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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

OPEC negotiations towards an agreement limiting crude production took a turn early Monday with Saudi Arabia posturing like it doesn't care whether a deal happens or not.

This is a big change from weeks ago when the conventional wisdom was that the Saudis were desperate to support prices.

The stakes are exorbitant – Bloomberg estimates that almost $500-billion (U.S.) worth of investments depend on the outcome of the ongoing meetings,

"Oil and gas producers including Exxon Mobil Corp. and Royal Dutch Shell Plc have together added $490 billion to their market value this year, the biggest gain in six years following a 27 percent rise in benchmark Brent crude, according to data compiled by Bloomberg. This follows a $850 billion loss in value last year and $720 billion in 2014 as crude prices plunged … 'It's one thing to hope and another to plan your business for the future,' [BMO analyst Brendan] Warn said. Regardless of the outcome of the OPEC talks "the companies will be focusing on the things they can control, like efficiency and costs."

Failure to reach an agreement could have drastic effects on oil prices as OPEC themselves have warned that without one, Brent could fall to $10 per barrel.

"OPEC Tries to Salvage Deal as Saudis Say Cut Isn't Essential" – Bloomberg
"OPEC makes last-ditch bid to save oil deal as tensions grow" – Reuters
"@JavierBlas2 A lot of posturing now: #SaudiArabia is threatening to walk out from cuts in what appears a signal to #Iran it isn't desperate for a deal " – Twitter
"Oil Investors Have $490 Billion Riding on Big OPEC Decision" – Bloomberg
"OPEC Warns of $10-a-Barrel Price, Insists Other Producers Cut Output" – Wall Street Journal

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The biggest portfolio strategy decision for 2017 (in my opinion, of course) is whether to reallocate positions for higher bond yields and inflation.

Rising yields would be painful for income-generating sectors that have outperformed in the past five years , and dominate the investment accounts of many Canadians. Yes, the income is likely safe for the near term, but portfolio values could be down 20 per cent while investors collect it.

A Bloomberg report cites analysts predicting that this time, the tide has really turned and the bond markets have entered a bear market,

"[Bond investors] pulled $10.7 billion from U.S. bond funds in the two weeks after Donald Trump's victory, the biggest exodus since 2013's "taper tantrum." They also delivered a mixed verdict as the government sold $126 billion of notes and bonds following the election: The seven-year sale required the steepest selloff in more than a week to lure buyers, while in other maturities primary dealers were stuck with an unusually large share as demand plunged … 'We've made the adjustment -- we've had the shock,' said David Kotok, chief investment officer at Cumberland Advisors, which oversees $2.7 billion in Sarasota, Florida. 'But if we get fiscal stimulus, a little more inflation and a little more growth, it implies interest rates are on a trajectory to go higher.'"

"Bond-Market Carnage Breeds Few Bold Predictions for Rebound" – Bloomberg

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The "central bank war on cash" remains a bit of a conspiracy theory but an interesting one. I am unfamiliar with this news site – always a red flag and a warning to take it with a big grain of salt – but there does seem to be an anti-cash trend brewing,

"The biggest and most important deals [at Davos] take shape in these secret meetings. And this year, I think there was one secret meeting with huge historical significance.I think world leaders decided to dramatically escalate the War on Cash, making it easier for them to impose negative interest rates."

"Revealed: The Hidden Agenda of Davos 2016" – International Man

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Loose Links:

"Metals Extend Winning Streak as Copper Notches 17-Month High" – Bloomberg
"Europe's Collateral Crunch" – Gadfly
"Dollar retreats from peaks, euro boosted by Fillon win" – Reuters
"You Already Use Google's Next Big Product" – Motley Fool
"Fears mount of multiple bank failures if Renzi loses referendum" – Financial Times

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Tweet of the Day: "@ValaAfshar Economic history of the world in 1 minute. —@TheEconomist pic.twitter.com/k2wgPKJJj1 " – Twitter

Diversion: "Combative, Populist Steve Bannon Found His Man in Donald Trump" – New York Times

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