A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
A compelling column by the Financial Times' John Gapper has some startling applications for Canadian investors. Mr. Gapper suggests that broadly, energy companies will perform much better than energy-driven economies because they are better able to quickly adapt to changing conditions. Applied to Canada, this suggests that large cap energy companies can move swiftly to protect cash flow – halting investment and cutting staff and operating costs – whereas the national economic transition from resource-related growth to export-led expansion will take a lot longer.
If we extrapolate Mr. Gapper's view, this means that investors would benefit from buying Suncor Energy Inc. or Canadian Natural Resources Ltd. stocks and shorting the Canadian dollar, or companies that are sensitive to domestic economic growth. Then again, Canada is not Saudi Arabia – I'm going to need more time to think about this.
"Big oil is not the biggest victim of cheap crude" – Gapper, Financial Times
See also: "New alarm bells over household debt as Canada faces 'downward spiral'" – Report on Business
In somewhat related news, The Economist suggests that the collapse in oil prices will cause a political sea change in Canada.
"This shift in economic bragging rights [from Alberta to Ontario] has given a lift to the Liberal Party, which governs some of the perkier provinces and holds a narrow lead over the Conservatives in national opinion polls … This jauntiness, less than a year away from the next general election, is unlikely to please the petroleum-spattered prime minister."
"Beyond petroleum" – The Economist
Nothing kills web traffic here like European market coverage so when events on the continent do threaten to affect Canadian portfolios, I'm always scrambling to catch up. This is one of those times.
Late Wednesday, a meeting between the Greek Finance minister and the European Central Bank president ended in apparent discord. The ECB responded to Greek requests for debt restructuring by disqualifying Greek bonds for use as loan collateral with the central bank. U.K. economic pundit Frances Coppola is suggesting that the ECB's tough stance is designed to pressure Germany into leniency towards Greece's debt issues.
Germany will take some convincing. The German Finance Minister described the Greek restructuring plan as "blackmail." Greece responded by playing the Nazi card, noting that Greece's situation now resembles Germany in the 1930s, and that the third largest political party in the country were devout Nazis.
"What on earth is the ECB up to?" – Coppola Comment
"Syriza and the French indemnity of 1871-73" – Michael Pettis, Credit Writedowns
"Greece in the Penalty Box" – Dan Davies, Bull Market
"Greece's finance minister says his country is like Germany just before the Nazis took power" – Business insider
The phrase "currency war" is contentious among professional investors but it's clear that almost all ex-U.S. global central banks are cutting interest rates to spur growth, which has the effect of weakening currencies. FT Alphaville's David Keohane presents an interesting look at the trend from Bank of America economist David Woo.
"Respectable central bankers would still insist that currency depreciation is a consequence of their monetary easing rather than a goal in itself. However, evidence suggests otherwise… in a world in which growth is scarce and there are not enough policy instruments to achieve higher growth, we suspect currency war is here to stay"
"All currency war, all the time" – FT Alphaville
I promise not to do this often, but I'll suggest that the "Mexico is clobbering Canada in export growth" post I wrote yesterday has been unjustly neglected. The housing news out of Alberta has been alarming in recent days and domestic economic growth is more dependent on exports than any time in recent memory. The problem is Mexico.
"Among the countries ranked by Transparency International, Canada ranks as the 10th least corrupt. It is not fighting a border war, and can boast of superior infrastructure development for better corporate operation. Yet we apparently can't catch a break when it comes to competing with Mexico for foreign investment."
"Mexico is clobbering Canada in export growth" – Barlow, inside the Market
Tweet of the Day: "@SardonicaX "Credit to equity replacement is most attractive in 15 yrs. More than 2/3 of stocks have a yield above credit." (GS) http://t.co/4PUsrj8Wtj
Bonus Tweet of the Day: "[Private Account] The ECB didn't just roll over and play dead for Varoufakis. Wow, who could've seen that one coming?"
Diversion: "Every single trick to make the best paper airplane in the world" – Sploid
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow