Dennis Gartman's 22 Rules of Trading - Continued ...

Before the long-weekend (for some people anyway) I thought I'd continue on with Dennis Gartman's '22 rules of trading' which I first introduced several months ago:

Number nine on his list - "Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. This is the nature of trading; accept it."

Number twelve on his list - "Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance."

Number seventeen on his list - "Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading if we are right only 30% of the time, as long as our losses are small and our profits are large."

And lastly for today, Dennis' nineteenth trading rule is "Do more of that which is working and less of that which is not."

GB

Investment Advice on the Radio

Unfortunately, we had one of the worst trading days of the year for North American markets yesturday. The concern over Chinese growth was the cause and US markets fell between 2.7% & 3.9% while the TSX lost almost 3%. Looking forward to today, mixed employment and business data out of the US is keeping markets flat across the boarder. Investors will be paying attention to non farm payroll numbers in the US this Friday. Here in Canada, the TSX is up about 1% on firmer commidity prices. Asian markets closed mostly lower. European markets have been rallying along with the Euro after it was reported European banks borrowed less from the European Central Bank than economists expected.
It appears the TSX may finish lower by 3% for the first 1/2 of 2010. Have a great Canada day!

AM 1150 Kelowna - Radio Ralies & Reversals

Despite weaker results for the US's June ADP Employment report and Canada's April GDP report, North American markets after the first hour of trading are in the green. Economists now feel that the Bank of Canada may hold off on further rate hikes, starting as early as its next scheduled announcement on July 20.

Touching on the subject of natural gas which I talked about a couple of weeks ago, Canada's Federal Government suggested on June 23 that Canadian coal-fired plant owners permanently shut down by the end of their contract lives or 45 years of plant age, whichever is later. Canadian emission reduction draft regulations are expected early 2011 with regulations in effect by July 2015. There's going to be a huge shift towards natural gas-fired electrical generation in North America because of carbon issues.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

Some thoughts on having a disciplined plan and portfolio diversification: It seems like diversification these days doesn't work; when the market sells off, everything sells off - domestic stocks, international and emerging market stocks, defensive stocks, etc.; but what about bonds and alternative investment strategies?

Year-to-date, global stock market indices are down, percentage wise, anywhere from low single-digit-to-high double-digits; however, North American bonds and alternative investment strategies are up low-to-high single digit percentage wise. Historically, having a diversified portfolio of stocks, bonds and alternative investments strategies has either increased your returns while reducing your risk or reduced your risk while maintaining your rate of return.

The key is to have a disciplined asset mix plan with some flexibility to keep you from trying to time your way in and out of the market, or between different asset classes which usually nets out as a loss, especially when governments and central banks keep implementing knee-jerk policy to fix past policy mistakes.

The Alternative Investment Management Association (or AIMA) has a 'Road map to hedge funds' guide; If you'd like a copy, ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

So the big news this morning is the downward revision in China's April leading economic indicator. On the news, Asian and European stock markets slid into the red and commodities are taking it on the chin. Of course North American stocks opened in the red, and adding to the bad news are disappointing Canadian and US consumer confidence reports.

The S&P 500 is re-testing the 15% correction level from the high back in April. Referring to one of my reports at the start of the month, should this level be broken, there's an 80% chance of a bear market occurring, according to S&P research (that's a drop of 20% or more). The silver lining in all this, at least if you're looking to borrow money, is interest rates are falling. I might add that for those who missed out on the March '09 rally, because you did your homework, you might get another chance to buy in cheap.

For anyone looking for income ideas, back in April ScotiaCapital put out a report on the income trust sector. If you'd like a copy ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

How to avoid being your own worst investment enemy

This week I am going to summarize the findings of a research report by the ScotiaMcLeod Portfolio Advisory Group research team. The June report is entitled “Investment Pitfalls and Opportunities: Replacing Psychology with Discipline”

Standard economic models assume that individuals are rational and will try to maximize their benefits and minimize their costs. However, studies in behavioural finance have shown emotions and psychology do play a role in markets as investors are not always rational. There are costs of emotional decision-making and ways to avoid such behaviour.

The first behaviour is loss aversion. This relates to the idea that investors feel more pain from loss than they feel pleasure from gain. In a study conducted by behavioural scientists, Daniel Kahneman and Amos Tversky, they concluded that individuals feel the pain of a loss approximately two times more than the pleasure generated by a gain. In another behavioural scientist study by Antonio Damasio and George Loewenstein concluded that investors with an intact emotional brain chose to invest less than 60% of the time due to fear of potential loss. Furthermore, the willingness of people to gamble decreased drastically after they lost a gamble. This highlights a common pitfall caused by loss aversion. We see investors pulling out of the market when they suffer a loss and often times hesitating before re-entering. We witnessed this behaviour in the most recent market downturn as investors sold out of the market quickly and rushed into cash and cash equivalents. Another loss aversion behaviour is to realize gains quicker than losses so they tend to sell their winners too soon and hold onto their losers too long. It is irrelevant what the price is today, the question you should ask is if you had cash would you buy this stock and if it is yes, then hold onto it, and if the answer is no, then sell it.

The second behaviour is herding. This is the tendency of individuals to follow others rather than deciding independently on the basis of their own information. Keynes conceived “herding as a response to uncertainty and an individuals perception of their own ignorance; people may follow the crowd because they think the crowd is better informed.” Some symptoms of herding include: trading often, buying the latest hot stock or acting on tips from your buddies at the golf course.

The last behaviour is availability bias. This occurs when investors add more weight to more recent and readily available information so investors react to the most recent headline. Some symptoms of availability bias are choosing mutual funds that heavily advertise returns, overreacting to good/bad news or believing an “opinion” to be factual. The result is that investors chase returns on the way up and panic on the way down. According to ScotiaMcLeod PAG Fund Research analysis, “almost 75% of long-term fund redemption activity took place in the last 4 months of 2008 – near the bottom of the market.”

So how can we avoid being our own worst enemy? It all goes back to the old adage of staying invested and being disciplined. Develop an investment policy statement that allows you some flexibility within ranges. In addition, develop a discipline around buying and selling.

Investment Advice on the Radio

Markets are under a little pressure so far this morning. The TSX is still red with no positive news out today in Canada. Oil futures were lower as concern eased about the impact from tropical storm Alex in the Gulf of Mexico. The market also shrugged off G20 summit as lackluster. Despite the President Obama's call for continued stimulus, Canadian and European leaders pushed for austerity. In the end the G20 committed to half their deficits by 2013. In the US markets have turned green, likely on positive economic news. Consumer spending rose in May, Incomes and savings also rose and inflation pressures are muted. Asian markets closed mixed while European markets are up on bank shares.

The Portfolio Advisory Group Fund Research group came out with a case study that gives some very interesting results on the psychological challenges of three different types of investors: "The Loss Averse Investor", "The Herd Follower" and the "Disciplined Investor." For a copy of this report give me a call at 868-5525 or visit yourlifeyourplan.ca.

AM 1150 Kelowna - Radio Rallies & Reversals

Continuing my discussion from this morning, there is a real risk the US and global economy slides back into recession. That seems to be the fear of both bond and stocks investors of late. The front page headline in the Financial Post reads: "G20 to half deficits by 2013, stabilize debt levels." I'll admit, it's the right decision in the long-run, but doesn't bode well for the short-term, at a time when leading economic indicators are heading south once again.

Double-dip recessions are rare in history and the current shape of the yield curve would support that, but short-term rates are artificially low. Obama's head of the Council of Economic Advisors, Christina Romer, conducted research that shows tax increase or decreases have a three-times multiplier effect on GDP. If the Bush tax cuts are allowed to run out next year, at a time when unemployment is still high and housing prices are falling again, a double-dip is a real possibility.

GB

AM 1150 Kelowna - Radio Ralies & Reversals

I'll admit I've never been a big fan of gold. I'm in the camp that gold doesn't have many uses apart from jewelry, and it doesn't pay a dividend. As a currency, I much prefer paper as opposed to carrying a bunch of gold bars in my jacket pocket, although, if we went completely electronic I guess it wouldn't matter except the gold would have to be stored somewhere, and at a cost most likely higher than paper. And the idea of moving back to a gold standard, well, that's a discussion for another time.

Leading economic indicators are starting to head south again. In the US, extended unemployment benefits have not been renewed and unemployment is still running high. With fiscal stimulus slowly being removed and Federal and State austerity programs around the corner, there's a very real risk of a double dip recession. I know the yield curve says otherwise, but you have to admit short-term yields are artificially low.

Recessions usually run the risk of deflation which no central bank wants to see. Printing money is the most likely response to inflate the problem away. In either case, gold should do well as a store of value. And to counter the argument that it doesn't pay a yield - Well, neither does cash right now. At least you can find the odd gold stocks that pays a dividend.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

On the subject of oil, Marin Katusa of Casey Research says:

"The Gulf spill may have changed U.S. priorities, costs, and energy supply for years, but it hasn’t changed the fact that the U.S. still needs energy. And while Obama’s green energy plans may well bear fruit, it will be some time before they can power the entire country.

As many European countries have learned, it’s best not to let your energy supply be in the hands of someone who isn’t really your friend. But for the U.S., the most likely alternative for domestic oil is the most surprising one – the Athabasca oil sands of Alberta, Canada.

Canadian oil sands are some of the biggest and most controversial oil deposits in the world. But there’s a new technology in town that could revolutionize the entire industry – Steam Assisted Gravity Drainage (SAGD).

SAGD technology essentially pumps steam into the ground to liquefy the stiff heavy bitumen and heavy crude oil, and make it thin enough to be pulled out of the ground. No giant holes in the ground, no toxic tail-ponds or destroyed forests, no massive amounts of carbon emissions, and it also wins on finances.

A few companies are at an advantage, with the expertise and cash flow to be at the forefront of SAGD technology. These are the companies that are positioned to benefit from the upcoming spike in demand. Knowing who they are will help balance out any portfolio affected by the Gulf disaster."

GB

AM 1150 Kelowna - Radio Rallies & Reversals

David Rosenberg says:

"Two-years ago, the Canadian dollar approached par as oil was about to hit $140 a barrel. In the latest go-around, the loonie approached par with oil nearing $80 dollars. In other words, the Canadian dollar was behaving strictly as a commodity currency back in 2007 and 2008 (in both directions). But this rally in the Canadian dollar has a different feel to it; it’s much more than just a commodity story this time around.

It was fascinating to see the Canadian dollar only correct down to 92 cents during this most recent round of global financial turbulence and flight-to-safety. That is a far cry from the correction down to 78 cents following the Lehman aftershock, not to mention the move down to 62 cents after the tech wreck a decade ago.

At the current time, the Canadian dollar is moderately overpriced but the fair-value line is moving up two to three cents a year, which means that within the next half-decade, it could easily be worth 15% more than it is today. This is something for global investors in general and Americans in particular to contemplate for in any given year, half of the total return differential between Canada and the U.S., whether it be in stocks or bonds, is derived by the direction of the exchange rate.

For the birdwatchers among us, this may well be the time when the loon beats up on the eagle."

GB

AM 1150 Kelowna - Radio Rallies & Reversals

A couple of interesting headlines featured in today's CFA news brief which I thought I'd share. The first is from the Economist magazine titled 'Falling Again':
Sales of homes in the U.S., along with their prices, soared after Congress gave first-time buyers an $8,000 tax credit. When the subsidy expired, so did the boost, with only 28,000 home sold in May, the lowest number recorded for that month. The tax credit did nothing about high inventory, unemployment close to 10% and millions of underwater homeowners, according to The Economist. "And Americans are now left wondering when housing's second dip will find its bottom and real recovery begin," The Economist notes.

The second headline is from the China Daily titled 'Local Govt Debt could Trigger Financial Crisis': The nation's chief auditor warned on Wednesday that local government debt will pose risks to the Chinese economy amid concerns that the debt could trigger a European-style financial crisis.The ratio of debt to disposable revenues at some local governments has exceeded 100 percent, with the highest standing at 365 percent.Debt repayment pressure for some local governments is quite heavy, with the total public debt of 18 audited provinces, 16 cities and 36 counties amounting to 2.79 trillion yuan ($410 billion).

Continuing the discussion on gold from yesterday, Credit Suisse has a revised gold price forecast. If you'd like a copy, ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

Investment Advice on the Radio

Markets are a pretty solid shade of red again today. North American markets are off about 1%. The federal reserve came out with a pretty gloomy statement about the economy. Bank shares in the US are also under pressure as the financial reform bill approaches its final hours. Hopefully this will restore some trust in the markets. So basically, a drop in the intial jobless claims and a rise in long-lasting manufactured goods was not enough good news to change the color to green.

For now and in the immediate future I think investors are concerned about the global economic recovery and the potential for a double dip recession. That being said, not everybody is gloomy about next year. According to a Reuters poll of over 300 strategists, the world's major stock indexes should trade higher a year from now but fears of a slowing economic recovery might permit only modest gains in some rich-markets. By the way Canada is on the list. If you're unsure about your portfolio and where to invest next give us a call at 868-5525 or visit yourlifeyourplan.ca!

Investment Advice on the Radio

Markets started the morning off under pressure. US new home sales dropped 32.7% in May after the tax credit faded. That is the lowest level in 4 decades. In Canada, retail sales for April was lower than expectations. Asian and European stocks were also lower following yesturday's late afternoon selloff in the US on weak housing data. Yesturday, the S&P broke thru it's 200 day moving average to the downside which is technically bearish.
This weekend the G20 meets to discuss the best way to move forward for the Global economy and how to move toward austerity. With this in mind, Mark Carney warned that Governments around the world must not rush to tighten their belts and need to strike the right balance with ensuring growth. According to 13 strategists surveyed by Bloomberg, Fiscal austerity packages will be a drag on growth, but not enough to derail the economy. For a report on companies with great growth prospects and sustainable dividends give us a call at 868-5525 or visit yourlifeyourplan.ca!

Your Call to Action

So how does a long-term investor find 'peace of mind' through the highs and lows of this market? Ask arguably one of the greatest investors of all time - In his preface to the 4th edition of the 'Intelligent Investor' by Benjamin Graham, Warren Buffett says: "To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework." In other words, have a plan, be disciplined to the plan, and I would add regularly monitor and review the plan.

If you're unsure if your current plan is the right one, visit 'yourlifeyourplan.ca' or call us at 250-868-5525 and ask for a second opinion. We offer a complimentary portfolio report card and we'll help you identify what's working and what isn't; what you should keep and what you should sell. If you're just looking for some great income ideas, ask us for a copy of both Credit Suisse's and ScotiaCapital's recent US and Canadian dividend reports.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

On the subject of gold: It's had quite a run of late. Why? It has no yield and it's not as useful as other commodities. Why is gold back among serious investors and who is buying it? Apparently it is even available through ATMs in the gold market of Abu Dhabi.

To answer the question Don Coxe provides the following quote: "The longest established text based religion in the West is about the God of Jacob - His works and His worship. For roughly five thousand years, a believer summed up his credo by saying 'I believe in God.' But when this credo arrived, it had to share space with an alternative belief system that was around for thousands of years before the Judaeo-Christian era began. A believer in this system summed it up 'I believe in gold.'

According to the World Gold Council, industrial and jewelry demand is up sharply, but the big new demand is for gold hoarding. Global central banks are buying gold for their reserves and gold ETF holdings keep setting records. "So as a store of value for future generations:

If you can no longer believe in residential real estate,
and you can no longer believe in bank deposits,
and you can no longer believe in the dollar,
and you can no longer believe in the yen,
and you can no longer believe in the Euro ...
What can you believe in?
How about gold?"

And to address the issue that gold doesn't pay a yield: neither does cash right now. At least some gold stocks pay a dividend.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

Continuing my summary of Don Coxe's latest 'Basic Points': "Whilst there is no Western currency that can displace the dollar's role in international transactions, there is one that offer investors and savers a strong, sensible alternative to the dollar's status as the store of value - only the loonie now boasts the qualities of endogenous strength and political reliability that could make global investors prize it as a secure, tradeable store of value from a long-term standpoint, and we believe it is on the road to that status. It can be considered NAFTA's equivalent of the Swiss Franc."

Don goes on to discuss the pros and cons, for and against the loonie, but concludes that the move into the loonie may have just begun and finishes with the following lines from a jazz classic:

"Somewhere there's music,
How faint the tune?
Somewhere there's heaven,
How High the Loon?"

GB

Investment Advice on the Radio

Yesturdays rally was short lived. Asian, European and North American markets are all flat to lower. China stepped in to tame the rise in the yuan. Even though they have vowed to allow more flexibility in their currency, it appears today they have engineered a fall in the yuan.
In Canada, inflation came in stronger than expected but is not a big threat. As a result, good news for travellers, the Canadian dollar is rising relative to the US and gas prices rose at a slower pace which helped inflation ease off from April to May.
In the US stocks pared back gains after data showed sales of used homes unexpectedly fell in May. Technically the S&P 500 is at a critical juncture as it attempts to hold above the 200 day moving average. The index is setting up for a classic "head and shoulders" formation which is bearish. If you are looking for companies with solid balance sheets and a reliable dividend give me a call a 868-5525 or visit yourlifeyourplan.ca.

AM 1150 Kelowna - Radio Ralies & Reversals

First of all, a reminder that if you're looking for Canadian and US companies with solid balance sheets and a reliable dividend, both Scotia Capital and Credit Suisse have reports out with their top picks. If you'd like a copy, ask us at yourlifeyourplan.ca or call 250-868-5525.

I finally got a copy of Don Coxe's latest Basic Points - Always and insightful and entertaining read. Over the next couple of days I thought I'd summarize some of the key points, starting with the Euro - According to Don, the problem with the Euro is that: "There's no nation or economy standing behind the paper currency - just an international committee of bureaucrats which can only enforce its decrees against its members with their consent. It is little more than the currency equivalent of the United Nations - a good idea, perhaps, but you might not want to bet your personal wealth or pension fund on it."

The implications are that: "panicky global investors are rushing from euro denominated debt into Treasuries, which is great news for Messrs. Obama and Geithner in their roles as the world's biggest issuers of new debt, but it's terrible news for them in their roles as managers of the economic recovery, where exports are a key component based on dollar weakness.

GB

UP 'Down Under' Dollar

In terms of fixed income, you can’t get much better than an Australian Government Bond. A 1 year government bond in Australia is currently yielding 4.54%. Compare that to a 1 year Government of Canada bond at 1.16% and it looks pretty appealing. This is especially attractive given that Moody’s rates them as Aaa. So what’s the catch? The catch is the currency risk. A movement in the Australian dollar vs. the Canadian dollar could easily wipe out that 3.5% premium. On the flip side, it may give you a nice bump in return if the Australian dollar appreciates relative to the Canadian dollar.

Over the last year the Canadian dollar has appreciated against the Australian dollar. It is currently trading at $1.11 Canadian dollars to 1 Australian dollar. At this time last year the Canadian dollar was trading at $1.10. Between June and November, the Canadian dollar fell to $1.01 and then rose to a high of $1.16 recently. In the last 2 weeks, the Canadian dollar has fallen relative to the Australian dollar. In the last 10 years, the Canadian dollar has been as high as $1.32 and as low as $.9552 against the Australian dollar. Generally the currency establishes a longer term trend and sticks to it for awhile. Are we at a point where there is may be a reversal of trend? The current price is about to hit the 50 day moving average to the downside and both MACD and relative strength are looking bearish. In the last two years, the trend for the Canadian dollar has been negative relative to the Australian dollar with the exception of the most recent period from last November till now. If we are about to see a reversal of this most recent trend, it will benefit Australian bond holders in Canada.

According to Wikipedia, “the Australian dollar is currently the fifth most traded currency in the world foreign exchange markets behind the US dollar, the euro, the yen and the pound sterling…The Australian dollar is popular with currency traders due to comparatively high interest rates in Australia, the relative freedom of foreign exchange market from government intervention, the general stability of Australia’s economy and political system, and the prevailing view that the Australian dollar offers diversification benefits…, especially because of its greater exposure to Asian economies and the commodities cycle.” Since the balance of trade depends on commodity exports such as minerals and agriculture, the relative value will fluctuate with the booms and busts of global demand or when domestic spending overshadows the export earnings outlook. This is generally different than other major currencies as traders tend to move to cash when stocks are falling, therefore bumping up the currency. Canada’s currency is also sensitive to commodities but keep in mind that 75% of our exports go to the US and the challenges there appear to be increasing with their debt. Don Coxe argues in his recent Basic Points article that “of the industrial world’s currencies only the Canadian dollar now boasts the qualities of endogenous strength and political reliability that could make global investors prize it as a secure, tradable store of value from a long-term standpoint.”
Despite this, I think the Australian dollar may emerge with some strength given today’s news that China is easing its peg to the US dollar. I would expect further increases in the Australian dollar relative to the Canadian dollar. According to Australia’s exports fact sheet, China is Australia’s largest merchandise export market, accounting for $42.4 billion in 2009. In addition, according to The Australian, “Russia may add the Australian dollars to its international reserves for the first time after fluctuations in the US dollars and the euro.” There appears to be some supportive indicators suggesting a reversal “down under”.

AM 1150 Kelowna - Radio Rallies & Reversals

First of all, Scotia Capital has expanded its coverage of the Oil & Gas sector by initiating coverage on 15 income oriented producers. They feel the sector appears attractively valued with an implied one year return of 26% for the companies in question. If you'd like a copy of the report, ask us at yourlifeyourplan.ca or call 250-868-5522.

Continuing my discussion from this morning, it is hoped that China's decisions to allow its currency to revalue, will give new life to the global economic recovery. According to Credit Suisse, China should be running a current account deficit of 3% of GDP, when in reality it is running a current account surplus of 5.5% of GDP; However, the sceptics would argue that the Chinese consumer is a relatively small part of their GDP and so a stronger Yuan will add little to global demand on the margin.

GB

Investment Advice on the Radio

The big news driving markets higher this morning is the decision by China to allow it's curreny to float aginst the US dollar. Economists expect further strengthening of the Yuan in the next few days which will be good for the markets because it will empower Chinese consumers to spend abroad and help with inflation in China. Another signal markets should rise are US treasuries fell as bond traders are anticipating investors will be shifting into riskier assets.
The key numbers this week are the Consumer Price Index for May in Canada which comes out on Tuesday. Inflation doesn't appear to be a problem here so this should be positive for the Canadian dollar and negative for bonds. US non farm payrolls comes out on Friday and most expect weakness in the labour market.
Scotia Capital expanded coverage of the Oil & Gas sector and put out a report titled "Going for the Two-Point Conversion: Growth and Income". For a copy give me a call at 868-5525 or visit yourlifyourplan.ca!

AM 1150 Kelowna - Radio Rallies & Reversals

Well the big news this weekend was the decision by China to allow its currency to float against the US$. On the news, global stock market indices rallied and the Yuan rallied half a percent overnight.

So why now? The Chinese have certainly been under a lot of pressure to float their currency, increasingly in advance of the G-20 summit to be held in Toronto starting this Friday. The thinking is, by allowing the Yuan to float, this will empower Chinese consumers who will then take their place a top the consumption food chain as western consumers continue to choke on all the debt they've been shoveling in this past decade. From the Chinese viewpoint, however, by allowing the Yuan to appreciate, this may help with their inflation problem. I'll have more to say this afternoon.

AM 1150 Kelowna - Radio Rallies & Reversals

Finishing my discussion on natural gas, a few comments on future demand: First, having more compressed natural gas stations would encourage car manufacturers to make the switch, and there are a number of companies in North America looking to do just that; Second, there should be a huge shift towards natural gas fired electrical generation in North America because of the carbon issues.

Moving on, Credit Suisse has released its US equity strategy and they recommend dividend paying stocks. The majority of large US corporations are now on a solid financial footing, but while corporate balance sheets look good, growth prospects for a wide swath of corporate America do not. They expect US corporations will increasingly allocate cash flow to dividends, share repurchases and M&A. They've put together a list of dividend paying stocks that: a) have a yield above recent measured price inflation; b) a payout ratio that is low enough to suggest a dividend increase in the near future; c) an above average consensus long-term growth rate; and d) an outperform rating by Credit Suisse.

If you'd like a copy of this report, ask us by visiting yourlifeyourplan.ca or calling 250-868-5522.

Investment Advice on the Radio

North American markets started the morning off in the green but have decidedly moved to the red in the US and are blinking red and green in Canada. The TSX is flat but being held up by gold. Weighing on the US markets are rising jobless claims, falling consumer prices and plumeting factory activety. This is further evidence that the recovery will be slow and interest rates will have to remain ultra low in the US. It will be interesting to see how growth in the US responds to a shift from extreme "free spending" by government to austerity. The good thing is that most analysts believe the chance of slipping back into recession is very low.

So how should we invest in this environment? We believe a large part of returns will come from dividends in the next few years. For a high dividend yield report with great growth prospects call me at 868-5525 or visit yourlifeyourplan.ca!

AM 1150 Kelowna - Radio Rallies & Reversals

Continuing my discussion from this morning on natural gas, Bustin and Katusa draw attention to the oil-to-gas equivalent ratio, which has traditionally been around 6:1. At current spot prices, many analysts and promoters are saying gas is cheap relative to oil. Now a lot of oil companies are purchasing gas companies because lower gas prices have made the companies cheap. The oil companies then look to boost the reserves on their balance sheets by reflecting the gas they acquire as BOE's, or barrels of oil equivalence. They will then book it as a barrel of oil to analysts at a ratio that is something like 22:1. If a company says it has a billion barrels of oil equivalent in the ground, it will command a much higher price than if it showed its actual oil reserves and that it also had some gas reserves. Katusa then asks the question: "Imagine the implication to shareholders if this con is exposed for what it is?"

AM 1150 Kelowna - Radio Rallies & Reversals

Even though yesterday was flat for North American equity indicies, it was important technically in that both the DOW and S&P 500 held above their respective 200 day moving averages, and the TSX Composite remained above it's 50 day moving average. If we can continue to hold above these respective levels, more potential upside is in the cards.

Natural gas has had a nice run of late, so I thought I'd share a little more of Dr. Marc Bustin's and Marin Katusa's thoughts on the matter: They see the price of natural gas lingering around $5-$6 dollars. There's a lot of natural gas out there, and there's a lot of projects on line that aren't quite economical at current prices. As soon as prices start moving up a little, these projects will become economical and a large amount of gas will quickly hit the market keeping a lid on prices. For example, thanks to unconventional technology becoming increasingly streamlined and effective, there are thousands of wells that have been drilled, fracked, but not completed. Those wells can come on stream with between 2-10 BCF per day.

Tune in at 12:13 when I'll share Bustin's and Katusa's thoughts on the demand side of the equation.

AM 1150 Kelowna - Radio Rallies & Reversals

I thought I'd share some of the 22 rules of trading by Dennis Gartman, but keep in mind that Dennis is a trader and these rules can be shorter-term in nature:

1. Never under any circumstances add to a losing position; to do so otherwise will eventually and absolutely lead to ruin!

4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is low; nor can we know what price is high. Always remember that sugar once fell from $1.25/lb to 2 cents/lb and seemed cheap many times along the way.

6. Markets can remain illogical longer than you or I can remain solvent. Illogic often reigns and markets are enormously inefficient despite what the academics believe.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

So yesterday was a big day for global equity markets and in particular North American equity markets, with the TSX composite, S&P 500 and DOW, all closing up 2% or better. Of note, the S&P 500 and DOW closed above their respective 200 day moving average, which perhaps indicates a minor base and potential reversal of the downward trend this past month. All this was somewhat surprising as their was really no news, and the news we did get was on the disappointing side of the fence.

Global economic news released earlier this morning again was somewhat disappointing, including lower than expected housing starts in the US. As a result North American futures pointed to a lower opening and that's exactly what we got.

Turning to the Euro zone, Spain looks to be the next shoe to drop in the continuing soverign debt saga. Spanish banks are borrowing record amounts from the ECB and the country's financial institutions are being shut out of international capital markets. Spain is a more integral part of the EU and a breakdown of the Spanish financial system could cause a worse crisis than Greece did.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

From a technical perspective, North American equity markets have so far avoided breaching the 15% correction support level, which when breached has historically lead to a bear market 80% of the time. While the 200 day moving average has proven to be a support line for the TSX composite index, it is proving to be a line of resistance for US and international indices. Should US and international stock market indices fail to break through to the upside once again, consider using this recent bounce as an opportunity to reduce your broad stock market exposure. In the case of the TSX composite index, the 50 day moving average is the line to watch.

If you must remain invested because the rates on cash are so pathetic, consider rotating into seasonal plays such as the 'triple combo' I spoke of yesterday, that being: utilities, gold and oil. For longer-term investors, the recent correction may be an opportunity to add to quality dividend paying stocks, which I talked about this morning. And for 'accredited' investors, consider alternative investment strategies.

As I mentioned this morning, we've recently updated our list of Toronto traded stocks which have increased their dividend since 2008. Contact us at yourlifeyourplan.ca or call 1-800-663-2609 and ask for a copy.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

Reminiscent of 2008 and early 2009, extreme volatility in global equity markets has resurfaced over the past several weeks as a result of rising concerns over fiscal situations throughout the European region, signs of decelerating economic growth in China, and also fear of potential conflicts in Korea and the Middle East. Coupled with relatively stagnant labor markets in the US, the culmination of this has led to questions over the prospects for the global economic recovery and the sustainability of the year-long rally in equity markets that began in the spring of 2009.

Longer-term, the global deleveraging process will undoubtedly weigh on economic growth, but at the same time, will continue to encourage accommodative monetary policies. Despite what may be lackluster earnings growth and economic activity, low interest rates will certainly be supportive for equity markets, alongside the fact that many corporations have shored up their balance sheets over the past 12 months through numerous debt and equity issuances.

Consistent with the theme of focusing on defensives, sustainable yields, and strong balance sheets, we have updated our list of Toronto listed companies that have increased dividends since 2008. Visit yourlifeyourplan.ca or give us a call at 1-800-663-2609 and ask us for a copy.

GB

AM 1150 Kelowna - Radio Rallies & Reversals at 12:13pm

So this morning I talked about the 'mid-summer triple combo'. First utilities - Utility stocks tend to outperform mid July to end of September, which fits the theme of investors taking more of a defensive posture at this time of year.

Second gold and gold stocks - In recent years this asset class and sector also tends to outperform this time of year, which also fits the defensive theme over the summer. One factor that contributes to the increase in demand is the Indian festival and wedding season October and November. Also, according to the World Gold Council, global central banks have become net buyers of gold from being net sellers in years past.

And finally third - Oil stocks experience a second wave of out-performance as production switches to building heating oil inventories in advance of the cold weather, plus hurricane season can wreak havoc on production in the Gulf.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

After what felt like the first weekend of summer, global equity markets have all started the week in the green. Potential market moving news this week is: Bank of Japan policy announcements today and tomorrow; Empire State Manufacturing index in the U. S. tomorrow and manufacturing shipments in Canada tomorrow as well; On Wednesday we have a number of reports out of the US such as housing starts and permits, capacity utilization and industrial production; and finally on Thursday we have leading indicators in the US and wholesale trade in Canada.

With July around the corner, be ready for the 'mid-summer triple combo'. According Thackray's Investor's Guide: "When a summer rally does occur, the bulk of the gains are made in July. The broad market tends to do well in the first half of the month; In the last half of the month, the energy, gold and utility stocks start their seasonal rallies."

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Words of Wisdom from Warren Buffett

If I were a doctor and had to make a diagnosis, I'd say the markets are suffering from a severe case of bi-polar disorder. So how does a long-term investor find 'peace of mind' through the highs and lows? Ask arguably the greatest long-term investor of all time.

In his preface to the 4th edition of the 'Intelligent Investor' by Benjamin Graham, Warren Buffett says: " To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework." In other words: have a plan; be disciplined to the plan; and I would add, regularly monitor and review the plan.

If you're unsure if your plan is the right one for you, visit yourlifeyourplan.ca or call us at 1-800-663-2609 and ask for a second opinion. We offer a complimentary portfolio report card and we'll help you identify what's currently working and what isn't; what you should keep and what you should sell.

GB

Investment Advice on the Radio

In my CFA newsbrief I came across some good news about dividend payouts. Corporate dividend payouts in the US are up $10.4 billion this year. Only 2 companies have cut their dividend while 135 corporations have intiated, reinstated or increased it. Last year dividend payouts dropped by $39.8 billion. For a high dividend yield report call me at 868-5525.

AM 1150 Kelowna - Radio Rallies & Reversals

Once again a reminder that World Cup Soccer action gets underway tomorrow. If you're an iPhone user, you can follow all the action with the app '2010 World Cup South Africa' or if your a blackberry user, you can follow all the action with the app 'South Africa for Blackberry', and as a disclosure, we own both Apple and RIM in our portfolios.

The early news today is the decision to leave policy rates the same by both the ECB and the Bank of England at 1% and .5%, respectively. No surprise there, but coupled with strong trade numbers out of China and Canada, and an up-beat economic forecast by RBC, global equity markets are all in the green today. North American equity markets have so far regained what they lost in the last half hour of trading yesterday.

But before you get too excited, BMO's quant desk says: "sell all your equities and move to cash." They say: "The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risk and where the equity market is priced. Equity is lagging the deterioration in credit conditions."

So if you're wondering what to do, tune in at 12:13pm and I'll share some words of wisdom by the 'Oracle of Omaha', Mr Warren Buffett.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

On the topic of oil, I recently came across a transcript, featured by John Mauldin's 'Outside the Box', of an interview involving Marin Katusa, of Casey Research, and Dr. Marc Bustin, also of Casey Research, and one of North America's leading experts in unconventional oil and gas. They fear that as a result of the Deepwater Horizon disaster in the Gulf of Mexico, there may be a major shutdown in offshore exploration off the coasts of North America. In any case, costs for drilling both offshore and onshore are going up, and this favors the majors and low cost producers in general. In the short-run, profit margins will get squeezed, and this may help explain the recent sell-off in energy stocks in general since the Gulf incident, but longer-term they remain bullish on the space including the oil sands.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

First of all, for you soccer fans who own an iPhone, World Cup actions kicks off in two days, and I've found a great application to help you stay on top of the action. Check out '2010 World Cup South Africa' on iTunes. By the way, as a disclosure, we do own Apple stock in our clients' portfolios.

Turning to the capital markets, it looks like the positive momentum from yesterdays close is carrying into this mornings open, as North American stock indices have opened nicely to the upside, with strength across most sectors with the exception of gold. Gold reached an all time high of 1254.50 earlier this week as investors looked for safety. Should this trend continue, $1300 in the near term is possible, but don't forget what I said yesterday about the 10yr bond indicator. From January to May, the 10yr yield in Canada and the U. S. has trended down, and according to S&P data, stocks have moved higher when this happens from May to October, 14 out of 15 time from 1965 to 2007.

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AM 1150 Kelowna - Radio Rallies & Reversals

'Sell in May, go away' is looking like wise advice right now. So where to for stocks from here? One indicator that's worked 14 out of 15 times between 1965 and 2007 is the direction of 10yr government bond yields. Between Jan and May, when the 10yr U. S. treasury yield falls, the S&P500 is up between May and October. When the 10yr U. S. treasury yield rises, the S&P500 is down. Which way has the 10yr yield gone in Canada and the U. S. since January? Down. What could be the catalyst to jump start stocks? Strong ISM numbers and a strong Q2 earnings season.

GB

AM 1150 Kelowna - Radio Rallies & Reversals

Well once again, North American stock indices get hit by a wave of selling in the final hour of trading yesterday. With the exception of the TSX composite index, global stock indices are in official correction territory, and all, including the TSX are below their 200 day moving average, indicating a bearish downtrend. An important technical support level, the Feb. '09 low, was taken out with yesterday's close, with the exception of the TSX composite index. S&P data shows that a 15% correction (and we're not there yet) leads to a bear market 80% of the time.

If there's a silver lining to all this, it's that as investors flee from stocks, and buy government bonds, they're driving interest rates lower. If you're in the market for a mortgage, that's good news. But where there's a yin, there's a yang, and some managers see a bubble developing in bonds.

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The Euro Tentacle

Canada is rich with commodities and notable Austrian economist, Marc Farber argues that commodities typically have 20-year secular bull cycles and bear cycles. The bull cycle for commodities started at the beginning of this decade and therefore, theoretically, has another ten years to go. This would support the assertion by Sherry Cooper, BMO Nesbitt Burns Chief Economist, which said that Canada is going to have a “golden decade” for the next ten years. We certainly have good reason to believe this. Our fiscal house is in good order, our banking system is arguably the strongest in the world, our unemployment rate has risen but not as much as the U.S. or Europe, we have low interest rates and inflation, house prices have held up and strong GDP numbers were announced in Canada last week. GDP came in at 6.1% annualized for the 1st quarter of 2010 last week. We were the first G7 country to raise our central bank rate. This is all great news but a bigger Octopus with a lot of tentacles is overshadowing these positive reports. In the Saturday, June 5, 2010, Globe and Mail Report on Business, Jeremy Torobin and Tavia Grant reported, “But in the interconnected world, even Canada’s rapidly rebounding economy could be at risk should conditions in the U.S. or Europe deteriorate because of the effect that could have on Canadian stocks and commodity prices, and on demand for Canadian exports.”

Let’s consider the Euro, one tentacle of the Octopus. Even though the Euro is a big pond and a continent away, it could take the shine off a golden decade for Canada. The Euro has been deteriorating over the last year. Relative to the Canadian dollar the Euro has moved from about $1.60 to as low as $1.26 (EUR/CAD) and relative to the US dollar, $1.50 to $1.20 (EUR/USD). This could slow down the Canadian economy in a number of ways, both directly and indirectly. Directly, it makes exports from Canada to Europe more expensive. Granted, roughly 75% of all Canadian exports go to the U.S. so the currency valuation between Canada and the U.S. has the most significant impact on our economy. However, a growing trend is exports to countries beyond the U.S. Five years ago exports from Canada to the U.S. represented over 80% of our total exports. According to Stats Canada, export growth in the last 5 years has occurred between Canada, Europe and Asia. If this trend continues so will the impact of a devalued Euro for Canadian exporters.

Indirectly, the devaluation of the Euro relative to the U.S. dollar has a two-pronged effect on the Canadian economy and markets. The Chinese Yuan is tied to the U.S. dollar. Therefore any exports from China to Europe will also be more expensive for Europeans. Some are speculating this has the potential to slow growth in China. If growth slows in China, Canada will be impacted because Chinese companies will demand less from Canada. Again, assuming a growing trend towards exports to China means a growing impact over the next ten years. The second indirect effect is on the markets overall. The carry trade will eventually breakdown. The carry trade is when investors borrow in a low interest currency and invest in a high yielding commodity based currency, like Canada. When the Euro devalues, it becomes more expensive to borrow at low interest rates in the U.S. and Japan and invest in countries with strong commodities, like Canada. Eventually that has an impact on the value of the markets.

The value of the Euro is just one example of the tentacles that have a grasp on how our economy and our markets will perform. Despite all the good things in Canada we have an Octopus on our back that may take the shine off our golden decade.

AM 1150 Kelowna - Radio Rallies & Reversals

So Asian and European equity markets are playing catch-up after the big sell-off in North America last Friday. For those of you who haven't looked at your bottom line yet, last Friday's debt warning by Hungary, along with a disappoint jobs report south of the border, contributed to a shaving of over 2% off the TSX composite index and over 3% off U. S. indices, as the sustainability and strength of the global economic recovery is still in question. G-20 leaders will have their work cut out for them on the 25th and 26th of June in Toronto, where they'll discuss economic policy; Let's hope it's worth the cost.

Potential market moving news this week is: U. S. consumer credit later today; Canadian housing starts tomorrow; U. S. beige book on Wednesday; U. K. and ECB policy announcements on Thursday; and a number of consumer and business related reports on both sides of the border on Friday.

As I speak, North American equity markets are marginally positive led by by consumer staple and telecommunication stocks. Tune in at 12:13 for our market update before the close.

GB

Investment Advice on the Radio

You think you have a traffic jam on Lakeshore. The markets are skidding against a guardrail this morning on softer than expected US jobs numbers. Canada's numbers were better than expected but of course that is being overshadowed by US numbers and volatility in Europe. Consequently, commodities are lower and so is the Canadian dollar, just above 95 cents. Bond prices are higher. At least this is keeping traders employed. For long term investors, valuations are good and these pullbacks will eventually translate into buying opportunities. Right now it's a little like the weather in the Okanagan, we know the long term pattern but it's difficult to predict the day to day or even the seasonal variability with everything else that is happening around us. That's it for today. Visit yourlifeyourplan.ca for a second opinion on your investments.

Investment Advice on the Radio

Markets were off to a good start this morning but have pulled back a little. The TSX is up on oil and optimism about global recovery. In the US improving labour market reports are being offset by eratic retail sales and ISM numbers. Most investors are awaiting tomorrows employment reports out of the US and Canada.
It's challenging because indicators are mixed. On the one hand, we have a number of positives for the markets. The yield curve continues to be upward sloping, interest rates are low, inflation is low, valuations are attractive, improving economic indicators and we have strong corporate profitability and stronger earnings reports. On the other hand growing personal and government debt, lower growth forecasts, US financial regulations, potential banking crisis in Europe, demand in China and finally the worst of all headline risk are threatening the shape of the recovery. We still have some seats left for tomorrows event on investing and the HST. Visit yourlifeyourplan.ca to register.

Investment Advice on the Radio

It must be all the rain we have had Dave because my screen is pretty green this morning. Energy and material shares are leading the charge in Canada. The TSX appears to be finding a bottom at the 200 day moving average which is roughly 11,600. That doesn't mean we are out of the weeds yet. We can't seem to push through 12,200 on the upper end.
In the US the Dow is trading below the 200 day moving average and doesn't appear to have found it's support level. In fact in the last rally it came into resistance at the 200 day moving average and reversed back down.
Today pending homes sales rose to the rescue and provided a lift and tomorrow retail sales come out but i think the really important numbers are going to be the job numbers on Friday. This Friday we are hosting another live rallies and reversals event where we will discuss the HST and your investments. For more on this visit yourlifeyourplan.ca.

Active Markets and Active Asset Mix

Recently, volatility in the markets has reared its ugly head. Last week the VIX rose to over 40%. We can be thankful that is only about half of what it was at the height of the crisis last year. It is still double what it has historically been. A normal level appears to be between 15 and 30. I recently read an article by Brian Jacobsen in the March April 2010 issue of the CFA Magazine about Asset Allocation in Crisis where he defined the VIX as an imperfect measure of investor myopia or fear. “The VIX on the S&P 500 is the implied one-month volatility (annualized standard deviation of returns) on the S&P 500 calculated from various options on the S&P 500. This is sometimes called the “fear index” because its value tends to increase when investors are looking to purchase insurance (e.g. put options) on a portfolio.” Ironically as I write this article I am on an airplane to Ottawa and the seatbelt sign went on with the flight attendant announcing we are entering a period of turbulence. As we enter another period of increased turbulence in the market, you would be well advised to listen to the flight attendant and do up your seatbelt.

Most investors use asset allocation as their seat belt. A commonly held belief is that 100 minus your age is an appropriate asset mix for you, some investors start with the market and adjust their mix according to their risk and return expectations and some base it on income needs. No matter where your starting point, the world is a changin’. Therefore we believe it is important to be flexible and be active in your investment approach. That doesn’t mean you should be going to cash whenever you get that gut feeling the markets are headed to the dreaded place after life. It is important to establish some ranges to work within that you are comfortable with.

In my world, this is established through an investment policy statement. This should be consistent with your risk and return objectives and any constraints you need to adhere to. Some of those constraints may include your time frame, income needs, legal or tax concerns, environmental concerns and liquidity needs. An example of this in a balanced mandate, where your long term target asset mix is 50% is stocks, 45% in bonds and 5% in cash, you would have a range of 20% plus or minus your target. In stocks your range would be from 30% if you were bearish to 70% if you were bullish. This way at least you can attain your long-term target returns even if you get it wrong on your asset mix call. For example, last year the market went up and you may have been on the lower end of your asset mix range. Generally speaking you would have captured 1/3rd of the rise of the market versus ½ or ¾ if you were lucky enough in a balanced mandate. However it is better to miss the ½ or ¾ on the way up if you avoid that on the downside. An example of this is if you have $100,000 and it drops to $50,000, the drop is 50%. In order to get back to $100,000 you have to earn $50,000 on that $50,000 which is 100%. Assuming you get it right and use some discipline and rules in your decision-making it can payoff to be active but with some protective devices in place. An investor’s asset allocation should be dynamic within parameters that suit your individual needs and market and economic conditions.

Investment Advice on the Radio

Canada became the first G7 country to raise it's key interest rate. It now stands at 1/2%.
Scotia Capital issued a report this morning saying the markets view this as a neutral bias which is probably the right move given our strong economic growth offset by market uncertainties. That also makes its next move unpredictable. Markets view this as a lack of clarity which intially sent the loonie lower. It was trading below 95 cents US this morning, but has rallied back.
May was a tough month for stock markets. The TSX was down 3.5%. The S&P 500 was down 8% and the EAFE dropped 12%. The EAFE is a measure of International stocks in Europe, Australia and the Far East. Despite challenges to the markets we are still seeing signs of economic recovery. This morning, markets were higher in the U.S. on positive ISM and construction data. They are pulling back a little and the TSX is currently flat. Our next Rallies & Reversals event is this Friday where we will feature a talk on HST and your investments at yourlifeyourplan.ca.