A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
There is growing evidence that the Canadian economy is sleepwalking towards a serious downturn. So far, the prevailing wisdom is that as the commodity supercycle subsides and global growth leadership moves to the United States, domestic manufacturing companies will pick up the economic slack with exports south.
But as the ROB's Greg Keenan reports, the Big Three automakers that form the most important driver of this theme are not playing along. General Motors Co. mid-term strategy "points to the end of vehicle production in Oshawa, Ont., and a cut at a plant in Ingersoll, Ont. to a single shift." Reports indicate that Ford Motor Co. will divert new investment to Mexico and Chrysler Canada Inc.'s commitment to Ontario is alarmingly vague.
The assumption that it's a "done deal" that central Canada's manufacturing sectors will exit hibernation in the coming years is misguided at least in part. As the former employees at Leamington, Ont.'s Heinz plant are well aware, a good chunk of the country's manufacturing capacity is not just idle, it's gone.
Canada has an enviably flexible economy with an enviably educated work force and we can deal with this. But it won't happen without considerable effort and planning.
"Fresh worries arise over future of General Motors in Canada" – Keenan, Report on Business
"Weak loonie? Pick exporters' stocks carefully" – Barlow, Report on Business
Since it appears it's Pessimism Day in Canada, Tom Bradley's view on the domestic housing market fits right in. In a recent blog post, the founder of Steadyhand Investments Funds Inc. pushes back on recent sanguine reports on the Canadian real estate market by the Canada Mortgage and Housing Corporation and Royal Bank of Canada.
"Pricing and market psychology will not be determined by the 72 per cent of homeowners who have more than 25 per cent equity in their house. Rather, it will be driven by the 5 per cent who have less than 10 per cent equity. The mistake forecasters made in the U.S. a decade ago was taking comfort from the majority instead of being wary of the weak minority… extreme cycles don't end with 'benign' corrections. It just doesn't happen."
"An in-depth look at the Canadian housing market" – Bradley, Steadyhand
There is increasing anxiety surrounding the U.S. corporate debt market focused in the energy sector. Barrons reports:
"Martin Fridson, chief investment officer at Lehmann Livian Fridson Advisors LLC, calculates that 18.1 per cent of high-yield energy issues were trading at distressed levels at the end of November, versus a distress ratio of 8.45 per cent for the Bank of America High Yield Index as a whole."
The U.S. corporate debt market has been extraordinarily popular in the post-crisis era and is definitely a crowded trade at this point. Much of the retail investor interest in the sector is through ETFs where liquidity is a bit of an illusion – the ETF has liquidity, but the underlying holdings in many cases do not. If the energy sector kicks off a selling frenzy, liquidity will be a serious issue and some major sell-offs become likely.
"Distress is rising among high-yield energy companies " – Barrons
"Moody's: Canadian high-yield bond covenants deteriorate; trend closer to U.S. bond covenant quality" – Moodys.com
"Oil price collapse roils U.S. junk bond funds" – Reuters
Diversion: "This machine turns water and CO2 into petrol" – Gizmodo
Follow Scott Barlow on Twitter @SBarlow_ROB