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For a summary of the rankings of our entire convertible debenture coverage universe including the quantitative model prices of, and notes on each issue we follow, click on the table below to view it larger.
Important: the Peanut Power Rankings are provided as information and opinions only and are not intended to be a provision of investment advice or a recommendation of any investment action in any form. As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.
Public Service Message: the Financial Post Convertible Debentures List
For those of you out there that are clients of a full-service brokerage firm with a research team that covers convertible debentures, you may be able to obtain a complete list if you ask your broker. Also, as we announced on December 20, thanks to one our valued readers, we were informed that the TSX publishes a basic list on its website approximately monthly. It's not the same as the old Financial Post list, but hopefully it can still be of use to some of you out there.
Market Commentary - Quick Points (November 2, 2018)
- Lots has happened since our last update.
- Well, NAFTA did, indeed, get resolved. It has a new name, but let's not kid ourselves, for Canada, the new deal is substantially similar to the previous one. Canada made some concessions in the dairy industry but they're essentially the same things that Canada would have given up under the doomed Trans-Pacific Partnership anyway, and managed to retain the dispute resolution mechanism. The US, however, has not yet dialed back the tariffs they slapped on Canadian steel and aluminum, and we'll see if they actually do at some point.
- Rates are on the rise again. As expected, the Bank of Canada raised rates in October, and added some hawkish statements to boot. The question is will they go through with it, and can the economy handle it? Most seem to believe there will be three more rate hikes before the middle of next year. I'm not so sure, as the Canadian economy is growing and essentially at capacity. There has been an uptick in inflation but is the economy so heated that three more moves are required? I expect two more. We will see.
- Mid-term elections in the US are on Tuesday. Right now, the polls say the Democrats should regain control of the House, but the Republicans should retain the Senate. If you've been reading this blog for awhile, you already know that I think it's absolutely critical for the market and yes, democracy, that there be real checks and balances for the current US chief executive and his cronies.
- Regarding politics in Canada, we have seen a similar tack to the right in recent election results in Ontario, Quebec, and New Brunswick. We will see if the trend continues with elections federally and in Alberta next year. What I find troubling is the surfacing of similar political tactics here in Canada as those that have been used with dangerous "success" in the US. Is party more important than country here in Canada, too? Again, we'll see.
- The theme of Canada not being competitive has been well played out in the press and those who seek to benefit politically and financially from such a narrative. Yes, we need to get pipelines built here in Canada, even if you're not a fan of oil and gas extraction industries. The switch to a carbon-free future will require great resources and investment, and getting a reasonable price for our current resources is a bridge to that future. On the other hand, those citing the unsustainable US tax cut as a reason for Canada being not competitive are wrong in my opinion. Again, that US tax cut that was delivered last year is clearly unsustainable (the US deficit is over a trillion dollars), unbalanced (it unevenly benefited the rich, who aren't spending it in the US economy), and will not "pay for itself" (ideology isn't fact, and trillion dollar deficit is evidence enough). Given that the US central bank has been forced to raise rates in the face of this unnecessary fiscal stimulus, when this stimulus is forced to be lifted in, say, 2020 (either with the tax cuts running off as they are currently designed to do and/or large cuts in government spending), I think the US economy is in real risk of slipping into recession at that time.
- October has already proven to be a highly volatile month as you market participants undoubtedly know. Also as you know, markets look ahead. Given what I wrote above, don't be surprised if markets look ahead in 2019 and don't like what they see.
- As such, given this backdrop, the thinking here is the same for convertible debentures and other market assets: emphasize high quality, reduce credit risk, and expect lower overall returns than you've been getting as of late. Stay diversified and unlevered out there.
Picture of the Day
Aboard the slow train across the Canadian prairies. Reford, Saskatchewan, Canada. Copyright © 2015 Felix Choo / dingobear photography. Photo published in Travel + Leisure Magazine October 28, 2018. Photo available for licensing at Alamy Images. Photo may not be reproduced without permission.
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