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Merrill Lynch warns of ‘potential manias, panics or crashes’

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

Oil prices are headed for their strongest week in 2017, but they are also set to become the worst performing major asset for the first quarter.

This is a frustrating environment for investors, offering few hints on the future direction of the commodity price, but fitting. The short term crude price outlook is mixed, at best, but, as I noted yesterday, the mid-term forecast, with a possible shortage of supply in the next few years, remains constructive.

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"Oil Set for Biggest Weekly Gain in 2017 as OPEC Eyes Extension" – Bloomberg
"IEA says oil prices will not jump sharply, despite OPEC supply cuts" – Reuters
"Oil retreats, set to become worst-performing asset in Q1" – Reuters
"@chris1reuters #Brent crude #oil about to become the worst performing Q1 asset @ReutersGraphics #OPEC #OOTT #WTI #shale #gas #copper #gold $SPX ' – (chart) Twitter
"@chigrl Oil Demand Growth 2016-17 (mmb/d) #OOTT ' - (chart) Twitter


U.S. markets have done a solid job ignoring Washington D.C., until now. Stock futures are lower and bonds are higher and, while there's likely a host of reasons, a developing scandal is almost certainly involved,

"According to the Wall Street Journal, [former National Security Advisor Michael] Flynn is seeking an immunity deal from the FBI and the congressional intelligence committees in exchange for an interview on the Russia investigation, a potentially ominous move for a Trump administration struggling to move past the allegations surrounding it. What Flynn would discuss with investigators if granted immunity is unknown … A cryptic statement by Robert Kelner, Flynn's attorney, also provided more questions than answers. 'General Flynn certainly has a story to tell, and he very much wants to tell it, should the circumstances permit.' A request for immunity isn't an admission of guilt or wrongdoing. It may be sought by witnesses who fear that their words could be used against them, as a condition of their testimony."

"'General Flynn Certainly Has a Story to Tell'" – The Atlantic
"Michael Flynn Offers to Testify Before Congress in Exchange for Immunity" – NY Times
"Fed's Kaplan sees risk Washington could derail the expansion" – Marketwatch


Merrill Lynch chief strategist Michael Hartnett reminds the firms' clients to be ready for anything,

"Longer term, we continue to remind ourselves it's not a normal cycle. 'Normalization' from 5000-year low in rates, 70-year low in G7 fiscal stimulus, 35-year high in U.S.-German rate differential, all-time high U.S. stocks vs EAFE, 75-year low in banks stocks is unlikely to be peaceful. Long gold in anticipation of potential manias, panics or crashes. The treacherous path of normalization means Fed rate cuts in 2018 are entirely plausible."

"@katie_martin_fx A reminder from BAML that markets are Not Normal. Buy gold." – (research excerpt) Twitter

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Bloomberg's Gadfly argues that selling in Lululemon is overdone,

"The market's tantrum seems a bit overblown. For one thing, Lululemon says it expects comparable sales to increase for the full year and reiterated it's on track to reach its goal of doubling revenue to $4 billion by 2020.If you're skeptical, just look at the fourth quarter numbers released late Wednesday. When other retailers struggled to bring in customers during the cutthroat holiday season, Lululemon managed an 8 percent increase in comparable sales."

"Lululemon Critics Need To Chill Out" – Gadfly


Tweet of the Day: "@stephenfgordon From the archives: At Bombardier, economic nationalism is last refuge of incompetent managers " – Twitter

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Diversion: "The effects of banning advertising in junk food markets" – VoxEU

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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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