A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Domestic banks have amassed a war chest of cash,
“The average of the banks’ common equity Tier 1 Capital ratio, a measure of financial strength, stands at 11 percent and would be 11.4 percent after adjusting for capital requirement revisions made this year by Canada’s bank regulator. That’s up from 9 percent in 2013 and the strongest since Canada adopted the latest global standards put in place since the financial crisis in 2008.”
The report suggests the funds will be used for acquisitions or share buybacks, but I suspect a lot of it is a buffer against the potential end of the housing market rally, which they would not admit to avoid causing a panic.
“Flush With Cash, Canadian Banks Poised for Expansion and Takeovers” – Bloomberg
In a related story, CBC’s Don Pittis describes why it’s not easy to tell if the real estate market is failing,
“In many parts of Canada, not just Vancouver and Toronto, following years of rising prices and bidding wars, housing demand remains strong. Government policy, including a rule that new buyers must be able to handle interest rate increases, may mean a pent-up demand for housing, including by large numbers of new immigrants, will support prices if incomes begin to catch up.”
“Property heading for a crash? 7 reasons why it’s hard to tell: Don Pittis” – CBC
“Closing defaults hit Toronto sellers hard in housing plunge: report” – Report on Business
“What It Was Like to Get Caught in Toronto’s Record Housing Slump” – Bloomberg
Bitcoin is crashing … upwards,
“The biggest cryptocurrency climbed as much as 16.9 percent, piercing both the $7,000 and the $8,000 levels in a matter of minutes. Bitcoin swung wildly between gains and losses in December while reaching a record high of almost $20,000 before crashing. Thomas Lee, head of research of Fundstrat Global Advisors LLC, cited a combination of Santander’s plan for a blockchain-based payment application, tax-related selling almost over and speculative short investors being squeezed out of the market for the surge.”
The daily chart shows all the signs of panic buying, likely short covering.
“Bitcoin Surges Most Since December After Breaching Key Levels” – Bloomberg
Morgan Stanley notes that “carry” - U.S. investors buying foreign equities and bonds and hedging the currency - has rarely been as profitable as it is now,
“USD investors earn 4-7% from carry alone in non-USD assets: USD-based investors can pick up record yields by: i) Selling their dollar assets and dollars to buy overseas assets; and then ii) Hedging out the currency exposure by buying the dollar forward at a large discount to spot. The carry for an FX-hedged non- US equity portfolio can be as high as 6-7%, and for a fixed income portfolio around 4-6%.”
This trend would keep the greenback weaker for longer.
“@SBarlow_ROB MS: Non-USD assets ‘has rarely paid so much carry’” – (research excerpt) Twitter
Tweet of the Day:
Diversion: “The most popular movie rental for Netflix subscribers from every year since 1998” – Business Insider