Fed Finally Moves, Market Reacts Oddly 

General Comments 

The past week had plenty of volatility—first to the upside, as markets rose into the Fed meeting, and then to the downside as some must have wondered why they were actually buying into a negative. Of course, a quarter of a percentage point is mathematically insignificant, as we have argued for years. But it is still pretty hard to spin a rate increase as a positive event to buy into as a short term speculative trade. In any case, somehow between Wednesday afternoon and Friday’s close, traders went from euphoric to gravely concerned about ‘global growth’, according to the financial media, proving once again why nobody should watch this stuff and expect to see anything but lame attempts to explain computer driven short term trading. We can only hope that the hedge funds that drove the buying on Wednesday afternoon added to their losses of 2015 and that they may start to act more sensibly in 2016.

Of course, there are valid concerns about growth, though as usual, the waters are muddy. In the US, one of the points of concern for the past few quarters has been the housing market. It wasn’t suffering, but the growth boom that resulted from very little new construction from 2009-2011 was starting to falter. In our view, this was perfectly natural behavior, and really the best one could hope for in a subpar and tepid US recovery. Then the numbers for November were released, and new housing starts surged 11%, which is a huge number that should alleviate some of that concern. Real estate continues to be a strong support of the economies on both sides of the border. It is especially important in Canada, as it is likely one the few sectors not in recession at present—at least outside of Alberta. The US manufacturing sector is doing well, with autos leading the way—although you would hardly think so looking at the US auto stocks or Canadian parts suppliers.

The oil price took another pounding last week for no apparent reason: even adequate economic growth numbers as we have seen lead to increasing demand. The energy shares have suffered from the crude price and year-end tax selling. While we are not bullish on the group, we are likely to see the same type of snap back rally that occurred last year into the New Year. This energy weakness was a drag on the Canadian dollar as well. The decline in our currency in the past year has been stunning. While the crude price bears substantial responsibility, the changes in government in Alberta and Ontario can’t be overstated either. Going from center right governments that were rightly resisting the hysteria to hobble their economies with confiscatory income taxation and the shameless revenue grabs of ‘carbon taxes’ to those who do so with sanctimonious glee may play well with their base, but will likely impair our growth. This isn’t a partisan issue of one group versus another. Lower or negative growth affects everyone, and especially those at lower income levels. At this point, our course in Canada is set on that path.

Source: Dorsey Wright and Associates

Source: Dorsey Wright and Associates


Dec. 18 Review Chart

Source: Thomson Reuters


Our longer term indicators are positive for the NASDAQ and Toronto and negative for the NYSE.

The shorter term signals are also mixed, with the NYSE down at 24%.

We never did really see the pullback we expected by early December. We took a very quick shot down toward 1,900, but it reversed in just a few days, before the action of Thursday and Friday brought us right back down. Clearly making short term market calls are difficult—and we continue to navigate on a stock by stock basis in the portfolios.


TSX Chart Dec. 18, 2015

Chart courtesy of Stockcharts.com

Interest Rates 

Bonds were stronger on the week, with the TLT’s finishing at 123.60, with the ten year yield at 2.23%.

Utility stocks found support at recent lows and started back to the upside. We continue positive on them here, but our expectations on the upside are more modest than they were in the summer. Getting back to the top of recent range still represents an upside of nearly 15%.

While there is no change to my expectation that that more will come around to our long standing view that it is a lot better to get a 5% dividend than a 2% interest payment, it is clear that these shares are much more volatile than I expected to see.


Our dollar was lower again last week, finishing at 71.81. Our view on the dollar remains bearish, though it is certainly short term oversold. Anyone without the benefit of US currency investments at this point is encouraged to do so. Our hope is that an oversold bounce in energy back at least the high 40’s might drag our dollar higher. We were hoping for the 80 level, but that no longer looks that likely.

The Euro was lower at 108.91, with lots of volatility after the Fed decision but not much real movement over the past few weeks. The US dollar has resumed its uptrend as expected after a break two weeks ago. Euro shares were weaker overall, but they could outperform Canadian shares in 2016.


Gold finished down at $1,065, though it was much lower during the week. Gold shares had a terrible week. They could also find an oversold bounce from here, but we won’t be participating.

Base metals shares also fell. Copper was flat at $2.11, nickel at $6.150, and zinc at $0.78. We still have no interest in the metals shares.

S&P 500

S-P 500 Chart Dec. 18, 2015

Chart courtesy of Stockcharts.com


Crude finished the week at $36.06 which was down again on the week. Natural gas continued weak at $1.97.

Energy shares were very weak, and many are now at fresh lows. Most shares had been holding in better than the crude price, until last week. When crude made new lows, energy liquidation intensified.

At this point, we will likely see prices limp through year end. Winter temperatures will come at some point, which will help the natural gas price, and the start of the New Year will bring in fresh buyers after the tax loss season. Still, a lousy end to the year again for energy shares.

Canadian Stock Focus

Stocks in buy range are: Gildan, Magna, BCE, Liquor Stores, Martinrea, Keyara, Shaw Communications, and Richie Brothers.

US Stock Focus

US Shares in buy range are: Amgen, Wells Fargo Bristol Myers, UnderArmor, Lowes, CBOE, Korn Ferry, Munro, Duke Energy, Advance Auto Parts, Priceline, and Gilead.


Overall, the markets have digested the first Fed raise in rates since 2006 in choppy but manageable fashion. The focus will return to growth and more straightforward economic stats, and a quarter point differences in rates don’t really affect those.

It has been a difficult year, with Canada plainly in solid negative territory, and though the US looks stronger, the broad market there is down much more than the headline numbers suggest. The top 5-6 megacap names on the NASDAQ are responsible for virtually all the growth.

Last week saw Shaw Communications arrange to buy Wind Mobile for $1.6bb, which knocked down the shares of all communications firms, including Shaw. Wind has almost a million customers and is roughly breakeven now and growing strongly. Twelve years ago, TELUS bought Clearnet for 6.6bb and got fewer customers. I think this makes for a great opportunity for Shaw, and their patience in this sector has been rewarded and should be applauded.

We will continue to add non extended names where appropriate, though buy lists are slimmer than usual. Getting more assets out of the Canadian market is our priority, on any reasonable bounce in our dollar.

This newsletter is solely the work of Greg Radovich for the private information of his clients. Although the author is a registered Portfolio Manager with Dundee Goodman Private Wealth, a division of Dundee Securities Ltd. (“Dundee”), this is not an official publication of Dundee, and the author is not a Dundee research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Dundee. Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by the author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.
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