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Monthly Archives: December 2014

Terry Broaders

Weekly Update December 16 2014

“God Gives Every Bird His Worm But He Does Not Throw It Into The Nest” -P.D. James

 

Markets Tumble With Oil Price

The Toronto Stock Exchange’s S&P/TSX composite index ended down 173.22 points Friday at 13,731.90. It lost more than 5% on the week, its biggest week-long slip since September 2011. The Dow Jones industrial average closed more than 300 points lower, its worst loss in two months. Traders were discouraged Friday by another slump in the price of oil and more signs of weakness in China. The Dow dropped 315 points, or 1.8%, to 17,280. The plunge caps the index’s first losing week since October. The Standard & Poor’s 500 fell 33 points, or 1.6%, to 2,002. The Nasdaq slid 54 points, or 1.2%, to 4,653. Oil’s fall has added to worries about global demand and raised concerns about earnings for some energy companies, with year-end tax selling putting more pressure on the sector.

The S&P energy sector was down 1.3%. It is down almost 16% this year, the worst performing of 10 S&P sectors. The S&P 500 index was down 2.8% for the week. Disappointing data that suggested China’s economy softened in November pushed the materials sector down 2.3%, making it the worst-performing S&P sector on the day. The drop in oil and weakness in China overshadowed strong U.S. consumer sentiment, which hit an eight-year high. Some investors hope declining gas prices will boost consumer spending enough to offset the energy sector’s woes. The consumer discretionary sector was one of few the 10 S&P sectors that turned positive and was last up 0.2%.  “It’s not much but I’ll take it,” said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.  “The good news is that this is a tailwind for the consumer. That’s a positive that’s being ignored.”

 

Bank of Canada Concerned About Household Debt

The Bank of Canada considers household debt as one of the weak spots in the country’s economic armour. The central bank released its semi-annual financial system review December 10. However, the report said despite the red flags the economy continued to show signs of a “broadening recovery” and its overall assessment of Canada’s financial stability remains unchanged since the summer. “We judge that the probability of an adverse shock has eased since June Bank of Canada governor Stephen Poloz said in a statement. “This mitigates our observation that some financial vulnerabilities appear to be edging higher.”  In addition to rising consumer debt, the review warned of the potentially overvalued housing market, increased risk taking in financial markets and emerging threats, such as weakening commodity prices and the plunging price of oil. The bank also laid out possible pitfalls that threaten Canada’s position, such as a sudden rise in long-term interest rates, increased financial stress in Europe and China, and a sharp correction in house prices. It reiterated, however, its expectation that Canada’s housing market will have a soft landing. The Bank of Canada suggested the housing market may be overvalued by 10% to 30%.

The bank’s report cautioned that Canada’s household debt-to-income ratio is near a record high, conditions that may have been partly fueled by stiff competition among lenders. The situation, it said, may have encouraged some Canadians to borrow too much and led financial entities to lend to riskier clients. The review said 12% of Canadian households as “highly indebted.” The bank said this percentage has been steady in recent years, but is nearly double the level in 2000. It also said these households carry about 40% of the country’s overall consumer debt load.

 

BLOG LINKS

Drops In The Canadian Market Lead By Oil

Should I Pay $300 to Go See U2?

 

Market Update as of December 12 2014

The TSX closed at 13732, down -742 points or -5.13% over the past week. YTD the TSX is up 0.81%.

The DOW closed at 17281, down -678 points or -3.78% over the past week. YTD the DOW is up 4.25%.

The S&P closed at 2002, down -73 points or -3.52% over the past week. YTD the S&P is up 8.33%.

The Nasdaq closed at 4654, down -127 points or -2.66% over the past week. YTD the Nasdaq is up 11.42%.

Gold closed at 1223, up 30.00 points or 2.51% over the past week. YTD gold is up 1.58%.

Oil closed at 57.47, down -8.18 points or -12.46% over the past week. YTD oil is down -41.72%.

The USD/CAD closed at 1.157916, up 0.0143 points or 1.25% over the past week. YTD the USD/CAD is up 8.91%.

 

Sources: Bloomberg;  globeadvisor; Investment Executive; advisor.ca

Odette Morin

Large Drops in the Canadian Market lead by the Drop of Oil – What is causing this?

oil drop

 

 

 

 

 

 

 

Energy markets have been in turmoil since the OPEC announcement Wednesday last week that the group would not be cutting production. Although it was widely expected that OPEC would not take any production cuts at the meeting, the markets’ reaction to the actual announcement was drastic with oil prices declining 7% that day and continuing to slide to the now below $60. The tone of the market has shifted dramatically and there are talks about the possibility of $60-70ish oil for the next 6-9 months if not longer. The fundamental issue is that the oil market is oversupplied.

The vast majority of Energy sector experts’ comments this week indicate that OPEC will likely revisit its stance on production cuts over the next 6-9 months. “For many OPEC members, including Libya, Iraq, Algeria, and Venezuela, $60-70 oil poses a huge problem. The majority of OPEC countries need $90+ Brent oil prices in order to fund their social programs and are at high risk of social instability if these programs are cut. Even Saudi Arabia, which has significant foreign currency reserves to cover any shortfall in revenues has a huge population to support and high committed program costs which would eat through those reserves quickly at current oil prices (according to the IMF). “ wrote the BMO Energy sector team this week. (1)

“We continue to believe that the marginal cost of the majority of new oil production (full-cycle) is north of $80. Oil is a depleting resource and, over time, oil prices must migrate back to the marginal cost of supply in order to support new production. However, that does not mean that oil cannot trade below marginal cost for a period of time. We would expect that supply/demand fundamentals will improve through the back half of 2015 and become more balanced as we move into 2016. However, the oil market is complex and highly unpredictable and conditions can change very quickly. The imbalance in the market is not huge and history has taught us that supply disruptions are common. “ (1)

The Franklin Templeton Energy Sector team wrote a similar analysis this week. They too believe that low oil prices are not here to stay for the long term. “The marginal barrel-of-oil production growth cannot be profitably brought to market in the current oil price environment by private industry, nor can OPEC members balance their budgets, in our view necessitating higher prices in the future. In the short term, we may see various energy companies contend with low oil prices through a combination of reduced capital spending, asset dispositions and adjustments to dividend levels as necessary. “ (2)

To put things into perspective, from December 2nd to December 9th, 2014, the TSX has dropped 2.9%; while for the same period our average client account has dropped 0.9% or less. So highly diversified managed funds are doing better now of course.  Even if the Canadian Market took a big hit, your portfolios would not.

Take a look at the recent results of different sectors. This clearly shows the benefit of diversification.

see the chart here

(1)BMO Energy Sector team Commentary Dec 7, 2014

(2)Franklin Templeton Bissett Energy Sector team Commentary Dec 10, 2014

Odette Morin

Should I pay $300 a ticket to go see U2?

Both Terry and I are big fans of U2.  We saw them in concert twice before and can stop listening to their new album.  When the Vancouver concert coming up in May, we told ourselves, let’s go!

The tickets went on sale this morning at 10am and I was right on the dot to purchase the tickets.  I looked for best tickets and almost fell off my chair.  $300 a ticket!

Wo Bono, that is a lot of money!  As a financial planner it is hard to justify $600 for a couple’s night out, even to see U2.  So, I looked for the next best option and found tickets for $113 each. Now that is more reasonable.  So, I asked myself, can we afford $600?  Yes we can but will we have 3 times the fun as with the $226 tickets? Of course not.  So, I bought the well located balcony tickets and can’t wait to go see them!

The moral of the story is, you can spend a lot of money on entertainment and can easily justify the expense but do you really want to spend that kind of money for that event?  It is a personal decision.  Just ask yourself the question before hitting the buy button!

U2 in Concert - May 21, 2011

Terry Broaders

Weekly Update December 9 2014

“THE More Things Are Forbidden The More Popular They Become” -Mark Twain

 

TSX Ends Flat On Energy and Bank Shares

Canada’s main stock index ended flat on Friday, rattled by lusterless bank earnings and weakness in oil and gas shares, a day after its biggest single-day drop in 18 months. The resource-rich index has been pummeled in recent months by a slumping price for crude oil, which closed at its lowest since July 2009, with underwhelming numbers from some of Canada’s biggest lenders adding to the gloom. “This disappointment from the banks could honestly not have come at a worse time for the TSX” given the strain on energy stocks, said Elvis Picardo, a strategist at Global Securities in Vancouver. Shares in Bank of Nova Scotia lost 2 per cent to $66.20 after Canada’s No. 3 lender reported weaker-than-expected profit on previously announced charges related to soured bets in the Caribbean and Latin America.  Despite the headwinds, the Toronto Stock Exchange’s S&P/TSX composite index inched higher, ending the day up 3.75 points, or 0.03%, at 14,473.70. The index ended last week at 14,744.75, a decline of 1.8% for the week.

In New York, the Dow Jones Industrial Average added 58.69 points, or 0.32% at 17,958.79, topping its Wednesday mark, while the S&P 500 index added 3.32, or 0.16%, at 2,075.24, also a record. The Nasdaq Composite Index rose 11.32, or 0.24%, to 4,780.76. The Canadian dollar ended at 87.47 cents (U.S.), down 0.44 of a cent.

 

Bank of Canada Maintains Interest Rate

The Bank of Canada is keeping its trend-setting interest rate at 1%, even as the Canadian economy shows signs of a broadening recovery. The central bank says improvements to Canada’s economic health have been offset by risks such as sliding oil prices and high household debt. In its rate announcement, the bank says inflation has climbed faster than expected due to the temporary effects of a lower Canadian dollar and price jumps in certain consumer sectors.

The bank says Canadian exports have picked up amid disappointing global growth thanks to an improved U.S. economy–a boost that has also led to more business investment and jobs in Canada. The document says the output gap appears to be smaller than the bank had predicted in its October monetary policy report due to the recent changes. The country’s overnight interest rate hasn’t budged since September 2010, keeping borrowing rates at historic lows.

 

Blog Links

Extra Fees Canadians Pay for On Line Shopping

U.S. Debt Quietly Improving

Christmas Shopping & the Pleasure of Giving

 

Market Update as of December 5 2014

The TSX closed at 14474, down -271 points or -1.84% over the past week. YTD the TSX is up 6.25%.
The DOW closed at 17959, up 131 points or 0.73% over the past week. YTD the DOW is up 8.34%.
The S&P closed at 2075, up 7 points or 0.34% over the past week. YTD the S&P is up 12.28%.
The Nasdaq closed at 4781, down -11 points or -0.23% over the past week. YTD the Nasdaq is up 14.46%.
Gold closed at 1193, up 17.00 points or 1.45% over the past week. YTD gold is down -0.91%.
Oil closed at 65.65, down -0.61 points or -0.92% over the past week. YTD oil is down -33.42%.
The USD/CAD closed at 1.1436, up 0.0010 points or 0.09% over the past week. YTD the USD/CAD is up 7.56%.

 

Sources: Bloomberg; Investment Executive; advisor.ca;

Odette Morin

Christmas shopping and the pleasure of giving.

I love giving!  It is a great pleasure of mine to buy something, wrap it up and give it to someone I love.  Too often however, I go a little overboard and end up buying more than what I had planned.  Does this feel familiar?

Generosity is a great thing and people will love you for it but will they love you more because you bought them more? I would argue not.

Christmas shopping can be a very stressful time of year but never as stressful as the January credit card bill.  Be smart this year and shop with a list and a maximum budget per person.

As far as my shopping is concerned this year, I did my homework before going shopping.  I made a list of exact items and looked online for the price tag.  I then added 20% as a buffer for a little extra and to ensure I keep within budget.

I will add a big hug and make sure I tell each one how much they mean to me.  That I know will be appreciated.

 

Xmas giving

Odette Morin

US debt quietly improving

This may surprise you but the US debt is no longer as big an issue as it was a few years ago. Thanks to the recovering economy.

According to the Congressional Budget Office, the federal budget deficit was $506 billion for fiscal 2014, which ended in October. That’s about a third the size of the deficit in 2009, in the depths of the Great Recession. The deficit also has fallen from more than 10% of GDP in fiscal 2009 to only 2.9% of GDP in fiscal 2014. (See the chart below, courtesy of A. Gary Shilling & Co.)

Read the whole story here.

US debt improving