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28 March 2020
Big Picture Long Term Video March 27th 2020
Eoin Treacy's view
A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area.
U.K. Virus Aid Package Beats Financial Crisis Stimulus
This article by Alex Morales, Lucy Meakin and Andrew Atkinson for Bloomberg may be of interest to subscribers. Here is a section:
The coronavirus crisis has transformed the fiscal landscape at a stroke. Britain was on course for a budget deficit of 55 billion pounds in the fiscal year starting April. Now, according to the Institute for Fiscal Studies, borrowing could be as much as 200 billion pounds as an economy on course to shrink at least 5% this year hammers tax revenue and drives up spending on welfare.
That could leave the deficit just below the 10% reached in the aftermath of the financial crisis and push up already elevated debt levels.
The chancellor announced his first economic package to deal with the outbreak when delivering the budget on March 11, unveiling 12 billion pounds of measures to mitigate the effects of the outbreak on the economy.
As evidence mounted that the crisis was snowballing, he followed up with a 350-billion pound stimulus package comprising government-backed loans as well as 20 billion pounds of grants and tax cuts for struggling companies.
Then, last Friday, he announced 7 billion pounds of extra welfare spending and said the government would pay 80% of salaried employees’ wages up to a maximum of 2,500 pounds a month -- a plan Bloomberg Economics estimates will cost 17.5 billion pounds.
Announcing further details of the job-retention program today, the Treasury said the government will also cover employers for the National Insurance and minimum auto-enrolment pension contributions of furloughed workers, saving firms 300 pounds a month per employee on average.
Eoin Treacy's view
The trouble with the coronavirus is not so much in the mortality rate but in the speed with which it is spreading. Overloading hospitals with scare resources and scary reports of tens of thousands dying has put a great deal of pressure on the economy. However, it is also worth considering that despite the scale of the challenge faced in Italy, they have seen the peak in the infection growth rate. That suggests the problem is unlikely to get worse.
The Fed's Cure Risks Being Worse Than the Disease
This article by Jim Bianco for Bloomberg may be of interest to subscribers. Here is a section:
But it’s the alphabet soup of new programs that deserve special consideration, as they could have profound long-term consequences for the functioning of the Fed and the allocation of capital in financial markets. Specifically, these are:
CPFF (Commercial Paper Funding Facility) – buying commercial paper from the issuer.
PMCCF (Primary Market Corporate Credit Facility) – buying corporate bonds from the issuer.
TALF (Term Asset-Backed Securities Loan Facility) – funding backstop for asset-backed securities.
SMCCF (Secondary Market Corporate Credit Facility) – buying corporate bonds and bond ETFs in the secondary market.
MSBLP (Main Street Business Lending Program) – Details are to come, but it will lend to eligible small and medium-size businesses, complementing efforts by the Small Business Association.
To put it bluntly, the Fed isn’t allowed to do any of this. The central bank is only allowed to purchase or lend against securities that have government guarantee. This includes Treasury securities, agency mortgage-backed securities and the debt issued by Fannie Mae and Freddie Mac. An argument can be made that can also include municipal securities, but nothing in the laundry list above.
So how can they do this? The Fed will finance a special purpose vehicle (SPV) for each acronym to conduct these operations. The Treasury, using the Exchange Stabilization Fund, will make an equity investment in each SPV and be in a “first loss” position. What does this mean? In essence, the Treasury, not the Fed, is buying all these securities and backstopping of loans; the Fed is acting as banker and providing financing. The Fed hired BlackRock Inc. to purchase these securities and handle the administration of the SPVs on behalf of the owner, the Treasury.
In other words, the federal government is nationalizing large swaths of the financial markets. The Fed is providing the money to do it. BlackRock will be doing the trades.
This scheme essentially merges the Fed and Treasury into one organization. So, meet your new Fed chairman, Donald J. Trump.
Eoin Treacy's view
My rule of thumb for plotting a route through the market mayhem of the last six weeks has been to take what people expressed disquiet about last year and amplify it. Modern Monetary Theory has gone global even quicker than the coronavirus. It is now the de facto economic policy for much of the world and has seen just about every government concede to the requirement for fiscal laxatives.
Enevate's silicon-anode batteries promise ultra-fast EV charging
This article by Loz Blain for New Atlas may be of interest to subscribers. Here is a section:
With some US$111 million in investment from major companies, including LG, Samsung, Mitsubishi, Renault and Nissan, Enevate now says its cells are ready for the big time. In an interview with Charged EVs, Park said Enevate is designing packs for the 2024 and 2025 model years to get its cells into consumer products with major manufacturers. There are no announcements around who or what exactly they're making packs for, but the list of companies above may be instructive.
As far as we're aware, though, the infrastructure to support blast-charging at the kinds of rates we're talking about here simply doesn't yet exist. Tesla's V3 superchargers are currently capable of blast-charging a Model 3 at 250 kilowatts, which would give you around 133 km (83 mi) of range in five minutes.
These batteries would charge three times faster, at around 0.75 megawatts, which is a huge power draw. An alternative method might involve trickle-charging massive supercapacitors all day at slower rates so they've got enough energy to supply the cars super-quickly when they need it, but we're yet to see anything like that in action, and the size of those supercapacitors might end up being prohibitive.
Eoin Treacy's view
It is almost as if I see a new story about advancements in battery technology every day. They all come with caveats but the one thing we can be sure of is the quantity of capital now devoted to solving the issue of energy density and range anxiety is growing persistently. Producing a doubling of energy density with a low charging time is the hold grail of the sector today and it is reasonable there will be a solution in the market within five years.
Eoin's personal portfolio - profit taken on stock market short
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.