Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Professional managers are professing a growing tide of concern regarding global bond markets, highlighting rising risk among the asset class usually classified as "risk free." The Financial Times reports:
"Four out of five fund managers said bonds were overvalued in a survey of 300 global managers by CFA U.K. Corporate bonds are more overvalued than ever before, while government bonds are the most overvalued asset class, the group said …fears grow that a fixed-income bubble will collapse in a disorderly sell-off."
For government bond investors intending to hold their positions until maturity, this is only a minor inconvenience – as long as there's no defaults they get their money back. A "disorderly collapse" would be much different – more painful for holders of bond ETFs, particularly in corporate and high-yield bonds. The apparent liquidity of ETFs will prove an illusion if there's no bids for the underlying bonds. To add to the fun, the higher yields that would result from a bond rout would threaten dividend sectors like REITs and utilities.
"Global fund managers warn of a bond bubble" – Financial Times
"How Scary Is the Bond Market?" – Shiller, Project Syndicate
The rise of the U.S. dollar took a breather last week, but recent strength in the greenback is still causing anxiety among U.S. multinationals – their foreign revenue is debased – and holders of dollar-denominated emerging markets debt:
"Between 2009 and 2014 the dollar-denominated debts of the developing world, in the form of both bank loans and bonds, more than doubled, from around $2-trillion (U.S.) to some $4.5-trillion… China's firms have built up a nasty currency mismatch. Almost 25 per cent of corporate debt is dollar-denominated, but only 8.5 per cent of corporate earnings are. Worse, this debt is concentrated, according to Morgan Stanley, with 5 per cent of firms holding 50 per cent of it. "
"Feeling green" – The Economist
"Strong Dollar Hammers Profits at U.S. Multinationals" – Wall Street Journal
It's a day ending in "Y" so lately that means we have to talk about oil. Crude prices are lower Monday morning after Saudi officials announced they would only consider cutting production if non-OPEC countries, notably the United States, also agreed to reduce supply. This is not good news for the short-term commodity price:
"Analysts at Barclays forecast on Monday that if OPEC production held near current levels of near 30 million bpd [barrels per day], the market surplus would expand from 900,000 bpd to 1.3 million bpd."
"Oil slips close to $55 as Saudi output rises to near record" – Reuters
See also "Chinese producer's gloomy outlook hits oil prices" – FastFT (subscription may be required)
"Return to $100 Oil Seen Unlikely by Saudis Amid Shale Surge" – Bloomberg
I've been skeptical about the "Robots will take over the world" meme because the manufacturers of robotics have not shown huge profit growth. This however, might be changing according to Business World:
"Sales of industrial robots worldwide rose 27 per cent in 2014 ... Robot sales in China, already the biggest market in the $9.5-billion robot trade, leapt 54 per cent to about 56,000 units, the IFR said, as the country catches up with industrialised rivals."
"Global industrial robot sales rise" – Business Week
Tweet of the Day: "@DavidSchawel Silicon Valley to millennials: Drop dead - CNN.com http://t.co/zy97arQHU9"
Diversion: "The Crazy, Broken Food Superhighway That Supplies Americas Produce" – Gizmodo
Scott Barlow