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Scott Barlow

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.

Well, yesterday's session was unpleasant. The S&P/TSX composite finished lower by more than 300 points with banks the weakest sector. The "on again/off again" talks between Europe and Greece were the clear catalyst and the fact that Canadian banks were the weakest sector strongly suggests the market was reacting to fears of global financial instability.

I suspect the selling Monday was an over-reaction so I wrote a column about it. (German bonds are stable this morning which adds further credence to the idea yesterday was a market overreaction). Greece is tiny in terms of GDP and the situation only really matters to Canadians to the extent it spreads into southern Europe.

In normal conditions, the right course of action for investors when knee-jerk selling gets excessive is to buy stocks. The problem now is that Europe is not the only problem to worry about. China's economy – roughly 52 times larger than Greece – is also wobbling badly.

The Chinese government's efforts to halt the slide in equity markets over the weekend failed, so Tuesday they took a more direct route by more or less ordering equity portfolio managers to buy stocks and changing the rules to allow pension funds to buy equities in large quantities. Combined, the desperate measures to prop up the Chinese equity market are making a mockery of any notion of "fair value" or "free market."

"This chart explains why Canadian bank stocks got hit so hard on Monday" – Barlow, Report on "Business

"Greece Staggers Into Economic Unknown With Bailout Expiring" – Bloomberg

"China's Slowdown is of Greater Consequence than Greece's Debt" – WSJ, Real Time Economics

"Chinese equities… and fat pipes of wealth extraction" – Keohane, FT Alphaville

"China drafts rules to give pension funds access to stock market" – Reuters

"Never mind Greece, look at China" – Frances Coppola

Ex-bond king Bill Gross, now at Janus Capital, is still writing a monthly newsletter and it's still, well, odd. This month, Mr. Gross waxes poetic about his shower set-up in Laguna Beach (that's not a typo) before providing a disquieting warning about bond market liquidity:

"Mutual funds, hedge funds, and ETFs, are part of the 'shadow banking system' where these modern 'banks' are not required to maintain reserves or even emergency levels of cash. Since they in effect now are the market, a rush for liquidity on the part of the investing public, whether they be individuals in 401Ks or institutional pension funds and insurance companies, would find the 'market' selling to itself with the Federal Reserve severely limited in its ability to provide assistance."

It's been one of my concerns lately that the market issues that pose the most severe threat to Canadian investor portfolios – bond liquidity is one of them – are largely hidden from view or too complicated for anyone with an actual life outside of their quote screen.

"It Never Rains in California" – Bill Gross

Cenovus Energy Inc. announced the sale of its royalty business to the Ontario Teachers' Pension Fund for $3.3-billion Tuesday. The Teachers fund is among the best managed pension funds on the planet and has earned the benefit of the doubt in these cases. Still, Canadian pension funds have been increasingly aggressive in non-conventional investments – CPPIB's (admittedly small) investment in Chinese housing was the biggest shock for me – and the trend is worth watching closely.

"Cenovus sells royalty business for $3.3-billion to Teachers" – Report on Business

Tweet of the day : "@LJKawa Wow. Didn't realize global trade was *that* bad in Q1. Had better rebound, for Canada's sake. (from Barclays) pic.twitter.com/cjbihFEfeb " – Twitter

Oh, by the way, I wrote about why Twitter is the most useful tool for investors yesterday including a list of useful accounts to follow, "Why Twitter is an investors' best friend" – Report on Business

Diversion: "Peek Inside Aston Martin's Totally Bonkers, $2.3M Hypercar" – Wired

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