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

What Happened to the TSX Today?

Wow…today was a bit of a surprise and has definitely grabbed the attention of Canadian investors.

The Canadian market suffered its largest single day drop in the last seven years.  After last week’s losses completely wiped out all of 2007’s gains, it’s even harder to accept what happened today. There is no question that the losses we’ve experienced since last week have scared many investors into taking a large cash position in their portfolio.

Your Take-Away: It is nearly impossible to put a positive spin on the markets today, and I wouldn’t want to try. What I do know and believe however is that market swings like this have happened before, and will happen again, yet the markets always bounce back at some point. I don’t want to simplify the current environment we are experiencing, but don’t forget that in 1987 the markets fell a whopping 11% in one day but were back up to par or better within the same year.

My approach has always been to take a balanced, long term stance when it comes to market fluctuations. Our markets may not bounce back tomorrow or even this quarter, but the fact is that they will…one day. Just keep that in the back of your mind the next time you hear the outcome of today’s market or take a look at your current portfolio.

Until next time, have a Magnificent Monday.

Chris

How Do You Think 2008 Will End Up? (We’d love your feedback)

There is no question that 2008 has had anything but a great start.

At the close of the markets yesterday alone, this one week slide we’ve experienced has completely depleted the gains that the Canadian market made through the entire year in 2007. That can be somewhat scary to most investors, especially considering many Financial Institutions have been or are mailing out their annual statements and many are showing a negative return from 2007. Don’t forget however, the market works in cycles and if you don’t need your money today or in the short term future, you can ride this one out because you know the markets will rebound at some point.

Your Take-Away: Education is and always has been key. We would love to hear your comments on whether or not you think the Canadian market will turn around by the end 2008. We obviously have our own opinions, but we can’t help but think that many of you do as well.

So, let us know what you think and post a comment for all to see.  We’d love to hear what our readers have to say!

Until next time, enjoy the weekend and enjoy the ride!

Chris

Canadian Banks May Ignore Future Rate Cuts

Bloomberg recently confirmed that many of the major Canadian banks are seriously considering ignoring the upcoming potential rate cut by the Bank of Canada.

TD Chief Economist Don Drummond said that “Toronto-Dominion Bank and other lenders may not match an expected interest-rate cut by the Bank of Canada next week.” If this decision were to hold true, this could seriously undermine the policy makers ability to revive our Canadian economy based on the slowdown in the United States. Drummond goes on to say “The reality is that there’s nothing given by law that we have to match the bank’s rate, and our prime should be related to our costs”. Wow.

 Your Take-Away: There is no question that this decision could play a serious role in the overall strength of our economy. After all, if the major Canadian banks are more concerned with protecting their own pockets and not as much concerned with the Canadian economy as a whole, that could leave a deep scar in the mind of both the Canadian Consumer and even the Bank of Canada.

Now more then ever, we as Canadians need to be educating ourselves on what is happening around us so we can be best prepared to handle the issues we are and will be forced to deal with.

Until next time, have a Terrific Thursday!

Chris & Elisseos

Second Half of 2008 Looks Promising

With the new year comes “rate cuts and uncertainty”.

RBC Economists recently said that the first half of 2008 will be “filled with rate cuts and uncertainty” but that the second half of 2008 looks promising in terms of returning to a normal environment with the exception of the housing market.  “The US is definitely in a housing recession” says Paul Farley, a Chief Economist with RBC.  But he also later states that “the residential investment is only a small part of the GDP”. 

Your Take-Away: Most economists say that now is the time to “buy and hold”.  There is so much uncertainty and volatility in the markets that for most Canadians it would almost be crazy to try and time the market. Instead, hold on to what you have and the let the eventual upward swing of the overall market strength propel you to another positive growth year.

Until next time, “Buy. Hold. Prosper.”.

Chris

How the Credit Crisis Effects Canadians

Garry Marr and Jonathan Chevreau teamed up to write an interesting article on how Canadians will be effected by the global credit crunch.

Although I don’t agree with everything they said, I can’t help but feel that this is a great article for any Canadian to read.  Throughout the article, Marr and Chevreau answer the question “How does the credit crunch effect me?” but get specific to such topics as your mortgage, the value of your home, a new car, your mutual funds, your pension, your credit or loan, and your savings.

Your Take-Away: Knowledge is power.  Period.  Some of us feel invinceable and aren’t worried about the credit crunch, and to some, that is okay.  My suggestion is to stay abreast of what is happening in the markets, both domestic and foreign.  There is no way to know 100% what the future holds for us as Canadians, but at the end of the day, the more you know the more opportunity you have to come to your own conclusion.

My conclusion is that we will continue to see somewhat of a down turn moving into 2008, but I am confident that by the end of 2008 we will be back in the black overall.  TD Waterhouse released a report saying that 2008 will be the 6th straight year that we see the markets perform well overall.  At least that’s something positive to hold on too!

Until next time, have a Magnificent Monday!

Chris

The Prime Rate is Down Again

The Bank of Canada just lowered the overnight lending rate, but what does that mean for you?

The most important news of late is the fact that the Bank of Canada reduced their overnight lending rate to 4.25%.  In turn, mortgage lenders have also decreased their prime lending rate to 6.00%. How does this affect the average borrower? Well, if you have a fixed rate then it does absolutely nothing. If you have a variable rate, then you should see a reduction to your interest rate by .25%.

Your Take-Away: If you will be closing a mortgage over the next four months, you should seriously be considering a variable rate product since there is indication from the Bank of Canada that further rate reductions may be needed early in the New Year.  The increased pressure to continue to reduce rates comes from the hope that Canada will be able to minimize the damage that the higher Canadian dollar and the U.S. credit crunch have had on the economy.

We’ve said it before, and we’ll say it again, don’t just assume a fixed rate is the only way to go.  Talk to a Professional and determine if you are a candidate for a variable rate, it may save you $100’s if not $1,000’s of dollars over the next few years!

Until next time, have a Magnificent Monday.

Elisseos & Chris

Value Investors are Winning

An article was published at www.reportonbusiness.com stating that long term, value based thinking is the way to go in our current market conditions.

Justin Hill is a Senior Investment Manager at Pictet International Management and his fund has returned an average of 11.1% over the past 10 years investing in global, value based companies. He says that they look for “a price-to-earnings ratio less than that of the market, and growth more than that of the market.” This fund is just one great example of the long term perspective that many fund managers hold to be true, and in this time in the market, it is now more important then ever.

Your Take-Away: You may have been told in the past to “do whatever everyone else isn’t doing”, and now is a great opportunity to take that advice to heart.  Black Friday in the US is the largest shopping day of the year, primarily because of the massive savings provided by many, if not all retailers.  Continuing to buy in this market and by taking advantage of Dollar Cost Averaging could provide significent savings to you knowing that over time, the market will turn around.  If you buy your funds or stocks at a discount and you know the price will come back up, doesn’t that sound like a good “value”?

Before making any investment decisions, it is essential that you take a look at your current situation and and ensure that any investment you make works well within your current porfolio and matches your risk profile appropriately. 

Until next time, have a Terrific Tuesday.

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