Last call for 2011

The chase by Noah Zivitz:

This was a year that (as of yesterday’s close) saw Canada’s benchmark stock index shed nearly 12%. Research in Motion trailed furthest among all index members, with still plenty of questions to be answered about whether the Jim and Mike show can regain lost market share in the new year. Even amid the ruins of a year that left the TSX lagging the S&P 500, there were some outsized returns to be had. Trilogy Energy shares surged 206%. Why? And what’s the plan to keep shareholders happy in 2012? And how about other leaders like Westport Innovations, Valeant and Dollarama? Throughout the day, and into next week on The Street, we’ll be reviewing the hits and misses of 2011.

Today is rich in symbolism for anyone who has watched Manulife Financial's volatile post-crisis experience. When former CEO Dominic D'Alessandro announced his retirement in 2009, his pay package generated tremendous criticism. Hearing the outrage loud and clear, D'Alessandro slapped conditions on the package. And now he appears poised to lose out on $10 million in restricted share units with MFC shares well below year-end vesting thresholds. After all of the hedging and de-risking Manulife has undergone over the past couple of it years, it still hasn't climbed back to levels D'Alessandro hoped for. Will patient MFC shareholders be rewarded in 2012? We’ll explore this one today.

And from today’s headlines:
The Globe and Mail is reporting Bill Ackman is reaching out to former CN CEO Hunter Harrison to lead the way at CP. According to the unconfirmed report, Harrison has demonstrated an interest in Ackman’s approach. We’re seeking comments from principals. Let’s also ask shareholders and analysts for perspective on the possibility of the iconic rail boss plying his trade at CP.

Manufacturing activity shrank in China this month, albeit at a slower pace than in November. We need to hear what the source of the PMI softness is, and what policy measures can be expected from Beijing next year. With Hu Jintao nearing the end of his term as president, I’d like to hear more about the country’s next leader.

After a string of losses that left gold in bear market territory at one time yesterday, the metal is staging an end of year rally today. But for how long, and what could support prices early in 2012? The Street gets a trader’s perspective at 8:30, and the technical view at 8:45.
January 3 will be the most important day thus far for candidates seeking to lead the Republican party in the next U.S. presidential race. Today and Tuesday we’ll need to ramp up analysis of what’s at stake in the Iowa caucuses.

We’ll be watching Silvercorp shares after it announced late yesterday two consulting firms have been retained to provide technical reports on a trio of projects to “alleviate” lingering concerns after the company had to fend off fraud allegations earlier this year.

Gold Falls,Global markets declined in light volumes on Wednesday

Global markets declined in light volumes on Wednesday, as the price of gold fell and a report showed eurozone banks were hoarding cash from the European Central Bank instead of recirculating it through loans.

In Toronto, the benchmark S&P/TSX composite index fell 198.26 points, or 1.66%, to 11,728.41. Nine of the 10 sub-indexes declined, led by materials, down 4.22%, and energy, which fell 1.62%.

The price of crude oil fell US$1.98 to US$99.36 a barrel as investors were reassured that even if Iran did block the Strait of Hormuz to oil shipments as it has threatened, the situation would not last long enough to cause real shortages. The price of gold dropped for the fifth straight session - its longest slump since October 2009 - closing at US$1,562.90 an ounce, a loss of US$31.30. It has fallen in 10 of the last 12 sessions. "As a hiding place, it served its purpose," Bob Decker, a money manager at Aurion Capital in Toronto, said of gold. "As people look to the new year with a little more optimism with regard to the U.S. economy, maybe they're taking profits in their winning trades."

Profit-taking - and getting the house in order as the year ends - explained much of the declines on the markets, which came back from the Christmas holiday on Tuesday and in Canada on Wednesday.

"Volume goes light and really the only things that are left are the hedge funds making sure that they're in good shape for year-end and a lot of them have to sell to cover their losses," John Kinsey, portfolio manager at Caldwell Securities, said.

"The other part of it is the windowdressing," he said. "This is the most important quarter for window-dressing because it's obviously the end of the year for most mutual funds and other corporations and so they all sell their losers and that puts pressure on the market."

The Canadian dollar fell 33 basis points to US97.64¢ on Wednesday as the U.S. dollar advanced.

Also a factor on Wednesday were reports that eurozone banks were sitting on cash from the ECB. "If the eurozone banks are too afraid to lend, that does not bode well for future growth in the region," Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, told Bloomberg. "The banks are not borrowing from the ECB in order to spur lending. It's to shore up their own balance sheets. That could lead to a credit contraction in the eurozone."

The Dow Jones industrial average fell 139.94 points, or 1.14%, to 12,151.41 and the Nasdaq composite slipped 35.22 points, or 1.34%, to 2,589.98. Canada's junior Venture exchange dropped 18.60 points, or 1.27%, to 1,451.08.

© Copyright (c) The Montreal Gazette


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Back to work

The chase by Noah Zivitz:

Where do we start?
Crude oil continues to hover above $100 per barrel, after settling at its highest level since mid-November, on the heels of renewed threats from Iran about shutting the Strait of Hormuz. Let’s continue to probe the stakes for international diplomats tasked with watching over Tehran’s nuclear strategy, while also keeping oil flowing through the strait. And after seeing U.S. consumer confidence rise yesterday to heights unseen since April, let’s try to quantify the psychological impact of $100+ oil.

Italy’s short-term borrowing costs were cut in half in a $12B debt auction today. The next test comes Thursday, when Rome seeks to raise $11B in longer-term debt. Let’s hear about the sustainability of demand for Italian bonds, and how much of that demand comes from banks basking in cheap cash, courtesy of the ECB.

Those look like the biggies. But we’ve got plenty more to sift through:
Athabasca Oil Sands has received full regulatory approval for its Mackay River oil sands project, with construction slated to start next month. This is a 40/60 joint-venture with PetroChina, and forces us to ask (once again) about labour constraints in the Canada’s energy hub.

Fresh off the wires, Ruggedcom just announced a poison pill to give itself plenty of time to consider options after Belden recently disclosed its plan for an unsolicited takeover offer. Paul Bagnell will give this one a look, and I’d like to find out whether other bidders could line up for Ruggedcom. We’ll chase the company.

Bombardier provides the other notable Canadian corporate story thus far today, with a $300-million rail contract in London. We’ll be peering into the company’s order book today as it prepares for a critical year in the evolution of its CSeries jet.

There's still a story to be told after Sears Holdings yesterday showed the wear and tear of a hyper-competitive retail sector. In case you missed it, SHLD disclosed a plan to close up to 120 stores, and said it will "carefully evaluate store performance going forward and act opportunistically to recognize value from poor performing stores as circumstances allow." In other words, CEO Lou D'Ambrosio has more work to do. As we return to our desks and have our first chance to do a holiday shopping debrief, I want to hear what the winning strategies have been, and whether Sears Holdings will regain its footing.

The U.S. Treasury Department dodged fireworks with Beijing after it declined to label China a currency manipulator in its report to Congress late yesterday. Even so, it's giving China a nudge, saying RMB movement thus far is insufficient -- and plans to press for policy moves that will inject some more flexibility into the currency. How long will the U.S. wait before using the m-word, and how detrimental is China's currency strategy to global economic rebalancing? We’ll bring it up with Stewart Hall at 9:35.

Barack Obama is going the bipartisan route with his latest nominations to the Federal Reserve’s board of governors. Possibly in a bid to facilitate the Senate approval process, U.S. President Obama is offering up a Republican, Jerome Powell, as a nominee alongside Democrat Jeremy Stein. Powell has quite the résumé, having worked in the Treasury Department during George H W Bush’s presidency. Powell also spent time as a partner at Carlyle Group. We’ll be familiarizing ourselves with Powell and Stein in the lead-up to their nomination hearings.

An unnamed U.S. Treasury Department official yesterday said the White House will be asking for a $1.2-trillion debt ceiling boost before the end of the week. It looks like this request for extra borrowing power will be far more routine than the downgrade-inducing showdown in August.

It’s as good a day as any to explore supply and demand for rare earths, after China unveiled a full-year export quota for 2012 that looks essentially unchanged from 2011 – but there’s more to the story than the headline.

The quota covering the first half of the year is being sliced by 27%. Let’s find someone who can help us understand China’s export strategy, and how buyers are adapting.

Supreme Court to rule on securities regulator

Supreme Court to rule on securities regulator
The chase by Marty Cej:

Our top story today is the Supreme Court of Canada's decision on whether the government can proceed with plans to create a single securities regulator for the country. The plan, which has scandalized regional regulators in Alberta and Quebec (a single regulator? Next thing you know people will be allowed to marry their pets!!), would establish the Canadian Securities Regulatory Authority (CSRA), targeted to begin operations by the end of 2013. The push for a national regulator gained significant momentum with the financial crisis but the debate began decades ago. The Feds argue that a single regulator will provide more consistent protection for investors across Canada, improve regulator and criminal enforcement, create new tools to support the stability of the Canadian financial system, faster policy response, simpler and cheaper processes for businesses and investors and more effective international representation and influence for Canada. Canada remains the only country in the G7 without a single regulator. The provincial holdouts' argument goes something like this: That's what you say.
Today's decision will affect companies, institutions, investors, traders and analysts at home and abroad. A decision that allows the government to proceed will put into motion a process that will bring Canada into line with global standards but will also cause great consternation and worry for many people working at regional regulators now. Will regional expertise be sacrificed in the transition? Is regional expertise of any value in the first place? What will the next steps be for the holdouts in the event of a ruling in the government's favour? And what would the government's next steps be if the court rules against? The decision comes down at 9:45 a.m. ET. Our analysis begins with the Street.
Among our guests on this key Canadian story today are Tom Hockin, Executive Director for the IMF representing Canada; Ermanno Pascutto, Executive Director of FAIR Canada and Ian Russell, Executive Director of the Investment Industry Association of Canada. We are also expecting to hear from Finance Minister Jim Flaherty after the decision.
Today also sees the unveiling of BNN's Newsmaker of the Year. Beginning at 11:00 a.m. ET, we'll count down the stories that mattered most to Canadian investors to No. 1. What were the biggest deals? The biggest blunders? The boldest coups? The toughest calls and flimsiest strategies?
Speaking of strategy, Thomson Reuters said a few moments ago that it has suspended its attempt to sell its healthcare business. The company put the unit up for sale back in June, but says the "global economic conditions have become more challenging and the company believes they are not conducive to concluding a transaction that reflects the fair value of the Healthcare business at this time." This is a big important company that is in turmoil and struggling to find its feet again after a period of remarkable internal upheaval.
Yahoo will be a stock to watch amid speculation the company is poised to sell a big chunk of its holding in Alibaba Group.

ECB rolls out cheap money

The chase by Marty Cej:

European stocks are mostly higher and U.S. stock index futures are pointing to early gains after the European Central Bank said it will lend the region's banks a record 489 billion euros for three years, almost double expectations. The loans, at a sporty 1 percent (at these prices, you'd be crazy not to borrow!), provide Europe's cash-strapped banks with plenty of liquidity for the foreseeable future and should bolster confidence in the European financial industry, economy and the ECB's commitment to stability. In the simplest terms, European banks can borrow from the ECB at 1 percent and lend to companies, consumers and governments at much higher rates, pocketing the difference. Yes, Virginia, the ECB is a central bank. The true test of the efficacy of the ECB's plan, however, is not the demand from the banks but the demand from the banks' customers.

With just a few trading days left before the New Year, time has all but run out for a Santa rally. So far this month, the S&P/TSX Composite is down 4 percent, the S&P 500 down 0.45 percent and the Dow Jones Industrial Average up a measly 0.48 percent. Volume is low, tax-loss selling is picking up and many of the headwinds that buffeted financial markets through 2011 continue to blow.

There is still plenty of time left this year for us to label and list the challenges and opportunities investors will face in 2012. Yesterday's conversation with economist Joel Naroff was an excellent example. One of the most accurate forecasters for the U.S. economy in recent years, he surprised us when he argued that the world's largest economy will grow much more briskly next year than most economists and investors expect. Outliers… I love 'em.
Speaking of outliers, Edward Zarbitsky at ACI Research is the only analyst

anywhere who has a 'sell' recommendation on Apple stock. He joins us at 10:00 a.m. ET.
The market is talking about Research In Motion today after Reuters reported late yesterday the company rebuffed talks with Amazon that could have led to an offer. Citing unnamed sources, Reuters reported that Amazon hired an investment bank to kick the tires but RIM executives decided to fix its own problems rather than court outsiders. The Wall Street Journal followed with a story of its own -- again citing unnamed sources -- that Microsoft and Nokia considered a joint bid for the BlackBerry maker.

No matter how flimsy the speculation -- who hasn't spit-balled a bid for RIM this year over their third dirty martini at a wood-paneled pub with the word "Olde" in its name?? -- the stock rallied as much as 10 percent overseas and is higher in the pre-market. We've contacted all the principals, none of whom comment on market speculation, and will continue to test the logic of the potential tie-ups that have been proposed.

The tech sector will be a busy on today after Oracle reported after the close of trading last night. The world's second-biggest software maker missed both revenue and profit expectations and said that customers are taking longer to assess and close deals. That level of caution among companies can tell us plenty about the software and hardware industries, as well as the broader economy. The Oracle story today is bigger than Oracle.

The TMX Group said a few minutes ago that it has purchased a 16 percent stake in the Bermuda Stock Exchange, scoring a seat for TMX CEO Tom Kloet on the BSX board and some choice tee times. The TMX says the deal "represents TMX Group's commitment to looking beyond Canada for opportunities."

While that is true, I'm curious just how big an opportunity the BSX provides. It's not exactly the Hong Kong Stock Exchange. We expect to have a conversation with the CEO of the BSX later this morning.

All eyes on North Korea

The chase by Marty Cej:

2011 was not a banner year for dictators, despots and political strongmen. Kim Jong Il, the second-generation North Korean dictator has died, shoving the region into a period of uncertainty of unknown depth and time. The heir apparent is the 28-year-old son, Kim Jong Un, who has been educated in Switzerland and elsewhere and has been named a four-star general though he has no military experience. South Korean stocks slumped overnight and the country's military has gone on high alert. Japanese Prime Minister Yoshihiko Noda's cabinet held a security meeting after the announcement. China sent its sincerest condolences. The dictator leaves behind an economy that is less than 3 percent the size of South Korea's and has relied on economic handouts since the 1990s when some 2 million people died from famine. Both are important measures of a despot's regime: economic catastrophe and body count. We're pursuing insight and analysis into what this new measure of instability could mean to a crucial economic region.

Eldorado Gold has agreed to buy European Goldfields in stock and cash in a deal valued at about $2.5 billion, giving Eldorado a foothold in the Aegean. Calls are out to the principals and we're looking at how the European Goldfields properties mesh with Eldorado's existing projects in China and South America.

Sino-Forest has defaulted on two sets of bond payments and will create a restructuring committee in the hopes of receiving waivers on additional payments to bondholders as it struggles to make it through another week. Our challenge today is to better understand the process of what Sino-Forest is trying to do and to talk about what recourse bondholders might have. We have contacted the company and are pursuing bond owners. We are also digging for analysts and lawyers who can tell us what the next steps are for investors.

U.S. Republicans in the House of Representatives have rejected a two-month extension of tax breaks for 160 million workers that was overwhelmingly approved by the Senate over the weekend. House Speaker John Boehner has demanded a new round of bargaining with the Democratic-controlled Senate to extend the tax break through 2012. Democrats are accusing him of reneging on a deal brokered by Senate Republican leader Mitch McConnell and his Democratic counterpart Harry Reid.

The two arrived at the modest two-month extension on Friday after failing to break a deadlock over how to pay for the tax break for a full year. The debate will be difficult to settle with less than two weeks left before the tax break expires. And so it goes.

Sense of calm hits markets

The chase by Marty Cej:

Financial markets appear to have found a modicum of composure this morning after a day that saw declines in global stocks, the euro, the Canadian dollar, precious metals and industrial commodities. Most commentators put today's modest gains in European stocks, gold, silver and the euro down to the fact they fell yesterday. Obviously, our viewers expect a little more analysis than that. A read on the euro-zone's manufacturing economy rose in December, countering expectations for a decline, but still sits in contraction territory. A sale of Spanish debt raised almost double its target. What do these data points tell us about the outlook for the European economy or confidence in Spain's fiscal authorities?

Are today's gains in European stocks and the common currency a brief reprieve or something more?
A crowded slate of U.S. economic data this morning is likely to determine the direction of markets, regardless of the European data. Inflation at the wholesale level is due out at 8:30 a.m. ET along with the current account balance, Empire State manufacturing report and initial jobless claims. Industrial production and capacity utilization are out at 9:15 and the most potentially market-moving data point, the Philly Fed index -- a read on the manufacturing economy in the Philadelphia region -- is out at 10:00. The market is anticipating an improvement in both the Empire Manufacturing data and the Philly Fed.

Many Canadian investors will zero-in on Research In Motion today as it reports third-quarter earnings after the close of trading tonight. Already this morning, agitated and agitating shareholder Jaguar Financial has called out two of RIM's directors, Barbara Stymiest and Roger Martin to stand up and insist that the company separate the chairman and CEO roles.

Some analysts and investors are saying the stock is dead money until the issue of leadership and governance is settled. Others argue that RIM could represent one of the best -- if riskiest -- bets for 2012. Should the company split into two? Should it put itself up for sale? Should it soldier on and prove the skeptics wrong? Will it beat, meet or miss? Will it warn or raise forecasts? The company reports after the close but our coverage begins now.

For the record, RIM is expected to report a 34-percent decline in third-quarter earnings per share of $1.15, the average forecast of analysts surveyed by Thomson Reuters. Revenue is seen declining 4 percent to $5.26 billion. Yes, that's right, one of the worst performing stocks on the TSX still generates sales of more than $5 billion on a quarterly basis.
Also in earnings, we're watching Fedex, which topped second-quarter expectations and ordered up 27 brand-spanking new 767 jet freighters. One of the best economic barometers in the U.S. equity markets, we'll need to pick apart the numbers.

In Canadian earnings, tourism and airline Transat reported a stronger fourth quarter on the revenue line but swung to a net loss on the bottom line. The company also cautioned the market that so far this winter, "a significant portion of seats remains to be sold and the trend towards last-minute bookings and the volatility of margins make it difficult to make forecasts."
Also today, we'll be watching for numbers from Adobe, Empire Co., Pier 1 (wicker, anyone?) and Rite Aid.

John Corzine has been invited to testify before the House Financial Services Committee.
We are also waiting for the release of the National Energy Board's Arctic Review at 12:30 p.m. ET. Any energy company with ambitions for the North will be following the release as well.

Feds Hold Interest Rates

http://www.bloomberg.com/news/2011-12-13/fed-says-u-s-economy-is-expanding-moderately-policy-remains-unchanged.html

Fed steps up to the mic

The chase by Marty Cej:

Monetary policy will be front and centre at BNN today. Bank of Canada Governor Mark Carney sits down with Howard Green at 12:30 p.m. ET for a conversation about the European morass, global economic challenges, financial regulation and how Canadian companies must step up and save the world… or else.

The Federal Reserve is expected to make some indication today -- however subtle -- that another round of quantitative easing is not a done deal. Recent U.S. economic data has been surprisingly robust, helping to stoke optimism that while European leaders shuffle towards a solution to their debt crisis, the world’s largest economy is slowing but surely regaining its composure.

Chairman Bernanke has been trying to improve the transparency of the Fed’s operations and provide clearer signals to markets, companies and consumers. Today, he is likely to take another big step in that direction. The statement is scheduled for 2:15 p.m. ET.
We have several corporate stories we’ll have to pursue through the morning, including the biggest-ever order for Boeing jets. Southwest Airlines ordered 150 737 MAX airplanes and 58 “Next-Generation” 737s.

The dollar value is about $19 billion. The new orders speak to the global push by airlines to cut costs with more fuel efficient planes. We need to ask again where Bombardier fits in this story.
Best Buy missed third-quarter earnings expectations by 4 cents but reiterated its full-year forecast.

Its numbers come just as investors digest a smaller than expected increase in U.S. retail sales. Shoppers drove sales up 0.2 percent last month, compared with expectations for a gain of 0.6 percent. The preceding month was revised higher to 0.6 percent from 0.5 percent. The question now is whether an early surge in holiday shopping will persist through the actual holidays.

With Research In Motion’s earnings just two days away, analysts at JPMorgan say the company is “increasingly likely” to delay the launch of its BlackBerry 10 phones in the second half of next year, a disappointment the company and shareholders can hardly afford just now. We will test JPMorgan’s assumptions and question the persistent speculation about a sale of the company with analyst Pierre Ferragu of Sanford Bernstein at 9:50 a.m. ET.

Newsletter writer Dennis Gartman goes to great pains to reiterate that he is a trader and that he will hold a position until that position is no longer profitable. In his words, “a trend in motion tends to stay in motion… until it stops.” After selling his gold holdings yesterday, he proclaims this morning “the death of a bull.” We gotta talk gold today. It has dropped down through its 50-day and 100-day moving averages but still has a long way before it bounces against the resilient 200-day moving average. Has Gartman sold too soon? Let’s find out.

I’m running late and the make-up people are breathing down my neck. And brandishing brushes and puffs.

Investors skeptical of European measures

The chase by Marty Cej:

European stocks are lower, industrial commodities are sliding and U.S. index futures are pointing to early losses after the weekend?s EU summit left investors and lawmakers skeptical that the long-term steps agreed upon will solve the debt crisis in the near term. European leaders ended the summit with a pact to draft a new treaty that enforces tighter fiscal integration but details won?t be settled until at least March. In the meantime, the EU leaders have agreed to lend up to 200 billion euros to the IMF to help it support the weakest members of the euro-zone, and to accelerate the permanent rescue fund ? the European Stability Mechanism ? by a full year to mid-2012. Between now and March, the markets will look to the European Central Bank for support and wonder whether Standard & Poor?s will cut its ratings on European countries before Christmas. One definitive result of the meeting was British Prime Minister David Cameron?s political alienation from the broader European Union. By standing up for Britain?s financial services industry and opposing a transaction tax, Cameron has thrown his political future into some doubt and potentially removed White Hall from the next phase of decisions in Brussels.
The U.S. Federal Reserve?s policy-setting Open Market Committee reveals its latest take on the U.S. economy tomorrow at 2:15 pm Eastern. The FOMC is not expected to invoke any new measures to stimulate growth so the market?s attention will be on how the Fed sees the recent spate of stronger-than-expected economic data, including a big drop in the unemployment rate and remarkably resilient consumer confidence numbers. Today, Headline sits down at 1:00 pm with Alice Rivlin, a member of the President?s Debt Commission and a former Vice Chair of the Federal Reserve.
It should be noted that stronger-than-anticipated retail sales last month have many analysts and economists arguing that U.S. shoppers are now already tapped out. A survey by UBS and America?s Research Group (ARG) this morning says that with ?

two weeks to go before Christmas, holiday shoppers buffeted by the weak U.S. economy have already spent all they can afford to on gifts? ?More Americans are living week to week,? said ARG Chairman Britt Beemer, who noted that the new findings are the bleakest in the survey's 27-year history. "They simply have no money."

And what about Canadian monetary policy? Rather than speculate we?ll simply ask Bank of Canada Governor Mark Carney, who joins us Tuesday on Headline. We?ll talk about the outlook for the Canadian economy, Canadian interest rates, household debt, global financial regulation and the skiing near Basel, Switzerland, maybe.

This is one interview you will not want to miss.
Sun Life Financial said this morning that it is cutting 800 jobs, closing two lines of business in the U.S. and will take a small charge as it intensifies its ?focus on reducing volatility and improving the return on shareholders' equity by shifting capital to businesses with superior growth, risk and return characteristics.? Paul Bagnell is listening in on the conference call for more details and Peter Routledge, director of research, financial services, National Bank Financial, will join us with his take on Sun Life and its competitors at 10:30.

Suncor is pulling out of Syria and EnCana is fighting back against claims from the Environmental Protection Agency that its drilling activities in Wyoming are poisoning the water.
Stock movers today could include Air Canada, GMP, Ivanhoe Energy and Yellow Media, all of which were booted from the S&P/TSX Composite.

Bill Carrigan Says... North America Bull Starts To Run

Times have changed since my first appearance in this space about 15 years ago.

Back then we were investors. Now we are traders. An investor used to be an owner of a business with long-term growth prospects. Now an investor is simply a trader who has held a declining stock too long.

Back in the late 1990s investors were enjoying the late stages of a powerful 20-year linear advance in the major global equity markets. The dominant theme or prime driver of growth was the “new economy” technology boom of 1980 to 2000.

The other dominant theme was the emergence of the financial services and financial planning industry stimulated by the big banks’ entry into the investment dealer space.

Buy and hold worked from 1980 through 2000. The Dow ran from 800 to over 10,000 and all you had to do was to find a way to get on board.

Investors stampeded into the mutual funds which at the time had no competition from the little-known exchange traded fund (ETFs) industry. “Buy, Hold and Prosper”, became the business mantra of the former AIC mutual fund boss Michael Lee Chin who embraced the emerging financial services industry.

The technology bubble burst in 2000 and the “buy-and-hold is dead” movement got underway. Now the fashionable mantra is the cynical “buy, hold, and lose” and “buy, hold and suffer.”

The unfortunate fallout of the technology bubble of 2000 and the subsequent financial crisis of 2008 is that we don’t invest anymore. We trade.

If you do a Google on “online trading” you get 68 million results.

Recently, I got a question from an industry professional wishing to know my one-and-only investment pick. He said his clients were long-term investors. When I asked for a time horizon he replied, “Oh, at least two months.”

How sad and what a waste. What is the point of putting in hours of analysis and then tossing a solid investment away just because you made a few fast bucks?

The root of the problem seems to be that investors and analysts are hyper-focusing on the fiscal and monetary problems in the U.S. along with the noise of the European Monetary Union, wars and the threat of another recession. This in turn has investors jumping in and out of equities in reaction to good and bad news days.

If I had to select my one-and-only investment pick today for at least a 2-year hold I would want a skilled management team who can guide the company through the noise of the global economy.

At this time the Dow Industrial Average is the obvious choice because most of the 30 components are global multinationals, all with skilled management teams.

When you own the Dow you gain direct exposure to names like was McDonald’s Corporation, International Business Machines, Hewlett-Packard Co., Caterpillar Inc., Walt Disney Co., Coca-Cola Company, United Technologies Corp. and Chevron Corp. — all multinational businesses. The dominant theme among the group is their activities in globalizing and expanding their operations overseas.

Our chart this week is the monthly closes of the Dow Jones industrial average plotted above the monthly closes of the iShares MSCI EAFE Index (NYSE-EFA). The EFA is an ETF that seeks to replicate the MSCI EAFE index. The index has been developed by MSCI as an equity benchmark for its international stock performance (Europe, Australia and Southeast Asia).

We can see that, from the 2007 price peaks of both plots, the Dow is the stronger investment product beginning with the financial crisis collapse of 2007 — 2009. The Dow on a peak-to-peak monthly closing basis lost about 50 per cent compared to the 60 per cent loss of the EFA.

More important is the recovery period of 2009 through 2011 with the Dow retracing 83 per cent of the financial crisis collapse compared to the EFA retracement of only 60 per cent of the financial crisis collapse.

Currently the Dow is still out performing the EFA with the recent August lows, well above the July 2010 lows. Over the same period the EFA gave back all of the same period gains.

Canadian dollar accounts can own the Dow via the TSX listed BMO Dow Jones industrial average Hedged to CAD Index ETF (ZDJ) and U.S. dollar accounts can own the Dow via the NYSE listed SPDR Dow Jones industrial average ETF (DIA).

Keep your investment close to home and buy, hold and enjoy.

Bill Carrigan, CIM is an independent stock market analyst

Last August I attended a buddy’s annual rib fest. He wore a T-shirt with a bold statement, “I love vegetarians: more meat for me!”

My next T-shirt will read, “I love the euro crisis: more cheap stocks for me!”

Last Wednesday was a bit of a wake-up call for the bulls when the Dow Jones industrial average dived 3.2 per cent or 389 points as the Europe’s debt crisis focused on Italy’s borrowing costs. That was the Dow’s largest points and percentage drop in seven weeks, and the sixth largest points and percentage drop this year.

Even before Friday’s stock market gains, when you look at the bigger picture, the Dow was only down 8 per cent this week from its 2011 closing high of 12,810 on April 29 and had rebounded more than 10 per cent from its 2011 closing low of 10,655 on Oct. 3.

To regain my confidence as a bull, I need to confirm the nasty April through October mini-bear in the equity markets is over. Technically a bull market will post a long series of higher highs and higher lows. A bear market will post a series of lower highs and lower lows.

The turning points, such as bull market peaks and bear market troughs, are called junctures. Was the early October low in the Dow a juncture?

Our chart this week shows about five months of daily closes of the Dow Jones industrials plotted above the daily closes of the 10-year U.S. Treasury bonds. In this example, I am comparing the level of the Dow to investor fear as illustrated by the flight into U.S. Treasuries. Note the recent prices relative to their August lows. In mid-September, the 10-year bond yield broke below the 2 per cent level of the August lows and the Dow industrials held firm just at the August low. This price divergence has created a bull set-up because while investor fear was greater (lower bond yields), the Dow held firm. This is called bullish divergence.

This week, the price divergence was even greater, with the 10-year Treasuries still at the fearful 2 per cent level and the Dow well above the early October low. Internally the Dow is very healthy. All 30 Dow components are now sitting well above their relative early October lows. A very bullish scenario!

The bottom line here is that, from a technical perspective, the August through October lows are an important juncture that will likely become the origin of a major bull market.

We need to participate. We need to focus more on the earnings and guidance from companies such as Cisco Systems Inc. and less of the names of the Greek and Italian prime ministers.

First you need to know what kind of an investor you are. If you lack experience and are not being advised, keep it simple and just buy the Canadian and U.S. equity markets in two baskets.

For Canadian exposure, you can buy the iShares S&P/TSX 60 Index Fund, which trades under the symbol XIU on the Toronto Stock Exchange. The XIU gives us direct ownership of 60 Canadian large-capitalization companies.

For U.S. exposure, you can buy the SPDR S&P 500 fund, which trades as SPY on the New York Stock Exchange. If you wish to operate only in Canadian dollars, another exchange-traded fund choice is the TSX-listed BMO Dow Jones Industrial Average Hedged to CAD Index ETF, symbol ZDJ.

These products contain the shares of large domestic and multinational corporations, which allow you to participate in both the Canadian and the global economy.

If you are an experienced investor or have an adviser, you may seek to enhance the returns of the above broad and diverse products and drill down a bit into the stock sectors such as the financial, technology or industrial groups of stocks.

In Canada, the three prime price drivers are the energy, materials and financial groups of stocks. Related ETF investment products are the TSX-listed iShares S&P/TSX Capped Energy Index Fund (XEG), the iShares S&P/TSX Capped Materials Index Fund (XMA) and the iShares S&P/TSX Capped Financials Index Fund (XFN).

Another important but lesser profile stock group is the TSX industrials, rich in domestic and global corporations. Unfortunately for Canadian investors, no ETF covers just that sector.

In the U.S., the three prime price drivers are the industrial, technology and financial groups of stocks. For related investment products, try the NYSE-listed Industrial Select Sector SPDR (XLI), the Technology Select Sector SPDR (XLK) and the Financial Select Sector SPDR (XLF).

Again if you only wish to operate in Canadian dollars, BMO Financial Group has a series of ETFs that cover most of the major global asset classes.

Bill Carrigan, CIM, is an independent stock-market analyst.