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19 December 2019
Video commentary for December 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: Gilt overvaluation and likelihood for an additional sell off in government bonds as the global economy recovers. discussion of rotation potential heading into the last couple of weeks of the year. gold steady
Can I Interest You in a 100-Year Boris Bond?
This article by Marcus Ashworth for Bloomberg may be of interest to subscribers. Here is a section:
The U.K. has the luxury of a deep investor base that hoovers up long-dated, fixed-income assets to make sure it can meet its future pension and insurance liabilities. So much so that the yield on 50-year Gilts is lower than that of their 30-year counterparts, meaning there’s a so-called inversion at the long end of the U.K. yield curve:
The average duration of British government debt is much longer than that of its main counterparts; it’s about 14 years, compared to nearly nine years for German bunds and less than seven years for U.S. Treasuries. There is evidently investor demand in the U.K. for longer stuff, but it requires a genuine commitment from the government to stay the course and not leave any ultra-long issue stranded at the end of the yield curve.
Doing a 100-year deal in concert with more 30- to 50-year issuance would make sure there was plenty of interest at various maturities at the long end of Gilts. A century bond could rapidly build scale into the tens of billions of pounds with quarterly auctions, perhaps with a coupon of about 1.5% (by comparison, Austria’s 100-year issue went for 1.17% back in June). This would be a super-cheap way to really commit to some of the biggest infrastructure projects, such as connecting rail links properly in the north of England.
Eoin Treacy's view
Borrowing vast sums at record low rates makes sense if the proceeds are invested in growth promoting endeavours like education, critical infrastructure and primary research. If invested in glamour projects and growth hindering strategies like high cost energy or military hardware then the benefits which accrue will be less impressive. One way or another, fiscal austerity is over and that means the government will have a growing and ongoing funding requirement.
FedEx Slides on Profit Outlook, Pressuring Dow Transports
This note by Nancy Moran and Thomas Black for Bloomberg may be of interest to subscribers.
FedEx Corp. erased its gains for the year after cutting its profit forecast for the second straight quarter as e-commerce puts a squeeze on margins. The stock also weighed on the Dow Jones Transportation Average, where it held the third-biggest weighting prior to Wednesday. FedEx was already reeling this week after Amazon.com Inc. stoked competitive tensions by banning third-party sellers from using the courier’s services, citing poor service.
Eoin Treacy's view
Fedex is being squeezed between the preferred status of UPS as an Amazon shipper but also by Amazon performing its own deliveries via its own network of shippers. The clear divergence between Fedex and UPS highlights the fact there are some clear winners and losers in the evolving ecommerce shipping landscape.
S&P500 Price to Book Value vs. Future Returns
I thought this graphic from Jeroen Blokland’s Twitter account was particularly interesting.
Eoin Treacy's view
There has been a great deal of discussion about the expected returns from stock markets over the last couple of years. The extraordinary monetary policy and increasing prevalence of deficit spending has raised valuations and compressed interest rates with the result traditional metrics for expected returns have been falling steadily for a decade.
Eoin's personal portfolio: precious metals long increased December 11th
Eoin Treacy's view
One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.