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Inside the Market The Big Short’s Eisman adds to bet against Canadian bank stocks after ‘exceptionally poor’ earnings reports

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

Hedge fund manager Steve Eisman of Neuberger Berman, made famous in the book and movie The Big Short, appeared on BNN Bloomberg on Monday to talk Canadian bank stocks.

Mr. Eisman reported that he has increased his short positions in the sector after quarterly profit reports.

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The manager noted that his conviction level in the bank short positions has increased from a seven out of ten to a nine because of “exceptionally poor” earnings quality from a number of the domestic banks. Mr. Eisman’s pessimistic view was supported in his mind by a sharp rise in impaired loans , low revenue growth .

“Eisman's conviction on Canadian bank short a nine out of 10” – BNN

“Insolvencies climb as more Canadians can’t make ends meet“ – Report on Business

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Bond yields are diving all across the world, and I was stunned to see yesterday that the domestic yield curve is inverted (bond yields lower than the three month bill) out past 2060.

Lower longer term yields is a reflection of economic growth fears and inverted yield curves have been a reliable recession signal in the past. UBS analysts believe, however, that global yield curves are not as reliable as a recession signal as in the past,

"The slope of the yield curve itself is a misleading indicator: the impact of global QE needs to be accounted for. Accounting for global QE shows that the US yield curve is not yet at levels prevalent at the end of past cycles (Figure 3). And even then, it took quite some time between the point where the curve first signalled cycle risks and the start of the downturn. Second, after the initial Fed cuts, the US curve starts to steepen again, anticipating a subsequent recovery. 30y US real rates curve are still hovering at about 70bps, above levels we would consider compatible with our estimates of long-term neutral rates … and equities have found support from the drop in risk free discount rates.”

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“@SBarlow_ROB UBS: "global bond pricing is not as ominous just yet" – (research excerpt) Twitter

“The chief financial economist at MUFG Union Bank says the bond market rally is "mindless"” – Bloomberg

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The S&P 500’s late day sell-off Monday was caused primarily by reports on anti-trust investigations for major technology firms,

“The U.S. government is gearing up to investigate whether Amazon, Apple, Facebook and Google misuse their massive market power … the next step is for the [Federal Trade Commission and Department of Justice] to decide if they want to open formal investigations. Results are not likely to be quick. A previous FTC probe of Google took more than two years… Democratic Senator Richard Blumenthal, who said on Monday that U.S. enforcers have to do more than wring their hands about the companies’ clout, also weighed in. “Their predatory power grabs demand strict & stiff investigation & antitrust action,” the Connecticut senator wrote on Twitter.”

“U.S. moving toward major antitrust probe of tech giants” – Reuters

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“This is not an Obama-era antitrust case: Google should be very afraid” – Bloomberg Canada

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CNBC’s Michael Santoli is predictably great in his latest column,

“to bet big on stocks here is to be a bad news bull: acknowledging that the economy and policy landscape have become tougher, but determining that stocks and bonds have sunk deep enough into a defensive crouch to price in most of it. Or at least that such a point is approaching… “A reset of earnings expectations could help the equity market find a bottom, even without a final China trade deal, but that reset isn’t likely to happen until the next reporting season (mid July to mid August),” RBC Capital strategist Lori Calvasina said. “This waiting game, in the context of crowded conditions and expensive valuations in US equities, makes a 10% retracement (peak to trough) more likely.”’

“A full breakdown of where the stock market stands today and whether the tariff pain is priced in” – Santoli, CNBC

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Tweet of the Day:

Diversion: “ Get ready for tens of millions of climate refugees “ – M.I.T. Technology Review

Newsletter: “Unhelpful investing advice from Globe Investor “ – Report on Business

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