Investment Q&A

Q: Hello Peter & Co,
People were talking about impending increase in interest rates for quite a few years now. Friday's US employment statistics were encouraging and yet the stock market dropped like a rock; it seems that investors are so "hooked" on low interest rates that they are willing to put the prospect of a "good economy" in the proverbial "back seat".
I fear that when the rates will start rising, the stock market will take a licking.
How do you explain this paradox...what is your take on this?
Thanks,
Antoine

Q: I was put onto Garth Turner's bog "Greater Fool" and found his views interesting. For those who don't know, Garth Turner predicts a U.S. style economic crash in Canada based on the fact that Canadian's today save very little and have an larger appetite for debt. He reports that as a population, Canadians are second only to Greece in the rate we are increasing our debt and that Canadians as a whole now carry over 1.82 Trillion in debt; an amount that eclipses the countries GDP. My question is this, if Garth is right and we are on the brink of another financial collapse, what sectors/ stocks would be most likely to be 'safe' or benefit? What stocks do you recommend in this environment? I would appreciate your view and insight into Mr. Turner's positions.

Thanks in advance.

DON

Q: Hello Peter & Co

I’m paraphrasing here a synopsis of a couple of articles presented by Christine Hughes of Otterwood Capital. In 2007, Christine had forewarned her clients about the impending onset of the last financial crisis; and right she was.

“Since the 2nd half of 2014, coincidental with the collapse of oil prices, the US$ index started to breakout; and after a multi-week sideways consolidation, it has resumed its seemingly vertical ascent thanks to the release of the Eurozone QE plan.
Furthermore, the Bank of International Settlements had reported earlier that US denominated cross-border debt had reached $9 trillion ($7 trillion of which was non-US resident); many of these countries, who do not have a steady revenue stream denominated in US$, will now have to buy more US$ to make interest payments and pay back their debt. This demand drives the US$ further up.
What would add fuel to the fire would be a consistently strong US job market indicating a good economy. If and when the US raises interest rates, it will breathe fresh air into the already long-dollar trade.
It is impossible to tell ahead of time when the inevitable bust begins but begin it will; we are keeping our eyes open for any signs of stress in the system. For now, things are calm”.

What could a retail investor do to preserve the gains made so far in this 6-year old bull market?
Do you agree with this analysis? If you agree, what would you do?
Thanks as always
Antoine

Q: I've never seen this kind of question asked: If I want to earn 7% on my money by investing in about 15 great, solid companies and selling shares in order to achieve the 7% return, what might such a portfolio look like? Would the 5i Model Portfolio, as it is, fit the bill? How might it be tweaked? I know there are a lot of questions and considerations around the question, but just looking for a general reply and any thoughts on this approach. Thank you.

Q: PREM WATSA of Fairfax Financial issued a report saying he is wary of the market which has no downside protection. Should we be worried? Thanks.

Q: Just a general question. I'm I wrong in thinking that this time of the year where allot of people are making last minute investments in RRSPs and TFSAs seems to give some extra momentum in the stock market? It just seems that even though we had a bit of a panic in the oil sector and an unexpected rate drop, there still seems to be allot of areas which are pushing above or hanging around yearly highs.

Q: Given that the markets (except for Canada) are near all time highs and appear to be quite stretched, do you feel that it is wise to enter any long positions, even 5i's picks? My instinct tells me that I should be hedging my portfolio and search for short opportunities rather than go long? Any thoughts on this? Thanks so much.

Q: Hello 5i,
The yield curve is flattening; the spread between 2 and 10 year is dangerously narrowing. This kind of situation, if it continues flattening, could be a precursor of market downturn as it happened in 2000 and 2008.
I was all in cash in 2008 and am wondering how to respond now; mind you there is always a lag time between the flattening of the yield curve and the market decline.
Your opinion please.
Tony

Q: Hello Peter,
As we go into February, what do you think of the North American markets? Are we looking at a correction, is it an ageing bull or we are in the middle of a secular run? Should we trim positions, raise cash and wait for the buying opportunity to happen; or should we put the additional room available in RRSP and TFSA to work at this time? Do the markets go risk off on interest rate hike in 6 months or are they all in with small and medium companies betting on the growing US economy? I do not sense a clear direction. Perhaps you can show the way.

Q: Barclay's is predicting the USA will experience a negative CPI in 2015. What would be the best sectors to be invested in should we find ourselves in a deflationary climate? Thank you.

Q: I have been told that a major bank in Canada is advising its clients to significantly increase cash positions in their investment accounts. The bank's view was that there will be a significant market correction in Canada. What is your opinion about the Canadian market and their advice? Thanks!

Q: What is your view on the Greek election in terms of how you see this impacting the North American markets and the price of Gold? Interesting times.

Q: Where can one find the TSX total return which includes dividend income?

Q: There seems to be so much negative news lately: slow growth in China, deflation in Europe, commodity deflation (oil going to zero)and of course the Greek exit.
Can you think of any positives that might happen this year to bring joy to the hearts of us poor old weary investors.
Mike

Q: Hi Peter,

In your view, what would a Big stimulus package (QE Europe) mean for North American Markets. But mostly our Canadian Market (Toronto Stock Exchange). Would it help the TSE get back on solid footing again?..

Appreciate your opinion
Charlie

Q: Hi Peter,

The previous question was more about market sentiment than anything company specific. I hold a very diversified list of 40 stocks but the list I provided were the worst offenders.

Maybe I should find a new hobby like stamp collecting or better yet get a gym membership until the market uncertainty passes which I suspect will take a few more months.

Thanks

Q: Bill Gross and his successor at Pimco are talking deflation and that many asset classes will suffer. It sounds scary. What are your thoughts? Thank you.

Q: Rob McWhirter, on BNN quoted Ned Davis' research prediction for the next 16-20 years of low commodity prices. Oil=$35/bbl, Gold=$700/oz and copper= $135/t. This would have serious impacts on the TSX and the old favorite banking stocks would feel the pain as well. Are you able to comment on these forecasts?

Q: Do you know of Martin Armstrong's cycle theories? If so, it'll be nice to know what you guys think of it and what you think of business cycles in general.

Q: Hello Peter,

What is your view on current market valuations versus risk? In general prices look pretty fully valued right now especially in the US. I'm holding some cash right now but hesitant to buy more at this point as risk/reward profile looks a little shaky.

Are you continuing to buy at these market levels?