A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Equity markets were set to bounce Friday, but we’re not out of the woods until selling pressure in corporate bond markets abates,
“Investors pulled more than $6bn from junk bonds in the past week on concerns about highly indebted companies after a rise in interest rates. This was the largest outflow since a previous bout of market tumult in February, according to net redemption figures by EPFR Global … ‘One really key point is that there is a tremendous amount of debt that is going to be coming due across investment and high yield starting in 2019 and extending across 2024,’ said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors. ‘If rates are coming up, you will be refinancing into higher rates.’”
I’ve written previously that corporate bond spreads are a key indicator for the end of the bull market. The focus has been on high yield or junk debt but there has been a lack of issuance in the sector that may be keeping spreads tighter than they would normally be, and less reliable as an equity market signal. BBB-rated bonds are likely a better area for investors to watch.
“Investors take flight from junk bonds in ‘risk-off’ move” – Financial Times (paywall)
“The herds and the BBBs” – FT Alphaville (July, 2018)
“Global stocks rebound after tumultuous week” – BNN Bloomberg
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I’ve been using Morgan Stanley research a lot because they have been really good this year with forecasting (in my opinion, of course), successfully predicting a series of “rolling bear markets” early in the year. U.K.-based strategist Andrew Sheets provided an overview of market volatility in a Friday report,
“The bad news: The 'rolling bear market' has finally reached the markets' most popular position: growth. We don't think the Fed 'rides to the rescue' for a -5% move. The good news: Tactical indicators …are looking more positive. Many markets have de-rated. 3Q EPS season kicks off shortly. Seasonality gets much better from mid-October through year-end. … “
“@SBarlow_ROB MS with the solid "What just happened?" report” – (research excerpt) Twitter
“@SBarlow_ROB MS: "Margin estimates are overly optimistic…that’s the issue."” – (research report) Twitter
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The collaborative fund blog pointed to a story that makes up the worst alleged abuse of pension funds I’ve ever seen,
“Perhaps there is no greater public pension horror story than that of the New Orleans Firefighters’ Pension and Relief Fund. According to the latest actuarial report from 2016, the fund has $43 million in assets for $464 million in liabilities. That’s a 10% funded ratio. ... the investment decisions made by the Fund’s board were unbelievably bad, perhaps borderline criminal. Mistakes include a $15 million investment in a Cayman Island hedge fund that went bankrupt, and the purchase of a failing golf course for more than $40 million that is currently valued at $1.5 million. They might as well have put cash on the table and lit it on fire. “
“Gatekeepers” – The Belle Curve
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Tweet of the Day:
Diversion: “Those born in 1990 have double the risk of developing colon cancer and four times the risk of getting rectal cancer compared to those born around 1950” – Vox
Scott Barlow