“Ravaged”

Tuesday, June 18th, 2013

by Scott Ronald, Steadyhand Investment Funds

The mining sector has been ravaged over the past two years. Commodity prices have softened, financing has dried up and sentiment has tanked. It’s been a minefield for investors.

Nowhere has the pain been more severe than the Canadian small cap market. Stocks in the Materials sector (which includes metals & minerals, gold, and paper & forest companies) comprise nearly 30% of the BMO Small Cap Index. The sector has declined 45% over the last two years (ending May 31st). Energy stocks make up a further 20% of the index (the sector is down 28%), bringing the combined weighting of resource-focused stocks to 50%.

There have been areas of strength, including technology, industrial, financial and consumer stocks, but because of the market’s tilt towards rocks and oil, the index has fallen 15% since the spring of 2011. The average Canadian small/mid cap equity fund fared better, but still declined 5% over the period (source: globefund.com).

The Steadyhand Small-Cap Equity Fund has avoided much of the carnage. In fact, it’s gained over 25%. This has much to do with the fact that the manager, Wil Wutherich, has largely steered clear of the mining sector (the fund only has one direct holding, Primero Mining).

Wil’s investment approach leads him to focus on established companies that generate steady profits and are well-financed, such that they can self-fund their operations and growth. And of course, they have to trade at reasonable valuations. These types of companies are typically not found in the mining sector.

An outcome of Wil’s approach – and all our managers for that matter – is that the fund will often produce returns that are out-of-synch with the market, as illustrated above. They won’t always be on the good side, though. In 2009, for example, the small cap index was up 75% while the fund only gained 14.6%. If the mining sector has a resurgence, the fund will likely lag behind. Since the fund’s inception in 2007, however, Wil’s approach has added considerable value versus the index (with considerably less volatility).

A final note on resources: The manager doesn’t avoid resource stocks altogether. If a company meets his investment criteria, he’ll give it careful consideration. In fact, Wil has a successful record of investing in energy companies and has increased the fund’s exposure to oil & gas producers over the last few quarters (to the point where they make up roughly one-quarter of the fund). As for mining stocks, he’s been kicking around the rocks but still isn’t finding any gems.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The annualized rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

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PENN WEST PETROLEUM (PWT.TO) TSX – Jun 18, 2013 – Newly Favoured

Tuesday, June 18th, 2013

SIA Charts Daily Stock Report (siacharts.com)

The SIA Daily Stock Report utilizes a proven strategy of uncovering outperforming and underperforming stocks from our marquee equity reports; the S&P/TSX 60, S&P/TSX Completion and S&P/TSX Small cap We overlay these powerful reports with our extensive knowledge of point and figure and candlestick chart signals, along with other western-style technical indicators to identity stocks as they breakout or breakdown. In doing so we provide our Elite-Pro Subscribers with truly independent coverage of the Canadian stock market with specific buy and sell trigger points.

Note: Subscribers can screen all Canadian and U.S. stocks and mutual funds, or as components of equally weighted mutual fund sectors indices (e.g. Income Trusts, Precious Metals), and fund groups by issuer (eg. AGF, Dynamic, Franklin Templeton), all Canadian ETFs, ETF Families by issuer (iShares, Horizons, BMO) or as components of Equally Weighted ETF Sector Indices (e.g. 2020+ Target date, Cdn Equity Lg Cap), and create and monitor their own, or SIA’s existing model portfolios. Finally, subscribers benefit from being able to generate BUY-WATCH-SELL Signals on demand with SIA Charts proprietary Favoured/Neutral/Unfavoured, SMAX scoring algorithm (see green-yellow-red graph 1 below).

PENN WEST PETROLEUM (PWT.TO) TSX – Jun 18, 2013 – Newly Favoured

GREEN – Favoured / Buy Zone
YELLOW – Neutral / Hold Zone
RED – Unfavoured / Sell / Avoid Zone

PENN WEST PETROLEUM (PWT.TO) TSX – Jun 18, 2013 – Newly Favoured

Important Disclaimer

SIACharts.com specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment. None of the information contained in this website or document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. Neither SIACharts.com (FundCharts Inc.) nor its third party content providers shall be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon.

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Thackray Market Letter (June 2013)

Wednesday, June 12th, 2013

Thackray Market Letter (June 2013)

Market Update

As the S&P 500 continued to rise in May, I kept getting asked if “sell in May” was going to work this year. The exit date for the favourable six month period is May 5th, which landed on the weekend this year, making May 3rd the exit date. On this date the S&P 500 stood at 1614. It then continued to rise until May 21st, closing at 1669 for a 3.4% increase since May 3rd. Subsequently, the market has turned back down and stands at 1643 as of June 7th.

May 5th is an average exit date, sometimes the stock market peaks early as it has done in the last couple of years, sometimes it peaks later. The point is that May 5th is typically a good date to start to decrease risk in an investment portfolio. There is nothing to say that this year is any different.

As I have stated before, the S&P 500 typically does not have long sustained bull runs in the unfavourable period for stocks. In the past, large bull runs in the unfavourable season have been the result of the market bouncing off a major bottom (not the case this year), a strong realization that a recession is ending and much stronger economic numbers are being printed (not the case this year), or the Fed is stepping in with a stimulative policy (not the case this year, at least in the US). In other words, investors should not be expecting large gains at this time. There will be rallies in the market and some sectors will outperform, but the broad market is not expected to surprise strongly on the upside.

There is a broad market seasonal rally for nimble investors comprised of two seasonal trades starting towards the end of June and running into mid-July: the Independence Day Trade and the 18 Day Earnings Month Effect.

Independence Day Trade

The stock market tends to perform well a few days before and after US holidays. I am not the fi rst person to write about this phenomenon, nor will I be the last. Independence Day is a bit unique compared to the other holidays in that it occurs at the beginning of the month.

This is important because it occurs at a period when the market is often positive, the fi rst few days of the month. Historically, the best method of optimizing the trade has been to be invested in the broad market for the last two days of June and to stay invested until fi ve days after Independence Day. From 1950 this trade has provided an average gain of 0.8% and has been positive 71% of the time.

18 Day Earnings Month Effect

I have written about this strategy in past newsletters. It is based upon the premise that in the earnings months of January, April, July and October, investors tend to push up the stock market for the fi rst eighteen calendar days as they anticipate the market reacting positively to earnings announcements.

Since 1950, the S&P 500 has produced an average gain of 0.8% and has been positive 63% of the time (for details, see Thackray’s 2013 Investor’s Guide, page 43). If seasonal investors are taking advantage of this strategy, they should pay attention to the technical strength of the market during the fi rst half of July. If the market starts to deteriorate early, investors should be looking to reduce or exit their position.

Gold – Is it going to shine soon?

How can I not talk about gold when it is constantly in the media and we are getting close to the seasonal buy date.

On average, gold bullion has its strong seasonal period from July 12th to October 9th. During this time period, from 1984 to 2011, gold bullion has produced an average gain of 4.3% and has been positive 68% of the time. We are just over a month away from the seasonal buy date for gold, but using a seasonal mandate it is possible to start taking a position a month early based upon strong technicals.

Investors should continue to monitor the technical conditions for gold. If gold is able to start showing continued outperformance relative to the S&P 500, and it is able to break decisively above 1450, then conditions would be considered to be favourable for gold. Investors should also be looking for the full stochastic oscillator to bottom below 20 and then turn above 20 for an early entry into a gold position.

Currently, gold is below $1400 and below its 50 day moving average. It also has a relative strength line compared to the S&P 500 that is still downward sloping, with gold still underperforming the S&P 500. On a short-term basis, the full stochastic oscillator is not giving a short-term buy signal within the seasonal buy date.

Given that the technicals do not support an early entry at this time, investors are best to continue to let gold consolidate.

Continue Reading or download in the slidedeck below:

Thackray Market Letter 2013 June

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BOMBARDIER CL B SV (BBD.B.TO) TSX – Jun 06, 2013

Thursday, June 6th, 2013

SIA Charts Daily Stock Report (siacharts.com)

The SIA Daily Stock Report utilizes a proven strategy of uncovering outperforming and underperforming stocks from our marquee equity reports; the S&P/TSX 60, S&P/TSX Completion and S&P/TSX Small cap We overlay these powerful reports with our extensive knowledge of point and figure and candlestick chart signals, along with other western-style technical indicators to identity stocks as they breakout or breakdown. In doing so we provide our Elite-Pro Subscribers with truly independent coverage of the Canadian stock market with specific buy and sell trigger points.

Note: Subscribers can screen all Canadian and U.S. stocks and mutual funds, or as components of equally weighted mutual fund sectors indices (e.g. Income Trusts, Precious Metals), and fund groups by issuer (eg. AGF, Dynamic, Franklin Templeton), all Canadian ETFs, ETF Families by issuer (iShares, Horizons, BMO) or as components of Equally Weighted ETF Sector Indices (e.g. 2020+ Target date, Cdn Equity Lg Cap), and create and monitor their own, or SIA’s existing model portfolios. Finally, subscribers benefit from being able to generate BUY-WATCH-SELL Signals on demand with SIA Charts proprietary Favoured/Neutral/Unfavoured, SMAX scoring algorithm (see green-yellow-red graph 1 below).

Newly Favoured – BOMBARDIER CL B SV (BBD.B.TO) TSX – Jun 06, 2013

GREEN – Favoured / Buy Zone
YELLOW – Neutral / Hold Zone
RED – Unfavoured / Sell / Avoid Zone

BOMBARDIER CL B SV (BBD.B.TO) TSX – Jun 06, 2013

Important Disclaimer

SIACharts.com specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment. None of the information contained in this website or document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. Neither SIACharts.com (FundCharts Inc.) nor its third party content providers shall be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon.

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Technical Talk: Bull Market Momentum Turning Over?

Wednesday, June 5th, 2013

by Don Vialoux, TechTalk

Upcoming US Events for Today:

1. ADP Employment Report for May will be released at 8:15am. The market expects 171,000 versus 119,000 previous.
2. Productivity for the First Quarter will be released at 8:30am. The market expects a quarter-over-quarter increase of 0.7%, consistent with the previous report. Unit Labor Costs are expected to increase by 0.5%.
3. Factory Orders for April will be released at 10:00am. The market expects a month-over-month increase of 1.4% versus a decline of 4.0% previous.
4. ISM Services for May will be released at 10:00am. The market expects 53.8 versus 53.1 previous.
5. Weekly Crude Inventories will be released at 10:30am.
6. The Fed’s Beige Book for June will be released at 2:00pm.

Upcoming International Events for Today:

1. India PMI Services will be released at 1:00am EST.
2. German PMI Services for May will be released at 3:55am EST. The market expects 49.8 versus 49.6 previous.
3. Euro-Zone PMI Services for May will be released at 4:00am EST. The market expects 47.5 versus 47.0 previous.
4. Great Britain PMI Services for May will be released at 4:30am EST. The market expects 53.0 versus 52.9 previous.
5. Euro-Zone GDP for the First Quarter will be released at 5:00am EST. The market expects a year-over-year decline of 1.0% versus a decline of 0.6% previous.
6. Euro-Zone Retail Sales for April will be released at 5:00am EST. The market expects a year-over-year decline of 0.6% versus a decline of 2.4% previous.
7. Canada Building Permits for April will be released at 8:30am EST. The market expects a month-over-month decline of 2.3% versus an increase of 8.6% previous.
8. Australia Trade Balance for April will be released at 9:30am EST. The market expects 180M versus 307M previous.

Recap of Yesterday’s Economic Events:

The Markets

Equities traded lower on Tuesday, bringing an end to 20 consecutive Tuesday’s of positive results for the Dow Jones Industrial Average. Concerns pertaining to the Fed tapering its bond buying program led the stock market selloff, pushing the Dow almost 1% lower by midday. The remainder of the week will only fuel further speculation as to what the Fed might do as employment reports for the month of May are released; ADP will release their report this morning at 8:15 followed by the BLS report on Friday. Disappointing results may actually garner a positive reaction as the perception would become that the present easy monetary policy will remain intact. Vice versa if the results are strong. Talk of tapering has had a significant effect on yields over the past month. The 10-year note has jumped from around 1.6% to as high as 2.2%, testing the upper limit of a rising trendline that stretches back to last summer. The 200-day moving average of the yield has now curled higher for the first time since early 2011, implying positive momentum over a long-term scale. This trend is contradictory to seasonal averages. Typically yields trend lower throughout the summer months as equity market volatility forces investors into safe-haven assets. Bonds and interest sensitive plays that typically flourish in the summer may experience some volatility themselves.

The recent weakness in the S&P 500 has triggered momentum “Sell” signals with respect to RSI, MACD, and Stochastics. The percent of stocks within the large-cap index trading above 200-day moving averages is also offering a signal that suggests caution is warranted. The percent recently topped 90 (94 to be exact), a level in which significant market peaks have been known to form. The percent is now attempting to push below its 50-day moving average line, a level that has typically provided reliable sell signals for equity market positions. The break below the 50-day moving average line is so far just marginal and more evidence is required to confirm the signal, but downside risks are escalating.

Seasonal charts of companies reporting earnings today:

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.16.

S&P 500 Index

Chart Courtesy of StockCharts.com

TSE Composite

Chart Courtesy of StockCharts.com

Horizons Seasonal Rotation ETF (TSX:HAC)

• Closing Market Value: $13.33 (up 0.08%)
• Closing NAV/Unit: $13.29 (down 0.09%)

Performance*

* performance calculated on Closing NAV/Unit as provided by custodian

Click Here to learn more about the proprietary, seasonal rotation investment strategy developed by research analysts Don Vialoux, Brooke Thackray, and Jon Vialoux.

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CANADIAN NATIONAL RAILWAY CO (CNR.TO) TSX – Jun 05, 2013

Wednesday, June 5th, 2013

SIA Charts Daily Stock Report (siacharts.com)

The SIA Daily Stock Report utilizes a proven strategy of uncovering outperforming and underperforming stocks from our marquee equity reports; the S&P/TSX 60, S&P/TSX Completion and S&P/TSX Small cap We overlay these powerful reports with our extensive knowledge of point and figure and candlestick chart signals, along with other western-style technical indicators to identity stocks as they breakout or breakdown. In doing so we provide our Elite-Pro Subscribers with truly independent coverage of the Canadian stock market with specific buy and sell trigger points.

Note: Subscribers can screen all Canadian and U.S. stocks and mutual funds, or as components of equally weighted mutual fund sectors indices (e.g. Income Trusts, Precious Metals), and fund groups by issuer (eg. AGF, Dynamic, Franklin Templeton), all Canadian ETFs, ETF Families by issuer (iShares, Horizons, BMO) or as components of Equally Weighted ETF Sector Indices (e.g. 2020+ Target date, Cdn Equity Lg Cap), and create and monitor their own, or SIA’s existing model portfolios. Finally, subscribers benefit from being able to generate BUY-WATCH-SELL Signals on demand with SIA Charts proprietary Favoured/Neutral/Unfavoured, SMAX scoring algorithm (see green-yellow-red graph 1 below).

CANADIAN NATIONAL RAILWAY CO (CNR.TO) TSX – Jun 05, 2013

GREEN – Favoured / Buy Zone
YELLOW – Neutral / Hold Zone
RED – Unfavoured / Sell / Avoid Zone

CANADIAN NATIONAL RAILWAY CO (CNR.TO) TSX – Jun 05, 2013

Important Disclaimer

SIACharts.com specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment. None of the information contained in this website or document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. Neither SIACharts.com (FundCharts Inc.) nor its third party content providers shall be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon.

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Mark Carney’s False Ideology

Monday, June 3rd, 2013

Submitted by Caleb McMillan of the Ludwig von Mises Institute of Canada,

Photo: Source

Neil Macdonald of the CBC recently did an investigative piece on central bankers and what they’re doing to the world’s economies. Mark Carney was featured heavily. He told Macdonald, “there is no secret cabal orchestrating things,” despite CBC’s own findings earlier in the program. Central bankers around the world meet in Basel, Switzerland for secretive meetings. Of course, central banks have – and have always had – enormous power that remained more-or-less hidden until 2008. A paradigm shift is occurring where a large number of people (particularly young people) are questioning their assumptions. Some of them are even beginning to read economists like Ludwig von Mises and Murray Rothbard. The “economics” of central bankers can now be revealed for what it truly is: statistical propaganda. Not only is the “Keynesian school” of economics unsound – the entire social science is bunk. Only the Austrian tradition can explain economic phenomena in such a way that makes common sense, scientific. Carney is asking us to trust him. This cannot be done. He is not speaking truth; he is speaking nonsense.

Who is Mark Carney?

Mark Carney: Bank of Canada governor, soon-to-be Bank of England governor. He was born in the Northwest Territories 48 years ago. He graduated from the University of Alberta in Edmonton before studying economics at Harvard and getting his master’s and doctorate from Oxford. He spent 13 years with Goldman Sachs in London, Tokyo, New York and Toronto. He then worked for the Department of Finance under both the Liberal and Conservative governments. He joined the Bank of Canada as a deputy governor before moving on into the top position. This was in 2007, just in time for the bursting of US housing bubble. Like every other central banker in the wake of the crisis, Mark Carney lowered interest rates and helped governments bail out large institutions.

What makes Carney unique is that he bumped up rates by a percent in 2010. Hardly a radical reversal, but it is something the US Federal Reserve has yet to accomplish. Carney got away with it because, at the time, Canadians were not as heavily indebted. The “boom” was still in its infancy. Carney still threatens to raise interest rates, but nobody believes him. All he does is give verbal warnings to Canadians that “taking advantage” of low rates is a bad idea. Despite all those educational institutions under his belt, Mark Carney does not understand human action.

Now he is bailing himself out from Canada’s certain crash and heading across the pond to lead the Bank of England. An already depressed economy, Britain won’t be any better under Carney’s rule alas he dismantles the Bank or at the very least raises interest rates to astronomical levels. Carney won’t do either of those things though because Mark Carney is a Keynesian. That is, the work of John Maynard Keynes influence his decision-making in macroeconomic analysis. This ideological view of society and its economic structure is one where no capital structure exists. Absurd given that nearly all consumer goods need some kind of input of capital stock. Keynesians also have a peculiar view on scarcity – a view that makes no economic sense whatsoever.

Economics

The public tend to have an unfavourable view of economics and economists – and for good reason. “Economics” is as dismal as it sounds; making economic sense is a whole other ball game. For Mark Carney, “economics” resembles something like physics and history. Although Carney would probably concede to the notion that an economy needs entrepreneurs and capital accumulation, his ideology assumes inherent failures in this process that must be corrected by state intervention. In actuality, it is state intervention that inhibits entrepreneurship, savings and investment. Therefore the Bank of Canada publishes nonsense. Their CPI indexes and growth estimates are results of computer models that produce the results they expect. Lately, this method has been failing as economies stagnate where the BoC’s arithmetic predicts growth.

Mark Carney’s economic methodology mimics the “hard” sciences like physics and chemistry. But economics is not a mathematical discipline; it involves agents who have free-will. Making economic sense requires understanding praxeology. Praxeology is the scientific study of human action. It is empirical but not in the sense of quantitative data. Praxeology begins with what we know is true and broadens its horizon through deductive reasoning. Instead of making a hypothesis of what we don’t know and then using empirical testing to validate the hypothesis, praxeology begins with what we do know – such as individuals act on purpose and value is subjective – to build logical constructs. The axioms – and the deductive reasoning built from them – are not trying to “prove” a hypothesis. They are true because of human language and the semiotic sign-systems we use to communicate and validate what’s real. Therefore the logical constructs in praxeological economics don’t need empirical testing since they can be traced to their irrefutable origin.

The Austrian tradition studies economics as understood through praxeology. This method has a long history, starting with the Late Scholastics and revived later by Austrians such as Carl Menger, Eugen Böhm-Bawerk and Ludwig von Mises. It survived the 20th century by a small group of Americans before exploding worldwide via the internet. With this school comes a deeper understanding of how we know. Human perception is a filter of information – five senses experiencing infinite possibilities. Language is crucial for understanding ideas. When individuals communicate we are quickly guessing and making decisions. Guessing if the words correspond to an objective reality and whether to choose those words. The process happens so fast that most of us are unaware of it; we do it instinctively.

Generations of state education have perverted the language to a degree that knowledge from logic is questionable, open to interpretation or deemed utterly unscientific. Bureaucratic schooling demotes common sense to the lowest common denominator. Mark Carney is a product of this conditioning but with a more intellectually rigorous indoctrination from Harvard and Oxford. It’s quite possible that he truly believes in what he’s doing.

Austrian Capital Theory

The Austrian School of Economics could in some cases also be called capital-based macroeconomics. Building from the irrefutable axioms that individuals act, value is subjective and the assumption that leisure is valuable good – the Austrians can build an entire framework on the structure of production and interest rates. The most clearest example I’ve ever come across is from Murray Rothbard’s Man, Economy & State. Particularly Figure 41:

This figure is showing an “evenly-rotating economy,” a logical construct where certain things are assumed as to make economic principles more clear. In this economy, Mark Carney would experience reality as if every day were the same as the last. Risk, opportunity and uncertainty cease to exist. People still act – there is interest income, income to land and labour and consumer expenditure. But it is a closed system; everything behaves like clockwork.

On the right-hand side of the figure there are numbers ascending 1-6 starting with C. C is consumption, above it is the first-stage of production, then the second, third, etc. etc. Whereas C may be a nicely cooked t-bone steak, the stages of production are the process in which a cow becomes a steak on your plate. The cow is at the top, 19 ounces of gold to land and labour.

At each stage of production, a capitalist is purchasing capital goods (the shaded blocks) to be transformed by land and labour (the white blocks with numbers 8, 13, 12, 16, 15). For example, at the 1^st stage of production a capitalist is purchasing t-bone steaks for 80 ounces, using 15 ounces worth of land and labour to cook it and collecting 5 ounces in interest. 80 + 15 + 5 = 100 ounces, which is what consumers spend on the product. If we trace the t-bone steak back to its nature-given resource we find cows. The capitalist at the fifth stage of production buys a cow for 20 ounces, earns 1 ounce in interest by investing in the 8 ounces (land and labour) required to butcher the cow and sell it to the next capitalist for 30 ounces. At each stage of production, value is added to the goods. This value is determined by the consumers willing to spend 100 ounces on cooked t-bone steak each period.

In Man, Economy & State, Murray Rothbard constructs sound economics step-by-step. Prices, he shows, are determined by individual valuations. This process is evident in this construct which has features to it that are not accidental. 83 ounces to land and labour and 17 ounces in interest equal the 100 ounces on consumer expenditure. While in the real world of uncertainty these price ratios would be constantly changing – the reality of human action keeps the economy heading in the direction of this stationary economy. However the evenly-rotating economy will never arrive due to people’s ever-changing valuations and actions.

Keynesian Logic

Mark Carney’s low interest rates are messing up the production structure. If the Bank of Canada analysed Figure 41, they’d conclude that GDP every period is 100 ounces and driven completely by consumer spending. If the economy were in a slump, the BoC would report that GDP is 100% consumer spending therefore we need consumers to drive us out of recession. But how do they get that GDP figure? By comparing consumption to net investment, where Y= 100 ounces, Y=C+I+G+(X – M).

In this economy, the Keynesian framework would tell central bankers that there’s no investment and that everything is driven purely by consumption. But that’s not true. Consumption is 100 ounces each period, but 318 ounces are being invested. There are 418 ounces spent each period, only 100 are directed to consumption.

Keynesians, if they are intellectually honest, must take this absurdity further. It takes six stages of production to get to this consumer good, but Keynesians would say everybody should consume as much as they can and that will grow the economy. But if all those capitalists at those various stages said “okay, let’s consume more,” and they went to buy t-bone steaks instead of reinvesting, that would a) push up the price of t-bone steaks, and b) create a shortage of t-bone steaks since the capitalists didn’t bother replenishing their capital stocks.

A Keynesian may argue, “but this is good; higher prices entice producers. Bigger, final demand.” But this is nonsensical. There aren’t more goods to go around just because people are spending more. There can only exist what’s actually been produced. If more buyers enter the market and push up the price, we won’t have more goods, just higher prices.

But won’t that stimulate production? No, it can’t because the capitalists invested less in production and more in consumption. There is no way around the physical reality of scarcity. The Keynesian solution is to dilapidate the capital structure by diverting resources out of gross investment and into consumption. Sometimes people change their preferences and consume more in the present and less in the future. This naturally changes interest rates and businesses adjust accordingly. When Mark Carney manually lowers interest rates, he’s leading you to believe that we can get a free lunch.

Carney’s Fallacies Exposed

Neil Macdonald sat down to interview Mark Carney for his CBC report. Although the full interview has yet to be released, it’s evident from excerpts that Mark Carney did not like Macdonald’s reasoning.

Carney says, “There is a logic to some of your questioning which is that wouldn’t it be better if interest rates were really high? … You wanna talk unintended consequences, I’ll give you the intended consequences of that scenario which is let’s get interest rates back to historic levels, so that the money you saved and the return on that in your bank account is going to commence with what you expected.” In other words, let’s make it so your money isn’t losing its purchasing power. Carney continues, “and we have double unemployment in this country, hundreds of thousands of people losing their homes, their businesses because we have deflation.”

Mark Carney’s ideology is illogical: An economy with high unemployment can be fixed by printing money because mass unemployment and mass inflation never occur together. The 1970?s pretty much ended this Keynesian argument until the ’08 crisis revived the monster. The paradox of high unemployment with high inflation is corrected by changing how governments and banks measure inflation. No longer defined by the money supply, inflation in Canada is defined by the Consumer Price Index. A collection of prices of goods chosen by central bankers. Naturally, food and energy prices are excluded. The bias is blatant.

Mark Carney has no capital theory. The effect on savings in a low interest rate environment is to him, “a distributional implication.” Interest rates are an objective expression of individual time preferences – not tools to be wielded. It’s true, high rates will cause immediate recession if not depression, but this is temporary and necessary as the malinvestments liquidate and labour and capital find more productive uses. When savers are no longer punished, economic growth can occur.

In additional footage of his CBC interview, Mark Carney reveals that he really has no idea what he’s talking about. For example: The US Government issues bonds to finance their massive debt. Increasingly, only the Fed is willing to buy them. So the US Federal Reserve is the bond market. They might as well print money and mail a cheque to everyone. But according to Carney, this is a monetary stimulus where the Fed buys all the bonds to encourage investors to go into something risky. Without risk, says Carney, economies don’t grow. “You find risk in lending money to corporates or buying their shares,” he says, “or… by investing in another country.” He doesn’t elaborate much further, simply stating that, “that’s how economies grow and that’s the process by which central banks are trying to restart real growth in the economy.”

The financial crisis, according to Carney, was not a result of a government and central banking interventions. Carney thinks that money – “created in the private sector” – collapsed. By creating new money central banks are merely “leaning into” this collapse of money that threatened a repeat of the Great Depression. When Macdonald asks about central banks causing asset bubbles through quantitative easing, Carney answers in the affirmative. He says, “those are intended consequences, not unintended consequences.”

Conclusion

Mark Carney has no scientific backing to justify his actions. He is in a position that is dangerous and should not exist in a free society. Money is a commodity; not magic wand created by state decree. Is there an exit strategy for the Bank of Canada? What is Mark Carney’s plan to get England out of depression? It looks as if he isn’t too worried. Carney believes that everything depends on how governments act. “People can elect governments that do what they want,” says Carney. Funny, coming from the head of an institution that is supposed to remain independent of government influence.

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Tags: Canadian, Canadian Market, Canadian Stocks, Commodities, energy, Mark Carney, Natural Resources
Posted in Canadian Market, Commodities, Credit Markets, Economy, Monetary Policy, UK | Comments Off

Is Canada Putting Too Many Eggs In Its Oil Basket?

Wednesday, May 29th, 2013

Submitted by Daniel J. Graeber via OilPrice.com,

Canadian Natural Resources Minister Joe Oliver said natural resources are the cornerstone of the federal and provincial economies. The U.S. economy, on the road to modest recovery, remains central to a Canadian oil market that relies heavily on exports. Oliver said at an investment conference in Quebec that the natural resources sector represents about 20 percent of the gross domestic product.  The Canadian economy has suffered, however, because there aren’t many new conduits to get oil exports to foreign markets. The potential to reach Asian could provide a relief valve for the Canadian economy, while the option still exists to ship oil through the United States for exports. With opposition mounting along the borders, however, Canada’s export-driven economy may become landlocked.

“Our natural resources are one of the cornerstones of the economic development of Quebec and Canada,” Oliver said.

Oliver said the natural resources sector accounts for about 1.6 million Canadian jobs and represents about one-fifth of the GDP. Canada is in the top tier in terms of oil production. Nearly all of its oil exists in so-called oil sands and the federal government now controls enough of that type of crude to put Canada behind Saudi Arabia and Venezuela globally. Most of the economy is structured around oil exports and almost all of those exports are directed toward U.S. refineries. Oliver said that could change, however, given growing demands from the Chinese and Indian economies, which could represent a new opportunity for Canada.

Pipeline company Enbridge is pressing for its Northern Gateway project to deliver oil from Alberta province west to ports in British Columbia. Kinder Morgan, meanwhile, is looking to double what it already sends through its Trans Mountain pipeline, meaning about 890,000 barrels of oil per day could be ready for Chinese and Indian economies at Vancouver ports. The provincial government in British Colombia, however, has balked at the idea that its pristine coastal vista could feature oil tankers along the horizon. Without those pipelines, at least a few of Oliver’s cornerstones won’t hold their load.

Prime Minister Stephen Harper said during a recent visit to the United States that the key talking point on oil was whether to ship it by rail or by pipelines. He was speaking in defense of the Keystone XL pipeline, a project that’s been the source of controversy for at least four years running. Last week, the U.S. State Department published its first batch of the estimated 1.2 million comments received so far on its draft review of the project. That review said rail should be considered when weighing the project’s national interests. Rail deliveries of crude oil in the United States are accelerating at a steady clip in order to keep up with the U.S. oil boom. Canada hasn’t yet felt the impact of U.S. oil production gains, though U.S. crude oil production is expected to outpace imports later this year. By the end of next year, oil production in the United States will be at its highest level in more than 25 years.

Oliver said natural resources are the “key driver” to the Canadian economy, though that driver may be running out of energy. The government reported GDP expanded by 0.3 percent in February on the back of growth in the oil and natural gas industries. That growth is at risk, however, because suppressed oil prices are starving the provincial and federal economies. Last week marked the third straight week that the Canadian dollar weakened against the U.S. currency. Pipelines like Keystone XL and Northern Gateway could help Canada’s cause in the long term. Opposition to those projects, and growing interest in renewables, leaves the Canadian economy vulnerable, however. The Canadian federal government has built an economy that depends on foreign markets. Without the means to access those markets, however, Canada may find itself landlocked and isolated from the changing global energy market.

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Tags: Canadian, Canadian Market, Canadian Stocks, Commodities, energy, Natural Resources
Posted in Canadian Market, Commodities, Energy & Natural Resources, Insight, Oil and Gas, Outlook | Comments Off

TSX Stocks: The Quest for Value

Friday, November 11th, 2011

This online video features Anish Chopra, Managing Director, TD Asset Management and Portfolio Manager of the TD Canadian Value Fund, in conversation with MaryAnn Matthews.

The Canadian earnings season is well underway and early trends have been encouraging. Against the backdrop of an uncertain global economy, Anish discusses his outlook for earnings going forward. He also shares names of some stocks that he likes.

In the interview, Anish Chopra addresses the following questions:

• What are some trends you are noticing in reported earnings?
• Which sectors are expected to show strong earnings?
• How are valuations on the TSX?
• How are you factoring the European debt crisis in your investment decision making?
• Can you share names of some stocks that you like?

Click here or on the image below to view:

Copyright © TD Waterhouse

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Tags: Addresses, Asset Management, Backdrop, Canadian, Canadian Earnings, Canadian Market, Debt Crisis, Earnings Season, Factoring, Global Economy, Investment Decision, Managing Director, Maryann, Names, Outlook, Portfolio Manager, Sectors, Stocks Online, Stocks Quest, Tsx, Valuations, Video Features, Waterhouse
Posted in Canadian Market, Markets, Outlook | Comments Off

Special Report: The Merits of Dividend Investing (TD Waterhouse)

Thursday, November 10th, 2011

Today, TD Waterhouse (Portfolio and Investment Research) has released its report titled, “The Merits of Dividend Investing,” in which TD analysts, Ryan Lewenza ( U.S. Equities ) and Martha Hill (Canadian Equities) dig into the merits of investing in dividend paying stocks by examining the positive return and risk attributes associated with dividend payers, as well as providing a list of some of their preferred U.S. and Canadian dividend paying equities.

Report Prepared by:

Ryan Lewenza, CFA, CMT
V.P., U.S. Equity Strategist

Martha Hill, CFA
V.P., Canadian Equity Strategist

Highlights:

- In this report we dig into the merits of investing in dividend paying stocks by examining the positive return and risk attributes associated with dividend payers, as well as providing a list of some of our preferred U.S. and Canadian dividend paying equities.

- Given our expectations for lower rates of return over the next few years, dividend paying equities could outperform with dividends likely to play a more important role in future total returns. As anecdotal evidence of this, we note that dividend payers within the S&P 500 Index (S&P 500) have outperformed non dividend payers by 5.50%, year-to-date. Looking at Canada (S&P/TSX Composite Index), the returns from dividend payers are even greater, outperforming non-dividend paying stocks by roughly 12%.

- Looking longer term, if a U.S. investor invested $100,000 in the S&P 500 in 1988 they would have roughly $527,974 today. That equates to a compound annual growth rate (CAGR) of 7.50%. However, if you include dividends over this period, an investor would have over $900,000, which equates to roughly a 10% CAGR. Similarly, Canadian investors who invested $100,000 in 1988 would have over $700,000 including dividends (8.9% CAGR) versus $397,000 (6.20% CAGR) if only looking at price return.

- When investing we also need to consider risk. On this front dividend paying stocks are generally lower risk stocks relative to non-dividend payers. We have found that the highest yielding stocks within the S&P 500 (4% and above) have the lowest betas (0.84 on average), which means they move less than the overall market. Conversely, stocks that do not pay a dividend or have a low dividend yield of less than 1% have higher betas than the market, at 1.23 and 1.31, respectively.

- Overall, our analysis shows that dividend paying stocks can enhance total returns for investors, with potentially lower risk.

The report is available here, or viewable/downloadable below.

[pdf http://advisoranalyst.com/documents/The%20Merits%20of%20Dividend%20Investing%20-%20November%2010,%202011.pdf 500 650]

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Tags: Anecdotal Evidence, Attributes, Cagr, Canadian, Canadian Equities, Canadian Equity, Canadian Investors, Canadian Market, Cfa, Cmt, Composite Index, Compound Annual Growth Rate, Dividend Payers, Dividend Paying Stocks, Dividend Stocks, Dividends, Investment Research, Martha Hill, Merits, Strategist, Td Waterhouse, Tsx
Posted in Canadian Market, Markets | Comments Off