Comment of the Day
Video commentary for May 12th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Dollar breaks higher, Yen strengthen, Bond yields contract. bitcoin tests secular trend mean, stocks weak as investors price in recession risk.
Coinbase Gives $256 Billion Reminder About Agonies of Bankruptcy
This article from Bloomberg may be of interest to subscribers. Here is a section:
Coinbase Global Inc (NASDAQ:COIN)., like the rest of the cryptocurrency market, is having a really tough week. Not filing-for-bankruptcy bad, but the biggest US crypto exchange did just mention the B-word in a regulatory filing, giving its customers a painful reminder of how bad things could get for them if Coinbase ever does get seriously distressed.
In its quarterly report, Coinbase added a risk disclosure: if the company were to file for bankruptcy, the court might treat customer assets that the exchange is custodian for -- their Bitcoin, Dogecoin or whatever -- as Coinbase’s assets. And they’d be at the back of the line for repayment, forcing normal people, unaccustomed to the ins and outs of federal bankruptcy court, to claw back their money along with everybody else owed money by the exchange.
It’s a huge amount at stake. Coinbase was custodian for $256 billion of customer money on March 31, according to the filing.
Chief Executive Officer Brian Armstrong quickly took to Twitter to elaborate, saying the company is not at risk of going bankrupt and that users’ funds are safe.
My view - Segregated accounts didn’t save MF Global’s clients in 2019. It took six months to get two thirds of their money back and it’s not clear how successful efforts have been to recover the rest. Since the crypto markets are unregulated and Coinbase is an “exchange” rather than a broker, the funds are not truly segregated. The company might not be in imminent danger of going bust, but that only exacerbates the leverage to the bitcoin price. It’s a very binary bet.
Wheat Prices Spike as US Sees War, Adverse Weather Hurting Crops
This article from Bloomberg may be of interest to subscribers. Here is a section:
From war to extreme weather, the world’s wheat crops are under threat, a view that’s being bolstered by a US report.
Production in Ukraine, one of the biggest growers, will fall by one-third compared to last year, according to a U.S. Department of Agriculture forecast. Other major producers are battling drought, floods and heatwaves. In all, global stockpiles in the coming season will dwindle to a six-year low.
The smaller wheat harvests and a slow start to the US planting season is risking more food inflation ahead. Hunger is already on the rise in many parts of the globe.
My view - Food stockpiles are low after two years of pandemic lockdowns. The war in Ukraine is an additional complication and prices are already high. The wildcard in terms of supply is Russia where farmers have access to fertilizer and oil from domestic sources. No one is going to broadcast they are buying Russia grain but that supply will reach market as prices rise.
India's Real 10-Year Yield Turns Most Negative Since 2020
This note from Bloomberg may be of interest to subscribers. Here it is full:
India’s faster-than-expected inflation print for April has pushed the pace of consumer-price rises above the benchmark bond yield by the most since 2020. The return of the negative real yield suggests the Indian debt may suffer a deeper selloff.
India’s real policy rate -- the spread between the central bank’s main rate and inflation -- has been negative for several months, like almost all emerging markets (China, Brazil and Indonesia are exceptions). But the latest inflation data has turned the market-determined real bond yield negative too.
India might just be paying the price for its hesitation to raise interest rates. The Reserve Bank surprised markets last week with a 40-bp hike, after previously saying it would stick with a dovish policy as consumption remained below pre-pandemic levels. It had hoped oil prices might come down, but crude prices remain above $100 a barrel and the nation’s consumer-price inflation is more broad-based, including items like clothing and footwear.
My view - The upward pressure on inflation from the rising cost of commodity imports suggests the RBI will have no choice than to accelerate interest rate hikes. The Rupee has held a succession of lower rally highs since early 2021 and broke to a new all-time low today. Considering the strength of the US dollar, this has been a better performance than other regional currencies but that does not detract from the fact a weaker currency boosts inflation.
Please note - variable hours in late May and early June
I am flying to Ireland on May 25th ahead of The Chart Seminar in London on June 6th and 7th. I’m looking forward to taking some time off since it feels like a long time since I’ve had more than a couple of days break in a row. Between those dates updates will be sporadic but I aim to post regular audio/video updates.
The Chart Seminar June 6th & 7th in London sold out
Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.
This event is sold out. A waitlist has now begun.
To reserve your place please contact Sarah@fullertreacymoney.com.
Delegate Rates:
Full fee: £1799
Each additional delegate: £850
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Eoin's personal portfolio: bond long closed at a loss, investment positions sold and stock market short increased. May 5th