The Boomerang Effect. It Ain't Over 'Til It's Over!

If a blogger looks back into the history of his own blog, digs up something he likes and uses it again, is it plagiarism or is he simply repeating himself?  I'll go along with the latter as that's what I'm about to do. I reached back to my post of January 25, 2010 for the following paragraph. The title of the post was Old Guys Getting $cewed - and it's not about Viagra! If you're new to TPCI you should have a look at that one as it's likely better than what I'm about to write. It must have been good as Feed Burner stats tell me that it's the most popular post ever to TPCI. Seems all you have to do is mention Viagra and the Google freaks hunt you down. Here goes...

"Large US banks nearly destroyed the World economy when sub-prime mortgages, asset backed commercial paper, credit default swaps and other imaginary investment vehicles proved unsustainable. Sub-prime mortgages were a bad idea in and of themselves, then the BIG guys added insult to injury by bundling them into $100 Million packages and selling them to each other and off shore banks. Have they no conscience?"

So, why am I bringing this up again? Well, it seems to be taking forever but we're slowly digging out
of the mess, or at least some think we are. There is a fairly large contingent, me included, who believe that the US is in for a double dip recession within the next year or so. Heck, I heard a guy on CNBC yesterday saying that there's a 99% chance of this. Short of starting WW III to juice up their manufacturing sector the deficit and debt levels are unsustainable. As I arrived well after the end of WW II I don't remember Rosie the Riveter but as a history buff I've heard the song and seen the "We Can Do It!" posters.

"All the day long, whether rain or shine she’s part of the assembly line.
She’s making history, working for victory, Rosie the Riveter"

So, what's my point. Well, I don't believe the US will start WW III to bail out their economy. Some of them are crazy but hopefully they'll keep her out of office.  "I can see Russia from my front door". Jeez, give me a break!

You can't turn on the news these days without hearing about and seeing video of the riots in Greece. The Greeks don't get it. They're screwed! Think about it, as most of the world clawed it's way out the recession it stands to reason that the weakest links simply won't recover. Regrettably Greece is destined to return to the Third World and once again become a nation of sheep herders and olive farmers. As Greece goes down, others will follow. Other countries... maybe. European banks...maybe. US banks with huge positions in European countries and banks. Yikes! The Boomerang Effect! All these months later and it will potentially go full circle and bite the large US banks in the butt. It ain't over 'til it's over!

Strategy, Gut Instinct...Whatever

Back on May 2 the total value of my stuff hit a new all time high. Yup, after recovering from the market meltdowns of 2008 and 2009 I had it all back and then some. What a ride!

In the past, at times like this, I've been sucked in to believing that we're on a roll and there's nowhere to go but up. I did things like cash out GICs to get more money into the market. That's called GREED! On May 2 I made the decision to take money out of the market and watch from the sidelines.  That's called FEAR!

As documented in earlier posts, my switch out didn't actually happen for two more days but switch out I did. On May 4 my Endeavour Fund units sold for $11.012...yesterday $10.22. That same day I bought Bond Fund units for $6.102...yesterday $6.139. I avoided a substantial downside on the Endeavour Fund and enjoyed a small uptick with the Bond Fund. Additionally, the Bond Fund has paid two nice monthly distributions since my May 4 transaction. I just did the math. The Bond Fund units are worth 8.822% more as of yesterday than the Endeavour Fund would be worth if I'd held them. Yup, 8.822% to the upside in what? 41 days! I'll take it every time!

Stuff I'm Readin' This Morning

Dollarama Beats Again... This was the 2009 IPO that I didn't like.  IPO at $17.50 in October, 2009...Yesterday $31.00!  Today ???

Greece At The Brink and then, just to show that the Greeks still don't get it Greek Workers Strike.

The Economy Is Worse Than You Think  Not much good news today.  With the TSX off over 1,000 points from the April 5 high it's lookin' like a good summer to stay away from the markets.

A View From The Sideline

So here we are, a year and a half into the second decade of the new millennium. So far it's looking a lot like the first. The TSX is up 13.39% since January 1, 2010...that all happened last year as it's actually down .93% this year-to-date. If you're a die hard and plan to hang in no matter what I suggest you read TPCI post of July 16, 2010; A Little More About The Last (Next) Ten Years.  Sorry, I simply don't see any reason for this decade to be any better than the last. The world changed somewhere around September 11, 2001 and I don't see it changing back. The eighties and nineties were good to us boomers. We paid off the damn mortgage, the kids moved out and we finally managed to put a bit away for our anticipated golden years.  Not exactly freedom fifty-five but at least we saved something.

Then came the new millennium... 911.  Huge volatility for commodities and stocks. A couple of market meltdowns. The worldwide banking crisis. Bankrupt automakers. Whole countries teetering on verge of bankruptcy. The boomerang kids came back as they struggled to sort things out in the strange new world. Our aging parents moved on to assisted living or nursing homes where they spend their days complaining about the food. We postponed planned retirements and many of us who had retired went back to work.

I don't think we've seen it all yet. Watch for the US to default within the next few years.  In the end, it'll be okay because China will come along and bail them out. Yikes! In response, US schools will add Mandarin to the curriculum. What tail's gonna be waggin' what dog then?

For my part, I triggered my exit strategy last fall when I switched out of the Canadian Resource Fund. With the recent transfer of my largest holding to the Canadian Bond Fund I'm pretty much just a spectator now. Oh, I still have my trading account to play with, although that hasn't been a whole lot of fun recently.  Oh ya, I still have that crazy basket of seg funds but by-and-large I'm out of the market.  Speaking of which, that 5% guarantee on the seg funds is looking better and better.  On the trading account side, the things I like; BMO, RBC, TD and Suncor are still doing okay albeit they've dropped off substantially in the past while. The others...I don't want to talk about.

So, what's your plan? Did you bail during one of the meltdowns? Are you hanging in for the time being? Are you hanging in no matter what because finance guy keeps reminding you about the long term returns of the market?  A little reminder may be in order; Who Should(n't) Be In Funds?  Most importantly, do you have a plan at all?

So, I Sold In May and Went Away...and how did that turn out?

Last month I documented switching out of my largest single holding, the Canadian Endeavour Fund, to the Canadian Bond Fund where the plan is to park the money for a while just to see if I can avoid the downward trend of the summer months. I was PO'ed with finance guy for not completing the transaction when requested...and even more PO'ed when he put it through two days later while I was waiting for "the right time" to arrive again.

The two day delay cost me several thousand dollars as, in that two days, the Endeavour Fund units went down and the Bond Fund units went up. The question, where do I stand today? On May 2, when I requested the switch, the Endeavour Fund was at $11.194 and the Bond Fund $6.079. On May 4, when Dopey woke up and got the job done they were $11.012 and $6.102 respectively. That two days cost! On the plus side, the unit prices continued to move as expected. As of yesterday were $10.528 and $6.151.

Yup, I avoided a huge drop in the Endeavour Fund unit price with the decision to bail. Furthermore, I've gained as the Bond Fund units continued to climb and I received the May distribution on my newly acquired units. The monthly distribution for May annualized to a tick over 3% which was very nice for something that I'd held for only 11 days prior to the May 15 distribution date.

No, I don't have a crystal ball.  The decision to Sell In May was based pretty much on gut instinct and the fact that I was growing tired of  the seemingly never ending cycle of volatility. It just seemed like a good time to take a breather, go to the lake and relax without worrying about the @#$%&*! markets!