Interest Rates

yieldcurveThe 30-day T-bill rate is 0.43%, the short government bond yield is 0.48% 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. Real estate looks particularly attractive by comparison.

Credit Environment

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

The Japanese Yen (FXY), Swiss Franc (FXF), Canadian Dollar (FXC), Singapore Dollar (FXSG), Chinese Yuan (RenMinBi) (FXCH), Euro (FXE), and Swedish Krona (FXS) are looking strong relative to the US dollar; said differently, the US dollar is falling.
The Canadian dollar has been appreciating compared to the US dollar.

Equities

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

Comparing national stock markets, Peru (EPU), New Zealand (ENZL), Indonesia (EIDO), UAE (UAE), and Chile (ECH) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 1,948.05. This is 0.13% higher than last week’s price (1,945.50), and 2.89% higher than last month’s price (1,893.36), and -6.74% lower than the price three months ago (2,088.87), and 0.39% higher than the price six months ago (1,940.51), and -5.42% lower than the price one year ago (2,059.69).

The average P/E ratio of the S&P 100 (equal weighted) is 20.15. This implies the market is fairly priced. This implies a forward capital return of 4.96% (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)
  • Dow Chemical Company (DOW)
  • E.i. Du Pont De Nemours (DD)
  • Exelon Corporation (EXC)

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

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

Canadian Stocks

Yesterday’s closing price was 12,797.80. This is -0.37% lower than last week’s price (12,845.60), and 1.64% higher than last month’s price (12,591.90), and -4.67% lower than the price three months ago (13,425.20), and -4.36% lower than the price six months ago (13,381.60), and -14.12% lower than the price one year ago (14,902.40).

The average P/E ratio of the TSX60 (equal weighted) is 26.73. 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):

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

  • Crescent Point Energy Corp. (CPG.to)
  • Encana Corp. (ECA.to)
  • National Bank Of Canada (NA.to)
  • Bank Of Nova Scotia (BNS.to)
  • Power Corporation Of Canada (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Royal Bank Of Canada (RY.to)
  • Bank Of Montreal (BMO.to)

Other Assets

TSX Capped REIT (XRE.to), Gold (IGT.to), and Silver (HUZ.to) are performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

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%) cash
Market Outlook, February 29, 2016

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