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Frank Mueller

Weekly Update – June 15, 2018

“Never let facts get in the way of a good story” – Mark Twain

Weekly Market Wrap-Up

On Friday, US President Trump announced a 25 per cent tariff on strategically important Chinese imports, worth around $50 Billion, along with the threat of further tariffs should Beijing impose their own tariffs in kind. Chinese President Xi responded with retaliatory threats.

Thus, a potential trade war between the world’s two largest economies is one step closer. Global stock prices dropped on the news and increased tension.

Earlier in the week, the US Federal Reserve raised its key overnight rate by 0.25 per cent and signalled up to two further rate hikes for 2018.

It is highly anticipated that the Bank of Canada will follow suit with a rate hike of its own at the next policy meeting on July 11th.

As usual, interest rate increases will generally weigh on bond pricing; as a result, investors may see a further pullback on their fixed income holdings. On the other hand, rising rates are an effective measure against inflationary pressures.

In other news, oil dropped on fears of a supply increase.

Yield Versus Return of Capital

One benefit of holding a balanced mutual fund, an income fund, or some equity funds, is that you are issued distributions. However, there is a common misunderstanding when considering how a fund distributes “yield” on a monthly or annual distribution.

A distribution is comprised of dividends, investment income such as interest, capital gains, and return of capital (ROC). Whereas dividends, interest and capital gains income are the result of the investment choices made by fund managers, ROC essentially amounts to refunded contributions.

There is nothing inherently wrong with return of capital within a distribution, especially when you opt to re-invest your distributions (the default option when investing in mutual funds). In fact, including ROC within distributions can be used to withdraw money in a tax-efficient manner in Non-Registered Accounts.

However, it is important to consider that return of capital, when included in a distribution, should not be confused with real yield.

Should you have any questions about yield versus return of capital, don’t hesitate to ask us.

 

Sources: Fidelity, Advisor.ca

Frank Mueller

Weekly Update – June 8, 2018

“Life is a long lesson in humility” – James M. Barrie

Beware: “CRA” Phone Scams Continue

We would like to, once again, remind you that scammers are still at it. The ruse is simple, yet effective: you receive a phone call from a person who claims to be from the CRA or representing the CRA; the caller threatens you with legal action unless you pay some amount “immediately”; the caller attempts to convince you to give your credit card number and secret code to them; they may also ask you for other sensitive information (date of birth, Social Insurance Number, etc).

Do not ever give these callers any information. The CRA will never call and threaten legal action or ask for your SIN # – they already have your SIN #!

If you receive a call from someone claiming to be from the CRA and asking for this type of information, hang up the phone. Then, call or email us. We can call CRA on your behalf to inquire on your tax status.

Weekly Market Wrap-Up

 North America

  • The TSX closed at 16203, up 159 points or 0.99% over the past week. YTD the TSX is down -0.04%.
  • The DOW closed at 25317, up 682 points or 2.77% over the past week.YTD the DOW is up 2.42%.
  • The S&P closed at 2779, up 44 points or 1.61% over the past week.YTD the S&P is up 3.93%.
  • The NASDAQ closed at 7646, up 92 points or 1.22% over the past week.YTD the Nasdaq is up 10.76%.
  • Gold closed at 1304, up -9.00 points or 0.46% over the past week.YTD gold is down -0.46%.
  • Oil closed at 65.56, down -0.19 points or -0.29% over the past week.YTD oil is up 8.51%.
  • The USD/CAD closed at 0.7739, up 0.0021 points or 0.27% over the past week.YTD the USD/CAD is down -2.69%.
  • The MSCI closed at 2138, up 45 points or 2.15% over the past week. YTD the MSCI is up 1.66%.

Europe/Asia

  • The Euro Stoxx 50 closed at 3447, down -2 points or -0.06% over the past week.YTD the Euro Stoxx 50 is down -1.63%.
  • The FTSE closed at 7681, down -21 points or -0.27% over the past week.YTD the FTSE is down -0.09%.
  • The CAC closed at 5450, down -16 points or -0.29% over the past week.YTD the CAC is up 2.58%.
  • DAX closed at 12767, up 43.00 points or 0.34% over the past week.YTD DAX is down -1.17%.
  • Nikkei closed at 22695, up 524.00 points or 2.36% over the past week.YTD Nikkei is down -0.31%.
  • The Shanghai closed at 3067, down -8.0000 points or -0.26% over the past week.YTD the Shanghai is down -7.26%.

Fixed Income

  • The 10-Yr Bond Yield closed at 2.94, up 0.0400 points or 1.38% over the past week.YTD the 10-Yr Bond is up 22.50%.

 

Sources: Dynamic, Advisor.ca

Frank Mueller

Weekly Update – June 1, 2018

“As history has repeatedly proven, one trade tariff begets another, then another – until you’ve got a full-blown trade war. No one ever wins, and consumers always get screwed” – Mark McKinnon

Canada, U.S. Impose Tariffs On One Another

Thursday saw volleys of trade tariffs imposed. Citing “national security”, United States Commerce Secretary Wilbur Ross and President Trump tariffs on imported Canadian steel and aluminum worth about $20 billion, taking effect today (June 1). President Trump also threatened to impose an auto tariffs.

Canadian Foreign Affairs Minister Chrystia Freeland and Prime Minister Justin Trudeau responded only hours later, announcing tariffs of up to $16.6 billion on a wide assortment of U.S. products to take force on July 1.

Tariffs always hurt the end consumer, and they can also hurt market growth. Companies that pay tariffs on imported goods will, to the extent they can, pass the cost on to the end consumer. For instance, tariffs on aluminum could lead to a rise in the production cost of beer cans, and thus, the cost of purchasing beer at the till.

Higher costs over time will put upward pressure on inflation. One option a central bank can employ to counter inflation is to raise their key interest rate. Rising rates drag on market growth and reduce credit availability, leading to lowered returns.

About 75 per cent of Canadian exports go to the U.S., so the beleaguered Canadian economy could be hurt even further.

Bank of Canada Holds Rates Steady

On Wednesday, the Bank of Canada opted to hold its key interest rate at 1.25 per cent, as analysts had expected. However, cautious wording during the previous rate hold were not present this week, signalling a rate hike at the July policy meeting.

The new tariff war between Canada and the U.S. will likely only add to the expectation of a rate hike, as inflation, a natural by-product of tariffs, could be kept in check with rising rates.

Increased borrowing costs for businesses and individuals alike will weigh on the Canadian economy. Canadians already have high levels of household debt, so discretionary spending is likely to decrease – never a good sign for an economy.

Italian Political Chaos

Italy’s “anti-establishment” parties’ plans to form a coalition government fell apart, as the President refused a controversial choice for Economic Minister. Now, the possibility of a snap election has arisen. Markets reacted by putting Italian bonds and specific equities, like bank stocks, under heavy selling pressure.

Italy is a top-5 bond market in the world, so a bond market disruption would have a ripple effect worldwide. Some analysts feel the European Central Bank should steer clear of this, while others feel they should announce their intention to purchase all Italian bonds, should yields hit a certain level (effectively, a yield cap).

Those in favour of ECB intervention feel that simply announcing the intent to put a yield cap on Italian bonds will help calm the waters. It is likely still too early for the ECB to step in, and until they do, investors will likely seek safer, less volatile bond markets around the globe.

Weekly Market Wrap-Up

North America

  • The TSX closed at 16044, down -32 points or -0.20% over the past week. YTD the TSX is down -1.02%.
  • The DOW closed at 24635, down -118 points or -0.48% over the past week. YTD the DOW is down -0.34%.
  • The S&P closed at 2735, up 14 points or 0.51% over the past week. YTD the S&P is up 2.28%.
  • The NASDAQ closed at 7554, up 120 points or 1.61% over the past week. YTD the Nasdaq is up 9.43%.
  • Gold closed at 1298, down 15.00 points or -0.69% over the past week. YTD gold is down -0.92%.
  • Oil closed at 65.75, down -2.13 points or -3.14% over the past week. YTD oil is up 8.82%.
  • The USD/CAD closed at 0.77185, up 0.0008 points or 0.10% over the past week. YTD the USD/CAD is down -2.95%.
  • The MSCI closed at 2093, down -18 points or -0.85% over the past week. YTD the MSCI is down -0.48%.

Europe/Asia

  • The Euro Stoxx 50 closed at 3449, down -66 points or -1.88% over the past week. YTD the Euro Stoxx 50 is down -1.57%.
  • The FTSE closed at 7702, down -28 points or -0.36% over the past week. YTD the FTSE is up 0.18%.
  • The CAC closed at 5466, down -77 points or -1.39% over the past week. YTD the CAC is up 2.88%.
  • DAX closed at 12724, down -214.00 points or -1.65% over the past week. YTD DAX is down -1.50%.
  • Nikkei closed at 22171, down -280.00 points or -1.25% over the past week. YTD Nikkei is down -2.61%.
  • The Shanghai closed at 3075, down -66.0000 points or -2.10% over the past week. YTD the Shanghai is down -7.02%.

Fixed Income

  • The 10-Yr Bond Yield closed at 2.9, down -0.0300 points or -1.02% over the past week. YTD the 10-Yr Bond Yield is up 20.83%.

 

 Sources: Dynamic, Advisor.ca

Frank Mueller

Weekly Update – May 18, 2018

“If it seems too good to be true, it probably is” – Unknown

British Columbia Securities Commission Cautions Investors of Cryptocurrency Scams

The British Columbia Securities Commission (BCSC) has issued a warning to BC residents on the risks of investing in cryptocurrencies, joining their Ontario counterparts (OSC) and the Bank of Canada in warning investors. The primary concern is that the relatively young market for cryptocurrency is poorly regulated and is breeding ground for scammers. Indeed, the crypto market has been dubbed “the wild west” by many analysts, including former hedge-fund manager Mike Novogratz.

For example, in standard stock markets, there is a well-known and illegal scheme known as the “pump & dump”. The pump & dump involves a person buying a stock at a cheap price, artificially inflating the stock’s price through false and misleading statements, and then cashing out when the stock price has risen. However, in the lightly-regulated world of cryptocurrency, this tactic is not regulated in any way.

In fact, there are companies whose sole operational model involves building paid subscription bases, and then targeting specific cryptocurrencies, at specific times, telling their subscribers when to buy, creating hype around the specific cryptocurrency and running up the price, and then telling their subscribers when to sell. They brazenly advertise their intent to pump & dump as a means to attract subscribers with explanatory videos!

This is a textbook example of the pump & dump scheme in action, but because of the lack of regulation, coupled with crypto investors’ so-called “fear of missing out” (FOMO) on a rapidly-rising cryptocurrency valuation, this is technically legal and can be very effective.

The BCSC has also stated that BC residents should exercise “extreme caution” when considering Initial Coin Offerings (ICOs), where companies attempt to raise capital by issuing newly created cryptocurrencies. The BCSC specifically highlighted unsolicited ICO offerings as dangerous and has asked people who receive such offers to contact the BCSC.

 

WEEKLY MARKET WRAP-UP

North America

  • The TSX closed at 16162, up 179 points or 1.12% over the past week. YTD the TSX is down -0.29%.
  • The DOW closed at 24715, down -116 points or -0.47% over the past week. YTD the DOW is down -0.02%.
  • The S&P closed at 2713, down -15 points or -0.55% over the past week. YTD the S&P is up 1.46%.
  • The NASDAQ closed at 7354, down -49 points or -0.66% over the past week. YTD the Nasdaq is up 6.53%.
  • Gold closed at 1292, down 2.00 points or -1.97% over the past week. YTD gold is down -1.37%.
  • Oil closed at 71.35, up 0.83 points or 1.18% over the past week. YTD oil is up 18.09%.
  • The USD/CAD closed at 0.7765, down -0.0052 points or -0.67% over the past week. YTD the USD/CAD is down -2.36%.
  • The MSCI closed at 2126, up 2 points or 0.09% over the past week. YTD the MSCI is up 1.09%.

Europe/Asia

  • The Euro Stoxx 50 closed at 3574, up 8 points or 0.22% over the past week. YTD the Euro Stoxx 50 is up 2.00%.
  • The FTSE closed at 7779, up 54 points or 0.70% over the past week. YTD the FTSE is up 1.18%.
  • The CAC closed at 5615, up 73 points or 1.32% over the past week. YTD the CAC is up 5.68%.
  • DAX closed at 13078, up 77.00 points or 0.59% over the past week. YTD DAX is up 1.24%.
  • Nikkei closed at 22930, up 171.00 points or 0.75% over the past week. YTD Nikkei is up 0.72%.
  • The Shanghai closed at 3193, up 30.0000 points or 0.95% over the past week. YTD the Shanghai is down -3.45%.

Fixed Income

  • The 10-Yr Bond Yield closed at 3.07, up 0.1000 points or 3.37% over the past week. YTD the 10-Yr Bond Yield is up 27.92%.

 

Sources: Dynamic, Advisor.ca, CNBC.com

Frank Mueller

Weekly Update – May 11, 2018

“Nobody likes high interest rates” – Chanda Kochhar

Bank of Canada Raises Five-Year Fixed Mortgage Rate

The Bank of Canada raised its conventional five-year fixed mortgage rate on Wednesday, from 5.14% up to 5.34%. As we all now know, the BoC’s five-year fixed rate is a crucial piece of information for prospective home buyers in Canada. Exactly how this

Less Than 20 Per Cent Down Payment

These prospective buyers must qualify for their mortgage at the BoC’s five-year fixed rate of 5.34 per cent, rather than the rate offered by their lender. For reference, the current five-year fixed rate at one of the “Big Five” Canadian banks is currently 3.74 per cent.

20 Per Cent Down Payment or More

For home buyers with 20 per cent down or more, they must qualify at the greater of the BoC five-year fixed rate, or the agreed upon rate with their bank plus 200 basis-points (two per cent).

So, using the above current five-year fixed rate, purchasers with at least 20 per cent down will have to qualify at the rate of 3.74 + 2.00 = 5.74 per cent, because the “bank rate plus 200 basis-points” exceeds the BoC’s current 5.34 per cent.

Stephen Poloz: Canadian Economy “Finally Positive”; Future Rate Hikes Possible

Stephen Poloz, Governor of the Bank of Canada recently stated that the economy was “finally positive”, adding that he was more encouraged about the economy than he was six months ago.

Poloz did caution that there are still areas of softness within the Canadian economy, as well as high levels of consumer debt. As such, the BoC will need to exercise caution with future rate hikes, to avoid future instability.

While the BoC opted not to raise its key rate steady at 1.25 per cent, analysts pegged a 70 per cent chance of a BoC rate hike in July.

Canadians should look at the potential of further rate increases as a reminder to diligently pay down debt where possible. As always, if dealing with multiple types of debts (credit card balances, student loans, mortgages, lines of credit, etc), attack those debts with the highest interest rates. This almost always means paying down credit cards first. Credit card debt is portfolio poison.

WEEKLY MARKET WRAP-UP

North America

  • The TSX closed at 15983, up 254 points or 1.61% over the past week. YTD the TSX is down -1.39%.
  • The DOW closed at 24831, up 568 points or 2.34% over the past week. YTD the DOW is up 0.45%.
  • The S&P closed at 2728, up 65 points or 2.44% over the past week. YTD the S&P is up 2.02%.
  • The NASDAQ closed at 7403, up 193 points or 2.68% over the past week. YTD the Nasdaq is up 7.24%.
  • Gold closed at 1318, up -9.00 points or 0.15% over the past week. YTD gold is up 0.61%.
  • Oil closed at 70.52, up 0.77 points or 1.10% over the past week. YTD oil is up 16.72%.
  • The USD/CAD closed at 0.7817, up 0.0017 points or 0.22% over the past week. YTD the USD/CAD is down -1.71%.

 Europe/Asia

  • The MSCI closed at 2124, up 53 points or 2.56% over the past week. YTD the MSCI is up 1.00%.
  • The Euro Stoxx 50 closed at 3566, up 15 points or 0.42% over the past week. YTD the Euro Stoxx 50 is up 1.77%.
  • The FTSE closed at 7725, up 158 points or 2.09% over the past week. YTD the FTSE is up 0.48%.
  • The CAC closed at 5542, up 26 points or 0.47% over the past week. YTD the CAC is up 4.31%.
  • DAX closed at 13001, up 181.00 points or 1.41% over the past week. YTD DAX is up 0.64%.
  • Nikkei closed at 22759, up 286.00 points or 1.27% over the past week. YTD Nikkei is down -0.03%.
  • The Shanghai closed at 3163, up 72.0000 points or 2.33% over the past week. YTD the Shanghai is down -4.35%.

 Fixed Income

  • The 10-Yr Bond Yield closed at 2.97, up 0.0300 points or 1.02% over the past week. YTD the 10-Yr Bond Yield is up 23.75%.

 

 

Sources: Dynamic, Advisor.ca

Frank Mueller

Weekly Update – May 4, 2018

“What’s the use of happiness? It can’t buy you money” — Henny Youngman

*Amazon Headquarters Coming to Vancouver

Prime Minister Justin Trudeau announced Monday that Amazon is expanding its Vancouver tech hub with a new headquarters.

This is expected to bring an additional 3,000 high tech jobs to the city in fields including e-commerce technology, cloud computing, and machine learning.

The new headquarters will be located at the old Canada Post headquarters, at 349 West Georgia Street where Monday’s announcement was made. It is expected to open in 2022.

This is in addition to Amazon’s current Vancouver offices – including its 156,000 square-foot location in TELUS Garden which opened to Amazon employees in 2015. On top of Monday’s announcement, Amazon also confirmed last November its plans to expand into another downtown site on Dunsmuir Street, which will open in 2020.

“Amazon is excited to create 3,000 more highly skilled jobs in Vancouver,” said Alexandre Gagnon, vice-president of Amazon Canada and Mexico. “Vancouver is home to an incredibly talented and diverse workforce, and these thousands of new employees will invent on behalf of our customers worldwide.”

Amazon already employs more than 6,000 people in Canada. It employs more than 1,000 researchers and engineers in Vancouver.

*Note: We are not making a recommendation of any kind. We are simply reporting on a local news story of interest.

WEEKLY MARKET WRAP-UP

North America

  • The TSX closed at 15729, up 60 points or 0.38% over the past week. YTD the TSX is down -2.96%.
  • The DOW closed at 24263, down -48 points or -0.20% over the past week. YTD the DOW is down -1.84%.
  • The S&P closed at 2663, down -7 points or -0.26% over the past week. YTD the S&P is down -0.41%.
  • The NASDAQ closed at 7210, up 90 points or 1.26% over the past week. YTD the Nasdaq is up 4.45%.
  • Gold closed at 1316, down -13.00 points or -0.68% over the past week. YTD gold is up 0.46%.
  • Oil closed at 69.75, up 1.72 points or 2.53% over the past week. YTD oil is up 15.44%.
  • The USD/CAD closed at 0.78, up 0.0016 points or 0.21% over the past week. YTD the USD/CAD is down -1.92%.

Europe/Asia

  • The MSCI closed at 2071, down -21 points or -1.00% over the past week. YTD the MSCI is down -1.52%.
  • The Euro Stoxx 50 closed at 3551, up 32 points or 0.91% over the past week. YTD the Euro Stoxx 50 is up 1.34%.
  • The FTSE closed at 7567, up 65 points or 0.87% over the past week. YTD the FTSE is down -1.57%.
  • The CAC closed at 5516, up 33 points or 0.60% over the past week. YTD the CAC is up 3.82%.
  • DAX closed at 12820, up 239.00 points or 1.90% over the past week. YTD DAX is down -0.76%.
  • Nikkei closed at 22473, up 5.00 points or 0.02% over the past week. YTD Nikkei is down -1.28%.
  • The Shanghai closed at 3091, up 9.0000 points or 0.29% over the past week. YTD the Shanghai is down -6.53%.
  • The Shanghai closed at 3082, up 10.0000 points or 0.33% over the past week. YTD the Shanghai is down -6.80%.

Fixed Income

  • The 10-Yr Bond Yield closed at 2.94, down -0.0200 points or -0.68% over the past week. YTD the 10-Yr Bond Yield is up 22.50%.

 

Sources: Dynamic, Global News