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27 January 2021
Video commentary for January 26th 2020
Eoin Treacy’s view
A link to today’s video commentary is posted in the Subscriber’s Area.
Some of the topics discussed include: China tightens liquidity, SPACs beginning to lose momentum, mega-caps continue to outperform, bonds yield compress, Dollar weak, oil and gold steady.
Is there a bubble in financial markets?
Thanks to a subscriber for this chartbook from Deutsche Bank which may be of interest.
No doubt that in aggregate US equity valuations are at, or close to, all-time-highs.
Eoin Treacy’s view
There are a couple of things that are worth considering. The first is that identifying a bubble is not a timing indicator. The easy money policies adopted by central banks following the Global Financial Crisis 13 years ago were inevitably going to cause a bubble in something. The new information is that there is evidence of a bubble in a large number of asset classes because zero interest rates made a nonsense of any kind of valuation metric.
The one thing we know about manias from history is they are powerfully attractive. They suck in investors from all over the world and by the time they peak everyone is fully invested. Let’s take a poll. So how are subscribers invested and how much cash do you currently hold relative to what is “normal” for you? By looking at our individual actions, in aggregate, we will probably come up with a better understanding of where the wider investment community is.
Soybeans Buoyed as China Turns to U.S. for Nearby Supplies
This article from Bloomberg news may be of interest to subscribers. Here is a section:
China is looking for more U.S. soybeans after top exporter Brazil suffered from a drought that delayed planting and now downpours that slowed harvesting. The Asian nation needs so much of the oilseed to feed a growing pig herd that it already bought supplies for delivery in August, at the end of the U.S. season, and for 2021-2022.
China’s interest in nearby U.S. supplies comes after Chicago soybean futures slumped more than 7% last week, or over $1 a bushel, the worst performance in more than six years. Crop prices recouped some of their losses on Monday, but remain well down on their multiyear highs earlier in January.
Corn futures in China are also down from record highs this month, tracking Chicago prices and pressured by sales from state wheat stockpiles. In terms of South American supplies, Brazil is heading for a record soybean crop after rains, while dryness is still threatening the production outlook in Argentina.
Eoin Treacy’s view
2020 was a year of plagues. The coronavirus pandemic disrupted supply chains. The swine flu killed off millions of hogs all over the world. The plague of locusts devastated harvests in East Africa, India and southwest China. Spring floods in the USA may also have had an impact on both harvesting winter crops and the overall planting schedule. 2020 was also the year much stricter emissions rules came into effect for the shipping sector so it was going to be a disruptive year because plagues arrived.
China Asset-Bubble Warning Threatens Stock Frenzy in Hong Kong
This article Richard Frost for Bloomberg may be of interest to subscribers. Here is a section:
In mainland markets, a gauge of interbank borrowing costs jumped 36 basis points to 2.78% on Tuesday, the highest level in a year. Futures on Chinese government bonds due in a decade were poised for the biggest decline since September, while the CSI 300 Index of shares in Shanghai and Shenzhen, which has been approaching 2007’s record high, fell 2%.
“The PBOC wants to bring investors out of the euphoria caused by abundant liquidity in December,” says Xing Zhaopeng, an economist at Australia & New Zealand Banking Group. “The PBOC is unlikely to loosen its purse strings at least this week, which will make cross-month liquidity very tight.”
PBOC Governor Yi Gang on Monday said the central bank will seek to support economic growth while limiting risks to the financial system — a continuation of its existing policy stance. Yi said China’s total debt-to-output ratio climbed to around 280% at the end of last year.
Eoin Treacy’s view
In many respects China is running conventional monetary policy. The economy has been spared from an epic contraction and therefore the requirement for outsized liquidity to support growth is less compelling than in the OECD. It remains likely that China will be the first major economy to raise interest rates after the pandemic abates.
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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