Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
The Macro Man blog, written by pseudonymous financial insiders, has been terrific lately, among the most insightful investing sites online. On Tuesday, a post turned its attention to the one chart that's keeping financial professionals awake at night,
"If there is one chart out there that everyone is talking about (or should be), it's the one … depicting the relative performance of high yield and crude oil… Crude oil has recently dropped 20 per cent, this does not seem out of line with current market fundamentals, high yield energy bonds have yet to really budge in price or return … this seems unrealistic if crude continues to decline … thus, high yield (particularly energy high yield if you can isolate it?) looks like a sale."
"The one chart everyone's talking about" – Macro Man
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The West Texas Intermediate crude price dropped below $40 per barrel Monday and again Tuesday morning. Reuters cites oversupply as the culprit, but Bloomberg quotes expert opinions that still point to a 2017 rally.
"Oil takes breather from losses but oversupply concerns remain" – Reuters
"@RaoulGMI #oil The monthly chart of oil shows the clear trend break and the recent retest. The odds is for a fall to new lows. pic.twitter.com/Ze6UFOWOLQ ' – Twitter
"Crude Oil May Rebound to $57 Next Year, Analysts Say" – Bloomberg
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I wrote previously that the Ontario government will be forced to curb foreign investment in Toronto real estate after British Columbia announced new taxes for non-Canadian home buyers. There is a good reason, however, why this might not be politically viable. Nothing scares politicians like a recession – it makes it hard to get re-elected – and the economy is currently dependent on real estate construction for growth,
"Real estate and financial services now account for 20 percent of the economy, levels not seen in the data since the early 1960s. That could be a problem, with household debt at a record and policy makers scrambling to slow price gains that are making homes unaffordable for all but the wealthiest buyers… The [real estate] sector was 6.8 percent larger in May from two years earlier, adding about 0.8 percent to national GDP over that period … Real estate has become the country's biggest industry at 12.4 percent of GDP, or 13.2 percent if you include leasing."
"Lethargic Canadian Economy Can't Shake its Reliance on Housing" – Bloomberg
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The pithiest media sentence of the day provides a metaphor for China's plan to merge bloated, debt-ridden state operated enterprises (SOEs), "two garbage trucks colliding and hope a Porsche comes out".
But, as the Financial Times points out, the discrepancy between China's official economic data and the underlying statistics are a serious and disquieting matter,
"Total passenger traffic is down 15 per cent while passenger kilometers are down only 0.5 per cent due to shifting from highway and waterway to rail and air. Total freight traffic volume is down 4.6 per cent and freight kilometers are down a similar 2.4 per cent as there is less shift to longer distance transportation modes. Given that nominal GDP growth in the second quarter in transport storage and post was 8.8 per cent, this again leaves serious questions about the accuracy of GDP data."
"Homeward Bound Gary Rieschel Talks About China VC, Huawei And Colliding Garbage Trucks" – Forbes
"Guest post: Further questions about Chinese GDP data" – FT Alphaville
"China's Economy: A Tale of Two PMI's" – Bloomberg (video)
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Tweet of the Day: "@danmericaCNN Buffett suggests that a monkey throwing a dart at the 1995 stock pages could have made more money than Trump. pic.twitter.com/rccNRQNLr6 " – Twitter
Diversion: The news flow in 2016 makes it easy to feel like society's collapsing, but there are amazing, life-saving research studies going on at the same time,
"Setting the Body's 'Serial Killers' Loose on Cancer" – New York Times
Scott Barlow