As I eluded to in my March 25 blog, this stock market was alot of “bull”. Currently, the stock markets are in the process of “pricing in” the reality of our global economic slowdown. With European governments implementing widespread deficit reductions and tax increases, the Eurozone will be lucky to achieve any GDP growth next year. Our good friends, south of the border, are in a very similar predicament: Unemployment remains stubbornly high and looks to be getting worse; Residential real estate is facing another price decline as banks try to sell more and more foreclosed property; effective Jan 1, 2011 , the Bush tax cuts end, bringing a significant tax increase into effect, putting further pressure on the already sluggish US economy.
The great news is that excellent buying opportunities are on the way. Its days like today, that speed up the process, with Canadian and US stock markets down 3%. Since the high of the market on April 23, 2010 the S&P 500 has declined 14.5%. Our Canadian market has declined 8%, so we have faired somewhat better, although several of our financial stocks (ie. banks) have declined substantially more (i.e. Bank of Montreal, peaked at $65.41 and closed today at $57.35, for a decline of just over 12% since the April peak).
Its a great time to have fixed-income, such as bonds and high quality preferred shares. I anticipate continued choppy markets over the next two quarters , as we await further buying opportunities. My expectation is that we are approximately one third of the way through this market decline. For those of you who have not purchased any gold bullion, now would be another excellent time to buy. Many portfolio managers expect some kind of sovereign debt default in 2011, placing even more downward pressure on the already punished Euro. Gold has now clearly moved into the number 2 spot, as the world’s second reserve currency. With the severe decline in the Euro, more and more sovereign and institutional monies are moving away from Euro and into gold bulliion.
Best regards (and happy Canada Day to all !)
Mike
