Investor panic takes hold in China

Investor panic takes hold in China
The chase by Michael Kane:

European stock markets are up on Wednesday, encouraged by the sentiment that the situation with Greece will be resolved in a positive manner. The stock markets in London, Paris and Frankfurt have all been up in a range of 1/5th to 3/4 of one percent and it is important to note that trading volume is elevated - 30% to 50% above normal, so that tells us that money which had been taken off the table due to the uncertainty over the Greek situation and the status of the European Union as a whole - that money is now flooding back into the market. Enthusiasm would be even greater were it not for lingering concern about China where authorities are intervening in the markets to preserve some of the big gains made this year. They've been restricting trading in some companies... some companies have ordered their own shares to be halted to prevent losses.

The investment community is scratching its head over what is happening in China's financial markets. Stocks have plunged 30% since mid-June and taken commodities prices down as well. The herd mentality is taking over after unusual gains in recent months. The Shenzen stock exchange had posted gains of nearly 40% this year - the Shanghai Composite was up as much as 60% - which seasoned investors know very well is not sustainable. Profit-taking in the stock market has even spilled over to agricultural commodities like soybeans. Today China's raw materials market fell - across the board - by the maximum amount allowed by law. Market jitters now have stock index futures pointing to a sharply lower open on Wall Street.

There is a lot of commentary out there about whether Canada is in recession, and if so, how important is that. Technically speaking, a recession is characterized by two consecutive quarters of economic shrinkage. Every quarter of the year has three months and you can have an "up" month, then a "down" month - so economists broaden it out to look at quarterly data. On that basis, between January and June, Canada most likely slipped into a technical recession. Is it something to be worried about? Economists who give us context in their commentary are telling us not to push the panic button because if it is a recession, it's being caused largely by weakness in the oil industry. The fact that it is not broadly-based is of some comfort to economists looking at the bigger picture. A couple of economists - notably at TD Bank and at Desjardins Securities - are expecting the Bank of Canada to make another interest rate cut next week. But there is a lot of debate about how effective that would be.

Footwear and accessories retailer - the Sherson Group, operater of Nine West in Canada - has filed to bankruptcy protection. Nine West stores will continue to operate while the business is restructured. Sherson filed papers saying it has $32,200,000 in unpaid bills and loans, including more than $19-million owed to U.S.-based Nine West Group which licenses the brand to Sherson in Canada.

Cineplex is not changing its soft-drink prices but it is making the size of the drinks smaller. In a classic re-packaging to save money Cineplex says a large drink will assume the size of the former regular drink - 32 ounces down from 44 ounces. A regular-sized drink will be reduced to 24 ounces from 32 ounces previously. A “small” drink is unchanged at 16 ounces.

Gen Xers ages 35 to 48 survive on credit cards

Gen Xers — and their older, Baby Boomer peers — see credit cards as a lifeline, according to a new study from Allianz Life.

Of the 1,000 Gen Xers age 35 to 48, and 1,000 Boomers ages 49-67 surveyed, 48% say that credit cards now function as a financial survival tool.

That reliance on debt is particularly troublesome for younger Americans, who often put off saving for retirement and other needs because of it.

"It's really significant and I think it's coming to a head with Generation X,'' says Katie Libbe, vice president of consumer insights for Allianz Life, who noted that members of that age group tend to have greater total debt than Boomers. They are burdened, she says, by a "Bermuda Triangle'' of financial stressors, including student loan debt, a tepid job market, and homes that may be worth less than what they initially paid.

Source 

The survey highlights the potential drawbacks of having easy access to credit cards, with 76% of Gen Xers and 68% of Baby Boomers saying they received their first credit card by the age of 24.

"I think that older generations ... were brought up a little bit more to live within their means because they didn't have access to a card,'' Libbe says. "I think what's been going on over the last 30 years is the acceptance of credit cards and credit card debt, which ends up masking the fact that you're living beyond your means.''

The Allianz survey found that Gen Xers were carrying 38% more in mortgage debt, and 45% more in other debts, such as credit cards and student loans, than their Boomer peers. For instance, Gen Xers averaged $144,000 in mortgage debt as compared to $90,000 for Boomers, and $8,000 in average credit card debt as compared to $6,000 carried by the older generation.

Stock-tipping case leads to stiff penalties from OSC

A former executive assistant at a Toronto securities firm who illegally tipped friends and family to buy mining company shares has been ordered to pay fines and costs totaling $650,000.

The Ontario Securities Commission issued its reasons and decisions in the case of Eda Marie Agueci on Wednesday, after a long investigation that is estimated to have cost $2.7 million.

In all, the OSC alleged Agueci gave inside tips to eight individuals including friends and relatives, but there was no finding of insider trading against five of them. First filed in 2012, the case has dragged on and resulted in 59 days of hearings.

In a written decision, the threemember panel led by Edward Kerwin acknowledged that there is no evidence that Agueci profited from her misconduct and trading, and the proceeding has had an impact on her livelihood in the securities industry.

Three others were also found guilty of violating securities law including Dennis Wing, a founding member of First Marathon Securities, and his company Pollen; Henry Fiorillo; and Kimberley Stephany.

All four also face restrictions on acting as a director or officer and trading in securities. Both Agueci and Wing were also accused of trying to mislead OSC staff during the investigation. Agueci is ordered to pay a penalty of $350,000 and costs of $300,000.

Wing and Pollen have been ordered to pay back $520,916 earned from trading on Agueci’s tips as well as $1.75 million in administrative penalties.

Wing also must pay costs of $300,000. Fiorillo, a longtime friend of Agueci, was ordered to pay back $175,138 earned from specific trades and an administrative penalty of $350,000.

He also must pay costs of $50,000.

Go bulls go!

Go bulls go!
The chase by Frances Horodelski:

Are we there yet? Are we there yet? According to Angela Merkel and as reported by Reuters, “we’re not yet where we need to be” and “hours of the most intensive deliberations lie ahead of us.” It seems to now be down to the fine print with a final deal breakthrough anticipated in the next 48 hours and end-of week sign-off. The calendar remains tight because the Greek Parliament has to approve the plan by the end of the month – not a slam-dunk. So pockets of risk exist – but markets are taking it as a done deal. Around the world it is green with the Nikkei at a 15 year high (what do they care about Greece if the pension program in the country is looking to sell bonds and buy stocks). China opened after a holiday to the upside on PMI data (see below). European markets are green, green and green. Peripheral bonds are bid higher and U.S. futures are benefitting too. The U.S. dollar is up and the euro is down. Oil is a touch lower and gold is down about $5 and last week’s $20+ rally all but gone.

On the economic front today, the early look at June manufacturing globally has been benign to good. China showing some stabilization with the PMI slightly better than May and estimates (although still below 50), the Eurozone picked up steam with some numbers across the region and for Germany while France resumed its expansion (with a number above 50 for the first time since April 2014. We have economic data points in the U.S. that could be market moving such as durable goods and new home sales.

On an entirely different note, according to weather watchers, the warming patterns of the Pacific Ocean suggest an El Nino similar to the record pattern of 1997. The National Oceanic and Atmospheric Association wrote extensively on the weather post that last El Nino. What happened? The first two months of 1998 were the warmest in 2014 years. The entire winter was the second warmest on record and the seventh wettest. California and North Dakota had their wettest February on record. Florida, Maryland, Nevada, Rhode Island and Virginia had the second wettest February since 1895 and the warmest February on record occurred in the upper Midwest and parts of the east (including states that bordered Canada). Energy savings were estimated at 10% on lower heating costs. The summer of 1997 however, whether El Nino or not, wasn’t particularly kind to California with extensive flooding, mudslides and more than $1.1 billion in damage.

What’s on the agenda today – BlackBerry, Greece, economic momentum, and Canadian housing (we’ll be speaking to the Chief Operating Officer of Mattamy Homes, Canada’s largest new home builder. We’ll also look at numbers from Darden Restaurants which came in better than expectations and boosted its 2016 outlook. The company is also pursuing a REIT structure for its real estate that will trade as a separate company. What is it with the real estate world? How many new REITs have been and will be created? Is it so easy to do? The valuation boost can be massive but what are the risks? DRI’s shares are up 6.7% after rising 7% this month.

BlackBerry’s results came in a touch light on revenue and handset sales. But the big number was software which rose 150% year over year to $137 million substantially above street estimates and now represents (with licensing) 21% of the company’s revenue. Ebitda was a positive $157 million +5% while the company’s cash position rose to $3.32 billion and free cash flow was reported at $123 million. The stock is rallying in the pre-market on the software beat.

If you want to be bullish (and traders seem to be in still low volume), David Rosenberg from Gluskin Sheff has some reasons for you. First, the market bends, but doesn’t break. Even after more than 1350 days without a 10% correction. He notes that while long it isn’t the longest in history (2500 between 1990-1997 and 1600 days from 2003 to 2007). Second, by the time the Fed tightens, we are typically one-third of the way through a market cycle. They haven’t begun to tighten and it isn’t even a slam-dunk for September. Third, market leadership is pro-cyclical. Four, sentiment remains poor which is a contrary positive. And five, there has never been a market bear without a recession and that appears highly unlikely. So go bulls, go.

Bye-bye