November 8, 2015

On Friday, the S&P 500 and Toronto were both about unchanged at the end of the day.

Stocks that were on the rise included most rate reset pref shares, including the Canadian Western Bank rate reset pref shares up 4.5% to $21.30.

Bank of America was up 3.7%.

AutoCanada fell 5.4% to $29.34. I understand that was because it said that the outlook in Alberta was uncertain and might remain weak. (Apparently that was a surprise to some.) Earlier in the day on Friday it was down about 10% and I grabbed some additional shares at $27.83.

Liquor Stores N.A. fell about 10% after reporting earnings. They continued to add modestly to sales but same store sales were about flat and they continue to haveĀ  a dividend that is higher than earnings which is not a sustainable situation.

Last week there was big excitement about a better-than-expected U.S. jobs figure. I do think the U.S. economy is clearly doing well. It’s official unemployment rate is down to 5.0% and it topped out at 10.0% in 2009. Many people argyle the official number is way too low and reality is higher. But even if that is the case it’s hard to argue that things are not a LOT better when the official unemployment rate is half what it was in 2009.

But as far as the excitement over the October jobs creation figure of 272,000 jobs, the financial press should stop to ask about the precision of the number. It’s not as precise as they make out. Also I saw where it tends to go up in October most years. That simply means the seasonal averaging is not working as it should. These numbers are always reported after seasonal averaging. While the jobs number was good it should be taken with some caution due to its inherent lack of precision.

I have been studying the 2014 annual report of RBC. It is no more complex than might be expected for such a large bank. But that still leaves a lot of complexity. I see it as potentially risky but the risks are managed like a finely tuned instrument. As long as the risk management is as good as the bank thinks it is then RBC is probably a bargain at its current price of around 11 times earnings. But I would be cautious about getting over loaded on Canadian Banks because they really do have some risks that could materialise in certain circumstances.

The MELCOR REIT will report tomorrow. I don’t follow it but will check out its results because they will impact MECLOR Developments itself which reports after the close on Tuesday.