Comment of the Day
Video commentary for June 20th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: copper, gold, S&P500, FTSE-350 at important areas of potential support. Bitcoin struggles to hold $20000 after weekend volatility, copper/gold ratio turning lower is positive for bonds.
Germany turns to coal as Russia cuts gas supplies
This article from Bloomberg may be of interest to subscribers. Here is a section:
The Greens party minister also said the country will rely more on coal-fired power plants to produce electricity. A bill providing the legal basis is making its way though parliament and should take effect quickly after discussions in the upper house on July 8.
Using more coal to generate power is “bitter, but it’s simply necessary in this situation to reduce gas consumption,” he said. “We must and we will do everything we can to store as much gas as possible in the summer and fall.”
Siegfried Russwurm, president of the German industry lobby group BDI, said the country should “stop gas-fired power generation now and get coal-fired power plants out of reserve immediately,” in an interview with Funke Mediengruppe published Saturday. Importing electricity from neighboring countries has its limits, he said.
Savings will also have to be made by the industry. An auction model will begin this summer to encourage industrial gas consumers to save fuel, which can then be put into storage, Habeck said, adding that the government is ready to take further measures if needed.
My view - There is a lot of discussion in the financial media about the possibility the Eurozone will break up. I don’t see that as a realistic possibility. Europeans understand they are in a better position to oppose foreign adventurism together than apart. Putting cherished climate goals on the long finger is an example of the lengths they are willing to go to protect national interests.
Greenlight Presentation at Sohn Conference 2022
Thanks to a subscriber for this presentation by David Einhorn. Here is a section:
However, the Fed is limited in raising rates. Powell faces a problem that Volker didn’t have. We have $24 trillion of debt held by the public, which is over 6 times in the last 20 years.
Approximately $7 trillion has to be rolled in the next year. Every 1% increase in rates adds $70 billion to the deficit annually. So, raising rates to 4% would be an additional $280 billion, 85 would be $560 billion, and a full Volker 19% would be $1.3 trillion…and that’s just the first year.
Raising short rates will also cause a strain on the Fed’s financials, where assets are of long duration and the funding is at overnight rates $5 trillion of overnight liabilities costs an extra $50 billion per percent increase in interest the Fed will pay on reserves. I will let you figure out the rest of the math for bigger increases.
The fiscal situation has limited the Fed’s flexibility.
My view - A link to the full report is posted in the Subscriber's Area.
The 1.5% increase in the Fed Funds rate so far this year has increased the deficit by $105 billion. Nevertheless, the Dollar has been firm and there has been little concern about the knock-on effects of this on government finances. That is because fiscal tightening is in effect even if it is not being talked about.
UK Confronts 1970s-Style Problems With Strikes and Inflation
This article from Bloomberg may be of interest to subscribers. Here is a section:
The UK this week will face up to surging inflation and labor strikes as well as a rising risk of recession in a series of setbacks that have echoes of the 1970s.
Strikes are likely to halt at least half of all trains for three days in the worst disruption to mass transit since Margaret Thatcher was prime minister. The teachers union also is set to ballot its members on a strike, adding to the list of professions considering action.
On Wednesday, inflation is set to rocket to a new 40-year high with the cost of goods leaving factories already racing ahead at a double-digit pace. Last week, the government confirmed the economy shrank in the three months through April, the weakest performance since a coronavirus lockdown.
My view - The risk of a wage/price spiral is nontrivial in the UK. The effort to keep wage increases below the official inflation rate is obviously aimed at reducing that possibility but workers are understandably upset. The challenge is everyone feels the same way, but only the most organized unions have the collective bargaining power to achieve their goals. That’s going to further underscore the gap between the privileged and the underrepresented in society. Meanwhile transportation strikes fall most heavily on people who do not have the luxury of working from home.
Eoin's personal portfolio Stock market short increased June 13th 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.