The Next Phase of the V

#1: A global synchronous recovery: We expect a broad-based recovery, both geographically and sectorally, to take hold from March/April onwards. Driving this synchronous recovery will be a more expansive reopening of economies worldwide and the extraordinary monetary and fiscal support now in place.

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20 November 2020


Video commentary for November 19th 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: Dollar weak, gold steady, commodities remain firm, renewables steady, carbon consolidating, sychronised global economic expansion remains likely


The Next Phase of the V

Thanks to a subscriber for this report from Morgan Stanley. Here is a section:

#1: A global synchronous recovery: We expect a broad-based recovery, both geographically and sectorally, to take hold from March/April onwards. Driving this synchronous recovery will be a more expansive reopening of economies worldwide and the extraordinary monetary and fiscal support now in place. Global GDP, already at pre-COVID-19 levels (based on seasonally adjusted GDP levels), continues to accelerate and is on track to resume its pre-COVID-19 trajectory by 2Q21. We expect China to return to its pre-COVID-19 path this quarter, and the US to reach it by 4Q21.

#2: EMs boarding the reflation train: After a prolonged period in which EMs have faced a series of cyclical challenges, macro stability is now in check. With the COVID-19 situation improving in a broad range of EMs, their pace of recovery is catching up. EM growth rebounds sharply in 2021, helped by a widening US current account deficit, low US real rates, a weaker dollar, China’s reflationary impulse, and EMs ex China's own accommodative domestic macro policies.

#3: Inflation regime change in the US: We see a very different inflation dynamic taking hold, especially in the US. The COVID-19 shock has accelerated the pace of restructuring, creating a significant divergence between the output and unemployment paths. With policymakers maintaining highly reflationary policies to get back to preCOVID-19 rates of unemployment quickly, wage pressures and inflation will pick up from 2H21. We expect underlying core PCE inflation to rise to 2%Y in 2H21 and to overshoot from 1H22, with the risk that it happens sooner.


Eoin Treacy's view

A link to the full report is posted in the Subscriber's Area.

With millions of people out of work it is easy to form a gloomy picture of economic potential. However, even at a US unemployment rate of 10%, there are still 90% of people with jobs. Moreover, many people who have held onto their employment have boosted savings this year.

When 90% of people come through a crisis in OK shape and a significant minority come out ahead, there is ample scope for a significant bounce back in activity. There is a great deal of pent up demand in the global economy and all that cash on the side lines is fuel for bull markets. The fact monetary and fiscal policy is aimed to improving the outcomes for the remaining 10% suggests loss credit and low rates are here to stay.


EU Fights to Save Billions in Aid as Lagarde Demands Action

This article from Bloomberg may be of interest to subscribers. Here is a section:

Hungarian Prime Minister Viktor Orban says tying “political debates” to financial issues is a form of “blackmail” against countries opposed to migration.

Poland said this week that the provisions are a first step to forcing it to accept EU regulations on gay marriage, abortion, euthanasia and press freedoms. “It’s a means of political, cultural and ultimately economic colonization,” Justice Minister Zbigniew Ziobro said.

Highlighting the gaping divide, Dutch Prime Minister Mark Rutte called the current rule-of-law provisions the “bare minimum.”

German Chancellor Angela Merkel has spoken with EU leaders in recent days, including Orban and Morawiecki. In a sign there’s unlikely to be a quick fix, she described negotiations as “extremely difficult.”


Eoin Treacy's view

The current challenge for the emerging federal European superstate is how to net off the priorities of socially liberal but fiscally conservative creditors with socially conservative but fiscally liberally debtors.


A New UN Push Aims to Feed the World's Rabid Hunger for Carbon Credits

This article by Eric Roston for Bloomberg may be of interest to subscribers. Here is a section:

It’s a tricky proposition, though. Offset programs are notoriously difficult to execute with confidence. REDD+, launched in 2007 to much fanfare among developing nations and UN climate negotiators, but has rarely lived up to its original excitement as developed nations failed to install carbon-pricing policies that succeed in guaranteeing demand. 

Global demand for offsets may outstrip supply by 2025, according to a September analysis by Fitch Ratings. Many companies, including Microsoft Corp, The Walt Disney Co, and Royal Dutch Shell Plc, have already begun either buying or planning to buy offsets. Amazon.com Inc. founder Jeff Bezos this week announced $791 million in funding for 16 environmental groups, including $100 million each to organizations with strong forestry or offsets programs—EDF, World Resources Institute, and World Wildlife Fund.

Navigating the challenges to come may require groups like Emergent to continue to act as market-making entities. Or, if markets get the boost they need from the Green Gigaton Challenge and other initiatives, “we'd be thrilled to turn off the lights, close the door,” Bloomgarden said. “Impact achieved.”


Eoin Treacy's view

I was part of team that put together a proposal for a group in Alaska who were seeking to raise investment capital for a welfare/education program for their community. They were in line to sell a significant asset but instead were able to hold the asset and sell carbon credits on a stand of forest on the community’s property. That delivered a long-term cashflow, they got to keep their assets and they had no plans to sell or cut the trees in any case.


Rocketing Bitcoin Stakes Claim as Pandemic Refuge for Brave

This article by Joanna Ossinger for Bloomberg may be of interest to subscribers. Here is a section:

“Bitcoin seems to be the hedge of choice against the U.S. dollar debasement that is looming, either through more Federal Reserve quantitative easing, higher government debt or a steepening yield curve -- or all three,” Jeffrey Halley, a senior market analyst with Oanda Asia Pacific Pte, wrote in an email.

Bitcoin’s investor base is also widening as more institutions make the jump into the asset class. Purchases or endorsements from the likes of Square inc., Paul Tudor Jones and Stan Druckenmiller add to the mix. But its volatility -- including a furious run toward $20,000 in December 2017 followed by a bust -- make arguments for the cryptocurrency as a store of value contentious.

Fear of missing out “is well and truly in play here, and the fact that so many big hitters are publicly declaring their positions is clearly helping,” Chris Weston, head of research at Pepperstone Financial Pty, wrote in a Nov. 18 note. “I don’t see this move as a mania or grossly over-loved just yet.”


Eoin Treacy's view

The bitcoin price is back testing its peaks which begs the question whether it is about to break on the upside in a rerun of the 2017 mania. The one big difference between bitcoin and other assets is it is completely borderless. All anyone needs is an internet connection to buy. That equates to a very wide investor base for what is a tight market.


Eoin's personal portfolio - new trading position opened October 21st

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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