Friday February 16, 2013
Contributors: J.Price, C.Basinger, D.Benedet, C.Kerlow, D.Mak, S. Obata


With four of the last five trading days showing better than 1% returns for the S&P, we are once again on a roll.  Futures are mixed this morning following higher markets overseas everywhere except Australia, where energy and consumer stocks dragged on the index.

Yields are actually pushing a bit lower this morning, though the past two days have been tough to the bond market.  In fact, it’s been a tough start to the year for bonds, dropping 2.2% as measured by the Barclay’s aggregate US index.  That number is down 1.9% for Canada.

Markets have been on a wild ride over the past month, disrupting many of the relationships that have existed over the past few years.  In case you didn’t know, markets change and they change fast.  Sorry short vol strategies.  Now everyone is keenly focused on inflationary data, thinking if hotter then bond yields go up more and this disrupts the markets again.  Remember it was higher yields that really triggered the correction.  Here we sit with 10-year Treasuries at 2.88%.  There may be some "good" news though, the data has started to soften a little.   The Citigroup economic surprise index peaked in late December and has been falling since then.  This index tracks the economic data, based on importance or market moving impact, relative to consensus expectations.  This softening in the 1st half of the year is not a new event.  Since the recovery began in 2009, the data has softened in the 1st half in all but one year.  And strengthened in the 2nd half in all but one year (see chart of the day).  So bring it on, a little softer economic data would ease inflation concerns, yield concerns and we can get right back to making some new highs.  Or the data doesn’t soften and then all bets are off. 

Robots will “destroy jobs”, but this one probably is of no regret:  MIT Technology review discusses “Drones that dodge obstacles without guidance can pursue you like paparazzi”.  There’s even a cool video in the link to see it in action – we are thinking equal parts cool, safety, and narcissism.

Diversify, Write it down, and Let It goSage advice from Ben Carlson writing about the regret that many have once they have seen the ultimate results of decisions that they made (and did not make) earlier.  We have often espoused the philosophy of “minimizing regret” in investing.  Average into a position, buy a tiny amount of something risky so you can say you participated, etc.  Carlson’s view is an important read for any emotional investor in training not to be one.

DiversionA House To Die In, looks like something straight out of Star Wars.


There is a technology battle that is not gaining much attention but is being dominated by Mitsubishi. Over the next two years there is going to by 187 towers built higher than 250mm. All of which are going to need elevators, the need for speed is key. Mitsubishi has the fastest offering, which is currently in the Shanghai tower that travels 20.5 meters per second.
Walmart is coming out with a new low cost clothing brand to fend off Amazon which has been gobbling up more apparel sales. They are fighting over a shrinking pie as Americans now only spend 3.2% of disposable income on clothing, down from 6.2% 40 years ago.

Roche Holdings is buying Flatiron Health for $1.9b. The Cancer medical technology company was started at Google almost a decade ago.

With Toronto real estate sales wavering but prices holding in, Bombardier is striking while the iron is still hot and selling their Downsview aircraft-assembly plant. They currently only use about 10% of the 375-acre site.


Commodities are a big business not only for those that extract natural resources from the ground but also for traders on Wall St. But for my banking brethren in the commodity trading business 2017 was a tough year. Revenues fell 42% back to the lowest level in 2006. Increased regulatory scrutiny, falling institutional investment and a pullback in proprietary trading all led to the recent woes. One of the biggest scarcities in the commodity world is becoming sand. Sand is used in fracking for oil and companies such as Halliburton have reduced guidance because of delays in shipments of sand. With oil prices higher and more capacity coming online in shale plays across North America, the demand for sand is putting stress on supply. Copper has had its best week since 2016 rising nearly 7%. Helped by a weak dollar, global growth and rising inflation; the outlook for the base metal is on the rise.

In other commodities news…
Eni reports record oil and gas production” – $FT
Dashed hopes for Mexico oil boom leave Gulf Coast hotels idle” – RTS
Crypto Traders Fighting for the Next Hot Coin Watch Correlations” – BBG
As mining investors push caution, Glencore differs from rivals” – RTS
Tesla Seeks Upgrade to Grid to Recognize World's Biggest Battery” – BBG


The Japanese Yen continued to rally and the longer end of the US Treasury market has followed along, even though equity markets continue to rally. The flattening of the yield curve is in part supply driven – the increase in budget deficits is being supported by increased issuance across the maturity spectrum, but primarily with shorter term maturities, and this supply dynamic should result in further flattening, despite continued strong US economic data and indications of rising inflation.  From a technical perspective, we continue to watch 2.90% on US 10-year bonds, as although the level was breached intra-day yesterday, it has held on a market closing basis, and continues to be a line in the sand. Beyond that, 3.00%, which is a level last reached at the end of 2013, would be the next major psychological barrier.

Canadian bonds have outperformed Treasuries over the past few weeks, as a weak employment report has been followed by signs of weaker home sales.  Canadians are highly indebted relative to US and global consumers, and all else held equal should be more sensitive to interest rate changes. Following the hike in January, these recent numbers have not materially changed expectations of another rate hike in April, and one more by September, but a fourth rate hike this year now only has a low probability of occurring priced in to the yield curve.



Part of being a champ is acting like a champ. You have to learn how to win and not run away when you lose.

—Nancy Kerrigan, bronze and silver-medal figure skater

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