Video commentary for January 13th 2021
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: commonality in soft commodities, Dollar steady, bond yield compress, finanical conditions still accommodactive, gold stable, stock markets steady.
Email of the day - on debt servicing costs and liquidity
You've been pointing to this risk mentioned by Mohamed El-Erian in this article.
Is there an answer? Can the Fed extricate itself without damaging markets?
"One of the most under covered stories is what’s happening to the US yield curve. It’s on a consistent move up, and that puts the Fed in a very difficult position, because if it allows the curve to continue to steepen it can undermine financial stability. If the Fed wants the yield curve to stop steeping, it has to implement yield curve control, or what they like to call yield curve targeting. But yield curve targeting is a huge step in policy. It would distort the US Treasury market completely. So keep an eye on this, because this is starting to get to dangerous levels."
Also he sounds as if he is saying that trend following is the most viable strategy now - get out when the trend breaks!
"Honestly, I’m really happy that I don’t manage other people’s money. That’s because I know I would go back to doing something that is very tactical in nature: I would be like a surfer on a wave, knowing that the liquidity will end at some point, but going to be on it for as long as I can. I would look around and see that many other surfers are riding the same wave, and I would start wondering what happens if we get into each other's way or if the wave breaks. So I would be a very nervous investor."
Thanks for this article which offers a fresh perspective on the outlook for rates, liquidity and momentum trades. Sometimes it helps to take a birds-eye view.
Wall Street has been rallying since late 2008 so we are in the 13th year of the uptrend. In that time the leading companies are those that benefitted from the introduction of 4G and quick internet connectivity. The second group of companies that benefitted took the biggest bets by utilising cheap abundant credit to the greatest effect. So outside of everything else that has happened, the two big themes have been technological advances and cheap credit. Therefore, it makes sense that those are the topics we need to continue to pay attention to as the trend matures.
EV makers' battery choices raise questions about future cobalt demand -
This article from S&P Global Platts was written in November but includes some useful information about the outlook for battery chemistries. Here is a section:
In May, Volkswagen acquired a stake in Chinese battery supplier Gotion-High Tech, one of the country's largest suppliers of LFP batteries. However, Volkswagen told Platts by e-mail that it currently does not plan to use LFP in its cars, although the company is "verifying that technology and its opportunities."
Another German automaker, BMW, recently expanded its battery plant in Tiexi, China, but reportedly to produce nickel-cobalt-manganese (NCM) batteries for the iX3 model. The company's primary goal at the moment is to increase driving range, but lowering costs will be a priority in the future, BMW told Platts by e-mail.
"In this conflict of objectives between range and cost, it is more important than ever to completely penetrate all actuators, starting with raw materials, cell chemistry, cell and module construction, and optimizing their entire interactions," BMW said, without dismissing any specific kind of cathode chemistry.
Some western market participants still argue that LFP should be restricted in the future to Chinese low-range city cars, as well as energy storage systems. Most of the investment is still flowing into NCM technology, which will maintain cobalt's relevance, sources said.
Even Tesla, despite committing to completely move away from cobalt and employing LFP in its Chinese-made Model 3 Standard Range, still uses NCM 811 (8 parts nickel, 1 part each cobalt and manganese), supplied by LG Chem, in the Model 3 Long Range version produced in Shanghai.
Every battery manufacturer is chasing economies of scale so there is a great deal of investment flowing into battery production. At the same time there is a lot of competition to come up with the most effect chemistries. Some are better for short haul city cars but long-range vehicles need different batteries.
On top of that complication there is the promise of completely new products disrupting the market. An increasing number of companies believe they have what it takes to commercialise solid state batteries. Toyota’s concept vehicle will be released this year and Quantum Scape went public on the promise of delivering a product by 2025. That suggest picking the one battery manufacturer that will break the mould is likely to be quite difficult but there are other ways to play the theme.
Corn Supply Squeeze Sends Prices Soaring, Risking Food Inflation
This article from Bloomberg may be of interest to subscribers. Here is a section:
Corn futures rose to a seven-year high a day after the U.S. slashed its forecast for domestic stockpiles more than expected, adding steam to a rally fueled by Chinese demand for grain and soybeans.
The U.S. Department of Agriculture’s cut in the corn-inventory forecast to a seven-year low means world supply is tighter than expected at a time when Chinese demand shows little sign of letting up and South American growers face drier-than normal weather. Brazil’s crop agency on Wednesday lohttp://www.fullertreacymoney.com/general/video-commentary-for-january-13th-2021/wered its estimates for corn and soybean output. Global food prices have been rising and stronger grains means further inflation is likely.
“Corn markets should stay bid this winter,” given Chinese demand and risks to Brazil’s harvest, Citigroup said in a note.
Subscribers may remember the swarms of locusts that plagued east Africa, India and China last year. What I found interesting at the time was the willingness of Western media to be spoon fed stories of how successful China was in combatting the swarms using drones. At the time I thought it was the modern equivalent of a Potemkin village. We may now be seeing the repercussions of Asian crop damage in 2020 combined with the impact the pandemic has had on planting and harvesting.
Eoin's personal portfolio - stop triggered on hedge position
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.