Comment of the Day
Video commentary for February 16th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Gold firms, NVidia beats estimates but guidance underwhelms, oil reverses earlier gain, bond yields steady with yield curve steepening.
Gold Steadies as West Cautious on Russian Claims of Pullback
This article from Bloomberg may be of interest to subscribers. Here is a section:
Gold has firmed in the opening weeks of this year as investors sought a haven from elevated inflation and the geopolitical crisis in Europe. The precious metal’s climb has been aided by renewed inflows into bullion-backed exchange-traded funds, which are on track for a second monthly gain.
That support comes even as traders up their bets on a more aggressive approach from the Federal Reserve, pushing up inflation-adjusted Treasury yields and putting pressure on gold. The latest Fed minutes, due later Wednesday, may influence views on its policy path.
“We believe investors have attached a greater emphasis to hedging geopolitics,” strategists at UBS Group AG (NYSE:UBS) including Wayne Gordon wrote in a note. “A break in the negative correlation between gold and U.S. real rates never really endures, and this time is no different.”
The UBS strategists still expect gold to hit $1,650 an ounce by the end of this year.
My view - The primary argument being made by the UBS team is that negative real rates are tightening so the logical support for gold is less compelling. They argue that in a positive real rate environment there is no way gold can hold the current higher levels.
There are a couple of issues with relying only on a real rates argument. The first is that real rates were positive and averaged about 200 basis points between 2003 and 2009. Then after the credit crisis real rates trended lower to deeply negative rates until early 2013. Gold rallied meaningfully during positive real rates and peaked even though real rates were still contracting after 2011.
Email of the day on electricity generation and carbon emissions
Electricity is not an energy source in itself, but a means of getting energy from source to where it is required. Until all the energy sources of a country (or, at least, of an electricity grid) are clean, with clean energy to spare, the electricity required for EV's will have to come from fossil fuel sources. True, this will all be mixed together on the one grid - making the whole grid slightly less clean. But the outcome will be the same as if all the energy supplied to EV batteries was unclean. Thus, for the foreseeable future EV owners will not be reducing their carbon footprint, even though exhaust emissions will be zero. This is no doubt why the government is pushing for extra nuclear plants at Sizewell and Hinckley Point.
My view - Thank you for this email. I totally agree. Transportation will not be carbon free until the electricity used to charge batteries is generated without using fossil fuels or some form of carbon capture is deployed. If we are to be fully correct, the carbon used in the production of the components of vehicles should also be incorporated in the calculation of intensity. I also agree that substituting reliance on coal, natural gas and oil is not practical without additional nuclear capacity.
Shopify (TSX:SH., NYSE:SHOP) Plummets Most Since 2020 on Slowing Growth Outlook
This article from Bloomberg may be of interest to subscribers. Here is a section:
Shopify Inc. plunged the most in almost two years after giving a weaker outlook for growth this year, as online spending resets after the Covid-19 induced boom and consumers face higher inflation.
“The Covid-triggered acceleration of ecommerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022,” the Canadian ecommerce giant said in a statement on Wednesday. “There is caution around inflation and consumer spend near term, for the full year.”
As a result, Shopify said full year revenue growth will be lower than the 57% increase in 2021. The U.S.-traded shares tumbled as much as 16% as the market opened in New York. It was the biggest intraday decline since March 2020.
Shopify, which provides software and other services that underpin the websites of many small businesses, grew dramatically during the early stages of the pandemic, with sales jumping 86% in 2020. Investors, however, fear the company can’t sustain its growth as shoppers return to more normal buying patterns. Those concerns intensified last month when Shopify said it had terminated contracts with several warehouse and fulfillment partners, sending shares to a 16-month low.
My view - The justification for Shopify’s heady valuation was that it would become a true competitor for Amazon. The folly of that has been exposed by the pullback from fulfilment centres. From a broader perspective the big question is about a central hub versus distributed model.
The Chart Seminar 2022
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 I am looking at a late May date for a London seminar and I am open to other times and locations subject to demand.
Eoin's personal portfolio: short reopened February 2nd 2022
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.