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Frank Mueller

Weekly Update – May 19, 2017

“I’m in the business where I can’t ever say there’s no risk associated with someone” – James Comey

Toronto Stock Exchange (TSX) and Other Major Indices Rally to End the Week

The Toronto Stock Exchange’s S&P/TSX composite index rallied to gain 181.3 points on Friday, good for a 1.19% increase, pushed higher by energy and financials, to close out the week at 15,458.46. 9 of the 10 main sectors on the TSX rose on Friday. The energy sector rose by 3.25%. The Loonie jumped by half a cent to finish the week at 73.97 cents US, due partially to the annual inflation rate of 1.6% holding steady throughout April. Gold rose to finish at $1,253.87 per ounce.

The rally followed Wednesday’s dismal performance, as investors worried about the leaked Comey memos from his meeting with Trump in February. Indeed, Wednesday was the worst day for the TSX in 8 months.

South of the 49th parallel, the Dow Jones Industrial Average finished the week at 20,804.84 after a Friday that saw a rise of 141.82 points (0.69%). The S&P500 and NASDAQ also posted gains on Friday, although – like the TSX – all 3 indices were down for the week on the heels of the leaked James Comey memos. The U.S. Dollar lost ground against its counterparts this week, also thanks to the Comey memos. The Greenback lost 0.75% on Friday alone, and over 2% for the week.

Reverberations from Comey Firing Carry into this Week

All eyes are on the White House it seems, with new information coming to light almost hourly. This added attention on the political forum led to some steep drops mid-week, before markets rallied on Thursday and Friday. Looking forward, it doesn’t appear that this story is going anywhere. Democrats and now even some Republicans have uttered the dreaded “I-word” (Impeachment), not yet 5 months into Trump’s presidency.

One thing markets don’t like is uncertainty. With the uncertainty surrounding the White House, there is bound to be some market volatility in the near-future, as more information is dug up.

You can read a more in-depth analysis of our short- and long-term market outlook in our blog “Will Donald Trump Get Impeached?”. The link is at the bottom of this page.

Sources: Globe Advisor

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Will Donald Trump Get Impeached?

Frank Mueller

What Happens if Donald Trump Gets Impeached?

Will Donald Trump be Impeached?

Whether or not you like Donald Trump, one thing that many of us will agree upon is the notion that the simple fact his potential impeachment is being considered, only a few short months into his presidency, is a stunning turn of events. Still, this is where the bizarre story being written in the White House has brought us.

Last week, Trump abruptly fired F.B.I. Director James Comey. Almost immediately, the White House’s explanation of why Comey was fired began to fragment, as none of President Trump, Press Secretary Sean Spicer, or any of Trump’s handlers – such as Kellyanne Conway – could get their story straight, or even aligned with one another’s.

Fast-forwarding to this week, a leaked memo surfaced in which Mr. Comey detailed his meeting with President Trump. According to the memo, the meeting – which occurred the day after National Security Advisor Mike Flynn’s resignation – centered around the potential investigation of Mr. Flynn’s contact with the Russian ambassador to the United States, both before and following the November 8th Election. During their meeting, Comey writes that Trump said to him, “I hope you can see your way clear to letting this go, to letting Flynn go.” Trump continued, “He is a good guy. I hope you can let this go.” Comey would only go as far as to agree that Flynn was “a good guy”, but wouldn’t commit to dropping any such investigation. Later, Comey was terminated.

Unsurprisingly, the White House has denied the accuracy of the leaked memo. Many analysts and political pundits have pointed out that Trump’s firing of Comey – particularly with this leaked memo coming to light – establishes the very real possibility that Trump could be impeached for Obstruction of Justice (the same threat that forced Richard Nixon to resign his Presidency on August 8, 1974).

Today, it is being reported that the investigation has now identified a “senior White House advisor” who is “close to the president”. Many Democratic politicians, as well as some Republican politicians, are demanding to see the Comey leaked memo. This bipartisan interest in the memo should be worrying for Trump. It certainly appears that the Russia investigation is not going away anytime soon, and their could be major political fallout in the near future.

How Will Markets React if Trump is Impeached?

Markets this week have not taken Comey’s dismissal well, with some major Canadian and US Stock Indices suffering their worst day in over 8 months on Wednesday.

Political uncertainty is bound to weigh on investor confidence. Trump is a wildcard, prone to saying and doing what he wants, regardless of truth or accuracy (or legality), and the potential risks associated with such a personality as president are being felt right now. However, Trump’s potential successor would be far less risky, from a pro-business point of view.

Should Trump be impeached and removed from office, in would step Vice-President Mike Pence to assume the role of Commander-In-Chief. The initial uncertainty of an impeachment could result in a drop in the market; however, the market’s long-term response would likely be positive. There are three key reasons for this:

Firstly, Pence is obviously a Republican. He served as Governor of Indiana from 2013-2017, and shares the same pro-business views as his Republican counterparts. He is, relative to Trump, a drama-free. He knows and has a good working relationship with many politicians in both the House and the Senate. His time as Governor has given him both the experience and the knowledge of the political process.

Secondly, at least until the 2018 Midterm Elections, both the U.S. House of Representatives and the U.S. Senate are controlled by the Republicans, as they hold majorities in both. Tax reform may be put to the backburner temporarily if impeachment proceedings happen, but at some point, the Republicans should be able to start advancing their political agenda.

Thirdly, and perhaps most importantly, Pence’s relative stability would allow the markets to rebound in a less politically risky environment. It would be (pro) business as usual.

What Action Should I Take?

Our recommendation, as always, is to continue to focus on the long-term picture. A reactionary selloff if the markets drop in the near-term could result in missing out on the inevitable rebound. When that train leaves the station, you don’t want to be left standing on the platform waiting to purchase a ticket.

In fact, investors should look at a potential short-term market drop as a great opportunity to invest, as the potential to reap a nice return will present itself to those who are paying attention.

Should you have any questions or concerns, we are happy to discuss them with you. Please feel free to give us a call or send us an email.

In the short-term, enjoy your May long weekend!

Sources: CNN Politics, The Globe and Mail, The New York Times, The Washington Post

Terry Broaders

Weekly Update May 12 2017

“We Are A Fact Gathering Organization Only. We Don’t Clear Anybody. We Don’t Condemn Anybody” – J. Edgar Hoover, First FBI Director

 

Stock Markets Dip After Weak U.S. Economic Data

Major North American stock indices declined Friday after disappointing U.S. economic data and weak corporate earnings.  The Toronto Stock Exchange’s S&P/TSX composite index fell 12.67 points to 15,537.88. In New York, the Dow Jones industrial average lost 22.81 points to 20,896.61, while the S&P 500 index shed 3.54 points to 2,390.90. The Nasdaq composite index gained 5.27 points to 6,121.23. Those drops came as the U.S. Department of Commerce said retails sales in April rose 0.4% from March, falling below already-low analyst expectations, said Patrick Blais, a senior portfolio manager at Manulife Asset Management.

Shares of major department stores also fell Friday. Nordstrom’s stock, for example, slipped US$5.01, or 10.84%, to US$41.20 after the company released its first-quarter results Thursday. The Seattle-based chain’s same-store sales, which dropped by 0.8%, fell below analyst expectations.   “It kind of re-emphasized the risk that consumer spending will stay weak,” said Blais.  Consumer spending is a large part of the American economy, accounting for some 60% of GDP, he said. If U.S. consumers aren’t spending the fear is GDP growth will slow.

Meanwhile, the Canadian dollar fell 0.04 of a U.S. cent to an average value of US72.92¢. In commodities, the June crude contract gained a penny to US$47.84 per barrel and June gold rose US$3.50 to US$1,227.70 an ounce.

 

It’s Harder Than You Think To Detect Fraud And Lies 

Detecting lies and misleading statements isn’t easy; just ask the participants of a recent Journal of Behavioural Finance study, which tested the ability of 154 randomly selected, U.S.-based financial professionals.

The study was conducted by three City University of New York professors and Jason Voss, a content director at CFA Institute. They asked the participants, who were affiliated with the CFA Institute, to watch videos as well as listen to quarterly conference calls from public companies, and the goal was to assess how well they could identify liars and pinpoint misleading statements, reports The Wall Street Journal.  In particular, the calls they listened to were ones that “included statements that the SEC had identified as misleading or false,” says WSJ.  The average accuracy rate of the participants was 49.4% when it came to successfully identifying truth versus lies, says WSJ. According to the Journal of Behavioural Finance, their “lie detection accuracy was poor; participants performed no better than would be expected by chance. Accuracy in identifying lies about financial fraud was especially poor.”

Why did the finance professionals fail the test?  One reason they performed poorly, says WSJ, was due to truth bias (as Psychology Today explains, this bias is based on “a normal reaction because, in general, people tend to believe others,” and it’s hard not to believe what you hear, see and read). WSJ adds the participants “also did worse when they were highly confident of their performance.”

 

 

 

Sources: Bloomberg; Investment Executive; advisor.ca;

Frank Mueller

Weekly Update – May 5, 2017

“A satisfied customer is the best business strategy of all” – Michael LeBoeuf

TSX Rises, Major US Indices Also Close Out the Week with Increases

The Toronto Stock Exchange’s S&P/TSX composite index rose – on the back of rising oil – by 1.2% on Friday to close out the week at 15,582.04, but it wasn’t alone. The S&P 500 recorded a record-high close of 2,399.29, the Dow Jones Industrial Average rose 0.26% to finish at 21,006.94, and the Nasdaq Composite climbed to 6,100.76 to finish off the week.

Rising oil prices, as well as strong US jobs numbers, better-than-expected earnings calls, and unchanged interest rates, helped to buoy the US indices. The US added 211,000 nonfarm jobs in April, up from a modest March increase of 79,000.

Oil enjoyed a bump on the news that Russian and Saudi Arabia may be ready to extend supply cuts, joining OPEC. The Federal Reserve opted to stay the course without an increase at this time. According to Thomson Reuters data, investors put the odds of a June rate increase at 75%. Lastly, the earnings reports for the first quarter 2017 gave investors a confidence boost. The S&P 500 first quarter returns were their strongest since 2011, at an increase of 14.7%.

U.S. House of Representatives Passes American Health Care Act

The U.S. Congress narrowly voted in favour of repealing much of the Affordable Care Act, known also as “Obamacare”. The AHCA – coined “Trumpcare” – must still get through the Senate to be signed into law by President Trump. While many political analysts feel that the bill is likely to be voted down by the Senate, there is a chance that Trumpcare will come into effect.

The impact on U.S. markets remains to be seen, but markets were up on Friday after a mixed post-vote Thursday.

The Healthcare industry in the United States has been estimated to be about 1/6th of its economy, so such a vast overhaul would create waves throughout the entire economy. Should the bill come into law, the Healthcare industry would potentially stand to gain ground in the short term, due to an increased set of pre-existing conditions that could lead to denial of coverage.

Looking at the mid- to long-term, with the loss of coverage anticipated to be in the 24-million-person range, it is possible that Trumpcare would end up being a drag on the economy, as the uninsured may not be able to afford their healthcare bills, should they become ill.

Sources: Globe Advisor, New York Times

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Odette and Terry Retirement Announcement

 

Odette Morin

Important Announcement: Odette & Terry will retire on June 30, 2017

Dear client,

It is with great excitement but also heavy hearts that we announce our retirement.  After 28 years in the industry, we will be retiring full time on June 30, 2017.  The good news is that Anthony Sabti, our valuable employee for 8 years, whom you know, will be our successor and will be acquiring You First Financial.

It was of outmost importance to us to find a suitable replacement to service your account and deliver the same level of thorough financial, tax and investment planning advice that you have been accustomed to.  We had interviewed several potential successors but none compared to Anthony.

Anthony has been with us since 2009.  He expressed an interest in taking over the business early on and has been trained by us for the potential event for 8 years now.  He is the best successor not only because he holds, like us, the Certified Financial Planner designation and all the required investment and insurance licences but more importantly, he is a high integrity individual who clearly shows that he cares about our clients and wants to do what is best for them.  He has been a natural extension of who we are and clearly shares the You First core values.

Anthony has a great analytical mind.  He has been following investment managers, selecting the investments for our fund line up every year, and preparing recommendations on your account for the past 8 years. He has worked closely with myself on financial, tax and retirement planning and tax preparation and research with Terry. He has demonstrated that he is ready and fully capable to take charge. Please note as well however, that we will be providing assistance to Anthony on request for a period of four years to ensure a smooth transition in handling client files.

Not only does Anthony have the credentials and competence to succeed us but he enthusiastically goes above the call of duty in all client relations. In the end, we wanted a professional successor that cared, who we could recommend with trust and confidence.  In fact, we believe in Anthony’s ability so much that he will become our own long-term investment advisor as we will no longer have access to the investment research financial advisors have access to and frankly, we will be too busy enjoying our retirement.

Anthony has vowed to keep You First exactly the same, from the annual review process to the year-end review meetings, right down to the Lindt piece of chocolate!

You First will remain in the same location with the same current staff.  The only change is that you will be meeting with Anthony, assisted by Frank, Sandrine and JoAnne Provost who has recently rejoined the team.

I will very much miss our meetings.  We thank you from the bottom of our hearts for the trust you have put in us in handling your hard earned money. Our success depended on your confidence and we will be forever grateful for that. We are sad but delighted to leave you in such good hands.

We will remain available to meet and speak with you until June 30, 2017.

Kind regards,

Odette & Terry

Terry Broaders

Weekly Update April 7 2017

“A Rich Man Is Nothing But A Poor Man With Money ” – W.C. Fields

 

TSX Ends Lower On Friday

Canada’s main stock index ended modestly lower on Friday as financial and natural resource shares lost ground, while concerns about escalating geopolitical tensions after a U.S. strike in Syria prompted a risk-off sentiment among investors. The Toronto Stock Exchange’s S&P/TSX composite index was down 30.05 points, or 0.19 per cent, at 15,667.13 shortly after the closing bell. Wall Street’s three major indexes edged lower on Friday to end well below session highs after a weaker-than-expected job report, a U.S. missile strike in Syria and comments by a key Federal Reserve official on the Fed’s plan to reduce its balance sheet. The Dow Jones Industrial Average fell 7.06 points, or 0.03 per cent, to 20,655.89, the S&P 500 lost 1.93 points, or 0.08 per cent, to 2,355.56 and the Nasdaq Composite dropped 1.14 points, or 0.02 per cent, to 5,877.81.
The news of the U.S.-Syria attack sent global stocks lower when it was announced, with the S&P 500 futures index falling as much as 0.5 per cent. But most of the losses ebbed after U.S. officials described the attack as a one-off that would not lead to wider escalation. U.S. employers added about 98,000 jobs in March, the fewest since last May and well below economists’ expectation of 180,000, as bad weather hit hiring at construction sites. However, wage growth ticked up slightly and the unemployment rate fell. Oil prices rose on Friday, trading near a one-month high and closing the week up 3 per cent after the United States fired missiles at a Syrian government air base, raising concern that the conflict could spread in the oil-rich region.

 

Canada Gains 19,400 Jobs 

Canada’s labour market pumped out another 19,400 net jobs last month, with the vast majority of the new work being full-time. However, Statistics Canada’s job survey Friday also showed the bulk of those new positions were created in the category of self-employment, which can include people working for a family business without pay. The report found that while 95% of the new jobs created last month were full-time, 95% of them were also self-employed positions. The agency says the country’s unemployment rate crept up in March to 6.7% from 6.6% because more people were looking for work. Compared to a year earlier, the categories of full-time and part-time work have each increased 1.5%.
The country lost 2,400 positions in the services sector last month, but added 21,800 factory jobs thanks to the biggest month-to-month surge in manufacturing work since 2002. The manufacturing sector added 24,400 positions, mostly in Ontario and to a lesser degree in Alberta, to climb back up to the same level it was 12 months earlier. Still, compared to its peak in the early 2000s, the manufacturing sector has about 630,000 fewer jobs, a drop of 27%, Statistics Canada said. Alberta easily saw the biggest overall job boost among provinces, adding 20,700 full-time jobs last month. At the other end of the spectrum, Quebec shed 17,800 full-time positions.

 

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Sources: Bloomberg; Investment Executive; advisor.ca;