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Comments of the Day

19 June 2019

 

 

Video commentary for June 18th 2019

 

 

Eoin Treacy's view

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

Some of the topics discussed include: prospect of a Euro carry trade drives renewed speculative interest in stocks and commodities, bonds ease, 

 

 

ECB Rate Cut Is Weapon of Choice as Draghi Threatens Action

This article by Paul Gordon and Piotr Skolimowski for Bloomberg may be of interest to subscribers. Here is a section:

ECB President Mario Draghi appeared to set a low bar for action on Tuesday when he said additional stimulus will be needed “in the absence of any improvement” to the outlook for growth and inflation. He specifically cited rate reductions as an option, sending the euro lower and prompting money markets to price in a 10 basis-point cut by December.

Investors subsequently brought forward their expectations to September after Bloomberg’s report. Commerzbank now predicts such a policy step in July.

“Draghi is going to finish his tenure with a cut,” said Claus Vistesen, chief euro-zone economist at Pantheon Macroeconomics. “The door is now open and I don’t see how they can not walk through it.”

 

Eoin Treacy's view

There is a first principles question that governments have no appetite to grasp. “How do you recover from a debt bust?” We know what the answers are. You default, recapitalise and try not to make the same mistake again. The problem in Europe is the creditors are Northern European pension funds and the debtors were peripheral banks, who have had much of their debt absorbed by their respective governments. The prospect of debt forgiveness, therefore, has massive issues of moral hazard and was untenable politically, even though it remains necessary if the debt mountains are to be dealt with and growth prospects renewed.

 

 

Are Valuations Irrelevant?

This presentation by Rob Arnott for Research Affiliates may be of interest to subscribers.

 

 

Eoin Treacy's view

A link to the slides is posted in the Subscriber's Area.

This is a robust defense of Shiller P/E which, at 30, is at it second highest peak in history; surmounted only by the Tech Bubble. Let’s for a moment consider that it would be unwise to expect the best performers of the last decade to be the best performers of the next decade. After all, it only makes sense when we consider the base effect. It is obviously more difficult to double from a market cap of $1 trillion than from $1 billion.

 

 

Visa, Mastercard, PayPal Join Facebook to Form Crypto Effort

This article by Julie Verhage, Jenny Surane and Kurt Wagner for Bloomberg may be of interest to subscribers. Here is a section:

The currency, called Libra, will launch as soon as next year. It’s what’s known as a stablecoin, one that can avoid massive fluctuations in value so it can be used for everyday transactions. Industry experts and insiders say the payments companies want a seat at the table to help shape the new currency.

“It’s not unusual for the incumbents -- Visa, Mastercard, PayPal -- to partner with a disruptor,” Harshita Rawat, an analyst at Sanford C. Bernstein, said in an interview. “They would at least want to participate in how this product is being developed.”

New payment methods such as Apple Pay and other mobile wallets are often slow to take off, so any competition is likely to be years away. Still, the earlier payments companies come to the project, the more time they have to ensure their businesses don’t suffer.

 

Eoin Treacy's view

A stablecoin is specifically designed to hold parity with a base fiat currency and therefore is not suited to speculative investment. They do, however, have attractions as being easy to convert into other crypto assets and have the same portability features. The one challenge stablecoins have had is there have a couple of instances of them being used as Ponzi schemes, because the provider did not have the assets on deposit to support the currency’s value. Facebook will likely solve for that problem at least, considering its substantial cash pile, but the much bigger issue will be in how it can monetise the financial transactions of its billions of users. That is where the clear investment opportunity resides.

 

 

The Man Who Inherited Australia's Downturn Just Isn't That Fazed

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

That’s all put the economy on track for its weakest fiscal year since the last recession in 1991. Even the Reserve Bank, which rarely wades into political territory, is urging more government stimulus after cutting interest rates for the first time in almost three years.

But whether boxed in by his sunny disposition or pledges to deliver a budget surplus made ahead of the government’s shock re-election last month, Frydenberg appears unfazed. While he’ll push to pass tax cuts when parliament resumes on July 2 and ramp up infrastructure spending, that’s about it, leaving the heavy lifting of stimulus to the central bank.

“I’ve found the treasurer to be remarkably sanguine,” said Danielle Wood, an economist at the Grattan Institute, an independent think tank in Melbourne. “When you’ve got the central bank governor coming out and talking about perhaps moving to stimulatory fiscal policy as well as the need for more long-term structural reforms, I’d be hoping for a more substantive response.”

 

Eoin Treacy's view

The RBA cutting interest rates to previously unimagined levels, with more to come, is a bonus for consumers with floating rate mortgages, but the wider concern is about the health of the Chinese economy which Australia depends on for export demand growth.

 

 

Eoin's personal portfolio from May 15th

 

 

Eoin Treacy's view

Details of this trade are posted in the Subscriber's Area. 

 

 

2019: The 50th year of The Chart Seminar

 

 

Eoin Treacy's view

There will be a memorial concert for David at the Royal Festival Hall on October 5th. It looks like we will have a room at the Royal Festival Hall for an hour before the concert for a memorial. Wine and canapes will be served. Afterward we will retire to the Benefactor's Lounge where Tim Walker, Chairman of the LPO will dedicate the concert in David's memory. The concert will be from 7:30 to 10pm. If anyone would like to attend the concert in addition to the memorial there will be a box to tick on the booking form which I will provide as soon as I have it.   

Since this is the 50th year of The Chart Seminar we will be conducting the event on October 3rd and 4th to coincide with the memorial on the Saturday.

In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at [email protected].  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Annual subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

 

 

 

 

 

 

 

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