There was a great article today in the Globe & Mail about tacking your Adjusted Cost Base. This is essentially needed when you dispose of equity investments in a non-registered account. Gains and Losses must be reported. You do not get a Tslip for that investment income. You only pay tax on 50% of the gain you make. This article explains it very well. Of course if you are our client, we will do this for you!!
Category Archives: The Markets
Equity markets around the world posted mixed results in the first quarter of 2014. Despite some volatility early in the period, the global economy’s moderate growth, low interest rates and controlled inflation gradually supported investor confidence and resulted in increases for many markets by quarter-end. Fixed-income securities were also higher for the quarter, with prices for 10-year government bonds in Canada and the U.S. rising slightly, pushing yields down, while demand for corporate bonds remained strong.
The crisis in Ukraine, instability in emerging markets and slower growth in China created headwinds for global equity markets in the first two months of the year. By the end of the quarter, however, the S&P/TSX Composite Index in Canada had benefited from higher prices for commodities to gain 6.1%, including dividends. The index was broadly positive, with the strongest results coming from the energy and materials sectors, while industrials and financials had smaller increases.
Performance among foreign markets was more muted, but Canadian investors in global securities benefited as the Canadian dollar weakened against several major currencies, including the U.S. dollar and the euro. After posting stellar results in 2013, for example, the S&P 500 Index added a modest 1.8%, which translated to nearly 6% in Canadian dollar terms. Early declines for the U.S. market were ultimately reversed by improving economic data and the market’s increasing comfort with the new Chair of the U.S. Federal Reserve, Janet Yellen, and its resolve to “taper” its economic stimulus. Stronger business conditions and greater stability in Europe, meanwhile, led to results that were mixed in local currency terms, but positive when converted to Canadian dollars. Investor anxiety about the effect of tapering on emerging markets and China’s cooling economy led to negative results for China’s Shanghai Index and the MSCI Emerging Markets Index, and after making strong gains in 2013, Japan’s Nikkei Index declined 9.0%, or 3.3% in Canadian dollar terms.
We marked the fifth anniversary of the current bull market during the first quarter of this year. It has been gratifying to see how well both the global economy and stock markets have recovered in this time – the S&P 500 Index in the U.S. has gained more than 180% and the MSCI World Index is up 140% from their lows of March 2009 to the end of March 2014. Nevertheless, the volatility experienced in the most recent quarter is a reminder that capital market investments typically do not take a path uniformly upward, often experiencing declines or “corrections” before moving forward again. For that reason, I believe it is important to take a longer-term approach, and to invest in a portfolio that is well diversified among asset classes, geographies and sectors, depending on your individual investment objectives.
In closing, I would like to thank you for your continued trust and business. If you have any questions or concerns about your account, please do not hesitate to contact me, Terry or Anthony.
Source of information: Investments, Signature Global Asset Management, Cambridge Global Asset Management, Globe and Mail, National Post, Bank of Montreal Economics, and Trading Economics. Index information was provided by TD Newcrest and PC Bond.
“The Rich Never Have To Seek Out Their Relatives” -Proverb
TSX Finishes In The Red
The Toronto stock market finished in the red on the final day of January trading as worries about European deflation and emerging markets persuaded investors to step back after a big runup. The S&P/TSX composite index dropped 40 points to 13,694. The Canadian dollar advanced 0.31 of a cent to 89.92 cents US as November gross domestic product rose 0.2%, in line with forecasts. New York’s Dow industrials dropped 149 points to 15,698, the Nasdaq fell 19 points to 4,103 and the S&P 500 index lost 11 points to 1,782. Data showed that inflation in the eurozone fell to 0.7% in the year to January from 0.8% the previous month. The data raised worries that the region could slip into a situation where prices are actually falling. Such deflation can hurt an economy as consumers delay purchases and businesses postpone investment.
The TSX is up 0.53% for the month and the Dow industrials are down 5.3%. But analysts suggested that a reason for the decline is that investors simply wanted to cash in on a huge rally last year that left the Dow up well over 20%. “This is more like taking profits,” said Sid Mokhtari, a technical analyst at CIBC World Markets, noting that the U.S. market has only fallen 4% this month peak to trough. “Internals of the market are still OK, we don’t see too many damaged profiles to the market internals, which is generally a good sign.”
Canadian Economy Grows For Fifth Straight Month
The economy grew by 0.2% in November compared with October, boosted by the resource sector, marking the fifth straight monthly increase. The increase matched the expectations of economists and was just below the 0.3% gain in October. “While looking somewhat deep into the rear-view mirror, the decent month continues to point to a sturdy end to 2013 for the Canadian economy,” BMO chief economist Doug Porter wrote in a note. “The three-month trend in growth is now running at a nifty 3.8% annualized clip, and output is up 2.6% from a year ago.” Statistics Canada said the output of goods-producing industries rose by 0.4% in November, led by an increase in oil and gas extraction which rose 2.6%. Mining and quarrying was up 1.3%, while utilities gained 2.1% as cold weather boosted demand for electricity and natural gas. Manufacturing was down 0.5%. The output of service industries rose 0.2% as retail trade gained 0.8%. Wholesale trade lost 0.6%. TD Bank economist Leslie Preston said with two out of three months now in hand for the fourth quarter, the economy looks to have built on the momentum of the third quarter. Last week, the Bank of Canada said in its monetary policy report that economic growth in the second half of 2013 was better than expected and should pick up from an estimated 1.8% in 2013 to 2.5% both this year and next. The central bank expects global growth—led by stronger momentum in the U.S.—to rise from 2.9% in 2013, to 3.4% and 3.7% in the following years.
Sources: Bloomberg; advisor.ca; Investment Executive; Statistics Canada; BMO; TD
The Canadian dollar went from $1.10 less than two years ago to below 90 cents now. What’s all this about? When our dollar is high Canadians are proud. Now that it is plummeting, should we be worried? Is it good or bad?
The falling loonie is essentially a US dollar story. The US was beaten down badly due to being at the epicentre of the 2008 financial crisis. There are many other factors that affect the dollar. Currency fluctuations are unpredictable and volatile and depend on many factors affecting decisions of currency buyers and sellers. Prices for key commodities like crude oil have also weakened and affected Canada this past year. But again, the recent drop of our dollar is mainly due to a rise in the US dollar with their strengthening economy.
The consensus among economists is that the new normal is a 90 cent dollar. We are likely to see more swings but our dollar was overvalued at par with the US dollar and 90 cents is more where it should be.
Devaluation is both good and bad. It is definitely bad for sun seekers and cross border shoppers but good news for Canadian tourism, our film industry and especially Canadian manufacturers and their workers. A low dollar could also spike inflation making life more expensive for consumers and importers but we are far from that at this time.
Broadly, a lower dollar is a good thing for our economy making our goods and services more competitive. The Bank of Montreal estimate s that a 10% drop in the loonie represent a 1.5 % GDP growth.
“Never Again Is What You Swore The Time Before” -Martin L. Gore
Rough Day For The Markets
The Toronto stock market dropped over 200 points Friday as emerging market worries persuaded investors to avoid riskier assets like equities and commodities. The S&P/TSX composite index dropped 215.18 points to 13,717.79. The Canadian dollar was ahead 0.21 of a cent to 90.31 cents US. The Dow Jones industrials fell 318.24 points to 15,879.11 after plunging 176 points on Thursday. The Nasdaq was 90.7 points lower to 4,128.17 while the S&P 500 index was down 38.17 points to 1,790.29. The market hasn’t experienced a serious correction in almost 18 months. The S&P 500 soared about 30 per cent last year. Investors are worried about sharp drops in the values of currencies in several emerging markets, including Turkey, Russia, South Africa and Argentina. These drops were sparked by fears over growth in China and expectations that the U.S. Federal Reserve will scale back its stimulus program next week hitting emerging-market assets and denting investor sentiment.
A Natural Stock Market Correction ?
The correction many have been waiting for appears to have arrived, according to Tony Dwyer, U.S. portfolio strategist at Canaccord Genuity. He believes in order for this meaningful equity market pullback to last more than a day, there must be a fear of fundamental change. And Mr. Dwyer thinks enough ammunition is being provided by weak Chinese manufacturing data, more tapering from the Federal Reserve at its meeting next week, and U.S. Treasury Secretary Jack Lew renewing debt ceiling fears. “As we move through the correction process, it is always important to remember that corrections are considered ‘natural, normal, and healthy’ – until they actually happen. This one should prove no different,” Mr. Dwyer told clients. The strategist noted that history suggests the market is tired and overdue for a pullback in excess of 5%. He also pointed out that when the S&P 500 peaked last week, it had risen 17.5% over 142 trading days since the last 5% pullback, representing the third longest winning streak since 2000.
Market Update as of January 24 2014
The TSX closed at 13718, down -170 points or -1.22% over the past week. YTD the TSX is up 0.70%.
The DOW closed at 15879, down -580 points or -3.52% over the past week.YTD the DOW is down -4.21%.
The S&P closed at 1790, down -49 points or -2.66% over the past week.YTD the S&P is down -3.14%.
The Nasdaq closed at 4128, down -70 points or -1.67% over the past week.YTD the Nasdaq is down -1.17%.
Gold closed at 1270, up 16.00 points or 1.28% over the past week.YTD gold is up 5.48%.
Oil closed at 96.87, up 2.57 points or 2.73% over the past week.YTD oil is down -1.76%.
The USD/CAD closed at 1.1084, up 0.0119 points or 1.09% over the past week.YTD the USD/CAD is up 4.25%.
Sources: Bloomberg; advisor.ca; Investment Executive
So what’s in store for 2014?
If you would like to read the full text of Dr. Roubini’s forecast for 2014, published on New Year’s Eve, check it out on the Project Syndicate website here. For those of you who just want the highlights, we’ve summarized and translated them from ‘econ-speak’ for you here:
- Advanced economies (think: Canada, US, UK, Australia) will benefit from the past five years of deleveraging (debt reduction) and monetary policy (low interest rates and generous money supply). Economic performance will slowly chug away and we can expect modest growth…not so doomy at all!
- Emphasis on modest. Dr. Doom is not one to be overly cheery (which is maybe why people tend to trust his prognoses more than the resolutely optimistic forecasts of banks and mutual fund companies). He warns that any growth in our developed economies will be average (less than 2%), at best. Debt reduction among families and corporations is far from over and many still have much work to do in this regard. Governments will continue reigning in the purse strings, so long-term productivity and capital investments could suffer.
- Low risk of any major shocks to the system, or what economists call “tail risks”. Any external threats to the economy – such as Middle East wrangling, eurozone drama, government shutdowns and such – will have less economic impact in 2014 than in the past. (Of course, the biggest shocks are always the shocks we haven’t dealt with before and didn’t see coming, right?)
- The US economy will be helped out by growth in four areas: the shale gas industry, the housing market, the labor market and the trend of bringing manufacturing jobs back to America. There are risks that the US Congress (always fighting) or the Federal Reserve (with unclear policies) could still mess things up.
- The policy of ‘Abenomics” in Japan seems to be working well so far and deflation is finally under control after nearly 20 years. The plan to increase consumption tax may become an issue.
- Although economic growth in China has slowed, it is still expected to hold fast at a rate of around 7% in 2014. Dr. Roubini expects no big crash or drama in the Chinese economy this year, although there will be conflicts between public and private enterprises as new reforms are introduced. Through it all, the middle classes will continue to expand and consume more goods and services.
- European economies continue to slowly grow, while high unemployment and public debt are still big concerns. Fortunately, the big ‘doomsday’ scenarios seem to be behind us.
- Emerging economies in South America and Asia will see their growth rates accelerate to around 5% this year. However, keep your eye on the more fragile economies of India, Indonesia, Turkey, Ukraine, Argentina, Venezuela and Brazil, which are all at risk of any “external shocks” that could rock their markets