Employment Data Day: US and Canada

Many market participants (and central bankers) are looking to today's data for insight into the economic progress of both countries, although I will suggest caution in reading too much into one month's set of numbers as they are often subject to significant revisions.

Expected

In Canada:

• Unemployment rate = 6.9%
• Job growth = decline of 5,000

In the US:

• Nonfarm Payrolls = increase of 220,000
• Unemployment rate = 5.4%
• Average hourly earnings = increase of .2%

The importance of US economic growth going forward has taken on greater significance as BOC governor Poloz has stated that he is expecting US economic growth to pull the Canadian Economy along in the 2nd half of 2015.

As well, forecasters will be looking at what the data will mean to the US Federal Reserve as they ponder the next move for interest rates (at the moment an increase of 1/4% is widely expected at the September FOMC meeting).

One of the key data points will be the potential inflationary impact of employment costs (average hourly earnings).

Bond investors will be concerned with yields that do not give them enough protection over inflation and as can be seen from recent bond market volatility, a concern of the return of inflationary pressures is at the forefront.

Stay tuned.

www.highrockcapital.ca

Is The Music Stopping?

Bond yields are rising (prices are falling) as market participants re-adjust their views on future inflation and build in the end of global quantitative easing (otherwise known as "Tapering").

(click on the chart to enlarge)

We all may remember the lead-up to the US Federal Reserve's "Tapering" of  QE 3.

The expected "Tapering" was significantly more influential on markets that was the actual "Tapering".

However, bond markets can and do lead all other markets and we have to take heed to what they are telling us, for now.

As is usually the case, most investors/traders focus on the stock markets and as usual, they can be late to the party:

While bond markets were signalling a trend change, equity markets were trying to make new highs, but with lighter volume and little follow-through (and rather expensive prices which Fed Chairwoman Janet Yellen suggested yesterday, this blog has been suggesting this for some time) they are now looking for buying support (and selling volume is rising):

• Technically buying support should come at the 200 day moving average at approx. 2030 (for the S&P 500).
• Failure to find support at that level will give way to a test of the 1970 level.
• Below that, the October lows of 1820.

What is important now is patience.

It is not necessary to always be fully invested.

Better Values give way to opportunity.

Cash is an asset and a defensive one.
Grab your chair!

www.highrockcapital.ca

"It's Like Deja Vu All Over Again"

The next NDP "experiment" is upon us.

I do remember the 1990 Ontario version: it was not pretty.

(click on the chart to enlarge)

• Inflation was running at approx. 6%.
• The Bank of Canada Rate was above 10%.
• 5 year Mortgage Rates were over 12%.
• Housing prices plummeted.
• The $C fell from .85 to .72.
• Unemployment rose well above 10%
• The economy suffered.

The Alberta economy is certainly not in the best of shape at the moment after the plunge in oil prices.

The new NDP government will have their work cut out for them. 

History is not on their side!

As George Santayana said:

"Those who do not remember the past are condemned to repeat it "

You Want Financial Success?

You Need A Plan!

Start by identifying your goals:

• Worry-free retirement?
• Warm weather winters?
• Financial freedom (you can work at what you want, when you want)?
• Do you want to leave some money behind when you are gone (because you can't take it with you)?
• Kids, Grandkids, Charities?
• Vacations?
• Real Estate?
• What is most important to you?
• Short-term goals and Long-term goals.
• Give it some thought. Write it down. 

Now, how are you going to get from here to there?

• What are your total assets now (including pensions, RRSP's, TFSA's, RESP's, other savings, Real Estate, Insurance policies (cash value)?
• What are your liabilities (debt)?
• Assets - Liabilities = Total Net Worth
• What are your incomes?
• What are your costs of living?
• Annual income - Annual expenses = savings.

Forecast Your Wealth:

• What is the annual rate of growth of your assets (after expenses: fees, taxes and other costs)?
• Add in your savings (after taking income growth and inflated expenses into consideration) and compound the growth each year (this is where it can really start to work for you).
• Maximize the tax-efficiency of TFSA's and RRSP's.

Need Help?

www.highrockcapital.ca

Is Copper About to Break Out To The Upside?

The price of Copper can be a leading indicator for global economic growth:

After hitting a high of $4.70 in February of 2011, it had been trending lower until it hit a low of $2.42 in January of this year, the lowest level since 2009.

Since January the trend has been to higher prices, closing at $2.92 on Friday.

There have been other consolidations during the 4 year down-trend, however it is important to keep an eye on the $3.00 level (which is close) and a move above this price would signal a break-out to the upside which may have implications for the global economy.

Q1 S&P 500 Earnings:

• 360 (72%) companies have reported.
• 71% have reported earnings above the mean estimate.
• The March 31 estimates were for a decline of 4.7%.
• To date, the blended earnings decline is .4%
• The Energy sector has out-performed expectations.

Forward  S&P 500 Earnings Expectations:

• Q2: year over year decline in earnings of 3.9%.
• Q3: year over year decline in earnings of .3%
• The current forward 12 month Price to Earnings (P/E) ratio is 16.8. The 10 year average is 14.1.

April Month End: Bond Markets Go Volatile!

(chart "geeks": this blog's for you!!)

Euro zone deflation abruptly changed course:

10 year German Bond Yields responded with a significant move higher (prices fall).

From near 0% on April 20th to .37% yesterday, as bond investors now want an "inflation premium" to protect them.

Sentiment is changing and not just in Europe:

Bond yield curves are shifting in North America too.

It is too early to tell if this is a correction of markets that had got ahead of themselves or if it is marking a change in trend, but it is bond markets that lead all financial markets and it is important to keep a close watch on developments on this front.

Stay tuned!!

www.highrockcapital.ca

The Month Of May Brings Some Significant Changes To The Structure Of Our Models:

One of our mandates at High Rock Capital Management is to use our pricing power as an institutional asset manager to pass on cost savings to our Private Clients where we can.

Our thorough research through the month of April has identified a number of areas where we can replace ETF's and Mutual Funds (with relatively expensive MER's) by creating our own baskets of securities to replace them thereby eliminating the additional costs.

By reducing ETF / Mutual Fund use from 100% to approx. 46% we will reduce MER costs from over 0.50% to approx. 0.08% on my original 60% equity / 40% fixed income model.

Management Expense Ratios (MER's) can add up: 

In a November, 2014 article in the Globe and Mail, referencing a Vanguard study: The Average Fee Based Advisor charges 1.25% fee and purchases  mutual funds for client portfolios with an average MER of 1.36%.

(click on this chart to enlarge)

Investors should be aware of these costs because they can, over time turn out to be significant.

In a low return environment even more so!

We believe that it is our responsibility to our clients to provide them with not only better than average risk-adjusted returns, but also to add value by reducing their costs.

www.highrockcapital.ca