Oil: Time for Producers to Hedge?

The Week Ahead

November 27, 2017

As Canada’s energy sector learned all too well in the past two years, operating in a volatile pricing world means positioning your business to survive the tough times in order to live to see a brighter day. Broadly speaking, many of our clients in the sector proved their ability to do just that. But it may now be opportune to take some steps to strap on a bit of protection against adverse conditions in the future.

The upside to oil from here appears fairly limited, barring a hot war between Iran and Saudi Arabia. OPEC producers and Russia could rationally decide to produce more oil again to meet global demand growth if prices topped $60, rather than cede more market share to the US and others. Note that OPEC eschewed production cuts in 2014 as prices were tumbling through $70, likely concluding that shale projects elsewhere were too attractive at that level to give them monopoly power over total global production and prices.

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Risky Fad or Currency of the Future?

November 23, 2017

Bitcoin is the most well-known example of a virtual currency, a relatively recent form of electronic payment with hundreds of varieties growing in popularity throughout Canada and around the world.

Virtual currencies are not legal tender and do not exist in the form of coins or bills. They are a form of electronic money that may be used to pay for goods or services if the seller is willing to accept them as payment. All parties involved in the transaction must also agree on the virtual currency’s value, which may fluctuate significantly based on its relative popularity at the time.

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Shhhh, It’s Quiet Out There

The Week Ahead

November 20, 2017

In equity markets, we’ve come to the point in the old western movie where our hero looks out over the horizon and warns that “it’s quiet out there…too quiet.” A run of low implied and realized volatility had some suggest that we’re somehow overdue for a big shakeout, not because valuations are high, but because it’s been such smooth sailing.

A recent NY Fed study put that theory to the test, and it comes up short. In general, realized equity market volatility is persistent and mean reverting, but there’s no tendency for a period of quietude to jump to a period of high volatility. Instead, when volatility is tame, the next month is more likely to also see below-average realized volatility, although over time a move back to the average is likely.

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