A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Richard Bernstein of Richard Bernstein Advisors is still my pick for the best U.S. market strategist working. Mr. Bernstein has been predicting a U.S. manufacturing renaissance for two years, and his forecast got a huge boost this morning from news that Warren Buffett is making his biggest acquisition ever – Precision Castparts Corp – for an estimated $30-billion (U.S.).
Mr. Buffett's faith in a company that makes nuts and bolts and other components for aircraft and other industries shows a large degree of faith in the future for U.S. manufacturing.
The resurgence in U.S. manufacturing represents both good and bad for the Canadian economy. Growth in U.S. manufacturing suggests overall economic growth which will increase demand for domestic exports in many areas. It also, however, highlights that the U.S. is also more competitive than Canada – particularly with respect to wages – in a wide variety of businesses.
"Warren Buffett just made his biggest deal ever" – Quartz
"Berkshire Hathaway to Buy Precision Castparts for $37.2 Billion" – New York Times Dealbook
"Precision Castparts shares surge on Buffett deal" – FastFT
"Buffett Deal Pursuit Reshapes Berkshire as Mutual Fund Era Ends" – Bloomberg
Bloomberg cites an OppenheimerFunds portfolio manager who believes that liquidity issues in the bond market are a myth. I'm not so sure.
Krishna Memani, the chief investment officer of OppenheimerFunds, notes,
"Everyone is talking about [a lack of bond liquidity] as if the whole world will come apart because there are billions that have gone into this market, so all of a sudden billions will leave," said Memani, whose firm is based in New York. "Spreads will widen, but it doesn't mean the market won't function. There will be investors available in the marketplace who will provide the other side of the trade."
Mr. Memani is probably correct (in my opinion) if the discussion is limited to government bonds. But, the current U.S. equity market is driven by share buybacks funded by issuing corporate debt at very low interest rates. A disturbance in this trend – if holders of high yield and other corporate ETFs decide to sell, for instance – would have a big negative effect on earnings. There are already signs of severe disturbance in the U.S. high yield debt markets in the energy and mining space.
"Another Investor Calls Illiquidity a Myth to Repeal Rules" – Bloomberg
Hedge fund manager Conor Sen of New River Investments wrote an interesting post furthering the "decline of television" trend I mentioned last week. Mr. Sen is from the Millenial generation and offers an interesting perspective on the future of media,
"While TV remains the most powerful news medium, its influence is waning. Increasingly, TV and our political leaders are responding to stories that originated online. It's unlikely that Black Lives Matter, Cecil the Lion, and secret Planned Parenthood videos would be topics of national conversation in a world without smartphone cameras and social media.
And yet, we still live in a world where the smart money favors a Clinton and a Bush as their parties' respective nominees. But rather than discussing agendas set by college-educated journalists in New York, DC, and LA, increasingly they find themselves responding to stories that have bubbled to the top of Facebook's algorithmic rankings based on clicks from a billion Facebook users around the world."
"When TV's in Decline and Algorithms Set the News Agenda" – Sen
A terrific post by Josh "the Reformed Broker" Brown posits that the "buy the dip" investing strategy is dying. There is some NSFW language, but the post is worth it no matter how squeamish the reader,
"In an uptrending market, investors are conditioned to hold onto their investments and buy more because it continues to reward them. This is true for real estate, commodities, venture capitalism and, of course, the public markets … Beneath the surface, there is a very different picture forming. The average S&P 500 stock is down 15% from its 52-week high. The positive feedback loop has been broken across vast swathes of the US stock market. Energy, Materials, Utilities, Technology, IPOs, REITs, Small Caps – one by one, our hearts are broken."
"The Positive Feedback Loop is Broken" – Brown, The Reformed Broker
Tweet of the Day: "@TheEconomist When building China's cities, someone forgot the drains http://t.co/poa0Jmmm8q http://t.co/iscmme2iGL "
Diversion: Doctors have long known about the body's second nervous system. The enteric nervous system resides in the gastrointestinal tract and is completely autonomous – doesn't take orders from the brain at all. New research is showing just how powerful the enteric system is - it has a major effect on moods and further research may uncover GI-related treatments for depression and autism.
"The 'second brain' in your gut can control what happens in your brain" – Quartz