Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Jennifer Dowty is a highly qualified welcome addition to the Report on Business. Yesterday, Ms. Dowty provided a detailed explanation for the Monday's shellacking endured by the TSX, emphasizing the negative effects of Chinese import data on oil prices.
For my part, I spend much of the day trying to figure out why domestic bank stocks were lower by almost two per cent when usually, they benefit from a flight to quality trade when markets are volatile. There was no direct catalyst for bank weakness I could find, so I expect rising interest rates were the culprit – bank stocks were catching up with the carnage in REITs and utilities. The yield curve, which drives profit margins, and the basic lending business for banks is increasingly flat and not conducing to earnings growth.
"Here's why the TSX got whacked on Monday" – Dowty, Report on Business
"U.S. rate prospects spook global stocks, dollar struggles" – Reuters
The Vancouver Sun has a post that's sure to annoy almost everyone, noting that public servant pay is significantly higher than the private sector:
"Both the B.C. branch of the Canadian Federation of Independent Business and the Fraser Institute fired separate shots across the bow, asserting much-needed cash that could be going to government services and municipal infrastructure is instead being directed to coddled public servants.
The Fraser Institute claimed that government workers in Canada are paid 9.7 per cent more than their private-sector counterparts, while the CFIB zeroed in on municipal workers, pegging the gap at 22 per cent."
Ideally, government policy would result in wage increases across the economy, not just for the usual suspects.
"Barbara Yaffe: Government employees paid well above private sector" – Vancouver Sun
Is the global banking industry shrinking? Reports Tuesday that HSBC plans to shed up to 50,000 jobs signals that it might. The short-term drivers of global finance shrinkage are regulations limiting balance sheet leverage. The longer term driver – demographics – is more insidious. The finance industry expanded along with the baby boomers moving through the peak spending and investment years between 45 and 55 years old. In this light, the timing of the financial crisis is less of a coincidence – the demographic boom to banking was ending.
American banks have less to worry about – the U.S. millennial population is actually larger than the boomer generation. Canada, with a worse demographic outlook, is a different matter.
"HSBC Plans 50,000 Job Cuts in Global Overhaul" – Dealbook, New York Times
"HSBC's strategy overhaul: what the analysts say" – FastFT
Financial Times columnist John Plender details the ways in which the Chinese government is the driving force behind the country's equity bubble while making a fascinating observation about market history:
"It is striking how often [market bubbles] are the byproduct of attempts to make difficult economic transitions. This was true of the U.S. stock market in the late 1920s as Americans reluctantly stumbled towards the hegemonic global role previously played by the British."
This wide-reaching, context-providing column is the best I've read in a while on China.
"Why China is blowing an equity bubble" – Plender, Financial Times
Ken Veksler of U.K.-based Acumen Management, has dubbed the Canadian dollar "The Widowmaker" in his daily e-mail (sorry, no link) for its ability to wipe out speculative investors across the globe:
"Colloquially known as the widowmaker, no one seems to have the long USD/CAD trade on board presently and are doing their utmost to buy every dip sub the 1.2400 area, hence keeping the pair well supported into that area of 1.2380 or so. We should see one more move higher in the pair perhaps re-testing 1.2530 but unless the USD gets a real move on or alternatively the data out of Canada continues to support failure, the downside will likely be revisited as last minute longs throw in the towel."
Postcards from the Edge – Veksler (Acumen)
Tweet of the day: @KenVeksler @LJKawa ppl been trying to build long USDCAD position above 1.2400, now getting carried out as stops get hit.
Diversion: "The 8 things that happen when you finally stop drinking diet soda" – New York Post