A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The full-on meltdown in the Russian ruble is continuing this morning creating real palpable fear in global currency markets. Almost all emerging markets currencies are lower and the risk of another foreign exchange crisis like 1997 is growing.
Henry Blodget, former Merrill Lynch analyst and founder of Business Insider, noted his belief that a number of Russian and eastern European banks are insolvent after the ruble plummeted 20 per cent after an emergency central bank rate hike.
The problem now is that, if financial instability spreads, the transmission mechanisms will be in areas where equity investors have no familiarity. These include the use of U.S. dollar swap facilities by emerging markets central banks, and U.S. dollar corporate debt issued by Chinese and other global companies.
"Ruble sinks to 80 a dollar defying surprise Russia rate increase " – Bloomberg
"Here's the sad reality of Russia's dramatic midnight central bank rate hike "- El-Erian, Business Insider
"Beware the EM central bank FX swap trend" – FT Alphaville (September 4, 2014)
"Yuan bears say record dollar debt to fuel decline: China credit " – Bloomberg
The CBC's Don Pittis is concerned that the Canadian housing market could follow the same path as oil prices. I'm not quite this pessimistic yet but, at the same time, wage growth and real estate values in Alberta are clearly threatened by recent events. Mr. Pittis' argument is disturbingly plausible:
"Just as I did with oil, I want to talk through how a sharp decline in house prices could happen once rising U.S. interest rates begin to push mortgage rates higher. The longer we let house prices continue to escalate, the more dangerous it becomes."
"We must face the fact that houses could be the next oil" – Pittis CBC
The collapsing oil price is getting plenty of attention but the longer-term ripple effects have not been fully recognized, in my opinion. The ROB's Michael Babad begins the process Tuesday morning with help from CIBC's Avery Shenfeld:
"'So pick your economic indicator – real or nominal GDP, business investment, employment, corporate profits, merchandise trade, housing starts – and oil's deep dive will leave a notable mark on prospects in a handful of provinces in 2015,' the CIBC economists said."
"Canada braces for oil fallout" – Babad, ROB
See also "Energy stocks are lower – but not cheap" – Barlow, Report on Business
"Is Canadian Oil Sands Ltd. going to cut the dividend again?" – Motley Fool
Morgan Housel wrote a tremendous primer to the world of investing with the must-read "122 things everyone should know about investing and the economy." The entire list is worthwhile but I'll list a couple of favourites:
"9. Wealth is relative. As comedian Chris Rock said, "If Bill Gates woke up with Oprah's money he'd jump out the window.
12. The Financial Times wrote, 'In 2008 the three most admired personalities in sport were probably Tiger Woods, Lance Armstrong and Oscar Pistorius.' The same falls from grace happen in investing. Choose your role models carefully.
56. There were 272 automobile companies in 1909. Through consolidation and failure, three emerged on top, two of which went bankrupt. Spotting a promising trend and a winning investment are two different things."
"122 things everyone should know about investing and the economy " – Morgan Housel
Tweet of the Day: "@sanderwagner Ending of Herzog's Grizzly Man where the guy who wanted to befriend the bear gets eaten by it, playing out on financial markets right now."
Diversion: "Obesity: A global economic issue" – VoxEu
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow