Category Archives: Investments

Odette Morin

Markets rebound last week

Signs that major pillars of the global economy may be in better shape than thought along with strong earnings reports, sent North American stock markets sharply higher last week.

But analysts have warned there is no assurance that markets have reached bottom in the course of this correction and volatility will be a factor for a while yet.

“The market now is trying to settle at the new normal,” said Kash Pashootan, portfolio manager at First Avenue Advisory in Ottawa, a Raymond James company. And the new normal is one where valuations are not deeply discounted, they’re fairly valued and the new normal is one where there will be month-to-month volatility.”

A major reason for the decline on stock markets in September and October was worry about the state of the global economy and, more particularly, fears that the euro zone was about to slip back into recession.

As far as we are concerned, as long as we have a Balanced portfolio and own Quality, we can all weather this correction.

Terry Broaders

Weekly Update October 21 2014

“Don’t Find Fault, Find A Remedy” -Henry Ford



TSX Ends Higher Friday On U.S. Data, Oil Prices

Canada’s main stock index reached its highest level in a week on Friday as positive U.S. economic data and a rise in oil prices boosted the energy sector. The TSX jumped 174.71 points to 14,227.68, as traders bought up stocks badly beaten down over the course of a string of market jolts. There was also speculation that the U.S. Federal Reserve might extend a key stimulus program.

Data showing that U.S. housing starts and permits rose in September signaled the economic recovery might be on track. Upbeat quarterly earnings from major U.S. banks fueled the positive sentiment further. Stock markets have been in a corrective phase over the past month, weighed on by worries over global economic growth, oil demand and the direction of U.S. Federal Reserve policy.

U.S. stocks climbed more than 1% on Friday, with the S&P 500 posting its biggest gain in over a week as earnings offset concerns about the impact of weak global demand on corporate America. The Dow Jones industrial average rose 263.1 points, or 1.63%, to 16,380.34, the S&P 500 gained 23.98 points, or 1.29%, to 1,886.74 and the Nasdaq Composite added 41.05 points, or 0.97%, to 4,258.44.


Canadians Are Paying Down Mortgages At a Fast Rate

Canadians are paying down their mortgages at a record rate, significantly lowering the risk of default should interest rates rise, finds a new report from CIBC World Markets. “Canadian households did not only resist the temptation of low rates, they used those low rates to pay down debt at a pace not seen before,” says Benjamin Tal, Deputy Chief Economist, CIBC. “Despite a lethargic labour market and an unemployment rate that is still too high for the Bank of Canada’s liking, debt service performance in Canada has almost never been better.”
Homeowners are taking advantage of prolonged low interest rates to pay off their mortgages by accelerating their principal payments. In effect, they are voluntarily shortening their amortization periods. As a result, Mr. Tal estimates the average amortization period in the Canadian mortgage market is now closer to 20 years rather than the implicit assumption of 25 years the Bank of Canada uses in its calculations. Instead of spending their disposable income, Canadians are making sacrifices, choosing to make extra payments on their mortgage to get out of debt faster. This ultimately makes Canada’s mortgage market more stable because in the event of a rate hike, homeowners would simply return to their regular amortization period, he says.
“Canadian households are paying back an additional $11 billion a year in principal that’s not being officially recognized,” says Mr. Tal. “That extra cushion is sufficient to absorb the first 100 basis point increase in the effective mortgage rate, with households simply re-amortizing to offset the payment increase.”


Market Update As of October 17 2014

The TSX closed at 14228, up 1 points or 0.01% over the past week. YTD the TSX is up 4.45%.

The DOW closed at 16380, down -164 points or -0.99% over the past week. YTD the DOW is down -1.19%.

The S&P closed at 1887, down -19 points or -1.00% over the past week. YTD the S&P is up 2.11%.

The Nasdaq closed at 4258, down -18 points or -0.42% over the past week. YTD the Nasdaq is up 1.94%.

Gold closed at 1239, up 16.00 points or 1.31% over the past week. YTD gold is up 2.91%.

Oil closed at 82.96, down -2.57 points or -3.00% over the past week. YTD oil is down -15.87%.

The USD/CAD closed at 1.127825, up 0.0067 points or 0.60% over the past week. YTD the USD/CAD is up 6.08%.


Sources: Bloomberg; CIBC; Investment Executive;

Terry Broaders

Weekly Update October 6 2014

“I’m Drove Off Me Head!” -Newfoundland Expression


Stocks Ahead On Strong U.S. Employment Data

The Toronto stock market closed with a modest gain Friday even as a rebound in American job creation boosted confidence in the U.S. economy. The S&P/TSX composite index gained 29.14 points to 14,789.78 after the U.S. Labor Department reported that the American economy created 248,000 jobs last month, which handily beat expectations of about 215,000.  The U.S. jobless rate also ticked down 0.2 of a point to 5.9 per cent, the lowest level since July 2008. August job creation was revised upward to 180,000 from 142,000.  Toronto gains were held back by lower resource stocks as the strong U.S. dollar continued to punish commodity prices. Gold miners fell as bullion closed under $1,200 (U.S.) – its lowest close since February 2010. U.S. indexes registered solid gains with the Dow Jones industrials ahead 208.64 points to 17,009.69, the Nasdaq gained 45.42 points to 4,475.62 and the S&P 500 index climbed 21.73 points to 1,967.9. A higher U.S. dollar pressures commodities because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals which are dollar-denominated.  Losses were severe on the TSX this week because the Toronto market is heavily weighted by the resource sector. It fell 237 points or 1.6 per cent.


Federal Deficit To Be Smaller Than Earlier Projected

Prime Minister Stephen Harper says last year’s federal deficit will be more than $10 billion smaller than forecast, but he’s refusing to predict the rapidly improving bottom line will mean balanced books this fiscal year. Harper dropped the new, $5.2 billion deficit figure for 2013-14 — down from the $16.6 billion shortfall projected in last February’s federal budget — during a presentation to a business audience last week in Brampton, Ont. Harper insisted there won’t be a surplus until the 2015-16 election year. “The government has no plan or no intention to move this year into a surplus,” Harper said.

Downplaying the Conservative government’s fiscal position may be more about politics than bookkeeping. Economists and budget watchers, including the independent Parliamentary Budget Office, had calculated Ottawa may already be en route to a surplus this fiscal year, which ends next March 31, before the prime minister’s announcement further improved the bottom line.  A surplus would trigger a series of 2011 Conservative election promises that were contingent on balanced books, including a pricey and controversial plan to allow income splitting for tax purposes by couples with children under 18. Doubling the annual Tax Free Savings Account maximum to $10,000, doubling the children’s fitness tax credit and implementing a new adult fitness tax credit were also Conservative pledges tied to a surplus.



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Hold On  To Your Hat, We May Be Having A Market Correction


Market Update As Of October 3 2014

The TSX closed at 14790, down -237 points or -1.58% over the past week. YTD the TSX is up 8.57%.

The DOW closed at 17010, down -103 points or -0.60% over the past week. YTD the DOW is up 2.61%.

The S&P closed at 1968, down -15 points or -0.76% over the past week. YTD the S&P is up 6.49%.

The Nasdaq closed at 4476,  -36 points or -0.80% over the past week. YTD the Nasdaq is up 7.16%.

Gold closed at 1195, down -23.00 points or -1.89% over the past week. YTD gold is down -0.75%.

Oil closed at 87.94, down -3.98 points or -4.33% over the past week. YTD oil is down -10.82%.

The USD/CAD closed at 1.125678, up 0.0102 points or 0.92% over the past week. YTD the USD/CAD is up 5.88%.


Sources: Bloomberg;; Investment Executive.

Odette Morin

Hold on to your hat, we may be having a market correction.

After more than 1000 days without a 10% or greater market correction, it looks like we are headed for one.  The S+P500(USA) is down 4.28% as of today Oct 2, 2014 from its peak on Sept 17.  The TSX (Canada) is down just over 5% from its peak on Sept 2.  We are experiencing a lot of volatility due to the Iraq issues, the protest in China and the Ebola crisis.

When markets have such a run up, a correction is expected.  Any kind of uncertainty can quickly spur jitters and this is exactly what we are seeing now.

Should you be concerned? No, you should not be concerned.  The indicators do not point to a recession. For reasons outlined in my previous market blog, data shows that we are still in the recovery and early expansion phase, not in the recession or downturn phase.

Take a look at the chart below compiled by IA Clarington from data obtained from Morgan Stanley research, Bloomberg and NBER.  Most of the U.S. cycle indicators show that we are in the recovery phase with no indicators in the downturn phase.

What should you do?  Sit tight and do nothing.  This will pass eventually and we should see the recovery continue.  Or, you can exploit this volatility and make an investment if you have the funds available and are in your saving years.

Read our last blog here on What if we are wrong.

Terry and I are heading to a 3 day investment conference where we will be listening to many managers, analysts and economists.  Stay tuned for a full report when we return.

Don’t hesitate to contact me or email hidden; JavaScript is required should you have any questions or concerns.




Terry Broaders

Weekly Update September 30 2014

“In The Future Everyone Will Be Famous For 15 Minutes” -Andy Warhol



TSX Snaps Five Day Losing Streak

The Toronto stock market ended its five-day losing streak Friday, rebounding strongly in a session helped by energy and infotech stocks, particularly BlackBerry whose shares surged five per cent after beating expectations on earnings. The S&P/TSX composite index soared 133.20 points to 15,026.77, while the Canadian dollar dipped 0.38 of a cent to 89.65 cents US. Wall Street also snapped back from deep losses from the previous day. The Dow Jones industrials added 167.35 points to 17,113.15, the Nasdaq gained 45.44 points to 4,512.19 and the S&P 500 index saw an uptick of 16.86 points to 1,982.85. It’s been a wild week for investors, who saw the Toronto market plunge more than 200 points Thursday, capping a fifth day of declines. The U.S. indexes did even worse, sporting the steepest declines in two months as the Dow shed nearly 250 points.


Fewer Underwater U.S. Home Owners

U.S. homeowners’ negative equity tumbled last quarter, with the second greatest drop in underwater properties since data tracking started, according to a September 25 release. Last quarter there were about 5.31 million homes with negative equity  ( owners owing more on a mortgage than a property was worth ) down 946,000 from the prior quarter according to CoreLogic, an Irvine, California based analysis firm. That drop for underwater homes was the second sharpest since data collection started in 2009, and far greater than a decline of about 352,000 in the prior quarter. The share of mortgaged U.S. properties in negative equity fell to 10.7% in the second quarter from 12.7% in the first quarter and 14.9% in the year-earlier period.

Rapidly rising home prices have enabled troubled homeowners to regain equity. Having positive equity can help owners to refinance or sell a home, further firming their pocketbooks. Financial stability will likely also provide some psychological relief to owners, and could support.  Certain markets are doing much worse than others when it comes to underwater properties, with just five states accounting for almost one-third of negative equity across the U.S. These states included Nevada, where 26% of mortgaged homes were underwater in the second quarter, followed by Florida, where the share was 24%, Arizona, where it was 19%, and Illinois and Rhode Island, which both had a share of about 15%.


Market Update as of September 26 2014

The TSX closed at 15027, down -253 points or -1.66% over the past week. YTD the TSX is up 10.31%.

The DOW closed at 17113, down -167 points or -0.97% over the past week. YTD the DOW is up 3.23%.

The S&P closed at 1983, down -27 points or -1.34% over the past week. YTD the S&P is up 7.31%.

The Nasdaq closed at 4512, down -68 points or -1.48% over the past week. YTD the Nasdaq is up 8.02%.

Gold closed at 1218, down -9.00 points or -0.73% over the past week. YTD gold is up 1.16%.

Oil closed at 91.92, down -0.53 points or -0.57% over the past week. YTD oil is down -6.78%.

The USD/CAD closed at 1.11543, up 0.0204 points or 1.86% over the past week. YTD the USD/CAD is up 4.91%



Retirement Fulfilment and Fear of Running Out of Money

Should I Delay CPP ?

GrandParents Help With RESPs ?

Men, Women & Importance of a Good Manicure

Are We Headed For a Correction ?


Sources: Bloomberg; Investment Executive;

Odette Morin

Are we headed for a correction in this amazing three year market run

Market fearI have not been writing a lot this summer because we know you were busy enjoying the amazing sunshine we have been having.  We sure have been busy too, keeping abreast of market developments even if things have been fairly stable and positive.

Specifically, we have been evaluating where this market is going.  Many of you have been asking whether some actions are required after such a strong market recovery.  Is it time to sell?  Should we be reducing exposure to equity?  Are we heading for a crash?  These are the kind of questions I get every day. Honestly, I too ask myself the same questions.

Here is a brief summary of our analysis:

The markets will likely continue to go up because of four main factors:

1.      External Liquidity

Even though the U.S. Federal Reserve is reducing Quantitative easing, it’s still putting money into the system and it’s still a few months away from withdrawing liquidity and raising rates. That external liquidity tends to drive stocks.

2.      Internal Liquidity

Companies balance sheets still holds lots of cash and there has been an increase of capital within investors cash holdings. But, as the Fed tapers, there will likely be a movement of cash from retail investors as they move towards stocks.

3.      Cheap valuations

This is a tough one but valuation metrics appear to be fine, relative to historic mediums and means.  Equities are cheap relative to interest rates.  We think that equities and interest rates have to rise a lot more in order to correct the major undervaluation relative to interest rates.

4.      Global stability

The U.S. economy is improving. At the same time, China has the monetary and fiscal policy firepower to ensure a soft landing. Europe has bottomed. We are in a sweet spot we feel.

What if we are wrong?

Well, even if we are wrong, it does not matter.  What?!  Of course, when the markets drop you also see a drop in the market value of your account but you keep getting your dividends.  In good and bad times, there are dividends.

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits.  Dividends are like rent income for a rental property.  The market value of your real estate might go down but your rent will stay the same.  Of course, nor dividends or rent cheques are guaranteed.  This is just a basic analogy to illustrate that historically even when the stock markets drop, mosts dividends will continue to be paid.

Warren Buffet calls dividend paying stocks, Equity Bonds.

Investors and especially retirees need not only income, but also cost of living adjustments (known as COLA). Otherwise, inflation can erode their purchasing power as the years go on.

Dividends are very important and the investor’s best friend mainly, because with time they rise, and keep up with inflation.  When we have inflation, the price of goods and services go up.  The companies that deliver these goods or services are making more money and will in turn pay more dividends.  If you invest in bonds or GICs, the purchasing power of your interest will go down when we have inflation but if you hold equities, you will own dividends which rise with inflation.  Dividends are you best friend over time.

If you are retired and fortunate enough to derive income from a pension, the cost of living adjustment can still be a sore subject because they are rarely guaranteed.  Even with the government pension, you may be subject to politicians’ whims on how much of an annual increase, if any, you can expect.

But an increasing number of retirees don’t have traditional pensions and must rely on a combination of investment income, RRSP savings and government pensions.

Therefore, even if equities are volatile with market sentiments, they are your best ally over time to counter inflation.  You should hold equities at all times regardless of where the market is heading.

Relying on dividend figures alone is not enough however. You must do additional research to make sure the company can comfortably support the dividend from its cash flow, and then go further and consider whether the firm is in a position to increase its dividend.

That is precisely why we rely on our dividend fund managers to research and identify companies with ability to continue paying dividends and or even raise them.  Free cash flow yield is often talked about. Free cash flow is a company’s remaining cash flow after capital expenditures. The free cash flow yield is free cash flow divided by market capitalization.  Analysts look at the difference between the dividend yield and the free cash flow dividend. The greater the difference, the easier it is for a company to raise dividends.

Like I say often, always remember that equity investment returns are closely tied to corporate earnings growth and the price you pay for those earnings. Historically, over the long term corporate earnings have been fairly stable and have grown along with productivity gains and inflation. Stock valuations though are more volatile than earnings since they are influenced by investor sentiment, which swings between optimism and pessimism.

Some will say that this view is optimistic.  I would say that this view is realistic.  A rational optimist is usually a successful investor.  Over the long term, and if we need money until age 90 or more, we sure are in for the long term, we need an adequate portion of our investments in equities to meet and exceed inflation.  Staying invested in good quality income investments will protect your lifestyle and peace of mind.