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21 October 2020
Video commentary for October 20th 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: stimulus hopes, China-US yield spread likely to tighten, copper firm, streaming competition, volatility rising, oil steady
Belt up for the coming 'Global Super Cycle' and a $100 trillion World by 2023
Thanks to a subscriber for this note from EM Capital Advisors. Here is a section:
The Emerging Market (EM) share of world output in the last 20 years doubled from 19% to 38% with the EM world growing at about double the rate of the Developed world (DM). This kept the total world growth at a 3-3.5% range over the last decade despite every region in the world growing a little slower than in the previous decade.
The implications of the swings in the global deflator and the FX on businesses and global incomes was much larger than most imagined which is visible in Fig 1 above. It breaks down the nominal world output and its components showing that the world in real terms grew at a pretty even rate of 3-3.5% through most of the last twenty years, with the swing in the ‘Deflator+FX component’ creating the big booms or bust feel in the world.
We are entering another such ‘Supercycle’ which was born about a quarter ago. Our definition of a supercycle is nominal World Output growing at 8-10% for a few years lifting most boats globally. Our view on the components of this global Supercycle are essentially building in a few key assumptions –
1. The World growth in real terms continues in the 3% +/- 1% range after normalizing to pre Covid levels in real terms by 2022. This is line with the IMF and many other estimates.
2. We expect the Global deflator to stay elevated in the 2-4% range for the next few years driven by stimulative fiscal and monetary policy by most large world economies. This would be aided by a weaker US$ and concurrent to it.
3. The US$ weakens 3-4% per annum for the next few years with rising deficits, with the Chinese Yuan doing the heavy lifting on the other side. The Yuan weakness in the previous few years had prevented this from playing out earlier. This paves the way for a strong Asian and EM FX basket which together account for about half of the world output. This is in a way similar to what happened in 2003-2005.
Eoin Treacy's view
A link to the full note is posted in the Subscriber's Area.
Thanks for this interesting missive which may be of value to subscribers. Here is an additional note from the sender:
Twitter, Responsibility, and Accountability
This article by Ben Thompson for his Stratechery blog may be of interest to subscribers. Here is a section:
The lack of a punchline applies to many of the Facebook controversies since then: the United Kingdom’s Information Commissioner’s Office determined that the only scandal about Cambridge Analytica was the degree to which they oversold their capabilities;
the afore-linked report from the Columbia Journalism Review highlighted how infinitesimal the scale of Russian interference on the platform was, and research shows that “fake news” makes up a fraction of American’s media diet; more recent research about voting fraud argued:
Contrary to the focus of most contemporary work on disinformation, our findings suggest that this highly effective disinformation campaign, with potentially profound effects for both participation in and the legitimacy of the 2020 election, was an elite-driven, mass-media led process. Social media played only a secondary and supportive role.
Eoin Treacy's view
The power of the editor is at the root of the argument about which media venue carries the most weight in the cacophony of voices seeking attention at major turning points in politics and markets. Social media is a morass with so many voices competing for attention that no one account carries the weight of an established oracle of knowledge. That is where the strength of the winners in the mass media world prosper. They are still seen as the destination for truth. That is particularly true when they run a story taking a contrary angle to what they normally write.
Netflix 3Q Streaming Paid Net Change Misses Est
This article by Cara Moffat for Bloomberg may be of interest to subscribers. Here is a section:
Sees growth reverting back to levels similar to pre-COVID as the world recovers, and sees paid net adds likely to be down year over year in 1h 2021 as compared to the big spike in paid net adds in 1h 2020
Sees 2021 free cash flow be -$1 billion to break-even
As productions increasingly restart, we expect Q4’20 FCF to be slightly negative and therefore, for the full year 2020, we forecast FCF to be approximately $2 billion, up from our prior expectation of break-even to positive
With $8.4 billion in cash on our balance sheet at the end of the quarter plus our $750m credit facility which is undrawn, our need for external financing is diminishing
Eoin Treacy's view
Netflix is running a capital-intensive model that is entirely dependent on growth. It got a significant boost in subscriptions from the pandemic but in an increasingly crowded competitive space the ability to continue to sustain growth has to be questionable.
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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