The yield curve is beginning to take a more normal shape (concave) now that short-term interest rates were raised by the Bank of Canada. Banks have also raised their prime rate by 0.25% to 2.95%. I remember that when the Bank of Canada lowered rates, banks didn’t match them all the way down. But they will match upward moves. Canadian stocks and bonds continue to struggle. Only the Canadian dollar seems poised to strengthen, which is also due to the rising interest rates. It’s interesting that my theoretical portfolio (last paragraph) would only hold US stocks, but because the Canadian dollar is strengthening, US stocks may not rise in Canadian dollar terms, even if they rise in terms of their own currency.

Interest Rates

The 3 month T-bill rate is 0.64%, the 1 year T-bill rate is 0.90%, the 3 year government bond yield is 1.31%, the 10 year government bond yield is 1.92% and the long government bond yield is 2.25%. 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 1.56%. 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 1.86%. For small caps, it currently appears to be 2.32%.

Credit Environment

It wouldn’t really make sense to talk about which types of bonds are more attractive, when all bonds are falling and will continue to struggle against rising interest rates. Bonds are not the place to be for the present.


The Swedish krona (FXS), Euro (FXE), Canadian dollar (FXC), Swiss franc (FXF), and British pound (FXB) are looking strong relative to the US dollar.
The Canadian dollar has been appreciating compared to the US dollar.


US stocks are outperforming US bonds (in local currency).

Canadian bonds and Canadian stocks are both falling for present, and I don’t expect that to change over the next couple weeks.

Global Markets

  • Brazil has changed 8.07% in price since last week’s close.
  • China has changed 6.32% in price since last week’s close.
  • Mexico has changed 5.37% in price since last week’s close.
  • Norway has changed 5.28% in price since last week’s close.
  • Qatar has changed 6.30% in price since last week’s close.
  • Russia has changed 5.33% in price since last week’s close.
  • South Africa has changed 7.20% in price since last week’s close.
  • South Korea has changed 5.20% in price since last week’s close.
  • Turkey has changed 7.59% in price since last week’s close.

Comparing national stock markets, Japan (EWJ), Malaysia (EWM), Italy (EWI), Taiwan (EWT), Denmark (EDEN), Austria (EWO), Poland (EPOL), Singapore (EWS), Finland (EFNL), China (MCHI), Spain (EWP), South Korea (EWY), United Kingdom (EWU), Sweden (EWD), Saudi Arabia (KSA), Netherlands (EWN), Mexico (EWW), Russia (ERUS), India (INDA), France (EWQ), Israel (EIS), New Zealand (ENZL), Ireland (EIRL), Germany (EWG), Turkey (TUR), Switzerland (EWL), US S&p 500 (IVV), Indonesia (EIDO), Norway (ENOR), Hong Kong (EWH), Canada (EWC), and Belgium (EWK) are rising, while other regions appear to be neutral or falling.

US Stocks

I still haven’t fixed this section.

Canadian Stocks

Yesterday’s closing price was 15,174.80. This is 0.98% higher than last week’s price (15,027.20), and -0.12% lower than last month’s price (15,192.50), and -2.32% lower than the price three months ago ($15,535.50), and -2.08% lower than the price six months ago (15,497.30), and 4.78% higher than the price one year ago (14,482.40).The average P/E ratio of the TSX60 (equal weighted) is 26.45. 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 3.78% (before dividends).

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

  • Valeant Pharmaceuticals Intl In (

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

  • Telus – (
  • TD Bank (
  • Power Corporation Of Canada, Sv (
  • Crescent Point Energy Corp. (
  • Canadian Imperial Bank Of Commerce (

Other Assets

Base Metals (, US Stocks (SPY), and Global Stocks ( are performing better than cash.
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%) US stocks
  • 4 units (80%) cash
Market Outlook, July 17, 2017

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