A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Goldman Sachs' research department initially blamed the "evil speculators' for the sell off in the crude oil price, but a new, far more pessimistic forecast shows a distinct change in tone. Goldman has now slashed its expectations for the West Texas Intermediate crude benchmark price from $90 (U.S.) to $75 for the first half of 2015 with a small improvement to $80 for 2016.
The big change is that shale oil, not Saudi oil production, is now the primary determinant of the oil price. FT Alphaville's Izabella Kaminska summarizes: "As Goldman notes, the price of that marginal WTI barrel probably needs to decline to $75 per barrel to slow the growth of U.S. shale volume to a rate that doesn't undermine the wider long-term contracted oil producing network."
"Goldman's new improved view on the oil sell-off" – FT Alphaville (registration required)
The highly useful Sober Look blog extrapolates from this view, observing that Saudi Arabia may be perfectly happy with lower oil prices as a means to squeeze out competition with higher production costs.
"The Saudis have the staying power to undercut the competition" – Sober Look
Jason Kirby at Maclean's detailed the end of the commodity supercycle and the potential effects on the domestic economy. The entire piece is worth reading, including this ominous quote from Bank of Montreal economist Doug Porter, who called the slide in commodity prices the "single most important development for the Canadian economy."
"What a commodity bust would mean for Canada's economy" – Maclean's
An excellent post from my go-to source for behavioural economics reading, Psy-Fi, analyzing the Nifty Fifty investing fad of the 1970s and what it can teach investors today. The main takeaway is that investors should focus on companies that make what consumers want today rather than try to predict the future.
The conclusion is a good counterpoint against my belief in cloud computing stocks so I need to take a much closer look at the theme. Key quote: "Although, over the decades, many of the [Nifty Fifty] stocks turned out to be lacklustre performers, a subset of them turned out to be anything but. In fact, retrospective analysis shows that the sky-high ratings paid for some of these stocks back in 1972 actually underestimated their earnings potential. Philip Morris, Coca-Cola, Merck, Gillette, McDonald's, Disney and PepsiCo (and, of course, if included, Wal-Mart) were the best performers."
"Quality plays: Rational exuberance?" – Psy-Fi
The stress tests of European banks by the European Central Bank turned out to be an odd form of non-event. Twenty-five banks failed the tests, but markets do not seem overly concerned because no globally significant institutions were included among those that were deemed to need more capital.
Italy's Banca Monte dei Paschi di Siena was the most prominent institution to receive a failing grade, and management immediately hired investment bankers to explore a sale to larger competitor.
"25 banks failed Europe's stress test, need to raise $31-billion" – The Atlantic
Diversion: "The nine biggest screw-ups in technology history" – Gizmodo
Follow Scott Barlow on Twitter @SBarlow_ROB