February 1, 2015 Comments

On Friday, the S&P 500 was down 1.3% while Toronto was up 0.3%.

Notable losers included Canadian Western Bank down 3.1%, Walmart down 3.1%, FedEx down 2.2%.

Gainers included CLO, the oils sands ETF up 6.2%, Couche-Tard up another 3.2%, and Visa up 2.8%.

I added modestly to my Canadian Western bank position. Clearly I had begun buying this one too early as it declined.

It was interesting that the Canadian dollar declined on Friday even as oil has a significant rise of about 8%.

Costco rose 1.7% to $142.99 after announcing a special $5.00 dividend.

Our report includes the following sentence “We think it could easily increase its ROE through added debt leverage but chooses not to.” Well, it turns out that this is what they ARE doing, they are going to have somewhat more debt than would otherwise be the case. They did the same in late 2012.

To some degree the extra dividend also means that they have more than sufficient funds to build their new stores. They are growing organically without having to issue new shares. In fact their share count is down by 8% due to buy-backs and despite any stock options granted. Costco is a wonderful business. The only regret is that is does not look to be selling at an attractive price. Since the only business they are in is their warehouse stores and since they have excess cash (after using an appropriate amount of debt) they have wisely chosen to return cash to their investors.

This week will see many more earnings reports which will push stocks in one direction or the other. Among other market-moving events will be the reaction to Greece and it attempted repudiation of its debt.

It is indeed remarkable that government bond yields for most western countries are at record lows at the same time as default is in the air for Greece and with apparently several other European nations possibly following after that.

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