Bank of Canada Leaves Rate Unchanged - Now What?

This is somewhat old news by now, but it could provide some interesting changes.

As you already know, the Bank of Canada (BoC) shocked many Canadians yesterday by leaving the overnight lending rate unchanged at 3%. This was especially surprising because most, if not all, Analysts were expecting a 0.25% rate cut with fairly strong confidence. To top it off, they also made it clear that there is currently no need for “further monetary stimulus” which says they don’t really feel it is necessary to continue the downward trend of cutting rates moving forward.

Your Take-Away: With the BoC focusing on curbing or slowing down inflation rather then stimulating the economy, there is a very good chance that we will start to see fixed mortgage rates begin to climb over the course of the next six months. If you currently have a mortgage in place, it would be a great time to revaluate your terms in regards to staying with or changing too a fixed or variable rate mortgage. On the other hand, if you are looking to buy your first home or structure a new mortgage, a simple pre-approval could save you literally thousands of dollars over the next five years.

With the recent volatility we have seen, now is a great time to talk to your Mortgage Advisor…it could save you some very real money!

Until next time, have a Wonderful Wednesday!

 Chris & Elisseos

Interest Rates set to Rise or Fall?

Are interest rates on the rise in Canada, or are they set to continue to decline based on the US economy?

That seems to be a fair question, especially considering the shaky economy in the US and the question mark that looms over our Canadian Economy. To make matters worse, TD released a report yesterday saying that they “expect another 100 basis points in rate cuts out of the Bank of Canada to help fend off any fallout north of the border”. Ironically, on the very same day, CIBC World Markets released a report stating “Higher prices for food and energy will reverse the direction of interest rates in the next 12 months, and lift energy and materials stocks to new record highs”.

Your Take-Away: With drastic contradiction like these two reports create, it is very difficult to know just what is happening and more importantly, what to expect. If I were to be forced to make a decision of whether to choose a variable or fixed rate mortgage in this economy, I would make the same one as though the economy was strong and fruitful. Don’t let yourself get caught up in the hype and try to time the market, and definitely don’t step too far outside of your comfort zone and make a decision you would not normally make because of one report or the other.

 At the end of the day, do your research and do what you are most comfortable with for yourself and your family. It is impossible to know what the future holds, which is why sticking to your guns and your core values (otherwise known as gut instinct) is key in this environment.

Good luck with your decision making, and until next time, have a Terrific Tuesday.

Chris & Elisseos

Stay Put in our Volatile Market

A recent comment by Fred Pynn, CIO at Bisset Investment Management, couldn’t be more poignant.

“It’s time to sit back and ride out the storm,” he said. He went on to say “The biggest mistake that investors make is overreacting to short-term market volatility. That has probably the biggest negative impact on long-term wealth to investors.” His counterpart, Brent Smith, who is the CIO at Fiduciary Trust Company also commented by saying “The worst is likely behind us, and the majority of the downturn is in the past.”

Your Take-Away: Whether you believe what either Pynn or Smith say to be truth, market volatility is a guarantee in life. It is essential to go back to your original invesment plan, often provided in the form of an “Investor Policy Statement”, that clarifies your risk factor, comfort level and long term plan. If what you chose at the time of making your investment decisions worked then, why should it be any different now considering you probably knew the markets were going to move up and down?

Seeing your portfolio go down in value is never fun, and I’d never pretend that it is. What I will say however is that it is part of being an investor and the good news is that the markets always come back, at least according to history which is our best indicator of the future.

Until next time, have a Terrific Thursday and a very Happy Valentine’s Day with your significant other!

Chris & Elisseos

CEO’s Are Buying Their Own Shares

A recent article was published by Bloomberg saying that many of Corporate America’s CEO’s, Director’s  and Senior Execs are buying more of their company’s shares then they are selling them.

That hasn’t happened since 1995 and the last time this situation happened between 1988 and 1995 the Standard & Poor’s 500 rallied an average of 21% in the following 12 months. These purchases show executives believe the worst may be over after stocks suffered the biggest January drop in 18 years on signs the economy is in a recession. In addition, the S&P 500 which is the benchmark for American equities, hasn’t fallen in the 12 months after insiders bought more than they sold, according to Washington Service data that go back 20 years.

Your Take-Away: The information above does not necessarily mean we are in the clear at all. It does however provide further insight into the fact that we may at least be better off then we’ve been hearing of late. After all, these “insiders” know more about the strenth of the large institutions they lead and thus play a tremendous role in the economy as a whole.

Although I can’t say that this news will drastically change the direction of our economy, I can say that I tend to listen to those who are most intimately involved. I made reference in a past post that if I were trying to build a house, I’d listen to the guy who has already done so rather then the guy who simply plans to in the future. I think that analogy still works in this case.

Until next time, have a Magnificent Monday!

Chris

Death, Taxes and Market Volatility

We have all heard that the only guarantees in life are death and taxes. That’s nothing new. I would like to suggest however that you can add one more “guarantee” to the list.

What is it you ask? Market volatility in all its glory and frustrations. There is no question that one who has looked at history will agree with the unfortunate reality that to make money, we need to ride the waves of the market. It may not be ideal, but it’s no different then realizing that the snow we have experienced further enhances our enjoyment of the upcoming summer and sun. Silly analogy? Maybe, but it is absolutely true.

Your Take-Away: Positive posts like this are fun to write, but many are thinking I’m just a naive writer so let me back up my thoughts. On Black Monday in 1987, the Dow dropped a whopping 21% in one day. That’s more then quadruple our greatest one day drop this year. Needless to say, the markets had returned to the original value of the day before the vicious drop within two years. In fact, five years later you would have made 41% on your money, and 10 years later you would have made 253% on your money by simply staying the course.

This is not always the case and not every drop has a positive ending. By looking at an Andex chart however, you will notice that most do and market volatility is just a part of being an investor.

Until next time, have a Fantastic Friday!

Chris

Words from Steve Forbes

I had the privilege of attending a live presentation by Steve Forbes last week, and it was definitely time well invested.

Mr. Forbes had much to say on the economy in both Canada and the US, and he also had some comments for the Canadian investor. One comment that stuck out to me was “It is the action of panic that is often worse then the illness itself”. I think that was very timely considering what we have seen over the course of the last few months. He went on to add that “The key thing is discipline and a long term approach” followed by “Dollar cost averaging will bail you out”.

 Your Take-Away: It is very clear that many Canadians have become very timid with the current market, and there is good reason for that. I can’t help but agree with Mr. Forbes however, and I would encourage all Canadians to take his message to heart. After all, we know the markets will eventually bounce back if they could do so after the great depression, Black Monday and even the tech boom, so why would now be in different?

Stay the course, take advantage of dollar cost averaging, and take a big picture, long term perspective and not just a daily or monthly view on where the markets stand. Make sense?

 If you have any thoughts on my post or what Mr. Forbes had to say, we’d love to hear them.

Until next time, have a Terrific Tuesday.

Chris

Time to Start Investing Again?

Warren Buffet has been quoted saying “if you are a buyer of equities, why would you actually want the market to go up?”

In other words, this may just be a perfect buying opportunity for those of us with cash in our pocket. A recent article at www.financialpost.com written by Peter Hodson says “So if you actually have any excess cash to invest, then you are better off buying in a down market like this.”

Your Take-Away: The markets have been all over the map, but most would agree that we are currently experiencing a down or bear market. If that is the case, that means that the funds or large cap stocks we normally look too are now on sale which provides a majority of seasoned investors with a great opportunity.  Taking advantage of “Dollar Cost Averaging” (buying in small increments over an extended period of time) is no question a great strategy and can prove to provide those who make that decision with a very strong position over the course of the next couple of years.

Don’t forget that the largest market plunge post World War II happened on Oct. 19, 1987. This drop in the market that we are all familiar with did not trigger a recession, yet investors recouped most of their losses within a year. Perspective in the end, is everything.

Until next time, have a Magnificent Monday!

Chris

How do Lower BOC Rates Effect Canada

As you know, the Bank of Canada dropped the overnight lending rate by 0.25% on January 22nd.

The drop in the overnight rate by the Bank of Canada presents a mixed picture for the economic outlook. While the Bank acknowledged that “the 2008 outlook for the U.S. economy is now significantly weaker than at the time of the October Monetary Policy Report” and that this “will lead to additional downward pressure on export growth,” policymakers presented an optimistic outlook for Canada’s domestic economy as “domestic demand in Canada is projected to remain strong.” Still, the Bank concluded that “further monetary stimulus is likely to be required in the near term.”

 Your Take-Away: The potential for yet another cut in interest rate later in 2008 is a very real possibility. What this means for you is that we also expect to see the chartered banks decreasing their prime rates by similar amounts. This in turn will make mortgage rates, and more specifically, the variable rate products very attractive. This is something to seriously consider if you find your self purchasing a new house or refinancing an existing mortgage.

Until next time, have a Fantasic Friday!

Chris & Elisseos

Stay the Course in our Volatile Market

With all the volatility the TSX experienced since early last week, many investors are moving to a cash heavy portfolio.

It is no surprise at all that many Canadians are moving to cash. After all, the ups and downs in the market can be scary and sometimes even overwhelming.  For those nearing their retirement, it can be down right petrifying. The question we must ask is “Are we staying the course and following our original long term plan?”

Your Take-Away: Rob Carrick wrote yet another great article on the importance of going back to basics and reviewing your initial long term plan. After all, if you stick to your plan there is no question that you understood the market would fluctuate. The benefit to choosing the funds and in turn the portfolio you chose was that you believed the long term benefits would out weight the short term volatility. Does that sound familiar, even fair?

There is no question that the volatility we’ve seen in the last week or so has caused many to wonder what the future holds. I also think it is very fair to be frustrated or a bit nervous when your portfolio seems to be shrinking. After all, we are all human and choosing how to invest our money is not only an academic or technical decision, but also a very emotional one.

My encouragement is this. The markets will probably continue to bounce around for the next little while, but rest assured that with the bad comes the good. In fact, if there was no such thing as a bad market, there would be no such thing as a good market because we’d have nothing to compare it too. 

Step back, take a look at your long term plan, and realize you made sound financial decisions back then which means you can sleep easy and simply enjoy the ride up!

Until next time, have a Terrific Tuesday.

Chris

Our Thoughts on the Recent Volatility in the Canadian Market

With the very real losses the Canadian market saw on Monday, many investors are looking for answers.

Rob Carrick wrote an amazing article on the volatility of the Canadian market, and I truly believe it is a “must read”. He comments on the response that most investors are taking and how that could severly effect the value of their future portfolio.

Your Take-Away: Although it is impossible to know the outcome and length of this current downward slide, it is possible to look at the history of the market to help us determine what our response should be. In fact, when writing this post alone, the TSX has already bounced back by 351 points over yesterday’s losses.

Below are seven points that will help you further undertand both the market, and our current perspective of what is and has been happening.

1. Corrections are a normal part of a healthy market and they present opportunities for long-term Investors.

2. A lot of Portfolio Managers are using market weakness to add to their portfolio holdings. After all, stocks are clearly on sale.

3. The Global Economy is still in pretty decent shape. This is going to be good for the earnings of Large Cap, Global Multi National Companies.

4. Bear Markets start with excessive equity valuations, with Central Banks increasing Interest Rates and investor sentiment being unrealistically optimistic. We are in the opposite scenario currently. Central Banks are cutting rates, investor sentiment is bearish and valuations are compelling.

5. This is not the time to be buying Government Bonds. The Asset Class is likely to under perform over the coming years relative to other Asset Classes. It also offers no inflation protection.

6. Currency has been a major issue. The move in the CDN dollar against the Euro and the US Greenback is unprecedented. That is rear view however and C$ movements are unlikely to have such a big impact going forward.

7. Every single time an index has hit its peak and fallen back, investors who stuck with their knitting experienced a breakthrough beyond that peak down the road.

The long and short, read Carrick’s article and don’t forget about the retirement plan you put in place. After all, that alone is a long term plan and moving your money from equities to cash is probably not what you originally decided on.

Until next time, have a Terrific Tuesday.

Chris

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