A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Goldman Sachs Group Inc. is warning investors that the oil price will stay lower for longer. Using a methodology measuring crude demand with the S&P 500 (to be honest I have some hard questions about that – if the sluggish U.S. economy had little to do with the equity rally, then why should oil demand? But I digress…), economist Sven Jari Stehn writes, "The decline in oil has been driven by an oversupplied global oil market…the new equilibrium price of oil will likely be much lower than over the past decade."
"Goldman: Here's why oil crashed – and why lower prices are here to stay" – Bloomberg Business
"Apollo's energy head says worst is yet to come for oil" – Bloomberg
"$20 Oil?: Citi's energy outlook" – BNN (video)
"Global oil layoffs exceed 100,000" – Bloomberg
An ugly start to the Canadian earnings season included some considerable financial stress at Cenovus Energy Inc., Manulife Financial Corp., Bombardier Inc. and Teck Resources Ltd. Cenovus announced plans to cut 15 per cent of their work force (this won't do much good for the Alberta housing market) after reporting an operating loss of $0.78 per share when analysts had expected a $0.13 profit.
Results at Bombardier were bad enough that the dividend was suspended and CEO Pierre Beaudoin announced he would step down.
"Cenovus to slash jobs, freeze pay as losses deepen on oil price tumble" – Report on Business
"Pierre Beaudoin steps down as chief in dramatic Bombardier shakeup" – Report on Business
"Manulife sees tough end to 'strong year' as quarterly profit drops" – Nelson, Report on Business
"Teck profit nearly halves on weak coal, copper prices" – Report on Business
The news in Canadian profit-land was not all bad, thankfully. Telus … reported an eight per cent year over year profit gain on smartphone sales and mobile traffic.
"Telus profit rises 8 per cent as smartphones drive wireless revenue" – Report on Business
The broker/dealer model is designed to maximize underwriting activity – initial public offerrings and secondary offering of equities – because investment banking is where the big cheques come from. Investment banking departments spend literally millions of dollars wining and dining corporate CEOs so that when the company is ready to issue stock, the bankers can lead the deal and collect seven figure cheques for a couple of months work.
But, as the ROB's Tim Kiladze reports, the results of this strategy are not usually great for investors.
"Of the 15 biggest deals, eight of them – that's more than half – have posted negative share returns since the time they went public. Even worse, the average return for all 15 of them is negative 28 per cent, despite the S&P/TSX Composite index sitting not far from its all-time high."
Investors need to accept their share of the blame, too. Demand for IPOs and secondary offerings is often highest in hot sectors that are set for a correction.
The average investors has a ton of difficult decisions to make every year but one of them should be easy – don't buy investment banking deals unless you're an expert in the field.
"Canada's top IPOs largely sport ugly returns" – Kiladze, Report on Business
Tweet of the Day: "@NewtonGroupSM Dalio's Bridgewater Associates Took Stakes in $POT.ca $WYNN $AGU.ca"
Bonus Tweet of the Day (deflation pressure): "@auaurelija Riksbank – nor any other central bank – can't fight this pic.twitter.com/aIQf3pA2PR "
Diversion: "The glorious return of the egg: Why Uncle Sam is a horrible nutritionist" – The Week
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow