A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
On Tuesday, I argued that short covering played a big role in last week's sharp rally in the energy sector and, with the panicked removal of shorts largely over, the rally is likely to fade. Bloomberg's Isaac Arnsdorf however, went much further, using five charts to contend that the oil rally is doomed. The five charts depict falling long dated future prices, U.S. stockpiles, the "fracklog," rising Saudi production, and producers locking in current prices in belief things won't get much better.
The fracklog issue is the new one and might – MIGHT – signal that it's different this time. In simple terms, the huge untapped, readily accessible reserves in the ground for shale producers represent another form of oil inventories and a supply overhang that limits commodity price upside:
"The three top-producing shale fields have more than 3,400 drilled but uncompleted wells, according to Bloomberg Intelligence. In oil-producing regions nationwide, there are more than 4,000."
"The Oil Rally Looks Doomed, in Five Charts" – Arnsdorf, Bloomberg
"Europe's Biggest Oil Refiner Joins Those Predicting End of Boom" – Bloomberg
It's hard to imagine a more timely analysis than the Tamsin McMahon's article "Deconstructing Canada's housing market valuations." Ms. McMahon surveys prominent global strategists with opinions ranging from the apocalyptic – Deutsche Bank's "60 per cent overvalued" view to the CMHC's seemingly Pollyanna-ish "three per cent overvalued."
"Deconstructing Canada's housing market valuations" – McMahon, Report on Business
The CBC's Don Pitts echoes the Citigroup view that ultra-loose monetary policy across the world is creating deflation by preventing the creative destruction of companies going out of business:
"In the new scenario, the role of Japan's wobbly banks [in the 1990s] has been taken by central bankers, creating a worldwide plague of companies that are the moaning, groaning walking dead."
"Is U.S. Fed chair Janet Yellen creating a zombie economy?" – Pitts, CBC
See also, "Citi strategist is really, really bearish on global markets" – Barlow, Inside the Market (March 27, 2015).
The Investor Field Guide blog looks back at 50 years of market performance history, notes a number of surprising facts, and provides a guideline for investors to prepare for the decades ahead:
"Across the board, consumer staples stocks have dominated. They've delivered the highest return, and the second lowest overall AND downside volatility. Technology has been the polar opposite, delivering lackluster and volatile returns to investors. I've included both equal and market-cap weighted returns, and they disagree in spots.
It will be hard to identify the companies that will be the beverage and tobacco stocks of the future. I believe the most reliable way to try is to use models. Making decades-long predictions is impossible. It is far easier (or at least, has been historically) to use stock selection factors (value, momentum, quality, yield) to find stocks that have higher odds of doing well in the next 1-5 years."
"Seeing the Future from the Past" – Investor's Field Guide
Diversion: "This Girl's Hulkbuster High Chair Will Make You Wish You Were a Toddler" – Toyland