David Fuller and Eoin Treacy's
December - 142021
Eoin Treacy's view
Some of the topics discussed include: Risk assets remain under pressures ahead of Fed decision, bonds steady, oil eases, bonds stable, Dollar firm, gold eases. UK/EU natural gas surges.
Big Tech Getting Crushed in Jittery Day for Stocks
This article for Bloomberg may be of interest to subscribers. Here is a section:
“Anytime there’s a risk of easy money being taken away, that will result in some of these very expensive areas of the market to pull back,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.
“The pressure on the Fed to pick up the pace of tightening is only mounting. With higher prices permeating the marketplace, we could see a snowball effect when it comes to inflation challenges as more suppliers justify higher prices and more consumers begin to close their wallets,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial.
“The inflation trajectory remains worrisome. While we believe that price pressures will abate next year, the Fed is doing the prudent thing by tapering faster, so that it is well-positioned to hike rates if needed,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.
Eoin Treacy's view
Liquidity is the only game in town. With a looming threat that the USA is about to close the momentary spigot, a distinct air of risk-off trading is increasingly evident. That suggests, the risk of a lengthier and deeper process of consolidation is rising.
The Nasdaq-100 pulled back sharply today and is back testing the region of the lows from earlier this month. If the trend is to remain consistent it will need to hold that low.
The Russell 2000 is testing the lower side of its almost yearlong range. Moves below 2140 have not been sustained this year so a sustained move below that level would confirm top formation completion; particularly as it encounters resistance in the region of the trend mean.
Both the SPAC Index and the ARK Innovation ETF are extending their recent declines.
Adobe has been among the best performers in the tech sector over the last decade because of its foresight in adopting a services/subscription model. The share pulled back sharply today to retest the region of the trend mean and will need to bounce smartly if the benefit of the doubt is to give to the upside.
Email of the day on charging station stocks
Additionally, while individuals do not have gas pumps installed at their home, they can have a level 2 ev charger installed that would seriously compromise the market share of a commercial charging station.
Eoin Treacy's view
Thank you for this email which may be of interest to the Collective. The challenge for investors is in differentiating between the addressable market depicted in glossy pitchbooks and the real-world potential for a sector.
I agree, if one is going to the expense of buying/leasing an electric vehicle, it is worth the additional $700-$1000 to get a home charging unit. Some will also deem the expense of installing rooftop solar or a solar roof worthwhile too. The further one goes down the renewables route, the more capital-intensive solutions become. That’s why interest rates and liquidity lie at the heart of the investment argument.
Most people have too much crap in their garages to park a car in them, so the charging cable snakes out to the driveway. It’s not an ideal solution. Nevertheless, most people in the USA live in houses rather than apartments even if the trend is towards the latter. A charging station network makes more sense in Europe and Asia.
I have long thought that EVs were among the biggest signs of inequality in society. They are more expensive, last less time and require expensive installations to recharge them. Most families need reliability, cost effectiveness, low repair costs and easy refueling. Ultimately, the buildout of a charging network is less about the economic potential for the sector and perhaps more about sending a political signal that there is no going back to internal combustion engines.
Vehicle prices have increased substantially over the last 18 months. It remains to be seen whether companies can make a sustainable profit from building EVs. At a minimum they will need to shed their workforces and stop building internal combustion engines to control costs. That will come with political ramifications.
U.K. Plans Giant Battery to Manage Surge in Offshore Wind
This article from Bloomberg may be of interest to subscribers. Here is a section:
The first phase of the Teesside battery is due to be completed by 2023, a Sembcorp spokeswoman said by phone, adding that the investment required would be in the “hundreds of millions” of pounds.
“Flexible energy sources play an increasingly important role in maintaining secure and reliable energy supplies,” Andy Koss, Sembcorp’s chief executive officer for the U.K. and Middle East, said in the statement. With a growing reliance on renewables, the U.K. energy system must be “able to respond
quickly to changes.”
The new storage site is expected to top the largest current planned battery -- a 100-megawatt facility by Zenobe Energy Ltd. Sembcorp said its total U.K. battery pipeline is now almost half a gigawatt. It already operates 70 megawatts and has a further 50 megawatts due to come online in early 2022.
Eoin Treacy's view
In just the same way that fossil fuels require storage facilities, renewable energy requires batteries and storage solutions for when demand spikes amid slower supply. The building of industrial utility-scale batteries reflects a doubling down of government policy on renewable energy. That trend has been underway for a decade; since the refusal to reinvest in the Rough storage facility in 2012. https://www.theguardian.com/business/2021/sep/24/how-uk-energy-policies-have-left-britain-exposed-to-winter-gas-price-hikes
The UK was energy independent until about 2005. Government finances have deteriorated significantly since then. It not a strictly causal relationship but there is no getting around the fact that having domestic production keeps money inside the country and importing doesn’t. Renewables appear to where the UK government sees the future of energy independence.
The lull in wind speeds in the autumn exposed the weakness of the current system and those were compounded by the surge in natural gas prices. Building back-up power is a national priority.
SembCorp’s project might be the largest in Europe but is still a fraction of what is required. National Grid estimates 13GW of storage are required within the decade to achieve carbon neutral goals so the new battery would represent 2.4% of that total. That’s considerably more expensive that sustaining natural gas storage infrastructure but no one cares about that anymore.
The share has paused in the region of the trend mean over the last six month and will need to hold the early December low near S$1.85 if the benefit of the doubt is to be given to the upside.
Meanwhile, Centrica remains on a recovery trajectory and a sustained move below 60p would be required to question potential for additional upside over the medium-term.
National Grid has surged over the last couple of months and is overbought as it approaches the 2020 peak.
Eoin's personal portfolio: shorts re-opened and added to December 13th 2021
Eoin Treacy's view
One of the questions subscribers as most often 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.
My initial hedge shorts were quickly stopped out two weeks ago. With the Fed likely to accelerate their tapering this week, there is a rising sense of risk aversion in the market. I reopened my Nasdaq-100 short today at 16,126 for a March contract.
I also bought the Jan 21st 2022 Apple 175 put for $6.
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 must 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 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.