After All That?

General Comments

Last week started with a shot to the downside, as the results of the Greek referendum of last Sunday showed 60% in favour of resisting further ‘austerity’ cuts. It is a demonstration of how ridiculous the Greek situation is that it is considered ‘austerity’ to pay taxes on your actual income—as opposed to the 5,000 euros or whatever you feel like owning up to at the end of the year. Yet despite this political farce ‘win’, the continually campaigning Greek PM submitted a list of concessions to the EU by the past Friday, which left the week ending on a big rally. We must offer thanks to Mr. Tsipras for yanking the world’s markets on a pointless exercise in volatility.

EU financiers, having heard similar stories in the past, have given Greece three days to have parliament pass the proposals into law. This doesn’t mean much, but it shows a more serious attitude than not doing so at all. Unfortunately for markets, this adds a further delay before we can ignore this sideshow for good. People are slowly coming to the realization that Greece is a failed state with endemic corruption so ingrained; one must wonder why anyone would have ever lend money to the country in the first place. The stories about unreported income, pensions paid to the dead, rail systems with more employees than riders—these all sound amusing but they are not fantasy. Belatedly more are realizing that if Greece had a normal tax withholding system, and even a bit of trimming in public institutions, there may not be this continual monthly shortfall.

China is also causing some concern, for all the wrong reasons. Stock market watchers are wringing their hands that the Chinese market is down 40% since its early June peak. But it is still up 33% for the year. Why is it an issue that a vastly overextended market finally had a sensible correction? If anyone was foolish enough to buy a market that had risen 75% in five months, I’m sure they feel pain, but this is not an issue that should remotely concern anyone else.

In real recent news, Lennar and other homebuilders reported stronger results than expected. Given that some are becoming concerned about real estate prices, this was welcome news. It has not been a stunning earnings season south of the border, so better results from this group was received enthusiastically. I continue to have no concern about real estate or real estate lending in Canada or the US. Of course we are well off the bottom and could consolidate prices for a year or two at this stage. But I find it incomprehensible that while almost nobody saw risk in prices in 2007, when some regions had quadrupled in five years, they are now worried about real estate. They should not be. Real estate is in a similar position to the stock market: neither cheap nor expensive. Both need care and selectivity to make gains compared to when everything was cheap.

June 23, 2015 Review Chart 4

Source: Dorsey Wright and Associates

July 10, 2015 Review Chart

Source: Thomson Reuters


Our longer term indicators are negative in Toronto and the NYSE but have just reversed up for the Nasdaq.

Short term measures are mixed, with Toronto continuing defensive, and both US measures just reversing up. Toronto only has 22% of stocks above their 50 day averages, and typically reversals up from this kind of level are solid. The US reversals were from under 30% as well, and are likewise usually worth observing. It is interesting to note that the TSX is now 800 points below the highs of 2008.


TSX Chart July 10 2015

Chart courtesy of

Interest Rates

Bonds were inversely volatile with stocks last week. The TLTs finished at 120.25, with the ten year yield at 2.25%.

Bonds have had a decent bounce from their recent lows but still remain well oversold.

Likewise, our utility stocks have been very strong in the past ten days, but remain underwater. Although they have outperformed bonds, they have been a drag on our accounts. I still feel 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.


Our dollar was weak again last week, not at all helped by the decline in crude. The Canadian finished at 78.72, and we are a long way from our preferred level to convert more funds. .

The Euro was weaker, though having several full one cent moves to the upside and downside over the week. The finishing level was 111.38, roughly in the middle of the weekly range. The net result of the Greek fiasco has been muted. The fall in the Euro occurred mostly last year. We remain negative on the European economies vs the US, but clearly the amount of the slide in the Euro makes us less negative than we were a year ago, or two years ago.  Euro stock and bond markets have been weaker, but seem to have finally cleared most of their overextension. Most have pulled back to good technical support and appear to be finding buyable support there.


Gold finished up at $1,161. Gold shares have been weaker again in the past few weeks, more so than the metal they remain unexciting to us.

Base metals shares were flat to down as the early May rally has fizzled. This is not a surprise, as its origins were strange. Copper was down, at $2.54, nickel at $7.00, and zinc at $0.80. We still have no interest in the shares of either group.

S&P 500

S&P 500 Chart July 10 2015

Chart courtesy of


Crude finished the week at $53.20, down $5 on the week after a big downdraft early in the week. It had seemed that we were finding some stability around $60, but that point is clearly past. The shares were weaker as one would expect, which included gas shares. Natural gas was stable at $2.75.

There was much made of the fact that the long decline in utilized rigs came to a halt last week. Over the past year, the number of active rigs has plummeted, which is something we have mentioned many times as a built in future spur to crude prices. Last week, 5 new rigs were added—hardly a relevant number, but a big contrast to more being taken out of service again. Clearly $60 oil is more appealing to producers than $45 oil. But this drop in prices last week will likely cut off any further additions for now. That supports higher prices later in the year.

Our view toward Canadian energy remains muted for political reasons. This softness in prices only adds to that.

Canadian Stock Focus

Stocks in buy range are:  Rogers, BCE, CAE, Manulife, Liquor Stores, Medical Facilities, Keg, Progressive Waste, Performance Sports, Celestica, and Chemtrade,

US Stock Focus

US Shares in buy range are: US Bancorp, Duke Power, Dominion Resources, Southern Corp, Pacific Gas and Electric, Cisco, Wells Fargo, Brinkers, Biogen, Williams Sonoma, Boeing, Akamai, Textron, and Pepsi.


Overall, the Greek situation grinds on, and will continue to have some reaction in the markets even though Greek GDP and even their total debt are utterly irrelevant in Euro terms, let alone the rest of the world. It would be a good solution for all if Greece could be reformed into a functioning state. Given there are only 11 million citizens in a fairly close area, and much creditor attention being paid, this should not be an insurmountable task. All Greeks would benefit from a system of fair taxation and collection that would support a reasonable social network without the terrible generational inequality currently in place.

World markets have not just been volatile but softer as well. Many markets are back at long term technical support levels, and some have broken through. This is on the back of mostly uninspiring Q2 earnings reports, but the back half of the year looks better. When you have a dislocation as big as what we have seen in energy production, it creates apprehension as well as the natural benefit of lower fuel prices.

We continue to be willing to add names, but cautiously. One benefit of the recent volatility is that trading ranges have returned to normal levels and prices are now at the lower end instead of grinding around the middle. Still, it remains a time when a cash reserve makes sense to maintain.


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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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.