January 17, 2019

Thursday’s action saw the S&P 500 rise 0.8% ans Toronto was up 0.7%

Dollarama was up 2.5%. Most stocks were up but Toll Brothers was down 1.6% and Linamar was down 1.2%.

Regarding rate reset preferred shares, Toronto Dominion was out with an issue at 5.2%. I did not notice the email from TD Direct about this new issue until about 5 hours after it came out and the issue was sold out by then. The five year Canada bond yield is at 1.93% and so this is a hefty 3.27% spread. It will reset every five years at the five year plus 3.27%. So even if the five year once again were to plunge to its record low around 0.50% (and such very low rates were the case in much of 2015 and 2016 and were the reason that rate resets plunged back then) this one would still reset at 3.77% which would be low but not horrible. And if the five year goes to say 3.0% which it is sort of “supposed to” under Bank of Canada outlook then this would reset at 6.27% which while not fantastic would certainly earn a place in a portfolio, especially a taxable account where the dividend tax credit would apply. All the comments I made on Monday regarding the very similar Bank of Montreal issue also at 5.2% apply to this TD one.

Regarding AutoCanada. I happened to be driving by one of their dealerships at 9:00 am this morning and stopped in. This is their Mercedes-Benz dealership that they acquired just this past Fall. I don’t like to waste the time of car salesmen with corporate type questions – though I will be in the market for a car soon but I figured at 9:00 am on a Thursday they should have time to chat and I told reception that I was there primarily as an investor (share owner). The Sales Manager was phoned and told I was interested in how sales were going and he said he was in a meeting and all that information was on the corporate website and also did not invite me to wait until his meeting was over or come back later. I felt rather disrespected to get that brush-off. Another salesman paid me no attention (I thought car sales guys used to be hungry!). But I asked if any salesman was available and one young but experienced guy was and he was very knowledgeable and helpful and generous with his time. I did not get any real detail about sales but it was indicated that sales were down but not terrible. And I know from the Desrosiers report that Mercedes Benz and most import brands while down a bit in 2018 have not seen the declines that Chrysler saw. Mercedes was flat in December while the industry was down 8 percent.

In any case this dealership is relatively new and it is massive and impressive. There were about four people working just at the auto service counter and two people on the reception counter. So the place looked pretty prosperous. Hopefully the prosperity will flow through to the share owners again at some point.

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