A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Canadians are anxiously awaiting Bank of Canada comments today but that's not why global markets are treading water. The European Central Bank is expected to announce a large quantitative easing program tomorrow in order to stave off deflationary pressures in the region. The likelihood of a major ECB monetary stimulus program was cited as one of the main reasons the Swiss National Bank removed the franc's currency peg with the euro – QE would make the peg expensive to maintain.
But doubt about the scale of the ECB's intentions has climbed as the hour for the announcement approaches. Ewald Nowotny, a member of the ECB governing council, warned investors "should not get overexcited about" a potential stimulus plan. I suspected that even if the ECB didn't disappoint, that there would be a "sell the news" drop in European stocks. If the announcement actually falls well below expectations, market volatility could be considerable.
"Don't get 'overexcited' about ECB meeting, says Nowotny" – Wall Street Journal
The Financial Times provided a wonderful public service to Canadian investors in resource stocks by making "Commodities explained: The price-supply disconnect" available without an FT subscription. The post goes far beyond the well-known boom-to-bust cycle of supply expansion and prices to clearly explicate why it will take a long time for global resource production to decline along with commodity prices.
I could not possibly recommend the entire post more strongly, but here's an important point about corporate cash flow:
"The investment for production is a sunk cost and is possibly funded by debt. Producers need to keep on generating cash flow to pay off loans or interest and keep the operation running and will do so until production results in negative cash flow. This scenario is now playing out in the U.S. junk bond market, with nearly a fifth of low-rated energy debt currently trading at distressed levels."
"Commodities explained: The price-supply disconnect" – Financial Times
Business Insider details hedge fund manager Zach Schreiber's billion dollar profit made shorting crude prices. It's certainly interesting, and to Mr. Schreiber's credit, but these stories always worry me a bit as a kind of "nine zero" money pornography (as in, "ooh, look at all the zeroes in that billion-dollar profit"). What lessons can the average investor learn? To place huge, risky short bets on hot market sectors? For most it's probably not a good idea. Hedge fund managers looking for success akin to Mr. Schreiber's by shorting U.S. Treasuries this year have been getting killed so far.
"The hedge fund manager who nailed the oil crash made $1-billion from his bet against oil" – Business Insider
Emerging market bond funds have been popular with yield-hungry Canadian investors in recent years but a report by BNP Paribas warns the party may be over. FT Alphaville's David Keohane explains:
"BNP estimates that if oil doesn't get back above $70 per barrel the risk of downgrades and defaults are very real and immediate.
And while we're here we may as well remind you that Russia has the distinction, amongst EMs, of holding the largest amount of energy-related bond debt in foreign currency for which the issuing firms are not explicitly backed the government. As the Streetwise Prof said: one always needs to pay attention to the contingent liabilities."
"EMbarrassing" – Keohane, FT Alphaville
Along with Uber, Netflix is arguably the best example of a disruptive technology that challenges existing corporate power structures, in this case television content provider and cable company profits.
Netflix is trading more than 15 per cent higher this morning after a set of quarterly results suggesting successful global expansion.
"Netflix adds 4.3 million streaming subscribers, shares soar" – Reuters
See Also, " Netflix is trying to push the next big eye-grabbing video format into the mainstream" – Quartz
Okay, this post has become too long, and I've run out of room. Here are some "loose links" to relevant stuff I couldn't fit in:
"Global trade indicators flashing red" – True Economics
"Obama's state of the union address: 5 hopes likely to be dashed" – CBC
"Ignoring the yield curve may be dangerous to your health" – Manhattan Institute
"Don't kid yourself – U.S. manufacturing jobs are never really "coming back" from China" – Quartz
Tweet of the Day: "@gillyarcht Um. Er... MT @flightradar24 1700 private jets expected to Davos to discuss climate change at World Economic Forum pic.twitter.com/S9D7mvQYeC "
Diversion: "There are 300,000 pieces of garbage orbiting earth, and it's a big problem" – Vox
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow