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Frank Mueller

Weekly Update – June 16, 2017

“No man has a good enough memory to be a successful liar” – Abraham Lincoln

Toronto Stock Exchange Finishes Down For the Week as Financials, Energy and Minerals Slump

The Toronto Stock Exchange’s S&P/TSX composite index rose 31.97 points, to finish at 15,192.54, as 6 of the 10 main sectors finished higher than they opened. For the week, the TSX was down 280.67 points, and on Thursday, the TSX dropped to a 6-month low. The usual suspects were at work this week, with the financial, energy and mineral sectors retreating.

Oil suffered a steep drop on Wednesday before rebounding slightly to close out the week. Gold dropped by $14 per ounce for the week, to finish up at $1,255.20 per ounce. Earlier in the week, the heavyweight banks fell off after some gains last week.

The possibility of a Bank of Canada rate hike in the near future was raised on Monday on comments from a Bank of Canada senior official.

Amazon Announces Deal to Buy Whole Foods, Federal Reserve Raises Key Rate

South of the border, the Federal Reserve opted to raise its key rate to a range of 1% – 1.25%, its highest level since the Global Economic Crisis of 2008. Fed Chair Janet Yellen’s commentary on the matter has led some analysts to conclude that another rate hike will be coming later this year. Analysts are weighing how much the rate increase will affect the economy.

In other news, Amazon announced a major deal to buy Whole Foods for $13.7 Billion. This announcement led to downswings in the consumer staples sector, and these drops weighed on the Dow Jones Industrial Average (DJIA) overall, resulting in a muted rise of 24.38 points to close up at 21,384.28 overall.

The NASDAQ was pulled lower by Apple – among others – to drop 13.74 points to finish at 2,433.15.

U.S. home starts dropped for the third straight month in May.

Sources: Globe Advisor

Frank Mueller

Weekly Update – June 9, 2017

“An ounce of performance is worth pounds of promises” – Mae West

Toronto Stock Exchange Rises to End a Busy Week

The Toronto Stock Exchange’s S&P/TSX composite index, bolstered by strong Canadian jobs data and gains in the financial sector, rose by 50.12 points to close at 15,473.21 to close out a news-filled week. However, only 3 of the 10 main sectors posted gains for the day.

Statistics Canada reported a substantial rise in employment levels for May. The Canadian workplace added 77,000 new full-time jobs in May. Somewhat ironically, the unemployment rate actually rose to 6.6%, due to an increase in people entering the jobs market. Still, the May jobs numbers offer no sign of a market slowdown, so we can expect the economy to continue its trajectory in the short-term. Job gains for the month were highest in BC, Ontario and Quebec.

On Friday, the Dow Jones Industrial Average closed the week at 21,271.97 on a rise of 89.44 points, the S&P 500 lost 2.02 points to close at 2,431.77 and the NASDAQ slipped by 113.85 to close at 6,207.92.

“Triple Threat Thursday”, Part I

The much-anticipated open-session testimony of former F.B.I. Director James Comey took place on Thursday morning. Mr. Comey testified that he took detailed notes of his meetings with President Trump because he felt Mr. Trump would lie about those meetings. He further asserted that in his opinion, he was directed by Mr. Trump to end the F.B.I. investigation of former National Security Advisor Mike Flynn. Mr. Comey also said he believed he was fired because of the investigation into Russia’s meddling in the 2016 Presidential Election.

Initial reaction to the testimony in the markets appears to have been muted, with some analysts feeling that Mr. Comey’s testimony wasn’t damaging enough to the President to seriously threaten his position; however, it should be noted that Mr. Comey was later questioned by the Senate committee in a classified (closed-session) hearing that could be far more damaging to the Mr. Trump and his administration.

“Triple Threat Thursday”, Part II

European Central Bank chief Mario Draghi signaled that he had no plans to cut back the bank’s stimulus, even though reports of the Euro zone growing rapidly on Thursday morning. Mr. Draghi stated that he expects the ECB will “be in the market for a long time”. His commentary led to a jump in European bonds and a short-lived drop in the Euro and bank shares, as signs of a Euro zone bank rescue in Italy led to a rebound in bank and energy stocks.

“Triple Threat Thursday”, Part III

In what could gently be called a “political gamble gone awry”, British Prime Minister Theresa May’s calling for a snap election – designed to strengthen her majority – did not end the way she’d have liked. She called for an election a month ago, emboldened by a double-digit lead in the polls, and with the goal of silencing those who wanted to stop or reverse the Brexit process.

Her goal gaining on her majority backfired, as the Conservative Party lost 13 seats, dropping from a Majority Government holding 331 seats in the 2015 Election down to a 318-seat Minority Government.

The resulting uncertainty around the Minority Government led to the largest drop in the Pound Sterling in 8 months, before it rebounded slightly on Friday.

Sources: Globe Advisor, Huffington Post, The Guardian

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

Links

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

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

Links

Odette and Terry Retirement Announcement

 

Odette Morin

Fee Disclosure & The Value Of Advice

by Odette & Terry

 The other day, we opened our investment statement and it showed us how much of an investment fee we paid.   Though we know that we always paid for investment management and advice, it was still a change to see the dollar figure versus the previously reported percentage of assets.  It’s the same fee that had always applied to our accounts in the past, but now we see it as a dollar figure rather than a percentage that was simply deducted.

This full disclosure of the actual fees is part of the evolution of the mutual fund industry. Whether a fee is imbedded in a percentage or outlined in a separate dollar figure, the key question is, am I getting value for my money.  A lower fee does not necessarily mean a bigger return and a higher fee does not necessarily mean a lower return.

A recent research study shows that households with financial advisors have more than 4 times the assets of households without a financial advisor and as well, households with advisors save at twice the rate of non-advised households (source: “New Evidence On The Value of Financial Advice 2012” by Dr. John Cockerline, PH.D., Investment Funds Institute of Canada and former Director of Research at the Toronto Stock Exchange).

A few months ago, we wrote a detailed Infokit on the subject of fees.  In a nut shell, there are two sets of fees that Canadian Investors pay in investment funds; the management fee paid to the investment company which is typically 0.80% to 1.5%, and the advisory fee you pay to us and FundEX for advice and service.  This fee ranges from 0.50% to 1%.  The more money invested you have, the lesser the fee. Read the two information bulletin here.

FundEX bulletin “Understanding Mutual Fund Fees” and

Our detailed infokit About Investment Fees & Disclosure 

So, what do you get for these two fees?

The investment company fee is used to pay the investment managers, analysts, traders, statements, tax slips and client services.  The advisory fee is used to pay for investment mix selection, asset allocation, investment trades, financial planning which includes tax, retirement and estate planning.

Please remember that we are very sensitive to MERs. Frank and Anthony are very much on the look out to find ways to reduces fees. We are paid on your account value. So the less management fees you pay, the better it is for us as well.

We welcome the new fee transparency because it puts pressure on investment companies to reduce their MERs. You can expect to see a downward trend going forward. The infokit also shows that at You First/FundEX, we tend to charge less and do a lot more with regards to planning and advice.

We feel that our job is to make sure that your retirement cash flow analysis is on target. We want to make sure that your money will last until age 90. We try to get the highest possible rate of return of course and lower fees but want to make sure that your retirement assets are safe and you can enjoy a stress-free retirement.

Please contact us if you have any questions or concerns about this subject or any other aspect of your plan.

(i) Ontario Securities Commission Investor Advisory Panel 2013

(ii) Canadian Investors Perception of Mutual funds and the Mutual Fund Industry, Pollara, 2014.