June 25th, 2013 Business Update

The volatility show continues however, yesterday we did see some buying (investors) coming into the game in the defensive sectors that have been grossly oversold over the past month causing markets to finish off the lows of the days and many of the “bond surrogate” stocks actually finish higher.

Overnight in China, the PBOC reiterated that they have and will continue to provide liquidity to banks that require funding to maintain reserves.  That news caused a massive reversal in the capital markets causing the Shanghai index to finish down about three quarters of a point.

Europe on the other hand has rallied at midday up about 1.50% on the positive news out of China and from the ECB suggesting the exit from stimulative monetary policy in the region is a long way away.

In the US, Durable Goods Orders were released and were north of estimates both on a gross basis and stripping out transports.  Also, the Case Shiller Home Index was stronger once again month over month and year over year ahead of estimates.  Of course with these crazy markets does good news economically mean higher markets?  It should, but of course it also means less liquidity (in the future) as the Fed reduces the stimulus.  The bottom line, and the markets have it right this morning, is as the economy improves so should markets and futures are higher this morning by about three quarters of a point.

Canadian futures are also higher by about the same amount.

Bond markets are higher on bargain hunting and to make things even more confusing so are the commodities.  Gold is up 4 bucks to 1280, oil is up 40 cents to 95.59 and the loonie is up slightly to 95.28.

Bottom line folks, don’t get caught up in the daily noise.  Portfolios are in great shape as the recovery continues and other than allocation model balancing and some sector rotation the strategy continues.

Kenneth A. Dick, BA, CIM, CFP, FCSI

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

www.glwm.ca

June 21st, 2013 Business Update

The last day of spring was a red one with markets all over the planet down about 2.5% on the day with no safe place to hide.  Gold was off more than $80.00 and bonds, the safe place that all are supposed to go fell in price as yields rose.  If you were going to suggest that none of that made any sense, you would be correct.  Every asset class yesterday fell in value (except cash) which in most cases would suggest a capitulation as traders try run away.  Not surprisingly, this is when investors remain in the game, rotate sectors in an orderly manner and add to oversold positions (in this case essential services).

Overnight in Asia, bargain hunters came back to the table driving Japan higher by more than 1.5%.  China and Australia both were off about a half a point on real economic news as China injected some cash into the banking system.

Europe is trading slightly higher as markets there have turned in the last hour on new real news other than day traders are taking profit at midday and waiting for direction as North American markets open.

Futures in the US are higher by about a half a point as are TSX 60 futures.  Investors and traders are looking for some bargains this morning after the sell off yesterday.

Gold is up 6 bucks to 1292, oil is flat at 95.07 and the loonie is off half a cent to 95.63.

The Friday bond report reiterates what I have been commenting on all week, so the news is not new.  With that said, in the US, 2yr yields were up to 0.327% vs. 0.278% last Friday, 10yr – 2.406% vs. 2.138% and 30yr – 3.48% vs. 3.32%.  In Canada, 2yr – 1.179% vs. 1.112%, 10yr – 2.239% vs. 2.124% and 30yr – 2.804% vs. 2.689%.  Again, while yields have increased I believe all will agree that giving the US or Canadian Government money for 30 years at 2.8% or 3.32% would be financially prudent.

The speed at which markets are moving continues to suggest organized methodical changes to portfolios which I continue to practice.

Kenneth A. Dick, BA, CIM, CFP, FCSI

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

www.glwm.ca

 

June 20th, 2013 Market Update

After Mr. Bernanke’s presser yesterday, the markets dropped after interpreting his comments as liquidity being halted by the Fed, interest rates are going to move higher immediately, inflation will run rampant out of control – I am embellishing but the reaction was so predictable it was quite boring. As investors, these reactions provide great opportunity to reallocate funds into good businesses and I continue to do so.

On the heels of the decline in the US and Canada yesterday Asia and Europe are down in the 2 to 2.5% range today, notwithstanding the fact that China has seen manufacturing fall to nine month lows on the back of tighter monetary policy in the region to quell real estate speculation and positive news out of Europe as the economies there continue to contract at a lesser pace.

US and Canadian futures are down again this morning around 1% following through on yesterday’s declines.  US Weekly Jobless Claims were released and came in above estimates at 354000 vs. 340000.  While a negative number the trend remains consistent and improving

Bond market yields moved higher with the 10 year US Treasury moving to 2.40% which is up from 2.12% at the end of last week.

The big movers today are commodities with gold and silver leading the way down 5.5% and 7.4% respectively.  Gold has just broken through 1300 to 1296 down 78.00 as the US dollar strengthens against most other currencies.  Oil is off 1.58 to 96.91 and the loonie is down more than a half a cent at 96.74.

Looking back at Mr. Bernanke’s comments I would suggest that reading through the minutes and disseminating his commentary, unlike the immediate liquidity solution that occurred when the asset buying program began the withdrawal will be slow and calculated based on economic conditions and he made it clear that an increase in the Fed Funds Rate “far away”.  The street however is suggesting this is happening now – immediately.  10 year interest rates are at 2.4%, not a yield that would cause any to be excited about in regard to an income portfolio.  A market correction is healthy as in most cases it takes the weak money off the table and allows the investor to step in and find value

Tony Dwyer, Canaccord Genuity US strategist is still committed to the levels he has forecast for the next twelve months.  His comments are below:

Summary

The underlying positive fundamental and tactical framework of the market that has driven our view has not changed. Our fundamental thesis remains firmly in place, and until we get much stronger economic numbers or core inflation expectations begin to rise, we expect the Fed to stay on hold. Bottom line: we continue to urge investors to not fight the Fed or the tape, and with the uptrend in place, the economy in the fundamental sweet spot, and the S&P 500 (SPX) trading at less than 15x a conservative 2014 estimate of $115, our conviction level for SPX 1955 remains high.


Multiple expansion tracking prior cycles

The SPX is up 144% and 22% since the 2009 and 2012 lows, respectively. Given those returns, how could the market not be ahead of itself given the subpar economic performance in the U.S. and weakening global growth outlook on the back of emerging markets and European issues? The answer is the SPX is in the midst of a multiple expansion very similar to that of the mid-1980s and mid-1990s (Figure 1). While that doesn’t guarantee the similarities continue, we believe investors are far too focused on the degree of fundamental change and each little nuance vs. the simple direction of fundamental change and valuation trend, which remains positive. If the current trend continues, our 2014 target could be conservative by a couple hundred SPX points.

But isn’t the SPX ahead of itself?

The current economic recovery has been one of the slowest in post WW2 history and many fear the gains are not sustainable. Let’s use the speculative grade debt market as a way to tell. If the returns of financial assets were based on fundamentals, how can one of the highest risk categories of corporate fixed income be trading near a record low yield and default rate assumption given the subpar economic domestic and global backdrop? The Barclay’s High Yield Debt Index reached a yield of 22.6% and double-digit default rate assumption in 2008 and has since rallied to as low as 4.98% with a low-single-digit default rate assumption! How can this happen given the slowest economic recovery in post WW2 history, a near hard landing in China, a “Fiscal Cliff,” a handful of Euro Zone breakup fears, and pressure in commodities? The answer can be found in the one thing that never changes: human nature. As fear decreases, the appetite for risk increases in the search for a better return – as long as there is a positive trajectory in the fundamental backdrop.

There are going to be continued fluctuations in valuations and when you get your monthly statements they will be apparent, with that said I am still confident in the longer term recovery and continue to monitor the situation closely and make the appropriate changes when necessary.  Please don’t hesitate to call or mail with any questions or concerns.

Kenneth A. Dick, BA, CIM, CFP, FCSI

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

www.glwm.ca

June 12th, 2013 Market Update

After another negative day in the markets yesterday, we are seeing a rebound in Europe and in North American futures this morning.

Asia, fell in concert with North America overnight dropping about a half a point in most markets.

Europe is rebounding this at midday on positive industrial production numbers for April.  Markets there are up about a half a point.  In other news out of the region, Morgan Stanley has moved Greece into the Emerging Markets Index which is a substantial downgrade to the country from industrialized nation.

North America is going to open higher with futures in the US and Canada up about a half a point.

We continue to see continued volatility in the defensive securities which, in my view is providing buying opportunities which I am taking advantage of in many of my mandates.

Gold is off about 5 bucks to 1375, oil is flat at 95.60 and the loonie is up a third of a cent to 98.40.

Kenneth A. Dick, BA, CIM, CFP, FCSI

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

www.glwm.ca

 

June 6th, 2013 Market Update

After the big hit in North America on the ADP Jobs report yesterday we are seeing a relatively flat opening on the way.  Japan was off a point in sympathy with the North American decline as was China.

In Europe markets are higher by a quarter point at midday on bargain hunting and the fact the BOE and ECB are both leaving the asset purchase programs and interest rates alone basically playing the wait and see game going into the summer.

In the US, Initial Jobless Claims came in down 11000 to 346000 last week which is a good number, but really failing to move markets in that the Non-Farm Payrolls are being released tomorrow morning.  Futures in the US are virtually flat this morning.

The new Bank of Canada Governor Stephen Poloz is giving his inaugural talk to the finance committee this morning and I managed to last about 10 minutes until I started to dose off.  It would seem we have in knack in this country of appointing the most boring, dry bank governors on the planet to the job.  Nothing new is coming out of his mouth and it looks like he is doing the right thing and staying the course for now.

Gold is off slightly to 1400, oil is up 1% to 94.62 and the loonie is down 12 bps to 96.60.

Kenneth A. Dick, BA, CIM, CFP, FCSI

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

www.glwm.ca

June 4th, 2013 Market Update

Markets in Japan rebounded overnight as Premier Abe declared that he would continue to encourage increased overseas investment and increased investment in equities with the $2trillion Japan Pension Plan.  That news caused a 2.75% rally in the Nikkei.

European markets moved higher on UK constructions showing an upside surprise in May and Spanish employment increasing for the first time in a long time.  While the employment numbers are still terrible overall in the country, seasonal hiring this summer is up strongly over last which does suggest that businesses are seeing some rebound.  Markets in the region are up about a half a point with Spain up more than 1.25% at midday.

The US futures markets are up about a quarter point this morning on continuing discussion over the Fed’s bond buying program and the different opinions coming from the various members. The New York Federal Reserve Bank president always sits on the Committee, and the other presidents serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of banks, one bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco.  Of course this is where the problem seems to be arising currently as each region is at a different stage in regard to economic recovery and the members are being quite vocal publically as to there current opinions on when the bond buying program will be tapered and by how much and what duration. While markets have been quite volatile as asset managers scramble to rotate through sectors (out of defensive stocks into cyclicals) and change their secular allocation models (out of fixed income and into equities) the entire process reminds me of the famous, “irrational exuberance” speech from then Fed Chairman Alan Greenspan in December 1996.

It would seem that the Fed, whether conscious of it or not, are effectively doing the same thing Mr. Greenspan did in the late nineties to try and slow down the rapid increase in real assets, stock markets and debt.  That phenomenon coupled with continued deregulation in industry, financial services and lenders.  He did spook the markets and they did correct though early 97 and again in mid-98 but the trend continued higher as the tech bubble continued to form as rational thinking seemed to go out the window.  We all know what occurred in the late summer of 2000, the tech bubble burst and it took until October of 2007 for that next bubble to burst.  The recovery from that period to the present has seen five corrections of differing levels however each high in 2000, 2007 and the present are all higher than the previous and the trend continues to be up.

Are we currently in a bubble?  Based on current growth levels which are low to moderate at best I would suggest not.  Will the markets correct?  It would seem the Fed is doing its best to get that to occur but is having a hard time justifying at the end of the day any real movement on the QE and have not mentioned interest rates at all.

Bond prices have moved higher and will likely continue to albeit at a very slow pace especially at the short end of the curve.  Longer bonds I do have more concern with as that is the debt that finances countries and as risk models are adjusted the yield curve by default should move higher in the 15 year and longer maturities.

Based on the above, while I am making some slight sectorial changes to mandates, I am not throwing out the baby with the bathwater.  Defense is still the best offence in these times and will continue to be for the foreseeable future.

Gold is off more than $20.00 this morning giving back all of yesterday’s increase at 1395, oil is lower by a half a point at 92.75 and the loonie is off half a cent to 96.86.

Lastly, the CRTC did come out with their Code of Conduct for cellular providers which did actually have some positive developments for customers.  I suggest you speak with your carrier to determine what savings you may be eligible for.

Kenneth A. Dick, BA, CIM, CFP, FCSI

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

www.glwm.ca