September 19, 2011

So you have heard about the doom and gloom in the market place.

What are the problems and what has caused this problem?

One simple answer to a very difficult topic, Governments have spent money that they don’t have!

Europe has for years had wonderful social programs that they now realize they can’t afford. You either tax people to death, reduce programs, or perhaps a combination of both. Greece has learned this the hard way. Yet, people still look through rose coloured glasses.

In the USA, wages for the middle class have not increased in 12 years. It didn’t appear that way up until a few years ago when everyone got a big shock. The only reason we thought they were doing ok was due to the big cars and homes that we now find out was all on borrowed money. The bubble burst and reality came to visit. 

One would think that this would have delivered a wake up call, but yet, politicians think that people should have everything and not have to pay for it. Vote buying to the extreme! Come on people, you’re a great country, instead of acting like a spoiled child wanting to get re-elected, do the right thing. If the United States does the right thing, the world will be better off.

The US has to pay its bills, NOW!

Inflation: Very little in the western world. You would think that with low interest rates people would start borrowing. Not so. Americans are actually saving more these days and trying to stay away from borrowing. The same cannot be said about the government.

China as well as India may have an issue with inflation, but not outlandish.

Bond market: Very low yields, but stable for now, as interests look to remain low for the next couple of years.

Stock Market: The past few days have reintroduced us to the roller coaster ride.
The difference from 3 years ago is that companies carry very little debt; they have lots of cash on deposit, and to be blunt, are profitable. Look to see companies buying other companies. Look to see them pay down their debt and perhaps look for them to maintain or perhaps increase their dividends that they pay their shareholders like you and I.

We are currently at recession price levels. Perhaps things have been sold off in part due to the fact that we still carry the battle scars from 3 years ago.
 
As the outlook in Europe and the US economy appears troubled, we have seen commodity prices fall such as oil and copper. Since Canada is a commodity rich country we have seen our dollar fall against the US greenback the past few days.

Opportunities:

Gold may be a hedge against volatility.
Most funds have a gold weighting. Dave Taylor of Dynamic funds carries about a 20% weighting in gold companies. Eric Bushell of CI funds holds about 4%.

Dividend paying stocks: The signature dividend fund has an attractive valuation while currently paying out  $.04/unit per month. This dividend can be reinvested to buy more units at a currently lower price thus compounding your monthly income.
The Signature diversified yield does the same but at $.05/unit per month.

Balanced funds provide the diversification to reduce volatility. There was a fear of inflation due to so much money being pumped into the economy over the past couple of years but that doesn’t appear to an issue any more. Thus holding a position of bonds appears to be attractive. This could be especially true should the American government reduce interest rates once again.

At times like this it may be wise to resist making emotional decisions.

It is always prudent to review your investment portfolio on a regular basis and I am available to discuss your affairs at your convenience.

Sincerely,
Andrew Stevenson

Stevenson Financial Inc.

5950 Spring Garden Road
Halifax, NS B3H 1Y7
Tel: 902-425-8143
Fax: 902-446-3952

^ top