A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The Financial Times' Alphaville blog's Izabella Kaminska believes that recent weakness in commodity markets is less a matter of changes in supply and demand dynamics than a breakdown in a cartel system that was artificially keeping supply off the market. It's a fascinating argument – requiring more research – that suggests resource stocks have a lot further to fall as fundamentals re-assert themselves.
"Small surprise then that the repercussions of Opec's non cut last week have turned to wide-eyed realization for some market participants that the price function in commodity markets has never really been about the fundamentals as much as the dedication of certain entities to 'not sell' volumes when they have them to hand.
The key market to keep focus on now, according to Goldman Sachs metals team, is copper.
Especially, as they note, that so much of the price depends on the goodwill of the copper buyer of last resort, namely China's State Reserves Bureau."
"Wanted: Buyer of last resort for commodities" – Kaminska, FT Alphaville (registration, not subscription required)
I admit I was a bit spooked Monday morning's flash crash in Apple Inc., the world's largest stock by market cap. Apple fell almost six dollars in one minute at 9:50am Eastern time, and no one really has a good answer as to why.
Bloomberg's Matt Levine took a closer look with a focus on the effects of high frequency traders, "the limit-up/limit-down rules 'worked': The 'right' price for Apple during that weird minute might have been $114 or $115 or $116, but it surely wasn't $110. You couldn't necessarily have known that at the time, but by five minutes later it was obvious. The price rebounded quickly, and $111.27 was just an unpleasant memory. It would be hard to argue that there was a fundamental justification for Apple to be at $111.27 at 9:50am, when it was $5 higher a minute earlier and $2 higher 30 seconds later, with no news on either side."
"Apple had a rough morning" – Levine, Bloomberg View
Hedge funds are closing and returning assets to shareholders at an alarming rate after the intense market volatility of October and November. This is definitely NOT a good trend for the average investor. Hedge funds sell all their positions as they close and this puts downward pressure on asset prices. It puts a lot more pressure on prices if the fund is leveraged – using borrowed funds to invest more than 100 per cent of fund assets. (Unwinding short positions can put upward pressure in some cases but generally there are far fewer short positions than long, in even the most aggressive funds.)
Bloomberg reports, "In the first half of the year, 461 funds closed, Chicago-based Hedge Fund Research Inc. said. If that pace continues, it will be the worst year for closures since 2009, when there were 1,023 liquidations."
"Hedge funds shut as managers struggle in year of two per cent returns " – Bloomberg
Also from Bloomberg, an important study from BlackRock Inc. warning that professional investors are not adjusting to new market conditions and are stuck with exposure to outdated market trends like energy. Investors are fighting the last war, waiting for recoveries in stocks in previously winning sectors while ignoring rallies in new industries like U.S. health care and U.S. retail.
"The rapid slide in oil prices has left many money managers overseeing outdated portfolios and missing emerging opportunities from Turkey to India and Indonesia, according to BlackRock fund manager Sam Vecht.
'Whether you're in Europe, or the U.S. – whatever kind of fund you manage – the portfolio that works well with oil priced at $110 oil is not the same portfolio that works at $70,' Mr. Vecht said in an interview on Nov. 28. 'I really don't think many people have moved their funds enough to reflect that change.' "
"BlackRock's Vecht says oil rout leaves portfolios outdated" – Bloomberg
Diversion: Chris Rock is both very funny and wise in this wide-ranging interview. "In conversation: Chris Rock" – Vulture
Follow Scott Barlow on Twitter @SBarlow_ROB