Over the past week, the oil price trended downward slightly from its high the former week. Stocks look more attractive than bonds, and US stocks appear likely to lead other regions. Having said all of that, markets appear toppy and my outlook has turned unfavourable.
The 3 month T-bill rate is 0.84%, the 1 year T-bill rate is 1.06%, the 3 year government bond yield is 1.56%, the 10 year government bond yield is 1.90% and the long government bond yield is 2.20%. 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 1.66%. This is within the Canadian central bank’s target band of 1% to 3%.
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:
Last week’s closing price was 16,029.53. This is -0.06% lower than the prior week’s price (16,039.00), and -0.06% lower than last month’s price (16,039.30), and 6.97% higher than the price three months ago (14,985.30), and 3.60% higher than the price six months ago (15,473.20), and 4.68% higher than the price one year ago (15,312.20).The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):
- Bombardier Inc (BBD-B.to)
- Cameco Corp (CCO.to)
- First Quantum Minerals Ltd (FM.to)
- Teck Resources Ltd Class B (TECK-B.to)
- Valeant Pharmaceuticals International Inc (VRX.to)
- Dollarama Inc (DOL.to)
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)
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%) real estate
- One unit (20%) Canadian stocks
- One unit (20%) US stocks
- One unit (20%) international stocks
- 1 unit (20%) bonds