March 27, 2017

On Monday the S&P 500 was down 0.1% after recovering from deeper losses earlier in the day. Toronto was up 0.4%.

The U.S. markets continue to largely shrug off concerns about investigations into the Trump campaign and concerns that he will not be able to pass his market-friendly policies which include reductions to taxes and regulations.

Lender Home Capital Group announced after the close that it had fired its CEO. I have not looked at the company for years. For many years it was a market darling and had achieved a very high ROE and growth. The stock peaked at over $50 in 2014. Lending is a GREAT business – as long as bad loans are kept at a low level. This sudden firing of the CEO could signal that bad news is coming in regards to loan losses. It also surely signals dissent in the executive ranks. In a sign of poor succession planning, on the part of the Board, they have not named a new permanent CEO but instead will mount a search. The message that senior V.P.s should take from this is: the Board is not impressed with any of you either. Home Capital was already facing problems due to some loans being issued in 2014 and 2015 through certain external brokers that could be described as “liar loans” (falsely stated incomes and such). That happened before this fired individual was made CEO but he would have been a senior executive at that time. This firing is clearly very bad news.

The yield on the five year government of Canada bond is back down to 1.09% after having hit 1.32% earlier this month. Once again, the long awaited rise in interest rates may fissle out. This is bad news for the rate reset preferred shares, particularly those that face a reset in the next 18 months or so. On the other hand an entity like Boston Pizza looks more attractive if rates are not about to rise.