A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web.
FT Alphaville's brilliant Izabella Kaminska outlines the counter-intuitive case that central bank monetary stimulus causes deflation, not inflation. With respect to the oil industry, Ms Kaminska describes the process as "the deflationary feedback loop of hell",
"we have a situation wherein so much capital has flown to the shale sector — encouraging so much technological innovation and competition — the chance of anyone breaking even on sunk capital is quickly becoming zero."
In essence, cheap borrowing costs have resulted in high levels of investment, causing overcapacity in oil production and the resulting cheaper fuel costs are causing lower input prices for a wide variety of industries.
"Commodity financing as a deflationary feedback loop of hell" – Kaminska, FT Alphaville (free with registration)
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The global energy sector is proving that no matter how far stock prices fall, things can always get worse. Suncor, arguably the most financially stable oil producer in Canada, reported a quarterly loss of $0.26 per share compared with a $0.63 per share profit a year ago. (Disclosure: I own Suncor in my personal account). Financial results at U.K. energy giant Royal Dutch Shell were far more disturbing as the company announced an $8-billion (U.S.) writedown of assets that pushed the company to a quarterly loss of $6.1-billion.
Investors have seen the stock price effects of lower crude prices over the last year but we are only know seeing the damage to industry balance sheets and future production capacity.
"Suncor posts loss amid weak crude prices" – Report on Business
"Shell profits hurt by $8bn hit from axed projects" – Financial Times
"Three Things to Watch as Oil Companies Count Costs of the Bust" – Bloomberg
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Bombardier's terrible quarterly results – a loss of almost $5-billion (U.S.) - were not a huge surprise. The company has not only failed to deliver its flagship C-Series jet but is also being sued by the Toronto Transit Commission for late delivery of a large order for streetcars. It's also not a surprise that the Quebec government announced a billion dollars in financial support for Bombardier as part of the (lack of) earnings report.
All global aircraft manufacturers enjoy government subsidies. Boeing, for instance, is boosted by billions in sales to the U.S. military. Still, it's difficult to write even a short paragraph about Bombardier without exasperation showing through. The situation has all the hallmarks of government-sponsored moral hazard. Corporate management know that no matter how bad things get, the Quebec government will bail them out. The Quebec government knows that, in turn, federal transfer payments will support their ongoing program of corporate welfare.
"Bombardier swings to $4.9-billion loss, details $1-billion Quebec aid" – Report on Business
"TTC to sue Bombardier over late streetcars" – Report on Business
"Bombardier to Get $1 Billion From Quebec for CSeries Jet" – Bloomberg
"Bombardier patriarch Beaudoin seeks a landing he can walk away from" – Report on Business (October 23)
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A report of mass layoffs at Deutsche Bank highlights an important trend in global markets – the incredible shrinking banking sector. Deutsche's intended layoffs are huge – 15,000 employees.
Domestic banks have also announced layoff intentions but they are a mere shadow of this type of carnage. The trend of shrinking banks that started in the aftermath of the U.S. financial crisis, however, is fascinating and one to watch.
"Deutsche Bank Axes 15,000 Jobs After £4.4bn Loss" – Sky News
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U.K.-based investing website Bond Vigilantes presented five scary charts for the Halloween season depicting slow U.S. corporate investment, high cross asset correlations which leave investors with few places to hide, terrible commodity price forecasts, the growth of global derivatives and greenhouse gas emissions.
"Happy Halloween. Five scary charts that Freddy Krueger would be proud of." – Bond Vigilantes
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Tweet of the Day: "@markets: Top stocks in Canada buy their way to growth bloomberg.com/news/articles/… pic.twitter.com/FjvYmiPXcm " – Twitter
Diversion: "Mapping 16th Century Social Networks with Six Degrees of Francis Bacon" – Gizmodo
Scott Barlow