A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
The 'risk on' rally is continuing this morning with equity futures and commodity prices pointed higher. I'm interpreting this as the adults stepping in to buy after some hot-headed early year panic selling. This view has no implications for the market performance in the weeks ahead – market recoveries from oversold conditions can be a catalyst for further gains or just result in a pause while the shorts can re-load.
The Bespoke Investment Group posted some excellent analysis showing how the rally in recent days has been spurred by short covering. In short, the U.S. equities with the largest short positions at the beginning of the month have jumped the highest.
"@bespokeinvest Here's a look at the impact short covering has had over the last two days: https://www.bespokepremium.com/think-big-blog/a-short-covering-rally/ … $SPY $$ " – Twitter
"Rally, rally, rally. But for how long?" – The Economist
"Global Markets Are Falling Out of Lockstep, and That's a Good Thing" – Bloomberg
The OECD has cut global economic growth estimates with a specifically sizeable decline in Canada's outlook,
"The OECD now projects economic growth of just 1.4 per cent in Canada this year as the oil shock wreaks havoc on parts of the country, with a ripple effect outward. That's well shy of its earlier call in November for 2 per cent. The group also warned of trouble around the world, saying a 'stronger collective policy response is urgent.'"
The CFA Institute published a terrific discussion about the rise of passive investing and its beneficial effects for astute active managers like Warren Buffett. The piece gets technical in parts, but it might be the best explication of active versus passive investing I've read,
"How can Buffett say passive investing is best for most people and also an "enormous advantage" for active investors like him? If it helps everyone else, how can it also help him?
The opposite view is sometimes described as the "suckers at the poker table" hypothesis — the theory that an increase in passive investing is bad for active investors like Mr. Buffett because the fewer suckers there are to fleece, the less profit there is for smart active investors. "
"Active vs. Passive Investing and the "Suckers at the Poker Table" Fallacy" – CFA Institute
A Deutsche Bank analyst has been charged with providing positive advice on a stock to the broader public while telling large, favoured clients a much more pessimistic story. During a 20 year career in finance I have seen this happen numerous times, for both insidious and harmless reasons. It might be a simple as "I know this stock is disturbingly expensive, but there are no signs its rally is fading and I'm not about to stand in front of a runaway train and be wrong for six months or a year" but it happened all the time.
BloombergView's Matt Levine wrote about the Deutsche Bank analyst Thursday morning,
"Teetotalers can be bartenders, doctors can smoke, Ford salesmen can drive Hondas, or bicycles, in their private lives. Mental reservations are allowed. ... Sell-side equity research is like the priesthood. If you are a sell-side research analyst in the U.S., you are required by the Securities and Exchange Commission to conform your work to your inmost beliefs. "When research analysts tell clients to buy or sell a particular security, the rules require them to actually mean what they say," says the SEC's head of enforcement. It is a weird state of affairs. How can the SEC know what you actually think? "
"Deutsche Bank Analyst Kept Some Doubts to Himself" – Levine, BloombergView
Tweet of the Day: "@mark_dow Fed trying so hard to wean us from the Fed Put and get us onto data, but are constrained by our penchant for panic " – Twitter
Diversion: "Physicists Are Freaking Out About Gravitational Waves and You Should Too" – Gizmodo