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