Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
The price of oil is higher this morning despite an International Energy Agency report predicting that the severe global crude oversupply glut will continue into 2017. In a separate report, Morgan Stanley noted that investors bullish on the oil sector were not contrarians, but espousing the consensus view.
To date, investors have paid a steep price for their never-ending faith in the oil industry. From mid-December of 2014, the first "This is the bottom! Buying opportunity of the century!" rally in the sector, investors have piled in to energy stocks at any sign of life, only to wind up deeply underwater in the aftermath. This "rush to catch the falling piano" theme was also evident in March and August of 2015.
At some point, it will work and the gains in the oil price and energy stocks will be successful. It will be interesting to see if any oil bulls have any dry powder – investable funds available – left when this occurs.
"Oil Glut Will Persist Into 2017 as IEA Sees Prices Capped" – Bloomberg
"IEA sees oil market rebalancing in 2017; US production at record high by 2021" – Reuters
"@NickatFP It's Not Contrarian to Be Bullish Oil pic.twitter.com/hfP7x6rbov " – (Morgan Stanley research excerpt) Twitter
"The bullish case for oil, in two charts" – Barlow, Inside the Market (January 26, 2016)
"Canadian oil output growth could come to 'complete standstill', IEA warns" – Financial Post
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My belief that investors should pay more attention to their own psychology and focus less on market data remains unshakeable. The Psy-Fi blog provides further details on why this is so with "7 Investing Lessons from Behavioral Psychology." The description of "mental buckets" was, for me, particularly surprising and enlightening,
"Mental accounts allow us to differentiate between the low risk investments we expect to keep us safe in the long run and the high risk investments that we play for fun.
"Unfortunately this type of thinking allows our deceitful brains to play tricks with us, as we accept losses in our high risk accounts that we never would in the low risk ones. And, if we're pushed, we'll move stocks between these accounts to make ourselves feel better. Mental accounting is also behind the idea that if a stock doubles we can sell half and let the other half run for "free". Which is mathematical nonsense, but it's the way our brains work. Mental accounting is simply another way of lying to ourselves."
"7 Investing Lessons from Behavioral Psychology" – Psy-Fi
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The prevalence of negative interest rates on bonds remains difficult for any normal person to get their heads around. For Michael Sankowski, writer of the Monetary Realism blog, negative rates are a sign that something is broken in the global economy,
"There is no way [negative interest rates] can make sense across an entire economy, unless there is some constraint which is outside of the normal constraints facing businesses. "Hey borrow this $10 from me, and then I'll give you $.50 a year, and then pay me back in 5 years" is something no rational person ever thinks. People who are offered deals like this would take this deal. Bankers offering this deal would be insane. Yet, people are not borrowing, and bankers are trying to lend at terrible rates. This means they are both insane."
"Theory of constraints and monetary policy" – Monetary Realism
"Fear and Loathing of Negative-Yield Debt: Bond Trader's Dilemma" – Bloomberg
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The pound is getting hammered in currency markets Monday morning, but I can't get myself to care about Brexit – the Brits leaving the European Union – yet. The U.K.'s "one foot in, one foot out" relationship with Europe was always ambiguous. Economists are more or less united in the belief that severing official ties with the continent would be a bad move for Britain's economy and the debate will intensify ahead of the upcoming referendum announced over the weekend.
"Cameron's Final Gamble — It Could All Go 'Horrifically Wrong'" – Bloomberg
"Can of Brexit Worms" – Reuters
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Tweet of the Day: " @LJKawa ICYMI: Canada has a private-sector debt problem. bloomberg.com/news/articles/… #cdnecon #cdnpoli " – Twitter
Diversion: "This is How the Liberal World Order Ends: Not with a bang, but with a pair of defiant anti-establishment presidential candidates." – Foreign Policy
Scott Barlow