Skip to main content

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

Recent U.S. regulatory filings indicate Berkshire Hathaway Inc. added significantly to its holdings in Suncor and this vote of confidence from Warren Buffett is a clear positive for the company. But taken as a whole, Mr. Buffett's investment strategy in the energy sector, while not overtly bearish, has tilted towards scepticism. At the same time the company added about $120 million in Suncor shares, and to holdings in refiner Phillips 66 Co. Uncle Warren also sold almost $4-billion in Exxon Mobil Corp. Mobil shares and the tail end of an apparently money-losing position in ConocoPhillips Co.

The Berkshire investment strategy in the North America oil sector makes sense if we remember that Mr. Buffett loves long term stability in cash flow above all other things. Suncor, with virtually no exploration risk and a significant percentage of revenues from lower-volatility refining operations, is better suited to his approach than Exxon, which must spend enormous sums of money each year to find and produce new oil supplies.

"Buffett ends $3.7-billion Exxon investment amid global oil rout" – Bloomberg

Bloomberg reports that Iraq's oil production has hit 30 year highs of four million barrels per day. This fits with every other research report I've seen in recent weeks that suggest there is absolutely no slowdown in global oil production despite the lower commodity price. Yes, rig counts are down, but U.S. oil production continues to climb towards $10 million barrels per day and the inventory glut is so large the entire country is running out of facilities to store oil.

Domestically, BMO Nesbitt Burns energy analyst Randy Ollenberger recently noted that the companies he covered expected to increase production by more than six per cent this year. In short, no one is cutting production despite record supply.

"Iraq's oil" – Bloomberg

Suitcases full of U.S. dollars and the country's richest man scrambling for cash highlight the growing absurdity of Chinese business. The country's bankers, according to one report, are highly susceptible to bribes.

"The $1-million bribe came on wheels: a travel suitcase stuffed with U.S. dollars that senior Chinese banker Yang Kun collected from CJW, a bar in Beijing's Chaoyang District that offers cigars, jazz and wine."

In a bizarre Financial Times expose of China's richest man, solar power entrepreneur Li Hejung, the FT alleges that he is borrowing heavily at usurious interest rates in the shadow banking system and even selling his private jet despite his exorbitant personal wealth. The report is extremely detailed, and each anecdote will likely make creditors more nervous.

"Million-dollar bribe at Beijing jazz bar for top banker" – Bloomberg

"Hanergy's Li taps shadow lenders to fund group's startling growth" – Financial Times

See also FT Alphaville's David Keohane on the tide of Chinese capital apparently fleeing the country, "So you still yuan out?" – FT Alphaville

Major global banks are steadily squeezing liquidity from the hedge fund sector and, while no crisis, is imminent, this is an important trend for investors to follow. On Tuesday, JPMorgan Chase & Co. announced that it was reviewing its commitment to "Prime Brokerage," the unit that provides the credit facilities that allow hedge funds to leverage their trades.

In January, Bloomberg reported that Bank of America had "fired" 150 hedge fund clients to limit its credit exposure to the sector.

The credit drought in hedge funds is unlikely to destabilize the market as a whole, but volatility could very well spike in speculative markets like commodity futures if the trend continues.

"JPMorgan weighs leaner trading units as rules hit profitability" – Bloomberg

"BofA said to oust 150 hedge fund clients under new rules" – Bloomberg

Tweet of the Day: "@boes_: Treasuries basically look like JGBs a few days later right now http://t.co/8p2G9e6CT9 "

Diversion: The New Yorker's review of 50 Shades of Grey is a tour de force of subtle, withering contempt and great writing. "No Pain, No Gain" – New Yorker

Follow Scott Barlow on Twitter @SBarlow_ROB