Thursday, September 20, 2018
Contributors: J.Price, C.Basinger, D.Benedet, C.Kerlow, D.Mak, S.Obata


Europe is responding well this morning with gains seen across the majors there, and futures show more gains to be had over here as well.  We have to say, we are more interested in the bond market.  After 8 months of sideways trading for 10 year yields, they are making a legit run to break out having risen to 3.09% this morning, just shy of the May 18th channel-high 3.12%.

Gundlach is saying if it sees 3.25%, lookout for more. For what it’s worth, Canadian yields are making a similar move, so as we like to do, we check in on the mortgage rate monitor where we find the average 5 year fixed mortgage comes in at 3.14%, according to Rate Hub. You have to go back to 2014 to find these rates, so renewals will start to get more expensive.

Time to look abroad?
The Macro Tourist is looking globally. As we highlighted yesterday, US equity returns are trouncing those around the world. There are plenty of potential reasons, some of which are explored in the article.  The real question is:  Is it time to rebalance, and to what extent?

All eyes on one stock
To say it was a wild ride yesterday would be an understatement for cannabis company Tilray. It traded in an intraday range that was 96% of its closing value from the prior session. Had numerous volatility imposed halts after rising as high as $300 before it closed at $214.06. It has risen almost 1,160% since pricing its initial public offering at $17 in mid-July. For those who haven't read our latest Ethos The Anatomy of a Bubble Revisited: How High?, it might be a good time. The intraday moves are featured as our Chart of the Day. Looking at the pre-market it looks like today more of the same. 

Dirty money in the news
Danish lender Danske Bank is trying to come clean. The bank said yesterday that over $230 billion USD has flowed through a small branch in Estonia over the past eight years. It’s alleged that this satellite branch was used to launder funds from ex-Soviet countries. It’s being called one of Europe’s biggest dirty money sagas, allowing Russians with sanctions against them to move their money into countries that use the euro. Here’s a link that covers the alleged timeline.

Repatriation slows
U.S. companies repatriated $169.5B in foreign profits in the second quarter - more than in recent periods but marking a decline from a revised $294.9B in Q1. The numbers for the first half of the year are just a fraction of the more than US$3 trillion companies are estimated to have accumulated overseas to defer US taxes on the money. So much for the massive repatriation windfall.

It’s all about the Benjamins.
There are now more $100 bills than $1 bills in the US. Scarred by the financial crisis and low inflation, more people are storing their money in high-denomination banknotes.

Say so long to those BABA jobes
Alibaba’s co-founder Jack Ma backed down on his previous promise of bringing one million jobs to the US, citing the US-China trade war and how it has “completely destroyed” the premise. The goal was to add thousands of small and medium-sized U.S. businesses to Alibaba’s platform, opening access to the Chinese market. With the recent round of tariffs on $200B in goods, as well as a promised Chinese retaliation on $60B, the outlook on improved trade relations has turned somewhat sour.

Diversion:  New technology to feed my nostalgia. Sony introduces the Playstation Classic. For those born in the 1970s, Nintendo goes a bit further back with their version.


The Chinese food delivery giant Meituan Dianping saw their shares move 5.3% higher after the IPO yesterday. That is the second biggest Chinese tech IPO of the year, valuing the company at $50.9bb, surging the net worth of founder Wang Xing to $5.3bb. The four most actively traded stock were not TD Bank or Suncor, they were all cannabis companies. There has been a spike in volume from retail flow. TD Bank is benefiting because of their large retail and direct investing platforms they have accounted for 21% of the volume in pot stocks. TD is not the only one cashing in on the hype, Canopy Rivers goes public today, another Bruce Liton venture, Bruce is the CEO of Canopy Growth Corp. Canopy Rivers helps build value in its partners by supporting every aspect of their cannabis venture. Micron Technology has fallen 24% since their last earnings release. Investors seem to think the environment of surging demand outpacing supply is behind them.


Oil is up 0.03% to $71.14 . WTI is reversing lower after U.S. President Donald Trump complained that oil prices are too high, stating that the “OPEC monopoly must get prices down now!” Trump’s latest tweet is probably a response to Saudi Arabia, which recently stated that it was OK with oil prices rising above $80, a level “which in the past has been a red line for the White House”, according to BNN Bloomberg.  

Gold is up 0.27% to $1,211.60 . Prices are moving higher as EURUSD climbs to two-month highs. Gold is firmly above $1200 while silver is approaching $14.50. Recent performance has been impressive, especially given that rates are at the highs for the week.      

In other commodities news…

OPEC unlikely to agree official output increase in Algeria, but pressure mounts” – RTS

Goldman Regains Commodities Top Spot in Tie With Banking Rivals” – BBG

U.S. soy seizes EU market, bolstering Trump trade deal” – RTS

US spares rare earths in China trade war” – $FT


Records are meant to be broken and it appears the U.S. labor market is ready to get those medals ready. First-time filings for unemployment benefits came in at +201K ending September 15 that was slightly lower than prior and a shade better than the consensus. More importantly and applaud worthy however was the continuing claims print. The aggregate number of Americans currently receiving jobless benefits from the government fell a whopping -55K to 1.645MM filings. That’s a -16.3% improvement from a year ago,  the lowest tally since October 1969, and further evidence that the U.S. absolutely at full employment. The September nonfarm payroll release is due on October 5 and given that survey ends in the third week of the prior month, you can bet that the national 3.9% unemployment rate will go down to yet another cycle low.
The marijuana space has been lighting it up (no pun intended) this month and we’ve been watching the two main bonds outstanding in the market. The C$ Aurora Cannabis 5% 1/30/2020 convertible bonds rose to $110.00 and change at the highs yesterday as the underlying equity rallied +10% intraday. Despite the tenor being less than 1.5 years away, the bond traded in the low $90’s for the better part of last month given how far out of the money the option was ($13.05). But with volatility running rampant and optionality getting close to in the money, a dime move in the equity is translating to nearly a quarter point move in the debt. Canopy Growth is the other big player in the bond space, with a $600 million five year convert that was issued this past June. The 4.25% coupon deal has a conversion price of $48.17 which was surpassed just two weeks after the issue launched. They are opening up in the $165 range this morning and will move in tandem with the equity (and virtually be immune from interest rate shocks).



To begin, begin.

- William Wordsworth

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