Burgernomics

For those going away for the long-weekend in search of a big mac, The Economist has published the latest figures for their Big Mac index:

If you're heading to Norway or Switzerland, a Big Mac costs $7.20 and $6.19 US dollars respectively. Heading in the opposite direction, a Big Mac cost $1.90 and $1.78 in Hong Kong and Argentina.

The index is a lighthearted attempt to gauge how far currencies are from their fair value. It is based on the theory of purchasing-power-parity, which argues that in the long-run, exchange rates should move to equalize the price of an identical basket of goods between two countries. The Big Mac numbers should be taken with a grain of salt, but on a burger basis the Canadian dollar is overvalued relative to the US dollar, as it costs $4.00 for a Big Mac in Canada vs. $3.73 in the US.

The market is trying to come back from a disappointing US GDP report with positive numbers on the Chicago PMI and NAPM index.

GB

North American stock indices have opened in the red this morning following a disappointing US 2nd quarter GDP report, and a lower than expected US Personal Consumption number. It was a mixed picture yesterday as US indices posted marginal losses while the TSX Composite managed to post a 32 point gain. The gain was led by the materials sector as fertilizer stocks posted solid gains following a strong quarter of earnings from Potash and gold stocks were helped by Barrick beating expectations and raising its dividend.

Warren Buffet has said it takes two things to succeed in investing - having a plan, and sticking to it. If you're working with an advisor, their job is to not only help you develop the plan, but to also develop strategies to help you stick to the plan. If you're looking for an advisor, make sure he or she has a balanced perspective, with access to a variety of different research. You want to make sure that their recommendations aren't based on only one side of the story. The discussion might be longer, but you'll have more confidence in your advisor's recommendation if he or she can present both sides of the story.

GB

Bloomberg Business Week - Vancouver's Real Estate Bubble Trouble

It's not too often that US news media pay attention to what happens north of the border, so when Bloomberg Business Week features an article on Vancouver's real estate market, it's worth a read.

The article quotes a number of sources such as Tracie McTavish, President of Rennie marketing Systems, which is overseeing the sale of Millenium Water. McTavish is quoted as saying: "Real estate is like a sport here." Millenium Water is the Olympic Village which housed the athletes during the 2010 Winter Oympic Games and has been converted into luxury condos which sell for over $1,000 per square foot. In Vancouver, new developments are pre-sold via 'assignment letter' or committments to buy, and these assignment letters are being flipped multiple times. "The minute I actually heard a taxi driver taling about flipping assignments, I knew something had to give." says Grant Connell of Sotheby's. Real Estate brokers are getting paid like rock stars, and they're acting like it too. Going forward, we'll keep an eye on the real estate market and report on any shifting trends.

GB

Rosenberg: "We're All Chartisits Now"

The following is by David Rosenberg and posted on AdvisorAnalyst.com on July 28:

Rosenberg observes: "We're 142 days into the year; 52 days (or 37%) have seen 1% or greater moves, and yet the S&P 500 is flat as a beavers tail on the year. This is starting to get interesting. The market gets it wrong as often as it gets it right - it was wrong to forecast a recession in the Fall of 1987, again in the Summer of 1998, and again in the Winter of 2003. It was wrong to forecast sustained growth in the Summer of 2000, a recovery in the Winter of 2002, an avoidance of recession in the Fall of 2007, and the end of the downturn in the Spring 0f 2008. The market may be a discounting mechanism, but it has a spotty record. On the back of solid Q2 earnings, the technical picture has improved. It's getting interesting, but I'm wondering about the efficacy of maintaining a bullish stance now after a 10% rally that is possibly about to meet resistance, and a rally that is devoid of volume, which is any equity market rally's vital backstop, and devoid of validaton from the bond market."

I quick look at the markets shows North American indices to be in the green on the back of solid coroporate earnings, including Canadian blue chips Barrick, Thomson Reuters, and Potash.

GB

Gas for Five Months

North American stock indices have been trading mostly in the red today as the trend of weaker US economic data continues, including today's US Durable Goods Orders for the month of June, which declined 1% and missed analysts expectations for a rise.

Continuing my discussion on seasonal plays, natural gas outperforms the last 5 months of the year based on work by Don Vialoux. Natural gas is used for furnaces, hot water tanks and to produce a portion of electrical power. By the way, based on recent legislation, the portion of natural gas used to produce electrical power will most likely increase in the medium-to-long-term.

There are two high consumption times for natural gas - winter and summer. The colder it is in winter, the more natural gas is consumed to keep furnaces going. The hotter it is in summer, the more natural gas is consumed to produce electrical power to keep air conditioners going. Hurricane season in the Gulf of Mexico can also influence the price of natural gas as this is the time distributors are accumulating natural gas inventories for the winter heating season. The result is that natural gas prices tend to rise the last five months of the year.

Before I sign off, ScotiaMcLeod's July edition of 'Fund Research Monthly' titled 'Gold Update - Is all that glitters still gold' is available. If you'd like a copy ask us at yourlifeyourplan.ca or call 250-878-7372.

GB

Agriculture Moves Last Five Months of the Year

Yesterday afternoon I mentioned three seasonal trades which typically start in August: agriculture, gas, and health care; this morning I'll focus on agriculture. According to Thackray: "agriculture has been hot the last five months of the year. This is the result of the major summer growing season in the northern hemisphere, producing cash for the growers and subsequently increasing sales for the farming suppliers."

Reasons for agriculture's hot run in recent years is the realization that the world might be running out of food; also, increasing wealth in Asian countries has resulted in an increase in meat consumption. It takes nine times the amount of grain to produce a pound of meat, than a pound of grain itself. While this sector has represented a good investment opportunity in recent years, investors should be wary of the wide performance swings such as +/- 25% in 6 years of the last 14 cycles.

To finish off this morning, Credit Suisse reports that assets in retail and institutional money market funds have been holding steady to slightly increasing the past two months. While stock market volumes don't really support the current rally, a build-up of cash reserves may provide fuel for a future rally.

GB

August Seasonal Trades

Strong 2nd quarter earnings in the US and Europe continue to drive the markets; 181 companies in the S&P 500 index have reported 2nd quarter earnings thus far with 77.3% of those companies having beat estimates. In Canada, Rogers reported 2nd quarter earnings of 80 cents which beat the street; however, the stock traded down on the news as forward guidance was unchanged. Also moving markets at the open was the Case-Shiller 20-city home price index which was up 1.3% in May month-over-month, and over 4% year-over-year. Driving the gain are seasonal factors and the now expired government home-buying tax incentives.

Last week I introduced 3 seasonal trades for the month of August: agriculture, gas, and health care. According to Thackray, August tends to be a poor month across all sectors. If there is a summer rally, it tends to end in August. The best August this past decade was in 2000, when the TSX Composite Index was up 8.1%. Tomorrow morning I'll talk about agriculture and in the afternoon gas.

GB

In last weeks's Economist, there was an article titled 'Baltic dries up', which pointed out that the Baltic Dry Index has fallen 60% in its longest streak of consecutive declines for nine years - 34 days running as of July 14. This index is the main measure of shipping costs, and for the past 2 decades has been used as a guide to what is happening in world trade; So is it signaling trouble ahead?

The index spiked in 2008 as China's imports of commodities soared at a time when the supply of ships was constrained and port congestion added to demand for capacity. The financial crisis soon caused the index to fall back, but not before this period of dramatic growth in demand from China had prompted a surge of orders for bulk carriers. Giant cargo ships take about 3 years to come on-stream, and the new ships are now flowing in, adding to an oversupply of ships. So is the index saying more about its ships than the demand for their cargoes?

As we approach the last hour of trading, North American indices are in the green as the market is focussed on more on corporate earnings and less on economic data. Short covering also seems to be fueling the rally.

GB

Tuesday Investment Advice on the Radio

Despite strong earnings so far, US stocks are flat after data showed consumer confidence fell in July to the lowest level since February on worries about the job market. The Case Shiller home price index was out today and it rose in May but many are sceptical of a sustainable recovery in housing in the US. In Canada, markets are struggling with materials and technology lower. European shares were on the rise this morning led by banks and Asian shares finished higher led by consumer durables and technology.


The Credit Suisse executive panel survey points to further improvement in the trends in corporate spending in the next 6 months. Spending on information technology remains the most positive and guidance from companies appears to be improving. For a copy of the Credit Suisse report on companies with strong guidance give me a call at 868-5525 or visit yourlifeyourplan.ca.

Monday Investment Advice on the Radio

North American markets are off to a good start this week. FedEx raised its earnings outlook and new home sales jumped 23.6% in June. This is the largest percentage since May 1980 data. The US markets are up about 1/2% and the TSX is flat struggling with materials and technology. Over in Europe surprisingly good Eurozone economic data trumped concerns about the bank stress tests and global stocks are rising as a result. Aside from earnings to drive the markets this week, the Case-Shiller Home Price Index & consumer confidence for July are out tomorrow, on Wed the Beige book and on Friday GDP in both the US & Canada come out.

Earnings season is off to a strong start. Credit Suisse reported over 85% of S&P 500 companies reported positive earnings so far. In addition their research suggest market performance tends to peak after the first week in strong reporting seasons over the past 6 years. This may be evidence investors tend to shift their focus to macro economic news. Will this week see that shift? For a copy of the forecast give me a call at 868-5525 or visit yourlifeyourplan.ca.

Stressed Out

Markets traded flat today in anticipation of the results of the stress tests of the EU banking system. When the news came out 7 of the 91 banks failed the tests. On the news, North American indices decidely turned positive. EU officials assert the tests were tough and confirm the resilience of the European banking system. Others would argue the tests weren't that stressful and more a political attempt to calm financial markets.

Also helping the markets are continued strong corporate earnings. Ten of thirteen S&P 500 companies reported positive earnings surprises this morning including Schlumberger, Ford, Verizon and McDonalds. As of Thursday night, 162 companies in the S&P 500 had reported 2nd quarter results, and an impressive 85% have beat average analyst expectations. According to Credit Suisse, market performance in earnings season tends to peak after the first week in strong reporting seasons over the last 6 years.

Also from Credit Suisse, there 'Executive Panel' survey points to further improvement in the trends in corporate spending, as 68% of companies asked were expecting to either maintain or increase spending in the next 6 months. Spending on information technology remains the most positive story.

GB

"Unusually Uncertain" - Ben Bernanke

Cautious comments from US FED Chairman Ben Bernanke were a catalyst to sell stocks into the close yesterday in North America and in Asia overnight; However, this morning the corporate earnings picture looks bright again with most companies once again beating expectations. Thirty-eight of forty-one companies that reported 2nd quarter results this morning beat expectations, including blue chips AT&T, Caterpillar and UPS. Microsoft and Amazon report after the close today.

Also contributing to the gains today was the better than expected number for June existing home sales in the US. This is a sucker's rally on the headline news as resale figures will continue to decline and hit new lows. The rush to buy in April before the home-buyer tax credit expired boosted pending home sales in the first quarter and is still supporting resales since the pending transactions close and show up in resales only 30-60 days later for the most part; However, we already know that pending homes sales collapsed 30% m/m in May seasonally adjusted.

GB

The 4 R's

Shares of Apple were up nicely this morning after reporting a 75% increase in earnings on strong demand for mobile products. Apple sold 3.27 million iPads, with revenue almost topping that of the decade old iPod; and sold 8.4 million iPhones in the quarter, with sales of the phone now accounting for a third of total company sales.

Focusing on earnings, 19 of 21 S&P 500 companies beat estimates this morning including blue chips United Technologies and Coca Cola, but markets remain jittery. We'll get a look at 2nd quarter GDP numbers next Friday, but Pimco's Bill Gross along with the 4 R's, (Nouriel Roubini, Kenneth Rogoff, Carmen Reinhart, and David Rosenberg) are warning of a slow down in growth. Next Friday could set the tone for August - caution is warranted.

With August just around the corner, 3 seasonal trades to take a look at are agriculture, gas and health care. Tune in tomorrow and I'll discuss all three. Until then if you'd like a copy of Scotia Economic's 'Global Forecast Update' ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

AM 1150 Kelowna - Radio Ralies & Reversals

Well the news today is the renewed drop in US housing starts, and on this side of the border, the Bank of Canada's decision to continue raising the overnight rate, which is now at .75% (but still quite stimulative). Coupled with disappointing earnings from blue chips IBM, Texas Instruments, and Goldman Sachs - North American stock indices have been trading mostly in the red today. Reporting after market close today is Apple, and the market will be interested to see how the iPad is helping both top line and bottom line.

There were some interesting comments out of Credit Suisse's quant team this morning - They observe that recent measures of Intra-Portfolio Correlation (or the tendency of stocks within a portfolio to move together) are at or near historical highs. This is important because it reduces the benefits of diversification based on fundamental stock picking factors, such as valuation and quality; however, this can create opportunities as correlation decreases and relative value opportunities emerge. Sectors which have seen large declines in intra-portfolio correlation and which might offer potential improving conditions for stock picking are materials and healthcare.

Lastly, Scotia Capital has released this weeks 'Weekly Market Strategy' report. If you'd like a copy ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

Real Estate, Fertilizer and Gold

While Halliburton and Hasbro handily beat earnings estimates this morning, a very weak National Association of Home Builders index number has US indices trading marginally up, while the TSX Composite index is down close to 1%. The number came in at 14 from 17 the prior month, and while not quite matching the record low set at the start of 2009, the index was at 70 back in 2005.

The Fertilizer Institute reported North American potash inventories declined 2% in June, are 34% lower than last year, but still roughly 15% above the 5 yr average. Scotia Capital is still bullish on fertilizer stocks, and on balance feels the report is a slight positive for potash, a slight negative for nitrogen, and a mild negative for DAP. Fertilizer stock prices rallied hard on Thursday on the back of increasing grain prices, as: the US National Weather Service issued a forecast of a hot August/September; Hot/Dry weather in Europe is also causing concern; and China is buying more corn.

Finally for all you gold bugs out there, Casey Research released an interesting report on the outlook for gold. If you'd like a copy, ask us at yourlifeyourplan.ca or call 250-868-5525.

Friday Investment Advice on the Radio

The news driving markets this morning is European Bank stress tests. 91 lenders from 20 countries have faced the so-called stress tests and the results are out today. Earnings season is off to a strong start with over 85% of S&P 500 companies reporting positive EPS surprises so far & Canada's inflation number came in at 1%. So far this morning markets are 50/50 but have just moved into the green. North American markets are looking like they will finish the week up higher.

Scotia Economics forecasts the Canadian dollar remains positive relative to the US dollar. They expect the loonie to appreciate above parity over the next 12-18 months. It's trading at just over 96 cents this morning. They also expect the Australian dollar to appreciate relative to the US dollar. An investment opportunity for Canadians is to by Australian denominated bonds which are currently providing a 4% incremental yield over Canadian bonds. For a copy of the report give me a call at 868-5525 or visit yourlifeyourplan.ca

Thursday Investment Advice on the Radio

Yesturday Ben Benanke described the economic outlook as "unusually uncertain". Consequently markets sold off yesturday and Asian markets finished lower today. However markets are higher in North America and Europe. In the US strong earnings overshadowed global growth concerns and worries over a rise in new jobless claims. In Canada, commodities and financial are leading the charge. In Europe, the banks are on the rise ahead of the results of bank stress test results. This is a sign investors are optimistic the worst of the soveriegn debt crisis is behind us.


Scotia Economics forecasts now suggest investors should no longer sit in cash but should begin to extend terms in fixed income investments. They are now forecasting a much flatter yield curve over the next 12 months, with the forecast now indicating much lower longer term yields than previously expected. For a copy of this report give me a call at 250-868-5525 or visit yourlifeyourplan.ca.

Wednesday Investment Advice on the Radio

Despite a rally on strong earnings, North American markets are now in the red ahead of a speech by Ben Bernanke and anxiety over global growth. The Canadian dollar also rallied at the start of the day and was up over 96 cents but is now back below that level. Oil inventories are out this morning so that will likely impact oil prices, depending on whether there is a draw or build up. Asian markets finished mostly higher on steel prices and European markets were trading higher this morning for the first time in a week on a broad rally.

Scotia recently came out with their Global Economic Forecast and it has some key points for investors to consider. The Bank of Canada increased rates a 1/4% yesturday but the US rate hikes are not expected until Q2/2011. The US economy is expected to grow by 3.2% this year and by 2.6% in 2011. Credit Suisse recommends underweight US securities. For a copy of this report give me a call at 250-868-5525 or visit yourlifeyourplan.ca.

Tuesday Investment Advice on the Radio

US stocks fell at the open today on disappointing revenue numbers and housing data. The Bank of Canada raised its key interest rate by 25 basis points, with caution domestic and global recoveries will be slower than previously expected. The TSX is trading flat but just shifted to the green. When interest rates rise in Canada you would typically expect the Canadian dollar to increase however I think the rate increase is already priced in and the Canadian dollar is trading just below 95 cents.

Scotia Economics came out with their Global Economic Forecast recently and has some key points for investors. The Bank of Canada cut its growth forecast for this year to 3.5% from 3.7%and for next year to 2.9% from 3.1%. They hinted that any further rate hikes may be gradual. Currently the overnight rate is at .75%. For a copy of the Scotia Report give me a call at 250-868-5525 or visit yourlifeyourplan.ca.

Monday Investment Advice on the Radio

Markets started the day off in the green however they have gone flat in the US but are about 1% lower in Canada led down by materials and financials. In the US, earnings will take center stage this week and tomorrow housing starts are out for June. In Canada, the Bank of Canada meets tomorrow so we'll see what they do with the overnight rate. Later this week CPI numbers will be out and expectations are in the 1% range so with inflation low and the markets the way they are, analysts are less convinced a rate hike is in order.

Scotia Economics came out with their Global Economics Forecast and I thought I would highlight some key points this week. The first point is that they expect economic growth to remain positive, but tempered. Weaker than expected economic data in the US has questioned the speed of recovery so Scotia has lowered its growth forecasts. For a copy of the Forecast give me a call at 250-868-5525 or visit yourlifeyourplan.ca.

Remember 'Green Shoots'? Looking More Like Weeds.

A recent article posted on AdvisorAnalyst.com by Eric Sprott titled: ' Whither Green Shoots', questions the validity of the March '09 rally. "What happened to the strong (economic) recoverythe market rally was promising?" asks Sprott.

Recent economic data are dousing the belief in a lasting economic recovery. Signs of slowing are showing up in the US, Europe, Japan and China. The significance of the weaker than expected US retail sales number yesterday morning, is that it is the second monthly disappointment in a row, and consumption is supposedly 70% of US GDP. On this side of the border, I believe a similar percentage of Canadian GDP is exports to the United States.

"Much of the market action the past 12 months has defied traditional market rules." says Sprott. As an example he highlights the US banking sector: "Of the 986 bank holding companies in the US last year, a total of 980 lost money." The remaining 6 deemed 'too big to fail' made money based on tax payer bail outs.

The stock market rally from March '09 was a monetary phenomena rather than a fundamental one, and we've been watering weeds all along. If you'd like a copy of Scotia Economics 'Global Forecast Update' ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

Death Cross

Bell Weather Intel reported after the close yesterday and blew away estimates and offered positive guidance. The news sent futures higher and pointed to a positive open today, but a weaker than expected US retail sales report, the second month in a row, has stock markets on the defensive and as I speak, North American indices are trading in the red with an hour to go.

In the States, the S&P 500 moved into death cross territory on July 2, when the 50-day moving-average fell below the 200-day moving-average. Since 1929, death crosses have proven ineffective at predicting forward negative returns, whereas golden crosses have been a more statisticallhy significant precursor of positive returns. Death crosses last 9 months on average versus 16 months for golden crosses. Technical patterns need to complement fundamental factors such as profit trends and valuations. We would treat the S&P 500 technical reversal as further evidence to gradually add defence into portfolios.

Lastly, Credit Suisse has put together a report naming 23 contrarian stock ideas based on solid fundamentals. If you like a copy, ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

Bear Market Rally?

Q2 earnings season kicked-off yesterday after markets closed with Alcoa and CSX reporting better than expected numbers; As a result stock markets are extending last weeks rally despite several analysts cutting their forecast numbers this morning. Cyclical stocks are on the rise; It was only two weeks ago they were leading the sell-off due to global economic concerns.

Back in May I posed the question: "Should investors be buyers or sellers of stocks?" Technicals had turned negative to support deteriorating economic fundamentals. My suggestion back then was to use the sell-off to ultimately add to long-term quality companies, but take profits on tactical or cyclical positions. The technicals today are still bearish, so this rally may be an opportunity to take profits if you failed to do so two months ago. With Q2 earning just getting under way, the rally could extend longer, but look for the 200-day-moving-average to offer some resistance.

If you'd like a copy of Scotia Economic's 'Global Forecast Update' or Scotia Capital's list of quality dividend paying stocks, ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

Are you ready for retirement?

Are you ready for retirement? Dan Richards posted an article on Clientinsights.ca on July 6, 2010, “Fifteen retirement readiness tasks for clients”. The title is self-explanatory, however I want to go into the key findings of this report, which was issued in May by Met Life. The study subjects were Americans and it attempts to measure where they stand in terms of preparation for retirement. Although the study was done on Americans, I think the applications can be applied to Canadians. This is a particularly useful exercise because your decisions could affect you for decades especially with longer life expectancy. In Managing Post-Retirement Risks- A Guide to Retirement Planning, the Society of Actuaries points out the financial risks surrounding retirement have increased dramatically. They list extensive sources of risk including risks related to longevity, inflation, interest rate fluctuations, stock market volatility, business performance, employment conditions and changes in public policy.

Met Life research demonstrates that a successful transition into retirement involves personal, career, and financial preparation that involves 15 specific developmental tasks while still in your working career. While the completion of these tasks has no guarantees attached to them and is meant to indicate whether you are “ready” to retire, completing these tasks will reduce the risk of your transition and dissatisfaction in retirement. Retirees have provided potential retirees with a roadmap of decisions and actions you should address before taking the plunge into this new stage of life. Your level of task completion will vary with your age, number of years to anticipated retirement and retirement status. The study result also shows where people typically are at along the road to retirement but doesn’t give concrete answers as to what tasks should be completed at what ages.

The 15 readiness tasks analyzed in this study can be classified into the following 5 themes: work, leisure and activity, relationships, income and benefits and planning. In terms of work you will need to decide what retirement means to you. Do you fully retire or do you work part-time and what are the options, skills and opportunities in retirement? Leisure and activity related tasks refer to identifying your personal interests and goals. Relationships with your spouse, family and friends, along with your working life relationships are covered. Most people associate their readiness with their income needs and resources to support that. Going beyond that to assess whether it is financially feasible, you will want to evaluate the impact of a changing economic environment on your financial resources. Lastly planning involves looking at different scenarios if you choose to change or are forced to change any variables such as travel for a period of time, how health or financial setbacks may affect you and evaluating whether you can meet these challenges.

Some of the key findings of this study show that completing these tasks is an important bridge to the retirement transition, decisions about working and benefits are top-of-mind, task completion is related to age and years until retirement, progress of retirement savings and contingency plans lag and it takes goals and action to get there.

Investment Advice on the Radio

Unless we get a miracle, it looks like worldwide markets will finish the last day of the week off in the red. Several banks reported this morning in the US and they beat earnings estimates but loan demand is lackluster. To add fuel to the fire consumer confidence numbers came in lower than expected and that is driving the markets lower today. In Canada, it looks like we are about to enter the death cross which is when the 50 day moving average crosses the 200 day moving average to the downside. This occured in the US in early July and is a longer term bearish signal.
To finish the week off on retirement considerations, the relationship category can be significant. Not only your spouse, family and friends but your relationship with co-workers might change. Most people don't plan for this change. Having goals and a plan goes a long way to a more satisfying retirement. Taking an assessment will help you benchmark and identify any gaps in your retirement. To get your scorecard give me a call at 868-5525 or visit yourlifeyourplan.ca.

Investment Advice on the Radio

Markets are starting off the morning in the red. Despite lower new jobless claims and stronger earnings reports, producer prices fell in the US. This is providing more evidence that economic growth is sluggish. Many Economists are are cutting their estimates as we move into the 2nd half of this year. With markets lower, the Canadaian dollar is lower relative to US dollar It is trading just below 96 cents. Across the pond the Euro has been rallying against the US dollar over the last week and is continuing the rally today.

My favourite category in the 15 retirement readiness tasks is leisure. Have you thought about what interests and goals you and your spouse will pursue in retirement? Taking our assessment will help you benchmark and identify gaps in your leisure activities. To get your retirement scorecard give me a call at 868-5525 or visit yourlifeyourplan.ca.

Investment Advice on the Radio

Starting on a positive note, Asian markets finished higher and the Nasdaq in the US is higher on strong earnings from Intel. The Dow, S&P 500 and the TSX are flat. Strong earnings are being offset by a drop in US retail sales which is pressuring both the Dow and the S&P 500. In Canada the TSX is pressured by lower oil prices after a surprise increase in inventories.


Did you know roughly 70% of small business owners who retire return to work within 2 years. One area for your retirement readiness to consider is what you will do in retirement as it relates to work or career related tasks. You may decide to fully retire or you may decide to work at a new career or just part time. It is important to figure out if skills can be easily transformed to part-time work and explore alternate career or part time opportunities in retirement. Taking a retirement readiness assessment will help you benchmark and identify gaps in this area of your retirement. To take the assessment and get your scorecard give me a call at 868-5525 or visit yourlifeyourplan.ca.

Investment Advice on the Radio

North American & European markets are up this morning on strong earnings expectations and rising optimism about the global economic recovery. Trade numbers were also surprising showing that both Canada and the US had a rise in imports. This suggests strong domestic demand. The Canadian dollar is up over 97 cents and commodities are on the rise too. Not the same result in Asia. Asian markets finished lower after China expressed concerns about an overheating property market.

As mentioned yesturday, this week I am highlighting 5 categories in the 15 retirement readiness tasks. The first category is income and benefits. This involves assessing when full time retirement will be financially feasible, evaluating the impact of changes in the economy on pensions, investments and retirement benefits and determining the steps and options to receive the company and Government benefits you are entitled to. Taking the assessment will help you benchmark and identify gaps in your retirement. To get your retirement scorecard give me a call at 868-5525 or visit yourlifeyourplan.ca.

Investment Advice on the Radio

I have one thing to add to things that sound dirty but aren't. Playboy shot up 33% but markets are limp as we await earnings out of the US. In addition to earnings, key numbers that may drive markets this week are: today the Fed speaks, tomorrow trade balance numbers & the economic optimism index are out in Canada, later this week, retail sales, business numbers, manufacturing data, inflation and consumer sentiment are all out in the US.

Met life recently issued a 28 page report quantifying where Americans stand in terms of their preparation for retirement. They developed a readiness index that measures 15 tasks to prepare you for your retirement. This week I am going to cover off some of the areas in the questionnaire. We use this questionaire to benchmark where clients stand on each task and identify areas they need to work on. For a more detailed look into your retirement call me at 868-5525 or visit yourlifeyourplan.ca.

Real Estate Headlines

'China's property market braced for 30pc drop' is the headline in today's UK Telegraph. Standard Chartered is telling its clients to prepare for a drop in property prices of up to 30pc in large cities such as Beijing, Shanghai and Shenzen, as the delayed effects of monetary tightening begin to bite. Keneth Rogoff, ex-chief economist for the IMF, says: "You're starting to see that collapse in property and it's going to hit the banking system."

The Chinese government is trying to deflate the housing market gently as it views soaring prices as a threat to social stability, as the working class that flock to the cities are shut out of the market. During the fiscal stimulus boom in 2009, the Chinese had nowhere to put their savings but in real estate as real interest rates were negative and capital controls prevented them from investing abroad. Wealthier families hold 3, 4, or more properties with many of them vacant, which disguises the scale of the excess inventory.

Closer to home the headline reads: 'Vancouver Home Sales Drop 30pc, Calgary 42pc - First Comes Volume, Then Comes Price; Canada Housing Peak is Finally In'.

If you'd like a copy of Scotia Economics 'Global Forecast Update' ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

Scotia Economics - Global Forecast Update

Scotia Economics has released its Global Forecast Update and hear are some key highlights:

1. Economic growth to remain positive, but the pace of expansion has been tempered;

2. The outlook for the Bank of Canada remains intact – a steady pace of rate hikes should take overnight rates to 1.5% by year end (from 0.5% currently) and 2.25% by year end 2011;

3. The U.S. rate hikes are now not expected until the Q2/2011;

4. Scotia Economics is now forecasting a much flatter yield curve over the next 12 months, with the forecast now indicating much lower longer term yields than previously expected. This creates a more neutral outlook for bond returns, which in turn means you should no longer sit in cash but instead start to extend term;

5. The outlook for the Canadian dollar remains positive, with the loonie expected to appreciate above parity over the next 12-18 months. The outlook for the Australian dollar is similarly positive versus the U.S. dollar, but fairly neutral versus the Canadian dollar – on average the Australian dollar is expected to trade around the 0.90 level versus the Canadian dollar (versus the current level of 0.91). Hence, with 4%+ in incremental yield, the Australian dollar looks attractive, although look to add positions when the AUD/CAD cross is at or below 0.90.

If you'd like a copy of the report, ask us at yourlifeyourplan.ca or call (250) 878-7372.

GB

Investment Advice on the Radio

Markets are extending there gains this morning in the US, Europe and Asia. US stocks opened higher after several top retail chains reported better-than-expected sales in June, and new claims for jobless benefits fell more than forecast. Oil rose above $75 a barrel after a report showing a sharp fall in crude inventories came out. The TSX is currently lower, challenged by negative gold prices.

Yesturday I said I would expand on earnings reports and it's impact on the market. While there are alot of concerns about the global economy, Scotia Capital doesn't see an outright contraction in earnings. Recent earnings came in at about $70 on the S&P 500 and current earnings are trending to $80. A 20% contraction would bring earnings in at about $64. Under this scenario we would expect a floor of 950 and a ceiling of 1200 for the S&P 500. It is currently trading around the 1060 range. That gives us further downside risk of about 10% with 15% upside. Based on leading indicators, it appears premature to turn outright negative on earnings. For more on earnings expectations call me at 868-5525 or visit yourlifeyourplan.ca.

Investment Advice on the Radio

Markets are once again extending their gains this morning. North American markets are set for their biggest weekly gain in a year. Investors are looking ahead to the start of earnings season next week in the US. Adding some additional strength to the TSX is the jobs numbers for June in Canada. They came out surprisingly strong. This is fuel for expectations that the Bank of Canada may raise interest rates on July 20th.

A recent survey by Bloomberg shows that economists have been trimming their forecasts for US GDP growth, though not enough to show the recovery is in danger of faltering. That being said, earnings will likely drive the markets over the next 2 weeks. With the price of the S&P 500 at about 1075 and earnings currently at about $70, the Price/Earnings ratio is about 15 times. Historically, the P/E has traded around 15 X on average in a sustainable bull market. The only question is if and when slower growth will slow earnings, suggesting the market is overvalued. One way to measure valuation and risk is to look at the P/E's in the companies you own. For a report on this give me a call at 868-5525 or visit yourlifeyourplan.ca.

Investment Advice on the Radio

North American markets are starting the morning off in the green. The TSX is getting a rebound in commodity prices and the Canadian dollar. Wall street is getting a boost from bank shares after a positive earnings outlook from State Street. European shares are also rising on strong earnings from financials. Asian shares mostly fell because of week data from the US and China.

The key question now is whether the correction that took place is simply a pause during a long bull market, or an example of volatility typical of a dying bear-market rally. Next week earnings start to come out in the US. With this we may get some rallies because in the early stages of earnings reports the markets tend to ignore the macro picture in favour of the more immediate earnings news, which looks positive. Depending on whether you are in the bearish or bullish camp, you will either take this opportunity to sell into the rallies or buy based on long term value. The next two days I will talk about earnings and its potential impact on the market. For a copy of our earnings reports call me at 868-5525 or visit yourlifeyourplan.ca.

Investment Advice on the Radio

Worldwide markets are solidly in the green as we are seeing a bit of a bounce to start the second half of 2010. Year to date the TSX is down 3.85%, the S&P 500 is down 7.5% and the EAFE is down 14.72%.
Friday brings a double bang of jobs reports and housing starts for June in Canada. These reports are important because they are among the last data the Bank of Canada will consider in their rate decision on July 20th. In the US, retail sales and today's ISM-services reading for June may move the market. The ISM number gives us a barometer as to whether the economy is expanding or contracting. This may be fuel for the camp that believes we are headed for a double dip recession. While this is a real risk, Scotia Economics believes current double dippers are peaking too soon. They argue consumer spending is still in the ballpark of 2/3rds of the US economy and double dips don't occur when spending is rising at a 3 1/2% annualized pace, as it did in May. For the full report on this call me at 868-5525 or visit yourlifeyourplan.ca.

Inflection point on the S&P 500

The technical picture looks troubling. Moving averages are rolling over, the 200-day moving average appears to be in the early stages of topping, and the 50-day moving average will break through the 200-day moving average in the next day or so. The latter points to major inflection points in market sentiment and often are indicative of the beginning of new "bear" and "bull" markets. In this case, it looks like the former, a bear market. A break of the 50 through the 200 could trigger further selling. It is generally accepted that a bear market occurs when stocks fall more than 20% from their previous highs. Credit Suisse reported that there is a high probability of a bear market if the market corrects over 15%. Our portfolio advisory group at ScotiaMcLeod argues there may be a bounce back in the short term. “The S&P 500 has fallen more than 10% in the last 10 days. The market is due for a bounce in the next few days, but any lift is likely to be brief and largely not worth the trouble of trading as the trend is now moving to the downside.”

From a fundamental perspective, the U.S. equity market looks cheap. The S&P 500 is trading at 12.6 times consensus 2010 earnings estimates and only 10.7 times 2011 consensus. Corporate balance sheets in the U.S. are strong as is cash flow; so there is no debt crisis here. Financing costs are cheap by historical standards. With stocks this cheap, why shouldn't we be aggressively buying stocks? The collective opinion and foresight of the market is telling us that trouble may lie ahead. The broader equity market is a discounting mechanism, often predicting turns in the economy by six to nine months. This is the problem investors’ face. Valuations look attractive from a P/E perspective, but the market is showing that the "E" or earnings are wrong and valuations aren't as low as they appear. It doesn't make sense that "blue chip" stocks in the US trade at less than 13 times earnings with a recovering economy and historically low interest rates. What we will probably find is that they don't; earnings expectations are too high and valuations are in fact richer than current estimates would have you believe. Conversely, this same idea holds true when we look at valuations on growth stocks. Price-to-earnings multiples always look rich on forward earnings. A year down the road we find that we are paying considerably less for a growth stock than initially thought as expectations were too low.

We think a good way to play this type of environment, if you want to be in stocks, is to buy high yielding dividend paying stocks. While our outlook for the U.S. market remains somewhat bearish, investors should be using weakness to selectively buy the shares of higher yielding "blue chip" companies offering must have products and services. The Portfolio Advisory Group at ScotiaMcLeod has put out a report for stocks in the US that pay high, sustainable and growing dividends.

Investment Advice on the Radio

Last Friday North American markets finished the week with negative returns and that seems to be carrying forward for the TSX today. The TSX is lower by almost 1%, with weakness across all sectors. The Canadian dollar is trading just below 94 cents this morning. US markets are closed for the Independence Day and markets are mixed in both Asia and Europe. This week jobs data and housing starts for June comes out in Canada. These two reports are important because they are among the last data the Bank of Canada has to consider before its' July 20th rate decision.

Scotia Capital increased both the short and long-term gold and silver price forecasts. Their reasoning is that economies around the world are still on shaky ground and investors will look to hedge the risks seen in the debt and equity markets by investing in gold and silver. For a copy of this report give me a call at 868-5525 or visit yourlifeyourplan.ca.

The Fine Art of Investing - Key Points

To sum up McCarthy's article on investing in art:

1. The art market encompasses numerous sub-markets with distinct characteristics;
2. The unique features of the art market and the transaction costs create additional risks for casual investors and investment opportunities for more knowledgeable participants;
3. Studies of art's investment properties show that returns vary with the holding period but have exhibited a low or negative correlation with financial markets.

If you'd like a copy of Ed McCarthy's article ask us at yourlifeyourplan.ca or call 250-868-5525. Recommended resources are:

1. 'Fine Art and High Finance: Expert Advice on the Economics of Ownership' by Clare McAndrew;
2. 'The Art Economy: An Investor's Guide to the Art Market' by Clare McAndrew;
3. 'The Art Market: A Finance Perspective' a CFA Institute webcast by Jeffrey Horvitz

GB

Art in the Portfolio

Assuming an investor understands the risks and can navigate the market successfully, what role can art play in terms of portfolio characteristics, such as expected returns, volatility, and correlation with other asset classes?

The Mei Moses Fine Art Index creates auction-market statistics based on the approach taken with the Case-Schiller real estate indexes. For the past 25 years, art in general has substantially underperformed stocks, but outperformed for the past 10. At 50 years, the returns are roughly the same while volatility of art is lower than stocks and correlation to stocks is slightly negative.

Work by Clare McAndrew, founder of Arts Economics, which looks at art relative to commodities, stocks, and property, supports the idea that art can improve a portfolio's risk-return profile.

GB

The Fine Art of Investing - Challenges

Continuing McCarthy's discussion, "numerous factors play a role in valuing art - scarcity, recognizability, and provenance, among others - and a casual collector is highly unlikely to have sufficient reliable information to determine a fair value. Combine the valuation difficulties with market illiquidity, lack of dealer transparency, and the risk of owning an asset whose appeal is subject to fads, and the challenge increases. Buying and selling art is also costly. Investors must factor in marketing and insurance fees as well as shipping and storage costs, for example. Recouping transaction costs requires significant appreciation.

A casual art collector should consult with an expert, but make sure the consultant works independently for you, and doesn't receive any commission from art dealers to whom the consultant refers."

GB

The Fallacy of a Unitary Market

Continuing McCarthy's discussion on 'The Fine Art of Investing', The notion of an 'art market' is misleading. Art is defined by four broad categories: fine art, decorative art, antiquities, and collectibles. According to David Kusin of art research firm Kusin & Company, the 'art market' is made up of approximately 150 discrete, independently moving markets. This obviously is one of the challenges of investing in art, but it is also one of the reasons art can be extremely useful in diversifying an investment portfolio.

Art transactions occur in two distinct channels: Auctions and dealers, with each having half the market. The big auction houses, such as Christie's and Southeby's, cover a wide range of markets, while the dealers are smaller, each focusing on a sub-market. Sale prices from auctions can be tracked, but dealer sales and direct buyer-to-seller transactions are not disclosed.
Art tends to disappear into collections for long periods, which means that intra-sale valuations require private appraisals. Turnover on average is roughly 30 years.

If you'd like a copy of McCarthy's article, ask us at yourlifeyourplan.ca or call 250-868-5525.

GB

The Fine Art of Investing

I came across an interesting article by freelance financial writer, Ed McCarthy, in the May/June 2010 publication of the CFA Institute magazine, which asks the question: "Is art a good way to diversify a client's portfolio?"

Jeffrey Horvitz, Vice-Chairman of the Moreland Management Company has the following simple question for clients who want to start collecting art: "Are you nuts?"

"If you're asking the question 'should I invest in art?'" he continues, "you probably don't know enough about art to be investing in art."

In February of this year, Alberto Giacometti's sculpture, L'homme qui marche I (Walking Man I), sold for over $104,000,000 at Sotheby's, making it the most expensive work of art ever sold, and a harbinger of a possible resurgence in the art market. Besides the experience of time standing still while admiring a work of art, the allure of art has other motivations such as: the ability to display one's wealth; or to share with the public from a philanthropic perspective; or the possibility of substantial long-term investment gain.

For the rest of this week, I'll be exploring more of McCarthy's article on 'The Fine Art of Investing' so keep tuning in. If you'd like a copy, ask us at yourlifeyourplan.ca or call 250-868-5522.

GB

Am 1150 Kelowna - Radio Rallies & Reversals

Bill Gross' (of PIMCO) June 2010 Investment Outlook is out, and here's what he has to say:

He starts out by asking why people, companies, and governments borrow in the first place. The answer: to improve standards of living by bringing forward consumption rather than languishing in the present. Such has been the story in the developed world. It's the developing world that is largely debt free, but lacks the standard of living. If we could just find a way to promote more borrowing and spending in the developing world, while the developed world switches back to producing and exporting, many of the worlds problems would be solved.

"Consumption when brought forward must be financed, and that financing is a two-way bargain between borrower and creditor. When debt levels become too high, lenders balk and even lenders of last resort – the sovereigns, the central banks, the supranational agencies – approach limits beyond which private enterprise’s productivity itself is threatened. We have arrived at a New Normal where, despite the introduction of 3 billion new consumers over the past several decades in “Chindia” and beyond, there is a lack of global aggregate demand or perhaps an inability or unwillingness to finance it."

Bill concludes: "Slow growth in the developed world, insufficiently high levels of consumption in the emerging world, and seemingly inexplicable low total returns on investment portfolios – bonds and stocks – lie ahead."

GB

AM 1150 Kelowna - Radio Rallies & Reversals

For all you economic enthusiasts out there, let's review the following formula:

GDP = C + I + G + (X - M)

or

GDP = Consumption + Investment + Government Spending + (Exports - Imports)

If you're trying to figure out the macro trend ahead, this is a great formula to look at, as it will focus your attention on some key variables. Prior to the recent recession, economic growth was fueled by consumption, which in turn was fueled by lax lending standards and cheap money. Since the recession, economic growth has been fueled by government spending, but for those of you who followed the recent G20 summit in Toronto this past weekend, that's about to change.

Our global leaders have agreed, in principle, that tougher austerity measures are warranted. With unemployment still high, housing about to fall off another cliff, and the specter of higher taxes on the horizon, consumer consumption isn't looking like our savior.

Big business says it will help with investment if government will go easy on regulatory reform. This is a discussion for another time.

That leaves net exports - No wonder the markets rallied a week before the G20 Summit when China announced it would allow the Yuan to appreciate, then subsequently fall when China's leading economic indicator for April was revised down.

GB