A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web.
Headlines like "More than a third of homeowners struggle to pay the bills" were exactly what I was waiting for as a signal that the domestic real estate market had peaked and was about to head lower.
The scare stories on the housing market in the last few years have focused on record debt levels relative to disposable income. But economists, like BMO's Doug Porter, have been legitimately and correctly unconcerned about the total debt, noting that low rates made monthly interest payments affordable and that countries like Sweden have seen consistently solid economic growth rates despite household debt levels even larger than Canada's.
As the above headline indicates, the problem now is not that debt is increasing, but that disposable income is falling because of the weaker economy. Declining retail sales numbers support the thesis of a struggling Canadian consumer that is likely to affect housing market demand in the coming months.
"More than a third of homeowners struggle to pay the bills" – McMahon, Report on Business
"The biggest threat to Canada's housing market is not interest rates" – Barlow, Inside the Market (November 17th)
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The slow decline of the global banking sector is not a trend that demands investors change their portfolios immediately but fascinating and important nonetheless. Reuters reported Thursday that the Public School Teachers' Pension and Retirement Fund of Chicago was suing a number of U.S. banking heavyweights including J.P. Morgan and Bank of America for colluding in the gigantic interest rate swap market by preventing competition from new trading platforms.
This, in my opinion, is a much, much bigger deal than it sounds at first. The allegations suggest the major banks are manipulating markets to prevent new technology from stealing their market share. If allowed to happen, the encroachment of new technology in banking threatens a major percentage of bank profits. Why do you think Canadian banks are restructuring old businesses and investing heavily in their IT departments?
As usual, FT Alphaville's Izabella Kaminska was covering this story first with the death of banking series of reports.
"Big banks accused of interest rate-swap fixing in U.S. class action suit" – Reuters
"Big Banks Accused of Monopolizing Interest Rate-Swap Market" – Bloomberg
"Lloyds set to cut more jobs" – The Guardian
"Death of Banks Series" – Kaminska, FT Alphaville (free to read with registration)
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There may be some light at the end of the tunnel for Canadian mining companies. Rio Tinto Group is forecasting that the oversupply situation in copper markets will be addressed through supply cuts by 2017. At the same time, there are signs that Chinese metals producers are finally responded to rock bottom commodity prices by reducing production.
"Copper Faces at Least Two More Years of Pain, Rio Estimates" – Bloomberg
"Metals Jump as China Weighs Support Measures, Output Cuts" – Bloomberg
"China metal cuts deepen as short selling intensifies" – Financial Times
Related: "Oil is Stuck in the Trenches" – Bloomberg Gadfly
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Tweet of the Day: This is one of the best quotes on investing I've ever read, "@bySamRo: Dornbusch via BAML's Subramanian https://t.co/AZm7XsS5vj " – Twitter
Diversion: Terrific, quick and informative video, "Here is how dinner changed over the last 100 years" – Sploid
Scott Barlow