A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Merrill Lynch analyst Ebrahim H. Poonawala recently downgraded Bank of Montreal to “underperform” and apparently got a lot of pushback from investors. Mr. Poonawala responded to the concerns while continuing to sound a cautious note of future performance in the sector.
The analyst acknowledged strong underlying earnings power, a favourable regulatory environment and healthy capital ratios that make the banks resilient, but also wrote,
“The case for a potential credit downturn has not been as compelling in the recent past as it is today. Interest rates are pinching the consumer while a slowing housing market is likely to serve as a drag to economic growth. Lastly, the US economy, which had emerged as the white knight for the banks is showing signs of slowing. Hence, the ingredients for a weaker credit backdrop are very much present. The question is whether we muddle through a soft landing scenario (on housing, consumer debt) over the next few years vs. seeing a more pronounced downturn’
“@SBarlow_ROB ML on Canadian banks: “the case for a potential credit downturn has not been as compelling in the recent past as it is today.”” – (research excerpt) Twitter
BMO economist Robert Kavcic argued that restrictive mortgage rules made sense when rates were much lower, but are mortgage rates are now too restrictive,
"Given the Bank of Canada has raised rates five times, adding 2 ppts lifts the effective rate well above that range. So, while the BoC is still plodding its way to neutral, the residential mortgage market is now, at least from a qualification perspective, well into restrictive territory. You can see this as well by looking at the 5-yr fixed mortgage rate — adjusting for OSFI lifts the qualifying rate well above the long-run highs. But, with the well-purposed spirit of the measure in mind, there might be a case to be made for the qualification rate to be scaled back in lock-step with underlying rate increases”
“@SBarlow_ROB BMO on housing: "while the BoC is still plodding its way to neutral, the residential mortgage market is now, at least from a qualification perspective, well into restrictive territory"” – (research excerpt) Twitter
“ Toronto home sales expected to rebound, but mortgage rules need review: TREB” – Report On Business
I wrote about esports and video game stocks in the Globe Investor newsletter last week and, for the short term at least, it was the kiss of death for the sector.
Three major gaming stocks are getting blasted in pre-market trading Wednesday. I’ll be taking a look later in case this is a good entry point,
“Electronic Arts sinks 15% in premarket trading after third-quarter results missed expectations” – Bloomberg
“EA cuts revenue outlook after 'Battlefield' disappoints, shares dive” – Reuters
“Take-Two Slumps, Another Fortnite Casualty After Electronic Arts” – Bloomberg
“ @bluff_capital Game over pre-market: $TTWO -13.9%, $EA -16.3% $ATVI -6.5%” – Twitter
The Behavioural Investing site attempted to explain why investors keep making bad decisions. The reasons given include Outside circle of competence, Stress, Impatience, Outcome fixation, and Information overload.
“Why Do We Make Stupid Investment Decisions?” – Behavioural Investing
Tweet of the Day:
ML clients selling ETFs to buy stocks pic.twitter.com/YyVAAshws5— Scott Barlow (@SBarlow_ROB) February 6, 2019
Diversion: “ Liberals and Conservatives React in Wildly Different Ways to Repulsive Pictures” – The Atlantic
Newsletter: “The single most important question investors need to ask” – Globe Investor