Stretchy pants and budgets

March 18-22, 2013

Market comments: Cyprus nearing default took a toll on world markets last week, and will continue to do so throughout next week Uncertainty and confusion remain as talks surrounding bailout continue. Whether or not a deal is reached, the process suggests an increasing intolerance between Eurozone nations – the ECB has threatened to withdraw emergency funding if a deal is not reached by Monday. Cypriot banks have been closed since Monday and many businesses are taking payment in cash only.

The S&P ended 0.3% lower over the week, aided in part by the Fed reaffirming its commitment it asset purchase programme. Interesting to note that critics who argue the Fed is driving the market, may be correct. Apparently, the Fed accounts for 30% of market gains; the S&P index “has risen 65 per cent of the time on Fed days, for an average gain of 0.63 per cent – well above the average gain of 0.38 per cent on Fed days going back to 1994.”

Canadian Budget: The government revealed a budget that aims to eliminate the deficit within two years.  It both committed to reducing expenditures, and boost tax revenues through import tariffs. Applauded by rating agencies, the 2013 budget avoided Austerity (in the European sense).  Given little room for movement, Flaherty seemed to republicise many initiatives already in place, including municipal infrastructure investments. A deficit in skills training, however, was addressed through the Canada Job Grant.

It will have an impact on investors with regards to capital gain expenditures – now indexed to inflation – and funds with “character conversion transaction”. Certain changes in reporting requirements may also impact investors – particularly those with foreign property assets over 100,000.

Company News: Ownership of dell has now become a “three way race”. The Blackstone group and Carl Icahn have, apparently, sent deal proposals to the company. These potentially offer an alternative to the Dell/Silver Lake deal from several weeks ago. 

Lululemon was forced to take a “significant financial hit” last week – a result of production issues and a shortage of their iconic black stretch pants. It seems the material was see through. Analysts certainly had fun with headlines last week, with some goodies like “how Lululemon was caught with its pants down” and “apparel makers caught with pants down”.