Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web.
A high-level, online discussion between former Fed Chairman Ben Bernanke and ex-Treasury secretary Lawrence Summers would be great no matter what the topic – but for investors, the back and forth is even better this time because the subject is secular stagnation.
The validity of the secular stagnation theory – that aggregate demand, gross domestic product growth and interest rates will remain low for a long, long time – is vital for portfolio strategy and asset allocation. If Mr. Summers is right and secular stagnation is a real problem, then bonds and yield investments will continue to outperform. If Mr. Bernanke's stance, that stagnation is a temporary phenomenon, is correct than investors will soon be forced out of yield-bearing assets and into cyclical stocks.
"Why are interest rates so low, part 2: Secular stagnation" – Ben Bernanke's Blog
"On Secular Stagnation: A Response to Bernanke" – Larrysummers.com
S&P 500 futures dropped 20 points in the wee hours last night – causing a series of panicked tweets from traders – but have since recovered and are now positive.
Business Insider presents the alarmist view this morning, citing sources who believe the overnight volatility is a sign of market turmoil to come:
" 'The manic market movement – sharp plunges and even sharper surges – is not unlike the movement seen prior to major market tops in 2007 and 2000,' [UBS strategist Julian Emanuel] wrote in January. .. While not everyone is predicting a major downturn, most stock market gurus warn that more volatility is coming.' "
As I mentioned, this sounds alarmist to me, but investors should be aware that this view is out there in the professional community and getting more popular.
"Something scary happened in the stock market, and what one analyst said about it was even scarier" – Business Insider
The Financial Times' highly useful Commodities site posted a recap of first quarter commodity markets that contained largely bad news,
"[Chinese] premier Li Keqiang set the growth target at around 7 per cent, saying downward pressures on the economy were building.
His comments came as demand for metals such as copper has failed to pick up after last month's lunar new year. Refined copper consumption in the first quarter grew by only 0.7 per cent according to consultancy CRU, the slowest rate since 2008. Oil imports are likely to stay flat or rise only slightly this year due to limited available storage, according to Chen Bo, president of Unipec, the trading arm of state oil group Sinopec."
"Tough first quarter for commodities markets" – FT Commodities
"Iron Ore's 10-Year Low Not Slowing China Production Push" – Bloomberg
"China oil storage flows key for crude imports: Russell" – Reuters
A terrific post from Motley Fool (they are far more serious and helpful than the name implies, by the way) outlines how successful investment strategies – even and particularly Benjamin Graham's – stop working at some point.
The Benjamin Graham reference is notable. Graham disciple Warren Buffett realized long ago that while the principles of value investing remain key, the methodology for success has changed. In Uncle Warren's case, he moved from Graham's emphasis on value of assets on the balance sheet to stability of cash flow and return on equity as key measures.
I was also unaware that Benjamin Graham acknowledged his value investment method was outdated before his death in 1976:
"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook 'Graham and Dodd' was first published; but the situation has changed a great deal since then."
"Markets Change. So Should You." – Housel, Motley Fool
Tweet of the Day: "@JohnKayFT Why our planes are growing safer and our finances are not:
johnkay.com/?p=9529" – Twitter
Diversion: "The Most Isolated Town on Earth Wants a Radical Redesign" – Gizmodo
Eds note: This is a corrected version of this column. It corrects that the S&P 500 futures were down 20 points earlier, not 20 per cent.
Scott Barlow