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

Writing for Bloomberg, Ireland-based portfolio manager Lorcan Roche Kelly reminds global investors that things are not that bad, and all the negativity risks “talking ourselves into a hole,”

“Credit, traditionally seen as the harbinger of economic doom, has also been flashing warning signals recently even as analysts remain divided as to whether this is the start of a major move, or just a correction driven by nervy stock investors. And yes, there are a myriad of risks across the globe that can easily be pointed to as catalysts for a slump. Trade wars, the tech backlash, Brexit, unwarranted monetary tightening are among the current favorites. However, at moments like this there's always a risk of talking ourselves into a hole. Memories of crashes past which 'nobody saw coming' mean there's a big industry in predicting the next one. Looking at the data, particularly in the U.S., there is little to suggest anything more than a correction at worst. Unemployment is low, inflation is under control, market manias seem confined to marginal assets like crypto, and the Fed keeps reminding us it is dependent on the data”

“@LorcanRK I wrote about how things aren’t really that bad in this morning’s Five Things newsletter (which you sign up for here if you haven’t already )” – (excerpt) Twitter


Things are pretty bad, however, for investors in the energy sector. Overnight weakness in crude prices occurred despite indications of production cuts from Saudi Arabia. From what I know, today’s drop doesn’t make a lot of sense unless it’s an indication of panicking speculative funds,

“Oil prices fell to their lowest in a year on Friday, on course for their biggest one-month decline since late 2014 … Oil supply, led by the United States, is growing more quickly than demand and to ward off a build-up of unused fuel such as the one that emerged in 2015, the Organization of the Petroleum Exporting Countries is expected to start withholding output after a meeting planned for Dec. 6.”

“Oil prices hit year low as OPEC considers output cut” – Reuters

“ Oil's plunging again - drops more than 5% to trade below $52 a barrel” – Bloomberg

“@jsblokland Something to keep an eye on as #oil prices drop. The spread on high yield energy companies. Average quality better than in 2015, break-even oil price lower than is 2015 (~ USD 40), but leverage remains high!” – (chart) Twitter


I identified rising high-yield bond spreads as the most important indicator of a bear market a number of months ago. There’s been some complications as a lack of junk bond issuance has kept spreads tighter than they might normally be. For many strategists, the focus has changed to corporate bonds with the next highest rating, BBB, where there’s been an explosion of new supply.

CNBC attempted to stoke investor panic in the sector with a report issued Friday,

“At first glance, it looks like a $9 trillion time bomb is ready to detonate, a corporate debt load that has escalated thanks to easy borrowing terms and a seemingly endless thirst from investors… On Wall Street, though, hopes are fairly high that it's a manageable problem, at least for the next year or two. Stocks are floundering, credit spreads are blowing out and concern is building that a combination of higher interest rates on all that debt will begin to weigh meaningfully on corporate profit margins.”

The thing is, spreads are not ‘blowing out’ . In the case of BBB, spreads are rising but they’re still nowhere near even 2016 levels.

“A $9 trillion corporate debt bomb is 'bubbling' in the US economy” – CNBC

“@SBarlow_ROB For CNBC, this constitutes spreads 'blowing out' and they need to cut down on their coffee consumption” – (chart) Twitter


Tweet of the Day:

Diversion: “10 of Rome’s Greatest Battles” – History Hit

Newsletter: “Why cash is more attractive than you think in 2019” – Globe Investor

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