David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Email of the day on the rationale for China's COVID-zero

    Dear Eoin, I am one of your long term subscribers from Singapore from back when David started the service. I have been shared this hypothesis regarding the reason why China is keeping to the zero covid measures and it is less to do with the disease but something else. Firstly with the reason for covid, they have managed to track the movement of all individuals in China with the Green Code, which coupled with their country wide camera surveillance, allow the state to monitor constantly all citizens. This is especially important in the fight against corruption. Secondly and more importantly, China is still trying to deflate their large property bubble which is 30-40% of the countries economy. Besides Evergrande, there are systemic risk to the over investment in real estate which is a huge Ponzi scheme. Fortunately most of the debt are on-shore, and China needs to keep its borders closed. This is because if re-opened, the increased spending from in-bound and outbound tourism will cause inflation, and this will force The Central bank to raise interest rates. China Central Bank wants inflation to still be low so that the economy can be stimulated and the growth in local jobs help keep the confidence for the population to invest in the property market. If inflation rises, then interest rates have to increase and it will delay the clean up of the property market which has so far been very well controlled. China is doing far more in the real estate cleanup then the US did with Sub-Prime Crisis in 2007-2008. Due to the trade offs, the real estate recovery is more important that the risk to public health although China could simply mandate all citizens especially the elderly to be vaccinated which they have not. It cannot be due to the lack of vaccines or preparation for the hospital and ICU beds capacity as China could have allowed Moderna and Pfizer to be registered locally without asking for the IP to be disclosed. Hope to hear from you. Thanks 

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    Yen Weakens as BOJ Sticks With Ultra-Low Rates Policy Path

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    In September, a sharp slide in the yen following the policy statement and dovish comments by Kuroda prompted Finance Minister Shunichi Suzuki to order Japan’s first entry into markets to prop up the currency in 24 years. While the governor moved the market again during Friday’s briefing, his tone was more cautious and his remarks weren’t preceded by falls in the currency like the previous month. 

    Kuroda continues to hold firm as the last anchor of low global rates just a day after the European Central Bank went ahead with another jumbo rate hike. But the governor is walking on a tightrope as his stance risks putting further downward pressure on the yen despite billions of dollars spent by the government to support the currency.  

    “The likelihood of the BOJ pivoting toward tightening is still small as Japan’s inflation is not broad based at all and is only rising about a third of the pace seen in Europe and US,” said Kyohei Morita, chief Japan economist at Nomura Securities.

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    Gilead, fueled by latest approval, sees CAR-T sales takes off

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Shares of Gilead Sciences ticked up Friday morning after the company’s latest earnings report exceeded Wall Street’s expectations.

    The results were, in part, tied to growing sales from Gilead’s cell therapy business, which consists of the marketed cancer drugs Yescarta and Tecartus. Together, sales from the two drugs totaled $398 million in the third quarter, a nearly 80% increase from the same three-month period a year prior.

    Gilead’s work in cell therapy, catalyzed by the $12 billion acquisition of Kite Pharma in 2017, hasn’t always sat well with investors. Early sales from Yescarta were slower than some had hoped, and Gilead ultimately acknowledged that some assets from the Kite deal were overvalued.

    But in recent months, the company’s cell therapy business has ballooned. Third quarter sales of Tecartus were up 72% year over year, reaching $81 million, while those for Yescarta rose 81% to $317 million. Gilead cited the approval of Yescarta as a “second-line” therapy for a type of hard-to-treat lymphoma, which happened in April, as a main reason for the uptick.

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    Meta Plummets as Capex Plans Spur Downgrades

    This note may be of interest to subscribers. Here are some relevant quotes:

    Jefferies (buy, PT $200)
    There are “no signs of expense discipline,” and this is “going against what investors want”

    Vital Knowledge
    The expense outlook is “the big negative” of the report; “investors were hoping for mgmt. to aggressively slash costs, but it doesn’t seem like that’s happening”

    The results and outlook “weren’t great, but neither was any worse than SNAP or GOOGL”

    Truist Securities (buy, PT $240)
    The revenue outlook is “still decent all things considered,” but the guidance for total expenses is “materially higher than our estimate”

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    Tesla, Ford and VW Sound the Death Knell for Driverless Car Hype

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Tesla is the subject of two defect investigations by the National Highway Traffic Safety Administration and headed for the first of several potential trials over crashes blamed on Autopilot, its driver-assistance system. California accused the company in August of misleading consumers, and a Golden State resident who sued last month is proposing class-action status for his claims that Musk has been stringing the public along with perpetual promises that the company is on the cusp of perfecting the technology.

    Fans of the world’s richest man have gotten accustomed to frequent posts from the soon-to-be Twitter owner about new iterations of FSD beta software beaming to their vehicles. After Musk tweeted recently about a next major release coming this week, one follower replied with relief, writing that he’d been hesitant to use the latest version of FSD after his Tesla veered toward an oncoming car.

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    Shell Hasn't Been Paying UK Windfall Tax as Profits Double

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    doubled to $9.45 billion, because it was making big investments in North Sea fields. 

    The fact that Shell wasn’t liable for the levy, which was designed to allow companies to reduce their payments if they invest in new production, nevertheless threatens to amplify the controversy about record oil-company earnings at a time when most people are struggling with soaring energy bills. 

    There are growing calls for British Prime Minister Rishi Sunak, who imposed the windfall tax in May when he was Chancellor of the Exchequer, to hit the sector with additional levies as he tries to fill a £35 billion hole in the country’s finances. Even Shell’s boss acknowledged the possibility of further government intervention. 

    “They will be looking at companies like us, who benefit of course from the volatility and the prices that we see, to fund the programs that they are rolling out,” Chief Executive Officer Ben van Beurden said on a call with reporters Thursday morning. “We have to accept it and we have to embrace that.”

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    Eoin's personal portfolio: stock market index short initiated October 26th