David Fuller and Eoin Treacy's
Comment of the Day
November - 052021
Commentary by Eoin Treacy
Monthly Secular Themes Review on Monday
I normally write the Secular Themes review on the first Friday of the month. I was travelling this week, so I did not have the time to put it together and will post on Monday instead.
Treasuries Surge Despite Strong Jobs Data, Pricing In Slower Fed
This article from Bloomberg may be of interest to subscribers. Here is a section:
Gains in Treasuries may be partly driven by short-covering, which appears to have contributed to Thursday’s U.K.-led rally. CME Group (NASDAQ:CME) Inc.’s preliminary open-interest data for Treasury futures show steep declines, in particular for the two-year note contract. Open interest in two-year note futures fell 2.3%, its biggest drop in three weeks.
Fed officials continue to emphasize that inflation is too high even as they hope to foster labor-market recovery by keeping interest rates low.
Federal Reserve Bank of Kansas City President Esther George Friday said “the risk of a prolonged period of elevated inflation has increased,” and “the argument for patience in the face of these inflation pressures has diminished.”
The declines in 10- and 30-year yields -- which fell as much as 6.5 basis points to 1.899%, the lowest since Sept. 23 -- come despite next week’s auctions of those tenors. The auctions, whose sizes were announced on Nov. 3, are smaller than the previous new-issue auctions in August, however. The reductions were the first since 2016.
Eoin Treacy's view
The longer-term inflationary trend is being driven by wage demand growth and the upward pressure on the cost of housing and rents. However, it does not all happen at once, and some of the supply inelasticity factors that contributed to inflation over the last year are easing.
Shipping rates are coming back down quickly and traded below the trend mean this week. That’s a meaningful correction which will ease some inflationary pressures. The elimination of excess benefits took place a couple of months ago so as savings run down, more people will be encouraged back into the workforce.
Qualcomm’s earnings call today suggests that the chip shortage will also ease next year. That should also help to mitigate some inflationary pressures.
Meanwhile, the rising cost of crude oil is going to contribute to inflationary pressures. This rolling sequence of inflationary pressures arising and subsiding in an almost sequential form has been the hallmark of the trend since the dawn of the pandemic.
These factors point to a situation where the Fed will be under less pressure to raise rates in a hurry once the tapering schedule is completed next year. Gold’s bull market hypothesis rests on its store of value characteristics when central banks are unwilling to act in the face of inflation.
The price has been forming a triangular pattern for the last few months and is now retesting the most recent lower rally high. It will need to sustain a move above $1830 to confirm a return to demand dominance beyond the short term.
Is the Metaverse Really Going to Happen? Nvidia Is Betting Yes
This article from Bloomberg may be of interest to subscribers. Here is a section:
The company, now called Meta Platforms Inc., argues that millions of users are ready to adopt virtual reality technology — like its own headset — and live their lives in immersive online environments. That could mean attending a work meeting in a virtual boardroom, touring a digital factory or hanging out with far-flung friends in a simulated saloon. “The metaverse is the next frontier,” Chief Executive Officer Mark Zuckerberg declared.
For now, few people even have VR gear, and the metaverse concept would have to overcome concerns about privacy and — for some — a certain creepiness. But it has a big believer in one key corner: the largest maker of video-game chips, which says the metaverse is closer than we think and potentially the next gold mine for technology.
The video-game boom set Nvidia Corp. on a path to become the world’s most richly valued chip company — overtaking the likes of Intel Corp. — and now it’s ready to remake the internet as a three-dimensional place. Rather than using the web to look at electronic pages, there will be a set of connected virtual worlds, according to Richard Kerris, an executive at the chipmaker whose career has included stints at Apple Inc. and Lucasfilm.
“You might not think you’ll be in the metaverse, but I promise in the next five years all of us will be in one way or another,” he said.
Eoin Treacy's view
The metaverse has captured the imagination of the mob over the last week. The fact it twins with the evolving trend of recreating the supply inelasticity of land in the virtual world through the issuance of non-fungible tokens and crypto tokens has helped fuel enthusiasm.
The reason Facebook is pioneering the metaverse theme is because the speed with which new social media apps gain a billion users continues to shrink. For Facebook it was 8.7 years, for TikTok it was 5 years. Fortnite went from zero to 350 million in three years and today, Roblox has more than 200 million users after 5 years.
The social media sector is morphing and becoming more gamified. That is not where Facebook specialises. They have less confidence in capturing the screentime of the next youngest demographic so they are betting instead on the next potential venue for people to spend their time.
The challenge is VR headsets are very eye-heavy. I bought my daughter a Quest headset at the dawn of the pandemic. We used it heavily for a month and I don’t think anyone has used it in a year. It’s heavy and any activity results in a very sweaty experience. My 40-year+ eyes don’t tackle the strain very well either, even if the games are fun.
Maybe the newer headsets overcome some of these challenges or maybe Elon Musk’s Neuralink will deliver a viable product at some point in the next couple of decades. Instead, the logical inconsistency in some of the most ambitious arguments suggests bubbly characteristics that are still inflating.
Meta Platforms continues to firm from the region of the trend mean and remains in a consistent medium-term uptrend.
NVidia is clearly accelerating but that’s been true for a couple of years.
Excitement and a desire to lock down a position in early-stage ventures is driving significant interest in the NFT and metaverse tokens. Most people did not invest in bitcoin a decade ago and are intent on not making the same mistake twice. It’s recreating a goldrush mentality online with legions of people wishing to stake a claim. Arguably NVidia and Meta Platforms are wholesaling shovels in this bull market.
Bitcoin continues to pause above $60000 and will need to continue to hold the lows near $57,000 if the benefit of the doubt is to continue to be given to the upside.
Zillow (NASDAQ:Z)'s House-Flipping Rivals Defend Tech-Powered Homebuying
This article from Bloomberg may be of interest to subscribers. Here is a section:
For Opendoor, Zillow’s departure represents an opportunity, CEO Eric Wu said in an interview. He expects his company, which pioneered the iBuying model, to be the market leader now that the best-known brand is out.
“We’re going to lead the charge in this transition from offline to online,” he said in an interview.
Wu said Opendoor has invested heavily to build expertise in home pricing and getting renovations done in a timely, cost-efficient manner. Those challenges contributed to Zillow’s iBuying demise.
On Oct. 17, Bloomberg reported that the Seattle-based company would stop pursuing new acquisitions for its iBuying business, citing shortages of workers and supplies it needed to fix up homes. But Zillow also struggled to get pricing right. The company bought many homes for more than it could sell them for, forcing it to take writedowns of more than $500 million on property inventory.
Those results convinced Zillow CEO Rich Barton that the iBuying model was too risky for his company.
“Fundamentally, we have been unable to predict future pricing of homes to a level of accuracy that makes this a safe business to be in,” Barton said on the company’s earnings call this week.
Eoin Treacy's view
Anyone using Zillow’s app to look at houses over the last year will quickly have realised how inaccurate the “Zestimate” score is for gauging a home’s value. It was in no way reflective of the market condition because it was not adjusting quickly to new selling prices for homes. That resulted in differences of over 20% when we were housing hunting in the spring. That would also have forced Zillow’s algorithm to be manually adjusted to cope with the lag of data which obviously created issues.
The share peaked in February and the downtrend accelerated with this week’s news. It has now unwound most of the prior advance but a clear upward dynamic will be required to check momentum.
Zillow might have had bad news of late but the wider real estate agent sector also peaked early this year. Redfin has a broadly similar but less pronounced downtrend.
Meanwhile, Opendoor is firming from the region of the trend mean and the upper side of a five-month base formation.
Eoin's personal portfolio: leveraged profits taken September 7th
Eoin Treacy's view
One of the most commonly asked questions by subscribers is how to find details of my open traders. To make it easier I will simply repost the latest summary daily until there is a change.
I bought back into both bitcoin and ethereum last on August 6th. I took the profit in both positions today at $47,935 and $3,477 against my purchases at $42,427 and $2,866 respectively. I’ve been happy to buy back on weakness but remain of the view that the risk in the sector is substantially higher since the peak in March. Therefore, my policy was to sell on the first sign of trouble. That was delivered today with large downward dynamics.
I increased my platinum long on August 27th paying $1002 for another position. My existing platinum longs were purchased at $1072 and $885. I remain of the view that precious metals are still cheap and are to be bought on significant dips.
I also continue to hold my silver trading position, initiated at $23.7. I will buy more if the current reaction deepens.
I have been saying for months that I have purchase orders below the market in gold and silver. The first of these was triggered on August 9th. I was filled at $1702.3 including spread-bet dealing costs. My original positions were opened in Q4 2020 at $1879.2 and $1818.6. That reduces by average purchase price to $1800.
I still have additional bids in the market below prevailing prices in gold and silver and will leave them in place to take advantage of any possible additional volatility. These are leveraged trading positions rather than medium to long-term investments.
With baby steps trading one has to have high conviction prices will recover and the patience to buy on weakness before eventually being proved right; hopefully.
Among my investments, my original position in the VanEck Vectors Gold Miners ETF was purchased on March 25th at $20.12. I bought another unit at $35.79 on December 1st. I continue to shop for opportunities in the gold sector.
My two investment positions in Rolls Royce were purchased at 154.75 and 105p respectively. I also took up the rights issue which has resulted in an average purchase price of 54.63p. Rolls Royce has not participated in the stock market rebound of late and continues to form a first step above the Type-2 base formation.
The Chart Seminar 2022
Eoin Treacy's view
With global vaccination rates rising, the prospect of anti-COVID pills on the horizon and the promise of travel restrictions being dropped, it is time to start thinking about venues for The Chart Seminar in 2022. Please drop sarah@fullertreacymoney.com a line if you would be interested in attending an event next year, as well as your preferred location. At present the two locations with greatest demand are London and Dubai.