A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Two charts this morning underscore the ironic and dangerous state of current market conditions . Because of their fear of equity valuations, investors have clearly created a bubble in yield-oriented sectors.
The first chart is from Bank of America Merrill Lynch, showing the $917-billion (U.S.) explosion in investment assets in U.S. high-yield bonds, master limited partnerships (similar to energy income trusts) and emerging market debt since 2009.
"The $917-billion paper chase" – Bank of America Merrill Lynch (via Twitter)
The second chart is from Citigroup credit product strategist Matt King showing that while investors have piled in to debt products, the major U.S. banks are selling their holdings. In the past, the major banks could be trusted to buy on weakness during debt sell-offs and stabilize the market. Mr. King's chart shows that it's unlikely the banks will step in next time. In a real sense, debt market investors are unknowingly working without a net.
The most recent Federal Open Market Committee meeting featured a prediction that U.S. short-term interest rates will rise 100 basis points before the end of 2015. This rate increase could be a catalyst for a correction in higher risk yield markets.
"Entrance with no Exit – U.S. credit mutual fund assets vs dealer inventories" – Matt King, Citi
Developed-world populations have learned to fear the job-killing effects of technology, and with good reason. But, as U.K. economist Frances Coppola argues, the proliferation of technology also provides the potential for significant gains in standards of living. The trick will be to manage the transition.
"We are at a turning point: if we get it right, there could be a new Golden Age," Ms. Coppola writes. "But for this to happen, there needs to be radical change in current social structures and norms. Do we have the vision and courage to make this happen?"
"Towards a New Golden Age" – Frances Coppola, Pieria
See also: "Long Run Economic Transformation after the Crisis" – Carlotta Perez, London School of Economics
Bloomberg continues the trend of alarmed reports on Chinese financial markets this morning by predicting a surge in property-related bond defaults. The report quotes Fiona Cheung, regional credit specialist from Manulife Asset Management:
" 'Trust loan defaults will rise substantially,' said [Ms. Cheung]. 'It won't be surprising if there are more collapses of China's property companies. Those companies that suffer from weak sales, that bought land too aggressively last year funded by debt and that have poor access to capital markets will potentially experience cash flow pressure.' "
"China Property Failures Seen as $33-Billion in Trusts Due" – Bloomberg
See also: "China iron ore traders starved of credit as banks clamp down" – Reuters
Tweet of Day: @jeffiel "Love what Amazon has done with the home screen, everything is so easy now!" https://pbs.twimg.com/media/BqeGGqCCIAEGz1k.png
Diversion: Why the future of a solar powered life isn't here yet – Gizmodo
Follow Scott Barlow on Twitter at @SBarlow_ROB.
Scott Barlow