% of mined supply) are well documented. The regularity and severity of load-shedding in 2022 was unparalleled, with the situation unlikely to improve significantly during 2023. Load-shedding resulted in the build-up of above-ground stocks of unrefined PGMs last year and could lead to an estimated loss of ~250 koz of platinum production this year as the Southern Hemisphere winter begins to bite. Available first-quarter results of major South African PGM miners all cite load-shedding as impacting refined output to some degree.
Eoin Treacy's view
Platinum prices went vertical during the last South African power cuts. That acceleration also marked the peak of the decade-long bull market as the global economy headed into the financial crisis in 2008.
At the time there was a lot of talk about platinum miners investing in their own generating capacity. The subsequent crash meant very few completed that work. The big decline in platinum prices following the diesel cheating scandal drove several platinum miners into bankruptcy. The recent issues with Eskom have revitalized talk of building solar and wind farms so operations can be independent of the utility.
This section continues in the Subscriber's Area.
Eoin's personal portfolio: commodity long breakeven stop triggered April 19th 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.
This section continues in the Subscriber's Area.
© 2023 Eoin Treacy
548 Market Street PMB 72296, San Francisco, CA 94104
Unsubscribe