A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Goldman Sachs Group Inc. strategist David Kostin's main gauge of investor mood strongly suggests that U.S. investors are overconfident. Mr. Kostin writes, "Our Sentiment Indicator currently stands at a maximum possible reading of 100 … An extreme positive reading (above 90) suggests the S&P 500 has a high probability of falling by roughly 3 per cent during the following six weeks."
This sucks, since the U.S. market is arguably the brightest light among global assets and leaves very little for investors to buy.
"Goldman: Investors might be too bullish right now " – Business Insider
Royal Bank of Canada presented a rare bit of positive news on the domestic economy with a report suggesting the collapse in oil prices will be a positive for the Canadian economy as a whole, citing "a combined effect of three 'offsetting positive outcomes' from low-priced crude: a boost for the U.S. economy; the lower Canadian dollar's benefit to exporters selling to the stronger U.S. market, and more spending by Canadians thanks to cheaper fuel.
The paper's authors, however, are careful to underscore a key risk to the projection: cuts to business investment in Canada's important oil and gas sector."
Canadian markets will be fascinating to watch in 2015 as the prospect of "invisible growth" for investors appears steadily more likely. The industries that are well represented in equity markets – energy, mining and banking – might struggle while exporting companies that aren't a big part of the TSX improve. If export growth kicks in, the economy is likely to do far better than equity markets for the year.
"New study bolsters view that cheaper oil benefits Canadian economy" – Report on Business
More trouble for the Chinese economic miracle. China's growth in the post-crisis period has been driven by infrastructure and real estate investment which has grown at roughly twice the pace of gross domestic product, according to the Federal Reserve Bank of Kansas City.
But as Deutsche Bank points out, this source of economic growth is fading rapidly. FT Alphaville's David Keohane reports that local government land sales to developers, "dropped on a quarterly basis from 40 per cent year over year in Q1 to 0 per cent in Q3… Local governments need land sale revenue to pay for past infrastructure bills. We estimate local governments and their financing vehicles (LGFVs) accumulated RMB20.8-trillion of outstanding debt by mid-2014."
"China's fiscal slide" less fun than it sounds" – FT Alphaville
"China's slowing housing market and GDP growth" – Federal Reserve Bank of Kansas City (August 2014)
See Also: "China's 2014 slowdown in seven charts" – Business Insider
The Wall Street Journal asked what I believe is the most important macroeconomic question for 2015, namely "Can the U.S. keep growing with the rest of the world's economies decelerating quickly?" The report cites Barclays' chief U.S. economist Michael Gapen: "Markets are strongly hinting that global deflationary trends are so strong the Fed will have trouble hitting 2 per cent [inflation] for quite some time."
"Overseas headwinds test U.S. economy" – Wall Street Journal
Tweet of the Day (with chart): "@lebullmarche Total return performances of major global financial assets in 2014 #stocks #bonds #commodities #FX pic.twitter.com/d3rvzesQ5p "
Diversion: "The 2014 tech stories we just didn't see coming " – Wired
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow