K96.3 FM Kelowna's Classic Rock - Radio Ralies & Reversals

The U. S. market is closed today for their Memorial Day holiday, so expect volumes to continue to be light. The big news this morning is Canadian GDP growth for the first quarter annualized was over 6%. There was some doubt that the Bank of Canada would raise its policy rate, but I think this increases the chance of an announced rate hike tomorrow. Regardless, monetary policy remains loose.

The first headline in this mornings CFA Institute Financial NewsBrief is: 'China's inflation is close to out of control'. China's yield curve is getting very close to being inverted as policy makers try to cool things off. An inverted yield curve is typically bearish.

Anyway, Asian & European markets finished the day mixed while the TSX Composite Index is currently up on broad strength.

GB

K96.3 FM Kelowna's Classic Rock - Radio Rallies & Reversals

So yesterday marked the first time this week markets maintained their opening direction, in this case up, and finished on strength. Today they've opened in the red and continue to slide, but don't put to much weight on this as this weekend is a holiday weekend in the U. S. and in parts of Europe, and volumes will be light.

Yesterday I posed the question: "Is the sell-off in stocks the past couple of weeks a buying opportunity, or should investors sell on any bounce?" I have suggested throughout the stock market run since March '09 that the economic fundamentals have been poor. Quite simply their is too much debt which needs to be paid down, and when that takes place, consumption and corporate profits will be challenged. As an offset, central bank and government stimulus policies have swept problems under the rug, and monetary policy continues to be loose. So, buy or sell?

Technicals have turned negative. Use the sell-off to add to longer-term quality companies, but take profits on tactical positions.

That's it for this week. Have a great weekend.

GB

K96.3 FM Kelowna's Classic Rock - Radio Ralies & Reversals

It's been an interesting week so far for stocks. On Tuesday North American markets opened significantly to the downside, only to rally at the end and finish the day flat. Yesterday was the complete opposite. Today we've got a strong opening as strength in Asian and European markets has carried over to North American markets. This is highly correlated with the fortunes of the Euro which is up today against the US$ and the Yen as policy makers the world over work quickly to calm financial markets.

With Q1 corporate earnings largely behind us, the market has refocussed on global macro fundamentals, and the sell-off the last couple of weeks is reflective of the market's opinion. So is the sell-off a buying opportunity or should investors sell on any bounce?

Tune in tomorrow when I'll discuss some of the variables to consider.

GB

Investment Advice on the Radio

Markets are bouncing back with green this morning. We had a late day rally yesturday that reversed most of the early morning drop. That's a short term positive for the markets. Consequently risk sentiment is improving. The TSX is up on commodities and bank results from BMO. BMO's 1/4 ly profit apparently doubled. Oil jumped 3% this morning and the Canadian dollar is over 94 cents. In the US, markets are rising on positive data. Durable goods and sales of new homes rose in April. European and Asian markets are catching the drift from positive signs of recovery in the US.

Building on yesturday's perspective from Warren Buffet, the view that a companies true value doesn't change much in the short term. With this volatility, active investors need to be nimble in trading overbought and oversold conditions. Also understand what true value is in the companies they own. For more on investing visit yourlifeyourplan.ca.

Investment Advice on the Radio

Yesturday was a holiday for Canadian markets but not the rest of the world. Markets around the world were down yesturday and continue in the same direction today. It's worries over the European banking sector and North Korea's threat of military action against South Korea. The only safe havens today are gold, which hit a record of $1295 an ounce Canadian. Bonds and the U.S. dollar are also safety zones. The Canadian dollar is below 93 cents.

Expect another volatile week, however I want to ease your fears with some incite from Warren Buffet. I read an article that advised investors to ignore the noise because stocks that trade on the market don't always reflect their true value. They tend to overshoot their true value by rising and falling in price more than what they are worth. This is why this will shape up to be a buying opportunity when the dust settles. For more on investing visit yourlifeyourplan.ca.

Investment Advice on the Radio

Markets are up this morning, with uncertain markets, the question is whether the Bank of Canada will raise rates on June 1st. Inflation numbers were higher than expected for April which is keeping alive the potential for rate hikes on June 1st, albeit the chances are 50/50. Talking to my buddy Grady in the US its a different story. At this stage, expectations for rate hikes are not until late 2011 or 2012 in the US.
Turning to the markets, the TSX started off the week at 12,000 and is now down to just over 11,400. From the high in April the TSX is down roughly 6%. The Dow is off about 11% from it's high in April. Both markets are heading into the weekend in the green so far. For the record this is a correction which is par for the course. In order for it to be called a bear we would need another 10% to come off the markets. That being said with the VIX at over 40%, volitility has risen and we may experience a bumpy ride. So my advice to investors is start your engines to take advantage of the opportunity but do up your seatbelt. For saferide in investing visit yourlifeyourplan.ca.

Investment Advice on the Radio

Markets are extending there losses this morning. Despite good earnings in Canada and the US, macroeconomic issues in Europe are still weighing on markets. Investors are questioning whether this is a short term correction leading to a summer surge or the start of "Sell in May and go away" which would be a summer bummer. In the US the Dow is technically experiencing a correction. The Dow was down 300 points this morning to 10,134 which is more than a 10% drop from the high this year of 11, 200. The TSX is fairing a little better, down to about 11,500 this morning which is about 6% lower than the high in April of 12,200. The low for the TSX in 2010 was about 11,000 reached in January so we are still in midpoint. The VIX which is a volatility measure is over 40% today so it is rising from it's historical norm of about 20% in normal markets. If you have cash prepare your buying list, if not this is where high dividend yielding stocks can cushion the blow. Otherwise, do up your seat belt. For more on investing visit yourlifeyourplan.

Investment Advice on the Radio

Markets in North America sold off late in the day yesturday on news of Germany imposing bans on naked shortselling. Investors around the world aren't taking it lightly today either. Risk aversion is dominating investor sentiment so commodities and the Canadian dollar are lower. It appears as though the Euro is a catalyst for TSX performance. The Euro is driving the US dollar so the Canadian dollar and commodities are getting whipsawed. The Canadian dollar is trading just above 95 cents and the TSX is about 11,660. Yesturday I mentioned the TSX bounced off it's 100 day support level, well that changed by the end of the day. The TSX broke through it's 100 day support level to the downside. The next level of support is at about 11,550. Maybe it's time to review your positions and take some profits or buy if appropriate as this volatility appears to be extending itself. For investment management visit yourlifeyourplan.ca.

Secular "Bullion" or Diminishing Marginal Returns for Gold

With all the uncertainty of the European debt crisis, gold prices have been rising recently. Gold prices seem to have levelled off a little. Spot gold is currently trading at about $1230 US. Friday was an all time high of $1248.95 according to Maytaal Angel in a Reuters article “Gold steadies as rally runs out of steam”, printed Monday May 17, 2010.
To put that in perspective, “gold is still some way off its all-time high of $850 an ounce in 1980, which would be over $2,200 in today’s terms,” said Richard Davis, with Blackrock’s Natural resources team.

Ole Hanson, analyst at Saxo Bank, “The momentum is with gold at the moment and, unless the market takes a different view of the Euro zone debt crisis, we’ll remain supported.” Maytaal points out that gold usually trades in step with the Euro and counter to the dollar as it is seen as an alternative asset to the currency. However, the metal has recently been bought as a safe haven asset and hedge against currency volatility. Even though the Euro has been falling and the U.S. dollar has been rising, so has gold. Gold’s use in jewellery has long since been a key factor in determining its price; however another important factor leading to the rise in gold prices is investment demand. The Economic Times reported, “Until 2008, about 60 percent of global consumption for gold went into jewellery, 25 percent to investment and the rest to industries. But in 2009, investment swelled to 37 percent while jewellery demands slipped to just over 50 percent…Analysts expect demand for investment to expand this year, utilizing ETF’s.”

Looking at IGT (iShares Comex Gold Trust) which seeks to correspond to the day-to-day movement of the price of gold bullion we can see the effect of the rise in gold prices over the last month. On April 26th, IGT’s current price broke through the 50 day moving average and the 100 day moving average. Both relative strength and MACD are positive and strong. The next point of resistance is at $125.55 so with the current price at just over $125, you may have some room for extra profits but not much if the current price is unable to break through this point from a technical perspective.

Gareth Watson of Scotia Capital advises, “You may want to consider locking in some of your recent gains. The uncertainty of Europe has caused investors to flock to gold; however, physical buying is expected to fall in coming weeks and the commodity has yet to really respond to the stronger U.S. dollar which could play catch up in the short term…..barring any unforeseen negative developments overseas.” To add to this Brooke Thackray’s Investor’s Guide warns, “Gold stocks also rank high this month, but be careful as they typically peak at the beginning of the month.” Another factor to consider is that as prices of gold increases, demand for jewellery decreases. India is the world’s largest buyer of gold, with annual purchases of about 800 tonnes and its total jewellery market is estimated at about $20 billion U.S. according to P. Vijian a writer for Yahoo News. This last weekend was the “Akshaya Tritiya” festival (meaning never diminishing) and his article argues “costly gold dampens India’s gold-buying festival mood” with experts predicting sales could be cut in half this year. Gold may have diminishing marginal returns in the short term but if David Rosenberg is right, this will be a short term overbought setback and the secular bull rally for gold will prevail.

Investment Advice on the Radio

Markets are calmer this morning as concerns about Europe are easing a bit. After last week. As the saying goes "Out of crisis arises opportunity".
Here are my top 5 opportunities for investors to consider.
1. Oil has been range bound between $70 and $86 a barrell. It's currently trading at the lower end of that range.
2. Gold has been on a run lately and some would argue we are in a secular bull phase so buy on the dips. Gold rallied to a high of $1248 recently and has since reversed back to as low as $1200. 3. The TSX looks like it has found technical support. It just bounced off the 100 day moving average so may be an entry point after the recent pull back.
4. Credit Suisse believes Continental Europe is a buy and raised their recommended exposure to 15% overweight in a currency hedged position.
5. Visit yourlifeyourplan.ca.

Investment Advice on the Radio

Markets in North America are starting off in the same red direction they left last week. Asian markets also finished the day lower. Surprisingly, European stocks are headed the other way and are experiencing a bounce this morning led by Banks.
Crude oil futures dipped below $70 for the first time since September. For those investors that have benefitted from the recent gains in gold, you may want to lock in some gains. The uncertainty of Europe has caused investors to flock to gold; however, physical buying is expected to fall in coming weeks and the commodity has yet to respond to a stronger U.S. dollar. Short term weakness could be on the horizon barring any unforeseen negative developments overseas. For more on investing visit yourlifeyouplan.ca

Investment Advice on the Radio

Markets appear to want to finish the week off in the red. Last week the TSX soldoff and closed at 11,692. This week the TSX rallied to 12,195 and at this point it's stuggling to stay above 11,900. From a technical perspective, the rally looks like it is breaking down. The TSX has just crossed the 50 day moving average to the downside. Markets are feeling ucertain about economic growth in light of the problems in Europe.

With reversal in the stock markets, bond prices are rallying and yields are falling. If the market continues to sell off, bond prices will continue to rally and yields will fall further. Despite this, we expect interest rates to rise in the long term. As part of your fixed income exposure, high yield and emerging market bonds may be attractive alternatives in a rising interest rate environment. For more on alternative investment strategies visit yourlifeyourplan.ca

Investment Advice on the Radio

So far, markets appear calmer this morning with no real earthshattering news out of Europe, however they have moved to the red in North America. The TSX has slipped a little on struggling oil prices but consumer discretionary stocks seem to be gaining traction on stronger earnings. Weighing on the U.S. markets are jobless claims, which fell slightly less than expected but technology gains are holding up the other end.
As mentioned yesturday earnings are improving. An alternative strategy we like is in high yield bonds. With yields of over 8.5%, they may be an attractive alternative to hedge against stock market volatility and diversify your portfolio in fixed income, especially with such low yields on government bonds. There is still room for high yield bonds in a rising interest rate environment. To find out why visit yourlifeyourplan.ca.

Investment Advice on the Radio

Markets are moving higher this morning. Spain unveiled an austerity plan that further erased jitters over sovereign debt concerns in Europe. Today all sectors are in the green in Canada including the Canadian dollar which is up over 98 cents to the U.S.
Earnings are in full swing in Canada and upside surprises are appearing in Consumer Discretionary, Energy and Financials. Across the broad market, over 50% of reports have topped expectations and with an average of 11% over consensus analysts expectations. Also, very positive reports coming out of the U.S. Despite this, macroeconomic issues and event risk are having their way with the market too. We're getting a swing back and forth between risk appetite and risk aversion. Consequently, expect more volatility. Visit yourlifeyourplan.ca for more on investing in volatile times.

Investment Advice on the Radio

Second thoughts about the "shock and awe" emergency aid package in Europe is weighing on markets this morning. Asian markets finished lower and European markets are lower on banks. U.S. markets are flat right now and surprisingly the TSX is up almost 1%, mostly on the strength of gold and materials. Scotia Capitals assessment is that "Although the plan created liquidity, it fails to address the structural issues underlying the crisis - having said that, the plan has bought the EU some time and managed to bring Greek 10 yr bond yields down fronm 12.5% to 7.4%." For more information on investing in these volatile days yourlifeyourplan.ca

K96.3 FM Kelowna's Classic Rock - Radio Rallies & Reversals

Well international equity markets have started off the week closing up over 4% on average, and North American markets have opened strongly in the green. The big story of course is the "Shock-and-awe" trillion dollar rescue package for the EU by the EU. Was last weeks global equity market sell-off a buying opportunity, or is today's rally a selling opportunity?

If there has been one consistent theme for the past two decades, or at least since '08, it's moral hazard. So to answer my question, it's looking like last weeks sell-off has created a buying opportunity, and the run-up since March '09 is still in tact for the short-term. Longer-term, tax payers the world over will have to pay for all this, and with each rescue package, the shadow of tougher regulation and more government regulation grows.

A second opportunity from last weeks sell-off is that bonds yields fell. Mortgage rates follow bond yields, and so perhaps here's an opportunity to lock in at lower rates before they rise again which is likely to happen soon.

GB

Investment Advice on the Radio

What a day yesturday was! Within an hour the Dow fell 1000 points. This breifly erased more than a trillion dollars in market value. The 9.2% plunge was the biggest intraday percentage loss since 1987 and the largest point drop ever. One client asked me where does all this money go? Rumours are that this was the result of a glitch in high-speed trading triggered by at least one large erroneous trade. Despite all this the TSX finished down just shy of 30 points. Today is an extension of this and worries over Europe and Greece. It is overshadowing the positive job numbers. Looking to today I think markets are selling off before the weekend and taking their time to see where things settle. It could be a buying opportunity once the dust settles or it may be the second leg of another longer term problem. Visit your lifeyourplan.ca for more info on trading strategies in a volatile maket.

Investment Advice on the Radio

I was reviewing my CFA news brief this morning and came across a theme that is emerging as a result of the sovereign debt crisis. Investors are fleeing from bond issues of Western Europe and other developed countries in favour of emerging market bonds. The move is an effort to bolster returns and a bet on the strength of emerging markets.
Turning to the stock market, interestingly the Canadian and Australian markets were up this morning but markets worldwide are lower. Gold may be the answer. Gold rose nearly 1% toward $1185 U.S. and hit a record high in Euros, Sterling and Swiss Francs. Oil is trading lower again today, below $80. I'm in Calgary today so I will talk to the people and find out what is happening with oil. Tomorrow we are hosting our next live rallies and reversals event and there are still a few seats left so Visit yourlifeyourplan.ca.

Investment Advice on the Radio

Last night I attended a presentation sponsored by UBCO and the CFA society featuring David Dodge. The key take away was that Canada is a great place to be, given the structural challenges governments around the world will have to address in the future. I left with an optomistic perspective on our future. Then I woke up this morning and reality set in! Markets are heading lower again this morning. Investors are worried that Greece's debt crisis will spread to other Eurozone countries. Alot of unrest in Athens with protestors burning a bank and demonstrators taking to the streets. Airports are closed and public services are on strike. We may see an increase in volatility in the markets as event risk due to sovereign debt crisis unfolds. The result of this is a strengthing U.S. dollar and a drop in commodities. Oil dropped below $82 this morning. Despite good earnings in Canada today the TSX is taking it on the chin a little more than markets in the U.S.. This may be the theme over the next few days until the Greece crisis in under control. Our next event is this Friday at 9am where we will discuss trading strategies in light of current events. Visit yourlifeyourplan.ca

Investment Advice on the Radio

More Greece is being added to the markets this morning making the slope even more slippery. Investors are concerned $147 billion isn't enough to get the job done in this Greece rescue saga. Markets are down sharpely so far, over 2% in the U.S. The U.S. dollar is stronger against almost all currencies. The Canadian dollar is trading below 98 cents and oil has dropped below $85 today. Not surprising bonds prices are rallying. The 10 year yield has fallen to 3.58%.
What could drive markets this week are jobs numbers which come out in Canada and the U.S. on Friday. We anticipate some improvement. In addition, nearly 2/3 of S&P 500 companies have reported so far and earnings are surpising to the upside by 16% on average. We are seeing a similar trend in Canada. This Friday we are hosting another event where we will discuss this and more on investing.

Emerging Alternative in Fixed Income

The iShares JPMorgan USD Emerging Markets Bond Fund (EMB) replicates the price and yield performance of the JPMorgan EMBI Global Core Index. The index is a U.S. dollar denominated emerging markets debt benchmark which tracks the total return of actively traded external debt instruments in emerging market countries. The top 5 country weightings are Brazil (9.95%), Russia (9.89%), Turkey (8.08%), Mexico (7.64%) and Philippines (7.08%). The fund was established December 17, 2007 and the MER is .60%. It has 62 holdings with a weighted average maturity of 11.56 years and an effective duration of 6.71 years. The weighted average coupon is 6.78%, the distribution yield is 5.44% and average yield to maturity of 5.68%. In terms of quality ratings, Moody’s rates the bonds held in the portfolio an average of Baa3. The majority of bonds fall into a range of B2/B to A1/A+ quality rating by Moody’s.

Over the last year EMB has grown from about $90 in share price to a high recently of $105.50 in addition to the distribution yield of 5.44%. The majority of price appreciation came prior to October 2009. In March the current price crossed the 50 and 100 day moving averages and has maintained its status since then. One thing that appears to be developing from a technical perspective is weakening momentum from both a relative strength perspective, which is currently falling and MACD, which is not signalling a buy.

Fundamentally I like emerging markets as an investment theme for fixed income, especially if we are limited in options as interest rates rise in mature economies. In the spring 2010 Global Investment Outlook the RBC Investment Strategy Committee they expect emerging markets to continue to deliver superior growth. This is supported by “relatively low debt levels of households and corporations, robust banking systems, undervalued currencies and high savings rates…Emerging markets are leading the global recovery, and we expect them to be the first to withdraw policy stimulus.” In addition, in Bloomberg.com “Brazil Trades A-Rated as Growth Makes Debt Safer” headline tells us that we can’t paint all countries the same when it comes to the sovereign debt crisis. The sovereign debt problems of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) has caused the spread to widen in government bonds between developed and less developed countries, arguably spilling over into emerging markets. This may have presented an opportunity for unjustified higher yields in emerging markets countries that don’t have these same problems.

Some of the risks include currency, challenges to the global economic recovery, credit downgrades and rising interest rates. From a currency perspective the index is in U.S. dollar denominated debt so the U.S. /CAD should cancel each other out and the fluctuation in currency should be between the currency of the originator bond and the Canadian dollar. Given the Canadian dollar forecast of strength against the U.S. as well as other currencies, this should bode well for holding this fund. Given duration of 6.71 years, a 1% rise in rates will cause a 6.71% drop in price of the bond pool on average. This still appears to be a great alternative in a rising interest rate environment as a component of your fixed income holdings in your portfolio.

K96.3 FM Kelowna's Classic Rock - Radio Rallies & Reversals

Well the big number the markets will be waiting on today is the ISM Manufacturing index south of the border, along with comments on all of its components. Anything over 50 means expansion and consensus is calling for +60.

According to Credit Suisse, GDP in the U. S. should regain its previous cyclical peak from 2008 by the summer of this year, at which point the economic recovery turns into an expansion. Corporate balance sheets are strong as a result of cost cutting after the credit crises. With lots of cash on hand, it's time to cash out. Credit Suisse expects the cash to be spent as follows: 1. share buybacks in industrials, materials, consumer, media & financials; 2. dividend increases in utilities, staples and financials; and finally cash will be spent on M&A in technology, healthcare and materials.

Anyway, global equities are up ytd led by small caps, and North American equity markets are in the green this morning. That's it for me this morning. We invite you to join us for Rallies & Reversals Morning Coffee this Friday. Call us for details.

GB