Juggling Dynamite

This story has all the usual cast of characters:  clients looking for unreasonably high yields from their savings, brokers making big commissions pedaling reckless risk and levered bets, followed by predictable devastating capital loss, shattered dreams and lawsuits…Rinse and repeat.  See:  New way to bet on oil wipes out billions in investor savings

“For years, brokers have been luring savers like Robinson into drilling partnerships with the promise of fat payouts. With yields on safer investments like government bonds so puny, it wasn’t a hard sell. But now this once hot business, a big source of fees for brokers and banks, is coming to a messy end.

In the past year, investors have lost $20 billion in publicly traded drilling partnerships, or $8 of every $10 they had invested, according to a report prepared by FactSet for The Associated Press. That figure does not include losses from $37 billion of bonds sold by the partnerships in the five years since 2010, many down by half in last 12 months, or losses from bets on private partnerships that don’t trade publicly and are difficult to track.”

Of the 173 S&P 500 companies that have reported Q3 earnings as at October 23, the blended earnings decline is -3.8%, making for the first back to back quarters of earnings decline since 2009. See: Factset Earnings Insight October 23, 2015.

And its not just earnings that are in decline, sales are on pace to fall 4% for the third straight quarter as well. The last time sales and profits fell in the same quarter was also in 2009. See: US companies warn of slowing economy, to post first decline in earnings and sales since the last recession:

From railroads to manufacturers to energy producers, businesses say they are facing a protracted slowdown in production, sales and employment that will spill into next year. Some of them say they are already experiencing a downturn.

“The industrial environment’s in a recession. I don’t care what anybody says,” Daniel Florness, chief financial officer of Fastenal Co. , told investors and analysts earlier this month. A third of the top 100 customers for Fastenal’s nuts, bolts and other factory and construction supplies have cut their spending by more than 10% and nearly a fifth by more than 25%, Mr. Florness said.

Caterpillar Inc. last week reduced its profit forecast, citing weak demand for its heavy equipment, and 3M Co. , whose products range from kitchen sponges to adhesives used in automobiles, said it would lay off 1,500 employees, or 1.7% of its total, as sales growth sagged for a wide range of wares.

The weakness is overshadowing pockets of growth in sectors such as aerospace and technology.

Last week the International Energy Agency (IEA) lowered its forecast for global oil demand growth from a 5-year high of 1.8 million barrels a day in 2015 to 1.2 m barrels a day in 2016.  As global production remains at all time highs, the agency sees further price weakness amid oversupply imbalances likely to persist through at least 2016.

At the same time, rating agency Moody’s and The Economist issued fresh warnings about Canada’s over-valued real estate and heavily indebted consumers.

Ratings agency Moody’s and The Economist magazine are sounding the alarm about rising consumer debt loads and overpriced housing in Canada. Here is a direct video link.

The new incoming government will struggle with same secular headwinds challenging Canada.

Bank of Canada’s lowers assessment of the Canadian economy as Justin Trudeau prepares to take office. Here is a direct video link.