WEDNESDAY,MARCH11,2020 | THEGLOBEANDMAILO B7
EYEONEQUITIESDAVIDLEEDER
ENSIGNENERGYSERVICES(ESI-TSX)
CLOSE 67¢, DOWN 11¢
CESENERGYSOLUTIONS(CEU-TSX)
CLOSE $1.18, DOWN 2¢SOURCEENERGY(SHLE-TSX)
CLOSE 13¢, UP 2¢BLACKDIAMONDGROUP(BDI-TSX)
CLOSE $1.50, UP 10¢SURGEENERGY(SGY-TSX)
CLOSE 41¢, DOWN 4¢Raymond James analyst Andrew
Bradford says Canadian oil field
service companies will see their
EBITDA drop “materially” in the
near term, leading to “profound”
changes in the sector. He down-
graded several stocks, including
Ensign Energy Services Inc.,
which he dropped to “market
perform” from “strong buy.”
Target:His target for Ensign
shares remains $4.40. The con-
sensus target on the Street is
$3.46.
Amid decreasing demand and in-
creasing supply, Industrial Alli-
ance Securities analyst Elias Fos-
colos slashed his North American
rig count projections for 2020 and
2021, leading to a rerating of sev-
eral stocks. He loweredCES Ener-
gy Solutions Corp.to “specula-
tive buy” from “strong buy.” “The
impact on the company’s Drilling
Services division should be sub-
stantial,” he said
Target:His target fell to $1.75 tar-
get from $3.25. Consensus is $3.50.Mr. Foscolos lowered his target
price for shares ofSource Energy
Services Ltd.to 0 cents with a
“sell” rating on Tuesday, saying its
“liquidity risk has become too
great to ignore” after the release
of its fourth-quarter and 2019
year-end results last Thursday. He
expects the Calgary-based com-
pany to be forced to restructure fi-
nancially.
Target:Mr. Foscolos’s previous
target was 50 cents, which ex-
ceeds the 32 cent consensus.Despite a fourth-quarter beat,
Raymond James analyst Frederic
Bastien downgradedBlack Dia-
mond Group Ltd.to “outper-
form” from “strong perform.” “We
fear [its Workforce Solutions
business] will have difficulty sus-
taining this momentum, howev-
er, with oil and gas activity poised
to take another leg down in the
wake of [Monday’s] precipitous
fall in oil prices,” he said.
Target:His target fell to $2.50
from $2.70. Consensus is $2.75.In the wake of the release of its
updated reserves, reduced out-
look and dividend cut, Industrial
Alliance Securities analyst Mi-
chael Charlton loweredSurge En-
ergy Inc.to “speculative buy”
from “buy.” “We can’t help but
think that Surge will remain on
the ropes and focused on debt re-
payments for the foreseeable fu-
ture,” he said.
Target:Mr. Charlton reduced his
target to 75 cents from $1.50. Con-
sensus is $1.57.REPORTONBUSINESS|CANADIAN STOCKS
Canada’s main stock index partly
rebounded from its worst one-
day decline in more than 30
years on the promise of fiscal
stimulus by the U.S. and other
governments and a lift in oil
prices.
The S&P/TSX Composite In-
dex gained 3.1 per cent on the
day. The TSX lost 1,660.78 points
on Monday that put it close to a
bear market by being down 18
per cent since Feb. 20.
Crude oil prices partly reco-
vered from their huge decrease
and that helped Canadian ener-
gy producers offset some of the
massive declines they saw Mon-
day. Cenovus Energy Inc. gained
11.3 per cent after losing 51.6 per
cent on Monday, when the
capped energy index lost more
than 27 per cent.
The decrease in oil prices was
ignited by a price war after Rus-
sia refused on the weekend to
roll back production and Saudi
Arabia responded by vowing to
ramp up output.U.S. STOCKS
Wall Street roared back to life, re-
bounding from the brink of bear
market confirmation as bargain-
hunting and hopesof govern-
ment stimulus calmed investors’
fears surrounding the novel cor-
onavirus and growing signs of
imminent recession.
All three major indexes jump-
ed nearly 5 per cent the day after
equities markets suffered their
biggest one-day losses since the
2008 financial crisis.
U.S. President Donald Trump
said he will take “major steps” to
allay market fears by asking Con-
gress for a fiscal stimulus pack-
age to include a payroll tax cut,
among other measures.
The Dow Jones Industrial Av-
erage rose 4.89 per cent, the S&P
500 gained 4.94 per cent and the
Nasdaq Composite added 4.95
per cent.COMMODITIES
Oil prices jumped more than 8
per cent, bouncing from the big-
gest rout in nearly 30 years a day
earlier, as the possibility of eco-
nomic stimulus encouraged buy-
ing and U.S. producers slashed
spending in a move that could
cut output.FOREX AND BONDS
The Canadian dollar fell to a
four-year low against its U.S.
counterpart as the greenback
broadly rebounded, while a rally
in oil was not enough to per-
suade investors to turn more
bullish on Canada’s commodity-
linked currency.
The U.S. dollar posted sharp
gains against the safer Japanese
yen and Swiss franc, rebounding
from the prior day’s huge losses,
as investors hope global mone-
tary policy makers will launch
further stimulus plans to ease
the economic impact of the cor-
onavirus outbreak.
Canadian government bond
yields rose but by much less than
the increase in U.S. Treasury
yields. The 10-year yield was up
2.4 basis points at 0.558 per cent.
U.S. Treasury yields rose from
record lows as global oil and
stock markets rebounded after
huge losses on Monday fuelled
by an oil price war and growing
concerns over the economic im-
pact of the coronavirus.REUTERS, THE CANADIAN PRESSMarkets
summary
ter residence in Palm Springs, Calif.
Everyone agreed that stocks remain a
key part of retirement investing, even in
trying times such as these. Clay Gillespie,
managing director of RGF Integrated
Wealth Management in Vancouver, said he
might actually increase a client’s exposure
to stocks when markets are falling to take
advantage of a market correction.
Someone with 60 per cent of a portfolio
in stocks and 40 per cent in bonds might
shift to a 70-30 mix to exploit the plunge in
stock prices. “If you’re 20 years from retire-
ment, you want a correction to happen
two or three times before you retire,” Mr.
Gillespie said.
Susan Latremoille, who
ended a 35-year career as an
investment adviser at last
year, likes the tried-and-true
strategy of dollar-cost ave-
raging for putting money in-
to the market now. Make
small, repeated investments
to protect yourself from
making a big commitment
before more market declines.
What to buy? Dividend
growth stocks, suggested Ms.
Latremoille, who now helps people with
the non-financial side of retirement
through her company, SuccessDNA. If
companies have a history of passing on ev-
er more of their profits to shareholders as
dividends every year, it’s likely they have
the stability to withstand any economic
weakness ahead.
“My advice hasn’t changed in the 35
years I was an adviser – you need to have
money in the stock market to take advan-
tage of long-term compounding,” Ms. La-
tremoille said.
Just as shocking as the drop by the stock
markets has been the decline in interestT
he job of saving for retirement has
never looked so impossible.
Even after a rally on Tuesday,
the S&P/TSX Composite Index
was trading at levels close to those of early
- If you crave the safety of bonds, then
you’ll find yields fallen to shockingly low
levels in recent days.
The point of investing is to grow your
money. Financial markets today look like
they’ve conspired to prevent this from
happening. What’s an ordinary investor
saving for retirement supposed to do? Let’s
check in with four experts who have seen
plenty of past market corrections between
them.
All agreed the current market downturn
is plain nasty, and that returns for the next
while will be modest at best. “We could be
looking at a 12-month period where noth-
ing works except cash,” said financial plan-
ner Rona Birenbaum of Caring For Clients.
“It’s entirely possible that this will be one
of those washout years.”
Fred Vettese, an actuary and author of
the bookRetirement Income For Life, has
been rethinking his projection that a bal-
anced portfolio with 60 per cent invested
in stocks and 40 per cent in bonds will earn
average annual 5-per-cent returns in the
years ahead. “Even that’s going to be a chal-
lenge going forward,” he said from his win-
rates in the bond market. The yield on a
Government of Canada five-year bond was
in the 0.5-per-cent range on Tuesday, close
to the record low.
Mr. Vettese says low interest rates will be
with us indefinitely. The economic uncer-
tainty caused by the spread of the new cor-
onavirus has pushed rates to their recent
lows. But there’s a bigger, longer-term
trend driving rates down – an aging pop-
ulation that will slow economic growth
and keep inflation at low levels.
The implication here for retirement is
that you will not be able to reach your
goals without holding stocks or equity
funds. “People are going to have to have at
least 50 per cent in stocks if
they want a decent return,”
Mr. Vettese said.
Whatever amount of stock
market exposure you have,
mind your global diversifica-
tion. Weighed down by its
heavy exposure to energy
stocks, the S&P/TSX Com-
posite Index earlier this
week was roughly where it
was in spring 2008. That’s
without dividends included,
so the total return (share price changes
plus dividends) would be significantly bet-
ter. But there’s no getting around the fact
that our Canadian benchmark index has
been left in the dust by the S&P 500.
Ms. Birenbaum said it makes sense to di-
vide the stock side of your portfolio into
equal investments in Canadian, U.S. and
international markets outside North
America. If you can’t bring yourself to start
buying stocks or equity funds right now,
she urges you to think back to the great
buying opportunity presented by the
2008-09 market decline. “This time will be
the same,” she said.Plottingoutretirementsavings
amidturmoilinmarket,rates
Expertsoffertheiroutlooks
andstrategiesforordinary
investorsfrettingtheworst
The point
of investing is
to grow your money.
Financial markets
today look like
they’ve conspired
to prevent this
from happening.ROB
CARRICK
ANALYSISmatch BoC rate cuts. A week ago, many we-
ren’t sure they would.
On that note, Governor Stephen Poloz
said the BoC made “a decisive and clear
move [on rates] so that people get imme-
diate impact through mortgage renewals
and cash flow for those with flexible mort-
gages.”
This was vital to “cushion a blow” to
consumer confidence, a major home-buy-
ing factor, he said. And banks know this.
Had banks not passed through the full
50-basis-point cut to their prime rates last
Wednesday, it would have
undermined the BoC’s ef-
forts – and the country’s best
interests. (One hundred ba-
sis points equal one percent-
age point.) This bigger pic-
ture will hopefully encour-
age banks to keep matching
the BoC on future rate cuts.
That would be another big
positive for variable rates.WHEREWEMAYLAND
When this crisis shakes out,
five-year fixed rates could
land in the high-1-per-cent
range, a record low. Variable
rates for new borrowers
could end up slightly lower.
That’s assuming:
Five-year bond yields
drop near zero, a real possibility given the
BoC’s expected path;
Banks do not start building risk premi-
ums into their mortgage rates;
Prime rate falls to 2.75 per cent (if
banks pocket 30 basis points of the BoC’s
100 bps in rate cuts).
A sub-2-per-cent five-year fixed is spec-
tacular, but it doesn’t let you ride down
rates if the BoC cuts. Fixed mortgages also
come with uglier penalties if rates drop
and borrowers want to break their
contract early. That’s not to mention,A
mid crumbling financial markets,
hundreds of thousands of Cana-
dians must pick a mortgage term
this spring.
The most common question they’re
asking – besides “what’s your best rate?” –
is “should I go fixed or variable?”
Well, my magic eight ball isn’t perfect,
but it does tell me this: The odds are with
variable rates.
MOREFLOATING,LESSFIXING
The oil price collapse and these violent
coronavirus-triggered market sell-offs re-
flect a once-in-a-decade crisis. They’ve
hammered interest rates and could steam-
roll our economy.
Bond market prices now imply that
Canada’s key interest rate will drop a full
percentage point in coming months to 0.25
per cent. TD Securities says it’s “entirely
plausible” the Bank of Canada cuts to zero
per cent. BMO Nesbitt Burns says we’ll get
close to zero by summer.
In the modern era of economic policy,
there’s never been a time when five-year
fixed rates were significantly higher five
years out, after an emergency rate cut. For
that matter, we’ve never cut rates to near
zero, which is far less stimulative than rate
cuts in the “old days.” Add to that the BoC’s
intolerance for high inflation and all the
disinflationary trends now acting on pric-
es, and soaring rates in five years seem
even less likely.
For borrowers, that makes variables
more compelling. That’s arguably even
truer with banks showing a willingness to
variables let you lock into a fixed rate
any time without penalty.SOMEPARTINGTIPS
For well-qualified borrowers, five-year
fixed rates are now as low as 2.59 per cent
(a typical discounted rate), 2.39 per cent
(the lowest uninsured rate), 2.03 per cent
(the lowest insured rate). The best variable
mortgage rates are 2.39 per cent or less.
These vary by your location, property and
creditworthiness.
Most short-term fixed
rates are suddenly high by
comparison, but HSBC’s 1.99-
per-cent three-year fixed is
still a winner if you need an
insured mortgage. Tanger-
ine’s 2.19-per-cent three-year
leads the pack for uninsured
mortgages.
If you go variable with
thoughts of locking in later,
remember it’s tricky to time
a rate lock. Be sure to pick a
lender that publicly posts
low fixed rates. Otherwise
you’re at your lender’s mercy
when you ask to lock in.
If you want a payment
that drops with the prime
rate, choose an “adjustable
rate mortgage.” Use that pay-
ment savings to pay off high-
er-interest debt or invest.
If you’ve got a five-year fixed and want
to refinance soon, do it before banks cut
their short-term posted rates. If you wait,
you may face a greater penalty because of
how banks calculate interest rate differen-
tial penalties.
If you go fixed, try to pick a lender that
automatically “floats down” your rate be-
fore closing. More and more lenders have
promo rates that cannot be lowered be-
tween approval and closing. That could
cost you in a falling-rate environment.Whyvariablemortgageratesarelikelythebestbet
In the modern era
of economic policy,
there’s never been
a time when
five-year fixed rates
were significantly
higher five years out,
after an emergency
rate cut. For that
matter, we’ve never
cutratestonear
zero, which is far less
stimulative than
rate cuts in
the ‘old days.’ROBERT
McLISTER
OPINIONMortgage planner at intelliMortgage
and founder of RateSpy.com