A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Analysis from energy research firm Wood Mackenzie Group projected that cash flow from the oil sands will decline by $23-billion in the next two years. Since energy stocks are priced primarily by price to cash flow, this would be an extremely painful process for investors in the sector.
The $23-billion number is stated almost as a fact, but can't be viewed as anything but a loose estimate. Energy companies will do anything and everything to protect cash flows, including reducing investment, firing employees and using cheaper office supplies. This makes it very difficult to estimate future cash flows even with an accurate guess at the commodity price.
Also, the financial damage from lower oil prices is only beginning to be felt at the corporate level. Yes, the stocks got hammered, but the full negative effects in terms of profits and cash flow are only now becoming visible.
"Canada's energy slump to wipe out $23-billion over two years" – Lewis, Report on Business
The man himself, ex-mayor of New York City Michael Bloomberg wrote a column for his company called "Keystone solution runs through Canada" and I confess, I started reading with extremely low expectations. At the end, however, I found Mr. Bloomberg's point of view on Keystone XL – that President Obama's veto of pipeline legislation should be the catalyst for Canada/U.S. talks on climate change – an interesting and potentially productive idea,
"The Canadian government has been pressing the White House to approve the pipeline, which would bring many more economic benefits to Canada than it would to the U.S. That gives the White House enormous leverage, which it should use to negotiate a broader, climate-friendly deal that far more than offsets the potential impact of the pipeline."
"Keystone solution runs through Canada" – Bloomberg
China's real estate market is in trouble, which means global commodity demand and overall economic growth for the planet are, too.
"China's new-home prices posted a record year-on-year decline in January, according to Bloomberg Intelligence analysis of government data tracking 70 cities. Implementation of the new easing policies will depend on whether an economic downturn continues or worsens, the people said."
I watch the web traffic stats carefully here at the ROB and it's clear Canadians are tired of reading about China. But the massive scale of the country's credit bubble suggests it's an issue investors need to follow closely.
"China readies measures to counter housing market slump" – Bloomberg
"How addiction to debt came even to China" – Martin Wolf, Financial Times
I am adamant about this next point. The main reason investors lose money is psychology, not market strategy. Learning to invest successfully is, in my opinion, more a matter of controlling emotions – not buying the top and selling the bottom – than anything else. The Psy-Fi blog is an indispensable resource for all of the ways human psychology leads to investment losses. The latest post cites academic research showing that market bubbles and declines actually create emotional stress that makes us all bad investors.
"The way that investors behave during crises and bubbles is different from the way that they behave in more normal times. Placed under stress by the novelty of the situation, we behave less rationally and more reactively than we do at other times. Which explains why we seem to get mass market delusions across ranges of investors, because the underlying physiological mechanisms are common to us all."
"Novelty, unicorns and the stressed investor" – Psy-Fi
I'm hardly unbiased here, but anyone with an interest in Canadian monetary policy should read Luke Kawa's recent post on Bank of Canada Governor Poloz. It's not in the ROB (although he's doing great work there too), it's on ello.
"WHAT A FLIPPING DAY." – Kawa, ello
Tweet of the Day: Scott Adams has been on a roll using Dilbert to lampoon investor behaviour. "@went1955 Stock picking genius — Dilbert http://t.co/AIXFz8niNb"
Diversion: "After thousands of years, earth's frozen life forms are waking up" – Gizmodo
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow