The Halloween season always makes me nervous. I have never been a fan of horror movies and about 10 years ago I made the mistake of watching the Blair Witch Project with some friends (zero budget cult film that grossed $100 million to everyone’s shock) and I was on the ceiling. Two years ago the finance minister Jim Flarety announced the taxation of income trusts and that ‘trick or treat’ will haunt me longer than the Blair Witch project ever could.
It was looking pretty rosy for the Canadian investors yesterday (today isn’t looking that bad either) largely driven by commodities (oil and commodity prices were significantly higher).
Recent market gains are starting to look like a rally and things could potentially “have some legs to run on”. Although, if the economic and earnings data keeps getting bleaker (versus more bad news but at least not worse news) then this could be “a dead cat bounce”. I’m thinking the former scenario will come to fruition but it will be a long road ahead.
The coordinated actions around the world continue to give investors some hope. Fed Chairman Ben S. Bernanke cut interest rates yesterday by 0.50% yesterday to 1% and he signaled he’s ready to keep cutting rates should yesterday’s cut fail to slow the deepening economic recession.
The Fed slashed its benchmark rate from 5.25% in the past 13 months and created six lending programs channeling more than $1 trillion into the financial system. The Federal Reserve also provided $120 billion to South Korea, Singapore, Brazil and Mexico (via currency swaps) in order to provide liquidity and some financial stability to those key emerging regions (and of strategic importance).
Yesterday, the TSX Composite Index posted some positive gains building upon larger gains posted on Tuesday. Gains in the TSX were led by energy and materials. Although some energy companies announced mixed earnings results some investors believe that the price of oil maybe oversold (60% drop in 3 months does that). Materials also rebounded strongly as investors believe that the interest rate cuts may renew demand for materials (corn, fertilizer etc…)
The S&P 500 index dropped in the final 15 minutes of trading yesterday which erased a 3% gain earlier in the day. Some traders attributed the drop to a report that the General Electric Co. CEO said he’s asking managers to match this year’s profit in 2009. A GE spokesman later said the initial comments were taken out of context and that the CEO was not making any kind of forecast about 2009 (see how jittery the market is?).
Stocks rallied worldwide this morning and U.S. index futures climbed as central banks from Washington to Hong Kong cut interest rates.
Long-term investors will be rewarded, according to Bloomberg, global stock markets are trading at current valuations not seen since 1985 (price to book, price to earnings, price to cash flow, earnings yield etc…).
There is a good balance between risk and rewards at this time.
Wilfred Vos Bcs, CFP, FMA, CIM, FCSI, DMS, CFA, CBV, MBA
SVP & Partner ROI Capital
