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

A research report from consulting group McKinsey concluded that half of the world’s banks won’t be able to withstand the next economic downturn,

“A majority of banks globally may not be economically viable because their returns on equity aren’t keeping pace with costs, McKinsey said in its annual review of the industry released Monday. It urged firms to take steps such as developing technology, farming out operations and bulking up through mergers ahead of a potential economic slowdown. “We believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape,” Kausik Rajgopal, a senior partner at McKinsey, said in an interview.”

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Central banks will, of course, act aggressively to prevent bank failures but this is alarming nonetheless. The worldwide banking system is tightly interconnected and financial stress quickly spreads across national borders.

“Banks Must Act or Risk Becoming a ‘Footnote’: McKinsey” – Bloomberg

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BMO economist Priscilla Thiagamoorthy commented on the condominium-centric nature of Canadian real estate investment,

“Canada’s real investment in residential construction turned up in August (+0.7% y/y), after 9 months in negative territory. Notably, investment in [multi-residential] climbed 6.4% from year-ago levels, while investment in singles wilted 5.8%, reflecting a major shift toward condos. Demand for condos remains robust amid the fastest population growth since the early 90s … international migrants and baby boomers are all vying for the last affordable housing option”

“@SBarlow_ROB BMO on rise in Cdn condo investment: " international migrants and baby boomers are all vying for the last affordable housing option" – (research excerpt, chart) Twitter

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Writing for the Financial Times, Simon Evenett, a professor of international trade and economic development at University of St. Gallen in Switzerland, is not optimistic that a trade deal between the U.S. and China will occur anytime soon,

“Assessments of whether a deal might stick are also shaped by each side’s behaviour during the negotiation …The interim deals reached in Buenos Aires and Osaka were seen by the Chinese as truces while the negotiations progressed. Following these deals Trump raised tariffs further, calling into question whether the US would stick to any final deal… Chinese policymakers may have concluded the US would pull out of any accord concluded before November 2020. In which case, Beijing might surmise, why sign a deal in the first place? There are few grounds for optimism”

“What could seal a deal to end US/China trade war?” – Financial Times (paywall)

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Also from the FT, an interesting discussion on how the (entirely justified) popularity of ETFs is changing markets in a negative way,

“ETFs, which provide a low-cost way to invest in a basket of assets such as an index, now regularly account for a third of the trading on the US stock market and an even larger share in periods of high volatility. At the same time, overall US liquidity — equity trading volume as a share of market capitalisation — has been on a downward trend since 2009… [Merrill Lynch] analysed holdings by passive ETFs and active managers, and has found that “stocks that are more widely held by ETFs and passive mutual funds display systematically higher volatility.”

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This is not an issue that Canadian investors need to worry about imminently but over the longer term, it’s important to remember that there’s never been a change in market structure as large as ETFs without some upheaval”

“Popularity of passive investing changes rules of the game” – Financial Times (paywall)

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Diversion: “ What is behind the spread of so many mass protests?” – Marginal Revolution

Newsletter: “When dividends lie” – Globe Investor

Tweet of the Day:

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