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Market Summaries as of May 14th/2010
S&P/TSX Composite up 2.80% to 12015 (up 2.30% year-to-date)
S&P/TSX Venture Composite up 2.84% to 1593 (up 9.74% ytd)
Dow Jones Industrial Avg up 2.30% to 10620 (up 1.80% ytd)
Nasdaq Composite up 3.60% to 2347 (up 3.40% ytd)
Oil (West Texas Intermediate) down $3.50 to $71.61 (down $7.75 ytd)
Gold (Spot USD/oz) up $24.55 to $1232.95 (up $136.00 ytd)
Keep Playing Defense
Markets continue to be extremely volatile and last week’s series of swings is probably indicative of how the spring and possible summer will treat investors. Making forecasts beyond the next few weeks seems foolish based on the ever-changing landscape we are facing.
With Greece looking like it could act as the lynch-pin for many more European-based calamities, we are proceeding with caution and not rushing to “buy on the dips.” Gold continues to look strong in this uncertain environment and many utility and consumer staple stocks are weathering this recent round of selling remarkably well. On the “buy side” we have our eye on a few high-yielding utility names, while we may continue to sell broad-based equities as our “stops” continue to be breached to the downside. The addition of the iPath S&P 500 VIX Short Term Futures Index (VXX-US) a few weeks back has worked out very well in the short term but we would be sellers if this market gives any clear “rally” indicators. If this air of uncertainty remains, the VXX tool will provide investors with a great short-term trade opportunity if bought into index rallies.
With a steady diet of negative news, investors seem to be leaving commodities and rotating into more defensive options. Oil is down more than $14 USD a barrel over the past month and more than $10 in the past two weeks. This type of selling pressure is indicative of how the majority of the commodity sector is currently reacting.
In the short to medium term, stay focused on equities that are reacting well in this market volatility and try to avoid chasing the bottom on some of your favourite commodity names of the past year. It may be a while before they find traction again and the peace of mind of owning boring, high-yielding defensive names may be a comforting one.
- BC Hydro has turned to the sporting world to find the man who will lead them into the next decade. Highly regarded former Vancouver Canucks senior exec and deputy CEO of VANOC David Cobb has been named Hydro’s new president and CEO after a lengthy search. Former CEO Bob Elton was shuffled out after a rocky 6-year tenure which now sees the Crown corp taking a risk bringing on Cobb who has a stellar background, but no experience in the electricity sector. Cobb will get thrown into his role head-first, with numerous initiatives to tackle including an aggressive energy conservation target, implementation of the new Clean Energy Act, and overseeing the multi-billion-dollar Site C hydroelectric project – all lightning rods for criticism.
- Our country’s realtors, already under fire from Canada’s competition watchdog, are now facing a new obstacle that could ultimately lead to lower fees. iBidBroker.com has been launched in Toronto by 29-year old entrepreneur and former SmartCentres Inc employee Ajay Jain. The unveiling of the website comes at a time when the Competition Bureau is battling with the Canadian Real Estate Association (CREA) over access to the Multiple Listing Service (MLS) system, which controls about 90% of residential real estate transactions in Canada. Jain, who worked previously in land acquisitions at SmartCentres Inc, has invested $100,000 to $150,000 in his startup, claims his goal is not to lower commissions, but that may end up being the result. “The general concept is, if agents compete, the homeowner is going to win,” he said. Royal LePage CEO Phil Soper is quick to point out that similar websites are already established in the US. LePage recently released a survey that found 86% of its agents worry that deregulation in the industry would erode standards of service.
- In an age where silver-haired men of distinction seem to be running all facets of financial senior management, Britain has turned to 38-year old whiz kid George Osborne to manage what may be the country’s most precarious financial environment in decades. Combine that with the country’s first coalition government since 1945 and you have an intriguing scenario that will keep market-watchers glued to the headlines for a long time to come. Britain is trying to pull itself out of its worst recession since the Second World War, which sees unemployment at a 16-year high and a ballooning deficit that currently stands at 11% of GDP. At 38, Osborne is Britain’s youngest Chancellor the Exchequer (Finance Minister) in more than 100 years.
Marketwatch – A Look at the Week’s Newsmakers
Cardiome Pharmaceuticals Corp (COM) – shares climbed in soft markets after the Vancouver-based bio-tech posted solid Q1 earnings of $15.5 million USD (26 cents per share), compared with losses of $9.2 million just a year earlier. Revenues flew to $23 million (from only $200,000) in the quarter on the momentum of Cardiome’s licensing deal with Merck for its flagship drug, Vernakalant, which focuses on irregular heartbeats.
Crescent Point Energy Corp (CPG) – announced Wednesday it has agreed to pay $1.1 billion to buy the 79% of privately-held Shelter Bay Energy Inc it doesn’t already own. The move boosts its exposure in the prolific Bakken oil field and establishes it as one of the region’s dominant producers. The Shelter Bay operations are extremely familiar to Crescent Point, having created the company in 2008 to avoid federal government restrictions on the growth of trusts. The most recent US Geological Survey estimates Bakken could contain as many as 5.5 billion barrels of oil.
Seacliff Construction Corp (SDC) – shares shot higher in today’s miserable session after the construction company announced that rival Churchill Corp has agreed to pay $390 million, or $17.14 per share for the company. This was a significant jump for the stock, which closed at $14.55 on Friday and represents a 23% premium to the shares’ 20-day average price. The business combination is highly-accretive to Churchill and creates a formidable entity on the general contracting side as well as a strong oilsands player in many facets.
“Quote of the Day
“The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life” – Teddy Roosevelt.
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This newsletter expresses the opinions of the writers, Marc Latta and Jamie Switzer, and not necessarily those of Raymond James Ltd. (RJL) Statistics and factual data and other information are from sources believed to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. It is not meant to provide legal, taxation, or account advice; as each situation is different, please seek advice based on your specific circumstance. RJL and its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. It is intended for distribution only in those jurisdictions where RJL 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 residing in the USA. Within the last 12 months, Raymond James Ltd. has undertaken an underwriting liability or has provided advice for a fee with respect to the securities of the Royal Bank of Canada. Raymond James Ltd is a member of the Canadian Investor Protection Fund.