Market Update

September 26, 2012

Team DeltaJesse Pytlak, Luc Troiani, Brad Wolfe, Rohit Lobo

Source: Google

Source: Google

Weekly Performance: S&P500, Dow Jones, NASDAQ

Weekly Performance: TSX Composite

Equity Markets Review

Valuations Stretched?

Mean: 15.48

Median: 14.45

Min: 5.31 (Dec 1917)

Max: 123.79 (May 2009)

• S&P appears overvalued on a trailing P/E basis• S&P 500 within 10% of all time high• What are fund managers outlook for equities?

• How are they positioned?• Short position constraints?

• Risk/return: equities vs. fixed income

Source: Multpl.com

Historic price to earnings ratio, based on trailing twelve month “as reported” earnings

Volatile Week for Oil

Source: CNBC

Weekly U.S. Crude futures (NYMEX, November contract) performance

• Oil as a leading economic indicator• Rumours of a release of U.S. Strategic Petroleum Reserves • Saudi Arabia suggests increasing supply• A strong correlation exists between oil prices and CAD• What are managers views on energy prices?

• Does it align with their views of the economy?• Current positioning? FX exposure?

Economic Indicators

Manufacturing sales (Sept. 14) Wholesale trade (Sept. 21)

Source: StatCan

Economic Indicators

Consumer Price Index (Sept. 21) Energy Index (Sept. 21)

Source: StatCan

Economic Releases

Release Date

CA – Retail Sales Sept. 25

CA – GDP Sept. 28

US – Consumer Confidence Sept. 25

US – House Price Index Sept. 25

US – New Home Sales Sept. 26

US – Durable / Capital Goods Sept. 27

US – Initial / Continuing Jobless Claims Sept. 27

US – Personal Income/Spending Sept. 28

Late August- SEC Proposes Changes to Advertising Restrictions

• The SEC proposed changes to the advertising restrictions on hedge funds, meaning they could potentially begin to advertise publicly

• One argument against this is that “unscrupulous” hedge funds managers may take advantage of uneducated investors

• What image does that argument give people about the ethics of the industry?

• Discussion: How will this affect hedge fund performance?

September 17th - Starboard Value Takes Activist Stake in Office Depot

• 13.3% equity stake makes it the largest shareholder

• Public letter issued to Board to push an improvement in operations

• Office Depot shares were up 10.5% in premarket trading on Monday

• Is this potentially a strategy we should look at? What are the risks?

China

Source: Google Finance

China

Source: The Economist and Forbes Magazine

• China’s Debt to GDP ratio at 16.3% - considerable “wiggle-room”

• Ample room for easing can result in a soft rather than hard landing

• Forbes estimates with “Hidden Liabilities”, Debt to GDP ratio between 90% - 160%

• Chinese communist leaders are traditionally very sensitive to inflationary measures due to potential widespread unrest

China

Source: The Telegraph and Sydney Morning Herald

• China’s manufacturing level fell to its lowest in nine years – HSBC PMI rating of 47.6

• China’s central and local governments launch a 7 Trillion Yuan stimulation package for roads and infrastructure

• Approved 60 new projects led by railways, roads, harbors, and airports

• Head of China’s Central Bank indicated that easing is not an optionZhou Xiaochuan