2015

Weighing The Week Ahead: A Review Of The Silver Bullet Winners For 2015
Nasdaq, December 28, 2015

Declining profit margins are a prime target for perma bears in the blogosphere. You’d think after an “expert” calls nine of the last three recessions, this one would go away but we’ve been fighting it for years. Pierre Lapointe received the Silver Bullet for taking on the crowd.

“It can take a long time before contracting margins begin to hurt stock prices,” Lapointe and colleagues Alex Bellefleur and Francois Boutin-Dufresne wrote in a report yesterday. They cited the 1982-1987 bull market, which took place even though earnings as a percentage of GDP were among the lowest since World War II.


S&P 500 Profitability Viewed as Vulnerable to Fed Rate Increase
The One Dave, December 16, 2015

The Fed’s rate policy may hurt margins by discouraging consumer borrowing at a time when spending growth is already slowing, Alex Bellefleur, Pavilion’s head of global macro strategy and research, and colleagues wrote yesterday in a report. Larger wage gains may also weigh on profitability, they wrote.

Credit-card balances were little changed in October after climbing for seven straight months, according to Fed data. In the same month, average hourly earnings rose the most since 2009 on a year-over-year basis: 2.5 percent, according to the Labor Department.


How mental miscues can sink your portfolio
USA Today, December 1, 2015

It is not uncommon for investors to succumb to psychological traps that lead to investing mistakes, adds James McKeough of Pavilion Global Markets.

“Emotional and painful memories that every investor felt seven years ago have returned in spasms here and there the past few months,” McKeough says. “Investors overweight those negative experiences in their minds at exactly the wrong time. The comparisons (of the 2008 market meltdown) are so near and so emotional that the narrative gets filled in quickly with ‘here we go again.'”


Tired of corrections and flash crashes? 2016 will be year of stable growth for equities, analysts say
Financial Post, November 20, 2015

Investors wanting stable growth should also be willing to look away from the traditional plays such as healthcare and grocers. Strategists at Pavilion Global Markets said that meat producers offer a good combination of stability and growth next year.

“It’s not particularly surprising that meat consumption tends to rise almost in lockstep with income growth,” said Alex Bellefleur, head of global macro strategy and research at Pavilion in a note to clients “Indeed, even during steep economic downturns in which per-capita incomes fall dramatically, meat consumption remains resilient.”

Bellefleur and the team at Pavilion suggest investors stick to meat processors and avoid other food producers, as the latter have fewer opportunities for growth.


Don’t be a blockhead: Time to tear down those trendy investment plays BRIC by BRIC
National Post, November 13, 2015

Alex Bellefleur, head of global macro strategy and research at Pavilion Global Markets, said that one benefit of the resulting selloff was that it helped paint a clearer picture of which countries have better fundamentals.

Bellefleur and the team at Pavilion Global Markets say that in the coming year, one of the most important investment themes for EMs will be realizing the differences between countries that still have policy flexibility to jumpstart their economies — such as Mexico, South Korea and China — and those that have little ammunition left to fend off the effects of slowing global growth — like Brazil, South Africa and Turkey.


Fed Rate Outlook Brings Call for ‘Regime Shift’ to Value Stocks
Bloomberg, November 10, 2015

To be sure, others have recommended staying with growth stocks. Value shares may need a U.S. recession to regain market leadership, Pavilion Global Markets Ltd. wrote in a Nov. 3 report.

“It is hard to find a catalyst for value,” according to strategists led by Alex Bellefleur, head of global macro strategy and research for the Montreal-based firm. The shares are relatively expensive even though they have trailed growth stocks, the report said. The S&P 500 Value Index surpassed 16 times earnings last month for the first time since 2010.


Investment Committee Governance Best Practices
(Article by Susan McDermott, Chief Investment Officer with Pavilion Advisory Group Inc.
Benefits and Pensions Monitor, October 2015

The purpose of governance best practices is to promote the interests of the organization—both its mission and supporting financial objectives. While goals may be different for each organization, they typically include growing the real value of the corpus, protecting the organization during periods of market and business stress and ensuring that the organization can meet its obligations. An ancillary objective is to make effective, as well as efficient decisions—as this keeps the governing body engaged. Below, we outline in brief the key aspects that contribute to governance best practices.


Analysts see end to rally for Canadian dollar
The StarPheonix, October 29, 2015

As well, data this month showed that consumer spending and factory activity have both been growing slower than expected. Last month, the Fed said at its meeting that it was closely watching the deterioration in global financial conditions. Any further dovishness at its Wednesday meeting could be a near-term boost for the Canadian dollar.

But strategists at Pavilion Global Markets said that it is unlikely the loonie has any upside left in it. With commodity prices remaining depressed and the election of a federal government that will be less supportive of Canada’s oil industry, they believe there is little support for the Canadian loonie.

“We continue to see tough times ahead for the CAD,” they said in a note to clients.


Rise of ‘sharing’ services Uber, Airbnb points to a precarious labour climate
Globe and Mail, October 25, 2015

For competitors of Uber and Airbnb, the influx of supply has driven down prices and revenue. A 2014 study from Boston University estimated that a 1-per-cent increase in Airbnb listings in Texas results in quarterly hotel revenues dropping by 0.05 per cent, a measure worsened by Airbnb’s rapid growth.

“It contributes to lower prices in general because it releases a ton of capacity into the market,” Alex Bellefleur, head of macro strategy at Pavilion Global Markets, said. “You had a bunch of cars that weren’t really doing public transportation before and now they are, and they are obviously leading to lower prices.”


Little Near-Term Hope For Argentina’s Economy Despite Elections: Pavilion
Barron’s, October 22, 2015

With Argentina’s presidential elections this weekend, Pavilion’s Alex Bellefleur, François Boutin-Dufresne and Pierre Lapointe take a look at the prospects for that country’s economy going forward. Their conclusion—don’t hold your breath for reform.

They write that while all candidates, including frontrunner Daniel Scioli, acknowledging that the economy needs help, “Argentina doesn’t have a particularly bright track-record of good macroeconomic management.” More to the point, with inflation up 26% year-over-year, a weak currency and falling reserves, it’s hard to see how effective the government can be in stabilizing the economy.


How global markets are draining cash from US pensions
MSN Money, October 22, 2015

Recent performance has been so abysmal that some private pension funds have decided to pare back on emerging markets, said Susan McDermott, the Chicago-based chief investment officer of consultant Pavilion Advisory Group. Foundations and endowments are discussing the situation, she said.

“Most of our clients have not looked to reduce the allocation,” she said. “There have been maybe a few that have, just because they’re trying to control the volatility of the overall investment program.”


UPDATE: Microsoft, Amazon, former Google headline third-quarter’s earnings peak week
Morningstar, October 18, 2015

So far, the season is off to a brisk start with actual earnings growth coming in at 7.5% based on the 58 companies that have already reported, with 71% of companies topping consensus earnings estimates, according to Thomson Reuters data.

That is in line with the recent earnings season trend where companies reporting near the beginning of the season beat their earnings estimates more often than later-reporting companies, according to Pierre Lapointe, head of global strategy and markets at Pavilion Global Markets, in a recent note. However, that is less surprising when one takes into account that energy and materials companies tend to report later in the calendar.


Emerging Nations Trimming $5 Trillion Debt Stokes Currency Risk
Bloomberg, October 15, 2015

The unwinding of dollar borrowings is more than a fleeting phenomenon, which will contribute to the weakening of emerging-market currencies against the U.S. currency, according to Pierre Lapointe, the Montreal-based head of global strategy and research at Pavilion Global Markets Ltd. The Fed’s broad measure of the dollar against major U.S. trading partners has rallied 16 percent since the middle of 2014 and reached a 12-year high last month.

“We expect the theme of EM external deleveraging to remain with us for a long time,” Lapointe said in a note on Oct. 9. “Historically, this process tends to last many years. In this context, we are probably halfway throughout the current structural dollar uptrend.”


Charts of the Day: Where Is Emerging Market Debt?
Barron’s, October 9, 2015

For all that fear about debt risk, the Fed, China, you name it, emerging markets have had a bang-up week: the Market Vectors Russia exchange-traded fund (RSX) is the big winner, up nearly 12%, the Global X MSCI Argentina ETF (ARGT) and the iShares MSCI Brazil Capped ETF (EWZ) are each up about 10% and the iShares MSCI India ETF (INDA) is up nearly 3%. All told, the iShares MSCI Emerging Markets ETF (EEM) is up 6.6% on the week.

The underlying debt risk, of course, has not gone away. But be careful how you parse it. Here are two good charts from Pavilion Global Markets that show that while big emerging markets hold the largest share of external debt, the burden as a percentage of GDP points to risk in smaller countries in the developing world.


Here’s some advice on how you should be investing your money
New York Post, October 8, 2015

But that may be providing a false sense of security, because if recent trends hold, early beats shouldn’t be much of a surprise. Over the past three quarters, early reporting companies have tended to have more positive earnings surprises than later-reporting companies, according to Pierre Lapointe, The stock market is driving everybody psycho — with the Dow up 300 points one day and down 300 the next. And there are those overnight rallies that look very much like market intervention by a powerful being — and I don’t mean God.

So, when James McKeough, a chartered market technician and certified management accountant with Pavilion Global Markets, asked if I wanted him to give my readers some advice on how to handle these swings based on “an eclectic range of disciplines, including social psychology, sociology, cognitive psychology and history,” I said, “Why not?” — even if I had to look up what some of those things meant.


Strong consumer-based earnings, beats needed to counter global growth fears
Morningstar, October 8, 2015

But that may be providing a false sense of security, because if recent trends hold, early beats shouldn’t be much of a surprise. Over the past three quarters, early reporting companies have tended to have more positive earnings surprises than later-reporting companies, according to Pierre Lapointe, head of global strategy and markets at Pavilion Global Markets. Lapointe sees analyst expectations as being too high and a rise in analyst forecasting errors, which doesn’t bode well for this earnings season.

Companies within the same sector tend to clump together in the earnings schedule, and the recent tendency has been that better-performing sectors have been reporting earlier in the season.


Looking for U.S. Earnings Shortfalls? Just Wait a Few Weeks
The One Dave, October 8, 2015

The results are in keeping with a tendency among analysts to become too optimistic as economic expansions lengthen, Lapointe and two colleagues wrote yesterday in a report. The U.S. economy has been out of recession for more than six years, according to data from the National Bureau of Economic Research.

“If this pattern continues, we’re likely to see a disappointing earnings season,” Lapointe wrote. Analysts expect S&P 500 profit to fall 6.9 percent from a year earlier because of declines at energy companies, according to data compiled by Bloomberg. Excluding energy, they anticipate growth of only 0.1 percent.


A Banner Year for M&A Bodes Well for Deal Firms
Bloomberg BNA, October 5, 2015

Deals in the Americas accounted for 55 percent of the volume in the year to date. Of those deals, 93 percent were in the U.S., up 24 percent in volume from the same period last year.
U.S. deals within the technology sector experienced the largest percentage change with an increase of 97 percent, bolstered by the sale of SunGard Data Systems Inc. to Fidelity National Information Services Inc. for $9.1 billion, announced in the third quarter.

The striking increase in values suggests that megadeals are regaining the dominance in M&A that prevailed during the 1990s, Pierre Lapointe, the head of global strategy and markets at Pavilion Global Markets Ltd., wrote in a report last week.


Megadeals Regain M&A Dominance Through 1990s-Style Expansion
Bloomberg, October 1, 2015

Megadeals are regaining the kind of dominance over mergers and acquisitions worldwide that prevailed during the 1990s Internet bubble, according to Pierre Lapointe, Pavilion Global Markets Ltd.’s head of global strategy and markets.

The chart below tracks these deals, initially valued at $10 billion or more, as a percentage of the dollar value of all takeover offers. The figure for the first three quarters of this year was 36 percent, according to data compiled by Bloomberg. This would be the highest total for an entire year since 1999.


U.S. economy showing signs of recession, analysts say—and that doesn’t bode well for stocks
Financial Post, September 24, 2015

The Fed is clearly not alone in its concern about the ongoing economic deterioration in emerging markets. And that, coupled with the lack of improvement in credit-market conditions, indicate prospects for risk assets globally don’t look very good.

As a result, Pierre Lapointe, head of strategy at Pavilion Global Markets, thinks investors should be preparing for further disappointments. He cautioned that risks are now to the downside in most regions of the world.

“With several stock markets displaying high P/Es, low EPS growth and most bonds yielding negative real yields, the recent pop in global volatility brings us to re-consider both stock and bond markets,” Lapointe said in a report.


Pavilion Forecasts Micex Drop as Russian Stocks Resume Oil Link
Bloomberg, September 20, 2015

While the depreciation of the ruble, which has weakened 19 percent in the past three months, might explain some of the resilience in locally traded Russian equities, the divergence between oil and stock prices appears extreme to Francois Boutin-Dufresne, a strategist at Pavilion Global Markets. He predicts a sharp decline in the Micex in the next six to 12 months.

“The positive effect of the ruble depreciation aside, the shock of lower oil prices is going to filter through from the oil sector to the broader economy, and at some point this has to materialize in the ruble stock market,” Boutin-Dufresne said by phone from Montreal, Canada, last week. “For local investors this might not be the end of the world, but for foreigners who look at the dollar price — terrible investment.”


Fed Stock Volatility Rarely Lasts as Economy Absorbs Rate Hikes
Bloomberg, September 16, 2015

“This makes intuitive sense to us, given that the transmission of monetary policy usually takes nine to 12 months to take effect on the economy,” Lapointe and two colleagues, Alex Bellefleur and Francois Boutin-Dufresne, wrote yesterday in a report. The Montreal-based strategists highlighted the volatility readings in their research.

The Fed’s first moves didn’t produce a consistent reaction, as noted in the report. The S&P 500 became more volatile in 1994 and 2004, especially after the earlier decision. On the other hand, the 30-day reading fell within days after the 1999 increase.


How to play stock-market volatility as Fed weighs rate-hike
Market Watch, September 15, 2015

“Of course, there is also the minor matter of the looming Federal Reserve rate decision. While that might seem to be an obvious factor behind the rise in volatility, analysts led by Pierre Lapointe at Pavilion in Montreal note that such wasn’t the case at the start of the last three rate-hike cycles in June 2004, June 1999 and February 1994.”


Consultants Guide Clients through Private Equity Fee Maze
FundFire, August 21, 2015

“That means you don’t have as dynamic of a pricing environment as you do in other parts of the industry,” says Allen Waldrop, managing director at LP Capital Advisors, an alts consulting firm that was purchased by Pavilion Advisory Group last year. “The challenge with private equity is that improvements come quite incrementally, because once a manager has a strategy funded, then those terms are locked down and there aren’t new terms for years—that is until they open their next fund.”


Why S. Africa Remains Unprepared For Fed Hike
August 25, 2015

South Africa weak economy hasn’t improved enough to easily withstand a U.S. Federal Reserve rate increase. Strategists Pierre Lapointe, Alex Bellefleur and François Boutin-Dufresne at Pavilion remain negative on South Africa’s medium-term growth prospects, citing a reliance on commodity revenue, governance and corruption issues, and general economic weakness.


Here Are The Companies That Will Benefit From An Open Iran: Pavilion
August 19, 2015

The Joint Comprehensive Plan of Action has set the stage for the potential removal of sanctions against Iran, and not surprisingly multinational companies are quite eager to have access to that nation, with (diminished) oil profits to spend and a relatively youthful populace. However, not all companies will enjoy equal access, argues Pavilion’s Pierre Lapointe and team: Rather, European companies stand to gain more than American companies, given the two regions’ stances on Iran.


Non for Profit Profile: Antonio DiCosola
August 13, 2015

Consultant Finds Success In Customization For Nonprofits’ Varied Philosophies, Biases
Truly understanding the investment philosophies and biases of the staff and board members involved in decision making at foundations and endowments is a key component to structuring a customized investment strategy that provides a framework for outperformance while taking into consideration an institution’s needs, according to Pavilion Advisory Group Consultant Antonio DiCosola.

To create a customized program, Pavilion works with clients to develop an investment philosophy and model multiple asset allocations to determine the best fit for the portfolio over a long-term horizon, according to DiCosola. Read more


Why U.S. rig counts are rising even as oil plunges to new lows
Morningstar, August 14, 2015

The EIA said U.S. production began falling in May, partly due to temporary outages in the Gulf of Mexico, and predicted output would continue to fall through the third quarter of next year in response to lower prices. That is all well and good, but even as shale producers have lowered their output, they’ve seen their production replaced by even lower-cost producers such as Russia, Saudi Arabia and Iraq, said Pierre Lapointe, head of global strategy and markets at Montreal-based Pavilion, in a note.

Those countries, which are facing growing strains on public finances given the sharp drop in oil revenues since late last year, have an incentive to maintain, if not increase, production to stabilize their fiscal outlook, Lapointe said. Low-cost producers will also want to safeguard global market share, which is another reason why the production share of Saudi Arabia, Iraq and Russia has started to rise again after falling over much of last year, he said.


Is there an emerging opportunity in emerging markets?
Financial Post, August 6, 2015

Pierre Lapointe, head of global strategy and markets at Pavilion Financial Corp., notes that emerging markets face a slew of structural challenges, including weakness in global trade, falling commodity prices, government account deficits and unstable currencies.

He notes the oil price crash has thrown a further wrench into EM economies. The purchasing power of large oil economies, such as Canada, have rapidly declined because of the crash, meaning they’re likely to buy less goods from outside their borders, which affects EM economies that export finished goods to oil producers.

“As there are fewer petrodollars available to import from other EMs, oil exporters’ import demand will come under pressure,” he said. “As a whole, this represents an added pressure on emerging markets in a time that is already unfavorable to most of them.”


As Fed Hikes Rates, Why India Can Take The Pain
Barron’s, July 29, 2015

Easier money could help India boost exports, and is one reason write Pavilion’s Pierre Lapointe, Alex Bellefleur and François Boutin-Dufresne like Indian stocks and local currency bonds relative to other emerging markets, despite steeper valuations. They write:

“India has been accumulating a fair amount of FX reserves recently – unlike several other emerging markets. As such, the country seems relatively more immune to the negative consequences that could come from a sudden reversal in capital flows that will likely occur when the Fed decides to pull the trigger on interest rates. In this context, India’s FX cushion should be seen as a stabilizing force for the country’s financial sector (and for the rupee) should the world enter another chapter of volatility.”


Here’s how Greece could slide out of the euro
Morningstar, July 7, 2015

The introduction of IOUs would effectively mark the introduction of a parallel currency that would run alongside the euro–and presumably trade cheaper than the euro inside Greece, said Pierre Lapointe, head of global strategy and markets at Pavilion in Montreal.

“This would be the first step towards reintroduction of the drachma. This whole scenario would hurt depositors who did not get their funds out of the Greek banking system in time, and would reward those who did,” he said.


UPDATE: Yay or Nay: Greece’s referendum will be complicated
Morningstar, June 29, 2015

Greek voters will go to the polls Sunday to render a verdict on the demands of its international creditors. Unfortunately, the outcome might not offer a crystal-clear solution to the long-running crisis.

“If Greeks vote ‘no’ on Sunday, the result likely will be interpreted as a vote for eurozone exit. However, if they vote ‘yes,’ things will be more complicated,” said Pierre Lapointe, head of global strategy and markets at Pavilion, in a note to clients.


Is a profit margin crisis still on the way?
Financial Post, June 22, 2015

Even if that doesn’t happen and profit margins do begin to shrink both here and south of the border, it may not necessarily spell an end to the stock market rally, said Pierre Lapointe, head of global strategy and research at Pavilion Global Markets in Montreal.

As he points out, the 1980s was a period of stagnating profit margins that co-existed with an up-trending stock market.

“In other words, it can take a long time before contracting margins begin to hurt stock prices,” he said. “It usually takes a recession to create an environment in which contracting margins coincide with falling stock prices.”


Solving the riddle of weak late-day trading
CNBC, June 15, 2015

Pavilion Global Markets, a Montreal-based brokerage, points out the buyback yield of American stocks is far higher than in the other two major regions, Japan (based on the Nikkei 225), and Europe (using the STOXX Europe 600 index).

The S&P 500 has a buyback yield of 2.82 percent, they reckon, versus 0.95 percent for Japan and 0.87 percent for Europe.

The trouble is that bond issuance, including “debt issues specifically to finance share buybacks,” has also been growing. Most notably, the largest growth has taken place in the U.S. which Pavilion notes “hurts shareholder rewards.”


Dividends, buybacks start to rise in Japan
The Star Pheonix, June 10, 2015

Pierre Lapointe, head of global strategy and market research at Pavilion Global Markets in Montreal, said many Japanese companies still have significant cash positions that don’t generate any yields or returns for shareholders.

He also noted dividend growth has accelerated, while annual capital expenditure growth has fallen to around six per cent in recent years from almost 20 per cent.

“This is the first time in about 20 years that we witness this type of decoupling between capex and dividend growth, suggesting that companies are becoming cautious on capex, but are warming to the idea of paying dividends with their cash instead,” he said in a note to clients.


What research is worth paying for?
CityWire, June 9, 2015

There is a growing variety and number of independent research firms to choose from, according to Standard Life Investments head of global strategy Andrew Milligan, who is looking to vary his research resources rather than relying purely on the output of the big institutions.

‘It is important to emphasise we have to rely on a variety of sources now,’ Milligan said. ‘We look at research from investment banks but they have reduced their investment research capabilities in recent years. They still add value but we have to look elsewhere.’
The intelligent voices

Independent research and economic forecast companies Milligan points to include Capital Economics, Medley Global Advisors, Pantheon Macroeconomics, Pavilion Global Markets and Absolute Strategy Research to name a few.


Japan a rising destination for dividends and buybacks: ‘Potential for higher payouts is enormous’
Financial Post, June 8, 2015

Pierre Lapointe, head of global strategy and market research at Pavilion Global Markets in Montreal, said many Japanese companies still have significant cash positions that don’t generate any yields or returns for shareholders.

He also noted dividend growth has accelerated, while annual capital expenditure growth has fallen to around six per cent in recent years from almost 20 per cent.

“This is the first time in about 20 years that we witness this type of decoupling between capex and dividend growth, suggesting that companies are becoming cautious on capex, but are warming to the idea of paying dividends with their cash instead,” he said in a note to clients.


400 Billion Reasons Why Ebbing Currency Reserves Threaten Bonds
Bloomberg, June 5, 2015

Periods of falling reserves historically coincided with increased fixed-income volatility, as measured by a market stress indicator created by the ECB and based on fluctuations in the German 10-year bond, according to the Pavilion team, led by Pierre Lapointe.

Bond markets jumped in both 2008 and 2011, the same times as the combined reserves of China, Saudi Arabia, Japan and Switzerland were dipping by Pavilion’s reckoning.


Why the economic slowdown hasn’t derailed the stock market rally
Globe and Mail, May 24, 2015

“Did the U.S. recovery just die without warning?” asks a report last week May 21 from Capital Economics that examined the disappointing conga line of economic data over the past few months. Pavilion Global Markets, another research outfit, chimed in with a note pointing out that recent U.S. expansions have lasted an average of seven years— and this one is just turning six.


QE Great for Europe Stock Markets, Not So Much for Pension Funds
The Washington Post, May 22, 2015

With bond yields shrinking or even dropping below zero, the pressure for longer-term investors in Europe to find other higher-yielding assets has increased, according to Alex Bellefleur, a global macro strategist at Pavilion.

“The theme of corporate-pension deficits is reaching a critical moment given the sheer speed at which bond yields were moving,” said Montreal-based Bellefleur. “The broad picture to gather is that there are more underfunded companies in Europe.”


Rising U.S. Home Prices Seen Outweighing Drop in Ownership Rate
Bloomberg, May 19, 2015

“Rising house prices in the face of a falling homeownership rate are a show of strength for the U.S. housing market, according to Pierre Lapointe, Pavilion Global Markets Ltd.’s Head of Global Strategy and Research.”


Active or passive target-date funds have similar returns, Morningstar finds
Investment News, May 4, 2015

The primary reasons plan executives choose passive funds are lower fees and a wish for open architecture, said Preet Prashar, defined contribution senior research analyst at Plan Sponsor Advisors.

When asked about the Morningstar results, Mr. Prashar said “many plan sponsors prefer higher-fee, active target-date funds as they believe that active is able to provide a more diversified asset allocation, which can potentially help get better risk-adjusted returns over a full market cycle net of fees.”


Don’t buy into the misplaced optimism of ‘Sunny Stephen’
Globe and Mail, April 28, 2015.

After deeming first-quarter economic growth to be “atrocious,” Bank of Canada Governor Stephen Poloz has reclaimed the mantle of “Sunny Stephen,” a title bestowed on him by The Economist in 2013.

Pavilion Global Markets, however, believes that this “Canadian optimism is misplaced.” Strategists Pierre Lapointe, Alex Bellefleur, and François Boutin-Dufresne advise investors to avoid the loonie and Canadian equities.


Is it time to sell Canada? Stephen Poloz’s outlook may be too rosy, economists say
Financial Post, April 28, 2015

It could be time to sell Canada if market watchers are correct that Bank of Canada Governor Stephen Poloz’s upbeat outlook is just a bit too rosy.

“Despite overt optimism from the government and the Bank of Canada, we struggle to see how things will get significantly better,” said Pierre Lapointe, head of global strategy and markets for Pavilion Global Markets.


U.S. earnings doing just enough to keep stock prices up
Financial Post, April 27, 2015

Nevertheless, the current earnings season is still “nothing to write home about,” said Pierre Lapointe, global strategist at Pavilion Global Markets in Montreal.

For him, the silver lining in the numbers is that low earnings growth has not impacted the outlook for dividends south of the border.

He expects dividends to continue growing because payouts, which have risen to 35 per cent of earnings from 25 per cent at the end of 2011, are still very low on an historical basis as well as in relation to other countries such as Japan and Europe.


Romance with Hong Kong stocks not done yet

Financial Post, April 23, 2015

“The divergence in valuation between mainland and Hong Kong‑traded Chinese stocks is unlikely to last in our opinion,” said Pierre Lapointe, head of global strategy and markets for Pavilion Global Markets.

“We expect arbitrage opportunities coming from recent regulatory changes to lead to a convergence in valuation metrics,” he added. “Moreover, current valuation metrics show that [Hong Kong stocks are] relatively cheap compared to mainland indices and other developed markets and emerging markets.”


Here’s what the Street expects U.S. stocks to return in the next 12 months

The Globe and Mail, April 20, 2015

Sell-side analysts do not have great expectations for the performance of U.S. equities over the next year.

According to Pavilion Global Markets, the bottom-up consensus call is for the average stock in the S&P 500 to gain 8.7 per cent during the next 12 months. This is an improvement from late February, where projected appreciation was a little more than 6 per cent, but still near the low end of the range for the past decade.


World Braces for Taper Tantrum II Even as Yellen Soothes Nerves
Bloomberg, April 19, 2015

In a sign of possible vulnerabilities, the IMF calculates debt has outpaced gross domestic product growth in each major emerging market since 2007. Dollar denominated corporate debt in such economies also has tripled over the past five years to $1.4 trillion.

Turkey, Indonesia and Brazil appear most at risk of any chilling of external finance, analysts at Pavilion Global Markets said in a report this month. Hungary, Brazil, Mexico, Turkey and South Africa are among those whose equity markets also have considerable foreign ownership, the Montreal-based brokerage said. India may be protected after it acted to reform its economy in recent years.


The top psychological mistakes investors make
BNN.ca, April 16, 2015

James McKeough, research analyst in behavioural investing at Pavilion Global Markets, joins The Close to explain why investors should use history as a tool, not a teacher, and offers his list of the top psychological biases that affect performance.


Emerging markets still have plenty of room to grow
24News.ca, April 16, 2015

Higgins isn’t confident that will happen, saying he’s skeptical “that Chinese equities will remain on a tear,” but other analysts are.

“The pace of the increase in Chinese stock prices has been rapid, but we see no reason to worry,” said Pierre Lapointe, head of global strategy and research at Pavilion Global Markets in Montreal, in a note to clients. “We do not see a stock market bubble in China and expect the equity market to continue to do well.”


Danger Ahead? Unraveling Emerging Market Dollar Debt
Barron’s, April 2, 2015

“Emerging market entities have borrowed too much in foreign currencies, making balance sheets especially vulnerable to a strong dollar and default risk.

Thus the outlook is bleak for emerging market equities and currencies, conclude strategists
Pierre Lapointe, Alex Bellefleur and François Boutin-Dufresne at Pavilion Global Markets. They look back on trends since the financial crisis and fear that issuers will have to trim debt positions.”


Are 401(k) brokerage windows ‘dirty?’
Benefitspro, March 25, 2015

In Charles Schwab’s comments, the broker-dealer said it does offer a window-only arrangement, but it is usually to “micro” plans, described as having less than $1 million in assets.

Jennifer Flodin, the defined contribution practice leader for Chicago-based Plan Sponsor Advisors, a division of Pavilion Advisory Group, said in her 20 years advising plan sponsors, she’s never encountered a plan offering only a brokerage window.

“We are fans of them, but only for the right demographic,” said Flodin.


Dealmaking Drop Bodes Well for Economic Growth: Chart of the Day
Bloomberg, March 18, 2015

Mergers and acquisitions have slowed enough this quarter to ease concern that an economic slump lies ahead, according to Pierre Lapointe, Pavilion Global Markets Ltd.’s head of global strategy and research.

The CHART OF THE DAY tracks the dollar value and number of deals announced worldwide in each quarter since 2003, according to data compiled by Bloomberg. Totals for the first quarter of 2015 are through yesterday.


Oppenheimer’s de Longis Shorting Loonie on Housing Decline Bet
Bloomberg, March 16, 2015

Canadian non-bank lenders are even riskier than their U.S. peers, with an average leverage ratio of 20 times compared to four times, according to Pavilion, which has a negative view on the Canadian dollar.


Will the bull market have happy returns?
Globe and Mail, March 15, 2015

“Given very low bond yields, investors have few substitutes for stocks,” writes the research team at Pavilion Global Markets in Montreal. Their methodology calculates that the S&P 500 is about 31 per cent above fair value, while Canadian stocks are about 19 per cent overvalued.


Alex Bellefleur, Macro Strategist at Pavilion Global Markets Lts., on Canadian economy and CAD
Dukascopy, March 6, 2015

Alex Bellefleur, Global Macro Strategist at Pavilion Global Markets Ltd. provided expert commentary to Dukascopy, a Swiss innovative online bank providing Internet based and mobile trading services (with focus on foreign exchange, bullion and binaries).

“Hence, the cut in Canada’s energy exports income will have a significant impact and represents a clear negative shock to the economy. I believe this drop in incomes will then probably hit housing, an asset that has been appreciating almost non-stop for 15 years and, as a result, is considered by many households to be fail-safe.”


There are two ways to view frothy U.S. stocks
Montreal Gazette, March 5, 2015

“Equities are getting pricier and pricier, as one would expect in the latter stage of an expansion,” Pierre Lapointe, head of global strategy and research at Pavilion Global Markets in Montreal, said in a note. “Without robust earnings growth, the market rally is pushing valuation metrics upwards.”

Mr. Lapointe said U.S. stock prices are about 30% above their fair value considering the level of long-term yields, which is much higher than it was at the previous market peak in 2007, but not as overvalued as it was during the 1987 and 2000 market peaks.


Deflation Risk Frustrates Central Bankers’ Easy Money Campaigns
Bloomberg, March 3, 2015

“The days of negative real rates are coming to an end,” Pavilion’s Pierre Lapointe and Alex Bellefleur told clients in a report last week. “The key takeaway is that they will no longer provide support.”


U.S. investors are fleeing emerging markets and this is not good news for Canadian investors
The Globe and Mail, February 25, 2015

Pavilion Corp.’s Pierre Lapointe, the company’s head of global strategy and research, published a report Wednesday noting that, after a five-year period when emerging markets underperformed developed equities, investors have had enough: “In January, EM funds available to U.S. investors registered outflows of $3.3-billion. This is the largest monthly outflow since the Lehman crisis in 2008.”


Surprisingly bad U.S. economic data surprisingly good news for equities
The Globe and Mail, February 23, 2015

Citigroup’s U.S. economic surprise index has tumbled over the past few months from around 40 in late December to -45.6 this as of Monday morning. This level indicates that U.S. economic data released over the past three months has missed the consensus estimate by about a half a standard deviation.

Pavilion strategists Pierre Lapoint and Alex Bellefleur believe this index is a somewhat contrarian indicator that is currently pointing towards an extension of the rally in U.S. equities over the next six months.


Corporate-Bond Demand Plugs U.S. Financing Gap: Chart of the Day
Bloomberg, February 13, 2015

Demand for corporate bonds is poised to rebound at an ideal time for many U.S. companies, according to Pierre Lapointe, Pavilion Global Markets Ltd.’s head of global strategy and research.

As the CHART OF THE DAY shows, U.S. capital spending exceeded cash flows in the first three quarters of last year, according to data compiled by the Federal Reserve. The figures appear in the top panel. They exclude international earnings retained abroad.


Energy: From Too Optimistic to Too Pessimistic in a Few Short Weeks
Barron’s, February 11, 2015

Pavilion’s Pierre Lapointe and Alex Bellefleur think analysts have gone from being to optimistic on the earnings of energy companies–think ExxonMobil (XOM), Chevron (CVX) and ConocoPhillips (COP)–to being to pessimistic, after estimates dropped more than 30% in just one month. They explain why:

“We are not surprised that energy analysts adjusted their models to reflect new oil prices. After all, when the situation changes, your scenario should also be revisited. The steepness of the oil price pullback is similar to what we saw in 2008. The amplitude of the decline, however, is not as negative as it was then. Between July 2008 and the end of the year, WTI prices went from $145/bbl to less than $35/bbl. This time around, oil prices declined from $107/bbl to $50/bbl.”


Retirement plan assets rise 8.5%, pass $9 trillion
Pensions & Investments, February 9, 2015

Said Jennifer Flodin, defined contribution practice leader at Plan Sponsor Advisors in Chicago: “I think a couple of different things have contributed to the growth of DC over DB. I think the auto features have tremendously helped asset growth (and) inflow growth (for DC plans). On the flip side, you’ve got DB plans who are doing more lump-sum distributions to retirees; in addition some organizations might be reducing the overall contributions to their DB plans.”


Making the investing case for Europe
Financial Post, February 6, 2015

“We see the combination of a weak euro, monetary stimulus and easing in credit conditions laying the backdrop for improved data in the coming months,” said Pierre Lapointe, head of global strategy and research at Pavilion Global Markets. “This supports our view that the euro has bottomed out, the German curve will steepen and European stocks will continue to rally.”


How Greece’s Syriza election victory sets the stage for bigger market headaches ahead
Financial Post, January 26, 2015

“Beyond the periphery, election risks are more muted, but still considerable enough to warrant caution, said Pierre Lapointe, head of global strategy and research at Pavilion Corp.

Notably he points to U.K. elections in May as a potential source of angst for investors with exposure to that country’s equity markets.”


Growing Risk Aversion Unmatched by Volatility: Chart of the Day
Bloomberg, January 22, 2015

Investor caution is less than extreme even though a market-based indicator suggests otherwise, according to Pierre Lapointe, Pavilion Global Markets Ltd.’s head of global strategy and research.

The CHART OF THE DAY tracks the barometer, the Citi Macro Risk Index, which ranges between 0 and 1. Higher numbers signal greater risk aversion. Readings from Jan. 2 through yesterday were at least 0.93, near peaks when the global financial system faltered in 2008 and European sovereign debt tumbled in 2011.

Citigroup Inc.’s index, shown in the chart’s top panel, contrasts with gauges of stock, bond and currency volatility displayed in the bottom panel. The three indicators were among those that Lapointe and a colleague, Alex Bellefleur, cited in a report three days ago.


East Asia, the only bright spot in emerging market plays
Financial Post, January 12, 2015

“Emerging markets need a catalyst,” said Pierre Lapointe, head of global strategy and research at Pavilion Global Markets. “Momentum does not favour the asset class at the moment, neither do short-term valuation metrics. At this point, only very long-term investors are likely interested in EMs.”


East Asia, the only bright spot in emerging market plays
Financial Post, January 12, 2015

“Emerging markets need a catalyst,” said Pierre Lapointe, head of global strategy and research at Pavilion Global Markets. “Momentum does not favour the asset class at the moment, neither do short-term valuation metrics. At this point, only very long-term investors are likely interested in EMs.”


ECB braces for full-blown stimulus as threat of ‘sustained’ deflation heightens uncertainty
Financial Post, January 12, 2015

With deflation in Germany, the 19-nation EU’s largest member, considered a relatively small risk just two months ago, QE opponents saw little reason to consider sovereign bond purchases. But rapid changes in the inflation backdrop may increase the urgency for action, even for a reluctant central bank such as the Bundesbank.

“It can no longer make the argument that Germany is shielded from deflation and that monetary policy is too loose for Germany,” said Pierre Lapointe, head of global strategy and research at Pavilion Global Markets.


How deflating Europe could force the central bank into action
Financial Post, January 5, 2015

Pierre Lapointe, head of global strategy and research at Pavilion Corp., said it is likely a similar rally will be seen in Europe if a QE program is launched by the ECB later this month.

“We see no reason why this should be different in Europe, as long as growth is greater than zero,” he said. “The combination of low growth and QE was sufficient for stocks to rally in the United States. That combo should be enough in Europe too, but QE without growth remains a risk. For now, we continue to believe that growth, if dull, will be sufficient for stocks to rally.