Interest Rates

yieldcurveThe 30-day T-bill rate is 0.42%, the short government bond yield is 0.44% and the long government bond yield is 1.77%. The yield curve is normal.

Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.
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Currency

Japanese Yen (FXY), Euro (FXE), Singapore Dollar (FXSG), Swiss Franc (FXF), and Swedish Krona (FXS) are looking strong relative to the US dollar.
The Canadian dollar seems to be holding its own against the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds vs. US stocks:
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Canadian bonds vs. Canadian stocks:
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Global Markets

  • China has changed 5.42% in price since last week’s close.
  • Mexico Inve has changed 5.80% in price since last week’s close.
  • Russia has changed 5.33% in price since last week’s close.

Comparing national stock markets, Peru (EPU), Indonesia (EIDO), Chile (ECH), Qatar (QAT), Philippines (EPHE), Poland (EPOL), UAE (UAE), Taiwan (EWT), New Zealand (ENZL), and Thailand (THD) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 1,917.78. This is 2.84% higher than last week’s price (1,864.78), and 2.61% higher than last month’s price (1,868.99), and -7.96% lower than the price three months ago (2,083.58), and -7.78% lower than the price six months ago (2,079.61), and -6.95% lower than the price one year ago (2,061.05).

The average P/E ratio of the S&P 100 (equal weighted) is 19.86. This implies the market is fairly priced. This implies a forward capital return of 5.03% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • The Priceline Group Inc. (PCLN)
  • Verizon Communications Inc. Com (VZ)
  • Exelon Corporation Common Stock (EXC)
  • 3m Company Common Stock (MMM)
  • Facebook, Inc. (FB)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • General Motors Company Common S (GM)
  • Ford Motor Company Common Stock (F)
  • Metlife, Inc. Common Stock (MET)

Canadian Stocks

Yesterday’s closing price was 12,813.40. This is 3.49% higher than last week’s price (12,381.20), and 6.46% higher than last month’s price (12,035.90), and -4.90% lower than the price three months ago (13,473.80), and -8.71% lower than the price six months ago (14,036.60), and -15.04% lower than the price one year ago (15,081.30).

The average P/E ratio of the TSX60 (equal weighted) is 26.72. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 3.74% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Kinross Gold Corp. (K.to)
  • Yamana Gold Inc (YRI.to)
  • Barrick Gold Corporation (ABX.to)
  • First Quantum Minerals Ltd (FM.to)
  • Teck Resources Limited (TCK-B.to)
  • Goldcorp Inc (G.to)
  • Silver Wheaton Corp. (SLW.to)
  • Franco-nevada Corporation (FNV.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Saputo Inc. (SAP.to)
  • Canadian Tire Corporation, Cl. (CTC-A.to)
  • Eldorado Gold (ELD.to)
  • Canadian Oil Sands Limited (COS.to)
  • Transcanada Corp. (TRP.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Encana Corp. (ECA.to)
  • Crescent Point Energy Corp. (CPG.to)
  • National Bank Of Canada (NA.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Bank Of Nova Scotia (BNS.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Potash Corp Of Sask Inc (POT.to)
  • Bank Of Montreal (BMO.to)
  • Cenovus Energy Inc. (CVE.to)

Other Assets

Canadian Universe Bond (XBB.to), Real Estate (XRE.to), Gold (IGT.to), Silver (HUZ.to), and Base Metals (ZMT.to) are performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
Looking at the longer trend, the oil price is falling, although it appears to have started rising off the bottom over the past couple days.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XUS in US$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) of gold
  • One unit (20%) real estate
  • 3 units (60%) bonds
Market Outlook, February 22, 2016

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