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Top Links: Think the world’s gone insane? Here’s a stock idea

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

The Institutional Investor annual survey of top analysts always places Credit Suisse strategist Andrew Garthwaite near the top of his profession, and frequently at No. 1. Mr. Garthwaite's latest report highlights the numerous reason global defence stocks are currently attractive,

"EU and U.S. defence spending as a share of GDP is 18% and 10% below its 20 year norm, respectively, but is on the increase. Japan is debating amending its pacifist constitution, which would enable it to increase defence expenditure beyond 1% of GDP, and in China defence spending is increasing by around 10%. Against a backdrop of heightened political tension, we would also note Russian defence spending is up nearly 50% as a proportion of GDP since 2011 and double that of NATO."

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I've often half-jokingly called defense stocks a put option on humanity and normally wouldn't tout an idea this cynical. But it comes on the heels of a weekend when my social media feeds – filled with tunnel minded vitriol and a complete absence of what Abraham Lincoln referred to as "the better angels of our nature" – made me think twice.

"@SBarlow_ROB CS with short humanity/decline of the west trade idea ' – (research excerpt) Twitter

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In a huge scoop for the Report on Business, Shawn McCarthy and Kathy Tomlinson report that the Trudeau government is set to close a tax loophole allowing foreign homeowners to avoid capital gains tax. The report is everywhere on the site today, so I won't excerpt, just post the link,

"Trudeau government to close foreign-buyers loophole" – Report on Business

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Oil futures are higher by more than one per cent this morning as traders remain optimistic about the OPEC production limits announced last week,

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"'The real significance of last week's framework OPEC production agreement is not the size of the implied or actual output cut, but the fact that Saudi Arabia and OPEC have returned to active market management,' said Mike Wittner, head of oil market research at Societe Generale SA. 'It is difficult to overstate the importance of this change.'"

"Oil Rises to Three-Month High as Investors Assess OPEC Agreement" – Bloomberg
"Oil at highest level since August, Brent tops $50 a barrel" – Financial Times
Counterpoint: " Don't bet on Russia capping oil output" – Financial Times

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Elsewhere in the resource space, Bloomberg reports that industrial metals prices are officially in bull market territory. Deutsche Bank analysts, however, decided to play party pooper and call the rally unsustainable,

"Chinese metal demand remains firm for now, and our suite of lead indicators remains positive suggesting no signs of an imminent collapse. Whilst a Chinese policy change is always a risk both on the upside and downside, we think the pricing environment can remain firm over the next six months. The relative performance will continue to be driven by fundamentals and in this regard, we continue to prefer nickel and zinc over copper and aluminium. Post the six month time horizon, the outlook is far less positive, with supply response risks rising and a far less supportive Chinese demand environment as the property cycle rolls over."

"@SBarlow_ROB DB : metals are a rent, not a buy ' - (research excerpt) Twitter

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Tweet of the Day: "ac_eco The loonie could drop to around 70 cents U.S. next year #cdnecon huffingtonpost.ca/2016/09/28/can " – Twitter

Diversion: "Massive Earthquake Along the San Andreas Fault Is Disturbingly Imminent" – Gizmodo

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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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