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Thursday, March 22, 2017
Contributors: J.Price, C.Basinger, D.Benedet, C.Kerlow, D.Mak, S. Obata


With one day’s selling in the rearview, world markets are stable with mostly green around the globe this morning.  Local equity futures are flat, and bond yields are leaking slightly higher in the US.  The US dollar index remain below 100, after the post-FOMC selloff last week.  As such, loonies are looking a bit stronger.  They are, however, not much better vs Euros or Pounds.
Canadian bonds are relatively unchanged, despite the prospect of there being much more of them coming, following yesterday deficit budget.

Budget day came without the Armageddon for investors that we were dreading.  Capital gains inclusion rules remain unchanged, so for the time being we will continue to put interest bearing product in registered accounts and growth product outside of it.  We have to admit, the thought of putting cap gains and interest on even terms was appealing from a portfolio management point of view, despite knowing that it would be achieved via cap gains taxes going up, as opposed to interest income going lower.  In any case, given current trends in taxation, we will consider no change as a win.

The Globe and Mail provides a nice 10 point summary of the major budget initiatives.  An interesting one is more funding to Stats Canada for the express purpose of tracking real estate data.  A bit late, thanks.  Though no federal taxes on housing were announced, this lack of data has already allowed some narrative driven policy to be put in place, like BC’s foreign buyer tax.  At least we will be able to analyze the back end of a boom/bust cycle in detail.
Diversification is key in the investment world, stocks, bonds, cash, real estate, some alternatives and of course real assets.  Sure most think of gold, or something of that ilk when it comes to real assets, but one of the less followed real assets has started to rise after declining for almost five years.  The Liv-ex 100 tracks a number of fine wines that have active secondary markets. After peaking in 2011 at 364, the index fell steadily over the following years down to the 230s but took off in 2016, up 25%.  Of course, the key to any index is to understand what is in it.  This wine index is heavily weighted towards Bordeaux, kind of like the TSX is heavily weighted to financials.  Although I don’t know how survivor bias works in a wine index.  Does a wine come out of the index after much of the supply has been consumed and the secondary markets dries up?  If my wine fridge was an index it certainly would suffer from high turnover and occasional depletion.  Oh, there are a few wine funds in the world but wouldn’t recommend them.  A few have had the managers of the funds, well, either taking some client money or even worse, just drinking the wine.  That is a risk with any wine investments, they are all just one cork screw away from becoming worthless.   

Quick link:  Don’t Fight the Fed – and other age-old adages about the stock market, presented by Dr. Ed.
The U.S. dollar bears have had a bit of a free run the past week or so, driving the Dollar Index below 100. It could be the case that the trade simply got a little too one-sided as dollar long bets were the highest they had been in 14 months. Or it simply could be recent dollar weakness is more of a story of Euro strength which is interesting as the French are a month away from a defining election which could very well add another spike to the European Union if she gets her way. Marine Le Pen has been rising in the polls and received another boost yesterday following the attacks in London. At least in the short term the upcoming election is making the European story a little messier which is why the recent rise in the currency is slightly surprising.

Since the rate hike last week, bond yields have pretty much moved in one direction – lower. We’ll see if the handful of Fed speeches today continue to hint at the somewhat dovish tone interpreted by the markets, or if they begin to talk up yields once again. Janet Yellen, Neel Kashkari and Robert Kaplan all have scheduled speeches today. Fed watchers certainly will be kept busy.

China-US Ties
China could offer America a trade deal it cannot refuse – on natural gas” – SCMP
Diversion:  We always show you Ferraris and Lambos.  Now what to avoid, with Consumer Reports’ LOWEST rated cars by category (sorry, Maserati Ghibli, we wanted to love you)
Never wait in traffic again, here is the Hum Rider.



Teva Pharmaceutical signaled they will be making an undisclosed amount of job cuts to help reigned costs and pay down debt.  This comes after they took on a significant amount of debt purchasing Allergan’s generic drug business. General Motors is sticking behind the Chevy Eequinox, leaving the vehicle nearly unchanged despites sales falling 13% last year. The crossover SUV competes in one of the most competitive and fastest growing sub-sectors of the market. But GM has faith that the new, more fuel efficient model will do well. Franco-Nevada reported better than expected results this morning as earnings per share came in higher than expected and the company issued uplifting guidance. Enbridge is slashing 1,000 jobs to eliminate redundancy following their takeover of Spectra Energy last month.



Oil is up 0.37% to $48.22. Prices are rising, despite the fact that the DOE reported yet another build in crude inventories yesterday. It seems as though the rise was mostly attributable to a rise in imports.

Gold is down 0.03% to $1249.30. Prices are holding around ~$1250 as US rates and the USD attempt a comeback.

In other commodities news…

Libyan oil output rises to 700,000 barrels per day after port fighting ends: NOC” – RTS

Big Oil Replaces Rigs With Wind Turbines” – BBG

Saudi Arabia may insist on Iran oil output cuts to continue OPEC deal: sources” – S&P Global Platts



Say it ain’t so Ottawa! The unveiling of yesterday’s Federal Budget was met with mostly widespread applause (especially those worrying about the increased capital gains tax inclusion). But one point that’s of significance to many (ok, just mostly to bond people like me) was the Liberals’ decision to phase out the Canada Savings Bond. Introduced after WWII, the program gained popularity in the 80’s due to their high nominal interest rates and AAA credit quality. At that time they reportedly accounted for 45% of the government’s total debt versus the 1% allocation today. Officials indicated that only 115,000 people were expected to buy the bonds in 2017 which would only amount to a $1 billion tally in sales. Yes, they weren’t the most liquid bond but closing down the once iconic instrument was a bit surprising. The budget noted that “the program is no longer a cost-effective source of funds for the government” and that “this decline in the program's popularity can be attributed to the proliferation of higher-yielding alternative retail investment instruments, such as government of Canada insured retail products”. While all outstanding bonds will continue to be honored and mature as set, I guess even government realizes that the rates offered were too low for investors.




How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.

- Robert G. Allen


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