After interviewing 10 US-based financiers in this post and here, I decided to cross the border and ask our neighboring Canadian investors for their insight on the current market conditions and forecast for the year to come.Danielle Park is President and Portfolio Manager of Venable Park Investment Counsel Inc. She is author of the best selling book "Juggling Dynamite: an insider's wisdom on money management, markets and wealth that lasts" as well as a popular financial blog JugglingDynamite.com. Having become more optimistic near 12 year lows in February 2009, recently Ms. Park has been voicing concern again about the likelihood of another down leg ahead.
"Our impression of the equity market is that the odds of a significant pullback of the 10%+ range between now and November are reasonably high. From the despondency of early March, sentiment in general has rebounded towards hopes of a recovery. But the market gains since March 9 now appear considerably over done. Share volume has been ominously falling as the rally proceeds. Recently we have heard renewed talk of "decoupling" hopes as some hypothesis that emerging economies are strengthening notwithstanding a still recessionary West. We do not believe that emerging economies will decouple or lead the US recovery. In this sense their dramatic stock market gains of the past couple of months are likely to have overshot reality. It is still possible that March 9 may prove to have been the low this cycle, and that prices may rebound above this level over coming downside tests. But a defensive posture seems once again prudent over the next 2-4 months as a picture of 2H 2009 and Q1 2010 becomes more defined."
Ken Norquay is a 34-year veteran of the market and author of Beyond the Bull: Taking stock market wisdom to the next level. He is a chartered market technician and the chief strategist for the portfolio management firm CastleMoore Inc. His firm manages stock market risk by selling, not just by diversification.
The March to June stock market rally has been great so far. Is the bear of 2008 over? Is the spring 2009 Obama rally the beginning of the next long term bull? Or was that just an investor trap in a longer turn down trend? At CastleMoore, we sold out of the stock markets one year ago and are waiting for the markets to turn back up before we buy back in. What are we waiting for?
No market goes straight up: they go up in zigzags and the March to June rally was a big zig. We are waiting for the zag. If/when the market zags back down over the next few months and it holds above the March low, we will buy back. If it does not hold above the low water mark of March 09, we will continue to stay 100% out of the stock market.
John Hood is Portfolio Manager at JC Hood Investment Counsel, a fully independent firm dealing with predominantly retail clients in Ontario Canada. The firm's strategy is ETF based used in conjunction with 'covered call writing' on dividend paying Canadian banks and ETFs. Mr. Hood is frequently quoted/interviewed in Canadian media. He provides a monthly newsletter to clients synthesizing economic news and describing the manager's response/strategy to these events.
Before attempting to discern whether this market is a bull within a bear, a nascent bull with short term risks or whatever other juxtaposed riddles are being tossed about, investors should look first at the asset allocation of their portfolio before this crisis began. Were they 100% in equities, as many found themselves, locked into illiquid investments or leveraged to the gunnels because their advisor opined that taking out a home equity loan or deducting from their IRAs/RRSPs to buy mutual funds was laudable? Investors first need to decide whether their investment assumptions are still appropriate and if their current advisor is capable/willing to make any changes. This question is particularly important in Canada where MERs on equity mutual funds are an egregious 2.5-3%.
Predicting market direction has always been a bit 'dodgy', despite the bromides of market technicians and media pundits, but we are certain that our American colleagues are much better at predicting US market behaviour than we are. What we are certain of, however, is that US markets will be a long time returning to previous highs because of the enormous capital hole left behind in the detritus of US investment banks. This can only be replaced by new industries, new technologies which will take time to create. The US is in a better position than anyone else to develop these products provided that the Obama administration listens to Bernanke and Wall Street and not to the caliphat of over-zealous regulators, capitalism haters, special interest harridans or anyone else who likes Nancy Pelosi.
As a Canadian investment manager, I am very pleased with the performance of Canadian banks which is largely due to a more stringent risk management culture. Our largely resource based economy appears to be making a comeback in part due to demand and to the declining $US. We added to our investments, overweighting oils, in both markets at the end of February. All of our US investments have been in $CDN hedged ETFs as we do not wish to be long in $US. We are approaching this market cautiously and have recently sold call options on our bank positions and some of our ETFs because we expect markets will reflect seasonally flat to downward trends. In the event of a downturn, we will add to our US and CDN positions.
Ram Balakrishnan is an Ottawa-based private investor who has been blogging for about five years on personal finances and investing at CanadianCapitalist.com. As a full time electrical engineer, investing has been his passion. The blog is one of the most respected of its type in Canada, and has been featured in numerous national publications including AOL Canada, Globe and Mail, National Post, Toronto Star, and MoneySense magazine.
When talking about including international stocks in their portfolios, American investors are thinking of Europe, Japan or the 'hot' emerging markets but rarely of their giant neighbour to the North. They may want to reconsider their stance and include Canadian stocks for a portion of their international stock allocation. The Canadian stock market is concentrated in just two sectors: financials and commodities. Unlike their foreign counterparts, Canadian financials have survived the credit crisis on the strength of their local franchises. And while commodities did not escape the market carnage, the future outlook seems bright due to voracious demand from developing economies. Moreover, if the Canadian dollar strengthens, it will provide an additional currency boost to US investors.
The iShares MSCI Canada Index Fund (NYSE: EWC) provides a one-stop exposure to the Canadian markets but most of the top holdings, such as Royal Bank (NYSE: RY), Encana (NYSE: ECA) and Barrick Gold (NYSE: ABX) are also interlisted on the US
exchanges.
Ross Healy is Chairman and CEO of Strategic Analysis Corp., an Investment Research firm based out of Toronto, Canada. Ross and his team use a unique valuation method involving the examination of corporate balance sheets. Strategic Analysis runs a stock advisory service for both institutional and private investors.
With US households carrying – as they are – more than $6 trillion is excess indebtedness, we have sound reason to expect that US households will be far more likely to return to historical savings rates and savings levels, and that this will include paying down debt, rather than resuming wanton spending. This is a situation, which will likely prevail for a long time to come, and we know that from the Japanese example before them. With interest rates as low as they are going (and are now rebounding), equity markets in a questionable state, and housing prices still falling (or at best leveling out longer term), the drivers of "risk-free" spending are all gone. Should the US consumer return to the more normal long-term percentage of GDP levels of consumption of around the 60-62% mark from the more recent 70% mark, there is probably going to be roughly a 10% "hole" in the US GDP to fill before US GDP returns to the levels of even 2008. Already, the evidence is coming in strongly and steadily that US households are saving (and/or repaying debt) with approximately 80%+ of the tax rebates and other household government "spending stimuli" that are being received. With unemployment reaching well over 9% (and up to 16%+ if one takes into account those who are 'discouraged' from job-seeking), the incentives to save, as much for pure survival as anything else, rather than spend are in front of everyone's nose. Bounce back? Those who think that things are heading back to business as usual have got to be kidding!
In the very short term, markets have moved up far enough that the risks of the harm that a disappointment can bring are becoming very large. The Fed has attempted to make the equity markets (and borrowing for new expenditures) as attractive as possible by dropping fixed income yields to very low levels, but as time marches on, the associated financial risks due to the massive stimulus required to maintain those low yields has started to be reflected in rising yields on debt, not flat or falling. On balance, this is not a positive development in that it does not reflect recovery, as the more optimistic hope, so much as rising risks associated with US debt obligations.
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