Comments of the Day
08 April 2020
Video commentary for April 7th 2020
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics dscussed include: stocks markets fail to hold intraday gains amid a short-term overbought condition, gold arbitrage narrows, oil steady, bonds ease, tech continues to outperform.
Nobody ever pressed "Stop" before
Thanks to Iain Little and Bruce Albrecht for this insightful report which may be of interest to subscribers.:
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
Let’s set aside for the moment questions of timing and think about what changes we can expect to be durable from the virus-induced recession.
The first thing that springs to mind is a loss of income which will take a while to recover. For some that will be quite soon, for others who need to find a new job it will take longer. As we go from full employment in many countries to something less that necessarily represents lower growth overall and by extension lower corporate earnings.
Cyclical Bear Ending; Secular Bull to Resume; Investor Feedback & FAQs
Thanks to a subscriber for this report by Mike Wilson at Morgan Stanley.
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
The idea of Modern Monetary Theory scandalised investors a year ago but very much the reality today as central banks fall over themselves to accommodate the efforts of governments to spend their way out of the trouble. My contention since early this year was the coronavirus will be temporary but the monetary and fiscal effects will be very long lasting.
Welcome to the $1.5 Trillion Minefield of Defaulted Chinese Debt
One of the biggest challenges of buying Chinese corporate debt is working out the borrower’s ties to the government, says Soo Cheon Lee, chief investment officer at SC Lowy, a credit-focused banking and investment firm. “China is not about the financials, it’s about relationships,” Lee says. “That’s driving a lot of the liquidity available to a company. You really need to understand the local landscape, and it’s difficult for foreign players to understand who has that connection or support from the state.”
Sometimes a Chinese company will appear to be in dire straits, only to come up with the cash for a debt payment at the last minute, Lee says. “For most of the companies in Asia, we know two weeks before whether they have financing or if they are going to restructure,” he says. “I think it’s very unique for China to not be able to predict a default.”
Some firms are not what they appear to be, Lee says. “If you are truly a state-owned enterprise,” he says, “you will continue to get support from the government or state-owned banks. But when we look at companies that claim to be SOEs but aren’t really SOEs, we see they’re having some difficulties.”
Eoin Treacy's view
I think a handy rule of thumb for anyone thinking of dipping a toe in China’s distressed debt markets is “state support is a precondition, not a nice to have”. $1.5 trillion in defaulted debt is a juicy target provided covenants can be enforced. The extent to which that is possible in an autocracy is to ascertain how much the ruling families might be inconvenienced by a default.
Eoin's personal portfolio - Last updated March 27th
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.