Absent a 12.14% December return, this will be first losing decade for the S&P 500

What’s in store for the next decade?

One interesting observation is that leaders in one decade usually don’t repeat in the following decade. This statement is clearer when viewed from the industry level. In the 1990s, five of the 10 top cumulative price returns came from IT. Yet in the following decade, not only did the entire sector sharply underperform the overall market, but all five IT industries that led the pack in the 1990s underperformed the market in the 2000s, falling from 43% for systems software to 87% for communications equipment. Conversely, nine of the bottom 10 in the 1990s went on to beat the S&P 500 in the 2000s. Not surprisingly, the one that didn’t was also an IT industry.

In addition, among the worst performers in the 1990s were industries in the energy and materials sectors — most notably gold and oil & gas exploration & production — which are now among the top performers this decade (Gold gained 112% in the 2000s and ranked 11th).

So what might this mean for the coming decade? When we finally emerge from this debt overhang — and the sooner we do this the better — the washout of prices and valuations may serve as a springboard for equity price advances for the remainder of the decade. If history is any guide (it is never gospel), the cyclical sectors will likely lead the recovery, while the defensive groups get pulled along for the ride.



Saverio Manzo

What a Top Award-Winning Fund Manager is doing

Canada's Equity Manager of the Year worries about the market impact of huge government deficits.

Eric Bushell, chief investment officer at Signature Global Advisors, says the global economy will face a crucial test in 2010 to determine if it can manage without extensive support by governments and central bankers.

"I am in the cautious camp," says Bushell, who is this year's winner of the Morningstar Equity Fund Manager of the Year award. This caution "plays into my theme of emphasizing those sectors in the equity market that are defensive and/or generate strong cash flow and dividends for investors."

On the health of the global economy, Bushell's call is that there will be an ongoing need for government stimulus. "Some key areas of weakness persist, for example the U.S. housing market."

At the same time, he says, there are growing concerns in the global debt market about the huge fiscal deficits that governments are running up to provide this stimulus. "This is rattling the sovereign debt market."

The good news for equity investors, says Bushell, is that central bankers are likely to keep short-term interest rates as low as possible for some time, given the uncertain economic outlook.

In the case of energy, Bushell is favouring exploration and production companies focusing on oil. "This commodity is a hedge against the possible resurgence of inflation over the longer term."



Saverio Manzo

Is the Canadian Housing Market in a Bubble?

It sure looks that way.

- A David A. Rosenberg, Chief Economist & Strategist SPECIAL REPORT

At a time when personal income is down around 1% over the past year, we have seen nationwide average home prices soar over 20% and last month hit a record high; as did home sales. In real terms, home price appreciation is back to where it was in 1989. Of course, back then, interest rates were far higher but then again, the economy was in the late stages of a phenomenal multi-year economic expansion, not making a transition from deep recession to nascent recovery.

We are in no position to make a claim that there is a high degree of speculation in residential real estate as there was during the “flipping” mania of the late 1980s. Be that as it may, housing has become a very crowded asset class in Canada, as measured by the homeownership rate, which at last count was estimated at 68.4% which is not only a full percentage point higher than the current U.S. ratio but is the highest it has been on this side of the border in nearly four decades.

While the Canadian economy is recovering, overall growth is still barely above zero as manufacturers grappled with excess inventories, a strong currency and a soft domestic demand picture south of the border. Employment conditions have improved, but are hardly that healthy, as we saw in the latest jobs report for November, where wages and the workweek were both down despite a constructive headline number (half of which were in the education sector, an inherently difficult area for statisticians to adequately seasonally adjust).

The bottom line is that even though home prices did come off a soft base from a year ago, so did most other economic indicators and they are still down from the depressed levels prevailing this time in 2008:

• Real GDP -3.2%

• Employment -1.5%

• Retail sales -3.3%

• Shipments -18.6%

• Orders -18.4%

• Exports -18.2%

• Personal income -0.8%

• But home prices are up 22%.

Go figure.



Saverio Manzo

Climate Skeptics vs. Scientific Consensus

I’m always looking for the most credible sources to write from and I especially appreciate a good depiction of information.

Today's letter is a follow up to my last post: "The Oil Sands and Al Gore: Blacklisted? - Oil Sands Threaten to Destroy the Planet”

The climate change debate seems to be heating up and we’re seeing more and more news for both sides of the camp.

This decade is on track to become the warmest since records began in 1850, and 2009 could rank among the top-five warmest years, the U.N. weather agency reported on the second day of a pivotal 192-nation climate conference.

What do you think is causing the warm-up? Is it human activity on the planet, or a natural cycle?

From the Wall Street Journal: “ Are Humans Responsible for Climate Change?”
http://online.wsj.com/article/SB126027972598681805.html



Saverio Manzo

The Oil Sands and Al Gore: Blacklisted?

“Oil Sands Threaten to Destroy the Planet”

In a recent conference call with infamous BMO Harris Bank economic and market strategist Donald Coxe, Don suggested a few interesting global investment phenomenons.

The most notable, of course, is one that concerns us right here at home – our beloved Alberta and Saskatchewan oil sands. In a somewhat recent speech, Al Gore (former VP of the USA), stated that the “Canadian Oil Sands threaten to destroy the planet”. This is of course because of their affect on global warming, by way of C02 emissions they emit in the production and usage of oil and gas.

The effect that these comments have had on global, mega-size institutional investors, the ones that manage large pension funds, endowment funds and the assets of charitable organizations, has been quite negative. If the story holds true, then these institutional investors have effectively “black-listed” the Oil Sands as an investment and therefore cannot be used as an option within the assets they mange, due to pressures for their clients.

So here we sit in Canada, a highly-liked nation by foreigners, a political-friendly and stable nation, sitting on one of the worlds largest natural resources that may need be avoided by some of the worlds largest money managers all thanks to Mr. Gore’s comments. Buy what if Mr. Gore’s scientific research and modelling on global warming doesn’t pan out nearly as bad as he suggests?

- A massive influx of new capital in to the Oil Sands?

Challenges to his theories are currently underway.



Saverio Manzo

Upset you missed out on this year's mega stock market rally? Don't be.

As many of my readers know, I follow closely some the brightest minds on the economy and the markets, those whom have excellent or at least good track records and past calls. As we approach the New Year, I’ll put together a survey of forecasts and predictions of a collection of the best minds.

One of the best forecasters of secular trends is John Mauldin.

John Mauldin of Millennium Wave Investments says long-term investors should ignore the temptation to get a piece of the action. In his view, there's only one metric to pay attention to: Valuations. And, for now, stocks are too rich for his blood -- "nosebleed" is the term he used.

That doesn't mean you should park your money in a CD or under a mattress. "There's lot of other things you can do while you're waiting" for valuations to come down, he says.

Among Mauldin's recommendations are fixed income and dividend yielding utility stocks. And for the more speculative at heart, he thinks buying real estate for rental income is a smart move now that housing prices have come down so dramatically.

"2010 will be a mediocre year for the economy, with GDP 1.0% at best"

"I'm in the double-dip recession camp," says John Mauldin of Millennium Wave Investments, who fears the Obama administration is "going to massively increase taxes…in 2011, in a weak economy. I think that's the absolutely dumbest thing we're going to do as a country."

Mauldin sees many parallels between today's economy and the malaise of the 1970s. With too much debt, slow growth and high unemployment, "it won't be fun" for the next few years, he says.

Nevertheless, Mauldin is actually optimistic about the future, which might shock some who've seen him in previous appearances on Tech Ticker.

In his e-newsletter, Thoughts from the Frontline, Mauldin envisions explosive growth in telecom, energy and medical sciences. Much the same way the PC revolution changed the way we communicate, work and live, so too will this next wave of innovation.

"It's going to be the most exciting time to ever be alive, in the next two decades" Mauldin predicts.



Saverio Manzo

Is Profitability or Technicals Driving Stock Markets?

More and more of the world’s best forecasters are singing the same tune recently. Should we take heed or keep with the crowd?
What will fuel the next leg up in stock markets, after the 60% plus run over the past 8 months?

From The New York Times:
I’m not sure I agree with very much in this NYT article, describing the current cyclical bull rally within the longer secular bear market as A Rally That Needs More ‘E’.

“In the first leg of a bull market, when optimism and euphoria are ascendant, investors are willing to bet that the economy will improve and that corporate profit growth is just around the corner. This faith manifests itself not just in rising share prices, but also in rising price-to-earnings ratios.”

I do not believe that this is a) the first leg of a bull market; b) optimism or euphoria are ascendant; c) investors are betting that the economy is improving.

Rather, this has been a technically driven rally from very deeply oversold conditions. A 6 month, 5,000 point fall will set up the conditions that lead to a massive oversold bounce.

Indeed, the article notes that “the P/E ratio for companies in the Standard & Poor’s 500-stock index has soared 87 percent since this rally began on March 9.” That is not what a typical bull market looks like, and is more accurately described as the reaction to a prior collapse.

“Though conventional wisdom assumes that P/E ratios continue to grow throughout a bull market, that’s not always the case. In fact, it’s rarely the case.”

Well, it may be rare, but it was certainly the situation the 1982-2000 — the greatest bull market of our lifetimes. About 75% of the gains took place due to P/E expansion. The end of that rally (’98-’00) saw P/E rations expand dramatically, especially on the Nasdaq.

Source: NYT



Saverio Manzo

Portfolio Managers Bullish, Consumer Confidence extreme low. What gives?

Barron’s just did a survey. It revealed that the bullish sentiment on stocks is quite high and almost everyone hates US treasuries

"Whenever sentiment gets too strong in one way or the other, it is usually setting up the markets for a rally in the despised asset. "Mr. Market" (Ben Graham's Book) likes to do whatever he can to cause the most pain to the largest number of people."

"I am not predicting a near-term crash or imminent precipitous bear, although in this environment anything can happen. I am merely noting that there is an imbalance in the system. The longer this imbalance goes on, the more likely it is that it will end in tears. And the irony is that a recovering world economy could be the catalyst."



Saverio Manzo
www.wealthconcepts.ca

Proposed Changes to Tax-Free Savings Accounts (TFSA)

Our Finance Minister is at it again.

The proposed changes aim to address deliberate over-contributions and penalize clients who intentionally abuse the Tax-Free Savings Accounts program. Changes are effective October 16th, 2009 and impact all transactions and withdrawals taking place after this date.

The proposals announced on October 15, 2009 by the Ministry of Finance contemplate a number of amendments to the tax framework applicable to TFSAs. These amendments seek to address deliberate over-contributions and penalize clients who intentionally abuse the use of TFSAs in tax-planning schemes.

For complete details, please see attached or visit website link.



Saverio Manzo

Another Foreign Bank buying Gold

If the sources are accurate, according to the Financial Times, then Russia’s central bank, which without much fanfare (compared to India) purchased 15.5 tons of gold in October, recently indicated that it wants to add another 30 tons to its cache by year-end.

This is yet another example of a central bank with too much $USD looking to diversify its monetary base.

India says it will continue on its trend of last week. What happens when China has a drink out of this punch bowl?

Thanks in part to mounting US deficits and a weak US economy, the US dollar continues to trend lower. After all, a virtual collapse of the banking sector does have its consequences. For some perspective, today's chart illustrates the current trend in the US dollar (blue line) as well as that other world currency, gold (gray line). As today's chart illustrates, the performance of the US dollar has varied inversely to that of gold since the latter stages of the credit bubble. It is worth noting that the US dollar is currently testing resistance of its downtrend (red line) while gold makes record highs.



Saverio Manzo

Sliding U.S. dollar pushes Canadian Stocks higher

The U.S. dollar continues its slide and gold moved further into record territory.

The dollar started falling after Federal Reserve official James Bullard said the central bank should continue to buy mortgage-backed securities after the program is supposed to expire in March. That would continue to keep interest rates low.

The U.S. dollar traded lower against six other major currencies. The Canadian dollar closed up 1.24 cents to 94.71 cents US in morning trading.

Commodities - which are priced in U.S. dollars also moved higher.

Gold soared to a record.

Crude oil - Canada's largest export - rose with the December contract adding 84 cents to settle at $77.56 US a barrel

Scotia Capital currency strategist Camilla Sutton told CBC News that central banks are moving away from the U.S. dollar as a reserve currency and into gold.

"We're in the midst of a long-term U.S. dollar weakening trend," she said. "We'll close next year at lower levels than we're at this year and the same is true for 2011," she predicted.

Sutton advised investors not to view the rise on the TSX too positively. Commodities will do well, but the higher dollar "plays havoc," particularly in Ontario where the manufacturers are "suffering dramatically."

She said a higher Canadian dollar would put more pressure on exporting companies here to invest in financial contracts that protect them from sudden changes in exchange rates or become more efficient by moving jobs offshore to countries where wages are lower.

The falling U.S. dollar has led in the last few months to a resurgence in what's called the carry trade. Traders sell U.S. dollars because American interest rates are low and buy the currencies of countries with high rates in an attempt to make money on the difference in yields.

That inflow of money into the strong currency economies, she said, in turn risks creating a buying frenzy in financial and housing markets similar to that which led to the downturn in the U.S. economy.

Sutton said the risks are "extremely high" that could lay "the groundwork for the next crisis a few years out."

Source: CBC News



Saverio Manzo

Will CRA follow the IRS to Foreign bank accounts?

Behind closed doors, we are told, this has been a point of discussion. However, if attacking a simple offshore “bank account” is difficult, imagine the difficulty of cracking open a properly composed trust for Canadian beneficiaries.

14,700 Taxpayers Voluntarily Disclosed Foreign Accounts to IRS
By WebCPA
November 17, 2009

Over 14,700 holders of foreign bank accounts told the Internal Revenue Service about the existence of the accounts under a voluntary disclosure program.

IRS Commissioner Doug Shulman said the agency received voluntary disclosures about the presence of billions of dollars in assets in bank accounts located in 70 countries.

“To put it simply, this is a historic milestone for the nation’s hard-working taxpayers,” he said, according to the Associated Press.

The IRS had extended the program and offered to allow most of those who came forward voluntarily to avoid criminal prosecution for tax evasion. The agency has successfully prosecuted several UBS account holders who did not come forward voluntarily.



Saverio Manzo

A Bull Market in A Weak Economy Doesn't Last

With the consumer making up about two-thirds of the US economy, we need job growth to sustain this little increase in the economy and maintain current levels of stock market valuations.

The contrasts are too stark to ignore. Stocks are supercharging ahead, while unemployment continues to increase (as of this post at a 26 year high), home prices are stalled and likely to dip further. Emerging markets are eating the developed world's lunch. Asset prices in general are rising far above the economic reality that would rationally support them.

Main Street Americans are struggling to pay their bills, while Wall Street executives are getting record bonuses. Two Americas; trust me it's more than just a campaign slogan. It's the cold hard reality.

The dichotomy continues. Stocks, gold and oil all continue their amazing climb as the dollar descends to new lows.

Russian stocks are up 136% this year, and Brazil is up 117%, far outpacing the meager gains here and in that sick dog of an economy, Japan.

China and India have been kind to investors of late. You can even earn 8.75% on Brazilian bonds while you've lost 16% to date this year holding dollars. That's the most important dynamic in global markets.

Look at the dichotomy another way. The FHA is handing out mortgages on the basis of a 3.5% down payment of the home's value. That's leverage approaching 30-to-1, the kind that brought down Bear Stearns and Lehman Brothers.

Meanwhile, 15 million people are competing for 2.5 million job openings. The amount of time people are looking for a job has hit a new record high. Debt to GDP is still high. Trillions in household wealth have been lost. A bull market in a feeble recovery cannot last forever.

(Source: Forbes)



Saverio Manzo

The Asians are coming! the Asians are coming!

Cash-rich Asian countries who's governments can see the resource need of their countries well in to the next couple of decades will continue to scoop up cheap Canadian resource companies.

Canada's oil patch & mines tempt Asian giants (Thomson Reuters)

* More deals seen as Asian economies grow
* Squeezed Canadian balance sheets make for bid targets
* State-owned firms can take long-term view

By Jeffrey Jones and Pav Jordan
Canada's energy and mining sectors are riding a wave of acquisitions by Asian companies that are flush with cash and hungry for resources to fuel rapidly expanding economies, a trend not expected to let up soon.

Deals such as Korea National Oil Corp's C$1.8 billion ($1.7 billion) bid for Harvest Energy Trust on Thursday are aided by difficulties some Canadian companies have in funding their operations because of the financial crisis.

"We've been saying that the sectors which are the most susceptible to such M&A are the resource and energy sectors, and I still believe this to be the case," said Alain Auclair, head of investment banking for UBS Securities Canada.

"You still see the Asian countries with access to capital or strong balance sheets that can deploy cash quickly to seize opportunities.

"I think it's a trend that we're going to keep seeing, especially for companies who might be under pressure from a balance sheet perspective."

That is the case with debt-heavy Harvest, known for its Western Canadian oil and gas operations and a refinery on the East Coast, one it could not afford to expand by itself.
Last week, China's No. 2 nickel miner, Jilin Jien Nickel Industry <600432.SS>, and Canada's Goldbrook Ventures offered to buy mining developer Canadian Royalties Inc for nearly C$200 million to help feed China's appetite for metals.

The number of such deals will only increase as China, Korea and other Asian nations seek to own the production of resources such as nickel or oil, instead of having to buy them on international markets.

South Korea, for example, aims to pump 300,000 barrels of oil a day by 2012 as it expands its manufacturing economy. It is currently the world's fifth-largest oil importer.

In August, state-owned PetroChina paid C$1.9 billion for a 60 percent stake in two planned oil sands projects owned by Athabasca Oil Corp. That was China's largest Canadian oil acquisition to date.

The deal helped fuel the shares of small developers such as Opti Canada Inc and UTS Energy Corp , as investors wagered they might be the next to be absorbed by the Asian wave. Both are minority partners in large projects in Western Canada.

CASH IS KING
At a time when publicly traded businesses are struggling under the weight of a global economic crisis, state-owned oil companies can deploy cash for multibillion-dollar projects without having to seek shareholder approval.

"They couldn't care less about the balance of this year, or next year, even the year after," FirstEnergy Capital Corp analyst William Lacey said. "They're looking at the next 10-20 years, and the internal demands and they are going to meet those demands."

Bob Schulz, a professor of strategy and global management at the University of Calgary's Haskayne School of Business, said big, but not blockbuster deals will continue to be the order of the day in Canada's oil patch.

"Big, positive and probably in C$1 billion to C$2 billion bite-size chunks," said Schulz.

Those transactions are large enough to give new companies a a foothold in long-term projects like oil sands developments, but not of a scale to cause alarm in the United States, Canada's largest energy and minerals export market, Schulz said.

Canada has been coveted as a storehouse for natural resources for hundreds of years, and investors in oil, gas and minerals enjoy minimal political risk.
In energy circles, it is best known for Alberta's oil sands, the largest deposits of crude outside the Middle East.

Developing the unconventional oil using mining or underground steam techniques is costly, and numerous small players have been culled to make way for major companies with deep pockets.

Harvest is not an oil sands developer, but KNOC made a foray into that part of the business in 2006 by acquiring an oil sands property from Newmont Mining Corp .

Analysts say buyers will get a boost from legal changes in Canada that force most Canadian income trusts to convert to traditional corporations by 2011, when their favored tax status terminates.

The changes will force many, sometimes highly leveraged, trusts to either become corporations, merge or get squeezed financially, making many into attractive targets.

Source: Thomson Reuters



Saverio Manzo

The Canadian Dollar; a recipe for success

I love it when a plan comes together.

Nearly two years ago we wrote about the Canadian Dollar being on a long-term ascent when compared to the US Dollar and most other developed nation’s currencies. We talked about the fundamentals transpiring around the world that would push our loonie towards the $2.00 CAD per greenback. The fundamental uptrend in the Canadian dollar is likely to remain intact, notwithstanding the prospect that a technically oversold greenback may enjoy at nice countertrend rally at some point in the near-term. But that is what we refer to as a bump along the long road up.

We all know the story about the BRIC, and especially about the growth in the world’s two most populous countries: China and India, “Chindia”. As they grow, and the rest of the world does with it.

The world needs energy – oil, gas and uranium: Canada has energy to go.
The world needs food – wheat, fertilizer and nutrients to grow, Canada’s got food.
The world needs base metals – copper, nickel, moly and more - they can be found in abundance in Canada.
The world needs a safe, reliable place to do business, one that will honour it’s contracts - Canada seems to be a pretty safe bet.
The world likes to do business with others it likes; Canada seems to be a pretty friendly place, having good relations with nearly all other nations.

What a recipe for success!



Saverio Manzo

A good time to look for a retirement home?

Canadian Seniors' Residences: average vacancy rate of 9.2%

The Canada Mortgage and Housing Corporation conducted a recent survey revealing an average vacancy rate of 9.2% in seniors' residences across Canada. The survey polled 2464 Canadian seniors' residences to gather vacancy rates, rental costs, and the types of housing available to older adults throughout the country.

Bob Dugan, the Canada Mortgage and Housing Corporation's chief economist says that the anticipation of a spike in the demand for seniors' housing because of our aging population, has spawned the new construction of many new residences which in turn, has led to a much higher average vacancy rate in the interim.

The 2464 residences surveyed inhabited 176,845 seniors, and of this number, 81% of them lived alone. Most rental prices per month were inclusive of all meals and the average national rental price for a bachelor unit was $1774 per month. Prices varied from residence to residence given the difference in services and amenities offered at each location from a high in Ontario of $2519 per month, to a low in Quebec of $1271 per month.
Not to much surprise, the survey found that rental rates were significantly higher in Canadian seniors' residences offering heavy care - as opposed to those housing units with a more independent style of living and less intensive care.

Source: seniorservicedirectory



Saverio Manzo

Bonds or Stocks: a rare occurance

When designing a portfolio of investments, one usually chooses amongst different asset classes so as to diversify – with the intent of an overall increased rate of return and reduced risk. This is a form of asset allocation.

The investment choices usually range from cash and money markets, bonds and bond funds, stocks, and stock funds, commodities and gold. In almost any given time frame, history has shown us, that we very rarely see these asset classes move in tandem – all going up or all decreasing together – at the same time. That is the whole point of asset allocation, that whist one asset class does well in a given environment, another will likely falter, hence diversification.

So what asset classes are doing well in the current environment?

More specifically, normally bonds and stocks move inversely, commodities and bonds move inversely, and commodities and equities (at least in the U.S.A. and less so in Canada) tend to move inversely and yet, all these asset classes are rallying at the same time. This makes for one very strange market table setting and at some point, with 200 years of history as a guide; something is going to have to give.



Saverio Manzo

Next shoe to drop

Many gurus have been forecasting that the next serious problem that the North American economies will face will be the deterioration – and possible outright collapse – of the commercial property and REIT sector. Many have been hopeful of a steady and continued economic recovery so that this commercial smattering may not actually happen. Today, in the WSJ, we see signs that things are not getting better.

OFFICE REAL ESTATE STILL IN DEEP TROUBLE
The U.S. office sector vacancy rate rose to a five-year high of 13.7% in Q3 from 10.5% a year ago, and as is the case now in the apartment sector, rental rates are deflating and deflating fast. Net effective rents nationwide have fallen 8.5% YoY, which is the steepest deflation rate since 1995.



Saverio Manzo

Billionaire Math: Nine Children + No Will = One Legal Mess

Nearly one-half of Canadian adults do not have an estate plan which includes a will. As a financial planner, I can't stress enough of it's importance in a complete financial plan. Here is one interesting, real-life story...

Lesson to billionaires: get a will. Especially if you have fathered nine children with mistresses.

That sounds blindingly obvious, of course. But a nasty estate fight breaking out in New Jersey demonstrates that even multibillionaires can sometimes neglect the most basic of wealth-management issues.

The fight concerns the fortune of the late Wang Yung-ching, a plastics magnate who lived in new Jersey and Taiwan and was widely known in business circles as the “god of management.” His wealth was once estimated at $7 billion. Yet he didn’t leave a will when he died last year at age 91.

Oh, and he fathered at least nine children–with women other than his wife.
One question is whether the court battle will take place in New Jersey or Taiwan. A New Jersey Superior Court Judge ruled this week that Mr. Wang’s estate will have to open up certain financial records to figure out how much it holds in New Jersey.

Mr. Wang’s wife of 70 years, Wang Yueh Lan, who lives in Taiwan, is his legal widow. His oldest son, the 58-year-old Winston Wong, says he has power of attorney, granted by Ms. Wang, who, by the way, isn’t Mr. Wong’s mom.

Rest assured, this is just the beginning. Just sorting out how to divide up the estate among the widow and the nine children will be a difficult process. Image what will happen if any of the various mistresses/mothers emerge seeking funds.

And we thought Michael Jackson’s estate was complicated.

Posted by Robert Frank



Saverio Manzo

Good for Canada?

China is boosting spending on all kinds of natural resources - oil and mining acquisitions by at least half this year to take advantage of lower valuations after prices slumped. The nation’s sovereign wealth fund this week spent $2.75 billion on commodities companies and approximately $60 billion in the past year.

“China sees it as ‘We’re going to use the resources for several decades, so therefore our pricing expectations are different,’” Goodyear said. There “will be resource needs ahead, and they will want access to these resources in the years ahead.”

Chinese companies will step up the pace of overseas mergers and acquisitions in a “new wave” of deals.

This bodes very well for Canadian natural resource companies, and, in turn, for Canada as a whole. It goes along with my much repeated theme that "Canada has the goods that the rest of the growing world needs". Canada should be able to ride this secular wave that should last for at least another decade.

Another point of interest here is the simple little fact that one by one, Canada's mining companies are disappearing - either by way of merger with another or by take-over. With fewer companies to choose from, prices should...

Copper prices have doubled and oil has jumped 54 percent this year as China boosted imports to fuel its stimulus spending needs.

http://www.bloomberg.com/apps/news?pid=20602013&sid=ayAyMtVos3tQ



Saverio Manzo

Smaller, Regional Banks tell tale

Ninety-four banks have failed so far this year. 94 now gone and the pace of bankruptcies have not yet slowed. This, in my mind, gives us a good indication of the true current health of the US economy.

FDIC weighs extraordinary steps, including loans from banks, to shore up insurance fund

WASHINGTON (AP) -- The Federal Deposit Insurance Corp. is weighing several costly -- and never-before-used -- options as it struggles to shore up the dwindling fund that insures bank deposits.

Ninety-four banks have failed so far this year. Hundreds more are expected to fall in coming years largely because of souring loans for commercial real estate.

Bank failures since the financial crisis struck have drained the fund to its lowest level since 1992, at the peak of the savings-and-loan crisis. The fund insures deposit bank accounts of up to $250,000.

"Lots of banks are going to require more capital, and (Bair is) trying to rob from the rich and give to the poor,"

The agency is considering borrowing billions from healthy banks. Alternatively, it may impose a special fee on the banking industry.

Each option carries risk: Drawing money from healthy banks would take dollars out of the private sector, making that money unavailable for investment in the weak economy. But charging the whole industry a fee to replenish the fund could push weaker banks toward failure.

http://finance.yahoo.com/news/FDIC-weighs-extraordinary-apf-3266069115.html?x=0



Saverio Manzo

If we had only listened to Shania

She got it right.
Back in 2002 Shania came out with a song (lyrics below) about the excesses of spending, making money and greed that creating the financial collapse we are all a part of. Its like she had a crystal ball, one that many did not heed to. Mortgages, credit card excesses – she sang about it all!

Check out the song at:

www.youtube.com/watch?v=0SAdIveCzXc

Artist: Twain Shania
Song: Ka-Ching

We live in a greedy little world
That teaches every little boy and girl
To earn as much as they can possibly
Then turn around and
Spend it foolishly
We've created us a credit card mess
We spend the money we don't possess
Our religion is to go and blow it all
So it's shoppin' every Sunday at the mall

All we ever want is more
A lot more than we had before
So take me to the nearest store

Can you hear it ring
It makes you wanna sing
It's such a beautiful thing--Ka-ching!
Lots of diamond rings
The happiness it brings
You'll live like a king
With lots of money and things

When you're broke go and get a loan
Take out another mortgage on your home
Consolidate so you can afford
To go and spend some more when you get bored

All we ever want is more
A lot more than we had before
So take me to the nearest store

Can you hear it ring
It makes you wanna sing
It's such a beautiful thing--Ka-ching!
Lots of diamond rings
The happiness it brings
You'll live like a king
With lots of money and things

Let's swing
Dig deeper in your pocket
Oh, yeah, ha
Come on I know you've got it
Dig deeper in your wallet
Oh

All we ever want is more
A lot more than we had before
So take me to the nearest store

Can you hear it ring
It makes you wanna sing
It's such a beautiful thing--Ka-ching!
Lots of diamond rings
The happiness it brings
You'll live like a king
With lots of money and things

Can you hear it ring
It makes you wanna sing
You'll live like a king
With lots of money and things
Ka-ching!



Saverio Manzo

Prince Harry's inheritance

Princess "D" legacy lives on…

England’s Prince Harry turned 25 this week when he’ll be entitled to the part of the inheritance left to him by his mother Princess Diana of Wales, writes Laura Elston in the Independent.

Princess Diana had an estate of £21 million ($35 million CAD$), but more than £8 million was paid in inheritance tax, leaving almost £13 million ($20 million CAD$) split between Harry and his brother, Prince William.



Saverio Manzo

Jobs and the economic impact

One of the more unusual aspects of the current economic downturn is the steady erosion in jobs. While employment always lags the economy and markets in times of rebound, the erosion of jobs in this cycle is like nothing seen in the post-war period. Until jobs show recovery, a major housing recovery will not occur, and deficits will rise.

Of significant concern is that fact that past recessions saw employment recovery in a rebounding manufacturing sector. Those jobs are gone, and aren't coming back.

Keep in mind these observations concern the US and not necessarily Canada. However, an anemic US consumer will have an impact on the goods and services Canada sells to our neighbor.

The most important take-away from this observation is the simple little fact that the US consumer accounts for some 80% of the country's economy. So with a high unemployment rate and no wage increase - the writing is on the wall for the foreseeable future.





Saverio Manzo

To save or to spend: simply a matter of sentiment?

In Canada the “savings” trend for the average person has been on a decline for decades. There was a time when the previous generation, and the ones before that – would save some 5 to 10% of their family’s net income. Great for thinking ahead – planning for retirement or just saving for a rainy day. But this prudent habit nearly all but ended in recent years until the financial meltdown and great recession of 2008-09.

Now the fear is that savings rates will escalate at a rapid pace – swinging the pendulum too far to the other side – and this excessive savings means that there will be less spending. Less consumer spending, of course, has a substantial negative impact of the economy. Therein lies the conundrum.

Consumer confusion: Save more, or spend more to help Canada's economy
By Brenda Bouw, The Canadian Press

The recession is confusing a lot of consumers who on the one hand are told to save money for a rainy day but on the other are encouraged to spend to help boost the economy.

It's a conundrum economists call "the paradox of thrift," which means that too much savings can lead to an overall drop in consumption and threaten a nation's economic growth.

"Saving is good, but at the same time ... consumption is good," said CIBC World Markets economist Krishen Rangasamy.

Rangasamy said savings rates typically fall when the economy is strong and rise when it's weak. Consumption rates run in the opposite directions.

When times are good, Rangasamy said people feel comfortable with the rising price of their homes and stock portfolios and spend more.

"They think 'Why do I need to save when I am getting richer?"' he said.

On the flip side, when a recession hits, there's a change in mindset.

"That encourages people to save for the future," he said, which in turn weighs on consumption, which in turn contributes to a weaker economy and higher job losses.

Rangasamy said the key to a solid economy is a balance of both saving and spending.
"Zero per cent savings is not good and neither is 40 per cent," he said
Canadians' savings rate was 4.5 per cent in the April-June quarter, according to Statistics Canada. That is up from 3.4 per cent for same time last year and well above the 1.9 per cent savings rate in the second quarter of 2007.

The savings rate was 6.1 per cent in 2001, when the last economic downturn hit. That's the highest it has been since 1996.




Saverio Manzo

Should over-weight people pay higher taxes?

If we were more physically fit would we be less of a burden on the heath care system? This, in turn, would slow down the rate of increase in health care costs. Should those who choose to eat sugar-laden food, leading to one being over-weight, pay higher taxes?

In late July, Men's Health Editor Peter Moore met with President Obama in the Oval Office to talk health care reform. The most controversial part of the interview was on the subject of sin taxes—that is, taxing soda and other sugar-laden products, as well as activities that sabotage the health of the masses.

Here's what the President told us: "I actually think it's an idea that we should be exploring. There's no doubt that our kids drink way too much soda. And every study that's been done about obesity shows that there is as high a correlation between increased soda consumption and obesity as just about anything else. Obviously it's not the only factor, but it is a major factor.

http://www.menshealth.com/cda/article.do?site=MensHealth&conitem=cf2237c26ab93210VgnVCM10000030281eac____&cm_mmc=DailyDoseNL-_-2009_10_09-_-MainBlk-_-body1




Saverio Manzo

another Crystal ball

Andy Xie is an independent economist, former Morgan Stanley chief economist now living in China. The following is from the South China Morning Post:

The US will enter this second dip in the first quarter of next year. Its economic recovery in the second half of this year is being driven by inventory restocking and fiscal stimulus.

However, US households have lost their love for borrow-and-spend for good. American household demand won’t pick up when the temporary growth factors run out of steam.

By the middle of the second quarter next year, most of the world will have entered the second dip. But, by then, financial markets will have collapsed.

When the market sees the second dip looming, panic will be more intense and thorough.

By next spring, another stimulus story, involving even bigger sums, will surface.

After a month or two, people will be at it again. Such market movements are bear-market bounces. Every bounce will peak lower than the previous one. The reason that such bear-market bounces repeat is the US Federal Reserve’s low interest rate.

A stock market bubble is a negative-sum game. It leads to distortion in resource allocation and, hence, net losses. The redistribution of the remainder, moreover, isn’t entirely random.

The truly random part for the redistribution among speculators is probably 50 cents on the dollar. The odds are quite similar to that from playing the lottery. Every stock market cycle makes Chinese people poorer. The system takes advantage of their opportunism and credulity to collect money for the government and to enrich the few.

http://www.scmp.com/portal/site/SCMP/menuitem.2c913216495213d5df646910cba0a0a0/?vgnextoid=e625067403743210VgnVCM100000360a0a0aRCRD&vgnextfmt=teaser&ss=China&s=News




Saverio Manzo

Old vs. Young

Old dogs, new tricks

Financial literacy is a hot topic these days. But teaching it is usually something aimed at kids and young adults. This Wall Street Journal article makes a compelling case that the people who actually need to take personal finance 101 classes are the elderly.

That may strike you as odd. After all, the older we get the more experience we have. Presumably that includes knowing how to handle money.

True enough, but what differentiates people in their 20s and their 70s when it comes to personal finance is that people in their 20s have time on their side. They can rack up giant credit card debt, learn for their mistake, and slowly pay the bills off. They can make a lousy stock buy and not lose any sleep over their retirement–still 40-odd years away.

Seniors and aging boomers, on the other hand, don’t have the luxury of time to make mistakes. Also, seniors have more wealth accumulated so a mistake can cost them tens of thousands of dollars, if not their life savings. No wonder scam artists and the Ponzi set tend to target people who are 50-plus. They actually have money to lose. A lot of it, in fact.

If we’re going to teach kids in school how to handle money, we might also offer a couple of refresher courses on money, investing and (most importantly) preserving wealth to seniors as well.

From MoneySense Blog, Aug 20, 2009
By: Rob Gerlsbeck




Saverio Manzo

Dr. Reality on Canada’a Future

Widely respected Nouriel Roubini, famously dubbed "Dr. Doom" for his pessimistic forecasts, says we may be on the upswing, but things could go south again. By the way, he says that he would like his named changed to “Dr. Reality”.

Where is the Canadian, US and global economy headed?

Today, 20 months into the US recession—a recession that became global in the summer of 2008 with a massive recoupling—the V-shaped decoupling view is out the window. This is the worst US and global recession in 60 years. If the US recession were—as is most likely—to be over at the end of the year, it will have been three times as long and about fives times as deep—in terms of the cumulative decline in output—as the previous two.

On Canada:

Despite relatively sound finances that helped it outperform the rest of the G7 in 2008 and early 2009, Canada’s exposure to the U.S. for trade and investment suggests its recovery may lag that of the U.S. (a trend that Q2 2009 data seems to support).

However, a more consolidated financial sector with lower leverage, lower default rates, as well as a revival of domestic demand, should support recovery in 2010, albeit one characterized by below- potential growth.

Canadian households and corporations still have more access to credit than their U.S. counterparts, a factor that helped buffer Canada from a more severe property market correction. Yet the nascent revival in consumption may be weaker than the Bank of Canada expects.

The rebound in commodity prices is mixed news. Higher commodity prices and greater demand for metals, if not yet for oil and cheap natural gas, should contribute to an expansion of mining and energy output–but too strong a surge could boost the Canadian dollar, exacerbating Canada’s manufacturing weakness as it boosts labor costs.

http://www.rgemonitor.com/roubini-monitor



Saverio Manzo

Man's Best Friend

With countless problems facing America today the US government offers billions in tax deductions for qualifying “pet” expenses. Dog spa hotels and shrinks, when 8+ million are unemployed.

Americans now spend $41 billion a year on their pets—more than the gross domestic product of all but 64 countries in the world.

The Pet Economy

That puts the yearly cost of buying, feeding, and caring for pets in excess of what Americans spend on the movies ($10.8 billion), playing video games ($11.6 billion), and listening to recorded music ($10.6 billion) combined. "People are no longer satisfied to reward their pet in pet terms," argues Bob Vetere, president of the American Pet Products Manufacturers Assn. (APPMA). "They want to reward their pet in human terms."

That means hotels instead of kennels, braces to fix crooked teeth, and frilly canine ball gowns. Pet owners are becoming increasingly demanding consumers who won't put up with substandard products, unstimulating environments, or shoddy service for their animals. But the escalating volume and cost of services, especially in the realm of animal medicine, raises ethical issues about how far all this loving should go.

Thanks to passionate consumers like that, the quality gap between two-legged and four-legged mammals is rapidly disappearing in such industries as food, clothing, health care, and services. The race now is to provide animals with products and services more closely modeled after the ones sold to humans. Most of the pet business world's attention is directed at the country's 88 million cats and 75 million dogs.

THOROUGHLY VETTED
Fancy food products are easy targets for critics of indulgent pet owners. But a far more controversial issue is animal medicine, especially at a time of urgent national debate about human health care. Americans now spend $9.8 billion a year on vet services. That doesn't include the over-the-counter drugs and other supplies, which add $9.9 billion in costs.

And for some pet lovers, no medical procedure is too extreme. Plastic surgeons offer rhinoplasty, eye lifts, and other cosmetic procedures to help tone down certain doggy features, from droopy eyes to puggish noses. Root canals, braces, and even crowns for chipped teeth are also becoming more popular.

If there's still any doubt whether the pampering of pets is getting out of hand, the debate should be settled once and for all by Neuticles, a patented testicular implant that sells for up to $919 a pair. The idea, says inventor Gregg A. Miller, is to "let people restore their pets to anatomical preciseness" after neutering, thereby allowing them to retain their natural look and self-esteem. "People thought I was crazy when I started 13 years ago," says the Oak Grove (Mo.) entrepreneur. But he has since sold more than 240,000 pairs. "Neutering is creepy. But with Neuticles, it's like nothing has changed." Nothing, except there's a fake body part where a real one used to be.

GRAVY TRAIN
Once acquired as sidekicks for kids, animal companions are more popular now with empty-nesters, single professionals, and couples who delay having children. What unites these disparate demographic groups is a tendency to have time and resources to spare. With more people working from home or living away from their families, pets also play a bigger role in allaying the isolation of modern life. About 63% of U.S. households, or 71 million homes, now own at least one pet, up from 64 million just five years ago. And science is starting to validate all those warm feelings with research that documents the depth of the human-animal bond.

http://www.businessweek.com/print/magazine/content/07_32/b4045001.htm?chan=gl




Saverio Manzo

Deficient Charities?

The Wealthy Continue Charitable Giving

The wealthy are still giving despite the economic downturn, according to a study by Barclay’s Wealth and luxury market consultant Ledbury Research. The study queried 300 Americans and 200 British with an average of $5.4 million in investable assets and found that the wealthy were much more willing to give up luxury goods, staff, eating out, holidays and travel before they would stop giving to charity. Only their children’s education ranked higher than charitable giving when they were asked what they would give up if the downturn proves more protracted.

Even given losses of up to 37% in the stock market, 75% of the high net worth said they wouldn’t decrease their levels of giving; 26% said they would even increase their levels of giving to help charities weather the downturn. That was particularly true of younger donors (under age 45) and entrepreneurs who were likely to increase their giving by 3% to 4%. However, overall, giving was cut back by 2% to 3% on average among all respondents, especially those over 55.

The wealthy were also most committed to global social problems such as health and medical issues, helping children, and the environment as opposed to traditional gifts to churches and the arts. The study also found that the wealthy are likely to play a greater role in funding welfare projects compared with governments in part because governments are innately conservative while the newer breed of donors are more innovative, and partly because government budgets worldwide are constrained by the recession.

Entrepreneurial donors in particular want to treat philanthropy more like a business where they contribute their skills and money directly to a charitable project and can solve a problem rather than merely support a charity. They want to see or measure the impact during their lifetimes as opposed to after their deaths. In the philanthropic new world order, “charities will no longer be able to rely on bequests to the same extent and will have to engage and involve major donors in order to show them the impact their gift will have,” write the study authors.

Barclay’s Wealth and luxury market consultant Ledbury Research




Saverio Manzo

Wanted: Farmland

In the developing world there is the mass move towards urbanization; farmers moving in to the cities. In other parts of the world, including Canada, the opposite trend exists; an increased interest in farmlands persists. Who and why would so many seek interest in owning a piece of raw acreage?

Farmland Recovery Seen

Canada, Australia, Africa Show Signs of Renewed Interest

Investors are showing signs of renewed interest in farmland, especially in Canada, Australia and Africa.

Land prices around the world rose sharply in the lead-up to the recession, buoyed by high food prices and increased investor demand. When food prices fell in the second half of 2008, the price of the land that produced them did as well.

But the underlying fundamentals of the market -- limited land availability, water scarcity, increasing food demand and food security concerns -- lead analysts to expect land prices in some countries to recover quickly.

http://online.wsj.com/article/SB125046762719635487.html




Saverio Manzo

Ma and Pa Banks continue to fail

Failed Banks Weighing on FDIC

Banks in the U.S. that failed in the past two years were in far worse shape than those that collapsed during the industry's last crisis, a looming problem for the government agency charged with insuring deposits.

At three of the five banks that failed Friday, increasing the total to 77 so far this year, the financial hit to the agency's deposit-insurance fund is expected by the Federal Deposit Insurance Corp. to be about 50% of their assets.

The biggest hit on a percentage basis is coming from Community Bank of Nevada, a Las Vegas bank with $1.52 billion in assets ...

http://online.wsj.com/article/SB125046283572235251.html



Saverio Manzo

Exuberance once again?

New bull, new bubble, new meltdown by 2012

“Yes, folks, America loves talent, wants to be a millionaire, loves to destroy stuff, and then rebuild. Cars, jobs, careers, retirement portfolios, the economy, the stock market. You can see this metaphor in other great television programs: "Big Brother," "Hell's Kitchen," "Lie to Me," "Criminal Minds," "Are You Smarter Than a Fifth-Grader?" The point is, TV's a great barometer for the American soul, and it's screaming "bull!"

Americans want another bull, another bubble, even another meltdown. Guess what? It's already here, folks. The next big market-economic-business cycle has arrived ahead of schedule. This is what makes us America. We love challenges, risk-takers and winners.

Yes, folks, a new bubble cycle is already in motion. You can feel the energy building, the kind that fueled the meltdowns of 1998, 2000 and 2007. We never resolved the problems fueling the dot-com insanity. We made matters worse feeding the subprime credit-derivatives disaster with cheap money, Reaganomics ideology and two costly wars. Lessons were never learned, nothing was resolved. Today matters continue deteriorating.

"There's a false sense that it's over, that the crisis is passed." The bailouts have merely postponed the inevitable. "We are in for another day of reckoning down the road."

“Something's in the air. You can feel it. A new bull. Hype? Maybe, but also a roaring new bull -- and eventually another meltdown.”

Source: marketwatch, Aug. 12, 2009
http://www.marketwatch.com/story/story/print?guid=500B9744-277D-4674-99AC-E99ADF0D308E

Quote of the Day

"The Stone Age didn't end because they ran out of stones; the Oil Age won't end because we run out of oil." - Don Huberts


Saverio Manzo

We’re not getting any younger

The impact on healthcare, healthcare costs, under funded pension funds, a shrinking labour force and a global shift to developing economies are just a few implications of what this means in a future of less young and more old. The world will look very different in years to come.


GLOBAL ELDERLY POPULATON GROWING RAPIDLY

“The world’s population is now aging at an unprecedented rate,” according to a recent report by the National Institute on Aging (NIA) and the U.S. Census Bureau. The number
of people age 65 and older worldwide was estimated at 506 million as of mid-2008, and is expected to reach 1.3 billion by 2040.

The report notes the current growth rate of older people in developing countries is more than double that in developed countries. And in 30 years, the proportion of older people will rise from 7% to 14% of the total world population.

“Aging is affecting every country in every part of the world,” said Richard Suzman, director of NIA’s Division of Behavioral and Social Research. “While there are important differences between developed and developing countries, global aging is changing the social and economic nature of the planet and presenting difficult challenges.”

The rapid increase in the world’s elderly population will present challenges and opportunities for health care, the study suggests.
Art Epstein




Saverio Manzo

Slightly 'Less Bad'

Everything that is slightly “less bad than expected” is being taken as a positive at the moment.

We live in different times – at least for the time being. Since when is something less bad a good thing? The direction is still negative – in whatever it is.

Take for example ‘less bad’ GDP numbers. This, of course, means that the economy is still retracting, not expanding, but the pace of the retraction is less than it was in the prior period – hence ‘less bad’.

I’ll agree that many – and no thanks to the media – only a few short months ago felt that the end of the world was upon us, that economic Armageddon was at our doorstep. So, ya, when compared to this doom and gloom, ‘less bad’ is significantly more ‘positive’.

But at some point we must return to something greater than less bad. We need growth. Increase. Expansion. If we don’t, (sticking with the economic example) then we run the severe risk of a long-term trend towards a decreasing and shrinking standard of living. Less income, less goods, less consumption. Less of a future for our children.

A ‘’less bad’ economy in today’s terms is like you running your household in the red – spending more than your family income brings in. At some point something will have to give. Some sacrifice has to be made.





Saverio Manzo

Children worth more than money?

Kids Cost Parents $200,000

According to a recent study by IBISWorld, a typical family spends $12,658 a year raising a child. Those who live in the west spend about 8 percent more than the average and those residing in eastern regions, shell out about 4 percent more.

Parents will spend, on average, more than $200,000 raising a child by the time their teen graduates from high school. Those couples earning more than $75,000 a year will shell out over $300,000.

http://moneywatch.bnet.com/saving-money/blog/family-finance/kids-cost-parents-200000/846/?tag=video-318415;related-link-1



Saverio Manzo

Farrell's 10 Rules

Bob Farrell’s 10 Rules For Investing

Wall Street “gurus” come and go, but in the case of Bob Farrell legendary status was achieved. He spent several decades as chief stock market analyst at Merrill Lynch & Co. and had a front-row seat at the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987 crash.

Farrell retired in 1992, but his famous “10 Market Rules to Remember” have lived on and are summarized below, courtesy of The Big Picture and MarketWatch (June 2008). The words of wisdom are timeless and are especially appropriate as investors grapple with the difficult juncture at which stock markets find themselves at this stage.

1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.

2. Excesses in one direction will lead to an excess in the opposite direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.

3. There are no new eras - excesses are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. Look at how far the emerging markets and BRIC nations ran over the past six years, only to get cut in half.

As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it - human nature - is never different.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction eventually.

5. The public buys the most at the top and the least at the bottom
That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors Survey.

6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism”, says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
This is why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks.

8. Bear markets have three stages - sharp down, reflexive rebound and a drawn-out fundamental downtrend
I would suggest that as of August 2008, we are on our third reflexive rebound - the January rate cuts, the Bear Stearns low in March, and now the Fannie/Freddie rescue lows of July.

We have yet to see the long-drawn-out fundamental portion of the bear market.

9. When all the experts and forecasts agree - something else is going to happen
As Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.

10. Bull markets are more fun than bear markets
Especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.

Source: MarketWatch, June 11, 2008.





Saverio Manzo

Is it really good for you?

There are lots of great articles recently about the confidence (or lack thereof) that people have in their financial advisor. Turns out many have been great “salespeople”, but lack the ability to give wise and prudent investment and financial guidance. But the growing question is not whether to seek out a new advisor for your financial well-being (many agree that they should – and need too), but ‘how to break up’ with a ‘friend’.

In Search of Competent (and Honest) Advisors

“It may be someone you like and trust, but is it someone competent to manage your money?”

YOUR RESPONSIBILITY But the burden of finding a competent adviser rests solidly on you. Even if you decide that the broker trying to sell you the latest offering does not have your best interests at heart, how do you pick someone better?

“Does the person you’re talking to understand?” said C. Steven Crosby, head of PwC’s wealth management practice. “It’s not going down a checklist and saying how many wives, how many kids, how many homes? It’s what wealth means to you.”

http://www.nytimes.com/2009/08/01/your-money/financial-planners/01wealth.html?emc=eta1

Thinking of Switching Financial Planners?

It can be a difficult, even emotional decision.

But when his IRA started to "dive bomb" a couple of years ago and his adviser wanted to stay the course, Keating and his wife started soliciting a little advice on the side. "My adviser was a friend, a good guy, and those are awfully hard phone calls to make,"

"But we just had to stop the bleeding. It's almost like you're breaking up: 'You take the dog, I'll take the silverware.' "

"If you fire Fred and hire George, who's to say that George isn't even worse than Fred?" "They might just be trying to win your business, so there's a natural bias there. And if you ask for a sample portfolio, they're never going to show you a bad one. So you'll never really know what they've produced for an average client."

http://www.businessweek.com/magazine/content/09_27/b4138058215500.htm



Saverio Manzo

“Inside” folks Selling Like 2007

Yet again a 'page 17' article I came across today that highlights the simple fact that those in the know, the captains of the ships, yes the ones making the big strategic decisions that set the fate of their respective companies – are selling their holdings in their companies.

Insiders are selling: Corporate insiders more bearish than at any time in nearly two years

“Corporate insiders are a company's officers, directors and largest shareholders. They are required to report to the SEC whenever they buy or sell shares of their companies, and various research firms collect and analyze those transactions.

One is the Vickers Weekly Insider Report, published by Argus Research. In their latest issue, received Monday afternoon, Vickers reported that the ratio of insider selling to insider buying last week was 4.16-to-1, the highest the ratio has been since October 2007.

I don't need to remind you that the 2002-2007 bull market topped out that month
Does that mean you should immediately start lightening your equity exposure?”

By Mark Hulbert, MarketWatch
http://www.marketwatch.com/story/insiders-have-quickened-the-pace-of-their-selling-2009-07-28




Saverio Manzo

And so Swings the Pendulum

I am really glad that we, as human beings, seem ready and willing most of the time to take the optimistic point of view on things. That ‘half-full glass’. But sometimes it comes at the expense of a greater outcome.

It is true that we are ALL tired of hearing the relentless negative news on so many economic and market fronts, that a little good news is having a magnified effect. So much so that in the past two weeks our current positive economic and market outlook is swinging the pendulum too far the other way.

The street estimates for the 3rd quarter real GDP in the United States is now 'upped' to a +2.5 to 3.0% range. This from -5.4% in Q1 2009? But the bigger question is: has this been a one-time, manufactured GDP “push” at the expense of future performance as opposed to there being any real permanent change in the trend?

Car Sales Splurge: The U.S. "Cash for Clunkers" $1 billion program that ran out of money in barely more than a week and it looks like we will see another $2 billion added to this ‘spendthrift program’ – this is now being debated in the Senate.

Inventory withdrawal and replacement and Business spending no longer contracts.

Housing, for the first time in three years, does not contract and shows some healthy blips.

Companies low-balling earnings expectations. Of the S&P 500 index, 337 or 74% of the companies have reported and most have exceeded analyst expectations compared with 17% who have missed. If the quarter ends up this way, that 74% will be a record.

What about valuations? The S&P 500 is trading at 16.5x calendar year 2009 earnings estimates, not ‘cheap’ by historical standards.






Saverio Manzo

Old habits hard to break

There is some evidence to suggest that, after recession has reached a certain size or duration, recovery is then harder and more sluggish. Keynes’ animal spirits become depressed. But it takes an awful lot to depress them for more than a couple of years. Capitalism seems to be a pretty resilient beast.

Global recessions are now approaching one-year in duration.

Animal spirits rarely stay down for long

“In the US, the consensus among forecasters is that growth at or near trend will not resume until the second half of 2010 and that the 2008 second-quarter peak level will not be regained until the first half of 2011.

Since the late 19th century, there have been 255 recessions in western economies. Of these, 164 have lasted just one year and only 32 have lasted for more than two years. In other words, two-thirds of recessions last a single year, and only one in eight lasts more than two years.

An analysis of recessions shows that those lasting one year or less typically end more abruptly. The average growth rate in the year after such a recession was 3.5 per cent, and in the subsequent year 3.8 per cent. This is compatible with the view that short recessions are essentially inventory cycles. Once inventories are reduced to satisfactory levels, normal production levels resume, and fixed capital investment expenditures postponed during the recession are carried out.

The caveat to all this is that the current circumstances, the current recession, are unusual. But so was the Great Depression.”

Source: FT, Finanical Times, July 31, 2009
http://www.ft.com/cms/s/0/5768b08a-7ad7-11de-8c34-00144feabdc0.html?nclick_check=1




Saverio Manzo

Buy bye America?

Who finances the U.S.’s debt and deficits? Largely, it is the world; namely China and Japan. I wrote about this "Just Who “Owns” the USA anyways?" http://saveriomanzo.blogspot.com/2009/07/just-who-owns-usa-anyways.html

What if the “world” chose to stop buying American government debt? Well, that would be a scary thought for the U.S. dollar, and eventually to America, their economy and standard of living.

More and more we read of reports of countries that are big buyers and holders of the U.S. “paper” are becoming concerned, buying less, and looking for ways to diversify away from their large dollar holdings. (A good argument for gold?)

Discussion of this is difficult to find in “local” news papers and is more prevalent when looking at foreign business papers. However, just recently I found this in the WSJ:

Bond Worry: Will China Keep Buying?

“Shaky auctions of Treasury notes this week reignited concerns about whether the government can attract buyers from China and elsewhere to soak up trillions in new debt.

A fuse was lit this week when traders noted China's apparent absence from direct participation in two Treasury bond auctions. While China may have bought Treasurys just before the auctions, market participants read the country's actions as a worrying sign that China and other foreign investors may be ratcheting back purchases at a time when the U.S. is seeking to fund a $1.8 trillion budget deficit.”

Source: WSJ, July 31, 2009
http://online.wsj.com/article/SB124896282178793797.html



Saverio Manzo

Who dare blame the U.S. Consumer?

Is it just me or do you too get the impression that the entire world seems to be blaming the US – specifically the US consumer – for the 'mishandling' of their own personal and public finances? I’m not speaking about the past couple of years; this was the global impression of Americans for the past couple of decades.

Yes, it is true: Americans and their fearless government leaders have overspent, borrowed way too much and saved/invested far too little? (Do I really need a news article reference to back this claim?)

Now although we humans are creatures of habit, it is in times of ‘shock and awe’ that we are shaken from our old routines and way of life in to accepting and dealing with what is at hand. With that, circumstances are changing rather rapidly these days as we have seen “the great unwind” of eliminating personal and corporate debts, personal and corporate spending plummet to buying items out of necessity, and savings rates escalate to levels not seen in the US in twenty years.

In fact, this theme is highlighted by well known economist David Rosenburg of G.S. in a recent paper titled “Getting small" is going to imply for the trend in U.S. consumer spending.”

With job losses, home and portfolio values depressed, this new trend will continue to change for even the “better” as Boomers facing retirement are wholly unprepared to do so.

However, the US situation is not as bad as we are led to believe, for there are others in the G-8 in far worse shape. For example, the British are far worse apparently; have been worse than in the US for a very long while, and they are worsening at a swift and heady pace.

They’ve continued to spend their way into personal fiscal oblivion, taking the ratio of household debt as a percentage of disposable income to just under 170%! Compared the US at 140%.



Saverio Manzo

Are The Chinese Really coming?

If you live in Canada and particularly of you live in on of Canada’s oil-rich provinces, you have heard for years of the coming Chinese take-over of our resources. Ok that might be a bit of a stretch, but there is some truth to it. The question is whether this buying will pick up anytime soon? We all know that the Chinese are very strategic in their thinking, planning and thus their ‘buying’. One only has to have a look around the world to see that over the past few month the Chinese have acquired large resource assets in Australia and throughout South America – including a deal with Venezuela.

Look at the numbers: Canada has the world's third largest oil resource base with approximately 600 Billion barrels of recoverable oil - dwarfing China's oil resources and a population of about 1.3 billion (compared to Canada's 31 million).

“The first, and most obvious, is energy security. On a comparative basis, relative to the size of their economy, they are not blessed with that many natural resources themselves, so they want to get access themselves to the physical barrels, if possible.

The second thing, which drives the importance to the Chinese, is their own view that the industry is running short of natural resources and so it would be a good long-term investment, in and of itself.

The third thing that is really driving the importance of the Chinese market is the fact that that they've got the money They can finance these deals and, particularly in today's marketplace where raising capital is more difficult than it was a year ago, this ends up being a critical factor in deciding if you're a seller that we want to do business with.

We don't have the depth of capital markets to fully develop our own natural resources: the total amount of capital that's going to be required to be able to develop the oil sands business is well over $100-billion over the next 15-20 years; it'll be by far the largest capital expenditure program in a single sector in Canadian history. The Canadian capital markets are simply not deep enough to be able to finance that, so we have to be prepared to welcome foreign investment if we want to be able to develop this important strategic globally admired resource.”

Source: The G&M: Karl Moore of the Desautels Faculty for The Globe and Mail interviewing Adam Waterous, Scotia Waterous.



Saverio Manzo

Love-lives, ‘pets’ and retirement plans suffer

Economists, strategists and many analysts are having their input on what the recession’s effect will have on people’s spending and saving, retirement plans and on their love lives.

“The economic recession has not only crippled the savings of many, but it is also straining their marriages or relationships.

According to a new global survey commissioned by ING DIRECT, 23% of Canadians and 40%of Americans say the recession will cause them to retire later, with 34% thinking they will have to work for at least 10 more years than originally planned. Also, nearly three in ten (29%) say the recession has “added stress to,” “strained” or “ruined” their marriage/relationship.

While food is the last thing people are willing to sacrifice, Canadians and Americans also put a premium on their cars and their pets.

Forty-six percent of those surveyed said they are avoiding credit card purchases to save money.

People are also cooking at home and bringing their lunch to work in order to save money, with Americans (51%), Canadians (44%).

Many surveyed also said that having a financial buffer in case of an emergency is their most important savings goal.”

Source: ING DIRECT USA, Recession Strains Americans’ Love Lives and Finances
By Paul Menchaca, July 27, 2009



Saverio Manzo

Is 57 enough to make a headline: More Regional Banks Fail

The FDIC is having an incredibly busy year, having to close and deal with a total of 57 failed banking institutions. Seventeen institutions have now failed over the last three weeks alone, and the pace- and trend – doesn’t appear to be easing any time soon. That adds up to Billions of additional government dollars to fork out to insured deposit holders.

Failed Regional Banks are too small to make headlines, especially on page ‘one' of most newspapers, but many believe that they represent the average Joe-working class.

But is 57 enough to make a headline?

The Federal Deposit Insurance Corp. (FDIC) is the insurance arm of the government designed to protect depositors from failing financial institutions.

Four More Bank Failures Hit Industry

"Closures bring an estimated cost of $1.1 billion to the FDIC.
Two Southern California banks — totalling over $3 billion in assets — succumbed to construction loan losses Friday evening, and the Federal Deposit Insurance Corp. endured another busy night.

Vineyard Bank, with $1.9 billion in assets, was closed after a deal for the Rancho Cucamonga-based institution fell through in late May. Regulators also closed $1.5 billion-asset Temecula Valley Bank, in Temecula, after investors had similarly backed away from saving it.

The failures — along with two closures of smaller institutions earlier in the night — brought an estimated cost of $1.1 billion to the FDIC."
By Joe Adler, American Banker




Saverio Manzo

Long Standing Dow Theory says "hello" to new bull market

The long-awaited Dow Theory bull market signal finally arrived. This came about as a result of the Dow Jones Industrial Average and the Dow Jones Transportation Average both breaking through their previous rally peaks (registered on 12 and 11 June respectively).

The Dow theory, developed by Charles Dow, has been around for almost 100 years, yet even in today's volatile and technology-driven markets, the basic components of Dow theory still remain valid. However, it has been criticized for being too late a signal. The trend does not change from bearish to bullish until the previous reaction high has been surpassed.

The goal of Dow was to identify the primary trend and catch the big moves. They understood that the market was influenced by emotion and prone to over-reaction both up and down. With this in mind, it is concentrated on identification and following: identify the trend and then follow the trend. The trend is in place until proved otherwise. That is when the trend will end, when it is proved otherwise.

Although the breakouts provide confirmation of the nascent uptrends, one may question the relevance of the Averages as representative benchmarks in the modern economy. Also, most indices are quite overbought after very sharp moves over the last 12 days.

"In my opinion, it could be dangerous to blindly put one’s faith only in Dow Theory and investors should at all times rather base their decisions on a combination of fundamental and technical indicators."

While Dow Theorists delight in the bull signal, it is appropriate not to lose sight of the economic picture. It remains relatively bleak.

Reading the markets is an empirical science. As such there will be exceptions to the theorems put forth by Dow and others. They believed that success in the markets required serious study and analysis that would be fraught with successes and failures. Success is a great thing, but don't get too smug about it. Failures, while painful, should be looked upon as learning experiences. Technical analysis is an art form and the eye grows keener with practice. Study both successes and failures with an eye to the future.

We live in interesting times indeed!

July 24th, 2009 by Prieur du Plessis, Investment Postcards from Cape Town



Saverio Manzo

Recent market rally: Skewed glasses?

Investors have been propelling the stock market higher. Justifiably?

"While the earnings announcements thus far have been impressive at the headline level, the reports become less striking once one digs a bit deeper to discover that the earnings numbers often only beat estimates due to cost-cutting. And, at the top line revenues are still deflating, indicating no pricing power."

Chart of the Day provides some perspective on the current earnings environment by highlighting how 12-month “as reported” earnings are expected (38% of S&P 500 companies have reported for Q2 2009) to have declined over 98% since peaking in Q3 2007. This makes it by far the largest decline on record (the data goes back to 1936). “In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative,” said Chart of the Day. This provides a sobering picture indeed, causing concern that in a number of instances a disparity is developing between stock prices and fundamental reality.




Source: Chart of the Day, July 24, 2009.

Saverio Manzo

Real-Life Sopranos? Politicians and Rabbis nailed

Why am I still shocked when I hear of this happening?

Crime, corruption, scheming, arrogance, the taking of bribes and a shocking betrayal of the public trust…all caught on video and audio tape.

44 charged, 29 of which are public officials.

“Corruption was a way of life. They existed in an ethics-free zone, exploiting giant loop holes."

Cuffing Rabbi’s who acted as “crime bosses” in money laundering schemes, in a criminal network that operated from the U.S. to Israel. Laundering tens of millions of dollars through charities controlled by Rabbis. One defendant even got somebody to donate a kidney for $10,000 and then sold the kidney for $160,000!

"I have at least $100,000 a month coming from money I 'schnookied' from banks for bad loans."

Mr. Dwek gave one of the alleged co-conspirators a box of Apple Jacks cereal stuffed with $97,000 cash.

"Did you get the money from [Mr. Dwek] when we saw him the other day?"

Mr. Catrillo replied: "Yeah, I took care of that. Yeah."

"Business is very good. Prada, Gucci, boom, boom, boom," Mr. Dwek boasted at one point, according to court papers.

Source: WSJ, July 24, 2009
http://online.wsj.com/article/SB124835404608875685.html

Saverio Manzo

David Walker’s Wake-Up Tour

A while ago a friend introduced me to the message of a guy named David Walker. At the time I listened, found what he had to say shocking, but didn't react much beyond this. Fast forward to today and now I hear and see many pundits preaching a variation of what Mr. Walker has been saying all along.

Whats truly scary is that Walker’s message came to us before this economic meltdown and massive monetary infusion by governments.

David Walker, former comptroller general of the U.S., The U.S. Government's accountability office (GAO) which audits the government's books, totaled up the U.S. government's income, liabilities and future obligations. He concluded the numbers don't add up.

78 million baby boomers just entering in to retirement, over the next twenty years, which means they are pensioners, eligible for social benefits and medical dependants of the U.S. taxpayer.

The two biggest future financial burdens of the U.S.: health care and social security benefits. But, by and large, the health care problem is the killer. It is five times greater than the social security problem. Why? Because people keep living longer and medical costs keep rising.

“The U.S. has spent, promised and borrowed itself in to a hole that it will be unable to climb out of unless it acts now."

"The most serious threat to the USA is not someone hiding in a cave, but its own fiscal irresponsibility. Its not an immediate problem, so people don’t see it in their face. It is a fiscal cancer growing within us."

"If nothing changes, and no action is taken, the U.S. government won't be able to do much more than pay interest on the mounting debt. It won't have money left for anything else…national defense, homeland security, education…you name it. The system is unsustainable. If not dealt with, it could bankrupt America."

Fed Chair Dr. Ben Bernanke validated Walkers take: “Economic growth alone is unlikely to solve the nations pending fiscal problems.”

http://www.youtube.com/watch?v=QxoP_9W6FC8&feature=related

http://www.cnbc.com/id/15840232?video=1191052938&play=1

Saverio Manzo

The Technical Case for the “BRIC”

I’m a big fan of technical analysis, but to be honest with you my studies suggest that aside from a handful of individuals most technicians are on the right side of a trade only 50% of the time. So why not flip a coin instead?

The Kondratiev Wave and the Elliott Wave have proven to been accurate long-term predictors of economic and market cycles. I think that’s the basis for this intriguing article on the future expectations of emerging markets globally.

Albeit there are a plethora of economists predicting the same underlying theme - this time it was nice to see a different spin on it.

Emerging Markets Mirror U.S. Post-War Boom: Technical Analysis

July 21 (Bloomberg) -- Emerging-market stocks are in the midst of a “long-term secular bull market” that resembles the boom in U.S. equities during the post-World War II era, according to Louise Yamada Technical Research Advisors LLC.

The secular bull market in U.S. stocks between 1942 and 1966 was the second-longest ever as increased consumer spending buoyed the economy and helped more Americans join the middle class, Jonathan Lin, a New York-based senior analyst, said in a phone interview. Emerging markets such as China and Brazil may be on a similar trajectory, according to Lin, who works with Louise Yamada, the top-ranked technical analyst in Institutional Investor magazine’s annual survey from 2001 through 2004.

“Based on chart patterns and demographic trends, the MSCI Emerging Markets index looks like the Dow Jones Industrial Average during the post-World War II period,” said Lin, who defines a secular market trend as one that lasts for years to decades. “This boom could last another 10 years.”

The MSCI Emerging Markets Index has surged 43 percent this year on speculation interest-rate cuts and stimulus packages from countries including India, China and Brazil will spark a recovery in economic growth. The index gained more than 20 percent for five straight years before tumbling 55 percent in 2008 as recessions in the U.S., Japan and Europe curbed demand for developing nations’ exports.

In technical analysis, investors and analysts study charts of trading patterns and prices to make market predictions.

The secular bull market for emerging markets varies by country, with Brazil’s “uptrend” starting in the mid-1990s and China’s developing around 2000, Lin said.

“We like China and Brazil,” Lin said. “For the uptrend to continue, economic growth is most important. We’re not as comfortable with Russia from a structural chart perspective.”

Higher commodity prices will be needed to sustain Brazil’s trend, while China’s rally will depend on whether the nation’s economic gains spread to its poorer industrial regions, Lin said.

July 21, 2009 by Allen Wan
http://www.bloomberg.com/apps/news?pid=20601057&sid=aO8oB9Mzn3UI#

Saverio Manzo