Brent Keylock – Financial Planner & Retirement Advisor – Red Deer & Central Alberta

Big Picture

Greek debt talks hit snag; U.S. may ease

Greek debt-restructuring talks hit an impasse on Tuesday as private sector creditors pushed for a higher interest rate on the new bonds, arguing they are already taking a 50% write-down on existing bonds worth US$265-billion. A debt restructuring agreement is a precondition for Greece to receive its next installment of aid to stave off bankruptcy. The IMF cut its forecast for global economic growth to 3.3%, from 4%, in 2012 and warned the European crisis could tip the world into recession if decisive action is not taken soon.

Euro tensions; U.S. manufacturing accelerates

Prime Minister Papademos warned Greece may default on its debts in March unless unions accept further salary cuts. Inspectors arrive on January 15 to assess Greece’s progress in cutting its deficit and to approve the next portion of bailout funds. France drew solid demand at its first debt auction of 2012 with yields rising only slightly despite fears for its AAA rating. Debt sales next week by Italy and Spain are seen as the year’s first big tests of eurozone countries’ ability to borrow at affordable levels. U.S. manufacturing grew at its fastest pace in six months in December, as the index of factory activity rose to 53.9, from 52.7 in November. Readings over 50 indicate expansion.

Big Picture
Summit deal splits EU; S&P announces credit review:

Following all-night talks, leaders of 23 of the 27 European Union nations agreed to a new treaty with strict oversight over national budgets, seen as crucial to solving the debt crisis. Britain, Sweden, Hungary and the Czech Republic will not join the treaty. Ratings agency Standard & Poor’s put 15 eurozone countries on credit review on Monday, and warned that the AAA credit ratings of France and Germany were at risk. The European Central Bank cut its benchmark interest rate to a record low of 1%, the second rate cut in five weeks, in an effort to boost the economy. Falling output and rising job losses heightened fears that Britain is facing another recession. The U.K.’s industrial output fell 0.7% in October, its fastest decline in six months.

Here’s What We’re Thinking…

• If investors were able to consider in isolation recent U.S. economic statistics, corporate earnings, improving profit margins and strong balance sheets, all collectively known as “fundamental data”, current stock prices would be seen as exceedingly attractive; regrettably, in the current environment, fundamentals continue to be superseded by macro/political concerns.
• Although fundamentals will matter eventually, our cautious outlook remains the same for now from a trading perspective.
• Canadian and U.S. equity markets may extend the recent downward move (down 6%-8% over the past two weeks), but market technicals suggest investors should be prepared to add equity exposure soon.

Big Picture

U.S economy revives; recession fears fade

U.S. economic growth increased at its fastest pace in a year, expanding 2.5% on an annualized basis in the third quarter versus just 1.3% in the second quarter. Consumer spending grew at 2.4% after slowing to a 0.7% pace in the second quarter, while business investment spending was the fastest in more than a year. Chinese investment in Europe is expected to double this year to US$8-billion, and surge over the next decade. The EU and Beijing are considering opening negotiations on an investment treaty that would make it easier for Chinese companies to invest in Europe. Flooding in Thailand could disrupt global electronics supply chains for several quarters, with the closure of major factories for semiconductors and hard drives.

You bought and you held, is it now time to bail?

- Preet Banerjee

Every time stock markets tank, you can count on the same set of reactions. People question fees. If the investors had an adviser, they consider doing it themselves. If they were doing it themselves, some consider going back to an adviser. And invariably the debate of whether or not “this time it’s different” is brought up, which is code for asking if they should change their strategies.

Here’s What We’re Thinking…

• In a largely headline-driven market, there has been no shortage of negative commentary to induce lower confidence in the economic and market outlook; however, our message remains the same.
• As unsettling as global events have been recently, the current pullback in stock prices represents an opportunity for selective investment in equities.

Canada’s economy to outperform G7 by year-end, OECD says

Canada’s economy, which stalled in the second quarter, is likely to pick up speed and outperform its developed-nation peers by the end of the year, according to a new report by the Organization for Economic Cooperation and Development.

The energy services sector is dominated by high-horsepower machinery that is used to access hydrocarbon-bearing rock. Specifically, we refer to the drilling rig and the pressure pumper, the equipment that is used to fracture the reservoir. Since the reservoirs that are being chased today are deeper and more challenging to access, unconventional stimulation is needed. We have seen a dramatic shift in the technology used in the oilfield. Not only are service providers using higher-spec machinery, but also more of it is needed to satisfy exploration and production demand.

The following trends in the North American energy services market are seen as positive catalysts:

since the high’s we saw in April and in one of the most rapid reversals of the last 30 years, the TSX and equity markets around the world have seen a vicious sell-off which has seen 18% taken from the TSX Composite Index and 10% of that in the last week. For all intents and purposes, the equity market has entered into a bear phase. So far, indicators are showing that we are starting to create a bottom at current levels.