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The New American Gods: Apple, Netflix, McDonalds

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

My attitude may change by Monday, but a research report from Jefferies equity strategist Sean Darby is giving me bearish market thoughts,

"'Phantom' or apparent demand created by speculative positioning in the futures has been as much as force for commodity price rises as well as falls over the past year. Excess liquidity (money that is not demanded by the economy) has been so large due to central bank operations that it has been able to distort pricing. For example both the British pound and US treasury speculative futures positioning at the end of this year was the most extreme ever (see RHS charts). On almost all measures, risk appetite is insatiable. A weak dollar, negative real rates on virtually every G7 10 year bond alongside tight credit spreads has produced a windfall risk backdrop for equities. However, it has not necessarily produced symmetrical inflows. "

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Equities and government bonds are expensive, high yield credit spreads are tight and yet the reflation trade has faded and a significant, sustainable acceleration in economic growth still seems a way off. This is not a great recipe for long term returns.

"@SBarlow_ROB "On almost all measures, risk appetite is insatiable" – (Jefferies research report excerpt) Twitter

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Oil prices are strengthening ahead of an OPEC meeting expected to end with an extension of production cuts by member nations. At the same time, however, Reuters notes that global oil inventory levels remain stubbornly high,

"After the first OPEC oil production cut in eight years took effect in January, oil traders from Houston to Singapore started emptying millions of barrels of crude from storage tanks. Investors hailed the drawdowns as the beginning of the end of a two-year supply glut - raising hopes for steadily rising per-barrel prices. Now, many of those same storage tanks are filling back up or draining more slowly than investors and oil firms had expected, according to global inventory estimates and more than a dozen oil traders and shipping sources who told Reuters about storage in facilities that do not make their oil volumes public."

"Full tanks and tankers: a stubborn oil glut despite OPEC cuts" – Reuters
"Oil heads for second week of gains as output cut extension expected" – Reuters
"HIC-Has the oil market grown weary of OPEC's promises?" – Kitco News
"@chris1reuters Slower rise in global #oil demand + accelerating U.S./non-OPEC output = lower #OPEC #Russia market share - @BofAML " – (2 Merrill Lynch research charts) Twitter

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Ritholtz Wealth Management's Josh Brown has been a big help to me in the past, but I really hope he's wrong here. Mr. Brown argues that America's faith in its economic, financial and social institutions is being replaced by the "American Gods" – major corporate brands,

"Our new beliefs are making one thing happen, relentlessly – we've selected a new Pantheon. We have more faith in their ability, their capacity to learn and improve, their adaptability, than we have in the President or in Congress or in the courts.

"Here are a handful of the very large stocks making new 52-week (and, in many cases, all-time) highs right now [he posts corporate logos for Apple Inc., McDonalds Corp., Netflix, Google, Marriott, Visa, Amazon.com and Salesforce here] … they are institutions that have earned the trust and devotion of millions of customers, shareholders, employees and managers. We believe in their products and services, we have faith in their durability, their competitive advantages, their vision of what the future looks like and how they'll fit into it."

For me, this trend reminds me of the original Rollerball movie, when global government was replaced by corporations who provide bread and blood-thirsty circuses for the masses while expanding profit margins.

"American Gods" – Brown, Reformed Broker
"Rollerball Official Trailer #1 - James Caan Movie (1975) HD" – youtube

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Tweet of the Day: "@MaleehaMBCC #reflation, what reflation? #china #PPI decline in April. #yuan $usd #commodities #cyclicals #miners #stimulus " – Twitter

Diversion: "If only there were a vast empirical literature…" – Marginal Revolution

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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