A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
U.S. vulture funds are raising billions of dollars to buy energy-related corporate debt. The major sell-off in energy debt – one issue from driller Hercules Offshore Inc. has fallen from $100 (U.S.) to $30 in the past five months – is creating an environment that one hedge fund manager called "the most exciting opportunity since the 2008 financial crisis."
Distressed debt is a dangerous game for retail investors. Some of the bonds issued by smaller companies are trading at $0.30 on the dollar as a brief pause before heading to zero and bankruptcy. Still, it does appear that significant value exists for sophisticated (or highly diversified) investors.
"Hedge funds race to raise money for energy debt" – Bloomberg
Most of the mid-term optimism on oil prices is based on one of two factors – supply reductions or the futures curve. The first is largely understood. Oil producers with expensive production will stop operations and reduce the supply glut.
The futures curve issue is a bit more complicated. The West Texas Intermediate futures curve is in contango at the moment, meaning that future prices are far higher than spot prices. This allows producers and speculators to profit from storing crude, buying at spot prices and selling through the futures market at higher levels. This process supports the commodity price temporarily by incentivizing market players to avoid flooding the spot market. It does, however, create a large supply overhang.
"Oil contango: Traders are filling their boots" – Twitter (@brokenbanker)
Vancouver's The Province quotes a real estate insider who believes Chinese money accounts for at least a third of property transactions in the city.
"The China factor is a sensitive issue in Vancouver. Evidence of a housing market increasingly disconnected from local salaries is mounting… The executive said that people in his business generally don't want the public to understand the magnitude of offshore investment, and certainly don't want city hall to do anything about it."
"Real-estate exec on Chinese money: 'There is a huge stake for a lot of local people in keeping this thing going'" – The Province
FT Alphaville discusses Citigroup research concluding that while European bond markets likely represent a market bubble (and are front-running the European Central Bank's announced quantitative easing program), the rally should continue:
"Overvaluation, inflows concentrated on return-sensitive investors, spreads largely desensitized to external shocks and fundamentals moving in the opposite direction, the recent and expected further tightening certainly has all the typical hallmarks [of a market bubble]"
"This is nuts. But so what?" - Keohane, FT Alphaville
Tweet of the Day: "@RBS_Economics China's slowdown. Volume of HK retail sales fell between Nov and Jan - 1st time since '01 http://t.co/SjS364BXrL
Diversion: "The most thrilling cars from the 2015 Geneva Motor Show" – Bloomberg
Follow Scott Barlow on Twitter @SBarlow_ROB