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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BMO economist Doug Porter looks at Canadian household debt growth during 2020 and finds some problems with the scare stories. The short piece was titled Total Canadian Debt…Setting the Record Straight (Yet Again),

“Late last year, one enterprising outfit took some cross-country debt estimates from the IIF and pulled together a chart. Said chart showed Canada’s total debt/GDP soared by more than 80 ppts since the start of the pandemic to 375%, by far the highest among major economies. (Big gains were reported in each of government, corporate and household debt ratios.) Small problem, the data were not correct, as Q3 GDP and official debt tallies were not yet available at that time. The IIF has since updated the data and also now smooths GDP over four quarters, and it finds the rise is closer to 50 ppts. No doubt, a 50 ppt rise in debt/GDP in three quarters is huge. But, 1) the denominator plunged last year, and 2) the debt rise is not wildly out of bounds versus some other major economies (like Japan, France and the U.K.). Still, the original, and incorrect, data keep making the rounds over and over again (in a major news agency just yesterday).”

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“@SBarlow_ROB BMO: setting the record straight on Cdn household debt’ – (research excerpt) Twitter

***

The hype around hydrogen power continues to build, and I’ve never been more sure that an asset bubble is building. A finance boom and bust is likely without respect to how competitive or successful the technology becomes in the end.

Citi analyst Edward Maravanyika published a research report detailing the main debates surrounding hydrogen power as an investment (my emphasis)

“We highlight the key investor debates around electrolyser technology, the technology used to produce green hydrogen by water electrolysis. In our coverage, we continue to like Buy-rated PEM electrolyser producer ITM Power. We also recently upgraded Nel to Buy from Neutral and opened a 90 day positive catalyst watch. We also highlight Buy-rated fuel cell technology player, Ceres Power … The bears in the debate point out that the cost of producing green hydrogen via an electrolyser is $3-7/kg and is not yet competitive vs the $1.50-$3.50/kg cost of producing “grey hydrogen” through steam methane reforming (SMR with carbon capture and storage, or “blue hydrogen”, c.$2-$5/kg). However, the difference this time is that the levelised cost of renewable power has fallen c.40% over the past 5 years and could well fall further over the next decade. Power costs make up as much as 60% of the overall cost of producing green hydrogen. We also see the capital cost of the electrolyser potentially falling c.50-60% over the next 5-10 years aided by innovation.”

Investment is already pouring in to the sector while viable technology is a decade away –one of the reasons I see a bubble.

“@SBarlow_ROB Citi re playing the building hydrogen finance bubble” – (research excerpt) Twitter

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BofA Securities U.S. quantitative strategist Savita Subramanian analyzed the early policy indications from President Joe Biden and offered advice on how investors can play them,

“The current administration is focused on reinvigorating the economy rather than bolstering asset returns, and market leadership will likely be quite different in 2021. 1) Buy GDP sensitive stocks, sectors and themes: COVID containment plus fiscal spending plans point to upside risks for US GDP and inflation, supporting our bullish stance on GDP-sensitive, inflation beneficiaries, value stocks/cyclicals and small caps (see Table 6 and Exhibit 6 for specific screens). 2) Buy discount over luxury retailers: supported by min. wage hikes / potential tax hikes for wealthy individuals. The valuation discount of Discount vs. Luxury is now extreme (Chart 2); historically this wide of a gap has driven Discount vs. Luxury alpha of >10ppt over the next 12 months. 3) Buy the E and S in ESG: Policy so far has been focused on social and environmental themes - see screen of Buy-rated E and S stocks in each sector.”

Ms. Subramanian published a list of stocks with the highest beta (positive sensitivity) to her inflation composite index. At the top of the list, in order, are Mosaic co., national Oilwell Varco Inc., Freeport McMoRan Inc., Advanced Micro Devices Inc., Incyte Corp., Western Digital Corp. and Applied Materials Inc.

“@SBarlow_ROB BoA: U.S. stocks with the highest beta to inflation composite” – (longer table) Twitter

***

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Newsletter: “Stock picks for the explosion in ESG investing” - Globe Investor

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