Contrast & compare

Today is contrast n’ compare day!  We’ll contrast & compare Canadian. vs. US Treasury bond markets.  Then we’ll contrast & compare Emerging Markets vs the SPX & TSX equity markets to consider where the best opportunities might be found.

But first, a notice of a new video:

New Video

Once a week I publish a video covering subjects that are not covered in this blog…or, that are not covered in the same perspective as seen in this blog.

The most recent video covers a bullish technical signal just received on the energy sector! Mind you, this is investing, so nothing is every guaranteed, so I provide a few caveats on my bullish view. Here’s the link:

Is It Time to Buy Energy Stocks? – ValueTrend

Don’t miss future special guest interviews & unique sector perspectives only available via my videos. Subscribe here.

Canada’s vs. US Bonds

“We don’t want to wait until inflation is all the way back to 2 percent before
we start cutting interest rates, because if we did that we would overshoot
… we’d cool the economy more than we have to.” Tiff Macklem (BOC Governor) Feb. 2024

Bond yields move off of government overnight rates, which in turn move on inflation (and currency).

Inflation is a supply/ demand issue.

Canadian Supply limitations:

Housing crisis (not enough building), energy (carbon taxes and geopolitical risks pressure supply), shipping (middle east shipping threats), etc.

Canadian demand issues:

Following the trajectory of the 2023-2025 Plan, Canada aims to welcome 485,000 new permanent residents in 2024, 500,000 in 2025 and plateau at 500,000 in 2026.” Canada.ca report

A key demand indicator for inflation is housing.

Result:

Canada’s inflation should hold above 2% for the foreseeable future. I have been commenting about this since 2021. Nothing has changed. You simply cant have low inflation with all of that government printed money/debt flooding the system with cash, combined with increased immigration demand and higher energy costs (effects all levels of supply). Full stop. In my opinion, the BOC must accept a CPI rate closer to 2.5- 3%.

Implications for bond investors:

US inflation and interest rates are likely to fall before Canada’s. Meaning it may be best to stick with shorter duration on the Canadian bond portion of a portfolio. Short duration individual bonds, or the best bond ETF’s in Canada with shorter duration targets might be considered.

US longer termed bonds may be the better bet for eventual capital gains, although the price trend remains bearish for now.

Conservative investors should avoid both CDN and US long bonds for now.

Aggressive traders who anticipate falling US inflation could leg in to US bonds.  TLT chart below: support lies near $90 (disclosure: we hold a position in TLT).

EM vs. SPX & TSX

OK guys. Which has more risk/reward potential…

An index making an obvious basing pattern with rising yet not overbought momentum, and substantial upside (25%+) back to old highs if it breaks out.

OR..

An overbought parabolic market with most sectors lagging except for a very select handful of overweighed stocks and momentum rolling over bearishly?

OR…

An  market that has a 5-10% upside to old highs if its MFI stops rolling over bearishly – all the while dealing with government suppression of its key industries.

 

Conclusion

  • Oil looks technically bullish, although some caveats to that outlook. See my latest video here.
  • Canadian bond investors best stick to short durations for now
  • US bond investors could sit on the sidelines, and potentially leg in upon a successful bonce off of current support.
  • The SPX is neartermed overbought. Potential pullback target is about 4600-ish. I’d avoid buying at this point, but would be a buyer at near that price, given the bigger picture breakout from 4200.
  • TSX has a mediocre upside target. And you know why.
  • Emerging markets look to have big upside potential – contingent upon a base breakout.

Leave a Reply

Your email address will not be published. Required fields are marked *

Never miss another blog post!

Get the SmartBounce blog posts delivered directly to your inbox.

Topics

Topics

Recent Posts

Keith's On Demand Technical Analysis course is now available online

Scroll to Top