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Some crowded trades are more dangerous for investors than others

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

The Bank of Canada announces its decision on interest rate policy Wednesday and governor Stephen Poloz's comments should be more relevant for investors that usual. Domestic economic data has been strong overall but there are important pockets of weakness, namely wage growth and a disquieting fall in export volumes. A potential curb on real estate markets by Ontario and federal legislation adds another wrinkle as national growth has been very dependent on the housing boom.

"Here's What to Look For In the Bank of Canada Rate Decision" – Bloomberg
"Economic improvement not enough to change BoC rate outlook´- Berman, Inside the Market
"BMO's 10 reasons why the Bank of Canada should 'lighten up' today" – Babad, Report on Business

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We need to talk about the VIX index. Global portfolio managers have been reflexively shorting the CBOE Volatility (VIX) Index for the past two years and this is creating market risk in a place where most investors aren't looking,

"'We are at an unprecedented time of low volatility, which typically presages epic downturns,' said Christopher Cole, the head of Artemis, a volatility-focused hedge fund. 'I would be shocked if this market regime of low volatility will endure.' … 'There are so many people in this short volatility trade that it's breaking the plumbing on markets and they're not reflecting the risks,' says Adam Sender, head of Sender Company and Partners, a hedge fund … The worry is that if volatility does erupt and stays elevated, investors burnt by bets on tranquility will have to scramble to offset their positions by shorting equities or buying volatility protection, in turn worsening the turmoil."

"Unease grows about bets on market stability" – Wigglesworth, Financial Times


All signs are positive for crude prices this morning,

"Saudi Arabia is likely to back prolonging the curbs into the second half of 2017 in an effort to boost prices, according to a person familiar with the kingdom's internal discussions. Several other countries, including Kuwait, have also expressed public support for an extension."

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"Oil Set for Longest Gain Since 2012 as Saudis Seen Extending Cut" – Bloomberg
"OPEC hikes its 2017 global demand growth forecast as thirst from Asia rises" – CNBC
" Brent oil rises for eighth day on possible extension to supply cut" – Reuters


One of my biggest concerns about marijuana stocks is that governments had not yet outlined regulation regarding distribution, taxes, age restrictions and the like. Ontario premier Kathleen Wynne has stated preference for only selling marijuana through the Liquor Store franchises, for example. Tuesday, Bloomberg reported that the federal government is expected to announce strict guidelines on promotion and branding. This, I expect, is only the start given the country's history with alcohol and tobacco.

"Pot Industry Expects Trudeau Rebuff on Branding and Promotion" – Bloomberg
"Ottawa to speed up approval process for pot producers" - Globe and Mail


There are two relatively depressing columns on global economic inequality by prominent economists making the rounds in recent days. First, Harvard University's Dani Rodrik argues that it's too late to compensate the losers from more liberal global trade,

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"The time for compensation has come and gone. Even if compensation was a viable approach two decades ago, it no longer serves as a practical response to globalization's adverse effects. To bring the losers along, we will need to consider changing the rules of globalization itself."

Second, Branko Milanovic from the City University of New York, writes that economic inequality within developed world countries might make wealth distribution near-impossible,

"Trade globalization has led to the well-documented decline in the share of the middle class in most western countries and income polarization. With income polarization the rich realize that they are better off creating their own private systems because sharing the systems with those who are substantially poorer implies sizeable income transfers. This leads to 'social separatism' of the rich, reflected in the growing importance of private health plans, private pensions, and private education. The bottom line is that a very unequal, or polarized, society cannot maintain an extensive welfare state."

"Too Late to Compensate Free Trade's Losers" – Rodrik, Project Syndicate
"The welfare state in the age of globalization" – Global Inequality


Tweet of the Day: "@Bruegel_org CHART | Decline in manufacturing employment is not US-specific but a common trend in all advanced economies: " – (Chart) Twitter

Diversion: "The inventor of the web is worried about algorithms running the world" – FT Alphaville (free with registration)

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More


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