Market Commentary

Weekly Market Comment

“The whole arena tells them to kill the bull. Yet, the bull should kill no one.” – Mexican proverb

The Canadian dollar finally started to cool after the Bank of Canada Governor Poloz said “there is no predetermined path for interest rates from here. We will continue to feel our way cautiously”. It suggests the market should not expect new BoC rate hikes anytime soon.  The loonie sat just over 80 cents, down from about 82.5 cents. In the meantime, UBS rated Toronto as the highest at risk of being in a housing bubble. Hey wait, isn’t that the city everyone ditches for Vancouver?

As a very quick aside, here is yet another quick illustration of how much a factor the CAD has played on short-term results. Sentry has an all-US stock SMA mandate that is offered in both US dollars and Canadian dollars. The US dollar version was up 4.9% in the last three months ending August while the CAD version was -1.9%. Same portfolio of stocks except one was currency hedged while the other not. That’s a difference of 6.8%.

The Republicans have outlined plans for the largest tax overhaul since 1986 but already the plan to reduce corporate taxes from 35% to 20% and to reduce from seven tax brackets to three is meeting some challenges. A day after being announced, it looks as if certain deductions are being walked back now, perhaps due to pressure from lobbyists not wanting to give up lucrative expenditures (that’s what Americans call “write offs”) for their clients. The point is this is all early days and many details have not yet been fleshed out. It’s in the details where the devil is said to reside. So far, the nonpartisan Tax Policy Center estimate that the top 1% of earners would see their taxes drop by more than $200,000 on average. A third of taxpayers with incomes between $50k and $150k would see their taxes rise over the next decade, as well as a majority of earners between $150,000 and $300,000.

Contrast this all with Canada, where taxes for the wealthiest and small businesses are being proposed to be increased.  While trying to hit doctors and lawyers with an effective tax rate of almost 73% he stands to hurt other more modest users of private corporations.

Here’s a little anecdote for you. An old friend of ours is a lawyers and has consistently resided left of center on most issues. But he’s fed up with “that little rich kid” Trudeau for threatening to tax his savings that he has housed in his personal corporation. Unlike teachers and union workers, lawyers have to create their own pensions and this was his. He’ll have to pay $250,000 in extra taxes on these funds, approximately half of the total. This is a middle-aged guy who works seven days a week we couldn’t stress enough how unusual it was to hear him be so critical about a Liberal government. Political platitudes are no match for being hit directly in the pocketbook.

When a CEO with a large stake in his company wants to sell stock, the most common reason cited is the need to diversify his/her portfolio. In Facebook’s Mark Zuckerberg’s case, the claimed reason is to fund his philanthropic commitments. But in selling up to 75 million shares (18% of his holdings), the sharp-elbowed Zuckerberg wanted to create a separate class of shares so that he wouldn’t hurt his voting rights and control. A group of investors sued to block the move, eventually prompting Zuckerberg to acquiesce. This, along with the lack of iPhone line-ups, is cooling some of the white-hot focus on technology stocks we’ve seen. This relentless march in tech stocks has played a major role in sending the S&P 500 index to record highs, of which Apple is the largest constituent. In fact, the FANG stocks (Facebook, Apple, Netflix and Google) account for 7.8% of the S&P 500. That’s four stocks out of a basket of 500!

Musings Beyond the Markets

The following was written by a Canadian friend of Marko’s who has long lived in Mexico where he is a teacher and a father.


This was a terrible quake. We took a hiding here in the south.

It nearly did me in at the school where I work–debris falling all around me on the top (fourth) floor while I tried to get out–last one to do so because an elderly teacher “froze” so I had to get her down the shaking stairs. Tall metal lockers crashing down around me, desks shifting violently; I thought the building might collapse but it didn’t thank God.

Another school nearby, however, was not so lucky. One of its buildings collapsed–and it happened only 20 meters from where I’d parked my car. Dozens of students and teachers trapped inside. More than 20 students and five teachers later confirmed killed.

Another school just around the corner, however, was not so lucky. One of its buildings came down–and it happened only 20 meters from where I park my car each day. This school–Colegio Enrique Rebsamen—is the only educational institution that collapsed in the city, and it was this horrendous spectacle that confronted me when I took off to find my own loved ones.

It was total pandemonium: rubble, crushed cars, dust and hundreds of people running all over the place. Most affecting was to see women hysterically screaming: their faces masks of disbelief and horror.

They were mothers.

These women delivered their children to school in the morning and a few hours later their children lay entombed in the rubble of the collapsed school (more than 20 students and five staff were later confirmed killed).

I was reunited with my own kids and wife many hours later due to traffic gridlock and all-round chaos—and factoring in the uncertainty of not being able to contact anybody because phone networks were down made for a very edgy mindset. Another school two blocks from daughter’s school—the prestigious Technológico de Monterrey–had a wall collapse that killed four students.

Damage to stuff in our house: shattered glassware, fallen book shelves and cracked walls. But it stood. Thousands of people were walking the streets outside—the nearby Light Rail service to the Metro was cut: damaged tracks.

A cavalcade of wailing sirens all day and night and the days following: cops, fire trucks, ambulances, Army, Navy; helicopters roaming the skies.

No power for 12 hours, no outside water supply for six days. Collapsed and damaged buildings and houses along our street—Canal de Miramontes—and the next block over in Tlalpan (the main road from the south into the city).

A nearby section of this road is closed because an apartment block collapsed. It’s next door to the church where my wife and daughter attend Mass each Sunday. Around a dozen deaths have been confirmed here; several people still trapped in all that rubble and rescue efforts underway to dig them out.

We’ve been through a lot of quakes but it’s a first to live through a natural disaster. It’s strange to see one’s neighborhood transformed into an emergency zone.

A staggering coincidence that it struck two hours after the National Earthquake Drill that marks the anniversary of the 1985 Earthquake.

Word of the Week

offing (n.) – the sea between the horizon and the offshore. “The offing was barred by a black bank of clouds, and the tranquil water-way leading to the uttermost ends of the earth flowed somber under an overcast sky – seemed to lead into the heart of an immense darkness.” – Joseph Conrad

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