Comments of the Day
26 January 2021
Video commentary for January 25th 2021
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: jump in demand for save haven assets as volatility in stock markets picks up. Europe eases, China firm, India pauses, gold steady, biotech continues to trend higher. Ethereum outperforming Bitcoin
Email of the day on gold as a Tier 1 asset under Basel III
You mentioned that gold should be higher. I understand that there is effectively a "put" on gold, die to shorts being able to be placed - using unallocated gold - which are naked. But that the Basel 3 Accord which should be in place in June will reduce unallocated gold to a tier3 asset.
Gold I understand being elevated to a tier 1 asset (as for cash).
This surely means that the demand for physical gold (already in demand with orders not being filled) will surely surge.
Are we therefore positioned to make a killing on gold between now and June?
Thank you for this topical question. The announcement that gold would be recategorized as a Tier 1 asset under Basel III occurred two years ago. That begs the question whether the outsized demand from central banks since early 2019 was in response to the announcement and in preparation for the changeover in June 2021. I suspect Russia’s outsized purchases over the last few years were influenced by this change over.
Signaling No Change in China's Course, Xi Warns Against Cold War
This article from Bloomberg news may be of interest to subscribers. Here is a section:
“To build small circles and start a new Cold War, to reject, threaten or intimate others, to willfully impose decoupling, supply disruptions, or sanctions, or to create isolation or estrangement, will only push the world into division and even confrontation,” he said.
Xi’s speech had been widely anticipated for the tone it would set for relations between the world’s biggest economies over the next four years. Though Xi did not name Biden by name, many of his comments were clearly targeted at the new U.S. administration.
Xi repeated many of the same talking points about multilateralism and “win-win” outcomes that he deployed in his last address to Davos four years ago, days before Donald Trump’s inauguration, but he also signaled that he does not intend to change course in the face of U.S. pressure.
“Each country is unique with its own history, culture and social system, and none is superior to the other,” Xi said, warning against imposing a “hierarchy on human civilization” or forcing one’s own systems onto others.
This all sounds very reasonable and is a perfect example of China’s efforts to exude a façade of reasonableness. Perhaps it would be better to measure China’s actions in the four years since Xi’s last speech to Davos where much the same call to embrace appeasement was made.
Moderna Says Shot Works Against Variants, Developing Booster
This article by Robert Langreth for Bloomberg may be of interest to subscribers. Here is a section:
Moderna Inc. said its vaccine will protect against two known variants of the Covid-19 virus, but it plans to start human studies of a booster shot for a strain from South Africa that may cause immunity to wane more quickly.
In laboratory tests, Moderna’s vaccine produced antibody protection against the B.1.1.7 strain first identified in the U.K. at levels comparable with older forms of the virus. But against the South Africa variant, known as B.1.351, the neutralizing antibodies produced were six-fold lower, the company said in a statement.
Despite that gap, Moderna’s shot should protect against either strain, according to the company. While the South Africa variant hasn’t been seen in the U.S., the U.K. mutation -- which British officials said last week may be deadlier -- is spreading rapidly among Americans. Both strains are thought to be more transmissible than the original virus.
“We expect that whatever immunity you get over time will wane. The question is will it wane faster if you have lower levels to begin with,” said Tal Zaks, Moderna’s chief medical officer, in an interview.
It’s a game of whack-a-mole as the virus iterates faster than vaccines are currently being produced. The challenge with a global pandemic is no two countries deploy the same response. Even between households the approach to social distancing varies widely. With news today that California has its very own new strain, similar to the UK’s, the drive to speed up both production and rollout of vaccines will become even more urgent. Meanwhile, the Israeli experience with a national rollout offers a test case for how effective, the Pfizer vaccine in particular is.
Sunak's Tax Choices to Fix U.K. Debt Range From Wealth to Fuel
This article from Bloomberg may be of interest to subscribers. Here is a section:
A more innovative and potentially hugely controversial option that could seek to address growing U.K. inequality would be a wealth tax. Last year, the independent Wealth Tax Commission said the
U.K. could raise more than 260 billion pounds with an annual charge of 1% lasting five years on individual assets above 500,000 pounds. About 8 million residents would be affected.
Wait and See
Sunak could also decide that it’s too early to raise taxes, choosing to tolerate a higher debt load until the U.K.’s recovery is assured. That tactic was mooted last week by a Treasury minister who suggested hikes could be avoided should the economy stage a strong rebound.
“It’s not absolutely obvious therefore that there may be any future need for consolidation, depending on the view you take for taxes,” Financial Secretary to the Treasury Jesse Norman told the House of Commons Treasury Committee. That approach, which removes the risk of premature tightening that could choke off growth, could be achievable after Bank of England bond purchases to stimulate the economy drove U.K. debt-servicing costs below pre-pandemic levels, despite the borrowing splurge.
The prospect of a wealth tax would in all likelihood raise important questions about the attractiveness of London as a bastion for the world’s wealthy. It would also enhance the subjects of the tax to decamp to sunnier climates.
Every one of the potential levers for higher taxation revenue represents a difficult decision. If I had to guess, some form of carbon tax on individuals is much more likely. Each of us is an emitter and we will end up paying for the original sin of simply existing. That's going to be contentious but it will be couched in the verbage of saving the planet.
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.
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