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07 April 2020
Video commentary for April 6th 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: FAANGs outperform by a wide margin while other markets unwind deep oversold conditions, mortgage servicers under extreme pressure increases chance of additional stimulus, Dollar steady but gold outperforming. bond ease.
Felix Zulauf: "We have created the biggest excesses in generations"
Thanks to a subscriber for this interview of Felix Zulauf which appeared in market.ch. Here is a section:
Over the past decade, a huge mountain of Dollar denominated debt has been built up outside the U.S., especially in emerging markets, and particularly in China. According to the BIS, these loans increased from $5.8 trillion to more than $12 trillion between 2009 and 2019. When the crisis hits, short-term loans are often not extended because lenders turn risk-averse. Then debtors have to scramble to buy Dollars in the market. As the Dollar rises, the debt in the debtor's home currency increases, which in turn increases the pressure on them even more. Weak economies such as Turkey, Brazil and South Africa are caught in a vicious cycle. That's why I've been warning for some time about investing in emerging markets, including China. They just have a huge Dollar debt problem.
Do you expect a «Lehman Moment» in this crisis, the collapse of a major market player?
In every crisis there are companies that perish. It won't be any different this time. Given the excessive indebtedness in the corporate sector, one would have to expect some spectacular bankruptcies. But given the speed with which central banks have acted - much faster than in 2008 -, this will no longer threaten the financial system per se.
Eoin Treacy's view
Swap lines have been extended to considerably more countries than during the global financial crisis. In 2007, the focus of attention was the developed market banking sector so swap lines were limited to G-7 central banks. At the end of March that list was expanded to Australia, Brazil, South Korea, Mexico, Singapore, Sweden, Denmark, Norway and New Zealand. The notable exceptions have been to countries like Turkey, South Africa and China.
Coronavirus mortgage bailout: 'There is going to be complete chaos,' says industry CEO
This article by Diana Olick for CNBC may be of interest to subscribers. Here is a section:
“This is a crisis so easily correctable,” he said. “The GSEs [Fannie Mae and Freddie Mac] for years have always assured the servicing community that in the event of a major credit event, they’ll be there to make sure they provide the liquidity. From what we are hearing, and we can’t verify it, the FHFA director instructed the GSEs not to set up a liquidity or advance facility.”
When asked for a response to the industry plea, Calabria on Monday declined to comment.
Both Stevens and Bray said that because of this new and momentous risk in the mortgage market, it is suddenly much harder for borrowers to get new loans or refinance current mortgages. Wells Fargo is already placing restrictions on jumbo lending to its customers.
“It’s just going to create more fear within the nonbank servicing sector. The banks that service them are going to start to not lend,” said Bray. “Ultimately that impacts homeowners. They won’t be able to be served because these companies will be in the middle of a crisis. We’ve seen a lot of businesses close their doors, and if you start closing the doors of servicers, you’re impacting people’s lives much more than other sectors. You’re talking about their homes. It’s the largest asset they have.”
Eoin Treacy's view
The buck has to stop somewhere. If homeowners are given a free pass on skipping mortgage payments that simply pushes the onus for making payments up the line to servicers who need to pay mortgage bond coupons. When major tenants like H&M or Primark refuse to pay rents, it puts a great deal of pressure on landlords who still have mortgage payments to meet. I have not seen any commentary yet on how much forbearance will be made available to commercial property REITs.
Facebook Strikes Deal for AR Displays, Squeezing Out Apple
This article by Alex Heath and Amir Efrati for The Information may be of interest to subscribers. Here is a section:
Facebook’s deal with Plessey illustrates how tech giants are racing to secure the building blocks needed for AR headwear—technology experts believe could be as transformational as the introduction of PCs and smartphones. Facebook CEO Mark Zuckerberg recently predicted that “we will get breakthrough AR glasses that will redefine our relationship with technology” in the 2020s.
To create such a device, Facebook has teams building its own operating system, apps, silicon chips, and tech capable of deciphering human thoughts. It also continues to invest in VR headset maker Oculus, which it acquired for roughly $2 billion in 2014.
In a statement, Facebook said it wants to build “a glasses form factor that lets devices melt away so we can be more present with our friends, families, and surroundings.”
“This will take years, so across AR/VR we’re continuing to invest in extensive research on this deep tech stack and components such as small-scale displays,” the company said.
The AR devices that have been released so far from the likes of Magic Leap and Microsoft are clunky, expensive headsets with extremely limited graphics capabilities that haven’t sold well.
Eoin Treacy's view
Mark Zuckerberg was an early advocate of virtual reality as the next big social medium. Having tried out the Oculus Quest over the last few weeks I think he is onto something.
Eoin's personal portfolio - Last updated March 27th
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. I'll change the title to the date of publication of new details so you will know when the information was provided.