December 3rd, 2013 Business & Market Update

Some strength overnight in China as the service sector continues to produce strong numbers in November.  Markets in China were up 0.69%.  Japan also rallied on an additional $53bn of stimulus that will be put into the economy in the first quarter of 2014 to offset some tax increases.  Markets there were up about a half a point.

In Europe, factory orders continue to be weak as November numbers came in at a 4 year low, however the UK construction sector continued to expand in November showing that economy continues to decouple form the rest of Europe.  Markets in the region are off about 1.50%.

Us and Canadian futures are both off this morning by about a quarter point on profit taking and continued concern the tapering will occur sooner than thought.  Our US strategist Tony Dwyer again this morning confirmed his conviction on the equities market while indicating a correction could occur.  His summary:

Summary. Our fundamental thesis — (1) historically low inflation, (2) ultra-easy Fed, (3) positive trajectory in the economy and EPS, and (4) valuation expansion — remains firmly in place. Until we get consistently stronger economic numbers OR core inflation expectations begin to rise aggressively, we expect the Fed to stay on course and keep short rates pinned through 2014. Even with the prospect of a correction in the market, 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 SPX trading at 16x our conservative 2014 estimate of $115, our conviction level for SPX 1,955 in 2014 remains high. Our favored sectors looking out into 2014 remain the Financials, Industrials, Health Care and Information Technology.

Chrysler reported November auto sales increased at 16% vs. 11% estimated.  Also, BMO released their earnings which beat on both top and bottom lines, however about $0.19 per share came from securities gains which has traders selling off the stock in the premarket.  The company also raised the dividend by 5.5% and authorized a $15bn share buyback.



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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

October 31st 2013 Business & Market Updates

Yup its Halloween, which of course also means its month end and it looks like the pundits got both September and October wrong as markets world wide for the most part rallied.

Looking at the overnight numbers, Asia was off about a point following the close in the US yesterday.

Europe on the other hand is rallying up about half a point at midday as investors continue to look for value in the region.

US futures are off slightly this morning despite the fact the Initial Weekly Jobless Claims were virtually at estimates coming in at 340000 vs. 338000.  Also, as mentioned yesterday the FOMC did release the minutes of their two day meeting (attached) and stated that there would be no change to asset purchases or interest rates until both inflation and employment further improved.  The comments indicated that economic improvement is continuing but still at a sluggish pace.  Muddle through comes to mind again.  This is the new normal for the foreseeable future in my view.  As always, I have highlighted in RED the points in the release that I think were interesting.  Bottom line accommodative monetary policy continues.

I have also added the most recent view from Canaccord US Strategist, Tony Dwyer who is suggesting that while the markets are somewhat overbought with the run up in the last couple of months and a correction would not be a surprise, the trend continues to be higher and he continues to affirm his 1955 target on the S&P with a modest 15 multiple.  He is suggesting a modest 4 to 7% correction only and that those that are investors to stay where they are as the rally on the other side of the correction, if indeed it does occur, will be strong.

Canada released GDP numbers for August this morning beating estimates year over year at 2.0% vs. 1.7%.  Canadian futures are off about a half a point however on weak gold prices this morning.

Gold is down 23 bucks to 1325, oil is off 0.33 to 96.44 mostly on supply increases and the loonie has rebounded a third of a cent this morning to 95.77.  The bond market is flat with US and Canadian 10 year yields at 2.50% and 2.39% respectively.

Mandate earnings released after the close last night and this morning for the most part were meets or beats.  AltaGas beat on earnings and beat revenues by a large margin, American Railcar missed by a penny but also saw huge revenue increases, Visa met estimates with revenues were slightly below mostly due to declining demand by consumers in Q3, Williams beat by a large amount on both earnings and revenues and lastly, Valeant Pharma beat on both earnings and revenues.  In all a pretty solid group.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management



October 7th, 2013 Market Update

With no movement over the weekend on the US budget, markets are continuing to retreat and have again overnight in Asia as market there were off about 1.25%.  Europe at midday is showing declines of 0.75% and US futures are lower by about three quarters of a point.  Canadian futures are about a half a point lower.

It would seem that both side continue to dig in with the right side of the aisle playing a game of chicken with the left.  As the debt ceiling deadline gets closer, we are now getting comments from some of the biggest holders of US debt, namely China at $1.2Trillion and the Euro Union at a little under that number.  The politics of the day are no longer an issue as far as the stake holders are concerned.  The term, get it done seems to be the message that is being broadcast across globe to the Americans.

Gold is trading higher this morning by about 8.00 to 1318, oil is off a buck at 102.87 and the loonie is off a third of a cent to 96.84.  Debt markets are rallying on the budget impasse with the US and Canadian 10 year bonds are yielding 2.61% and 2.55% respectively.

Our US strategist Tony Dwyer makes some interesting points on the current situation which I have included below:

  • The government shutdown and heated debt limit debate should push any possible “tapering” into the first quarter until the Fed is able to forecast the economic impact.
  • The trend of the economic data remains positive with Consumer Confidence, Housing, Employment, and debt service ratios at/near the best levels of cycle. The steepness of the yield curve and historically narrow corporate spreads suggest years of growth ahead.
  • Bank lending standards continue to ease as manufacturing expands, suggesting business spending a long way away from turning negative.
  • Q3/13 EPS reporting season is beginning with consensus expectations of 4.5% growth vs. a year ago. Every reporting season since Q1/09 has seen final results ahead of beginning of season expectations by an average 5.5% (2.8% over past four quarters), suggesting upside to EPS over coming weeks.
  • The valuation expansion that began in November 2011 continues to track the past two non-recession valuation expansions, suggesting our 2014 SPX target of 1,955 may be overly conservative for both time and price. Our target is based on 17x our 2014 estimate of $115. We view both our multiple and EPS assumptions as very conservative. The government shutdown and debt limit debate should push out expectations of Fed “tapering,” which keeps the yield curve steep and long-end near current levels.
  • While absolute corporate credit yields are off the low, as is typical at this point in the cycle, the Investment and Speculative Grade debt-to-UST yield has moved back to the best levels of the current cycle.
  • Corporate credit new issuance continues at a record pace. That is going to fund a lot of buybacks, M&A and other pro-equity moves.
Kenneth A. Dick, BA, CIM, CFP, FCSI

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management


September 27th, 2013 Business & Market Update

Seeing some weakness in Japan overnight regardless of the fact that inflation accelerated at the fastest pace in September in the past two years.  China was a little stronger on no real news.

Europe is lower trading on the Debt Ceiling impasse, despite economic confidence in the region moving to a 2 year high.  Markets there are off about a quarter point.  Our former BOC leader Mark Carney, now head of the Bank of England suggested that continued positive recovery in the UK would suggest no new stimulus is necessary at this time.  UK markets are off about three quarters of point on the news.

Moving to the US traders continue to square books for the weekend in regard to the Debt Ceiling issue causing futures to decline this morning by about a third of a point.  In my view it is still short term noise that will be dealt with, maybe not over the weekend or on Monday but a solution will come and we will move on.  Opportunities will be apparent based on this short term positioning and we will take advantage of them should they fit into my mandates.  Interestingly, over the past 25 years, the US government has “shut down” 17 times for varying periods and the response once agreement was made was an average increase in capital markets over the next month of around 0.7%.  I have added a piece this morning from our US Strategist, Tony Dwyer to provide some insight into the big picture.  We are also seeing bonds rally this morning as money goes to safe asset with 10 year yields falling to 2.63% in the US and 2.56% in Canada.

The data that I am more interested in is the Employment numbers for September that will be released next Friday.

Canadian markets are following the US lead down about a quarter point.

Gold is higher by 12.00 to 1336 on a weaker US dollar, oil is off slightly to 102.39 and the loonie is virtually flat at 96.9.

Lastly, whether you agree with the Keystone Pipeline or not, I did find it somewhat refreshing to see our Prime Minister call out the US government yesterday suggesting that we would not take no for an answer.  It was a direct shot at the Obama government which in my opinion needs to happen more often, but that’s for another day.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

July 9th, 2013 Business & Market Update

Asia rallied once again with markets up about 2% on the positive US markets yesterday.

Euro markets are also stronger by about a point at midday on the strength of the US markets yesterday.

North American futures are moving higher this morning on continued dissemination of the real effects of the FOMC tapering threat and the fact it is not going to occur immediately and will be a process vs. an event.  Futures in both the US and Canada are up about a half a point this morning.

Alcoa, the first Dow 30 company to release earnings each quarter came in slightly ahead of estimates after the close yesterday which also helped in moving futures higher this morning.

Gold has rebounded another 12 dollars this morning to 1247, oil is lower by a half a dollar to 102.48 regardless of continued fighting in Egypt and the loonie is up a half a cent to 95.09 on a weaker US dollar.

In other news this morning Blackberry is holding their annual meeting in Waterloo and will need to reassure shareholders that they are on the right track despite a poor earnings report a week ago.

Our intrepid US Strategist, Tony Dwyer has come out with a good piece this morning on the current confusion that seems to be rocking the markets and puts some clarity to it.  I have attached the highlights of the report below and the entire PDF above.  He is suggesting that the real indicators should provide a continued run in the markets.  He still has a 2014 target on the S&P at 1955 which would represent an approximate upside of 20% from here:

What would turn us more cautious? This is the question we get most often, and the answer is that we would get more defensive if:

  • Core inflation expectations rose enough to cause the Fed to aggressively tighten- the opposite is happening. (page 5)
  • The tightening monetary policy began to discount a pending recession via a sharp flattening of the yield curve- the opposite is happening (page 9)
  • The flatter yield curve caused bank lending standards to tighten- the opposite is happening (page 26)
  • High yield debt to treasury yield spread begins to trend significantly higher- the opposite is happening (page 13)
  • Economic data began trending lower- the opposite is happening (pages 15 & 20)
  • The current uptrend in valuation reversed- the opposite is happening (pages 35-38)

Summary. The increased likelihood of Fed tapering has pushed market-driven interest rates up and generated fear of negative economic effect. We believe the opposite may happen because the yield curve steepened, credit spreads have remained historically tight, and the sharpness of the rise in 10-year yields has been dramatic enough to suggest a decline in long rates over coming weeks. Our fundamental thesis remains firmly in place, and until we get consistently stronger economic numbers OR core inflation expectations begin to rise, we expect the Fed to stay on course and not taper bond purchases through 2013. 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 SPX trading at less than 15x our conservative 2014 estimate of $115, our conviction level for SPX 1955 remains high.

Lastly, with the tragic events in Quebec still unfolding, the debate continues on how to transport crude.  I am of the view we are early on this as there are still people missing, but of course both sides need to make sure the line in the sand is drawn.  The pipeline people suggest that there method is safer, the rail people suggest their method is safer and greener and the green people want neither!  I am quite sure that neither is not an option unless we go back to the horse and buggy era until all of these COST EFFECTIVE alternatives have been made available to all.  The bottom line is we need crude to live at the present time and for the foreseeable future and I would suggest that both methods are going to be required to handle the transport of the commodity efficiently.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

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:


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