Monthly Archives: November 2008

Odette Morin

Confidence Is the Main Missing Ingredient

Confidence is the main ingredient currently missing and the reason for such market volatility.  Until we have consumer and investor confidence that we have seen the worst, and better days are ahead, we will not have the lift we need to bring stock prices back in line with true company valuations.

Media and street talk is all gloom.  Global recession is more and more likely and even Canada is reported to be in a “technical recession”.  On Nov 20, 2008, The US market (S+P 500) was down 48% Year To Date, Canada -44%, Europe and Asia -40% to -58%.  Our average client portfolio is down about 30%.  Less than the indices due to bond and cash holdings and active managements, but still quite a drop for what we call conservative investing, meaning investing in high dividend payor stocks.

Consumer confidence is at an all time low, even lower than during the early 1990’s recession.  You and I have stopped or reduced spending, travelling, renovating etc, self-sabotaging the situation even more out of fear that this could last for months and knowing that the economy will likely not recover until at least the spring of 2009 or even 2010.

So why, I am asked daily, aren’t we selling what is left of our portfolio, park the funds for a few months and get back in just before the lift off.  Well, simply because I don’t know when that will be.  In fact, current companies valuations are so extraordinarily low that it makes a very strong case for a rally. 

Do these drops make sense? Many companies are currently trading below book value.  Some even have more cash on hand than the current price of the stock on the market. 

Frank Holmes, Chief Executive Officer and Chief Investment Officer at U.S. Global Investors, says today Nov 24th, that while the market’s pain is not over, he expects a rebound to start with a Santa Claus rally at the end of the year, after some year-end profit-taking and tax-loss harvesting. Holmes noted that markets are down “three standard deviations over the last 60 days,” a condition that has happened just a few times over the last 50 years, each time being met with a big price rebound of as much as 25 to 33 percent.  UBS says the same.  Read more here.

Globe & Mail Nov 20th 2008 – UBS article

Europe had a historical rally yesterday, Today, the US is cheering further Citibank rescue and the Obama economic plan and new team.  Crude rockets +9% and Canada is welcoming the news with a 4% increase.

Street & Market confidence can lift quickly if we get good news among the bad recession facts.  Markets look ahead and so should you. Stay put.  Markets always in time recognize the true value of good stocks. The best thing to do is nothing, stay the course, buy low if you can make an investment and stick with the plan.  We are confident that with 40% to 50% the markets have no where to go but trending up. 

Terry Broaders

The Great Depression Versus Now ? No Comparison!

While the current economic crisis is the most serious in the life of most of us it pales in comparison to The Great Depression suffered in the late 20’s through the 30’s.  There are a lot of significant differences bewtween then and now:

  • By June 1932 the collapse of the stock market on the New York Stock Exchange had wiped out 83.4% of the markets value.  From its 2007 peak to its November 2008 lowpoint the Dow Jones Industrial Average in the U.S. lost 46.6% of its value while Canada’s corresponding loss on the TSX Composite Index was 49.5%.  We might add that as of the last week of November 2008 these market losses had recovered to -38.7% for the Dow Jones and to -44.3% for Canada’s TSX.
  • In June 1933 the U.S. unemployment rate was 33%.  Latest figures are 6.5% for the U.S. and 6.2% for Canada.
  • By 1933 11,000 of the United States 25,000 banks had falied.  To November 2008 22 U.S.Banks out of a total of over 7000 have failed this year according to the U.S. Federal Deposit Insurance Corporation.
  • During the Great Depression there was no bank deposit insurance. Many people lost all their savings. Today U.S. bank deposits are insured to $250,000 while Canada’s are insured to $100,000.
  • In the then 4 month transition between the outgoing Hoover Administration and the 1932 incoming Roosevelt Administration there was a power vacuum where both parties refused to cooperate thus worsening anxiety and the crisis.  Currently outgoing President Bush has stated that a “seamless transition to a new administration will be a top priority for the rest of my time in office”.  Incoming President Obama has moved swifter than any predecessor essentially already the de facto President of the United States of America.

To summarize, the Great Depression was much more serious than today’s events.

Odette Morin

Economists see indicators now clear

Is the worst really behind us? The Financial Post published a report on Tuesday November 11, from University of Toronto economists which summarize well what we have been reading and hearing from the past few weeks regarding the current state of the World economies. They report that “the World Equity markets are likely near their bottoms”. Here is why, and I quote:

  • The credit crush appears to be receding after the extraordinary measures taken primarily from the USA but everywhere around the World.
  • World Equity markets appear to have stabilized
  • Markets for commodities particularly oil also appear to have stabilized at prices that are probably too low on a long-term basis
  • The Canadian dollar appears also to have stabilized and will likely remain roughly in the US 85cents to US 90cents range over the next year and gradually appreciate as world economic markets begin a serious recovery late in 2009 and into 2010.

Although they do not predict a quick recovery, they do forecast a marginal growth rate in 2009 and a strong expansion in 2010.

CIBC World Markets’ chief economist Jeff Rubin, reports the same today. “The remainder of 2008 should pass without another major meltdown in the equity markets”. He is cautiously optimistic and feels that the market has bottomed out.

I like the sound of the words, bottomed out, recovery and expansion! The key here is that there is light at the end of the tunnel. I would consider this as a Buying Alert! 

I was seldom able to see an opportunity until it had ceased to be one.  ~Mark Twain

Odette Morin

The Art or Retirement Cash Flow Planning Part 2

What rate of return can you expect and more importantly, what should you factor in your cash flow spreadsheet analysis? It all depends on your asset allocation.

The danger is to be too optimistic. The question is not only how much return do you want from your portfolio or how successful will you be with your investment strategy. It is more about how much will your investment be making over the long term on an average basis for the next 30 + years. Thirty years is a long time. You need to plan for the worst case scenario.


To estimate the rate of return in your cash flow analysis, you first have to look at your asset allocation.

Let’s say that you have a portfolio of GICs, Bonds and Equity Mutual Funds. Looking at my Andex chart, I can see that since 1950, GICs returned on average 7.3%, Bonds 7.5% and US Equities 12%. Will this continue? Should you factor the same rate of returns? Absolutely not. This is way too optimistic. The above GIC and Bond returns include the early 1980’s where interest rates exceeded 20%. Economic conditions are not the same. I would assume 4% for GICs, 5% for Bonds and 8% for equities. Now all you need to do is estimate the average rate of return proportionally to your own asset allocation to get your overall rate of return.

In my practice, I usually factor 6% rate of return for a medium high risk portfolio made of conservative equities, bonds and very little T-Bills. Conservative equities means high dividend paying stocks, mostly large cap or Blue Chips. Ok, I hear you now…6% returns only! She is not very good. I remind you, it is not just about how much you can make on your portfolio, it is about planning for the worst case scenario. Over stating your rate of return can easily put you in the poor house faster than you think. Underestimating will result in too much money. That is never a problem!

Here is Tip #2: Annually monitoring your rate of return and adjusting your cash flow analysis is key to proper retirement cash flow planning. Better be safe than sorry.

Next blog will discuss, taxation and the average rate you should use in your cash flow retirement plan.

Please do make a comment or ask a question by clicking on comments below

Odette Morin

Can you retire? The Art of Cash Flow Planning Part 1

You have worked all your life, accumulated a sizeable nest egg and you now feel ready for the next chapter of your life; Retirement. That can be a scary word for many people. That’s understandable. There is no room for error when planning a lifetime of cash flow.

That’s where retirement planners like us can help. We have the tools and expertise to prepare several scenarios and establish if retirement is feasible and at what level taking into consideration a number of assumptions.

If you are 60 years old for example, you have to plan for about 30 years of indexed future cash flow. The assumptions you will use in this analysis are crucial and include:

.the rate of return on your capital invested

.the rate of pension indexation

.the rate of inflation

.tax rates on different type of income

All of these can greatly affect the results. These must be evaluated with great care. The most significant error I see in my practice is people ignoring inflation. Inflation is indeed our worst enemy. The price of a loaf of bread was about 40 cents in the 60s. You can easily pay $3 nowadays for the same loaf. That is 4% inflation. It is true that inflation has been slightly lower in the past few years, ranging from about 2% to 3%.

Here is tip #1: Be conservative in your assumptions. I would encourage you to factor a 3% rate of inflation in your cash flow analysis.

My next blogs will talk about:

.the rate of return you can realistically expect over the long-term on different asset classes

.the average tax rate you should use

.the income cash flow you need throughout retirement and how to evaluate it

.Putting it all together.

Please feel free to ask questions. I am here to help you plan effectively for the next chapter of your life!

Odette Morin

Are you ready to buy your first home?

Yes I know, your friends are doing it, your co-workers all did it, your mom is asking when you too will be buying your first home. I know, you want to own a place too and are sick of paying rent to someone else. But really, did you think about this carefully enough? Are you ready to get into the most important financial decision of your life? Let’s find out:

.do you have debts?

.do you live from pay cheque to pay cheque?

.if you were faced with an unexpected maintenance bill or condo assessment, could you write a cheque for a few thousand dollars without too much hardship?

.do you know where you want to live long-term i.e. 5 + years?

.Is your job secure?

.Did you figure out how much you can really afford to pay in housing costs including maintenance and property tax?

.Did you figure out how much of a mortgage you can COMFORTABLY afford keeping your lifestyle?

After answering these few questions, do you still feel ready?  If you say yes.  Congratulations.  If not, why rush into real estate when you are not ready. Why put unnecessary hardship on yourself? It just makes good financial sense to think this through carefully.

Take the time to do your homework and ask for our opinion regarding your situation. We can be your best friend, help you make wise decisions and help you you get ready for the biggest financial decision of your life.

Print our free infokit on how to plan to buy your first home.  You can find it in the client centre section of our website. 

You should also visit the Canadian Mortgage & Housing Corporation for consumer at