News & Views Lee Lines
year end 2009
Financial tools, strategies, and advice since 1995. Seasons Greetings!
Forecast
for 2010:
2010 will be sunny with cloudy periods, and a few showers. Chance of a thunderstorm later next year when Congress
looks at raising taxes and the Federal Reserve begins to raise interest rates. Hurricanes are SO 2008. Equity markets will
recover until it feels "safe". Gold may spike in the spring on inflation stimulus, and 2009's big winners may be
replaced by dividend payers and value plays. Long term forecast- stay flexible, don't copy indexes. Detailed synopsis following:
"It
is fairly typical: 55% [market recovery] over nine months. A little quicker than usual[this time]. But if you look at 1933
or 1973, or even the bounces in '02, '03, by my recollection you tend to get about a 70% move over the course of 18 months,
which is followed by the bill coming due - the Fed actually withdrawing its accommodation. That tends to lead to anywhere
from a 20 to 30% correction, and then you enter a trading range for a couple of years." Barry Ritholtz, Fortune, Dec
21, 2009
"Believe it or not, , of the $787 billion in stimulus that we [US Congress] passed earlier this year,
only 22% of it has actually been spent. So you have that to look forward to next year." Jason Trennert, Strategas, in
Fortune, 091221
"The last time [US] mutual funds saw outflows this big was in the nine months up to February 2003,
according to Bloomberg, just as the market was beginning a five-year advance during which the S&P 500 nearly doubled.
Relying almost exclusively on the "Rear- View Mirror" theory of investing, individuals are abandoning stocks-which
have punished them over the last several years-in favor of bonds-which have provided both better returns and lower risk.
According to ICI, individuals, who account for 82 percent of mutual fund owners, have withdrawn $21.4 billion
(net)
from equity funds so far this year, while pumping $312.8 billion (net) into bond funds. By their actions, investors are viewing
the market advance not as an indication of better things to come, but, rather, as an opportunity to recoup at least a portion
of their prior losses." Legg Mason Capital Management, November commentary
Market Commentary by Sentry Select
Market Neutral
Oct. 20: "The Fed has made it clear that interest rates will remain low for the foreseeable future.
For me, this means free money until next summer at the earliest. Such a green light has given investors a free, one-way ticket
to fund the purchase of "riskier" assets with low-cost U.S. dollars, despite the hilarious ongoing rhetoric from
the U.S. government of its support for a strong U.S. dollar...."
Lots of Cash Still on Sidelines S&P 500 Equity
Market Review by Fusion IQ Oct. 21-- Kevin Lane
"Anecdotally, even as recently as the last few days, I have talked
to several investors who have still not invested in the market after exiting last year or, as they have put it, "I'm
not paying much attention these days." It's this pervasive mentality that suggests there is still a lot of liquidity
left on the sidelines. We don't know how, but Mr. Market always has a way of advancing just enough to eventually pry even
the most gun-shy investor off the sidelines. And when investors are all in and all available liquidity is invested, that's
typically when the party ends!"
High-cash equity funds outperform December 16, 2009 The Financial Post
"Michael Simutin of the Sauder School of Business at the University of British Columbia notes that funds with higher-than-expected
levels of cash produce returns that are about 2% a year higher than low-cash funds. In his new research paper, Excess Cash
and Mutual Fund Performance, he shows that the managers of high-cash funds tend to make better stock purchases than the managers
of low-cash funds. The moral here? Don't be put off by a fund manager who keeps a lot of assets in cash. It may be a sign
of superior stock-picking ability." Works for us!
Witty zoo wardens - from a friend's email (pictures available
on request)
Those who throw objects at the crocodiles will be asked to retrieve them.
Do not feed fingers to the
animals.
Tigers love kids but they're hard to digest, so please stay back.
Only those who strongly believe in rebirth
should go near.
Who needs to save for retirement when your home is the new RRSP?
"I wouldn't advocate
it," says Benjamin Tal, senior economist with CIBC World Markets, about considering your home a big part of your nest
egg. But that's exactly what Canadians are doing. Mr. Tal says that as of the second quarter, 38.5% of Canadian wealth is
tied up in home ownership, a huge percentage when one considers it in a historical context. Just 20 years ago, the percentage
of wealth in home ownership was about 16.3%.
"I would call what Canadians are doing passive savings or homemade
savings," says Mr. Tal, adding one of the reasons the savings rate in Canada has not been rising is people are pouring
more money into their home than into investments. The problem with that strategy is that a house may not be all that liquid
and it's hard to take pieces out to fund your retirement. "House prices will not go up forever," says Mr. Tal, adding
the latest turnaround in the housing market seems to indicate otherwise. While Americans learned a harsh lesson about having
too much money tied up in their house, Canadians continue to believe their home is sacred and will save them from bankrupt
pension plans and devalued retirement investments. And when their house is continuing to appreciate, consumers tend to not
diversify their portfolios into other investments, Mr. Tal adds. Garry Marr, Family Man, Financial Post, October 23, 2009-12-15
The new wave of "diversified yield funds" (specialized balanced funds to me) has arrived - should be better timing
than the infrastructure fund blitz of 2006-2007....
CI Fund's interpretation (they are SO GOOD at tax control!):
"Signature Diversified Yield Fund will pay monthly distributions at an initially targeted rate of 6% per year. Unlike
most other income mutual funds in Canada that pay distributions that are taxed at the highest rates, Signature Diversified
Yield Fund will use forward agreements to obtain its market exposure. As a result, the fund's distributions will typically
be in the form of either capital gains or returns of capital....The fund also provides protection from changing currency values
through active hedging by the Signature team.... [Signature is one of the best talent pools out there]
The fund is also
available as Signature Diversified Yield Corporate Class, which will not pay a monthly distribution but offers the tax benefits
of the CI Corporate Class structure."
Interesting reads
The Fourth Turning (Strauss & Howe, 1997) Where
was I when this was published? Amazingly accurate forecast of our decade - and beyond. Society finally deals with all the
unfinished business of the past 30 years, but some turmoil before the next HIGH. www.fourthturning.com
The Star of
Bethlehem website - www.bethlehemstar.net Be sure to check the "resources" section for The Star that Amazed the
World. Back two thousand years ago the Romans and the Babylonians were very excited by the antics of Jupiter (the king planet),
Regulus (the king star), Venus (the queen planet), Leo, Virgo, and etc. Each interpreted the spectacles differently, but the
Jews in Israel were weaker in astrology and forecasting. One Christian's trek into astronomy, history, and the Star story.
"ONE OTHER OPTION TO consider: Long-term-care insurance, which covers nursing-home care and similar expenses. Although
it's being marketed more aggressively as baby boomers grow older -- and is also becoming cheaper and more flexible -- Morgan
Stanley's McCarthy says that only 30% to 40% of retirees end up needing such care. "For those who do use it, it's great,"
he says. But even those advisers who urge their clients to consider buying these policies say the investment has to be carefully
timed. Buy a plan in your 40s and you'll pay out more in premiums than you will ever collect in benefits; defer the purchase
until you are over 60 and the plan you want is likely to be unaffordable." The Hidden Costs of the Golden Years By
SUZANNE MCGEE, Barron's , 080623
Husband Down
A husband and wife are shopping in their local Walmart. The
husband picks up a case of Budweiser and puts it in their cart. ‘What do you think you're doing?' asks the wife. ‘They're
on sale, only $10 for 24 cans', he replies. ‘Put them back, we can't afford them', demands the wife, and so they carry
on shopping. A few aisles further on along, the woman picks up a $20 jar of face cream and puts it in the basket ‘What
do you think you're doing?' asks the husband. ‘Its my face cream. It makes me look
Beautiful', replies the wife.
Her husband retorts: ‘So do 24 cans of Budweiser and they're half the price.' On the PA system: "Cleanup
on aisle 25, we have a husband down."
The peak of the corporate bond cycle? Or just the "junk bonds"
(C and D rated)?
Cashing in on a relentless rally, investors poured a net $207 million into junk bond funds in the week
ended Wednesday, pushing year-to-date inflows to $27.8 billion, the most ever, AMG Data Services reported. According to AMG,
the previous inflow record was $26.96 billion for the full year of 2003.
Andrew Feltus, manager of the Pioneer global
high-yield fund, had this to say on the subject:
‘In an environment where defaults are falling, you still have
pretty good potential for capital gains. Unless you really think we've got a double dip economic scenario coming, the high-yield
market is still a good place to invest.'
Nov 3, 2009 Casey Research
Gold - useful, but don't get carried away...
Gold has been recovering strongly this
year after last year's panic selloff of everything not nailed down. Generally gold, resources, emerging markets have been
the most resilient survivors of our debt driven woes. Gold bullion registers new highs, at least until recently. Why invest
in gold today?
Dan Hallett answers that question in a recent article (danhallet.com):
"I looked
at gold in the context of why people recommend it. One is as an inflation hedge, another is to diversify portfolios and a
third reason is to have it as kind of disaster protection portfolio insurance," he says. "I found that it delivered
on all three of those goals, but it did so in a very volatile fashion. You're looking at 19% to 20% a year in annualized volatility.
That is well above what you'll get with most stock markets." [a little seasoning goes a long way!].
Inflation
hedge - if all the government stimulus is going to become inflationary, then gold may benefit as a perceived hedge. It does
tend to move opposite to the US dollar, which has been in a long term downtrend/devaluation. This leads to the next question:
are we headed towards inflation or deflation? I think we get one then the other. In the 1930's, when governments didn't spend
there was debt induced deflation, like 1930-1932. When stimulus (low interest rates, free spending, stable to lower taxes)
was provided there was a bit of inflation and recovery (1933-1936). Then in late 1936 tax rates were raised, spending was
reined in, the markets dropped, and it was deflation until WWII stimulated inflation.
Disaster protection insurance
- in the 1930's and 1940's, the gold price was pushed up by US government fiat from $20.67US to $35US and held there, a one
time boost of about 69%. Of course that was when the US was on a gold standard, so it was a way to devalue the US dollar.
Gold mining companies did even better than gold bullion, with a stable to higher price and generally falling costs a company
like Homestake Mines advancing some 1400% in my recollection during that period.
Diversifier - Bullion Management
Group commissioned a report by Ibbotson Associates on this very subject with quite favorable results. If one checks the AGF
or Mackenzie "correlation charts", they will quickly see that a precious metals fund is THE most "uncorrelated"
- in other words, it is least likely to be up when other funds are up, and more likely to be up when other funds aren't. Wainwright
Economics' David Ranson said in a recent [Financial Post Wealthy Boomer] interview that 18% gold bullion to 82% US treasury
bonds or 33% gold bullion to 67% equities was optimal for portfolio protection.
So, if gold is volatile, where does
it stand now?
"Consider the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended
gold-market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest. Its latest
reading is 68%, which means that the average gold timing advisor is recommending that 68% of his client's gold portfolios
be invested on the long [purchase] side.....Today, not only is the HGNSI at a much higher level than in early October, this
sentiment benchmark has remained high in the face of gold's breathtaking drop over the last four trading sessions. On both
counts, contrarians conclude that the near-term outlook for gold is bleak."
Mark Hulburt, Beware the Goldbug Infestation, Dec 9/09 Barrons
I have suspected that we are due for a US dollar rally
(not recovery yet) and it may be starting even now. That would synchronize with a correction in gold's long term uptrend (since
2001). Too many people believe that the US dollar is doomed, so it will stage a temporary recovery to fool us all. Likewise
gold could go back down to as low as the $900's before the next new high. Nothing moves in a straight line. Doug Kass recently
noted:
"We see bubbles in fixed-income and developing bubbles in commodities, particularly in the price of gold,
which is the quintessential crowded trade."
Disclosure & Personal Portfolio Notes
Long term portfolio
(fully invested as possible). Several funds upgraded and cash minimized.
Labour Sponsored Funds <1%: Growthworks
Canadian Fund, Atlantic Venture Fund Series 2.
Equity Funds about 44%, conservative and aggressive (mostly USD hedged):
Cundill Value, CI Harbour Fund, Universal American Growth, IA Ecoflex Dividends, Cundill Recovery, Universal North American
Growth. (selling Universal Health Sciences, and Stone Dividend Growth Class.)
Resource & Precious Metals Funds,
now 35%+: Universal World Precious Metals, Universal World Resources, (plus 20-25% resource content in CI Harbour, Universal
North American Growth above).
Bonds 20%: Sentinel Corporate Bond Fund, short term bonds useful for savings account
substitute.
Live each day as if it is your last, plan as if you will live forever
Gerald Lee CMA CFP works to align his personal
and family investing to the vehicles he recommends to clients wherever reasonable. He is aggressively investing primarily
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