Market Commentary

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Market Commentary for 2010
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Q4 Review - Market Commentary 2010

As we enter 2011, the global economic situation and markets continue to improve. Major stock indices performed well in the fourth quarter of 2010, buoyed by continued optimism in the world economic recovery. The S&P/TSX Composite Index returned 9.4% over the quarter, while the year 2010 returned 16.3%. Boosted by higher natural resource prices, the Canadian small-cap index gained 17.3% over three months and returned 34.7% during the 12 month period. The US based S&P 500 Index gained 13.1% over quarter, and returned 10.0% in 2010.

 

Unprecedented amounts of fiscal and monetary stimuli started and sustained the upswing, and the passage of time has allowed a great deal of healing from the events of 2008-2009. Recent U.S. economic data releases have dampened fears of a fallback into recession. Europe, despite a banking crisis, is posting solid data in its core economies. Across the Pacific, excluding Japan, Asia and the emerging world continue to pump out gains well in excess of the largest developed economies. The business cycle upswing that began in the spring of 2009 is sustaining itself, gaining strength from a new round of quantitative easing, a slowly improving jobs market, and growing incomes and profits.

 

As always, this is not to say that the picture is entirely rosy. In the developed West, current account deficits, as well as debt and deficits continue to pose major challenges. Canada got off relatively easily during the recession, but other wealthy nations have not fared as well. Although the feared economic catastrophe has clearly now been averted, countries such as the United States, among other nations, must now find the heart and stomach to balance their budgets and make do with less, as they cannot go on borrowing forever. In the United States the Democrats recently took a "shellacking" (as Obama himself put it) at the hands of the GOP. The recent result of the mid-term elections is going to force bipartisanship cooperation, to "fix" what the perennially negative media has dubbed a "broken" America. Although it will be politically difficult and won't come without sacrifice, it can be done. For example, one only has to look back to the 1990s when with a divided government under Bill Clinton's presidency and following horrible economic times in the 1980s, the US economy entered one of its most prosperous eras in history.

 

Here in Canada, by many measures the respective recessions of the 1980s and 1990s were longer and more severe than was the recession of 2008-2009. Stricter regulation of our financial system and a toned down version of laissez-faire capitalism have enabled Canada to emerge stronger and more quickly from the recession than many other nations; our share prices reflect this. Despite the doom and gloom talked about in the media in the depths of the recession, the markets have continued to reward long term investors. For example, consider some of our top balanced funds which have averaged a 10% return over the past decade, notwithstanding the market crash of 2008-2009 during this 10 year period. As always, those who invest for the long term and with professional advice continue to be rewarded.

 

 

As always, please feel free to call me at 604-688-5262 anytime.

All the Best,

Anthony Ciccone, B.Comm.

Q3 Review - Market Commentary 2010

Stock markets rallied in the third Quarter of 2010, with the TSX up 9.5%. The global recovery continues to be supported by growth and demand from emerging economies. As such, resource rich countries such as Canada fared particularly well this quarter.

 

The International Monetary Fund predicts global GDP growth upwards of 4.5% for 2010; clearly the world economy is growing and at a healthy rate. This, however, paints a somewhat distorted picture of the global economy, as there remain great disparities between the economic recoveries in differing regions of the world. There are still concerns in Europe as governments such as Britain, France, Greece and Italy are forced to take "austerity measures" to balance their budgets. Despite protests and labour disruptions, Europe has been able to avoid the catastrophe that was feared earlier this year. Cooler heads have prevailed, and largely thanks to the economic strength of Germany, the world's fourth largest economy and second largest exporter, the future of Europe and the very existence of the European Union is much more positive. Although the outlook for Europe has improved, the Euro Zone is not yet out of the woods and may struggle to maintain positive growth in the coming years. Emerging economies such as China, India, Korea and Brazil, on the other hand, are expanding at rates once again approaching double digits. Most economists had expected Asia to drive the economic recovery and it's now obvious that this is the case.

 

As for Canada, the Loonie has once again approached parity with the Greenback, not so much because our dollar is rising, but rather, because the US dollar is in free fall. Globally, investors and foreign governments are fleeing the US dollar amidst continuing worries about the recovery in the US. Unemployment in the United States remains above 9% and the housing market appears to have stagnated. Despite high unemployment and pervasive negativity in the media regarding the state of the US economy, the news out of the US is not all bad. In fact, the US markets had their best September since 1939 with the S&P 500 up a whopping 11% in September alone.

 

There's no doubt now that we are seeing previously shell-shocked individual investors re-enter the equity markets after a massive transfer of wealth from equities into bonds and cash over the past couple years. In typical fashion, retail investors are late in following the lead set by top institutional money managers in early 2009. As legendary investor Warren Buffet said, "When others are fearful, I'm greedy. When others are greedy, I'm fearful." The former half of this infamous statement epitomizes what our money managers have been doing over the past year and a half; buying securities at a discount when individual investors were afraid to do so. Those who have remained on the sidelines have continued to miss out on what has been an impressive rally after the crash of 2008.

 

 

As always, please feel free to contact us at 604-688-5262 for a review of your portfolio.

 

All the Best,

Anthony Ciccone, B.Comm.

Q2 Review - Market Commentary 2010

The 2nd quarter of 2010 saw moderate volatility in world stock markets as problems in Europe made investors jittery. The top newsmaker of the quarter was the eleventh hour aversion of what could have been a disastrous sovereign debt crisis in Europe, due to a compromise between the comparatively frugal countries of Northern Europe, and the spendthrift countries of Southern Europe.

 

The sharp divide between Northern Europe, with a relatively high rate of savings, and debt-laden Southern Europe, is causing major infighting. An aging population, relatively low levels of immigration, and dependence on foreign natural resources are compounding Europe's problems. This is not to say that Europe's problems are insurmountable; the continent bounced back sharply after two world wars and surely has the ability to do so again. The issues they are facing are perhaps best summarized by a prominent French politician: "It's not that we don't know how to fix the problem. It's that we don't know how to get re-elected if we do." It's going to take continued cooperation from European governments and a willingness to sacrifice from its citizens to fix a broken Europe.

 

Although the rest of the West is not immune to the problems described above, the prospects for countries such as Canada, Australia and the United States look comparatively much better. We have far more natural resources and just as importantly, much more favourable demographics. Increasing demand from Asia for our natural resources allows us to diversify away from a low wage service economy, and an increasingly uncompetitive manufacturing sector. In contrast to Europe, our high quality of life and open policy toward immigration continue to attract young, skilled immigrants to replace an aging workforce.

 

In response to the relative strength of our economy (it's projected to grow an impressive 3.5% in 2010) and our favourable long term prospects, the Bank of Canada today raised the overnight rate from 0.5% to 0.75%. This move was widely anticipated and priced into both bond yields and mortgage rates prior to the decision. The bank's intention is to cool the economy enough to maintain their target 2% inflation rate, but leave enough cheap credit available to allow the economy to continue to recover. Considering the bank's dovish language pertaining to any further interest rate increases over the short term, borrowers with variable rate mortgages likely should be unconcerned.

 

On the other hand, GIC investors will continue to struggle to even keep pace with inflation, after accounting for taxes on interest income. It's important that investors realize that conservative alternatives that are only marginally more risky than GICs do exist. These conservative, alternative investments often dwarf the rate of return of a GIC, especially considering that in some cases the income is taxed as either capital gains or dividends, as opposed to interest income.

 

In closing, we continue to find investment opportunities for investors of all risk tolerances and time horizons. Investors with a longer time horizon must not lose sight of the fact that the markets have always trended upwards and there is no reason to think that they will not continue to do so. Staying the course, not getting emotional about investing, and holding for the long term remains tried, tested and true advice.

 

As always, please feel free to contact us at 604-688-5262 for a review of your portfolio.

 

All the Best,

Anthony Ciccone, B.Comm.

 

P.S. Consider the chart below; in February of 2008 (near the peak of the market) Canadians bought $279 million dollars in Equity funds, whereas in February 2009 (near the bottom of the market) Canadians redeemed $683 million dollars in Equity funds. Clearly buying high and selling low is not the way to go!

 

Q1 Review - Market Commentary 2010

There were further gains in the first quarter of 2010 on major stock markets around the world, continuing the trend begun in 2009. Despite occasional hiccups, investor confidence is increasing. Once again, investors who stayed the course have been rewarded.

 

In a recently released statement, the Bank of Canada predicted that the Canadian economy will expand by an impressive 3.7% in 2010, reflecting stronger global activity, stronger housing activity in Canada, and the Bank’s conclusion that stimulus policies succeeded in encouraging more spending in late 2009 and early 2010.

 

However, the Bank of Canada also warned, in no uncertain terms, that its ultra-low interest rate policy has a limited future. Interest rates have risen recently, and a further increase in June appears likely – as is the possibility of additional increases in the months following. The prospect of a rate increase, coupled with overall strength in our economy, further strengthened our dollar, which briefly rose above parity to the US Dollar. 

 

What does all this mean? For home owners it means that the cost of borrowing is becoming more expensive. Fixed rate mortgages have continued to climb, though they are still at relatively low historical rates.  As the BOC raises interest rates, the banks will follow suit, increasing their prime rates accordingly. This is not a cause for panic, but it is important to be aware.  Rising rates coupled with the HST may serve to cool what is an extremely hot Vancouver housing market, but is not likely to be the pinprick that bursts a bubble.

 

As for the stock markets, interest rate increases will keep equities more attractive than bonds. There also continue to be opportunities to buy at relatively low prices, both here in Canada and abroad in developing economies (especially in Asia, which is once again booming). However, just as investors are increasingly looking to Asia for higher returns, the rising Canadian dollar is posing a problem. To mitigate this, our top tier fund managers are able to “hedge” against this currency risk, to ensure there is still ample opportunity for profits from foreign markets.

 

It is important not to get caught up in the highs and lows of the stock market and the cycle of our global economy, and to remember that frequent reviews and proper tax planning are key in building wealth for you and your family.  For example, the tax free savings account (TFSA) that was introduced in the 2008 Federal Budget is a powerful tax reducing strategy that is still not being utilized by most people.  To speak to us about setting up your TFSA or scheduling your next review, please get in contact with our office at 604-688-5262.

 

Sincerely,

Anthony Ciccone, B.COMM, CHFC

 

P.S. I’d like to take this opportunity to introduce the newest member of our team, Evan Scholnick.  Evan brings his expertise and over 17 years of experience in living benefits insurance to the team.  He will be assisting our clients with their disability, critical illness and long term care insurance needs.

Contact Us Today

Email us at info@ciccone-mckay.com or call us: 604-688-5262

About Ciccone/Mckay

Ciccone/McKay Financial Group is an independent financial services firm with over 75 years of combined experience in the areas of risk management, wealth management and employee benefits.

 

We specialize in providing insurance and investment solutions for our clients, helping businesses, individuals and families grow, manage, protect and transfer their wealth.


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    Suite 360 - 1095 West Pender Street
    Vancouver, British Columbia
    V6E 2M6

    604-688-5262