Equity markets have moved off the lows since the end of February BUT the CDN$ has also rallied reducing gains for many Canadians who have investments outside of Canada. The CDN$ is up about 3.5% versus the US$ which means 3.5% lower returns for U.S. investments. Canadians have still benefitted significantly from the falling CDN$ over the last 2 year period and this recent move higher may not be PERMANENT.
I believe that the CDN$ will show short term weakness again before any lasting move towards 80 cents. This is based on:
Oil prices lower than $40 and eventually between $40-60
Higher spread between CDN and U.S. interest rates after the fall in U.S. interest rates in February. That process has already started but offset by surging oil prices recently
The TSX (Canadian market) has done well over the last 10 days as ENERGY and MINING names have moved significantly higher for a variety of reasons, both of which may not be permanent.
The U.S. market has moved higher BUT is still in the recent trading range as shown is chart below. This can continue to be viewed as a CONSOLIDATION of prices after the significant move higher since early 2009. The U.S. is not in a recession and economic data strongly suggests that one is not imminent.
Energy has moved significantly higher over the last several weeks but as the chart below shows stock prices are still within a defined downtrend. With energy stocks OVERBOUGHT the next move may be higher giving investors a chance to participate in the next move higher (fingers crossed).
The ‘doom and gloom’ crowd have finally has some good news as gold has moved higher during 2016 BUT is still a long way from recovering from the highs reached several years ago.
I would suggest waiting for a sustained move above $1,300 before adding any to a portfolio particularly as better than anticipated economic news out of the U.S. would limit gains or even trigger a significant pullback.
The chart below shows the yields on 10 year U.S. bonds and before you say ‘wow are those low’ Canadians need to understand that 10 year yields in Canada are close to 1.2%...I repeat 1.2%!!! Why do I use exclamation points? It is because I come across people every day who have are invested in investment grade bond funds or balanced funds using investment grade bonds and the COST OF OWNERSHIP IS HIGHER THAN THE INTEREST BEING PAID. This error is hard to see when interest rates are falling or perhaps the equities are doing the heavy lifting BUT it makes no sense going forward. Would you pay 1.5% (or higher) to own a GIC paying 1.5-2%? YOU WOULD NOT SO WHY WOULD YOU DO THIS?
We need to get out head’s out of…the sand.
For income seeking clients LOBLAWS has issued a bond from their real estate division (Choice Properties) that pays 3.074% over 7 years (yield can change daily). This is only suggested for those that would be investing $10,000 and have a portfolio of 100,000+.
I continue to view certain corporate bond funds as an alternative to individual position’s such as CI CORPORATE BOND FUND which has a current internal yield (net of fee) of 5.9%.
The views expressed do not necessarily reflect the opinion of Argosy Securities Inc. This does not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. Please consult a professional before making an investment decision.