Frances Horodelski Says...

Keep an eye on the little things today
The chase by Frances Horodelski:

As of last night there were about 46,000 customers in the Toronto area without power. My family is one of those customers. Maybe today……

While my house is an uncomfortable zero degrees (water turned off and pipes drained), the equity markets in New York were hot yesterday and there is lots of green fire today as well.The S&P 500 is up 29.16% on the year with three trading days left. The VIX has dropped back into the low end of the year’s trading range (12.33) and according to MKM Partners, we may be in for another year of low volatility. High volatility periods last on average 5.5 years. For this cycle, that high volatility period ended in January of 2013. While there have been six waves of volatility in 2013 (corresponding to only modest pullbacks), analysts at MKM believe 2014 will be similar. Low volatility corresponds to low correlations meaning individual stocks trade more on company specific information rather than en masse. This assessment should also determine hedging strategies. Portfolio management should focus on the individual stock or sector level rather than the entire market according to MKM Partners.

Once again, it is a quiet trading day but there are lots of little pieces of news that could move individual stocks. The Russians and Belarus could be getting back together says the new CEO of Uralkali (“We feel that the joint work should resume, and most likely that will happen”) according to a Reuters story. Blackberry co-founder Mike Lazaridis sold 3.5 million shares to now own 26.267 million shares (4.99%). Audi (owned by Volkswagen) plans to invest $30.3 billion US through 2018 in an attempt to catch up with BMW. Remember that recently VW announced big spending plans as well - $114 billion also through 2018. Sticking with cars, GM’s China division is recalling some 1.46 million Buicks and Chevrolets due to a problem with a bracket that secures the fuel pump. And a final auto comment, according to AutoTrader.com the top five vehicles in 2013 were: Ford F-150, Jeep Wrangler, Ram 1500, Ford Mustang and Chevrolet Silverado.

If you’re a global politics fans, here are the top five trends that will shape 2014 according to Stratfor: 1) An enduring detente between Iran and the United States; 2) The rise of nationalist and extremist parties in Europe; 3) Russia and Germany bargain over Central/Eastern Europe and energy policy; 4) China's return to strongman politics; 5) Domestic turmoil and economic stress in India and Turkey. What are your political hot spots? Who are you watching for the best prediction for 2014?

Things to watch in 2014: Copper (will it be the year of global growth that will put a bump into the global commodity complex?); currencies (will the upside pressure on interest rates allow the U.S. dollar to come back. And what about the Chinese renminbi which has been trading at all time highs relative to the U.S. dollar? Will this continue?) Interest rates – what will a 3% or 3.5% or even 4% yield do to the relative value call of stocks versus bonds (the 10-year yield is trading right now at 3.01%). These are the big stories that might dictate the macro call but would have important consideration for asset and sector selection in 2014.

Today we will receive inventories for natural gas and oil. The economic calendar is blank. There are, however, almost 100 small companies that are publicly traded in Canada that are releasing quarterly results! Textron is buying Beechcraft. Two states in the U.S. are reviewing options for recouping costs related to Obamacare.gov healthcare website from CGI Group according to the Boston Globe. Massachusetts has paid $11 million of $69 million – and will not pay a cent more until “a functioning website has been delivered”. Stories in various U.S. papers (including now the Wall Street Journal) are talking about the potential for another delay in the Keystone XL pipeline approval process due to a conflict of interest with one of the contractors. Our own Jameson Berkow has been reporting on this since these conflicts first surfaced in July.

My feet have just warmed up and that’s all I have today.

The chase by Frances Horodelski Repost

Holiday countdown
The chase by Frances Horodelski:

That was fun. But I’m over it. So can I please have my power back on? Now would be nice.

The power on Wall Street (and even Bay Street recently) has been pretty spectacular. As of this moment, the numbers for 2013 are Dow +24.35%, S&P +28.17%, Nasdaq +37.4% and TSX +8.16%. The TSX has underperformed the S&P for three years in a row. The S&P 500’s performance is the best since 1997 (which was followed by another two years of strong gains).

And the bulls are out. Here’s a comment from regular BNN guest Kevin Cook at Zacks: “My list of 5 forces hasn't changed since I first wrote of them in January: 1) Macro risk "off" (Europe, China, Washington)=Investing risk "on" (to the upside); 2) Economic growth is good enough and building momentum; 3) The Fed remains steadfastly on the side of pro-growth and reflation; 4) Corporations are producing record profits and balance sheets are strong; 5) Cash is still trash and fund managers MUST chase and compete for stocks. What exactly didn't 95% of hedge funds who got beat by Mr. Market this year not understand about these bullish drivers? When you combine these factors, you have the recipe for a huge "multiple-expansion rally." And when this game is on, like it was in the 1990's, you don't worry about a "fully-valued" market because the momentum is probably going to ‘over-valued.’ Bottom line: I am not worried about a bubble in equities. Sure, this will run too far ahead of the economy at some point and a correction will follow. But there will be little damage to the economy because the benefits from consumer confidence and the wealth effect far outweigh the excess a good correction might have to wring out.”

David Rosenberg published his 2014 report yesterday and it is titled “2014 – The Year of the Horse: The one that’s about to break out of the gate.” The year will be a surprise year like 1984, 1994 and 2004 and that the upside macro surprise shifts from the UK to the U.S. – and as previously, years ending is 4s, Rosenberg says, all fit the bill of economic acceleration.

On the news front, appropriately thin with Sherritt selling off its coal assets, KKR investing $250 million in Canada’s Torq Energy Logistics, retail survey company ShopperTrak reports retail sales for the week ending December 16 down 3.1% from the same period last year. Bricks and mortar traffic was down 21.2% and the last Saturday before Christmas (21/12/13) saw a 0.7% decline in sales and an 18.1% drop in traffic. GDP in China according to economists is expected to grow 7.4% in 2014 and officials are reported (Reuters) to be targeting 7.5% growth in 2014 (concerns had run rampant through the world that the target growth rate would be 7%).

So now is the time to relax and enjoy. Remember that family you might have ignored over the year (or the friends, and even the enemies) – take some time to get reacquainted. And while you’re at it, see a movie with them or share excerpts from a book. Do the big Globe & Mail holiday crossword as a family or a group of friends (very satisfying). Maybe just smile.

Movies I want to see over the holidays (in no particular order – except the first is the first):Inside Llewyn Davis, American Hustle, Nebraska, The Hobbit 2, The Wolf of Wall Street, The Secret Life of Walter Mitty, The Counselor, Her and Saving Mr. Banks. Did I miss any?

Best books of the year for me: Perfect (awesome story); currently reading The Goldfinch (also awesome); only book on the New York Times top 100 that I have read The Woman Upstairs. Books on my shelf that will be read shortly include The Luminaries and The Rosie Project. Oh, and in 2014, I just might re-read all ten books of The Dance to the Music of Time by Anthony Powell. Now that will keep me warm

Happy holidays.