Nat Gas. The Only Loser Today!

Europe, Asia, US Futures, oil, gold all UP! The only thing that's down this morning is that perennial loser natural gas. Methinks it's time to review the Encana (ECA) holding.

After dipping below $72 yesterday, on US weakness, oil bounced back overnight supported by positive numbers for China's manufacturing sector. I wonder when (if) weekly US oil inventory figures will stop driving the price of oil.

I Need To Make A Change!

Sometimes I wake up with an idea, go to the computer and write a complete post and publish it to TPCI.  Sometimes I begin drafting a post weeks in advance with a plan to post it at month or quarter end.  I began drafting this many weeks ago in anticipation of the end of June.  My initial opening line was "I'd like to get things going UP instead of sideways".  Doesn't that just bite.  After the bloodbath of June, sideways would have been great!

The TSX began the year at 11,746.  At the beginning of June is was 11.762.  The end of June 11,294...down 4.85% for the year. 

    

Obviously I need to change something.  I still have faith in my two main funds, the Endeavor and Resource Funds.  I'm thinking I need to change my strategy for my trading account.  The winners are still winners, the losers are still losers and the do nothings are still doing nothing.  My strategy has been to hold the winners, with the expectation of further gains, and hold the do nothings with hope that they'd turn into winners.  Because I don't sell anything at a loss, I'm still holding a couple of losers with the faint hope that eventually I'll get my money back.  Well, guess what?  It's not working!  For seven months now the winners have fluctuated between break even and plus 5 to 10%...and because we can't put two decent months together the gains of April disappeared in May...and the whole process began anew.  My do nothings have taken a similar path except that they've been fluctuating between break even and minus 5 to 10%.

What to do?  I'm thinking that I should identify a couple of undervalued stocks to add to my account with the hope of a nice short term run up.  You guessed it, I'll be watching BNN until my eyes bleed.  I think I've mentioned how painful watching BNN can be.  One rainy day when I've nothing to do I'm going to watch it for a whole day and document how many times they mention and analyze the first headline story of the day.  They really should be embarrassed.  Michael Kane leads with an overnight news item at 6:00 AM 'Peg time and after rehashing it over and over all frickin' day long it's Pamela Ritchie's lead story thirteen hours later on Market Call Tonight.  But enough about BNN.

Thankfully there are some short cuts to BNN research.  I've previously mentioned Stockchase.com.  Stockchase capsulizes all the BNN guest analysts' comments about the stocks they talk about.  They include the date of the comment and the stock price of that date.  Once I identify a few potentials, I'll be looking them up on Stockchase.  The Bullboards on Stockhouse.com are also an interesting read although you have to recognize that these comments are posted by retail investors with an agenda of their own.  Still, worth a read. 

After identifying a couple of undervalued stocks, I'll bail on a couple of my present holdings to raise the money.  This step will take a while as I'll try sell at the top of the aforementioned 5-10% curve.  The decision to sell a good stock is not easy.  On the other hand, it can get pretty boring watching as real good stock go up and down in the 5-10% range.  The fact is, the real good, real big companies  seldom spike up in value.  As someone once said, "elephants don't gallop, they just plod along".

  

I've initiated the first step by putting in a few sell orders.  I picked four good ones and put in sell orders equal to their 52 week highs.  They're all so far below that right now that I don't even have to watch.  Maybe, just maybe one or two of them will get there in the next few weeks (or months) and I'll have some cash for bottom feeding.  

Head Above Water

Buoyed by the price of oil, holding above $82.00 and gold, back to $1,200.00, yesterday's up-tick in
the TSX brought it and my stuff above water for the year. It's been awhile. Agrium (AGU) reported it's second best quarter ever. Maybe, just maybe my aggie ETF (COW) will get moving.

Asia, Europe and US futures are up. Excellent earnings reports are rolling in. Might we have three in a row?

Pension Reform

For the past while the feds have been giving a bit of lip service to the idea of pension reform. It seems they finally woke up to the fact that many boomers are either recently retired or soon to retire and failed to, or were unable to plan for their sunset years. The result is that these old buggers either stay in the work force or return to work when they wake up to the fact that the little nest egg just isn't cuttin' it. When old guys aren't falling off one end of the employment ladder there's no room for young guys to climb on to the other.  Both groups suffer.  The dream of old guys to retire to a sandy beach sinks like the sunsets they were hoping to see.  Young guys who hit the books and got an education line up for night shift jobs at Tim's and Mikey D's.  Their Grandmas have all the day shifts.

No surprise that any pension reform suggested by government will involve either, or both, increased taxes and increased plan contributions.  It's likely that any increase in CPP benefits would not affect present CPP recipients.  Rather, the increase would kick in  for future retirees.  This means that retired boomers would be subject to higher taxes without participating in increased benefits.  Thus, the group whose very dilemma triggered the need for reform would be left out in the cold.

Nobody wants higher taxes, especially retirees living on fixed incomes or under-employed young people.  The business community, according to the C of C, is totally opposed to increased contributions.  As you know, for each dollar individuals contribute to CPP, their employer is compelled to match it.  I suspect that the greatest fear among business is that the feds will change the rules and make employers contribute $1.40 for each employee $1.00 as is the case with EI premiums.  This would be a 40% increase in employers' contributions.

Now, here are my ideas;

1. Remove the $5,000.00 annual cap for deposits to Tax Free Savings Accounts for retirees.  If a larger portion of the investment income, earned on unregistered funds, were free of tax this would effectively provide additional income for this group without increasing either taxes or contributions.  I'd expect there would have to be some sort of means test for this.  Gazillionaires shouldn't be included.
2. Increase the Pension Income Tax Credit.  Again, this would reduce taxes for those who need the break without affecting others.  Once again, Richie Rich shouldn't be included in this program. 
3. Tax-Free Muni Bonds.  South of the border, interest paid on Municipal Bonds is generally exempt from federal and state taxes.  Again, this would be great for retirees.  It would be huge for the municipalities who would have access to a whole new source of funding for infrastructure renewal and capital expenditures, without going to the feds or the provinces as is now the norm.  The resultant reduction of income tax would easily be replaced by normal taxation of the income produced by the increased economic activity.  A win, win!

If you like these ideas, send the link on to your MP.  Maybe we can start a grassroots movement.

A Little More About The Last (Next) Ten Years

Since last Friday's post I've been doing a lot of thinking about the last ten years and wondering if there's any logic which might help us look forward to the next ten years.  Most of my gang are either retired or hope to retire in the next ten years.  Timing may be a critical factor.

I can't get it out of my head that the next ten years are unlikely to be any better than the last ten.  Why would they be?  News spreads instantaneously.  No more waiting for the morning paper.  The markets react negatively to everything from earthquakes and floods to oil spills and acts of terrorism and positively to increases in commodity prices and excellent earnings reports.  At the end of the day, I have come to believe that there are more negative influences than positive ones.

The TSX was driven to an all time high of 14,984 on May 16, 2008 as it rode on the back of the price oil.  I doubt that we'll ever see $147 oil again.  It wasn't worth it then and it won't be worth it in the future.  I believe the difference now is that regulators will never allow the price to be manipulated to this level again.

Imagine where you'd be today if you had cashed in on July 8, 2007.  That five year rally compounds to 201.56%.  Yup, better than a double in five years!  Back to the beginning of the ten year period, $100.00 invested July 8, 2000 would have been $110.23 at the end of the ten years, July 8, 2010.  Yup, ten years... 10%.  Ugly!

Just over one year ago I wrote A Brief History of Volatility.  If I had to guess, I'd guess that we're in for more of the same.  I believe that those who stay in for the next ten years will have a ride like they've never imagined.  There will be periods of tremendous gains.  You know, the times when greed rules and we hang in there believing that it'll keep on rolling.  There will be huge down cycles when fear takes hold.  In these times some will cash out to stop the bleeding, some will hang in hoping upon hope for the next extended rally, which may never come.

What are your plans?  Are you intent on hanging in there and riding it out no matter what?  Do you have any reason to believe that the next ten years will look more like the eighties or nineties?  Do you have an exit strategy to move toward guarantees when (if) the markets reach a predetermined level?  Are you talking to finance guy or does he no longer return your calls?  Do you have a plan at all?

Why we fell in love with funds. Do we still love finance guy today?

Most of the investing by my gang consists of contributions to our RSPs and for a large part that began in the eighties when we finally had some money and woke up to the fact that we weren't going to be able to work forever.

In the ten years, ending July 8, 1990, the TSX rose from 2,116 to 3,596 or 69.94%. We fell in love with finance guy and his wonderful mutual fund products.

In the next ten years, ending July 8, 2000, the TSX shot to 10,380 for a ten year increase of 288.65%. We declared finance guy to be an absolute genius and bragged to each other that our guy was the best!

In the ten years ending yesterday the TSX rose to 11,433 or 10.14%. Yup, 10% for ten whole years!

A GIC invested at 5% for the same period would have returned 62.88%

What do we think of finance guy now?

Sell in May and go away...woulda, coulda, shoulda

We've all heard the old adage "Sell in May and go away".  This is based on the theory that markets generally do better from November 1 to April 30 than in the May 1 to October 31 period.  Some refer to this as the Halloween indicator.

Looking back at the past few years, stats don't prove much...until now, maybe???

I beat the TSX to the end of April with a YTD gain of 5.42%.  The first trading day of May produced a small, very small, upward tick.  That was the top and then look out!  Down she went.  By May 20 the TSX had dropped 6.59% for the month!  Yup, that nice YTD gain all went away...and then some.

So, what happened in May?  The never ending Greece story lead to the bail out by the EU countries lead to devaluation of the Euro lead to fears of further financial crisis in Europe lead to fears of slowing of the financial recovery in North America and elsewhere lead to worldwide market turmoil.

Just as the sub-prime crisis was caused by unscrupulous bankers and traders who first screwed each other and then the governments of the world, the Greek story began with Greece's lying their way in the EU by overstating their GDP and understating the debt and deficit.

So why does this geopolitical crappola have such a disastrous effect on our Canadian market?  Good question.  Will the TD Bank (TD) make any less in the next quarter than the last?  I don't think so!  On April 30, TD shares were $75.50...May 20 $70.32 a drop of nearly 7%

By month end both the TSX and TD had staged a modest recovery from the lows of the 20th.  The TSX closed May at 11,762.  A drop 3.66% for the month.  TD shares fared even worse as they closed at $71.75, down 4.96% for the month.  That bites!

South of the border, (Bloomberg) reports that the DOW had the worst May since 1940. 

Based on yesterday, June isn't looking any better.  Fears and doubts about economic recovery sent the markets into a tailspin.  The TSX joined the downward slide despite Monday's report that Canadian GDP increase doubled expectations.  Yup, the Canadian economy is rockin' and we're still getting caught in the downdraft.  Fact is, the TSX is unlikely to stabilize until the there's definitive evidence that the US economic recovery is for real.  So goes the world's largest economy, so goes the world....unfortunately.

Overheard in the Men's Room in the Greek Parliament

Dimitri:  How are we going to solve this crisis?
Hector:  We've got to get the people to stop demonstrating and throwing fire bombs.
Dimitri:  How?
Hector:  We'll get them working in the private sector for the first time, non-government jobs.
Dimitri:  Then what?
Hector:  Then, for the first time, we get them all to pay taxes.
Dimitri:  How?
Hector:  We hire a bunch of compliance officers and tax collectors.
Dimitri:  You mean honest people who would not accept bribes?
Hector:  You right, we're screwed.

Who Should(n't) Be In Funds?

Blogging works for me on two levels. Firstly, I enjoy writing, always have. Secondly, the brief, simple posts work well with my short attention span. I also read a lot of Blogs. Again, works on two levels. Firstly, I enjoy reading about new stuff. Secondly, the brief, simple posts work well with my short attention span. Do I hear ADD?

Because I believe that the majority of Blog readers also tend to be short in the attention department, I try to have each post fit a single screen...otherwise I suspect you lose them before they read the whole thing. Hey, I'm not trying to write the Great Canadian Novel here, but when you put it out there, you do hope somebody reads it.

Because of my ADD my investment research tends to be brief and sporadic. I've mentioned using Globe Fund & Morningstar for fund research. I read several Internet financial pages and a number of financial Blogs. As you can guess, because of numerous mentions, when I'm at home BNN is on in at least two rooms.

In all the years that I've been investing I've only read one book on the subject...and I'm guessing that many of you read the same book. The Wealthy Barber by Michael Chilton was loaned to me years ago by finance guy. I think he had a dozen copies and circulated them among his clients. This entertaining, well written book must have been commissioned by the Mutual Fund Industry. Surely it was difficult to read it and not be convinced that you just had to get into funds.

I don’t remember much about the book. I do however, remember the message about when to invest in funds and when to get out. Chilton’s strategy was simple. Get into funds when you’re young, continue adding through your working years by taking advantage of dollar cost averaging and get out when you’re old. What’s this about getting out? Again, the message was simple. Chilton’s advice was to pick a time, when the markets are up, somewhere around 5 years before your planned retirement date and get the heck out! Why? Simple. Don’t be greedy and risk the possibility of a market meltdown devastating your nest egg close to your planned retirement date.  Got it?  Young Guys In, Old Guys Out!

FOUR QUESTIONS:

1. How many of us took a huge hit in the past few years?
2. How many of us postponed retirement plans because of it?
3. How many of us came out of retirement and went back to work because of it?
4. How many of us received a call from finance guy, when the markets were at their peak, suggesting that the time had arrived to move away from funds, lock in the gains and preserve our capital?

FOUR ANSWERS:
Lots…  Lots…  Lots and NONE!

IMPORTANT REMINDER:
Nothing on this site should ever be considered to be advice, research or a suggestion or invitation to buy or sell any securities. Every investor should do their own research and consult their own finance guy. See full  DISCLAIMER.

Did Pretty Well Sittin' On My Duff...

Regular readers know that I live and die by fluctuations in the TSX because I'm pretty much all Canadian, all the time.  Other than simply trying to make money, I have a sub-goal...if there's such a thing, of matching or beating the TSX.  I'm happy to report that I beat the TSX for the quarter!

As of March 31 the TSX was up 2.48% for the year.  My portfolio value was up 3.34%.  What I like is that I did nothing.  Well almost nothing.  The only change I made in the quarter was to re-balance the one mutual fund account 50/50 between the Resource and Endeavour Funds in early January.  This worked out well as the change involved transferring to the Endeavour Fund which out performed the Resource Fund for the quarter.  Isn't is great when a plan comes together?  With a whole lot of eggs in two baskets, I would like to diversify this account by adding one more fund but I just can't seem to find a fund that has been performing like these two since the market bottomed in March of last year.

I have great hopes for the Resource Fund for April.  With the recent spike in oil price and gold holding well over $1,100.00, this fund should do well.  It's up 2.88% after three trading days, handily beating the  Endeavour Fund.

April started off very well.  Three trading days...new highs for the year for the past two days...my portfolio that is, despite a downward tick for the TSX yesterday. 

My April Fool's Day Cenovus (CVE) trade still bites.  The best I can say about that is the money I got for the shares hasn't gone down...in fact, I guess I could say that it's gone up as the Loonie touched par with the Greenback yesterday before dropping a tick.  Now, there's a spin.

Happy Investing!