Comment of the Day
17th May 2023
Eoin Treacy
May 18
Video commentary for May 17th 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: USA CDS peak, stocks firm, bonds decline, banks firm, Yen weakens which supports nominal Nikkei performance, gold eases but stable, oil steadies.
Biden 'Confident' on Reaching Debt Deal as GOP Bashes Japan Trip
This article from Bloomberg may be of interest. Here is a section:
President Joe Biden expressed confidence that negotiators would reach an agreement to avoid a catastrophic default, even as House Speaker Kevin McCarthy criticized his decision to travel to Japan for an international summit.
“I’m confident that we’ll get the agreement on the budget and that America will not default,” Biden said Wednesday at the White House, shortly before departing to Hiroshima, Japan for a Group of Seven leaders summit.
On Capitol Hill, McCarthy and other Republican lawmakers criticized Biden for his decision to travel, with the House speaker labeling the president “a big obstacle” to an agreement.
“Mr. President, stop hiding, stop traveling,” McCarthy said.
On Tuesday, Biden and congressional leaders agreed to a new narrower round of staff-level talks with hopes of reaching a bipartisan deal to avoid an unprecedented US default. The US president also announced he was canceling planned stops in Australia and Papua New Guinea, and would return to Washington by the beginning of next week for continued negotiations.
Eoin Treacy's view
The decision to attend the G7 meeting is a clear signal there are more important issues at stake than the inward facing decision about how spending and taxing priorities are apportioned. Holding the sovereign debt market to ransom is not the most productive use of anyone’s time but at least it ensures there is a discussion about the trajectory and sustainability of the national debt and obligations.
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Automakers Speeding Platinum Substitution Push Market to Deficit
This article from Bloomberg may be of interest to subscribers. Here is a section:
Automakers are accelerating the substitution of platinum for pricier palladium in catalytic converters,
putting the market for the metal on track for a deficit for the first time in two years, according to Johnson Matthey PLC (LSE:JMAT).
Demand from automakers will exceed 3 million ounces for the first time since 2018 as platinum is increasingly preferred over palladium, which will continue to see its usage decline, the firm wrote in a report on Monday. Both precious metals are used to cut emissions from car exhausts.
The car industry’s switch has taken years, but is finally having a sizeable impact on the fundamentals of platinum group metals. While palladium has traded at a premium to platinum since 2017, the gap has narrowed to near the smallest in more than four years.
“Just as substitution benefits platinum, it disadvantages palladium,” said Rupen Raithatha, market research director at Johnson Matthey. “These are all incremental trends.”
Investors are increasingly eyeing risks to platinum supplies from South Africa, the world’s top miner, as power blackouts threaten to cripple its output. So far, the country’s miners have limited the impact by idling processing plants, allowing mining to continue, though more severe outages could hit overall production, according to Johnson Matthey.
The firm sees platinum in a small deficit of 128,000 ounces in 2023, following two years of large surpluses. That compares to the record shortfall forecast by the World Platinum Investment Council.
Eoin Treacy's view
Platinum took a leg lower as the diesel cheating scandal broke. That destroyed a major demand driver for the metal. In a normal environment, the massive disparity between palladium and platinum would have encouraged automakers to retool years ago. The reason that did not happen is they are devoting all their energy to building electric vehicle production capacity and do not envisage using as many catalytic converters in future.
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Scottish Mortgage Writes Down Private Company Holdings by 28%
This article from Bloomberg may be of interest. Here is a section:
“An important influence over the last year has been the closing of the IPO market,” Burns said in the statement. “We had fourteen companies go public in 2021 but as the IPO market closed in 2022 companies postponed their plans with no private holdings going public.”
During the year the fund invested £281 million into private companies for follow-on investments as well as two new investments in UPSIDE Foods and Climeworks, Burns said. Private holdings made up 28.6% of the portfolio at March 31.
“We will continue to closely monitor the proportion of the company invested in private companies throughout the year recognising that the proportion can be volatile,” he added.
Eoin Treacy's view
Scottish Mortgage is not the only fund to have to write down investments in private assets. The low interest rate, low inflation and abundant credit of the last decade allowed long duration assets like high growth, zero profit companies to expand rapidly. The right investment decision was to bet big on the private assets sector. The big mistake was to think the trend was immune to tightening credit conditions.
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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.
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© 2023 Eoin Treacy
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