November 7th, 2013 Business & Market Update

Asia sold off overnight by about three quarters of a point awaiting the economic news out of Europe and the US.

Europe at midday is rallying on the news that the ECB has cut its overnight rate in half to 0.25% to combat continued deflation in the region.  Markets are higher by 1.5%.  Draghi suggested that the economy is starting to show positive signs across the entire region and by supplying more liquidity that trend should continue into 2014.

In the US, Q3 GDP on a year over year basis came in at 2.8% vs. estimates at 2.0%.  This is a large beat and shows that economic recovery is continuing at a stronger pace than thought over the last quarter.  The previous month year over year was not revised confirming the stronger numbers.  Also, Initial Weekly Jobless Claims were released and came in at 336000 vs. 335000 estimated.  The decline from last week was 9000.  Last week was revised higher by 5000 so the net over the last two weeks is in the range that is acceptable and it would seem stable.  Futures are pointing higher by about a half a point in the US and about a quarter point in Canada on the back of the positive news.

Gold is selling off into the news down 15.00 to 1302, oil is off 0.32 to 94.48 and the loonie is weaker by 0.30 to 95.70.  USD strength today is moving the commodities markets lower.  Bond markets are stronger across the entire curve this morning with the ten year yields falling in both the US and Canada to 2.64% and 2.53% respectively.

In mandate earnings news this morning, BCE missed by 2 cents on the bottom line but reaffirmed guidance for the balance of the year and the accretive effect of the Astral merger on 2014.  Manulife beat on both the bottom and top lines, RioCan beat on the bottom line and on Funds From Operations (FFO) and Sun Life beat on both the bottom and top line.

Twitter comes to the market today with a final IPO price of $26.00 under the symbol TWTR.  It will be interesting to see how the stock trades out of the box as all will be comparing it to the Facebook debacle of two years ago.

Lastly, tomorrow the October Non-farm Payroll numbers will be released and will be somewhat skewed due to the US government shutdown, however they will provide some insight going into the holiday season.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

October 10th, 2013 Business and Market Update

Blah, Blah, Blah – that would be the US government expelling hot air into the environment and polluting it.  Yes the impasse continues with a he said – she said rhetoric coming from both sides.  The bottom line is neither side trusts the other.  The Dems want a vote to pass the budget and debt ceiling and then they will negotiate of reform, while the Reps want negotiations on reform now before a vote occurs.  It is as simple as that and at the same time so complicated.  There is some movement but it is like pushing an elephant up a steep hill.

The effects of the sort of shutdown are starting to make there way into the economy as the Weekly Jobless Claims were higher by 66000 to 374000.  About 15000 would constitute the actual increase which would not be a real concern and it would seem the markets are looking at it that way as futures in the US are higher by about 1% following a 1% increase in Asia overnight and a 1.5% increase in Europe at midday.

Canada is following along showing an increase of 0.70% in futures trading.

Gold is off by more than 8.00 to 1299, oil is flat at 101.60, and the loonie is flat at 96.25.  Bond markets are have been trading lower as yields on the US and Canadian 10 year bonds are 2.71% and 2.60% respectively.  The other interesting thing that has occurred over the past couple of days is the inversion in yield on the 30 day US T-Bill and the 90 Day US T-Bill.  The 90 Day TB is trading at 0.04% with the 30 Day spiking to 0.28%.  This would suggest the concern that is building in regard the ability to pay short term debt.  Below is a commentary from the Business Insider Q&A with Mohamed El – Erian the second in command at Pimco indicating what could occur if these fools do not get some form of deal done soon:

What does the debt limit fiasco mean for the U.S. economy?

The last thing America’s still-sluggish recovery needs is a sinkhole of our politicians’ own making. Yet this is what it would get if Congress does not lift the debt ceiling in a timely manner.

While we think that, when push comes to shove, our politicians will come to their senses, we have analyzed the possible consequences of a failure to do so. The bottom line is a simple one: cascading financial market dysfunction, an economy back in recession, higher unemployment, and greater global economic and financial instability.

What does it mean for the markets? Equities? U.S. Treasuries?

Here one has to differentiate very carefully the different stages of a possible, though unlikely, huge political debacle.

First there would be October 17th, the date that Treasury Secretary Lew specified when the U.S. would run out of legal debt issuance space. In the run up to that date, equity and other risk markets would likely get increasingly nervous.

In the event, October 17th would unlikely prove to be a hard deadline. Instead, between the cash on hand and some spending and revenue flexibility, the Treasury would probably be able to make it to the end of the month without incurring payments arrears.

Risk assets would likely come under greater pressure, reacting to every signal out of DC. Meanwhile, normal market functioning, including the important repo function, would be subject to growing strain and stress.

In the weeks that follow, the Treasury Department would be forced into a very delicate and challenging process of payment prioritization or delaying some payments outright. In either case, officials would probably seek to protect to the maximum extent possible the full faith and credit of the nation. As other spending commitments are cut very hard, equities would sell off significantly on concern of a major recession while Treasuries would likely out-perform.

If this process is drawn out – and, remember please, we believe that the probability of getting to this stage is very, very low – the U.S. could  default on debt payments. While it would be doing so due to the lack of political willingness rather than financial ability, the result would be the same: The world would most likely be facing the likelihood of a great depression.

Fortunately, all this can, should and likely will be avoided when the minority in the Republican party realizes that taking the debt ceiling hostage can have a catastrophic impact on current and future generations.

What does it do for America’s credibility to the rest of the world?

In addition to great economic damage at home, America’s standing in the global economy would be hard hit.

Countries would likely look to build an alternative (or alternatives) to the dollar-centric global financial system. This would undermine the substantial benefits and influence we derive from having the dollar serve as the world’s reserve currency, and from other countries out-sourcing a part of their financial intermediation process to what is the most sophisticated, deepest and, until recently, most predictable financial system.

Finally, and in addition to harming our economic interest, all this would undermine our global political standing and national security interests.

Could this be worse than the global financial crisis triggered by Lehman’s disorderly default 5 years ago?

Yes, much worse. And the sooner Congress realizes this, the higher the probability that America would side-step a totally avoidable crisis of historic proportions.

Next week earnings season begins in earnest and I will be reporting on the mandate company results as they become available.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

September 26th, 2013 Business & Markets

A mixed overnight session in Asia as Japan was higher and China lower.  Japan’s economy is improving on the stimulus that Abe continues to provide while in China there are conflicting reports on the state of the economy as two different reports are somewhat contradictory.

Europe is mixed with the macro index off just slightly, despite continued positive news on the recovery in the region.  UK consumer spending was stronger than expected for for August.

US futures are being driven by some positive employment numbers this morning as Weekly Initial Jobless Claims came in 5000 lower than last week at 305000 and 20000 below estimates of 325000.  Continuous claims were at 2.823mm vs. 2.818mm estimated, which is neutral.  The second Q2 GDP revision came in at estimates at 2.5%.  Markets are looking to open up about a quarter point.

Canadian futures are relatively flat this morning with no economic news today with markets continuing to be range bound.

In regard to the Debt Ceiling deadline, I am in the camp that there will be some type of solution by month’s end as the last time the government shut down (in the mid-90’s) is cost GDP about a half a point and a couple of billion dollars to get things restarted.  The global recovery is also a factor as strong economic and political leadership out of the US is paramount in continuing the process.

Gold is down a couple of bucks to 1331, oil is up 0.32 to 102.37 and the loonie is unchanged at 96.96.  The US and Canadian 10 year bonds are trading slightly lower this morning with yields rising to 2.65% and 2.57% respectively.

Lastly, I am seeing some positive indicators that would suggest the 4th quarter could be stronger.  The shipping indices continue to march higher.  Iron Ore (to China) has been increasing for the last 2 quarters out of Brazil and Australia.  Coal and grain shipments have also been moving higher over the last quarter as the dry goods index and the shipbuilding index continue to advance.  We are also seeing Intermodal rail indices over the last few weeks improve dramatically.  Could set up well for a reasonable Q4.  We shall see……

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

July 3rd, 2013 Business and Market Update

In Asia the Chinese PMI numbers were released and were a nice surprise to the upside in regard to the services sector.  However the construction industry is continuing to stagnate. Markets there were off about a point overnight.

In Europe, while we continue to see improvement across the board for a reasonable recovery in the the second half of the year, markets have sold off at midday by about 1.5% on news that Portugal is once again in trouble as 10 year bonds there broke through the 8% level yesterday.  There have been some issues within the government in regard to difference of opinion on the austerity programs running in the country.  Threatened resignations from a couple of ministers in the finance department have the markets concerned.

In the US lots of employment information this morning and most of it good.  The ADP Private Payrolls for June were released and came in well above the estimate of 160000 at 188000.  We also got Initial Weekly Jobless Claims that were just below estimates of 345000 at 343000.  Both numbers suggest that the employment picture continues to improve, albeit at a slow pace.  Markets are trending lower however on the world news and the unrest in Egypt.  Futures are off about a quarter point, which is about half as much as when I came into the office at 7am indicating the jobs numbers have had some effect on moderating markets.  The monthly employment numbers for June will be released on Friday, due to the US Independence Day holiday tomorrow.

Canadian futures are lower by about a quarter point regardless of the resource uptick.

Gold is higher by about 5 bucks to 1250, oil continues its run higher on the continued unrest in Egypt by about 1.75 to 101.25.  This latest run on oil is due to the situation in Egypt which does suggest that no matter what anyone suggests self sustaining fossil fuel production makes a great deal of sense for North America as the unrest in the Middle East never seems to end.  The loonie is virtually flat at 94.75.

With the US holiday tomorrow, markets to the south close at 1pm today and reopen on Friday. Also, volumes in Toronto will be light through to the end of the week.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

May 23rd, 2013 Market Update

Well, it would seem with Mr. Bernanke confusing the markets yesterday and the Chinese PMI (Purchasing Managers Index) dropping below 50.0 for May to date which signals contraction, has the markets in decline across the globe today.  The biggest hit is in Japan down 7.32% (the market is still up over 43% year to date).  China and Europe are off about 2.5% and futures in the US are down about three quarters of a point.

Of course, as per usual, the reaction is extreme and in my view represents a buying opportunity for investors.  Traders will get slaughtered on both sides of the market with these extreme fluctuations and I continue to look for value and add to positions on weakness.  Hedging the fixed income component of portfolios looking out to the world, corporate, high yield and mortgage debt will help to offset the downside and volatility in Canadian government debt.

As I mentioned yesterday, Mr. Bernanke would comment on how and when the bond buying program would taper off and his commentary and answers to the questions asked seemed to confuse traders as to which way to go.  Bond prices decreased to the point where there was some parody in yield on both the long bond and dividend yield on the S&P 500 which caused equities to sell off on the yield trade.  Move to safer assets (which many would question these days) from equities.  This morning bond prices have reversed trading higher at the long end by about a quarter point, which would suggest that both equities and bonds are not trading in concert.

Of course the good news out of Europe on the PMI number increasing there and the US initial Jobless Claims falling 23000 from last week to 340000 did not seem to have any effect on the markets this morning.  Traders are looking for excuses to get out and the news yesterday and today was the trigger.

Gold is moving higher on the news this morning up about 20 bucks to 1388.00.  Oil is off on the news down 1.25 to 93.00 and the loonie is stronger up 17bps to 96.63.

As mentioned yesterday the big collusive oligopoly is releasing earnings over the next few days and TD Bank came this morning with a miss of a cent a share.  Revenue was in line.  Loan loss provisions were lower which helped increase earnings due to the housing market continuing to slow.  US operations represented about a third of the retail banking income.  Wholesale banking income (trading, investment banking and corporate lending) rose the highest up 12% for the quarter.  In summary, a slight miss with no real organic growth.  The stock will trade down on the news this morning and the general down trend in the markets today.

Last but not least, the US House of Representatives voted once again to pass the Keystone XL Pipeline’s northern leg from Alberta to Nebraska.  The vote which passed easily still needs Senate approval which may be a more difficult task as the Senate is controlled by the Democrats.  Obama’s office has stated that they have recommended that the President veto the bill should it pass both branches of government, however if the Senate gets enough positive votes the veto could be bypassed.  For the record this is the 5th time the bill has passed in the house over the last 5 years.  The Nebraska to gulf shores leg is almost complete which shows how far behind the northern leg is currently.  Energy independence, job creation and a strong environmental report, stamped by the White House, it would seem are not enough for the left side of the aisle to get this thing built.  In the interim Trans Canada along with the other pipeline companies in Canada continue to look for other markets to export to and will find markets for the product.  While we all would like a fossil fuel free world, the reality is that it is not going to happen in the near term.  Becoming energy independent in North America would save billions in defense spending in the Middle East redirecting those assets home to programs that are necessary to all namely, infrastructure, education and health care to name a few.  Politics and reality once again prove to be like oil and water.  The saga continues..

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

Euro Zone GDP Falls, US Jobless Claims Down

On this day of love, it would seem that it is not being felt in the Euro zone as Q4 GDP fell 0.6%. That stat is causing the capital markets over there to sell off to the tune of approximately three quarters of a point.  Asia showed solid gains (other than China as it is still closed until Monday) of about three quarters of a point.

Moving to North America, there seems to be lots of love in the air, but not enough to turn futures north as they are down by about a quarter point this morning.  Bonds are rallying into the market slide by about the same amount.

The positive news in the US starts with the Weekly Jobless Claims which were well below estimates of 360000 at 341000 declining 27000 from last week.  We then head to the consolidation room where Warren Buffet and his new date, private equity firm 3G Capital, have put an offer on the table to take HJ Heinz private at $72.50 per share which represents a 23% bump over yesterdays close.  The deal valued at $28bn is the biggest ever in the food industry.  Warren sees money in Ketchup!!  The last kiss sees AMR (American Airlines) and US Air merging forming the largest airline on the planet.  The merger which will need regulatory approval and will take the synergies of both companies to provide a more efficient travel experience.

In earnings news, two mandate positions are reporting today.  RioCan beat estimates by a large amount and FFO (Funds From Operations) increased 16% to $116mn or $0.39 per share.  CI Investments will also be releasing earnings today but had not done so as of writing this morning.  Consensus estimates for the quarter are at $0.34 per share.

So today, with all the love in the air and the relatively positive news out there, we are in for a risk off day which would suggest a buying opportunity is on the horizon.

Courtesy of:

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

US Jobless Claims Fall, Gold Down

Today we are seeing some positive moves across the globe with Asia higher overnight by a quarter point and Europe trading up by almost a point on the positive news out of the US.

US Weekly Jobless claims fell 37000 last week to 335000 vs. estimates of 360000.  While the weekly numbers are hard to seasonally adjust, the trend seems to be continuing in the US with employment slowly improving.  On the back of this news we also got the Housing Starts for December which were up 12.1% vs. 3.1% estimated.  The real estate market continues to improve in the US which in turn continues to fuel capital markets.  On this news this morning the US futures are trading higher by about a half a point.

The big US banks continued to come with earnings this morning with both Citi Group and Bank of America reporting.  Citi missed by a large margin in earnings and also missed on revenue.  The stock is trading lower by about 2% in the pre-market.  BOA beat estimates ($0.03 vs. $0.02) but took a big charge in the quarter which reduced profitability.  Revenues were below estimates.

Gold is off sharply this morning down about 1% while oil is moving in the opposite direction up about 1% on the positive economic news.

Courtesy of:

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