Comment of the Day
Video commentary for May 23rd 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: short covering rally underway but bond yields remains stubbornly high and Dollar is unwinding short-term overbought, natural gas and shipping companies exhibit relative strength, gold steady, US natural gas firm, European gas soft.
How an Energy Expert Triggered Vladimir Putin With One Word
This transcript of a podcast with Daniel Yergin may be of interest. Here is a section:
He knew that US shale was a threat to him in two ways. One, because it meant that US natural gas would compete with his natural gas in Europe, and that’s what we’re seeing today. And secondly, this would really augment America’s position in the world and give it a kind of flexibility it didn’t have when it was importing 60% of its oil.
And
That’s the question that’s really weighing now because in terms of oil, there’s enough crude oil in the world. You have to move it around, but between strategic stocks, between demand being down in China, you can manage that. When you get into products like diesel, it gets harder. And then you’re going to the hardest thing with natural gas, and that is exactly as you go into the winter. So, the big question now is can they fill storage so that they can get through the winter, and, by the way, not only stay warm, but keep industry operating. And I think we can say that Putin made a series of decisions which kind of were irrational -- that his army was really good, that Ukraine wouldn’t be able to resist, that the US had just gone through getting out of Afghanistan and was deeply divided, that Europe was so dependent on his energy that they would say, ‘OK, this is terrible, but life goes on.’ And none of that happened.
But I think he’s still calculating. And he said that ultimately this energy disruption -- and we are in a huge disruption of energy markets -- would be such a big threat to the European economy that the coalition that now exists would fall apart. I think that’s his wager right now. And the Achilles heel is what you pointed to: what happens as Europe goes into the fall and winter. And we’ve had at least one German, very prominent industrialist, who said, ‘This is too dangerous for the European economy. We should negotiate something with Putin.’
My view - We are in a market lull for European natural gas prices as we head into summer and lower heating demand. The price of European gas (Netherlands) is down from a peak of €140 in December to €74 today. The UK price has been much more volatile and is down from a March high of £800 to £138.
Shipping's $500 Billion Profit Can Take on Amazon
This article from Bloomberg may be of interest to subscribers. Here is a section:
Besides splurging on dividends and share repurchases, the once-scarcely profitable container lines are planning to use this once-in-a-lifetime haul for acquisitions and investments. Some aim to turn themselves into end-to-end logistics giants, in the vein of Amazon.com Inc (NASDAQ:AMZN). or FedEx (NYSE:FDX) Corp.
In theory, this should make them more resilient when shipping freight rates normalize, which is bound to happen one day. Shipping costs have already come down a bit, but due, in part, to the spread of omicron in China, some industry observers now don’t expect port congestion to ease until next year.
Of course, the big risk is these hungry hippos waste their epic windfall on empire building, and an industry that’s already on the defensive due to its inflation-stoking profiteering may end up stoking an even greater political backlash.
It’s a sign of how the ambitions of the shipping industry have been transformed that a container liner joining forces with an airline no longer seems unusual: Mediterranean Shipping Co. is angling to acquire a controlling stake in Italian flag carrier ITA Airways, while the billionaire principal shareholder of Germany’s Hapag Lloyd, Klaus-Micheal Kuehne, has built a 10% stake in Lufthansa AG. In addition to expanding its own air-cargo fleet, Maersk agreed to acquire air-freight forwarding specialist Senator International in November.
My view - The two things that bring down shipping rates are softer demand from lower economic growth and a surge in supply of new ships. If shipping companies are spending some of their windfall on logistics or airlines, that does nothing to increase the supply of new ships.
Bank Stocks Gain on JPMorgan's Biggest Rally Since November 2020
This article from Bloomberg may be of interest to subscribers. Here it is in full:
JPMorgan Chase & Co (NYSE:JPM). jumped by the most in 18 months as upbeat comments from Chief Executive Officer Jamie Dimon on the US economy and improved guidance helped drive bank shares higher.
Shares of the JPMorgan rose as much as 7.1% on Monday, the most since November 2020, after the start of the company’s investor day, when it boosted its annual forecast for net interest income excluding its markets business and maintained its expense outlook. The KBW Bank Index climbed as much as 4.4%, with Citigroup Inc (NYSE:C)., Bank of America (NYSE:BAC) Corp. and Wells Fargo & Co. all gaining more than 5%.
Wells Fargo banking analyst Mike Mayo said in a note to clients that the biggest takeaway from JPMorgan’s gathering so far is that it shows there’s “no recession imminent.” JPMorgan’s presentation was bullish for the company and “even more so for the industry,” he added.
Bank shares have been under extensive pressure this year as worries that an aggressive series of interest rate hikes by the Federal Reserve could plunge the US economy into a recession. The KBW Bank Index has fallen 25% since hitting a record high in early January.
JPMorgan has been the worst hit among the biggest banking stocks. While Monday’s surge has helped erase some of the decline this year, the lender is still down nearly 22%, making it the worst performing big bank stock. Still, analysts have not given up on the company, with the average 12-month price target forecasting a 23% gain, near the highest it’s been since the pandemic began.
My view - Rising interest rates are generally considered positive for banks because they get to charge more for their services. The challenge today is the spread they rely on to profit has evaporated as the yield curve has flattened. The absolute rate on mortgages also means refinancing income has disappeared on mortgages. That implies banks will probably do better when the yield curve steepens and yields contract.
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
Fuller Treacy Money Subscriber rate: £850
Prices exclude VAT where applicable
Eoin's personal portfolio: bond long closed at a loss, investment positions sold and stock market short increased. May 5th
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.