Hunt and Teck, happy investor check and the Fed pause effect

Good morning. There’s a battle going on for a shiny metal object and we’re not talking about the Stanley Cup — though let’s pause to note that the one-time National Post hockey team won its E league playoffs last week. Instead, it’s Teck Resources Ltd. that’s the coveted object in question, with at least two bids made by mining giant Glencore PLC while Freeport McMoRan Inc., Vale SA and Anglo American PLC might go for the Vancouver-based miner’s base metals business if it successfully spins out its coal assets into a separate entity, something shareholders will vote on next week.

All this action has been good for Teck shareholders. The miner’s class A shares have risen 26.8 per cent since Glencore’s opening US$23-billion salvo was revealed during the first weekend of April and they hit an all-time high of $103.92 on April 20. That’s a far cry from its most recent nadir of about $34 on July 26, 2022, but such a rebound often happens when corporate suitors look in. “If short-term investors don’t care and drive prices down 65 per cent, long-term thinking corporations start seeing value,” Financial Post columnist Peter Hodson once said. That often applies to cyclical resource stocks, which is why patience is key, something female investors seem to understand more than their male counterparts.

Patience can be tested when there’s a lot of noise, and there has certainly been plenty of that from the expensive seats in this case. China Investment Corp., a sovereign wealth fund that owns 10 per cent of Teck’s Class B shares, reportedly preferred Glencore’s bid because it represented a cleaner exit for shareholders, but Teck’s chief executive Jonathan Price shot that down on April 17. “I spoke with CIC as recently as last night and they confirmed to me that they have not met with Glencore and the media reports from last week are false.”

The Canadian government is also watching with interest given Teck is an important player in copper, which is needed for the green transition, and a big contributor to British Columbia’s economy. “We are a country that would love to have more corporate offices in this country that actually drive research and development spending,” says Natural Resources Minister Jonathan Wilkinson. The feds have already forced three Chinese companies to sell their interests in three Canadian junior lithium miners — Power Metals Corp., Lithium Chile Inc. and Ultra Lithium Inc. — as it tries to strengthen the country’s hold on critical minerals projects.

Mining investors in general are benefiting, too. The S&P/TSX Metals & Mining index is up 5.9 per cent since the end of March, which is no surprise given that Teck is the index’s fourth-largest constituent by market cap, only behind three gold miners — Barrick Gold Corp., Franco-Nevada Corp. and Agnico Eagle Mines Ltd. — that have also enjoyed gains recently.

Of course, no deal for Teck is going to happen without the approval of the Keevil family. Norman Keevil Jr., 85, is the controlling shareholder of the company he built with his father nearly six decades ago, so Teck has remained firmly Canadian while other homegrown giants such as Falconbridge Ltd., Inco Ltd. and Alcan Inc. fell to foreign firms in the early 2000s. “He’s like the last of a generation of mine builders in Canada,” says Pierre Gratton, president of the Mining Association of Canada. “You think of all those people that built Canada’s biggest mining companies, and Norm is the last one standing.”

Keevil says he’s open to offers once the company splits its business into two, but “Glencore’s proposal is the wrong one, as well as at the wrong time. I fully agree with Teck’s board that there is no deal to be done pre-separation with Glencore or any other party.” But as the offers ratchet upward, the pressure to sell is going to get immense and perhaps just lucrative enough to get him on board.

Andy Holloway, editor of the FPI and Financial Post Magazine, and senior features editor of the Financial Post. If you have any quips, queries or comments, get in touch at [email protected].

5 back-to-basics company metrics investors should pay attention to as economies tighten

The go-go stock-market years made it seem like basic investing and accounting principles no longer mattered, but they do, especially when the economy might be waning. Financial Post columnist Peter Hodson says it is essential to start any investing inquiry by examining a company’s accounting policies. He offers a handful of broad areas to consider, as well as places to take some deeper dives.

POST THESE NOTES

Three ways to become a happier investor by changing how your emotions affect you

Our emotions play a huge part in how we perceive the world and can cause us to get depressed or anxious, or push us into poor decisions that affect our pocketbook and future wealth. Portfolio manager Martin Pelletier has a few suggestions on how to take the emotion out of investment decisions, one of which is to stop comparing yourself to some arbitrary benchmark and just do your own thing.

THREE BAGS FULL

The investor’s guide to the coming Federal Reserve pause

It’s becoming clear that we are nearing the end of what will prove to be the most pernicious tightening cycle by the United States Federal Reserve since the early 1980s. With that in mind, economists David Rosenberg and Marius Jongstra dug through the historical data to see what the investing environment looks like during the pause period that follows a tightening cycle and what assets did the best.

I CAN SEE CLEARLY NOW

Investors most underweight stocks versus bonds since 2009, BofA says

In the most bearish Bank of America Corp. global fund manager survey of this year, investors indicated that fears of a credit crunch had driven up their bond allocations to a net 10 per cent overweight, the highest since March 2009. But if the “consensus lust for recession” isn’t satisfied in the second quarter, strategist Michael Hartnett says the “pain trade” would be a rally in bond yields and bank stocks.

BURN OUT THE PAIN

FP 500 — The most authoritative survey of corporate Canada: The 2022 FP 500 is the only national ranking of the country’s public, private and Crown corporations, making it an indispensable research tool with vital data on Canada’s top companies across all sectors. Order your copy here.

Today’s special: An inverted yield curve with a side order of (possible) recession

The inversion of the United States Treasury curve and the possibility of a recession are the two most frequent topics of conversation veteran investor Noah Solomon has had with clients lately. The two are inextricably linked, with a recession following every time the yield on 10-year U.S. Treasury bonds remained below that of its two-year counterpart for at least six months since the late 1980s. Why is that important for investors to know now? The curve inverted in August 2022.

ORDER UP

Banking crisis looks short but the lessons for investors must be more enduring

A broader banking crisis doesn’t seem to have developed, which is good news for markets, but strategist Bhanu Baweja points out that a big reason why stocks rebounded so healthily from the shock of multiple bank failures is because bond markets responded with such horror. “Equities are running out of fixed-income help here, and we believe it’s once again time to consider buying downside protection,” he says.

OVERDRAFT PROTECTION

The short position in Toronto-Dominion Bank on April 19 was up 45 per cent from two weeks earlier, according to financial data by Ortex Technologies Ltd., as hedge funds bet the Canadian bank’s acquisition of First Horizon Corp. won’t happen given the recent regional banking failures in the United States. “I think the biggest factor is noise around the closing of First Horizon and what TD could be paying for it,” says Lemar Persaud, an analyst at Cormark Securities Ltd.

Do unconscious biases affect investment returns? And if so, how?

Being an optimist sounds like a good thing, but being a realist armed with the facts is even better. Portfolio manager John De Goey says optimism keeps people invested, which tends to work out in the long run, but it’s important to understand where your biases lie and identify any resulting risks, especially those associated with overconfidence.

GET THE ANSWER

If you have an investing or personal finance question, hit us up at [email protected].

Inflation in Canada dropped to a year-over-year rate of 4.3 per cent in March, though it’s still much higher elsewhere, which just shows there are things the Bank of Canada can’t control. For example, food prices remain sticky because of the war in Ukraine, worldwide droughts and avian flu. “We can hike interest rates all we want, but it’s not going to make it rain in Brazil,” Frances Donald, global chief economist at Manulife Investment Management, tells the Financial Post’s Larysa Harapyn. “And yet we’re still talking about things like, ‘Oh, we have to hike interest rates in order to bring down Canadian inflation.'”

WATCH THE VIDEO

How the CRA strike will affect your tax returns, refunds, benefits and more

Some 39,000 Canada Revenue Agency employees being on strike could not have come at a worse time for taxpayers, millions of whom are still scrambling to complete and file their 2022 tax returns by the deadline. But lest you panic, tax expert Jamie Golombek gives us a quick guide on how to file on time despite the strike, and what to expect in terms of the CRA’s processing time and reduced services.

STRIKE WHILE THE IRON IS HOT

There’s good debt and bad debt, but the dividing line is not always clear until the end

Credit cards, in-store financing plans and payday loans are often considered bad debt, while reasonable mortgages and home equity lines of credit are deemed good debt. But debt counsellor Sandra Fry says the key distinction between good and bad debt is in the outcome, not necessarily the product. She gives us nine tips to live a rich life without succumbing to a bad debt situation.

GOOD VS. BAD

Good news if you hate inflation: Canada’s consumer price index rate fell to 4.3 per cent in March, the lowest it’s been since August 2021 and down from 5.2 per cent in February, as higher mortgage interest costs were offset by lower energy prices. Grocery prices, however, were still up 9.7 per cent on a year-over-year basis. Have to pay for Galen Weston’s massive raise somehow.

Bad news if you’re a senior: Current age limits and mandatory withdrawals for registered retirement income funds (RRIF) mean more seniors will have “negligible income from their tax-deferred saving in their later years,” according to a new C.D. Howe study. The think tank said the purchasing power of RRIF withdrawals could decline by almost half their initial value by the time the holder reaches 94.

Good news if you’re backing the Home Capital Group Inc. takeover: The Commissioner of Competition on April 17 issued a “no-action letter” in respect to Smith Financial Corp.’s $1.7-billion takeover that will pay Home Capital shareholders $44 per share. The agreement still has to be approved under the Bank Act and the Trust and Loan Companies Act, but Home Capital shares rose 4.6 per cent on the news to $43.05.

Bad news if you’re a Cathie Wood’s fan: The Ontario Securities Commission slapped her Canadian arm’s length partner Emerge Canada Inc. with trading bans on 11 of its exchange-traded funds — including six Ark Investment Management-partnered funds — after it missed end-of-year regulatory filing deadlines.

Good news if you’re a Nuvei Corp. shareholder: The fintech’s stock rebounded after short seller Spruce Point Capital Management published a report questioning Nuvei’s financial transparency, its links with failed cryptocurrency platform FTX and its recent US$1.3-billion acquisition of Paya Holdings Inc. Or maybe it just doesn’t like Ryan Reynolds’ investment in the Montreal-based company — or his movies.

Bad news if you’re hoping to buy a home: Housing starts fell 11 per cent to 213,865 units in March, from 240,927 units in February, according to Canada Mortgage and Housing Corp., because high interest rates are making it difficult for developers and homebuilders to get projects started.

Good news if you missed the Hamburglar: McDonald’s Corp. is bringing the cheeky little thief out of semi-retirement to promote its minor burger recipe changes. The Hamburglar came into existence in 1971, but he was pushed aside in 2003 as the company’s stock declined and his role in encouraging childhood obesity came into question. Now he’s back for a limited time. Of course, that’s not investing news, but that, too, is reality (HT to Peter Trueman).

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