Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading today on the Web
Goldman Sachs answers the economic question at top of mind for Canadians, "Does Canada 2017 = U.S. 2007?"
"We think the comparison of Canada to the U.S. in 2007 overlooks important institutional differences between the two markets, including differences in prevailing lending standards. That said, Canada appears to have one of the more stretched housing markets within the DM [developed markets]. Our bust model indicates a 30 per cent probability of a real house price decline of 5 per cent or greater over the next two years, suggesting that Canadian house prices are an important risk that warrants monitoring by global investors."
"@SBarlow_ROB Wherein GS research bails me out by asking "Does Canada 2017 = U.S. 2007?" – (research excerpt) Twitter
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The financial crisis was such a giant mess that it can't really be used as a precedent for what happens to domestic bank stocks during a normal downturn in the credit cycle. We'd have to go back to the early 1990s for that but the banks are now much different enterprises. The Big Five did not own giant mutual fund and brokerage businesses in 1990, and were far less dependent on trading activity for profits – and as a result the major lenders are now far more sensitive to a downturn. Economists use the wonky term 'pro-cyclical' for this.
"U.S. investment banks' trading slump could head north to Canada" – Pellegrini, Jones, Report on Business
"Why Goldman's Slip Is Worse Than Bank of America's" – Bloomberg
The pioneering academic research on the pro-cyclical nature of modern banks was done by Princeton professor Hyun Song Shin and Federal Reserve economist Tobias Adrian in "Procyclical Leverage and Value-at-Risk" – London School of Economics
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The Financial Times is reporting that 'the oil price is living on borrowed time' as the era of electric vehicles approaches. It's tempting, at least for a few years, to take a contrarian, bullish approach to stories like these,
"Most experts agree that the future of oil is not bright at all… OPEC increased its projection of the EV [electric vehicle] share globally from 6 to 22 per cent by 2040 in its 2016 World Oil Outlook. A report by Carbon Tracker and the Grantham Institute at Imperial College London forecasts that EVs would comprise more than half of the global stock of cars by 2040."
"The oil price is living on borrowed time" – Financial Times
"OPEC Wrestles Over Oil Output While Top Importer's Demand Is in Peril" – Bloomberg
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The Financial Post reports on a domestic tax loophole that, at first glance, looks more like a gaping wound in tax policy,
" 'money laundering' or 'terrorist financing' can be easily accomplished in Canada. Lawyer's trust accounts can be used to bypass the legal scrutiny of banks and of regulators, tax officials, or law enforcement agencies."
"Legal loopholes give Canada a bad name when it comes to money laundering" – Financial Post
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Tweet of the day: "@DavidKeo Global growth expectations falling, acc to BofAML monthly ask fund managers questions thing" – (chart) Twitter
Diversion: "It might be New York City's 'summer of hell,' but 14 photos show how much worse the subway system was in the 1970s" – Business Insider
Scott Barlow