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.

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."

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.

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.

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

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.

Is Profitability or Technicals Driving Equity 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 the equity 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

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."

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 our website under "what's New"

Another Foreign Bank buying Gold

This is yet another bullish signal for gold, keeping with it's secular trend and good for Canada as a whole.

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.

Contact us for a free copy of The Complete Guide to Investing in Gold: A Buyer's Guide

Sliding U.S. dollar pushes TSX 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

Will the 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.

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)

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

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!

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

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 – 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 setting and at some point, with 200 years of history as a guide; something is going to have to give.

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.

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

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

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

If we had only listened to Shania

She got it right.
A few years ago Shania came out with a song (lyrics below) about the excesses of spending, making money and greed that created the financial collapse we are all a part of. It's 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!

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.

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.

To save or to spend: a conundrum or 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.

"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.

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

Seniors flock to reverse mortgages?

We don’t have to look very far to see - or to hear - stories about how many retirees and pre-retirees are looking for alternatives to replace some lost retirement income.

In the US - the new economic stimulus bill signed into law recently by President Obama raises the loan limits for reverse mortgages, which will expand the amount of home equity that seniors can either turn into retirement income or use to offset investment losses.

The number of 60-yearolds in Canada will double in the next 25 years. Will this increase in demand by seniors carry over to changes in the reverse mortgage rules here in Canada?

A reverse mortgage is simply an advance on the value of your home that accumulates interest. The accumulated debt does not need to be paid off until you die, sell the home or move out of the house. If you qualify, and are over age 62, you can get up to 40% of the value of your home and you can do whatever you want with the money. So a $500,000 home qualifies for at most a $200,000 loan.

The average CHIP client is 73 and stays in his or her home 10 to 12 years.

http://www.canada.com/nationalpost/columnists/story.html?id=51521fbf-2e25-436a-ad47-fe3dc593b67e

Market Summary: Sept. 9, 2009

Banks, golds pull TSX lower; N.Y. up as Fed says economy stabilizing

By Malcolm Morrison, The Canadian Press

TORONTO - The Toronto stock market broke a four-session winning streak Wednesday, pressured by bank stocks while gold stocks fell as bullion backed off from the US$1,000 an ounce level.

The S&P/TSX composite index closed down 105.13 points at 11,000.17, more than wiping out a 88-point gain Tuesday that took the TSX to its highest close this year.

The financial sector lost 1.73 per cent, continuing a deterioration in the sector since the major banks reported earnings last month.

"I think what you're seeing basically is just general profit-taking from some of these financials," said Eric Brass, equity analyst at MFC Global Investment Management.

"Some of these stocks are up over 100 per cent since their lows, so I think people are just taking their money off the table to a degree."
The Canadian dollar moved lower following three days of gains which pushed the loonie more than two U.S. cents higher, moving down 0.13 of a cent to 92.51 cents U.S.

The US dollar fell against other major currencies and gold — which is typically bought as a safe haven asset — at times topped $1,000 an ounce before settling just short of that mark.

Tom Phillips, president of TS Phillips Investments in Oklahoma City, said investors are buying gold because they are nervous about the economy and rising deficits but don't want to miss more gains in the stock market. The S&P 500 index has jumped 50 percent from a 12-year low in early March.

Oil prices pushed higher for a second straight day Wednesday on continued weakening of the U.S. dollar and as investors awaited the outcome of an OPEC meeting that is expected to result in no change in production levels. Benchmark crude for October delivery climbed $1.15 to US$72.25 a barrel on the New York Mercantile Exchange.

The latest move up comes a day before the Bank of Canada makes its scheduled announcement on interest rates.

The central bank is widely expected to leave rates unchanged at 0.25 per cent, but is expected to address the sharply appreciating currency, following up previous comments that the high loonie could derail an economic recovery.

Financial literacy: 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 from their mistakes, 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


Quote of the Day

"Most people have the will to win, few have the will to prepare to win."

Bobby Knight