Markets go through cycles. During the good cycles, everyone believes that markets will go up forever. During negative cycles, it seems that markets will never go up again. About ten years ago I started reading articles that we were in a 14 year “sideways” market that started in 2000. 14 years is a long time for markets to trade within a narrow range. It is now year 12, and markets at this time have not moved very far from the levels they reached in 2000. The good news is that we are closer to the end of this cycle, and ready to start a new and much more positive cycle in the future. If it was easy to make money in the stock market, most people would be wealthy. Always remember, it is time in the market, not timing of the markets.
The Americans used to have the reputation of moving to where the jobs are. Canadians had the reputation of working and living within 50 miles of where they were born. This is now changing. Canadians are more willing to move, and Americans want the jobs to come to them, instead of moving where the jobs are. The challenge in Canada now is that the highest rate of growth in the jobs sector is in Alberta and Saskatchewan. Though Canadians are moving there to fill the available jobs, there are still many areas short of skilled labour. Young people are moving West, and this trend will continue to grow. It is important that young people get the necessary skills to fill the jobs that are waiting for them in the West. Middle aged workers need to continually retrain and acquire the skills that are needed in our changing economy.
There are millions of unemployed in North America, but employers can’t fill jobs. The Waterloo region is a hotbed of activity in the technology industry. Great jobs. Great Pay. Great Working conditions. It is really important that young people look to see where the jobs might be when they graduate as early as their time in high school. Each individual needs to make better choices in their education and continuing retraining to make sure that they have the skills they need to find and keep a job. It is an ongoing process.
The first three months of this year turned out to be okay in the markets. It is always more fun when markets go up. The Canadian market has lagged the US markets. One of the American stocks that has really made a difference to the indexes is Apple. I have been watching it everyday, and I am amazed at how well it has been doing. Since it is now the most valuable company in the world, when the price of Apple stock rises, so does the Nasdaq.
We have a long ways to go yet, but this could possibly be a positive year in the markets. Investors certainly need it and deserve for the patience they have shown by staying fully invested.
It is often said that “rising markets climb a wall of worry”. This is especially true now. Since March 2009 until now, markets have risen dramatically. We saw markets retrace their steps in the latter half of 2011, but overall, it has been a good time to invest in the past three years. Investors are extremely “skittish” and since markets have not returned to their highs of 2007, investors today are not happy. When investors are very happy, it is usually not a good time to invest as markets are probably near a high. The U.S. economy, which is the biggest in the world, is recovering, and profits are rising. It is a good time to invest carefully.
We are big fans of geographic and industry diversification. Unfortunately, in the last ten years, the less you were diversified, the better your results. As it turned out, all you needed was financials, resources and materials invested into the Canadian stock market. This started to change in the last year. What we heard from our clients was to avoid the United States. What we heard from the experts was to invest in big, cash rich, American international companies, especially in the consumer goods and technology sectors. Our clients who have been well diversified for the past twenty years are being rewarded again for their exposure to international companies. The attached article talks about the merits of investing into technology companies.
The government is sending a strong message that “Freedom 55″ is no longer a reality. Starting January 1, 2012, the penalty has been increased by starting your CPP payments before Age 65. There was always a reduction in place, but now it is a larger deduction being phased in over the next few years. Rumors are floating around that OAS (Old Age Security) will be delayed until age 67. The attached article explains in detail the changes to CPP payments starting in 2012.
We have all been reading in the paper about the high levels of consumer debt that Canadians are carrying. I have personnally seen a growing trend of more Canadians with very high personal mortgages with low interest rates. Though the federal reserve says that they won’t raise interest rates until at least 2014, this is not guaranteed. A 2% rise in mortgage rates will cripple many Canadians as they are now almost at the limit of the debt they can carry. Too many Canadians have houses bigger than they can afford, and this is going to hurt them in the short term, and affect their retirements as they don’t have enough funds to pay down the mortgage and save for retirement. The government has made adjustments to the CPP payouts for new retirees this year lowering the amounts they collect from age 60-65. Next on the agenda is to adjust OAS (Old Age Security). If you plan on retiring before age 65, then you need to be more aggressive on paying down debt and building up your retirement savings plans.
John Heinzl writes a very interesting article. As of today. U.S. 10 year treasuries are paying 1.87% per year. This is almost an all time low. Last week the federal reserve announced that they are planning on keeping interest rates low until at least 2014. It is very difficult to earn a decent return on government bonds. Many seniors are nervous about stocks and corporate bonds. There really isn’t much choice. To enjoy a good retirement, investors need to include good dividend paying stocks and corporate bonds. In my opinion it becomes a self fulfilling prophesy. The lower the interest rates are, the more likely decent returns can be earned on stocks and corporate bonds.
The first three weeks of January have been strong in the markets. Though corporate profits rose strongly in 2011, markets had a difficult time. Corporate profits are continuing to rise in January, and so are markets. The turning point is that countries like Spain, Portugal, Italy etc have been able to sell government bonds at lower interest rates than in the second half of 2011. Investors are starting to gain a little confidence that the government turnaround plans show some promise. No one thinks we are “out of the woods” yet, but there are signs that government deficits are peaking and starting to fall. This is very promising for markets as corporate profits continue to increase.
David Rosenberg, who is always negative, and admits it in the attached article, is actually showing signs of enthusiasm for stocks. He feels that this could be a good time to continue to invest into good companies that are paying dividends. Markets so far are proving that the hypothesis is credible. Long term investors are always rewarded.