With last weekend being Canada’s Victoria Day long weekend, and this weekend being the American Memorial Day long weekend, the North American Capital Markets have been a little quieter than normal.
Data-wise we are ending the week on a positive note as we saw a better than expected HSBC Flash PMI (Purchasing Managers Index) in China along with strength in global manufacturing and US consumer confidence and spending. In Canada it is looking like annualized expenditure-based GDP is still on track to exceed our Central Bank’s 1.5% projection and is forecasted to track in the 1.6 to 1.9% range depending on who you talk to. However, not all economic data points were higher this week as we did receive a German Business Confidence number that was below expectation.
While we continue to feel that there is still good reason to remain cautious in our investment outlook, the Global equity markets remain in an upward bias. This morning it was also noted on BNN that the US Penny Stock index is seeing record high trading volumes. This indicates that high risk speculation is once again becoming popular, which to us is an anecdotal cautionary indicator. As hedge fund manager David Tepper put it in a note recently “Don’t get short the market, but also don’t get too long”.
This morning we had the opportunity to have a conference call with Jamie Dunham of Goldman Sachs where he impressed upon us that Goldman Sachs remains constructive on the US economy as they have been seeing increased business spending fueled by a declining fiscal drag. But within the same call he balanced their bullish outlook with caution as they also see the current growth leading to rising interest rates, and they are now forecasting the 10 year US Treasury Notes rising in yield by almost a full percentage point by year end.
So given that we are in a seasonally softer period in the capital markets (on average), mostly positive, but some cautionary economic data-points and an increased level in speculative trading gives us confidence in saying that holding slightly higher levels of cash at the moment is prudent.
On a completely separate note, Jamie Dunham did indicate that the IRS is looking at placing an estate tax on worldwide holders of US assets. While this has not yet been passed into law, it does warrant that we begin having planning discussions in respect to tax efficiency. We are certainly not saying that anything needs to be done with your US assets today, but we are saying that the future tax treatment of those assets is likely to change and that we need to begin planning for that.
Within Canada this week we started to see our Chartered Banks begin to report their latest quarterly results, with both TD Bank and Royal Bank reporting positive results. We continue to suggest that investors hold Canadian Banks as part of their diversified household portfolio. Our other preferred Canadian Bank holding, Bank of Nova Scotia, reports next week. We continue to hold all three for investors and have suggested increasing Royal Bank recently for our portfolios.
This weekend is the U.S. Memorial Day long weekend and for those of you who are race fans, don’t forget the Indianapolis 500 takes place on Sunday.
Also, just a reminder that you are all invited to join us for at Nat Bailey Stadium Friday June 20th for a Vancouver Canadians Baseball game. Please RSVP to Lindsay. We would love to see you there.
Have a great weekend.
Thank you for your trust.
As always, we welcome any feedback.
The Dekker Hewett Group