A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
A post from the Financial Times' Alphaville site this morning attempts to answer the question on most investors' mind at the moment, "should I buy the dip or not?"
Writer David Keohane (who is also a great source on China's financial system) cites Bank of America Merrill Lynch research suggesting that selling has been intense enough that it likely signals a temporary market bottom, "they think this is a 4 to 8 per cent type of correction in the SPX rather than The Big One — they expect 1862 on the S&P (currently 1909) to hold."
In the same post, however, Societe Generale currency specialist Kit Juckes warns that the lack of U.S. economic data, combined with geopolitical tension and low summer trade volumes, means it might be a few days before markets stabilize.
"BTD?" – FT Alphaville (registration but no subscription required)
I've been warning about potential volatility in the high yield debt markets for a while but it's not time for a victory lap yet. The FT reports that investors are fleeing high yield mutual funds and ETFs in record numbers recently, but in performance terms the damage to high yield portfolios is still small. The mammoth iShares iBoxx High Yield Corporate Bond ETF, for example, is only down 2.1 per cent in the past month.
"Investors flee US junk bonds" – Financial Times (sub may be required)
"Debt market lunacy threatens equity investors" – Me, June 2 , Inside the Market
Reuters reports that the Chinese government is cracking down on corporate loan growth, but the news was met by widespread eyerolling on twitter (notably by Victor Shih, @vshih2) from those who believe the Chinese credit binge won't stop until a major crisis appears.
Very few economists believe the official tally for Chinese non-performing loans, which is just over one per cent.
"Chinese banks get serious about risk of bad debts swell" – Reuters
There are a lot of similarities between the casino and brokerage businesses. Both have the tendency to hold out the prospect of quick wealth while distracting customers from basic probability math (yes, I'm talking to you penny stock "investors").
The Vox news site details the incredibly subtle and pervasive methods casinos use to keep gamblers in the building while skimming enormous sums of money from the mathematically illiterate.
"One surprising example are the curving hallways around the property. Many casinos try to avoid making you ever have to turn at a 90° angle. As Natasha Dow Schüll explains in her fascinating book, Addiction By Design: Machine Gambling in Las Vegas, a right-angle turn forces people to call upon the decision-making parts of their brain — to stop and reflect on what they're doing."
The odds of winning in the market are admittedly much better than the casino, particularly for relatively passive investors over longer time frames, but it's still a great read for investors who can look for similar tricks from the investment industry.
"Slot-machine science - How casinos get you to spend more money" – Vox
Tweet of the Day from @darrenrovell "$50 Bloody Mary with whole fried chicken being sold by in Milwaukee (H/T @tjwacker) pic.twitter.com/S2T19g8KNd"
Diversion: Researchers have developed a method of calculating your happiness.
"The Formula For Happiness – Andrew Sullivan" Daily Dish
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow