Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
Crude prices and the Canadian dollar are significantly lower this morning, but it could have been a lot worse.
West Texas Intermediate Crude futures are well off their overnight lows around $37.50 (U.S.), and the loonie has also bounced back from initial selling.
OPEC's failure to reach an agreement to freeze production levels is the clear cause of the weakness, but there are at least two major research houses looking through short-term volatility to see a bullish outlook for commodities.
Merrill Lynch strategist Michael Hartnett identified the commodity asset as the most "humiliated," which sets up resource prices for a bright future,
"Today commodities are the humiliated asset class (long run returns lowest since 1933) thus secular upside greater than downside"
Citi research is also forecasting strong returns in the commodity markets,
"[Citi] raised its 2016 forecasts for copper, zinc and aluminum, which have all rallied from multi-year lows. Zinc traded near an 8-month high on Monday, while copper rose to the highest since November last month. The analysts increased their prediction for West Texas Intermediate oil to $42 a barrel in 2016 from $39."
"Grand Oil Bargain Is Victim of Saudi Arabia's Iran Fixation" – Bloomberg
"@jjeswani BAML: Buy Humiliation, sell Hubris" – Twitter (includes research excerpt)
"Commodity Rout Over Worst as China Fears Ebb, Citigroup Says" – Bloomberg
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Michael Mauboussin is the former Chief Investment Officer at Legg Mason and was also the author of my selection for the single best investment essay written in the past 20 years, Decisionmaking for Investors. Mr. Mauboussin recently published a helpful list of investor "Pitfalls To Avoid." The No. 1 pitfall is overconfidence,
"Edward Russo and Paul Schoemaker, in their book Managing Overconfidence, argue that this confidence quiz measures how well we recognize the gap between what we think we know and what we do know. They point out that good decision-making means knowing the limits of your knowledge. Warren Buffett echoes the point with his circle of competence concept. He argues that investors should define their circle of competence, or area of expertise, and stay within it."
"Mauboussin: Pitfalls To Avoid" – Farnam Street
"Decisionmaking for Investors" – Mauboussin, Retailinvestor.org
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A Macleans report detailing recent stimulus-related comments by Bank of Canada governor Stephen Poloz confused pretty much everyone over the weekend,
"According to Poloz, the big mistake the critics of deficit spending make is failing to adjust for the fact that these are far from normal conditions. Economic growth is so weak, and inflation is so low, that the Bank of Canada will be under no pressure to raise interest rates."
Mr. Poloz's comments were a seeming rebuttal to critics concerned that increased government spending will cause inflation, which will force the bank to raise interest rates and defeat the whole purpose of fiscal spending in the first place.
The confusing thing is that economists concerned about too-high inflation pressures aren't visible anywhere. The larger concern – Laval University professor Stephen Gordon is the most visible voice for this - is a pseudo-Japan situation where spending fails to spur growth while adding to government debt liabilities.
"Poloz takes on the 'cavalier' critics of fiscal stimulus" – Macleans
"Fiscal Balance and Unemployment" – Worthwhile Canadian Initiative
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Tweet of the Day: "@RBS_Economics China's latest credit boom is bigger than Indonesia's economy, almost as big as Mexico's. pic.twitter.com/hkvjLomhoj " – Twitter
Diversion: " Man Accidentally Discovers 'Perfectly Preserved' Roman Villa in his Back Yard" - Independent U.K.
Scott Barlow