A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web.
Bloomberg has collected the 2016 market prognostications of 14 prominent analysts and strategists in a highly interesting report Friday. As always, they are contradictory. I would suggest that investors ignore the headline conclusions in each case and sceptically analyze the reasons behind them. The worst thing to do, in my opinion, is for investors to just scroll down and find those outlooks they already agree with. This would be a textbook case of confirmation bias.
Among the predictions, I found the income and dividend-related advice of Blackrock's chief investment strategist Russ Koesterich most pertinent:
"The Fed is going to be less important in 2016," says Koesterich, who expects Janet Yellen & Co. to raise interest rates incrementally. He predicts global growth will stay sluggish, increasing the thirst for higher-yielding assets. Investors who have relied on high-coupon bonds they bought before the financial crisis are running out of those securities, he says — and there's little to replace them that's a slam dunk. "You won't be able to find income without risk. Asset classes from [master limited partnerships] to high-yield bonds each have their own risks — and none of them are cheap."
"14 Predictions for 2016 from the Brightest Minds in Finance" – Bloomberg
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Credit Suisse sounded the alarm on Canadian provincial debt levels in an economist slideshow issued Friday. The relevant page includes the following bullet points:
"The collapse in commodity prices has hit provincial government tax revenues hard… local authorities have reacted by issuing short-term paper aggressively … at the same time, foreign appetite for this paper has grown, and become volatile … the heavy redemption schedule for 2016 is a key source of risk."
Provincial balance sheets, particularly in Ontario and Quebec, are looking increasingly sketchy, but the feds are well positioned to help (and perhaps more inclined after the election). In Ontario, there is reason to be concerned about the ways in which the budget stress is being addressed. From the financial assistance for the wealthy teachers union to strike against the government, the Beer Store shell game, and the sharp cuts in doctor salaries, the government has shown a consistent capacity for legislative solutions that put the interests of politicians and government employees ahead of taxpayers. (In the case of doctors, financially squeezing them to save bureaucrat jobs makes some sense, right up until a family member becomes seriously ill and the next available doctor's appointment is three months away.)
"@TheStalwart Credit Suisse says provincial Canadian debt is a source of growing risk. Notes explosion in short-term issuance. pic.twitter.com/GEYGw8ZyUQ " – Twitter
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I'm not sure how long it will last, but there's a definite surge in optimism regarding emerging markets investment. Goldman Sachs kicked things off:
"As growth picks up and weaker currencies help alleviate economic imbalances, "2016 could be the year EM assets put in a bottom and start to find their feet," [Goldman Sachs] strategists led by Kamakshya Trivedi wrote in a note Thursday. "There is the prospect of improved growth and better returns, even if it is not a rerun of the roaring 2000s."
The Financial Times chimed in, albeit less stridently, with help from JP Morgan,
"The latest leg of correction leaves emerging markets as the unambiguously cheap segment of global equity on a fundamental basis [but], with the exception of Russia, valuations simply haven't become cheap enough," says George Iwanicki, emerging markets macro strategist at JPMorgan AM.
This is not a recommendation (I'd have to do a lot more work, and might), but for investors with a legitimate ten year time horizon it's tempting to look at emerging markets equities as a long term "buy it and don't look at the price for at least five years" portfolio option. As Merrill lynch quantitative strategist Savita Subramanian has written, valuation levels are not that useful for short term periods, but historically explain more than 80 per cent of ten year investment returns.
"Goldman Says the Years of Emerging-Markets Doldrums Are Over" – Bloomberg
"Emerging market equity valuations slide to record low" – Financial Times
"Emerging markets: the comeback kid for 2016" – Report on Business
"Immense Private Indebtedness is a Made-in-China Story, Not an Emerging Markets Story" – Kawa, Bloomberg
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Tweet of the Day: " @business China has a $1.2 trillion Ponzi finance problem bloom.bg/1LowkAE pic.twitter.com/XNazqmnIA7 " – Twitter
Diversion: "The world's first supersonic private jet just got a lot closer to reality" - Sploid
Scott Barlow