Pot and politics (but not together!)
The chase by Frances Horodelski:
Friday’s child is full of loving and giving. Hope you have both today.
For perspective, here’s what the week has wrought: As of last night’s close, and compared to last Friday’s close, the Dow is higher by 1.18%, the TSX by more than 2% and oil +4.57%. Volatility is a day-to-day event, the result is often times something different. Anyway, Friday is here and while Chinese markets rallied, the rest of the world is giving some back (remember the Dow was up 1000 points in two days).
What is the street watching? First, there is a report circling from JP Morgan’s quantitative team that highlights the potential for some significant selling ahead based on option and derivative positioning by trading accounts such as CTAs (commodity trading accounts), Risk Parity portfolios and Volatility Managed strategies. The report reads like a math treatise and easily undermines anyone’s belief that investing is all about buying good companies at good prices. The upshot of the report is that more wild down swings (like Monday’s 1100 point drop) are head. There is one glimmer of hope in the article is that some of these positions could be the first to reverse (that is start buying) when volatility declines. This report is being given some attention because a similar report was distributed last Friday that essentially laid out the events for Monday. We’ll see.
The street is also watching the last of the bank earnings with a modest beat by Bank of Nova Scotia that belies the strong underlying performance including +15% in Canadian banking and +11% in international banking. As Greg Bonnell noted this morning, if this is how our Canadian banks weather the weakening storm of the Canadian and international economies, they’ll be pretty well set-up for the improvement on the other side. We’ll be speaking with the CFO of Scotia this morning. The bulls like the numbers for BNS; the bears however have some lingering concerns. The three banks that were expected to raise dividends (Royal, CIBC and BNS) did so. And the cycle continues.
The world is waiting for Jackson Hole this weekend and especially the key note speaker, Stanley Fischer. Notwithstanding the markets react to comments from Dudley and George and Lockhart, the two people that matter most are Janet Yellen (not attending the conference) and Mr. Fischer. His words will be well parsed for his leaning on the next move (September, October, December, next year). Apparently the must attend event is a discussion on global inflation with Mr. Fischer, BOE Governor Mark Carney and the Reserve Bank of India Governor Raghuram Rajan.
Analyst are changing opinions this morning including a buy rating on CIBC from Veritas, buy of Citigroup from Guggenheim and New Gold a buy at Mackie Research.
Finally, there are bulls and bears out there. Carl Icahn is probably neither but pragmatic. He has taken an 8.48% stake in Freeport McMoRan – one of the worst performing S&P 500 stocks in the past three years having collapsed from more than $60 to a low of $7.52 this week. Will be an interesting story to watch – gold, copper, and oil.
Keeping it short today. Join us at BNN today when the President of the CFA Institute provides a four-point plan for how the financial services industry can clean up its act. We’ll also talk pot and politics (but not together!). Have a great weekend.
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