Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
The apparent demise of two major U.S. shale oil producers is good news for Canadian investors in the short term but might not make a huge difference in the longer term. It puts domestic investors in the ethically sketchy position of cheering on corporate bankruptcies, and all the job losses they entail, but the point remains that the financial failure of shale producers will be required to ease the North American crude supply glut.
Over the mid term, however, these bankruptcies might not make a huge difference. Shale reserves will be re-drilled if the oil price recovers and will yet again provide a supply overhang. In this sense, idle shale reserves might as well be counted with the official weekly Department of Energy report on crude inventories.
Elsewhere in the oil patch, investors should pay close attention to the rise in U.S. gasoline inventories. In 2015, refiners provided strong demand for oil at lower prices because crack spreads – profits available by buying oil, and making and selling gasoline – were high. Rising fuel inventories imply weaker oil demand from refiners and a potential worsening of the physical crude glut.
"Biggest Wave Yet of U.S. Oil Defaults Looms as Bust Intensifies" – Bloomberg
"Oil falls on oversupply, global economic growth concerns" – Reuters
"Oil industry tormented by latest price slump" – Bloomberg
"The Big New Threat to Oil Prices: A Glut of Gasoline" – Wall Street Journal
"Oil refineries' booming profits set to slow this year" – Reuters
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Domestic bank earnings reports continue to roll in in an unexciting but "just fine" way. TD Bank misses analyst estimates by a hair while CIBC beat estimates. Both banks raised their dividend by a couple of pennies. The banks are looking more and more like 'bond proxies' for investors – slow-growth stocks with little downside and dependable income streams. This idea was supported by Bank of Canada Deputy Governor Larry Schembri 's speech yesterday where he noted that domestic banks were well-positioned to weather a falling housing market,
"The risk the housing market will fall into a cycle of defaults and crashing prices 'remains low,' Schembri said.
"'The Canadian financial system is very resilient and could withstand the triggering of this vulnerability,'" in household debt loads, Schembri said. Monetary policy is 'a very blunt instrument to address financial stability.'"
"CIBC, TD boost dividend" – Babad, Report on Business
"Toronto-Dominion Profit Climbs 7.9% on Lending; Lifts Payout" – Bloomberg
"Canada's Banks Could Withstand a Housing Shock, Schembri Says" – Bloomberg
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The vast global research team at Citi are turning in to a dour lot. Economist Willem Buiter 's most recent report (which admittedly contained a bullish case for the U.S. economy) emphasized the potential for a downward spiral in planet-wide economic growth,
"The main 'game changers' in our view are the emerging belief that even the US economy is no longer bullet-proof and that policymakers (in the US and elsewhere) may not be there to come to the rescue of their own economies, let alone the world economy, by propping up asset prices and aggregate demand. It is likely, in our view, that global growth will this year once again underperform …. in our view, the risk of a global growth recession (growth below 2%) is high and rising. "
In related news, a new slide presentation from Citi credit strategist Matt King hit my inbox yesterday. I look forward to Mr. King's reports potentially more than any others, but they're terrifying. This one's called "Don't look Down: You might find too many negatives."
"Citi: Increasing chance that winter is indeed coming" – Keohane , FT Alphaville (free with registration)
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Tweet of the day: "@dinapomeranz Only 6% of TV experts on economics are economists, and only 24% are women. By @Craigipedia mediamatters.org/research/2016/… pic.twitter.com/DfpqNmf3DR " – Twitter
Diversion: I really loved this short video. A chess grandmaster goes to play in New York's Washington Park, the home of the trash-talking chess hustler.
"This is what happens when a New York hustler faces a chess Grandmaster" - Mashable
Scott Barlow