The chase by Frances Horodelski:

The week is a quirky one 
The chase by Frances Horodelski:

Today is the 181st day of the year. There are 184 days left in 2014 – make the best of it.

The week is a quirky one with the Canadian markets closed tomorrow and U.S. markets closedon Friday (with an early close on Thursday). Trading will likely be quiet however there are two big events – the ECB and U.S. jobs reports both on Thursday. Today we have Canadian April GDP as well as a number of U.S. data points including Chicago Purchasing Managers index and pending home sales.

My weekend reading brought the word ‘recession’ to mind. There were a couple of reasons. First, there is a table floating through the internet that ranks the worst quarterly U.S. GDPprints in history and notes that every last one of them were associated with a recession. The first quarter of 2014 is the 17th worst in that history. Second, Zacks Research highlights thatnegative growth doesn’t necessarily mean negative stock market moves. Third, when the first look at the Q1 GDP came out in April, I remember hearing the bulls says “yea, it was weak, but look at consumer spending, it was strong as Americans spent on energy and healthcare…..” Well, in the most recent quarterly numbers, healthcare went from a contributor to GDP to a drop of more than 6%. What! Finally, right now using Google trends, I note that the word recession is hardly spoken at all (the word stagflation is at the bottom too). Be careful out there.

On this quasi-Canadian holiday, things of note include: 1) A Reuters story highlighting M&A running at a seven-year high. The analysis shows $1.7 trillion in deals globally on a year to date basis (Bloomberg calculation puts it at $1.58 trillion). 2) The Globe & Mail is reporting that media companies disagree with each other “over consumer choice and support for local programming” as the CRTC is gathering information and views under its “Let’s Talk TV” initiative. Hearings are scheduled for September. For reference, based on 2013 results, media represents 11.5%, 13.3% and 21.1%, respectively for BCE, Rogers and Shaw Communications. 3) As Scotland winds down into the September vote on independence, there is a report that Scotland has 80.3 trillion cubic feet of gas and 6 billion barrels of oil. Right now, polls show those in favour of independence are running at 37%, undecided 12%. 4) A technical comment from a recent bear (Richard Ross at Auerbach Grayson) notes that the Dow’s 1.7% year to date performance is in sharp contrast to +10.47% and 16.5%, respectively for the transports and utilities.

In other items, U.S. Steel is being removed from the S&P 500, effective July 1, to be replaced by Martin Marietta. Quarterly expectations for second quarter earnings (and the second quarter starts tomorrow) are being reduced at the slowest pace since Q1 2011. Analysts have cut expectations by only 1.5% on average – are they more realistic or too optimistic? We’ll see when things begin on July 8th when Alcoa releases results. Corporate preannouncements are also running at lower levels with the Q2 ratio of negative to positive outlooks currently running at 4.17 versus 6.88 in Q1 and 6.13 in Q2 2013.

Finally, in the news is GM Toronto dealers suing General Motors for lack of financial help from the car dealer; Kenneth Feinberg will be laying out compensation details for victims of the faulty ignition switch at 10 am ET. On BNN we’ll be looking at M&A, oil, second half opportunities, high flying with consumer drones, anti-spam and our regular update on the C-suite survey.

Enjoy.

www.bnn.ca

Tuesdays Selloff-What Happened?

Portfolio managers are hungry for bonds, apparently. Yesterday’s sell-off in equity markets attributed, to among other things, a desire to rebalance towards bonds after stocks have handily outperformed in the quarter according to traders citing a Goldman Sachs report. GS estimates $7.7 billion worth of equities were for sale (maybe as high as $12 billion) with the proceeds shifting to bonds. Or maybe it was the Ukrainian helicopter that was shot down in the eastern part of the country by rebels. Or the Syrians coming over the Iraqi border. Or – Charles Plosser in a speech saying the Fed should raise rates next quarter! Or – just taking a little off the table – especially in the energy space. We’ll see what the follow-through is today.

Cash is King. In a recent report from Factset, after reviewing all the Q1 data for S&P 500 companies they note that cash stood at $1.34 trillion or up 6.6% year over year. However, because Verizon purchased Verizon Wireless in the quarter – cash fell 4.7% quarter to quarter, the first quarterly drop since Q2 2012. Two other items of note from the report. Capital expenditures rose 6.2% after a miserable 1.5% over the past four quarters. Free cash flow rose 9% and distributions to shareholders (dividends and buybacks) rose 46%. A potential caution – debt issuance rose for the 15th straight quarter – running at the second-highest quarterly level. Most cash is held by IT companies, and Microsoft is right at the top of the list of all companies with $88.4 billion in cash and investments. Apple dropped to No. 5 with $41.35 billion.

www.bnn.ca

Retailers To Be Replaced By Online Sellers- Days Numbered?

Your days are numbered, top online entrepreneur tells retailers

June 20, 2014 3:41am

PARIS - The founder of Rocket Internet, the German venture capital company behind dozens of online start-ups, warned the retail industry on Thursday that e-commerce and smartphones would mean there will be little future for stores in emerging markets.

Oliver Samwer, 40, told the annual summit of the Consumer Goods Forum (CGF), an industry network of some 400 retailers and big brands from 70 countries, that many of them risked being left behind as the growth of e-commerce accelerates.

 

"You only have stores because there was no Internet, but that does not mean there is a right to have a store," Samwer said, adding that traditional retailers focused too much on older shoppers and not enough on smartphone-savvy youngsters.

 

"What you fear will come much faster," he warned.

 

Rocket Internet is bidding to create the largest internet empire outside the United States and China, seeking to replicate the success of Amazon and Alibaba in markets the U.S. and Chinese e-commerce groups have yet to dominate, such as Africa, Latin America and Russia.

 

After his speech, Samwer traded blows about whether stores will survive, in a panel discussion with Mark Price, managing director of British grocer Waitrose, who introduced himself to Samwer saying: "Hi - I'm Mark, I'm a dinosaur."

 

Samwer founded Rocket Internet in 2007 with his brothers Marc and Alexander and it is already active in 102 countries, making revenue of $1 billion in 2013 via online fashion stores including Dafiti in Latin America and Lamoda in Russia, as well as Jumia for general merchandise in Africa.

 

Sources have told Reuters the company is considering a stock market listing in Frankfurt later this year which could value it at up to 5 billion euros ($6.8 billion), as buoyant capital markets have encouraged a flurry of e-commerce flotations this year, with most focus on Alibaba.

 

Samwer said the stock market value of Amazon and Alibaba would soon dwarf the world's biggest retailer Wal-Mart.

 

"What would you buy for your children? I would buy Amazon and Rocket (shares)," he said, adding he believed French retailer Carrefour would have been better off buying a stake in Alibaba than trying to open stores in China.

 

ONLY 10 PERCENT LEFT OFFLINE?

 

Noting that 75 percent of the world's population lives in the markets Rocket is targeting, Samwer said e-commerce had even better prospects in emerging markets than in developed economies, as online sites do not have to compete with such established stores.

 

"If you don't have to share with offline, your percentage will be much higher," he said. "It will all move online, you will have 10 percent left that will not move online."

 

Samwer said Rocket Internet ventures around the world already had 44 million fans on Facebook, more than Nike and Apple combined, noting that the cities with the most active users of Facebook are Bangkok, Jakarta and Istanbul, with none of the top 10 cities in the United States.

 

Deutsche Post, the world's largest postal and logistics company which is profiting from booming deliveries for online retailers, predicts e-commerce could account for up to 40 percent of total trade by 2025 in developed countries, from under 10 percent in most markets now, and up to 30 percent in emerging markets, up from a tiny fraction today.

 

The Samwers have raised hundreds of millions of dollars of funding for Rocket Internet and its ventures, including from Swedish investor AB Kinnevik, billionaire American industrialist Leonard Blavatnik, JP Morgan Asset Management and retailers like Tesco and Germany's Tengelmann and Rewe.

 

Before founding Rocket, the Samwers had success with German online auction site Alando, which they sold to eBay and mobile phone content provider Jamba which they sold to VeriSign .

 

Rocket Internet also helped launch Zalando, Europe's biggest online fashion retailer, which is considering its own stock market listing. Rocket is no longer invested in Zalando, but the Samwer brothers' European Founders Fund still owns 18 percent. ($1 = 0.7368 Euros)  — Reuters

Individual Investors ...the love in equities plummeted in the most recent period to 35.1% - down almost 10 points.

The chase by Frances Horodelski:

Yo! A fast growing app that just received a million-dollar infusion and lit up Twitter yesterday as everyone was saying “Yo” because that’s all it does. Another thing I don’t understand?

Looking for a melt-up? David Rosenberg notes that at previous market highs, mutual and ETF fund flows on a five-year average basis were running at $20 billion in 2000 and $15 billion in 2007. Today, flows are closer to $8 billion underscoring the lack of individual investor involvement in this bull market and as they return, a melt-up is possible. On the other hand, according to Walter Murphy, a former Merrill Lynch technician, the ratio of household financial assets (read: investments) to total assets is 70.4%. Previous secular peaks (1960s and 2000s) the ratio was 70.3% and 70%, respectively. Mr. Murphy suggests that in his view, investors are already “all-in”. And while new highs are likely in the coming months it might be a grind rather than a melt-up. Meanwhile, the American Association of Individual Investors are seeing thelove in equities as bullishness plummeted in the most recent period to 35.1% - down almost 10 points.

Toronto has finally joined the “all-time high” camp surpassing the June 18, 2008 high by 36 points to close yesterday at 15,109.20 (although still below its intra-day high of 15,154.77 achieved also in June of 2008). The winners since 2008: Valeant, Catamaran, Alimentation Couche-Tard and Linamar. Losers: Nortel, YPG Financing, Niko Resources and Mercator Resources and BlackBerry. And despite this year’s 20% return in the energy sector, patient investors are still waiting to achieve the June 2008 levels – energy is still down 16% from six years ago. And remember, for those who invested in an index ETF on June 18, 2008 are now – flat on six years (excluding dividends).

Speaking of BlackBerry, it is the company’s annual general meeting and fourth quarterly report day. Amber Kanwar is in Waterloo covering the story for BNN and will interview John Chen. The results show a beat on the bottom line (a smaller loss than expected), revenues slightly above expectations, a cash build although net of a tax refund and real estate proceeds, there was a cash burn of $255 million in the quarter but better than the burn of $784 million in the last quarter. Stock is up 10% in the pre-market.

What do courgettes and peas have in common with gold? According to the World Council in its report released today - confusion! Courgettes (zucchini) and peas are fruits but are used as vegetables. Gold suffers from a “similar kind of category confusion” – it features in commodity indices but responds to different economic factors, it is less volatile and has a lower correlation to the business cycle. The council believes it is the ideal “alternative investment”.

Calendar watch including the weekly jobless claims, U.S. Philadelphia Fed Index, earnings from Oracle, a couple of major consumer conferences (Deutsche Bank in Paris and Jefferies in Nantucket), and a lot of annual meetings including Quebecor, Martinrea, H&R Reit, and Great Canadian Gaming. We’ll continues to watch VRX/AGN as well asGE/Alstom/Siemens/Mitsubishi.

Finally, the world is a happy place today. Mrs. Yellen did not mis-step yesterday. Markets responded to the lower for longer implications of the “dots” despite a slight shift upwards in expectations for 2015 and 2016. Equity market valuations are within “normal” ranges according to the chair of the FOMC. We’re getting the follow through from new highs on the S&P 500 yesterday as pretty much every equity market around the world is in the green (Italy +1%) with the exception of Chinese equities which have an tendency to get their own way. All the major currencies are higher and most bond markets have prices up, yields down.

Enjoy.

Market Outlook

Market Outlook:

The market bears are looking at thinning values and are expecting another 2008-like outcome. The VIX Index is bumping along its very long term average lows, which did lead to the market rout of 2008-09, however, we still do not see the sort of excesses that started that whole bear market off. There are expensive pockets here and there (the recent collapse of the social media stocks), but not the kind of overall excess that necessarily leads to a wholesale rout of stock prices and a major economic setback. While there is no doubt that the excessive monetary expansion does constitute an “excess” from which any serious pulling back will be very, very painful, as far as we can see, the Chair of the Fed, Janet Yellen, has no intention of allowing such an event to occur on her watch and in an election year.

We pay a good deal of attention to what Stephen Poloz says about the outlook, and does in practice. His actions remain bullish for the asset markets and we continue to look for opportunities to take advantage of the central bank actions.

www.bnn.ca

Don't sell your stocks if you’re worried about a market decline

"investors are acting as if the market is perched on a knife’s edge. A recent report from the Center for Applied Research at asset management giant State Street Corp. found that investors in 16 countries around the world have increased their cash holdings over the past two years to 40 per cent, on average, from 31 per cent. Canadians were a little more adventurous than most, with a recent average cash position of 34 per cent. Considering how low returns on cash are, that’s still an exceptionally high level.

Sheryl Purdy, vice-president at Leede Financial Markets in Calgary, says she began hearing a year or so ago about brokers, who, in dealing with nervous clients, were keeping substantial parts of their portfolios in cash. This prompted her to do her own analysis of the market’s vulnerability to a pullback. Her conclusion is that anxiety about soaring stocks is driven more by jittery investors than by market fundamentals.

“I don’t think we’re in for another serious crash,” Ms. Purdy said. “I think what we’re dealing with is shell shock for a lot of clients.”

The last time the stock markets were this strong, a crash for the ages lay dead ahead.

Parallels such as this are hard to ignore, but they’re of little use in managing an investment portfolio. So stay in stocks, or at least make only modest changes to your portfolio. The market will fall at some point, but it’s pointless for most investors to try and predict when.

http://www.theglobeandmail.com/globe-investor/investment-ideas/should-you-sell-your-stocks-if-youre-worried-about-a-market-decline/article19165282/

 

Sell And May And Go Away? Maybe Not Read This...

If you didn't sell in May, stick around

42 minutes ago by Gordon Pape

Perhaps this was the year to sell in May and go away. And even though it’s June, there’s still time if that idea appeals to you.

Despite everything you’ve been reading about some indexes hitting record highs, the reality is that stock markets lack conviction and investors are confused. Many economists believe that stocks have become too expensive and that a major correction is long overdue.

But where else are you going to put your money? Government bond yields are barely outpacing inflation with the benchmark 10-year Canada paying a paltry 2.33 per cent. So-called “high interest” savings accounts aren’t even coming close to matching the 2 per cent inflation rate. As for gold, its price movements have become completely unpredictable. It goes up when it should go down and vice versa.

We’re consistently told that the global economy is gradually recovering but the evidence is hard to find. Exports continue to lag (Canada actually ran a surprise trade deficit last month), China’s financial and real estate woes are a growing concern, and in Europe fears of deflation have prompted the central back to go negative on its overnight rate.

The result is a rudderless ship with us as passengers wondering whether to hit the lifeboats or hang on and pray.

The performance of world stock markets so far this year reflects all this uncertainty. As of June 5, the closely watched Dow Jones Industrial Average was showing a year-to-date gain of only 1.6 per cent. European markets are showing the same lack of direction with the German Dow up only 1.3 per cent and the London FTSE 100 ahead about the same.

In Asia, Japan’s Nikkei Index, last year’s world leader, is down 7.4 per cent while Hong Kong’s Hang Seng is off 0.6 per cent. The Shanghai Composite is in the red by 3.5 per cent. Only India bucked the pattern with a convincing gain of 18.6 per cent for the year, fuelled largely by the election of a pro-business government there.

Canada is one of the few exceptions to the global market malaise. The S&P/TSX Composite is ahead 8.7 per cent for the year, led by a strong performance from the energy sector (+17.2 per cent) and a respectable 8.2 per cent gain by metals and mining, which last year was a black hole. But the TSX didn’t experience the explosive growth of the major U.S. indexes in recent years and we’re still a long way from catching up. Over the three years to June 5, the TSX gained only 11.1 per cent according to GlobeinvestorGold.com. The S&P 500, by contrast, was up 50.9 per cent.

At the start of the year, I believed we would see a significant correction of 10 per cent+ before summer, followed by a rebound in the fall as the economic outlook for 2015 and beyond improved. But here we are only a couple of weeks away from the summer solstice and the correction has yet to happen.

What now appears more likely is that the ship will continue to wallow for the next few months as investors wait for some clearer direction on where the global economy is going. We could still see that 10 per cent correction but barring some major geopolitical development a return to a bear market (a drop of 20 per cent or more) looks unlikely. Equally unlikely is a surge in stock prices such as we enjoyed in 2013. That optimism was premature and the stagnant markets we are now experiencing is the price we are paying.

So do you sell or stay? If your portfolio is mainly composed of sound, dividend-paying stocks, my advice is to stick it out. Go to the cottage, collect your quarterly dividends, and relax. The markets aren’t likely to do anything dramatic while you’re sipping your beer by the lake.

Gordon Pape’s new book, RRSPs: The Ultimate Wealth Builder, is now available in both paperback and Kindle editions.

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Important lessons for Canadian borrowers and investors in Europe’s historic plunge into negative interest rates

The European Central Bank (ECB) has lowered its interest rates to unprecedented levels, to the point where it actually costs money for private banks to deposit money with them. The rate they now pay on deposits is negative 0.1%. And Canadian GIC investors thought they had it tough?

While Denmark and Sweden have experimented with negative interest rates, the ECB is the first major central bank to do so. Although rates in Canada have been described as “having nowhere to go but up” in recent years, Europe’s decision potentially suggests otherwise.

This is a modern day experiment in central banking to discourage banks from hoarding cash. One of the key intentions of the rate move is to encourage bank lending, which would have a resulting impact on spending, economic growth and inflation.

A further impact of the cut should be to lower the value of the euro and make EU exports more competitive, a big win for European exporters.

The European economy has really not kick-started after the 2008 recession and quite to the contrary, has experienced a ripple effect of economic setbacks.

It may come as a surprise to many investors that the Euro Stoxx 50 index is up 5.5% year-to-date and 21.6% in the past 52 weeks, after posting a 26.0% increase in 2013. It’s important to know that negative headlines don’t necessarily mean that stocks are going down, or that they are going to go down. Quite to the contrary, sometimes such events can prove positive for stock returns.

So what does this mean for Canadians? I’d say there are important lessons for borrowers (some of us) and investors (most of us).

Borrowers have got to wonder if low rates are here to stay or if they could get lower. Maybe 2.99%, 5-year fixed rate mortgages aren’t such a good deal after all? If rates are falling elsewhere, why not here?

The other side of the coin is to consider the fact that the ECB has lowered rates because they’re concerned about deflation, a decrease in prices where inflation actually goes negative. Deflation increases the real value of debt, making it harder to pay back debt when prices, incomes and asset values are declining. And given the precariously high debt levels in Canada, deflation could be particularly difficult if it ever came home to roost.

The Bank of Canada has been worried about inflation levels, but recent numbers have been quite positive.

I’d say the most important lesson for investors is that double-digit portfolio returns can’t be counted on when doing your retirement planning. Stocks have performed reasonably well in recent years, but low interest rates, low inflation and low growth are becoming increasingly prevalent within the developed world.

And while many Canadians would echo criticisms of the ECB move by Germany that low rates penalize savers, the short and potentially medium term reality of fixed income investing is a low yield.

In particular, those who are close to or into retirement need to evaluate what a sustainable withdrawal rate is from their investment portfolio to ensure they don’t outlive their savings.

Jason Heath is a fee-only certified financial planner and income tax professional for Objective Financial Partners Inc. in Toronto.

Stop worrying! The 'new normal' is over: Pros

"I don't think investors have even begun to appreciate this better economic news," said Don Luskin, chief investment officer at Trend Macro, pointing to better-than-expected new factory orders and auto sales reports released Tuesday.

"We have been conditioned by five years of a crumby recovery to this idea that we're going to have 2 percent growth as the new normal," Luskin said on "Squawk on the Street." "Folks, the age of the 'new normal' is over."

http://video.cnbc.com/gallery/?video=3000280953

Apple Splits Stock 7 for 1 Share June 9 2014

Apple shares once topped $700 (U.S.), then fell below $400, and are trading this month above $600 for the first time in more than a year. All those nice, big numbers are heading to the dustbin in the coming days, however, as Apple splits its shares seven-for-one.

It is said that once Apple Inc. began its remarkable run, founder Steve Jobs was dismissive of the idea of splits. So – for a time, anyway – was his successor, current CEO Tim Cook, who told shareholders two years ago that splits “do nothing” for investors. Better to let the sticker price of the stock escalate to the levels of the company’s shiny gadgets, one supposes.

Splitting shares, however, does accomplish something: It makes it slightly easier for individuals to buy a stock. Now that Apple has conceded on this matter, then, it’s time for some other companies – and yes, we will name names – to stop acting so cool and follow suit by splitting their shares. For investors’ sake.

Apple’s split is scheduled for June 9, benefiting all who own the shares as of June 2. In the strictest sense, the split will “do nothing,” as one Apple share trading at $700 is no more valuable than seven Apple shares trading at $100. That’s the basic economics of a stock split, and the reason why market professionals say splits have little meaning.

It’s certainly true if each of your positions is measured in millions of dollars, or even hundreds of thousands. There are individual investors, however, who want to invest a couple of hundred thousand dollars in a couple of dozen stocks. That means positions in the $5,000 to $10,000 range.

Academic research has suggested stocks that split tend to outperform the shares of similarly sized companies in the near term, in part because they’re an underappreciated signal of confidence: A management team that recommends a split to its board is confident the shares won’t drift lower. There are plenty of holdouts these days, however, as the number of splits among companies in the S&P 500 has drifted lower since the Great Recession – possibly because management watched big companies such as Citigroup do a “reverse split,” decreasing their share count, in order to keep the stock from trading below $5.

 Source Click For Full Article

Ontario Elections voters have the legal right to decline their ballot and have it counted separately from a spoiled ballot.

In a statement released on Wednesday, Democracy Watch asked Elections Ontario — by threat of court action — to advertise the fact that voters have the legal right under section 53 of the Elections Act to decline their ballot (i.e. vote “none of the above”) and have it counted separately from a spoiled ballot.

[Section] 53. An elector who has received a ballot and returns it to the deputy returning officer declining to vote, forfeits the right to vote and the deputy returning officer shall immediately write the word “declined” upon the back of the ballot and preserve it to be returned to the returning officer and shall cause an entry to be made in the poll record that the elector declined to vote.
R.S.O. 1990, c. E.6, s. 53.”

In an interview with Yahoo Canada News, Democracy Watch's Duff Conacher said that if Elections Ontario did advertise that option — as part of their outreach materials — voter turnout would indeed increase.

"There are some people who don't support any party that has a candidate in their riding or do not support any of the parties' platforms," he said.

"They may go and spoil their ballot but when you spoil your ballot nobody knows whether you're stupid or you're doing it intentionally. And that's why you have a right to decline your ballot...so you can go and vote none of the above."

[ More Ontario election coverage: First attack ads largely miss the mark: expert ]

In the future, Conacher would like to see new regulations so that ballots actually have a line that explicitly says "None of the Above" and space for voters to explain their reason for selecting that option.

"I think a lot of them would say 'don't like the voting system' or 'can't be held accountable for broken promises,'" Conacher said.

"Why not track that if you really want to know why people aren't voting for any one party?"

For their part, Elections Ontario says that their online guide and a poster of voters rights — which will be placed at every polling location — include "mentions" about the right to decline. They also note, however, that increasing voter turnout isn't necessarily just their responsibility.

"Political parties, candidates, interest groups, media and the voters themselves all have a role to play in increasing participation in our provincial elections," Andrew Willis, a communications coordinator for Elections Ontario, said in an email to Yahoo.

"We are a non-partisan agency and as such, our role is not to get individuals to vote. Rather, we facilitate the vote – and, if one chooses, the right not to vote."

What do you think? Would a 'none of the above' option entice more Ontarians -- and more Canadians -- to vote in elections?

Let us know your thoughts in the comment section below.

https://ca.news.yahoo.com/blogs/canada-politics/ontario-voters-vote-count-choice-none-above-162236628.html

(Photo courtesy the Canadian Press)