A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
It's not a comfortable thing to hold an investment opinion directly opposed to that of an asset management legend, but Pacific Investment Management Co. LLC's Bill Gross clearly does not share my concern about U.S. corporate debt markets.
Bloomberg reports that Mr. Gross is currently selling insurance against declines in corporate bond prices through credit default swaps, which means he believes debt prices will remain at least stable. It also strongly implies that Mr. Gross is unfazed by declining volume in the sector as investors withdraw assets.
"No bonds, no problem as Pimco increases bets using swaps" – Bloomberg
"Rising corporate yields could wallop S&P 500" - Scott Barlow of Inside the Market
Two separate reports highlight water as an important new investment theme. Reuters quotes sources from China's Ministry of Environmental Protection who are advocating wholesale increases in food imports to protect the country's dwindling supplies of fresh water for energy production.
At the same time, The Economist cites expert projections that California's drought conditions may last for a decade. This news is of particular importance to Canadian consumers, who depend on California-grown produce during the winter.
The Earth Policy Institute published some stunning numbers (backed by the United Nations and OECD in case anyone is concerned about politically-driven data fudging) underscoring the stress China's economic development is expected to place on the global food chain. Water is already a problem in China as the report notes, "The water table under the North China Plain, an area that produces half of the country's wheat and a third of its corn, is falling fast, by over 10 feet per year in some areas."
There are ETFs allowing investors to benefit from the increasing importance of water and water treatment. The largest is Powershares Water Resources, which trades in New York.
"China needs to import more food to ease water, energy shortages: official" – Reuters
"How long might California's exceptional drought last? A decade or more, say scientists" – The Economist
"Can the world feed China?" – Earth Policy Institute
See Also: "Companies proclaim water the next oil in a rush to turn resources into profit" – Guardian
Trader Eddy Elfenbein recently produced an update to his gold pricing model which has, for long periods, successfully predicted the course of bullion markets. For Mr. Elfenbein, the key to gold performance is quantifying the effects of interest rates on the U.S. dollar, which he attempts in his post.
"The key is that gold is tied to real interest rates. Where I differ from them is that I use real short-term interest rates, whereas they focused on long-term rates… for every one percentage point real rates differ from the natural rate, gold moves by eight times that amount per year. So if the real rates are at 1 per cent and the natural rate is at 2 per cent, gold will move up at an 8 per cent annualized rate."
"The gold model revisited" – Crossing Wall Street
Tweet of the Day is from @cory_foy (click through for glorious foot in mouth tweeting): "Probably one of the best Twitter exchanges ever" pic.twitter.com/Vl1tdlsQjP
Diversion: "10 things Americans have stopped buying" – Money Magazine
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow