August 31, 2016

On Wednesday, the S&P 500 was down 0.2% and Toronto was down 0.6%. Oil is down to $44.90.

Bombardier was up 2.9% to $2.15. This stock can certainly gain on news. But I am not convinced it will gain much since each quarter when it reports earnings the results are likely to be disappointing. More importantly, I am not convinced it is worth $2.15  given its negative book value per share and given that it would take years to work back to even a zero book value at the kind of profit levels it appears to be projecting.

After the close, Costco reported same-store sales for August. The unadjusted number was 0% but was 2% after adjusting for currency and gasoline price changes. This is a bit weaker than the historic average for Costco and the weakness have been occurring for several months. It’s not a bad result but given Costco’s high P/E ratio and high expectations the market may take this as a negative.

The Second quarter GDP report and the interpretation thereof was a bit confused today. The main GDP by industry press release did not even actually state what the quarterly number was. The press release on how the GDP was consumed indicated that the second quarter decline was 0.4%. This was widely reported as a decline of 1.6%. But really it was a decline that if continued at that rate for a full year would be minus 1.6%. But no one expects that. All in all the GDP change is subject to measurement error and also is not the only measure of economic activity. Given that the second quarter was heavily affected by the temporary oil shut down in Alberta, I would not read much into this GDP figure.

On Monday, the TD Bank issued rate reset preferred shares at a yield of 4.85%. That is down from the approximate 5.5% rate that applied to bank rate reset shares earlier this year. But it is still much higher than the 4.0% and lower rates that applied a few years ago. This decline in the market yield bodes well for all those existing rate reset shares that have fallen well under $25. If market yields were to move back to and under the 4% level then many of the existing rate reset shares would rise in price.