Blog

Category Archives: Financial Planning

Frank Mueller

Weekly Update – November 24, 2017

“This would be a much better world if more married couples were as deeply in love as they are in debt” – Earl Wilson

TSX Posts Modest Increase on the Week

The Toronto Stock Exchange’s S&P/TSX composite index, helped by broad gains, finished up on Friday by 33.79 points (0.21 per cent) to finish the week at 16,108.09. For the week, it was up 0.7 per cent (87.93 points) over last Friday’s finish at 16,039.26.

The energy and financial sectors gained on Friday.

Gold prices jumped this week overall, although it fell on Friday by $4.90 USD per ounce to $1,287.30. The $11.70 USD per ounce was good for a 0.92 per cent week-over-week increase.

U.S. light crude oil closed at a two-year high mark of $58.95 USD per barrel, while Brent crude oil gained 31 cents USD to finish at $63.86 USD per barrel. OPEC countries have once again been dancing around a potential supply cut, but nothing has been set in stone.

The Loonie gained 2 basis points on Friday, and stood at 78.68 cents USD as of Friday at 3:03pm PST. On the week, the Loonie dropped 25 basis points from last Friday’s finish of 78.93 cents to the Greenback, a drop of 0.32 per cent.

U.S. Markets See Dow Jones, S&P 500 Break Mini-Losing Streaks; NASDAQ Jumps

Black Friday, the famous shopping day that immediately follows the U.S. Thanksgiving – and for all intents and purposes, signals the green light for holiday shopping – meant a half-session on Wall Street. All of the Dow Jones Industrial Average (DJIA), S&P 500 and NASDAQ posted gains on Black Friday.

U.S. Thanksgiving Thursday saw three things: football, turkey and online shopping. According to Adobe Analytics, U.S. shoppers spent nearly $3 Billion online on Thursday.

Some heavyweight online retailers saw boosts on Friday, as optimism over the holiday shopping season is expected to bode well for 4th Quarter Earnings. Bricks & mortar stores with strong online presences fared quite well on Friday.

The Dow Jones rose 31.81 points (0.14 per cent) to finish at 23,557.99; the S&P 500 rose a modest 5.34 points (0.21 per cent) to finish at 2,602.42; the NASDAQ jumped 21.80 points (0.32 per cent) to settle at 6,889.16.

Lastly, the CBOE Volatility Index (VIX), dropped to a 3-week low of 9.67.

Canadian Household Debt Levels Highest Amount 35 Developed & Developing Countries

According to the Organization for Economic Cooperation and Development (OECD), Canada’s household debt ranks as the highest among 35 developed & developing countries that are monitored by the OECD. Read our blog post on the subject here.

Sources: Globe Advisor, Yahoo! Finance, Adobe Analytics, CNBC.com

Frank Mueller

OECD: Canadian Household Debt Levels Highest Among 35 Developed/Developing Nations

According to a recent report by the Organization of Economic Cooperation and Development, aka the OECD, Canada now has the highest household debt level per GDP in the world.

Canadian household debt is now greater than the national GDP, at 101% of GDP. As a brief refresher, GDP, or Gross Domestic Product, is the total of all goods and services – essentially everything – that is produced by a country; that is, everything produced within a nation’s borders.

The gap between Canada and the next-highest country on the list (South Korea), is roughly 8 per cent, as South Korea’s Debt-to-GDP mark of 93 per cent.

Economic powerhouses United Kingdom and United States post Debt-to-GDP levels of 88 per cent and 80 per cent, respectively; meanwhile, Germany’s Debt-to-GDP is below 60 per cent.

Why does this matter, you might ask? After all, this means that Canadians are spending money and driving the economy! This is only partly true. Yes, spending is good (to an extent); however, spending at this level can be risky.

Think about it like this: when stock markets like the TSX, S&P 500, NASDAQ, etc are increasing (recovery and expansion periods of the economic cycle), carrying debt is helpful. Debt allows companies the liquidity needed to purchase inventory, make capital investments (new bricks & mortar locations) and hire employees. But when the market starts declining and recessions hit, the companies that have over-extended themselves generally are hit the hardest.

Increasing interest rates heavily affect companies that are carrying debt, as all debt has a set interest rate. Revolving credit, such as lines of credit and credit cards, generally has an interest rate set as “prime + some additional amount”. So, when revenues start to decrease, during contractionary periods, while debt payment requirements begin to increase, companies carrying heavy debt loads can find themselves with a cash crunch.

The average family, in many ways, is synonymous with an average company, in that they have revenue (net income), they have debts (mortgage, car loan, line of credit, etc) and they must ensure they have liquidity to make it all work. The risk to families is camouflaged when things are going well, everyone is employed, and rates are low; however, the risk presents itself when rates increase (as they have twice since July), the economy slows down, and perhaps one – or both – of the family breadwinners suddenly find themselves out of work.

With all of this said, it is no surprise that the OECD has pointed out that such high indebtedness levels across the country is a risk to the economy. It is also no surprise that the soaring Debt-to-GDP has been linked to the red hot real estate markets across the nation.

The OECD stated in their report: “research points to a number of links between high indebtedness and the risks of severe recessions.” We are only about a decade removed from the U.S. housing crisis and resulting “Great Recession.”

Former British Prime Minister Sir Winston Churchill famously said: “Those who fail to learn from history are doomed to repeat it.” So, how can we learn from the past?

One of the most important things a family can do is create a budget. The budget must be feasible, it must be achievable, and it must allow for some fun.

A good budget should include some liquid savings account for emergency funds, travel funds, and the like. This way, when that emergency strikes, and you need cash in a pinch, there is a pool of money ready to deploy. Many people who do not have an emergency savings fund have to resort to drawing upon a line of credit. This will add to your debt load in a hurry.

If you do not have a budget in place, we can work with you to create one that is customized to your unique situation. If you have an interest in getting a budget on paper, please don’t hesitate to let us know!

Sources: CNBC.com

Frank Mueller

Weekly Update – October 27, 2017

“Don’t go broke trying to look rich. Act your wage!” – Dave Ramsey

TSX Hits All-Time Intraday High, Closes at 15,953.51

The Toronto Stock Exchange’s S&P/TSX composite index rose to its highest intraday level ever, edging above 15,963, before pulling back to finish the day & week at 15,953.51. For the day, the TSX was up 61.88 points (0.39%).

The TSX was up 96.29 points (0.60%) over last week’s finish at 15,857.22.

The TSX is now up more than six per cent since early-September, nearly a 1,000-point run-up; however, as we Canadian investors know, the TSX’s year-to-date return of slightly above four per cent have lagged the rest of the world.

Gains were pushed by surging oil prices; also, investors bet against the Bank of Canada continuing to aggressively raise rates. Banks have experienced strong gains – due to rising rates – as loan revenue has jumped. The Industrials sector has also gained, by 9.5 per cent, since early-September, and the Tech sector has risen 8.5 per cent in the same timeframe. The Materials group, however, struggled to a loss of 1.1 per cent since early-September.

As markets continue to surge, safe-haven asset Gold has declined. Utilities, generally seen as a defensive sector, has been relatively flat with a 0.7 per cent gain since September 8th.

Brent crude oil rose as high as $60.08 USD per barrel on Friday.

The Loonie dropped this week by 1.27 cents USD (1.60%) to finish at 77.95 cents USD.

Strong Q3 Earnings Push U.S. Markets Higher

Q3 earnings have been stronger than expected so far. U.S. Gross Domestic Product (G.D.P.) rose by an annualized 3.3 per cent during Q3, and September unemployment figures were at a 16-year low of 4.2 per cent.

The Dow Jones Industrial Average (DJIA) spiked 31.92 points (0.14%) to finish at 23,432.78.

The S&P 500 surged by 20.67 points on Friday, a jump of 0.81%, and is up 2.91% since early-September.

The FAANG companies propelled NASDAQ to another strong week. On Friday, the NASDAQ rose by 144.49 points, good for a daily gain of 2.20 per cent.

The VIX, a market volatility index, dropped by 13.27 per cent on Friday.

Jack Abin, Chief Investment Officer at BMO Private Bank in Chicago, said “Anyone who is drawing parallels to the tech bubble of 1999 has to at least consider that this rally in those large names is really fueled in large part by earnings, not just hope.” He added, ““There are certainly similarities between the tech bubble and now, but the underpinnings of this rally are still a lot more solid.”

Sources: Globe Advisor, Yahoo! Finance

Frank Mueller

Weekly Update – October 20, 2017

“I am proud to be paying taxes in the United States. The only thing is I could be just as proud for half of the money” – Arthur Godfrey

TSX Rises for 6th Straight Week

The Toronto Stock Exchange’s S&P/TSX composite index rose by 39.22 points (0.25%) on the day to close at 15,857.22. This represents a gain of 50.05 points (0.50%) over last week’s 15,728.32 finish.

Gains came from across the board, as 9 of the 10 major Index Sectors posted gains.

Brent crude jumped nearly a dollar per barrel to settle at $57.17 (USD) per barrel, as post-hurricane inflation continued to rise.

The Loonie was roughly even for the week, until the U.S. Senate passed their budget resolution on Thursday. On Friday, the CAD dropped by 82 basis points (1.09%) to finish at 79.22 cents USD as the Greenback surged in reaction to the budget resolution.

U.S. Markets Rise on Tax Cut Optimism, Encouraging Q3 Earnings Reports

On Thursday the U.S. Senate passed a budget resolution that raised optimism President Trump will be able to get his tax-cut blueprint put into effect. On Friday, the major U.S. Indices were up on this optimism.

The Dow Jones Industrial Average (DJIA) spiked 165.32 points (0.71%) to finish at 23,328.36. For the week, the DJIA was up a full 2%. Like the TSX, the DJIA advanced for the 6th straight week.

The S&P 500 was up 13.07 points (0.51%) to close 2,575.17. For the week, the S&P 500 was up 0.86%.

The NASDAQ jumped 23.99 points (0.36%) on Friday to end the week up 0.35% at 6,629.05. The NASDAQ has now posted gains 4 weeks running.

Consumer confidence, as well as strong Q3 earnings calls thus far – 70% of S&P 500 companies so far have posted Q3 earnings that beat street expectations – means continued positive movement is expected, say analysts.

Q3 earnings, overall investor optimism, and the budget resolution passing all worked to put downward pressure on Gold (a classic safe-haven asset). Gold dropped by $8.20 USD per ounce on Friday to finish at $1,281.80. This represents a loss of $24.30 (1.86%) USD per ounce compared to last Friday’s finish of $1,306.10 per ounce.

OSFI Makes Uninsured Mortgage Stress Test Official

As first mentioned on our Weekly Update for July 28, 2017, the OFSI made the Uninsured Mortgage Stress Test official this week. The changes take effect January 1, 2018 (looks like we nailed the date on this one!).

You can read our original post on the subject here.

The biggest change to the original proposals is the stress test rate to be applied. Originally, the stress test rate was proposed to be the mortgage rate the borrower had access to, plus 200 basis points (2%). So, a rate of 2.50% would result in a stress test qualifying rate at 4.50%.

However, the final stress test calculation is measured as the greater of the lender’s rate + 200 basis points OR the Bank of Canada’s Posted Five Year Fixed Rate, currently 4.89%.

So, the minimum stress test rate will therefore be 4.89% (if rates are unchanged from today until January 1, 2018), and will be higher if bank’s increase their lending rates.

WEEKLY MARKET WRAP-UP

North America
The TSX closed at 15,857, up 50 points or 0.32% over the past week. YTD the TSX is up 3.80%.
The DOW closed at 23,329, up 457 points or 2.00% over the past week. YTD the DOW is up 18.04%.
The S&P closed at 2,575, up 22 points or 0.86% over the past week. YTD the S&P is up 15.01%.
The Nasdaq closed at 6,629, up 23 points or 0.35% over the past week. YTD the Nasdaq is up 23.15%.
Gold closed at 1,282, down 29.00 points or 1.84% over the past week. YTD gold is up 12.65%.
Oil closed at 51.66, up 0.24 points or 0.47% over the past week. YTD oil is down 1.07%.
The USD/CAD closed at 0.79, down 0.0100 points or 1.25% over the past week. YTD the USD/CAD is up 6.48%.

Europe/Asia
The MSCI closed at 2,033, up 9 points or 0.44% over the past week. YTD the MSCI is up 15.97%.
The Euro Stoxx 50 closed at 3,605, changed 0 points or 0.00% over the past week. YTD the Euro Stoxx 50 is up 9.54%.
The FTSE closed at 7,523, down 12 points or 0.16% over the past week. YTD the FTSE is up 5.32%.
The CAC closed at 5,372, up 20 points or 0.37% over the past week. YTD the CAC is up 10.49%.
DAX closed at 12,991, down 1.00 points or 0.01% over the past week. YTD DAX is up 13.15%.
Nikkei closed at 21,458, up 303.00 points or 1.43% over the past week. YTD Nikkei is up 12.26%.
The Shanghai closed at 3,379, down 12.0000 points or 0.35% over the past week. YTD the Shanghai is up 8.86%.

Fixed Income
The 10-Yr Bond closed at 2.38, up 0.1000 points or 4.39% over the past week. YTD the 10-Yr Bond is down 2.86%.

Sources: Globe Advisor, Yahoo! Finance, Dynamic Funds

Frank Mueller

Trade Settlement Shortened to Two Days

Effective September 5, 2017, the financial industry in Canada and the U.S. has reduced the trade settlement cycle for purchases and redemptions from three business days (“T+3”) to two business days (“T+2”) after the trade date (“T”).

This change stems from a global trend in shortening investment settlement dates. Markets in the European Union and Asia/Pacific have already moved to T+2 settlement.

For example, if we put through a redemption on Monday, the investment company will transfer the proceeds to your bank account on Wednesday. You should have the funds on Wednesday, but some banks have their own processing windows causing delays of 1-2 days.

Money-market fund transactions, which are subject to T+1 regulations, are not affected by this change. If you redeem from a money market fund on Monday, the trade will settle and the funds should be in our account on Tuesday.

Frank Mueller

Weekly Update – July 14, 2017

“Buying at regular intervals eliminates the risk of over-investing at a stock market peak” – Quentin Lumsden

TSX, Loonie Rise on Friday After Bank of Canada Rate Increase

The Toronto Stock Exchange’s S&P/TSX composite index closed at 15,174.81 on Friday, a rise of 39.81 points (0.76%) over Thursday’s close, on the back of utility and mining stocks. On the heels of the Bank of Canada Overnight Rate increase this week, the Canadian Dollar rose above 79 cents (USD), up from 76.81 cents at last Friday’s close. Interest rate-sensitive companies experienced losses during the last half of the week on the BoC news.

The BoC acknowledged stronger growth compared to expectations, and they forecast continued growth. In continued efforts to fight off expected inflation, the BoC is generally expected to raise the overnight rate one more time in 2017, and perhaps again in early-2018.
The BoC also hopes to temper the hot Canadian housing markets, particularly in Toronto and Vancouver, as home prices continue to detach themselves from income levels.
A more in-depth analysis of the BoC’s rate increase can be found here.

Dow Jones and S&P 500 Hit Record Highs

A second consecutive month of economic data in the U.S. has dropped expectations of additional rate hikes by the Federal Reserve. In particular, steady consumer prices and decreased retail sales numbers indicate lower-than-expected inflation.

As a result of this data, analysts dropped their expected chance of a December rate hike from 55% down to 48%. Fed Chair Janet Yellen said earlier this week that persistently low inflation could make future rate hikes more gradual.

This news helped buoy S&P 500 to record highs on Friday, and is now trading at 17.3 times forward earnings, above the long-term average of 15 times. The Dow Jones Industrial Average (DJIA) also touched a record high on Friday before dropping to end the day down 0.6%. As expected, U.S. banks experienced drags on their share prices. The NASDAQ rose 40.69 points to close at 6,315.12.

Some heavyweight companies – Bank of America, Goldman Sachs and Morgan Stanley – report their Q2 earnings results next week, and Michael Scanlon, Portfolio Manager at Manulife Asset Management, stated “The bar for earnings is higher this time around, especially after the phenomenal (profit) growth we saw in the first quarter. So companies that miss expectations or guide down will be overly punished”

Links

Bank of Canada Raises Overnight Rate

Sources: Globe Advisor, Fidelity Investments, Thomson Reuters Data