December 5th, 2013 Business Update

A sell-off in Japan overnight as the Asian market caught up with the US.  China in contrast was off just 0.20%.

In Europe at midday markets are flat on no changes in from the ECB as Mario Draghi held his monthly press conference.  There has been some inflation pick-up and reduction in unemployment causing pause in any changes.

In the US the Initial Weekly Jobless Claims were released and declined 23000 from last week to 298000.  Also, Q3 GDP has been revised to 3.6% up from 2.8% and estimated at 3.1%.  Some solid economic numbers leading into the Non-Farm Payrolls tomorrow morning.  Markets are slightly higher.

Canadian futures are trading lower on bank earnings this morning.  Both RBC and CIBC beat on the bottom lines while TD missed.  Revenue was strong at all three however CIBC missed on the top line.  RBC announced that CEO Gord Nixon will be stepping down next fall, which is a little early for a bank CEO in Canada.  TD is splitting 2-1 and increased the dividend by a penny.  CIBC had some one time charges that caused weakness in the quarter.

Gold continues the downward trend off 23.00 to 1224, oil is up a nickel to 97.26 and the loonie is stronger this morning up 0.11 to 93.79.  US and Canadian 10 year bonds are trading a little lower this morning yielding 2.86% and 2.67% respectively.

Lastly, I have added another interesting piece from the Pimco Conference that I attended a couple of weeks ago.  The income story is an important one to most of my clients and most Canadians.  With low real interest rates and it would seem the rise in rates to come, one of the biggest dilemmas currently is how to invest in the asset class while preserving capital and generating a reasonable amount of income.  The article speaks of how Pimco sees the next year and what they do to try and provide a reasonable solution.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

November 26th 2013 Business & Market Update

Overnight in Asia markets were slightly lower as oil markets recovered after the slide yesterday based on the Iran nuclear deal.

Europe at midday is flat despite some continued strong numbers coming from the service sector that is adding jobs at the fastest pace in more than 6 years.

US and Canadian futures are also flat this morning despite strong Housing Start and Permits numbers for October. The estimates of 933,000 were beat handily by the actual number coming in at 1,030,000. These numbers are late in coming based on the government shut-down that occurred earlier in October. The Case-Shiller Housing Index was also released this morning and it showed a year over year 13.29% increase which was in line with estimates.

In Canada, the Finance Minister suggested late yesterday that the budget would be balanced in 14 months which is sooner than was anticipated only 10 days ago. Good news none the less if you believe the shell game that is played in government finance. Also, the big news out of Canada today is the new deal that the NHL struck with Rogers Communications. The deal valued at $5.2bn will run over 12 years and give the media company total control of the NHL property in Canada. In essence CBC and TSN (Bell Media) are out. Rogers has suggested they have a deal with CBC to broadcast the Sat night game of the week and will maintain the French and other language options that the CBC offers. The deal takes about a quarter of the CBC’s total revenues which will hurt the crown corporation. TSN it would seem is out other than some regional games where they have some ownership rights (Leafs, Winnipeg etc.). For those of you that like Don Cherry and Ron Maclean it would seem for now they are still on Sat nights and will be doing some playoff games.

Gold is up about 3.00 to 1245, oil is up a couple of cents to 94.12 and the loonie is down 0.06 to 94.81. Debt markets are flat this morning with US and Canada 10 year bonds trading at 2.73% and 2.55% respectively.

Lastly, as I mentioned yesterday I would be providing some insight into the conference I attended last week and start the process this morning with an article by Mark Kiesel, Head of Global Bond Portfolio Management for Pimco. The theme was what not to buy and finding the sweet spot in the debt and equity markets based on the current environment that we are ensconced in. I found Mark quite positive, down to earth and pragmatic in his big picture view which translated nicely into his sector analysis. Take the time to give it a read it you have a moment.

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

Branch Manager & Portfolio Manager | Independent Wealth Management
Canaccord Genuity Wealth

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