Markets Equity markets continued their bullish trends and are back to testing record highs again. Deteriorating economic statistics are driving hopes of lower interest rates and the thoughts of lower interest rates are driving bullish sentiment for equities. The DOW managed to gain 2.2% this week while Nasdaq rose 1.1% and the TSX was higher by 1.6%. |
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This continues to be a market where weaker US economic data is good news for equity investors. The US is driving global interest rate trends and hopes for lower US rates will allow other countries to lower their rates without a more precipitous drop in their home currency. Canada is a perfect example of this situation. Financials Treasury yields bounced a bit this week after the large drop of the prior week. The next few weeks should determine the longer-term trend for US treasury yields and as go US yields so go most other countries’ treasury yields. |
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In Canada stronger than expected headline job data resulted in yields spiking but still below the recent highs. Parsing through the employment data we see that while job gains were higher than expected the jobless rate held steady as the gains stayed in step with population growth. Interesting to note as well that of the 90k new job openings 26k were the result of government hiring and of the remaining 64k new jobs, 50k were part time and most of those (85%) were the result of a Federally funded summer works program. As of April, there were 1.3 million unemployed people in Canada, an increase of 256,000 or 23.7% from a year earlier. I didn’t view the jobs data as strong as the market did, but we’ll see what happens as investors spend more time reviewing the data. |
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The April jobs data gave the Canadian dollar a slight bump vs the US dollar but I believe this is likely to be short lived. |
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Commodities Gold was back on the move higher by the end of the week moving back above US$2350. |
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Silver, the poor man’s gold, has moved sharply higher in the past 2 weeks once again testing the high $20’s. Precious metals are clearly back in vogue and while metal prices are higher we have yet to see a big charge back in to junior miners like years past. |
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Meanwhile copper spiked higher on Friday to new multi-year highs as stronger than expected trade data from China has the copper bulls excited. |
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WTI oil prices managed a small gain for the week closing on Friday at $78.17 |
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The brighter star in the energy patch, for now at least, has been natural gas. North American natural gas prices popped above 2.25 for the first time in over 3 months and are now up over 45% since hitting multi year lows in March. |
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Stocks A shorter list of new highs this past week with Cipher (CPH.T) Knight Therapeutics (GUD.T) Dynacor (DNG.T), RIWI Inc (RIWI.V) and Simply Solventless (HASH.V) all touching their 52 week highs. |
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We witnessed another bought deal financing, this time with Tantalus Systems (GRID.T) announcing that Cormark Securities and Canaccord Genuity will lead a $10 million deal at $1.60 per share. This financing will consist of a $7.9 million “LIFE” equity financings and a brokered private placement of $2.1 million. This is another example of a “LIFE” financing that has become very popular of late. LIFE financings allow for financings up to 10% of the market cap in size and bypass the need for a prospectus and allow for the shares to become free trading immediately on closing as opposed to the traditional 4 month hold period. These bought deal financings are a signal that markets for microcaps are strengthening and institutional capital continues to make its way down market. |
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This week Simply Solventless released their Q1 financial results. The company had pre-announced results back in March, however, while the revenues were as announced the earnings were markedly better coming in at $503,000 as opposed to the $310,000 guidance. I don’t mind pleasant surprises like this… Thermal Energy (TMG.V) announced a $1.9 million turn-key heat recovery system order which will help to keep the backlog nice and strong. I’m expecting more such orders as the company converts its growing number of project development agreements (PDA) which at last count stood at 31. Historically, the company converts about 75% of these PDA’s into orders. With an average order size of $2 million a conversion rate of 75% should result in another $23 million in orders over the next year or so. I decided to add some more Biorem (BRM.V) this past week. I swapped out some more IPA at a loss after a long holding period. I was reminded by an old phrase “It’s easier to give birth than it is to raise the dead” that holding onto companies/stocks that are not performing while lamenting that I don’t have cash to buy companies/stocks that are performing doesn’t make a lot of sense. I want my capital working for me. I understand the potential for undervalued assets but I had to ask myself is the company visibly growing in value? If the answer is no or “I don’t know” then it shouldn’t be a very hard decision. |
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When you realise the bus is going in the wrong direction the best solution usually is to get off the bus, then look for and hop on a bus that’s going in the right direction. Notice how many of the recent high flyers and top gainers have been small, growing and profitable companies? These are the “buses” that have been going in the right direction. This has been extremely evident in the higher interest rate environment where self-sustaining cash generating companies can give the markets the middle finger when things are tough by consistently growing and adding cash waiting for the markets to regain their senses (and or buy back stock). Meanwhile, money losing companies go out begging for cash when no one wants to invest, with lower prices affecting greater dilution and lowering the upside for investors if/and when the company is able to grow in value. Companies with profits, by nature, are growing and have the escape velocity to attract larger investors, and the more growth in earnings the greater the velocity. I want to focus my portfolio on companies that are demonstrating visible growth in value and or growing profits. It’s simple, I want to own growing companies that are profitable with minimal ongoing dilution. It’s as simple as that.
Other Stuff This past week we heard of the passing of Jim Simons. Jim Simons may be the most successful investor of all time. Far less well known than Warren Buffett, George Soros, Peter Lynch and a host of many other well known investors, Jim Simons’ long terms trading results are staggering in comparison. Jim Simons was a mathematics professor who became one of the most successful hedge fund managers in history. The Medallion Fund which his company, Renaissance Technologies, launched in 1988 generated an incredible annualised return of 66%. Between 1988 and 2000 Renaissance Technologies brought in more than $100 billion in profits. |
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He and his team developed and used advanced mathematical models and algorithms to define investment strategies. “I developed a view that markets are not random, and were to some extent predictable,” he had told The Journal. “There were statistical anomalies that could be exploited.”
Jim Simons was a world-class mathematician, hedge fund manager and philanthropist giving away most of the wealth he accumulated. If you are interested in learning more I recommend reading “The Man Who Solved the Market” - How Jim Simons Launched the Quant Revolution.
While my investing approach is not completely quantitative I recognize that the less “thinking” I do and more mechanical I get in my approach the simpler my process gets and usually the better my performance. Emotions and biases usually hinder an investors performance. Using a more quantitative approach can help most investors, it certainly did for Jim Simons and the investors at Renaissance. To your wealth, Paul and Trevor |
