WEEKLY WRAP

EDITION #670

MARKET SUMMARIES S&P/TSX Composite up 2.43% to 14,939 (up 13.23% ytd) S&P/TSX Venture up 2.20% to 790 (up 42.50% ytd) S&P 500 up 0.42% to 2,141 (up 6.41% ytd) Nasdaq Composite up 0.82% to 5,257 (up 7.93% ytd) Oil (WTI) up $0.50 to $50.85 (up $12.62 ytd) Natural Gas (MMBtu) down $0.27 to $2.99 (up $0.63 ytd) Gold (Spot USD/oz) up $12.20 to $1,267.70 (up $238.60 ytd)

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Copper (USD/lb) down $0.03 to $2.08 (down $0.20 ytd) Jamie Switzer Financial Advisor & Senior VP Private Client Group

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Markets Continue to Climb the Proverbial “Wall of Worry” North American markets had another nice push last week despite continued concerns surrounding the US election. Markets are clearly leaning towards a victory for Hillary and that is alleviating some of the tension but it’s not over until it’s over. However, the trend remains positive and I am continuing to look for good companies and funds for my clients to take advantage of what could be a prolonged stretch of solid returns. Investors are looking for every reason to sell stocks in what has amounted to the most “unloved” rally in recent memory. Yes indexes levels are

high, but they are far from expensive. I had the pleasure of having dinner on Friday in Toronto with our chief strategist from Tampa Bay, Jeff Saut. If you’re a watcher of CNBC or BNN, you will be familiar with Saut’s lively commentary as he is called to a number of shows on a regular basis to provide his opinion. What I can tell you is Jeff is extremely bullish and sees a long runway of returns ahead that should make investors very excited. Yes there will be pullbacks and there may even be outright corrections, but the markets are likely to push higher in his opinion. He sees energy moving higher over the next few years and he’s bullish on copper, which has yet to really make a jump. If commodities catch some traction, Canadian markets will outperform. And Saut is not the only one who’s bullish; legendary investor Bill Miller said earlier today that he’s not only liking what he sees, but he’s fully invested. And it’s stocks he likes, not bonds this time around. Miller is famous for beating the S&P 500 an astonishing 15 years in a row, so this is not some young hotshot who’s gotten lucky. “Bonds are unattractive in my view,” Miller told CNBC. “I believe we hit a double bottom in bonds in the summertime and we’re in a benign bear market in bonds. The 35-year bull market in bonds is over, in my view.” Miller manages more than $2 billion USD on behalf of his clients and holds no cash and very little in fixed income, adding “the stock market is ridiculously cheap compared to bonds.” Anything can happen and as I mentioned earlier, there will be bumps along the way, but this market has risen steadily since the Brexit vote and is showing no obvious catalyst to put the brakes on this “unloved” rally.

SOUNDBITES 

Clearly the growing Airbnb phenomena is far from a fad, with the concept growing so quickly, it’s forcing the City of Toronto to draft new legislation to manage the explosive growth. A recent report that’s headed for the executive committee shows rentals in Toronto through Airbnb doubled from 2014 to 2015, and that doesn’t include the growing number of other companies attempting to catch on to the craze. Multi-purpose sites such as VRBO, Craigslist and Kijiji are home to numerous short term stay offers, as well as a number of new sites, modelled after the Airbnb concept such as FlipKey, Roomorama and HomeAway. Any new rules are likely a while away and will have to be approved by

city council, but the city is determined to try to guard against negative impacts on the already tight long-term rental markets as well as ensuring a certain level of quality control. The hotel industry is obviously up in arms about the city’s slow pace in dealing with these matters, and is encouraging a form of “hotel tax” to keep the number of new applicants at a manageable level. Airbnb operates in nearly 200 countries and has been forced to adapt to ever-changing legislation depending on the location. 

Legendary investor Jimmy Pattison granted BNN a rare interview and had some very interesting takes on Vancouver’s challenging real estate environment. Many of his employees are being forced to commute long distances to work, simply to be able to afford a home for their families. In extreme cases, his employees are quitting to move to completely different cities to chase a more affordable life. As I’ve discussed numerous times in this piece, the new foreign sales tax has impacted the volumes but has yet to really affect pricing and Pattison admitted it’s far too early to tell if pricing will soften over the medium to long term. Pattison’s empire employs thousands of people and he finds it difficult to believe that the struggles he’s facing with his work force aren’t being felt across the Lower Mainland. The iconic Vancouver-based entrepreneur owns a diverse empire of companies ranging from forestry and auto sales, to signage and seafood.

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Canadians waiting for a hike in interest rates will be waiting for a while yet and the prospect of another drop in rates is once again a distinct possibility. A surprise drop in retail sales combined with mixed inflationary data is showing an economy that may need some more help from central bankers before we start to see more progress. With the wild fires behind us and the child benefit checks now being doled out, analysts and economists expect much better Q3 data, but that’s just not the case. Canadians appear to be saving more or simply paying down debt rather than pumping these new funds in to the economy. Bank of Canada chief Stephen Poloz has already hinted recently at a potential rate cut and these latest figures will only fan the flames.

FROM THE TWITTERSPHERE Jamie Switzer @jamie_switzer Enjoying listening to the entertaining and iconic @WBrettWilson in Toronto. #RJLNBC @RaymondJamesCDN

Jamie Switzer @jamie_switzer While he will never admit it, I think it’s safe to say #Trump is thrilled & relieved that the debates are done with & behind him #epicfail Jamie Switzer @jamie_switzer #NetFlix shares soar over 17% on the open after a surge in new subscribers $NFLX

MARKETWATCH – A LOOK AT THE WEEK’S NEWSMAKERS Bombardier L (BBD.B) Seriously, when was the last time Bombardier announced some good news? The beaten up Quebec company announced a round of massive layoffs, eliminating 7500 jobs. The cuts amount to about 10% of the global workforce and come at a time when the company is already digesting an earlier round of cuts less than a year ago. In February, 7000 jobs were cut, making for an extremely difficult 2016. The bulk of the jobs will be slashed in Europe with about 2000 on Canadian soil. The company’s transportation arm will see the deepest cuts, while the aerospace division will make up about a third of the layoffs. One piece of good news is that some of the losses will be offset by a hiring spree around the new C-Series jets and Global 7000 Series business planes. Porter Airlines (private) While the company hasn’t officially announced its IPO, CEO Robert Deluce appears already to be marketing his company. He told BNN last week that the company is not only not in merger talks, but is not for sale and will likely go down the IPO route. Deluce said the airline likely boasts the best airlines-related balance sheet in North America and has no debt on the existing fleet of planes. “At some point in time, I think an IPO would be inevitable,” Deluce told BNN’s Paige Ellis. “It’s something we will certainly consider under the right set of circumstances.” But all is not rosy at Porter, with plans to extend its runways at Toronto’s Billy Bishop Airport having been blocked recently by the federal government. And this roadblock is going to make continued growth a question for the airline that has flourished over the last ten years. The company started in 2005 with a tiny fleet and has grown to a respectable size with 26 jets in its stable. But if they go down the avenue of going public, they will need to be able to demonstrate consistent growth in order to be well received by the markets, and expansion will be a key component of that growth.

Merger Monday Investors woke up to two monster mergers today. AT&T and Time Warner are collaborating on an $85.4 billion USD merger that is sure to receive challenges from the regulators who seem to be blocking many of these mega-mergers that result in a monstrous entity. The jury is still out on this deal but it’s a huge one nonetheless with both sides hoping the result is positive, much the way the heavily-scrutinized NBCUniversal and Comcast deal resulted in a happy ending. And north of the border the bankers were busy as well, with TD Bank and TD Ameritrade teaming up to buy Scotttrade in a $4 billion USD deal that will blend two of North America’s largest discount brokers. With a renewed focus on getting good advice, discount brokerages are seeing weak trading volumes and declining revenue, so TD is obviously hoping the combined entities will create some additional cost savings. Only a few months ago, E*Trade announced it would buy OptionsHouse for $725 million, so consolidation is obviously picking up in the space.

“QUOTE OF THE DAY” “Ninety-eight percent of the adults in this country are decent, hard-working, honest Americans. It’s the other lousy two percent that get all the publicity. But then… we elected them.” – Lily Tomlin

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