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20 January 2021
Video commentary for January 19th 2021
Eoin Treacy’s view
A link to today’;s video commentary is posted in the Subscriber’s Area.
Some of the topics discussed include: Megacaps have reverted to the mean, emerging markets continue to outperform, mainland to HK rotation, commodities steady,
Weekly Warm-up: More Stimulus May Mean Less for Markets
Thanks to a subscriber for this report from Mike Wilson at Morgan Stanley which may be of interest. Here is a section:
Eoin Treacy’s view
A link to the full report is posted in the Subcsriber’s Area.
The US government expects to issue about $1 trillion more bonds than the Fed currently expects to buy in 2021. Without a clear move to boost the amounts committed to the bond buying program yields will inevitably rise. It’s a simple supply and demand argument. Of course, no one really believes the Fed will fail in its commitment to provide assistance while unemployment is well above trend.
A Year of Poor Planning Led to Carmakers’ Massive Chip Shortage
This article by Debby Wu, Gabrielle Coppola and Keith Naughton for Bloomberg may be of interest to subscribers. Here is a section:
Carmakers don’t deal directly with TSMC and other contract chipmakers. Instead, they work with auto-part suppliers like Robert Bosch GmbH and Continental AG, which in turn deal with automotive-chip designers including NXP Semiconductors NV and Infineon Technologies AG.
While those two European chipmakers both make some parts in-house, they outsource a significant portion of production to TSMC and other foundries. It’s difficult for automotive-chip designers to get their orders prioritized by foundries because their volume is dwarfed by their consumer-electronics peers.
Because of carmakers’ “just-in-time” manufacturing model, their suppliers worried about quick inventory buildups and canceled orders originally planned for foundries in the first half of 2020, the people said. At the same time, foundries began seeing a surge in demand for gadget chips after Apple Inc., Samsung Electronics Co. and Chinese brands prepped an avalanche of 5G devices including the iPhone 12, which require as much as 40% more silicon content as 4G handsets.
One contract chipmaker notified all its customers in the third quarter that it might be time for them to place more orders as it anticipated a rebound in demand, but automotive clients demurred and ended up being the last ones to seek more capacity, one of the people said.
Eoin Treacy’s view
Globalisation enabled just in time manufacturing. With abundant labour and companies willing to build to whatever spec was desired, large companies no longer had to hold inventory. The expense of warehousing and commodity trading disappeared. That removed a source of volatility from balance sheets. Meanwhile, the supply ecosystem of parts and equipment was considered strong enough to weather a minor hurdle. First the trade war and then the pandemic poked large holes in that practise.
The byword in 2nd and 3rd quarter earnings calls was “resiliency”. That means holding more inventory. So far there is little sign that companies have made the transition to thinking more than 10 weeks forward. The challenge is chip manufacturers only have so much capacity. Resiliency has been an urgent consideration for China’s tech companies as they respond to US sanctions. They have led the world in stockpiling.
Copper: Staying elevated in 2021
Thanks to a subscriber for this report from UBS which may be of interest. Here is a section:
Eoin Treacy’s view
A link to the full report is posted in the Subscriber’s Area.
Copper has always been leveraged to the traditional drivers of economic growth; infrastructure and communications. The big question for the coming decades is how much of a role will it play in the power generation and transportation sectors. This is a wholly new demand growth avenue for the metal so the growth in demand for green energy and electric vehicles will have a strong influence on investor enthusiasm for the metal.
Eoin’s personal portfolio – stop triggered on hedge position
Eoin Treacy’s view
One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change.
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