Radio Rallies & Reversals

After contracting in July, the Canadian economy is back on the path of growth, posting a 30 basis point increase for the month of August. South of the border, the US economy posted an annual rate of 2% this past quarter. Despite the improvement in August, Canada's economy has gone from being the envy of the G7 to one that won't be running at full tilt till the end of 2012. The Bank of Canada is now expected to remain on the sidelines till the end of 2011; and all eyes and ears are now focused on the US Fed and any sign of how QE2 will unfold - Is QE2 a freight train to hop on, or get out of the way?

GB

Radio Rallies & Reversals

"There's no turning back now unless the FOMC is willing to risk a major market disappointment." - According to Credit Suisse. All eyes and ears will be on the FED next week for a sign of QE2 to come. Credit Suisse is upgrading the metals and mining sector to overweight based on 4 factors: 1. QE2 helps commodities as other centrals banks are forced to do the same; 2. they expect ISM and global IP to trough next month; 3. China is re-accelerating; and 4. valuations look reasonable.

There's an interesting article in this weeks Economist magazine on global house prices. According to the article, Canada's housing market is roughly 24% overvalued based on comparing the current ratio of house prices to rents, with its long-term average. The most overvalued is Australia at over 63%. The US is fairly valued.

It's a big day on the earnings front and so far the numbers continue to surprise on the upside. North American markets are back in the green after yesterdays sell-off.

Radio Rallies & Reversals

Today I thought I'd feature two stories: The first is the Case/Shiller Home Price Index in the US which fell in the month of August. The index has risen just under 7% since the April 2009 bottom, but it's still 28% below its July 2006 peak. Expired tax credits, record foreclosures, weak job growth and demand are pushing prices lower again; and problems with foreclosures are keeping prospective buyers away for fear that their purchase will be canceled as previous owners claim in court that their foreclosure was invalid. In Canada, Bank of Canada Governor, Mark Carney, is more optimistic, but there is a chance of a more severe housing correction given the sharp rise in prices and equally sharp rise in consumer debt. Debt levels in Canada are equal to, if not greater, than debt levels in the US back in 2006.

The other story is PIMCO's El-Erian commenting at a conference in New York, that Greece will likely default on its debt within 3 years. According to El-Erian, it's in Greece's interest to default as austerity measure are too tough. The 10 year Greek bond pays 9.65% in comparison to the 10 year German bond at 2.5% and the 10 year Canada at 2.78%. Bond yields are rising in the other PIGS countries as investors fear the problem isn't contained to Greece.

GB

Friday Radio Rallies and Reversals

Reversing -Global stocks are lower this morning. Investors are waiting on a possible stimulus package from the U.S. Federal Reserve next week and GDP rose 2 per cent in the third quarter. The result was slightly below economists' expectations for growth.

Rallying - It's the technology space that is shining along with gold and molybdinum. RIM, Microsoft & Monster Worldwide Inc. are all rising on positive earnings. Molybdinum stocks are rising after Bloomberg reported China may declare Molybdinum as their National Resource.

Russell Investments economic indicators suggests job growth is slightly negative and core inflation and consumer spending remains low but all are within their typical historic ranges. So nothing to cause concern. Any questions call me at 868-5525 or visit yourlifeyourplan.ca.

Wednesday Radio Rallies and Reversals

Rallying - U.S. financials and some blue-chip technology stocks also saw early gains. GM surprised on the upside. The US$ is stronger. In Canada, Westjet had a positive surprise.

Reversing - Overall, North American markets are lower at this point. In Canada mining stocks are the main drag after Ottawa halted a copper and gold project in BC.

Opprotunitity - Investors are unwilling to take any direction after U.S. midterm elections and ahead of an important monetary policy statement from the Federal Reserve. It's a double edged sword. Investors may view the next 2 years as a time that nothing gets accomplished or they may see this as an opportunity for US companies to weaken or block what they consider anti-business policies in different areas from healthcare to financial reform.

Tuesday Radio Rallies & Reversals

North American stocks fell at the start of trading today. Investors are taking profits and reacting to the latest round of quarterly earnings and economic reports. The Case Shiller Home price index came in lower than expected in the US and In terms of companies, UBS, Texas Instruments, Citigroup and Aercelor Mitel are weighing on markets in the US. In Canada, Rogers dropped 4.7 per cent after they reported a 24 per cent slide in quarterly earnings due to weak subscriber growth.

On the brighter side, RIM rose 3.9 per cent after sharp gains on Monday. Bank of America Corp. rose 1.2% . Ford rose 0.6 per cent after its posted strong earnings.

Russell Investments puts out its 1/4ly Economic Indicators dashboard. It tells us if the economy is returning to more typical behaviour. It covers things like corporate debt market volatility, interest rates, mortgage delinquincies, core inflation, employment growth, consumer spending and economic expansion.

Monday Radio Rallies & Reversals

Markets are rallying on strong data out of China. Investors are moving to riskier assets. Consequently gold and the US $ are under pressure.

When forecasting where we see the economy and markets going in the future, we look to technical indicators to provide some clues. Earnings yield is one such technical indicator, and when its level is higher than T-Bill rates it has historically resulted in positive returns for the equity markets. Franklin Templeton reported "the reading today has not been this high since the early 1980’s so it’s a very bullish signal in our opinion"

Monday Radio Rallies & Reversals

Rallying -Global stocks are moving higher this morning. Investors cheered efforts by the G20 finance ministers to avert a currency war during this weekends meeting in South Korea. Finance ministers at the G20 meeting agreed that they will try to maintain trade balances at what they called "sustainable levels," while the United States and China in particular agreed to "refrain from competitive devaluation of currencies."

Reversing -The US $ relative to the Canadian dollar.

Opportunity -Of the 150 S&P 500 companies that have reported Q3 earnings so far, 79% have beat analyst expectations. It is now widely anticipated that in early November, the Federal reserve will shift from being an attentive observer of markets, to being an active buyer. According to Credit Suisse: "The Fed's goals are to raise asset prices and accelerate the pace of improvement in the US labor market. The expectation of 'QE2' has played a strong part in stocks recent run-up. Keep an eye on consumer confidence, as the Fed believes this is the single most important metric to watch in gauging the potential for near-term rallies. For more on investing call me at 868-5525 or visit yourlifeyouplan.ca.

Radio Rallies & Reversals

Markets started off in the red today despite a number of Q3 earnings beats from some S&P500 and DOW heavyweights. Of note is gold, which is off roughly $30 on US$ dollar strength following what could be a sign of tighter monetary policy in China. Is the October correction in gold finally here?

Scotia Mocatta feels the Chinese news is a catalyst for profit taking and a major retrenchment, but that the trend higher will continue. Technical levels to watch for are 1345 which we're currently below, 1325, 1303, 1271 (which would be a 50% retrenchment from the move which started in July), and then 1245 which is the 100 day MA.

The other news today of course is the Bank of Canada's announcement to hold the overnight rate at 1%. I'll have more commentary tomorrow once I've had a chance to analyze the statement.

GB

Radio Rallies & Reversals

For the week last, the TSX Composite Index closed up .6%, the DOW .5%, S&P500 .9%, Nasdaq 2.8%, Russell 2000 1.3%, and EAFE 1.3%. Year-to-date and in CDN$ terms, those same indexes are up 7.3%, 1.8%, 1.2%, 4.4%, 7.9% and -1%, respectively. Clearly, the places to have been are Canada, technology and small caps. Bonds have also done well with the Dex Universe Bond Index up 7.4% year-to-date and high yields up over 13%.

Q3 earnings season picks up momentum this week with companies like Apple, IBM,Goldman Sachs, Bank of America, Coca-Cola, Johnson & Johnson, Boeing, United Technologies, Caterpillar, AT&T, and Verizon reporting in the US while in Canada, Encana and Shaw release their numbers. Nearly 60% of the S&P500 companies report in the next 2 weeks. Credit Suisse makes the following observations from Q2: S&P500 companies missing on both revenue and earnings were punished the worst, gapping nearly 3% down at the open, followed by another 1% in the first hour; Companies with mixed results i.e. earnings beat but revenue miss tended to see more volatility at the open before stabilizing later in the day.

Last Friday, FED Chairman Ben Bernanke didn't quite give the kind of reassurance the market was looking for regarding quantitative easing and so we're seeing a bit of a pull-back in precious metals and some strength in the US$. This might be a very short buying opportunity for precious metals and the CDN$. Also, Credit Suisse has updated their top 20 US dividend paying opportunities - If you'd like a copy, ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

Friday Morning Radio Advice

Rallying - The S&P500 gave us a bullish signal recently with the 50 day moving average crossing above the 200 day moving average. This is a tecnical event known as the golden cross. That last occured in June 2009 and the markets rallied 35% in the next 10 months.

Reversing - The Dow and the TSX are just slightly in the red. Nothing driving these markets today ahead of the G20 meeting this weekend as leaders discuss currency and other macroeconomic challenges.

Opportunity - Scotia Capital has recently made some changes to its Global Forecast. One notable change in the forecasts is that the Bank of Canada is now expected to remain on hold until Q3/11 with the overnight rate peaking at 1.75% in Q4/11. In the US, the Fed Funds rate will still peak in Q4/11 but at a rate of 0.50% vs. the 0.75 previously forecast. Any questions on interest rates call me at 868-5525 or visit yourlifeyourplan.ca.

Wednesday Morning Radio Advice

Stocks bounced at the open following a sharp selloff on Tuesday that marked the biggest one-day downturn in about two months. In Europe, markets are flat. In Asia, Japan's Nikkei fell 1.7 per cent in overnight trading. The gains in North America were mostly due to upbeat earnings from blue-chip companies. Financials are mixed. Wells Fargo reported record high earnings of more than $3.3-billion, beating analysts' estimates. However, Morgan Stanley disappointed investors with earnings down 67% over last year. Boeing beat expectations and is giving that aerospace sector a lift. In Canada, commodities and financials are lower. The Canadian dollar is trading just below 97 cents US.

Opportunity - The economist featured another article about currency wars. This one is called the Bun Fight. The Big Mac Index is a measure of currency valuations based on purchasing power parity of a Big Mac in various countries. It helps identify over and under valued currencies around the world and apparently China needs more expensive burgers. Incidently the Canadian dollar is overvalued by about 10% relative to the US according to this. For those of you going south it may be a good time to evaluate when to convert your money. Any questions a call me at 868-5525 or visit yourlifeyourplan.ca

Monday Morning Radio Advice

Rallying - Markets are rising this morning. US Homebuilders sentiment rose for the first time in a number of months. More importantly, we have a number of U.S. companies reporting earnings and so far Citigroup posted strong results, 2.2 billion profit this 1/4. The Dow is up almost 1/2% at this point.

Reversing - The Canadian dollar is losing ground to the US. It's trading at 98.50 cents. Consequently, gold is also lower at about $1370 an ounze.

Opportunity - Scotia Capital updated their Global Forecast and made some changes relative to fixed income. Canadian bonds remain less than inspiring. Scotia continues to estimate that 10-year bank bonds will offer the best relative return. They previously forecast 10 year bank bonds will pay 4.25% however they now forecast 3.16%. For a copy of the report call me at 868-5525 or visit yourlifeyourplan.ca.

Radio Rallies & Reversals

It looks like stock markets are taking a bit of a breather today after yesterday's run-up. Markets are counting on the next round of quantitative easing by global central banks to jump start economic growth. All I know is that it's getting harder and harder to find any value out there without moving down the quality spectrum. With interest rates already in the basement, corporate earnings are going to have to keep surprising to the upside. Companies will have to keep working on cutting costs and increasing productivity if economic growth doesn't pick up. Don't expect the job situation to get better anytime soon.

Seasonal trades to consider include 6 n 6 which usually kicks off the last four days in October, along with information technology, and consumer discretionary. November, December and January are considered the three stars. Seasonal trades to unwind are bonds, utilities, oil health care, telecommunications, and yes, gold. With all this monetary stimulus however, things may work out a little differently.

GB

Radio Rallies & Reversals

I've said it before and I'll say it again - The stock market and the economy are not the same thing. While they are inter-connected, the stock market is a leading indicator of the economy, and right now it's getting interesting. We've seen some economic numbers which suggest Western economies are rolling over, but the stock market seems to shrug it off. Good news or bad news, the stock market is sustaining its push higher. It seems that if the economic numbers are poor, the market cheers because this increases the chance of quantitative easing; If the economic numbers are good, the market cheers because corporate profits are growing. This is what happens when government tinkers with the system, and that's an understatement. Our children and grandchildren are the ones who are going to have to pick up the bill for all our partying. If we're smart, we'll at least save them a piece of cake.

Speaking of economic numbers and corporate profits, the market has been waiting to sink its teeth into the recent FOMC meeting minutes just released. The early analysis is that more stimulus is on the way, and the market seems to like it as North American stock indexes have all moved from red to green; although, investors will be chewing on this a bit more. After the bell, Intel will continue the next round of earnings reports following Alcoa last week.

GB

Friday Morning Radio Spot

Rallying - Google is pushing up the technology sector, rising over 10% after reporting better-than-expected earnings. Financials in Canada are showing some strength

Reversing - Stocks jumped at the start of trading today on encouraging words from Ben Bernanke about more stimulus but they have since pulled back. Weighing on US markets are financials. Investor are concerned about the impact of the current foreclosure mess. In addition, consumer confidence numbers came in lower than expected.

Trading Opportunity - Next week is a busy week for earnings releases so investors will likely be focussed on that vs economic indicators. Since April earnings have been revised downward by 20%. I guess the question is whether earnings will surprise up or down. Look for earnings to drive markets over the next couple of weeks. For more details call me at 868-5525 or visit yourlifeyourplan.ca

Thursday Morning Radio Spot

Rallying - Asian markets closed higher today on stronger commodities. The Canadian dollar broke through par in overnight trading last night but has since pulled back to about 99.5 cents. Defensive stocks are rising a little, suggesting that investors are taking a more cautious view on the economy.

Reversing - European markets started off higher but have pulled back and North American stocks are flat to start this morning. An unexpected rise in last week’s U.S. initial jobless claims is weighing on markets. U.S. financials were hit especially hard.

Trading Opportunity - For those concerned about retirement ScotiaMcleod came out with a report on the upcoming changes to the Canada Pension Plan. One upcoming change to the CPP is that all working beneficiaries of CPP must contribute to the Plan until age 65 and then voluntarily until age 70 to accrue additional benefits. For more details call me at 868-5525 or visit yourlifeyourplan.ca.

Wednesday Morning Radio Spot

Rallying - Stocks are up about 1% today. Strong earnings, upbeat data from China and the belief that the Federal Reserve will add more stimulus is driving the markets higher. Commodities are rallying with gold, silver, copper and oil all strong. Industrials are also rallying after solid railway earnings in the US and upgraded ratings on Canadian railways from UBS.

Reversing - The US$ is lower with the view the the Fed will flood markets with cheap cash to boost economic growth. The Canadian dollar is almost at par with the US. Weakness appears to be in the more defensive sectors like consumer staples and telecoms.

Investment Opportunity - For those concerned about retirement, one of the upcoming changes to the Canada Pension Plan is that they will make adjustments for taking CPP early more neutral. They intend to make these changes so early retirees do not benefit more than later retirees. For more details on upcoming changes to CPP call me at 868-5525 or visit yourlifeyourplan.ca

Tuesday Morning Radio Spot

Rallying - The US$ is higher relative to the Euro because of short covering ahead of the Federal Reserve meeting today. The Canadian dollar is higher relative to the US$. It's closing in on 99 cents. Agrium Inc. rose 4.4 per cent. This is a carryover from last week when the U.S. Department of Agriculture predicted a corn shortfall.

Reversing - Stocks are slightly in the red. Investors are awaiting the FOMC meeting today and there are concerns over China's growth. The declines are fairly widespread in the US. In Canada, commodities are weak after the price of crude oil and gold retreated.

For those approaching or in retirement ScotiaMcleod's Financial Planning Group just released a report on the upcoming changes to the Canada Pension Plan. The CPP will undergo some changes to provide equity and flexibility to older workers. These changes will be gradually phased in over 5 years starting in 2011. For a copy call me at 868-5525 or visit yourlifeyourplan.ca.

Radio Rallies & Reversals - jobs, jobs, jobs

Despite a negative jobs report both in Canada and the US, North American stock indexes are presently in the green. In Canada 6,600 jobs were lost while the number south of the border was 95,000, keeping the unemployment rate above 9.5% for 14 straight months, the longest stretch since the 1930's. In Canada, the unemployment rate fell to 8% from 8.1% as frustrated persons dropped out of the job market. The silver lining is that higher paying full time jobs were actually up. With factories across Canada and the United States only operating at roughly 75% capacity, any recovery will be a jobless one.

Given the jobs situation on both sides of the pond, expect interest rates to remain low in Canada, the US and Europe. Generally this is bullish for stocks, but it looks like analyst earnings estimates are leveling off and even falling. The focus should then be on sustainable yield. If you're looking for ideas, give us a call at 250-868-5525 or visit yourlifeyourplan.ca.

GB

Radio Rallies & Reversals

North American stock indexes have been mostly in the red today, thanks to the ADP employment report out of the US this morning, which showed a drop in jobs for the month of September. The market will now be looking forward towards the government employment report in both Canada and the US on Friday.

Interesting piece of news from Credit Suisse this morning. Looking at the options market, demand for call options would suggest a surge in bullish sentiment for US financial, particularly large cap banks, while a drop in downside protection would suggest the same for the healthcare sector.

Finally, according to the Economist magazine, the issuance of high yield bonds has been on the rebound this past year in response to low rates. Spreads over governments have come way in since the peak during the credit crises, but both issuance and spreads are still well of the highs and lows, respectively, of early 2007.

GB

Radio Rallies & Reversals

Markets are rallying hard today after a better than expected US Non-Manufacturing report, and news that the Bank of Japan is moving from a policy of 0.1% currently, to a range of 0% to 0.1%; In addition, they will buy government and corporate debt. Yesterday I talked about some of the benefits of quantitative easing in the US, including a response by other central banks in kind - Looks like its happening, and the global markets love it. So what are the implications of low interest rates?

According to the Bottonwood article in last weeks Economist magazine, low rates could be a signal for subdued economic and thus corporate profit growth ahead. According to David Bowers of Absolute Strategy Research, "low rates in the developed world will eventually boost global growth as they are imported by the developing world via managed exchange rates, but it looks like it is also leading to trade disputes.

The more the economic outlook turns Japanese, the harder it will be for equity markets, but for now low rates seem to be drawing investors into risky assets.

GB

Friday Radio Spot

Rallying - Turkey. Agriculture stocks are rising after a bullish report from the USDA. In addition, Despite initial concerns about the latest US monthly payrolls, North American stocks were rising at the start of trading this morning. Overall US payrolls shrank by 95,000 jobs in September, below expectations of a gain of 75,000. In a warped way this is a relief for investors because expectations that the Federal Reserve will add more stimulus has increased. US markets are up about 1/4% and the TSX is up 1/2%.

Reversing - The US dollar is weaker as a result of future expectations and bonds are selling off in favour of stocks.

Trading opportunity - For those bond investors looking to enhance their yield, Maple bonds are an option. They are denominated in Canadian dollars and sold in Canada as private placements issued by foreign financial instituions and companies. If you have any questions call me at 868-5525 or visit yourlifeyourplan.ca

Thursday Radio Spot

Rallying - In the US financials and technology stocks are gaining. US initial jobless claims came in better than expected. Gold is on the rise again. It's over $1360 an ounce and oil is over $84 a barrel. Alot of the movement in oil and gold is explained by weakness in the US dollar.

Reversing - Even with price of oil and gold moving higher commodities are declining offsetting gains in financials and technology stocks. US markets are flat. In Canada, The TSX is down over 1/2% at this point.


Trading opportunity - September became the busiest month of the year for US corporate bond new issues. With yields so low on government bonds, investment grade corporate bonds may be an alternative to enhance yields. Scotia Capital has a large inventory of corporate bonds, including high yield and maple bonds with attractive yields. If you have any questions call me at 868-5525 or visit yourlifeyourplan.ca.

Wednesday Radio Spot

Rallying - Asian markets closed almost 2% higher fuelled by a gold rally. Gold is approaching $1350 an ounce.

Reversing - Mostly technology stocks are lower. Profit taking, a disappointing report on U.S. employment and a revised economic outlook from the International Monetary Fund for 2011 are weighing on North American markets. Markets are flat in the US and Canada.

Trading - Yields on Government bonds are at all-time lows. Longer term, Scotia Economics is forecasting interest rates will rise. When that happens shorting fixed income securities will be a viable trade option. There are a number of ways investors can short fixed income to capitalize on rising interest rates. These strategies are described in our Shorting Fixed Income Products as a Retail Investor piece. For a copy call me at 868-5525 or visit yourlifeyourplan.ca.

Tuesday Morning Radio Spot

Rallying -Worldwide stocks are on the rise today, most markets are up over 1%. We had encouraging services sector data out of the US and Japan cut its key interest rate to zero per cent. This is driving commodities higher. Oil prices are rising and Gold rose to a new record of over $1330 an ounce.

Reversing - Not much to report other than the US $ and government bonds selling off.

Gord mentioned yesterday, September is historically a bad month for equities, but the S&P500 finished with its best September return since 1939, 8.92% higher. That's double the TSX return for September. In cases where September is a positive month, the S&P500 has tended to be positive for October too, however it is the most volatile month. With this in mind, you may want to look at ways to protect the downside while capturing any upside. If you have any questions call me at 868-5525 or visit yourlifeyourplan.ca.

Radio Rallies & Reversals

September is historically a bad month for equities, but we just saw the S&P500 finish up positive 8.92%, its best September return since 1939, and the TSX Composite Index did pretty well also, finishing up 4.09%. So what's in store this month? Since 1928, October has tended to see positive returns for the S&P500 roughly 2/3rds of the time after a positive September. The average return being 1.8%. So what could drive markets this last quarter?

According to Credit Suisse Global Strategist, Andrew Garthwaite, look for round two of quantitative easing, which will: 1. drive down real bond yields; 2. give asset allocators money which they will partly invest in other assets; 3. result in a weaker US$, forcing other central banks to adopt quantitative easing; and 4. help postpone fiscal tightening. Where are the investment opportunities? Look to sectors and stocks with high free cash flow (i. e. dividends), and high leverage.

There's a full slate of potential marketing moving economic news this week including: the ISM Non-Manufacturing Index in the US tomorrow; European Union GDP on Wednesday, followed by the European Central Bank policy announcement on Thursday; and employment in both the US and Canada on Friday.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

The front page of the Financial Post this morning has an article which sums up a number of the themes I've been talking about for the past couple of months: consumer de-leveraging and high unemployment in the US, and deteriorating finances and a weakening housing market in Canada are starting to show up in the recent weakening economic indicators. Yet despite all this, the market believes otherwise, driving stocks higher in September, a month that is historically been the worst for equities. There's another front page article in the Financial Post, which highlights similarities between now 1939. Personally, I think there are similarities between now and 2006. Despite the fundamentals, the markets are running higher, fueled by speculation and back-stopped by moral hazard. Seasonally, September and October are known as being challenging months for long only investors. What you may not know is that when markets do break the seasonal trend, the gains are large. All this Government and central bank intervention is making the tea leaves harder to read, but the fact remains that interest rates are low and that bodes well for stocks. The consensus seems to be coming around that economic growth will be slow. The opportunity then is in dividends.

GB