Very little editing has been done, and it’s late. Because holidays.
The 3 month T-bill rate is 0.68%, the 1 year T-bill rate is 0.88%, the 3 year government bond yield is 1.31%, the 10 year government bond yield is 1.88% 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 1.58%. 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 1.97%. For small caps, it currently appears to be 2.36%.
When the dials point left, the credit environment is cautious and risks are priced higher.
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:
Comparing national stock markets, Japan (EWJ), Malaysia (EWM), Italy (EWI), Singapore (EWS), Taiwan (EWT), China (MCHI), Turkey (TUR), Austria (EWO), South Korea (EWY), Norway (ENOR), Mexico (EWW), Finland (EFNL), United Kingdom (EWU), Poland (EPOL), Netherlands (EWN), Chile (ECH), India (INDA), South Africa (EZA), Russia (ERUS), Brazil (EWZ), Spain (EWP), France (EWQ), Belgium (EWK), Hong Kong (EWH), New Zealand (ENZL), Canada (EWC), UAE (UAE), Switzerland (EWL), Sweden (EWD), US S&P 500 (IVV), Germany (EWG), Peru (EPU), Ireland (EIRL), Australia (EWA), Israel (EIS), Qatar (QAT), Thailand (THD), and Philippines (EPHE) 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):
- Valeant Pharmaceuticals Intl In (VRX.to)
- First Quantum Minerals Ltd (FM.to)
- Rogers Communications Inc., Cl. (RCI-B.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%) US stocks
- One unit (20%) international stocks
- 3 units (60%) cash