A roundup of what The Globe and Mail's market strategist Scott Barlow is reading today on the Web
The surge in Canadian GDP growth reported last week is welcome, but, as CBC notes, the underlying details are not that great,
"Canada's addiction to real estate goes far beyond our obsession with talking about it. Our economy actually relies more on the fees associated with buying and selling houses than it does on agriculture, fishing, forestry and hunting combined …'This is a stunning 1.9 per cent of GDP,' said Macquarie analyst David Doyle. 'It's really concerning, it's really unhealthy.'"
"Canadian economy's addiction to real estate fees is 'stunning,' says analyst" – CBC
===
Goldman Sachs strategist David Kostin makes an important observation – whether they know it or not, every equity investors has taken a position on inflation. The report concerns U.S. markets but the same thing applies to the TSX. Inflation will significantly affect price to earnings ratios, and dividend sectors are also right in the way of change (if it occurs),
"Every equity investor is implicitly or explicitly taking a view on inflation. Our economists note rising labor costs… A Fed hike in December and our economists' four expected hikes next year will lift bond yields by 50 bp to 2.75% by year-end. Although the equity risk premium will continue its downward trajectory, we expect the S&P 500 index will end the year at 2400 (-3%). Bullish managers point to persistently low inflation trends and implied inflation, a slow pace of Fed tightening, and stable bond yields that will support P/E expansion to 19x and a year-end S&P 500 level of 2650 (+7%)."
"@SBarlow_ROB GS: "Every equity investor is implicitly or explicitly taking a view on inflation"" – (research excerpt) Twitter
===
University of Alberta professor Andrew Leach details that, while regulation was a factor, the cancellation of Petronas' $10-billion investment in B.C. energy was more a matter of market forces,
"At some points during 2012 and 2013, the spread between the value of a gigajoule of gas in Alberta and Japan was over $15—more than enough to pay for liquefaction and shipping. In fact, it was this differential that led governments and industry to push hard for LNG terminals … However, all did not stay as it was in 2011-2015, nor had it always been that way."
"Why Petronas cancelled its plans for an LNG project on B.C.'s coast" – Leach, MacLean's
===
Bloomberg details an academic study showing that bond markets are an effective leading indicator for equity returns,
"'The bond price reaction provides incremental explanatory power for post-announcement stock returns over and above the information contained in the earnings surprise … and the immediate stock price reaction to the earnings announcement,' writes Even-Tov, an assistant professor at the Haas School of Business. '.. when a company's bond price moves in the aftermath of an earnings beat, for example, its share price will eventually follow suit as stock investors belatedly decipher the complex financial statements.'"
"How Bond Markets Can Predict Moves in Stocks" – Bloomberg
===
Tweet of the day: "@michaelbatnick In 99% of the time at current valuation levels, subsequent 10-year returns have been single digits or negative. " – (chart) Twitter
Diversion: This bent my brain a bit. An M.I.T. physicist is arguing, with justification, that Darwin was wrong about mostly everything,
"Controversial new theory suggests life wasn't a fluke of biology—it was physics" – Wired
Scott Barlow