Investment Advice on the Radio

The TSX is up about 3/4% so far this morning while the U.S. and European markets are lower. GDP numbers were weaker than expected in the U.S. and Goldman Sachs shares are weighing on the U.S. market They are lower because of the ongoing Fed investigations. In Canada, GDP came in as expected and strength in the markets is coming from commodities especially Gold which hit a 2010 high above $1175 this morning.

With the end of the tax holiday for income trusts approaching this year, Scotia Capital put out a report analysing trust conversions and distributions in their universe of coverage. For more information on this or to attend our next event on May 7th visit yourlifeyourplan.ca.

Investment Advice on the Radio

In Canada markets were lower yesturday. Financials and energy led the way down but materials increased with rising gold prices. Concerns over Greece & some positive earnings from Barrick supported gold prices. Despite the drag from Greece, U.S. stocks were able to rise. Markets in the U.S. were higher on news the Fed will keep rates low for an extended period, along with an upgrade to its economic outlook and a fall in jobless claims. So far this morning markets in North America and Europe are solidly in the green. Positive earnings results and a sense that the bailout for Greece is getting closer to being resolved is boosting markets. The Canadian dollar is stronger this morning and with all the correlating factors supporting a stronger Canadian dollar we could move above par again soon. May 7th is our next event where we will expand on some investment strategies in a rising interest rate environment. For more information visit yourlifeyourplan.ca.

Investment Advice on the Radio

Talk about changing by the day. Yesturday was one of the steepest selloffs we have seen in North American markets in some time. U.S. stocks are rallying today on news that Greece may receive more aid than initially expected. Hopefully this will Greece the wheel for stocks and end up being a sideshow to a string of very strong earnings reports that carries markets higher. Investors are awaiting the Fed's statement on rates today. In Canada markets are lower led by energy and financials. On the bond side short term rates in Canada are rising but are still only about 1% for a 1yr t-bill vs Australia where they are approching 4% and Greece where they are approching 14%. Our next event is Friday May 7th.

Investment Advice on the Radio

At the moment markets are flat in Canada and red in the U.S. Greek debt concerns and Goldman Sachs investigations are weighing on markets. Housing prices fell in the U.S. for the month of February but rose compared to last year.
Earnings reports continue to be strong in the U.S. Over the next couple of weeks earnings will also be the focus in Canada. Analysts earnings expectations for the TSX may be on the conservative side and may result in upside surprises as we head into announcements. As Gord mentioned yesturday we are seeing P/E ratios fall as a result. Our next event is Friday May 7th featuring a discussion about M&A opportunities and investing in a rising interest rate environment. For more information on this visit yourlifeyourplan.ca.

K96.3 FM Kelowna's Classic Rock - Radio Ralies & Reverals for Monday, April 26

North American markets were up for the week last while international markets were mixed. The story continues to be corporate earnings, and so far for Q1, over 80% of companies which have already announced earnings have surpassed analyst estimates. What's interesting is that while earnings continue to rise, stock prices in aggregate are lagging, and as a result P/E multiples are falling. This suggests that much of the good news was expected and already baked into the cake.

Earnings will continue to drive markets this week starting with bell weathers Caterpillar in the US and Canadian National Railway in Canada. Economic news to look forward to this week are the Case-Shiller home price index tomorrow, the FED rate decision on Wednesday, and Canadian GDP on Friday. Seasonally, May is the time to 'go away', but as I mentioned last week, there's a lot of cash on the sidelines which has missed out on this rally and could continue to provide support.

That's it for me. Dave Allard is back on tomorrow.

GB

Investment Advice on the Radio

In Canada, markets are starting the morning off in the green and in the U.S. a little flat. The big news out of Canada is core inflation for March came in at 1.7%. This was a surprise to the low side and has put the brakes on the prospects of aggressive rate hikes in the near-term. Consequently the Canadian dollar has loosened it's grip on par.
In the U.S. newly built home sales surged 26.9% last month which is the largest advance since April 1963. In addition manufacturing numbers had their biggest gain in more than 2 years. Offsetting these numbers is some earnings results which have been positive but not stellar which is weighing on the markets. Next week GDP numbers are out in the U.S. and I think investors can go into the weekend with the view that the recovery is well under way in North America at least. For more information on investing visit our blog @yourlifeyourplan.ca

Investment Advice on the Radio

Well David, it's just another day in the Red Sea. Needless to say markets are lower and I am not sure if President Obama's speach in New York will float anybody's boat given that the topic is stronger regulation on Wall Street. The other sinking ship today is Greece. They just announced the budget deficit is worse than expected. On the flip side one of the headlines in my CFA notes today "Hedge funds decide it's game on for profit from Greek bailout". I guess where there is pain there is opportunity. Yields on Greek debt are edging past 8%.
Stepping back to Canada, our composite leading indicator rose by 1% in March which is the 10th consecutive monthly increase. 8 out of 10 components of this index grew.
Todays income trust focus is on Business Trusts. 9 of the 19 entities covered by Scotia in this sub group are expected to convert to corporations and lower distributions by an average of 27%. For more on investing visit our blog @ yourlifeyourplan.ca

Investment Advice on the Radio

The Canadian dollar reached its strongest level since May 2008 after shooting back through parity yesturday. Its being powered by expectations that the Bank of Canada will raise rates earlier than expected. In addition, equities and commodities are rallying on strong U.S. earnings. Markets started the morning off green and are now pulling back a little in North America. They finished mostly higher in Asia. European markets are struggling over Greece and the aftermath of the volcanic disruption.

With only 8 more months of tax holiday remaining for income trusts I want to highlight Scotia Captitals expectations for a couple of the trust subgroups. Most REITs are expected to make the necessary adjustments to have their income remain tax exempt and maintain their level of distributions. I will focus on a couple of other trust sub groups tomorrow and Friday. Our next event is on Friday May 7th at 9am. We will focus on investment strategies in a rising interest rate environment. To find out more about this you can visit our website at yourlifeyourplan.ca.

Investment Advice on the Radio

The Bank of Canada left rates unchanged at .25% but it's tone is hawkish and it became the 1st of the Group of seven to signal it will raise rates. The Bank stated our economy is recovering faster than expected, anticipating inflation to be 2% when numbers come out on Friday. Prior to this most analysts expected a hike in July but you may see some revissions. Yields on overnight index swaps rose suggesting an 86% chance of a June rate hike.
In the markets, bonds are selling off, the Canadian dollar is on the rise and stocks are in the green. Earnings are boosting stocks as the cloud of volcanic ash lifts from Europe. So far in the U.S. we have had a strong start to earnings reports. According to Credit Suisse, only 10% of S&P 500 companies have reported so far but 83% have reported positive surprises.

K96.3 FM - Radio Rallies & Reversals for Monday, April 19, 2010

Global equity markets finished off last week on a sour note, and that selloff continued today with European and Asian markets closing in the red. The big story of course was the SEC's lawsuit against Goldman Sachs, which could pave the way for more lawsuits by other stakeholders and against other financial institutions.

In North America, U. S. markets opened in the red, but have worked their way back into positive territory. The TSX composite index is still trading in negative territory, but well off its opening low. With the 'sell in May, go away' signpost fast approaching, it will be interesting to see if this rally will come to an end, or will cash continue to jump in from the sideline and push equity markets higher. Many investors missed out on the rally and continue to use dips as buying opportunities.

Anyway, tune into our blog at yourlifeyourplan.ca where we continue to discuss rising interest rates, commodities, mergers and acquisitions, and asset allocation. That's it for this morning. Dave Allard will be back on tomorrow.

GB

Theory of a Bondman

There has been a lot of talk about rising debt levels in the U.S., rising interest rates and inflation. What if the result is actually deflation? I recently read an article in the CFA Institute Conference proceedings quarterly March 2010 publication titled “The Debt Deflation/Inflation Debate” by Van R. Hoisington. He argues that price levels will drop due to deflation and he makes some interesting points to support his argument. He points to Irving Fisher and his theory of debt deflation in 1933, in which deflation follows deep recessions. Here is a summary of the key points and considerations in your investment choices over the next few years.
The main premise of the argument is that debt levels will be a drag on growth for years to come. The spring 2010 RBC Global Economic Outlook reports there is a correlation between growth and debt levels once you get over 90% debt-to-GDP. The debt-to-GDP is over 90% in the U.S. and is forecast to grow to over 120% by 2014. A current live example of this is Japan, which has a debt-to-GDP level that grew from 50 to over 170% from 1989-2008. The result is interest rates fell from 5.7% in 1989 to 1.1% in 2008; the Nikkei was down 77.2% over that period and both employment and GDP are where they were 20 and 16 years ago respectively. In the U.S. interest rates are artificially low and personal consumption is down due to a drop in net worth, no income growth and unemployment has risen.
Despite the entire stimulus added to the U.S., the economy continues to struggle. Furthermore once this stimulus has been used up there is no room for further stimulus if we have more financial troubles on the horizon. In the short run when the government spends, an immediate positive impact occurs. The only problem is the government has no money of its own to spend, so the money has to be borrowed or taxed from the private sector. Van Hoisington points out that to the extent that this occurs, the private sector becomes smaller, which means that the second-order effects on GDP of an increase in government spending are at best zero and more likely negative. Therefore, government spending produces nothing but higher levels of debt.
He argues that there needs to be three requirements for inflation to occur. The first is an upward sloping supply curve. Inflation will not occur until excess supply is used up. Excess supply is created during a period where government stimulus has occurred and there is downward pressure on prices. There is an excess supply of manpower and productive capacity, which means a flat to downward sloping supply curve. The second requirement for inflation is a stable or rising velocity of money. Velocity of money increases due to innovation or leverage. Although there is no evidence that innovation has dropped, leverage certainly has. As a result, even though the Fed increased the money supply recently, the velocity of money has fallen 12.2%. Since GDP = M X V, this will have a negative effect on GDP. The third requirement is a stable or rising money multiplier. Historically, the money multiplier has been close to 10 which means for every dollar that goes into the banking system 10 new are created through loans etc.. In 2008, the money multiplier declined to less than 5. He points out that even though the Fed’s open market operation injected $1 trillion the money supply has not grown so the multiplier has effectively dropped to 0.
In terms of your investment choices this would bode well for bonds. The average long-term treasury rate from 1870 through the second quarter of 2009 is 4.3% and the average CPI (inflation rate) is 2.1%. If inflation goes to 0 then the bond yield should fall to 2%. A reasonable expectation of investors is that as a countries debt level goes up so does their risk and investors will demand higher yields for higher risk and the price of bonds should fall. A consideration not mentioned in this argument is that most of the debt held in Japan is held domestically versus a lot of the debt held in the U.S. is by foreigners. This may explain partly why yields have remained low for an extended period of time. Theory may or may not play out this time.

Investment Advice on the Radio

Markets are pretty much red today.

The rally is being derailed a bit by renewed fear of Greek default. This just won't go away! Greece requested a rescue consult with the European Union, the European Central Bank and the IMF. That has triggered a selloff in Greek gov't bonds and sent the Euro falling on the currency market.

The U.S. dollar is higher pretty much against all major currencies. This has brought global demand for commodities into question because they are priced in U.S. dollars. To add fuel to the fire, U.S. consumer sentiment took a negative turn in early April due to a grim outlook for income and jobs. Consumer sentiment is a proxy for consumer spending, which fuels about 70% of the U.S. economy. You remember what I said about your mind can only handle one thought at a time well despite good earnings it looks like economic data is taking over today. To find out more about managing your money in this environment visit our blog at yourlifeyourplan.ca.

Today's Investment Advice on the Radio

Markets are colorful at this point in U.S. and Canada, moving back to red from green. They started the morning off in the red on disappointing jobless claims and a rise in home foreclosures in the U.S. Apparently 1 in 138 households received default notices or were repossed by banks in the U.S. according to RealtyTrac. Much different story in Canada. A housing report from Royal LePage showed some major housing markets in Canada are overheating with prices rising about 20% in the 1st quarter compared to the national average of 10%. In China they are moving to tighten lending conditions due to strong growth. It will be interesting to see what the Bank of Canada does next week when it meets. Scotia Economics believes rates could start to move higher as early as June and Scotia Capital is forecasting the overnight rate could rise from .25% to 1.5% by the end of 2010 and 3% by the end of 2011. For more on managing your money in a rising interest rate environment visit our blog @ yourlifeyourplan.ca.

Todays Investment Advice on the Radio

The Canadian dollar is trading above par again and markets are showing me the green. Stronger-than-expected earnings results and retail sales data in the U.S. is giving the markets a lift.
In addition, Ben Bernanke spoke this morning. Although he made no reference to interest rate direction in the near term he did caution on barriers to further growth.
Todays market reaction supports the theory that investors as a group tend to focus on either economic issues or earnings reports. Kinda like you can't have more than one thought in your head at a time. Brooke Thakray did some research on this and concluded that there is a cycle established. Investors focus on earnings at the start of quarterly earnings season and then turn their focus to economic numbers for the rest of the time. His study suggests that April is the 3rd best month for the markets and most gains for April have come in the first 18 days. For more on investment management visit our blog @ yourlifeyourplan.ca.

Investment Management and Financial Planning Thoughts

The Dow held over $11,000 for the 1st time since September 2008. It's the start of earnings season in the U.S. and the 1st bell weather company to report was in line with earnings but outta line with revenues. The result is markets are in the red this morning.
In Canada, commodities are leading the charge lower and the Canadian dollar is also down. The loonie has run to parity on the back of rising oil. You have to wonder how long that can last. We are nearing the end of seasonal strength for oil, we have excess oil supply and some oil stocks are getting pricey from a P/E perspective. That being said, long term we remain bullish on the Canadian dollar but think any advance may be driven by yield vs. oil. Our trading strategy is to look at reducing our energy exposure in the next month. For more on this visit our blog at yourlifeyourplan.ca

Emerging markets may get a shot of M&A

The mature economies appear to be recovering. Corporate profits had a strong recovery in 2009 and have built up cash. The only question is what will they do with it? The answer may lie partly in emerging markets.

The iShares CDN MSCI Emerging Markets Index Fund (XEM) currently includes 23 countries, spanning the Americas, Eastern Europe, Africa, the Middle East, and Asia. The top holdings by country are Brazil (15%), South Korea (13%), Taiwan (11%), China (10%), South Africa (8%), Hong Kong (7%), India (6%) and Russia (6%). It has 555 holdings and its largest sector weightings are financials (25%), Information Technology (16%), Energy (15%) and Materials (15%). The MER on this fund is .82% and it is 100% RRSP eligible.

Looking at the chart for our technical indicators, a year ago XEM was trading around the $20 mark and closed last Friday at $24.82. The high for the year was reached at $25.39 in January 2010 only to fall to $22.40 in February. In March this year the current price crossed the 50-day moving average and recently crossed the 100-day moving average. Along with strong momentum in terms of its’ moving average, relative strength and MACD are also positive. From these perspectives the signals are bullish.

In a post by US Global Investors in Advisoranalyst.com they point out the strengths, weaknesses, opportunities and threats in their emerging markets diary. Some strengths include Taiwan’s exports surged 51.3% in March from a year earlier with real trade volumes almost returning to pre-crisis levels. China’s car sales jumped 63% year-over-year, industrial production in Brazil rose 30% year-over-year, Mexico saw 290,000 jobs created in the first quarter of 2010, real estate prices in Poland increased 17.3% and Russian car sales were up 38% in March, mind you they had help from a “cash for clunkers” program. Some weaknesses include foreigners were net sellers of Thai stocks this week because of political instability, Malaysia’s industrial production grew slower than expected in February and European gas production is in decline. Some opportunities include the stability of Asian currencies potentially offering foreign investors strong asset prices and higher domestic demand because of improved purchasing power for foreign goods. South Africa cut interest rates by 25 basis points and the World Cup is scheduled to be played there in June 2010. Lastly, Bloomberg had an article last week reporting Turkey expects growth of 10% in the first quarter, second only to China in the G20. Some threats include investor fears about a tax on Chinese property, mobile user registration by the Mexican government may wreak havoc on cell phone users and this weekend’s election in Hungary is causing some uncertainties about the future of that market.

The emerging market space is very much driven by global recovery. Along with this recovery will be a lot of merger and acquisition deals as a result of mature companies having cash and smaller companies unable to grow because financing is still tight. Provided this sector isn’t overbought and seasonal factors don’t mess up their drive, we are bullish on this opportunity over the long term from a technical and fundamental perspective.

Investment Management and Financial Planning Thoughts

Markets are starting the day off in the red this morning. In Canada, it's the energy sector leading the way down. In the U.S. it's an unexpected rise in new claims for unemployment benefits weighing on markets and globally Greece's debt crisis is the culprit. As a result Greece's borrowing costs continue to rise. The yield on a 10 year bond in Greece is now over 7% which is 4% higher than a German bond. Quite a spread in the Eurozone.
With all this downward pressure on stocks, bonds are getting a lift in Canada. Scotia Capital's current recommendations with regards to bonds are to underweight government of Canada's, overweight cash, provincial, municipal and corporate bonds. The recent strength in the Canadian dollar means little upside to foreign currency trades. Some alternative strategies include overweight high yield and emerging market bonds and underweight inflation protected bonds. For more details visit our blog on yourlifeyourplan.ca.

Investment Management and Financial Planning Thoughts

This morning the Canadian dollar pushed through par again but has slipped back. A couple of things are contributing to this. Building permits came in weaker than expected, the U.S. dollar is gaining strength and oil is off a bit.
In stocks, worries over Greece and rising bond yields are causing my screen to be red.
In Canada, it appears inflation is worriesome. Rates could rise as early as July, however in the U.S. the Fed Speak is "conditions warrent exceptionally low rates for an extended period of time". Most analysts are looking for rates to rise in 2011 in the U.S. Although we don't know the timing of the hike, we know where to look for signals and it's in yields. Research by RBC suggests that 10 year bond yields tend to rise 3 months prior to a 1st rate hike and continue to rise thereafter. Interestingly the S&P 500 also rose in most cases prior to and after rate hikes. Both Credit Suisse and RBC research supports this. For more info on this visit our Blog at yourlifeyourplan.ca.

K96.3 FM Kelowna's Classic Rock - Radio Rallies & Reversals (April 5)

Global equity markets had another positive week last week, and the upward trend looks to continue this week. With a better than expected manufacturing number in the U. S. on Thursday and a positive U. S. jobs report on Friday, North American equity markets have opened to the upside.

Of note, the CDN$ is continuing it's push towards parity with the US$ and is half a penny away from one. The seasonal energy trade seems to finally be taking flight with the price of oil approaching $86. It's not all all good news however, particularly if you're a bond investor.

Interest rates across the yield curve are on their way up, and look for them to move higher. As a result, bond values are falling and will continue to fall, with the exception of maybe high yield corporates. So what works in a rising interest rate environment?

Read our blog at 'yourlifeyourplan.ca' where we highlight some options. That's all I've got for today. Dave Allard is back on tomorrow.

Cheers,
GB

Investment Management and Financial Planning Thoughts

The Canadian dollar hit par today and Oil rose above $87. Despite this, markets started the morning off in the red after reaching an 18 month high yesturday. They are currently flat and the weight is being driven by concerns over Greece again. This time Greece wants to amend their deal with the European Union. To add to this, I was also reading an article in the CFA newsbrief this morning that said rich investors are hauling their money out of Greek Banks.

On the fixed income front we are seeing a rally in bond prices as stocks retreat. The biggest question borrowers are asking today is: fixed or variable. History suggests variable rate borrowers do better over time however that may be skewed because yields have been in decline since 1980. If the Bank of Canada return rates to normal levels in the next 5 years, variable rates could be much higher.

A tale of two stories for U.S. Market entry

Last time I wrote about the S&P 500 was in January. The comparisons were much the same as today. P/E’s were similar and news was improving but we had just come off a drop in the Canadian dollar relative to the U.S. and the market had pulled back from the start of 2010.

Looking at XSP iShares, which is a replication of the return of the S&P 500 hedged in Canadian dollar terms, we can see it is continuing to roar upward. Even though the Canadian dollar has increased relative to the U.S. dollar the XSP iShares fund has still managed to earn almost 40% over the past year. The Canadian dollar has managed to rise over 20% also so unhedged the S&P 500 has increased around 60%. From a technical perspective the current price has lots of support above the 50, 100 and 200 day moving average. Relative strength and MACD are both positive and the moving averages are all rising. All are bullish indicators however the market may be overbought. Keep in mind since this bull rally began in March last year we haven’t seen a significant correction of 10% or more.

In an InvestorsInsights.com, John Mauldin’s article, “US stock market returns – what is in store” examines research done by Dr. Prieur du Plessis of Plexus Asset Management. He looked at what historical returns were over various periods based on what stock market valuations were in their respective time prior to that period. The end goal was to determine the most likely direction of stock prices. P/E ratios and their corresponding 10-year forward real returns were examined. With P/E ratios greater than 21 the average 10-year forward real return was 1.3% with a minimum of -5.9% and a maximum of 7.5%. The analysis strongly showed that there was a downward trend in 10-year forward real returns as P/E ratios increased from less than 6 to higher than 21. According to Robert Shiller of the Department of Yale Economics, the current P/E ratio for the S&P 500 is 21.69. The mean average since the 1800’s is 16.36, the minimum P/E was 4.34 in December 1920 and the maximum was 44.20 in December 1999.

There are good reasons to expect some retrenchment in the U.S. market but if you are going to enter the U.S. market at this point, there are two ways to look at how you can invest in the U.S. With the outlook for the Canadian dollar continuing to improve, XSP will likely underperform as an unhedged investment in the U.S. Further to this, if we have what John Mauldin terms a “muddle through” economy in the US where the markets go sideways because of currently high valuations and the problems with the economy, unhedged individual positions will allow you to trade the securities on rallies and reversals. On the other hand, if we get another market sell off and people flood to U.S. dollars then XSP will shine relative to an unhedged position. In Canada we don’t have the breadth or depth in terms of investment choices and some things cannot be had here so exposure to the U.S. can be an important part of a diversified portfolio despite all the reasons to stay clear of the U.S. Depending on your strategy and view of market direction, XSP may or may not be a good choice.