A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The Australian central bank, the Reserve Bank of Australia, followed the Bank of Canada's lead with a surprise cut in interest rates overnight. The temptation for investors is to draw immediate parallels between the two economies. Yes, the Queen is on the money in both cases and the respective equity markets are chock full of resource companies, but there are important differences in the economies of the two countries. Most notably, Canada is far more dependent on oil, and Australia doesn't have the world's largest economy as a destination for its non-commodity exports.
The real question is what happens when every global central bank has cut rates to 25 basis points or lower. What happens then?
"RBA unexpectedly cuts cash rate joining global easing: Economy" – Bloomberg
The big story domestically is Royal Bank of Canada's withdrawal from Latin American and Caribbean markets after warnings regarding money laundering. The Wall Street Journal reports,
"In 2013, the U.S. Office of the Comptroller of the Currency, which oversees U.S. lenders and the American branches of foreign banks, deemed RBC's anti-money-laundering controls unsatisfactory and ordered the Toronto-based bank to rectify that, according to people familiar with the matter… RBC's exit from Latin America comes just over two years after the bank flagged that market for its high growth potential. The bank said in its emailed statement that its international wealth-management business 'is a small component of the global RBC Wealth Management segment and has not met our performance criteria for several years.'"
RBC's abandonment of these markets is unlikely to make a big dent in the bank's financial results but it does highlight the difficulties in finding new growth markets.
"Money-laundering fears fuel an RBC retreat" – Wall Street Journal
For energy investors, the read of the day (after reading my "Three things oil patch investors need to watch this week" column, of course) is Izabella Kaminska's remarkable examination of the boom and bust of oil prices over the past decade.
Ms. Kaminska interviewed Michael Masters, a portfolio manager who, in testimony before the U.S. Congress in 2008, predicted the recent downdraft in oil prices. In Mr. Masters' prescient view, the surge in oil prices over $100 (U.S.) was caused by an investment bubble as pension fund managers and others piled in to commodity markets that were never designed to absorb the inflows.
"[An] index speculator, he argued, differed to the usual sort in two major ways; their strategy was as immense as it was predictable, involving a simply huge allocation of dollars across 25 key commodities in routine bursts. And, he added, 'while the commodities markets have always had some speculators, never before had major investment institutions seriously considered the commodities futures markets as viable for larger scale investment programs."
And that's really where we are today, according to Mr. Masters – at a stage where innovation has corrected a historic imbalance, and produced efficiencies which won't just disappear overnight. If anything, he noted, such efficiencies might accelerate, meaning it's probably a mistake to bet on a price recalibration any time soon."
This compelling argument makes the oil boom sound very much like the technology bubble of the late 1990s.
"Michael Masters on speculation, oil, and investment" – FT Alphaville
Tweet of the Day: "@bengoldacre Big well done, antivaxxers RT @conradhackett: Measles: coming back...economist.com/news/united-st… pic.twitter.com/LPdO5iZwzi badscience.net/category/mmr/ "
Diversion: "These critics made a fantastic list of the best movies of all time" – Vox
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow