A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The Cockroach Theory of investing usually applies to accounting. Just like when one cockroach appears in a start-up apartment – there's definitely more of them you can't see – accounting problems tend to multiply.
The very last place I'd expect to apply the cockroach theory is the Canadian bank sector. Like most Canadians, I've taken the financial health of the major banks as an unalienable right. Most likely, everything's still okay on bank balance sheets. But recent news has given me pause. National Bank announced a stock issue on concerns they were bumping up against regulatory capital requirements (another thing I thought I'd never see) and CIBC announced a $200-million restructuring charge and hinted more impairments could be on the way.
"CIBC unveils bold new targets in technology-driven shift" – Berman, Report on Business
"Canadian Imperial Bank of Commerce Plans Restructuring Charge of Up to C$200 million" – Wall Street Journal
"National Bank announces job cuts, new share offering" – Berman, Report on Business
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An American portfolio manager warned investors that the rally in the oil price was a "dead cat bounce." In an interview with CNBC, Warren Gilman, chairman and chief executive of CEF Holdings , said:
"If WTI does get back above $50 (U.S.) it'll be quite short-lived and I do think it'll break below $40 a barrel on the next leg down so I think we've got some bottom-fishing left," Mr. Gilman told CNBC Thursday.
"The fact of the matter is that we just still have too much supply and even though U.S. production looks like it's starting to turn the corner and come down, global supply is still growing."
The current state of U.S oil inventories supports Mr. Gilman's pessimistic view. Even before the ongoing refinery shutdown season (which temporarily reduces demand for physical crude), inventory levels were significantly above historical levels.
"Crude awakening: Beware oil's 'dead cat bounce' " – CNBC
"@SoberLook Chart: Hard to get excited about WTI; inventories rise more than consensus, domestic production unexpectedly rises – http://t.co/10sr47jIOj" – Twitter
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HSBC research slashed its 2016 forecast for the 10-year Treasury Yield from 2.8 to 1.5 per cent and this is decidedly bad news.
The global economy has become increasingly dependent on an acceleration in the U.S. economy. Each currency devaluation – and there's been something like 700 central bank rate cuts in recent years – is designed in part to make foreign exports cheaper for U.S and other developed market consumers. This won't be effective unless the U.S consumer starts buying a lot more stuff. Deutsche Bank describes the dilemma thusly:
"The idea that the U.S. economy is a beacon of strength, independent of the rest of the world, is very dangerous and only true if we can actually generate inflation. Since that does not yet appear to be the case, the real risk is that global risk-asset prices are fundamentally unstable."
The HSBC revision suggests U.S growth and inflation is not in the cards.
"HSBC slashes 10-year US, German yield call to near record lows" – Reuters
"HSBC's Major, Who Called 2014 Bond Rally, Cuts Yield Forecasts" – Bloomberg
"Here's why the recent commodity gains are looking so fragile" – Barlow, Inside the Market
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On a more constructive note, Mohamed El-Erian provided some investor guidelines for navigating volatile markets. There are six broad tips:
"Be on the lookout for good names trading at really cheap levels … Use the periodic bouts of sharp market rebounds to trade up in quality… Use measured investing techniques (such as dollar cost-averaging)… think of cash as part of the strategic (and not just tactical) allocation in a diversified portfolio .. Continue to look for opportunities that have not been directly affected by central bank liquidity injections .. Remember that obvious divergences in country fundamentals don't always translate to commensurate financial market out-performance."
"Six Rules For Navigating Volatile Markets" – BloombergView
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Tweet of the Day: "@adam_tooze Global inflation picture. Eye-opening.
imf.org/external/pubs/… pic.twitter.com/lQryh01YX7" – Twitter
Diversion: FAST Company magazine highlights virtual reality as the next big trend in technology. "The Not-so-far-off Future" – FAST Company