A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities U.S. quantitative strategist Savita Subramanian attempted to summarize the potential effects of the European conflict on markets in Headlines vs. market internals: what’s a stock picker to do?,
“Russia-Ukraine headlines loom large, and the market has dropped 5% since news broke. Non-fundamental geopolitical shocks have generally faded: S&P 500 average peak to trough declines of 5-10 percentage points have been fully recovered within three months on average. We here focus on fundamentals: cost of capital via rates/risk premia, untamed inflation, slowing growth, a more stressed low income consumer and weakening earnings … Limited direct impact: Direct S&P 500 exposure to Russia is de minimus, representing just 0.1% of total sales …The indirect impact from higher oil and slowing Europe GDP could be larger … China invading Taiwan, a theory gaining air-time after Russia’s actions, would represent a major fundamental shock. Taiwan is critical to Tech (S&P 500′s largest sector) and controls ~90% of advanced semiconductor manufacturing capacity … Our Free Cash Flow to Enterprise Value (FCFF/EV) factor generated ann. alpha of 4.2% during Late Cycle, the highest of all value factors.”
BMO senior economist Robert Kavcic argues that Canadians are financially well prepared for rate hikes,
“On the eve of Bank of Canada rate hikes, a look at household savings suggest they are more than ready. Households have accumulated roughly $300 bln in excess savings through the pandemic above and beyond what would have otherwise been normal. Think of it another way: Canadians have banked an additional 8 years worth of savings through this episode. Why? Employment income surged back quickly; extremely supportive federal transfers more than offset the temporary decline in employment income, and ran well past the recovery; and Canadians simply haven’t been able to spend as much in areas like travel and services. Suffice it to say, Canadian households can fully handle a series of rate hikes at this point”
“BMO: “Cdn Rate Hikes Incoming – Households Won’t Mind”” – (research excerpt) Twitter
I highly recommend investors listen to Bloomberg’s new Odd Lots podcast with Credit Suisse short-term interest rate strategist Zoltan Poszar.
Mr. Poszar discusses a number of important short term issues – the fact that much of Russia’s US$500-billion in foreign reserves are held by developed world banks is one of them – and also the longer term possibility that the China’s currency could begin to replace the US$ as the world’s reserve currency. The strategist believes that it will be a week or so until we start to see massive losses in the global financial system.
The podcast is essential for those looking to understand the financial sanctions imposed on Russia, the importance of the country’s gold reserves in anchoring the ruble, the possibility of a Lehman Moment and many more details regarding the world’s vital financial plumbing.
“Zoltan Poszar on Russia, gold, and a turning point for the U.S. dollar” – Spotify (non-subscriber)
Diversion: “Ship carrying 4,000 luxury cars sinks off the Azores” – BBC
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