A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
On Monday, I pointed out 17 top stock picks from Merrill Lynch’s quantitative strategy team. The ideas had a defensive bent, selecting for companies with minimal exposure to the global economy and potential credit issues.
Later in the day, Merrill Lynch published its list of short ideas - stocks likely to fall - in a report called “Put your shorts on… It’s the end of summer”. The methodology identified companies that were widely-owned by active portfolio managers , with weaker earnings outlooks, and where Merrill’s technical analyst saw a high probability of declines. Prominent names on the list include Nike Inc. , Molson Coors Brewing Co. and News Corp.
“ SBarlow_ROB ML: Stocks to short” – (table) Twitter
I read everything by Nomura strategist Masanari Takada I can get my hands on.
Mr. Takada does a great job following and forecasting the trading of the world’s most aggressive, algorithmic, short-term funds. The strategist expects volatility ahead,
“It is important to highlight the role that ultra-short-term investors have played in the latest slide in the global stock market… [They] have been unwinding long positions in US and European equities, and we estimate that they are now tilting either market-neutral or slightly short. .. market developments beneath the surface suggest that investors have gone back to pricing in a global economic slowdown and/or recession. We note specifically that defensive sectors have been outperforming cyclical sectors (going by the MSCI ACWI Indexes), and that the yield curve has quickly flattened to the point that the spread between 10yr and 2yr USTs has been all but erased… With investor sentiment leaning pessimistic, we still see an ongoing risk that excessively large position adjustments by speculative players could drag longer term investors into making panicky trades (selling stocks and buying bonds).”
“@SBarlow_ROB Nomura: “ongoing risk that excessively large position adjustments by speculative players could drag longer- term investors into making panicky trades “ – (research excerpt) Twitter
I’ve been a bit obsessed with the real (but not base case) possibility that Government of Canada bond yields could go into negative territory in the next few years.
The Financial Times discussed the issue in a Monday column,
“Making an investment that is guaranteed to lose money sounds like something that would cost you your job. But in bond markets, it has become a fact of life … “When the world economy next goes into hibernation, US Treasuries — the ultimate safe haven apart from gold — are unlikely to be an exception,” said Joachim Fels, global economic adviser at Pimco, the bond investing giant based in Newport Beach, California. “And if the trade war keeps escalating, we may get there faster than you think.” … Although bond yields have been at historically low levels for years, fund managers have more than made up for lack of yield with hefty price gains on their portfolios as bonds rallied. Once the price gains fizzle out, they will be left contemplating an exceptionally bleak bond investing landscape.
“Negative rates: investors go through looking glass to sub-zero yields” – Financial Times (paywall)
Newsletter: “What to make of negative bond yields” – Barlow, Globe Investor
Merrill Lynch’s popular monthly survey of global portfolio managers sees many active investors preparing for a global recession,
“August BofAML FMS most bullish on rates since 2008 as trade war concerns send recession risk to 8-year high; investors slash exposure to cyclicals to buy US Treasuries & US growth stocks; with global policy stimuli at a 2.5-year low, onus is on Fed/ECB/PBoC to restore animal spirits. On growth: 1/3 of FMS investors expect a global recession in the next 12 months, the highest since 2011… FMS investors say US equities are the most preferred region over the next 12 months despite 78% saying the region is overvalued; note combination of two 2nd most extreme on record (#1 Aug'18).”
“@SBarlow_ROB ML PM survey: " trade war concerns send recession risk to 8-year high" – (Research excerpt) Twitter
Tweet of the Day:
a couple of years ago i saw Jack Ma speak at a UN event, and he said something like: "When the trade stops, the wars start."— Alexandra Scaggs (@alexandrascaggs) August 13, 2019
clearly i think about this a lothttps://t.co/VmOBdOsluV
Diversion: “What Is the Greatest Movie Quote of All Time?” – The Atlantic