Friday, October 29, 2010

Traders Forum, Toronto Money Show 2010

The moderator of this forum was Fasusto Pugliese of Cyber Trading University. On the panel was Sam Abtahi of Royal4X, Colin Cieszynski of CMC Markets Canada and Tyler Bollhorn of Stockscores.

The first to speak was Abtahi and he said that companies stock prices (producers) do not move with commodities prices. This is what is called a company risk. He thinks that we show be buying commodities, not commodity companies. To start off in commodities trading, he thinks it is wise of start with ETFs on commodities and then move into commodity futures. These commodities future markets are 24 hours markets, compared to the limited time the stock markets are open. Currently, the Canadian Government is starting to limit leverage in the commodity futures market. The leverage allowed used to be 100 to 1 and it is down to 30 to 1. By this action, the government is trying to protect the public.

Cieszynski talked about QE2 (quantitative easing). He said that the US’s problems are structural, not liquidity. (If you remember what QE is, it is basically a way to print money.) As far as QE is concerned, Japan is doing it, the US says they will do a QE2 and England is also looking at doing some QE. In China, they are doing some economic tightening (rising interest rates) and Canada is currently keeping their interest rate at the same level. He thinks that if the US does QE2, then the stock market might go down.

Bollhorn stated that the stock market is not fair. The market is being manipulated by people who want it to go higher. He said that sometimes there are advantages to being a small trader. They can buy and sell and have no effect on the market. In fact, he said that trades of $1M or $10M have virtually no effect on the market. When Hedge funds buy and sell, they have a harder time as they usually are trading in amounts of $1B or more.

Cieszynski closed this session with remarks on a possible double dip. He said that it probably would not happen. He said that the US is a very dynamic country and it is a lot more dynamic that a lot of other countries. But, he does see some low growth again for the US rather than a double dip. He also said that he does not think that QE2 will be huge.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

William Chin, Toronto Money Show 2010

The full title of this session is “How To Profit From Major Global Trends In 2011 And Beyond.” William Chin is of e3m Investments Inc and D2M Inc. See e3m website and its subsidiary D2M website. Chin never mentioned his companies, however, his talk was all about technical analysis and charting, specifically, candlestick charting.

The first thing he did was ask what would happen if the price of a stock kept hitting the bottom support line? That is it hits the bottom support line, then goes up, then hits the bottom support line and does this repeatedly. The correct answer was the price of the stock would fall below the bottom support line because of the repeated hitting of the support line.

He said that technical analysis is all about group behavior. (He is the second person to say this at this show. I must admit that I always thought that technical analysis only works because investors were emotional. I also believe that economic theories that do not take into consideration the emotional aspect of people, do not work.) Chin then quoted Sun Tzu from the Art of War. The quote was “understand yourself and understand your enemies and you will win every battle”.

He said the best tool for reading the collective emotions of the market participants is by candlestick charting. See the picture at top. When you have a long upper shadow, it is because the bulls pushed it up but the bears dominated and the stock closed lower. When you have a long lower shadow, the opposite has happened and it is very bullish. Use the RSI (relative strength index) to show how excitable the crowd is. Does the RSI stay in the 70 to 30 band? You are dealing with a tame crowd. Does the RSI breach the 70 and 30 lines a lot? You have a very excitable crowd.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Thursday, October 28, 2010

Aaron Dun, Toronto Money Show 2010

Aaron is from KeyStone Financial Publishing Corp. His talk was on Investing in Dividend Growth stocks. He said to get their recommendations, we should sign up for their research at Income Stocks. This is their report that talks about investing in dividend growth stocks. They have another report on high growth small cap stock and this is also available at Key Stocks.

Dun said that what they recommend profitable and growing businesses at attractive prices. Their model is GARP, or growth at a reasonable price. They provide a company profile on dividend paying companies that have strong free cash flow, a strong business model and a proven management team. They mine data to find companies that are posed for growth. They expect that these companies will be held for 1 to 3 years for clients to earn a good return. He also said that the way his company gets paid is by selling its investment letters.

He said that some of these companies are small cap companies and he defined small caps as being worth less than $500 million in market capitalization. He stated that past recommendations were for Telus Corp (TSX-T), DirectCash Income Fund (TSX-DCI.UN) and Ag Growth International (TSX-AFN). He said they recommended Telus as it had a strong yield with a conservative payout ratio (of less than 50%). Telus has a history of profitability and of trading at less than 4 times cash flow. He said that some of the best dividend payers, like BCE, Rogers and Telus are good solid companies.

Dun said that Ag Growth has successfully converted from an Income Trust to a corporation. They have maintained their dividend (or distribution) level. They have minimum debt and a conservative 56% payout ratio. Their valuation is still at 10 times earnings. They have a tax pool that will last for a couple more years. Dun says that lots of countries need better gain handling and storage equipment. He feels when credit eases, this company will get more business that is international and it will grow. He thinks that this company is still a buy.

For DirectCash, he says that it has a strong business model with recurring revenue. Dun says that the ATMs that they own account for 50% of the company’s revenue. This company is also into prepaid credit cards. This is a high growth company with an attractive valuation and it is trading at 5 times cash flow. The good thing about this company is that it is largely unknown by the investment community. This company is consolidating the ATM business (although ATM business itself is declining by some 2 to 3% a year). KeyStone feels that there is not much growth in this business on a go forward basis.

This company puts ATM machines into bars, gas stations and shops. It puts in its own ATM machine (and gets a fee for each transaction), or it rents the ATM and gets rental income. They had expanded into Mexico and this did not go well. They are looking at going into Latin American currently. KeyStone’s status on this stock is a sell. (By the way, I have blogged about DirectCash. Click here or here for my November 2009 blog entries. For the spreadsheet see dci.htm. For Telus, I have a spreadsheet, but I have never blogged about it.)

So, let’s go back to this session by Aaron Dun. Dun says that they have rules for investing. First, you should always invest for value. Secondly, you should be patient and allow an investment to grow. Thirdly, you should always invest with your mind, not your emotions. Rule number 4 is that you should diversify. The last rule is that you maintain reasonable and achievable expectations.

He says you have to invest in real profits and real cash flow. Dun admits that it is tricky to determine the actual value of a company, but that KeyStone believes that an underpriced company has a much lower risk than an overpriced company. He also says that having an advisor is not substitute for individual thought. He says that successful investment is not correlated to IQ. He emphasized that we must keep our emotions under control.

Dun said that if people are fearful, it is the best time to buy. All markets move up and down and we should not get unset about this. He also said that success is time in the market, not timing the market. He also gave an example of a recent past good pick of KeyStone. This company was Hammond Power Solutions Inc (TSX-HPS.A). This stock was at $.65 when they recommended it in 2002 and it was up to $13 in 2007. (I sort of wonder about this pick, or his mention of this stock, as it is not a dividend paying stock.)

Dun said that Warren Buffet earned an average of 23% in total return a year. He said that the average Canadian investor earns about 6 to 8% on average in total returns per year over the long term. However, with their advice, a conservation investor would earn 10% in total returns a year. A moderate investor could earning in the range of 12 to 15% per year and an aggressive investor could year more than 15% a year. He said that the total returns from their recommendations would give an investor, on average a 45% return each year. (Please note that all investment letters promise such things.)

Dun says that dividend paying stock outperform non-dividend paying stock. He also said that dividend paying stocks are less risky than non-dividend paying stock. Also, dividend paying stock can give you a return, even in a depressed market. He says that the stock they recommend have very attractive yields as well as strong capital appreciation. However, he said that some dividend paying stock can be highly speculative and they do not suggest investment in such stocks.

He said that the companies that they recommend would have strong free cash flow, as this would lead to increasing dividends. They like companies that a strong competitive advantage, with a health balance sheet and a reasonable payout ratio. They like companies that have an attractive valuation and are cheap relative to earnings. They also want a company with a proven management team. Dun pointed out that they do not like companies that are highly leveraged.

The sort of portfolio that this company recommends would be in three parts. You would have a core portfolio of ETFs that would be 30 to 80% of your total portfolio. Then you would have a number of satellite portfolios. One satellite would be a portfolio of 6 to 10 small cap companies. Another satellite portfolio would be 6 to 10 dividend paying stocks. A possible satellite portfolio would be one with ETFs on emerging markets. A 4th possible satellite portfolio would be ETFs on specific market sections.

The last think Dun did was to recommend a book. This was “The Intelligent Investor” by Benjamin Graham. On my website, you can find out how to order this book on Amazon if you care to purchase it. See Graham.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Chuck Butler, Toronto Money Show 2010

Chuck Butler is from EverBank. This is a US bank. His talk was titled “Who in the World Stands Out?” He says that in the US, the Fed is left with toxic debt. He believes QE2 (quantitative easing) by the Fed is a must. This is because the past stimulus did not work. He said that EverBank did not have any subprime loans and that all their problem loans were easily liquefied.

He sees the Federal deficit as a problem. He feels that the Federal government must make cuts to Health & Human Services, Social Security, Defense and Labor. He also thinks that US unemployment is really at 23%. He wonders if there is a willingness in the US to make cuts. The problem with cuts will be social upheaval. He is worried that the money supply has exploded in the US and that this always causes asset bubbles. He also sees commodity prices rising sharply.

Butler thinks that US is back into stagflation. The US has saved the banks, lowered interest rates to zero and has run up its debt. He says this is what Japan did and now what the US has done. He sees that the US international trade deficit in goods and services rising. Butler thinks that the US treasuries are becoming an asset bubble and this is just the latest in US asset bubbles. Butler thinks that at one point, foreigners will stop buying us treasuries and then the interest rates will have to rise.

In the US, he believes that home prices are still too high. Home prices have been rising since 1987 and they are still 10% higher than the rise in CPI. Butler thinks that the average American family’s financials are in shambles still. He thinks there will be more adjustments in the price of houses. He thinks that the US$ will stabilize, but it will decline and that the decline with accelerate. He thinks that the markets are very volatile, but that there is no fundamental reason that they are.

Butler thinks that currencies trade on different fundamentals than companies do and that we should all have some currency diversity in our investments. He thinks that we should diversify our investments into Canada, China, Norway, Australia and Brazil. (I think he feels he is talked to a US audience.) Butler says that gold will always have a value (it will never go to a zero value).

Butler feels that the number one currency winner is Norway. He says that Norway has a pension fund that has fully paid up pensions for everyone in Norway. He says the number 2 currency winner is Australia, the number 3 winner is Canada and the number 4 winner is China. He also mentions that China is trying to suppress its housing market by raising its interest rates. He feels that in 15 years, China’s currency will be the world’s currency. It is currently trading in its currency worldwide (and is not trading world wide in US$).

Butler also thinks that the most speculative currency to buy is the Brazilian real (R$ or BRL), as it is volatile. He also thinks that gold and silver are currencies. He says that gold at $1,300 an ounce is pricing itself out of the retail market and silver (at $25 an ounce) will replace it. He thinks that the US should not rile China on their currency because this is a dangerous tactic.

Butler gave a pitch for his bank saying that we could trade currencies threw EverBank and we could buy and sell gold and silver through his bank.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Craig Alexander, Toronto Money Show 2010

Craig Alexander is an economist at the TD Bank. The full title of his talk is “The Risk-Filled Recovery: An Economic and Financial Outlook for 2011”. When I go to the Money Show and also to the previous Financial Forum, I always like to listen to an economist.

Alexander first talked about the global economy. He said we have had a rough ride from 2009 with a global economic recession. He said that this is the first time the whole world economy has contract. Since the 2nd quarter, the developing countries and since the 3rd quarter, other countries have been recovering. Currently the emerging markets are booming. However, he thinks that these markets might be growing too fast and there is a risk of them overheating and a risk of inflation.

He feels there is also an inflation problem with China’s housing market. There is also general inflation happening in India, especially with food. These countries are making an effort to slow growth. This has been viewing negatively, but he feels it should not be. These efforts should be view as sensible. 20 years ago, the portion of developed markets to emerging markets was 70% to 30%. Now the ratios are 50% to 50%. So, we probably need a new name for emerging markets. The emerging markets are showing strength, but the developed world markets are weak.

Europe has a debt crisis. He asked why are people worry about Greece as it is a very small economy? His answer is, is that people are viewing Greece as a canary in a cool mine. The market is worried that the European problems can come back to haunt us. He feels that European countries are going to have to raise taxes, cut entitlements, reduce spending and pay down debt. Europe will need tough political will to get their economies healthy.

He feels that Canadian was able to put its house in order because Canadians wanted the government to do so. The public actually demanded it. However, he feels that this is not what will happen in Europe. So some European governments will not be able to do the tough things and this is a risk. Nevertheless, he feels that fiscal austerity will come to Europe and that it will slow growth to 1 ½ % in the near future. He also said that Europe does have some good companies who do business world wide.

Alexander goes on to say that, the US has had the worse recession since WWII. Currently, a lot of people are saying that the recession was over in 2009. However, there is talk of a double dip and there are lots of worries. The US recovery is atypical of past US recoveries. The problem is the recovery is very weak. In the past, a recession was followed by a strong recovery. And this is not happening this time. This is because this recession was not caused by inflation. This recession was caused by a financial crisis.

From history, we know what happens in a financial crisis in an industrial economy. First comes a bad recession, which last typically 7 quarters (the US had one of 6 quarters). There is a decline in GDP averaging 4.8% (US had one of 4.1%). The GDP recovery is usually at 2.8% (US had recovery at 2.8%). It takes a number of quarters for recovery (US took 5 quarters). Over the next 2 quarters, he sees GDP growth of 1 ½% to 2%.

Next, he talked about the possibility of a double dip recession. He does not think that his will happen. He says that the chance of a double dip is 1 in 3 and therefore not the most likely outcome. He also notes that what happened in Japan was not part of a global recession. He sees the problem with the US is that it is impatient. However, you can rush things. The US government is also showing impatience. This is a worry. He does not think that the QE2 (quantitative easing) will do much.

He mentioned that the TD bank has more branches in the US than they do in Canada. He says he sees lots of houses for sale in US and lots of house in foreclosure. There is lots of unemployment (about 9 ½%) and also underemployment (about 16 to 17%). He feels that it will take the US consumer 2 more years to recover. This is why people are worried about a double dip recession. In connection with the debt in US, he feels that it will not be dealt with until the next president. This will keep the US growth rate at 2% for quite sometime into the future. In the US, interest rate will go up, but not until 2012.

For Canada, he says that there was nothing wrong with the Canadian economy before the recession. We have been hit by this recession, but it could have been worse. Usually in recessions, we have longer ones than that occurs in the US. But, this is not what occurred this time. We have done well and we have had a v-shaped recovery. He says that Canadian job creation is not in the places were jobs were lost. We lost jobs in manufacturing and had growth in jobs in the service industry.

He says the economic forecast for Canada is also 2% growth. He acknowledged that this was not fair, as we do not have the problems the US has. However, we have a small open economy and our dollar will be strong. Our housing market has been cooling and it is headed for a soft landing. We have had rising unemployment with a rising market and this is an odd combination, especially since our market was not based on speculation. Our corporate profits are good and our corporate balance sheets are good.

He says that a 2% growth rate is ok, but not great. It also has investment implications. The first thing is that any cash investment will have a negative return after inflation. Return on Canadian government bonds will be 3 ¼% to 3 ½% and this will be a 1% to 1 ½% over inflation. Provincial or municipal bonds will do better. The best bonds will be corporate bonds. For equities, we will get paid in earnings and dividends. Earnings return will be 5 to 6% and dividends will be 2%, for a 7 to 8% return. (I think this is an interesting way of looking equity returns.) Alexander says that he thinks the market will be slightly less volatile than it has been, but it will still be volatile.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Wednesday, October 27, 2010

Ryan Irvine, Toronto Money Show 2010

The next speaker I heard was Ryan Irvine from KeyStone Financial Publishing Corp. Keystone publishes two investment letters, one on Small-Cap stocks at Report and one on Dividend Stocks at Report. Every one else was willing to give at least one stock pick, but they would talk about past picks, but would not say anything about their current stock picks. They want you to buy their investment letters to get this information.

The full title of Irvine’s talk was “How To Beat The Market By Investing In Profitable, High Growth/Low Valuation, Small-Mid Cap Stocks”. He said the sort of companies they recommend is ones that will provide growth at reasonable rates. How they get paid is from clients that buy their investments reports.

For Small-Cap Growth stocks, they have 3 simple rules. The first is to buy great companies, with strong balance sheets and limited debt. What you want to buy is undervalued stocks. You also want to picks stocks that have good growth potential. Irvine says that they are investors not traders. The second rule is to have a realistic Time Horizon. (What they think is a reasonable time horizon is 1 to 3 years.) His third rule is that you want to construct an effective portfolio.

He said what you want to buy is undervalued stock. You want one that has real products and real customers. It may be hard to decide what a stock is really worth, but you need to focus on the fundamentals. You want a profitable company at a discount price. If a company has no earnings and no cash flow, do not buy. Irvine says you should not lose patience with a stock, that you should allow management to perform and the stock to react to growth in earnings and cash flow. A Trader keeps a stock for 1 day to 6 months. An investor waits longer and is patient with a good stock. Even if the stock goes down after you purchase it, if nothing has changed for the stock, you should keep it and wait. If there has been a fundamental change in the stock that would be a reason to sell it.

He says that a good past pick for KeyStone was Bridgewater Systems Corp (TSX-BWC). They picked it, as it was a profitable business. Another of the good past picks was Alliance Gain Traders (TSX-AGT) which was a profitable pick for their clients. However, he feels that this stock is now rated as a Hold. Another good past pick was China Agritech (NASDAQ –CAGC). They have now sold this stock completely.

Irvine says that an effective portfolio has 6 to 12 stocks of growth small-caps. You want to have 5 to 8 sectors represented. You should not have 20 plus small cap stocks in your portfolio. This is too many. You would want to diversify by sectors of oil and gas; tech; manufacturing; gold and precious metals; financial and retail. You would also want to diversify by region and have some Chinese and Indian companies off the US exchanges. You also will want to buy periodically.

He says to be an investor; you want to buy for the long term (that is 1 to 5 years). You also want to buy a business and this is the fundamental style. A speculator invests for 5 minutes to 6 months and buys symbols. A speculator is taking undue risk to try to produce a “blue sky” return.

He mentioned another past pick of Zungui Haixi (TSXV-ZUN). This company makes footwear in China. It has growth and a good valuation. (It is not an exporter. It has increasing revenues and a strong balance sheet. It also has a strong cash flow. They have recently launched new stores that they own (rather than have their footwear in other people’s stores). They have gone with their own stores because it will give them higher margins. They are also increasing their own production (rather than outsourcing some of their production). This company is thought of as a basic goods manufacturer.

Another company he mentioned as a good past pick was Asia Bio-Chem Group (TSX-ABC). This is a company that has moved from the TSX Venture exchange to the TSX. They will sell half their shares when the shares reached $1.75. They like this company because it has rising revenues. The next stock he mentioned was Orvana Minerals (TSX-ORV). This company was started in 2003 and it is a junior gold and copper play in Bolivia. Bolivia is a night mare place to have a mine, but this company has done well. It is now moving into Spain and the US. In Spain, they bought a mine with copper, gold and silver. They first bought this company at $.90 and it is now about $2.45. However, they still feel that this company is a buy.

Some one asked what Irvine thought of San Gold Corporation (TSX-SGR) and he said he did not like is as well as he liked Orvana and the company did not make their cut. He said that small companies go up and down a lot, but if you are patient, you will get long term growth.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Where to Stash Your Cash, Toronto Money Show 2010

The full title was Where to Stash Your Cash in 2011. This was a paid lunch. The lunch was very good and this session certainly worth the $59 I paid to attend. For this session Howard Gold, the Executive Editor of Money Show was the Moderator. The panel was made up of Hank Cunningham, (Author of “In Your Best Interest: The Ultimate Guide to the Canadian Bond Market”); Jim Jubak (Editor and Founder of; Danielle Park (President and Portfolio Manger of Venable Park Investments Counsel Inc.); and John Stephenson (Senior Vice President and Portfolio Manger of First Asset Management Inc and Editor of Money focus).

This was a very interesting session and all came up with investment suggestions. My one remark on this panel is that Danielle Park is one of the most negative persons I heard at this convention. She and Stephenson agued a lot and especially about commodities.

The first thing this panel did was give their top buys for 2011. First, Cunningham, who is a bond analyst gives his list of bonds, which are all corporate bonds. If I am reading his list correctly, he says his first pick is a bond from H&R Real Estate Investment Trust with an interest coupon at 5.9%, maturing on June 30, 2010. These are convertible bonds and they are selling at $104 with a current yield of 5.08%. His next pick is iShares U. S. High Yield Bond Index ETC (TSX-XHY) which is selling at $20.50 with a current yield of 7.31%. His next pick is Brookfield Asset Management Inc bonds with a coupon at 5.29%, maturing on April 25, 2017, selling at $105.79 with a yield of 4.26%. His next pick is Calloway Real Estate Investment Trust bonds with a coupon at 5.37%, maturing on October 12, 2016, selling at $106 and a yield of 4.22%. His last pick is BCE Inc bond with a coupon at 5%, maturing on February 15, 2017, selling at $108.13 and with a yield of 3.55%.

Jubak has all US picks from the NYSE. His picks are Oneok Partners Limited Partnership (NTSE-OKS) with a dividend yield of 5.7%; Penn Virginia Resources Partners L. P (NYSE-PVR) with a dividend yield of 7.26%; Philippine Long Distance Telephone ADR (NYSE-PHI) with a dividend yield of 5.9%; Verizon Communications Inc (NYSE-VZ) with a dividend yield of 5.9% and Westpac Banking ADR (NYSE-WBK) with a dividend yield of 4.8%.

Danielle Park’s pick are a mixture of things. They are Wisdom Tree Dreyfus Chinese Yuan ETF (NYSE-CYB); the US dollar; iShares S&P TSX Golbal Gold Index Fund (TSX-XGD), Currency Shares Euro Trust (NYSE-FXE) and Clyamore 1-5 year Laddered Corporate Bond ETF (TSX-CBO).

John Stephenson’s picks were mostly all stocks. They were Cliffs Natural Resources (NYSE-CLF); Alcoa Inc (NYSE-AA), First Quantum Minerals Ltd (TSX-FM); SPDR Gold Shares (NYSE-GLD) and Goldcorp (TSX-C).

The panel all had opening remarks. Hank thought that the economy is recovering, but the recovery will be erratic. He thinks the best investments will be corporate bonds maturing in 3 to 7 years. Jubak thinks the best stock is Verizon (NYSE-VZ), but US dividend yields are going down. He mentioned that Mexico just sold 100 year bonds with an interest rate of 5.8%. This is a lower yield than their 10 year bonds. He feels people are hungry for yield and are willing to buy 100 year bond to get it. The reason why companies and countries are selling bonds is that they feel interest rates are cheap. Park thinks that we are still in a secular bear market and that secular bear markets are misunderstood. She said that every time we have a secular bear market, people lost half the value of their investments every 4 years. She feels that stocks are currently overpriced. She also said that if we want safety, we should buy bonds.

Stephenson says the world is changing. First, we had the G7, then the G8, then the G20 and now the G2. Stephenson noted that the S&P is down over the past 10 years even though the companies on the S&P earn 40% of their income from the developing world. What we should invest in is emerging markets, dividend paying stock, bonds and commodities. He says why most people lose when investing in commodities is because they use leverage. He says be conservative when investing in commodities and do not use any leverage.

He goes on to explain his picks. First, Cliffs (NYSE-CLF) is into steel and what is driving steel currently is infrastructure. Also, China is poor in the stuff that goes into steel (starting with the ore). He thinks Alcoa (NYSE-AA) is a great buy as it selling below it book value. This stock is cheap and it will perform well going forward. First Quantum (TSX-FA) will do well because the world inventory in copper is low. He thinks that Gold will go higher because of the currency wars. It will also go higher because people believe that gold is a hedge against inflation. He says Goldcorp (TSX-G) is a good investment because it is a senior gold producer and therefore is less risky than companies that explore for gold.

Park says she does not like commodities. Their prices were all down in 2007 and 2008. The demand for commodities from Asia has not occurred. The price of commodities depend on the US$ as they are priced in US$. She therefore sees wild swings in commodity prices. She feels that people should be into risk control and this means that you should not expose yourself too much to one thesis. Park says that gold is only up in US$, and it is not much up in CDN$. This is because the US$ is going down. To have run up in gold prices we need to see both strength in gold prices and strength in the US$.

Jubak says that we are in a period when every one wants yield. What you want to buy is a strong company with a great yield. A company’s yield can be high because people have a negative view of the company, but they are wrong about the company. This is the sort of stock you want. He likes Oneok (NYSE-OKS) because it is into natural gas and natural gas is out of favor. Penn V (NYSE-PVR) is into coal and coal is also out of favor. He thinks that tight coal regulations in the US are not going to happen. He likes PHI (on the NYSE) because, although land lines are dying, this company has a dominant position and can make money. He says his buy on Westpac (NYSE-WBK) is a currency play that will work for Canadians. Wespac is an Australia bank.

Cunningham says that the iShares ETF on US bonds (TSX-XHY) is the only ETF he has ever recommended. He says that companies like Microsoft are issuing bonds because it is a cheap way to get money. They feel that they can make more on this borrowed money than they will have to pay in interest rates. He thinks that the wrong way to invest is into 100 year Mexican bonds. He thinks we should only be buying corporate bonds and only ones with 3 to 7 years to maturity.

Park thinks that the CDN$ should not be at par with the US$. She thinks the hardest thing for Canada is to have a basket case to the south of us. However, this is the only way we currently look good, we do not look good compared to the rest of the world. She thinks that the first half of 2011 will not be very good, but the 2nd half of 2011 will be better. She said that our currency is up against the US$, not against other currencies. However, she feels that we will do well because we have resources and oil. Park thinks that we will muddle our way out of this recession. Apparently, we have already screwed thinks up so well, we can not do worse going forward.

Cunningham was asked about getting information on bonds in Canada. He says there are three public bond sites. This first is Canadian Fixed Income; Canadian Bond Indices and CanPX Corp. This last site is fee based.

Stephenson said that he is bullish on resources, especially oil. We are going further and further afield to find oil. He thinks we have too much natural gas. He thinks that uranium is plentiful and it is starting to be used again. He expects higher prices in uranium. He says we are at a 15 year low in grain stocks, so these prices will go up. He thinks that corn and soybean prices will rise and wheat prices will go down. However, all grain prices will go higher in the future because we will have more people.

The last to speak is Park and she said we are in a secular bear market and prices will go up and down, but we will not get ahead.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Oliver Velez, Toronto Money Show 2010

Oliver Velez works for iFund Traders LLC. Their website is at iFund Traders. It is an interesting company as they offer training for traders and also a deal to trade with their money. However, this talk was all about trading based on a technical analysis technique.

The talk was called “When to Risk it All, Swinging for the Fences in the Right Way”. The main idea is that 85% of the trading done in the US is done by institutions. The institutions are the players that make markets move. As an individual, you can take advantage of the trading by these institutions. First, he said that markets are made up of a bunch of buys and a bunch of sells. For each transaction, you need a buyer and a seller.

What a trader needs to do is jump on the trades of institutions, which is the big money of the markets. All the institutions trading leave a footprint in the market for us to use. For example, if 92% of a stock’s traders are 10 institutions, and 5 are buyers and 5 are sellers, the stock will go no where. However, if one of the 5 buyers becomes a seller, then the stock price will drop. This sort of action will leave a footprint in the market and this is how we find opportunities in the market.

What we look for as traders is transitions from fear to greed and from greed to fear. Velez says that the market does not treat cowards well. There are times to be conservative and there are times not to be conservative. There are 6 types of candles that he talks about. However, the 3 most potent bull candles are bull elephant and bull tails, and the 3 most potent bear candles are bear elephant and bear tails. See the picture below.

The bull and bear elephant candles are surge bars, to either the upside or the downside. A bull serge is when you first have a bear elephant with very small or none existent tails. This means that the stock price opened at the top of the candle and closed at the bottom. The next candle you get is a bull elephant that is bigger than the bear elephant. He calls this formation bull twin towers. This candle formation is a buy signal. What you should do is buy the stock as soon as the green candle is higher than the red candle. One point he also made is that the red candle low is seldom broken. See the picture below.

Velez also believes in using stops and you should put your stop under the bull twin towers. He says this twin tower signal is a set-up to produce a long run on a stock. That is why you would risk all your money on this signal. The other point he made is that if you get a bear tail candle after this twin tower, you should buy more.

He goes on to say there is a bear twin tower formation. This time you get a bull elephant candle followed by a bear elephant candle. This is a big sell signal and you sell when the bear elephant candle goes below the bull elephant candle. The top of the bull and bear elephant candles is the stock top prices for a long time.

Velez ends with saying that bull and bear elephant towers mark strong stock tops and bottoms. He gets people to trade and to trade all they have on bull elephant towers.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Tuesday, October 26, 2010

Gordon Pape2, Toronto Money Show 2010

I listen to Gordon Page a second time when he gave a talk called “The Canada Report – High-Yield Opportunities in 2011”. The first thing Gordon Pape mentioned was that most Income Trusts have converted to corporations, or will do so soon. There will only be a few partnerships and Income Trust left after January 2011. Some of the former Income Trusts have been able to maintain their distributions at current level after their change to corporation. Since the distributions from former Income Trusts are now dividends, there are advantages to those companies being in non-registered accounts.

He then talked about survivor trusts that successfully change to corporation. There are all companies that he had recommended in the past. The first one he talked about was Atlantic Power (TSX-ATP), although he said it was not longer a buy as it was over priced. The next one he talked about was Crescent Point Energy (TSX-CPG), a conventional oil and gas company.

The next one he mentioned was Colabor Group Inc. (TSX-GCL). He said of this company that it was again a buy because of a weak 2nd quarter that has caused the price to pull back. This is a food distribution company and we should never sell a company based on one quarters result. The problem was that this company lost a good customer. However, it is still a solid company.

What Pape thinks we should be looking at for investments in 2011 is things like the remaining Income Trusts, REITS, dividend paying stock (of stable companies and banks which will soon rise their dividends), preferred shares, corporate bonds, ETFs and Mutual Funds. For Mutual Funds that have payouts, the important thing to look at is a NAV (net asset value). If the NAV is not going up, it could be that the fund is paying out too much and these funds should be avoided.

He said what we should concentrate on is dividend paying stock. We should look for companies that have a strong financial position and solid underlying assets. You want the company to emphasis shareholders’ interests and a responsible payout ratio. You would also want to pick a company that has a clear and transparent action plan and a stated distribution or dividend target.

He also mentioned what would be danger signs in dividend paying companies. The first is an unusually high yield, as the yield may not be unsustainable. Another is unrealistic payout ratios. Over the short term a company can maintain unrealistic payouts (that is over 95% of earnings or free cash flow), but they cannot do this over the long term. Some ex-Income Trusts can maintain their dividends because of tax pools, but if a company is depending on this, be sure that the tax pools are not to rapidly declining. What you need to know is how long a company’s tax pool will last. The tax pools will offset future taxable income taxes.

One company that he thinks is good is Yellow Pages Income Fund (TSX-YLO.UN). He feels that this company is undervalued and there are big barriers to others trying to enter the same business that Yellow Pages is in. He said that this company has plans to decrease their dividends (distributions) when they become a corporation in January 2011.

Another thing to be cautious about is when a company makes fundamental changes to its business plan. One example of this is Penn West Energy Trust (TSX-PWT.UN). This company will get back to its roots of oil exploration. Currently the company is one of largest conventional oil and natural gas producers. I have this stock and I will be selling because of this.

A company Pape feels is good value at the present time is Fort Chicago Energy Partners (TSX-PCE.UN). The company has a high risk level, but Pape feels it is also a good buy. It currently is a limited partnership, but it will be converting to a corporation. It has a well diversified and staple business. It has a consistent record of raising its distributions. It will keep its level of distributions on conversion to a corporation. The main risk is natural gas. The price of natural gas is a risk. This company has a currency risk and also an interest risk (because their debt level is high). Their distributions depend on the oil and gas environment. Pape does not think the distributions are at risk, but they could be. What he thinks will happen is that the stock price will go up and the yield will go down to 6 or 7% from the current one that is over 8%.

Another company that Pape recommended as a buy was Brookfield Infrastructure LP (TSX-BIP). He said this company has a moderate risk level. The distributions are paid in US$, so they can fluctuate. This company is a spin off of Brookfield. Since it is based in the Caribbean, the current changes in Canadian Tax law do not affect it. Pape say this is a stable and profitable business. It had a small increase in distributions this year and the payout rate is 61%. The management says they will increase the distributions at the rate of 3% to 7% per year. The risk level for this company is moderate. It runs regulated business in stable countries such as North and South America, Australasia, and Europe.

The next company he recommended was Arc Energy Trust (TSX-AET.UN). He says it has a high risk level. This company is in the oil and gas business and it is the oldest of the Canadian Income Trusts. The company is diversified into oil and gas. It has some 14.5 years of oil and gas reserves. They are getting Natural Gas from BC, but the area they are in has a big field and it is cheap. They have not stated that they will maintain their dividends on conversion to a corporation, but it is likely they will. There is a currency risk with this company.

The next company he recommended was a REIT. It is Crombie REIT (TSX-CRR.UN). Pape considers this company to be a moderate risk. The current yield is 7%. He feels it has done well and will continue to do so. Most of this company’s assets are in the Maritimes. Sobeys is their largest tenant and this tenant pays about one-third of the rent Crombie collects. Sobeys is a solid and stable company. Pape considers this stock to be a defensive stock.

The next company that Pape talked about was Medical Facilities Corp (TSX-DR.UN). This company’s units are called an Income Participation Units. (Income participation units out are a combination of a share of stock coupled with a bond. These corporations are not covered by the new Canadian Tax Laws on Income Trusts. He thinks this company is a buy also. All the company’s assets are in the US, but this company is based in B. C. Because of this, you will get a tax break on the dividend portion of its payout. The Payout is two-thirds interest and one-third dividend. The company has some problems with the management about getting its act together, but it should be profitable and no one disputes that it can maintain its distribution. He feels the risk level for this company is high because of management.

The next company Pape talked about was Inter Pipeline Fund (TSX-IPL.UN). He rates this company a buy. It has a current yield of 6.6% and is of a moderate risk level. The company will maintain its distribution into 2011 and beyond. Pape expects that the sock price will move up and the stock yield will move down.

The next stock he talked about was Keyera Facilities Income Fund (TSX-KEY.UN). The current yield on this stock is 5.8% and the risk level is high. This company has made a lot of money for shareholders. Its business is to provide services for Natural Gas producers. Because of this, the company’s earnings do not depend on the price of Natural Ga. Also, the company has said that it will continue to increase its dividend after it converts to a corporation. He also considers this company to be a buy currently.

Pape was asked about other companies. The first was Northland Power Income Fund (TSX-NPI.UN). He said he had looked at it but he would not recommend it yet. He is worried about their lack of diversification, as they seem to be only into wind power. Next, he was asked about Liquor Stores Income Fund (TSX-LIQ.UN). He says that this company will cut its dividend as a corporation, but that it should be a good long term buy.

Next, he was asked about Crescent Point Energy (TSX-CPG) and he said it was still a buy at $37 or $38. When asked about Pembina Pipeline Corp (TSX-PPL) he said it was still a buy and he liked it a lot. This company just recently changed from an Income Trust (TSX-PIF.UN) to a corporation and got a new symbol. The last company he was asked about was Daylight Energy Ltd (TSX-DAY). He says that this company has just cut its dividend. He feels it has a chance to be one of the top oil and gas producers and he likes the company. He said that when companies were income trust, you needed to look at payouts from cash flow. Now that companies have converted to corporations, you must look at payouts, not only from cash flow, but also from earnings.

He says if you go on his site of Building Wealth you can get 3 months of his advice newsletter (6 issues) for $20 plus tax.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

David Rosenberg, Toronto Money Show 2010

David Rosenberg is the Chief Economist and Strategist at Gluskin Sheff and Associates, Inc. His talk was on “Deleveraging, Demographics and Deflation”. He said he has a reputation as a permanent bear, but this is not true. He went on to give Bob Farrell's 10 Rules for Investing. For this list and some commentary, see Bob Farrell.

Bob Farrell’s list include such things as “Markets tend to return to the mean over time”; “Excesses in one direction will lead to an opposite excess in the other direction”; “There are no new eras -- excesses are never permanent” and “Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways”. He said we had a secular bull market from 1982 to 2000 and we are now in a secular bear that will last for 20 years. Our market will do nothing, but there will be lots of volatility. (And he says he is not a permanent bear! – this is the most pessimistic opinion that I heard.)

He recommended some books, which were Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger; The Great Depression: A Diary by Benjamin Roth and The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession by Richard Koo.

Rosenberg goes on to say the difference between a recession and a depression. In a recession, the government supports the economy and in a depression, the government sustains the economy. Apparently, 1 in 7 of US homeowners are in default or behind on payments on their mortgage. The problem is that not only is the US consumer 70% of the US GDP, they are also 70% of the World GDP.

He thinks we are in a period of deleveraging and that this will last for 6 or 7 more years. Rosenberg said that if you look at historical data, deleveraging lasts on average 6 or 7 years. Going forward, we will have no inflation, but there will be high unemployment. The QE2 (quantitative easing, second round – or printing of money) will ensure interest rates are low. He says that interest rates have cycles of 26 to 32 years.

The last thing Rosenberg said is that we are in a deflationary cycle. In such cycles, we must squeeze out as much income as is possible. At such a time, income is king.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Gordon Pape, Toronto Money Show 2010

Gordon Pape is the Editor and Publisher of The Canada Report. He had a speech called “2011 and Beyond – The Outlook for the Canadian Markets”. Gordon Pape thinks that there will be lots of uncertainty. We had a fast rebound and then the economy decelerated. We have the worse budget deficit in our history. He thinks that the loonie will rise strongly, but gold will be even stronger. He thinks that the TSX will outperform the S&P500 again and that the Trust wind down will be profitable.

The Canadian advantages he talked about were our strong currency and the world’s strongest banking system. We also have relative fiscal strength and resource wealth. We also have a stock market that is holding its own in a tough market. Our disadvantages would be the strong loonie, our trade deficit and our heavy dependence on resources. We also have a stock market concentrated in banking and resources.

We may have to contend with a weak US economy and the loonie at a premium, but inflation will be low and interest rates will be stable. He expects that the TSX gains will be in the low double digits in 2011. He expects that gold will go above $1,500 an ounce. Pape thinks our banks are going to raise their dividends in 2011 and their stock prices will then go up. Our Income Trusts will become corporations, their stock prices will go up, and their dividends (or distributions) will go down. There will be a growing demand for high yield securities. He thinks that our resource stock will do well, but that the rising loonie will be bad for non-resource exporters.

Pape expects that the TSX outlook is better than the US and European markets. He feels we should add some US stocks to our portfolios, but we should avoid US government bonds. He thinks that emerging markets will be attractive, but very volatile.

He recommended some stock for 2011. The first one was Agnico-Eagle Mines (TSX-AEM) because they operate in stable countries and have good reserves. The next one he recommended was Teck Resources (TSX-TCK.B) because it is highly diversity and they just recently updated their senior debt. The last one he recommended was Manulife Financial (TSX-MFC). He said it is a moderate risk with good long-term capital gain potential. It is a good solid company that is trading below its book value. He expects this company to double within the next 12 months.

Gordon Page mentioned he had a web site called Building Wealth.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

John Stephenson, Toronto Money Show 2010

John Stephenson is Senior Vice President and Portfolio Manager of First Asset Investment Management, Inc. He is also the author of “Shell Shocked; How Canadians Can Invest After the Crash” and “The Little Book of Commodities Investment”. What he has to say is that Europe has done what the US has done. They have thrown everything at the banks to get the economies going. However, he feels that we are 6 ½ years away for stock market recovery and 8 ½ years away from a Real Estate recovery.

He was down in the US recently and he noticed that New York was still zippy, but Miami, in a tourist state was very sad. Stephenson thinks that there is structural unemployment in the US. Some of the jobs that went with this recession are not coming back. In the sunny part of Europe, Spain, Greece and Italy, they have real estate problems and a bad economy.

However, resource prices are going up (coffee, oil, zinc, copper, etc). This is because there is a shift to the east going on. China is driving commodity demand. The thing is so many people in China are entering the middle class (and middle class income in China is about $4,000 a year). In the 1950’s some 60 to 65 million westerns entered the middle class. For China, it is going to be a few 100 million going into the middle class. Commodities go through 20 year cycles of doing very well, with stocks being quite weak. The problem is that manufacturing companies cannot raise their prices with rising commodities prices.

Commodities will rise for 7 or 8 more years and it is still a great time to buy them. Some hot commodities are in food, like coffee, wheat, pork bellies and corn. There are 3 drives for these commodities. First, is a growing population; second, is changes in diet (as people move to the middle classes); and the last, is weather. Currently gain stocks are at there lowest in 15 years. China still has small farms, but these will go big and they will mechanize. This will be good for John Deere Company and all farm equipment manufacturers.

He also feels gold will be going up. Banks are opening up gold vaults for people to store their gold. Toronto has opened one under the Scotia Towers.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Monday, October 25, 2010

Robert Gorman, Toronto Money Show 2010

The next speaker was Robert Gorman. He is the chief portfolio strategist of TD Waterhouse, Canada. He talked about where he thought the markets were going. He feels that the US stock market will be up 8 to 9% in 2010 and 2011. Does he think that there will be a double dip recession? He basically feels that there will not be but there was a 25% probably chance of it happening. The savings rate in the US has moved from 0% to 6% and this will not cause a recession.

Governments fear deflation because of what happen in the 1930’s recession, but he does not feel we will go there. Instead, he thinks we will have modest inflation. The price of commodities is rising. What the financial market is telling us currently is that inflation will be in the 1 ½% to 2% range and that there will be no deflation.

In the US, lots of labor is available and the price of labor has been going down. Housing prices are down, but both labor and housing will start to climb again. The US housing inventor used to be 4 months worth of houses, but it is now at 9 months worth. Usually, they build 1.2M houses in the US, but there will only be 6M to 8M built this year. The positive thing is that US 30 year mortgages are at 4% so houses are affordable. The other thing is that the cost of owning or renting a house is the same. At the top of the housing market, to own a house cost about 80% more than renting a house.

Commercial real estate in the US has fallen about 41%. A positive thing is that commercial real estate prices are down (and our Brookfield is buying). A negative thing is that mortgages are higher than the property prices and this will cause problems.

He feels that the next century will not be a lost one for the US. They have cut their interest rates and these have stayed low, which is also, what Japan did. However, took Japan a full decade to reorganize their banks, and the US probably will not. The US has injected lots of money into their banks. The third comparison with Japan is with P/E ratio of the stock market. Japan’s P/E was about 100 at its peak and it is still high. The P/E ratios in the US never got there and now they are ok. The last thing he mentioned is that the population in Japan is declining while the population in the US is growing.

He thinks that the US will have a period of moderate growth and low inflation. He also said that it is better to have moderate growth for equities. If growth is too rapid, it causes inflation and this is not as good a climate for equities. Also, when you compare the P/E ratio in the US to a 10 year treasury bond, the P/E ratio looks good. The 10 year treasury has a return of 2% and the current earnings yield which is at 6%. For stocks, the earnings yield is E/P, the opposite of P/E ratio.

Another thing he points out is that corporations in the US have strong balance sheets. The monetary climate is positive with very low interest rates. In the Presidential 4 year cycle, the first 2 years have average returns around 8%, but years 3 and 4 have average returns around 22%. We will shortly be in the 3rd year of a presidential cycle. He expects the Republicans to be winners in the current mid-term elections. 90% of the time in the mid-term elections, the party in the White House loses.

He expects that 2011 will see US stock market gains in the low double digits. There has recently been strong dividend growth and this point to strong earnings and free cash flow. He expects US Tech stocks to recover well. His expectation for the Canadian stock market is gains in the high single digits. What is unusual now is that bond interest is lower than dividend yields and this is unusual. Dividends are currently rising, and this will provide a floor for stock prices.

The Canadian stocks he currently likes are Shaw Communications (TSX-SJR.B), TransCanada Corp (TSX-TRP), Bank of Nova Scotia (TSX-BNS), Power Corp (TSX-POW), and Royal Bank (TSX-RY). For 2011, he also thinks that energy stocks like Suncor Energy (TSX-SU) will do well. He also thinks that even though natural gas is not liked, it will also do well. In Canadian fixed income bonds, yields will be lower in 2011, so corporation bonds will be better to buy.

Outside Canada, he thinks that Europe, especially Northern Europe will do well and also will Japan. Of European stocks, he thinks that British Petroleum will go up. For emerging markets, he still likes China. There are concerns about a real estate bubble, but currently prices are holding and he thinks this market will be fine. However, he expects strikes, higher wages, and a higher P/E ratios for China. He thinks the Chinese stock market gains in 2011 will be in the low double digits.

He thinks we are in a 4 year recovery period. This started in 2009 and the recovery continues in 2010 to 2012. He sees nothing currently to change is mind on this.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Howard Gold, Toronto Money Show 2010

Howard Gold, the executive editor of the Money Show was the next speaker. What he talked about was the winners and losers of the recent financial crisis. He felt our current crisis ended one and one half years ago, but that we are still felling the aftershocks of it and we will continue to feels aftershocks for a while. Because of this crisis, some countries will thrive and some will sink. Winners had low leverage and sound banking systems. The winners tended to be in Asia and South America.

He said that the biggest winner was Singapore, which is expected to grow 15% this year. In #2 spot was Malaysia and Indonesia, which were hit hard, but made a strong recovery. In #3 spot was Latin America’s Columbia, Chili and Peru. In the #4 spot was the Nordic countries of Scandinavia, which are not so socialist anymore. These countries are Sweden, Denmark and Norway. In #5 spot is Canada and Australia. What they have in common is a huge area and small populations. They also are rich in natural resources and had solid, risk-adverse banks.

He went on to talk about the losers. In #1 spot was Iceland that is tiny, but had banks with very big plans. The next loser, in #2 spot was Ireland, which went from a Celtic Tiger to a pussycat. In #3 spot for losers was Greece and #4 was Club Med of Spain, Portugal and Italy. The #5 spot was held by Austria and Hungary.

The main point is that winners had strong banks and losers had weak banks and massive debt. The lessons from this crisis seemed to be that you should get over a crisis early so you fix your system before others so. Other lessons were that leverage kills and no one is immune. The last point is that it is a good thing to have China as a partner and then pray that China’s real estate bubble does not pop.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Charles Githler, Toronto Money Show 2010

Charles Githler, Chairman and co-founder of Money Show was the next speaker I heard. He feels that stagflation can and will happen again. He thinks we will go from current deflation to inflation. The last time we had stagflation it was caused by US spending on “guns and butter”. This is reference to Vietnam War spending and big social spending in US. He thinks that the first round of quantitative easing (QE1) and the coming up second round of quantitative easing (QE2) will cause the next round of stagflation. In the 1970’s, the US went from .3% inflation to 7% inflation in one month. He did not think history repeats itself, but it rhymes.

Githler thinks that the current bond fund bubble will be killed by rising interest rates. Low interest rates will stop. However, he thinks that this time the US will be importing inflation from the developing markets. When interest rates rise, lots of people will be forced to sell bonds. This will make bonds illiquid, with everyone trying to sell bonds and no one wanting to buy them. This time, he does not think that inflation will go hyper, that that it will go to about 4%. The cheap labor of the developing countries will help to keep prices down.

Githler feels we are entering a period of global reflation. What we should be buying are companies like Brookfield Asset Management (TSX-BAM.A). Another good investment would be in resources, such as oil. Charley Maxwell, Senior Energy Analyst, Weeden & Co, says that we will have high peak oil in 2015 to 2019 time frame. So we should be buying Cenovus (TSX-CVE) or Suncor (TSX-SU). Canadian Oil is a great investment because Canada is such a stable country. Another great investment would be in Tech stocks.

The last thing he talked about was that it was important as investors, to limit our losses. He pointed out that if we lose 8% on our portfolio, we need only a 9% gain to get back to where we started. However, if we lose 15%, we need an 18% gain, if we lose 25%, we need a 33% gain, if we lose 35% we need a 54% gain and if we lose 45%, we need an 82% gain just to get even.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Donald Vialoux, Toronto Money Show 2010

Donald Vialoux, a technical analyst was the next speaker. The information given on his talk was “Timing the Market Using a Combination of Technical, Fundamental and Seasonal Analysis”. He has the site timingthemarket and he also writes for the National Post. Another site he recommended was equityclock.

He talked about the equity market moving in 16 years cycle and that the current cycle, of a secular bear market, will last about 6 more years, to 2016. He says we should expect volatility and basically no returns over the period. He says he uses technical analysis to determine when to buy or sell. He then uses fundamental analysis to determine what to buy or sell.

In talking about seasonality, he said the optimal time to be in the US market is from October 28th to May 5th of each year. He also recommended that we read Thackray’s book called “2011 Investors Guide”. He said that the Canadian market has the same days as the US market. However, what he is giving is average optimal dates and these average dates can change up to 3 weeks either way. He thinks that the buy indicators for this year have not yet occurred, but they will within the next month. He also said that the gains in September had wholly to do with the US$ only. He thinks the US market and the commodities market will come under pressure over the next month.

For Banks, he said that the best times to hold them are from October to December each year and from February to May each year. The time has all to do with Bank reporting dates. The first one from October to December is to do with their annual statement reporting time. What we should expect is dividend increase from the banks soon. There will also be good new when the banks start to report in October. There will be buying opportunities before the end of this year.

The Shanghai seasonality is the same as the US S&P500 exchange. This is because it is affected by the US market. China is also affected by their October holiday. They have 4 days when the market is shut and after that, they like to buy. As the China market goes, so does commodities.

The Tech market is from October to January. People buy Tech for Christmas and then the Tech companies report for the year in the 2nd or 3rd week of January. The Las Vegas Tech show happens in the first part of May each year and it is after this when people sell Tech stocks. Tech stocks are currently overbought and this will change soon to be oversold.

In the US, foreclosures are not happening, as there are problems with the foreclosures in the US. What will happen is that people will buy new houses and not buy foreclosed houses. This is good for the lumber industry. Also, China will need lumber because they are building wood houses.

The last thing that Vialoux mentioned was the mid-term elections in the US. He said that the last quarter of the mid-term election year (2010) and the first two quarters of the next year (2011) are the best times for markets.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Opportunities in Natural Resources, Toronto Money Show 2010

Opportunities in Natural Resources forum was next place I went. There, the main thing that was said was that we are in the early to mid part of this current resource cycle. For this current cycle, we have 8 to 10 years left. So over the next 8 to 10 years, resources will do better than other assets.

The other interesting thing that was said is that gold stocks have not gone up in price the same way good has. It was felt that this is because the stock market prices the future, and not the past.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Thomas Caldwell, Toronto Money Show 2010

Thomas Caldwell of Caldwell Securities Ltd is the first speaker I listen to. What he said is that individual behavior is responsible for gains and losses in the market. It is your interpretation (of what is going on) and your actions that cause these gains and losses. We cannot trade emotionally because emotional people want to buy high and sell low. You can blame others, or you can learn from your mistakes. What you need to do is think long term. Over the long term, markets go up. Over the short, no one knows what is going to happen. You need to rise above the negativity in the market. It is in periods of difficulties and confusion in the market when you can make money. It is at these times that you can find bargains in the market.

In bull markets, people ignore bad news and in bear markets, people ignore good news. You should not sacrifice quality for returns. You should not borrow to buy in the market. In investing, time is your friend. Also, you should not be making decisions on your own. You would be too much influenced by the media and your environment. It is better to work in a team.

What you want to do is control your emotions and look beyond the current negativity of the market. What he suggests is bonds and big cap stocks. Usually big caps come around fine after market problems. The problem with small caps is that their results depend too much on their managers and the managers’ personalities. He feels that in periods of adversity, you should only buy big caps.

He pointed out that over the past 45 years, anyone who bet on deflation lost. Democratic governments print money to avoid deflation. Deflation is not baked in the economy, but inflation is.

Caldwell pointed out that now is the time with lots of confusion. The US has done a lot of really stupid things. They repealed the Glass-Steagall Act. This act had kept US banks safe. This is one reason why US got this recession. The other thing that they got rid of is the uptick rule. This is the rule that there must be an uptick in a stock’s price before you can short sell. Getting rid of this rule destroyed some companies.

He feels that there is lots of cash on the sidelines now. He also feels that there is a lot of negative emotion in US. There has been a huge shift in the world’s economy. Caldwell feels that the US has too many rules. However, he advises not to short change the US. He feels that they will eventually get it right, and then he quoted Winston Churchill, who famously said, “You can always trust the Americans to do the right thing; after having exhausted all other possibilities”.

He sees no possibility that Canadian Banks will cut dividends. At the depths of the cyclical bear in March 2009, BMO had a dividend yield of 11%, which was the best ever. He feels that all our difficulties will be resolved. Dividend paying stocks, especially banks, are great investments. These stocks will be giving us money while we wait for better times. He feels that the key factor in this market is dividends.

He noted that the supply of bonds has increased massively, but the price of bonds has not gone down. This is because people have been eager to buy all these issues of bonds. He thinks that a lot of corporations have lots of cash. Individuals are busy paying down their debt. He thinks that soon people will get more confidence and stat of spend their money. He thinks the current market in Canada is very good and that inflation will come back.

He thinks we should own Canadian Banks and that they will soon start increasing their dividends. He thinks we should all own some gold and tech stocks (especially US Tech stocks). He feels that Suncor Energy (TSX-SU) is a good stock to won. He says a good Canadian Portfolio would be 45% financial stocks, 15-20% in energy, 15-20 in Materials and some US stocks. He thinks the best US stocks to buy are banks and those in the health care industry.

He thinks that we should be worried about Income Trust companies, or ex-Income Trust Companies as there will probably be some dividend cuts. Most income trusts are paying too much of their income and free cash flow in dividends. What he feels is too much is 75% or more of earnings or free cash flow. He thinks that these companies will have either to grow (to afford their dividends) or cut their dividends.

His final remark was that the best investments in developing countries would be in India.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Overview, Toronto Money Show 2010

The thing I noticed from speakers is that they assumed that we are in a secular bear market, of course, all these speakers where American. One thing I know is that Canada does not follow the US exactly. With recessions, sometimes we get hit worse and sometimes it is not as bad. This is one time that it is not as bad here. Our market is doing better than theirs is. We may also be in a secular bear, but the play out is not the same as in the US, and I think we will recover sooner. Not only did we not have a banking crisis, we have resources.

A negative note is that the Canadian economist from TD bank thinks the US going forward will have a GDP growth of just 2%. He also thinks, for different reason, we will only have a growth in GDP of 2%. However, most people think that slow growth with low inflation is better for equity markets than rapid growth that can cause high inflation. Another positive note is that Ron Meisers, a noted Canadian technical analyst thinks that the secular market is over and has been over since the stock markets low in March 2009. He thinks the cyclical bull market that started in March 2009 is the first leg of a new secular bull market.

However, Donald Vialoux said that equity markets move in 16 year cycles, (16 years of a secular bull market, followed by 16 years of a secular bear market). From 1983 to 1999, we had a secular bull market and from 2000 to 2016, we will have a secular bear market. He thinks that between now and 2016 there will be lots of volatility, but a continuation of no returns.

A couple of things I like to point out. One is that in 2008, Ron Meisers said in a 40 year cycle address, that the last one started in 1974 and will end in 2014. The other thing is that lots of economists talk about a 60 year cycle. Last year, the ones talking about this cycle ending in 2016, said that the cycles were around 16 years, some where longer and some shorter. The economists that talk about the 60 year cycle also say that it around 60 years, but could more or less than 60 years. It will be interesting to see how this all works out.

I will be posting separate blog entries for all the speakers and sessions I attended.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Tuesday, October 19, 2010

Leon's Furniture Ltd

I want to talk about this company (TSX-LNF) today, as I just bought some more shares. I have been inching my way into this company having bought some shares in 2006, 2008, 2009 and just recently. To date on this stock, I have made a return of 9% per year. The dividend portion of this return is about 3.5% to 4%. One of the things this company does is pay a special dividend at year end if it can afford to do so. For example, in 2006 the special dividend was $.13 a share, in 2007 there was no special dividend, in 2008, the special dividend was $.10 a share, and in 2009, the special dividend was $.20 a share.

A number of people have been talking about this stock recently, although it is mentioned more in investment letters than my analysts. Why should you buy this stock? It is basically the school of Mike Higg’s who ran a successful site for quite a few years saying that when the yield is better than average or long term highs, you should buy a stock. The yield on this stock is 2.7%. This is not the absolute best it has been, which in 2009 was at 3.5%, but it is better than the 5 year average of 2.4% and the 10 year average high of 2.5%.

The other thing that has been reported on this stock is that the recent increase in dividend was almost 30%. I must admit that on other scores, the current price is not showing as a great one. The median P/E low is 12.2 and the median P/E high is 16.3, so the current P/E of 15.1 is not particularly low. Sites that use last 12 months earnings get an even higher P/E of 16.1. The Price/Book Value Ratio at 2.47 is higher than the 10 year average of 1.33. The Graham Price of $10.56 is also 30% higher than the current price of $13.60.

One thing a lot of investment letters and analysts mention is that fact that this company has a very strong balance sheet. That is, it has little debt compared to its assets. The Liquidity Ratio is 2.57 with a 5 year average of 2.00. The liquidity ratio is using current assets and current liabilities. The Asset/Liability ratio is 3.68 with a 5 year average of 3.16. The other thing to mention is that earnings estimates have been moving up. When I looked this stock in April 2010, I got 2010 and 2011 earning estimates of $.84 and $.89. The current estimates for 2010 and 2011 are $.90 and $.96.

The last thing to mention is that when I bought some more shares, there were a lot for sale in the range of over $500,000. I noticed that the CFO has been selling some shares. Leon’s is also buying up shares for cancellation. According to the Insider Trading report, there is a bit of Insider Buying and a bit of Insider selling, but nothing substantial.

As far as analysts recommendations are concerned, I can only find one and the recommendation is a Strong Buy. (See my site for information on analyst ratings.) There is a Wikipedia entry for this company at Leon’s.

This is considered a dividend paying growth stock, and their growth figures are in the decent category, being neither high nor low. You would buy this stock for long term gains and rising dividends.

This company sells home furnishings, appliances and electronics through a chain of retail facilities and franchises located in Canada. Leon family owns 68% of this company. Its web site is here Leon’s. See my spreadsheet at lnf.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Monday, October 18, 2010

EnCana Corp 2

I have never considered resource companies to be long term holds. I held this company’s stock (TSX-ECA) twice. When I was holding it the second time I decided to sell in 2009 because the stock was going to split into 2 stocks. I did not have much invested and I would have ended up with even smaller investments in two separate companies. Today I will deal with EnCana and later I will deal with the piece that split off called Cenovus.

When I looked at the Insider Trading reporting, I find that there is Insider Buying of $1.8M. There is also a very little bit of Insider Selling. This insider buying is nice, but it is still a very small amount considering that this is a $22B company. Most of the buying is by directors and a bit is by some officers. This company has also been buying back shares for cancellation. Personally, I would prefer companies use excess cash to pay special dividends, but I doubt if most companies are going to do that anytime soon. Buying back shares for cancellation is still something that companies are pursuing, as it is still rather an “in” thing to do.

When I look at spreadsheet, I get a 5 year median P/E low of 7.3 and a 5 year median P/E high of 13.4. I get a current P/E of 25 and a trailing P/E of 12. The sites that use the last 12 months earnings to get a current P/E get one of 13. The problem is that the company is not expected to earn much this year. When I looked for earnings estimates for 2010, I get one of only $1.22US compared to earnings of $2.48US last year. The last 12 months earnings are at about $2.31. The estimate earnings range is quite broad at from about $.83US to $1.83US. None of the estimates for 2010 is close to last years earnings. On a relative basis, the current P/E is high and therefore points to the stock price being high.

When you look at the dividend yield, you get a better story. The current yield is 2.6% and the 5 year average is lower at 1.7%. The higher current yield points to a good current stock price. Although the increases in the dividends over the past 5 and 10 years are very high, do not forget this is a gas company and the dividends will fluctuate with the price of gas. The dividends on this stock recently peaked in 2008 and have been coming down since.

The dividends have been increased by 28% and 45% per year over the past 5 and 10 years respectively. We are supposed to be in a long term resource bull market, especially because of China and India. If dividends on average increase by 12% a year, and inflation is at 2% (lower than average), you will be earning on a current stock purchase 4% dividend yield in 5 years time and almost 8% in 10 years time. This is just another way of looking at the benefits of stocks with increasing dividends.

The Price/Book Value Ratio average for the last 10 years is 1.76 and the current P/B is 1.33. Since the current ratio is just 75% of the 10 year average, this ratio is showing that the current stock price is a good one. The Graham Price is based on a formula that takes into consideration the book value and the earnings. Using the estimate earnings for 2010, and a current book value, I get a Graham price of $25.29. The Graham price for 2009 was higher at $36.89. The current Graham Price is the lowest it has been for the last 4 years and this is because of the low earnings estimate for this year. What you want is a stock at or below the Graham Price and by this measure we are not getting that.

So, what do the analysts say? What I find is lots of Strong Buy, Buy and Hold recommendations. I can find no others. The consensus would be a Buy recommendation. (See my site for information on analyst ratings.) There are analysts that like gas as an investment and others that think that it will not do well for a while. The difference between the recommendations, as usual seems to be what price the analysts expects this stock price to be in 12 months time. The Strong Buy position feels that this stock is a good buy up to $35 a share. There are others who feel that it cannot be higher than $32 within 12 months.

I am not in the market for any resource stock at the moment, but I do like to track these stocks to see how they are doing. After all, resource stocks are a big part of the Canadian stock market.

EnCana is among the largest natural gas companies in North America. They are focused on natural gas exploration and the development of resource plays. They have a diversified portfolio of assets and hold a highly competitive land and resource position in a number of North America's most promising shale and tight gas resource plays. Alberta Energy Company Ltd. (AEC) and PanCanadian Energy Corporation (PanCanadian) companies merged to form EnCana. EnCana split into EnCana and Cenovus. Its web site is here EnCana. See my spreadsheet at eca.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

Saturday, October 16, 2010

World Money Show at Toronto

I will be attending the World Money Show in Toronto this coming week. It is on Wednesday, October 20th to Friday, October 22. There has been money or investment shows in Toronto for sometime and I have been attending them for years. I try to take some time out of my busy schedule to listen to what others have to say about handling money and investments.

As I did last year, I will be reporting on my blog what interesting things I have heard. There is always something interesting and they generally have a theme or something most speakers are talk about.

However, I will probably not be able to blog about the show until it is over. So, I will probably start blogging about this show starting on October 25th.

In the meantime, did you know that Larry MacDonald of Canadian Business Online provides a weekly roundup of interesting blogs? See Blog Round Up.

Friday, October 15, 2010

EnCana Corp

First of all, I noted with glee a second day of down markets. Will we get a fall buying period this year. I certainly hope so. However, in retrospect, I think that I missed the boat in July. I did not buy much then and now it seems that it might have been the best buying time for this time of the year.

I have never considered resource companies to be long term holds. I held this company’s stock (TSX-ECA) twice. The first time was from April 2000 to August 2002 and then from February 2006 to November 2009. The first time I held it, I made a return of 18% per year. The second time, I made 9.5% per year. I sold in 2009 because the stock was going to split into 2 stocks. I did not have much invested and I would have ended up with even smaller investments in two separate companies. Today I will deal with EnCana and after that the piece that split off of Cenovus.

First, I should note that this company reports in US$. For all Canadian companies reporting in US$, they have better results in US$ than in CDN$. This is because the CDN currency has risen against the US currency. Except for a short time in late 2008 and early 2009, the CDN dollar has been rising against the US dollar over the past 10 years. The other thing is that the oil side of this business has been split off into a separate company, Cenovus, and I have adjusted the historical data accordingly.

If you look at dividends, they will fluctuate more in CDN$ and in US$ as the dividends are paid in US$. The other thing to note is that dividends in the last 10 years peaked in 2008. According to my spreadsheet, the dividends have increased on average 45% per year over the past 5 years and on average 27% over the past 10 years.

However, buried in this data is some big increase and some big decreases in dividends paid. The other point is that, for this stock, the portion of your total return that is dividend income is only 2% per year, although the total return on this stock is about 17% per year over the past 5 and 10 years. The 5 year average dividend yield is just 1.7%.

Even in CDN$, this company has been doing well over the past 5 and 10 years. I guess the worse growth is in Revenues, which has grown by 16.3% and 9.9% per year, respectively, over the past 5 and 10 years. The best growth has been in Cash Flow and this has grown by 27% and 24% per year respectively, over the past 5 and 10 years.

Although the Liquidity Ratios and the Asset/Liability Ratios have fluctuated, they are currently very good. The Liquidity Ratio is currently at 1.60, but it has a 5 year average of just 1.05. The Asset/Liability Ratio is currently at 2.05, and this ratio has a 5 year average of 1.91. What you want to have is both these ratios at 1.50 or better. The Liquidity Ratios is for current assets and liabilities. When this ratio is at 1.00, it means that the current liabilities equal the current assets. Usually you want something a bit better than that.

This company is one of the dividend lists that I follow of Dividend Aristocrats (see indices). Also, I know that it is on many sample Canadian portfolios for both when people are accumulating wealth and or living off their portfolio’s income. Currently I plan to continue follow this company and the new one of Cenovus.

EnCana is among the largest natural gas companies in North America. They are focused on natural gas exploration and the development of resource plays. They have a diversified portfolio of assets and hold a highly competitive land and resource position in a number of North America's most promising shale and tight gas resource plays. Alberta Energy Company Ltd. (AEC) and PanCanadian Energy Corporation (PanCanadian) companies merged to form EnCana in 2002. EnCana split into EnCana and Cenovus in 2009. Its web site is here EnCana. See my spreadsheet at eca.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.