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Top Links: Why bond markets are like rotting fish

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

Alan Furst wrote a series of terrific thrillers – chock full of shady government and corporate interests – set in the geographical periphery of World War Two. Vancouver real estate is reminding me more of Mr. Furst's books every day.

A Globe and Mail exclusive story describes how Chinese securities officials are entering Canada to "persuade" Chinese citizens living in Vancouver to head back to their home country,

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"According to an insider briefed on China's secret-agent operation, the Chinese moved to tactics that include threats and intimidation because they were 'ticked off' at Canada for "not being willing to send people back the instant they asked" and for dragging its feet on an extradition treaty."

"Chinese agents enter Canada on tourist visas to coerce return of fugitive expats" – Globe and Mail

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A separate BNN interview with a money laundering expert implies that Canada is the destination for "substantial" sums of illegal funds.

"Lawyer: Illegal money entering Canada's housing market 'substantial'" – BNN

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Markets are unlikely to do much ahead of the Fed's decision on interest rate policy to be announced at 2:15 p.m. ET today. There is a significant consensus view that no change in rates will be announced, but there are some outlying opinions that chairwoman Janet Yellen will raise rates today.

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For investors, Bespoke Investment Group highlighted a stunning statistic,

"While just 3 per cent of all trading days have been Fed days since 1995, roughly 35 per cent of the market's gain over this time has come from Fed days."

"@carlquintanilla This is bananas. (via @vexmark @BarbarianCap) pic.twitter.com/78Wh8ID92c " – (research excerpt) Twitter

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A report from the Financial Times compares the current bond market to rotting fish,

"In Margin of Safety, Seth Klarman's cult classic on investing, the hedge fund manager recounts a tale of an unusual mania for sardines that briefly struck California when the fish disappeared from the coast of Monterey.

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The shortage sent prices rocketing, and eventually local traders bought and sold sardine tins purely on the confidence that they could quickly flip them to another buyer at a higher price. But one day, a trader decided to treat himself to a sardine meal, and became violently ill. When questioned, the seller had a simple explanation: 'You don't understand. These are not eating sardines, they are trading sardines.' For sardines, you can now read bonds."

The inference in the story is that no one is holding bonds as an investment, they're just looking to sell them quickly at higher prices to someone else. The danger is that this winds up like a game of musical chairs where all the chairs get removed at once.

"Bond bubble brings with it an odour of rotting fish" – Financial Times

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Bank of Canada governor Poloz warned Canadians they will have to tighten their belts in a future of low rates and sluggish economic growth,

"Mr. Poloz acknowledged on Tuesday that the central bank's current projection that the economy will get back to full capacity near the end of 2017 may be too optimistic. Mr. Poloz's speech was sprinkled with advice for families, investors and businesses about the consequences of a world of low interest rates and slow growth. He said Canadians will have to work longer and save more, while companies must get used to generating significantly lower returns on their investments, he said."

"Poloz signals delay in interest rate increase as economy struggles" – Report on Business

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Tweet of the Day: "@PKessel81 Just sitting around the house tonight w my dog. Felt like I should be doing something important, but couldn't put my finger on it." – Twitter

Diversion: "Americans Waste $2.1 Billion a Year on Premium Gas" – 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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