The past week was good for Canadian stocks, although they are still lower than at the beginning of June. Bonds still appear more attractive than stocks, at least in Canada. American stocks are looking good, and International stocks are looking even better. I have nothing good to say about the price of oil.
The 3 month T-bill rate is 0.54%, the 1 year T-bill rate is 0.67%, the 3 year government bond yield is 0.99%, the 10 year government bond yield is 1.50% and the long government bond yield is 1.99%. 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.
Expected (forward-looking) inflation is 1.44%. This is within the Canadian central bank’s target band of 1% to 3%.
The equity risk premium for large caps, in Canada, currently appears to be 2.41%. For small caps, it currently appears to be 2.63%.
Government bonds are lagging corporate bonds; short bonds are going nowhere, while long bonds are doing quite well; and high quality bonds are in greater demand than high yield bonds.
The Canadian dollar has been appreciating compared to the US dollar.
Where does there appear to be more opportunity right now?
US bonds vs. US stocks:
Canadian bonds vs. Canadian stocks:
- Qatar has changed -10.94% in price since last week’s close.
- Saudi Arabia Cappe has changed 10.16% in price since last week’s close.
- UAE has changed -5.78% in price since last week’s close.
Comparing national stock markets, Japan (EWJ), Malaysia (EWM), Italy (EWI), Taiwan (EWT), Singapore (EWS), India (INDA), Turkey (TUR), United Kingdom (EWU), Austria (EWO), New Zealand (ENZL), Spain (EWP), Poland (EPOL), Germany (EWG), Hong Kong (EWH), France (EWQ), China (MCHI), Mexico (EWW), Sweden (EWD), South Korea (EWY), Ireland (EIRL), Netherlands (EWN), Israel (EIS), Switzerland (EWL), Indonesia (EIDO), Belgium (EWK), UAE (UAE), Thailand (THD), Chile (ECH), USA S&P 500 (IVV), Australia (EWA), Philippines (EPHE), Saudi Arabia (KSA), and Canada (EWC) are rising, while other regions appear to be neutral or falling.
The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):
- Bombardier Inc., Cl. B, Sv (BBD-B.to)
- Blackberry Limited (BB.to)
- Dollarama Inc (DOL.to)
- Shaw Communications Inc., Cl.b, (SJR-B.to)
- Gildan Activewear Inc. (GIL.to)
These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):
The gold price is falling, which may indicate bullishness toward stocks.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.
A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XSP hedged to Cdn$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).
As of today, the theoretical portfolio would hold:
- One unit (20%) real estate
- One unit (20%) US stocks
- One unit (20%) international stocks
- 2 units (40%) bonds