A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Credit Suisse chief global strategist Dr. Walter Edelmann and team have released their market forecasts for the next five years while helpfully providing a scorecard for their extended projections five years ago (they got emerging markets and bond markets right while underestimating U.S. equities). The report is titled Opportunities in a low rate world.
The overall theme is to stick with equities as bond yields slowly drift higher in the coming years and reduce returns for fixed income and, to some extent dividend equity-buying, investors,
“Gradually rising bond yields imply that investors in government and investment grade bonds are likely to be left with a very meager return outlook… A low rate world implies that equities offer attractive excess returns (risk premia) over both cash and government bonds. Expected returns are in the high single-digit range. They are lowest in Switzerland and the USA at 6.8% and highest in the UK at 9% … Real estate is set to continue to benefit from the low interest rate environment … Australia, the USA and Canada … t with potential growth rates of around 2%. While Australia and Canada can still rely on positive contributions of a growing workforce, potential growth in the USA is based almost entirely on gains in productivity.”
“@SBarlow_ROB CS: Opportunities in a low rate world” – (research excerpt) Twitter
“ @M_PaulMcNamara Hunt for yield in odd places goes on. Massive oversubscription for Ukrainian (demand 5 times amount offered) and Serbian (3x) bond auctions” – Twitter
I can’t remember anything like this happening before but multi-billionaire hedge fund manager Ray Dalio has published an essay called The World Has Gone Mad and the System Is Broken. The argument is difficult to refute in an era of negative bond yields,
“Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future… The reason that this money that is being pushed on investors isn’t pushing growth and inflation much higher is that the investors who are getting it want to invest it rather than spend it. .. the prices of financial assets have gone way up and the future expected returns have gone way down …“
I recommend reading the piece in its entirety.
“The World Has Gone Mad and the System Is Broken” – Ray Dalio
Bloomberg reports that Chesapeake Energy , “Epitome of America’s Shale Gas Boom”, is worried about going under,
“Reflecting growing pain across the energy sector, the Oklahoma-based company’s shares and bonds tumbled Tuesday after it said it may not be viable as a “going concern” if low oil and natural gas prices persist. The warning came just over an hour after the company posted a wider-than-expected loss for the third quarter”
“Epitome of America’s Shale Gas Boom Now Warns It May Go” – Bloomberg
“@SBarlow_ROB C: "“an extinction threat hangs over Global E&Ps” – (Citi research excerpt) Twitter
Diversion: (small sample size but still interesting), “Screen time might be physically changing kids’ brains” – M.I.T. Technology Review
Tweet of the Day: