Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Where China is concerned, we are right up against the border of "It's Different This Time" and not in a good way. China's equity markets have historically been easy to ignore - not indicative of the country's economy on which so much revenue for Canadian resource companies and banks (through underwriting and corporate loan) depends.
The Shanghai Exchange is now down 30 per cent from recent peaks after another stampede lower Friday. The government is pulling out all the stops to support the equity market, announcing overnight that investors can now use their homes as collateral for loans to buy equities.
Chinese authorities were emphasizing equity markets while they attempted to clean up the trillions of yuan in non-performing local government debt and elsewhere in the shadow banking system. It appears they have gone too far and may very well have lost control of events.
" China's Stocks Decline in Biggest Three-Week Plunge Since 1992" – Bloomberg
"China Tells Investors: Go Ahead, Bet the House on Stocks" – Bloomberg
"Calling a Top in China" (also a list of related posts by my go-to source on China's credit markets, David Keohane) – FT Alphaville
"Global banks are 17 times more exposed to China than Greece" – CapX
This has been a week of negative surprises suggesting that oil markets are again oversupplied. The Baker Hughes Index of active U.S. oil rigs showed the first increase since December – suggesting more supply is coming to markets – and the weekly U.S. Department of Energy report on crude inventories surprised analysts with an increase of over two million barrels.
"Oil heads for biggest weekly drop since March as rig count rise" – Report on Business
"Baker Hughes rig count rises for the first time in 29 weeks" – Business Insider
"More M&A deals likely as crude recovery runs out of gas" – Jones, Report on Business
"US E&Ps: dressed to drill" – Financial Times
Hedge funds took a beating in June and while longer term-focused investors can ignore this fact, it does increase the likelihood of heightened volatility in the next few weeks. The large scale redemptions that could result from the negative performance would force hedge fund portfolio managers to unwind speculative positions in assets like U.S. dollar futures and WTI crude futures which could push markets around.
Bloomberg's Tracy Alloway has the scoop,
"A drawdown is a measure of the change in the value of a hedge fund's portfolio from a recent peak to a subsequent low. You can see this week's peak-to-trough move in the chart below, which shows the biggest daily drawdowns in the HFRX index since 2004."
"Hedge Funds Had a Really Bad Day This Week" – Alloway, Bloomberg
The brilliant Psy-Fi blog, which features analysis on behavioural psychology for investors, outlines research showing that older investors are better investors, but only to a point,
"The idea is that memory is context sensitive – and that's something we see in investing rather a lot. People try to fit their new experiences into the context of their old ones, so memories of a horrific investment experience will trigger when a similar situation presents itself – the only problem being that history rarely repeats itself, exactly… Our evidence indicates that older and more experienced investors hold less risky portfolios, exhibit stronger preference for diversification, trade less frequently, exhibit greater propensity for year-end tax-loss selling, and exhibit weaker behavioral biases such as the disposition effect and familiarity bias."
Older investors do tend to be better investors but click through to the post for the important caveat.
"Lost in Your own memories: Ag and the Room Effect" – Psy-Fi
Tweet of the Day: "@TheEconomist Short, memorable and poetic, many aphorisms and pieces of advice are also flat wrong http://t.co/2fGMGjk1iM " – Twitter
Diversion: "Guatemala's "Volcano of Fire" Lives Up to Its Name, Spectacularly" – Gizmodo
Scott Barlow