A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Reasonable investors can expect some volatility after the U.S. Federal Reserve made the end of the third round of quantitative easing official on Wednesday – markets were very weak at the end of QE1 and QE2 and the "taper tantrum" of March 2013 also suggests that we'll see some upheaval.
The post-QE risks to equity markets can be summarized in two words: "Higher rates." But former investment bank executive, now prominent U.K. financial pundit Frances Coppola, is not sure higher rates and rising bond yields are on the horizon.
Ms. Coppola writes, "The prevailing mood appears to be 'now we've got that over, what about interest rate rises?' But this is jumping the gun. The FOMC statement says that interest rates are not expected to rise for 'a considerable time'…. And at present, inflation expectations are well below 2 per cent."
"Goodbye, QE: Hello, rate rises? Not so fast ...." – Coppola, Piera
The FT reports that officials in Sweden, who were attempting to use the exact same sort of macroprudential measures to address household debt that are being considered in Canada, have admitted defeat and dropped interest rates to zero.
Sweden tried to minimize consumer debt growth and a rapidly rising housing market by raising interest rates. Now, deflationary signs for the broader economy are providing the Bank of Canada with a warning to leave well enough alone and let the debt cycle run its course.
Excerpt: "Those who believe that monetary policy should 'lean against the wind' of rising asset prices have been handed a clear defeat. As a conscious policy choice of its central bank, the entire Swedish economy has had to endure weaker growth and below target inflation in an attempt to rein in household debt. Using tighter policy this way is like drenching a field of crops to put out one campfire."
"Tactic of 'leaning against the wind' has failed Sweden" – Financial Times (subscription required)
The indispensable credit markets blog Across the Curve posted some highly interesting comments from Organization of Petroleum Exporting Countries officials supporting the idea that continued production in the Middle East is designed to limit output in shale resources:
"Taking a different view to U.S. industry executives and analysts, Abdalla El-Badri, secretary-general of OPEC, told an industry conference that 50 per cent of tight oil – another term for shale – was at 'risk' at current prices.
'If prices stay at $85, we will see a lot of investment, a lot of oil, going out of the market,' he told the annual Oil & Money conference in London."
"Shale production and the price of oil" – Across the Curve
The ROB published an excellent report arguing against the iron clad control the major Canadian banks currently enjoy over the corporate bond market. Few investors are aware of the lack of transparency and ridiculously high commissions charged to investors in individual corporate names. I'm not unbiased on this issue – I've had a decent-sized tranche of a corporate bond on offer, well below market rates, for six months.
"Why Canada needs transparent corporate bond markets" – Report on Business
Tweet of the Day: "@michaelmcevilly [High yield corporate bonds] weak and staying in that negative trend. Not good for stocks as credit leads."
Diversion: "We may have finally found a piece of Amelia Earhart's lost plane " – Gizmodo
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow