For traders this is the most important data point of the month

Double jobs day
The chase by Frances Horodelski:

“If jobs were so important, everyone would have one”

For traders this is the most important data point of the month. Way back in the caveman days of trading, we used to all hang around the Dow Jones Newswirewaiting for the CPI data every month – that was the most important data point when inflation was rising and the Fed was tightening, but that is a story foranother day.

The U.S. estimate for jobs is around 200,000 jobs (although the consensus has waivered to 195,000 a few times) versus last month at 162,000 with a drop in the unemployment rate to 6.6%. Economists at RBC say they will be watching wages. “Given the uninterrupted uptrend in hourly wages, a reversal higher (estimate 0.2%) in hours means there is potential upside to the wage pie near-term. This is after all what matters for consumption (not the level of headcount).”

Those wages are needed to pay debts and according to a recent report on delinquency rates in the U.S. on consumer debt, those wages are needed.

Mortgage debt delinquencies (which were 1.5% in 2007) are now 4.5%; student debt delinquencies are running at 12%.

In Canada, it is also jobs day. After a crazy year of big increases and big declines, this month the dart has landed on an estimate of +22,500 for March. The unemployment rate is expected to be unchanged at 7%.

Another casualty of the railcar capacity issues – ethanol. According to a letter to Dennis Gartman “our ethanol plants have been running at reduced capacity not for economic reasons but because our finished ethanol tanks are almost running over with no railcars in sight.”

Also with reference to Gartman, he has added “coal” in the past few days as it seems inordinately cheap. Yesterday morning our colleague Andrew McCreath noted his homework was being done on the thermal coal names such as Peabody (BTU) – you have two days in front of you to do your own analysis.

Let’s talk rumours. Yesterday it was that Lululemon (LULU-Q) could be a take-out target. With 21% of LULU short, that could be a painful for traders. This morning, those who follow options activity suggest that Kellogg (K-N) might be a target. Almost 21% of Kellogg is owned by the Kellogg foundation. Remy Cointreau was up 11% at one time in Paris trading as a trading blog said Brown-Forman is working with Goldman Sachs to consider a possible purchase.

Some interesting weak names in the market so far this year (and some which have been previous darlings): Whole Foods (-10%), Amazon (-17%), Mattel (-16%), Catamaran (-4%), Avigilon (-3%), Empire (-8%), Horizon North (-16%), Dream Unlimited (-9%) and Air Canada (22%). AC.B was upgraded to buy at Scotia this morning with a an outperform and $7.25 target.

In research, an item that stands out is one on Apple from BMO Capital Markets that notes that June quarterly numbers on the street, in their view, are too high especially the revenue line. BMO however has raised its own earnings estimates due to the aggressive share buyback, they rate the stock outperform with a $565 target (up $5 from the previous target). Three catalysts for the shares are highlighted: 1) large screen iPhone; 2) a wearable category; 3) more services. Apple did lose a patent-use bid in a $2 billion Samsung trial.

Canadian politicians are talking today: Industry Minister Moore is in Waterloo on the digital economy (BNN will be there as will the CEO of OpenText), Transportation Minister Raitt will be presenting at the CAPP conference speaking on energy on behalf of Energy Minister Rickford. We will be interviewing the head of pipelines from TransCanada and the CEO of Nuvista – both from the conference.

Grubhub was priced last night (the online restaurant delivery and pick-up service) at $26 (above the $23-$25 range). It starts trading today under the symbol GRUB. And while it seems like the IPO market is running over, it is only in the number of deals, not dollar value. Last February, there were 179 IPOs for a total value of $33.64 billion. This February, 212 deals but only $17.8B in value. March 2013 233 deals at $30.7 billion; this March 262 deals but 12% less in value ($27 billion).

Markets are higher in Europe and the futures. Chinese markets bounced. Everyone is waiting – for what? The Blue Jays opener? Disney’s Captain America? Itis a big day. Enjoy.

S&P 500 will peak around 1,900 to 1,950 then drop 30%

 

S&P 500 will peak around 1,900 to 1,950 then drop 30%: Saxo Bank strategist

 

And if investors only have the potential of around 5% upside from here, Jakobsen says it may be worth backing out of equities starting now. “Take out the money you earned over the last year and if you want to invest it right now, put it in U.S. and German bonds,” he says.

 

http://blogs.marketwatch.com/thetell/2014/04/03/sp-500-will-peak-around-1900-to-1950-then-drop-30-saxo-bank-strategist/ 

 

 

Markets crash all the time...YET S&P 500 made another new high yesterday

"Markets crash all the time. You should, at minimum, expect stocks to fall at least 10% once a year, 20% once every few years, 30% or more once ortwice a decade, and 50% or more once or twice during your lifetime. Those who don't understand this will eventually learn it the hard way." - MorganHousel (from Barry Ritholtz)

The S&P 500 made another new high yesterday. According to Howard Silverblatt, there have been 565 new closing highs since 1977. Of those, the index went on to post another new closing high the next day 25.7% of the time and then to produce a third consecutive high 56.3% of the time. The TSX is trading at the highest level since 2008.

http://www.bnn.ca/Blogs/2014/04/03/Staying-safe-as-markets-surge.aspx

Stocks vs. bonds: Can you risk less and make more?

By: Gordon Pape Building Wealth, 

It’s a tough time to be an investor. The stock markets have been on a two-year run, with New York’s S&P 500 hitting record highs. That’s great if you’ve been in the market for the ride up but now the big fear is that we’re overdue for a major correction. Who wants to buy stocks just before a plunge?

Normally, people would turn to bonds in this situation. But that doesn’t look like a great idea with interest rates apparently poised to rise. Higher rates translate into lower bond prices, as we saw in 2013. For the first time in several years, the average Canadian fixed-income fund finished in the red. It appears the long 30-year bull market in bonds is over.

So what to do? There’s been a running debate in the States for several years between two prominent author-academics who advise exactly opposite courses of action.

Prof. Zvi Bodie of Boston University, author of such books as Risk Less and Prosper, is of the opinion that stocks are too risky for long-term investing, particularly if you’re saving for retirement. His advice is to put almost everything into bonds, specifically U.S. Treasury Inflation Protected Securities (TIPS). Our equivalent would be Government of Canada Real Return Bonds (RRBs).

His point is that a portfolio that is top-heavy in stocks is always at risk, as we saw in the crash of 2008. Bonds may produce a lower return but the principal is guaranteed and, in the case of TIPS and RRBs, inflation-protected.

The opposing view is advanced by Prof. Jeremy Siegel of the Wharton School of Economics, author of the best seller Stocks for the Long Run. As the book title indicates, he advises people to put their money in equities, pointing out that over time, going back to 1871, stocks have outperformed bonds by more than three percentage points a year.

So here we have two highly respected economists offering entirely opposing views on how we should invest. Who do you believe?

In my opinion, neither one. Successful investing is not about extremes, it’s about balance.

One of the fundamental requirements of investing is to understand asset mix. This is simply the way in which your money is allocated.

Basically, there are three types of assets: cash, fixed-income (e.g. bonds), and growth (e.g. stocks). The higher the percentage of cash and fixed income investments you own, the lower your risk. But the corollary is you must settle for minimal returns. Prof. Bodie argues that the trade-off is worthwhile because your capital will be protected.

As you increase the percentage of growth securities in a portfolio, you add more return potential. But you also incur more risk. When a major market crash hits – and we have had two since the turn of the century – a growth-oriented portfolio will get slammed.

The impact of the credit crunch of 2008 offers a dramatic example of the value of a diversified portfolio. According to CNN, U.S. stocks fell 37 per cent that year while long-term U.S. government bonds gained 27.7 per cent and U.S. Treasury bills yielded 1.5 per cent.

So a $10,000 portfolio that was entirely invested in U.S. stocks (the Siegel approach) at the start of 2008 would have been worth only $6,300 at year-end, while a long bond portfolio would have grown to $12,770. But in 2013, with the bond market in turmoil and stocks soaring, the end result would have been completely different.

It’s fine for academics to talk about the long term but most people are uncomfortable with such financial fireworks along the way. That’s why I prefer a balanced asset mix of, say, 10 per cent cash, 40 per cent fixed income, and 50 per cent stocks. Using the CNN numbers, that portfolio would have lost only 7.2 per cent in 2008 and would have been well positioned for the stock market rally that began in March 2009.

So leave the extremes to the theoreticians. Investing is a balancing act. Get it right and you’ll do just fine.

Gordon Pape is editor of the www.BuildingWealth.ca Internet Wealth Builder newsletter. His new book, RRSPs: The Ultimate Wealth Builder,