So who won that election?

This will not be a political commentary; however I believe that Canadians have now lost the right to criticize out neighbours to the south and their two party system. At least they know who is "running" the show. If the Conservatives are defeated in late January, does that mean that Stephan Dion (whose own party wants him out) becomes Prime Minister?

A recent survey by Canadian executives showed that almost half believe the the Conservatives should have done more to "stimulate" the economy. More interesting is that the divide on whether the Conservatives should have done more or done nothing was geographically based. Those out west liked the status quo; while those in the east felt they needed to do more. However, almost 80% believe that a "coalition" led goverment would do more harm then good. I'm not picking sides in this debate - just pointing out that perhaps some middle ground would have been more appropriate.

Now we come to the good news - apparently we going to test my theory on the glass half full/half empty analogies. In the month of November, 71,000 Canadians lost their jobs driving the "employment rate" down to 93.7%. This monthly figure represents the worst monthly loss since 1982. How does this rate stack up with previous historical numbers you may ask?

As you can see, we would need to almost double our September 2008 "unemployment rate" before we began to approach the rates of the early 1980's and early-mid 1990's. The trends indicate more losses to follow but the majority of losses are expected to fall in the manufacturing provinces (specifically Ontario). However, the majority of people will still have a job through this "crisis of economic uncertainty", and for those people, you may want to heed the "warning" of Bill Carrigan. Bill writes a weekly article in the Toronto Star about the technical analysis of stock markets (think about me discussing market performance and adding tons of boring charts that you cannot and do not want to understand). He appeared on BNN (I have unofficially renamed the station Bad News Network) yesterday and showed how he believes that the worst is over and that we have already seeing signs that the market has bottomed. That is not to say that the economy will get better tomorrow - remember that stock markets tend to lead nor lag the economy.

Who is right? Who is wrong? I don't feel that any one person can accurately predict the future, but when the number of people telling us we have hit the bottom begins to grow, i think it safe to assume that we are either near or at the bottom.

One last point - in earlier blogs, I explained how the market tends to bottom out then bottom out a second time at around 35 days later. The date for that second bottom? December 4th (yesterday). Now we see whether history will repeat itself again...

How to make 50% returns in the market...

Obviously, your's truly has suffered some form of a stroke or other mental disorder. The above statements tend to bring to mind the infomercials you see on BNN that show everyday investors how to time and beat the market. It always amazes me how many people get duped into buying these - makes you wonder why true professionals (fund managers/economists) ignore them.

George Vasic, strategist and chief economist at UBS believes that the Toronto Stock Market will hit 12,500 in 2009. That's a 54% increase over current values. Now, who the heck is George Vasic you may ask.

George Vasic is the Equity Strategist and Chief Economist for UBS Securities Canada Inc. In this capacity he is responsible for the Canadian market and economic outlook, sector rotation and asset mix recommendations. He has consistently ranked in the top 5 in both the strategy and economics categories, has won several awards for forecast accuracy, is widely quoted in the media, and for five years was a contributing editor to Canadian Business magazine.

Obviously, Mr. Vasic made this rather bold statement due to his lack of knowledge, or because he wants the entire business community to percive him as having gone off the deep end. He woudn't actually say something like that because of a deep-seated belief that things are ripe for a quick turnaround now would he? More and more people "in the know" are pointing to a bottoming for the market, and if you would harken back to past blogs, you would see the date December 4, 2008 as a predicted market bottom from yours truly (courtesy of the work of very smart people). We will see how accurate these forecasts are over the coming weeks.

This now brings us to the point of this blog entry. Will you be a buyer of RRSP's during the annual "RRSP season"? It's like walking into a mall and the sign says "Everything 50% off". The only difference is this - we don't know when markets will rise and waiting to see may mean paying higher prices. In talking with clients over the past month or two, most of them have taken the approach to "stay the course" and continue doing what they have always done in the past.

The mole seems to know what you should do. Who or what is the mole you ask? He is a writer for CNN Money Magazine and in the this recent article, he certainly hits the nail on the head. He makes one very important point, "I ask about risk tolerance only to make the point that hypothetically losing half of your portfolio doesn't inspire the same fear that actually losing it will". Now before someone emails me or comments that they didn't know they had lost half of their money, that is nnot the case. However, I firmly believe that the recent market drop will help people better understand the importance of long term planning based on good sound judgement.

Which Looks Better To You?

If you had a gun to your head, which of the above charts would you choose for your investments? It's always interesting to me when you present something in different ways to see what the reaction is. The first chart represents annual stock returns for US large stocks per year. If you had to ride that roller coaster, I wouldn't recommend eating anything that would upset your stomach.

The second chart - the rolling 20 year history of the EXACT SAME US LARGE CAP STOCKS. If you averaged the returns over a period of twenty years for US Large Cap stocks from 1930 to 1950 and then presented a percentage, it would be 7%. This figure is in spite of the depression. Since 1950, the 20 year average has never fell below 7% (the high point came from 1941 to 1961 at 17%).

Now if you're not a fan of the previous reading material, I would pay attention to the following statements. Apparently people have forgotten the concept of "long term" investing. That refers to developing an investment strategy for 20-30 years, not 20-30 minutes. With every other show on the idiot box being devoted to some inane "lack of reality" show", infomercial, or a get rich quick by buying and flipping US real estate (I wonder how many of these shows will be off the air next year), the concept of saving money the old fashioned way seems passe. We would be foolish to ignore the thoughts of Warren Buffett (the richest man in the world although that they may have changed).

1. Price is what you pay. Value is what you get.
2. For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it's going up.
3. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.

If you believe that your retirement will be taken care of by the government, or you would rather "live for today" and forget tomorrow, then ignore me. For everyone else out there, remember the following - markets go up and markets go down. This is not new - it has been going on since markets began. When markets jumped up dramatically last week, I wondered about the "prediction" for a second bottom on or around December 4th. Yesterday's results reminded me that history does tend to repeat itself. Nonetheless, last month, in an article by Shawn Tully, Fortune magazine stated the following:

"If you buy now and wake up in 10 years, you'll probably get a return around the historic average," said Yale economist Robert Shiller. In the near term, however, Shiller - who correctly predicted the implosion of the stock-market and real-estate bubbles - is more cautious. "There is a substantial risk that with all this economic turmoil, stocks will fall far lower," he warned.

Heed my warning:

Most of us will live to get old and retire. If you don't save money, then you won't have money. Do you know the difference between an old man and an elderly gentleman? $1000 per month.

How The Stock Market Works

One of my clients (thanks Mae) sent this to me and I felt compelled to share it. A little light reading after a busy weekend.

Once upon a time, in a place overrun with monkeys, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply started to diminish, they became harder to catch, so the villagers stopped their effort.

The man then announced that he would now pay $20 for each one. This renewed the efforts of the villagers and they started catching monkeys again. But soon the supply diminished even further and they were ever harder to catch, so people started going back to their farms and forgot about monkey catching.

The man increased his price to $25 each and the supply of monkeys became so sparse that it was an effort to even see a monkey, much less catch one. The man now announced that he would buy monkeys for $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

While the man was away the assistant told the villagers, "Look at all these monkeys in the big cage that the man has bought. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each." The villagers rounded up all their savings and bought all the monkeys. They never saw the man nor his assistant again, and once again there were monkeys everywhere.

Now you have a better understanding of how the stock market works.