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Monthly Archives: September 2012

Anthony Sabti

2012 Year-to-Date: Portfolios are Up!

You may not have noticed yet, but since your last statement date (June 30th for most people), markets have experienced quite the upswing.  Since August, markets have rallied on the rumor and subsequent confirmation of another round of stimulus by central banks around the world.  Last week, the U.S. Federal Reserve announced plans to buy $40-billion of mortgage bonds a month for as long as necessary as part of of their latest quantitative easing strategy.  The aim is to encourage people to borrow money and spend it.

If you have a long-term, growth oriented portfolio, you are up somewhere in the 4-8% range for the year.  While this figure is not earth shattering, it is a nice turnaround from the negative numbers that you likely saw on your semi-annual statement, which may be the last time you looked at your portfolio.

If you want to obtain an up to date statement, feel free to contact us anytime.

 

Market Recap (as of September 21, 2012)

  • The TSX closed at 12409, down -0.72% over the past week. YTD the TSX is up 3.80%.
  • The DOW closed at 13579, down -0.10% over the past week.YTD the DOW is up 11.14%.
  • The S&P closed at 1460, down -0.41% over the past week.YTD the S&P is up 16.06%.
  • The Nasdaq closed at 3180, down -0.13% over the past week.YTD the Nasdaq is up 22.07%.
  • Gold closed at 1776, up 0.17% over the past week.YTD gold is up 13.48%.
  • Oil closed at 91.95, down -7.10% over the past week.YTD oil is down -7.03%.
  • The USD/CAD closed at 0.9766, up 0.58% over the past week.YTD the USD/CAD is down -0.33%.

Sources: Advisor.ca, Dynamic Funds, Financial Post

Terry Broaders

Markets Make Strong Gains On The Week

” Am I Not Destroying My Enemies When I Make Friends of Them ? ” -Abraham Lincoln

 The TSX rose higher for a second session Friday as investors continued to react enthusiastically to an aggressive stimulus program from the U.S. Federal Reserve. The S&P/TSX composite index gained 139 points to 12,499 rising 1.88% this week.  The loonie was off 0.3 of a cent to 102.97 cents US, which is still a 12-month high.  The loonie surged more than two cents over the past seven sessions as the European Central Bank announced a plan to purchase government bonds in order to keep eurozone borrowing costs under control and speculation mounted the Fed would act to support a slowing economy — as it did on Thursday.

U.S. indexes were higher a day after the Fed delivered on those expectations when it announced it will spend US$40 billion a month on a new round of bond purchases and will continue to do so until the job market shows substantial improvement. “The one element of this that I wasn’t sure they would go ahead with was making this open-ended,” said Bob Gorman, chief portfolio strategist at TD Waterhouse. “And what it also does is remove the question of what will they do next _ they’re telling you, OK, this is in place ’til the cows come home or unemployment hits 7% (currently over 8%), whichever comes first pretty much.” The money will be spent on mortgage-backed securities to keep interest rates low, encourage lending and support the slow recovery of the housing sector. The Dow Jones industrials closed well off session highs, but still up 53.51 points to 13,593.37.

 

Market Update September 14, 2012

The TSX closed at 12499, up 231 points or 1.88% over the past week. YTD the TSX is up 4.55%.

The DOW closed at 13593, up 286 points or 2.15% over the past week.YTD the DOW is up 11.25%.

The S&P closed at 1466, up 28 points or 1.95% over the past week.YTD the S&P is up 16.53%.

The Nasdaq closed at 3184, up 48 points or 1.53% over the past week.YTD the Nasdaq is up 22.23%.

Gold closed at 1773, up 34.00 points or 1.96% over the past week.YTD gold is up 13.29%.

Oil closed at 98.98, up 0.82 points or 0.84% over the past week.YTD oil is up 0.08%.

The USD/CAD closed at 0.971, down -0.0062 points or -0.63% over the past week.YTD the USD/CAD is down -0.90%.

BLOG LINKS

What The Heck Is Quantatative Easing ?

 

Sources : Bloomberg; Investment Executive; advisor ca; TD Waterhouse

Odette Morin

What the heck is Quantitative Easing? Why is it used and does it work?

On Sept 13, the Federal Reserve Board introduced a third round of Quantitative Easing (QE3) in an aggressive move to give the economy the boost needed to create jobs.  The focus is on keeping interest rates low to make it easy for people to spend and businesses to hire.  The Fed will purchase $40 billion of mortgage-backed securities every month until the labor market improves. The Federal Open Market Committee also said it would likely keep the federal funds rate near zero through at least the middle of 2015.

But what is Quantitative Easing and How does it work?

“Quantitative easing (QE) is an unconventional monetary policy used by the central bank to stimulate the national economy when conventional monetary policy has become ineffective.” (1) This is the Federal Reserve using its bag of tricks, lowering interest rates and getting cash to big banks with the hopes that they will lend it out all for the purpose of stimulating the economy.

Ordinarily, a central bank raises or lowers its interest rate target buying or selling short-term government bonds from banks and other financial institutions. When the central bank disburses or collects payment for these bonds, it alters the amount of money in the economy, while simultaneously affecting the price and yield for short-term government bonds. This in turn affects the banks interest rates.

However,when the central bank interest rate is near zero, the central bank cannot lower it further. In such a situation, the central bank may perform quantitative easing by purchasing a pre-determined amount of bonds or other assets from financial institutions.  The goal of this policy is to increase the money supply rather than to decrease the interest rate, which cannot be decreased further. This is often considered a “last resort” to stimulate the economy.

Because the Fed is buying mortgage-backed bonds, the purchases act to directly lower the cost of borrowing to buy a home. In addition, some investors, put off by the rising price of the bonds that the Fed is buying, turn to other assets, like corporate bonds – which, in turn, pushes up corporate bond prices and lowers those yields, making it cheaper for companies to borrow – and spend. If companies use that money to buy equipment and households use it to buy homes and cars etc, the economy gets a boost. So you can clearly see, how QE can trigger a domino effect throughout an economy.

But does it work?

“There have been two (and a half) rounds of QE so far. The first round, starting in late 2008, prevented a Great Depression. As you’ll recall, we didn’t have a Great Depression. In fact, the recession ended in July 2009. It’s pretty clear that Federal Reserve’s extraordinary actions saved the economy…On the other hand, consider the stock market. The Wall Street Journal compiled a great visual showing instances of QE plotted against the Dow. QE should encourage families to take out loans and businesses to expand operations, and we’ve seen the stock market rise with each round of easing.” (2)

The equity market sees QE3 as a positive thing and bids are being raised in the areas that are most likely to benefit like construction, housing and consumer staples.  The downside of this type of measure is the risk of inflation down the road but this is unlikely to be a problem for the foreseeable future and the benefit of QE3 would currently outweigh this risk.  Time will tell but overall, this should be a very positive event in promoting economical activity, consumer confidence, corporate profits and eventually, investment growth.

(1) Wikipedia – Quantitative Easing http://en.wikipedia.org/wiki/Quantitative_easing

(2) The Atlantic magazine http://www.theatlantic.com/business/archive/2012/09/how-does-qe-work-does-it-even-work-at-all/262337/

 

Anthony Sabti

S&P 500 Jumps to New Four-Year High

Markets experienced a good week as the S&P 500 hit the $1431 mark (closed at $1437 on Friday), its highest point in more than four-and-a-half years.  After seven years of underperformance, the US index outperformed the TSX by around 10% in 2011, and year to date is up 14.31% compared to 2.62% for the TSX.

The big moves were triggered by the ECB plan to buy unlimited quantities of short-term government bonds from struggling euro zone nations – as long as those nations ask for financial assistance.

On Friday, The U.S. Labor Department reported that employers added just 96,000 jobs in August, far below economist predictions of $130,000.  The poor job figures fuelled talks of another round of U.S. stimulus.  The unemployment rate fell from 8.3 to 8.1 per cent, but economists explained that this was largely due to people giving up looking for work and thus removing them from the jobless pool.

Statscan also released job figures, announcing that the economy created 34,300 jobs in August, surpassing expectations.  The unemployment rate remained unchanged at 7.3 per cent

Rising commodity prices pushed the dollar half a cent higher to $102.24

Source: Advisor.ca, Financial Post

Market Recap (as of September 7, 2012)

  • The TSX closed at 12268, up 2.67% over the past week. YTD the TSX is up 2.62%.
  • The DOW closed at 13307, up 1.65% over the past week.YTD the DOW is up 8.91%.
  • The S&P closed at 1438, up 2.20% over the past week.YTD the S&P is up 14.31%.
  • The Nasdaq closed at 3136, up 2.25% over the past week.YTD the Nasdaq is up 20.38%.
  • Gold closed at 1739, up 2.90% over the past week.YTD gold is up 11.12%.
  • Oil closed at 98.16, up 0.67% over the past week.YTD oil is down -0.75%.
  • The USD/CAD closed at 0.9772, down -0.0103 points or -1.04% over the past week. YTD the CAD/USD is down -0.27%.
Anthony Sabti

Bernanke Speech, GDP Numbers, Scotia buys ING, Dividend Hikes

On Friday, U.S. Federal Reserve chairman Ben Bernanke made no clear commitment to another round of economic stimulus, but did state that he is willing to deploy further stimulus if required.   He said the U.S. labour market was a grave concern and that previous Fed policy tools had been effective in boosting economic growth.

The news of a “potential” stimulus led to a boost in commodity prices.  Gold rose $30.50 to $1,687.60 (U.S.) an ounce, its highest level since March. Crude oil rose $1.85 to $96.47 a barrel.  Gold is seen as a natural hedge against inflation, a possible consequence of the Fed’s monetary policies.

Also on Friday Statcan announced that GDP rose by 0.5 per cent in the second quarter to 1.8 per cent on an annual basis, largely due to strong business investment and rising inventories.  Business investment rose 2.3 per cent in the quarter, but exports were a lag on the overall economy, slowing to 0.2 per cent.

Scotiabank made its largest-ever acquisition on Wednesday, with the purchase of ING Bank of Canada for $3.13-billion.  ING Canada launched in 1997 and over the years built up a base of 1.8-million customers.   ING will retain its branding for 18 months before Scotiabank renames the operations

Earlier in the week, the big 5 Canadian banks delivered $7.8 billion of cumulative profit in Q3 2012, an increase of 45% over last year and surpassing  analyst predictions.  All 5 banks announced dividend hikes of between 3-6%.

source: Advisor.ca, Financial Post

MARKET RECAP (as of August 31, 2012)

  • The TSX closed at 11949, down -133 points or -1.10% over the past week. YTD the TSX is down -0.05%.
  • The DOW closed at 13091, down -67 points or -0.51% over the past week.YTD the DOW is up 7.15%.
  • The S&P closed at 1407, down -4 points or -0.28% over the past week.YTD the S&P is up 11.84%.
  • The Nasdaq closed at 3067, down -3 points or -0.10% over the past week.YTD the Nasdaq is up 17.74%.
  • Gold closed at 1690, up 17.00 points or 1.02% over the past week.YTD gold is up 7.99%.
  • Oil closed at 97.51, up 1.39 points or 1.45% over the past week.YTD oil is down -1.41%.
  • The USD/CAD closed at 0.9875, down -0.0045 points or -0.45% over the past week.YTD the CAD/USD is up 0.79%