Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
The financial end of social media is where I get links to the most market-moving news of the day, curated by professional money managers and traders who generously answer questions and forward the most topical research reports I normally wouldn't have access to. The problem in the last 48 hours is that a combination of unspeakable Brexit-related tragedy and highly emotional research about central bank policy and negative bond yields has turned financial media into a hyperbolic madhouse.
The best example of this hysteria Friday was a Citi report comparing current central bank policy to German official Rudolf von Haverstein – the man responsible for Germany's pre-war bout with hyperinflation – and a doctor performing illegal experiments on patients,
"If ever there was a time to invoke the Havenstein experience, it is now. The fact that there are qualified, experienced people at the helm directing policy does not mean that they are exempt from occasionally being utterly misguided in their perceptions of positives versus negatives when it comes to economic theory and policy. This is especially true as the policy remains unconventional, experimental and theoretical… as a society, we do not let doctors perform experimental procedures on everyone who walks through the hospital doors. Yet for some reason, there are a lot of PhD holders from a different industry who are doing just that to entire nations and economic zones."
Well then.
Former Federal Reserve member Narayana Kocherlakota has a much more sanguine view of negative interest rate policy, "Negative interest rates could eventually become an even more powerful tool. .. Economically useful as such an option would be, central bankers must recognize that the prospect of being charged, say, 6 percent a year just to hold cash could unsettle people. For such a policy to work as intended, officials would have to do a lot of explaining ahead of time – communication that could have the added benefit of ensuring that the public understands the central bank's goals and supports its methods of achieving them."
Like any reasonable person, I find the trend towards investors paying for the privilege of holding government bonds disquieting – it doesn't seem sustainable. But, proving that financial Twitter can be helpful, pseudononymous emerging markets portfolio manager @Btabrum helped assuage any anxiety by noting that real rates, not nominal are the most important, ""@BTabrum What exactly is difficult about 'negative nominal rates can be positive real rates'?"
"@SBarlow_ROB And the winner for 2016's Most Bizarre Research Report goes to ….. CITI'S GREGORY MARKS! pic.twitter.com/5Kkdd92mvv " (includes Citi research excerpt) Twitter
"Narayana Kocherlakota: Negative Interest Rates Are Nothing to Fear" – Confessions of a Supply Side Liberal
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As for Brexit, The Economist attempts to answer the key question as to how global markets will react,
"The biggest impact will be on sterling. (There is talk that some hedge-fund managers have commissioned private exit polls, so sterling may give us some early clues on the night itself.) The pound has been quickest to react to opinion polls driving the campaign, falling instantly on pro-Leave polls and recovering on pro-Remain ones; overall it is down around 6% this year on a trade-weighted basis… When it comes to equities, the outlook is harder to call. The most-quoted index, the FTSE 100, includes mining and oil firms whose fortunes are not tied to the British economy. And then there are also multinational groups that may gain from a fall in sterling. That said, the hit to confidence from a Brexit vote might still see the FTSE 100 fall"
"What will happen to markets if Britain votes Leave?" – The Economist
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Report on Business columnist Sean Silcoff reminds readers that Canada remains in many ways a branch-plant economy, and there is less than meets the eye to the Microsoft's recent expansion of Canadian operations,
"Inside Microsoft, however, some staffers have been known to cheekily refer to the Vancouver operation as 'Ellis Island,' after the historic U.S. immigration entry station. What Microsoft really wants is to import far more foreign workers to its home base in Washington State than it can under the United States' incredibly restrictive immigration rules. So it uses Vancouver as a staging post. Foreign workers temporarily migrate to Canada and work for Microsoft here long enough to qualify for an intracompany transfer to the United States, a far less restrictive immigration process."
"Microsoft reminds us that Canada is still a branch-plant economy" – Silcoff, Report on Business
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Tweet of the Day: "@justinaknope My story ytd: Chinese firms have to repay a record 2.2 tril yuan of debt in second half bloom.bg/264imku pic.twitter.com/aJiBouG3JE ' – Twitter
Diversion: I had no idea that most sounds in a movie besides the dialogue are faked. "Watch the Painstaking Art of Making Movie Sound Effects" – Sploid
Scott Barlow