The Market in Review – July 7th, 2017

Paul Siluch, Lisa Hill, Peter Mazzoni, and Sharon Mitchell
Financial Advisors
Raymond James Ltd. – Victoria BC

July 7th, 2017

This week’s articles and insights:

  1. Looking Back, Looking Ahead
  2. The Mighty Loonie
  3. The Times, They Are a Changin’
  4. Lots of Worries, But…
  5. Not Final on Vinyl

“A decent idea has value but a decent warning has ten times as much value."

- Mark Grant

Your Index Report


Last Week


Dow Jones Ind. Avg.



+ 8.36%

S&P 500



+ 8.32% (+3.73% in $CDN)




- 1.70%

Looking Back, Looking Ahead

Canada turned 150 years old last weekend. It brought back memories of Canada’s centennial celebration in Montreal - Expo ’67 – that we could not afford to attend (or so our father informed us). Our holidays traditionally involved less expensive venues, such as tent-trailers and the bedrooms of relatives.

Instead, my mother took us to see the Confederation Train as it travelled through Edmonton. The line-up lasted four hours to see just six rail cars of memorabilia. After the displays of Canada’s past were a few recent technological innovations. I remember the colour TV, which was introduced to Canada around 1966. What a marvel that was. It allowed professional hockey teams to actually wear coloured jerseys, instead of white and dark so they showed up on black-and-white screens.

Canada does a lot of things wrong, but we end up doing even more right. We seem to have a knack for wacky politics, particularly in British Columbia, and yet governments are toppled with little fuss and certainly no violence. In many countries, elections without riots are a rarity.

We took in over 300,000 immigrants last year which, for a population our size, is triple what the US admits. Our system is viewed as one of the best in the world for integrating new Canadians.

Thinking back to the Confederation Train of 1967, what innovations has Canada seen in the past 50 years? Well, arranged in order from oldest to newest, here are several:

  • Coronary bypass surgery
  • The calculator
  • Smoke detectors
  • Laser printers
  • Fibre-optics
  • Cushioned running shoes
  • The personal computer
  • Microprocessors
  • Medical MRI’s
  • Cell-phones
  • Digital cameras
  • The popcorn bag
  • Polar fleece
  • Paintball
  • The nicotine patch
  • The self-wringing mop
  • Viagra
  • Hybrid electric cars

There are many more, of course, but if it feels like innovation is accelerating, it is because it is. Ray Kurzweil, a noted futurist, wrote in 2001 that our rate of progress was doubling every ten years:

“We won’t experience 100 years of progress in the 21st century—it will be more like 20,000 years of progress.”

And thank goodness for progress. Where would we be without the popcorn bag, the self-wringing mop, and Viagra?

The Mighty Loonie

The story of the last month has been the sharp rise in the Canadian dollar versus the US dollar.

As Canada became a large oil exporter, our dollar has risen and fallen with our oil revenues. Here is a chart comparing oil (in black) and the Canadian dollar (in red) over the past 10 years.

We have become a petro-currency, with the loonie following oil very closely:

Interest Rates Graph

However, the two have diverged sharply since May:

Interest Rates Graph

In the first week of June, the head of the Bank of Canada began hinting that Canada’s key interest rate could rise as early as the July meeting. It has been set at 0.5% for almost two years:

Interest Rates Graph

Many currency traders have bet against the Canadian dollar by selling it short. The sudden threat of a rate hike caused them to reverse their positions and buy it. This has caused many Canadian portfolios holding US stocks to suffer paper losses from the decline in the US dollar.

Where do we go from here?

It all depends on how many rate hikes lie ahead. If real estate prices in Vancouver and Toronto cool, we may see just one or two rate hikes. If not, then we could see as many as four, as we have seen in the US.

The 10-year relationship with oil is long and established, however. Close to 20% of Canada’s export earnings come from energy, so if oil stays weak, the Canadian dollar should slide once again.

The Times, They Are a Changin’

We have mentioned before that this is the first time in a decade when the central banks of every developed country are tightening. This means the money spigots which were turned to “On” through Quantitative Easing and lower interest rates have now been turned to “Off” through the tapering of such programs. Even Canada has joined the anti-party, as discussed above.

Historically, stocks, bonds, and real estate do worse when interest rates are rising than when they are falling; the final impact remains to be seen. Why the uncertainty? Interest rates are still low historically. Paying 3% versus 3.5% on a mortgage is not likely to stop the sale of a house, for instance.

It does mean, however, that different groups of stocks could outperform. For example, technology companies – which tend to outgrow the economy when things are soft – and utilities – whose high dividends are very attractive when rates are low – could falter.

What companies benefit? Banks and other financials can do well in a rising rate environment, as can some industrial stocks, such as railroads.

Normally, energy companies would do well, and they may yet. There is just so much spare oil in the world today, however, that any rising demand could be met by the glut that is stored in floating tankers and stuffed into facilities in Oklahoma.

In our managed portfolios, we switched an oil producer for an oil pipeline in the last two weeks. Pipelines are inherently more resilient to moves in oil prices, and we prefer to be cautious rather than bold over the summer months.

Lots of Worries, But…

The biggest worry most investors have today is that we will see a repeat of 2008. News channels and websites are always looking for “eyeballs” and blare out the most terrifying headlines in order to attract them.

We are paid to worry, and there are things that concern us. Margin debt is too high, for example. And valuations of stocks are at the high end of historical values. But both have explanations that are credible.

Interest rates are very low, for example, so why wouldn’t people borrow at 2% to earn a 4% dividend, for example? Real estate investors do that all the time.

And company valuations are high because profitability is also high. The Tech Boom of the year 2000 was fueled by dot-com companies that made zero money. Technology companies today are the exact opposite – they are so profitable that they can afford to buy just about any competitor that stands in their way.

North Korea is a concern. The country is unpredictable, reckless, and desperate. But as Jim Cramer of RealMoney asks, why is the South Korean stock market booming and why is gold not jumping?

Finally, the technical services we subscribe to point to the underlying strength in the stock market – most notably the US stock market. The oldest and slowest of these is the Dow Theory buy-sell signal. This indicator just confirmed its bullish trend in the last two weeks, which suggests the underlying trend is still higher.

We remain both paranoid and cautiously optimistic.

“Only the paranoid survive.”

- Andy Grove, founder of Intel

We want to say thanks to our clients for introducing their friends and family members to us throughout the year. It’s a tremendous compliment and a huge responsibility, and something we never take lightly.

Not Final on Vinyl

For you old music aficionados, there’s something strange happening. The century-old vinyl LP is making a comeback. Sales of “records”, as we called them, have almost quadrupled worldwide:

Interest Rates Graph

Source: Google Trends

Part of this is due to millennials wanting to portray a cool, “retro” image to their audiophile friends. The other part is that a number of recording artists have begun offering their music in vinyl format.

The problem is, there are just 16 operating presses capable of making vinyl records in the US and these are out-of-date and overloaded. Sony (NYSE SNE) just announced they would be opening a plant in Japan to start vinyl production, as the old format has begun outpacing digital music sales in some months.

Its like someone started offering horses and buggies again and we are lining up to buy them.

In fact, there are scientific reasons that vinyl records sound better than digital music. Analogue recordings store sound in the same smooth way our ears hear it. It is like strolling over a rounded hill versus marching up and down one that has had stairs cut into it. Digital recordings lose some of the texture of natural sound, especially those with softer volumes and acoustic passages.

Not all music sounds good in the old format. High volume music can shake the stylus, for example. And because there is less space to etch the sounds into the vinyl as you get closer to the end of a record, the quality degrades at the centre. Which is why most hits were placed near the outer edge of the old albums.

So if you still have vinyl LPs in your basement, you are free to drag them back upstairs. They are cool again!

We thank you for your business and your referrals and we hope you find our site user friendly and informative. We would welcome your comments.

How to contact us:

(250) 405-2417


The information contained in this newsletter was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views expressed are those of the authors, Paul Siluch and Lisa Hill, and not necessarily those of Raymond James Ltd. Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This newsletter is intended for distribution only in those jurisdictions where Raymond James Ltd. is registered as a dealer in securities. Any distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. This newsletter is not intended for nor should it be distributed to any person in the USA. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.

Raymond James does not accept orders and/or instructions regarding your account by e-mail, voice mail, fax or any alternate method. Transactional details do not supersede normal trade confirmations or statements. E-mail sent through the Internet is not secure or confidential. We reserve the right to monitor all e-mail.

Any information provided in this email has been prepared from sources believed to be reliable, but is not guaranteed by Raymond James and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation. Raymond James and its employees may own options, rights or warrants to purchase any of the securities mentioned in e-mail. This e-mail is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited.

This newsletter may provide links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Mutual funds and other securities are not insured nor guaranteed, their values change frequently and past performance may not be repeated. - Raymond James & Associates makes a market in shares of AMZN.
Costco - Raymond James & Associates makes a market in shares of COST. Raymond James & Associates received non-investment banking securities-related compensation from COST within the past 12 months.
Wal-Mart - Raymond James & Associates makes a market in shares of WMT.
AT&T - Raymond James & Associates makes a market in shares of T.
Loblaw Companies - Raymond James Ltd - the analyst and/or associate has viewed the material operations of L.
Empire Company - Raymond James Ltd - the analyst and/or associate has viewed the material operations of EMP.A.

Prices shown are as of close June 23rd, 2017.

Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at