A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
News that Goldman Sachs Group Inc. has slashed its crude price forecast is everywhere this morning highlighting an undeniably bleak short term outlook for the sector. There is, however, some good news for investors just beneath the surface. Goldman's 12-month West Texas Intermediate target of $65 (U.S.) offers an optimistic scenario where the severe pain in the sector will be short-lived. At $65 per barrel, a lot of the oil producers currently facing ruin will be once again viable.
There are energy experts with a far less rosy view of the sector. In the company's most recent newsletter (unfortunately, not yet available online), California-based hedge fund manager Peters Capital cites an anonymous but "savvy" energy trader who clearly believes energy investors should walk away and find another sector to worry about for the next few years,
"After such a shock, investors naturally start sniffing around for bargains.... The P/Es will need to come down a lot before you make any money in oil names, this is the first leg down, the cleanse has just started, it's all dead money."
"Oil extends fall; Goldman Sachs cuts forecasts" – Reuters
"Oil has to plunge even further before the shale industry gets seriously damaged " – Business Insider
University of Western Ontario professor Mike Moffatt, arguably the most prominent expert on the economy of southwestern Ontario, is incredulous at the announced corporate welfare announced for Linamar Corp.
The subsidy is obvious good news for the 1,200 new employees Linamar is expected to hire after the expansion in Guelph, Ont., but Prof. Moffatt - in Twitter comments today - notes that the region already has one of the lowest unemployment rates in the country.
There are other, broader questions to ask about the Linamar subsidy. Investors should wonder why Linamar, a veritable poster child for the "Ontario's manufacturing exports will bail out the national economy from the energy collapse" meme, needs a subsidy of this size to motivate expansion. Is central Canadian manufacturing that uncompetitive even with the weakened loonie?
For the record, neither Prof. Moffatt nor myself are against government support for industry. Personally, I'd just like to make sure taxpayer funds are used for companies with a long term, unsubsidized future.
"Linamar to add 1,200 jobs in Guelph, Ont., in boost for auto sector" – Keenan, Report on Business
See also: "Reforging Ontario" – Moffatt, Literary Review of Canada
A lot of readers would prefer to hear about promising individual stock ideas but lately the market is being held hostage by macroeconomic factors – the effects of European deflation pressures and the stronger U.S. dollar on energy prices is just the beginning.
With this in mind, Bank of America Merrill Lynch's list of top macroeconomic trade ideas takes on additional importance. The ROB's Tim Shufelt stole all the attention from the rest of us (and rightly so) with one of the ideas over the weekend in "Bank of America's No. 2 trade for 2015: Short Canadian banks," but there are 14 more.
The other prominent macro themes for investors listed include buy main street and short Wall Street (ie. consumption over financials) and "long U.S. technology, short U.S. utilities."
The full list was helpfully provided on Twitter here .
China's mammoth fiscal spending program was among the main drivers of Canada's recovery from the financial crisis but investors should not hope for a repeat performance if the domestic economy slows. In a recent interview with Bloomberg, former Fitch Rating analyst Charlene Chu assessed China's future in blunt terms,
"things continue to worsen…. We've got the biggest debt bubble the world has ever seen"
"Everybody expects China growth to decelerate, Chu says" – Bloomberg (video)
Also regarding China, Quartz notes that the government's announced strategy of emphasizing consumer spending as the next leg in the country's economic future is nowhere to be seen.
"When companies aren't profiting, they can't raise wages, let alone hire. Yet workers have come to expect the double-digit increases in income that they've enjoyed each year for more than a decade, as GaveKal flags, making it likely households will curtail spending. Grim news for the Chinese government's plan to 'rebalance' its economy, shifting away from industry- to domestic consumption-spurred growth."
"China's deepening deflation is making its slowdown much uglier" – Quartz
See also: "About that $1-trillion China 'stimulus'"- Keohane, FT Alphaville
Tweet of the Day: "@humenm THERE, IT, GOES. 3mth LME Copper below $6,000 for the first time since the financial crisis pic.twitter.com/zDIt5O0RyQ "
Diversion: "The lyrics that define each decade, visualized " – Gizmodo
Follow Scott Barlow on Twitter @SBarlow_ROB
(Note to readers: An earlier version of this blog post incorrectly said Goldman's 12-month price target is $70. In fact, it is $65. Its target for Brent is $70.
Also, an earlier version left the impression the government announced $500-million in funding for the Linamar plant. In fact, the $500-million figure represents the combined funding between the company and governments. )
Scott Barlow