What goes up must come down & ding dong the witch is dead

April 8-12, 2013


Market comments:  Volatility was evident in last week's markets. While commodities drove the TSX up mid-week (the S&P/TSX composite gained 1.1%  Tuesday, its largest single day gain since November), a drastic fall in crude oil and gold brought the index down on Friday (it fell 1.2%).  US markets also experienced strong mid week gains; Thursday had another record close for the S&P 500. While the index dipped on Friday, it closed the week 2.3% higher than its Monday starting point. Gold and industrial commodities on the other hand, took quite a tumble. Weak earnings from US financials, together with weakened data from US retail sales, seemed to lead to these late week falls in the US indexes.

While purchases from the Fed have normally buoyed markets, recent minutes suggest committee members are starting to question how much longer these purchases should go on. Important to note, also, that reflating assets through purchasing means increasing risk of higher inflation. Should we be worried?

Company news: Close analysis shows that “there isn’t a whole lot separating [Canadian banks] in terms of share price performance… The difference between the worst-performer and the best-performer is little more than four percentage points… despite 20 quarterly earnings reports each, about 1,250 trading days and coverage by nearly two dozen analysts.

Are PCs out? Analyst downgrades of Microsoft last week suggest yes. These reflect a recent report on the state of the PC market, which revealed the “number of personal computers shipped in the first three months of this year plunged by almost 14 per cent”. This is the largest drop since 1984.

International News:  China’s inflation rate eased more than forecast in March. Yet, Fitch lowered its rating on China’s long-term local-currency bonds, to AA-minus from A-plus.

Otherwise:  Bitcoin tumbled last week – from $266 per coin on Wednesday down to $54 per coin on Friday – back to its March level. “The question now is whether merchants and Bitcoin users abandon the nascent economy because of the volatility”.

A partner at KMPG was let go, having given inside information to a golfing buddy whilst on the green.  This also led to KPMG resigning as Herbalife’s auditor and a 3.8% fall in Herbalife’s share. This comes at a time when regulators are turning to the consulting industry, and may stir up trouble. Proposals include progress reports and more detailed cost estimates of consultancy projects.


Celebration and sadness both emanated from the news of Margaret Thatcher's death. As a Canadian, I find the uproar quite extraordinary. I can't imagine the death of any Canadian politician facing resulting in such extreme views/reactions. People are truly polarized - whether they were alive when Thatcher held office, and regardless of if they consider themselves liberal or conservative (or so it seems). Even feminists, who I would think respect the woman for her political strength, argue that she let shards fall on those below her when breaking through the glass ceiling.

I don't know much about Thatcher, but do think she should be respected (then again, my personal view is that most democratically elected politician deserve at least a modicum of respect - unless they are homophobic, xenophobic, supportive of eugenics, etc), and that news of her passing is sad. She was the first female Prime Minister in the developed world, the longest serving PM in Britain in the last 150 years, and a true powerhouse (even if arguably much too severe to her opposition). Britain would not be where it is now economically without her. To be fair, this is likely true both of the years of economic growth as well as the current crisis. Yes, the British economy is currently facing economic difficulties, but who knows where it would be without her - it could be worse, it could be better. We just don't know. 

In other news.... changes to the welfare system took effect at the beginning of April. Last week, a report by Sheffield Hallam University revealed the impact of the cuts area by area. Once they come into full effect (c. 2018) it seems the North will be extremely hard hit; facing, on average, a £900 reduction per person, versus only £200 or so in the southern parts of Britain. The areas the most hard hit already face the worst unemployment in the country. These cuts his will take even more money out of these regions. The full report can be found at ft.com/austerity

As we enter another round of profit reporting, important to keep in mind that "the average share price fall on the day of a warning from a FTSE 350 company was 5.6 per cent, compared with 19.4 per cent in the second quarter of 2012." Seems the search for yield is stopping investors from selling, as is the belief that continued central bank support and company cost cutting measures will keep companies growing (or at least not getting worse). 

Otherwise,  Crosby (former HBOS) offered to dispense with his knighthood and take a 30% reduction on his pension (article here) ; Google is being forced by regulators in Brussels to change its search algorithms (article here). For news on bitcoin, KPMG and US markets, see the North American round up