**November 14th Issue of The JMRD Market Observer**
In This Week’s Market Observer…
- NBF Markets’ Review – October 2014
- Thackray Market Letter – November 2014
- 2014 Tax Reminders
- JMRD Basket Corner
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
NBF Markets’ Review – October 2014
October proved to be a highly erratic month for market participants, who were strong-armed by a powerful stint of volatility that sent equities into an ensuing free-fall during the first half of the month. Though the “mini-correction” sent shockwaves through markets, things ultimately took a turn for the better, commending those investors that had patiently weathered the storm with respectable gains at month end.
Though fear and panic drove global sentiment at the onset of the month, investors’ tone grew increasingly optimistic as the European Central Bank put a new bond purchasing program into play to counter its ailing economy. Investors also reacted positively to comments made by a number of Federal Reserve (Fed) officials, who hinted that sluggish global growth could prompt the U.S. central bank to postpone future rate hikes.
With regards to Quantitative Easing, the U.S. Federal Reserve put an end to its bond purchasing program as expected. However, Chair Yellen reiterated that the first rate hikes would occur in a “considerable time” frame and the federal funds rate remained unchanged. The timing of the first rate hikes still remains obscure, with the Fed likely to pay particular attention to how things materialize on the inflation and employment fronts going forward.
In Canada, equities followed pretty much the same trajectory as their U.S. counterparts. However, despite their rebound in the second half of the month, waning oil prices yet again proved to be a hindrance. At the time of this writing, oil was down roughly 25% from its peak in June 2014. From an economic perspective, excessive household debt levels, inflation and a persistent rise in the housing market have all been kept under close watch by investors and the Bank of Canada (BoC) for quite some time. There has also been a lack of clarity on the monetary policy front, with the Bank of Canada reiterating that Canada will not necessarily follow in the lead of the U.S. with regards to rate hikes.
Overseas, investors were surprised by large decreases in industrial production and German exports, which played a role in prompting a correction in European equities. Like their developed peers, however, they somewhat rebounded during the second half of the month as global fears subsided. Elsewhere, the Bank of Japan surprised markets at the end of the month by announcing additional quantitative easing measures, which amongst other things will see the BoJ increase its buying of stock and property funds as well as extend the duration of its bond portfolio by 3 years. Japan continues to struggle with faltering GDP, flimsy consumer spending (due in part to the recent sales tax increase in Japan) and fears of deflation.
(See full report attached)
Thackray Market Letter – November 2014
November update from Horizons Seasonal Rotation ETF (HAC), an ETF Basket holding. The objective of HAC is long-term capital appreciation in all market cycles by tactically allocating its exposure amongst equities, fixed income, commodities and currencies during periods that have historically demonstrated seasonal trends. The Thackray Market Letter is for educational purposes and is meant to demonstrate the advantages of seasonal investing by describing many of the trades and strategies in HACThis month’s update includes a discussion of current holdings and seasonal trades in Industrials, Retail, Technology, Gold, Materials, Semiconductor, Agriculture and Homebuilders.
(Full report attached)
2014 Tax Reminders
·Last day for Tax Loss selling of Canadian Equities – Tuesday December 24, 2014
·Last day for Tax Loss selling of U.S. Equities – Thursday December 26, 2014 (Canadian Markets closed December 26)
·2014 TFSA contribution deadline – Monday December 31, 2014 – contribution limit $5,500.00
Ø Note, if you are planning a TFSA withdrawal in early 2015, consider withdrawing the funds by December 31, 2014. The advantage is that you will not have to wait until 2016 to re-contribute that amount.
·2014 RSP contribution deadline – Monday March 2, 2015. The 2014 maximum RRSP contribution limit is 18% of “earned income” in 2013, to an annual maximum $24,270.
JMRD Basket Corner
Another busy week for quarterly earnings reports in JMRD Baskets
Open-Text (OTC) – Open Text hosted its annual user conference in Florida this week which was well received by the Street. The company is introducing cloud-only solutions and new SaaS pricing models. NBF analyst Kris Thompson said that management appears very confident that profitability will continue to improve. Management is also attacking primary competitors head-on with a new switch promotion. In addition, the company is entering a period of momentum that could see revenue and EPS estimates move higher after calendar Q4 results and/or more acquisitions (that remain a key investment thesis). The shares traded to a new high of $67.62 and have moved higher by 10% since the Q3 results
All Cap Growth Basket
Badger Daylighting (BAD) – Badger reported revenue up 29% and cash flow up 58% in the quarter. US margins also improved. The company talked about increasing its capital spending, which was a concern earlier this year (it had brought spending down so investors were worried about growth). The shares responded with a big day on Friday, trading higher by 14%
Boyd Group (BYD.un) – BYD continues to post solid quarterly results, with U.S. same-store sales tracking well, multi-store acquisitions contributing better than expected, single-store additions outperforming and resulting cash flows remaining robust. Margins took a dip in Q3 given BYD’s recent entry into glass and a higher percentage of less profitable network sales, but the net impact was minimal given the top-line outperformance.
Canadian Energy Services (CEU) – CEU announced EBITDA of $55 mln was 30% ahead of consensus. The company also delivered revenue of $273M, 21% ahead of NBF’s $225M estimate with significant margin expansion to 20% (+300 bps to NBF) and driving the impressive EBITDA beat. Revenue and EBITDA were up 50% and 67%, respectively, from Q3 2013.
Enercare (ECI) – The most recent addition to the ACB basket, Enercare reported revenue of $80.5M which was higher than NBF’s $85.0M estimate (consensus $84.9M); however, most of the difference was due to commodity charges which are passed through in the sub-metering segment. Reported adj. EBITDA of $43.9M was in line with NBF’s estimate of $43.2M (consensus $43.4M). Attrition levels were the same as last quarter and the company is expected to be added to the TSX composite in December. In addition, the company could grow the dividend by as much as 20% in 2015
Fiera Capital (FSZ) – Fiera announced Q3 results and continues to gain traction outside of Canada. Institutional net sales amounted to $1.6B on the back of $1.2 billion in new mandates, particularly in the United States. This was due in no small measure to Fiera’s growing global profile as the number of consultant ratings increased by one in the quarter and now total six. Meanwhile, net flows of retail sub-advisory AUM were positive for a third successive quarter ($108M). The private wealth businesses also generated positive net sales.
Dow Chemical (DOW) – said it would sell stakes in two petrochemical joint ventures in Kuwait as part of its efforts to streamline its business and raise cash so the company can buy back more of its own shares.
1) “When should you get serious about saving and investing?” (Financial Post)
2) “Income splitting not the only good tax news for Canadians this week” (Financial Post)
Week at a Glance
(See Week at a Glance Attachment)
Reads of the Week
· Insight and the story behind Canadian Business magazine’s choice for CEO of the year: “CEO of the Year 2014: Louis Vachon of National Bank” More value is destroyed by paralysis than by bad decisions http://www.canadianbusiness.com/leadership/ceo-of-the-year/2014-louis-vachon-national-bank/ and the decision making process: http://www.canadianbusiness.com/business-news/canadian-business-ceo-of-the-year-2014-louis-vachon-national-bank/
· “My Prediction: Your Forecast Is Wrong” (Bloomberg)
· “How Costco is Crushing the Competition” (The First Adopter)
· NBF Hot Charts – World: The oil stimulus While declining oil prices aren’t good for Saudi Arabia and other oil exporting nations with fixed exchange rates, they are arguably a boon to the global economy as a whole. For one, they will assist the rebalancing of the global economy by improving the current account balance of oil importing countries, which are often in deficit territory, at the expense of big oil exporters which usually enjoy large surpluses. More importantly, though, lower oil prices are equivalent to a stimulus for the global economy. Large importers like India, where oil accounts for more than a third of total imports, will benefit the most. Even assuming prices stabilize near current levels and remain unchanged through next year, the average 2015 price will be about 20% lower than this year’s average. For India, which according to the EIA consumes about 3.5 million barrels per day, that amounts to savings of US$28 bn/year, or roughly 1.5% of GDP. For the global economy as whole, the savings would be around 1% of GDP assuming everything else remains constant. (see attached chart) Hot Charts
· “Buffett’s deal to buy Duracell a win for everyone — except the IRS” (Yahoo Finance)
· “Oil market is trapped in a negative bubble” (Reuters)
Monday November 17th – Canadian Existing Home Sales, U.S. Empire Manufacturing, U.S. Industrial Production
Tuesday November 18th – U.S. PPI Final Demand
Wednesday November 19th – U.S. Housing Starts, U.S. Building Permits, Fed Releases minutes from Oct 28-29 FOMC Meeting
Thursday November 20th – Canadian Wholesale Trade Sales, U.S. CPI, U.S. Initial Jobless Claims, U.S. Existing Home Sales, U.S. Leading Index
Friday November 21st – Canadian CPI
Monday November 17th – None
Tuesday November 18th – George Weston, Home Depot
Wednesday November 19th – None
Thursday November 20th – None
Friday November 21st – None