Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The investment stars are aligning for agricultural stocks. It's likely too early to actually buy fertilizer and food producer stocks, but a number of factors point to a mid-term rally in the sector.
Tactically, the sector is hugely under-owned by portfolio managers as a chart from Short Side of Long indicates (link below). Second, as The Economist notes, huge investment will be needed in the sector to serve the rapidly rising standards of living, and richer diets, in the developing world;
"The [United Nations] reckons that food production will need to increase by 70%. Worries abound. Crop yields are flat. And many trends are negative: new crop diseases, urbanisation, desertification, salinisation and soil erosion, which outstrips renewal even in developed countries."
The third reason for bullishness in agriculture is weather. The surface temperatures in the Pacific Ocean are abnormally high and experts believe a global El Nino pattern, which caused major supply disruptions and soft commodity price spikes in the late 1990s, may be imminent.
"Is the world running out of food?" – The Economist
"Short Selling Agriculture" – Short Side of Long
"Weather Service joins call for a strong El Nino event" – Washington Post
There's no non-blunt way to say this: an increasing number of U.S. hedge funds appear to be building short positions in Canadian housing:
"One Canadian housing analyst who advises U.S. clients, including Cohodes, said major investors are currently 'building positions' against Canadian housing targets. They are forecasting a raise in historically low U.S. interest rates this fall will spill financial stress into Canada.
'All of the big global macro funds that were involved in betting against the U.S. in 2007 and 2008 and 2009, they've all studied Canadian housing for a few years,' said the Canadian analyst, who asked not to be named because of client confidentiality. 'I know a number of them are shorting Canadian housing. It looks like an accident waiting to happen.' "
There are a lot of readers who view short sellers as evil and malicious, but I don't really. The ability of even highly leveraged and aggressive funds to affect economic results is limited, although they can temporarily limit stock gains. In this case, by putting investor assets behind their opinions, the U.S. managers could be viewed as providing an important warning to Canadians.
"U.S. short sellers betting on Canadian housing crash: 'An accident waiting to happen' " – National Post
Twenty years working for investment banks taught me that for investors, how to think is far more important and profitable than specific investing techniques. It's just my opinion, but I think books like Daniel Kahneman's Thinking Fast and Slow, neurobiologist Daniel Eagleman's Incognito and blogs like Psy-Fi are far more useful for investors than popular "How to Invest" tomes.
With this in mind, the long, brilliant study "Biases in Trading: The Neuropsychological Contest of Emotion and Logic" is a must-read, as the introduction suggests:
"Even when we attempt to reason as objectively as possible, emotion interferes in the process, resulting in an outcome intertwined with our instinctive emotional biases. Hence, this inherent predisposition to faulty reasoning – to be a slave to our passions – our fallibility; was regarded as the manipulative function by George Soros. Nb. Not only do we manipulate reality, but also our understanding of it."
I haven't finished the paper, but really looking : The Neuropsychological Contest of Emotion andforward to the "Anatomy of a Gold Bug" chapter.
"Biases in Trading Logic" – Reflexive Macro
Tweet of the day: "@rprose German Finance Minister Wolfgang Schaeuble said, rather than making progress, the Greeks had moved 'backwards.' " http://t.co/tYrpzmkIBL – Twitter
Diversion: "The Superstitious Murderer Who Turned Her Victims Into Cake And Soap" – Gizmodo
Scott Barlow