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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

    The lithium ion battery and the eV Market

    Thanks to a subscriber for this report from BMO which may be of interest. Here is a section:

    Brazil Seen as More Corrupt Than Argentina in Global Ranking

    This article by David Biller and Charlie Devereux for Bloomberg may be of interest to subscribers. Here is a section: 

    Brazil is now seen as more corrupt than Argentina for the first time in over two decades after suffering last year one of the biggest plunges among the nations tracked by a global transparency ranking.

    Latin America’s largest economy fell 17 positions in the2017 index released by graft watchdog Transparency International on Thursday. It now ranks 96th among 180 nations, tied in the region with Colombia and Peru. Only two other countries in the whole index -- Bahrain and Liberia -- slid more than Brazil last year. Argentina meantime rose 10 spots, to 85th place and now ranks better than Brazil for the first time since 1996.

    A series of corruption scandals have rocked Brazil over the past few years as the so-called Carwash probe uncovered a massive kickback scheme involving the country’s political and business elite. Former President Luiz Inacio Lula da Silva was convicted for graft last year while allegations against President Michel Temer are still being investigated. In Argentina, meanwhile, President Mauricio Macri has worked to make public tenders more transparent and successfully pushed for a law allowing plea bargain testimonies to resolve corruption cases.

    Among key Latin American countries, the least transparent are still Venezuela (169th position) and Mexico (135th spot).

    Transparency International’s ranking is based on surveys and assessments from 12 institutions and has become a benchmark gauge of corruption perception used by analysts and investors.

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    Email of the day on the potential for downtrends

    Your recent assessments of the markets appear to be that a period of ranging is likely to be followed by markets going up again. Of course, whilst no one knows what the future will be, I wonder why you don't see the greater likelihood of markets turning down after some consolidation. With the amount of US debt increasing, interest rates increasing, and stock market levels already high by historical standards, are you not more concerned that markets, being forwards looking, might be more likely to head down than up? Esp. since markets struggle when interest rates go above 3%? I appreciate your talk of share rotation, but a rising tide lifts all boats and surely the opposite is true when markets tank?

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    Email of the day on the Dow/Gold miners ratio

    You have cited the Gold/Dow relationship and how if this ratio was to do what it has in the past, Dow has lots of upside versus gold. However, Jesse Felder sees it just the opposite. Not sure why your tow ratio charts would be opposite. Here is a link to the public post. 

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    Email of the day on stagflation

    I have been a long-time subscriber and attended the Chart Seminar around ten years ago. Back then you were a young kid and David led the show. Showing no disrespect for David who admire greatly, you have become at least an equal when it comes to your daily audios. I found this weekend's long-term picture very interesting and well done. I think you have properly described where we are at presently and the likely outcomes in the medium and longer terms. I do get the sense over here in the US that we may be facing an environment of Stagflation. With rising inflation and what now looks like slower growth in the near term, combined with a shrinking Fed balance sheet and rising rates, we could be facing some real headwinds for equities. Can you share your insights on an environment of stagflation and what asset classes would generally over-perform and underperform if the past is a guide? Thank you and keep up the great work!

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    The Biggest Headaches for South Africa's Incoming President

    This article by Mike Cohen for Bloomberg may be of interest to subscribers. Here is a section: 

    Investigations by the nation’s graft ombudsman and Auditor- General found that graft is endemic in the state, with tens of billions of rand stolen or squandered each year. Zuma appointees head almost all the law-enforcement agencies, which have been slow or loathe to act against some of his closest allies who’ve been implicated in the free-for-all. The new president will need to replace several key officials, reassert confidence in the independence and integrity of the criminal prosecution system and show that the government is intent on ensuring all those found guilty of corruption are held accountable.

    2. State-owned companies in chaos
    The looting spree largely targeted state companies, especially power utility Eskom Holdings SOC Ltd., which is at risk of running out of cash. While Ramaphosa has already overseen the appointment of a new board at Eskom, it still needs to appoint a permanent chief executive officer, fill several other top management posts and urgently raise new funding. South African Airways and oil and gas company PetroSA Ltd. are among the other entities that have been hobbled by a lack of leadership and oversight.

     

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    Copper, iron ore price jump sparks rally in mining stocks

    This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section: 

    The iron ore price which has been defying expectations of a pullback for months gained on Wednesday with benchmark Northern China import prices rising to a five-week best of $78.25 a tonne. The last time the steelmaking raw material traded above $80 was April 2017. Coking coal was also higher at $233.10 a tonne. Premium Australian exports were at $154 a tonne this time last year.

    Obituaries were being written for Anglo two years ago before the 100-year old company went on radical restructuring drive. Since then the world's fourth largest diversified miner has surged 500%

    The bullishness spilled over to mining's heavyweights which outperformed broader gains on US equity markets.

    Shares in world number one miner BHP Billiton (NYSE: BHP) gained 2.8% in New York while Anglo-Australian peer Rio Tinto (NYSE: RIO) added 1.8%. Both companies are worth more than $100 billion having doubled in value since the beginning of 2016 when the mining industry hit the bottom of the cycle.

    Vale (NYSE: VALE.P), the world's top iron ore and nickel producer, was one of the best performers on the day with a 6% jump valuing the company at $73.1 billion. The Rio de Janeiro-based company is up 30% over the past year and is up a fourfold since the end of the downturn when iron ore reached $37 a tonne and nickel bottomed at $7,700 a tonne.

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    Treasury Market's Long-Dormant Term Premium Is Finally Reviving

    This article by Liz Capo McCormick and Luke Kawa for Bloomberg may be of interest. Here is a section:

     

    “We remain of the view that the U.S. term premium is still too low when conditioned against the macro outlook, and the uncertainty around it,” Francesco Garzarelli and his fellow strategists wrote in a note Tuesday. “We recommend preserving a short duration exposure and expect the rebuild of the term premium to lead to a steeper” U.S. yield curve.

    Goldman Sachs issued a short recommendation for 10-year Treasuries in November, which the strategists maintain. The firm’s model for fair value -- given economic fundamental and the expected pace of Fed tightening -- has the note at 3.09 percent, compared with about 2.8 percent now.

    The term premium is the extra compensation that buyers demand to hold longer-maturity debt instead of a succession of short-term securities year after year. A widely used valuation tool, it tumbled across world markets in the wake of the financial crisis as the Fed and its counterparts bought debt as part of stimulus measures.

    The 10-year Treasury term premium is negative 0.29 percentage point, up from a record low of negative 0.84 percentage point in 2016. As the name implies, it’s normally positive.

    Its increase in 2018 marks a departure from its typical downward trend during Fed tightening cycles. But much is different this time around -- namely, the central bank’s balance-sheet tapering.

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    Email of the day on rotation into cyclicals

    Thank you for another very helpful weekend broadcast. At this interesting moment in the markets, your insights are worth a great deal to me.    

    I am fascinated by one thing in my own portfolio. Today is a good example. When just about everything is down 1 to 4 percent, my Copper ETF is up 2.3% and the Nickel ETF is up 3.4%. I have noticed this on other days recently. Do the algorithms see these as long-term hedges and buy accordingly?

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