On Thursday the S&P 500 fell 0.4% and Toronto was down 0.8%.
Most of our stock picks were down today. A notable exception was Canadian Western Bank, up 5.6% on strong earnings. I have had lots of good things to say about this bank over the years. I had sold my own shares this past summer when I worried that it would report losses from the Alberta floods (it has a property insurance division). It seems my fear there was unfounded. And I compounded my error when I failed to buy it back when the bank releases its earnings three months ago indicating no such losses (not material at least). Canadian Western Bank has grown a lot over the years. Despite some major downs as well as the ups, it has been a fantastic buy and hold company over the long term.
Early this morning there was news that the U.S. GDP growth for Q3 had been revised up to a robust 3.6% per year. That is 3.6% real and would be closer to 5% when you add in the official inflation rate. There was also some good news regarding unemployment benefit claims. So, I thought, the market should rise. But it was down instead. The explanations was that the good news is taken as bad news because the FED might taper it’s bond buying. And it is true that higher interest rates could certainly cause stocks to fall despite a strong economy.
Recently I clicked the box to receive all the “new offerings” from TD Securities. I saw an interesting one today, a five year bond paying 4.14% per year from Morguard Corporation. I am not familiar with the company but have heard of it. I clicked on Yahoo and saw it pays a dividend and its share price is up a LOT lately. That gave me some comfort that the bond was safe. The thing with these type of bond issues is that they sell out quickly. There is really no time to do research. It requires a snap decision to buy or not. That’s not my style. I don’t like snap decisions. Anyhow, while 4.1% is unexciting I thought I’d go ahead and buy some as I have some idle cash. I knew that this issue might sell out quickly so there is a certain excitement in the buying process. It would be easy to spend a lot of money fast in a situation like this. In any case when I called in the issue was sold out. I had not seen the email alert until an hour after it came out and the issue sold out in 50 minutes.
If you are interested in bonds for fixed income, I think new issues can be a good idea because you don’t pay any fees to buy and the interest rates may be better than you can find elsewhere on similar risk investments. There are thousands of small bond issues like this and they don’t trade like stocks. Most may rarely trade. If you are a discount broker client (like me) you will likely find that the selection of bonds that you can buy is very limited. These new issues may be the only chance to buy. Having said that, you had better be prepared to hold until maturity because your discount broker may not be willing to buy it from you later and if they do they will charge a fat hidden fee by offering you a low price on it.
As I think about this poor liquidity it is perhaps for the best that I was not able to buy any of this bond today.