Odette’s Market commentary a must read to the end.


You will soon be getting your year-end statement in the mail and will immediately feel a sinking sensation. After a stellar 5 year period of market recovery and expansion, we see ourselves in negative territory over the past 12 months. “Here we go again” is what we’re thinking.

It never feels good to see the market value of your account go down. In fact, it is annoying and worrisome. Most of us will be tempted to react, adjust or capitulate. How quickly do we forget that markets are volatile and eventually correct. So, what do the markets know that we don’t? Or do the markets really know? Should we follow or stay the course? Let me go through a few facts first to help you see the big picture before being tempted to participate in Market Herding meaning if other investors sell, it must be because they know something we don’t. Thus, he sells, she sells, you sell, and so down go stock prices. Read more here.

We strongly feel that the markets around the world are currently oversold especially the North American markets. We predict a turnaround in 2016 & 2017. Beyond the “markets always recover” Here is why we feel confident about the year ahead:

• The CDN dollar is very low right now at about 70 cents compared to the US dollar. Canada is predominately an exporting country. A cheap dollar is great for Canada as it makes our products and services inexpensive. The Bank of Canada’s decision not to increase interest rates was a good one. Our main trading partner and buyer of our products is the US. The US economy is actually doing well which is going to be good for our exports.

• The government stimulus initiated last year will start to show results.

• The new Liberal government infrastructure stimulus will help our economy as well.

• The price of oil is ridiculously low. A steel barrel is currently costing more than the barrel of oil in it. Oil is currently at an irrational valuation. Low prices are the key to the market’s rebalancing, and so the latest drop should help accelerate the adjustment. Oil demand is growing and alternative energy, sadly for our environment, is way too expensive to compete. The challenge right now is that several OPEC members are still boosting their production, with Iran set to add yet more in 2016. This is lengthening the journey back to equilibrium for the oil market. Oil prices should gradually find their way higher with the higher demand.

• Concerns regarding China are reducing. While it is true that Chinese GDP is decelerating, the threat of a hard landing for the Chinese economy still seems fairly small. While a sharper devaluation of the currency is not impossible given significant capital outflows and China’s competitiveness challenges, we continue to believe that any further decline will be modest.

• For your investments, we are getting excited about the medium and long term opportunities that are beginning to reveal themselves with the recent declines. We are bullish for the year ahead. It is in fact a great time to make an investment and certainly great timing for those who will make an RRSP top up before the February 29th deadline.

I will close by simply reminding you that negative events like the market volatility we have been experiencing in the past few months create incredible investment opportunities. These TD Bank’s graphs below confirm this. In the past three decades alone, there have been a number of events that may have kept investors on the sidelines. When you look at the big picture, over the last 30 calendar years, the S&P/TSX Composite Index gained approximately 1316% or 9% per year and 22 of the 30 years had positive returns!

Investors who remained focused, invested and diversified have typically benefitted. The following chart illustrates historical downturns in the Canadian equity market and its subsequent recoveries.

All portfolios are not invested 100% in the stock markets. Your portfolio has mixture of fixed income and equities.

Finally, please read the following article from Oaktree capital. It just shows that the market does not know that much. This is the must read! Thank you for your confidence throughout the years. We work hard to stay on top to offer current recommendations and deliver consistent results.

As Terry and I always say, there is one rule that always works, buy quality and diversify.

Common sense is never as sexy as mass hysteria. MUST Read article here.

TD Graphs