The Launch Pad: Key vote today, markets are moving ahead of a likely remain win by @connectedWealth
Thursday, June 23rd, 2016
Warren Buffett’s Annual Letter: Mistakes, Buybacks and Apple
Warren Buffett published his annual letter to shareholders over the weekend. The annual update, which has become one of the largest events in the calendar for value investors, provided Buffett's views on one of the most turbulent and extraordinary years for the financial markets in recent memory. Q4 2020 hedge fund letters, conferences and more Read More
It looks like yesterday was just the pause that refreshes as global equities are rallying and yields are rising. Even the monster 10 year German Bund has climbed into positive yield territory – now an absolute bargain for buyers at 0.09%. You would think that we would have a lot more info on the Brexit vote as it is happening, but UK law prevents media outlets from discussing results prior to the polls closing. Smart, no?
Currencies are on the move as well, particularly the US dollar and obvisouly the Pound Stirling. The Big Dollar is sliding, making all the comps look pretty good. Loonies are better by 2/3 of a cent, similar to the gain in A$, while GBp are almost 2 pence stronger than the US$ and a half pence vs. the Euro.
If you’re impressed with the Canadian dollar’s performance this year, maybe you should take a look at some of the emerging market currencies. Despite all of the political drama, the Brazilian real is up over 20% YTD and the Russian ruble is up over 20% from the low in January. The Mexican peso however is not that far off the lows of January and is up just under 5%, compared to a 14% gain for the Canadian dollar. Unfortunately this does not bode well for hopes of a Canadian manufacturing renaissance. The Canadian Mexican cross reached a record low just nine days ago. Despite the rebound in many EM currencies,
Given the changes in the CPP program really affecting Canadian individuals and businesses, this letter from Frances Woolley at Worthwhile Canadian Initiative is mandatory reading. The comments at the bottom, unlike most commentary sections on the interwebs, are an integral part of the story.
NYT presents the interesting world of drone racing.
Sprint, the U.S. wireless carrier reached a seven month high yesterday as speculation increases that they will receive a cash infusion from their parent company SoftBank. The company is struggling to compete with Verizon and AT&T as their debt load has ballooned to $33bb. It is widely viewed that Tesla over bid yesterday for SolarCity as shares of the electric carmaker fell 10%. Bombardiers deal with the Quebec government is official; they will receive $1bb in funding for a partnership in the C series project. Bombardier will own 50.5% and the Quebec government the rest. The money will come in two steps half at the end of the month and half on September 30th. On another note Air Canada might be questioning their deal with their deal with Bombardier if they do not amend the maintenance law not imposed by other manufactures.
Gold prices are down again this morning as the voting has begun on whether or not the U.K. will remain in the European Union. The race is still too close to tell and volatility is coiling like a spring in many assets and currencies. The pound which reached a near term high overnight is moving with a negative correlation to gold prices. If there were to be a Brexit we would likely see a major rally in gold prices. Oil prices are up marginally this morning, flirting with $50 a barrel. U.S. production and inventories were lower last week. Production has fallen 14 of the past 15 weeks.
FIXED INCOME AND ECONOMICS
We’ll keep the Brexit talk to a minimum on the day of their historic vote and just mention that rating agency S&P has already chimed in with warnings that a “Leave” outcome would have extremely adverse effects for the credit-worthiness of U.K.’s sovereign debt. S&P chief sovereign ratings officer Moritz Kraemer told German daily Bild that the current “AAA credit rating would come due and would be downgraded within a short period of time”. This follows up a similar warning the agency provided in April that an exit vote would lead to a downgrade given the country’s deep political, financial and trading ties in Europe. Kraemer added that the political situation in Britain would become less predictable and rational, partly because there was no real post-Brexit plan. As of last check, the U.K. government has £1.7 trillion in debt outstanding (according to the National Debt Clock)
A fairly busy data calendar in the U.S. will help keep our focus on this side of the Atlantic with weekly jobless claims kicking off the festivities. First time filings for unemployment assistance came in at 259K for the week ending June 18, besting estimates for a 270K print and marking the fewest number of applicants in two months. Continuing claims as of June 11 dropped to 2.142MM Americans for a 20K improvement from prior and still hovering near the 15 year low of 2.112MM eclipsed a few weeks back. This bodes well for a rebound in next month’s NFP release that is hoped to recover from an extremely disappointing result earlier this month. We’ll get a sentiment update via the Markit Manufacturing PMI release at 9:45AM that is expected to rise to +50.9 in June and improve from the +50.7 result last month that marked the lowest ever for the survey. New home sales results are due out shortly afterwards with May purchases projected to fall by -9.5% to 560K annualized units. While a decline would be disappointing on the surface, the data point has been steadily rising since 2010 with the April print of 619K representing twice as many sales seen in just a five year period.
Bombardier Inc. debt is trading higher this morning on positive developments regarding the Montreal-based company’s C-Series program. The aerospace and transportation firm announced late yesterday that the Quebec government has finalized a $1 billion investment in the jetliner project that will consist of two $500MM payments (one made for the end of this month and the other on September 1) that lays out a partnership whereby the province will own a 49.5% stake. While Bombardier awaits word on whether the Federal government will provide a similar $1 billion injection to match the provincial support, it’s welcome news for the program that has seen overruns exceed $2 billion while being two years behind production schedule. The single-B rated C$ Bombardier 7.35% 12/22/2026 senior bonds are bid two points higher from 24 hours earlier to $88.00 at time of writing.
CHART OF THE DAY
Always mistrust a subordinate who never finds fault with his superior.
– William Collins