A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Merrill Lynch strategists are advising investors to focus on companies with high quality balance sheets and dividend income, and have provided a list of stock options. There are 13 picks on the list with some well-known names like Johnson & Johnson and Proctor and Gamble and lesser knows like C.H. Robinson and missile purveyor Raytheon Co.,
“@SBarlow_ROB ML top picks for quality and yield’ – (full table) Twitter
***
Lithium miners were a popular investment strategy in expectation of a ramp up in electric vehicle sales. If Morgan Stanley is right however, it’s not going to end well,
“Morgan Stanley says it’s even more bearish on the future of battery raw material lithium, saying it expects prices to fall by 30 per cent over the next six years. The investment bank said it expects lithium prices to keep falling until 2025, compared to an earlier forecast of 2021, as new technologies lower the cost of production and keep the market oversupplied… “We believe most investors and the sell side underestimate the ability of companies to ramp up production of high-quality material and lower production costs in the medium term,” the bank said.”
“Morgan Stanley forecasts 30 per cent drop in lithium prices by 2025” – Fast FT (paywall)
***
Nomura economist Rob Subbaraman believes the extended period of ultra-low interest rates has trapped central banks into lowering them further,
“Major central banks seem trapped in an era of ultra-loose monetary policy. Very low interest rates for an unusually long period of time involve diminishing returns and rising costs that make normalization of monetary policy increasingly difficult. .. the predicament that major central banks find themselves in is stubbornly low inflation … Very low interest rates – the universal price of leverage – feeds slow-building, financial cycle booms, typically characterized by high debt and excessive asset prices, which can ultimately end in financial busts and balance sheet recessions. .. Sustained weak bank profitability can force banks to lower their credit standards and offer higher-yielding loans to zombie companies, a misallocation of credit that can hurt potential growth.”
The dilemma for the Bank of Canada is that low interest rates are increasing the economy’s dependence on real estate and other credit-heavy sectors for growth. Over time, this makes the economy more and more sensitive to rising rates.
“@SBarlow_ROB Nomura: Are CBs trapped?” – (research excerpt) Twitter
***
Crude prices are higher Friday as a potential hurricane approaches the Gulf of Mexico but the International Energy Agency sees oil markets as oversupplied.
“IEA sees oil market oversupplied in 2019 on U.S. production” – Report on Business
“Global oil stockpiles swelled surprisingly in the first half of this year” – Bloomberg
“@chigrl IEA monthly report out today. Here are the highlights” – (excerpts) Twitter
***
Tweet of the Day: “ @daniburgr I mean, this chart from Bernstein is wild. A solid 80% of companies IPOing ARE LOSS MAKING. Zero earnings. Zip. That matches the dot-com boom.”
Diversion: I would have made many different choices but this video is fun anyway,
“Top 20 acoustic guitar intros of all time” – Rick Beato, Youtube
Column: “ All signs now point to a higher loonie” – Barlow, Globe Investor
Scott Barlow