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Scott Barlow

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

It's convenient that '90s cult favourite The X-Files is in the midst of a comeback because the show's tag line "trust no one" is also good advice for investors in the current environment. There are over $6-trillion (U.S.) worth of global sovereign bonds currently trading with negative yields – investors have to pay to own them - and this is, to say the least, unprecedented.

The bull-versus-bear case for global investors is encapsulated by the question as to whether to believe economic data, which looks fine particularly in the U.S. or asset markets. Importantly, economic data is backward looking – describing what happened last month or last quarter – while equity markets are allegedly forward looking and attempt to predict the future. The inconvenient but irrefutable fact right now is that no one knows what's going to happen in the markets short term.

Kentucky-based municipal bond investor Kristi Kulpepper, who became justly respected through social media, throws an additional bearish wrench into the outlook. Ms. Kulpepper notes that credit markets lead the economy, not the reverse, and current credit stress is not a good omen.

In short, this is not a good time to make big bets in your portfolio. At all.

"Risk Grows of Markets Sparking Recession" – Wall Street Journal
"US and European junk bonds tumble" – Financial Times
"Assault on Banks Intensifies as Investors Punish Weakness" – Bloomberg
"PIMCO: "Negative Interest Rates May Be Part Of The Problem" – Climateer Investing
"Less Than Zero: Living With Negative Interest Rates" – Wall Street Journal
"@munilass When you finally see signs of distress in the real economy, your portfolio will already be wrecked. " – Twitter
"Two charts that strongly suggest it's not time to put money into equities yet" – Barlow, Inside the Market
Academic paper supporting Ms. Kulpepper from the federal Reserve: "Credit-Market Sentiment and the Business Cycle" – FederalReserve.gov

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In the energy sector, Bloomberg's headline says it all, "The Oil Industry Got Together and Agreed Things May Never Get Better." This sentiment, of course, can also be interpreted in a contrarian way – the sector is so beaten up and depressed that we've reached 'maximum pessimism' and it's about to rally,

"Producers are bracing for a tough year. Prices will stay low for up to a decade as Chinese economic growth slows and the U.S. shale industry acts as a cap on any rally, according to Ian Taylor, chief executive officer of Vitol Group, the world's largest independent oil trader. Even refiners, whose profits have held up better than expected, are seeing a worsening outlook."

Falling refiner profits are an important and reasonably new phenomenon that implies lower demand for oil in the immediate future.

""The Oil Industry Got Together and Agreed Things May Never Get Better" – Bloomberg

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Another Bloomberg story provides heartening evidence that the Trudeau government is being responsible with taxpayer money where Bombardier is concerned. The column outlines a six-point checklist that the government is following in determining whether to provide the company with further financial support. Point five is 'Governance',

"There are concerns with the way the company is run. Bombardier is controlled by its namesake family through shares with extra voting rights, and officials familiar with the government's plans have said the company's current governance structure is a barrier to federal aid. The Ivey school's Moloney said other conditions may emerge based on the kind of financing offered. For example, taking equity in the project would raise more questions about ownership and profit-sharing than a loan."

"Here Is Trudeau's Six-Point Checklist for Bombardier's Bailout" – Bloomberg

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I anticipate research reports from Citi credit strategist Matt King more than any other analyst right now. They can be highly technical but offer the type of novel insight that is rare in sell-side research (this of course, doesn't make his conclusions correct).

FT Alphaville's David Keohane detailed Mr. King's most recent missive before I could. At base, Mr. King argues that regulation of banks has starved global credit markets of leverage, and they are both endangering future pension fund benefits and creating market risk.

"What in the name of leverage ratios is going on?" – Keohane, FT Alphaville (free to read with registration)

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Circling back to the X-Files theme, 'the truth is out there' is also an important thought for investors. The Internet is a wonderful thing are there is tons of great market information out there, for free. I would however be very very careful about who and what you read, particularly when it entirely confirms your prior beliefs.

Tweet of the Day (including chart): "@LadyFOHF Weekly equity flows from BAML. Sell pretty much everything. pic.twitter.com/SVjx5kBtSf " – Twitter

Diversion: "NASA's Front-Line Defense Against Killer Rocks From Space ' – Wired

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