Thursday was a mixed day in the markets as the S&P 500 was down 0.4% (even as the DOW was up 0.4%) and Toronto was down 0.4%.
Some of the notable gainers included: Linamar up 5.4%. Canadian Western Bank up 3.9% after releasing its Q4 earnings prior to the market opening. Wells Fargo up 2.7%.
It’s not on our list anymore but Liquor Stores N.A. was up 5.0%. I remain skeptical of this company. For several years under current management they seemed to believe that the solution to their low profits was marketing. To that end they hired four expensive V.P.s mostly Americans as I recall. But the issue I saw was excessive competition and the competitors had lower prices. (Competitors included Superstore and Costco and also some smaller aggressive little chains of stores) Now, finally, they have lowered their prices and are doing price matching. I don’t think that will work given that their cost structure seemed too high. (It will increase sales but not likely profits) They do however have the advantage of scale so maybe… But I am not convinced. If I owned it, I would sell.
Stocks on the decline included: Melcor down 2.9%, Heineken down 3.6%, Couche-[Tard down 2.9% and Visa down 2.4%.
Statistics Canada reports that capital expenditures for the oil and gas extraction industries totalled $9.3 billion in the third quarter, down 29.8% from the third quarter of 2015. To me, the surprise is that capital spending is still running at over $36 billion per year (The peak was around $80 billion, for context, higher than the budget of the Alberta government and completely unsustainable). If oil prices and also natural gas prices were so low why was so much money continuing to be poured into capital spending? I suppose much of it was on projects already underway that could not be stopped. Also there would be maintenance capital expenditures that could not be deferred. The good news (for the economy) here is that there was/is still a lot of activity in the energy patch. A lot of capital spending and of course most of the operating spending continued. Really, the energy recession in Alberta could have been a LOT worse. It was royalties and profits and taxes that took the biggest hit by far. Employment took a hit but could have taken a far larger hit. In any case, the energy recession now appears to have hit bottom and spending is likely to increase if oil remains above $50. Although, once the current large oil sands projects are done we may see a large step decline in capital spending from this industry that will not come back anytime soon if ever.