Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter provides more insane details on the Ontario housing market,
“[this housing price rally] is not being led by Toronto and Vancouver; instead, it’s smaller cities and cottage country that have caught fire. Two, not every region is being swept up in the frenzy. A prime example of these two trends is captured here, looking at two roughly similar-sized regions, with a very different experience recently. When one thinks of hotbeds of economic strength, Chatham doesn’t necessarily leap to mind, yet its home prices have now vaulted 35% y/y, or up $100,000. That’s a bigger dollar rise in one year than in the 30 years from 1985-2015 combined. And, prices in the SW Ontario city are now higher than those in Fort McMurray, which was once one of the hottest Canadian markets. Less than 7 years ago, prices there were 4 times as high as Chatham’s”
A housing market where people with decent household income get priced out of Chatham is not sustainable for long.
“@SBarlow_ROB BMO: In Chatham, “home prices have now vaulted 35% y/y, or up $100,000. That’s a bigger dollar rise in one year than in the 30 years from 1985-2015 combined.”” – (research excerpt) Twitter
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Morgan Stanley analyst Susan Bates sees a secular, not just cyclical bull market in copper prices thanks to electric vehicles (EVs) and renewable power,
“These trends bring a significant uplift in copper’s intensity of use across the power and automotive sectors. We forecast that these two sectors together will consume on average twice as much copper per year over the next decade as in the previous ten years, growing at a CAGR of 6.9% to reach 5.2Mt by 2030…Recycling is part of the solution … but mine investment is needed: Near term, we see sufficient mine supply to meet this demand growth, with output forecast to expand 1.6Mt to 2023 as new projects enter production. However, the more buoyant demand environment will provide a stronger floor for prices, and beyond 2023 fresh mine supply is needed, with a forecast 6.5Mt supply gap to be filled by 2030”
“@SBarlow_ROB MS: EVs and renewable power “together will consume on average twice as much copper per year over the next decade as in the previous ten years, growing at a CAGR of 6.9% to reach 5.2Mt by 2030″” – (research excerpt) Twitter
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BofA Securities U.S. quantitative strategist Savita Subramanian advised clients to extend their time horizons, and buy high quality stocks to combat low expected returns from equities,
“We expect lower returns on stocks: our valuation framework … implies price returns of just 2% [per annum] over the next decade, close to levels that render bonds compelling especially if rates climb to 2.15% on the 10yr Tsy. (our year-end forecast). Adding on a 2% dividend yield makes stocks look marginally better at 4%. Interestingly, even during periods of low single digit returns (1931-41, 64-74, 98-08) time horizons mattered: loss risks dropped four-fold by moving from a one- to a ten-year time horizon during these periods … Even this decade, momentum, positioning and flows worked best on a monthly basis, but a buy-and-hold strategy since 2010 saw GARP, Quality and cash-flow Value factors post the strongest returns … Financial theory tells us that quality should trade at a premium, but High Quality stocks currently trade at the biggest discount to Low Quality on Fwd P/E since the end of the Global Financial Crisis, making today’s entry point particularly attractive, in our view.”
“@SBarlow_ROB BoA: ‘our valuation framework (which has explained ~80% of S&P 500 returns over the subsequent 10yrs) implies price returns of just 2% p.a. over the next decade’” – (research excerpt) Twitter
“@SBarlow_ROB BoA: “S&P 500 normalized P/E vs. subsequent annualized returns (since 1987)”” – (chart) Twitter
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Diversion: “Scientists Cook Hot Dogs in Lava From Iceland’s Erupting Volcano” – Gizmodo
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Scott Barlow