Posts Tagged ‘Canada’
Tuesday, November 11th, 2008
Is this a buyer’s market or what?
Look at Russia; although most folks aren’t interested (but should be) Russia is not only off by -64.5%, its valuations have compressed to 4.3 times trailing earnings. China stocks are down -64.3% is fetching 14.55 times trailing earnings. India stocks are down -48.1% and priced at 10.7 times. Canada’s TSX 60 is down 29.4% and PE has contracted to 10.9 times earnings.
Oddly, US Stocks, down -36.4% year-to-date, have experienced a slight expansion in P/E from 20.11 times to 20.54 times. Hmmm? Does this suggest that there is more downside in US stocks, given that there has been no compression in valuation? Tunisia, Bahrain, and Switzerland are the only countries out of 84 to join the US in this phenomenon of rising P/E. For the US, it appears that earnings have gone down in lockstep with the stock market, perhaps more than stock prices themselves.
click to enlarge
For those countries whose P/E ratios have gone down the most in this tumultuous year-to-date, high P/E compression suggests relatively strong earnings fundamentals versus very poor technical considerations.
Only three countries, Ghana, Tunisia, and Ecuador, out of 84, have had positive results this year.
Below are the comparisons of China stocks vs. US stocks, and China P/E vs US P/E. China’s market has had a much larger correction than the S&P 500, but look at the valuations. Chinese stocks are now far less expensive than US stocks. China’s earnings are in tact, while its stock market has been liquidated as a result of deleveraging.
Charts: Bespoke Investment Group
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Tags: Canada, China, compression, India, P/E, Russia, Switzerland, TSX 60, US Stocks
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Sunday, November 9th, 2008
Donald Coxe and his colleagues at BMO Harris provided their post-election views following the Obama victory:
Donald Coxe, Global Portfolio Strategist, BMO Financial Group
- Obama’s victory will lead to a “feel-good” attitude within America at a time when gloom and sourness have become excessive. That favours financial assets generally at a time that fall is moving into winter.
- Obama’s spending plans will be seen as economy-favourable with the nation in recession. Stocks should benefit near-term.
- Obama is fully committed to continuation of all the ethanol subsidies and tariffs that McCain opposed. That is good news for the reeling ethanol stocks that have been buffeted by falling oil prices and still-high corn prices.
- Obama has threatened to impose carbon taxes on coal-fired electrical generating plants.
- None of the candidates promised significant revisions to the extremely favourable royalty structure for mining on federally-owned properties, mostly in the West. That is important for Canadian gold miners operating in Nevada.
- He famously said that on his first day in the White House he would “call up the President of Canada to announce he was tearing up NAFTA.” We believe he won’t do that.
- Worldwide, the election of a new U.S. President with a change agenda will be greeted favourably. This should facilitate America’s dealings with other nations on such hot topics as Russian expansionism and response to Iranian nuclear weapons development.
Andrew Busch, BMO Capital Markets, Global FX Market Strategist
- Expect a U.S. stimulus package of $150 billion to be enacted and checks out the door by March with an impact on consumer spending by late April and May.
- Expect very expensive bond deals issuance to be done over the next three months with those issuing likely to only be high quality to get done and with high spreads to Treasuries. This should mean they get snapped up.
- There is going to be massive government bond issuance in 2009 across the globe to pay for bailouts, stimulus packages, and social spending. This means we should see a further steepening of the yield curve in 2009, but it won’t necessarily point to a big economic recovery like it has in the past.
Jack Ablin, Chief Investment Officer, Harris Private Bank
- Both an Obama victory and a Democrat-controlled Congress are currently factored into markets.
- When looking at Europe vs. U.S. price-to-sales comparisons, one can see the U.S. is beginning to trade like a “nationalized” country.
- Tax rates are expected to increase which will give an edge to municipal bonds.
- A move towards socialized medicine appears to be already discounted. In examining the valuation of U.S. vs. European pharmaceutical stocks, the U.S. valuation already incorporates nationalized health care.
- Large cap is set to outperform as small cap moves back to normal valuation.
Paul Taylor, Chief Investment Officer, BMO Harris Private Banking
- We are a long way away from a sustainable equity market rally. A sustainable equity market rally will only occur when it is clear that the spectre of a protracted, significant U.S. economic recession is not in sight.
- Leading economic indicators signal a meaningful U.S. and global economic recession. This will cause policymakers in Washington to focus attention on the economy as the number one priority.
- Investors should have a defensive strategy, with an overweight in Consumer Staples, Telecom, Utilities and underweight in Energy, Materials and Technology. This will be more appropriate until the spectre of recession is past.
- With Fed Funds at 1.0%, monetary policy will be impotent moving forward.
- A global economic recession is bearish for commodity based currencies (Canadian and Australian dollars) and is bullish for other currencies. The current “crisis of confidence” is bullish for the U.S. dollar due to its position of reserve currency.
Source: PR Newswire
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Tags: Australia, BMO, BMO Capital Markets, Canada, Currency, Dollar, Donald Coxe, Economy, energy, Euro, Fed, Focus, Gold, Markets, Mining, Monetary Policy, Oil Prices, Recession, REW, Russia, spreads
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Friday, October 31st, 2008
Eric Lascelles, TD Securities’ Chief Economics Strategist, points out that the Canada has the highest sovereign debt ratings in the world, in his latest report, “The Teflon Maple Leaf.”
Lascelles points to several key areas:
- A peek at the latest sovereign credit default swap data reveals that Canada is now regarded as quite possibly the world’s safest sovereign country in terms of the solvency of the country’s government.
- On the surface, this seems surprising given how closely Canada is linked into the U.S. economy and into commodity prices, and how both of those two erstwhile pillars have recently crumbled.
- But a closer look reveals that there may be some method to the market’s madness - Canada is indeed in a remarkably good position by several metrics, which we pursue in this piece.
- We should begin by noting that we believe Canadian bonds should continue to underperform the U.S. because sovereign debt concerns have not played a major role in the market to date, and because Canada’s economic prospects are somewhat better than in the U.S. and so less rate cutting will be needed.
- However, should the market begin to differentiate between countries based upon their debt-to-GDP ratios and other measures of fiscal pressure, Canadian bonds would ultimately be a winner in that contest. At present, there is little evidence that this is happening - case in point, both Japanese and U.S. debt continue to be happily purchased, yet the Japanese debt burden is extremely high and the U.S. debt burden is growing quickly. Nor do we necessarily expect this to change. But should the market grow more fickle about what it buys, there could be a quick reversal and this would prompt us to favour Canada over the U.S. in bonds.
- Third, throughout the credit crunch, Canadian bonds have been less volatile than in the U.S., and this speaks in no small part to the relatively more stable fiscal and economic foundations in Canada. We expect this trend of relative stability to continue.
The Teflon Maple Leaf, October 31, 2008, Eric Lascelles, TD Securities Inc.
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Tags: Canada, CDS, Credit, Economics, Economy, Japan
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Wednesday, October 22nd, 2008
Andrew Lahde, the hedge fund manager, who last year, was catapulted into the limelight when he successfully returned 886% to investors, betting against subprime mortgages, closed up shop last month, claiming that counterparty problems were making it far too difficult and stressful for him to want to keep on going.
Below is Lahde’s farewell and f— you letter to those who deserve it.
Dear Investor:
Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.
I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.
So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.
I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.
On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.
Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.
With that I say good-bye and good luck.
All the best,
Andrew Lahde
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Tags: Bear Stearns, Canada, capitalism, energy, Euro, Focus, FT.com, Mortgage
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Wednesday, October 8th, 2008
Key Central Banks around the globe have announced a concerted cutting of interest rates, by 0.50%, this morning, in an historic moment of cooperation, to stem the tide of the global credit market’s woes.
The US Federal Reserve, the European Central Bank, the Bank of England, and the central banks of Canada, Sweden, and the United Arab Emirates have all cut key lending rates by 50 bps or 0.5 percent.
The Bank of England also announced that it would partially nationalize the country’s banking system by investing $90-billion in some of its banks.
In China, the People’s Bank has cut its key rate by a commensurate 27 basis points, and the Bank of Japan whose key rate is only 0.5% did not cut, but is lending “strong support” to the other central banks’ moves.
In identical statements, the Fed, ECB, and Bank of England, explained that inflationary concerns have moderated, and the worsening financial crisis had “augmented the downside risks to growth.”
Trichet, the ECB’s Chair, very modestly stated that “inflation is moderating.” Critics have argued that the ECB has been too slow and looking in the rear view mirror too long, to do anything meaningful for the European economy, and at the expense of the financial stability of European businesses. Others argued that while the move is very welcome, it may be too little, too late.
Euro and Sterling both gained on the announcement, while the price of gold fell.
Equity markets in Europe rebounded from intraday lows on the hope that this monetary action would help banks and consumer stocks.
Pre-Opening trading in index futures indicate a strong opening for US markets following the announcements.
Key Rates (post-cut)
- US - 1.50%
- Canada - 2.50%
- ECB - 3.75%
- UK - 4.5%
- Sweden - 4.25%
- China - 6.93%
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Tags: Banks, Canada, China, Credit, Credit Market, ECB, Economy, Euro, Fed, Federal Reserve, Gold, inflation, interest rates, Japan, Markets, Sweden, Trading, UK
Posted in Markets | 1 Comment »
Tuesday, September 23rd, 2008
Niels Jensen and Jan Wilhelmsen of Absolute Return Partners (www.arpllp.com) produced an informative analysis of the credit crisis and provide the following observations. Here is our summary:
Loans and Mortgages are getting much harder to come by on average, globally.
This has bold and negative implications for property prices everywhere.
Observation # 1
It all began with housing and it will end with housing.
The current overhang caused by the tightness of credit (mortgages) will take years not months to unwind and housing prices will not begin to rise again until this occurs.
Observation# 2
Don’t trust central banks to always do the right thing.
Evidence suggests that while their intent seems to be genuine, central banks around the world have not been very effective at taming inflation. For example, simply raising interest rates in the underlevered economies of the BRIC countries has been futile, since most consumers and companies do not employ credit to the extent that those of us in the west do.
In the case of the BRIC countries, it appears the problem does not consist of sustaining growth, but rather containing growth. China, for instance, has a record of under-reporting both real and nominal GDP growth, and may have only recently more accurately stated inflation owing to the fact that they could not hide from skyrocketing oil and food prices.
Observation # 3
Policy mistakes are likely to be repeated.
The US is currently at risk of making the same policy making mistakes Japan made 10-15 years ago. US residential property prices have risen more during 2000-2006 boom than did the Japanese during the late 80s boom.
Japan too, though more rapidly, reduced the cost of money dramatically to fend off its crisis.
Japan bailed out many of its institutions and used taxpayers money to fund the activity of fixing the ‘unfixable,’ and this could have profound implications for the US GDP growth in years to come.
Observation # 4
The golden era of investment banks is over.
The biggest independent investment banks have just become banks. The US investment banking business is becoming more like Canada’s where the business is dominated by the large schedule “A” chartered banks and America’s “free” market just became a little more socialist. How ironic…The folding of GS and MS into banks also has valuation considerations for the venerated firms as their revenues and earnings are sure to decline under the auspices of Fed regulation. Further de-levering also has negative implications for the market as it entails more liquidation. Hopefully this will be done in an orderly fashion now that the conversion is underway.
Observation # 5
The final shoe hasn’t dropped yet.
There is more to come. For instance, the financial system has yet to deal with $1-trillion in Alt-A securities and further degradation of the CDS market and counter-party risks.
Absolute Return Partners states that the commodity bull is just the final leg of the liquidity super-cycle: take a look the Economist’s VAR-VAR-Voom chart.
Observation # 6
Leverage is ‘dead’ but capital is not.
Global savings rates now exceed 20%, except in the US, and while this is a positive for global stability, the question remains about whether investors are willing to invest money where it is most needed, the shore up the world’s banks. Failing that, property prices will need to stabilize before we can expect better times.
Observation # 7
The end of the crisis looks further away than it did a year ago.
Its complicated, very complicated.
Commodity price induced inflation has made it hard for policy makers to reduce interest rates. Despite this, interest rate cuts may not be the magic bullet and in 20 of the 36 countries recently surveyed by Morgan Stanley, real short-term interest rates are currently negative.
At this point the $700-billion Treasury/Fed proposal appears to be a solid response, as does the stimulus injections of cash into markets around the world.
This problem remains possibly years away from being done with.
Observation # 8
Traditional risk management has lost its way.
Paul McCulley of Pimco touched on the subject in the July 2008 issue of Global Central Bank Focus:
“[...] every levered financial institution - banks and shadow banks alike - decided individually that it was time to delever their balance sheets. At the individual level, that made perfect sense. At the collective level, however, it has given us the paradox of deleveraging: when we all try to do it at the same time, we actually do less of it, because we collectively create deflation in the assets from which leverage is being removed.”
In fact, while it is known that PIMCO was regularly consulted by Secretary Paulson, it was Paul McCulley who rightly proposed in his newsletter during the summer, that the only real solution would consist of the formation of a new government agency to create a market to thaw frozen or cemented assets. This would be the only viable long term solution.
Conclusion
Where is the opportunity? According to Absolute Return Partners, real value is to be found in credit instruments. This is where the most damage has been inflicted and it is where the biggest bargains are to be found in today’s markets.
What would you rather own? Equities which trade at 15-20 times earnings or credit instruments trading at a fraction of that cost? Deutsche Bank estimates that senior secured loans are trading at an implied PE ratio of 5-less than a third of the cost of equities.
You may read the full original version, at Observations on a Crisis, Courtesy John Mauldin
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Tags: Banks, BRICs, Canada, CDS, Chart, China, Credit, Credit Crisis, EFU, energy, Fed, Focus, Food prices, GDP Growth, Gold, inflation, interest rates, Japan, liquidity, Markets, Mortgage, Paul McCulley, Paulson, PIMCO, Savings Rate, Trading, Value
Posted in Markets, inflation | 1 Comment »
Saturday, September 13th, 2008
We are big fans of Donald Coxe, Chief Strategist, BMO Capital Markets, whose track record on calling the “macro” market conditions and opportunities has, more often than not, been reliable. In this period, where it appears the market has no direction, his views are especially welcome.
Here, we provide a summary of his recommendations from Basic Points, September 2008, for your review.
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The current commodity bear market will turnaround when financials rollover.
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The “Frannie” bailout is Act II in a play whose plot will thicken
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When financials roll over, gold and gold stocks will recover
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Inflation remains above central bank targets
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Oil will fall further. OPEC production cut not impressive enough to support prices.
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Any civil strife in Nigeria could put upward pressure on oil
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We expect oil to trade between $80 -130/bbl next year (though not a reliable forecast)
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We are more confident in predicting $150/bbl in three years
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The corn crop will be a “barn buster.” Corn in “modest” contango for next two years. Translation: Fertilizer, seed and equipment stocks are relatively cheaper now, than in the past four years.
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The sharp drop in oil prices and “dramatic” bank bailouts should have been a catalyst for market
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S&P needs to break 1310 to “take away the bearish condition of market.”
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Real yield on 10-yr Treasuries is -145 bps. Treasuries are overvalued
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Biggest near-term surprise could come from recovery in Natural Gas, barring sunspot activity, and/or historic correlations of oil/gas reassert themselves.
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C$ under pressure from falling commodity prices, but Canada’s fiscal health makes C$ a strong alternative to the greenback
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US election campaign could be a risky period geo-politically as “foreign adventurers” may try to take advantage of the distraction. Rogues should remember that Bush is still president for another 4 months
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We have no idea how long it will be until we can say, “Wow, I wish I’d loaded up then!” on commodity stocks. “We remain certain that day is coming.”
The complete text can be read here.
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Tags: Basic Points, BMO, BMO Capital Markets, Canada, contango, Correlation, Donald Coxe, energy, Financials, Gold, gold stocks, inflation, Markets, Natural Gas, Oil Prices, upw, Value
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Wednesday, September 10th, 2008
Equity markets across the world have been reeling lately, and our trading range charts for indices of 22 countries highlight the carnage. Countries to recently take big hits include Brazil, Canada, South Africa, and of course, Russia. Any time the price moves below the green shading, it is trading more than 2 standard deviations below its 50-day moving average. Below the green shading is considered extreme oversold territory, and prices don’t typically stay that oversold for extended periods of time.
The one positive chart might be India’s Sensex index that has moved back above its 50-day moving average recently and formed a short-term uptrend.
Courtesy: Bespoke Investment Group
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Tags: Brazil, Canada, Chart, China, France, Germany, India, International, Italy, Markets, Mexico, Russia, Sensex, South Africa, Spain, Sweden, Taiwan, Trading, UK
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Monday, September 8th, 2008
This past year’s declines in local and international markets have had their beginnings at different points in time. This chart below, produced by the fine folks at Bespoke, pays no attention to their timing. Its not a pretty picture, but the perspective sure is useful. Often, we are subjected to guided reporting, where issuers or promoters use numbers and moving averages that “soften” the real numbers.
Canada comes out on top!
Here below is what most investors really want to know; How did they perform from peak until now, irrespective of timing?
After declining 4.25% on Wednesday, 3.94% yesterday, and 3.75% today, Russia’s RTS index is now 41.19% below its 52-week high. These declines put it second to last behind China when looking at recent equity market returns for 22 major countries. As shown, China has fallen 64% from its 52-week high last October! The declines recently in global equity markets have really been astounding. Japan, Spain, Brazil, India, Italy, South Korea, Singapore, Sweden, Taiwan, and Hong Kong all join China and Russia with equity markets off at least 30% from their 52-week highs. North American countries rank 1,2,3 as far as countries holding up the best. International exposure has never hurt so bad.
Courtesy: Bespoke Investment Group
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Tags: Brazil, Canada, Chart, China, EFU, Hong Kong, India, International, Italy, Japan, Markets, Miscellaneous, Russia, Singapore, South Korea, Spain, Sweden, Taiwan
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Tuesday, June 24th, 2008
June 24, 2008 - Courtesy of Bespoke Investment Group - The recent selloff in equities has really spared no one. As shown in our trading range charts below of 22 major country indices, the trend has been down across the board in recent weeks. Even Brazil, Mexico and Russia, who had all held up relatively well this year, have sold off quite a bit. Currently, 19 of the 22 countries are trading in oversold territory (Canada, Japan and Russia are neutral). European countries like France, Germany and Italy have really taken it on the chin, while China and India remain the biggest losers in 2008. After forming short-term uptrends off of the March lows, global equity markets have now lost most of their gains and are looking to move back into downtrends.
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Tags: Australia, Bolsa, Brazil, CAC 40, Canada, China, DAX, France, FTSE, Germany, Hong Kong, HSI, IBEX, India, International, Italy, Japan, KLSE, KOSPI, Kuala Lumpur, Malaysia, Markets, Mexico, MIB 30, Nikkei 225, OMX, Russia, Russian Trading System, Sensex, Shanghai Composite, Singapore, SMI, South Africa, South Korea, Spain, Straits Times, Sweden, Switzerland, Taiwan, Top 40, TWSE, UK
Posted in Brazil, China, Emerging Markets, India, International Markets, Latin America, Markets, Russia, US Stocks | No Comments »
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