Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
West Texas Intermediate crude breached the important psychological level of $50 (U.S.) Tuesday but it's been bouncing around just below $50 for so long it's hard to get too excited. Reuters reports that global supply and demand are now in balance – which means inventories aren't rising – due to temporary production disruptions in Fort McMurray and Nigeria.
The oil glut is not over. U.S. inventories are well above 2015 levels never mind the much, much lower five-year average. Markets, however, appear to be looking through the inventory overhang and focusing on what prices should be in late 2017 when supply and demand become balanced sustainably and global inventories begin a persistent decline.
"Oil market is back in balance: Kemp" – Reuters
"@JavierBlas2 #Oil Watch: @EIAgov sees average US oil consumption in 2016 at 19.6m b/d, highest since 2007 (and up a massive 1.1m bd from 2012 level)" – Twitter
"Oil's march back above $50" – FastFT
"Oil Prices Will Head Back Down, Here's Why" – Bloomberg (video)
"@SoberLook Chart (Bernstein): India's oil demand - pic.twitter.com/8UUG87Ifgw " – Twitter
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Motley Fool posted a terrific set of metaphors that make important lessons for investors both clear and memorable. Here are a couple of samples,
"Financial planning is like designing a bridge. You don't calculate exactly how much weight the bridge will be able to hold; you build it with so much room for error that there's almost no chance it will ever be overloaded…
"Compound interest is like planting oak trees. One day's progress shows nothing, a few years' progress shows a little, ten years shows something big, and 50 years creates something absolutely magnificent."
"Explaining Investing In Ways That Make Sense" – Motley Fool
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The World Bank slashed its estimate for 2016 global economic growth in another sign that, in the words of HSBC economist Stephen King, the world economy has a slow puncture,
"'The Bank delivered a substantial downgrade to global GDP [to 2.4 per cent], from an earlier forecast of 2.9 per cent made in January, and warned of the threat of rising private debt levels in the emerging world, writes Mehreen Khan.Half of the downward revision is due to the still sluggish pace of economic expansion in developed economies and commodity exporting nations, who "have struggled to adapt to lower prices for oil and other key commodities', said the World Bank. GDP in these countries is set to amount to just 0.4 per cent in 2016, three times lower than the 1.2 per cent the institution calculated at the start of the year."
"Global growth downgraded to 2.4% — World Bank" – FastFT
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The Sober Look website published an excellent summary of the effects of lower commodity prices on Canadian banks. There is a lot of detail here, and useful charts, but it was the section on capital markets income that I found most interesting,
"Capital Market Revenues(CMRs). CMRs are closely related to the commodity sector performance. The banks generate a significant proportion of total revenues from such activities as M&A, trading in equity and fixed incomes, IPOs, and advisory services, all of which have suffered declines over the past few years.( Chart 5). Moreover, this segment of the industry has come under heavy regulatory scrutiny, adding to the cost of operations at a time when revenues are declining. Where CMRs used to generate between 15- 20 percent of total bank revenues, this activity now generates about between 11-16 percent, more importantly, the trend has been steadily declining as the industry grapples with a weak investment environment and rising costs."
"The fall in commodity prices hits the Canadian banks" – Sober Look
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Tweet of the Day: "@dkberman The Bank of England was founded 322 years ago. Its benchmark debt has never yielded as little as on June 7, 2016. " – Twitter
Diversion: "A Breakdown Of What Every Person Behind A $200 Million Movie Makes" – Digg
Scott Barlow