Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web.
The disappointing U.S. non-farm payroll results seems like a dog year ago but Monday is the first day to trade the results. S&P 500 is down as a result of the weak top line number – 126,000 jobs were created versus 245,000 expected.
But, there are many professional managers that see underlying strength in Friday's report. For Conor Sen of New River Investments, an age group and education background breakdown of unemployment shows that the U.S. labour market is tightening and wages are set to jump higher:
"At this pace we'd have 2 per cent unemployment for college-educated workers by September or October… the unemployment rate for peak age (25-54) workers[ is at] 4.5 per cent, still about a per cent off its lows during the last cycle…Looking at the rate of change of its decline, it continues to fall at very fast levels, and at the current pace would be at 3.5 per cent by the first quarter of next year."
Wage growth in the U.S. would be a very, very big economic deal as a potential solution for the lacklustre consumer demand that has held back U.S. gross domestic product growth since the financial crisis.
"Racing Towards Full Employment" – Conor Sen
"One Big Missing Piece in the U.S. Labor Market Recovery" – Bloomberg
"U.S. Stock Futures Drop on Jobs Data as Gold, Oil Rise" – Bloomberg
Carleton economics professor Frances Woolley details new rules on domestic campaign funding that represent the millennial generation's worst nightmares. In effect, Canadian elections will now be funded predominantly by older citizens and policy is likely to favour them over younger generations:
"This year, the per-vote subsidy once enjoyed by Canadian political parties ends. Parties will have to raise funds entirely through donations…that almost 25 per cent of those claiming the federal political contributions tax credit are 75 or older, even though that group represents just 9 per cent of those claiming the basic personal amount."
"Funding the gerontocracy" – Woolley , Worthwhile Canadian Initiative
The broad U.S. water shortage and the resulting threat of sharply higher produce costs is another big deal for the North American economy. The photos of the California drought are alarming although the full effect have yet to be felt by consumers.
The drought brings up a number of policy dilemmas. California's Governor Jerry Brown has announced water rationing for consumers but that won't do a whole bunch in a state where agriculture uses between 65 per cent and 80 per cent (depending on the statistics you believe) of the water. Effective solutions – sharply higher water costs for both farmers and consumers are politically unpalatable but it's hard to get anyone to conserve something that's so massively subsidized it's basically free. For Canadians, the big risk is that a cabbage and turnip-heavy produce aisle in February will look a bit Soviet.
"California Drought Tests History of Endless Growth" – New York Times
"Mapping the Spread of Drought Across the U.S." – New York Times' The Upshot
A fascinating interview with Suzanne Duncan, head of research at the State Street Center for Applied Research, contains some startling admissions from professional money managers:
"Not even half of professional investors think skill is the primary driver of outperformance yet 60 per cent of the industry's capital is spent on the singular pursuit of alpha."
The interview is worth reading in its entirety. It details the major mistakes even experienced investors make over and over.
"State Street's Suzanne Duncan reveals investors' biggest mistakes" – Institutional Investor
I'm a huge user of Netflix and Apple TV and rarely watch broadcast television so I've been cheering on the "unbundling" of cable content. According to the Atlantic though, I'm making a big mistake. The cable broadcasting industry has been the main driver of high quality television since The Sopranos:
"Since only a tiny share of all cable households watch Mad Men, but all cable household pay for AMC, it's hardly an exaggeration to say that Mad Men only exists thanks to the millions of people who don't watch it."
"The 'Mad Men' Effect: The Economics of TV's Golden Age" – The Atlantic
Tweet of the day: "@GoogleFacts 1 in every 100 American adults are in prison. USA has less than 5% of the world's population, but it has almost 25% of the world's prisoners." – Twitter
Diversion: "The Real Science Behind the Crazy Night Vision Eyedrops" – Gizmodo