A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The Cyclically Adjusted Price Earnings (CAPE) ratio has been the biggest hammer in the bears' toolbox for well over a year. As equity markets continue to rise despite the high CAPE, however, the theory that the metric is a useful one is increasingly in question. Morningstar wades into the debate Tuesday: "It's all well and good for [Yale economist Robert Shiller] to brandish a … CAPE ratio diagram that appears to have predicted stock market behavior over the past several decades, … but Shiller constructed that chart looking backward. Applying the CAPE ratio using only information that was available at the time – which of course is what actual investors must do – would have yielded few useful predictions."
The longish post also focuses on a technical, yet vital issue for investors – the ability to choose a data sample that fits a theory.
"The perils of back-testing " – Morningstar
U.S. equity volume is declining rapidly and this is a trend that, at several points in the past, has signaled sharp increases in market volatility. Marketwatch presents five charts explaining the phenomenon. The most interesting chart (in my opinion) shows the sharp rise in futures trading.
It's hard to prove, but I've frequently suspected that trading professionals, having lost their information advantage in equities because of the internet (easily found valuation data), have increasingly moved to futures markets.
"Why trading volume is tumbling, explained in 5 charts" – Marketwatch
China-based Citic Resources Holdings Ltd., the commodities trading arm of one of China's largest state-owned asset management firm, has started legal proceedings against the management company at the port of Qingdao.
"The company was unable to locate 123,446 metric tons of the 223,270 tons of alumina it holds title documents for at the port, the company said that day, adding it also has title for 7,486 tons of copper there."
The market doesn't really care about this story yet, focusing more on improving Chinese economic data. If the problem spreads, however, it could have drastic effects on global commodity prices.
"Citic Resources starts legal action over port material " – Bloomberg
See also: "China developers slow to pay realtors amid rout" – Bloomberg
The Wall Street Journal reports that U.S. crude oil futures have endured their worst losing streak since 2009 as Libyan exports recover. Notable, but it's still only seven days.
"Oil futures post longest losing streak since December 2009 " – Wall Street Journal
Tweet of the Day is from Canadian trade lawyer Mark Warner, @maawlaw: "Canada's bond market among the world's worst for transparency, say traders – oligopolistic banking system to blame?"
Diversion: "Most played music artists by major American city. Some of this is just indefensible." – Twitter
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow