Saturday, September 10, 2011

Money Show, Robert Gorman

Robert Gorman, Chief Portfolio Strategist of TD Waterhouse, Canada gave his remarks also in the Opening Ceremonies of the Money Show. However, his was quite a bit longer than anyone else as it was scheduled for one half hour. His talk was, he said of 6 themes. The first three are below and I will continue this later.

First he talk on how the US market affects us, we cannot avoid that. 2008 was the steepest market decline since the Great Depression. There was no double dip recession for US last year, but what happened was slow growth. His says that the signals coming from the US are quite mixed. The biggest issue is that of confidence by consumers and companies. He feels that the odds of a double dip recession have gone up and that this is a concern.

What he thinks what will happen is that slow growth will continue. This can be good if the growth is good enough to increase company profits, but not good enough to cause inflation. What happened since 2008 is that the S&P 500 when from a P/E of 29 to one of 12.5 today. This showed up as no growth in the S&P 500 in 10 years. He feels that the S&P 500 will go up to 15 P/E and it is a reasonable one because we are at the bottom of an inflation cycle.

He also points the difference between the 10 year Treasury bills with a yield of 2% and the Earnings Yield of the S&P 500, which is at 7%. This makes the S&P 500 cheap and the Treasury Bonds expensive. And the last thing he mentions was that US companies have $2T in cash and they can get cheap loans. So they can buy acquisitions rather cheaply.

The second theme Bob talks about is that there has been a recent transition to from small caps to large caps. Going forward, large caps will do better than small caps. The other thing is that large caps have very good dividend yields and they are, in fact, better than interest rates.

His third theme was that consumers are getting more conservative. In the US the biggest debtors were the middle and upper classes, and not as many people thought, the lower classes. These classes do have the earning power to reduce their debt. The US default rates are sharply down. Savings rate has gone from 2% to 6%. The lower debt and higher savings trend will continue and this has a lot to do with demographics. US economy will have a solid foundation but lower growth.

People and companies will be fiscally conservative. In this environment stocks like Johnson & Johnson (NYSE; JNJ) and Pepsico Inc. (NYSE: PEP) will be good investments. They will present lower risks and good upside. Two other good investments would be IBM (NYSE: IBM) and Oracle Corp. (NASDAQ: ORCL).

We will have an unusual period in investment going forward. Interest rates are below dividend yields. Rising dividends will push up stock prices. One good Canadian investment will be Power Corp (TSX: POW). This company has been dead money in the recent past but this is going to change. Other investments would Shaw Communications (TSX: SRJ.B), Royal Bank (TSX: RY) and Bank of Nova Scotia (TSX: BNS).

I will continue on this talk later.

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.

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