A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
David Berman's terrific "Are Canada's big banks doomed" column in the Report on Business makes today's CIBC's acquisition of a U.S. bank all the more interesting.
Mr. Berman's summary of bank profit growth noted (and charted) a sharp decline in consumer credit growth as domestic households ease off their record debt binge. CIBC's announcement of a $4.9-billion takeout of Chicago-based PrivateBancorp Inc could be the first sign of domestic banks looking south – where the housing market is just getting steam as Millennials take advantage of low mortgage rates – for profit growth.
The deal is also a reminder that domestic banks won't just sit there while earnings growth deteriorates. They might make mistakes, but it won't be business as usual.
"Are Canada's big banks doomed?" – Berman, Report on Business
"CIBC in $4.9-billion deal to buy Chicago-based PrivateBancorp" – Report on Business
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Oil prices are rising Wednesday morning after a labour strike in Norway signalled a potential shortage in short-term supply. One prominent consultant, however, isn't buying. Gary Shilling, head of New Jersey-based Gary A. Shilling, is predicting a new decline in the crude price to between $10 (U.S.) and $20, citing the ongoing price war between U.S. shale producers and OPEC,
"In a price war, the chicken-out point is the price that equals the marginal cost of producing oil from an established well. Once fracking operations are set up and staffed, leases paid for, drilling underway and pipelines laid, the marginal cost of shale oil for efficient producers in the Permian Basin in Texas is about $10 to $20 per barrel and even lower in the Persian Gulf."
I'm not sure how seriously to take this, but a Europe-led global growth slowdown would put a dent in current oil patch optimism.
"Oil prices rise after Brexit shock; Norway strike threat supports" – Reuters
"Oil Is Still Heading to $10 a Barrel" - BloombergView
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Goldman Sachs is reporting huge demand for agricultural-related investments and although it might be a bit early, this is a trend to watch,
"Money managers have gone from a net short position of about $10 billion earlier this year to long wagers of $25 billion, Goldman analysts and traders, including Anthony Dewell, a managing director in New York, said Tuesday in a webcast presentation.
"'That $35 billion inflow was even faster and larger in scale than the buying the market saw during the 2012 drought,' Dewell said."
"Goldman Says Money Pours Into Agriculture Fastest in Four Years" – Bloomberg
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Markets are showing bullishness this morning but plenty of Brexit-related anxiety remains. Citi analysts report that their traders have thrown up their hands on valuing currencies and assets during the U.K. separation process while former Fed chairman Bernanke outlined the high probability of a British recession,
"Fundamental uncertainty will depress business formation, capital investment, and hiring; indeed, it had begun to do so even before the vote. The U.K. economic slowdown to come will be exacerbated by falling asset values (houses, commercial real estate, stocks) and damaged confidence on the part of households and businesses."
Just as in 2012 during the European debt crisis, I don't think Canadian investors need to worry too much about a U.K. recession unless economic or financial problems start to spread globally.
"@SBarlow_ROB Citi: ""No one knows how to price the Brexit scenario going forward." pic.twitter.com/CRf1OQ7o2q "" – (incl Citi research excerpt) Twitter
"Economic implications of Brexit" – Bernanke, Brookings Institute
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Tweet of the Day: "@ReutersJamie Value of negative-yielding bonds around the world jumps by $1 trillion after Brexit to $11 trillion - BAML pic.twitter.com/NNX8wh5Zb7 " – Twitter
Diversion: " This is what it takes to be a spy master" – Business Insider