Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Geopolitical turmoil in the form of a Saudi air attack in Yemen has crude prices higher this morning but there might be a catch. A series of posts on the Report on Business Inside the Market blog have explained the importance of a steep futures curve – contango – in providing speculative bids for excess oil supply. Higher one-month WTI future prices, if not accompanied by higher 12-month future prices, will reduce contango and could result in the near-time prices falling right back to previous low levels.
"Why Bombing This Tiny Oil Producer Is Roiling the Energy Market" – Bloomberg
"Oil prices surge after Saudi air strikes in Yemen" – Reuters
"As the glut turns: Oil in storage spikes, futures curve steepens" – ROB, Inside the Market
See also: "Don't panic about Cushing [storage] yet" – Kaminska, FT Alphaville
Chinese equity markets have reached ridiculous, Alice in Wonderland valuation levels. FT Alphaville's David Keohane (who's work on China's financial system is always must-read) reports:
"Soaring price-to-earnings ratios, the shrinking yield advantage that stocks offer over bonds and the fact that mainland-listed equities now trade at a 34 per cent premium over nearly identical shares in Hong Kong… as soon as we hear things like 'our traditional market models may not be able to capture the full picture' we get nervous."
"Of Chinese exceptionalism and price-to-whatever ratios" – Keohane, FT Alphaville
The Economist unpacked a report showing massive waste in U.S. government spending. The cringe-worthy report of financial inefficiencies goes to the heart of the U.S. debate over infrastructure development (Canada is much better in this regard, despite alarmist reports.) Most agree that the U.S. government has woefully under-invested in infrastructure, but many rightly believe that the government shouldn't be trusted to allocate a trillion dollars in taxpayer funds to improve it. Hence the impasse,
"Egregious examples have been chronicled by the Government Accountability Office (GAO) in its annual 'Government Efficiency and Effectiveness' report, presented to the Senate earlier this month… 'improper payment estimates' reached nearly $125-billion (U.S.) during the last fiscal year – a $19-billion rise from the year before – mostly because of misplaced generosity to recipients of Medicare, Medicaid and the Earned Income Tax Credit."
"Frugality for dummies" – The Economist
The Marginal Revolution blog produced another interesting post about the scale of water mismanagement in developed countries. Drought conditions continue to spread throughout the world and I'm continually looking for ways to invest in water management systems. One thing seems certain, much of the world is going to be paying a lot more for water in the future.
"At the same time as farmers are watering their almonds, San Diego is investing in an energy-intensive billion-dollar desalination plant which will produce water at a much higher cost than the price the farmers are paying. That is a massive and costly misallocation of water.
In short, we are spending thousands of dollars worth of water to grow hundreds of dollars worth of almonds and that is truly nuts."
"The Misallocation of water" – Marginal Revolution
Tweet of the Day: "@ReutersGMF Recording shows pilot locked out of crashed #Airbus cockpit - NYT http://uk.reuters.com/article/2015/03/26/uk-france-crash-airbus-lufthansa-idUKKBN0MK0ZO20150326 #4U9525"
Diversion (loved this): "After all, the decay is well known, and Silicon Valley's bulls*** empire is impervious to critique."
"The Taming of Tech Criticism" – The Baffler
Scott Barlow