Thursday, June 11, 2009

Random Thoughts For Month of May

One of the newest features for this blog will be an "update" on what happened during the previous month. Sometimes the news will be positive, and sometimes it will be (see picture at right).

Looking back at the month of May, you would be shocked to see the number of "records" and highs we set. Some of these include:

- TSX had the highest one month % return since Dec/99
- S&P 500 had best 3 month return in 60 years - up 25%
- the Canadian dollar had biggest single-month rise since 1950
- highest level in a year and biggest monthly increase on record for the Canadian consumer confidence index.

World markets made substantial gains in the month and now are at or above the break-even point for the year. Canada's big five banks all reported better than expected earnings during the first quarter. Makes you wonder if we are in a recession or not. All of the pundits who suggested we were in a bear market rally are now beginning to "backtrack" on those statements. I am in the midst of a book on investing risk and came across a great quote that talks about those "experts".

“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” – Laurence J. Peter

With the good news comes the "yucky" stuff. The TSX was buoyed by oil prices which have doubled since last fall. Oh the days of 70 cent per litre gas - where have you gone. GM formally announced what everyone already knew - they are $80 Billion in the hole. Canadian GDP for the first quarter was the worst in 18 years. As well, here is a scary number to ponder - 95% of the S&P/TSX gains in May came from a combination of the resource sectors (energy and materials) and the financial sector. Over half of the major US banks tested require more capital. The other half apparently want to repay TARP (Troubled Asset Recovery Program) funds so they can go back to the good old days.

Investors are feeling more confident and that is affecting the bond markets as well. Improved global economic data has had the effect of getting investors out of safe-haven investments (cash and bonds) and into equities/stocks. Since early March, an estimated $120 billion (US$) has flowed out of cash and likely into equities. This has fueled the rapid stock market increases.

We have seen the deceleration of the downturn in the economy, and that is often an indicator to a more sustained economic recovery. Will this be the start of the next bull market? That may be presumptuous to assume now, but the patterns are similar to past bear/bull transitions. If you previously moved money out of the markets, you missed out on a significant increase over the past 3 months. If you stayed the course and were patient and maintained a long term view, the past 3 months and the coming months may signal a return to the "glory days" of the past. One last thing to remember - those who forget the past are condemned to repeat it.

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