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Comments of the Day
09 October 2020
Video commentary for October 8th 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: stock markets steady, bonds ease, lithium regaining investor interest, industrials firming, small gaps surge,
ECB Warns Against Complacency on Depressed Prices, Euro Gain
This article by Piotr Skolimowski for Bloomberg may be of interest to subscribers. Here is a section:
European Central Bank officials agreed at their latest policy meeting to avoid any complacency in their battle against the recession, and to counter investors’ perception that the euro would inevitably strengthen.
The account of the Governing Council’s Sept. 9-10 meeting showed officials fretting that currency gains had offset some of their monetary stimulus, with a “material impact” on the outlook for consumer prices. Chief economist Philip Lane said inflation expectations were at “very depressed” levels and at risk of falling further.
“In the prevailing environment of high uncertainty, keeping a steady hand with respect to monetary policy was seen as most appropriate,” according to the document published Thursday. “At the same time, the case was made for keeping a ‘free hand’ in view of the elevated uncertainty.”
Eoin Treacy's view
One of David’s most insightful adages is “no country wants a strong currency, but some need a weaker one more than others”. Between March and August, the USA did the most to devalue its currency. The massive supply of money supplied accounted for about half of all global liquidity. That has been one of the primary factors behind the Dollar’s decline. No currency exists in isolation so if the Dollar went down, a lot of currencies expressed upward pressure.
The Road Ahead
Thanks to a subscriber for this report from KKR which may be of interest. Here is a section:
In fact, China is responding to these changes in corporate behavior using a variety of techniques, including becoming a larger and more powerful domestic economy that relies on its own production (what President Xi Jinping calls “domestic circulation”). In the current environment China may also better leverage its higher interest rate curve (both real and nominal) to try to attract capital to support this more permanent shift towards a consumption economy. A more stable currency outlook is also helping. Our bottom line: Expect a heightened rivalry across multiple facets of the relationship, including some decoupling. However, given the absolute size of the opportunity in China, now is actually the time to think through different ways to harness China’s growth in thoughtful, risk-adjusted fashion, particularly investments that reward long-term, patient capital. Specifically, we think that further implementation of domestic circulation as a policy will lead to the rise of more domestic corporate leaders, and as a result, more – not less – corporations will look to find ways to serve this emerging consumption base.
Eoin Treacy's view
China’s golden week ends today and the market opens back up tomorrow. Over the last month there have been significant announcements about investments in infrastructure, boosting the consumer economy and championing the green energy movement. These points all likely to become actionable in the 4th quarter.
Email of the day on short covering
I hope you and the family are well. well done on your XXX trade. What would you do now if you are not in the shares? and why are the shares up 25 per cent today? Is that shorts closing out their positions, realisation that the company will not go bust or just volatility associated with the rights issue? Many thanks
Eoin Treacy's view
Thank you for this question which may be of interest to other subscribers. I agree the most likely reason for today’s significant additional surge today was because of short covering. It’s up almost 100% this week so buying the rebound requires one to have some tolerance of volatility. The only way to deal with that and not lose sleep is to control the size of the position.
Tesla Lithium Foray Is Sign of Robust Demand, Top Producer Says
This article from Bloomberg may be of interest to subscribers. Here is a section:
Rather than a threat to existing producers, Tesla Inc.’s push into lithium mining is a sign of future demand strength, according to the largest producer of the key ingredient in batteries for electric vehicles.
“They’re kicking the industry in the pants,” Eric Norris, head of lithium at Albemarle Corp., said in an interview. “The market interpreted it as a strong signal of value erosion, but I view it differently. It’s a sign of what needs to come to drive the vision they have for 2030.”
Tesla’s foray into mining is at the center of the carmaker’s plan to cut battery costs and deliver on a promise to bring a $25,000 electric vehicle to market. Elon Musk told investors last month that Tesla has secured access to 10,000 acres of lithium-rich clay deposits in Nevada and planned to use a new, “very sustainable way” of extracting the metal. That news helped send lithium-producer shares tumbling, with Albemarle falling 16%, the the most on record.
Eoin Treacy's view
Tesla has set an ambitious target of compressing battery manufacturing costs faster than any of its competitors. That means sourcing materials cheaply, redesigning the bed of the vehicles and taking over responsibility for manufacturing its own cells. It’s a couple of year project and represents the same kind of scale and expense as building the original Gigafactory did.
Eoin's personal portfolio: investment position increased October 2nd
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.
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