What a bizarre week. Bizarre is not a word I use that often but I’m struggling to find the right description for a week where higher futures lead to lower closes, and lower futures result in market rallies. Investors in Canada are still looking for guidance after a strong January and the possible “binary” outcomes for Europe continue to leave the market either jubilant or abhorrently petrified.

And yes, Europe is binary as it will survive or fail, which will result in either a slow recovery for the global economy or systemic failure. One would think that failure is not an option, but you wouldn’t know it considering how the Greek hot potato keeps getting thrown around.

So Greece and Europe remained at the forefront of news headlines last week as a lot was discussed, but little was accomplished. Greece passed austerity measures on Sunday night required to receive its second bailout. The bailout was supposed to be approved on Wednesday, but that decision has been pushed out to Monday when European finance ministers will get together yet again. Even a pledge of support from China to Europe did little to move Canadian markets this week.

On the other hand, U.S. markets continued their very impressive performance in 2012 as we saw improving economic data south of the border, which included yet another drop in U.S. jobless claims. Even politicians decided to get along on Friday as the House and Senate passed a bill that provided a payroll tax cut extension. It also didn’t hurt that Apple’s share price broke through the US$500 per share level and speculation about a possible dividend escalated.

Oil prices had a very strong week as U.S. economic data improved and the situation in Iran remained tense as President Ahmadinejad announced that his country had made major progress in its controversial nuclear program. Precious metal prices remained relatively flat as the U.S. dollar/Euro ebbed and flowed with news out of Europe. So too did the Canadian dollar; however, the loonie managed to close the week higher and comfortably above parity.

VOLUMES AREN’T THE PROBLEM

January provided some very impressive returns this year. The gains have only continued for the S&P 500 in February while the TSX has stalled as returns are relatively flat this month.

Some investors believe that lower trading volumes are at fault, but TSX trading volumes have been very consistent throughout 2012 and are slightly higher today than they were when the rally started at the beginning of January. Average volumes for the S&P 500 in February are slightly below what we saw in January which could cause some investors to question the conviction of February’s returns. However, we think the difference in volumes is marginal at best. We don’t believe global markets are overly concerned with volumes at this stage, but they can become much more problematic if the Greeks don’t get their bailout for debt due in March. A “disorderly” default in Greece would lead to financial liquidity concerns, and then equity trading volumes would likely decline as buyers will be much more difficult to find. We don’t believe this will be the inevitable outcome for Greece, but we always have to be aware of the consequences of the worst possible scenario.

TRADING WEEK AHEAD

As we look forward to next week, Europe will be in focus right away as finance ministers are meeting to agree to a second Greek bailout. The Greeks have passed the austerity measures requested, but there is still a great deal of mistrust between Greece and the European Union as to whether Greece will go ahead with the implementation of the measures or whether the intentions of the government will change after the next election in April. Hopefully we’ll see a resolution and the bailout will be granted so that Greece can make debt payments in March. However, even if we get through the bailout discussions, the market will then move onto the discussions between the Greek Government and private bond holders which are still ongoing. Earnings season is slowly starting to wind down in the U.S. as most S&P 500 companies have reported their Q4 earnings. Yet, we will still hear from a number of influential companies and Dow components such as Wal-Mart, Kraft Foods, Home Depot and Hewlett-Packard. Wal-Mart in particular will give us an idea of how and where consumers are spending their money.

It will be difficult for oil prices to continue their strong performance next week as they were up over 4% over the past five days. Geopolitical risk in the Middle East may continue to support current levels, but we’ll also need to see even more positive economic data out of the U.S. to move prices higher on a more sustainable basis. Precious metal prices will certainly keep their eyes on the U.S. dollar as usual. If a Greek bailout is granted and progress is made with Greek private bondholders, then you could see the Euro strengthen along with commodity prices in general. Finally, it’s a quiet week on the economics front as Canada will see retail sales data from December, while Americans will have to wait until later in the week to see Manufacturing and Confidence indicators.

QUESTION OF THE WEEK

With the death of Whitney Houston last weekend, many news outlets focused on her potential earnings power now she’s deceased. A similar discussion occurred when Michael Jackson died. So this week we ask, which celebrities have the greatest earnings power now that they are no longer with us?

To answer this question we look to the folks at Forbes magazine. In October, the magazine released a list called the “Richest Dead Celebrities For 2011” which shows the top deceased celebrity income earners last year. Who made the top 15? The answer may surprise you in some cases.

  • Michael Jackson, $170 million, Musician
  • Elvis Presley, $55 million, Musician
  • Marilyn Monroe ,$27 million, Actress
  • Charles Schultz, $25 million, Creator of Peanuts
  • John Lennon, $12 million, Musician (the Beatles)
  • Elizabeth Taylor, $12 million, Actress
  • Albert Einstein, $10 million, Scientist
  • Theodor Geisel, $9 million, aka Dr. Seuss
  • Jimi Hendrix, $7 million, Musician
  • Stieg Larsson, $7 million, Author
  • Steve McQueen, $7 million, Actor
  • Richard Rodgers, $7 million, Songwriter (Rodgers & Hammerstein)
  • George Harrison, $6 million, Musician (the Beatles)
  • Bettie Page, $6 million, Model
  • Andy Warhol, $6 million, Artist

While Michael Jackson and Elvis Presley certainly aren’t a surprise, it was interesting to see Albert Einstein on the list. However, Mr. Einstein does quite well as he makes money every time a “Baby Einstein” product is sold. His estate has also recently moved into the videogame market with a Nintendo DS “brain game”. Not bad for a guy who would be 133 years old if he was still alive today!

Gareth Watson is the Vice President, Investment Management & Research at Richardson GMP in Toronto. This team of research experts is responsible for monitoring and interpreting economic, geo-political situations, current market environments and trends.
@Gareth_RGMP