For anyone who listened to my radio show this morning, this blog post reinforces my concern about the massive, debt driven stimulus spending in the US. This thought provoking article from the Financial Post paints a bleak picture, but it is pretty hard to argue with any of the concerns raised by author Edward Hadas.
As I have frequently noted, this may make it tough to invest in US equities over the long term. The Dow is essentially flat over the last decade, so an American invested in her native market has essentially broken even, but the massive revaluation of the US currency leaves a Canadian with a loss of over thirty percent on a currency adjusted basis.
This may not preclude investing in the US market, but it sure makes sense to consider hedging your US denominated positions.
This is for information purposes only. Views expressed are those of the author, not Scotia Capital.
Saturday, October 10, 2009
Friday, October 9, 2009
Wareham Weekly Insights
Market Watch
The big picture
Australian rate hike sparks optimism
Australia surprised markets Tuesday by increasing interest rates, setting off a wave of optimism about the global economic recovery. The Reserve Bank of Australia raised its benchmark interest rate to 3.25% from 3.00%, becoming the first among the Group of 20 countries to increase borrowing costs since the start of the global financial crisis. In Canada, Prime Minister Stephen Harper reiterated that the global recovery will remain fragile until jobless rates start to fall. Canada’s unemployment rate fell to 8.4% from 8.7% in September, the first monthly decline since the fall of 2008. Employment increased for the second consecutive month, up 31,000. In the U.S., the unemployment rate is at a 26-year high of 9.8% and still climbing.
Americans will have to save more in the future after years of accumulating too much debt, according to U.S. Treasury Secretary Timothy Geithner. He predicts that this change will transform the whole world’s economic reality. “Everyone is going to have to come to terms with the fact that we are going to save more in the United States.” He called on Europeans and Japanese to work at boosting domestic demand, and credited China for being at the forefront of thinking about new ways to reduce the dependence of its economy on U.S. exports and investments.
Markets
Stocks ride wave; wealthy tighten their Gucci belts
Optimism sparked by Australia’s rate hike sent stocks rising around the world on Tuesday. The TSX also was buoyed by strong commodity prices as gold topped $1,050 and oil hit $71. The Canadian dollar surged above 95 cents while U.S. Aluminum producer Alcoa posted a surprise profit and Costco beat analysts’ estimates despite a drop in quarterly profits. In Canada, Jean Coutu reported quarterly revenues up 7.3% versus a year ago, while Canwest sought court protection from its creditors, with $4 billion of debt. As the rich tighten their belts, luxury retailer Neiman Marcus has priced 40% of its new catalogue at just US$250 or less.
In the smartphone wars, Bell and Telus will break Rogers’ monopoly and begin selling iPhones next month as their new iPhone-compatible network comes online. Verizon will offer phones with Google’s Android operating system, while Microsoft unveiled its own new mobile operating system, available on 30 phones. The battery-powered LEAF car will hit British Columbia in 2011, as a result of a partnership between the Renault-Nissan Alliance, the province, the city of Vancouver and BC Hydro. The U.S. government is lending $1 billion to two new green automakers – Tesla Motors and Fisker Automotive.
Our recommendation
Buy the dips, don’t sell the rallies
· Equities. Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group, says the market trend remains upward in the short term despite economic risks on the horizon. The market is not overpriced, just overbought in the short term; we would be adding weight in cyclical holdings on any market pullback.
Fixed income. Chris Kennedy, Associate Director, Portfolio Advisory Group, highlights the following recommendations: Term Call – below benchmark duration. Sector Call – underweight Canadas, overweight Municipals and Provincials, neutral on Corporates. Currency Call –generally favour the C$ against most majors, however with the recent weakness in the British Pound, it is now expected to outperform the C$ over the next year. Alternative Strategies – overweight high yield, overweight Emerging Markets Debt, underweight inflation protected bonds.
Portfolio strategy. Vincent Delisle, Scotia Capital’s Portfolio Strategist, writes, “On the equity side, our global bias remains unchanged: Overweight Americas and Emerging markets, underweight Europe and Japan. From a sector standpoint, U.S. Energy, Materials, Discretionary, Financials, and Technology are posting superior relative earnings momentum. Our Sector Strategy continues to be geared towards Cyclical sectors.”
TM Trademarks used under authorization and control of The Bank of Nova Scotia.
ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF
This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. ("SCI"), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your investment advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice. All performance data represents past performance and is not indicative of future performance. Scotia Capital Inc. and its affiliates collectively beneficially own in excess of 1% of one or more classes of the issued and outstanding equity securities of Royal Bank. Within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respect to equity or debt securities of, or have provided advice for a fee with respect to Royal Bank. TM Trademark used under authorization and control of The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.
The big picture
Australian rate hike sparks optimism
Australia surprised markets Tuesday by increasing interest rates, setting off a wave of optimism about the global economic recovery. The Reserve Bank of Australia raised its benchmark interest rate to 3.25% from 3.00%, becoming the first among the Group of 20 countries to increase borrowing costs since the start of the global financial crisis. In Canada, Prime Minister Stephen Harper reiterated that the global recovery will remain fragile until jobless rates start to fall. Canada’s unemployment rate fell to 8.4% from 8.7% in September, the first monthly decline since the fall of 2008. Employment increased for the second consecutive month, up 31,000. In the U.S., the unemployment rate is at a 26-year high of 9.8% and still climbing.
Americans will have to save more in the future after years of accumulating too much debt, according to U.S. Treasury Secretary Timothy Geithner. He predicts that this change will transform the whole world’s economic reality. “Everyone is going to have to come to terms with the fact that we are going to save more in the United States.” He called on Europeans and Japanese to work at boosting domestic demand, and credited China for being at the forefront of thinking about new ways to reduce the dependence of its economy on U.S. exports and investments.
Markets
Stocks ride wave; wealthy tighten their Gucci belts
Optimism sparked by Australia’s rate hike sent stocks rising around the world on Tuesday. The TSX also was buoyed by strong commodity prices as gold topped $1,050 and oil hit $71. The Canadian dollar surged above 95 cents while U.S. Aluminum producer Alcoa posted a surprise profit and Costco beat analysts’ estimates despite a drop in quarterly profits. In Canada, Jean Coutu reported quarterly revenues up 7.3% versus a year ago, while Canwest sought court protection from its creditors, with $4 billion of debt. As the rich tighten their belts, luxury retailer Neiman Marcus has priced 40% of its new catalogue at just US$250 or less.
In the smartphone wars, Bell and Telus will break Rogers’ monopoly and begin selling iPhones next month as their new iPhone-compatible network comes online. Verizon will offer phones with Google’s Android operating system, while Microsoft unveiled its own new mobile operating system, available on 30 phones. The battery-powered LEAF car will hit British Columbia in 2011, as a result of a partnership between the Renault-Nissan Alliance, the province, the city of Vancouver and BC Hydro. The U.S. government is lending $1 billion to two new green automakers – Tesla Motors and Fisker Automotive.
Our recommendation
Buy the dips, don’t sell the rallies
· Equities. Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group, says the market trend remains upward in the short term despite economic risks on the horizon. The market is not overpriced, just overbought in the short term; we would be adding weight in cyclical holdings on any market pullback.
Fixed income. Chris Kennedy, Associate Director, Portfolio Advisory Group, highlights the following recommendations: Term Call – below benchmark duration. Sector Call – underweight Canadas, overweight Municipals and Provincials, neutral on Corporates. Currency Call –generally favour the C$ against most majors, however with the recent weakness in the British Pound, it is now expected to outperform the C$ over the next year. Alternative Strategies – overweight high yield, overweight Emerging Markets Debt, underweight inflation protected bonds.
Portfolio strategy. Vincent Delisle, Scotia Capital’s Portfolio Strategist, writes, “On the equity side, our global bias remains unchanged: Overweight Americas and Emerging markets, underweight Europe and Japan. From a sector standpoint, U.S. Energy, Materials, Discretionary, Financials, and Technology are posting superior relative earnings momentum. Our Sector Strategy continues to be geared towards Cyclical sectors.”
TM Trademarks used under authorization and control of The Bank of Nova Scotia.
ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF
This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. ("SCI"), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your investment advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice. All performance data represents past performance and is not indicative of future performance. Scotia Capital Inc. and its affiliates collectively beneficially own in excess of 1% of one or more classes of the issued and outstanding equity securities of Royal Bank. Within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respect to equity or debt securities of, or have provided advice for a fee with respect to Royal Bank. TM Trademark used under authorization and control of The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.
review your asset mix, and see if you should rebalance your investments to protect your gains
The recent rally in the equity market has been pretty spectacular. As
the markets rebound, one key problem is reemerging. As stock prices
rise, the relative value in in your portfolio is also surging.
Ultimately, the growth in value in your equity portfolio increases
your risk, and it may be appropriate to review your asset mix, and see
if you should rebalance your investments to protect your gains. If
you are looking to review your situation, give me a call.
Do you want to discuss your alternatives?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit,
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260. This
program is for information purposes only. Fees, management fees and
commissions may be associated with mutual fund investing. Investors
should consult their prospectus before investing. Views expressed are
those of the author, not Scotia Capital. ScotiaMcLeod is a division of
Scotia Capital, member CIPF
the markets rebound, one key problem is reemerging. As stock prices
rise, the relative value in in your portfolio is also surging.
Ultimately, the growth in value in your equity portfolio increases
your risk, and it may be appropriate to review your asset mix, and see
if you should rebalance your investments to protect your gains. If
you are looking to review your situation, give me a call.
Do you want to discuss your alternatives?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit,
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260. This
program is for information purposes only. Fees, management fees and
commissions may be associated with mutual fund investing. Investors
should consult their prospectus before investing. Views expressed are
those of the author, not Scotia Capital. ScotiaMcLeod is a division of
Scotia Capital, member CIPF
Wednesday, October 7, 2009
this may be one of the most important earnings seasons in years
US earnings season begins today, and we will start to get an idea of
the financial state of many multinational companies. Ultimately,
equity investing is about business ownership, and the next few weeks
should give us a sense if the recent rally in the global market is
actually supported by results. If earnings are strong, then the rally
makes sense, but if we see weakness, the recent rally may be at risk.
Stay tuned through the next few weeks, as this may be one of the most
important earnings seasons in years. If you want to discuss your
portfolio, give me a call.
Do you want to discuss your alternatives?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit,
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260. This
program is for information purposes only. Fees, management fees and
commissions may be associated with mutual fund investing. Investors
should consult their prospectus before investing. Views expressed are
those of the author, not Scotia Capital. ScotiaMcLeod is a division of
Scotia Capital, member CIPF
the financial state of many multinational companies. Ultimately,
equity investing is about business ownership, and the next few weeks
should give us a sense if the recent rally in the global market is
actually supported by results. If earnings are strong, then the rally
makes sense, but if we see weakness, the recent rally may be at risk.
Stay tuned through the next few weeks, as this may be one of the most
important earnings seasons in years. If you want to discuss your
portfolio, give me a call.
Do you want to discuss your alternatives?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit,
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260. This
program is for information purposes only. Fees, management fees and
commissions may be associated with mutual fund investing. Investors
should consult their prospectus before investing. Views expressed are
those of the author, not Scotia Capital. ScotiaMcLeod is a division of
Scotia Capital, member CIPF
Monday, October 5, 2009
there may be enormous volatility as the
There is certainly more optimism in the market today, but perspective
is important. In spite of the recent rally in global markets, it is
important to realize that we have essentially experienced a lost
decade. The ten year return for the Dow has been negative. History
tells us that such long term bear markets are rare, and frequently
preceed massive rallies...but there may be enormous volatility as the
market recovers. The good news is, there are options today that allow
you to preserve capital, while remaining in the market. If you are
looking for ideas, why not give me a call?
Do you want to discuss your alternatives?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit,
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260. This
program is for information purposes only. Fees, management fees and
commissions may be associated with mutual fund investing. Investors
should consult their prospectus before investing. Views expressed are
those of the author, not Scotia Capital. ScotiaMcLeod is a division of
Scotia Capital, member CIPF
is important. In spite of the recent rally in global markets, it is
important to realize that we have essentially experienced a lost
decade. The ten year return for the Dow has been negative. History
tells us that such long term bear markets are rare, and frequently
preceed massive rallies...but there may be enormous volatility as the
market recovers. The good news is, there are options today that allow
you to preserve capital, while remaining in the market. If you are
looking for ideas, why not give me a call?
Do you want to discuss your alternatives?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit,
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260. This
program is for information purposes only. Fees, management fees and
commissions may be associated with mutual fund investing. Investors
should consult their prospectus before investing. Views expressed are
those of the author, not Scotia Capital. ScotiaMcLeod is a division of
Scotia Capital, member CIPF
Friday, October 2, 2009
Wareham Weekly Insights
The big picture
Canada’s GDP growth stalls
The latest reports on the Canadian economy unexpectedly showed no GDP growth in July, throwing into question the strength of the country’s recovery. Wednesday’s report from Statistics Canada dashed economists’ expectations of a 0.5% increase, blaming shutdowns at mines, lower oil-and-gas extraction, civic strikes and poor weather. On the bright side, employers added 27,000 jobs in August, and new applications for employment insurance fell. Prime Minister Stephen Harper reported that 90% of the economic stimulus funding has been allocated and that the money will create or support 200,000 jobs over two years by funding 7,500 infrastructure projects, training for 44,000 Canadians, $5.8 billion in added EI benefits and $131 billion in business financing.
Bank of Canada Governor Mark Carney said, “A powerful and sustained restructuring of the global economy has begun, but the efforts required of us will be historic,” as he called on consumers and businesses to spend and hire. Consumer confidence in Canada rose for the seventh month in September, but fell unexpectedly in the U.S. on job security worries. U.S. home prices rose for the third month in July, but still are down 32.6% from their 2006 peak. In Germany, stocks surged as Chancellor Angela Merkel was re-elected and pledged to form a centre-right coalition.
Markets
A bumpy road to recovery
Early gains in the week were erased on Thursday as weak U.S. manufacturing and jobless data sent stocks lower. It was one year ago that the Dow Jones Industrial Average suffered its biggest point drop ever – but also its largest gain soon after. In the fourth quarter of 2008, the S&P 500 moved 3% in one day a stunning 29 times. The extreme market volatility seen last year has abated, but stocks are expected to remain in a volatile environment as the recovery picks up.
On Monday, Bombardier shares surged when its joint venture in China won a US$4-billion contract to build 80 high-speed trains. Apple’s iPhone will go on sale in China in October for about US$700. The iPhone App Store hit 2 billion downloads, with users buying 6 million apps per day. Mergers and acquisitions continued with Xerox buying Affiliated Computer Services, while Abbott Laboratories will acquire a division of Solvay. Meanwhile, British regulators gave Kraft a November 9th deadline to make a formal bid for Cadbury. In the lead-up to the holiday season, Wal-Mart unveiled a list of 100 toys for $10 each, and Toys “R” Us is hiring 35,000 seasonal employees.
Our recommendation
Buy the dips, don’t sell the rallies
· Equities. Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group, says the market trend remains upward in the short term despite economic risks on the horizon. Although market valuations are not excessive at current levels, they are already pricing in a significant rebound in earnings in 2010. The market is not overpriced, just overbought in the short term; we would be adding weight in cyclical holdings on any market pullback.
· Fixed income. Chris Kennedy, Associate Director, Portfolio Advisory Group, highlights the following recommendations: Term Call – below benchmark duration. Sector Call – underweight Canadas, overweight Municipals and Provincials, neutral on Corporates. Currency Call – favour the C$, as well as the A$, which is expected to outperform. Alternative Strategies – overweight high yield, overweight Emerging Markets Debt, underweight inflation protected bonds.
· Portfolio strategy. Vincent Delisle, Scotia Capital’s Portfolio Strategist, writes, “we are in a higher-highs/higher-lows environment and recommend buying the dips, not selling the rallies. Our longer term stance remains positive and we expect equities and corporate bonds to outperform Treasuries over the next 12-18 months.”
The month in review
September: One year later, recovery intact but fragile
September 15th marked one year since Lehman Brothers declared bankruptcy, setting off the worst financial crisis since the Great Depression. Canada’s economy is recovering faster than previously thought. Nonetheless, the Bank of Canada kept its lending rate at an all-time low of 0.25%, and renewed its pledge to hold rates until mid-2010. Canada’s banks were ranked the soundest in the world for the second year in a row by the World Economic Forum, while U.S. banks were ranked 108th. Prime Minister Stephen Harper cautioned that while the recession technically may be over, the recovery is extremely fragile. Finance Minister Jim Flaherty insists that it would be a major mistake for developed economies not to continue stimulus.
Federal Reserve Chairman Ben Bernanke said the U.S. recession is technically over, with growth expected to show in the third quarter. The Federal Reserve kept interest rates unchanged at 0.25%, while giving its most upbeat assessment of the U.S. economy in 18 months and voting to end its US$1.45-trillion program for buying mortgage debt three months early.
G20 leads economic cooperation
At London’s G20 meeting, finance ministers agreed the world economy is stabilizing, but recovery is not established enough to start unwinding stimulus programs. Bankers’ pay is at the centre of discussions; Britain’s finance minister says “the party is over” for bankers who were at the heart of “this almighty car crash.” Bank of England Governor Mervyn King revealed that the Royal Bank of Scotland and HBOS had been just hours away from collapsing last October.
Loonie shows strength; gold tops US$1,000
As the Canadian dollar approached 94 cents U.S., the Bank of Canada repeated warnings that economic recovery may be hampered by the strength of the currency, but said it would ignore short-term volatility in its exchange rate. Gold climbed above US$1,000 an ounce as investors sought a hedge against a falling U.S. currency.
Canadian stocks regain October 2008 levels
Markets advanced in September, reaching levels last seen in October 2008. The TSX has gained 50% since its March 2009 low.
Mergers and acquisitions marry superheroes with princesses
Disney will buy Marvel Entertainment for $4 billion in its biggest deal since buying Pixar in 2006, T-Mobile and Orange will merge to create the U.K.’s biggest wireless operator, and Swedish sports car maker Koenigsegg has teamed up with a Chinese company to buy Saab from General Motors. Magna plans to buy a stake in Opel, GM’s European car division, but risks alienating customers VW and BMW. Canada’s biggest IT services player, CGI, surged on takeover speculation after Dell bid US$3.9 billion for Perot Systems, a 68% premium.
Smart phone wars
In technology news, new hardware and an alliance with Facebook could see Nokia catching up with rivals such as Apple and Research In Motion. Apple unveiled an updated line of iPods this month, while RIM’s quarterly profit and outlook fell short of analyst expectations, sending its shares down sharply. Google’s new Internet phone service, Google Voice, is expected to draw scrutiny from regulators.
Alternative energy: changing the tide
Nova Scotia was given the green light to test turbines in the Bay of Fundy. If viable, sea power could meet 10% of the province’s energy needs. First Solar struck a 10-year deal with the Chinese government to build the world’s largest solar field. Solar panels will blanket a desert area larger than Manhattan and generate enough energy to light 3 million homes. A123 Systems, a U.S.-based battery maker for electric cars, jumped 43% in one day after raising US$380 million through an initial public offering.
TM Trademarks used under authorization and control of The Bank of Nova Scotia.
ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF
This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. ("SCI"), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your investment advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice. All performance data represents past performance and is not indicative of future performance. Scotia Capital Inc. and its affiliates collectively beneficially own in excess of 1% of one or more classes of the issued and outstanding equity securities of Royal Bank. Within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respect to equity or debt securities of, or have provided advice for a fee with respect to Royal Bank. TM Trademark used under authorization and control of The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.
Canada’s GDP growth stalls
The latest reports on the Canadian economy unexpectedly showed no GDP growth in July, throwing into question the strength of the country’s recovery. Wednesday’s report from Statistics Canada dashed economists’ expectations of a 0.5% increase, blaming shutdowns at mines, lower oil-and-gas extraction, civic strikes and poor weather. On the bright side, employers added 27,000 jobs in August, and new applications for employment insurance fell. Prime Minister Stephen Harper reported that 90% of the economic stimulus funding has been allocated and that the money will create or support 200,000 jobs over two years by funding 7,500 infrastructure projects, training for 44,000 Canadians, $5.8 billion in added EI benefits and $131 billion in business financing.
Bank of Canada Governor Mark Carney said, “A powerful and sustained restructuring of the global economy has begun, but the efforts required of us will be historic,” as he called on consumers and businesses to spend and hire. Consumer confidence in Canada rose for the seventh month in September, but fell unexpectedly in the U.S. on job security worries. U.S. home prices rose for the third month in July, but still are down 32.6% from their 2006 peak. In Germany, stocks surged as Chancellor Angela Merkel was re-elected and pledged to form a centre-right coalition.
Markets
A bumpy road to recovery
Early gains in the week were erased on Thursday as weak U.S. manufacturing and jobless data sent stocks lower. It was one year ago that the Dow Jones Industrial Average suffered its biggest point drop ever – but also its largest gain soon after. In the fourth quarter of 2008, the S&P 500 moved 3% in one day a stunning 29 times. The extreme market volatility seen last year has abated, but stocks are expected to remain in a volatile environment as the recovery picks up.
On Monday, Bombardier shares surged when its joint venture in China won a US$4-billion contract to build 80 high-speed trains. Apple’s iPhone will go on sale in China in October for about US$700. The iPhone App Store hit 2 billion downloads, with users buying 6 million apps per day. Mergers and acquisitions continued with Xerox buying Affiliated Computer Services, while Abbott Laboratories will acquire a division of Solvay. Meanwhile, British regulators gave Kraft a November 9th deadline to make a formal bid for Cadbury. In the lead-up to the holiday season, Wal-Mart unveiled a list of 100 toys for $10 each, and Toys “R” Us is hiring 35,000 seasonal employees.
Our recommendation
Buy the dips, don’t sell the rallies
· Equities. Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group, says the market trend remains upward in the short term despite economic risks on the horizon. Although market valuations are not excessive at current levels, they are already pricing in a significant rebound in earnings in 2010. The market is not overpriced, just overbought in the short term; we would be adding weight in cyclical holdings on any market pullback.
· Fixed income. Chris Kennedy, Associate Director, Portfolio Advisory Group, highlights the following recommendations: Term Call – below benchmark duration. Sector Call – underweight Canadas, overweight Municipals and Provincials, neutral on Corporates. Currency Call – favour the C$, as well as the A$, which is expected to outperform. Alternative Strategies – overweight high yield, overweight Emerging Markets Debt, underweight inflation protected bonds.
· Portfolio strategy. Vincent Delisle, Scotia Capital’s Portfolio Strategist, writes, “we are in a higher-highs/higher-lows environment and recommend buying the dips, not selling the rallies. Our longer term stance remains positive and we expect equities and corporate bonds to outperform Treasuries over the next 12-18 months.”
The month in review
September: One year later, recovery intact but fragile
September 15th marked one year since Lehman Brothers declared bankruptcy, setting off the worst financial crisis since the Great Depression. Canada’s economy is recovering faster than previously thought. Nonetheless, the Bank of Canada kept its lending rate at an all-time low of 0.25%, and renewed its pledge to hold rates until mid-2010. Canada’s banks were ranked the soundest in the world for the second year in a row by the World Economic Forum, while U.S. banks were ranked 108th. Prime Minister Stephen Harper cautioned that while the recession technically may be over, the recovery is extremely fragile. Finance Minister Jim Flaherty insists that it would be a major mistake for developed economies not to continue stimulus.
Federal Reserve Chairman Ben Bernanke said the U.S. recession is technically over, with growth expected to show in the third quarter. The Federal Reserve kept interest rates unchanged at 0.25%, while giving its most upbeat assessment of the U.S. economy in 18 months and voting to end its US$1.45-trillion program for buying mortgage debt three months early.
G20 leads economic cooperation
At London’s G20 meeting, finance ministers agreed the world economy is stabilizing, but recovery is not established enough to start unwinding stimulus programs. Bankers’ pay is at the centre of discussions; Britain’s finance minister says “the party is over” for bankers who were at the heart of “this almighty car crash.” Bank of England Governor Mervyn King revealed that the Royal Bank of Scotland and HBOS had been just hours away from collapsing last October.
Loonie shows strength; gold tops US$1,000
As the Canadian dollar approached 94 cents U.S., the Bank of Canada repeated warnings that economic recovery may be hampered by the strength of the currency, but said it would ignore short-term volatility in its exchange rate. Gold climbed above US$1,000 an ounce as investors sought a hedge against a falling U.S. currency.
Canadian stocks regain October 2008 levels
Markets advanced in September, reaching levels last seen in October 2008. The TSX has gained 50% since its March 2009 low.
Mergers and acquisitions marry superheroes with princesses
Disney will buy Marvel Entertainment for $4 billion in its biggest deal since buying Pixar in 2006, T-Mobile and Orange will merge to create the U.K.’s biggest wireless operator, and Swedish sports car maker Koenigsegg has teamed up with a Chinese company to buy Saab from General Motors. Magna plans to buy a stake in Opel, GM’s European car division, but risks alienating customers VW and BMW. Canada’s biggest IT services player, CGI, surged on takeover speculation after Dell bid US$3.9 billion for Perot Systems, a 68% premium.
Smart phone wars
In technology news, new hardware and an alliance with Facebook could see Nokia catching up with rivals such as Apple and Research In Motion. Apple unveiled an updated line of iPods this month, while RIM’s quarterly profit and outlook fell short of analyst expectations, sending its shares down sharply. Google’s new Internet phone service, Google Voice, is expected to draw scrutiny from regulators.
Alternative energy: changing the tide
Nova Scotia was given the green light to test turbines in the Bay of Fundy. If viable, sea power could meet 10% of the province’s energy needs. First Solar struck a 10-year deal with the Chinese government to build the world’s largest solar field. Solar panels will blanket a desert area larger than Manhattan and generate enough energy to light 3 million homes. A123 Systems, a U.S.-based battery maker for electric cars, jumped 43% in one day after raising US$380 million through an initial public offering.
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October got off to a rough start
October got off to a rough start yesterday, with a significant sell
off. This should not be surprising after the dramatic rally we have
seen over the past few months. The possibility of a significant
downward move in the market has been widely expected, but it has not
happened yet. Many investors have been sitting on the sidelines,
waiting for a chance to get back in the market. In fact, this cash on
the sidelines may be the reason any downward move may not be too
dramatic. Rather than rush back in all at once, I believe investors
should plan their strategy. If you are looking at getting back into
the market, why not get a second opinion before you make your move.
Do you want to discuss your alternatives?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit,
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260. This
program is for information purposes only. Fees, management fees and
commissions may be associated with mutual fund investing. Investors
should consult their prospectus before investing. Views expressed are
those of the author, not Scotia Capital. ScotiaMcLeod is a division of
Scotia Capital, member CIPF
off. This should not be surprising after the dramatic rally we have
seen over the past few months. The possibility of a significant
downward move in the market has been widely expected, but it has not
happened yet. Many investors have been sitting on the sidelines,
waiting for a chance to get back in the market. In fact, this cash on
the sidelines may be the reason any downward move may not be too
dramatic. Rather than rush back in all at once, I believe investors
should plan their strategy. If you are looking at getting back into
the market, why not get a second opinion before you make your move.
Do you want to discuss your alternatives?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit,
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260. This
program is for information purposes only. Fees, management fees and
commissions may be associated with mutual fund investing. Investors
should consult their prospectus before investing. Views expressed are
those of the author, not Scotia Capital. ScotiaMcLeod is a division of
Scotia Capital, member CIPF
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