Stock markets in North America continue to do well as markets in Canada and the U.S have hit highs for the year. See YTD (Year to date) averages below. The Canadian dollar has been very strong as it has been hovering in the low $0.90 range for some time. The price of oil is also range bound on either side of $70 U.S per barrel.
Although the U.S was “ground zero” for their residential real estate collapse, things look positively booming in Canada. Resale real-estate is setting records here and housing prices are well up from a year ago. No market correction in home real estate on this side of the border!
Year-to-date (Jan 1, 2009 – Sept 14, 2009) major international stock market indices1
TSX (Toronto) 25.21%
Dow Jones (U.S) 15.44%
FTSE (England) 12.29%
DAX (Germany) 15.78%
Hang Seng (China) 45.49%
1Source: Blackmont Capital – September 14, 2009
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Rolling in the years
If stock markets stay about right where they are now for the next few months, 1 year rates of return are poised to leap upward.
How can this be so? How can a rate of return go up if the markets stay flat or even decline a bit from where they are now.
The answer is not intuitive.
September 2008 marked the beginning of the last year’s stock market’s steep decline, and now we are starting to measure from that low point at that time.
In case this still doesn’t make much sense, 1 year returns for mutual funds are usually measured monthly, i.e.
Sept 2008 – Sept 2009
Oct 2008 – Oct 2009
Nov 2008 – Nov 2009
Dec 2008 – Dec 2009
etc.
The above time frames are referred to as “rolling 1 yr returns”.
The market bottomed out in early March and has recovered strongly since. Therefore, the rolling 1 year returns may start to “improve” because we will be measuring from a very low starting level from last year.
Great to be Canadian
“Canada, with its 2% growth next year, will manage to outpace all of its G-7 peers in 2010” says CIBC World Markets in their Sept 11, 2009 Economics forecast. They also say no to a double dip recession. Full report is HERE.
Interest rates
Although the Bank of Canada has kept interest rates low, retail interest rates continue to drift lower.
Interest rates on new unsecured lines of credit should be in the range of about prime + 2%, down from as much as prime + 4% earlier this year. Secured lines of credit are a bit better at prime + 1. Currently the prime rate is 2.25%
Lately, investors are generally not very happy with their bank’s GIC investment returns. A 1 year GIC at any of the “Big 5” banks; Royal Bank, TD-Canada Trust, CIBC, Scotiabank and Bank of Montreal range from a paltry 0.40% to 0.45%. Just that you know, I can offer 1.75% for the same term.
Some observers note that banks (especially right now) are tempted to widen the spread between deposit rates and lending rates for as much as possible and as long as possible. Who pays the spread? We do. Who earns the spread? They do.
Caution: I have had a couple phone calls from clients insisting they can get 5% GIC at their local bank. A closer look reveals that these are escalating rate 5 year GICs offering a high rate for the final 5th year, but offer very low rates for the first 2 or 3 years. When you work out the math, these special GICs are not special at all. Their rate often turns out to be far lower than an ordinary GIC! If you have any investments coming due at the bank, please give me a call.
Shop around
With interest rates so low, it pays to shop around. As a matter of fact, I have not seen such a wide spread between the major banks and their competition in the last 17 years.
If you don’t like the bank’s mortgage renewal offer, give me a call and I can get our mortgage broker to shop around for the best deal. Don’t like your bank’s interest rates? Call me to help you find the highest paying savings account or GIC.
The credit crunch is easing. Don’t like the terms on your line of credit? Negotiate. Make an appointment with your bank manager and you may be able to lop off a percent or two just by asking.
AIM/Trimark/Invesco
If you are a long time Trimark investor, you will notice that some of their fund names are changing. Therefore in case you are wondering, Invesco will likely be the dominate brand name in the coming years and the AIM brand likely to be dropped. Some Trimark funds will still carry on under the name Trimark or in combination with Invesco.
Web resources
I am pleased to report that my brand new web site www.wealthadviser.ca is now online and operational. It has a new look and new navigational menus to get around a bit easier. It will reflect a new sense of direction as I move my business forward in the coming years.
