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“I Tell My Accountant, If You Are In Doubt About Taxes, Pay More” -Arnold Schwarzenegger

Toronto Has Slight Gain – Things Look Up In China and Europe

The Toronto stock market eked out a mild gain Friday as shares of BlackBerry-maker Research In Motion rose ahead of its planned new smartphone launch. The S&P/TSX composite index moved up 2.44 points to 12,602.  The Canadian dollar rose 0.01 of a cent to 101.58 cents US after Statistics Canada reported that the country’s trade deficit with the world jumped to $2 billion in November. In New York, the Dow Jones industrials gained 17.21 points to 13,488 while the Nasdaq was 3.87 points higher at 3,125.63.  The S&P 500 index gave back 0.07 of a point to 1,472.05, remaining at the five-year high point reached on Thursday.
On Thursday China trade figures were stunningly strong. Exports rose 14.1% and imports grew 6%, picking up considerable pace from November when exports rose a modest 2.9 per cent and imports were flat. A broad measure of Chinese credit growth also rose sharply. The World Bank predicts 2013 economic growth of 7.5 per cent in China, which is pretty similar to 2012.
In Europe the European Central Bank president Mario Draghi said that the euro area economy will slowly return to health in 2013 as it benefits from a “positive contagion” of good news – highlighted by retreating borrowing costs by countries such as Spain. On Thursday, the yield on Spain’s 10-year government bond fell 23 basis points, to less than 4.9 per cent, down from 5.9 per cent as recently as November.

Market Update as of January 11 2013

The TSX closed at 12602, up 61 points or 0.49% over the past week. YTD the TSX is up 0.49%.

The DOW closed at 13488, up 53 points or 0.39% over the past week.YTD the DOW is up 2.93%.

The S&P closed at 1472, up 6 points or 0.41% over the past week.YTD the S&P is up 3.23%.

The Nasdaq closed at 3126, up 24 points or 0.77% over the past week.YTD the Nasdaq is up 1.13%.

Gold closed at 1662, up 5.00 points or 0.30% over the past week.YTD gold is down -1.07%.

Oil closed at 93.72, up 0.66 points or 0.71% over the past week.YTD oil is up 1.24%.

The USD/CAD closed at 0.9841, down -0.0038 points or -0.38% over the past week.YTD the USD/CAD is down -0.35%

Sources: Bloomberg; globeadvisor; advisor.ca

“I Don’t Like Nostalgia Unless It’s Mine” -Lou Reed

Toronto Up – China On The Move

The Toronto stock market closed higher as mining stocks benefited from the release of encouraging Chinese economic data. Elsewhere, the market stalled amid concerns about whether the U.S. can avoid a fiscal crisis at the end of the month. The S&P/TSX composite index was 7.55 points higher at 12,296.72. The Canadian dollar closed down 0.17 of a cent to 101.37 cents US. Chinese stocks surged overnight thanks to an upbeat reading on factory activity in that country.  The Shanghai composite index rallied 4.3 per cent, the most in three years, after the HSBC Flash PMI report came in at 50.9 so far in December, a 14-month high and providing one of the clearest signals yet that the recovery in the Chinese economy is starting to pick up momentum.

U.S. indexes finished in the red as the positive Chinese data was overshadowed by budget talks to stop the automatic imposition of huge spending cuts and tax increases that could plunge the U.S. back into recession. The Dow Jones industrials lost 35.71 points to 13,135.01, the Nasdaq fell 20.83 points to 2,971.33, and the S&P 500 index was off 5.87 points at 1,413.58.  Investors are still reluctant to load up on more equities as negotiations drag on to avert the U.S. “fiscal cliff” of tax hikes and spending cuts set to take hold at the start of January. There continues to be few concrete signs that any deal is imminent. A meeting between House Speaker John Boehner and U.S. President Barack Obama late Thursday was said to be “frank” and the two sides are keeping the lines of communication open. Mr. Obama may have a bit of an upper hand in negotiations given several recent public opinion polls show broad support for his position, and Republicans could get the majority of the blame if a deal isn’t reached.

Market Update as of December 14 2012

The TSX closed at 12296, up 137 points or +1.13% over the past week. YTD the TSX is up 2.9%.
The DOW closed at 13135, down 20 points or -0.15% over the past week.YTD the DOW is up 7.50%.
The S&P closed at 1413, down 5 points or -0.35% over the past week.YTD the S&P is up 12.4%.
The Nasdaq closed at 2971, down 7 points or -0.24% over the past week.YTD the Nasdaq is up 14.1%.

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Sources: Bloomberg; Investment Executive: globeadvisor

“Old Is Always Fifteen Years From Now” -Bill Cosby

Markets End Higher

North American stock markets closed higher Friday amid much better than expected job creation data in Canada and the United States. The S&P/TSX composite index added 8.64 points to 12,159. The Dow Jones industrials gained 81 points to 13,155. Canada’s economy generated a surprisingly strong 59,300 new jobs last month, almost all full time and in the private sector, Statistics Canada said Friday. The unexpectedly robust performance dropped the country’s unemployment rate 0.2 points to 7.2%, the lowest it has been since June. The U.S. economy added 146,000 jobs in November and the unemployment rate fell to 7.7%, the lowest since December 2008. The government said Superstorm Sandy had only a minimal effect on the figures.

Happenings In China

The Shanghai composite index rallied 1.61 per cent overnight, bringing this week’s gains to 4.1%. That’s the biggest weekly advance for that index since October 2011.  China has released a series of economic reports in recent weeks that are indicating the economy is starting to pick up steam. There have also been signs that China’s new leadership, under Xi Jinping, will take measures to avoid a bigger slowdown, including new public works spending. This weekend brings more data out of China, and traders are hedging their bets the figures will continue to indicate an acceleration in growth. Industrial production is forecast to rise to 9.8% a year ago, with retail sales seen jumping 14.6%, the strongest level since March.

Markets Update as of December 7 2012

The TSX closed at 12159, down 80 points or 0.65% over the past week. YTD the TSX is up 1.78%.

The DOW closed at 13155, up 129 points or 0.99% over the past week.YTD the DOW is up 7.77%.

The S&P closed at 1418, up 2 points or 0.14% over the past week.YTD the S&P is up 12.8%.

The Nasdaq closed at 2978, down 32 points or 1.06% over the past week.YTD the Nasdaq is up 14.3%.

Sources: Bloomberg; advisor.ca; globeadvisor

“Courteous Treatment Will Make A Customer A Walking Advertisement” – James Cash (JC) Penney

Markets Rebound in U.S. Thanksgiving Week

Stocks ended higher on Friday after U.S. indexes reopened for an abbreviated trading session following the Thanksgiving holiday. The S&P/TSX composite index closed at 12,213.24, up 60.14 points or 0.5% — marking its sixth straight gain. The U.S. S&P 500 closed at 1409.15, up 18.12 points or 1.3% — driving the benchmark index to its fifth consecutive gain. The blue-chip Dow Jones industrial average closed at 13,009.68, up 172.79 points or 1.3 %. The gains continue a winning streak for stocks, following a selloff that began in September.

German Business Confidence Rises

Traders have found encouragement from an unexpected rise in German business confidence. The Ifo institute said its business climate index climbed to 101.4 this month, beating expectations for about 99.5. It was a welcome reading that prompted some economists to speculate that the better-than-expected factory data from the U.S. and China this week may eventually help benefit German industry.

Markets Update

The TSX closed at 12213, up  336 points or +2.82% over the past week. YTD the TSX is up 2.2%.

The DOW closed at 13009, up 421 points or +3.35% over the past week.YTD the DOW is up 6.5%.

The S&P 500 closed at 1409, up 50 points or +3.62% over the past week.YTD the S&P is up 12.1%.

The Nasdaq closed at 2966, up 113 points or +3.99% over the past week.YTD the Nasdaq is up 13.9%.

Sources: Bloomberg; globeadvisor; advisor.ca.

On Sept 13, the Federal Reserve Board introduced a third round of Quantitative Easing (QE3) in an aggressive move to give the economy the boost needed to create jobs.  The focus is on keeping interest rates low to make it easy for people to spend and businesses to hire.  The Fed will purchase $40 billion of mortgage-backed securities every month until the labor market improves. The Federal Open Market Committee also said it would likely keep the federal funds rate near zero through at least the middle of 2015.

But what is Quantitative Easing and How does it work?

“Quantitative easing (QE) is an unconventional monetary policy used by the central bank to stimulate the national economy when conventional monetary policy has become ineffective.” (1) This is the Federal Reserve using its bag of tricks, lowering interest rates and getting cash to big banks with the hopes that they will lend it out all for the purpose of stimulating the economy.

Ordinarily, a central bank raises or lowers its interest rate target buying or selling short-term government bonds from banks and other financial institutions. When the central bank disburses or collects payment for these bonds, it alters the amount of money in the economy, while simultaneously affecting the price and yield for short-term government bonds. This in turn affects the banks interest rates.

However,when the central bank interest rate is near zero, the central bank cannot lower it further. In such a situation, the central bank may perform quantitative easing by purchasing a pre-determined amount of bonds or other assets from financial institutions.  The goal of this policy is to increase the money supply rather than to decrease the interest rate, which cannot be decreased further. This is often considered a “last resort” to stimulate the economy.

Because the Fed is buying mortgage-backed bonds, the purchases act to directly lower the cost of borrowing to buy a home. In addition, some investors, put off by the rising price of the bonds that the Fed is buying, turn to other assets, like corporate bonds – which, in turn, pushes up corporate bond prices and lowers those yields, making it cheaper for companies to borrow – and spend. If companies use that money to buy equipment and households use it to buy homes and cars etc, the economy gets a boost. So you can clearly see, how QE can trigger a domino effect throughout an economy.

But does it work?

“There have been two (and a half) rounds of QE so far. The first round, starting in late 2008, prevented a Great Depression. As you’ll recall, we didn’t have a Great Depression. In fact, the recession ended in July 2009. It’s pretty clear that Federal Reserve’s extraordinary actions saved the economy…On the other hand, consider the stock market. The Wall Street Journal compiled a great visual showing instances of QE plotted against the Dow. QE should encourage families to take out loans and businesses to expand operations, and we’ve seen the stock market rise with each round of easing.” (2)

The equity market sees QE3 as a positive thing and bids are being raised in the areas that are most likely to benefit like construction, housing and consumer staples.  The downside of this type of measure is the risk of inflation down the road but this is unlikely to be a problem for the foreseeable future and the benefit of QE3 would currently outweigh this risk.  Time will tell but overall, this should be a very positive event in promoting economical activity, consumer confidence, corporate profits and eventually, investment growth.

(1) Wikipedia – Quantitative Easing http://en.wikipedia.org/wiki/Quantitative_easing

(2) The Atlantic magazine http://www.theatlantic.com/business/archive/2012/09/how-does-qe-work-does-it-even-work-at-all/262337/

July 20 2012

“Deep Summer Is When Laziness Finds Respectability” -Sam Keen

Eurozone Still A Drag

The Toronto stock market closed lower Friday and commodities lost ground amid continued worries over the European debt crisis.  The S&P/TSX composite index declined 42.79 points to 11,622.91 as Spain again dealt with higher borrowing costs.  The Canadian dollar lost 0.48 of a cent to 98.75 cents US after the loonie closed at a two-month high on Thursday.  Traders also took in data showing Canada’s annual inflation rate rose 0.3 of a percentage point to 1.5% in June. That’s up from 1.2% the previous month.  U.S. markets were lower amid a mixed bag of corporate earnings from heavyweights including Microsoft Corp., General Electric and Xerox.  The Dow Jones industrials tumbled 120.79 points to 12,822.57.  The Nasdaq composite index dropped 40.6 points to 2,925.3 and the S&P 500 index declined 13.85 points to 1,362.66.

On the positive side the TSX racked up an overall gain for the week of 0.94 % on rising expectations that central banks will step up to ensure the economic recovery stays on the rails.  Markets have also found support from a better-than-expected second quarter earnings season.  “Going into this quarter, the sentiment had been very guarded to put it mildly,” said Robert Gorman, chief portfolio strategist TD Waterhouse.  “People thought, given the slower rate of growth and the U.S. recovery, we might have a higher proportion of firms missing estimates. But for the most part, they have been beating bottom line expectations, not by much, but meaningfully.

Market Update as of July 20 2012

The TSX closed at 11623, up 108 points or 0.94% over the past week. YTD the TSX is down -2.78%.

The DOW closed at 12823, up 46 points or 0.36% over the past week.YTD the DOW is up 4.95%.

The S&P closed at 1363, up 6 points or 0.44% over the past week.YTD the S&P is up 8.35%.

The Nasdaq closed at 2925, up 17 points or 0.58% over the past week.YTD the Nasdaq is up 12.28%.

Gold closed at 1585, down -3.00 points or -0.19% over the past week.YTD gold is up 1.28%.

Oil closed at 91.71, up 4.46 points or 5.11% over the past week.YTD oil is down -7.27%.

The USD/CAD closed at 0.9882, up 0.0028 points or 0.28% over the past week.YTD the CAD/USD is up 0.86%.

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Sources: Bloomberg, Advisor.ca, TD Waterhouse