2023

The report on Visa Inc. is updated and rated (lower) Buy at $260.

This has been and is likely to continue to be a very high quality investment. It’s not cheap but is also not extremely expensive in relation to earnings and its quality. It’s been a fantastic company to buy and hold.

The price rose 25% in 2023 from $208. There are times when its price dips. Those times have proven to be buying opportunities.

P.S the first few comments for 2024 will be posted to the Subscriber Home Page.

Today is the last trading day of the year.

On Thursday, the S&P 500w as about unchanged while Toronto was down 0.4%.

Markets are relatively quiet but down mostly so far today.

Aecon Group is up 2.9%% after announcing it has paid off its 5% convertible debenture as scheduled.

I have not had any great luck with the various convertibles debentures that I looked at and and had on the list or mentioned over the past few years. Occasionally the convertible feature can pay off. But in that case it would have been better to simply own the underlying stock directly.

These convertibles paying about 5% to 6% seemed attractive a few years ago when GICs and high interest accounts were paying very little. But they were and are more risky. In the majority of cases they will pay out at maturity as promised. But they are issued by weaker companies and there is always some chance of a significant loss. I’ve pretty much lost my taste for these and will hope those I hold matures as promised. I hold a material amount of the convertible debenture of the Melcor REIT which I am quite confident will pay off as scheduled at the end of 2024. But I have very small amounts of two others that look very risky risky. HOT.DB.V and ECN.DB.A.

Wednesday session saw the S&P 500 up 0.1% and Toronto up 0.65%.

AutoCanada jumped 8.2% on the news that I mentioned in my previous post. I think management here is strong and aggressive in pursuing profits and improvement. But the high debt is a definite risk.

TFI International was up another 3.8%. This is a company that has just gone from strength to strength over the years and has been superbly managed in a tough industry. Occasional pull-backs in the price have been great buying opportunities. A great long term hold.

Today is a travel day for me. Cape Breton to Edmonton. I’m scheduled through two airports and it could be a long day. I actually have a lot of sympathy for Airlines. It is a very tough and often unprofitable industry. The logistics and connections that have to happen are complicated even in good weather. Bad weather usually wreaks havoc. Passengers opt for the cheapest possible fares in most cases and are usually unforgiving of delays. And passengers wonder why the seating is so crammed. They voted for that with their wallet.

On Tuesday, the S&P 500 was up 0.4% while Toronto was closed for the holiday.

I did not see any particularly notable moves in the stocks I monitor.

Stock market futures suggest a quiet opening for the U.S. markets.

AutoCanada has sold a 10% interest in its newer business of selling finance and insurance to kijiji vehicle buyers. They are getting $25 million which probably indicates that they have created good value with this new business.

In theory, Costco should have dropped $15 as it went ex-dividend on its $15 special dividend but that does not appear to have happened.

The report on Toll Brothers is updated and rated Weak Buy / Hold at $104. This stock has surged from about $68 just two months ago. Its contracts to build new homes have surged recently and so the stock price could very well continue to rise. Home Builders have been doing well despite higher interest rates because there has been a lack of existing homes for sale as homeowners with low mortgage rates locked in long term are reluctant to sell. And in recent weeks lower interest rates have been beneficial. Its profit margins on each house have also recently surged.

This is a strong company but it tends to be volatile and so I am cautious on it now after the recent price surge. Its reported earnings are likely to decline year over year in the next two quarters due to lower contracts last year. It’s not clear if that will impact the price since the market may pay more attention to the higher signed contracts that will show up in higher profits by the last half of its  fiscal 2024 ending October 31, 2024.

On Friday the S&P 500 was up 0.2% while Toronto was up 0.6%.

On Thursday and continuing somewhat on Friday the tow Brookfield Office Properties (BPO)  preferred shares were down a total of over 10% after S&P downgraded the debt of its parent Brookfield Property Partners from BBB minus, to BB (which is called Junk status or non-investment grade.) This parent guarantees the preferred shares but the ultimate Brookfield Corporation parent does not.

I have said that these two are quite risky and that certainly the market judges them to be quite risky. This credit downgrade hade been rumored for several months. I find it a bit annoying that S&P was slow to do this and now they finally do it when bond interest rates have declined which will benefit this company. Brookfield seems to remain very confident that these properties will do well over time. They finance each property separately on a non-recourse basis and so they have handed a few problematic properties back to lenders. Overall, these shares are risky I will continue to hold on the expectation that they are likely (but not guaranteed) to recover over time. And they are likely to continue to pay the dividend. Of course I would not want to be too heavily exposed to a risky position like this.

On Thursday markets mostly recovered from the little swoon of Wednesday afternoon as the S&P 500 rose 1.0% and Toronto rose 0.8%.

Linamar was up 2.9% after announcing an acquisition.

After the close it was announced that the Canadian Minister of Finance was giving the green light to RBC’s acquisition of HSBC Canada. Conditions included a short moratorium on layoffs and that they must keep 33 branches open for four years.

Canadian Western Bank has designs on luring away some of HSBC’s commercial customers. Those customers presumably like dealing with a smaller bank.

One thing that got little attention is that a lot of immigrants may have used HSBC becasue of its vast international linkages through the parent HSBC. Tough luck I guess. It’s true, RBC also has big international operations but not so much (if any) in terms of retail branches in Europe and Asia.

I was a bit surprised that what I call the Competition (Elimination) Bureau did not object to this decrease in competition. But it’s par for the course for them.

As far as keeping branches open, really bank branches are far less needed these days. I was in CIBC’s main Halifax branch last week ( to get a PIN on a new credit card) and they had one teller open in a cavernous bank hall and only two other customers besides me. Similarly I made a rare visit to a big TD branch yesterday (big downtown branch) to get some physical cash for Christmas and I had zero wait time to see a Teller.

It was the competition from HSBC (lower mortgage rates) that was and is needed. Instead of protecting competition the government is protecting obsolete jobs and obsolete branches (for a short while). Finger in a leaky and failing dike scenario. You can’t stop progress as we used to say – back when people were more sensible.

Markets turned noticeably lower in the last couple of hours of trading on Wednesday. The S&P 500 ended the day down 1.5% while Toronto was down 1.15%.

FedEx got hammered down 12% today in reaction to its earnings release yesterday afternoon. I had FedEx on the list here quite some years ago and it turned out to be a strangely volatile stock. It’s obviously sensitive to the economy and to fuel prices but it has also made operational mistakes over the years and struggled with a huge acquisition years ago. I have no opinion on it now.

Costco finally had a bad day, down 2.5%.

Starbucks was down 3.1% to $94. I like it at that price.

Canadian Tire was down 2.7% and may continue to be weighed down by a sentiment that people are cutting back on non-essentials due to inflation. I like the stock for the long-term.

Shopify was down 3.5%.

This kind of pull-back was to be expected after all the recent gains.

On another note I saw on CBC last night that Airdrie Alberta is one of the fastest growing communities in Canada. Melcor has I think two communities there with new lots available in Q4. They should have a decent Q4. Also Alberta gained 44,000 new people in Q3. That should be good for Melcor and perhaps more immediately good for a company like Boardwalk Equities and I think Mainstreet equities as apartment rents are rising.

After the close, Linamar announced that it is making a $640 million acquisition in the agricultural sector.

Markets powered ahead some more on Tuesday with the S&P 500 up 0.6% and Toronto up 1.05%.

West Fraser Timber surged 10.2% but I did not see any new to explain that. Possibly an analyst upgrade.

TFI International was up 3.0%.

Statistics Canada reported that Canada’s population surged by 431,000 in Q3, the largest increase ever in a single quarter. The population is now 40.5 million. Non-permanents residents are a huge part of the growth and that’s after deducting those that left during the quarter. As far as corporations go I would say this positive for grocery stores and for Apartment REITS.

Alberta was the only provide that gained in terms of net inter-provincial migration (I’ll call New Brunswick unchanged as a reported net gain of 21 people from other provinces), Alberta seems to have the fastest growing economy in Canada at this time. Hopefully Melcor can finally parlay that into something good. I continue to try to light a fire under their management. I don’t think I’m their favorite person at all.

The Feds introduced aggressive targets for Electric Vehicle sales and Alberta said get lost. It’s not clear yet what impact this might have on AutoCanada.

On Monday, the markets continued to push higher on hopes that “lower interest rates (like St. Nick) soon would be here”.

If those hopes are dashed in any way including by the upcoming wording of the Fed’s meeting minutes, then things could go the other way. Apparently the next minutes are not due out until early January however.

On Monday the S&P 500 and Toronto were each up about 4.5%

Oil has recovered to $72.30 which is a positive for the Toronto market.

Costco continues to power ahead and was up another 3.4% to $681 and may well crest $700 before long. This company is a always a power house retailer but is expensive at 44 times trailing year earnings and 46 times forward forecast earnings. Those figures would seem to indicate modest expected earnings growth. There is also speculation of an increase in the member fee and that may or may not be reflected in the forward earnings.

All the preferred shares on our list have been updated. In general the dividends are attractive especially in taxable accounts. Their price action will depend largely on interest rate moves and expectations in most cases. In a few cases (most notably the Brookfield ones on the list) credit strength of the company is also a major driver.

Canadian inflation for November came out today and was about unchanged at 3.1%. I doubt the market will have much reaction to that although this is a little higher than expected. However the Bank of Canada governor Tiff Macklin continues to push back against the idea that rate cuts are in any way imminent. So that could cause some reaction in Canada. Canadian headline inflation will likely be lower in December with lower gasoline prices.

I’ve just updated most of the preferred shares on our list. With a good selection of both perpetual and rate resets.

I’m surprised that the perpetuals have not risen more in response the the sharply lower government bond yields this past week and recently. That in turn was due to indications that the central banks will lower interest rates next year. Hopefully the perpetuals will rise in the coming weeks if the market remains convinced that interest rates will decline in 2024.

The rate resets are harder to judge. As bond yields come down, their current yields look more attractive but that may be offset by the fact that their projected future reset yields have declined with lower interest rates. In this case a reset that is four to almost five years away from its next reset and which has a high yield might be a good bet.

It’s always possible that any one of these preferred shares will be redeemed at $25 (for resets that can only happen on the reset dates every five years). In most cases this would be a nice capital gain from current prices. But we can’t count on that. The Banks are somewhat more likely to redeem because as regulations change certain preferred shares are no longer as useful to them and so they sometimes redeem them – but it’s hard to know the possibility of that happening. It’s best to buy these for the yields and not count on any future redemption ever at $25.

It’s also best to diversify across a number of these rather than concentrate on one or two issues.

It’s hard to judge what rating to put on these and there is not much difference here between my (higher) Buy rating and my Strong Buy rating.

On Friday markets curbed their recent enthusiasm a bit as the S&P 500 was about unchanged on the day and Toronto was down 1.2%.

Costco was an exception as it gained another 4.45% after its earnings release and its announcement of a $15 special dividend. It’s definitely expensive at 45 times trailing earnings but betting against this power house usually turns out to be a bad idea.

Most stocks on our list were down modestly. Dollarama was down 3.1% to $90. It’s not cheap at 27 times trailing earnings although at Yahoo’s reported 20 times forward earnings it would not be expensive. Overall, this price might be an opportunity to nibble.

The market has been somewhat euphoric after indications from the FED that interest rates are likely to decline. Government Bond rates (yields) are already down a LOT. The 5 year Canada bond yield is at 3.27% and it was as high as about 4.45% in early October.

Looking forward, we should remember that markets can easily and instantly turn negative as events unfold. Therefore a balanced approach is usually a good idea. Trimming a little from equities to rebalance to a target percentage of safer investments is considered prudent.

CMHC has reported housing starts for November. For Canada they were down 20% versus the same month last year with single-family starts down 15%. But Alberta was a bright spot with overall starts up 29% year-over-year and single-family starts up 41%. Calgary was particularly strong. Alberta year-to-date starts are down 5% with single family starts down 14%. Overall it appears that Q4 will be reasonably strong for home starts in Alberta. This is positive news for Melcor Developments. Perhaps that stock can finally start to show some life by net Spring. It is however very thinly traded and the market does not pay it much attention. I just wrote a lengthy email to Melcor’s management yesterday outlining my concerns. I’m trying to put the wood to them. It can’t hurt to remind them that investors are not happy. They don’t hear from many investors at all.

An interesting day in the markets on Thursday. The S&P 500 was up 0.3% and Toronto was up 0.7%.

Shopify was up 4.2%.

Toll Brothers was up 9.0% which seems a bit crazy after its recent gains. I decided to reduce my position which may not have been wise given the way this stock has been roaring up. But it’s also been a very volatile stock over the years so I decided to sell some.

AutoCanada was up 9.8%.

All in all, another good day in the markets.

Costco reported good results after the close and a special dividend of $15.

On Wednesday, the Fed delivered quite the Christmas Present indicating that the rate increases are over and that its likely that there will be three rate cuts by the end of next year.

Stocks and bonds jumped as this news came out at 2 pm eastern.

The S&P 500 ended the day up 1.4% and Toronto was up an impressive 2.0%.

The 5 year government of Canada is down to 3.36%. That’s down more than a full percentage point versus is recent peak of about 4.4% in early October. That is a huge decline and should certainly bring about lower 5 year mortgage rates.

Among the more notable gainers today were:

West Fraser Timber up 5.8%
AutoCanada up 8.0%
RioCan up 6.1%
Toll brothers  up 4.4%

I would expect the perpetual preferred shares to increase on this news but they did not seem to move much today which could be due to their thin trading volumes.

The Rate Reset preferred are always harder to predict. Those that have recently reset to higher dividends should do well given the higher rates will be in place for 5 years. Those that are soon to reset could decline on this news since their reset levels will be lower with the lower 5 year government bond yield.

All in all, a very good day in the markets!

On Tuesday, after a slow start, the S&P 500 ended the day up 0.5% while Toronto was down 0.4%.

Oil prices were down with West Texas currently at $68.82 down 3.5% today.

Costco pushed up another 0.9%.

Restaurant Brands was up 1.9%. And Visa Inc. was up 1.2%.

Tomorrow the market will react to the latest comments from the Fed. The market is looking for some signs of reassurance that interest rate cuts are at least possible next year.

The report on Andrew Peller is updated and rated Weak Sell / Hold at $4.57. (Friday’s closing price). (It closed today at $4.40)

This has turned out to be a low return business in terms of its accounting profit for the past few years and the share price has done very poorly.

It is possible that things will improve but in the long run its unlikely to be a high return business.

You might think that a long-established wine producer would be quite a profitable business so it’s useful to look at some of the reasons why its returns are low.

Lack of brand loyalty is a big problem for wine producers. The typical customer looks for whatever brand is on sale. And customers can easily change brands with every purchase. Andrew Peller has a number of higher priced brands (Wayne Gretzky, Sandhill, Tinhorn, Gray Monk and others) but their biggest seller is Peller Family which they bottle from imported bulk wine. The Canadian producers face higher costs that many European producers and so it’s very hard to compete.

Another issue that wine producers face is that it is a capital intensive industry. Vineyards tie up a lot of money. Andrew Peller’s lands may be worth far more than book value which is great in theory but if the land is never going to be sold then investors can’t realise the higher value.

I own some shares and will keep them in the hope of a better price in the next year or two but my thinking is that this will never be a high return business due to the lack of a lot of brand loyalty and the competition from imported wine.

On Monday the S&P 500 was up 0.4% while Toronto was down 0.1%.

Costco was up another 2.1%. I have long said it’s a powerhouse. But I have been surprised at the recent gains. It’s expensive at 43 times trailing earnings and 39 times analyst forecast earnings. It’s same-store sales have softened somewhat as I have mentioned. But analysts remain enthusiastic. It reports earnings on Thursday.

Canadian Tire was down 2.7% and Canadian Western Bank was also down 2.7%.

The U.S. economy has been growing at a rapid pace while the Canadian economy is quite stagnant.

On Friday, the S&P 500 was up 0.4% and Toronto was up 0.3%.

lululemon was up 5.4% as the market decided it liked its earnings results. I’d be tempted to trim my position at this price ($490). If I do so, I’ll be hoping to buy back in at a lower price since this is a long-term winning company. I definitely will not sell my whole (relatively modest) position.

Toll Brothers was up another 1.9%.

Canadian Western Bank was up 2.9% to $31.10 after releasing Q4 and fiscal year-end results. The 2.9% gain on Friday was quite good on top of its recent gains and in light of the market’s general caution toward bank stocks at this time. CWB’s loan loss provision was quite low. I believe this stock remains under-valued.

On Thursday the S&P 500 was up 0.8% while the Toronto stock index was about unchanged.

Toll Brothers was up another 2.5%.

After the close, lululemon reported another strong quarter but apparently gave a cautious outlook for their all-important Christmas quarter. It’s interesting to see vastly different headline reactions to the same news. I saw: “Lululemon shows no real signs of slowing down” but another headline said: “Lululemon’s bleak holiday-quarter targets overshadow strong Q3 results”. The stock was down 2.6% after hours. We’ll see how the market reacts on Friday.

Canadian Western Bank announces its Q4 and fiscal 2023 earnings tomorrow morning. I’m hopeful for a good report but there could certainly be some negatives in terms of loan losses or possibly severance costs if they decide to cut back on staff. They were expected to show a higher net interest margin. Their commercial borrowers faced loans renewing at higher rates and this could slow the appetite for such commercial borrowing.

Statistics Canada released building permit data today.

For Canada residential building permit values for October were up 15.9% year-over-year although about flat compared to September. Non-residential permits were up 16.4% year-over-year and 5.3% higher than September.

I’m always interested in the Alberta residential permit figures given my shares and interest in Melcor Developments Ltd.

Alberta residential building permits were up a hefty 22.7% year-over-year for October and 14.8% higher than September. Alberta non-residential permits were up 28.7% year-over-year and 31.9% higher than September. While there can be volatility due to large multi-family and non-residential projects, this is impressive growth any way you look at it.

Price Edward Island’s building permits were up 147%! But that probably amounts to what? Three new houses and a barn (just kidding…sort of).

https://www150.statcan.gc.ca/n1/daily-quotidien/231207/t002a-eng.htm

I saw a mention today that Canadian Utilities is offering to covert it’s thinly traded class B voting shares to Class A non-voting shares on a one-for one basis. The parent ATCO Inc. controlled by the late Ron Southern’s family owns 97.4% of the B shares. The comment I saw recommended owners of the B shares accept the conversion offer.

From a sort of purist point of view it sounds better to have owned the voting shares. But from a practical perspective the votes of the 2.6% public owners counted for nothing and the thin trading is a disadvantage in buying and selling. (Larger bid/ask spread, higher volatility).

I have not looked in detail but checking prices at end of January, February and March 2023 it does not appear that the voting shares traded at a consistent premium. Basically it appears that the market did not place any additional value on the votes given the 97.4% majority owner.

That makes sense and I recall a few other cases over the years where a thinly traded share class had more votes but the market did not provide much if any premium.

But Canadian Tire has been an exception to that going back I believe to the late 80’s.

Canadian Tire’s thinly traded voting shares CTC on Toronto have traded at a very large premium over the non-voting heavily traded CTC.A shares. As of right now I see CTC at $271, up 6.25% total on just 228 shares traded. That’s a HUGE premium of 87% over the non-voting CTC.A shares at $145.09 up 2.1% on 48,627 shares traded as of 1:22 pm eastern.

So why do Canadian Tire’s thinly traded voting shares consistently trade at a huge premium? That’s a mystery. The “non-voting” shares actually now get to elect three directors in a change that was made I believe a few years ago. That should reduce the premium on the voting shares but it has not. Also the dividend on the non-voting shares is one penny higher per year but that’s pretty minor.

Martha Billes, daughter of a founder of Canadian Tire, together with her son Owen Billes, owns 61.4% of the voting shares. The Dealers Association owns 20.6% of the voting shares (and they may or may not have an agreement to have a Dealer or three on the Board and there are currently three dealers on the Board). The employees share owners plan  owns 12.2% of the voting shares. This leaves only about 6% of the voting shares available for trading.

I’ve looked into this and it appears that the three main owning groups have made an agreement not to buy additional voting shares as their percentages have remained constant for a long time.

And, importantly, there is a “coattail” provision (see note 26 of the annual financial statements) whereby if there is a bid to buy “all or substantially all” of the voting shares then the non-voting shares become voting. That should mean they would not pay a big premium for the voting shares. Given this I was surprised that there is a big premium on the voting shares. But , I suppose this leaves open the possibility for someone to just buy control from Martha Billes (with or without Owen Billes shares) without triggering the coattail and that may explain the premium. Then again would they have to buy the public’s shares? Or maybe the thinking is that one of the three controlling owner groups would buy out the public shares at a big premium at some point without triggering the coattail.

In the end it remains a long-standing mystery. In my view it is risky to hold the voting stares. There is probably a far bigger chance that the premium goes away at some point as opposed to someone buying the A shares at a big premium.

In summary, there are complexities when there are voting and non-voting shares and the usual advice for investors is not to pay much premium for voting shares. And if you do not intend to hold long term then stick with the higher volume share class.

On Wednesday, the S&P 500 was down 0.4% and Toronto was down 0.5%

Shopify was down 4.8%.

After the close CN Rail announced a small U.S. acquisition but it is pending U.S. approval. They said the deal “closed into a voting trust” pending approval. That may mean that CN starts operating it immediately and getting revenue immediately. I’m not clear on that.

The price of West Texas Oil slipped below $70 for the first time since July. That’s directionally negative for Alberta. But I’m not aware of any strong indications that the price will stay below $70. It can rebound very quickly. Meanwhile, I would not worry much about Alberta.

Markets were relatively quite on Tuesday…

This morning they started off strong buy then started to fall and are down modestly at the moment.

As expected, the Bank of Canada left interest rates unchanged in its decision today. Bond yields are down modestly today. The perpetual preferred shares should be moving higher with lower interest rates. The last I checked they had mostly not moved much. But check the price history if interested. See link to price for those listed on the Subscriber Home Page. Rate reset preferred shares are always tougher to predict and the effect of interest rate moves depends partly on how many years or months until the next reset.

Toll Brothers is up 2.5% after releasing earnings. As expected actual earnings were down in the quarter versus 2022 because they are driven by contracts to build homes that were signed 9 to 15 months ago. But contracts for homes to be delivered in future were very strong. This company has been a star performer this year.

I don’t shop that much but here are my recent observations.

On a weekday afternoon last week Costco was quite busy. Next door Lowe’s was extremely quite. Lowe’s is not exactly a Christmas destination but it was really quiet.

My local large Canadian Tire I have noticed has been loaded with inventory – And it appears to be getting whittled down. I think their sales will be softer but should not be too bad.

I was at our local Outlet Mall near our Airport yesterday just before noon. Very quiet but that may not be unusual for that outlet mall. Under armour had almost everything 50% off which is not a great sign. That’s a discount off supposedly already discounted prices. The Nike store had lots of items 30% off.

I’m wondering how lululemon will do. If people really do cut back they should be vulnerable. But people like the quality and so I’m not going to bet against them.

On Monday the S&P 500 was down 0.5% and Toronto was down 0.2%. This comes after very strong recent gains.

West Fraser Timber was up 4.9%.

Today, the market seemed to decide that maybe it was no quite so sure about coming interest rate reductions after all. But it was a small pull-back in light of recent gains.

This is an update on a very disappointing investment.

I’ve rarely had any penny stocks on the site but RIWI Corporation was on the site from July b2020 until I believe the end of 2021. Unfortunately the price in that time has slipped from $2.95 to $0.70.

It’s had a lot of turmoil and it has lost money for the past two calendar years. It’s now looking a little more promising as it made a tiny profit in Q3 and appears set for profit going forward.

I wanted to update it because I still own it. I won’t add it back on the list with a full report unless someone wants me too.

At this point those holding it in a taxable account could sell for tax-loss purposes. Or just hold it and see how it does next year.

I’ll just post here the Summery cell from my updated analysis.

Markets ended the week with strong growth on Friday as bond interest yields fell even as the Fed Chair tried to warn he might possibly not be done raising interest rates yet. (The market did not believe him).

On Friday, the S&P 500 was up 0.6% and Toronto was up a hefty 1.1% on the day.

lululemon was up 4.4% (there was likely an analyst upgrade, it reports earnings next week)

AutoCanada was up 4.4%. (I expect continued volatility here, I have seem some anecdotal reports that car dealers in general are quiet with few sales and their inventory is piling up. It may take manufacturer incentives to move more vehicles off the lot. With the high interest on floor plan – inventory – financing I would have thought dealers should be cutting inventory but that did not seem to be the plan for AutoCanada in its Q3 report.)

Canadian Western Bank was up 3.8% getting back above $30 for the first time in about 18 months. Hopefully their Q4 report next Friday will at a minimum support this increase. But positive or negative surprises are always possible.

Over the past few days I updated my detailed analysis of the valuation of the S&P 500. My analysis may in fact be overly detailed.  I concluded that it looks moderately overvalued but there is a lot of uncertainty in the valuation in both directions depending on various assumptions. And it may be that the out-sized impact of the 7 or so largest companies is making this valuation exercise even more uncertain.

On Thursday, the S&P 500 was up 0.4% and Toronto was up 0.6%.

Bank stocks were mostly higher today except for TD which reported disappointing earnings.

In general it was another good day to be an investor.

But there are many signs that the Canadian economy is slowing.

On Wednesday, the S&P 500 was down 0.1% but Toronto was up 0.4% and most of the stocks on our list were higher on the day.

Canadian Western Bank was up 2.2%. It’s hanging in well in the face of news about bank loan loss provisions. I do think it’s under-valued. But at the same time with the big banks mostly falling in price, if CWB can just hold this price when it releases Q4 results next week, that would not be a bad thing.

Toll Brothers was up 1.9%.

AutoCanada bounced up 3.3%.

lululemon was up 2.5% and has done well in the face of so much talk of consumers being under pressure.

After the close, Costco reported another month of tepid (certainly by their standards) same-store sales growth in the U.S. at 3.0%. Canada continues to post higher numbers and was at 7.9%. My suspicion is that Costco is holding the line on prices in the U.S. more so than in Canada. I had thought this recently tepid same-store growth in the U.S. would push Costco’s share price down somewhat but instead it has risen in the past few months. I’ve seldom been right when betting against this company but once in a while it does go lower.

On Tuesday, the S&P 500 was up 0.2% while Toronto was about unchanged.

The market appears to be increasingly convinced that the that peak of interest rates has been reached. The yield on the 5 year government of Canada bond is down to 3.7%. In early October it was 4.4%.

Charlie Munger, Warren Buffett’s long-time business partner and close friend passed away today at the age of 99. His wit and wisdom is legendary.

On Monday the S&P 500 was down 0.2% and Toronto was down 0.35%.

Shopify was up 4.1% after reporting strong Black Friday results.

On Friday, markets were little changed with the S&P 500 up 0.1% and Toronto down 0.1%.

The rate reset preferred shares were mostly up on the day. These have mostly done quite well in the past month since they dipped at the end of October.

Many high quality stocks have also done very well in the past month. This includes Apple, VISA, Costco, Amazon, Constellation Software and others.

This coming weak we will get Q4 reports from the large Canadian Banks. It will be interesting to see if they have much to say about the extended amortizations on variable rate mortgages with fixed payments or on the risks associated with probable lower home prices. Looking at RBCs reports this past year, they have not said much at all. I would think that they will have to address it given that it has been so much in the news.

Canadian Western Bank reports on December 8th. They are largely a commercial lender and so should not be impacted by consumer debt issues. But certainly some commercial borrowers will be feeling the pinch of higher interest rates.

The report on Melcor Developments is updated and rated Buy at $10.36. This has indeed been a frustrating investment. Based on its book value per share of $39.50 it appears to be vastly under-valued. But it has made poor returns on equity for the past ten years. And with higher interest rates affecting both its revenues (harder to sell home building lots) and its expenses it seems that a sharp recovery may not be imminent.

Given the low ROE it may be that this company has its assets stuck in inherently low return businesses.

On a positive note, the 5.6% dividend yield is quite safe and will likely be increased in 2024.

If Q4 comes in reasonably strong we should see an increase in the share price.

The stock also suffers from an almost total lack of analyst coverage. RBC does cover it and has a price target of $16

On Thursday, the U.S. markets were closed for the holiday while Toronto was about unchanged on the day.

This Friday morning markets are little changed with no moves of any particular note for the stocks on our list.

U.S. markets close early today at 1 pm eastern time.

TransAlta is added tot he list rated Speculative Buy at $10.91. This company has quite a poor long-term history. But management has changed and its generation assets have changed as it phased out coal (converting some coal units to natural gas) and as it invested in wind and solar and based on recent acquisitions.

It may not be suitable for a long-term hold but it currently appears to be under valued.

It’s earnings are difficult to interpret due to various non-cash items and the impacts of hedging. For this initial report, I used free cash flow as an estimate of adjusted earnings. Not that this is a speculative investment due to its inherent unpredictability.

On Wednesday the S&P 500 was up 0.4% while Toronto was about unchanged.

Most stocks on our list were up on the day.

Canadian Tire was down 2.7% and it was also down yesterday. The worry is that much of what it stocks is discretionary in nature. It also faces risks from credit card delinquencies. The stock is down substantially and so it seems cheap but it may continue to be out of favor. But it has been a long-term winner and well managed company and I expect that to continue.

Thursday and Friday will likely be quieter times for the markets given the Thanksgiving holiday. U.S. markets will be closed on Thursday.

On Tuesday the S&P 500 was down 0.2% and Toronto was down 0.7%.

Canadian inflation came in a little lower than expected adding to confidence that there will likely be no more interest rate increases in the foreseeable future and that the next move in interest rates will likely be a modest reduction starting sometime next year.

Markets are modestly higher this morning.

On Monday, the S&P 500 was up 0.7% and Toronto was up 0.35%.

I plan to add TransAlta Corporation to our list soon. I have experience in the power industry and I am interested in following this sector to some degree. I bought a small position in TransAlta shares today but I have not yet “ran” the numbers on the company. It can be a volatile sector.

On Friday, the S&P 500 edged up 0.1% while Toronto was up 0.6% as oil recovered somewhat.

Canadian Tire was up 2% to 148. It faces a softer economy with people cutting back on discretionary spending. It’s had a strong recovery since it dipped to $132 at the end of October. It’s probably going to continue to be a bumpy ride.

On Tuesday, Canada gets its next reading on inflation and the Federal government releases a fiscal update. Never a dull moment.

On Thursday, the S&P 500 was up 0.1% while Toronto was about unchanged despite a noticeable drop in oil prices.

Costco was down 3.0% after Walmart apparently warned of softer sales conditions ahead.

AotoCanada was down 4.8%. This one could certainly continue to sink due to higher interest rates affecting sales as well as adding to their costs. I think it ultimately recovers again but that is not a certainty.

CMHC released housing starts for October. For Canada the overall trend was up 1% versus September. Multi-family starts are the biggest part of the market. These tend to be much more volatile than singe-family starts.

On a year-over-year basis, Single family home starts in October this year in Canada were 12% lower than last year. (As last year was no barn burner). However single family starts in Alberta were up 20% with Calgary at 27% and Edmonton at 24%. That’s positive news for Melcor Developments although the housing start numbers remain well below historical peak levels.

On Wednesday, the S&P 500 and Toronto wee each up 0.2%

Notable gainers included: Shopify up another 3.4%, Linamar up 4.0%, and Constellation Software up another 2.3%.

After the close, the Melcor REIT announced that its next monthly distribution will remain at 4.0 cents. The yield is now almost 13% and it seems clear the market is expecting a distribution cut or possibly even a suspension. Interest rates are the big issue as more of the operating earnings has to go toward interest payments. In addition, the rental revenue has been flat while some operating costs are rising. The REIT has some properties for sale in order to reduce debt. To the extent that the units are truly under-valued it might make sense for them to do a rights offering whereby the parent Melcor Developments as well as all existing unit holders could buy more units at a low price to shore up the balance sheet and reduce debt and any existing unit holder who fully participated would not be diluted.

The Brookfield Office Properties on out list have has a partial recovery in recent days. Yesterday, Brookfield Property Partners (which guarantees these preferred shares of its subsidiary Brookfield Office Properties – which no longer publishes financial results) issued Q3 earnings. They are losing money at this time but the situation did not seem to have deteriorated compared to Q2. This is a very complicated entity and so I would continue to treat these preferred shares as speculative. Brookfield Property partners has both office and retail properties and their Retail properties appear to be improving.

Autocanada is updated and rated speculative Buy at $19.35.

This has been a highly volatile stock. But I believe that the management that took over in 2018 are quite strong.

Markups or gross margins on vehicles have become highly volatile in the past two years or so as vehicle shortages have at times allowed for very lucrative markups. In the latest quarter just reported that was definitely not the case and the stock price got pushed down very significantly. Q3 earnings were lower due to the lower markups (stiffer competition) but also due to significantly higher interest rates.

AutoCanada has very significant debt to “carry” its inventory.

I’m concerned about the debt levels and that fact that interest costs will sop up more of the operating earrings. For the next two or three quarters, interest is likely to be higher due to higher rates year-over-year. Perhaps by Q3 2024 interest rates year over year will not be much higher.

Listening to the conference call I was surprised that that there were zero questions about the debt levels or interest rates.

On the call I was impressed that Paul Antony (executive Chair and I believe effectively CEO) laid out what seemed to credible plans for operating improvements. He also handled most of the questions.

Paul Antony appears to very ambitious and dedicated to growth and higher earnings.

I think the debt level here makes this stock somewhat speculative but it should continue to improve over the long term. The outlook for the next few quarters however is more likely an earnings decline than an increase it appears.

Wow, markets jumped on Tuesday after U.S. inflation came in lower-than-expected giving further hope to the idea that the FED’s interest rate hikes may be at an end.

The S&P 500 surged 1.9% and Toronto surged 1.6%.

The great majority of stocks rose on the day. Bonds also rose. And preferred shares mostly edged up as well.

Some of the more notable gainers included:

Toll Brothers up 8.0%, Shopify up 4.3%, West Fraser Timber up 4.3%, and lululemon up 3.2%.

Costco was up another 2.2% to $591. I have an order in to sell some of my Costco shares at $595. Costco is an absolutely fantastic company but I thought the P/E was rather high and I thought the market might start to react to its lower same store sales growth. But so far the market is still loving this company and it may well be a mistake for me to lighten my position.

Presumably, tomorrow will be a quieter day in the markets.

On Monday, the S&P 500 edged down 0.1% while Toronto was up 0.3%. (I understand oil prices were slightly higher)

Stantec was up 2.3%.

Dollarama hit $100. My god, that is a profitable business.

Constellation Software was up another 1.9%. This has been one incredible business for years. It also spun off at least one business, (I think two now) so you have to add those to the returns of long-time owners.

Linamar was down 3.3%.

AutoCanada was down another 4.6%. I’m digging into their results. Q2 had been highly profitable but Q3 was quite bad indeed and it’s not clear that the next few quarters will be good at all. But I want to dig into it a lot more yet.

US inflation numbers come out tomorrow (Tuesday) and the markets await with bated breath. The markets, being forward looking, are always awaiting and trying to anticipate the next big data point.

On Friday, the S&P 500 rose through the day and ended the day up a stout 1.6%. Toronto was up 0.3%.

Stantec was up a hefty 8.6% after a strong earnings report.

Similarly, Constellation Software was up 3.7%.

Most of the better companies were higher on the day.

Andrew Peller staggered back from the depths and rose almost 14% after its earnings report. Apparently the market was not upset with the four Board members leaving.

I updated Canadian Tire (see just below) and AutoCanada will be the next update.

Yesterday, I posted an updated report on Canadian Tire. This is a well-managed company. It has really been firing on all cylinders since about 2011 with an average ROE of 16% and got over 20% with the pandemic sales in 2020 and 2021. Everyone was buying bikes and various sporting equipment.

Management has impressed me for a long time adn they seem always focused on growing earnings. But they move cautiously and deliberately. They have made online sales and their Triangle rewards program a huge focus.

But now their sales and earnings are sliding somewhat as consumers are getting tapped out. And they likely face higher credit card delinquencies. And that may continue over the next year.

The stock price has declined and arguably already reflects the softness but certainly could slide further.

But I think the stock is a keeper and a long-term buy.

On Thursday, the S&P 500 was down 0.8% and Toronto was up 0.3%.

Last week markets got a strong boost from lower yields in the bond markets on expectations that the interest rate increases might be at an end and that rates would decline somewhat within a year or so.

Today, some of that hope was dashed as a U.S. 30 year treasury bond auction resulted in higher yields and as The FED Chair made comments that seemed to suggest that the rate increases might continue. Similarly in Canada the deputy governor of the Bank of Canada made comments about interest rates remaining higher for longer. “Get used it it”, she said, or words to that effect.

The 5 year government bond yield in Canada jumped about 15 basis points today. That’s not good news for stock prices.

As mentioned earlier today, AutoCanada got clobbered and was down 23%. It has a lot of debt.

Canadian Tire was down 2.5% after reporting weaker results. The weakness was largely expected. It now seems likely that it faces weakness for at least the next few quarters. But it remains a reasonably strong company for the long-term, I believe.

Cameco was up 4.5%.

After the close, Andrew Peller reported results and some very strange news.

Revenues were about flat. The good news is that profits were up sharply – but this was largely due to “Wine Sector Support Payments”. Not a great sign when an industry needs support payments. CEO John Peller has argued that this is just a repayment of fraction of all the excise taxes his company pays and should not be considered to be a subsidy to the industry.

In somewhat surprising news, John Peller announced that he will retire within a year after a suitable new CEO is found.

In a really strange development they announced that all four of its independent directors are leaving immediately ostensibly to “support a proactive refreshment of the board”. This leaves the Board consisting of only John Peller and his brother Angus Peller who is an M.D. John Peller indicated that the departing Board members “strongly supported the senior management team and all out employees”. That sounds unlikely. More likely there was a huge disagreement between the independent Board members and John Peller. One of these independent Board members had been elected (or appointed) only in 2023. He was in the business of capital management and personally owned 162,000 shares. I suspect he was not satisfied with the performance of the company.  Well, John Peller seems to indicate the departures were amicable but we shall see how the market reacts.

Other companies reporting after the close included Stantec with a good report. Also Constellation Software with once again a strong report.

Overall it seems likely that the the next few months in the stock market is going to be mostly tough going. Higher interest rates are taking a toll on many companies.

Today I reluctantly lighted up a little on my large Canadian Western bank position. That stock looks under-valued. They have a strong history of very limited bad loans. But I can’t be sure that their Q4 results on December 8th will not be disappointing so to be prudent I lightened up just a little. They have been saying that loan interest rates have been catching up to their higher deposits costs and therefore that should push up earnings. But the possibility of bad loans is always there. So far they have not announced staff cuts but they did say if earnings are not improved they will look at cutting expenses.

AutoCanada got hammered down 21% after releasing earnings. They have been really hard hit by higher interest rates. I knew that interest rates were a headwind for them but I thought that vehicle margins should be high with the shortage of vehicle. But it seems that the vehicle margins were not strong.

I’ll update this one within the next week or so and take a close look at their balance sheet.

Other investments that could be particularly hard hit by higher rates include the Brookfield Office Property preferred shares that I have been mentioning. They may report as soon as after the close today.

Andrew Peller has had weak results and faces high interest costs.

I will definitely be looking closer at balance sheets and interest rate risks in my updates.

Wednesday’s action saw the S&P 500 edged up another 0.1% while Toronto was down 0.2% likely due to softer oil prices.

After the close, Linamar reported better-than expected results.

WSP Global also reported after the close and describe their earnings as strong.

Moments ago, Melcor Developments posted Q3 results. Due to a boost from U.S. lot sales and as well surprisingly strong lot sales in Canada this quarter I think it was a good quarter but I have yet to dig into the details. Typically Q4 is their biggest quarter for lot sales by far and they appear to be signalling strong lot sales in Calgary area. But there are certainly headwinds in terms of higher interest rates for both home buyers and for Melcor.

Canadian Tire will release Q3 earnings tomorrow morning. Q2 sales were somewhat weak and it’s certainly possible that Q3 could show some weakness. I’m particularly interested in what they are seeing in regard to credit card delinquencies.

The report on the Melcor REIT is updated and rated Hold at $4.01. Unfortunately it appears that higher interest rates are a bigger problem than I had previously realised. Perhaps much bigger.

They are doing quite well getting the occupancy back up close to 90%. It’s difficult to get it much higher due to a glut of office space in Edmonton in particular. But the new and renewal leasing is coming at the cost of higher tenant incentives.

The good news is that most of their retail properties are attractive and can likely support rent increases over the years.

The bad news is that their recent debt renewals are at significantly higher interest rates. And they have significant debt renewals in 2024 and in 2025. If their average interest rates were to increase by 50% (from a current average of 4.50% to about an average of 6.75%) it appears that their distribution would likely have to be reduced in that case.

They are now attempting to sell several properties to reduce debt. On the conference call they appeared to indicate that a contract to sell two of the properties is imminent and it appears they they were able to sell for about book value. But nothing is for sure until the deals are signed and then closed.

It seems quite possible that they will announce a distribution cut. They did not announce a cut with the Q3 results last week. But they also did not declare any future distributions.

Unfortunately with the unit price way down it seems too late to Sell and so I will be holding my position.

I have mentioned (for example in my June 7th and June 8th comment) that some companies must be getting crushed by higher interest rates. But I slow to realise the impact on the Melcor REIT. On May 5th I mentioned it was an issue for them but I did not realise how big of an issue. And I always thought the the low price to book value on the units provided a margin of safety.

On Tuesday the S&P 500 was up 0.3% but Toronto was down 0.85%.

Bond interest rates were down moderately but Toronto was impacted by lower oil prices.

Cameco and Brookfield completed their acquisition of Westinghouse Electric Company. This brings Cameco into more aspects of the nuclear electricity generation business but it’s certainly a very different business for them.

I’ve been surprised at the strength of Costco’s shares in the face of lower same-store sales growth. It’s a powerhouse for the long term but I thought it might pull-back somewhat due to the lower same-store sales growth.

The Canadian companies are continuing to report Q3 results.

I notice this morning that TD Direct is offering a re-opening of a province of Manitoba bond maturing in about 10 years. The coupon is only 3.8%. But the yield to maturity is 4.57% since the price is 94.09 cents per dollar of face value.

If you are interested in accessing new issues like this you should sign up for alerts from your broker since they usually sell out quickly.

If you are interested in holding individual bonds then buying at the issue like this means you are not paying a broker commission. The issuer (in this case Manitoba) pays the commissions and broker fees in the case of new issues.

Normally bonds bought and sold from the likes of TD Direct  (TD Waterhouse) have a wide bid / ask spread that acts as a hidden commission that can be quite hefty.

In my view if you buy a government bond like this you should be prepared to hold until maturity since you will face that high commission if you sell early. And maturity in this case is a long ways off.

Interest is fully taxable in taxable accounts. In this case the modest increase in value from 94.01 to 100 at maturity would be taxed as a capital gain.

Given taxation, I’d prefer to hold this in a non-taxable account such as an RSP, or RIF.

I do not hold and am not looking to buy any individual bonds but I wanted to pass along this information in case some readers are interested.

On Monday, the S&P 500 edged up another 0.2% while Toronto as down 0.4%.

Bond yields were up moderately following the sharp drops last week.

RioCan was down 2.8% to $17.81. I looked at its Q3 results today and I think it is very well positioned. It is NOT fundamentally a high return business by nature. But it is low risk and provides a cash yield that will grow over time. I’m attracted to the 0.71 price to book value ratio. Its occupancy level is at a record high around 98%. It has been out of favor with investors and may continue to languish. But I think it is worth considering at about this price and certainly below this price. I prefer to own this in a non-taxable account given that the distributions do not qualify for the dividend tax credit.

On Friday, the markets capped off a very strong week as the S&P 500 gained 0.9% and Toronto gained 1.0%.

On Friday the market gained more confidence that the FED’s interest rate hikes have likely peaked and so bond yields came down somewhat which is basically like a reduction in a gravitational force as far as stock and bond prices go.

The question now is whether the positive market sentiment will hold in the weeks ahead. For those over-weighted in equities, I’d be tempted to reduce some positions but I always find it hard to decide what to part with.

Notable gainers included: AutoCanada up 7.5%, Linamar up 5.3%, and Toll Brothers up another 4.3%.

The risky Brookfield Office Properties preferred shares that I have been mentioning and that have sank so much this year continued to rebound somewhat.

Most or all of the preferred shares on our list were up.

Stocks accelerated their rebound on Thursday. The S&P 500 was up a hefty 1.9% and Toronto was up a somewhat stunning 2.9%.

It appears that the market is betting that we have likely seen the top of the interest rate cycle.

Shopify surged 21% after posting strong earnings.

Starbucks was up 9.5% also after releasing strong earnings.

AutoCanada was up 6.3%. I’m hoping that they had a good quarter because of higher vehicle prices and less competition between dealers. But that remains to be seen.

Tomorrow’s big news will be the U.S. jobs report. The market may get spooked if it comes in hot since that might suggest a need for higher interest rates.

Last night I saw a headline about Enbridge’s dividends. They announced that the new reset dividend on ENB.PR.N will be 6.696%. That’s of course applied to its $25 par or issue price and amounts to $1.674 per year. Those shares closed today at $18.61. So the yield on that price is 9.0%. That strikes me as high. Should it really be the case that investors need 9.0% to be enticed to buy these Enbridge rate reset shares? Unless inflation is quite persistent I think 9.0% for five years seems quite attractive. There is always some risk that Enbridge runs into financial difficulty but that seems unlikely. There is also the risk that the reset in 5 years time will be at a far lower dividend. But if that turns out to be true than the opportunity to collect 9.0% for five years seems attractive. Anything can happen but it surprises me how high the yields on rate resets have gone.

TransAlta announced an acquisition today. While I have not done a full analysis and while the company does not have a great track record it does look set to do well. I’m thinking of buying a small amount of shares.

Wednesday’s markets were strong as the S&P 500 was up 1.05% and Toronto was up 1.1%.

Shopify was up 3.3%.

Toll Brothers surged 5.0% and has been making frequent announcements about new communities opening up for sale. Despite high interest rates they appear to be confident.

The FED held interest rates steady as expected. And also pretty much as expected they indicated that the rates might or might not rise in December or in 2024 depending on the data and how inflation is going. But the market seemed to take comfort from it and bond yields declined a little on the news.

After the close, Costco reported October same-store sales which were not very strong. Up just 2.2% in the U.S. and 3.4% overall. These figures are adjusted for gasoline/fuel sales  price changes and for foreign exchange impacts. That’s not terrible but their same-store sales growth has cooled considerably this year compared to about the past three years. I suspect that this is indicative of low inflation year over year. It’s not likely that their sales volumes are down.

In Canada, Costco same-store sales were up a huge 9.5% in Canadian dollars. That’s probably some combination of continued inflation, our growing population and market share gains. It’s impressive!

I would think that the market should be disappointed with the U.S. and overall same-store sales but the shares are about unchanged in after-hours trading and so perhaps the lower figures were expected.

I’m looking further at TransAlta. As far as Capital Power it has a far better dividend and I think a better track record. I don’t know enough about either one yet to have any real opinion.

TransAlta Corporation in my opinion has been a horribly managed company over most of the past 25 years or so.

But lately I am hearing a lot about how the Alberta Power electrical generation companies are gouging customers due to certain changes in the market.

So, I thought I should take a look at it. The stock price at $10.15 is down lately but not as much as some other utilities. The forward P/E is about 21 according to Yahoo Finance

This used to be a high dividend stock but looking at the dividends I see it was cut years ago and has only been partly restores the dividend yield is only 2.2%!

So, other than this talk of gouging there is really nothing to suggest this will be a good investment.

I was thinking of doing some detailed analysis but perhaps I should not bother.

I’ll take a very quick look at Capital power tomorrow which has a far better track record.

Markets were up on Tuesday as the S&P 500 gained 0.65% while Toronto edged up 0.1%.

Cameco was up 8.35% after releasing earnings and a stronger outlook.

We finally got some relief from the ever declining Brookfield Office preferred shares that are on our list. One of those shares was up 10.6%and the other 6.0%. I don’t see any news to explain that. Possibly one analyst or buyer decided that it was too cheap to resist. Unfortunately these should still be considered to be quite risky.

As I mentioned in my comment earlier today, I am puzzled why Canadian Tire has to take a “charge” as it buys back the 20% of its banking arm that it sold to Scotia bank almost ten years ago. Maye it is the fact that that they are buying an asset that they had earlier sold. They sold the 20% for $500 million. Subsequently it had been quite profitable and has grown a lot. Now they buy it back for $895 million. Possibly they are required to return it to their books at the same price as sold year ago. That would be a loss of $395 million pretax. Assuming a capital loss tax rate of about 12.5% (half the 25% corporate tax rate) then that would be $345 million after tax which is pretty close to their $328 million charge. Perhaps a coincidence. I continue to think they should have explained the reason for the charge. Again, my sense is that this is a meaningless accounting loss.

P.S. I’ve now updated this comment in bold below

Canadian Tire’s shares CTC.A are down 3.2% after they announced they will buy back the 20% of their bank division that they sold to Scotia Bank some years ago. They are paying $895 million.

To me this could be quite a positive signal. Canadian Tire must not be experiencing or expecting a lot of credit card losses if they are buying back the 20% they don’t own. And they claim this will help them in their marketing . They will have more freedom.

The fact that they can come up with $895 million cash (some of it borrowed including at least $400 million) is also a reflection of management’s  confidence and the company’s financial strength in my view.

Reading the press release I see Canadian tire will take a $328 million “charge” or $5.88 per share in its upcoming Q3 earnings report related to this transaction.

So would that be? My first thought was that it means they are buying this for less than book value. That would not be too surprising as a lot of smaller lending operations are currently trading under book value – for example Canadian Western Bank is.

I am not one to dismiss “non-cash” charges. But I think I can dismiss this one.

My initial theory was that because they (maybe) are buying the 20% at less than book value they have to write-down the value of the remaining 80% to the lower value. I’m not sure though. If this is the case, the more of a bargain they get in this purchase the higher the charge , which does not make sense. P.S. I saw later in the day this theory was wrong, Scotia Bank is recording a gain and it seems clear the sale was definitely above book value.

On the other hand I see that Scotia Bank’s equity in this operation was $533 million at the end of 2022. They are paying $895 million. Or $362million more than book. If that’s the case I would normally expect their assets to increase by $362 million with no loss. P.S. I now see that Scotia recorded a gain on the sale. If this 20% has just been proven to be worth more substantially more than book value, I would think that Canadian Tire’s existing 80% should be similarly worth more than book. I’m reasonably sure that this “Charge” is a meaningless accounting entry. Although it’s possible that the asset was valued much higher on Canadian Tire’s books versus Scotia’s. In the end, I think Canadian Tire should have explained why there was charge or loss on this transaction.

Overall I just don’t know why there is a “charge” with this transaction where they buy something at presumably fair market value.

Canadian Tire shares have been sliding probably based on expectations of weaker sales (slower economy and people struggling with inflation and higher interest rates and I suppose people bought all the bicycles needed during the pandemic) and possible credit card losses. That certainly may continue. But meanwhile the company has been well managed and has a great history and so this may be a chance to buy at a good price.

There was no conference call for this transaction and it may be that the analysts will have some reaction later today if they have not already.

It will be most interesting to see their Q3 results next week and the market reaction.

P.S. I also see that Canadian tire will be exploring strategic initiatives around its bank subsidiary in 2024. I suspect that may mean they could issue shares in it as a subsidiary. I highly doubt that they would be thinking of selling the division after just talking about the need to bring it under full control. If they spun off say 40% of it to the public they would still fully control it.

Markets rebounded somewhat on Monday as the S&P 500 rose 1.2% and Toronto rose 0.6% (in spite of oil being down about $3.00)

The great majority of stocks were up on the day.

Aecon Group bounced up 6.7% presumably becasue analysts have had time to further digest its disappointing Q3 earnings released last week. Perhaps they see some hope as they peer through the gloom.

Meanwhile bond yields were up moderately on the day and that’s not good news for stock (or bond) prices.

Markets in North America seem to be largely ignoring the situation in Israel – at least so far.

The market now awaits the news from the FED on Wednesday and is assuming no change to interest rates but will focus on any comments indicating whether the FED is likely to hike in December or not.

With the cooling economy, I do worry how the report from Canadian Tire Q3 will come in. Headwinds include possible credit card delinquencies, the lower Canadian dollar and possibly cooler consumer spending.  The stock is way down from its highs but can always go lower on bad news. As usual, I am hanging on tight to my shares. Canadian Tire has been very well managed and hopefully they can adjust to changing conditions.

RioCan will release Q3 results after the close on Thursday. I’m hopeful for good results given their high occupancy rates and given the quality of their assets and their management.

The Melcor REIT will also release results after the close on Thursday. Hopefully there can be some assurance that they will not need to cut the distribution but I’m not sure. Most of their retail assets are quite good but they also have some older strip malls and they definitely have some problematic office buildings. I would hope that this is more than reflected in the low unit price but we shall see.

The report on the Brookfield Office Properties preferred shares BPO.PR.A and BPO.PR.G are updated. See links on the Subscriber home page.

These two have been, frankly, terrible investments. The market is signalling that these are quite or very high risk. Based on the falling prices it appears that the market is signalling that these could even eventually go to zero. I’d be quite surprised if that ever happened but I can’t rule it out. I’m holding my shares but that may not work out well.

These two were issued by Brookfield Office Properties which has ran into the terrible market conditions for office space. But, the credit on these is guaranteed by the immediate parent Brookfield Property partners L.P. (but not by any Brookfield parent above that level). Brookfield Office Properties no longer issues financial statements and the relevant financial statements and results to look at are those of Brookfield Property Partners L.P.

The bad news is that Brookfield Property Partners L.P. has reported losses for each of the past four quarters to June 30 and negative funds from operations for at least the last two quarters. And the soon to be reported September 30 earnings and FFO are likely to be even worse as interest rates have moved even higher. They have a lot of debt and much of it on variable interest.

Also their financial structure is very complex. The partnership equity is divided across about seven classes of limited partnership units. There is also very substantial minority interest in their various subsidiaries. In 2023 the comparison to last year is very difficult to interpret because of some large related party transactions that they did at the end of 2022.

Brookfield Property Partners L.P. is a very large entity with assets of $130 billion. Total equity including minority interests is $47 billion. The partnership equity totals $23.5 billion and the debt is $67 billion. The obligation on the preferred shares is quite small compared to the total entity.

Another negative point is that the market is expecting the credit rating to soon be reduced from barely investment grade to below investment grade.

The great majority of the debt has recourse only to a particular building or property. This means that they are legally allowed to default on the debt of individual problematic assets (like an empty office tower). My hope is that Brookfield Property Partners will continue to be able to meet its obligations by either raising more equity from its parent and other institutional partners or by letting its lenders take over a number of its money-losing properties. They have already defaulted on the debt of several properties. My thinking and hope is that Brookfield Property partners L.P. would not default on a general obligation such as these preferred shares. I think they would jettison a lot of properties and the debt thereon before they would ever default on a general obligation.

There may be more bad news coming in the next month given the potential credit rating downgrade and the upcoming Q3 report. It is looking like things are likely to get worse before they hopefully ultimately get better.

On Friday the S&P 500 was down 0.5% and Toronto was down 0.7%.

Year to date, the S&P 500 is up 7.2% while Toronto is down 3.3%.

On a positive note bond yields did retreat somewhat in the past few days.

Next week, the market will react to the latest interest rate decision form the FED. Expectations are that they will leave the rate unchanged.

The Q3 earnings reports will continue to come in from Canadian companies. Companies with high debt levels and with debt maturing and needing to be refinanced at today’s higher levels are vulnerable.

My article on preferred shares is updated.

Thursday was another negative day in the markets with the S&P 500 down 1.2% and Toronto down 0.4%.

Shopify was down 3.5%.

Stocks that managed small gains on the day included Toll Brothers. Fortis, Canadian Western Bank, Canadian Tire and Royal bank.

Aecon Group fell 12.1% after announcing more losses on their “legacy” projects. I have trouble placing any faith in this company. But I read their earnings release carefully and listened to the conference call and it does appear that they are finally close to putting much of their troubles behind them. I hold some shares and will stick it out at this point.

I added to my American Express position based on an order I had placed earlier. At this point I have a modest position and intend to hold it long term.

U.S GDP came in strong. But analysts still expect the FED not to increase interest rates next week. In Canada, worries are mounting about consumers having to cut back due to higher interest rates.

After the close Amazon reported very strong results. This may give a positive push to stocks on Friday.

On Tuesday the S&P 500 fell a hefty 1.4% while Toronto was down 0.2%

Shopify was down 6.9%.

Most stocks were down. But some hung in for small gains including Restaurant Brands, Fortis Inc, TFI International (rebounding a little from yesterday’s decline), Visa, Dollarama, Couche-Tard and CN rail.

In general it seems to be a stressful time to be an investor. Higher interest rates are a definite headwind. Companies with high debt and modest cashflows are especially vulnerable.

There will be lots more Canadian companies reporting Q3 earnings in the next couple of weeks.

I noticed a report today for Sales at Food services and drinking paces. August was down 1% versus July. This is consistent with a couple of banks mentioning that credit card sales at restaurants have started to decline. It may be that a more noticeable percentage of the population is stating to cut back.

It will be interesting to see Canadian tire’s Q3 results. Q2 was weak. Q3 could also be weak. And it will be particularly important to see how their credit card delinquencies are developing.

Unfortunately, there never seems to be a dull moment for investors.

Those with higher allocations to cash are in a good position to snap up bargains but need not be in a rush.

On Tuesday, the S&P 500 was up 0.7% while Toronto was down 0.3%.

TFI was down 8.3% due to its lower earnings. But I would be tempted to nibble on that one.

CN Rail reported after the close with weak results but was about unchanged after-hours.

Visa reported also after hours with somewhat weak results and was down modestly after hours.

Tomorrow morning we get the latest move or (hopefully) lack of move from the Bank of Canada.

On Monday, markets ended the down moderately although they had been up moderately for much of the day. The ten year U.S. bond yield declined somewhat which was positive for markets.

The S&P 500 was down 0.2% and Toronto was down 0.4%.

American Express was up 2.1% and I did add to my small position in this company this morning. I’m planning to hold this for the long term since it is a high quality company and I think it will continue to do well over the years.

Aecon Group was up 8.2% after it announced that Oaktree Capital management will invest $150 million and will (probably, eventually) own 27.5% of Aecon’s Utility Services subsidiary. While the market response was positive, this did not look impressive to me at all. Oaktree Capital is receiving convertible  preferred shares that will pay (a huge) 12% for the first three years and then 14% thereafter. The deal also provides apparently a $400 million line of credit for Aecon. Overall it looks like a complex arrangement. I would not be surprised if this little bump in the share price reverses in the next few days. Aecon has been a disappointing investment and does not appear to be a well managed company at all in my view. I also find its disclosure to be generally lacking.

After the close, TFI International released Q3 earnings. Earnings were down partly due to unusual gain in Q3 last year but also due to lower shipping volumes. It’s a great company and they also announced a 14% dividend increase. It will be interesting to see how the market reacts to this earnings release.

A headline today said that Cocoa futures were “the highest since 1979”. I wondered if that meant the highest in data going back to 1979. But it actually is the highest price since 1979. Cocoa prices spiked hugely in the late 1970s and have yet to regain their all-time highs from 1977. To me, this illustrates the difficulty of investing in raw commodities. Investing in companies that tend to grow over the years is a far more reliable way to grow wealth. Stock values also fluctuate greatly. But not many large company stocks today would be below their 1977 prices – and most pay dividends as well. There is certainly absolutely no comparison between the total returns on the S&P 500 since 1977 versus Cocoa or oil or Gold probably just about any other commodity you could name.

The report on American Express is updated and rated (higher) Buy at $142.

This is a high quality company with a return on book equity of 32%. It trades at about four times book value but a relatively modest 13 times trailing earnings per share. Recent growth has been very strong. Yet the stock has fallen from highs of just over $170 this past Spring to close at $141.57 on Friday. This is presumably due to fears of higher credit card delinquencies and bad debt.

So far the higher interest rates have not harmed AMEX. Its funding costs have obviously risen but its interest income rose more than enough to offset that.

I see this as an opportunity to Buy this high-quality company at a good price. At the same time markets are always uncertain and as always some caution is warranted.

Markets were down once again on Friday. The S&P 500 was down 1.3% and Toronto was down 1.2%.

Longer term interest rates such as notably the yield on the ten year US treasury bond continued to rise this week and today and that is putting pressure on stock prices. It’s getting harder for stocks to compete with certain guaranteed investments at 5% and higher.

Canadian Retail sales for August were reported and were down 0.1% versus August on a seasonally adjusted basis. And they were up a scant 1.6% versus August last year and that’s despite a lot of inflation and a population increase of about 2.5%. The report indicates that in volume terms retail sales were down 0.7% in August versus July. This is a weak report and suggests that Consumers are starting to cut back.

American Express reported strong earnings this morning but the stock still fell 5.4%.

My next update will be for America Express. Their credit losses were up versus last year but remain below pre-pandemic levels. Their funding costs must be way up. The type of customer that pays off their credit card in full must not be as profitable with their higher funding costs. But American Express has still been gaining card holders and so they were able to over come the higher funding costs so far.

Markets were down on Thursday as the S&P 500 declined 0.85% and Toronto was down 0.5%.

Restaurant Brands was one of the very few gainers on my list and was up 2.6%.

Markets may continue to slide with higher interest rates or they could turn around at any time. The Q3 earnings reports are coming in and could certainly spark push individual stocks in one direction or the other. For Canada the bank of Canada rate decision next week will be important as the market hopes for a continues pause.

It continues to be prudent to have a balance of equities, fixed income and cash equivalents. Fixed income and cash yields are attractive for the first time in years. Buying fixed income securities in the past few months may have been a little too early but was nonetheless prudent.

I’m surprised to see RioCan down to $17.29 at the close. Just one month ago I thought it was a decent investment at $19.76. I did say it was ultimately a low ROE business but I thought the discount to book value and low P/E ratio made it attractive. I added to my position today.

Canadian Western Bank announced that it will be moving its headquarters into an existing Manulife Place Building. The move will not occur until very significant renovations take place and is scheduled for toward the end of 2025. They had been planning to move into a new tower but that tower has been canceled by the developer. CWB’s name will be at the top of the renamed Manulife tower. This is a logical move. There is little point to building new office towers in Edmonton while a lot of existing prime space sits empty. This announcement is also a positive in terms of the “back to the  office” momentum. Big corporations are not going to continue to let most office workers work from home most days.

The report on Dollarama is updated and rated Weak Buy /Hold at $94. This is a fantastic company and its recent earnings growth is stellar. Therefore it may continue to be a great investment. But it is expensive at 30 times trailing earnings and so some caution in buying is warranted. This has been a fantastic buy and hold stock.

On Wednesday the S&P 500 was down 1.3% and Toronto was down 1.2%.

Interest rates on the bond markets rose to new highs once again not seen in about two decades. A scenario of “higher for longer” is a negative for stock prices.

Almost all the stocks on my list were down.

My next update will be for Dollarama. Its recent results have been exceedingly strong. It always looks expensive but it has been a stock worth paying up for.

September Canadian home starts were released today. A mixed picture. September was up 8% versus August but down 8% versus September of last year.

The Alberta picture was also somewhat mixed. Overall starts up 20% versus September last year but that was due to multi-family. Single detached starts were down 19%. Calgary was much strong than Edmonton. Oil is at $88. It appears that Alberta’s economy is set to continue to do well at least in comparison to the rest of Canada.

On Tuesday, the S&P 500 was unchanged while Toronto was up 0.4%.

AutoCanada was strong with a 3.7% gain

Canadian inflation for September came in slightly lower than expected at 3.8% year over year. This supports predictions that the Bank of Canada will not raise interest rates with its announcement next week.

Markets were strong on Monday with the S&P 500 up 1.1% and Toronto up 0.8%.

lululemon jumped 10.3% on news that it will become part of the S&P 500. This means that numerous funds that track the S&P 500 will HAVE to buy shares and this pushes up demand for the stock. I’d rather a stock go up because of higher earnings but going up for reasons of higher investor demand is okay too.

After the close, the Melcor REIT announced that its monthly distribution will remain unchanged at 4.0 cents per unit for the next distribution. I understand they are tight for cash and a distribution cut is a possibility. But my understanding is that they will be reluctant to do that. Given the strong Alberta economy I suspect that the distribution will not be reduced. We’ll know more when they release earnings on November 2. They are also trying to sell their Saskatchewan properties to raise cash. If they can do that then there should certainly be no distribution cut. But such a sale might have to be done at a loss. But then again with the units trading at such a low price (well below book value) a sale of assets below book value may not be a big deal. A sale of those assets at book value, if that were to occur, would be a very positive development. Also Melcor will likely focus on the gain versus original cost rather than the IFRS book value. There would likely be a gain on that basis. A sale would also require a buyer interested in what are apparently older strip mall type properties. Higher interest rates make it more difficult and more expensive for a buyer to finance a purchase. Worse case, the Melcor REIT can retain these for business as usual.

Canada will report September inflation figures tomorrow. The results will have an impact on whether or not to expect another interest rate increase.

It was interesting to see today that U.S. drug store chain  Rite Aid will file for creditor protection. in Canada drug store chains seem to be highly profitable. There is more competition in the U.S. but it should still be a profitable business. I looked back and as of early 2019, Rite Aid had just replaced nearly its entire Board (not a great sign) and warned in its disclosure that it had a lot of debt and the debt was at variable rates. Overall, I am not sure why the chain failed but I would chalk it up to poor management.

I see that its shares absolutely spiked around 1998 and then crashed hard. It turns out that spike and crash were caused by fraudulent accounting which got discovered. But that was a long time ago and it seems that management must have made grave mistakes in more recent years. No doubt this will make a great Business Case for Harvard and other business schools to dig into. Meanwhile share owners have suffered big losses.

The report on Constellation Software is updated and rated Weak Sell / Hold at $2828. This is a wonderful company. It has fantastic management and a fantastic track record. But it is also a complicated company with complicated accounting. My only real concern here is the valuation which I find to be high in relation to earnings. I would not be a buyer at this price and would hope for a lower price. On the other hand selling this stock has been a mistake in the past. Those with a larger position might want to trim it somewhat.

On Friday, markets were initially higher after several banks “beat expectations”. But at the end of the day the S&P 500 was down 0.5% and Toronto was down 0.2%.

The energy and infrastructure segment in Canada got good news when large portions of the so-called “No More Pipelines” Bill was found unconstitutional. This could possibly clear the way for more LNG plants. However it remains extremely difficult to get projects approved and built and so this may be more of a political win and a symbolic win for the industry than anything else.

Oil has spiked 5.8% to $87.72.

Markets were down on Thursday after U.S. inflation came in a little high and led to expectations that the FED might have to increase interest rates at least once more.

The S&P 500 was down 0.6% and Toronto was down 0.8%.

The great majority of stocks that I monitor were down on the day.

Toll Brothers was hard hit with a 5.8% decline probably directly related to fears of further interest rate hikes. Meanwhile Toll Brothers seems to be very busy announcing new communities and with other announcements about its progress.

My next update will be for Constellation Software. It’s a fantastic company. However its financials are complex and I have a hard time arriving at a view of its adjusted earnings. Its GAAP earnings consistently understate its cash generations. It always looks expensive but then it keeps growing rapidly.

Tomorrow, Friday we get earnings from several of the big U.S. banks and that could push the market in one direction or the other depending on those results.

The report for Alimentation Couche-Tard is updated and rated Buy at $74.34.

This has been an incredible long-term performer. The stock is actually up an astounding 2463% since It was first added to this site rated (lower) Strong Buy at (split adjusted) $2.90 on March 31, 2005. Subsequently there were times when it looked expensive and I rated it a Sell in 2014 but that was a mistake. This has been a stock to buy and hold. The great majority of the time on the site it has been rated somewhere in the Buy range.

Its average return on equity over the past ten years has been a stellar 24%. It trades at 4.0 times book which is understandable.

There are some potential risks as noted in the report. But overall this company is likely to continue to deliver.

On Wednesday, the S&P 500 was up 0.4% and Toronto was up 0.8%.

AutoCanada was up 3.2%.

Alimentation Couche-Tard announced its latest 5 year goals today. They plan to increase their EBITDA from $5.8 billion to $10.0 billion by the end of fiscal 2028. Given their fantastic history, I would not bet against them.

Today, Statistics Canada was out with the latest figures on building permits.

[There were] “monthly gains in the value of single-family home permits. Across Canada, this component was up 5.5% to $2.9 billion in August, marking the fourth consecutive monthly increase for this component. This uptick follows a year of trending decline in construction intentions for single family homes from May 2022 to April 2023.”

In Alberta, residential permits were up 9.6% but this includes multi-family which is always volatile. Hopefully we will see an increase in Alberta housing starts. Permits presumably lead the figures for housing starts.

On Tuesday, the S&P 500 was up 0.5% and Toronto was up a hefty 1.3% – partly due to playing catchup as it was closed yesterday.

Within a few days we will start getting the first of the Q3 earnings reports.  There is always some news or other to move the market.

My next update will be for Alimentation Couche-Tard. This is one of Canada’s very best corporations. But you never hear much about it. It consistently earns over 20% return on equity and that’s with zero government help. With the vast majority of its revenues coming from outside Canada it is bringing wealth into this country for its share owners. An unsung here.

On Monday the S&P 500 rose 0.6% despite the events in Israel.

U.S Treasury bond yields declined slightly as there was a modest “flight to quality” impact.

Oil was up several dollars.

Toll Brothers was up 2% and continues to open new communities.

Toronto was closed for the holiday.

Note that Canadian stock markets are closed today for the holiday.

On Friday the S&P 500 rebounded somewhat with a 1.2% gain and Toronto was up 0.6%.

AutoCanada bounced up 5.5%.

But them on the weekend we had the attack on Israel followed by a a deliration of war against Hamas.

U.S stock market futures are down only modestly this morning.

I thought U.S. bond yields might fall in a flight to quality but the yields are apparently up modestly this morning.

Oil is up about 3% and that includes the impact of OPEC predicting higher demand

So, overall it seems no a lot of market reaction to the situation in Israel.

The report on Costco is updated and rated (lower) Sell at $558. Given the fantastic quality of this company I hesitated to put any kind of Sell rating on it. Historically, selling Costco has been a mistake. But I find its current price earning ratio of 38 to be very rich in the face of higher interest rates. And its same-store sales growth while still growing has been softening in recent months.

I hold some and I think a reasonable approach would be to Sell a quartet to a half of my shares and hope to buy back cheaper. On the other hand it might also be reasonable to simply continue holding – and, if funds permit, add to the position if the price drops to about the $500 level or below. Holding Costco for the long term will work out well.

They may soon announce a special dividend and if so and if it were to jump a little on that news, then that might be an opportune time to reduce the position.

On Thursday the S&P 500 was down 0.1% while Toronto managed a 0.5% gain.

I notice PepsiCo was down 5.2% and it has been sliding for some months. Possibly people are finally cutting back on soft drinks and snacks. I saw a story on BNN this morning that the weight loss drug Ozempic (it suppresses appetite)  is actually having a noticeable impact on snack food sales. Not sure I believe that but time will tell.

Market declines continue today with the S&P 500 down 0.6%. But Toronto is up 0.2%.

AutoCanada is down 4.0%. This could be related to the auto strikes. AutoCanada has been volatile but is a well managed company. It’s management is always focused on profitability.

West Texas Oil is down $82.50. It had recently spiked to $95. This dip is a negative for Alberta but in general oil is still relatively high and the oil industry is doing very well. Calgary home sales were at a record high in September as the population of Alberta continues to increase.

Lower stock prices are not a surprise. Ever since interest rates started to increase I have mentioned many times that higher rates are a gravitational force on stock prices. But I also think that for most people a balanced and diversified portfolio approach is best. It’s a nice time to have a reasonable allocation to cash and near cash. A strategy of “getting out” of equities when they are forecast to decline (or certainly after a decline) is generally unrealistic.

What could be more realistic is to get out of certain companies that might be headed for bankruptcy. I’ll be looking closely at debt levels and the interest rates being paid as I update companies.

On Tuesday, the S&P 500 was down 1.4% and Toronto was down 0.8%. A lot of the stocks on our list were down more like 3%. The Melcor REIT got clobbered.

The BIG news was government bond yields jumping up again. The 5 year Canada bond yield spiked to 4.5% before retreating very slightly. This is likely to read to even higher mortgage rates immediately.

Investors are bailing on some stocks.

In my view it is never a good idea to panic. If you have a reasonably balanced and diversified portfolio you could certainly see some declines but history suggests you will come out the other side in good shape. And those with cash can nibble on bargains but not get in a hurry.

Certain illiquid thinly traded stocks can really tank but this can be a buying opportunity.

There are times when it seem the market will try to shake you lose from holding certain good stocks. This may be one of those times.

CN Rail is suffering a big computer system outage that has suspended operations of commuter trains in Toronto.

I’m traveling home from Spain on Wednesday so my next comment will be Thursday morning.

On Monday, the S&P 500 was unchanged on the day while Toronto was down 1.9%.

Oil has retreated to $88 U.S.

Cameco (uranium company) was down 4.7% which comes after very significant gains in recent weeks and months.

The CEO as well as the chair of the Board at Laurentian bank have abruptly left the company after a computer outage adn after a strategic review that went no place. I have no idea what the future holds for that small bank but it’s not such a bad thing to see a change of leadership after stumbles and poor performance.

It’s not clear where markets will head next. Higher interest rates are a definite headwind.

But it may also be an opportune time to accumulate shares in strong companies that are well down from their highs. I think this includes Canadian Tire and CN Rail And Enbridge and RioCan.

I also like the idea of having cash on hand and not being too eager to invest it all. When you can get close to 5% on cash or a short-term GIC, there is no rush.

Friday was also the end of the third quarter. Within a couple of weeks we start to get U.S. Q3 earnings reports followed by the Canadian companies mostly late September and well into October in many cases. There is always news coming out to move individual stocks.

On Friday, the S&P 500 and Toronto were both down about 0.25%.

West Texas Oil has declined a little bit but is still about $91 U.S. which is very good for Alberta.

The 5 year government of Canada yield has been around 4.3% for  a few days. Interest rates are one of the most powerful force when it comes to stock and especially bod (and fixed income ) prices. The ability to borrow is the grease of the economy and higher rates will eventually slow the economy. And Canada’s GDP in real (inflation adjusted) dollars has been about flat for several months. GDP per capita is declining. GDP seems likely to decline modestly in the months ahead.

In my updates I will continue to pay mores attention to debt levels than was the case for the last 15 years or more. Very few companies got into trouble with debt in recent years due to low interest rates. Prior to and during the financial crisis in the U.S. there were a lot more companies that basically blew their brains out with debt. One that I followed back in the day was Ainsworth Lumber. This was a long-established Canadian family controlled publicly listed lumber company that over-invested in OSB (Oriented Strand Board) plans and went broke because of too much debt. I imagine family gatherings are painful to this day. Imagine blowing a huge family fortune like that.

Starbucks was in the news and is off-side with regulators / courts because after certain stores unionized Starbucks excluded those stores from raises given at all the other stores. That technically looked legal because it was up to the union to negotiate higher wages. But it’s basically dirty pool. But I doubt that this is any huge issue for Starbucks. They will pay a fine and some back-pay and move on.

On Thursday markets rebounded somewhat with the S&P 500 up 0.6% and Toronto up 0.8%.

Yesterday, after the close, lululemon signed a deal with Peloton which sent Peloton shares up smartly but lululemon was unchanged on the day.

Today a report on August GDP showed very little growth (0.1%) and July was flat which caused bond yields to declined by a small amount.

I’m not sure if I mentioned that the Trans Mountain pipeline got a favorable ruling a few days ago on the route change it needed to get the pipe finished around end of this year. First Nations are looking for reasons and talking appeal. Does the madness ever end? These days all groups seem to feel that their views and interests were not considered unless the rulings go the way they want. That is unrealistic. The regulator must BALANCE interests, not give a veto to any group.

Wednesday’s session saw the S&P 500 unchanged and Toronto down 0.6%.

The big news this week is that bond interest rates have been spiking higher. The 5 year government of Canada bond is now at 4.38%.

Check the graph here. Click to see the 1 month and 1 year and maximum years views.

We have turned the clock back 16 years! as interest rates have not been this high since 2007 which was before the Financial Crisis.

This is pretty epic. Mortgage rates are on the rise again. This is bad news for stock prices. Perpetual preferred shares should also be declining. This Summer looked like a good time to buy those but you should find even lower prices (meaning higher yields) now.

Rate reset preferred are sort of bi-polar on this. Higher rates mean higher resets and that’s especially good for rate resets that are resetting shortly. On the other hand higher rates mean higher market required yields and so a rate reset that won’t reset for four years might go down in price. On top of that logical action there is investor psychology which is mostly negative toward rate reset preferred shares since they have been poor performers over the years. The bottom line is we don’t know the future but when these shares are offering attractive returns it seems prudent to buy some now and/or to continue holding. These yields could look very attractive if and when interest rates finally reverse.

The Canadian Western Bank rate reset CWB.PR.B will reset on April 30 (Though the first dividend at the new rate would be close to 3 months after that). That share was up 3.4% to $18.48 today. CWB.PR.D is at $24.68 and likely can’t go higher than about $25.25 since it seems very likely to be redeemed at $25 on April 30 due to its very unusually high spread over the 5 year bond. It would be great if CWB would redeem CWB.PR.B but they need the equity and may not be able to replace it cheaper so we certainly can’t count on this being redeemed.

As for CWB shares, oil at $95 is great for the Alberta economy and their loans in general have been very solid so far including in Ontario and B.C. Bad loans are always a possibility but CWB seems well positioned. They may finally get a day in the sun (hopefully a year or two at least) after having significantly under performed the big banks for quite some years. They have not had the high ROEs of the big banks which have had certain scale advantages.

Tuesday’s session saw the S&P 500 down a hefty 1.5% and Toronto down 1.2%.

Shopify was down 3.4%. Toll Brothers which continues to open new communities of homes for sale on a regular basis was down 1.8%.

Canadian Tire was down 2.2% to $145.59. It looks very attractive at that price but of course it could go lower before it turns around.

Costco has reported results which were quite weak in the latest quarter (compared to its growth over the years). Perhaps there will be a buying opportunity for shares of this powerhouse.

On Monday, the S&P 500 was up 0.4% and Toronto was up 0.1%.

Cameco was up 3.6%.

TD Bank announced that it will redeem one of its rate reset preferred shares on October 31 at $25 rather than having it reset. This was TDB.PF.K  It was up 15.4% today on this news.  It was recently trading at about $22.

Banks may have special reasons to redeem these shares since as bank regulations change other forms of “capital” may better suit their needs. Lately they have issued very long term bonds (Limited Recourse Capital Notes) that rest every five years and that may be better for them than rate reset shares.

Other bank rate reset preferred shares were also up a little today on this news.

I’m not sure if CWB is in a position to issue those Limited Recourse Capital Notes, but if they can, perhaps they will also redeem their rate reset shares on the next reset date, April 30. CWP.PR. D is now at $24.73 and is very likely to be redeemed simply because of its high “spread”. (Results in a high dividend unless they redeem). CWB.PR.B is at $17.70 and it might be wishful thinking to think it might be redeemed at $25 but it is possible.

At $24.73 I would be tempted to think about selling CWB.PR.D rather than buy.

In any case this move by TD is good news for the rate reset shares and hopefully there will be more redemptions.

On Friday, markets rebounded a bit as the S&P 500 was up 0.55% and Toronto was up 0.15%.

The Canada 5 year bond yield is at 4.25% and mortgage rates are once again on the rise. This is not good news for the markets. And it’s horrible for those with large mortgages that are going be renewing. Many people will see their mortgage payments rise by 50% and more. There WILL be collateral damage to smaller private lenders for sure. The big banks will likely not suffer too much and in any case are almost certain to rebound over the longer term.

Canadian Western Bank is fundamentally not as profitable (ROE) as the big banks for various reasons. But I do like its chances to out perform in the near term becasue if has almost no unsecured personal loans such as credit cards. It does have a residential mortgage business but I am told it never offered any variable rate mortgages. It will face some defaults but in most cases the house will still be worth more than the mortgage owed.

Okay, a few random topics for this weekend post:

With the massively higher interest that people and businesses are already paying (and more to come) there has not been much discussion of who benefits. It’s not primarily the banks and their share owners – look at banks share prices – mostly down. The interest mostly flows through the bank to various depositors. Just look at the massively higher GIC rates and the daily interest available in brokerage accounts (see information on this at the bottom of the stock / investment table on the subscriber home page). Pension funds and money market funds are collecting massively higher interest compared to two years ago.

Sadly, it is younger people that are facing the huge increase in mortgage rates and it is often mostly older people collecting the higher GIC rates. I don’t begrudge that and it includes me. But it amounts to a massive generational wealth transfer in the opposite direction to the one that is usually talked about. First many or most – but certainly not all- boomers benefited from massively higher home prices and it was younger people having to pay the higher pries and now mostly the same home owning boomers are collecting far higher interest that is indirectly flowing in from younger people with mortgages. This is not a good thing for our society.

In my travels this past year be it to Maui in January, Ontario in May, Maritimes in August and now Athens what I observe is most of the people on the planes are seniors or close to it and frankly they are mostly white too. Not many young people traveling for leisure and definitely not many with young children. Young people often can’t afford children much less to travel with them by plane. Yes, there are also a lot of seniors who struggle. But there is a large contingent that is very well off indeed. I don’t begrudge the well off but I do think the young people are getting a raw deal in a lot of cases.

Okay, next random topic – Canadian Pension Plans and their funded status. I have not seen any mention that these higher interest rates are massively improving the funded status of the big Canadian pensions. Ontario’s Teachers Pension Plan, the federal employee pension plan, Alberta’s government pension plans etc. These were already mostly more than 100% funded because contribution rates were massively increased in the past 25 years in response to lower interest rates. In addition the calculations of the funded status are conservative by law. The calculations use bond interest levels even though most of the money earns far higher in equities. The bottom line is that most of these pensions will now be extremely well funded. Most big corporate pensions (there are some left like the rail roads and utilities) are also extremely well funded especially with the higher interest rates. Oh look, another win for the seniors! (Not all seniors).

Okay, moving on to talk about inflation. It’s awful. The best we can do as individual consumers is to try to vote against it with our wallets. Most of use are not coupon clippers but maybe we should be if we have time. And let’s all try to shop around more and simply refuse to pay the highest prices. Wait for a sale. Buy the cheaper store brand. Review that cable bill with all the channels we never watch and cut it back. Check out Dollarama. It all takes time but if enough people do this it will absolutely have an impact. The sooner inflation can be tamed, the sooner interest rates can start to come back down.

Next topic Athens. What I observe is a sprawling low to mid rise City. No tall buildings are allowed in order not to block the views of the Parthenon. Athens is clogged with cars and motorcycles and has many narrow streets. Downtown traffic moves pretty slow. Cars seem pretty inconvenient here and yet people drive. It sems clear that people value having their own car. It’s going to be a long time before ride-sharing and driverless cars ever get most people to give up their affinity to drive their own vehicle. I see almost no bicycles downtown core. The City appears not to accommodate them and it may be a cultural thing. Motorcycles (mostly scooter style) are extremely popular and are allowed to lane split and there appears to be a lot of free street parking dedicated to them. Restaurant meals are cheaper here than in Canada. Portions can be massive too. I’m not sure how they manage to offer the better prices but being very busy might be part of the answer. Locals apparently are not expected to tip. But tourists are expected to usually tip 10 to 15%. Service was prompt and friendly – these people hustle! Everyone seems to speak English at least to us tourists. English speakers are truly privileged that way. We should be thankful. Imagine going to other countries adn we just start talking English expecting the locals to respond in English – and they usually do. There seems to be big use of cash and less use of cards. Restaurants did not bring debit machines to the table (maybe if asked they would?), we paid cash. The City was bustling but is generally pretty run down. Many (or most) older buildings appear to need work and not much work is going on. When it comes to restaurants they appear to be almost all private, not chains. A lot of the retail also appears to be local shop owners but certainly some of the big chains are here. I did see one Starbucks and one McDonald’s near our Hotel (in main tourist area) but definitly not a big proliferations of those two (yet?). What else? I found the City to be clean and I think very safe. Anyhow that’s just my impressions of Athens for those interested and its based on just two days here, so take it with a grain of salt. Or just come and see for yourself.

I’m active on twitter (X.com). You can follow me there @investorsfriend for lots more of these type of comments. See link to twitter above.

Ouch, Thursday ended with the S&P 500 down 1.6% and Toronto down 2.1%.

Most stocks were down. Shopify was down 5.6%, Toll Brothers was down 3.9%.

Markets have concluded that the interest rates will be going higher and staying higher for longer. This is a gravitational downward force on future cashflows values and therefore on both stocks and bonds. The interest rate available on cash and GICs continues to rise.

The interest rate on the 5 year government of Canada bond surged again and is at 4.31% according to trading economics. Mortgage rates have increased once again.

This is a time when investors will benefit from having cash available for both short term interest and probably for picking up lower prices on stocks in the months ahead. As always, diversification is wise.

Greetings from Athens where the weather is very nice and the City seems quite vibrant and busy with tourists.

On Wednesday stock markets were down somewhat. On Thursday as of 1 pm eastern the S&P 500 is down 1.1% and Toronto is down 0.55%.

It’s not surprising or alarming to see stocks give back some of the recent gains as it appears that the central banks are not finished increasing interest rates.

I think CN Rail and Canadian Tire are both attractive long term investments both now at around $149.

Linamar announced a small acquisition. It has a volatile history but is well managed and is attractively priced.

Starbucks raised its dividend by 7.5% and while not cheap is a high quality stock for the long term.

Markets were negative on Tuesday with the S&P 500 down 0.2% and Toronto down 1.3% even though West Texas Intermediate oil is hanging in at close to $92 U.S. dollars.

Canada’s August inflation number came in a bit hotter than expected and this caused the 5 year government of Canada yield to spike up to 4.22% from about 4.05%. This is according to Trading Economics dot com. This appears to be a new peak the highest since 2007.

This is generally negative (like an increase in a gravitational force) for stocks and definitely for fixed income. It could lead to mortgage rate increases. It’s directionally negative for the perpetual preferred shares. It could be positive for any rate reset preferred shares that will reset relatively soon. On our list we have the CWB rate resets coming up for reset this coming Spring. The Enbridge rate reset preferred on out list does not reset until December 2024 and it’s anyone’s guess what the 5 year bond yield might be by then – expectations are generally that it will be lower.

The Canada five year bond yield will likely move in one direction or the other tomorrow depending what the Fed does (expect no move) and says (expect them to say we might not be done raising yet).

Monday’s action saw the S&P 500 almost unchanged with a 0.1% gain while Toronto was down 0.6%.

Shopify was down 5.4%. It’s always a volatile stock.

Bond interest rates had declined somewhat as we entered September. But they have crept up since. The Bond market is not yet convinced that we have reached the end of the interest rate increases.

Tomorrow (Tuesday) we get the latest inflation numbers for Canada and on Wednesday  the FED is expected to keep interest rates unchanged but the market will be looking for clues as to whether it thinks it will need to raise again before this cycle of increases is over.

On Friday, the S&P 500 was down 1.2% but Toronto was up 0.3%.

The Melcor REIT fell 4.5% to $4.48. This appears to be due to an unusually large trading volume of 63,570 units compared to a daily average of 5,700 units. It appears that someone was eager to sell something over 50,000 units and had to accept lower prices in order to sell.  This has been a very disappointing investment as the REIT holds some older office properties and as the Alberta economy was weak while costs are higher. But going forward the Alberta economy is much improved with oil at $91 and with very strong population growth.

After the close on Friday, the REIT announced that the distribution will remain unchanged at 4.0 cents for September. It is possible that they will cut the distribution but with the stronger Alberta economy things should improve. They hope to sell their Saskatchewan properties and that would presumably avoid any need for a distribution cut.

I bought a few more units on Friday.

The report on RioCan is updated and rated Buy at $19.76. Higher interest rates are a headwind but their rents are also increasing and they are a very well managed operation. The units appear to be somewhat under-valued at this time.

You never know which day in the markets will offer an out-sized gain or an unexpectedly large loss. This morning I saw a headline that the US producer price index had come in significantly higher than expected. So, I figured stocks would be down today.

But it seems that the core inflation in the reported numbers was not too high and the market decided the report was good news.

So, on Thursday, the S&P 500 was up 0.8% and with higher oil prices. Toronto was up a hefty 1.4%. Most stocks were up on the day including CN Rail which rose 3.5%.

Visa Inc. was down 2.5% because some financial institutions that hold some Class B shares are going to be allowed to sell. Vaguely, I understand that this may be some of the original owners of VISA before it went public. It’s been a good thing they were not allowed to sell because holding VISA has been far smarter than selling it. A stock falling simply because some owners may sell is not something that concerns me at all. It is Visa’s earnings and growth that I look at and not who might be selling it.

Markets were modestly higher on Wednesday with the S&P 500 up 0.1% and Toronto up 0.3%.

The big winner today was Dollarama, up 5.9% after releasing a strong earnings report and outlook. This company almost always looks expensive but it is a very well managed operation as I have said many times.

U.S. inflation came in a bit high but not high enough to spook the market.

Markets were somewhat mixed on Tuesday with the S&P 500 down 0.7% and Toronto up 0.2%.

There were’nt any particularly notable moves in the stocks I monitor.

Tomorrow morning Dollarama will report earnings.

I’m taking a look at RioCan now. I suspect it remains a Buy. They had to cut their distribution back at the start of 2021 They probably were quite wise to then be in no hurry to get it back up to the old level. They are at 9 cents and the old level was 12 cents. Now they have a low pay-out ratio of about 60%. And they have much more financial flexibility now.

The Melcor REIT continues to slip and closed at $4.58 today. The yield is now over 10%. The market likely fears a cut to the distribution. They have put their Saskatchewan retail investment properties up for sale. These are not prime properties and may be difficult to sell given higher interest rtes. If they can’t be sold they may decide to cut the distribution. That’s unfortunate. On the other hand the Alberta economy is strengthening. Oil prices are relatively high and the population has surged. Their retail properties in Alberta are mostly high quality but they certainty have some problematic office properties. I strongly suspect the Melcor REIT will be looking a lot better in a year or so. They will need to announce the September distribution in the next few days.

Canadian Tire just borrowed $400 million on a seven year bond at a rate of 5.372%. That’s a low rate in today’s environment and shows the financial strength of Canadian Tire.

Monday was a strong day in the markets with the S&P 500 up 0.7% and Toronto up 0.5%.

Tesla was up 10.1%. That company is not covered on our Subscriber Home Page list but I own a very few shares and I keep an eye on it.

Most of the stocks on our list were up modestly. Another good day be an owner of companies.

A story today says that the Trans Mountain pipeline could be delayed by nine months if it is forced to continue on its current route where it has run into trouble doing a certain tunnel. How is is possible that rail road tunnels were built 150 years ago and today this company can’t get a tunnel done? It’s preposterous. I would bet that if you got the right contractor in there with the right incentives the tunnel would be done in six weeks. The current CEO of Trans Mountain is Dawn Farrell who for years presided over abysmal performance at TransAlta. You can’t make up this kind of nonsense. The level of incompetence at Trans Mountain over the years is simply staggering. And millions upon millions were paid to executives for that horrible performance.

The report of lululemon is updated and rated Speculative Buy at U.S. $396.

It’s very high quality company but is expensive in relation to earnings.

It so happens that I rated it the same and had the same thoughts almost one year ago. Back then it was exactly $100 cheaper at $296. Back then I estimated the higher end of its intrinsic value to be $324. This year the very same formula with the same growth rate projection estimates the higher end of its intrinsic value to be $424, exactly a $100 higher as it turned out. But how could its estimated value jump by $100 or about a third in one year? The reson is that it’s earnings per share were up by about a third in the past year. So If I apply the same growth rate and same terminal P/E assumptions then the estimated value comes out about a third higher.

I very much doubt that the earnings and price will rise by another third this year. But over time earnings will rise and in a more volatile fashion the stock price should eventually follow.

Over the past few days as I read and looked at the results of lululemon I was truly impressed and amazed at their growth and success. And I thought about that success in sharp contrast to the very mediocre results of some companies that I look at including Melcor Developments, Aecon Group and Andrew Peller.

In most aspects of life we talk about average. The average consumer, the average income. In reality, the bell curves tend to be wide. In corporate performance there is a a very wide dispersion of earnings results for companies.

In many cases it may be better to pay up for quality. And it’s a good idea to keep some cash investments ready to pounce when great companies occasionally come available at lower prices.

On Thursday, markets were down modestly with the S&P 500 losing 0.3% and Toronto losing 0.5%.

The government of Canada 5 year bond yield was down modestly to 3.95%. Hopefully we are at or near the end of the interest increases. Now and for the past few months has been an opportune time to invest in fixed income.

On Wednesday the S&P 500 was down 0.7% and Toronto was down 0.9%.

Enbridge was down 5.9% to $45.31. That was to be expected when they were selling shares at $44.70. The offering appears to have been over-subscribed and sold out easily. I put in for 300 shares at TD Direct and got allocated only 100. Possibly, TD left the offer open too long?

The Bank of Canada left interest rates unchanged which was expected. Also to no surprise they signaled that they might still raise again this year before they are done. I think the market reaction was fairly muted. The latest thinking seems to be that the FED will raise one or two more times which if true would put pressure on the Bank of Canada to also raise somewhat.

My next update will be for lululemon. It’s expensive but is a real powerhouse. It’s nice to look at a company that is doing so well. Their earnings press releases are quite short. But you don’t have to say a lot when the numbers are stellar and speak for themselves.

On Tuesday, markets were generally to the downside. The S&P 500 was down 0.4% and Toronto was down 0.6%.

Toll Brothers was down a hefty 5.5%. But given big gains last week it remains somewhat higher than it was a week ago. Perhaps a bit of a tug of war between its own great results and the headwind of high interest rates.

After the close, Enbridge announced a large planned acquisition of U.S. natural gas regulated utilities. To fund this it announced it will raise $ billion by selling shares at $44.70. That compares to today’s closing price of $48.16. Accordingly, the stock is down 6.3% in U.S after-hours trading. This stock price drop is basically par for the course. When a company wants to sell a massive amount of shares it is not typically going to be able to do so at the current market price. I have a positive view of Enbridge and so i am inclined to trust their judgement. I put in an “expression of interest” to buy a modest amount of shares through this offering at $44.70.

Tomorrow’s (Wednesday’s) excitement for the Canadian market will be the Bank of Canada’s interest rate announcement. Consensus appears to be that they will not raise rates this time. What will be important is to read the tea leaves about whether the Bank of Canada is done raising rates or not.

It’s interesting that they will come out with this major news during the trading day. They seem to be clueless about the fact that releasing important financial data during trading hours is unfair to retail investors. Corporations are required to release outside of tracing hours specifically in order to give time for share prices to react in a step fashion. The FED and the Bank of Canada appear to think they are too important to play by such a rule. Or they are simply that clueless. Fairness to retail investors is exactly why Warren Buffett goes so far as to release Berkshire’s earnings on Saturday’s. That gives maximum time for the share price to react in a step fashion with no trades at prices that fail to reflect the news.

On Friday the S&P 500 was up 0.2% while Toronto was up 1.25%.

Canadian Western Bank jumped 11.4% after releasing Q3 earnings on Friday morning. I have a very large exposure to this company with over 13% of my portfolio invested in it. So, Friday was a great day for me. While it could certainly decline through the Fall due to recession and bad loan fears it appears to be very well positioned and may continue to do well. See the updated report in linked in the comment post below.

lululemon was up 6.0%.

Toll Brothers was up another 2.3%.

The report on Canadian Western Bank is updated and rated (higher) Buy at $29.30. CWB released earnings Friday morning and the stock rose 11.4% on the news. After quite a string of weak quarters it appears to have turned a corner. The net interest margin improved as its average interest rate on loans is rising as various shorter term loans renew at higher interest rates. Its provisions for loan losses are very low which it attributes to its cautious approach to lending and the fact that it has security on most of its loans. While it does have some exposure to residential mortgages it has never offered the variable interest rate mortgages that are now proving problematic for many banks. While there are always risks, this stock appears to be under-valued.

Our report on CN Rail is updated and rated (lower) Buy at CAN $153 or US $112. This is a great company and enjoys a duopoly position with CP Rail. But the out look for the last half of this year is for earnings per share to be about 10% lower than the same period last year. Therefore some caution is warranted. But it would likely be a bad idea to sell positions in this company in spite of a weak near-term outlook.

On Thursday, the S&P 500 and the Toronto stock index were each down a modest 0.2%.

Shopify was a big winner with a 10.7% gain after announcing a deal with Amazon to allow Shopify merchants to access the benefits of Amazon Prime shipping for their customers – initially in the U.S. only.

Canadian Tire also had a strong gain with a 2.1% gain.

Costco was up 1.3% despite posting what seemed to be relatively weak same-store sales growth.

After the close lululemon posted strong results.

Wednesday was another day when simply holding a diversified portfolio and doing nothing at all resulted in a capital gain. Most days are like that although of course a minority of days deliver a capital loss in the portfolio value. On top of the capital gains, every single day brings an accrual of interest and dividend income. So, life’s not so bad for those that have accumulated a decent sized balanced investment portfolio.

Today the S&P 500 edged up 0.4% and Toronto managed 0.2%.

Toll Brothers was up 3.4%. They’ve been announcing quite a few new communities and multi-family projects opening up for sale. 

VISA Inc. was up just 0.4% but hit a new all-time high of $248 earlier today. It had actually hit very close to that level two years ago but then dropped as low as $175 one year ago – which was a great buying opportunity. I did manage to mention buying VISA last on September 22 and also August 22.  Today it was in the news that VISA and Mastercard might raise their fees to retailers. I find that hard to believe given the push-back such a move would get. But it goes to show that they are more than holding their own against new payment options.

After the close, Costco reported same-store sales growth that seems a bit weak. After adjusting for volatile fuel and foreign exchange the latest month same same-store sales growth of 4.1%. And over the past 52 weeks the average same-store sales growth has been 5.2%. This growth is below the rate of inflation and may indicated a modest decrease in volume. Canada however has been running stronger and did 7.5% in August and 8.0% over the past 52 weeks. 

Canadian retailers are benefiting form our rapid population growth. Canadian Tire is not adding many new stores at all and so the population growth is helping their same-store sales figures. I visited my local Canadian Tire store today and noticed it seems to be very well stocked up. Canadian Tire had a weak Q2 but perhaps Q3 will be looking stronger.

Canadian Western Bank will release results on Friday morning. I’m hopeful that their loan loss provisions will be modest since they mostly lend to commercial customers. They have no personal credit card exposure. But they do have some exposure to residential mortgages and that could be problematic. They also have faced far higher deposit costs. They had also ramped up expenses but had lately indicated that they would try to cut back on expenses if needed to protect profits.

Markets were very strong on Tuesday as the S&P 500 rose 1.45% and Toronto rose 1.3%.

Shopify was up 4.1%.  TFI International was up 3.1%.

My next update will be for CN Rail. What I see so far is that rail car loadings are down for the industry in Canada  and have been running below last year’s level since early this year.  In the U.S. the industry decline is even worse with rail car loadings running noticeably below both 2022 and 2021 levels all year. Intermodal (consumer goods) are down noticeably in both Canada and the U.S. This is not something I have heard much about in the financial press and certainly looks like a recession indicator to me. CN is great long-term hold but it is facing some rare headwinds at this time.

On Monday the S&P 500 was up 0.6% and Toronto was up 0.95%. So it was another good day to be an investor holding a diversified portfolio.

AutoCanada was strong with a 5.0% gain.

This morning we had two banks reporting earnings. Bank of Nova Scotia and Bank of Montreal both increased their allowances for expected loan losses. But Bank of Nova Scotia’s share price is up moderately on the news and Bank of Montreal is down only very slightly.

The yield on the government of Canada five year bond has dipped to just below 4.0%.

These are signs that the economy is weakening. If we are near the end of the interest rate increases then bonds and preferred shares should begin to show some capital gains. We may have now seen the peak of GIC rates. In any case locking in some portion of a portfolio at higher interest rates is prudent although the future is never certain.

Stocks are off to a strong start this morning.

I added  quite a few more preferred shares to the list on the Subscriber Home Page. I included all those that were mentioned in my preferred share article.

When it comes to the rate reset preferred shares, my top picks at the moment would be those that have very recently reset to pay higher dividends for the next five years. In particular I like Emera’s EMA.PR.H that is paying a dividend that amounts to 8.1% of the current price and which dividend will remain in place for the next five years. The first payment at the higher reset dividend will be paid in November.

I also like some of the rate reset preferred shares that are set to reset within the next year or so (the sooner the better).  If interest rates remain about where they are now,  the reset dividends will reset to quite attractive levels.

I also like the perpetual preferred shares that are paying about 6.85%. For example Canadian Utilities CU.PR.E. If interest rates decline somewhat these shares are likely to offer a capital gain. But they also seem attractive to simply hold long term for the dividend.

See the full list on the Home Page. Since the future is always uncertain, It makes sense to diversify preferred share holdings.

On Friday, the S&P 500 was up 0.7% and Toronto was up 0.3%.

The FED chair Jerome Powell reiterated that the FED is committed to getting inflation back to 2%. The implication appeared to be that a another interest rate increase or two might be coming and certainly there should be no expectation of a rate decrease until and unless inflation is below 2%. This probably means that some sort of recession is coming.

The shortest term interest rates remain high and may go a bit higher. The direction of longer term interest rates is much tougher to predict. Possibly they have peaked. The inverted yield curve suggests an expectation that short-term interest rates will decline although that could easily be 18 months or more ion the future.

Having a balanced approach to equities, fixed income and short-term cash investments remains prudent. Being overly certain of where things are headed is not a great idea. 

Toll Brothers is updated and rated (lower) Buy at $75.49. Given a period of sharply lower contracts to build homes in the last half of fiscal 2022 and first half of fiscal 2023, I had expected it to be reporting earnings declines over the past two quarters. Instead earnings have soared. And now contracted home sales are very strong. But the period of lower contracts is still expected to result in lower earnings in upcoming quarters. So overall this is a tough call. It is a very well managed company but has a very cyclic history. It’s probably wise to hold any current position but be a bit cautious about buying. I’d be more  interested in adding to it if the price dips below $70.

Markets are somewhat weaker this morning and interest rates on the bond market have moves a little higher.

Recently I had mentioned an Emera rate reset preferred share (EMA.PR.H) which has very recently reset and will pay $1.581 annually starting with its next dividend on November 15. It has recently been falling in price probably partly related to the higher 5 year government of Canada bond yield and perhaps partly related to company-specific concerns.  The  credit rating is PFD-3H which is lower than the credit rating on the big Canadian bank preferred shares and lower than some other utilities.  This morning it is at $19.76. There are never any guarantees but this looks attractive to me at forward yield of 8.0%. It has declined since my first purchases but I picked up some this morning at $19.80.

I notice that Yahoo Finance and TD Direct both show the dividend and yield at the old lower rate based on the August 15 dividend which is the last one at the older dividend level.

These preferred shares trade at low volumes and can be volatile partly for that reason.

On Thursday, the S&P 500 was down 1.35% and Toronto was down 0.5%.

The great majority of stocks that I follow were down modestly on the day.

Royal Bank was up 2.0% after reporting earnings.

lululemon was down 4.6% and will releaser earnings apparently next week. Possibly this was a leak of poor results?

On Wednesday markets were strong as the S&P 500 rose 1.1% and Toronto rose 1.0%.

Shopify was up 5.0%. 

Toll Brothers was up 3.9% due to its strong earnings release.

AutoCanada was down 4.8%.

Interest rates in the bond markets took  a little dive today. This goes to show that things can change quickly.

Tomorrow, we start to get earnings reports from Canada’s big banks. There will be a focus on credit loss provisions. To date it seems that he big banks have no said much about the risks of mortgage renewals at higher rates. Perhaps they will now start to mention this risk.

Aecon group is updated and rated only a Weak Sell / Hold at $10.93. Aecon is a huge construction company and has been a disappointing investment since I first started looking at it over 4 years ago.

They had apparently under-bid on several very large projects which they later starting calling “legacy” projects in an apparent attempt to shirk responsibility for their poor performance. I find their disclosure to be lacking. They also focus heavily on EBITDA as opposed to net earnings which is disappointing.

It’s been an educational experience for me to see the low profits in such a complex and high-risk business.

I have a small position in this company and perhaps I should throw in the towel. But management is forecasting much better results ahead and so I will retain my position. One reason I wanted to update this company is that I am preparing a letter to a Board member to express some concerns.

On Tuesday, the S&P 500 was down 0.3% and Toronto was down 0.5%.

There were no unusual moves in the stocks I keep an eye on.

Interest rates in the bond markets continued to move higher today.

After the close Toll Brothers released what appears to be blow-out results for its latest quarter.  However, the stock appears to be little changed in after hours trading.  Despite strong home sales, the market is likely concerned about the higher interest rates. My inclination at this time is to add to my position. 

On Monday, the S&P 500 was up 0.7% . The gains came in the afternoon, as this market trended lower in the first few hours of trading. Toronto was down 0.2%. 

The government of Canada 5 year bond yield rose to 4.195%. This higher rate probably explained why a Royal Bank perpetual preferred share RY.PR.N was down 3.7% today. Yesterday it was yielding 5.7$ and today it is at 5.9%. Despite its high quality and despite that fact that interest rates are expected to decline within a year or two it seems that 5.7% was not attractive in the face of interest rates continuing to creep up.

On Friday, the S&P 500 and Toronto were each about unchanged. And there were no individual gainers or losers of any particular note among the stocks I keep a close eye on.

The Government of Canada 5 year bond is at 4.13%. The higher that rate goes the harder it is for stocks and bonds and preferred shares to go up. 

At the moment, markets appear set to open little changed on Monday morning.

I’m behind on updates but will definitely be working on updates starting tomorrow.

Markets were down modestly on Thursday with the S&P 500 down 0.8% and Toronto down 0.4%.

Shopify was down 3.8%.

Toll Brothers was down 4.6% as higher interest rates are a definite headwind for new home sales. Meanwhile though they have been announcing new communities open for sale.

Enbridge is yielding about 7.5% and is likely to be a good investment at its current price.

On Wednesday the S&P 500 was down 0.8% while Toronto was unchanged.

On the bond markets, interest rates continue to edge higher. The 5 year government of Canada bond yield is at 4.18%. The notion of “higher for longer” is settling in.

For years we wondered at the sheer stupidity of investing in something like a ten year bond at 1%. There were capital gains to be made on government bonds as interest rates fell and bond prices on existing higher interest rate bonds went above their $100 par value. But all those bonds will ultimately mature at $100.

With equity markets having soared in the first half of this year it seems clear that the second half will not be so rosy. But given the difficulty of such predictions the prudent course is likely to stay the course with a balanced and diversified approach. Those just started investing will benefit if stock prices decline and those with large portfolios will receive dividends and interest in any case. It’s not investors that probably have much to fear, it’s those with large mortgages and debts that have more to worry about.

Markets were noticeably negative on Tuesday with the S&P 500 down 1.0% and Toronto down 2.0%. That’s no surprise given various signs of a softening economy. This morning Target is warning of lower profits.

Most stocks were down 1 to 2.5%.

Toll Brothers was up 0.9% probably boosted by the fact that Berkshire Hathaway has initiated stakes in several home builders.

AutoCanada was up 1.4% to $26.04. That’s good on a day when the markets were quite negative. This stock has had a big recovery since it hit lows under $16 in May. That low came after two years of big declines from a high over over $50 two summers ago. I’m confident that it is well managed but higher interest rates are a headwind.

The 5 year government of Canada bond is at 5.13% this morning.

The ten year U.S. Treasury bond closed yesterday at 4.2%. The market is apparently not expecting interest rates to reverse anytime soon.

“Occidental Petroleum Corp. agreed to buy Canadian startup Carbon Engineering Ltd. for US$1.1 billion as the fossil-fuel producer works to expand its position as a leader in removing carbon dioxide from the atmosphere.” That is interesting news. If it becomes feasible and economic to remove carbon from the air then Net-zero can be achieved for any industry by removing as much carbon as is emitted. But my expectation is that many environmentalists will not settle for NET zero. They are so against the oil and gas industry that they will still start to push for ZERO as opposed to NET zero as soon as net-zero looks feasible.

Canadian inflation for July was about as expected. Higher month over month but the downward trend is intact.

An interesting tidbit was that “Electricity prices rose significantly in Alberta, increasing by 127.8% in July on a year-over-year basis.”  Most people and businesses have locked in lower costs through contracts but this is a huge increase in the market rate and is sure to set off some howls. There is lots of interesting figures in this report.

Stats Canada reported manufacturing data for June and there were a lot of declines. This is further evidence that the economy is slowing down. But oil which was one of the categories in June likely rebounded sharply in July and August. 

I was looking at the preferred share price changes since my article last month on that topic. Not a lot of price movement. One that caught my eye is a rate reset from Emera. EMA.PR.H It has just reset to pay $1.5810 for the next five years starting with the next dividend paid November 15. I bought shares this morning. I paid the offer price of $21.04 for a yield of 7.5%. That seems to me to be quite attractive especially in taxable accounts. I notice the last trade as I write this was at $21.20. I also notice that Yahoo Finance is still showing the old yield based on the previous $1.225 annual dividend.

Markets are weak this morning. The 5 year Canada bond is at 4.1%. Increases could benefit any rate reset shares that are resetting in the next year and especially any that are set to reset in the next few months. But higher rates are negative for the perpetual shares. But if rates do decline after a year or so the perpetual preferred shares should rebound.

On Monday, the S&P 500 was up 0.6% while Toronto was down 0.6%.

The Q2 earnings season is basically over now which could lead to quieter markets.

The bond market does not seem to be signaling that interest rates will decline anytime soon. The 5 year government of Canada bond is at 4.11% as it apparently rose in over night trading.

The Bank of Canada has rather quietly reduced its balance sheet by 200 billion dollars. This was likely due to short-term government bonds maturing as opposed to the Bank selling bonds into the market. I find it strange that the financial community seems to have nothing to say about this.

Canada’s M2 money supply is decreasing and this seems to be little talked about. Inflation was blamed on excess money supply growth and so presumably the money supply decrease will play a role in reducing inflation.

Yesterday I saw a recommendations for a money market fund (Excahnge Traded Fund with symbol CSAV that pays 5.14% and the sponsor CI Global Asset Management claimed it would continue to pay this level as long as the Bank of Canada interest rate remains at it its current level. But TD Direct / TD Waterhouse does not allow this fund to be purchased online (or possibly at all). I understand some of the big bank brokers have blocked these funds and others have not.

CI also offers a convertible bond ETF that trades as CXF on Toronto. It has an attractive yield to maturity of 5.7%. But be aware that there will likely be some defaults in this space as it is often weaker companies that use convertible debt. And with interest rates having risen so much, some of those companies will be in trouble. 

In a few hours the July inflation number for Canada will be released. The year over year figure should be tame but the month over month figure could rise due to gasoline prices.

Friday’s action saw the S&P 500 down 0.1% and Toronto up 0.3%.

Canadian Tire was down another 5.5% adding to similar losses on Thursday. The market is worried after Canadian Tire reported lower discretionary sales. This could certainly continue. I’d be interesting in accumulating shares in Canadian Tire at this price and lower. But I suspect there is no hurry.

Melcor Developments was up 3.1% after its earnings report. Basically almost no one follows this company and it trades very thinly. I think management is doing more of the right things now but interest rates are a big headwind to selling new building lots. The Calgary market is relatively stronger and the company is well positioned in that market. It will be interesting to see if the Melcor REIT can sell its Saskatchewan properties for about book value or more as it looks to raise cash.  Oil prices are stronger in Alberta and immigration is strong. This will hopefully support new home building.

The 5 year government of Canada bond yield is back above 4.0%. Any decrease in interest rates is certainly not imminent at all.

On Thursday, the S&P 500 was about unchanged while Toronto was up 0.3%.

Canadian Tire was down 4.5% after the weak results I mentioned yesterday. Possibly a sign of lower consumer spending ahead.

AutoCanada was up an impressive 16.6% after its god earnings report. The car dealer industry faces higher interest rates and the fact that a portion of consumers are financially stressed. But the industry seems more disciplined with lower inventory and this is a well-managed company.

Linamar was down 3.1% despite its good results. The market is worried where things are headed.

Melcor Developments reported earnings that were better than might have been expected. They sold some home building lots in the U>S at a 49% gross margin. That’s getting toward the acceptable range. They also has a few asset sales and as I recently commented they have more assets up for sale as well as share buy backs. They recognise they have too much equity tied up. Gros margin on lots sold in Canada was 46% a big improvement from their recent inadequate 40% level. I have been on their case telling them that 40% is simply fundamentally too low. They also have two new communities coming on stream in Calgary where the housing market has heated up somewhat. High interest rates certainly remain a headwind but their results have improved.

U.S. inflation came in tame for July and this could give hope that the interest rate increases will soon cease.

On Wednesday, the S&P 500 was down 0.7% while Toronto was up 0.3%.

A number of companies had strong earnings reports yesterday. Linamar was down 3.3% yesterday but then after the close reported very strong results. 

Grocer/ Pharmacy Metro reported very strong results yesterday morning but rose only 1.2% on the day as it faces a large strike at its Toronto stores.

Stantec reported strong results after the close yesterday.

This morning Canadian Tire has reported somewhat weaker results. They indicate consumers are cutting back on discretionary items. They did not highlight any issue with higher credit losses. Apparently not many people are falling behind on credit card payments. (But I think that continues to be a risk given inflation and vastly higher mortgage costs for a significant chunk of people). Canadian Tire did withdraw their financial aspiration guidance which could send the stock lower. But overall it remains a very well run company and a “keeper” for the long term.

AutoCanada was also out with earnings this morning. The results look reasonably good but not gangbuster by any means. They are dealing with higher floorplan (Vehicle inventory) financing by reducing the number of vehicles on the lots. This may in part explain the general trend of a lack of vehicles at many dealerships (not just AutoCanada) and most dealers will want to hold fewer vehicles unless the manufacturers give incentives such as lower floorplan financing. AutoCanada reduced used inventory by 33%.

With that, we shall see how the day’s trading goes.

On Tuesday, the S&P 500 fell 0.4% and Toronto fell 0.15%.

AutoCanada was up 4.0% and will release earnings tomorrow (Thursday) morning. As a well-managed company I am hoping for good profit news. But their debt and interest costs may be an issue and a definite headwind. They did sale and lease backs on many assets (dealership buildings) and so that reduced their debt and the lease costs are likely mostly locked in for several years. Their general debt does not appear to be excessive but floor plan debt that finances the vehicles is high by nature and is variable interest rate by nature.

Yesterday I saw headlines about Moody’s credit rating agency downgrading 10 small to mid-sized banks. This morning that news was hard to find so not apparently not considered a big concern. But this could be the tip of the iceberg.  Sorely there is a good number of companies really hurting from the massive interest rate increases. And yes the rate increases are massive even if 7% mortgage rates do not seem high to boomers.  Titanic never saw the iceberg coming and despite its reputation as a Seer and Soothsayer, in my experience the market has been very late to see many icebergs – even in clear weather. I’m not saying an iceberg is looming. But if the next one got kicked off by credit downgrades followed by a credit contraction (banks more reluctant to lend), I would certainly not be surprised.

Meanwhile the yield on the 5 year government of Canada bond has settled back to 3.87% and was briefly 3.80% yesterday. In a credit contraction corporate bond yields could rise while government bond yields could decline in the usual “flight to quality”.

As always diversification including an allocation to cash is prudent. I have been mentioning that with cash now paying attractive yields it is far easier to justify holding cash than has been the case in recent years. I have always said that having some cash is a good idea. ONLY cash (and cash equivalents) are guaranteed not to decline (in nominal dollar terms) no matter what. And cash provides dry powder to pick up bargains when things occasionally get ugly.

On Monday, the S&P 500 was up 0.9% while Toronto was closed for the civic holiday. (And people wonder why productivity is lower in Canada – for one thing we get more holidays.)

Berkshire Hathaway was up 3.6% to a new all-time high. Never dismiss the abilities of Warren Buffett even at age 92. So far, his mind remains very sharp. 

I see where SNC-Lavalin expects to be Cash-flow positive in the last half of this year. It’s pretty pathetic when that is something to brag about. 

Melcor Developments has done two block share repurchases in the past month. The total was about a half million shares. This is quite significant given they have about 32 million shares outstanding. It also suggests tthat managment is quite confident in their cash and debt position. They report earnings on Thursday after the close. I’m not expecting anything great given that home starts are weak with higher interest rates. But they did close on the sale of some lots in the U.S. This has been a long-suffering investment but hopefully some recovery ahead. Unfortunately they are stuck in a fundamentally low return business it seems and are now harvesting land to get cash out of the business.

The Melcor REIT is not buying back any units becasue that subsidiary is strapped for cash. 

I look forward to Canadian Tire’s Q2 earnings on Thursday morning. It will be interesting to see if their credit card delinquencies will be on the rise. I would not be surprised if they are. They continue to benefit from population growth but the concern is that people may have started to cut back on spending due to higher interest rates and inflation biting into discretionary spending. Gotta eat and pay the mortgage before they buy a new fire table for the deck.

Never a dull moment but overall investing continues to deliver gains over time.

Friday saw the S&P 500 down 0.5% and Toronto up 0.6%

Amazon was up 8.3%. Wow!

AutoCanada was down 4.9%. But they don’t release Q2 earnings until Thursday so I’m not sure this is anything more than sort of random noise.

Apple was down 4.8%. Investing in individual stocks is never for the faint of heart. 

Intact Financial was up 3.8%.

With Telus announcing a staff reduction of 6000 and with the latest jos report showing a small loss in employment, there are signs that the economy is starting to cool.

On Thursday the S&P 500 was down 0.25% and Toronto was down 0.5%.

Shopify was down 5.4%. It released earnings earlier this week. There is probably little reason to expect this stock to rise in the short term. I feel comfortable with my decision to reduce my holdings which was about two months ago as I recal. But I also like continuing to hold some for the long term.

Fortis Inc. was down 4.1%. It released Q2 earnings earlier this week showing modest growth. It’s logical that Fortis is worth somewhat less simply due to higher interest rates. It remains a great lower risk holding for the long term.

Intact Financial released earnings this morning which on a headline basis were far lower than last year but that was due to unusual gains last year. Fundamentally the operating results were somewhat weaker this year due to storm damage claims. I have not looked at this company in any detail in recent years.

West Texas Intermediate oil WTI is at $82 U.S. dollars. Three cheers for Alberta and a chorus of boos from the rest of the country. 

The 5 year Canada bond is at 4.1% as interest rates stay high. Great news for all those boomers with money invested in GICs and terrible news for young people with mortgages.

On Wednesday the S&P 500 was down 1.4% and Toronto was down 1.5%.

This was blamed mostly on the fact that the credit rating agency Fitch has downgraded the U.S. from triple A (AAA) to double A plus (AA+). This pushed the yield on U.S. treasuries only moderately higher.

Warren Buffett has said he is not worried about it although the concerns of Fitch are valid he said.

The great majority of the stocks I follow were lower on Wednesday.

Shopify was down about 7% and AutoCanada was down 5.9%.

I notice that TFI International was actually up 0.15% on this day when most of the market was down. TFI is a powerhouse due to superior management. Yahoo Finance shows the forward P/E at 19 which is probably not excessive at all given its history.

This morning I see a certain rate reset preferred share has reset to a higher dividend. Enbridge announced that ENB.PR.H has reset to pay 6.112% on the $25 par value. This is based on the recent 3.992% 5 year Canada bond yield plus its rather low rese spread of 2.12%. The shares closed yesterday at $17.70 so the going forward uield is 8.63%. That’s higher than most of the high quality rate reset yields becasue Enbridge has a somewhat lower credit rating and is generally somewhat out of favor at this time. Their unsecured debt is rated Triple B plus (BBB+) The pref shares are rated PF-d 3(H) or Triple B minus (BBB-) by Fitch. BBB- is considered to be the lowest end of investment grade.

Overall, this looks like a good investment to me. But it could turn out badly is the company-specific situation at Enbridge worsens or if interest rates and inflation go higher instead of lower. Although in the case of higher interest rates and inflation it will eventually reset again so that provides some protection.

We never know the future and that’s why diversification is prudent. No one should go hog wild on preferred shares but they certainly can have a place in many portfolios at this time. And I like the idea of haveing some rate reet shares and some perpetuals. 

If you look at the recent history of ENB.PR.H , now at $17.70 it was about $15.70 in mid-May and about $16.70 at the end of June. This move higher and this higher reset is exactly what I have been talking about with rate reset shares this past couple of months or so.

Lower markets on Wednesday may also have been related to news about another indictment for former President Trump. NEVER a dull moment it seems.

Tuesday saw the S&P 500 down 0.3% and Toronto down 0.45%.

I was surprised that TFI International was up 3.1% after announcing lower year-over-year earnings that reportedly were below analyst expectations. Really? Maybe earnings were expected to be below expectations? (Oxymoron alert). Apparently the shares rose because TFI said it will benefit by picking up customers from bankrupt competitor Yellow (which I have never heard of). TFI has also negotiated a 5 year labour deal with many of its truckers and with modest wage increases. TFI is also putting in place systems to monitor profit by terminal in the U.S. They already do that in Canada. Basically more examples of the strong management at TFI. Seeing the surprise gain yesterday and not knowing the reason I sold 50 of my modest 200 share holding. I’m not at all sure that was wise. After I update this company I may be wanting to buy back in if the price happens to drop.

Earnings reports are coming in hot and heavy. Starbucks, RIOCAN and Fortis among others out this morning

I likely won’t have much if anything in the way of company updates for the next 2 to 3 weeks due to travel. Then I should have a lots of updates in late August and through September.

Overall, I am certainly surprised at the strength of the S&P 500 this year. I keep expecting more things to “break” with the massive interest rate increases, the rent inflation and other inflation. How can lower and lower middle income people keep making those credit card payments? Who will crumble as their mortgage payments soar? Which companies will struggle due to high interest? Time will tell. I will be paying more attention than usual to the debt levels when I analyse companies. The schedule of debt maturities becomes important also.

Cameco was out with earnings that focused on growth but reported a net earnings loss of $3 million. Despite its momentum and the fact that uranium and nuclear is back in favor, this company remains risky. 

On Monday, the S&P 500 was up 0.15% and Toronto was up 0.5%.

Cameco was up 3.2% as the U.S. brought on line its first new nuclear reactor in about seven years. This is a tough business but I have mentioned a few times that it may be time for uranium and nuclear to shine once again.

AutoCanada was up 5.1% and will announce earnings on August 10.  Due to a shortage of cars, a modest rental car in Halifax is apparently about $350 per day as the walk-in rate. (We booked ahead). That suggests to me that auto dealers can command high margins on whatever cars they can get their hands on. AutoCanada will have no qualms about charging whatever they can get. But hopefully will not get too greedy.

The car rental market on the other hand is greedy and therefore unintentionally basically begging people to start renting out private cars such as through Turo. We rented that way in Maui. Worked great. Turo is already active in Halifax and presumably most of Canada. The law of unintended consequences will be doing its work. When maximising profit turns into gouging, karma has a way of biting back.

TFI International reported lower earnings that were below analyst expectations. This is a fantastic company but the stock price may have got someone “out over its skis”. If it declines much I would be interested to buy. Selling this company has always worked out badly.

Couche-Tard reported Monday morning that  it will buy back 10 million shares in a block trade from an institution that owned over 50 million shares. They will buy at a 3% discount which was $64.69. On that news the shares closed about unchanged at $66.76. The market recognises that a block trade of that size does not necessarily sell at the market price when it it is the seller and not the buyer who was motivated to make the trade. Retail investors have an advantage over institutions in this regard in that we can sell without affecting the market price or having to sell below market.

Oil – West Texas Intermediate -WTI has risen to $81 U.S. dollars. This is bad news for inflation but vry good news for Alberta.

Andrew Peller announced that it has final approval for a major redevelopment of a very valuable parcel of land in Port Moody B.C. My understanding is that the company took years (perhaps many years) to get the residential / commercial proposal approved. They are now apparently just  starting to look for redevelopment partners. I would have though such partners would have been lined up a long time ago. I wonder if the initial partners have bailed. They may have missed the boat here due to regulatory delays. The share price did not bother to react to the news which came out Monday morning. Drat, it seems that laggard companies find a way to lag. 

Markets were higher on Friday with the S&P 500 up 1.0% and Toronto up 0.7%.

Meta was up another 4.4%. And Amazon was up 3.1%.

Shopify was up 3.2%.

After the close the Melcor REIT released Q2 earnings which were not great but not too bad. Expenses are rising faster than rent. The payout ratio remained. Net operating income was up 4% which is certainly better than a decline. Their retention of existing customers as leases expire has been very strong at 92% in the first 6 months of 2023. Occupancy is stable at about 87% and with commitments for future it is at 89%.

Adjusted Funds from operations were down 6% in the quarter which is definitely not good but was actually an improvement versus Q1. 

In order to raise cash they have listed for sale their 5 Saskatchewan properties. 

They secured one small new mortgage in the quarter at 4.62% for a five year term. That strikes me as a low rate considering that even residential mortgages are higher than that. But they said another mortgage was renewed at 6.97% so it’s rather confusing to know what their current cost of debt is. The higher one was probably on raw land since it is Joint Venture and the lower mortgage may have been secured by very secure tenant cash flows.

Overall their financial statements and commentary are always confusing. On my initial reading it looks like a relatively poor quarter but as they struggle with low occupancy and higher interest costs and the need to offer incentives to attract tenants. The low unit price already reflects a weak environment. I understand that management may even find it necessary to reduce the distribution but that may depend on whether or not they can sell the Saskatchewan properties.

Given the low unit price I am not thinking of selling and I believe the Alberta economy and population growth will lead to better results in future.

On Thursday the S&P 500 was down 0.6% and Toronto was down 0.9%.

Meta (Facebook) was up another 4.4%. The gains on this since last Fall when it was out of favor have been massive especially considering the size of the company. 

Most stocks on my list were down modestly.

Aecon Group was down 16% after reporting yet another poor quarter. They did report a profit but that was due to the sale of two parts of their business. But they reported another $80 million of losses on so-called “legacy” projects. My understanding was that they had said early this year that they had already booked all the expected future losses on those projects. Yet they now report more big losses. They appear to be very poorly managed. In addition they are in a tough industry.

Markets appear set to open modestly higher this morning.

Many Canadian companies will be reporting earnings in the next week or two. 

The yield on the government of Canada 5 year bond has increased to just above 4.0%. Apparently mortgage rates are set to increase again. Some companies and many individuals will be experiencing a lot of financial pain due to the higher interest rates. But I understand the FED no longer expects the U.S. economy to go into a recession. 

On Wednesday, the S&P 500 was about unchanged while Toronto was up just 0.05%.

TFI International was very strong with a 4.3% gain. That is strong especially considering CN rail just reported a 7% revenue decline in Q2. TFI has not yet reported. This is an extremely well managed company. It has done extremely well despite being in a competitive industry and despite labour shortages and volatile fuel prices. When I see the recent spike in TFI I am tempted to trim the position but historically that has been a mistake with this company.

AutoCanada was up 2.7%. Desrosiers has reported that June auto sales were quite strong. I’m optimistic about AutoCanada given the higher industry sales and given that this has been a very well managed business – under current management that is. My understanding is that due to lack of supply car dealers are easily getting full manufacturer suggested retail price, if not higher. AutoCanada has also been very successful in used vehicles.

The FED hiked interest rates once again yesterday. Their next meeting is September and its not clear if there will be another hike then or not.

Markets are set to open higher this morning apparently (once again) on optimism that the interest rate hikes have possibly peaked.

On Tuesday the S&P 500 was up 0.3% whil;e Toronto was down 0.15%

There are signs that the economy is slowing. 

CN just reported weak Q2 results with a 7% revenue decline. Intermodal (consumer goods) was one area that was down.

StatsCan reported early indications that both wholesale trade and manufacturing were down modestly in June.

These higher interest rates have to cool the economy at some point and it appears it is starting to do so.

The 5 year Canada bond which had dipped back to 3.75% is back up to 3.94% indicating that expectations that interest rates will decline are being pushed out further in time. When it comes to interest rates the expectation is basically “higher for longer”. Not much higher. The issue now may be more so the “longer” and how long that will be.

On  Monday, the S&P 500 was up 0.4% and Toronto was up 0.2%.

The S&P 500 has continued to go higher powered by about 7 dominant stocks. Toronto has also done well.

What we have not seen yet is any big impact from those consumers and businesses that are getting hit hard by the higher interest rates. I will be interested to see what Canadian Tire says about credit card delinquencies. 

This week we will have numerous Q2 earnings reports coming in.

Canadian Tire had an unusually weak Q1 for several reasons including a fire at a distribution center. Hopefully they will be back on track in Q2. In any case their shares look attractive in relation to earnings so I am definitely not thinking of selling.

Most of the preferred shares I follow were higher yesterday. I see one (RY.PR.S) that jumped 3.5% but that appeared to be just based on a few shares near the end of the trading day. These shares can show that type of volatility. Be cautious not to use market orders but instead use limit orders at a certain price and avoid buying just after something like a 3% jump as that might quickly reverse.

On Friday the S&P 500 was about unchanged while Toronto was up 0.5%.

American Express was down 3.9% and AutoCanada was down 3.0%.

Almost all the preferred shares I have been mentioning were up modestly. I have mixed feelings on that since lower prices make for a better buying opportunity for those interested in buying.

I thought maybe the 5 year Canada bond yield had declined and that was why the perpetuals were going up a bit. But, no that 5 year yield is at 3.85% and so it’s still close to its recent high around 4.0%.

I notice that TD Direct (TD Waterhouse) has raised the interest on its high interest account TDB8150 to 4.55% to reflect the lates Bank of Canada hike. I assume the other banks have made similar increases. It’s stunning to think that about two years ago they were paying as low as a token 0.05%.

Truly, I think the market is giving investors a golden opportunity to earn and lock in (with some investments not TDB8150 which floats) attractive yields on fixed income for the first time in a decade or more. 

At one time I might have turned up my nose at a 6% locked in yield. But I’m older now and after years of near-zero interest rates, 6% looks pretty good and 7% in something safe definitely looks good. As always diversification is called for. I don’t want to over-load on fixed income but I definitely want a material allocation to it.

On Thursday, the S&P 500 was down 0.7% and Toronto was down 0.3%

Toll Brothers was down 4.1% as apparently all the big U.S. home builders were down on Thursday.

Shopify was down 4.1%  and Amazon was also down.

Just another typical day in the markets.

The S&P 500 is predicted to open modestly higher this morning.

On Wednesday, the S&P 500 was up 0.2% and Toronto was up 0.4%.

TFI International was up another 4.0%.

Other than that, not too much excitement for the stocks I monitor.

There were some interesting Q2 earnings reports after the close today and that may be the driver of some moves tomorrow

Markets were strong on Tuesday with the S&P 500 and Toronto each up 0.7%

TFI International was up 5.9%. What a fantastic long term winning company. This latest gain was likely due to analysts upgrades although I see FedEx was also up 2.8% so maybe the whole sector was more loved today. What is nice too, is that it gapped up at the opening. The positive news must have come out while the market was closed. That’s the way it should be.

Cameco was up 4.0%. Nuclear power may be about to have its day in the sun again.

AutoCanada was up 4.1%

CMHC reported June housing starts. The headline was that Canada saw a huge increase. Looking at the details, that headline was quite misleading. The increase was versus May and month to month things can be volatile. The overall trend was relatively flat. For Canada single family starts were DOWN 28% versus June of last year and total starts were unchanged. The overall trend in recent months is about flat. It’s almost irresponsible that this comes out with a headline about a record increase.  

Because of my interest in Melcor Developments I always focus on the Alberta starts. These were dismal. In Alberta, single family home starts were down 26% versus June of 2022 and multi-family starts were down 36%. Calgary single family starts were only down 6% while Edmonton was down 34%. (And June 2022 was no banner month either.) The dismal housing starts in Alberta are despite the surge in immigration and the relatively affordable prices. High interest rates are clobbering the market. But rents are rising and so perhaps the starts in upcoming months will improve. 

On Monday the S&P 500 was up 0.4% while Toronto was down 0.2%

Constellation Software was up 2.0% after announcing a big acquisition. What a winning company it has been.

The Melcor REIT was up 6%. That’s on small volume so may not mean anything. But I now see that they announced Friday (presumably after the close) that the distribution for July would be (remain at) 4 cents. They are somewhat tight for cash due to higher interest rates and the ongoing vacancies in their office buildings. Unfortunately, this may signal that they plan to cut the distribution for August after they come out with results. I believe they normally declare the distribution three months at a time. The units have a big discount to book value but we could certainly see a price drop if they have to cut the distribution. 

I scraped up some cash and added to my perpetual preferred share position today. In one account I added some Great West Life. GWO. PR.Y yielding 6.8%. Then in another account I was tempted to buy more of the GWO but thought it better to diversify so I placed an order for some CU.PR.E yielding 6.7% but it has not gone through yet as it was late in the day and I bid less than the offer price.

Possibly I am over-doing it on these perpetuals. But they look attractive and safe to me. I have historically been light on fixed income and these higher interest rates (and specifically the higher yields) seem like a good opportunity to increase my fixed income allocation. I like the idea of a substantial amount of dividends flowing my way regularly.

On Friday, the S&P 500 and Toronto were each down 0.1%.

Stantec was up 2.7%. Dollarama, WSP Global and Metro Inc were all up just over 2%.

AutoCanada was down 4.1%.

Q2 earnings reports are starting to come in for U.S. companies and will likely include some surprises in both directions to give the market something to react to.

On Thursday the S&P 500 was up another 0.85% and Toronto was up 1.0%. Apparently, investors are in an optimistic mood.

Shopify was up an impressive 6.1%.

Update  dated July 16: I had made a comment here July 13 about one of the perpetual prefs being down 8% from my recent article price. Actually I had entered an incorrect price and then in my comment I also got he symbol wrong so the comment got too garbled to fix and I have deleted it. I would virtually never delete a comment but this one just got too garbled to fix. I remain attracted to perpetual preferred shares. Since my article the seven listed are down an average of 1%. The range is minus 4% to plus 2%. 

Markets were strong on Wednesday after U.S. core inflation came in a little lower than expected fueling hopes that the end is in sight for the increases in interest rates. 

In response, the yield on the U.S. 10 year treasury declined modestly from 3.99% yesterday to 3.86% today.

In Canada the five-year government of Canada bond yield held steady at about 3.85% even as the Bank of Canada raised its rate 25 basis points to 5.0%.

The big Canadian banks raised their Prime rates to 7.2%. I continue to think that is going to cause major pain to certain borrowers and it’s hard to say what the fall-out will be.

It’s great for savers such as retirees with investments. The rate on money market funds such as TDB8150 is likely to now increase from 4.3% to about 4.55%. About two years ago it was 0.05%! One year GIC rates are easily found at 5.35% and may go a little higher. The five year GIC rates are at as high as 5.05% for the annual pay option. That rate may have reached its peak.

With inflation starting to come down and with expectations that interest rates will be lower in a year or two, I continue to think that grabbing some perpetual preferred shares yielding about 6.5% is not a bad idea especially for more conservative investors and perhaps for a portion of almost anyone’s portfolio. See my recent preferred share article.

Today, the S&P 500 was up 0.7% and Toronto was up an impressive 1.0%.

AutoCanada was up 6.6%.

Canadian Western Bank was up 3.9% as the Laurentian Bank potential sale pulled it up a bit.

Toll brothers was up 2.8%. West Fraser Timber was up 3.2%. Apparently the market thinks that U.S. home building can remain strong despite higher interest rates.

Linamar was up 2.9%.

All in all, the markets have done very well and do not seem to see much risk of a big recession in spite of the sharply higher interest rates. Perhaps “the market” should think about the fact that the reason interest rates would come down is because of a cooler economy. We probably can’t have both a strong economy and lower interest rates. Central Banks will keep interest rates high until the economy softens and brings inflation down. All of that is another reason I would not mind having a higher allocation to preferred shares. 

On Tuesday the S&P 500 was up 0.7% and Toronto was up 0.3%.

Aecon Group showed some life gaining 4.3%.

Visa was up 1% which is not much. But it’s now up 16% this year to date. I figured that would mark an all-time high but upon checking it was slightly higher two years ago. This stock is a keeper.

Oil has been gaining and West Texas Intermediate is at $75 which bodes reasonably well for Alberta. 

Tomorrow’s excitement for the Canadian market will be the latest Bank of Canada interest rate decision.

After the close today, Laurentian Bank more or less put itself up for sale. It trades at only about 53% of book value and will likely jump somewhat on this news.

If it is purchased, I think National Bank might be the most logical buyer. There is no way the big 5 banks should be allowed to grab it. I’d like to think that Canadian Western Bank could buy it but that would require CWB to issue shares at well below book value which would be unfortunate. Like CWB, Laurentian has a strong focus on commercial lending. But unlike CWB it also has a significant residential mortgage book. One possibility is that Laurentian will sell off pieces of itself. It has some equipment financing operations that would be of interest to CWB.

On Monday the S&P 500 was up 0.2% and Toronto was roughly unchanged.

Starbucks was up 3.2%.

Toll Brothers was up 2.7%.

This morning West Fraser Timber announced that it will sell its Hinton Alberta Pulp mill for just US $5 million. This mill had previously been permanently curtailed in April of 2022. Pulp mills are not exactly in favor with environmentalists and it’s a tough business. But the new owner has tentative plans to invest 400 million euros to expand the mill. Although West Fraser Timber will take a write-off of about $110 million the market was unfazed by the news as the shares rose 1.3% today. Running a pulp mill is not a core business for WFG and they have enough issues keeping environmentalists at bay in their core lumber and related business. 

On Friday, the S&P 500 was down 0.3% while Toronto was up 0.1%.

Next week’s excitement will be whether or not the Bank of Canada increases its interest rate by another 0.25%.

The market expects an increase and that in part is why the yield on a five year government of Canada bond poked its nose over the 4.0% level on Friday. It’s now at the highest level since late 2007 just prior to the financial crisis.  That yield was under 1% in 2016. And with the pandemic panic in 2020 it was at about 0.3% for about nine months. The increase in the past two years has been epic.

It seems clear that higher interest rates are driving a huge transfer of wealth from debtors to savers. And I suspect many corporate and personal debtors are going to end up bankrupt. But it does not appear the markets are concerned so far about the impacts of those bankruptcies.

At this time most investors should probably be tilting their portfolios more in the direction of safety especially if they have been over-exposed to riskier allocations. Even cash now pays you to own it so it seems logical to have a higher allocation to cash. And GICs and all forms of fixed income now pay you more to hold them and so it makes sense to have a reasonable allocation to fixed income.

The report on Ceapro Inc. is updated and rated Speculative Buy at $0.44. 

This company has been a disappointing investment to date. But it does have a strong balance sheet and is trading down very near its book value. It generates cash and profit from its “base business” even after expensing its research efforts. It claims to have a number of promising developmental areas that may be close to commercialization if it can do a licencing deal. It has other research efforts hat are longer term. So far none of these research efforts have panned out but there is definitely potential This is a Speculative penny stock and is suitable for only a smaller investment.

Thursday was a negative day for markets as the market (finally) starts to believe that at least one more (and quite likely two) interest rate hike will occur in the U.S. 

The S&P 500 was down 0.8% and Toronto was down 1.5%.

Most stocks wed down on the day. AutoCanada managed a 2.0% gain.

Costco reported same-store sales for June. I focus on the numbers adjusted for changes in gasoline prices. 

In the U.S. they were only up 2.0% which is low for Costco but not surprising after  all the huge gains since the time of the pandemic. Same -store sales growth in the U.S. has been quite weak for several months now. But the  market so far does not seem concerned and the stock barely budged in after-hours trading. If the weaker U.S. sales growth is due to volume being down it could be an indication of softer consumer spending. But it could also be due to lower inflation which would be good news for consumers. Costco does not break out its sales increases between volume and price changes.

In Canada, Costco’s same store sales growth in Canadian dollars was 6.5%. That could be both volume and inflation driven. And volume growth in Canada could be explained by the fact that the population here rose by over 1 million in the past year. I suspect that competition may be causing Costco in the U.S. to keep a lid on prices while in Canada competition is not as strong.

In my own investing I am interested in adding more in the area of preferred shares. 

For rate resets (see my recent preferred share article) I like EMA.PR.H. At $20.75 it yields 5.9%. But it is going to reset in mid August and if the 5 year Canada bond is at 3.75% (it’s currently 5.9% – correction 3.9% ) then the yield based on the new dividend would be 7.6%. With a reset date coming up in less than 6 weeks, there is not much risk that the 5 year Canada yield (which drives the reset level) will be much lower at that time.  And this one has a minimum dividend that would mean it won’t ever reset to a lower yield than the current 5.9% even if the 5 year Canada bond sinks very low once again in future.

Another possibility is to choose a perpetual. There I can get a yield of 6.5 to 6.7% which does not change with interest rates.

Another possibility is a floating rate perpetual. There is a rather complicated one BCE.PR.E that currently yields 9.6% at a price of $17.95. But this one floats monthly and so the dividend could definitely be noticeably lower over time. And oddly enough, its dividend will decrease if the price rises due to a complicated formula.

West Fraser Timber’s shares increased sharply in June. And that’s despite the fact that the company has now reported two quarters with bottom line losses due to lower lumber prices. U.S. home building has held up well and even increased and that is likely the reason for optimism. But lumber prices, despite an increase in June, remain well below the levels of a year ago. Therefore it seems certain that West Fraser will report lower year-over-year earnings in Q2 when it is reported. And the same is likely for Q3. At 0.9 times book value the company could be held as a long term investment. But looking at the short term and considering the difficulty of predicting commodity prices and considering the forecasts of recession, it seems reasonable to Sell these shares now at about U.S. $83 and Canadian $110 and take advantage of the recent gains. Our report is updated and rated Sell.

On Wednesday, markets were down modestly as the S&P 500 was down 0.2% and Toronto was down 0.5% despite higher oil prices.

My next update will be for West Fraser Timber. Its stock has been surprisingly strong despite lower lumber prices. It’s a very hard company to predict. Subject to finalizing my analysis I suspect I will rate it a Sell.

On Tuesday, the Toronto stock exchange rose 0.25%.

See the update for Boston Pizza just below. I bought a few shares today.

Between the higher yields available today and the fact that I have moved more into these type of investments I am finding that my level of dividend (and to a small extent, interest) income is becoming quite significant. However. However, market value fluctuations over a month or a year tend to often dwarf income levels. Therefore we have to be able to stomach market value fluctuations.

Our report on the Boston Pizza Royalties Income Trust units is updated and rated Buy at $16.63. The Coles Notes version is that you get a 7.7% cash yield and that is yield is likely (but not guaranteed) to increase over the years. The biggest risk is if more BPs become unprofitable and close. Overall, this could have a place in portfolios along with other higher yielding investments. 

On Monday the S&P 500 was up a scant 0.1% while Toronto was closed in lieu of Canada Day.

Tesla was in the news with a 6.9% gain after announcing strong Q2 sales volumes.

Tomorrow, Toronto will be on its own with the U.S. markets closed.

Earlier today I emailed out the latest edition of our free newsletter. If you did not receive you could try checking your junk folder and if still not found, click the link above to our free newsletter and add your email address to the list.

You also see past editions of the free newsletter here.

On Friday, the S&P 500 and Toronto were each up a stout 1.2%.

Apple was up another 2.3% and poked its nose above the $3 trillion dollar market value level. It’s hard to have a feel for numbers that big. But I read today that this makes Apple about as valuable as the entirety of all the companies in the Toronto Stock Exchange industry. That is rather mind boggling.

Over the weekend it was announces that Tesla’s deliveries in Q2 were at a record and beat expectations. I think we reached the tipping point for electric vehicles at least a year ago. They are taking over the market rapidly. 

I’ve owned a model Y since last May. Probably 98% of my charging is at home so the lack of chargers is not an issue most weeks and months. We have done just two road trips and with a little planning it was no problem to get charged. When I use a Tesla Supercharger I simply pull in and plug in. Tesla recognizes my car and charges my credit card automatically. Our Hotel in Canmore had three free chargers in the parkade. A Tesla is roughly equal parts mechanical, electrical and software. And it is the software that is the value-add.

Canadian markets will be closed tomorrow, Monday in lieu of July 1 and the US. markets will be closed on Tuesday for their holiday.

On Wednesday, the S&P 500 was about unchanged while Toronto was up 0.4%.

Couche-Tard was up 4.0% after releasing earnings. This company has a fantastic winning track record. With the government suddenly wanting more grocery store competition (after having approved all the grocery mergers for decades that led to a situation of not enough competition) that might be an areas for Couche-Tard to get into. They already tried to buy a large grocer in France (Carefor) but that got blocked by the French government.

I met today with the CEO and CFO of Melcor. While they were friendly enough and while the CFO said they do want to do some return on capital calculations that I suggested (when they find time), in general they seem complacent and say they are doing a good job and already know what to do. They blame low profits on market conditions. Sadly, it was not an encouraging meeting. They are not used to any shareholder asking questions. They have virtually no analyst coverage so they don’t get questions that way. 

Markets were positive on Tuesday as the S&P 500 gained 1.15% and Toronto gained 0.7%.

TFI International was up almost 8% but I did not see any news to explain that. (But TFI is a perennial winner so its not a shock).

Toll Brothers was up another 3.8% and continues to surprise me given it will almost certainly be reporting lower earnings due to lower contracted home sales in the last year. But perhaps the focus is rightly on current contracted home sales even though those do not show up in revenue until completed some 9 to 12 months later. Toll is very well managed. It has always been a tough one to predict.

The Canadian headline year-over-year inflation was out and has declined to 3.4%. But it’s not clear that inflation has been beaten back yet. The month-over-month number was 0.4% which could be said to represent 4.8% annualized although trying to annualize a one month figure may not mean much. But if so, then the idea of grabbing some strong yields now on GICs and preferred shares continues to look good. If the bank rate peaks at 5.0% but is back to 3.0% in two years then the yields available today, some of which can be locked in, are going to look attractive in retrospect at that time. 

I bought a small amount of the Fortis perpetual preferred share today. I also somewhat reluctantly sold some (not all) Toll Brothers in an account where I need to have some cash. It was at a gain of 103% in that account so that felt good.

On Monday, the S&P 500 was down 0.45% while Toronto was strong with a 0.9% gain.

For some months now, I have mentioned that our higher interest rates are a “massive game changer”. For example, see my newsletter of February 25. 

Lately I have been talking about and recommending rate reset preferred shares.

Another timely choice is perpetual preferred shares. These were not what we wanted when they paid say 4.5% and could be expected to fall in price as interest rates rose. But now that they have fallen for that reason their yields look more tempting at over 6%.

For a very long time it has been difficult to get much yield on safe fixed income. Many investors turned to dividend stocks and away from bonds and preferred shares. And that worked well. But now it’s probably a good idea to pivot and invest in some safer fixed income including GICs, some bonds and preferred shares and also high interest savings vehicles. 

I’ve just added three perpetual preferred shares to our list on the Subscriber Home page. These are three that I happened to have bought small amounts of at their IPOS. They are down in price and I had not been paying much attention to them. But now they do look attractive.

No one should go “all-in” on these or any other type of investment. But they can certainly earn a place in most portfolios.

These are not as safe as annuities. I don’t know how much a (say) 65 year old could yield on a lifetime annuity. (Annuity prices to my knowledge are not transparent and you have to probably talk to an annuity salesperson to get a price). And in any case an annuity yield is NOT in any way the same as the yield from bonds or preferred shares. An annuity yield includes a substantial slice of giving you back your own money over time and it goes to zero on death. They tend to be safer but they are not likely a better return.

On Friday the S&P 500 and Toronto were each down 0.8%. In part, this is as markets continue to adjust to the idea that interest rates will be “higher for longer”.

Starbucks was down 2.5%. Linamar was down 2.6%.

Lately I have mentioned that it may be timely to buy rate reset preferred shares. I like many of those for both the yield and the capital gain potential. But for long term income they run the risk of a lower dividend if and when interest rates eventually go down and if they reset at a time of low interest rates.

It may also be very timely to look at perpetual preferred shares. These pay a fixed dividend that does not change. As interest rates have risen these have come down in price and so their yields are up. 

One that I own is issued by Intact Financial Corporation,  IFC.PR.E paying 5.2% on its $25 issue price. Now, because of higher interest rates, it trades at $20.28 to yield 6.38%. This and other high-quality perpetuals are worth considering. If you are looking for secure income where the dividend will not decrease, this may suit your needs.

Thursday saw the S&P 500 up 0.4% while Toronto was down 0.6%.

Canadian Western Bank was down 2.5%. One thing in favour of CWB is that it does not have any of those variable rate residential mortgage loans. The bigger banks seem likely to incur some losses on those type of  mortgages.

AutoCanada was down 3.4%. Linamar was down 3.7%. 

I was looking today at the rate reset preferred share CWB.PR.D which is on our list. It was issued over four years ago in early 2019 at a time when these shares were very unpopular and the 5 year Canada bond yield was low. CWB had offer a dividend high of 6.0% to sell the shares at that time. That was a spread over the 5 year of 5.04%. That’s one of the highest rate reset spreads that I am aware of. After it was issued, the market for rate resets improved and the 5 year bond yield recovered from its lows and CWB.PR.D traded as high as $27.50 in mid-2021. In my several updates and comments about it, I did not like it much above $26 becasue I figured it would ultimately be redeemed at $25 on the reset date of April 30 2024. Even though the yield of 6% seemed quite attractive in 2021 I did not like the idea of the capital loss if redeemed and at that time it looked like CWB would redeem it due to its high spread (and therefore high dividend upon reset.).

But things have changed a lot. Now it trades at $23.78 for a yield of 6.3%. And now 6.3% is not as attractive as it was in 2021 since we can now get over 5% on a GIC. But in 10 months it is either going be redeemed at $25 (for a 5.1% capital gain) or it could reset to a very high dividend level given its high spread since it does not look like interest rates will move down much in the next ten months. Either way, this all seems attractive. If it is redeemed, we will collect just 3 more dividends for a yield of 4.7% plus the 5.1% capital gain, for a total return of 9.8% (on a holding of just over 10 months).  CWB likes having these shares as part of its capital structure, so it is possible that they will let the dividend reset significantly higher (assuming the 5 year bond yield is still above 3.0% in ten months), in which case the yield would be 8.5% of the current price or higher. 

I bought some today. In doing so I am trusting that CWB is not going to run into financial difficulties.

Markets were down on Wednesday as investors start to accept the reality that interest rates will be “higher for longer”. Remember “lower for longer”? That’s so yesterday.

The S&P 500 was down 0.5% and Toronto was down 0.2%.

There were no particularly notable moves in the stocks on out list.

Looking at some figures today, I see that the Government of Canada can still borrow 30 year money at 3.2%. It might be a good idea for them to do that. It was a travesty that most of the Canadian government borrowing during he pandemic was very short term when they could have locked ion 30 year money at ridiculously low rates. Such rates were under 1.0% for several months in 2020 and were under 1.5% for the entire year. 

Stocks were down on Tuesday ad the S&P 500 fell 0.5% and Toronto fell 0.9%.

With higher interest rates stocks market declines are to be expected. Markets may not fall but it seems more likely than not.

AutoCanada managed a 2.4% gain. And Toll Brothers continues to do well with a 2.5% gain today.

There seems to be more stories about businesses and people struggling with debt. I suspect there will be LOTS more stories. While the big banks seems cheap, I think their earnings will be hurt by bad loans so I am not bullish on the banks at this time. But that’s just based on an impression and not based on detailed analysis.

P.P.S I settled on a rating of Speculative Weak Buy / Hold. This has been a very poor (pour?) investment but perhaps it has no where to go but up from here. Management is confident. Then again, that’s one reason I usually don’t talk to managements – they always tend to be confident. 

A P.S. to this post below , I just spoke to John Peller and got some information that will change my rating to Speculative Buy / Hold. He views what I called a subsidy as just  return of a small portion of the excise tax that the industry pays. And he pointed out that the company expects to get a very large gain on a land-sale probably this year. The land is in Pt. Moody in an urban area apparently slated for a high-rise development. He also indicated that profits will be up double digits in each of the next two years. Now is probably not the time to give up on these shares. 

Andrew Peller is updated and rated Sell / Hold at $4.06

I wanted to update the company because I own a few shares. Luckily a small position for me. And because the company remains on our list and some subscribers may own it. I don’t think I ever rated it higher than (lower) Buy but at one time I thought it merited that luke-warm rating. Instead, it has cratered. 

It’s an interesting company in a relatively simple business and seemed like it was worth keeping tabs on.

But is has become a lesson in the types of companies to avoid. The Canadian wine industry faces such intense competition from imported wines that they need at least modest government subsidies. That’s not a recipe for attractive or even reasonable profits. It seems to be a hobby business.

At this point I am very reluctant to sell at such a low price and will hold onto my shares.  Management does project better times ahead but they seem to be pointing to two years from now!

On Monday, Toronto was down 0.2% while U.S. markets were closed for a holiday.

Interest rates continue to go up. The yield on the 5 year government of Canada bond hit a new 15 year high today at 3.78%. This rate bottomed out at around 0.30% and was at that level for most of 2020.  So we are up enormously from that level.

So how should this impact Rate Reset Preferred shares? Consider TD.PF.D that pays only 80 cents and won’t reset until 25 months from now. It trades at 18.36 to yield 4.36%. The fact that it is stuck at a low dividend for two years is a negative. But if the 5 year stays at 3.78% then, with its spread of 2.79% it would ultimately reset at 6.57% of $25 paying $1.6425 which is a juicy 8.95% of the current price. But if rates stay high then there will be many high rates available which TD.PF.D has to compete with. 

And consider CWB.PR.B which pays $1.0753 and trades at $16.95 to yield 6.3%. And it will reset in 10 months with a spread of 2.76%. If the 5 year is at 3.78% in 10 months that would be a dividend of $1.635 or 9.6% of the current price. With a relatively short time until it resets, it seems to me that each time rates go up, CWB.PR.B should go up. But the counter argument is that there will be lots of other high yielding things that CWB.PB.B has to compete with. And perhaps investors are thinking all the way to the next reset after that in 2029 when it might reset to a far lower dividend.

The original attraction of rate reset shares was that if rates rose , perpetual preferred would lose value, but these reset shares would tend to hold their value. So far, we are not very much seeing that.

Investors seem to be leery of rate reset shares due to their past price declines. A case of twice burned, three times shy. But if that fear is over-done then now may be a buying opportunity.

On Friday, the S&P 500 was down 0.4% and Toronto was down 0.3%.

Shopify (see update just below) was down 2.1%.

U.S. markets are closed tomorrow for the Juneteenth holiday.

Shopify is updated with the admittedly wishy-washy rating of Highly Speculative Hold at U.S. $65 and Canadian $85.

This is a great company and one that deserved a ton of admiration. The founder Toby Lutke has turned himself and early investors into multi-billionaires. And this company is almost certain to continue to grow.

But the stock has an extremely volatile history. And it trades at a very hefty 14 times revenue and 189 times analyst forward projected earnings. So a fantastic but very expensive company. So a tough call.

Not a stock you likely want to put in your Mother-in-law’s portfolio. 

But maybe not a bad idea to take a flyer and make a modest investment for those willing to take some risk and willing to invest more if the price declines materially.

I expect adjusted earnings to be positive in coming quarters while there were losses or low profits in the past four quarters. But the market already expects that. And we could be heading into a general market decline if the central banks succeed in triggering a recession.

I am holding it and a family member is holding it and we both have quite good gains on it and we have a meaningful although not huge amount of dollars invested..

My strong inclination now is to sell one third of those positions or maybe even half at this time.

On Thursday the S&P 500 was up an impressive 1.2% while Toronto was almost flat with just a 0.1% gain.

The only large gain for companies on list was AutoCanada up 3.2%. Yesterday Desrosiers reported that May auto sales were very weak but blamed it on a lack of supply. I would think that would be a recipe for high dealer profits. No need to discount when there is a shortage of inventory to sell. 

Not on our lists, I see Meta (Facebook) up  3.1% and FedEx up 2.95%.

I’m quite surprised at the gain in the S&P after the FED paused but apparently signaled two more rate hikes ahead and indicated rate s will not decline anytime soon at all (think two years). Nevertheless, long treasury yields came down slightly. 

It’s almost mind boggling to see the short-term treasuries from 1 month to 1 year paying 5.2% after being at virtually zero in 2021. One of the biggest beneficiaries of this is Berkshire which holds roughly $100 billion in those treasuries. It’s nice to pick up an extra $5 billion (pre-tax) in profits.

Berkshire Hathaway has been in the news as courts are blaming certain large forest fires on its PacifiCorp utility subsidiary. Estimates are that the awards could go into the billions. Buffett has talked before (in a difference context) about how courts are sometimes inclined to go after the deepest of pockets.  It will be interesting to see if the utility has insurance for this and if so if it is with Berkshire’s own insurance companies or not. I suspect they will not be insured with Berkshire companies. And I doubt that they have the level of insurance that would be needed to pay these awards. The billions awarded will be appealed  and this will drag on. If it ever comes down to it the award being so large that PacifiCorp was broke then Berkshire would likely go ahead and file bankruptcy on that company. They will not let one company take down too much of Berkshire. Berkshire at the corporate head office level  guarantees payment on most of its debt but does not guarantee the debt of its utilities – that lack of guarantee has been prominently indicated in the annual report for many years. So far the market is showing no concern about this in terms of Berkshire’s share price.

The market today was waiting nervously to see if the FED would pause or continue to raise rates with its noon announcement.

It ended up that they DID pause but also apparently signaled they expected two more increases by the end of this year.

The market took this mixed news well with the S&P 500 and Toronto each managing a 0.1% gains.

Shopify was up another 3.4%. That’s a 52 week high but it remains about half of it’s all-time high which came during the pandemic when it looked like the movement to online shopping was more permanent.

After the close, Andrew Peller reported another set of weak results. I’m sorry I ever looked at this company. The problem is that that are trying to compete against other areas of the world which simply have lower costs. Canada imports cheap wine from those places. In fact Andrew Peller’s biggest seller is made from imported bulk wine. They are competing with places with better growing seasons, possibly lower land costs and probably lower labour costs. Probably no need to heat their buildings in winter in some cases. And they claim that foreign governments subsidise wine growing while Canada does not. It all ends up being a recipe for poor results and I’m not sure there is any relief in sight but I will dig into their results. 

With the FED apparently suggesting two more rate increases by the end of this year I would not expect stocks to do well on that news. It seems to me to be a time to be defensive and make sure you have some fixed income and cash. 

On Tuesday, the S&P 500 was up another 0.7%. This was apparently because the latest U.S. inflation report out this morning came in slightly lower than forecast which gave hope that the FED will not raise interest rates with its announcement  tomorrow.

Toronto was up 0.35%.

AutoCanada was strong with a 4.2% increase. 

Most of the rate reset preferred shares edged up today. I have added an Intact Financial Corporation rate reset share to the list rated Strong Buy. IFC.PR.G It is just resetting at the end of this month to pay $1.503 annually for the next five years and at $21.49 it yields 7.0%. This can be bought for the yield. And it seems likely to offer some capital gains at least temporarily unless market interest rates continue to move up. It was at $21.00 when I first mentioned it on May 31, so it’s already up a little. If interest rates are lower next year than the 7% could be attractive and the price would rise.

I also mentioned TD.PF.K on May 26, when it was at $20.60. It has now jumped up to $22.23 so I am less interested in that one at this point.

Unfortunately my mainstays CWB.PR.B and ENB.PF.A have not risen much lately. They are somewhat lower credit quality but I think they are both good choices. And the Brookfield Office Property rate resets on our list are riskier and may continue to languish or decline. They are higher risk at this time.

Rate resets have had a poor history but I believe they are timely now. 

This stock is trading at just 30% of book value despite its apparently strong assets. It has been very disappointing since the Summer of 2014 when it plunged with oil prices and a softer Alberta economy.

This is a relatively small company and their headquarters are close to me and I have followed the company for over 20 years. For the past two years, I have been putting considerable pressure on the company to do better. That pressure includes complaining to the CEO and Board about the poor earnings performance and making suggestions for change. I talked to them at the annual meeting and then met with the finance VP. The CEO and CFO have indicated they want to meet with me again later this month.

Management also wants to do better and between that and probably spurred on by the pressure I think they are making some new efforts. For example last year they bought back 5% of their shares after many years of buying back extremely few shares. Just last week they renewed their buyback program and have already made a block purchase of 300,000 shares which is almost a full 1% of shares outstanding. Last year they also sold an office building in Kelowna and quite a few apartments that they owned in the U.S. and made quite good gains on those sales.

So the good news is they are doing share buy backs. And they will likely sell some lots in the U.S. and may have sold some this quarter. Lots in the U.S. sell in bulk rather than dribs and drabs and so any sale would be material to results. I think they are looking at selling at least some vacant land which would free up cash and would likely be sold at more than book value (hopefully substantially more). They are buying little or no new land and this makes more cash available for share buy backs and possible dividend increases.

But the bad news is that lot sales in Alberta may remain fairly low due to higher interest rates and despite population growth. This will depend how confident home builders are to take on more lots.

Higher interest rates are also likely to lead to market value reductions on the investment (commercial rental) buildings. Their office buildings will continue to struggle to attract tenants but their retail properties are strong. At last report the Investment property side was doing reasonably well and slowly improving. 

Overall, I see some reasons for optimism but the higher interest rates are a definite headwind. 

I am also trying to convince management that they need to do more to help the market understand the value of their assets and that they in fact really have a responsivity to do that and can’t just have the attitude that the share price is not their responsibility. I do agree with them that achieving higher earnings is the main priority.

Last year a number of you joined my disgruntled Melcor owners list and gave me your email addresses and your share holdings. I have 18 names on that list with a total of 171,300 shares. If anyone wants to join that list or confirm they are on it, let me know at shawn@investorsfriend.com

Monday’s action saw the S&P 500 up 0.9% and Toronto up 0.15%

Cameco was up 4.0% as nuclear and uranium are in revival mode. 

Shopify was up 6.2%. This will likely be the next company that I update.

I am doing some work on the rate reset preferred shares and continue to think they are timely. 

On Friday the S&P 500 was up 0.1% and Toronto was down 0.25%.

Shopify was the biggest gainer on my list with a 3.4% increase. There were no losers of any particular note.

The latest jobs (labour force) survey was out today and was fairly weak. It could be that the interest rate hikes are finally starting to have the desired affect of cooling the economy. Some workers are unfortunately going to be sacrificed for the goal of getting inflation under control.

Higher interest rates are a gravitational force on stock prices. Some strong companies will overcome that gravity through the buoyancy force of higher earnings. But in general it seems likely that stocks may be more likely to decline than rise.

Therefore it is important to have a balanced portfolio that includes dividend stocks as well as fixed income and cash. See my recent comments about rate reset preferred shares.

On Thursday, the S&P 500 was up 0.6% and Toronto was down 0.2%.

There were no particularly notable moves in the stocks I monitor.

Major banks have raised their Prime rates to 6.95%. Mortgage rates have increased again with the Bank of Canada rate hike.

Money market and high interest savings account interest should also be increasing. GIC rates should also be increasing.

GIC rates at TD Direct are as high as 5.12% for a 1 year term and as high as 4.71% for a five year term. If inflation and interest rates do come down next year then locking in today’s rates will have been a good thing for the fixed income portion of a portfolio particularly in in non-taxable accounts. Since no one knows the future it might be prudent to spread GIC money across different maturities.

In taxable accounts, interest income and REIT distributions are taxed heavily while capital gains and especially eligible dividends are much more favorably taxed. Many blue chip Canadian stocks have been great choices for eligible dividends.  Rate reset preferred shares have mostly been a frustrating source of such dividends as they too often declined in value. But I think the current interest rate environment is favorable to these. 

On May 31 I mentioned Intact Financial Corporation’s IFC.PR.G that has just reset to pay $1.503. That’s a yield of 7.06% at today’s close of $21.30.

I also mentioned (May 27) one that is considered safer from TD Bank I said  “TD.PF.K which will reset in September. It pays $1.1875 per year and last traded at $20.60 to yield 5.76%. But if the five year Canada is say 3.0% at the reset date then the dividend will rise to $1.3975 to yield 6.8% at the current price. It appears that this share is trading at least partly on the expected increased dividend as opposed to the lower existing dividend.” This one has now risen to $22.08. It seems increasingly likely that the 5 yar Canada bond yield could remain well above 3.0% as of September.

And on the list of stocks I have the tow Canadian Western ones and ENB.PF.A.

The point is that if higher interest rates pull down a low of other investment values, these rate reset preferred shares may be a good thing to have as part of a portfolio because they are paying higher yields (and provide eligible dividends) and in many cases now seem more likely to rise in value than to fall.

It seems to me that Canadian home prices will have to drop on average. Stocks prices may also decline. Higher interest rates are always a powerful gravitational force on the value of financial assets. Others factors can offset that especially temporarily. But in the end I believe the math of higher interest rates will not be denied its due.

It also seems to me that a lot of businesses and individuals must already be getting fairly crushed by these higher interest rates. But not much of any such carnage has hit the news yet. Many of these companies and individuals may be keeping their heads above water for now but in many cases that can’t last much longer.

On Wednesday the S&P 500 was down 0.4%. And Toronto took the news of the Bank of Canada increase in stride adn was also down just 0.4%.

Shopify was down 6.4% giving back a similar sized increase from yesterday whatever that was about.

The yield on the government of Canada five year bond is up to 3.76%. That’s the highest since the Summer of 2007 when the Financial Crisis was just getting rolling.  These higher interest rates are going to cause a LOT of pain for many people and businesses while many others will benefit by earning this higher interest. A better time to be a lender than a borrower.

Donald Trump has been informed that he likely to be charged in the classified documents case. Meanwhile he is still considered a front-runner for the Republican candidate for President. It’s a strange world. So far the market has not given a care about Trump’s troubles and hopefully that can remain the case. My thinking is that Trump’s best move would be to throw his support behind DeSantis in return for a promise of a pardon.

There was big news today that the Irving Oil Company may be looking to sell. It’s owned it seems entirely by Arthur Irving and probably his offspring. Arthur is about 90 and has given a lot to charity and may want to cash out to give a lot more to charity. Obviously he can’t take it with him. That is one of the saving graces of the fact that we have billionaires. They can’t possibly spend that king of money even together with their offspring and much of that wealth will come back to society in some form. Whether to charity or through taxes. Also having wealth is the ability to consume mega amounts. But billionaires typically just leave their wealth in businesses and they are not consuming mega amounts. For example it is completely wrong to say that Warren Buffett is either greedy or keeping consumption from others. He consumes the tiniest fraction of what he could. 

The Bank of Canada has raided its interest rate another 0.25% to 4.75%.

My fear is that this is going to be very harmful to a large group of individuals and corporations. Meanwhile the economy remains strong.

The very purpose of the rate increases is to cool the economy so we should not be surprised if it actually starts to work and does lead to lower corporate profits.

As always only time will tell where we go.

Meanwhile a good strategy is to have a balance of equities and safer investments and some cash or cash equivalents.

On Tuesday, the S&P 500 was up 0.2% and Toronto was up 0.6%.

Shopify was up 6.0%.

Toll Brothers was up 4.5%.

There was a report from Equifax today that households have fairly sharply increased their credit card debt in the past year and defaults are starting to rise. 

Stocks ended the day on Monday slightly lower with the S&P 500 down 0.2% and Toronto down 0.5%.

AutoCanada was up 3.3%

The Canadian market awaits the Bank of Canada rate decision on Wednesday morning. With the 5 year Canada Bond yield at 3.55% the betting is that the Bank might raise the rates 0.25%. My own bet and hope is that they leave it unchanged. 

ON Thursday, markets were higher with the S&P 500 up 1.0% and Toronto up 0.5%. Most stocks were higher on the day. Cameco was notable gaining about 8% as prospects for uranium use are improving.

As of this Friday morning at just after 11 am eastern time the S&P 500  and Toronto are each up 2.3%.

An important U.S. payroll survey out this morning showed strong job growth but slightly higher unemployment . This could be considered a mixed signal as far as FED tightening.

U.S. Treasury yield rose on the news suggesting an expectation of higher interest rates.

At the end of the day, the markets, like all of us, play a guessing game and can turn on each new piece of news.

Meanwhile lululemon is up 12% today after releasing a strong earnings report with strong sales in China.

Toll Brothers is up 3.3%. It’s a great company but I do worry that it is set to report lower earnings in the next few quarters based on lower contracts for new homes in the past year. Possibly the market will look past that if it is reporting strong gains in current contracts signed. I hedged my bets and  yesterday sold about 40% of my position in a non-taxable account but kept the shares I hold in a taxable account.

American express is up 3.4% this morning.

Overall, the mood of the market today is optimistic but that can always change with the next news item

Markets were weak on Wednesday apparently due to fears that the the US debt ceiling deal might not pass congress so easily.  The S&P 500 was down 0.6% and Toronto was down 0.85%.

Linamar was down 4.5%. 

Constellation software was up 3.5%.

The debt deal is scheduled for a vote this evening and if passed could provide a boost to the market tomorrow. (P.S. the bill did pass the house tonight – it should pass the Senate easily except apparently any one Senator can delay the vote).

Regarding rate reset preferred shares, one that is resetting based on today’s interest rates caught my eye.

The Intact Financial Corporation rate reset share that trades as IFC. PR.G will reset to pay 6..012% of the $25 par value for five years starting June 30. That’s $1.503 per year. It closed today after that news at $21.00 to yield 7.16% at the new dividend level. It was previously paying $1.224. 

The credit rating on these preferred shares is Pfd-2 which is higher than on the pref shares of Canadian Western Bank and Enbridge.

So, it seems that the going market required yield on high quality rate reset preferred shares is about 7.2%. This market required yield has risen along with all other interest rates in the market. These shares are tax advantaged. Taxable investors would be comparing this yield to that available on safe things like GICs. A more direct comparison would be to the yields available on high quality dividend shares such as the banks, Fortis Inc., Enbridge and Intact Financial itself.

If interest rates are lower in a year then I would expect these rate reset shares to increase somewhat in price. For example a 6.0% market required yield would put their price back to $25.  But then investors might be concerned that the price would not stay at $25 because if interest rates go lower than the next reset dividend level in five years would be lower.

Perhaps a better bet is Bank of Nova Scotia yielding 6.4% and where the dividend is almost certain to be higher in five years and which could easily give a bigger capital gain than these rate reset shares. Presumably the Bank of Nova Scotia share could be more volatile in the short term however.

On Tuesday, the S&P 500 was unchanged on the day while Toronto was down 1.1% as oil prices fell.

Canadian Western Bank was up 3.3% after an RBC analyst recommended the stock with a price target of $34. The report indicated that CWB is noticeably under-valued and I concur with that view. The fact that its loan loss provision at 12 basis points in the latest quarter got little or no attention as bank earnings were released last week. 

The Alberta election win by the United Conservative Party last night is also judged to be a positive for Alberta businesses.

 After the close, Linamar announced it will acquire “three EV battery encloser plants” for US $3275 million cash. This is good news for Linamar’s increasing push into the EV space. 

The yield on the 5 year government of Canada bond was down modestly to 3.54%. At that level the rate reset preferred shares that reset will see noticeable increases to their dividends which can support price increases Offsetting that the market required return on those and all other investments is higher which is a gravitational force on the prices of preferred shares and all investments. Overall, unless inflation remains quite stubbornly high I expect the market required return on these shares to  move lower and which should push the share prices higher unless the 5 year Canada bond yield plummets under 2.5% which I do not expect. In any case the existing yields on rate reset shares are attractive especially in taxable accounts and can be bought to hold for yield with any capital gain a bonus.

Stock movements next week could be more volatile if the Bank of Canada raises interest rates as some suggest it will or should. Wage settlements like the 24% raise over four years for the Wet Jet pilots are not good news for the Bank of Canada which is hoping the economy will cool.

In the U.S., the yield on Treasury Bonds declined moderately on news of the debt ceiling deal.

Elizabeth Holmes starts an 11 year jail sentence today. It’s often said that white-collar criminals get off easy. Not in this case in my view. More importantly for the world I hope the goal of doing every blood test in an automated fashion from a few drops of blood will in fact soon be a reality. That would be quite a game-changer for our health.

As of the close on Monday, with U.S. stock markets closed Toronto was up 0.2%.

When it comes to interest rates there was an interesting comment on BNN today. It was pointed out that as the debt ceiling approached the U.S. very significantly curtailed the issuance of new bonds. If so, that’s the first I have heard of it. Apparently they drew down cash at the New York Fed and now need to issue about a trillion dollars of debt just to replenish that cash and on top of that will resume regular bond issuance. At the same time, the FED is no longer buying bonds (which pushes interest rates down) but may also be selling some into the market. The thinking was that this will push interest rates up because of the extra supply of U.S. bonds. If so, that’s not good news for mortgage rates or for stock markets or bond valuations for that matter.

With the U.S. markets closed and with the news of the apparent resolution to the U.S. debt ceiling crisis, Toronto is relatively unchanged with a 0.2% gain.

The yield on the government of Canada 5 year bond has not reacted positively to the debt ceiling resolution and is at 3.62%. I think this bodes badly for mortgage rates but positively for the rate reset shares.

Canadian Western bank has recovered most of Friday’s loss and is up 5.2%.

I had an interesting trade experience as I bought some CWB.PR.B based on my updated comments about rate reset preferred shares yesterday. This is very thinly traded and the bid / ask showing on TD Direct was wide at $16.30 bid, $16.70 asked and the closing price yesterday was $16.70. If I wanted to be sure to get a fill I would have to offer $16.70. I was not confident of a fill at say $16.35 so I decided to bid for half the shares I wanted at $16.50. I then soon noticed the price down to $16.30. I went on the TMX Money site to see if maybe only a 100 shares or something had gone at $16.30. But apparently 1400 had traded at $16.30. Meanwhile my fill at $16.50 was not indicated on the TMX and so it appears that TD sold me my shares from their own inventory at $16.50. That’s not something that bothers me. They cat as market makers and can make a profit doing that.

A 40 cent bid/ask spread is pretty large since it represents about 2.5% and since that spread is higher than the quarterly dividend which is just under 27 cents. On such a thinly traded stock with a high bid/ask spread we have to be careful not to overpay.

Subsequently the bid was higher at $16.53 and so I bought the other half of what I wanted at $16.55. I might have done better to try a lower bid but then I would take the chance of not getting a fill.

The report on Starbucks is updated and rated Buy at $98.53. The company just reported a very strong quarter of earnings growth and the outlook is good but the stock at 31 times earnings is not cheap. Still, it is probably a good buy for long-term growth. 

One year ago on May 7, 2022 our report rated it a a Speculative Buy at $76.52. At that time the valuation was looking more attractive with a P/E of 23 but it was facing a weak outlook for earnings. In fact the next two quarters after that had an earnings per share decline of about 18%. After that it did dip very slightly in June to about $71 but essentially it rose steadily (despite the two quarters of earnings decline – which did have revenue growth) reaching about $115 in April. The current pullback may be a buying opportunity. 

I hold some and am looking to add to that especially if it dips even modestly.

There is a tentative agreement on the U.S. debt ceiling.  It comes at an interesting time given that U.S. equity markets will be closed tomorrow for their Memorial Day holiday while Toronto will be trading.

U.S. futures tonight suggest that the S&P will rise but only moderately on this news.

For those Canadians that take this as quite positive news it might be opportune to buy tomorrow.

I will be paying attention to Canadian government bond yields tomorrow to see how those react. I am not sure if the U.S. bond markets trade on holidays. 

The reports for the Canadian Western Bank rate reset share CWB.PR.D as well as for Enbridge’s ENB.PF.A are updated and rated (higher) Buy and  Strong Buy respectively. See the reports for more detail.

These two have attractive yields of 6.3% and 7.1% respectively. And not only that but they are set to reset to higher dividends in just 11 months and 18 months respectively.

The reset dividends depend entirely on the yield of the Canadian government five year bond at the time of the upcoming resets. That is unknow. The current yield on that bond is 3.6%. For most of the past year this yield has bounced between about 2.9% and 3.6%. Some forecasts call for interest rates to be lower in 2024 when these reset. So it might be prudent and conservative to predict a level around 2.5%. It’s hard to imagine it would be lower although of course that is possible.

As long as that yield at the time of reset is above 0.96% or 1.44% respectively the dividends on these two will increase on the reset date. However in the case of CWB.PR.D which last traded at $23.77 there is a possibility that these would be redeemed in 11 months at $25.  

Both of these appear to be attractive at the current yields and even more so when the almost certainly higher dividend at reset in 11 or 18 months is considered.

The above two rate reset shares are considered riskier and less credit worth than those issued by, for example, TD Bank.

You can buy TD.PF.J which last traded at $20.77 to yield 6.9% and it has only recently reset and will therefore pay a dividend that represents a 6.9% yield on the current price for about the next 4.75 years. That would seem to be attractive.

Or consider TD.PF.K which will reset in September. It pays $1.1875 per year and last traded at $20.60 to yield 5.76%. But if the five year Canada is say 3.0% at the reset date then the dividend will rise to $1.3975 to yield 6.8% at the current price. It appears that this share is trading at least partly on the expected increased dividend as opposed to the lower existing dividend.

Another way to invest in rate reset preferred shares is through a preferred share ETF. The dividend on those should be increasing as various rate reset shares reset to higher dividends.

CPD currently yields 6.0% and its dividend is likely to increase over the next year.

ZPR currently yields 6.3% and its dividend is also likely to increase soon.

Canadian preferred shares benefit from the dividend tax credit. The tax rate is therefore usually lower than the tax on wage and interest income. In the unique situation where a taxpayer gets most or all of their income from dividends the tax rate can be extremely low up to about $50,000 per year, depending on the province. for example in Alberta, the marginal tax rate on such eligible dividends is only 2.57% for taxable incomes up to $53,359 and then only 10.18% for taxable income from $53,359 to $106,717. The rates are even lower than that in Ontario! But a fly in the ointment is that the tax is based on a grossed up amount which effectively increases the tax rates and and in some cases can be detrimental when it causes a higher old age pension claw back or a reduction in other benefits such as the Canada child benefit. Still, in many or most cases these dividends are taxed at a lower rate than wage or interest income.

Of course rate reset preferred shares have mostly been a bad investment over the years. They have repeatedly broken investors hearts by falling in value. They fell when interest rates fell but then also often fell when interest rates rose. However when purchased at various low points they have rebounded to provide strong capital gains – but only if then sold at the higher prices. Looking at the current yields and prices and thinking about where the reset dividends are likely to be, it appears that rate reset preferred shares are likely set to provide capital gains in the year ahead. And if nothing else, they are providing high tax-efficient dividends.

The report on Linamar is updated and rated Buy at $63.90. Its valuation and its very recent strong earnings recovery would suggest a higher rating. But the market never tends to put a very high P/E or P/B multiple on it due to its cyclical nature. And with forecasts for recession, the market may continue to be cautious. But overall it is a strong company  that appears set to grow earnings and perhaps get back an ROE in the mod teems and you can buy it for 80% of book value. It’s likely to be a long-term winner.

On Wednesday markets continued to be negative due to concerns about the U.S. debt ceiling negotiations.

The S&P 500 was down 0.7% and Toronto was down 1.1%.

Toll Brothers managed a 2.1% gain after its strong earnings report.

In general, it seems that a lot of companies are trading at P/E multiples that are the lowest we have seen in years (outside of perhaps the COVID panic in the spring of 2020). Dividend yields are much higher in many cases. Staying the course with good companies will be rewarded. 

Markets declined on Tuesday due to fears that the U.S. debt ceiling would not be raised in time to avoid the Treasury running out of money.

Almost certainly the U.S. will find a way not to run out of money. But meanwhile the markets are rightly nervous. 

The S&P 500 ended the day down 1.1% and Toronto was down 1.0%.

Cameco was one of the few gainers and rose 5.1% on the day.

After the close, Toll Brothers released a strong earnings reports. And although their contracts for home sales are running significantly lower than last year, they are still contracting for a healthy amount of homes and the stock was up modestly in after-hours trading. Due to lower contracts over the past year or more, I expect reported earnings to show declines in upcoming quarters. But the stock is probably cheap enough to account for this.

On Monday the S&P 500 ended the day about unchanged while Toronto was closed for the Victoria Day holiday.

Shopify was up 3.1%

Toll Brothers was down 2.5%.

With the Canadian markets closed BNN was showing footage from J.P. Morgan’s investor day and in particular I saw CEO Jamie Dimon taking questions. He was very relaxed and very knowledgeable. Basically he was in teaching mode. This is the kind of long-time winning CEO that it makes sense to bet on. Buy some shares and ride his coat-tails.

An analysts made the assumption that J.P. Morgan would be increasing its operational efficiency and therefore profit margins. Analysts often like that idea. Jamie Dimon shot down that idea and said it can’t be done and should not be done. Their margins are already high he said and if they were higher that would just make them vulnerable to competition. I agree with that. For example, I pointed out years ago that Canadian Tire has high retail margins. While I like Canadian Tire I said that the high retail margins made them more vulnerable. In contrast I love Costco (as a business but the stock is never cheap). Costco has ultra-low margins (even including the annual fee as revenue) and yet makes a high ROE. That’s a great combination. It’s extremely hard for anyone to under-cut Costco. Costco could raise its prices at will. But they play the long game.

On Friday the S&P 500 was down 0.1% and Toronto was up 0.3%.

Constellation Software was up 3.2%.

This week the U.S. market’s attention will certainly be on the debt ceiling negotiations. That could certainly cause some volatility to say the least. But assuming it gets resolved then could then be a relief rally for stocks at that point. It seems to be a tough negotiation because both sides have to make concessions that will be unpopular with parts of their “base” in order to resolve this. Never a dull moment in the markets, it seems. 

Starting Wednesday, the Canadian banks report their latest quarterly earnings. Focus will be on the provision for credit losses. There will also be attention on the percentage of mortgages that have amortizations greater than 30 or 35 years or even negative amortizations. Bank analysts and the banks themselves provided very little commentary on this to date and seem not to think it is a big issue. On social media, people complain that the banks “extended amortizations”. In reality, as far as I can see, what happened was that variable rate mortgages with fixed payments had variable amortizations by nature and as rates rose the amortizations automatically lengthened. They are supposed to reset to under 25 years when the variable term expired and the mortgages must be renewed. So far, the banks seem confident that most mortgage holders will be able to handle the higher payments on reset. And they will be prepared to lengthen amortizations at the time of reset as needed and the government has directed them to do so in the latest budget.

In Canada the banks have not been caught with excessive fixed rate loans as deposit rates rose. Loan interest rates has reset quite quickly as interest rates rose. But what we have not yet seen (to any great extent) is the pain that this will be causing the borrowers who are paying far more in interest. Companies and individuals with too much debt compared to their incomes are going to be in big trouble.

Canadian Tire is updated and rated By at $169. It reported a very weak Q1 and its earnings have been weaker for the past year. But that came in comparison to an extremely strong year in 2021. The stock is cheap in relation to earnings at 10 times. But it may face several quarters of weak results due to higher interest rates and a generally tougher economy. On the other hand is is a very well managed company and is always focused on growing earnings. 

Ten years ago its adjusted earnings per share were $6.45. In the trailing four quarters this figure was $16.82 – despite a significant decline in the latest quarter. While 2023 could very well see a decease in earnings versus 2022, the long-term trend to growth remains intact.

On Thursday the S&P 500 was up 0.9% while Toronto was unchanged.

Toll Brothers was up 2.5%.

My next update will eb for Canadian Tire. They had quite a weak Q1 but they are a strong company and have a history of adjusting to changing conditions. Higher interest rates were part of the reason for the weaker results in Q1.

Markets rebounded on Wednesday with the S&P 500 up 1.2% – although Toronto was up only 0.3%.

AutoCanada was up 11%. That may have been due to some analyst upgrade. Or it may be related to Statistics Canada reporting this morning that vehicle sales were up sharply in March versus February. But that was likely already known since Desrosiers reports auto sales within a few days after the end of each month. AutoCanada had likely been beaten down too far. Anecdotally I am hearing that many vehicle models are in short supply. Dealers are taking orders rather just selling inventory on the lot. That should be a recipe for much higher markups which can offset the higher interest rates.

Linamar reported its annual meeting voting results today. I clicked on it expecting to see the usual 98 or 99% votes in favor and 1 to 2% withheld. But, surprise, they had four of their six directors get 25 to 37% withheld. Even CEO and founder’s daughter Linda Hazenfratz got 25% withheld. I suspect this is based on some institutional advice groups that think that what matters is having a larger board and having diversity and so-called independent directors. In reality “independent” directors are almost always extremely loyal to the chair and CEO and rarely ever actually act independently in any case. My perception is that Linamar is very well managed and so it’s crazy to be voting against the likes of Linda Hazenfratz – who owns  a massive 33% of the company. I like having a major owner is charge. And if you have ever heard her speak you will know she earned her position as CEO.

Stocks were mostly lower on Tuesday as the S&P 500 was down 0.6% and Toronto was down 1.45%.

Enbridge was down 3.8% apparently on fears that one of its major pipelines could be shut down by natives who are concerned about oil spills on their lands. 

Monday’s market saw the S&P 500 gain 0.3% and Toronto gain 0.6%.

Constellation Software was up 3.8%. I so regret the times I held shares in this company and sold for modest gains despite knowing that its management was absolutely the best. 

I  am now trying to concentrate on higher quality companies. Constellation is certainly a very high quality company. I am also thinking of Apple, Visa, Costco, Dollarama, TFI International, Couche-Tard and some others. Perennial winners.

I would like to get clear of my large Melcor position but it always seems under-valued making me very reluctant to sell. Today, I asked for a meeting with them to try to spur some action. I have some analysis to discuss with them. I have been “putting the wood to them” for about two years now and I will keep it up.