A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web.
Geopolitical concerns are likely to shove global asset prices around Tuesday after a Turkish military jet shot down a Russian fighter plane near the Syrian border in the early hours. Initially, market reaction was limited to a fall in the Turkish lira – U.K.–based currency trader Ken Veksler of Accumen Management noted the lack of movement in the yen, and greenback was the most alarming thing about investor reaction.
Markets did pay more attention after Russian president Putin called Turkey's actions "stab in the back from accomplices of terrorism", a reference to Turkey buying oil from IS, and oil and gold surged in the aftermath. The rhetoric will quiet down or it won't but it's a big deal. Mr. Putin is not renowned for either restraint or compassion and Turkey's military is among the largest in NATO. Tensions are high.
"Turkey Takes Down a Russian Warplane" – The Atlantic
"Putin Says Turkish 'Stab in Back' Caused Russian Warplane Crash" – Bloomberg
"Grim-faced Putin blasts 'crime' of jet downing" – FastFT
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Columbia University professor Joseph Stiglitz is among the most prominent economists on the planet. In a recent interview, Mr. Stiglitz expressed concern about the de-stabilizing effects of Canada's housing market on economic inequality:
"it's very disturbing, and it's the same phenomenon happening in New York. We attributed it maybe to Russian oligarchs buying multimillion-dollar apartments … making it unaffordable to live in the city. There are very significant benefits to creating communities with diversity, diverse incomes and other forms, that cannot exist if we price ordinary people out of our cities.
"I would [suggest] a very progressive tax on property. If you have a $50-million apartment, the property tax on it should be very large. Some of the revenues could go to help subsidize lower-income people to live in the city. We use zoning as one of the tools to try to shape the environment in which we live."
"Joseph Stiglitz on Canada's Housing Inequality: 'It's Very Disturbing'" – The Tyee
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Bloomberg reports on severe pain in U.S. energy debt markets in a story that has implications for Canada:
"After six years of easy-money central-bank policies kept over-leveraged companies afloat and left scant opportunities for traders who profit off the market's scrap heaps, a rout in commodities prices in 2014 presented what had seemed like a perfect chance to buy again. Instead, those prices only declined further this year, causing the debt of everyone from oil drillers to coal miners to fall deeper into distress… Hedge funds that specialize in the debt are grappling with their worst declines in seven years. Funds managed by Knighthead Capital Management, Candlewood Investment Group, Mudrick Capital Management and Archview Investment Group all posted losses through October."
Canadian oil companies are far less indebted than their U.S. counterparts but there is still reason for holders of Canadian energy-related corporate debt to be concerned. The problem is that in many cases, there are no bids that would allow holders of Canadian energy debt to sell their positions.
"Stung by Oil, Distressed-Debt Traders See Worst Losses Since '08" – Bloomberg
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I wrote previously about Morgan Stanley's view that the oil glut was nowhere near as bad as most investors believed, but that argument is becoming increasing untenable as demand for oil tankers as floating storage surges to financial crisis levels:
"The oil supply glut has dragged down crude prices, this decline has helped boost demand for oil and therefore demand for oil tankers.
"[Norwegian shipping company] Frontline said the strength of the tanker market was driven primarily by high demand for low priced oil. The high demand for oil has led to congestion in key ports around the world, which creates more demand for tanker vessels. Additionally, forced storage of oil on tankers due to a high supply of cargoes is contributing to a strong market."
"Oil tanker boom sets earnings, shares flying" – FastFT
"Is the oil glut overstated? This strategist thinks so" - Barlow, Inside the Market, (November 16)
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The enviably brilliant Tracy Alloway supported the bear case for China by highlighting the "extend and pretend" indebtedness of the country's giant steel industry:
"Local governments simply wouldn't allow steel mills to be closed down for the sake of local employment and fiscal income ... It was also emphasized that mills are concerned about losing market shares and having to spend fresh capital to resume operation if they stop producing now. It's therefore a prisoner's dilemma that has prevented some capacity from being shut down. It can actually be argued that banks are also part of this game."
These companies are insolvent by most developed world standards and yet, with the credit markets' help, continue to contribute to a global supply glut of steel. It is highly unlikely that steel is the only industry in China where this is a big problem.
"Why China's Steel Mills Won't Cut Back on Production" – Alloway, Bloomberg
See Also: "Masters of the Finance Universe Are Worried About China" – Bloomberg
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Tweet of the Day: "@Pete_Spence UBS: Yes, Chinese economic data is bad, but it's bad everywhere else too pic.twitter.com/dfY5nglUT0 " – Twitter
Diversion: "Anonymous Is Really Screwing Up Its Stupid War on ISIS" – Gizmodo
Scott Barlow