On Thursday, the S&P 500 fell 2.5% while Toronto fell 0.9%. Apple reported lower sales in China and there was also other weak economic news from China including lower automobiles sales.
Berkshire Hathaway which has a large investment in Apple shares fell 5.5%. FedEx was down 3.7%, Visa was down 3.6%. Starbucks was down 4.3%. TFI International was down 4.1% to $33.80 – seeing that, I bought some TFI today.
Melcor Developments was up 4.5%. But that could amount to “noise” for this thinly traded and beaten down stock. Checking insider trading, Melcor has not reported any buy-backs this week. Hopefully, the program has no ended.
Desrosiers Automotive consultants released a report of auto sales for December. The numbers look rather ugly with sales down 8% year-over-year. And sales for 2018 were down 2.6%. However this was in comparison to 2017 which was the strongest year on record. Desrosiers points out that 2018 still comes in as the second highest year ever and said that December’s figures were still a solid total. (They may just look bad compared to the very strong December 2017). But in any case this is not positive news regarding AutoCanada. If there is any good news from AutoCanada regarding Q4 it will likely have to come from better management and cost cutting.
I received from Knightsbridge Foreign Exchange a summary of where the big banks expect the Canadian dollar to go in Q1. RBC projects no change from the current 74 cent level and a rise to about 75 cents in Q2. BMO and TD both project a rise to about 79 cents for both Q1 and Q2. The other banks are somewhere in the middle. Possibly now is the time repatriate some U.S. dollars back to Canadian.
Statistics Canada has created a new dashboard of new housing market conditions. There is a “radio button” to switch from comparing to the previous month and comparing to the same month the prior year. Year over year things (prices, October permits) are mostly up slightly except that housing starts were down 12% in November. Housing starts include multi-family which can cause substantial volatility.
Meanwhile, the consumer economy seems to continuing to hum. I was at Costco today, Thursday at 1 pm – it was basically packed. This was in St. Albert a suburb of Edmonton. Minor point but Tim Hortons was also quite busy. So far, I see no slow down in the propensity of people where I live to partake of fast food and restaurants and shopping.
January 2, 2019 P.S.: I have updated an article that describes how to set up a diversified portfolio using ETFs, or even just using one single ETF. I also updated the reference article that provides a list of selected Canadian ETFs covering equities, higher dividend equities , fixed income and commodities.
January 2, 2019: After starting out the day in the red, by the end of the day, markets started out 2019 on a positive note. The S&P 500 index was up 0.1% and Toronto was up 0.2%.
Boston Pizza was up 5.8% after announcing that 10 new restaurants opened in 2018 will join the royalty pool. The net new addition is only 5 restaurants because 5 closed. And it seems likely that the 10 new ones will have a higher average revenue than the five that closed so perhaps the net addition is higher than 5. In any case new restaurants may not be accretive in any way to cashflow per unit. They are designed to add just 0.085% to franchise revenue for each 1.0% that new restaurants add to the royalty pool. After accounting for any cannabilization, new restaurants may not be accretive. But the addition of new restaurants does indicate that they are still attractive to franchisees (despite higher minimum wages and some decline in guest traffic). And the BP Royalties need profitable franchisees for the system to be sustainable. More restaurants improves the economy of scale for advertising. The BP press releases are very confusing and they could do a better job there. They should be much more clear about the impact on cashflows per unit, which is what really matters.
Canadian Western Bank was up 2.0%.
CRH Medical was up 3.6% after it announced this morning that it had made another small acquisition. It’s growth by acquisition strategy remains in place.
Linamar was down 3.4% as investors seem to continue to be fearful of its prospects.
I saw much of Trump’s television appearance today. While not a fan I have to admit he looked very relaxed and confident. And his comments on his Middle East strategy sounded sensible to me. He took credit for having the Saudies turn on the pumps and bring oil prices down. There was a time in Canada (1970’s) when Saudi Arabia / OPEC was considered a very bad actor for restricting supply and pushing oil prices up. It is never admitted, but the oil industry in Alberta (and therefore the province) has benefited greatly by OPEC’s actions over the past 40 years or more. That’s fine, but it’s not so honest when the Alberta government and the industry pretend they were operating in a free oil market all these years. When they count their blessings, they ought to count OPEC twice. Even today, I am sure that absent OPEC, supply would be higher and oil prices lower.
January 1, 2019:
The Enbridge rate reset preferred share on our list is updated and rated (higher) Buy at $17.00 At this price it is yielding 6.5% and is projected to reset on December 1 this year to yield 6.7% on a $17.00 price. These rate reset shares have been disappointing with their declines in value. But their cash distributions have been safe (although variable at the reset dates). It’s hard to imagine a realistic scenario where receiving 6.5% or so for a long time (on what would be just a portion of a portfolio) would be a terrible return. But investors have learned with these shares that the market values are anything but fixed. And they will not necessarily ever return to their original $25 price. At $17.00 the risk / return equation seems favorable.
Canadian Western Bank Preferred Share report is updated January 1, 2019. As the report indicates, this rate reset preferred share currently yields 5.0% and is set to rest on April 30 which would be to 5.3% if the five year government of Canada bond yield stays at its current level of 1.9%. 5.3% is not a bad yield but it may not be competitive given that market yields have recently risen. These rate reset shares have turned out to be far more volatile than expected. These particular shares had traded well under $25 since mid 2015. At times such as under $20 they were attractive for potential capital gains. These CWB shares finally got back to and above $25 in October before slumping along with basically all rate reset shares. We had rated them (lower) Sell on September 8. If I held these I would wait and see what happens at the reset date on April 30.