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Inside the Market Long-term household debt overhang is Canada’s best case scenario

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

Bank of Canada Governor Stephen Poloz warned there’s no quick fix to the household debt problem,

“Mr. Poloz said the central bank is now “more confident” of the need for higher interest rates. He said the economy is healthy, in spite of the “shadow” cast by record household debt. “This debt still poses risks to the economy and financial stability, and its sheer size means that its risk will be with us for some time,” he said. “But there is good reason to think we can continue to manage these risks successfully.””

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Having a long-term debt overhang doesn’t sound great but it’s likely the best case scenario – a slow, grinding deleveraging process that hinders economic growth but causes no crisis.

“As economy firms, Poloz remains cautious on rates amid high debt levels” – Report on Business

“Poloz Expects Canada’s High Household Debt Loads to Persist” – Bloomberg

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Apple Inc. profit results countered fears of peak global iPhone sales and the company announced a mammoth $100-billion share buyback plan. I’m not as enamored with buybacks as others – it results in either less cash on balance sheet or more debt so it’s not a clear-cut win for investors over time.

“ Apple surprises with solid iPhone sales, announces $100 billion buyback” – Reuters

“@waltmossberg Here’s some context on iPhone sales. In just the last two quarters, the iPhone alone has garnered nearly $100 billion in revenues for Apple. For comparison, another tech giant doing well, Microsoft, took in $90 billion in revenues for its entire business in its full fiscal 2017” – Twitter

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The Canadian Press warns that gasoline prices this summer are set to spike,

“According to GasBuddy.com, the average price of regular gasoline in Canada on Monday was about $1.33 per litre, up 22 cents from the average of $1.11 per litre at the same time last year… “For the next couple of weeks, I think it’s going to be prices climbing down but, after May 24, look out, that’s when we’re back into the thick of it and prices could start to slowly but surely climb up with some spikes occurring,” said [GasBuddy senior petroleum analyst Dan] McTeague. “

Investors, particularly those with domestic retail exposure, might want to keep an eye on this. The combination of higher fuel prices and higher mortgage rates on renewals could put a significant dent in discretionary spending.

“Vancouver gas prices hit record high with no relief in sight for Canadian drivers” – Maclean’s

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Video game stocks have represented one of the strongest, most profitable investment themes in the past few years, which makes me more confident in the proliferation of virtual reality (VR),

“The “Oculus Go” is the first product from Facebook’s Oculus VR group to provide a truly accessible, user-friendly experience. Oculus Go is, instantly, the best VR headset I’ve ever used. It’s obvious right from the jump, when I put it on and didn’t want to immediately remove it.”

I’m looking for a ‘picks and shovels’ play on VR, a company that makes the components Facebook and other headset manufacturers have to buy.

“Mark Zuckerberg’s $3 billion bet on VR is finally paying off” – Business Insider

(Somewhat) related: “Facebook announces new dating feature, and Match is getting clobbered” – CNBC

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Tweet of the Day:

“@C_Barraud March Global Manufacturing PMI (New Export Orders) already pointed to a slowdown of global trade growth in 2Q18.” – (chart) Twitter

Diversion: “Equality Is a Mediocre Goal. Aim for Progress.” – Cowen, Bloomberg View

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