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Market Watch Weekly - February 28, 2014

Erik Dekker - Mar 01, 2014
Today marks the end of another month, funny how time flies.

Today marks the end of another month, funny how time flies. Monday also marks the end to another RSP season, so for those thinking of their last minute contributions, Monday is the final day to contribute and receive a tax receipt that you can use for your 2013 taxation year.

The North American capital markets look to end the month of February on a positive note, regaining the losses they exhibited during January. Our expectation is that the Canadian capital markets offer greater continued appreciation from their current positions. We say this based on our position that both the US and Canadian economies are worth owning, however on a risk adjusted basis in relation to bond yields, we find that the Canadian capital markets currently trade at a greater discount to their fair value. Translation, we see nice appreciation in both the United States and Canada, just slightly more in Canada.

In our Market Watch commentary a few weeks back we mentioned the Federal Budget made some announcements that we believe could affect investors with respect to assets owned within the United States. We would again suggest that you speak with your tax advisor on how this relates to your specific situation.

We continue to be in an environment of recovery and modest growth, but not at a point of excessive strength that would cause the Federal Reserve to reverse their policy as it pertains to interest rates as they continue to support the economy. The American economy continues to grow, however last quarter was slightly less than the forecasted rate. We see this as more weather related given abnormally high number of storms and record cold, versus something systemic.

We feel we are in a “not too hot, not too cold” type of environment. We still find value in having an economic ownership within the United States, but given the recent Federal budget we would suggest clients focus more towards actively managed Funds or passively managed ETFs such as the Fidelity US Monthly Income or the Russell 2000 ETF index.

The euro strengthened after data in the European Economic Union showed faster-than-estimated inflation of 0.8%. Consumer prices in the euro area during the month of February exceeded recent median Bloomberg economic surveys, whereas the market tended to expect weak CPI (Consumer Price Index) data.

As Carsten Brzeski of ING Group in Brussels, said in a telephone interview with Bloomberg this morning, “this higher inflation number shows that there is no threat of fully fledged deflation.” The stable headline inflation reading coupled with ongoing signs of economic recovery provides the argument that the European Central bank now has a dampened need to expand its monetary stimulus program. While inflation is a negative if it gets too high, deflation is worse and today’s inflation print should be considered an important development for investors. When you put it all together Europe just doesn’t look that bad on a relative basis anymore.

Over the past few months we had mentioned our increased optimism with respect to Europe, having added the iShares MSCI EAFE Index ETF for certain clients since last October. As we continue to see improved economic data we will continue to discuss the MSCI EAFE Index ETF as your individual risk profile warrants.

Last week we saw the end to the Winter Olympiad in Sochi and for all of you like  myself who set their alarm and woke up just before 4am an Sunday it was a tremendous way to end the weekend.

We also saw the BC Winter Games begin last weekend, where our own Alix Rogers’ daughter was a gold medal on the floor exercise gynmastics competition. Congratulations, keep it up and someday we just might be cheering for one of our own at the Summer Olympiad in 2020.

Have a great weekend.

Thank you for your trust.

As always, we welcome any feedback.

The Dekker Hewett Group