A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Equity futures indicate new all-time highs for the S&P 500 Thursday and smaller gains for the TSX after the Federal Reserve made the expected dovish noises on interest rates Wednesday.
Investor surveys, however, indicate that bearishness remains prevalent.
Mohamed El Erian, former co-head of bond manager giant PIMCO, describes why skittishness remains,
“@elerianm At some point, high risk asset prices need to be underpinned by stronger fundamentals. But that point keeps on being deferred--repeatedly--by Central Banks being unable to hand-off the policy baton to others with better tools, and by their willingness to be the "only game in town"’ – Twitter
“@bespokeinvest It’s not just the Global Fund Managers. Latest AAII survey still shows more bears than bulls. aaii.com/sentimentsurvey “ – Twitter
Why this top analyst has a sell rating on each of the Big Six banks
Why the loonie is primed for a rally
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Also, an index of U.S. freight traffic is deteriorating towards recession levels,
“Tuesday’s Cass report raised the Recession flag, noting, “…the shipments index as going from ‘warning of a potential slowdown’ to ‘signaling an economic contraction’” Economic contraction is a ‘polite’ way to say Recession without actually saying it.’ – (chart) Twitter
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Report on Business writer Tim Shufelt details the view of bank analyst Nigel D’Souza of Veritas Investment Research, who has a sell rating on five domestic bank stocks,
“Only once or twice a decade do you want to be underweight Canadian bank stocks,” said Nigel D’Souza, an analyst at Veritas Investment Research. Those rare occasions tend to coincide with a slowing economy and rising credit losses – precisely the conditions that materialized last year and continue to loom over the banking sector today, Mr. D’Souza said. .. Bank loan losses are still on the rise, having increased by more than 15 per cent year over year in each of the first two quarters.”
“Why this top analyst expects banks to continue to miss earnings expectations” – Shufelt, Report on Business
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Global investors have become more accustomed to negative yielding bonds – fixed income instruments that are guaranteed to lose money over time – but it’s still astounding that an estimated US$12-trillion of them, primarily German Bunds, are currently trading,
“The ECB charges European banks 0.4 per cent to hold their money in deposits. Now negative 0.4 per cent is actually much worse than negative 0.2 or negative 0.3 per cent from the bank’s perspective. So they’d much rather put it in these bunds than with the ECB. ... second reason that some investors might want to buy these bunds. It’s because they’re safe and they’re liquid… If the German economy goes down, then assets like equity or corporate debt, they’re going to perform much worse than these German bunds will .. The ECB has recently signalled that it may want to buy more sovereign debt. That would push up the price of these German bunds.”
“Charts that Count: why investors buy bonds with negative returns” – Financial Times (paywall)
“Value of negative yielding debt hits record $12.5tn” – Financial Times (paywall)
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Tweet of the Day:
Diversion: “The Elephant in the Brain: Hidden Motives in Everyday Life by Kevin Simler” – (book review) The Rabbit Hole
Newsletter: Futility and frustration in the finance industry - Globe Investor