So here we are...
It's been entirely too long to go without an entry to my blog. Albeit, my weekly Market Watch newsletter has refocused my attention, it is now time to place some very serious thoughts into perspective.
I've lost all craving for houmous, grape leaves and spanikopita. Probably for ever...
Here's a summary of the expected Euro plan for Greece:
1. Greek bondholders will “voluntarily” write down the value of Greek debt by 50% which will help reduce Greece’s debt load from 150% of GDP down to 120% by 2020.
2. The European Financial Stability Fund (EFSF) will be expanded to 1 trillion euros from the current 440 billion euros through a combination of additional funding from the IMF and possibly a capital injection by China and/or other nations.
3. European banks will be recapitalized to offset the impact of the haircut on Greek bonds.
As encouraging as this European agreement is in principle, it is clearly just the first step in a multi-step program to resolve the European debt crisis.
Despite the significant stock market rally, equities remain the favoured asset class versus bonds. That said, we expect equity market volatility to continue and recommend profit taking to lock in recent short term gains. For buyers building longer term portfolio positions, we expect the market will provide yet another lower entry point so there is no rush to buy at current levels.
One of a few exceptions would be gold which has pulled back almost US$200/oz. since the highs reached in August. Both gold bullion and gold equities should perform well in the current environment.
Commodity cyclicals and industrial stocks offer the most upside potential in the event equities rally again, but they also will likely continue to exhibit the greatest volatility.
Many high quality dividend paying stocks at current levels do not offer much capital appreciation potential but will provide investors with the most downside protection if the market retreats, and the steady dividend income generated remains an important component in portfolio total returns.
Given our outlook for an extended period of slow economic growth, whether falling into outright recession in North America or not, equities are expected to trade in a range for the next several years. We are inclined to trim some profits on holdings that have performed well. In turn, emphasizing the need to be more tactical in the current environment, this capital could be selectively rotated into stable names that are more reasonably valued.
We place particular emphasis on the word "selectively" given the fragile situation in Europe and we continue to encourage a focus on larger-cap companies with sound balance sheets.
Stick to your knitting....
There are indications of a Bullish time for equities ahead.... Why?
1. Systematic/mechanical devaluation of the US$
*Global Commodites/Resources priced in USD.
*Forecasting of some substantial falls in commodity prices over the next few years.
*Which will lower Inflation pressures in global Markets.
(I.e. A $10 fall in the price of a barrel of oil would transfer an amount of income equivalent to around 0.5% of world GDP from producers to consumers.)
*Eventually drive resurgence of demand.
*Good for Canadian resource heavy economy which some argue could overheat and (as we've seen in the past) fail to diversify.
2. The death of Defined Benefit Pension Plans.
*Larger institutional money must be reallocated away from risk-free assets towards stronger blue-chip portfolios.
*Equities will benefit from this "refocus" by pension plans and other large institutional players.
It's been entirely too long to go without an entry to my blog. Albeit, my weekly Market Watch newsletter has refocused my attention, it is now time to place some very serious thoughts into perspective.
I've lost all craving for houmous, grape leaves and spanikopita. Probably for ever...
Here's a summary of the expected Euro plan for Greece:
1. Greek bondholders will “voluntarily” write down the value of Greek debt by 50% which will help reduce Greece’s debt load from 150% of GDP down to 120% by 2020.
2. The European Financial Stability Fund (EFSF) will be expanded to 1 trillion euros from the current 440 billion euros through a combination of additional funding from the IMF and possibly a capital injection by China and/or other nations.
3. European banks will be recapitalized to offset the impact of the haircut on Greek bonds.
As encouraging as this European agreement is in principle, it is clearly just the first step in a multi-step program to resolve the European debt crisis.
Despite the significant stock market rally, equities remain the favoured asset class versus bonds. That said, we expect equity market volatility to continue and recommend profit taking to lock in recent short term gains. For buyers building longer term portfolio positions, we expect the market will provide yet another lower entry point so there is no rush to buy at current levels.
One of a few exceptions would be gold which has pulled back almost US$200/oz. since the highs reached in August. Both gold bullion and gold equities should perform well in the current environment.
Commodity cyclicals and industrial stocks offer the most upside potential in the event equities rally again, but they also will likely continue to exhibit the greatest volatility.
Many high quality dividend paying stocks at current levels do not offer much capital appreciation potential but will provide investors with the most downside protection if the market retreats, and the steady dividend income generated remains an important component in portfolio total returns.
Given our outlook for an extended period of slow economic growth, whether falling into outright recession in North America or not, equities are expected to trade in a range for the next several years. We are inclined to trim some profits on holdings that have performed well. In turn, emphasizing the need to be more tactical in the current environment, this capital could be selectively rotated into stable names that are more reasonably valued.
We place particular emphasis on the word "selectively" given the fragile situation in Europe and we continue to encourage a focus on larger-cap companies with sound balance sheets.
Stick to your knitting....
There are indications of a Bullish time for equities ahead.... Why?
1. Systematic/mechanical devaluation of the US$
*Global Commodites/Resources priced in USD.
*Forecasting of some substantial falls in commodity prices over the next few years.
*Which will lower Inflation pressures in global Markets.
(I.e. A $10 fall in the price of a barrel of oil would transfer an amount of income equivalent to around 0.5% of world GDP from producers to consumers.)
*Eventually drive resurgence of demand.
*Good for Canadian resource heavy economy which some argue could overheat and (as we've seen in the past) fail to diversify.
2. The death of Defined Benefit Pension Plans.
*Larger institutional money must be reallocated away from risk-free assets towards stronger blue-chip portfolios.
*Equities will benefit from this "refocus" by pension plans and other large institutional players.
3. 100 Years of Expansion and Consolidation Trends.
*As per the chart at the top of this entry, there are very interesting themes that have taken place throughout history of the stockmarkets (in this case, the Dow Jones Industrial Average).
*After expansionary periods in the markets (which last on average 20 years), there are contractions/consolidations that last around 15 years.
*Roughly putting the next 20 year "up" period at a start date of around 2015... (Almost there)
The key of course will be to find ways to continue to navigate the turbulent waters ahead. It is paramount that we tailor our investment policies to reduce volatility and ensure a certain margin of safety is built in, should the macro-economic environment take a turn for the worse.
Best Regards and Safe Investing.
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