December 3, 2018

On Monday, the S&P 500 ws up 1.1% which was likely due to reduced trade tensions between China and the U.S. after Trump met with the Chinese leader on Saturday.

Toronto was up 0.5%

West Texas Oil is up to $53.55 after Russian and Saudi Arabia apparently agreed to continue an arrangement to curtail production.

Alberta Western Canadian Select heavy oil surged in price after the Alberta government announced mandated production cuts that take effect on January 1. It seems very unfortunate to have this interference in the market. But it was a wise move politically. And it will provide a much-needed boost to the mood in Alberta.

Meanwhile…

BHP was up 5.0% in New York probably due to higher oil prices.

Amazon was up 4.9% to $1772. About two weeks ago, its decline bottomed out at about $1500.

Constellation Software was up 2.5%

Visa was up 2.3%

Toll Brothers was up 1.7%. On Wednesday, it will report its earnings for Q$ 2018 ended October 30. The Q4 and 2018 earnings should be quite good. But it seems likely that they will report a decline, or at best little growth, in new contracts in Q4. Contracts to build houses only get booked as revenues when the house is completed. The focus will likely be on their outlook. It will also be interesting to see how aggressively it has been in terms of buying back shares. For the past few years it has been an aggressive buyer on dips. It will also be interesting to see if there was any uptick in cancellation rates. The stock price seems to be anticipating a much slower pace of signed contracts for new homes in its fiscal 2019. The expected pace of higher interest rates in the U.S. seems to be slowing and this is a positive for Toll Brothers. The recent fires in California as well as hurricanes in the east during Q4 will likely have slowed new contracted sales in recent months.

AutoCanada was down 2.7% to $12.43. After the close a report on Canadian auto sales for November came out. Frankly, it was ugly. November auto sales for Canada were reported down 9.4%. Fiat Chrysler sales were down 35%. AutoCanada has a heavy exposure to the Fiat Chrysler brands. Meanwhile Fiat Chrysler reported that its sales in the U.S. were up 15% in November while Ford reported being down 7%. I don’t know why there would be such a dramatic difference between the two countries. Possibly there is a shortage of the most popular models and Fiat Chrysler is favoring the U.S. dealers with supply?

Auto sales year to date in Canada are only down 2.3% and while 2018 will show a decline over 2018, it wills till be higher than 2016 and will be, I believe, the second highest year on record. So the situation is not dire (although the November figures are certainly not encouraging).

After the close the Melcor REIT reported it purchased a building in Lethbridge for $6.25 million. This is a modest acquisition but is accretive as it will be paid for in cash. As at Q3, the REIT indicated that it basically had some excess cash that it wanted to deploy. With the REIT units trading at about 67% of book value, I don’t think it would make any sense for the REIT to purchase anything if it had to issue units to pay for it. Overall, this is a small but positive step for the Melcor REIT.

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