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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 Web

The Bank of Japan's surprising reluctance to add monetary stimulus Thursday is far more important to North American investors than many realize. For years, hedge funds have been making trades that look something like this: pledge $200,000 to a Japanese bank or insurer to borrow $10-million, then use those funds to invest in U.S. Treasuries or S&P 500 stocks. These managers were confident in profits because the Japanese yen was expected to devalue against the U.S. dollar until the end of time, making the loan cheaper to pay back.

The central bank announcement overnight caused a big surge in the yen, and hedge funds are scrambling to sell U.S. assets to repay the yen loans. As London Capital's Ipek Ozkardeskaya wrote, "You could almost hear a whoosh of carry unwind as the USDJPY nosedived to 108.73 as knee-jerk reaction."

If there's excess market volatility today, the Bank of Japan is likely the culprit. The mass unwinding of leverage can cause significant problems.

"BoJ Punctures Risk Appetite" – London capital Group
"Bank of Japan Stuns Market by Holding Off on More Stimulus" – Bloomberg
"@ReutersJamie USD/JPY -3%. It's lost more than 3% on only 5 days since 1998, and only 20 days since Bretton Woods collapse in 1971 " – (includes chart) Twitter

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Canadian taxpayers are reluctantly cheering news that Bombardier has received a huge order for 75 C-Series jets from U.S. airline Delta – it decreases the odds that the federal government will throw another $1-billion into the furnace of the company's operational dysfunction.

"Bombardier gets lifeline with Delta deal for 75 C Series jets, posts loss" – Report on Business

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The research department of business consulting firm McKinsey has terrible news for long-term investors,

"A coming collapse in investment returns means that people that age today will have to work seven years longer or save almost twice as much to end up with the same nest egg as those of roughly a generation ago… the last 30 years have been a "golden era" of exceptional inflation-adjusted returns thanks to a confluence of factors that won't be repeated. They include falling inflation and interest rates, swelling corporate profits and an expanding price-earnings ratio in the stock market."

Thanks guys.

"End of Golden Era for Investors Spells Troubles for Millennials" – Bloomberg
Related: "We are in the 'first inning' of a 'washout' in hedge funds, says top hedge fund manager" – CNBC
"Daniel Loeb warns of hedge fund 'killing field'" – Financial Times

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A U.S. senator is livid at Valeant Pharmaceuticals International Inc. and it's not hard to see why. Valeant executives appeared before the Senate Wednesday to justify their strategy of buying existing drugs and jacking the prices up. If that weren't enough, the incoming CEO's expected pay package of almost $70-million really annoyed the public officials,

"Senator Susan Collins' mic was still on and she said something about compensation, seemed shocked at the amount, and did not seem pleased.

"'Did you see this last thing, the pay, $67 million? This is outrageous,' she said."

"Now we know why Valeant's new CEO took the job, and it seems politicians are upset about it" – Lopez, Business Insider

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Tweet of the Day: "@conorsen Advertising and attention have replaced manufacturing and then credit as the growth engine of the US economy." – Twitter

Diversion: "How to Turn a Supply Ship Into a $62 Million Luxury Yacht" – Gizmodo

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