Bonds are struggling. Canadian stocks had a good week. US stocks have greater momentum, but the strengthening Canadian dollar dampens the returns (for us). Surprisingly, the oil price has risen, breaking $50 for the first time in quite a while.
The 3 month T-bill rate is 0.84%, the 1 year T-bill rate is 1.16%, the 3 year government bond yield is 1.65%, the 10 year government bond yield is 2.12% and the long government bond yield is 2.46%. 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 1.64%. 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 2.43%. For small caps, it currently appears to be 2.11%.
Bonds are sucking. I don’t see much opportunity there.
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:
- Turkey Investable has changed -5.42% in price since last week’s close.
Comparing national stock markets, Japan (EWJ), Malaysia (EWM), Italy (EWI), Brazil (EWZ), Russia (ERUS), United Kingdom (EWU), Taiwan (EWT), China (MCHI), Austria (EWO), Thailand (THD), Norway (ENOR), Poland (EPOL), Singapore (EWS), Chile (ECH), Peru (EPU), Netherlands (EWN), France (EWQ), Sweden (EWD), Germany (EWG), Canada (EWC), Ireland (EIRL), Belgium (EWK), India (INDA), Denmark (EDEN), Turkey (TUR), Hong Kong (EWH), Finland (EFNL), US S&P 500 (IVV), Spain (EWP), Australia (EWA), Saudi Arabia (KSA), Switzerland (EWL), UAE (UAE), South Korea (EWY), Philippines (EPHE), New Zealand (ENZL), and Mexico (EWW) 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):
- Dollarama Inc (DOL.to)
- Kinross Gold Corp. (K.to)
- Cenovus Energy Inc. (CVE.to)
- Encana Corp. (ECA.to)
- Magna International Inc (MG.to)
- Suncor Energy Inc. (SU.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 rising, which increases manufacturing input costs and energy costs and may slow economic expansion.
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%) Canadian stocks
- One unit (20%) US stocks
- 3 units (60%) cash