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A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

Institutional investors are more pessimistic now than at any period since the financial crisis, according to Merrill Lynch’s widely followed monthly survey of portfolio managers,

“June [Fund manager survey (FMS)] most bearish survey of investor confidence since the Global Financial Crisis; pessimism driven by concerns over trade war/recession, monetary policy impotence, low strike prices for policy puts; tactical “pain trade” is higher yields & higher stocks, especially if Fed cuts 25bps Wednesday … cash level soars to 5.6% from 4.6% (Exhibit 1), biggest jump in cash since 2011 US debt ceiling crisis … 2nd largest drop in equity allocation ever (largest occurred Aug ’11) … long US Treasuries becomes #1 “crowded trade”; US dollar “overvaluation” highest since 2002.”

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For now, I’m viewing this pessimism as a contrarian indicator – positive for equities.

Merrill Lynch quantitative strategist Savita Subramanian has shown previously that markets historically move in the opposite direction of fund manager cash allocations.

“@SBarlow_ROB ML FMS summary: Most bearish since GFC” – (research excerpt) Twitter

“@FerroTV BofA's fund manager survey showing global growth expectations collapsing” – (chart) Twitter

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Energy investors are faced with a dilemma indicative of a changing market environment. Demand for naphtha, the petroleum basis for plastics, has collapsed but investors are unsure how much of this is for economic, global demand reasons, and how much is environmental regulation(including companies regulating themselves to reduce carbon footprints ) to limit single use plastic production.

“Naphtha has a grim story to tell investors about the global economy” – Bloomberg

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“Oil prices slip for second day on global growth fears” – Report on Business

“U.S. shale oil output to rise to record 8.52 million barrels per day in July: EIA” – Reuters

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The Financial Times is reporting on accounting shenanigans in the U.K. markets, noting “one in five listed stocks is a potential dividend trap,”

“The truth is that [contractor company Kier, which suspended its dividend and announced asset sales] should not have been paying dividends at all if it needed to rein in its borrowing. And its debt problems did not come out of the blue, at least not to the hedge funds betting against its shares …

One of those short sellers — Vikram Kumar, Kuvari Partners’ chief investment officer — warned investors about hidden leverage back in November … He flagged several ways the group was putting a gloss on its financial statements, such as its use of reverse factoring, which is a form of borrowing against supplier payments that accountants do not class as debt.

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Managers of Henderson’s International Income Trust this month estimated that one in five listed stocks is a potential dividend trap, citing stretched balance sheets as a classic tell-tale sign.”

I have zero idea if these accounting practices are common among domestic dividend payers but now I’m going to have to find out.

“Hidden leverage can make ‘dividend traps’ harder to spot” – Financial Times (paywall)

“'Dividend’ is the magic word for Canadian investors” – Barlow, Globe Investor

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Tweet of the Day:

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Diversion: “Five myths about fast food” – Washington Post

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