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08 January 2021
Video commentary for January 7th 2020
Eoin Treacy’s view
A link to today’s video commentary is posted in the Subscriber’s Area.
Some of the topics include: liquidity fuelled rally persist with bitcoin, Tesla and Wall Street pushing to new highs, Dollar steadies, strong commonality in bond yields rising outside of China.
The Fever Has Broken, Stability is Coming
Thanks to a subscriber for this article by Greg Valliere for AGF which may be of interest. Here is a section:
AN INEPT INSURRECTION FAILED, and there will be an orderly transition of power on Jan. 20; even Trump pledged as much early this morning. He probably won’t be ousted but his legacy will be forever stained, and his sycophants — Josh Hawley, Ted Cruz, etc. — will never recover.
THE TEMPERATURE WILL LOWER SOON: For the next few days, there will be speculation about removing Trump, largely out of fear over what he may do — especially geopolitically — in his final two weeks. And there will be questions about why the Capitol Hill police were so pathetically caught off guard yesterday. But a change is coming . . .
Eoin Treacy’s view
Stoking the mob is always tempting for populists on both sides of the spectrum.
That was abundantly clear in the mass protests, looting and destruction of public property over the summer. Those protests have since abated because the organisers achieved their goal of overthrowing the Trump administration.
The big question now is whether the mob seeking to overthrow the new Democrat controlled government will be chastened by yesterday’s events. My intuition tells me they represent a significant demographic and will form a significant portion of the new opposition, regardless of whether Donald Trump is banned on Twitter/Facebook.
Banana Republic
This post by Edward Ballsdon may be of interest to subscribers. Here is a section:
In 2018 it was clear that Trump’s excessive deficits would lead to debt refinancing risks that were similar to those of the Italian Tesoro following the 2011 peripheral crisis. This die was already cast before the Covid19 pandemic as the US private sector indebtedness was reaching saturation point and, just like in Japan, the government would have to support economic growth with fiscal policy. This is the “private to public debt growth switch” that I have discussed in previous posts.
The Covid pandemic has merely brought forward the day of reckoning that was already on the cards, simply because the private sector had no buffers and reserves for bad times, so the government had to step up to the plate.
The investor ramifications from this upcoming long dated debt issuance are huge. If the private sector has to finance this forthcoming tsunami of coupon issuance, you can bet that real yields will have to rise to attract those private sector savings away from private sector assets. This is exactly what 2018 was all about – real yields rose and stocks and corporate bonds got clobbered until the FED reversed its tapering exercise and started buying USTs in size.
My thoughts remain the same – see previous posts – the genie is out of the bottle and the Fed will of course come to the water and have to buy an ever larger amount of USTs to keep net supply and thus real yields low. This will be to try and keep financial assets afloat, which will of course allow bubbles to continue. The same will naturally occur in the Eurozone, UK and Japan. But take note from the previous charts, the increase in debt is NOT linear – the power of cumulation is at work.
Given the supply next year, it is fair to say that Central Bank QE had better NOT be temporary in nature, otherwise risk assets could move in a similar fashion to 4Q 2018 (when there was the terrible combination of large debt issuance, Fed unwinding its balance sheet and rising real yields). My guess is the FED and other Central Banks will continue to buy substantial amounts of debt, raising the question of what Temporary actually means………and thus the title of the post.
Eoin Treacy’s view
Milton Friedman’s quip the “nothing is so permanent as a temporary government program” is particularly relevant when we think about the outlook for money printing. In simply terms, if there is not enough of money to go around, the central bank will print more. They don’t have much choice.
Cryptocurrency market cap tops $1 trillion with bitcoin above $37,000
This note from MarketWatch may be of interest to subscribers.
The market capitalization of all cryptocurrencies topped over $1 trillion for the first time, according to data from Coindesk. That came as bitcoin BTCUSD, 9.15% topped $37,000, trading up nearly 4% to $37,152. Cryptocurrencies have surged, helped by a move in the autumn by PayPal to allow transactions through their service.
Eoin Treacy’s view
Cryptocurrencies have risen to a $1 trillion market cap faster than Tesla which is no mean feat. Until quite recently Tesla’s share price advance has been outpacing even the feverish pace of bitcoin’s ascent. That all changed this week with Bitcoin’s three-day jump from $30,000 to $40,000.
Email of the day – on US COVID cases
As a result of the violent rioting in Washington yesterday, by thousands of people under huge stress, a super-spreader event has almost certainly been generated. I note the daily tally of deaths yesterday in the US exceeded 4000. Not good!
Eoin Treacy’s view
I totally agree and it seems like there are super-spreader events going on all the time. Since the UK variant of the virus has been found in an increasingly large number of countries, we have to assume it is much more pervasive than spotty testing highlights. Many countries now test for coronavirus but much fewer do the genetic testing necessary to identify variants. The USA for example doesn’t have a wide tracking system for mutations.
Eoin’s personal portfolio: stock market trading position opened December 18th
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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