Investments

Markets have been very strong since the last Lato Letter on generally more favourable economic statistics out of the US, and a fairly clean bill of health for US financial institutions following the release of the Federal Reserve’s stress tests earlier this week.  In conjunction with rising stock prices, we have also seen rising bond yields (and falling bond prices) over the last week. [caption id="attachment_16453" align="alignnone" width="470"] Chart courtesy of Bespoke Investment Group/Raymond James & Associates[/caption] Generally, low interest rates are better for stocks than high interest rates but that is a very broad statement that often has exceptions, particularly over short to medium term periods.  The rise in long bond yields could be signaling a further strengthening in the US economy as yield spreads between short term rates (Treasury bills) and bond yields have begun to widen.  Rates remain at generational lows and so the initial increases in yields from...

You certainly cannot pick up a newspaper or magazine or watch any business channel without being inundated with stories about Apple and the news surrounding its product announcement yesterday.  Normally when an investing subject dominates the press, it is a sign that the prevailing trend, whether positive or negative, is about to reverse. At the sake of using an investment cliché that has buried many who have uttered it in the past, I will say “it is different this time”.  Apple has been a savior to clients’ portfolios over the last six years having increased almost nine-fold since its initial purchase for clients in mid-2006.  The position has been trimmed several times since then (including earlier this week) but it remains the single largest holding in clients’ portfolios.  I continue to feel that the list of reasons of why “it is different this time” is long and powerful. This list of reasons...

North American equity markets have been very strong since the beginning of the year with the S&P 500 up 8.6% and the S&P/TSX up 5.8% to the end of February.  With the Greek situation still not resolved and potentially causing further European troubles, Middle Eastern tensions rising again in Syria and Iran and the US political situation creating more questions than answers, you might be asking what has changed to propel the markets to their highest levels prior to the 2008 financial crisis? Part of the answer lies in a steadily improving North American economic recovery.   The charts below, which are courtesy of Hays Advisory Inc., depict three important areas of improvement in the US economy.   The first chart shows the recently improved outlook for the US manufacturing sector as measured by the ISM Purchasing Managers’ Index and the Fed Manufacturing Surveys. The next chart (just below) shows the continued...

Sears Holdings (SHLD-NASDAQ, $52.08) reported their fourth quarter results this morning and the results were TERRIBLE but we already knew that because the company pre-announced on December 27, 2011 that these results would be terrible.  The company reported fourth quarter earnings of $0.54 compared to earnings of $3.67 in last year's fourth quarter.  So, what happened to the stock today?  At the time of writing the stock was up almost 15% to $59.70. Sears Holdings has been a darling of short sellers, who for the last few years have been big winners, on the premise that the continued poor operating results would drive Sears into bankruptcy and the share price to zero.  The focus of the conference call this morning (the first time in its history as Sears Holdings that it has had an earnings conference call) was on the company's liquidity and balance sheet.  The company's CFO, Rob Schriesheim, outlined...

News of 13F filings has come out over the last few days and has provided further insight into some of Research In Motion’s (RIM) newer shareholders.  Prem Watsa, through Fairfax Financial, purchased a small amount of new shares in the fourth quarter of 2011, but it has been reported that he has approximately doubled his holdings last month following the company’s change in management.  Leon Cooperman of Omega Advisors also doubled his position during the fourth quarter.  David Einhorn of Greenlight Capital (noted for his large short position in Lehman Brothers prior to its collapse in 2008) has established a new position in RIM. The news on RIM has continued to be poor so far this year with further corporate defections from Blackberry to iPhone, which has helped fuel the huge rise in Apple and further decline in RIM.  As wonderful as Apple has been for the portfolios (and yes it...

The strength of North American equity markets so far this year has been a very welcome surprise.  The other welcome surprise is that the co-relation among stocks so far this year has come down dramatically from last year’s everything up and everything down together market. The chart below depicts the reduced co-relation as the S&P 500 index is back to its highs of last spring but far fewer stocks (the white line) are making new 52-week highs.  A market optimist might say normalcy is coming back to the market and that the market leaders will continue to lead the market higher.  A market pessimist might say that the rally this year has been led by a few big-movers (i.e. Apple, Caterpillar and Visa, to name three) and is vulnerable to a decline.  Not to be seen as sitting on the fence, but in the short term I would agree with the...

A great employment number and market rally on Friday and a great Super Bowl on Sunday with the Giants' win positively triggering the largely irrelevant “Super Bowl Indicator” was the right way to start February.  North American equity markets, particularly in the US, have started very strongly in 2012, to the surprise of many investors.  Valuations and monetary conditions remain very positive but in the very short term, markets may be a little over-bought and subject to a bit of a pullback.  That being said, I think the comments and chart below from Jeffrey Saut, the market strategist at Raymond James are definitely worth heeding. “Remember all those Negative Nabobs that caused you to panic and sell-out at the August lows? Or, the Bear Boos who told you the undercut low of October 4, 2011 was the start of a whole new leg to the downside? Then there was the Cowering...

It is another beautiful warm sunny January day in Toronto, which is great except if you are selling furs or natural gas.  With more warm weather forecasted for February, chances are natural gas prices, currently at 10-year lows of approximately $2.50 per mcf, will continue to be soft through the rest of winter.  That being said, I attended a Peters & Co. lunch presentation today by Tourmaline Oil Corp (which in spite of its name is 80% natural gas) and came away feeling very glad that I continue to hold it in clients’ portfolios in spite of the weak natural gas outlook. Tourmaline has done most everything right since its creation just over three years ago and its initial public offering (IPO) in November 2010.  Since the IPO, production has more than doubled and using very conservative company forecasts is expected to double again in 2016.  There is not much management...

Volume 1, Issue 1 What better day than today to post the first blog entry on the Padlock Investment Management website. After trading higher in the pre-market, Apple closed the day at $446.66 or up 6.24%. Take what you like from the fact that the last three digits of today’s closing price were “666”, which also happened to be the market-bottom March 2009 low on the S&P 500 index, and the market-bottom November 2011 low on the Russell 2000 index, the results reported yesterday were wickedly outstanding results.  As good as I thought the results could be, I never dreamed that the results would be that good.  For a review of the results click on today’s Wall Street Journal story. In spite of the 6.24% increase today, Apple remains a cheap stock and the largest holding in the portfolios.  Notwithstanding that I believe that there is further upside in Apple beyond today’s levels, I...

Padlock Investment Management Inc. has now been officially registered by the Ontario Securities Commission and commenced operations on January 3, 2012, which was ironically the 35th anniversary of the start of (what was then known as) Apple Computer Inc. One of the endeavors that I plan to undertake at Padlock is to produce market commentaries under the resurrected name of The Lato Letter. I wrote The Lato Letter as a way of reaching out to clients and other interested parties on an infrequent basis between 1994 and 2005. Those letters were done prior to a more significant embracement of the electronic age and were sent out in printed form via regular mail. Future versions will be posted on the Padlock Investment Management Inc. website in the Blog section and will also be emailed directly to a distribution list. If you would like to be placed on the distribution list, please click...

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