A new year, a new U.S. president and, hopefully, a new, more positive direction in the market, right?
Let's face it: investors are looking for a fresh start after last year's stunning market crash.
Well, if the last few weeks are any indication, the bears aren't back in hibernation just yet. And, according to the experts, there's still a lot more volatility expected in the coming months.
"What lies ahead in 2009? It is likely to be a difficult year," says Ross Healy, chief executive of Strategic Analysis Corp.
He notes that some economists are forecasting that corporate earnings this year will be about half of what they were in 2008.
"If so, the stock market today has a recession built into it, but not the recession that it is likely to have.
"U.S. consumers have nothing left on their balance sheets to fall back on. Home prices and stock holdings have been badly mauled, but all the debt is still there."
Speaking at the Empire Club's 15th annual investor outlook luncheon earlier this month, Healy was among a trio of investment gurus looking into their crystal ball for 2009 as the Bay St. crowd noshed on a poached salmon lunch at the Fairmont Royal York Hotel.
None of the three pundits were overly buoyant about the year ahead, but they aren't 100 per cent bearish either, reflecting the current mood in the business community. While each has a slightly different message, they agree there are indeed some bargains to be had out there but to proceed with caution no matter what size your portfolio is today.
"After 2008, many investors will relate more to (humorist/actor) Will Rogers, who famously said: `I'm not so much interested in the return on my money as I am the return of my capital,'" quips Nick Barisheff, president of Markham-based Bullion Management Group Inc., a mutual fund trust investing exclusively in gold, silver and platinum.
He says 2008 was a "painful" year for those in the market, with many portfolios experiencing capital losses of 30 to 70 per cent.
It was quite a wake-up call, considering the prior 25 years marked the longest equity bull market in history. The next 20 years are unlikely to be a continuation of the past, notes Barisheff.
"Looking ahead, it seems many people believe the crash of 2008 was just a correction, and that real estate and equity markets will soon recover. Current data does not support this argument," he says.
He argues the global financial imbalances that became evident last year have been building for decades and are unlikely to correct in a single year.
"Until consumers feel confident about their jobs, the value of their houses and the safety of their savings, they will curtail spending and the economy will not improve.
"For investors, the take-away from all this is that while a `buy-and-hold' strategy may work during a bull market, it doesn't work during a bear market."
Of course Barisheff is bullish on bullion, pointing out that while the price of gold increased by 31 per cent in Canadian dollars and 45 per cent in British pounds, the Toronto Stock Exchange lost a whopping 35 per cent of its value. (Gold rose just 5 per cent in U.S. dollars last year due to the extraordinary demand for that currency in the crippling credit crunch.)
"In 2009 and beyond, the six-year upward trend for precious metals should continue, while real estate, equity markets and even bonds will likely decline," he says.
There are, then, several implications for portfolio management in the future.
Thomas Caldwell, chief executive of Caldwell Securities Inc. in Toronto, called the 2008 market sell-off "a cleansing of the financial system" that paves the way for investors to scoop up depressed stocks.
He likes several sectors now, including financial services, health care and consumer product stocks. And yes, he too likes some exposure to gold since it's widely expected there will be downward pressure on the U.S. dollar (which typically moves in the opposite direction to the price of safe-haven bullion.)
"Bull markets ignore bad news and bear markets ignore good news. We've gone through a period of very, very bad news and the market is accommodating it," notes Caldwell.
While he says there are "exciting opportunities" in equity markets, there are also traps investors should be wary of while digging through the ashes for value, noting overall market sentiment should not be ignored when picking stocks.
For his part, Healy argues that, sure, investors can expect some growth stocks to emerge and even some periods of growth along the way – just not for the same long periods as we've enjoyed for many years.
"As for the overall market, we should have a decent rally in the early part of the year as the market digests what has happened already, and what the authorities are doing to try to turn things around The market is then likely to sink back into a pit of despondency.
"Those investors who adjust their tactics early will do well. And those who do not should probably run to GICs right now and get it over with," Healy quips.
While Caldwell calls short-term investing "a guess," he projects equity markets will see an increase of between 10 and 15 per cent this year overall.
"One to two years from now, we will look back at this (year) as a great opportunity" to pick up bargains in the market, adds Caldwell.
What about the saying,"...the bigger the risk you take, the bigger the return you'll get." After what we have seen in the 2008 crash, I believe it is no longer true. The old way of doing business, of investing...is replaced by a new way, which we still have to learn.
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