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11 August 2020
Video commentary for August 10th 2020
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: demand for high beta gold increases, stock steady with rotation away from megacaps evident, Taiwan, South Korea and Japan firm, Dollar eases except against the Euro and Yen.
Time for Thinking
Thanks to a subscriber for this memo by Howard Marks which may be of interest. Here is a section:
The first is that many investors have underestimated the impact of low rates on valuations. In short, what should the stock market yield? Not its dividend yield, but its earnings yield: the ratio of earnings to price (that is, p/e inverted). Simplistically, when Treasurys yield less than 1% and you add in the traditional equity premium, perhaps the earnings yield should be 4%. That yield of 4/100 suggests a p/e ratio (the inverse) of 100/4, or 25. Thus the S&P 500 shouldn’t trade at its traditional 16 times earnings, but roughly 50% higher.
Even that, it’s said, understates the case, because it ignores the fact that companies’ earnings grow, while bond interest doesn’t. Thus the demanded return on stocks shouldn’t be (bond yield + equity premium) as suggested above, but rather (bond yield + equity premium - growth). If the earnings on the S&P 500 will grow to eternity at 2% per year, for example, the right earnings yield isn’t 4%, but 2% (for a p/e ratio of 50). And, mathematically, for a company whose growth rate exceeds the sum of the bond yield and the equity premium, the right p/e ratio is infinity. On that basis, stocks may have a long way to go.
Eoin Treacy's view
The removal of the discount rate, as a basis for valuing cashflows has an outsized effect on all income producing assets. That implies the persistent threat of deflation which allowed long-bond yields to compress to historically low levels globally will persist indefinitely.
Platinum Giant South Africa Forced by Virus to Look Into Abyss
This article by Felix Njini and Elena Mazneva for Bloomberg may be of interest to subscribers. Here is a section:
In June, Implats balked at investing about 12 billion rand ($680 million) on building a new mine at Waterberg on the northern limb of the platinum belt. The outlook doesn’t support such spending over the next decade, said spokesman Theron. Anglo American Platinum Ltd. has delayed a decision until the second half of next year on whether to spend as much as $1.5 billion on expanding output at its key Mogalakwena mine.
Vancouver-based Ivanhoe Mines Ltd. said it’s still evaluating finance for its new Platreef project, which could require about $1.5 billion of investment. Still, notwithstanding the investment hiatus, the platinum sector remains in better shape than South Africa’s gold industry. Even without further spending, some deep-level mines have a 30-year lifespan, according to James Wellsted, a
spokesman for Sibanye Stillwater Ltd., the world’s No. 1 platinum miner.
Still, investment decisions are complicated because of an uncertain regulatory and policy environment, among other challenges, Wellsted said.
Eoin Treacy's view
The price of any commodity is dictated by the actions of buyers at the margin. The biggest event to hit the sector in the last decade was the demise of the “clean” diesel market. That removed a major source of demand and the price collapsed to unimaginably low levels relative to the other precious metals. A number of platinum miners went bust because they were in no way prepared for the collapse in prices.
Navy's solar power satellite hardware to be tested in orbit
This article by Sandra Erwin for Spacenews.com may be of interest to subscribers. Here is a section:
The 12-inch square tile module will test whether power can be harvested from its solar panel and transform the energy to a radio frequency microwave. The experiment has been in the works for more than a decade.
The module converts sunlight for microwave power transmission. Depuma said engineers decided to not use optical power transmission because a lot of energy would be lost through clouds and atmosphere.
The Naval Research Laboratory said the results of the experiment could drive the design of a dedicated spacecraft to test the transmission of energy back to Earth. The Pentagon is interested in this technology to provide energy to remote installations like forward operating bases and disaster response areas.
Researchers believe that a space solar system traveling above the atmosphere would catch far more energy than it would be possible on the ground due to the abundant and unimpeded sunlight in space.
One of the concerns is the thermal performance of the hardware. “It’s kind of a tricky problem to have something that’s in direct sunlight all the time and maintain the temperature of the electronics,” said Jaffe.
Solar power satellites could provide energy anywhere in the world, he said. “So a really important component of these kind of satellites would be a device that can convert the sunlight into microwaves or some other form of electromagnetic energy that’s suitable for sending to Earth. Now is the time to test it in space and see how it performs.”
Eoin Treacy's view
Development of SpaceX’s BFR is progressing much quicker than most people gave the company credit for. The delivery of the vehicle to active commercial service will greatly reduce the cost of lifting major payloads to space.
Eoin's personal portfolio: stock market long closed 22/7
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.
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