AKR Consensus Watch Blog

Check out Dogglounge Deep House Radio - 128k - continuous deep vibes

2011-05-13T21:16:00.001-04:00

I'm listening to 'Imagina Y Vuela' by 'Jason Rivas, Elsa Del Mar' on 'Dogglounge Deep House Radio - 128k - continuous deep vibes' live on my iPad using ooTunes Radio.
To listen, go here.

RETAIL INVESTOR CONSENSUS: Canadian investors pile back into mutual funds

2007-10-18T09:12:00.001-04:00

CONSENSUS SENTIMENT: POSITIVE (Bear Market Indicator).Investors regained courage and returned to mutual funds in September as the industry booked $993.8-million in net sales for the month.

read more | digg story

MEDIA CONSENSUS: A sampling of business news headlines this week

2007-10-18T09:10:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull Market Indicator)As I was thumbing through the financial pages at the start of the week, these type of headlines started jumping out:

read more | digg story

CURRENT CONSENSUS SENTIMENT (October 2, 2007)

2007-10-02T11:05:00.001-04:00

Since the August credit meltdown, the Consensus has remained decidedly negative. As the Consensus was proclaiming the sky was gently falling, the major indexes took 5 to 10 percent haircuts.

read more | digg story

FED CONSENSUS: Benny and The Fed apply the band-aid to the leaky dam

2007-09-25T19:49:00.001-04:00

CONSENSUS SENTIMENT: POSITIVE (Bear Market Indicator). In one of the most eagerly awaited economic non-events in the past 6 weeks, Benny and the Fed, surprises the Consensus and pushes the envelop by cutting interest rates 50bp and discount rate by an additional 50bp.

read more | digg story

RETAIL INVESTOR CONSENSUS: Fed cut triggers mass fund inflows

2007-09-22T21:30:00.001-04:00

CONSENSUS SENTIMENT: POSITIVE (Bear Market Indicator). Gentle Ben’s 50 basis-point carpet bomb last Tuesday triggered the second largest single-day investment into mutual funds.

read more | digg story

SOOTHSAYER CONSENSUS: Economists recognizing recession possibility

2007-09-15T08:39:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull Market Indicator). A survey by the National Association of Business Economics showed economists believe recession is the biggest risk to the economy right now and that the Fed will cut rates by half a percentage point by March in the face of sluggish economic growth.

read more | digg story

CONSUMER CONSENSUS: Sentiment at 18 month low

2007-09-15T08:38:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull Market Indicator).Consumer confidence tumbled to its lowest point in nearly 11/2 years as a deep housing slump and a credit crunch made people more worried about the country's economic health as well as their own.

read more | digg story

INSTITUTIONAL CONESNSUS: CNBC Survey predicts positive September for stocks

2007-09-12T19:38:00.001-04:00

CONSENSUS SENTIMENT: POSITIVE (Bear Market Indicator).Wall Street investment strategists and money managers responding to a CNBC Trillion Dollar Snap Survey are generally bullish on the stock market for the month of September. After a turbulent July and August, 65% of those responding say we've "seen the bottom of the stock market correction."

read more | digg story

MONEY MANAGER CONSENSUS: Institutional investors still bullish

2007-09-10T19:33:00.001-04:00

CONSENSUS SENTIMENT: POSITIVE (Bear Market Indicator).Institutional investors still expect stocks to rise by between 5 percent and 10 percent byyear-end even as fears of a recession grow more prominent, according to a Citigroup client survey.

read more | digg story

RETAIL INVESTOR CONSENSUS: Average investor going into cash.

2007-09-08T10:58:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull Market Indicator). Canadian investors, rattled by headlines about money market funds exposed to troubled asset-backed commercial paper, yanked about $1.4-billion out of these investments last month.

read more | digg story

POGEY CONSENSUS: Employment picture in US darkens...The Other Shoe prepares

2007-09-08T10:57:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull Market Indicator). The much anticipated US monthly employment report revealed that payrolls dropped by 4,000 in August, the first decline since August 2003. Approximately 4 out of 5 economists had forecast payrolls would increase by 110,000. However, the unemployment rate held steady at 4.6 percent as expected.

read more | digg story

CONSUMER CONSENSUS: Canadian consumers walk confidently

2007-09-04T19:55:00.001-04:00

CONSENSUS SENTIMENT: POSITIVE (Bear Market Indicator). Canadian consumer confidence remains robust, despite the recent turmoil in financial markets, the Conference Board of Canada said on Friday.

read more | digg story

FED CONSENSUS: Soothsayers, CEO's, and Dog Trainers call for rate cut

2007-08-31T08:52:00.001-04:00

CONSENSUS SENTIMENT: POSITIVE (Bear Market Indicator). With the Gettysburg Address of speeches coming up by the Fed’s Gentle Ben, the Consensus has been lined up for some signal of a cut in interest rates, if not an outright cut.

read more | digg story

REAL ESTATE CONSENSUS: Housing prices continue to fall

2007-08-31T07:48:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull Market Indicator). Home prices across the nation declined by 3.2% in the second quarter from a year earlier, suggesting the housing downturn has deepened, according to the S&P/Case-Shiller U.S. National Home Price Index.

read more | digg story

SOOTHSAYER CONSENSUS: It's official! The housing bubble is for real!

2007-08-30T18:11:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull Market Indicator).The risk of massive defaults on subprime mortgages and heavy debts now poses a bigger threat to U.S. economic prosperity than terrorism, a panel of U.S. business economists said on Monday.

read more | digg story

ECONOMIC CONSENSUS: Tidbits of economic data...not for weak of heart

2007-08-29T21:07:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull Market Indicator).Here are some snapshots of economic activity over the past week.

read more | digg story

CONSUMER CONSENSUS: Is the U.S. consumer approaching the wall?

2007-08-29T21:05:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull Market Indicator).U.S. consumer confidence deteriorated in August to its lowest level in a year onconcerns about a softening labour market and market turmoil stemming from the subprime mortgage crisis.

read more | digg story

DEBT CONSENSUS: Rising non-current loans don't bode well for US economy

2007-08-28T19:45:00.001-04:00

CONSENSUS SENTIMENT: NEGATIVE (Bull market indicator).The Federal Deposit Insurance Corporation releases some interesting data that may provide some foreshadowing in terms of what lurks beyond the horizon for the US economy.

read more | digg story

POGEY CONSENSUS: First cracks in the unemployment dam

2007-08-27T19:35:00.001-04:00

CONSENSUS SENTIMENT: Bearish (Bull Market Indicator).It will take a few months to show up in the economic data that Wall Street and the Federal Reserve watch, but the slowing U.S. economy is hitting the job market, and economists say it is only a matter of time before unemployment ticks

read more | digg story

ECONOMIC CONSENSUS: Signs of hope in the U.S. economic landscape?

2007-08-25T02:34:00.001-04:00

CONSENSUS SENTIMENT: Positive (Bear Market Indicator)A couple of economic data points that has garnered some attention.

read more | digg story

CONSUMER CONSENSUS: U of Michigan consumer sentiment for August at lowest in 1 year

2007-08-21T20:49:00.001-04:00

CONSENSUS RATING: Negative (i.e. Bull Market Indicator)U.S. consumer sentiment deteriorated in August to its weakest in a year as more expensive oil, declining home prices and turmoil in financial markets all hurt confidence.

read more | digg story

Current Consensus Sentiment (Aug 20, 2007)

2007-08-20T18:40:00.000-04:00

On July 24, 2007, we posted the following in our Consensus Sentiment section,

“So now in summertime, the sentiment has turned positive again. Goldilocks has returned for an encore. Soothsayers are bullish again calling for the Dow and S&P500 to exceed their record highs. Forbes is calling for Dow 18000 in 18 months. Canadian mutual fund sales are at 10-year highs. Oil is going to $100 very soon again. Investor confidence in Europe is surging. Based on this sentiment, Consensus Watch believes the seeds are being laid for another sell-off. It may have already started with the 400-point haircut on the TSX index and the Dow being off the 14000 levels. The market is getting giddy again. This is a good time to be cautious and take profits where possible.”

Well we can see what has happened since. The credit markets got a serious case of indigestion when people started to realize the borrowed paper they were holding was not what it seemed to be. These people turned out to be “professional” investors at places like BNP Paribas and Goldman Sachs who should know better. The overwhelmingly positive consensus July, clearly foreshadowed, a reality check in August. The Fed reciprocated by providing the proverbial Pepto Bismol to coat and soothe the weary markets, but like your Tums and Pepto’s and Band-Aide’s, they are only short term solutions. At this point, we are seeing a return of negative consensus sitings, which could be foreshadowing some short-term buying opportunities especially of such high quality financial firms that were thrown out with said baby. The Media Consensus, true to its form has played it’s role as eternal optimists to a tee, with a few “Fear and Greed” and “Investment Survival Guides” thrown in for good measure. The Consensus is nervous and shaky but it appears to not have packed it in yet for the “mon juste” to jump into stocks is not there. Some more negative consensus sitings in August and the Fall and we’ll be there. If you haven’t already, a list should be prepared.

QUARTERBACK CONSENSUS: Weekend pundits proclaim a bottom for stocks

2007-08-20T18:26:00.001-04:00

CONSENSUS RATING: Positive (i.e. Bear Market Indicator)I was very keen to watch some of the weekend pundit type shows to see if there is any consensus from the mainstream financial media on what has transpired and what we are all in for. I tuned in to the quartet of Fox News Saturday business shows. Nothing scientific here. Overall here were the

read more | digg story

MEDIA CONSENSUS: Oh the humanity!

2007-08-17T20:01:00.001-04:00

Some captions and headlines from the mainstream financial media this week…

read more | digg story

REAL ESTATE CONSENSUS: The song remains the same

2007-08-16T17:57:00.001-04:00

U.S. homebuilder sentiment slid in August to its lowest level since January 1991 as tighter lending standards weighed on builder confidence, the National Association of Home Builders said on Wednesday.

read more | digg story

MONEY MANAGER CONSENSUS: Global money managers optmistic on stocks

2007-08-16T17:55:00.001-04:00

Fund managers remain relatively positive about the prospects for global equity markets, even after the recent market downturn, according to Merrill Lynch's monthly fund manager survey for August.

read more | digg story

LBO CONSENSUS: Growing number of merger deals getting shelved

2007-08-15T21:26:00.000-04:00

At last count, the big chill gripping global credit markets has caused 46 leveraged financing deals around the world to be pulled since June 22, representing more than $60 billion in funding that companies had planned for mergers and acquisitions.

Consensus Watch’s Take: It continues to amaze me. 3 weeks ago there was money to burn, smoke, bathe, and sleep on. Now it’s nothing. I’m not surprised about the drying up of borrowed money. I just never thought it would be so fast. The Lord giveth and taketh away. I suspect the list of sunk deals will continue to rise. One of the big deals here in Canada is for BCE. The stock is now almost $4 below the strike price of $42. Many are surmising that the odds of it going down get dimmer by the dollar. Yesterday felt strange as normally on Monday’s we get the laundry list of deals that have been inked. Yesterday…nothing.

The adjustment continues today with more skeletons falling out of the closet and with it opportunities to start taking small positions in solid wealth creating companies on the cheap.

AKR

INVESTOR CONSENSUS: Investor sentiment in US reaches 11 month lows

2007-08-09T21:24:00.001-04:00

The latest investor sentiment readings from Investors Intelligence, released yesterday, showed that optimism about U.S. stocks has sunk to its lowest since last September. The proportion of bullish investment newsletter writers fell to 43.8 per cent last week from 47.2 per cent the week before, while the number of bearish writers climbed to 31.5 per cent from 26.4 per cent. The survey (taken last Friday when the S&P 500 shed nearly 40 pts) showed just 1.39 bulls for every bear, a ratio last seen when the market bottomed in March. The put/call ratio has also surged to March levels and the VIX is just backing off from a 10-point spike. The indicators are now suggesting that we’ve reached levels of panic often associated with short-term bottoms.

Some other notables

“If this weekend’s magazine racks are lined with doomsday calls, it may be time to start picking away at strong sectors on a re-test of last week’s lows (ie: those with exposure to the global economy).” BMO Nesbitt Burns

"I think this is the Hindenburg," said Peter Schiff, president of Euro Pacific Capital. "We've got all of this bad mortgage paper all around the world and it's going to get worst."

Consensus Watch’s Take: Now it gets interesting. Investor sentiment was negative before this morning. The troubles of BNP Paribas, Goldman Sachs, and Countrywide financial have crystallized it. I, like the good people of BMO NB will be heading to my local newsstand to see how the mainstream media plays this. If the covers are laden with “Fear and Greed” headlines then we may have arrived at a point where we may want to dip our toe in the water. Tonight’s evening news in the US all lead off with today’s sell off and the major troubles in the real estate world. The ingredients for major pessimism and subsequently opportunities to enter the market are all coming together. The Fed Fund futures are now pricing a 100 percent chance of a Fed rate cut BEFORE the next meeting in September, which means the time has come to get into gold as a rate cut will kill the US dollar and jack up gold prices. Companies that I sold early in the year like Telus and Aastra Technologies (companies that have not fundamentally changed in the period since) are coming back to me and I’m really itching to pick them up again. I’m not talking about jumping in full steam. There’s more pain to come and as it is unleashed, I plan to use these opportunities to build up positions slowly because long-term this adjustment we are going through will be healthy for the global economy. In the words of Steve Martin from SNL, “Looks like you need a good sound bleeding.”

AKR

SOOTHSAYER CONSENSUS: CNBC survey sees low risk of recession in U.S.

2007-08-08T20:59:00.000-04:00

From CNBC August 7, 2007.

Despite brewing financial turmoil, economists see only a one-in-four chance of recession after the Fed yesterday decided to maintain the status quo on interest rates.

The FOMC is the body within the Fed made up of presidents and governors that sets interest rate policy.

But the 47 economists CNBC polled suggest that the Fed may eventually be forced to come to the market's rescue.

CNBC asked if the Fed should take action to calm financial markets. Some 36% said no, but 57% said "not yet," suggesting that rate cuts could be coming if things get worse from here.

That's backed up in their outlook for the Fed. Some 56% say the benchmark federal funds rate will be unchanged six months from now, but 34% see the Fed lowering the rate by 25 basis points or more.

The weighted average for the funds rate is around 5% six months from now. The reason is that economists still don't see much chance of a recession.

Fed Chairman Ben Bernanke is in the midst of what is likely his biggest test. So far, a slight majority of economists gives him an A. A third give him a B.

But it's like giving a grade before the final exam, or even the mid-term. His ultimate grade may well depend on how he handles the current mess.

Consensus Watch’s Take: The Soothsayers are pretty resolute in that the likelihood of a recession is pretty low and that rates will not change. When I hear the Soothsayers take a strong position in anything, chances are it’s not going to happen. So based on this informal survey, it looks pretty good that there will be a Recession in the US, that will likely be triggered when Gentle Ben resumes his rate increase program. The statement from yesterday clearly indicates that it’s all about inflation for the Fed and that they appear to be willing to slow the economy down to control it. The other ball they are juggling to constantly convince holders of US debt that they should continue to park their reserves in the US and not unwind their carry-trade or foreign currency reserve diversification plans. Today Chinese bank officials mulled out loud the possibility of selling US Treasuries if the US government pursues trade sanctions against China. Pulling out or lowering interest rates would kill the US dollar, jack up gold prices, and eventually cause rates to rise interest rates anyway and further exasperate the situation.

AKR

MEDIA CONSENSUS: "Fear and Greed" trumps "Best of Times"

2007-08-07T18:34:00.000-04:00

What was once “Best of Times” and “The Greatest Story Never Told” has now become “Fear and Greed” and the “worst credit market in 22 years. All in a matter of weeks! 3 weeks ago there was so much liquidity (aka borrowed money) that there was money to burn. Very Gatsby’esque. Fear has all of a sudden become the vernacular, the norm. Volatility is rampant. One day’s 281-point loss is another day’s 283-point gain. The market is nervous for all the right reasons. When the market gets nervous the baby can get thrown out with the bathwater. The market has picked up the tub, but it hasn’t thrown it all out yet. We are closer though. The Soothsayers are now begging for a bailout by Gentle Ben to cover up their past gluttony and exploitation. I can’t see how Gentle Ben can do anything except raise rates. The American balance sheet is a mess and addicted to cheap credit and cheap imports. To keep it going, he has to provide debt holders with a higher rate of return or else they’re taking their capital elsewhere. An adjustment must be made and it we are in the early days. The faster we can get on with it, the greater the opportunities to buy great companies on the cheap increases. I’m itching to jump in. I just need to see more panic and “Fear and Greed” metaphors by the Soothsayers and all the other experts.

AKR

BANKERS CONSENSUS: Financials feeling the pain

2007-08-05T23:11:00.000-04:00

The numbers tell it all…

Goldman Sachs –20.1% Week, -9.9% YTD

JP Morgan 1.31% Week, -9.6% YTD

Etrade –16.75% Week, -28.9% YTD

Lehman Brothers –13.14% Week, -28.6% YTD

Bear Sterns –12.04% Week, -33.4% YTD

Citigroup –2.66% Week, -17.9% YTD

Morgan Stanley –5.83% Week, -10.3% YTD

In Canada, the carnage was tempered but the trend was still to the downside…

BMO –4.4% Week, -6.2% YTD

Scotiabank –2.46% Week, -7.3% YTD

CIBC –3.09% Week, -8.4% YTD

RBC –1.60% Week, -3.6% YTD

TD Bank –2.09%, -2.5% YTD

TSX Group –1.70 %Week, -8.4% YTD

Consensus Watch’s Take: It’s pretty clear that Financials are not the place to be if you look at the results. The rationale is pretty clear. The gluttony of cheap money that has fed the global economy and financial services arena has come to a sudden halt. A case of global indigestion is now being felt. A quick tour of the financial Soothsayers reveals most if not all are heading for the exits. This was culminated by Senior Cramer, who pleaded for Gentle Ben to cut rates this week to save the poor bankers and the Bear Sterns CEO who cited that the credit market is in the worse position he’s seen in 22 years. The sentiment is clearly negative. Historically, I’ve never really been a big fan of financial stocks, mainly because they are over-analyzed and over-owned, however whenever I see element of negativity, I get interested. I’m starting to keep my eye on the Financial ETF’s like the XLF and the XFN in Canada, and specifically some of the blue chip firms like Goldman Sachs which could soon be on sale. We have not seen the true nature of the gluttony yet. There is many a skeleton to uncover. The reality is for the first time in my time analyzing stocks, I’m actually contemplating holding some financial stocks in my portfolio. Not there yet. I need to see more pain.

AKR

DEBT CONSENSUS: Canadian margin debt at all time high

2007-08-02T19:44:00.000-04:00

“Margin debt – the amount of borrowed money used to make investments – hit an all-time high of $14.06 billion at the end of May, according to numbers from the Investment Dealers Association of Canada. That figure increased by 2.8 per cent from $13.66 billion at the end of April, but is up by about 20 per cent from the $11.71 billion recorded at the end of 2006.” Toronto Star

Consensus Watch’s Take: When you read stories about the global economy being awash in liquidity, it really means that the world is awash with borrowed money. In terms of investments, when investors borrow heavily to buy stocks and bonds, it usually is a signal that we are in frothy point of the cycle and a downturn is not far in the offing. With a downturn, comes the opportunity to buy stocks on the cheap. My list is up to 15 companies/ETF’s and slowly I expect to start building positions.

AKR

CONSUMER CONSENSUS: American consumers appear to remain steadfast

2007-08-01T19:33:00.000-04:00

In the US, the Conference Board's survey of consumer confidence rose to its highest level in nearly six years this month.

Spokeswoman Lynn Franco says improvements in the job market and business conditions helped to lift spirits. She says the rebound in confidence is strong enough that it indicates the economy could gather some momentum in the coming months.

The group's index is put at 112.6, up more than seven points from last month and stronger than expected.

Consensus Watch’s Take: Confidence is such a wacky term in economics. You could feel confident about things, but that doesn’t necessarily mean you will act in a confident manner. In this case the US consumer is feeling pretty good, yet if you look at the results, consumer spending grew at it’s slowest pace in 9 months. At the end, when Consensus Watch sees these types of fuzzy wuzzy sentiment, we tend to take the other side of the trade. Rising oil and food prices have to be hitting the middle to lower class. Now that their homes can’t be used as ATM machines, they are getting tapped out. I look for a slowdown in spending. We still haven’t seen the mass job slowdown yet. I did find it interesting that Monster Worldwide, the online job posting website, announced 800 layoffs yesterday. If the economy is doing so well, why is job recruiting company letting go of that many people? Potentially an indicator of weakness down the road?

AKR

RETAIL INVESTOR CONSENSUS: Average American investor is getting more bearish

2007-07-31T22:13:00.000-04:00

Average investors are clearly less bullish about stocks than the pros, particularly after the market's big sell off last week.

That's the conclusion of a survey of both groups by CNBC.com.

The CNBC Trillion Dollar Snap Survey from CNBC.com users ("Main Street") was conducted between 12:30 PM ET Friday until 11AM ET Monday, July 30.

The results reflect the opinions of those who accepted the invitations. This is not a scientific poll.

Retail investors have adjusted their expectations on the stock market lower.

Retail investors expect the M&A deal-making to continue.

Retail investors believe the housing market problems have not been well contained.

They are steering clear of financial services companies.

Consensus Watch’s Take: The mindset of the retail investor is always key as if they are bullish, they are usually the last to arrive to the party and the first to get hurt. If they are scared, they will be the first to bail out and thus leaving a plethora of bargains for those of us who were able to resist the Consensus. It appears based on this informal, unscientific snapshot that they are feeling squeamish about the future. They haven’t bailed out yet, but a few more body blows like last week and the outflows could be huge. At that point, I would be looking to jump in. It’s interesting how different the mindset is from the Institutional Consensus, who has been giddy with joy about the future market prospects.

AKR

TEA LEAVES CONSENSUS: Financial indicators point to bearishness in Canadian equities

2007-07-30T20:28:00.000-04:00

Below are some interesting investment indicators. All of them seem to be foreshadowing some weak times for the Canadian stock market:

INK Research Buy-Sell Ratio

Ratio of inside buyers to sellers has been bearish since the end of 2006. This indicates they expect the market to weaken. Ratio calculated by dividing TSX-listed companies with insider buy only transactions by companies with sell-only transactions. Ratio has been below 1.0 since end 2006.

Bull Bear Ratio (Stocktrends.ca)

Reading is above 1.5 and has fallen from 1.75 peak in June. A rating above 1 indicates there are more stocks with a bullish price trend then with a negative trend. Bullish trend stocks have a 13-week moving trend that is greater than their 40 week moving average. Bearish is 13 week MA below the 40 week MA.

Bullish Percent Index (stockcharts.com)

Currently at 67 percent. A reading above 67 pct indicates that Canadian stocks could be headed for a fall while a rating near 40 percent indicates a market bottom. Ratio has been at the high 60’s since February.

Consensus Watch’s Take: The sentiment has been clearly negative the past few months, but all that has done is push the TSX Composite to record highs. That’s the type of rationale we’re dealing with these days. Clearly this is unsustainable, but if you’re a nation that benefits from the bounty of commodities and the Carry-Trade, it’s hard not to get on the bandwagon. The reality is that the Canadian Stock market is so heavily weighted into Commodities and Financials that any little ember of flame will shock it right now. We saw it last week with the carry-trade unwinding and cooling off of gold and oil plays hitting Bay Street. The Canadian market will pullback even more significantly if these sentiments continue, which ultimately indicates that we maybe closer to a buying opportunity. As always, Canada’s economic state is a product of what happens in the States, so when the US slows down, Canada will feel its effects. It is at this point that we would be jumping in.

AKR

MEDIA CONSENSUS: Big 3 networks lead off newscasts with market sell-off

2007-07-27T11:19:00.000-04:00

The mainstream media picked up on the market sell-off. The NBC Evening News lead off their newscast with market sell-off and then later in the newscast ran a follow-up piece on the crashing condo market in Miami. Condo’s that once listed for $250,000 are now going for $195,000. Cramer was brought in to provide insight and he basically followed his script from the show. Right now, today, he said to sell anything that’s retail (consumer tapped out), anything interest-sensitive (rates going up), and anything that is domestic focussed. That’s today. Tomorrow, he could say these are all screaming buys.

Consensus Watch’s Take: When the mainstream media lead off a national newscast about the stock market or the economy, it usually could be a sign that we’ve reached a top or bottom. In this case with the sell-off, it might be a signal that we are nearing an opportunity to start taking small positions in good high quality, wealth-creating firms, whose stocks are on sale, but we’re not totally there yet. There’s still more pain to be had, but I have been quickly putting up a list of stocks/ETF’s that I would like to slowly build positions in (DISCLOSURE: This morning I did put a bids on the iShares Gold ETF (IGX…looking for the US dollar to continue it’s slide and looking for import inflation to continue to be a growing issue) and added a bit more to my position in Patheon (PTI) to dollar-cost down and I have a few others I would like to add. Similar dynamics were in play in February when the Shanghai Surprise hit. If you had the stomach to go against the Consensus, you would have done quite well for yourself.

AKR

CONSUMER CONSENSUS: American consumer sentiment remains strong

2007-07-26T11:45:00.000-04:00

The ABC/Washington Post Consumer Comfort Index rose to -5 in the week of July 22 from -11 in prior week. That’s a sizeable jump for this index, probably boosted by the recent pullback in gasoline prices and the Dow’s flirtation with the 14k level last week.

Consensus Watch’s Take: The Consumer Consensus in the US is somehow feeling pretty good about itself. Rising interest rates, and gas prices seem to have not dissuaded the American consumer. Even the reduced ability to use their house as an ATM machine hasn’t slowed them down. With the US dollar falling, the cheap imports they are addicted to will be costing more. Something has to give here. Unfortunately, consumers and retail investors tend to be late to the party as when they feeling good about things, it usually marks a peak in the economic cycle or market. In Canada it is no different. Retail sales are surging. Retail investors are piling in mutual funds in a rate not seen in a decade. When the Consensus gets pretty optimistic then you know it’s time to start taking profits in order to set the stage for some buying when things really slow down.

AKR

REAL ESTATE CONSENSUS: US continues to live in the House of Pain

2007-07-25T14:24:00.000-04:00

Sales of existing homes fell for a fourth straight month in June as all sections of the U.S. showed weakness. The National Association of Realtors reported that sales of existing homes dropped by 3.8 percent in June to a seasonally adjusted annual rate of 5.75 million units, the slowest sales pace in 4 1/2 years. The median price of a new home edged up slightly to $230,300 in June, a small 0.1 percent increase from the sales price a year ago. That was the first year-over-year price increase in 11 months, but analysts cautioned that it would take more months to determine whether the downward trend in prices has finally stabilized. Analysts believe that the market will bottom in late 2008, which is a change from the late 2007, early 2008 estimate.

Consensus Watch’s Take: The Soothsayers as usual are stretching out their prognostications, but I still will keep mine that we are looking at 2009 before we see any improvement. Interest rates in the US will trend higher due to import inflation and a crummy balance sheet. This will slow down the US economy causing higher unemployment, which means people will have a hard time making their mortgage payments. Consequently, the housing market will enter the second leg of its downturn. As a result, housing and their ancillary products will continue to trend down lower thus potentially making them attractive buys. I’m not opening my wallet yet. More pain is to be had. At some point this pain will cross over to Canada as if the US economy slows, Canada will feel it’s effects. I haven’t even talked about oil prices and geopolitical plays that lie below the waters. On the other hand if you are looking for a house, you’re a kid in a candy store.

AKR

CORNER OFFICE CONSENSUS: NABE Survey points to rising optimism

2007-07-23T11:30:00.000-04:00

After a first quarter swoon, business is more upbeat about the current quarter and the rest of the year--especially when it comes to hiring, profits and productivity, the latest survey by the National Association for Business Economics shows. What's more, the survey showed inflation at the consumer levels is in check.

The second quarter NABE survey shows industry demand rebounding from a multi-year low in the prior quarter. It's not returned to the elevated levels of last year, but NABE economist Kenneth Simmonson says it bodes well for growth in coming quarters.

There's also good news for workers: a net 18% of the 109 companies surveyed say employment is rising, the best level since July 2006, but businesses say they continue to struggle with shortages of skilled labour.

The result: costs are rising, both for employees and materials with the surge in commodity prices. They are at their highest level in the survey since 2004.

But prices charged by companies, that is, at the consumer level, actually fell. This looks like a classic profit margin squeeze where companies face higher costs but can't pass them along. Yet companies reported a handsome snapback in profit margins. The reason: fully 91% said productivity increased. That efficiency helps businesses shoulder higher costs.

Meanwhile, most business said they have not changed their investment plans because of either rising energy costs or higher interest rates.

Consensus Watch’s Take: The sentiment by the Corner Office Consensus is that they feel pretty good about their prospects in the US. The reality is that if they are correct and that business is growing, then we are likely to see higher inflation in wages and higher inflation in materials. This is what the Fed is worried about these days and as a result, makes it more likely for interest rates to resume it’s upward move at some point. This snapshot is only aspect of the puzzle. The other side is the US economy is being funded with a credit card and as the US debt levels continue to grow, the more likely the lenders will demand higher rates of return to compensate for the risk or else they will find other places to invest their capital. China, Japan and some of Persian Gulf nations have indicated a desire to diversify away from US securities which will further kill the Dollar and cause the US to import it’s inflation. This will only exasperate the situation. From a long-term perspective, these are all a red flag for owning stocks.

AKR

SOOTHSAYER CONSENSUS: CNBC Trillion Dollar Survey...nuggets of bearishness

2007-07-20T14:24:00.000-04:00

CNBC's Trillion Dollar Survey of top money managers and investment strategists finds expectations the stock market will continue to rally this year, and the next interest rate move by the Federal Reserve will be a rate cut.

The nationwide survey of more than 60 strategists, money managers and investment advisers asked their opinions on topics including stocks, commodities, the credit markets, interest rates, and the economy.

Among the negative consensus indicators:

Baidu, GM, Blackstone, and Verizon are the stocks that will be shorted the most over the next 12 months.
Consumer Discretionary, Financials, and Utilities will be the weakest performing sectors this year.
Consumer Discretionary, Energy, Materials, and Utilities will the weakest performing sectors in 2008.

Consensus Watch’s Take: The Soothsayer Consensus are pretty bullish about the remainder of this year and next so there’s not too much negative to find in their sentiment these days. In terms of what they hate (which is what I’m always more interested in as that is where the value lies), it’s pretty much anything interest sensitive like the banks or utilities or cyclical types. This doesn’t mean I’m going out today and buying them. It means keeping my eye on them and as things slow down, start taking small positions.
AKR

SOOTHSAYER CONSENSUS: CNBC Trillion Dollar Survey...sentiment is strongly bullish

2007-07-20T14:21:00.000-04:00

Among some of the bullish consensus indicators:

80 percent think that the Dow will close higher than 14000 for the year. 83 percent think the S&P500 will close higher than 1550.
88 percent think that the Fed will keep rates the same or cut them by year-end
90 percent think the US GDP will grow at least 1-3 percent in 2007.
Energy, Info Technology, Materials, and Industrials will be the strongest performing sectors this year
Information Technology and Financials will be the strongest performing sectors next year
Participants are consistently bullish on all global stock markets for the next 6 months
Participants are most bullish on the US and Japan stock markets in 2008.
Pfizer, Google, and Johnson and Johnson are stocks that will perform the best over the next 12 months.
73 percent feel the Private Equity boom has not peaked.
70 percent feel that oil will fall to at least $70 or lower by the end of this year.

Consensus Watch’s Take: Overall the Soothsayer Consensus is pretty bullish on the stock market…any stock market for that matter. It’s overloading in Energy, IT, and Materials and they think the Merger Mania gluttony has yet to peak as money as a plenty. As I’ve said before, when a bunch of people are so sure that something is going to happen, it usually doesn’t. Looking that slowly rising interest rates, the yet to be faced second wave of the housing meltdown (occurring when people start losing their jobs), and the rising costs of energy and food, it wouldn’t surprise me if a shock of some sort is in the offing. It’s due. Until that shock happens, I remain hesitant to put any new money on the US side, as tempting as it is right now with the strong buying power of the Canadian dollar and the recent record high’s reached on the Dow. I’m bullish on America long-term, but not at this price and not with the current balance sheet.
AKR

MUTUAL FUND CONSENSUS: Canadian sales at 10 year-highs

2007-07-19T11:24:00.000-04:00

The Canadian mutual fund industry had its biggest sales for the month of June in 10 years, taking in $2.3-billion, up from a bare $38.8-million a year ago.

Sales in the first six months of this year totalled $25.4-billion net of redemptions and reinvested distributions, exceeding all of last year's sales, the Investment Funds Institute of Canada reported Monday.

“Net sales were the highest sales for the month of June since 1997,” stated Pat Dunwoody, vice-president of communications for the industry group.

“Almost 82 per cent of the sales went into long-term funds, primarily from the balanced and global and international equity asset classes,” she added, calling these sales “a positive indication that investors are looking to diversify their investment portfolios to reduce overall risk.”

Overall, equity funds had $109.5-million in June net sales, up from more than $1-billion in redemptions in June of last year. Canadian and U.S. stock funds continued to suffer redemptions but the global and international equity segment produced net sales of $512.3-million.

Meanwhile, investors put almost $1.9-billion into balanced funds last month, up from just over $1-billion in net sales a year earlier.

In all, long-term funds, other than money market funds, pulled in $1.9-billion, compared with year-ago net redemptions of $333.8-million.

The $25.4-billion in year-to-date net sales for all funds compared with $10.7-million in the first six months of 2006.
However, IFIC said the fund industry's total assets slipped 0.7 per cent as financial markets slackened during the month, with Wall Street's Dow Jones industrial average declining 1.6 per cent in June and Canada's benchmark S&P/TSX composite index slipping 1 per cent.
(From the Globe and Mail)

Consensus Watch’s Take: The average Canadian investor is getting back into the mutual fund game and more specifically the equity fund game. The rate of sales is similar to the peak of the Dot- Com bubble and we know how that turned out. The fact that the retail investor is becoming more confident to get back into stocks should be seen as a flag that we might be hitting a peak in the stock market cycle. The global and emerging market funds are exploding right now and given the volatility of these types of funds, I expect to see a serious pullback. The long-term story for the global economy is strong. It’s just gotten way ahead of itself.

AKR

SECTOR CONSENSUS: Worst sectors at mid year

2007-07-16T10:49:00.000-04:00

Worst performing sectors on the TSX Composite and S&P 500 index at the halfway point of 2007.

TSX/S&P Composite

Gold -9.3%

Health Care –1.9%

Utilities +1.9%

REITS +4.3%

S&P 500 Index

Financials –0.4%

Banks –3.7%

Consumer Discretionary +4.5%

Consensus Watch’s Take: We are always on the look out for what is not performing well as often those sectors will be the leaders of tomorrow and for a retail investor that is where the real money and opportunity lies. As interest rates trend up, sectors such as the banks and other interest sensitive areas will be pulling back so an opportunity to pick up good quality companies on the cheap will be presented. It’s best to put a list together of companies in these sectors and as the pain gets larger, start taking positions. Health care has been a laggard the last few years and I think a great opportunity exists to get in on that sectors as the demographics clearly show that health services and products will be in great demand. Companies such as CML Healthcare (CLC.UN), Biovail (BVF), and Patheon (PTI) offer some good value (DISCLOSURE: I own positions in the preceding companies).

AKR

SECTOR CONSENSUS: Top sectors at mid year

2007-07-16T10:46:00.000-04:00

Top performer sectors on the TSX Composite and S&P 500 index at the halfway point of 2007.

TSX/S&P Composite

Materials +23.2%

Info Technology +22.9%

Industrials +23.4%

Telecom +29.2%

S&P 500 Index

Energy +24.8%

Materials +22.6%

Industrials +14.5%

Info Technology +14.0

Consensus Watch’s Take: We like to periodically take a step back and look at what the hot sectors are as usually the big money has been made in these sectors and it is more likely that these sectors will pull back. Also retail investors will be more likely to plow cash into these sectors and that can represent a peak. Tech is seeing a bit of a resurgence after being dormant since early in the decade. Telecom surged again mainly on the BCE takeover.

AKR

SOOTHSAYER CONSENSUS: Oil prices heading up...A time to take profits?

2007-07-09T11:10:00.000-04:00

Some bullets that popped out about the future of oil prices:

The International Energy Agency in their latest report stated that over the medium term oil demand would continue to grow in the emerging countries while oil supplies will trickle along at best.

David Dugdale, analyst from MFC Global Investment Management forecasts further strength in oil prices in the future. This is consistent with other Soothsayers calling for higher oil prices in the high $70-80 range.

Consensus Watch’s Take: The Soothsayers are talking up oil prices right now, which only means, oil will regress back to the low $60 range or even less. When the Soothsayers start consistently targeting a price level, it usually doesn’t happen. When oil was at $49/barrel in early January, the Soothsayers said it would fall to the $30’s. I proceeded to buy Valero Energy at $51. To their surprise oil went back up to the $60’s and my Valero stock went up to $65 before taking profits. It happens over and over again. My experience is wait for someone to make a crazy statement (oil is going to $100) and then go opposite. It takes a stomach as your friends think your crazy, but it’s worked for me over and over again. I love oil stocks. In my analysis, they have been consistently the best creators of tangible wealth. It’s just the stock prices tend to get ahead of themselves and with that opportunities abound to jump in when the market is pessimistic and bail out when $100 oil forecasts abound.

AKR

MEDIA CONSENSUS: Apple CEO on cover of New York Magazine

2007-06-26T15:12:00.000-04:00

It is the week of all things Apple. This Friday, the latest incarnation of “Cool Tech” will be released with the unveiling of the iPhone for general public consumption. Yet again consumers will use the equity from their rising home values to purchase disposable consumer products. To mark the latest Apple foray, New York magazine on its latest issue, put Warhol’esque image of CEO Steve Jobs with the caption, “iGod”.

Consensus Watch’s Take: Whenever a CEO graces a cover of the major publication, it is usually a sign of a top. How about John Roth? He of the $120 to 50 cent stock price. Blackstone chairman Steve Schwartzman has been on periodically the last few months (The stock is now trading below its IPO price as an FYI). There has been a lot of hype on the “Jesus Phone” and whenever a media frenzy evolves on some supposed iconic event, it usually fizzles out. Apple makes great products. I have an iPod and a MacBook Pro and they are great and easy to use. The reality is the phone market is uber-competitive and after the dust settles, it will be a hard shake for Apple and that could kill the stock price.

AKR

REAL ESTATE CONSENSUS: Surge in foreclosures signalling possible second leg of housing correction

2007-06-13T18:42:00.000-04:00

U.S. home foreclosures in May jumped 90% from a year earlier, reflecting a poor spring
housing market and foreshadowing even higher levels later in 2007, according to RealtyTrac.

The May foreclosures -- a sum of default notices, auction sale notices and bank repossessions -- totaled 176,137, up 19% from April, the firm said in its May 2007 U.S. Foreclosure Market Report.

The number of filings in May was the largest amount since RealtyTrac started tracking foreclosure activity in January 2005.

"After a barely perceptible dip in April, foreclosure activity roared back with a vengeance in May," James Saccacio, chief executive officer of RealtyTrac, said in a statement.

"Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year," said Saccacio. "Certainly not every community nationwide is seeing an increase in foreclosures, but foreclosed properties are becoming more commonplace and adding to the downward pressure on home prices in many areas."

RealtyTrac said there was a national foreclosure rate of one foreclosure filing for every 656 U.S. households during May.

Consensus Watch’s Take: It’s one thing to see a drop in demand for houses. It’s another when homeowners can’t make the mortgage payments. I’ve talked about the next leg of the housing correction, which would be when homeowners lose their job and start having a hard time making the payments. With this report from RealtyTrac citing a huge rise in foreclosures, we may be possibly entering the second leg of this correction and closer to a major capitulation. When we reach this point, real estate and ancillary assets could be had on the cheap.

AKR

REAL ESTATE CONSENSUS: Prognosis continues to be negative for US housing sector

2007-06-13T18:41:00.000-04:00

U.S. home sales and prices will fall at a faster pace in 2007 than originally expected, a leading U.S. real estate trade association.

The National Association of Realtors trimmed its sales forecast for the fourth straight month and said it now expected sale prices would drop more sharply than it previously forecast.

Sales of existing homes should hit a pace of 6.18 million units this year, down from the 6.29 million units the NAR predicted last month.

The national median sales price for existing homes should ease by 1.3 percent to $219,000 this year. Last month, the trade group said prices were expected to slip 1 percent.

The market for new homes will also soften this year, with sales and prices now expected to fall off more than the trade group had earlier forecast.

The median price for new homes will probably fall 2.3 percent to $240,800 this year while new home sales should register 860,000 units. Last month, the NAR said new home prices should remain flat while sales would hit 864,000 units.

The trade group representing more than 1.3 million real estate professionals has downwardly revised its major market indicators several times since January.

In its first annual forecast, NAR said it saw existing-home sales holding a 6.42 million unit pace for the year.

Wednesday's revised outlook is off 3.7 percent from that mark.

One of the sharpest reversals has been in the forecast price change for new homes. In January, the group said the median home should appreciate 3 percent in 2007.

While the year-end totals will be weaker than it first thought, the trade group said it expected to see signs of recovery by the end of 2007 when the pace of existing home sales should increase. The recovery for new homes should lag, though, the group said.

"Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year," said Lawrence Yun, the group's senior economist.

Consensus Watch’s Take: More evidence of the freefall the US housing market and it’s only going to get worse. I continue to maintain that we haven’t entered the truly most painful segment of this correction, which will occur once people start losing their jobs. Right now, they are making the payments, but as interest rates trend up and the overall economy slows down, we will see some pain. At that point of capitulation, opportunities to renter the real estate market will be evident.

AKR

BUYOUT CONSENSUS: Separated at Birth? LBO and Dot Com Euphoria

2007-06-13T18:24:00.000-04:00

In late 90’s any company with a “dot com” attached to its name was seeing its stock price go through the roof . Do we remember such household late 90’s names as, “Pets.com and Bid.com”?

Even if there were no underlying business behind it, just selling the domain name would bring cash. Well we all knew how that turned out.

Now with the rush of leveraged buyout firms throwing borrowed money everywhere, a similar phenomenon is occurring. Now any company that is “rumoured” to be bought out is is seeing their stock spike up. The main reason the markets are up is basically on the “Buy on Rumour, Sell on Fact”. Recent rumours de jour were Forzani and Stelco being taken out. The BCE thing has been around for over a month, yet no one has actually submitted a bid. You’d think it was sold a couple of years ago. It’s not hurting any of theses company’s stock prices though. BCE’s competitor, TELUS, has had its stock go up 10 percent on rumour. The company hasn’t really done anything.

Are we running into a similar ending with this latest twist on euphoric investing? I say yes. I don’t know when, but it’s coming. For now the sell-out and hollowing out of capitalism continues.

AKR

PRIVATE EQUITY CONSENSUS: Private equity and hockey

2007-05-31T12:32:00.000-04:00

As stock markets around the world continuously propel themselves to higher highs, fueled mostly by spending ways of private leverage buyout equity firms that have used cheap borrowed yen to fund their gluttony, it dawned on me as we wind down another hockey season that the actions of these buyouts are quite similar to the actions the NHL general managers take at the trade deadline.

At the trade deadline, teams that think they are a player or two away from sipping Lord Stanley’s mug, will overpay to get the players they covet. Case in point the Nashville Predators who gave away the farm for Peter Forsberg or the Atlanta Thrashers who gave away the house for glimpse of the playoffs.

It looks good on paper but reality is often unforgiving, as overpaying never really pays off in the playoffs. Both Nashville and Atlanta were soundly booted out of the first round of the playoffs.

The same outcome may hold true for the leverage buyout firms. Because they have so much borrowed money available to find a good home for, they are now overpaying for companies and assets on the assumption that they can gut it, load it up with debt (i.e. lower the cost of capital) and engineer an increase in its economic value so that they can flip it. They’re looking to win or in their case buy the Stanley Cup. Looking at history and how things turned out in the late 1980’s, when a similar gluttony spree was going on, I have a feeling they will come a bit short in their bid for the Holy Grail.

Investment bankers win. Lawyers win. Employees lose unfortunately.

AKR

CONSUMER CONSENSUS: US consumers join the party

2007-05-30T12:20:00.000-04:00

Consumer confidence bounced back unexpectedly in May, despite higher gasoline prices that could raise shoppers' worries about inflation, a private research group said Tuesday.

The New York-based Conference Board said its Consumer Confidence Index rose to 108.0 in May, up from a revised 106.3 in April. Analysts had expected the reading to fall to 104.5. The May reading was the highest since March when the index was at 108.2.

Month	Index Level	Change
2006 - Dec	110.0	+ 4.7
2007 - Jan	110.2	+ 0.2
2007 - Feb	111.2	+ 1.0
2007 - Mar	108.2	- 3.0
2007 - Apr	106.3	- 1.9
2007 - May	108.0	+ 1.7

Source: Haver Analytics

"The bounce-back in confidence was due primarily to a more upbeat assessment of present-day business conditions," said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement.

"Consumers' view of the job market, both present and six months from now, was little changed and did not provide a boost in confidence. The short-term outlook remains cautious and
rising gasoline prices are having a negative impact on consumers' inflation expectations."

Franco added, "All in all, confidence levels continue to suggest growth, albeit at a slow pace."

Consensus Watch’s Take: The U.S. Consumer Consensus now joins the Europeans in a Kum-Ba-Yah optimism about their economic prospects. You might as well throw in Japan and Canada and we’ve pretty much got a global party going on. People are partying and spending like it’s 1999. When we hit the 2000’s the mood was distinctly different, so again like a broken record, we view this Consensus as an opportunity to build up cash and wait for the hangover.

AKR

EURO CONSENSUS: More giddyness from across the pond

2007-05-29T11:04:00.000-04:00

UK business confidence is increasing despite higher interest rates, a survey by accountancy firm KPMG has found.

KPMG said that 64% of the small- and medium-sized companies it polled were optimistic about the outlook for businesses over the next 12 months.

According to KPMG that is the highest level of optimism since 2004.

The Bank of England has been steadily raising interest rates to 5.5% to slow inflation and there were fears it would have hurt consumer demand and profit.

Even though the majority of firms are upbeat about the future, KPMG said that two-thirds of the businesses surveyed would prefer interest rates to remain where they are.

KPMG questioned businesses with an annual turnover of between £5m and £500m.

"There is an obvious concern among those questioned that interest rates are going to continue to increase," said Mel Egglenton, KPMG's head of UK middle market.

Toughening up

Mr Egglenton said that it was important to remember the survey dealt with business people not economists, and as result was based on the strength of order books not macro-economic analysis.

He added that it was "hard to put a finger on" why companies were feeling so much more optimistic than in earlier surveys.

"It wasn't that long ago that small- to medium-sized businesses were struggling with rising energy costs," he said.

"Many had to look hard at ways to improve their efficiency, and perhaps as a result they are now left with businesses that are more robust than they would have been otherwise.

"It appears that those who felt the pinch over the last year or two have now steadied the ship and are looking forward to the next 12 months with a renewed sense of optimism," he concluded.

The survey found that more than three quarters of those questioned were upbeat about the outlook for their own businesses, the highest figure since 2003, KPMG said.

At the same time, a similar number were also optimistic about their prospects overseas, and were feeling "competitive' or "extremely competitive" within Europe.

KPMG found this feel-good factor extended to the UK economy as a whole, with 58% of those polled saying they felt it was on an "upward curve".

"To see these businesses in confident mood and with healthy order books surely bodes well for the future," Mr Egglenton

Consensus Watch’s Take: More optimism from across the ocean. This time we can add the Brits to the growing list. Clearly there is enthusiasm for the near term economic prospects. It appears the ECU will be continuing to raise rates, so we expect at some point for the Euro economy to slow down. Stocks which have been surging, are just getting too frothy. I expect a pullback sometime this year. Over the long-term, there are some good things going on. The Brits, French, and Germans are signalling a desire to reproduce the Irish renaissance by reducing corporate taxes. This bodes well for the long-term prospects of the Euros. So we wait for a pullback in Euroland before we jump back in.

AKR

EURO CONSENSUS: German and Italian consumer-investor confidence at multi-year highs

2007-05-28T15:41:00.000-04:00

A couple of surveys from Italy and Germany indicate that consumers are feeling pretty good about their economic prospects.

May 22 (Bloomberg) -- Italian consumer confidence rose more than economists forecast in May as Prime Minister Romano Prodi promised to use increased revenue from faster economic growth to aid poorer households.

The Rome-based Isae Institute's index, based on a poll of 2,000 households, rose to 109.5 from an upwardly revised 107.9 in April. Economists expected an increase to 108.8, the median of 19 forecasts in a Bloomberg News survey showed.

``Consumers are starting to show more optimism about their own situation,'' said Marco Valli, an economist at UniCredit Markets & Investment Banking. ``It's probable that the prime minister's promises are being taken to heart and that's improving the outlook.''

Italians were more optimistic about prospects for the economy, today's report showed. A measure of confidence in the general economic situation rose to minus 68 from minus 71.

Italy's economy grew 1.9 percent last year, topping the government's expectations after stalling in 2005. The government March 16 raised its growth forecast by 0.7 percentage points to 2 percent. The revision came after the economy expanded 1.1 percent in the fourth quarter.

Still, growth slowed to 0.2 percent in the first three months of this year, led by a drop in industrial production. Italy is lagging behind its European partners. The 13 countries sharing the euro will expand 2.6 percent this year, outpacing Italy for the 11th consecutive year, the European Commission said.

Faster expansion in the euro area, particularly in Germany, is helping Italian exporters. German investor confidence rose to an 11-month high in May as growth in the economy of Italy's biggest trading partner showed signs of accelerating.

The Isae survey was carried out between May 1 and May 15.

The ZEW Center for European Economic Research said its index of German investor and analyst expectations rose to 24, the highest since June 2006, from 16.5 in April. Economists expected a reading of 23, according to a Bloomberg News survey.

A separate report due May 24 is expected to show German business confidence also rose to a record this month.

The Ifo institute's sentiment index will probably touch 108.8, the highest since records for the reunified Germany began in 1991, from 108.6 in April, according to a Bloomberg survey.

The German government plans to issue 7 billion euros ($9.5 billion) of 10-year 3.75 percent bunds tomorrow.

Consensus Watch’s Take: In Euroland life is pretty good. Consumer and investment confidence in German and Italy is at multi-year highs. The enthusiasm is reflected in the numerous bourses, which are also at or near record highs. An element of euphoria is clearly evident in the Eurozone and when that rears it’s head, it may be time to book some profits and let the market take a deep breath. I took my profits early in the year and am patiently sitting on the sidelines until the confidence levels start to drop.

AKR

SOOTHSAYER CONSENSUS: Economists revise US GDP expecations downward

2007-05-22T14:19:00.000-04:00

The National Association of Business Economics have revised their US real GDP forecasts for this year. The NABE expects real GDP to increase 2.3 percent in 2007, which is down for their previous estimate of 2.8 percent in February. Troubles in the U.S. housing market will weigh on economic growth this year even more than earlier estimated, according to the NABE forecast.

The NABE lowered their forecast after the government reported anaemic 1.3% GDP growth during the first three months of this year.

"Results for the first portion of the year indicate that the expansion has descended from its cruising altitude," said Carl Tannenbaum, NABE president and chief economist at LaSalle Bank/ABN AMRO in Chicago.

However, growth in 2008 is expected to pick up to 3.1% after the housing market bottoms out.

The survey of 48 economists taken between April 19 and May 8, found that housing market troubles, particularly those in the risky subprime mortgage lending market, will drag out through this year.

"Residential investment remains a dominant force dampening growth in 2007," NABE wrote, adding that almost half of those surveyed expect the bottom in housing will not be reached until the fourth quarter.

A third of those surveyed think problems in the subprime market are delaying or deepening the housing correction.

Among those surveyed more than half see at least a 25% chance of a recession getting under way within the next year.

Employment growth is expected during both this year and next to be moderate. The forecast called for an increase in private employment of 1.3% this year, or about 1.5 million new jobs.

But productivity growth is expected to slow, with output per hour seen rising just 1.6% in 2007, down from 2.0% forecast in the February survey. But still, most of the panellists do not see a major risk that rapid growth in labour costs will stand in the way of moderation in inflation.

In fact, core personal consumption expenditures, a government measure of inflation that excludes volatile food and energy prices, will grow by a slower 2.1% this year, just slightly above the Federal Reserve's perceived target level.

Overall inflation, as measured in the Consumer Price Index, is expected to advance by a bigger 2.9%, reflecting a huge run-up in energy prices, particularly gasoline.

Consensus Watch’s Take: As expected, the Soothsayers have revised their forecasts. They are right. The US economy is slowing down and if inflation keeps being pesky, interest rates will trend up slowly. You can set your watch to it. As usual we will continue to see the Soothsayers revise their forecasts downward to the point that they get too pessimistic. At that point, stocks will begin to look attractive. When the Soothsayers start getting gloomy, that will be the cue the jump in. We’re not there yet. Right now the Soothsayers are playing a sort of devil’s advocate role by going against the market momentum which is quite interesting as world markets continue to test new highs and LBO firms continue to throw other people’s money around like the Yankees spend on over aged starting pitchers. A dangerous game of hot potato is being played and investors risk being left holding the bag.

AKR

Out with the old blog, in with Consensus Watch Blog!

2007-01-02T19:14:00.000-05:00

After some thought we have decided to repatriate our blog postings back to our website. As a result, you can now find our blog postings at the following address:

http://www.akrcapitalresearch.com/Overview/akrblog.cfm

The AKR Consensus Watch is Born!
One of the mantras of successful investing is to buy when people are selling it's and sell when people are buying. While we spend most of our time analyzing the nuts and bolts of companies, we are also scanning the media and investment landscape seeking Consensus. In our First Generation AKR blog, we attempted to identify certain moments of Consensus in the stock market and economy.

What is Consensus? Consensus can take on many forms. It can be a group of Analysts or Strategists (we call them Soothsayers) that are all making the same predictions on a stock or the general economy . It can be the media, touting the latest trend or "must have" product. The front page or cover story of most magazines and newspapers are essentially consensus points of views.

Why is Consensus Important? Unfortunately, the problem with consensus is that is often inverse in value, meaning when the Soothsayers say oil is going to $80 barrel, more times than not, it goes the other direction. Consensus is contrarian and if understood for what it is, it can be very lucrative for investors. Consensus can represent a peak or bottom of a business cycle.

For the average investor who doesn't have time to follow the neuroticism of the markets, following the Consensus, is often the easiest thing to do, but more often than not, following the Consensus can be very unprofitable.

The Consensus Watch Blog is our latest iteration in our blogging evolution. Our goal in this forum is present to investors incidents where a positive or negative Consensus has emerged. Our observations are not scientific. We just call them when we see them. According to Technocrati nobody else appears to be doing this type of survey.

We welcome comments from people who have spotted acts of Consensus. Feel free to drop us an email at info@akrcapitalresearch.com.

Oh yes we can't forget that disclaimer :-)
Aman Raina

Emerging Markets No More?

2006-12-04T20:59:00.000-05:00

Emerging markets are the rage these days in global investing. The BRIC countries (Brazil, Russia, India, China) along with other smaller developing countries are primed to flex their economic muscle. Emerging flavoured funds and index ETF's have done quite nicely the last few years. Conventional wisdom by the soothsayers states that these developing nations are where the future global growth lies, however there have recently been some interesting findings that have challenged this notion.

One concept that has making waves in cyberspace is from a Sweedish professor Hans Rosling from the Karolinska Institute. In a very John Madden'esque style presentation, Mr. Rosling states through effective use of UN demographic and census information that the Developing world that we know, has in fact...developed and are in reality mature thriving economic powers. In other words, the future is now. Mr.Rosling uses his speciality, which is studying international health to dervice some interesting observations. This is a man who is quite passionate about his demographics and it shows.

Observation 1: Conventional western wisdom has often equated the Western world as people who live long lives and have small families and Third world countries as people who live short lives in large families. Rosling challenges the concept empirically and graphically by showing that mortality rates in Third World countries have risen over the past 40 years to where they are equal or close to equal with Western countries. The reality according to the data is that families in Emerging markets with the exception of some African countries are having less children and are living much longer than they did 40 years ago. It's happening now. They are in fact already Westernized, although we may not recognize it yet.

Observation 2: Conventional western wisdom has stated that Emerging/Developing countries have lower per capita income. In other words, there is a huge disparity of income in the world, with most of the income lying in the Westernized world and most of the poverty lying in the developed countries. According to Rosling and the data, this is a myth as since 1970, most developed countries are now earning more income. The developed world is much more richer than it used to be. The West is still rich and hold's most of the world's income, but it's growth has been largely flat over the past 30 years.

Rosling takes it a step further by looking at income in relation to child survial. Similar themes evolve. Developing nations are now tracking the same as Western countries in terms of child mortality.

He goes on using very effective data driven simulations to paint a picture of developing world and an economy that has matured much faster than what the media and economists have presented it to be.

What does this mean for investors? From a demographic perspective, it means the developing world is aging and fast. I've written in this forum in the past that many Asian countries like China and Japan are aging very fast. Most alarming is China, the king of all "emerging" countries. An aging population means higher social costs as well as lower productivity, which will especially impact China's economic growth. Hard to believe a nation of over a billion people is getting old. If their economy slows, they will need less resources and commodities and that will hurt Western countries like Canada, which have staked their economic futures on the Emerging Market's endless demand for our natural resources.

Is this happening tomorrow? Obviously not, but it will happen much faster than we think. As a result, plowing all your investments into Emerging market type of funds and securities may not be the way to go as Mr. Rosling has cleverly shown. The party may be closer to being over than we think. Perhaps it's time to lose the term Emerging?

Here is the link to his presentation:

http://video.google.com/videoplay?docid=4237353244338529080&sourceid=searchfeed

AKR

Spreading The Eggs Around

2006-11-14T18:36:00.000-05:00

While everyone was pontificating on what the Demi's were going to now that they control Congress, an interesting little story from China. Last Thursday, The People's Bank of China announced that they will be reducing the rate of which they will be buying US income products. They were quick to add that they are not selling US bonds but buying less of it. Shortly after, China's central bank announced that they had they now hold over US$1 Trillion in foreign exchange reserves , most of it in US dollars. They then indicated that they will actively be beginning to diversify their foreign exchange holdings (i.e. Holding more Euros, gold, pounds etc).

It begins.

While it is unlikely China would dump US bonds en masse, it would be more likely to do it in a slow, subtle manner, kind of like (excuse the pun...Chinese water torture).

Slow or fast the news wouldn't be good for the US economy. If China were to diversify their reserves, the US would be forced to fund their current account deficit by either increasing one of taxes, tariffs or by keeping their interest rates higher than normal to attract capital to fund their addiction to cheap Chinese imports. Either way, the economy would fall into a serious recession. If they did nothing and go status quo, the dollar would get killed (which will cause gold to skyrocket). The cost of imports would go up. Energy prices would go up further. This import inflation would force the Fed to raise interest rates and further make things worse.

Sadly, some level of adjustment will have to happen to reduce that mass global imbalances that exist. Other global economies, including Canada would share in the pain.

Given the rhetoric from the Demi's (Chuck Schumer and Pelosi) about tarifs on Chineese imports and their ascent to power in Congress, this could be nothing more than shot across the bow by the Chinese to let Uncle Sam know they can bring their standard of living down in a snap. It's scary, but the ingredients are there.

At the same time, can you blame China? They're doing what investment professionals preach all the time and that is don't put all your eggs in one basket.

AKR

The Fog Of Unemployment Reports

2006-11-09T20:04:00.000-05:00

Friday's US Unemployment figures and the monster readjustments from the previous months have cast into doubt of the credibility of these measures. Much too much emphasis has been put by economists into these labour figures. The leadup to the release is insane. The closest thing I can compare it to is Super Bowl Sunday where we get blitzed with 12 hour Super Bowl pregame shows that takes place before the 3 hour game. There's so much hype and overanalysis into it that when you get to the big game, it becomes anti-climatic. I find it fascinating that 10 seconds after any economic report is announced, the CNBC economic-istas are off taking lines on the next report. Like any other measure or event of nature, it seems that we human beings need a fix to hold us over to the next data point announcements. We need some mind candy. Better than that, we need some kind of deriviative on the Employment numbers. Enter ADP which has become the flavour of the month for labour statistics. It used to be Challenger Gray and Christmas's Layoff Meter, but that is so Dot Com now. We have the Ivey Index, the Empire Index. It goes on. Sadly, we just can't get enough of this stuff. I guess from the perspective of the data crunchers, it's nice work if you can get it. It's inspiring us to come up with some sort of wealth index (stay tuned). The problem is that it's clouded our judgement. Bureau of Labour says 92,000 jobs were created in September while ADP says 121,000 were created. What's right? What's close to right? Some reports include the self-employed, some don't.

It's reached the point that as analysts, we really don't know what to believe, so like I always do, I go back to first principles. It's about wealth. If a company or a society is not creating any wealth, it doesn't have the capital to reinvest back in to society and consequently there will be little incentive to create jobs. If a company or economy is creating tangible, real wealth, then it will reinvest back to create jobs or return the capital back to its owners so that they can re-distribute it to other companies and people who will create the jobs. That's not what it's about anymore. It's about being under or over the "Whisper" number. That's not capitalism. That's Vegas.

So as I look where we are in Canada and the US, I see companies that are continuing to generate tangible economic profit albeit at a slower rate. This fosters the likely creation of steady but not out of control employment. Certain sectors (oil and gas, government) will be up and certain areas (housing, manufacturing) will be down. I do believe we are in the early stages of an economic slowdown in the US and subsequently Canada and so I am expecting that companies will be creating less economic profit, which consequently means less jobs are likely to be created. In Canada this means interest rates are likely go down, but we continue to believe that rates in the US will stay stubbornly high as inflation from high energy costs and wages (sign of jobs?) and deterioating American balance sheet keep rates high. No ADP. No Challenger, Gray and Christmas. No over-under bets from CNBC. Just simple ecomonic reality.

AKR

Bloomin' Onion, Room Service, and Tums

2006-11-07T18:54:00.000-05:00

The recent purchases of Outback Steakhouse and Four Season Hotels hightlights several items about the private equity scene. First, they've got a bucket of cash. At last count approximately $2 Trillion of funny money. Second, they are looking to put spend it..fast. This is good for the economy as scarce capital is now being deployed into ideas and services. The potential problem is at a high level, it looks like it is being deployed into areas more for the sake of deploying rather than for sound investment reasons (i.e. generating high returns on invested capital that will exceed the cost of obtaining that scarce capital). The optics are very similar to the dot com days where venture capital was being dropped into any and every website without any due diligence on whether it is creating true wealth. Four Seasons and Outback are well established franchises. The question is did they overpay for them? When you have a lot of cash to throw around, what's a few hundred million between friends? In addition, the high clout that private equity is exerting right now may also be squeezing out public companies who are looking for dance partners. In a way, you can say the actions of private equity could be inflationary? (paging Benny and the Fed). We might be in the midst of a period of gluttony in the M&A game, which usually portends a pretty bad belly ache. Keep the Tums nearby.

AKR

Government Gets It Right

2006-11-01T19:45:00.000-05:00

The news of the Canadian Federal Government taxing income trust products (save REITS) comes as very welcome news for the long term vitality of Canada as a capitalist society. The market reacted heavily today bailing out in droves. Every second trust on the S&P/TSX Composite was down double-digits. It wasn't pretty. Again as usual, the retail investor takes the biggest haircut on this, mostly because they were suckered into them by the institutions who fed them this line that these products are conservative and will generate stable returns over a long period of time with little risk. Bunk.

I have written numerous posts in the past about income trusts. Below is my posting from November 18, 2004:

"...Despite their strong performance, I think they (income trusts) are horrible and fly in the face of what capitalism is all about. I compare an Income Trust to a university professor who has become tenured. Knowing that they have achieved an aritificial academic milestone, they can simply go on cruise control for the rest of their lives and do mundane things. Basically they encourage corporate mediocrity and risk aversion, qualities that are not desirable if you want to have a healthy sustaining economy. Instead of reinvesting their cash back into the company and innovating to produce newer better goods and services, income trusts (and the companies behind them), tell us, "We have nothing in the pipeline, we can't grow any further, this is as good as it gets for us as a business". Income Trusts also operate on a faulty assumption that business is stable and that they will generate the same cash flows in perpetuity. This is simply insane. All companies are subject to the business cycle and will all experience shocks in demand and supply. They are not interested in pushing the envelope. Sadly these qualities are permeating in Canadian society with its preference for mediocrity and risk avoidance. If a companys stock price is languishing, simple, convert in to Trust. It is interesting that Income Trusts have been purely Canadian phenomena. They do not sell Income Trusts in the U.S., maybe because these qualities of risk aversion, low competitiveness, are not part of their lexicon. It would be un-American to do so. Entrepreneurship is encouraged. Innovation is accepted. Failure is a badge of honour. The Microsoft's, Wal-Mart's, and Encana's of the world were not created by income trusts. It is no coincidence that these qualities have made America the richest country in the world. Wealth is created by investing capital in ideas and products not by complacency and apathy.... "

Since then, we've grown to learn that accounting for these types of instruments is dodgy at best. Their are no basic accounting standards for trusts, so companies can manipulate their financial statements at will without any penalty. Ask ten people for a definition of Distributable Cash and you will get ten answers. Why? Because there is no standard definition! Because of this, we made the decision to not include Canadian income trusts in our database of companies we cover. Everyone knew this but alas they kept pouring money. To me the best litmus test of a company is to see how its stock reacts to a shock. If it is truly a solid company, the stock should take a minor hit. Today across the board, every income trust dropped like a stone, which tells me that there was never much behind these companies. If these are truly solid, stable companies, the impact should have been minimal.

The investment industry is screaming mad tonight, but don't lament for their woe too much because as we speak, they are brewing up a new product that will circumvent these new rules. They'll get their money, don't you worry about that. The best line I heard today were from the revolving door of commenators weaping that this will impact senior citizens who have been the primary investors of these products. Well if this is true I say shame on the financial services industry for hoodwinking them into thinking that they were putting their retirement savings into a security that promised stable cash income but was backed by unstable fundamentals and shady accounting. No senior citizen should have been putting dime into these things.

So kudos to Mr. Flaherty and the Federal Government for squeezing out the mediocrity that has been growing in Corporate Canada. The market took a hit today, but in the long-run, this will be the best thing for our economy. Capitalism is stronger tonight.

It's rare to say it, but the Government got it right.

AKR

Analysts Getting Bearish...Buying Opportunity?

2006-10-30T21:27:00.000-05:00

Over the last month we've seen the sentiments of the money experts turn increasingly bearish. They are not generally expecting much from stocks for the remainder of this year and early next year.

Analysts recommendations (i.e. Upgrades and Downgrades) are 3 to 1 in favour of downgrades over the past 30 days. There have been 1218 analyst downgrades and approximately 400 upgrades. If the "experts" are so bearish, then how does that explain the Dow breaking an all-time high and the S&P being up 10 percent YTD? Actually I think it explains a lot. 6 months ago, analysts were downgrading 2 stocks for every 1 they upgraded. Did the market tank? Nope it went up. Today Merril Lynch and Citigroup weighed in with ominous prognostications.

While I'm still of the opinion that there are long term painful economic structural adjustments to be made, especially in the US, the short-term does hold a possible trading opportunity given that there appears to be a consensus in the Street. I love consensus in the market and in the general media because it is usually indicates a peak or a bottom. Right now the soothsayers are pessamistic, so I'd be leaning to going long the market. If you had followed their advice you would be pretty annoyed as the market has been grooving.

Maybe it's a Halloween thing.

AKR

It's Been A Nice Ride Hedgy

2006-10-22T01:03:00.000-04:00

In the spirit of Jumping The Shark...

INHD, a small specialty digital channel in the US will be airing a 6 part reality documentary about the hedge fund industry called Wall Street Warriors. It follows around several hedge fund managers and presents it in an Entourage'esque format.

This jumps out at me as a flashpoint where you know a trend or social phenomona or cycle has peaked when it starts getting exposure on the mainstream media. Earlier in the year I wrote about the reality show, The Rig, that followed the trials and tribulations of oil workers in Alberta. This was when the oil market was red hot. Well not so much now. How about the rash of real estate shows like Sell This House, that were all over the place as the housing market was frothing. Now it's the hedgy's turn.

Gordon Gekko's "greed is good" speech in the movie Wall Street was a Jump The Shark moment that preceeded the 87 market crash. How about the Canadian show Traders which had its run in the late 90's before the market fell off in 2000-01.

It's sounds absurd, but something has to be said for the media's ability to identify a trend at it's peak. As an investor, these cues can be quite helpful as a signal to get out of certain sectors before it's too late.

So don't blame the poor traders who made insane bets on natural gas at Amaranth for the hedgy's downfall. Blame the producers at the media conglomorates...or maybe we should be thanking them?

AKR

Here we go again...

2006-10-10T19:15:00.000-04:00

Let's see, put together a web site in which you get other people to provide content (and in some cases "borrow" the content from another artist and/or company) for free. The becomes pretty popular and generates immense traffic, but alas has yet in it's brief history to turn a profit. Somehow this unprofitable web site is quite appealing and get's bought out by a company who is also quite popular for an insane amount of cash. Now instead of paying cash, it uses its stock (who many question its valuation) as currency. Hey, more power to YouTube if someone is insane enough to pay for it.

I swear I've seen this show before. I just can't remember when. Surely people have learned their lesson from the past.

Here we go again...Fool me once shame on you. Fool me twice...

AKR

As The Commodities Turn

2006-10-07T08:47:00.000-04:00

Well it should come as no surprise that commodities have come back down to earth. Despite the real demand for materials by emerging economies, the reality is that the speculators have been driving this party and now they're a bit hung over and going home. Stocks that were overvalued are now reasonably priced but not screaming buys. The party has put pressure on inflation causing rates to edge up. Now that rocks and oil are falling the natural expectation is for rates to stay flat to fall. Gold has retreated. This is likely to happen in the short run in the US but other factors need to be considered.

Interest rates are based on several risk components. Inflation is one. Political risk is another element. Credit risk is another one. If your balance is shot up (i.e. loaded with debt) you are likely to pay higher rate of interest. Lenders will want to be compensated for the higher risk you may not pay your debts. Finance 101. The US with it's bloated current account deficit and out of control government spending will tie them to keep rates higher than countries like Canada who's debt is falling thanks to...commodities!

While commodities have corrected themselves, the long term prospects are still in tact. The India's and the China's are still growing internally and demand will stay strong over the long term with pockets of breaths in between. Buying small positions of good solid wealth creating firms when the experts are pessamistic is the best way to go. We seem to be in such a pocket. Tread cautiously.

Tune in next time for another episode of As The Commodities Turn (believe us, there are many more heart wrenching episodes to come for investors).

AKR

Retail Investors Talking the Talk On Investment Research

2006-10-07T08:19:00.000-04:00

A recent survey from the Canadian Securities Administrators found that 49 percent of Canadian retail investors do not research their most recent investment eventhough 92 percent of respondents agreed that it is important to do independent research before investing. The miost upfront reason is investors rely on brokers or "professional" advice and fail to take the time to do their due dilligence.

AKR

Capital Flight Recession vs Consumer Recession

2006-10-06T21:48:00.000-04:00

Most of the prognostications you are hearing about in the mainstream business media regarding the impending soft landing or recession is based on a consumer triggered recession. The combination of the slowing US housing market which due to rising interest rates and easing house values has put less cash into homeowner's pockets along with rising energy prices has put less disposable income into the consumer's pockets. As a result, they will less prone to spend thus triggering an economic slowdown.

While we do subscribe that this scenario is being played out and can be painful, we do not think that this will the showstopper for the US economy. The thesis that we feel could be much more punishing to not only the US economy but also the global economy is the possible capital flight recession that we have discussed in numerous posts. This "silent killer" revolves around capital being pulled out of the US economy as the combination of lower interest rates along with a bloated balance sheet (current account deficit and government deficits) that make US investments riskier and unattractive. It becomes difficult for lenders to justify holding US bonds that provide a small rate of return when the financial books are a mess. Foreign lenders will demand a higher return for their capital to compensate for this credit risk, which will force the US to keep interest rates high, which in turn will throw the US economy into a severe recession. As capital is pulled out, the Dollar will free-fall, thus making imports more expensive and triggering a bout of inflation, which in turn forces the US to jack up its rate further. Gold becomes an investment of choice. The adjustment is necessary and unfortunately it could be painful. The US has been able to get away with it so far mainly by touting it's history and press clippings, but eventually simple market economics will come into play and this adjustment will occur. It has happened in New Zealand and Brazil and in Argentina. Surely America is not immune to such a free market phenomona.

The best way to measure whether this flight of capital phenomona is occuring is to look at a countries foreign reserves. Most companies hold a sizeable portion of their reserves in US dollars. Over the past 4-6 months, we are seeing evidence of countries paring down their US dollar exposure. Italy has dropped its dollar holdings from 84 percent to 63 percent and increased its Pound holdings to 24 percent from next to nothing. Other countries are following suit. Sweeden has dropped holdings from 37 percent to 20 percent. United Arab Emirates has announced its intention to diversify its dollar holdings into Euros. The Swiss National Bank recently sold 10 percent of its US holdings to buy Euros. Russia has cut its dollar holdings from 65 percent to 40 percent. Granted these are small players. The big boys namely China and Japan which own approximately $1.8 trillion in US bonds have not begun selling dollars, but China has signalled they will be diversifying into a basket of currencies. If they start repatriating dollars, look out. Japan has indicated that they will be raising their interest rates which will attract further capital. A flight of capital would force the US to redirect resources to funding this deficit which would could have been used to fund social programs and other more priority items. The result is a rapid reduction in the American standard of living.

So while we feel it is important to watch the psyche of the consumer, we feel equal attention must be paid on those central banks and currency traders who can easily bring the US and global economy to its knees.

Currently we hold small positions in ETF's that track the S&P500 and intend to keep a small position until this adjustment in account balances works it's way through the system. Long-term we are bullish on the US, but it needs to take some bad tasting medicine in the short to
medium term.

AKR

The New Market Math

2006-10-05T17:32:00.000-04:00

According to the new logic in the markets this week:

ISM Service Report down greater than economist estimates

Yield curve that is still flat to inverted for most of this year

Housing sector that is continuing to cool off.

US Government and Current Account deficit growing and swelling forcing
lenders to demand higher interest rates to
fund the US addiction to cheap imports

Companies are laying more and more people according to Challenger Gray
and Christmas

Wal-Mart revising it's same store sales downward

Energy prices extremely susceptible to exploding pending geopolitical events

Analysts and soothsayers who are blushing with giddyness and optimism
about the economy

= Dow Jones Industrial Average reaching a record high this week and
threatening to smash through the 12,000 level

If this is indeed the New Math for the stock market, then I'm worried.

AKR

Symptoms of US Economic Flu Linger

2006-09-18T21:17:00.000-04:00

In previous posts we have commented that we expect interest rates to resume an upward trend in the US, primarily due to a growing account deficit that will force foreign lenders of capital to demand higher rates to of return. The higher deficit will smash the US dollar, raise gold prices and subsequently force the Fed to raise rates to attract capital. This in turn would tip the US into a painful recession, which would have negative implications for the global economy. The latest economic data suggest that conditions continue to be ripe for such an economic adjustment.

Today the Commerce Department reported that the US current account deficit for the 2nd quarter widened to $218.4 billion from a revised $213.2 billion in Q1. A large current account deficit is manageable as long as you can raise capital to fund the deficit. It is estimated that the US needs to borrow $2.4 billion per day to fund its deficit. The US has been able to do so due to a combination of low interest rates and limited investment opportunities in the world (China/India not included), but as rates have increased, the trend has been reversed. The Treasury Department reported today that net purchases of US debt securities fell by half in August to $32.9 billion from $75.1 billion in June. The funding gap amounted to about 6.6 percent of GDP which is down from the record 7 percent level at the end of 2005. If this trend continues the Fed may have little choice but to raise interest rates to attract capital despite evidence that the US economy is slowing down and inflation that appears to be moderating as a result of lower commodity prices. The bond market spiked up after the report was release with 10 year bond yields rising to 4.83 percent. It didn't make the headline news this evening, but like any cold, the symptoms are there in the backgroundand when you least expect it, your throat will start tickling. At that point, it's too late.

Based on this, we continue to ascribe to a strategy of waiting for the Flu to make its way through the US economy upon which we would jump back into US equities. There's not enough pain yet, so we continue to maintain a very small position in the S&P500 index and high dividend paying US blue chip stocks.. For now, we think holding gold is a more prudent strategy. The recent drop off in Gold provides a decent entry point.

AKR

Disclosure: Part 1

2006-09-06T20:16:00.000-04:00

Well back from a brief summer respite. We get a fair bit of email asking us what stocks we own or own on behalf of family or for clients we advise on. On our website you will see disclosures indiating postions we have taken or sold.

To understand what we own, we have to start where we have come from to where we are going. Currently our portfolios are about split 50/50 in cash and stocks. At the start of the 2006, we were about 30 percent stocks and 70 percent cash. Over the year we have been accumulating stocks, especially during periods where the soothsayers have grown pessamistic on the market. We are particularly waiting for a major market event to occur sometime this year for us to fully jump back into the market.

Overall, we still maintain the same thesis we had at the start of the 2006 that the economy in both Canada and the US will be slowing. The yield curve has for the most part been flat to inverted in the US and often foreshadows a slowdown. So far things have been evolving as expected. Rising interest rates has finally thrown cold water on the housing sector and will culminate in a total fall once the second shoe drops, which is when people start losing their jobs. While the Fed has paused, we still feel that rates will eventually have to go up in the US as the massive current account deficit will force prime lenders that have been buying US bonds like China and Japan to demand higher returns. Inflation is still a factor given rising wages and pockets of rising commodity prices. In Canada, there will be a slowdown however it will be milder due to the high energy and commodity prices combined with a stronger fiscal position. As a result, we have over the course of this year been building up a more defensive prone portfolio with an emphasis on basic staples and health care companies. Year to date the portfolios we manage or advise on have returned in the range of 3 to 8.9 percent. We are expecting a significant market correction to occur at some point, upon which we will likely shift are allocation to more growth and aggressive type stocks.

Over the next several postings, I will list some of the stocks we currently own and sold.

Rothmans (ROC)
In slowing economies, the consumer staples firms tend to perform well. In our database, Rothman's rates as one of the top consistent wealth creating companies in good times and bad. The 6 percent dividend yield doesn't hurt. If you can get over the health factor, it's a pretty solid company. We've been accumulating it in the high teens and can see it valued in the mid $20's.

Metro Inc. (MRU.A)
Another staple company. Excess return on invested capital of 14 percent. Of the Canadian grocery chains, it is the best valued. Tripled it's revenue as a result of buying the A&P stores. The Wal-Mart threat is there, but more and more it looks like the Canadian firms are better equipped to meet the competition head-on. We bought it at $30.50 and have it valued in the $50 range.

Talisman Energy (TLM)
TLM was the top wealth creating firm in our database for fiscal 2005. It is also the cheapest oil company in our database so put 1+1 together. We've been averaging it down to the $20 level and have it valued in our model at $26. Even if oil drops to $50, TLM still creates positive Economic Profit. TLM is more diversified oil company with many assets around the world. Today it announced that it is selling it's Canadian oil sands assets to raise cash to buy back it's stock. A nice move to sell these assets when the market it hot.

MegaBrands (MB)
While buying a toy company in a slowing economy may seem like a crazy proposition, we have a small position in MB basically because they keep putting up great economic performance. On our database, MB ranks as the top value creating company with an Excess ROIC of 74 percent and an Economic Profit yield of 18 percent. The stock historically pops as Christmas approaches. We've held the stock in the past and profited from it nicely. Patience is a key with MB.

ETF's
Along with stocks, we do use ETF's to take positions in areas/sectors which we don't do research or cover in detail. This primarily includes foreign companies/markets, specialty sectors and the fixed income market.

iShares Canadian Bond ETF (XBB)
Following our thesis of a slowing economy, we have been waiting for a moment where the Bank of Canada would halt it's rate tightening policy. That occured in July and since then, we have been buiding up a position in the XBB that essentially tracks the Canadian bond market. Since we began buying, the position is up about 3 percent and we think rates are likely to stay flat and eventually go down. This means bond prices will go up. We think there's about 10-15 percent upside in this ETF plus a yield of about 4.5 percent.

iShares Gold ETF (IGT)
Again another play on the economic adjustment thesis that we expect to occur in the US. Evenutally we believe the US dollar as lenders who have been propping up the US economy will sell US bonds which will cause the Dollar to tank and with that gold prices should surge. In our analysis, gold companies have proven themselves to be tremendous destroyers of wealth. We think the pure gold play of this ETF removes the business risk. We took a position when gold was trading in the low $500's and sold when gold peaked at $750. Factoring currency, we were up 23 percent. When gold fell back down to the $580 mark, we bought back in and we're looking to buy on the dips.

iShares Emerging Markets (EEM)
This is a long term investment. The ETF invests in the emerging markets of China and India and South America. A great and cheap way to get some diversification in the 2 fastest growing and increasingly influential economies in the world. Early in the year we took a position when it was trading in the high $70's and sold when it peaked in June at $100US for a 23 percent gain. Since then it dropped back to the mid $80's at which we bought back in. It's back up to the mid $90's, so we may be selling again soon.

PowerShares Water ETF (PHO)
A long term investment. We strongly believe the next great world conflict will be fought over water NOT oil. As global warming grows, the supply of fresh water will continue to decrease. The fact of the matter is, America is turning into a desert and it's primary focus will be water. It's already raising rumblings that the NAFTA agreement entitles them to open access to Canada's abundant fresh water. The ETF contains a portfolio of water utilities, water treatment, and water infrastructure type companies. This ETF replaces a position we had of American Water Company (AWR), which we sold in August for a 23 percent gain this year. Again, a nice way to get spread out the risk and diversify with minimal expense.

The next post will look at some of the positions we've had in the Health Care sector. There have been some hits and some misses.

AKR

Signal Patterns At The Fed

2006-08-09T18:49:00.000-04:00

Yesterday, the US Federal Reserve decided that there's no need to continue to jack up interest rates. While many in the soothsaying business have claimed this to be a necessary action...or inaction, the fact of the matter is this is the pause before the storm. I am of the opinion that Gentle Ben will have no choice but to eventually continue the hiking of interest rates.

The reality is inflation is still here. Wages may come down as the economy slows down, but commodities and materials are likely to stay high. This ultimately will continue to seap its way into final goods and services. If the Fed were somehow to keep rates as is or even try to reduce them, the US dollar will get killed causing inflation in the goods it imports, even from China.

Secondly, the current account deficit shows no signs it is going down anytime soon. Lenders will continue to demand a high return on the capital as long as its balance sheet remains a mess.

As a result, we expect the US economy to slow down dramatically as it works its way through this adjustment. The Fed has it's hands tied.

In Canada, the story is very different. Because of the healthier balance sheet, the Bank of Canada can afford to hold the line on interest rates and may even lower them, if the Canadian Dollar starts going up.

So take a deep breath during this pause, keep your powder dry and wait for the upcoming storm.

AKR

Deep Thoughts By The Retail Investor

2006-08-09T18:47:00.000-04:00

A recent TD Ameritrade survey found that the retail investor is still bullish on energy stocks over the next 6 months. They are particularly are not fond of consumer goods, telecom and software sectors. Note to Self: Start looking at consumer goods, telecom and software stocks and start re-examining the oils again. (Disclosure: I only own one energy stock which is Talisman Energy primarily because it is the largest wealth creating firm in our database and is also quite cheap relative to other energy stocks).

In the last month, 45 percent did not change their portfolios. 30 percent increased their weighting in stocks while 24 percent moved out of stocks into money market type funds.

64 percent of respondents feel that real estate bubble has officially popped and now believe it is a buyers market. Note to Self-2: It may be a bit early, but at some point it will become good to start looking at real estate type stocks…but not yet.

AKR

The Pro's Are Grumpy....Start Your Buy Orders

2006-07-18T14:15:00.000-04:00

Merril Lynch's monthly survey of global portfolio managers revealed that money managers are at their most pessamistic since Merril started the survey in 2001. The survey for July revealed that 72 percent of managers are pessamistic about the economy over the next 12 months. This is up from 61 percent in in June and up from 40 percent from back in April. On average, managers are reducing their stock allocations from 60 percent in May to 54 percent in June. Bonds continue to be out of favor with 70 percent underweighting bonds.

These results and results from other market sentiment indicators clearly indicate that there is a high level of nervousness and hesitance to stay in stocks and when that occurs, it's time to start picking up stocks on the cheap. Are we at a bottom? I don't think so, but I think we are a market shock event or two away from some capitulation. As more of this sentiment grows, we are getting more and more interested in building up our equity exposure.

As a point of disclosure, at the start of 2006 we were approximately 25-30 percent in stocks. We are now over 50 percent and it is likely we will be adding to this level.

Ladies and Gentlemen...make your list and start shopping!

AKR

Revelations about Financial Newsletters, Mutual Funds and Financial Advisors

2006-07-16T19:52:00.000-04:00

I'd like to highlight for you several significant studies that were released in the last month or so that go some face time in the NY Times and the Toronto Star. CNBC didn't even acknowledge them (BO-R-RING...too busy making that Fast Money). The studies looked into the performance of stock/investment newsletters, mutual funds as a whole, and finally the value of financial advisors. It isn't pretty. We've talked about these issues at some point in time in our blog or in our research to clients. I think these studies are pretty significant and should open your eyes.

Investment Newsletters
The first study was undertaken by The Hulbert Financial Digest. They have been tracking the performance of financial newsletters over the past 26 years. Hulbert constructed model portfolios based on advice given by newsletters and found that only ONE in seven newsletters could beat the S&P 500 index over the long term. What’s unique is that Hulber used real-time monitoring of the portfolios, not just going back in history, so historical bias was minimized. This makes the analysis much more authentic and relevant. When Hulbert started tracking newsletters in 1980, there were only 35. Of the 35, 13 exist today. Of the 13 in existence, 3 outperformed the index consistently over the past 26 years. Of the other 22, only 2 outperformed during their lifetimes That's 14 percent of the original sample. Hulbert even adjusted the returns to account some portfolios being more diversified against the benchmark; the results were still not impressive.

Mutual Funds
The same type of analysis was done by the Lipper, the fund tracking company. According to Lipper, just 19 percent of US equity mutual funds that have existed since 1980 were able to beat the S&P500 until May 2006. These funds generated an average return over the period of 10.9 percent. Newsletters generated a return of 10.9 percent. The S&P500 generated an average annual return of 13.0 percent over the same period.

Now for me the underperformance is not a big deal because I maintain that it is extremely difficult to outperform an index consistently. Coming close is not that bad. However what riles me immensely is that these returns described above don't factor in the management and advisory expenses that average investors have to pay every year no matter how the market is doing. For this underperformance, the average investor gets dinged from 2-4 percent per year. Meanwhile the advisors, brokers, and analysts are counting their bucks. Factoring that in, now I've got some issues.

Financial Advice
A recent US study by three leading business professors from Harvard Business School and the University of Oregon suggests that most mutual fund investors do not benefit financially from professional advice.

The research team led by Peter Tufano, a senior associate dean at Harvard Business School, Daniel Bergstresser and John Chalmers of the University of Oregon , examined how well investors did after buying units in 4,541 mutual funds between 1996 and 2002. The funds held some $3.8 trillion (U.S.) in assets in 2002, with two-thirds of those assets held in funds sold through various types of professional advisers or brokers. At the onset, the professors began their study with the following premise: "The prominence of funds sold through brokers implies that brokers provide consumers with valued services," At the end of the study, they wrote "Our study identified few, if any, of these benefits." According to the study, clients not only paid extra for advice; the funds they bought had higher fees and did not perform as well as funds investors bought directly, such as from the leading U.S. marketer of index-tracking mutual funds, The Vanguard Group Inc. They estimated that before accounting for distribution costs, the under-performance of broker chanel funds relative to funds sold directly through direct channel costs retail investors in the US approximately $9 billion per year. These costs reduce annual returns by 0.86 percent.

There's more, the study concluded that advisors don't provide any value-added service when it comes to asset allocation. A perception the industry always touts is their ability to identify apporpriate mixtures of assets for clients. Those supercomputer models had to be good for something. In addition the study identified that advisors:

Are likely to chase trends. (The authors do not specify what trends, but Professor Moine from U of Oregon contends advisers over-emphasized technology funds in the late 1990s, and they are now pushing energy, gold and foreign funds.). Scary.
Charge higher upfront sales charges

The study also compared weighted average returns, net of all fees except charges paid up front or at the time of redemption. Equity funds sold by financial advisors had an average annual return of 2.9 per cent between 1996 and 2002. Yet equity funds purchased directly earned 6.63 per cent. In other words, if you educated yourself and did the research yourself, you probably are more likely to do better than someone with a bunch of initials.

In fairness, the study also stated that it is likely that the industry may provide some intangible benefits to retail investors, but did not delve into those aspects. I wouldn't hold it past them to investigate this in the future.

Did I mention, that this study was done in conjunction with some of the leading business schools in America? This isn't some peddly analysis.
A copy of the report, entitled, Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry is available at http://www.ssrn.com

These reports are sending shockwaves in the industry. Some call this one of the most significant studies in a decade. I say bravo for finally quantifying these revelations.

The next time you meet with your advisor, bring up these reports and see what they're response is...if any.

AKR

Investor Pessamism Grows...Finally!

2006-07-03T15:09:00.000-04:00

In June, the UBS/Gallup Index of retail investor optimism fell to its lowest point in 8 months. The index fell from 64 to 58 in June.

Half of the people surveyed felt the economy is slowing down.

60 percent think the Fed will overshoot it's interest rate tightening and trigger a recession.

32 percent felt more pessamistic about the stock market in June compared to 23 percent in May.

These types of results indicate that the retail investor (through no fault of their own) as usual is late to the game and often takes the hit. These results indicate a short-term buying opportunity is opening up, especially in sectors like technology and health care which were dumped like the baby in the commodity correction. The long term fundamentals which I've written about in previous posts still hold. I believe we have yet to see the major adjustment take place in global account balances, but the tremors are there, so buy on the dips or in this case, the pessamism. .

AKR

In Support of Call Centre Agents

2006-06-21T23:15:00.000-04:00

I'm sure most of you webheads have by now stumbled upon the infamous audio file involving an AOL customer who got the royal runaround when he called to cancel his Internet account. The client sevice rep badgered the customer for almost 45 minutes. Many business commentators hit the airwaves denouncing AOL for their negative business practices and even worse slamming the agent and Call Centre agents as a whole.

At first blush, I felt pretty irate about AOL's treatment of their clients, but after some sober second thought, I now feel my anger was misdirected. I should be ticked off at Wall Street and Bay Street. Ridiculous growth expectations by equity analysts and pressure on CEO's to meet artificial quarterly earnings estimates are forcing companies like AOL to enact business processes that try to preserve or enhance their cashflow, often at the expense of the consumer. The phone agent unfortunately bears the brunt of this by essentially stalling customers from cancelling accounts or making refunds. AOL is not alone in this. Just try to return or cancel anything these days and you'll see.

So next time you're on the phone with an agent, don't go postal on them. They're just doing what they're told. Instead, go to the source and take it out on that overpaid equity analyst who somehow thinks every company has to grow 20 percent a year or it's a piece of junk.

AKR

Stocks Falling? Exxxcelllent...

2006-06-19T08:50:00.000-04:00

At the risk of sounding like a glutton for punishment, the 293 point plunge in the TSX last week and the the subsequent impending doom that was expressed by papers such as the Globe and Mail on their front page ("Markets' Big Slide Deepens") made me feel warm and fuzzy. When stocks become front page news for bad reasons, you know buying opportunities will be coming. Seemed like the smart ones know this as the market proceeded to bounce back the next day.

When you see quotes from soothsayers liike Patricia Croft of Phillips Hagar and North, ("It's ugly"... " Everyone is headed for the exits at once and it's become a global phenomona...") You know we're near the end of a bottom.

Is the market heading up? I have no idea, but all I know from my experience is when the mainstream media and professionals get pessamistic, I pay attention and start buying. Such a situation appears to be presenting itself.

Further evidence can be found from the recent Merril Lynch survey of global money managers which showed that 57 percent expect the economy to get weaker, which was up from 41 pct the month before. Portfolios are also carrying more cash (39 pct vs 33 pct).

Sounds like music to my ears...I'm going shopping.

AKR

The Fed Enters The Information Age

2006-06-15T17:28:00.000-04:00

We're hearing a lot from the Fed these days about being more reliant about economic data as it plots our economic destiny. The term "data dependant" is becoming the buzzword for economic observers.

Here's my thing and forgive me if this sounds really dumb. If the Fed is hot and heavy over information now, this leads me to conclude that up until now they haven't been too reliant on information. If this is the case, then what the heck have they been basing monetary policy over the last bazillion years! Have interest rates been set on the back of a napkin? How many tea leaves has the Fed gone through? Sure this all sounds stupid, but the way everyone's talking about the discovery of information you'd think they discovered plutonium.

How many astrologists are on the government dole? Do lunar eclipses factor into decison making? What kind of darts do they use?

AKR

Leading The Evening News...

2006-06-11T08:31:00.000-04:00

Friday's national newscast were all led off by the latest Canadian job numbers, which showed that over 90+ thousand new jobs (most full-time) were created in May. Growth was led by almost all sectors and in most parts of the country. Usually, these type of stories are further down in the newscasts, but I found it interesting that it was the lead story. Right now, if you can breathe, there's a job for you. Usually, when the mnainstream media gets hot and heavy about this stuff, it signals that we've peaked and that it goes downhill after this. With interest rates trending up and commodities catching it's breath, don't be surprised if things tank in the next short while.

In other news...

Recent data shows that Canadian retail investors have put $652 million into natural resource mutual funds in Q1. It is estimated an additional $456 million will be invested by the retail crowd for the rest the this year. That's about $1.1 billion into commodities. An interesting situation, as history has shown that when the average bloke jumps in a sector, it usually tanks shortly after. The recent push back in the commodity rich TSX, seems to reinforce this notion. At this point, it would be best to sit by and wait for further carnage and the subsequent fleeing of the retail investors and then jump in.

AKR

Ready, Aim, Overshoot!!!

2006-06-07T22:55:00.000-04:00

The events in interest rate land during the last week have been interesting. Last Friday, the US jobs report showed much less jobs were created last month and the revisons weren't any better. Every analyst and their mother ran into the streets shouting, "Pause! Pause!" All appeared well in interest rate land until Tuesday when the Fed Man Bernanke tossed that concept out the window indicating further rate hikes are in the offing because he's not convinced the inflation bug has been licked. Now everyone's ticked and grumpy.

No surprises on this side. We're in the overshoot phase. Central Banks have historically overshot in the interest rate guessing game and usually that means some kind of slowdown is in the offing. The yield curve is flattening again. Another sign of future weakness.

In other news...

Lehman Brothers announced last week it will be reentering the Canadian market, becoming the latest US investment bank to return. When they left Canada the market jumped shortly after and now they're back just as the market appears to be slowing down. Coincidence? I don't think so. Another classic contrarian indicator.

AKR

Leading Off The News....

2006-05-17T21:03:00.000-04:00

Fresh off the 214 point drop in the Dow and the 180 point in the TSX Composite Index, all 3 major American television networks led off their evening newscasts tonight with the stock market, a clear sign that buying opportunities may begin presenting themselves as speculators head for the exits. When the mainstream media is focussed on the market, you know the time has come to look at stocks.

In other news Merril Lynch's monthly survey of global money managers revealed managers are becoming very pessamistic about stocks and the prospects for the US dollar. Another good contrarian sign.

AKR

State Of The Canadian Economy

2006-05-16T22:40:00.000-04:00

Testimony Before House of Commons Finance Committee.
May 16, 2006

Mr. Chairman, I come before you today to report on the state of the nations economy and my assessment of where it is going.

In a nutshell, we’ve done well. GDP has been strong and has grown steadily. Unemployment is low. Fiscally, Canada’s balance sheet is cleaner than it has ever been. Inflation has been pretty much in check despite spikes in various commodities. We approach our 10^th consecutive
year of fiscal surpluses. This has allowed our interest rates to remain low. Canada’s total debt to GDP has also fallen. We don’t need to borrow as much and when we do, our stellar credit rating has allowed us to borrow at lower and more favourable interest rates. These lower rates
have created conditions ripe for Canadians to own their own homes, buy cars, and renovate their houses. The world has taken notice and has realized that Canada is open for business. Canada’s stock, the Canadian Dollar is now near 90 cents US and is approaching parity. This has good
points and bad points, which I will discuss shortly.

We are also blessed with God given and plentiful natural resources that are in demand by other countries in the world. This has powered our stock market to near all time high’s. They also need Canadian dollars to buy them so the Loonie has also benefited from this surge. The bottom
line is unlike the Dot Com fiasco that started the 21^st Century; real tangible wealth is being created in Canada, especially in the provinces of Alberta and BC.

Life is pretty good right now, but today Mr. Chairman, I come before you to report that there are storm clouds on the horizon.

Mr. Chairman, Canada does not operate in isolation anymore. We are heavily integrated in the global economy, especially with the United States. Economic events that particularly occur to the south will havesignificant impact on the Canadian economy.

Unlike Canada Mr. Chairman, the US’s balance sheet is in a mess. The government’s is in a major deficit position, and is showing no signs of improvement anytime soon. The US’s current account deficit is ballooning astronomically. To fund this deficit, the US has made a kind of
unwritten deal with the world, specifically with South East Asia in which the US agrees to buy their cheap exports in exchange for loaning them cash to fund the deficit. While in the short run this has been proven an accommodative relationship, it is unsustainable. The US
economy has indeed grown, unemployment is down, inflation has been in check because of the cheaper imports, but unlike Canada, its growth has been paid for with a credit card. It has gotten by so far by making the minimum monthly payment, but as any of us know, just making the monthly payment only increases the deficit even more in the long run. A global
imbalance has emerged, and ultimately will have to be adjusted. Should this imbalance widen, lenders will be less inclined to hold US securities and subsequently US dollars. We are seeing the impact of this as foreign investors are slowly diversifying into other assets such as
Gold. While the Fed appears to be hinting that it will stop increasing rates, we feel they will have to eventually continue to raise rates to entice foreigners to fund their appetite for cheap imports. While higher rates would normally increase the local currency, recent comments by the
Bush Administration indicate that are willing to let the dollar drop significantly to make its goods and services cheaper to export, thus reducing the current account deficit. Unfortunately this action will increase the price of imports and consequently inflation and higher interest rates. Higher rates will increase borrowing costs, which will poor cold water over a hot real estate market. Evidence has shown that this now occurring in Southern California and the North East. While many real estate analysts consider the real estate run up as a regional phenomenon, the bottom line is a real estate shock in a large urban market has national economic implications. Higher rates will slow down consumer spending and given the consumer’s high rate of debt, the
potential for financial hardship for families are great. Profits will suffer and ultimately unemployment will increase. Not a pretty picture.

The bottom line is the status quo is fuelling the seeds for a deep and painful adjustment in the US economy and that will ultimately have an impact on the Canadian economy. A sinking US greenback has and will continue to put significant upward pressure on our Loonie and this will
have positive and negative implications. Positively, speaking a more valuable Canadian dollar increases our purchasing power and allows us to invest in goods and services that will improve our productivity and competitiveness. Negatively, it will increase the costs of our exports
and for the short-run make our manufacturing complex less competitive, especially in Central Canada. There will be a period of adjustment. The demand for natural resources by growing economies in the Far East will insulate Canada from the full effect of this adjustment in global
balances, but make no mistake; there will be an impact.

Taking these events into account, what should an investor do? Stocks? Bonds? Gold? Real Estate? Let me briefly discuss each of these assetcategories.

Given the expectation that the US dollar will depreciate and also given that inflationary pressures on commodities will persist, we anticipate that Gold will continue to rise. New investment products like Gold ETF’s allow investors to establish pure gold positions with incurring themanagement risk that many Gold producing firms offer.

We believe rates will remain steady in the short term, but will eventually resume it’s upward trend, not because Central Banks want it to, but because they will have little choice as inflationary pressures continue. From a historical perspective, central banks have also had a
tendency to overshoot its tightening policies and given in the US we have a new Fed chairman, who would like to make his mark, we can’t seem him doing otherwise. This makes playing the long end of the yield curve highly risky, and the short side of the curve more attractive. Cash is
truly king in the short-term.

Right now we are having a very difficult time finding good cheap stocks to buy. Canadian firms are producing great wealth, but this has been reflected in their stock prices. Most energy and commodity companies are trading at full or over-value. There is a great risk, especially in the
Canadian market, which is significantly weighted towards energy, resource and financial stocks for a major pullback. Value plays are being offered in the IT, Health Care/Biotech sectors.

We are now seeing evidence of a slow-down in real estate prices. A house that used to sell in days in some parts of Canada and the US are now taking as longs as 90-120 days to close. As rising rates continue, this will become more profound. While we don’t see a sudden collapse in the housing market, we see a methodical slow-down. The major impact will be
to speculators and house owners that purchased more house than they could afford because of the historically low rates. Homeowners that used their house as an ATM machine by taking out home equity will be clearly impacted, which ultimately will slow consumer spending of big-ticket
items. It is clear we are entering a buyer’s market.

Again the question; what is an investor to do? Well the answer revolves around patience. We anticipate a flashpoint in the global markets as the adjustment in global asset balances takes shape. Once this occurs, opportunities will present itself to take positions in equities and
income products. In the interim, we are suggesting investors accumulate a list of wealth creating equities that are likely to be on sale. We are suggesting investors keep their assets liquid, either in cash or in short-term bonds. We are suggesting investors build a short position of Gold.

Thank you Mr. Chairman. I am now ready to take your questions.

AKR

History Repeating?

2006-05-01T22:44:00.000-04:00

A few more signals of a market top in the Canadian market, as articulated by Eric Reguly of the Globe and Mail. I swear I've seen this story before.

Hermes is selling Ipod calfskin cases for $400, which is more than the I-Pod itself. You know things are getting silly.

Allan Slaight of Standard Broadcasting said he would never take his company public. Low and behold his announcement of SB forming an income trust. IPO's have been frenetic of late and usually that indicates a top is near.

Lot's of Buffet'esque money managers are selling now like Ira Gluskin and Gerry Sheff. While I personally haven't been selling, I haven't really had much incentive to buy much, except to add to existing positions on weakness.

Criminals are back in the market like dot com hucksters Frank Giustra (ex Yorkton Securities) and Scotty Paterson (remember Book4Golf.com?). That can't be good.

The Canuck Googles like Timmy's become hot stocks because of emotion or some belief that owning the stock get's you an inside track on getting the winning Roll Up The Rim cup. Companies like Stelco which have never done anything and have had shoddy management somehow triple in price.

Newfoundland because of their offshore oil can stand up and tell Big Oil where to go. They have cash now. Surely that has to be an ominous sign.

Sell-side analysts are back and in full force plugging everything that is overvalued. Anything with the word "oil" is a Strong Buy. I wouldn't be surprised to see retail companies include Oil in their name just like the Internet Bubble days when everyone put a Dot Com in their name. How about Hudson's Bay Oil and Gas Company?

Wall Street wants back in Canada. In 2001, Merrill Lynch exited the market just as it bottomed. Now Goldman Sachs and Credit Suisse want in as the market is frothing.

Coincidences? I don't think so. The signals are there. The question is how greedy are you?

AKR

China's Emerging Demographic Deficit

2006-04-24T16:10:00.000-04:00

On the heels of President Hu's visit to the US last week and the subsequent schmoozing of all things China,, another interesting insight to the large social issues the emerging economic superpower is and will be facing. A recent analysis by Helen Qiao, economist at Goldman Sachs raised some interesting questions about how the rapid aging of China's population and emerging gender imbalances could impact future growth of the Chinese economy.

China's dependency ratio (the number of people too old and too young divided by work age population) will approach 50% by 2030 and will begin to start rising by end of this decade. This ratio is almost as high as Japan which is also suffering rapid aging of it's population. It is estimated that by 2050, every 10 workers will support 7 elderly which amounts to a staggering 70% dependency ratio.

This rise in dependecy by older citizens will occur before improvements in Chinese per capita income. It is estimated that by 2030 income will be a mere $11,000 in China versus Korea which will be $52,000. In essence, China will get old before it gets rich.

This is significant as if this actually occurs, economic growth will slow. It will also put great pressure on a non-existant pension system. Fewer younger workers will be stuck to support more elderly. The government will have to allocate more capital to support which means pulling investment capital from foreign markets such as US bonds. That impacts us all.

According to Miss. Qiao, China's amazing growth could be traced back to the 70's when government limited 1 child per family as an attempt to control rapid population growth. This population explosion created a bulge in workers which has contributed to strong economic growth, but the limits on child birth will reduce this supply. Right now, they simply have the critical mass of capable workers, but this will change rather quickly. A basic solution is to remove child limits and allowing better mobility of younger rural to urban areas.

China's social engineering of the past has also created significant reduction of girls. Currently, the ratio in some Chineese communities is 150 boys for every 100 girls. Due to the 1 child policy, emphasis has been towards having boys. The policy is now 25 yrs old thus the first generation is now adult age. It is estimated that 8 million girls were aborted in last 25 years. Today it is considered illegal which of course as spawned an underground industry. This is also a serious issue in India and in other Asian countries.

North America and Europe face similar challenges with respect to aging populations, but not as pronounced as in Asia, where more and more we are becoming dependent on them for our economic future. As I've been saying, the short-term prospect for investing in the far east are promising, but in long-run, the region will encounter some significant teething pains in it's economic evolution. Best to have a moderate exposure than to bet the house.

AKR

The Media Times The Oil Market

2006-04-14T20:49:00.000-04:00

As I've written in previous posts, I'm always on the lookout for media events like magazine covers, TV shows, and general comments as usually these events often foreshadow a market top. As soon as you see something make the mainstream media, you pretty much know the trend is over and as an investor you should stay clear of it no matter how tempting it looks and despite the fact it keeps out of the popularity club. It sounds crazy, but a few recent cases show it's not that far fetched. During the height of the stock market euphoria in the late 90's, we has shows like Traders, which preceeded the meltdown. The internet was immortalized in movies like The Net and the plethora of commercials by now defunct Dot Com companies. As Enron began to burn, Forbes magazine proclaimed them as one of America's Most Admired Companies. Recently there have been numerous shows on real estate on CNN and CNBC, only to see the market now starting to cool off. Remember the series Dallas? Well that was started during the energy crisis in the late 70's. Soon after the market tanked (but the show continued strong). The media has a knack for bad timing and from an investment perspective, that's great as it provides a signal for when to get out of a certain sector.

This week there was a little release by the Outdoor Life Network that production will soon begin on a reality show called The Rig, which will track the life of oil rig workers in the Alberta oil patch. The show is expected to air this fall.

As we all know oil has been the flavour of the month or in this case the last 3 years. There has been enough ink on predicting when oil prices will peak. Given that oil rig workers are now sexy given they produce the black nectar we crave, the media figures there are enough people who want insight into this life. If history is any indication, it may have sewn the seeds for the downfall of the oil sector. As a result of this you may want to consider lightening your oil stocks gradually this summer in anticipation of this upcoming blockbuster.

DISCLOSURE:
A few days ago I did purchase some shares of Talisman Energy (TLM) primarily on valuation for my personal account. I'm only looking for a 10 percent boost in the short-term so I plan to heed the events of above and get out of it by summer's end. Just so you know.

AKR

Why The US Debt Grows...Or Is It Growing?

2006-04-02T21:23:00.000-04:00

Ricardo Hausmann and Frederico Sturzenegger of the Harvard Kennedy School of Government released a report that has stirred some debate concerning the issue of why do foreign countries continue to lend the US money at low interest rates. The current account deficit of the US is approximately $4.5 trillion. What's getting everyone in a tizzy is that Hausmann and Sturzenegger argue that the current account deficit really doesn't exist and all the cries of an impending economic crisis in the US is a lot of hot air.

The report says that the US Bureau of Economic Analysis misses $2 trillion in US foreign assets or goodwill. Then they discuss a concept they call economic "Dark Matter". They argue that the US provides a premium for American Know-How, liquid markets, low political risk. Their analysis values the Dark Matter at $3 Trillion.

The authors believe the Dark Matter brings a premium to US investors. Based on this they believe US is still a creditor nation. According to their analysis, by factoring in the $2 trillion from foreign assets with $3 trillion dark matter and then deducting the reported $4.5 trillion debt, they believe that the US is in fact posting a current account SURPLUS of $500 billion

The report argues that basically US has spent $4.5 trillion more of economic stimulus at a low cost.

The analysis is intriguing. I wonder though how they could put a dollar figure on America's goodwill but it reveals an interesting insight into the US's mindset. Essentially, the US is living off their press clippings and is adopting a complacent approach. The US feels that because they have been the dominant economic power of the last century, they can put it in cruise control in the future despite the emergence of new powers in Asia. It's almost a "Don't Worry Be Happy" mentality and that the consequences of running up high deficits, which have devastated countries like New Zealand and Argentina somehow do not apply to the US. Hard work, creativity, and entrepreurship have been the hallmarks of American economic dominance. Now, it's more about celebrity and winning Texas Hold'em. They're losing their edge and are cocooning themselves. Complacency is usually how the great empire's fall and sadly the US appears to be showing the same symptoms. Reports like the above appear to crystalize this element of denial.

AKR

Seven Deadly Sins of Investing

2006-03-18T20:44:00.000-05:00

A clever and insightful writeup by the people at Dresdner Kleinwort Wasserstein Securities that highlights common mistakes or "sins" that professional money managers make. This was sent to internal staff but eventually has made its way around the business. It's a very rare thing to see portfolio managers criticize themselves so I found this to be very refreshing.

1) Pride (Forecasting)
75 percent of managers considered themselves above average in their job. Evidence suggest many are overconfident and poor forcasters.

2) Gluttony (Illusion of Knowledge)
"Noise and news have fused together in a bewildering deluge of data.". Managers should focus on key factors instead looking at every nugget of information.

3) Lust (Meeting Companies)
Meeting management is a waste of time. Companies are usually over optimistic and managers tend to get sucked in by the marketing. The guidance two-step mating dance often follows closely after.

4) Envy (Thinking You Can Outsmart Everyone)
Pressure to perform month-to-month forces managers to take more riskier positions. Managers spend too much to time trying to time the market.

5)Avariace (Thinking too short-term)
Performance is measured on shorter time horzons. This leads to fund manager to create potfolios that essentailly follow indexes

6) Sloth (Believing Everything You Read)
Decisons made on stories offering allure of growth. Managers should avoid the noise and focus on fundamentals.

7) Wrath (Group Based Decisions)
Investment by committee runs risk of polarization. Fund managers end up basically telling the group what they want to hear instead of offering new ideas. The classic example is that it's easy to justify IBM rather than a Cognos.

AKR

Penthouse vs Ivory Tower

2006-02-27T22:53:00.000-05:00

Yet another survey of the performance of the top market prognosticators. The latest is by Smart Money magazine. SM surveyed the top pundits, which I classify as the ones you see on CNBC all the time. The soothasyers were Abby Joseph Cohen of Goldman Sachs, Elaine Garzerelli (one of the few who predicted 87 crash), Ed Yardeni of Deutche Bank and bond guru Bill Gross of Pimco.

SM reviewed the their predictions between 1997 to 2002. During this period, the best soothsayer was correct only 25% of the time in their predictions.

That award goes to Bill Gross who was correct 2 out of 8 times. That's a .250 average. Not a .300 hitter among them all!!

As an investor, this is not what you want to hear. I personally think that's great because it's clearly evident that whatever they think is going to happen is usually not going to happen. As an investor, this is great to exploit. It's as close to a sure thing you can get in investing.

If Hollywood economists are not your cup of tea, you might be interested in the Ivory Tower scene. Eric Kirzner, Professor of Finance at University of Toronto uses a passive approach that has yielded 8 percent over since 1997. He has been right 100 percent of time. What's impressive is that his approach so simple and basic.

Mr. Kitzner uses basic asset allocation of 20 percent cash, 30 percent bonds, 35 percent Canadian equities and 15 percent US equities. He uses ETF's and rebalances once or twice year. As one sector gets too hot he takes some off the table and moves it in an underperforming sector. It's long term in approach and the numbers don't lie. He gets results which can't be said of the Penthouse crowd.

AKR

You're Smarter Than You Think

2006-02-12T10:34:00.000-05:00

One of the things that really annoys me as analyst and scares me as an investor is the level of knowledge that people who we entrust our money to have about investing. I don't how many times I've been in a meeting with a portfolio manager or an equity analyst who advises on billion
dollar portfolios only to be stunned and dismayed by the lack of understanding of basic fundamental investing priniciples, or even more the lack of work they actually put into evaluating companies as well as the lack of independent thinking and the mentality of chasing "the hot trends". These are people with MBA's, CFA's and other initials who supposedly have more knowledge and expertise than the anyone else. Sometimes I wonder if it's all really BS.

An article by Avner Mandelman in the Globe and Mail entitled "Stocks are like dating: It's the quiet ones that might surprise you", really crystalizes the mentality by the institutions. It's a personal snapshot into a conversation he had with a pension fund research manager. Very
cleverly, he calls out the manager on this. The manager was looking for an opinion on IBM stock. First red flag. An analyst should never be looking for tips on a stock or any investment product. I mean you're an analyst. DO THE WORK! It fascinates me how little work analysts do now
on stocks, for the money we as investors pay in MER's. It's like they turn on CNBC and hear a couple lines and then crank out some nonsense.

Below is an extract of Mr. Mandelman's converstation:

Pension Manager: "...I only want to know what you think of IBM. It's a well-known stock...It's solid and hardly ever grows. What do you think of it?"

Mandelman: "...truth be told, I was very familiar with the company, I never wasted a single thought on IBM as a stock..."

Pension Manager: "...No? Why not?"

Mandelman: "...Why even think of it when its good days are behind it, and when it's already owned by every pension fund in the land?..."

Pension Manager: "...What's wrong with being owned by every pension fund? The best companies are and rightly so. All stocks on our approved lists are famous and widely owned, else the committee wouldn't let us buy them. Why do you think I have to look at IBM?..."

Mandelman: "...Zactly..."

Pension Manager: "...But isn't investing in the best known stocks of one of the best run companies who are household names, the best and safest strategy?..."

Mandelman: "...Ah...Household names. Did you own Nortel?..."

The research manager turned slightly pink.

Mandelman: "...What's good investing, in your opinion?..."

Pension Manager (after a pause): "...Uh, buying well known, widely owned, well researched stocks, no?..."

Mandelman: "No. This is more like parking money. Good investing is buying cheap stocks about which you know far more than others, and selling them dearly once they've become so well known that every pension fund wants to own them. But if all the big funds already owned a stock, who would buy it from you?..."

Pension Manager: "...You mean IBM is not safer than a small-cap growth stock?..."

Remember, this is a Pension Fund manager who could be managing your companies retirement portfolio.

Mandelman: "...Not if IBM is expensive and the small cap is cheap and growing. Buying famous expensive stocks just because they are liquid, is like looking for the proverbial penny under the street light, instead of where it really is...in the dark..."

Pension Manager: "...So what do you like?..."

Mandelman: "...Axia Netmedia Corp looks interesting. It has a low P/E, BCE has invested in them, and one day it may buy it all out...."

Pension Manager: "So maybe in a few years our committee will be able to approve it? Once it is better known?..."

Mandelman: "Maybe..."

A few things stand out from this simple conversation (I'm hoping it actually occured. Don't want to pull an Oprah here!). First, I think this kind of mentality by institutional investment managers is more the rule rather than the exception. It's easier for a manager to justify
buying an IBM than it is to buy a Cognos or a Hummingbird as it's less work, since everyone else is covering the company. Second, institutional investment managers chase the flavour of the month rather than look for the diamonds in the rough where the true value lies. Again, it's easy
and requires little work. Third, despite the wide knowledge and intelligence of these managers, very little understand how wealth is created in our capitalist society. It's about beating a short-term artifical benchmark. I can tell stories about times when I was explaining to porfolio managers who had a hard time understanding what a balance sheet is. That's why when I see articles like Mr. Mandelman's, I get riled up because if these people can't do what they're paid to do, why bother? Investors always lose in this game. Fourth, in the industries defence, they do have their hands tied. They are buried by numerous restrictions on what they can and cannot buy. The system forces manager to close their eyes on new ideas and business models. They have to stay with old and outdated and that's dangerous if your investing. Now you know why 80+% of actively managed portfolios underperform the market.

Mr. Mandelson seems to get it and I wish there were more people like him in the industry. Does this mean you should avoid investing? Absolutely not. You just can't assume that the industry has the knowledge that it claims to have. As you get ready to put down your RRSP contribution this month which will ultimately be put into the hands of these institutions who supposedly have your interests, think of this little capsule. I say it again, the best, most qualified, and knowledgeable investment advisor you will ever have is the one you see in the bathroom mirror
each morning. Listen to them.

AKR

More China Observations

2006-02-10T22:56:00.000-05:00

Yes China is on my mind again. While I really don't want to be construed as a China fear mongerer (is that how you spell it?), I do think it is important as an investor and analyst to take a step back from the hysteria that appears to be settling on the global economic landscape re: China. I will repeat: China is and will be an economic superpower. I will not deny this, however I will not take all my portfolios and in invest in all things China. In my daily readings, I am finding more and thoughtful discussions of issues the Chineese economy will be dealing with as it matures into an open market economy.

One such discussion was articulated by Jim Jubak of MSNBC, concerning the potential of deflation (yes that's right DEflation) to hit China as soon as this year.

An interesting irony is taking shape. As China continues it's buying spree of commodities and fuelling inflation in raw materials, it is consequently increasing the risk of domestic deflation.

According to Mr. Jubak, deflation in China has the potential to be more devastating than Japan's deflation which has lasted a decade. At a worst case, it could send China into period of instability. At the least, it could flood the global market with even more cheaper exports, which is great for consumers who have jobs but not for companies.

A Chineese economic think-tank, the National Development and Reform Commission raised the concept in mid-January. Official China has scoffed at it repeatedly which can mean they are taking it seriously.

In a deflationary environment, the impact of falling prices cause companies to cut wages which would in turn decrease demand for good domestically. As consumers would have less cash for purchases and it becomes a vicious circle.

If deflation were to hit China, it would have greater difficulty adjusting to it than Japan. China is tale of two socities, a rural society which is the poorest and an urban society which is the richest. 250 million living in the countryside earn less than $1 day. The average urban income is 7 times larger than rural and growing at almost 10 percent per year vs 7 percent in the rural areas. Japan's economy on the other hand, is less segregated thus deflation there had a much less impact.

This rising inequality is provoking civil unrest. In 2005 there were 85,000 protests, up 6 percent from the previous year. That's the official line. It's probably worse. The government is trying to quell this with a hard-line approach. As the Olympics approach, expect this to become more pervasive.

So how can deflation occur in an economy that is growing 10 percent/year? Take a highly export driven economy and add an ocean full of cash that is creating overcapcity and overinvestment. Yes the growth side is there with double-digit growth. The reality is this growth is fuelling massive overinvestment in exports, about 25 percent/year.

Right now there is mass overinvestment in fixed assets. Coke (not the cola) supply exceeded demand by 100 million tons in 2005. Steel capacity exeeded by 120 million tons. Auto production exceeds demand by by 2 million cars. Other sectors with overcapicty include aluminimum, cement, textiles. Despite this, there are further plans to add capcity. They can do so because there is so much money flowing in from foreign investors to build it up.

How do these Chineese companies make any profit out of this excess capcity. Export like a demon and cut prices as much as you have to to entice the Wal-Marts.

The result. Global commodity inflation and domestic price deflation. According to the National Development and Reform Commission, deflation could emerge in later 2006. CPI in China fell to 1.8 pct in 2005 from 3.9 pct in 2004.

At some point, this excess capcity will cause China to scale back it's need for commodities and that would be bad news for Canadian stocks and the Loonie as Canada has benefitted handsomely from this arrangement. Cheaper Chineese imports would further erode Canada's manufacturing capacity.

China has some options to deal with this, but they aren't very palatable. These include:

1) It could raise prices the old fashion way and jack up the money supply but that would create more overinvestment.

2) It could increase export prices but that would increase its trade surplus and pressure by the West to revalue the yuan.

3) It could force people to spend more. China has a very high saving rate of 40 percent. Mostly because there is no social safety net like here in North America, the Chineese have to save more. The government is promoting this approach but it will be a high uphill battle as most of the local states tend to ingore these decrees.

Don't expect to see an official deflation number by the Chineese government. The government would never admit it. You'll see it globally in falling export prices and socially in further uprisings by rurals. As the Olympics approach, the government will squelch any and all insurgencies. After that, all bets are off.

Again to repeat, China's surging, but many teething events and growing pains lie ahead. At some level we will feel this. Nothing wrong with having some exposure just don't bet the house.

Disclosure: This week I sold my IShares (EEM) in Emerging Markets which includes a China component. It was up 28 percent since we start investing. I wouldn't hesitate buying again on weekness.

AKR

Current Mindset of Portfolio Managers

2006-02-06T16:34:00.000-05:00

Merrill Lynch released their latest survey on the sentiments of portfolio managers. The results indicate that managers believe the tightening in interest rates is coming to an end and as a result are looking to increase their holdings in equities.

12 percent of managers believe the US market is under valued vs 8 percent in November. This despite feeling that corporate profits in US will be lower in the US this year (44 percent vs 31 percent in November).

Managers are also willing to take on more risk now (21 percent in January vs 10 percent in November).

More than 50 percent feel that commodity prices will be higher in 2006 versus 30 percent last year.

Managers are liking stocks in pharmaceuticals,technology, and energy. More importantly, they hate telecom, consumer staples, consumer discretionary, and utilities, which means I'm will be looking for the best values in these out-of-favour sectors.

According to Lynch, the average cash position in portfolios has fallen to it's lowest level since the survey began in April 2005. This is usually a signal that stocks could be heading for a correction.

Combine these bullish sentiments with solid mutual funds sales and you get the sense we're heading for bull run in stocks. Unfortunately history has shown that when retail investors and professionals come to the dance, the big moves have aleady been made. For now we're keeping our powder dry.

AKR

Wal-Mart's Red Light Special

2006-01-29T22:15:00.000-05:00

I'm hoping this won't become another rant about Wal-Mart and how it is the devil's cabana-boy of capitalism. I apologize if I slip into that motif.

Firstly, to me Wal-Mart (WMT) has been a capitalist success story. One man taking a small local retailer and turning it organically into the world's largest retailer by an obscene margin. It has been consistently been the largest creator of wealth in the world. WMT has been a pioneer in using information as a strategic tool. It has shaped how our neighbourhoods have developed. In esscence it is the father of urban sprawl. Most importantly it has challenged and even uprooted how we view capitalism.

WMT has changed capitalism to a cost-based form of capitalism from a quality-based form of capitalism. The concept of driving down cost as much as possible is a mantra that is chanted down it's aisles. Traditionally manufacturers dictated to retailers or "pushed" to retailers what products to sell. WMT has changed all that. WMT in its effort to offer customers the right product mix at the lowest price now dictates to the manufacturer or "Pulls" what what products it would like to sell AND at what price they are willing for it. WMT's negotiating practices with suppliers are now legendary. It has now so much clout, it can make or break companies. Some argue that WMT is textbook example of Schumpeter's concept of creative destruction, where WMT's new capitalist model is destroying the older retail model.

WMT was kind of a victim of it's own success in the 1990's. Touting to always cut costs to the bone. WMT found it's stock languishing. It was looking for boost somewhere. Wall Street in it's bid to feed it's thirst for growth pressured WMT to continue to deliver strong growth or risk stock downgrades. It found it in China with it's cheap and bountiful labour. The result was now a relationship where 80 percent of WMT's global suppliers come from China. WMT now imports US$ 15 billion worth of Chineese goods annually. Having this in their back pocket allowed WMT to squeeze domestic suppliers to the point where they had no choice but ship out it's manufacturing to China and southeast Asia.

The common response we hear from companies is that outsourcing benefits the consumers and the domestic economies with lower prices. True, capitalism and global trade should balance out IN THEORY hovever it appears western economies and most notably the US economy appear to be losers. Yes it is true that cheaper Chineese imports have put a cap on inflation, but the economic cost of this lower inflation has been a loss of high paying jobs. This model works IF incomes are sustained to buy these cheap goods. The reality is incomes have been stagnant to falling in the past decade. If this continues, eventually these cheap goods will not become so cheap.

Consumers buy things but consumers need to earn income to buy goods so if WMT and other companies lowers costs and outsourcing reduces income wages and profits for companies that supply WMT and the wages people earn from those companies, how can people afford to buy these supposed cheap goods? A vicious circle ensues. This is especially striking if you've worked in a factory that shut down. Economists say that outsourcing creates new jobs but not any of these hard working people can be doctors investment bankers or biotechnogists.

One of the principles of capitalism is that it should stimulate individuals and organizations to create wealth for it's own society. Now people and companies can move scarce capital anywhere in the world so any wealth created by a company may not necessarily benefit it's local society. A loss of community emerges and we are heading for a model where we are asking the WMT's to act as the surrogate community.

Ironically, despite getting into bed with China, WMT's stock has continued to languish in a trading range. It has less to do with financial performance and more to do with it has too much paper in the market. Instead of opening up more stores, WMT should take that cash and buy back a huge chunk of stock to reduce the slices of pie.

So cheers to WMT for being a good capitalist citizen. The reality is Wal-Mart's capitalist adventures have become a bit over the top now and if it continues, it will pose serious socio-economc consequences.

AKR

Putting The China Factor In Perspective

2006-01-20T21:26:00.000-05:00

The big story in the global economic landscape is the emergence of China as an economic superpower. It seems like every business activity has a tie in to a China factor.

There's no denying it. It's for real. China's trade surplus tripled in 2005 to $US 102 billion. GDP is growing 10 percent annually. It is the second largest holder of US government debt. It has an endless supply of cheap labour. It's evolution is stirring protectionist murmers in Washington and around the world much in the same manner as in the 80's when everyone was expecting Japan to take over the world.

An article by Richard Spencer of the Daily Telegraph provided a thoughtful perspective on China-mania. According to Mr. Spencer, the China revolution isn't all that it's cracked up to be.

Further examination of China's manufacturing complex reveals that a lot of manufacturing work, while done in China is actually contracted to other companies that are Western owned. The reality is most Chineese exports that end up in a Wal-Mart are made by foriegn companies. Those I-Pods? Made in China by Taiwaneese companies contracted to a US based firm.

As a result, the hyper-growth China has been experiencing is not really internal growth but growth generated by foreign investors and corporations who are pouring money into the country. Thus China is more of a hybrid country where capitalist companies invest in state controlled industries. China's evolution has been quite different compared to a Japan where it's innovation and prowess was nutured internally.

This kind of economic model puts China in a bit of a bind. The money it gets from exports can't be used to fund it's real problems; environmental decay, a financial system that is teetering on collapse but covered over by state intervention or help it's poor in the rural areas because that export wealth ends up in the foriegn companies or the communist government cronies. Inefficient state run banks, void of any market regulations, have had to shoulder the burden of funding these activities which sows the seeds for a growing banking crisis. China could pay for this by selling some of it's $800 billion of foreign reserves and US bonds but that could destabilize the global economy.

So while we should be cognisant that China is an economic power, we shouldn't be quick to raise our hands and give up or be resigned to it. The Olympics in 2008 will be a flashpoint. China is using it as its coming out party and many analysts believe the government is pumping cash to paper over its banking and environmental issiues. Once they are over, the skeletons may come out of the closet.

So if you are looking to play the China game up to 2008, investors might consider investing in foreign companies that are investing in China rather than totally investing in pure Chineese companies as it appears they are ones truly cashing in on the Big Red Machine.

AKR

Interesting Financial Fingertip Facts

2006-01-14T10:16:00.000-05:00

Some interesting financial factoids courtesy of the Globe and Mail in their 2005 wrapup:

26 out 266 Canadian Equity mutual funds were able to beat the TSX Composite index in 2K5.

4 of the 266 managed to lose cash. The worst being the Brandes Canadian Equity fund which lost 4.1 percent.

The largest Canadian equity fund (Mackenzie Ivy Canadian) returned 7.1 percent. The fund has $5.1 billion in assets.

The top performing Canadian equity fund was Goodwood Capital Equity at 30. 5 percent.

16 out 50 income trust funds beat the S&P Income Trust Index (20.5%).

129 out of 429 income trusts were down in 2005.

The dividend yield on GM common shares at year-end was 9.4% !!!!

To be fair, this beating the index thing is more academic than reality as personally I think its pretty impossible to beat the market return consistently. I think it is more realistic to earn or beat the long term nominal rate of return stocks (10-12%). I'll have a bit more to say on this in a future posting.

AKR Fingertip Facts

As an AKR factoid, my personal portfolio returned a total of 10.4 percent last year. Yes count me in the "underperform" crowd. The fact is last year was one of the best in terms of stock picking. The 10.4 was without any energy or commodity stocks. I had sold my ECA's, PCA's and AGU's early in January at a modest gain so I did leave a chunk of cash on the table. Factoring out energy and commodities, the TSX was flat to low in 2005. In total, I held about 22 stocks and/or ETF's and 20 of them were positive for the year and half of them were up at least 10 percent. I'll take that kind of diversified return anytime!!

AKR

Pensions: The Demise and Impending Crisis

2006-01-08T19:12:00.000-05:00

Pensions are under the media microscope these days and for good reason. There have been some high profile announcements, the most recent being IBM announcing it will be freezing contributions to its defined benefit plan. We've seen a shift away by corporations from funding defined benefit plans to funding defined contribution plans like 401K's and RRSP's. Some have been more drastic by cutting or reducing pension benefits all together. One of the core components of the social contract between employer and employee has been a guarantee of long term income in exchange for a long term committment to the firm. We're seeing most job action being driven by the fight to keep pension benefits, the New York transit strike being the most high profile confrontation.

What's driving this move by companies? Well the bottom line and impending changes in US accounting standards for pensions. Up until this year pension cost and liabilities were never included in the financial statements but instead relegated to the footnotes section. As a result they never factored in the financial performance. This is ridiculous as any surplus or deficit has a tangible impact on a companies capital requirements and its ability to manage its capital.

Another factor is that pensions have been badly managed by both employees and employers. Big bets on the dot com sector in 2000 combined with unrealistic return assumptions and unrealistic demands by employees for pension benefits have caused most corporate pension plans to become underfunded. In the US, it is estimated that there are about $1 Trillion in pension liabilities. In Canada, looking at the 207 companies we cover, there was about $29.8 billion in liabilties identified in 2004. Of the 207 companies we cover, 103 have pension plans and 92 of them are underfunded and in deficit. Impact? Well, to fund these liabilities the company will have to either redirect capital in other parts of the organization to pay for it or can raise additonal capital throught issuing more debt or equity. Bottom line is that companies return on invested capital and subsequently it's Economic Profit will fall considerably. Not a pretty picture.

Companies up until now have been able to get away with not having to make these tough decisions because GAAP accounting has allowed firms to keep these pension liabilities off the balance sheet thus inflating their earnings. Well that little perk is about to come to end in the US. FASB has introduced new standards that will be coming into effect later this year that will require US firms to disclose their pension surplus or liabilities on the balance sheet instead of in the footnotes. The CICA (the Canadian version of FASB) up here in Canada will likely adopt the same standards (CICA usually sits around and piggy backs off FASB). In the US it is estimated that adoption of these standards will reduce corporate earnings by $255 billion this year. Of course most analysts are not taking this into account so most analysis are overstating the true financial performance.

We at AKR Capital Research have been concerned about this ticking time bomb and have been writing about this for the past several years.. In our analysis, we have always included pension deficits on our evaluations, thus we present a much more realistic assessment of a firms financial performance.

Corporations are seeing this and are looking for ways to lower the liability without impacting earnings. Chapter 11 or some level of bankruptcy are other options firms are exploring to get of funding pensions. Several US airlines have gone into credit protection and have absolved any obligation to fund their pension plans. In the US, this means that ultimately the Federal Government will have to pay the liability, which means the tax payer will get stuck with the bill. Precendents have now been set so I wouldn't be surprised to see more companies follow suit at some level.

The result could be devastating especially for older employees who have paid into their company plan only to find out they may get less or nothing at all. Younger people are aleady resigned to the fact they will receive little or no pension and are saving more in their RRSP or 401K. It will also impact stocks as essentially these stocks will be overvalued. It will be interesting to watch the economic and social impact of this.

AKR

Wearing The Soothsayer Hat For 2K6

2005-12-29T22:15:00.000-05:00

I spend a lot of time razzing the Soothsayers (ie the "market strategists", analysts, and "experts") and how they have an amazing ability to forecast economic and investment activity using lavish models and charts and be wrong 99 percent of the time. It is even more so at
this time of the year when the media experiences a bad case of almanac-itis by running stories on predictions for 2006, much in the same spirit as the Soothsayers in Shakespeare's "Julius Caesear", when they forewarned Caesar to "Beware The Ides of March". Well I will dust
off my Soothsayers hat and endeavor to uphold those high Soothsayer standards try with my incredible psychic powers (ha!) to deterimine what is in store for us in 2K6 in the investing world.

A year ago when I put on the Soothsayer hat, I predicted that the economy and the markets would be strong, but in 06 we will enter a period of economic slowdown. A year later, I haven't really swayed away from this theme. It all starts with interest rates, specifically short-term rates. I believe the Fed and the Bank of Canada will continue to increase rates in 2006. I have no idea how high, but I think they will be higher than the consensus is looking for. Central banks tend to overshoot rates when they hike rates. I'm looking for the higher rates policy to be in effect well into late 2006. We also have a new Fed chairman coming in and he will want to prove his mettle so expect short-term rates to go up higher. An interesting fact, the changeover of
a new Fed Chairman seems to coincide with a significant economic activity (recent history: Greenspan arrives in 87 before the Crash, Volker arriving just before the recession in the early 80's). The impact of this is we will see some kind of slowdown. It could be a recession.
The housing market will finally settle down and downright correct in some of the white-hot markets like New York, Boston, Vegas, Toronto, and Vancouver. As a result, we will see the end of the concept of using the house as an ATM machine, and subsequently a significant slowdown in consumer spending as higher rates exasperate debt levels and will force households to make some painful decisions. As short term rates edge up, I expect the yield curve to firm up on the flat to inverted side but shifting upward, so if one is looking to play the bonds side of things,
I would tend to favour the short term side for most of 2006 and slowly diversify into longer maturities as pain in the economy sets in.

My soothsayer hat is telling me that 2006 will see the beginning of the process of unwinding some of the global asset imbalances that exist. The massive US current account deficit will be something that investors will not be able to ignore any more. It is clear that the US is not really
serious about managing it's balance sheet. It is pumping out paper at a break neck speed (2006 will see the re-introduction of the 30-year Treasury) and sooner or later it will become difficult for lenders (aka China, Japan, et al) to justify holding large positions in long term US securities. The global economy is swimming in cash right now and up until now have been comfortable funding the US economy, given that the only other place with promising prospects of generating high returns on capital is China. This arrangement has allowed long term interest rates
to remain stubbornly low. As a result, I am expecting at some point in 2006, we will see the beginning of the diversification of this excess capital into other currencies. The Yuan will continue to quasi-float higher as China seeks to repatriate capital to fund some of the hiccups
in their transition to global economic superpower, at least until the Olympics are over in 2008. I expect the Canadian dollar to remain high. Gold will emerge as a "currency" of interest and will see some of that excess capital. The impact will be the beginning of a depreciation in the US dollar which will force the US to keep rates higher which in turn could potentially tip the US economy into deeper economic weakness. It won't be painless and countries like Canada won't be spared of this "flu". Unlike the US, the Canadian economy has a bit of immunity as it
has a much stronger balance sheet and is blessed with valuable commodities that the US and China drool over. Because of this asset adjustment, I am expecting US stocks to continue to come under pressure in 2006, hence I would be building portfolios that are more globally
diversified and maintaining a small exposure to the US market. When the US reaches a certain level of pain in the adjustment process I then would begin building up on the US exposure. Usually this point will occur when CNBC rolls out some jingo theme like, "Is America Dead?" At
that point, I'll start buying in.

As this slowdown permeates during 2006, the need for commodities globally will weaken, except in Asia where internal expansion will continue unabated thus keeping their demand for materials and commodities relatively strong. Oil will settle down further as the reality of adequate supply permeates the market. Natural gas will still be impacted by supply issues stemming from extreme weather events of 2005. Don't forget, nothing says that there can't be a Katrina each
year. As a result, I suspect that oil stocks may lose some steam in the short-run, but that will create great opportunites to establish positions as the long term prospects for oil companies remain excellent. One commodity I will continue to watch with interest is H2O. The soothsayer hat is telling me that water will become the most sought after good and the most faught over commodity. We've seen small tremors already with the Alberta government raising issues about exporting fresh water to the US. I guess it's more of a 2008-2009 predicition I'm thinking. I hate using cliches, alas I have to say that water will be the next oil (yuck, now I feel so dirty saying that...I apologize).

I'd like to be more positive, but when I see rising rates, an out of control US government that is spending recklessly and funding its economy on a credit card, it's just not a sustainable concept. Somethinghas to break.

So does this mean that you should put all your money in gold and hide it under your bed? No. Good economy or bad economy, there are always companies that are successful in managing their scarce capital and can create wealth for their shareholders. That's what makes stocks so
interesting and the optimal investment. The key is to identify the great wealth companies and buy them when they're on sale. So where are the sales these days? Well they usually occur in the out of favor sectors that Soothsayers like to slam. Right now uncool sectors are in Health
Care, Consumer Staples, and Non-Consumer Technology. I am looking at those areas for the leaders of 2006, companies like a Pfizer (PFE), Aeterna Zentaris (AEZ), a CGI (GIB.SV.A), a Hummingbird (HUM) and some of the staples like a Sobeys (SBY). (DISCLOSURE: I own position in the preceding companies in my personal portfolios, except for Sobeys which I
recently sold).

OK this soothsayer hat is giving me a headache, so I'll be taking it off now. Take the above as my 2 cents (Canadian cents that is). Hey, itcan't be any worse than the "experts".

All the best for 2K6!

AKR

Reviewing The Soothsayers

2005-12-27T10:20:00.000-05:00

Well it's the time of the year where the Soothsayers come out and regale us with their sage predictions and mind candy for where the markets are going over the next year. Most of the time, the Soothsayers make their picks and then basically are never ever called to the table to explain why they usually never pan out, which frustrates me immensely. Well about this time last year, I posted a listing of predictions for the Dow/S&P/10-Year Bond/leading sector by the leading market Soothsayers. I wanted to see to if these people really have the midas touch. Obviously the mainstream media isn't going to hold their feet to the fire so I guess I'll have to pick up the slack. Well it's been a year so let's goto the results!

First, as of today the markets are at the following levels:

Dow: 10,925
S&P 500: 1,271
10 Year US Bond: 4.4%
Top Sectors: Energy/Materials/Commodities

For the Dow, only one analyst out of 10 came close and that was Rick Berstein of Meryll Lynch who called the Dow at 10,915. Most of the rest were looking for the Dow to hit 11,000-11,800.

For the S&P, 3 out of 10 Soothsayers were in the neighbourhood. They were Henry McVey of Morgan Stanley (1,250), Tim Love of Deutsche Bank (1,275), and Abhijit Chakrabortti of J.P. Morgan (1,275). The rest of the analysts were calling for over 1,300 levels.

For the 10-Year note, Jason Trennert of ISI Group was the "closest" at 4.5 percent. The Cartel was looking at a 5-5.75 percent yield.

In terms of the top sector, only Thomas McMannus of B of A called for the energy sector to outperform. The others called for Tech, Industrials to have lead the market.

So only 1 ouf 10 called the Dow right, 3 out of 10 called the S&P right, 1 out of 10 called the bond, and 1 out of 10 called the right sector.

Fantastic. Bravo. Well done.

The question is why? Why do we hold these people to such lofty regard when clearly they really can exercise an uncanny ability to be wrong 90 percent of the time. Why do we bother listening to them? I said it before and I'll say it again, predicting the exact movement of the market and interest rates is fools game. Just don't go there.

The reality is based on all this, we should listen to them, specifically to what they don't like because most of the time what they don't like will turn out to be the leaders of tomorrow, while the calls they pound the table on will likely stink out the joing so it makes it easy to avoid the traps. Yes this is classic contrarian, but it's the reality of this business. I know the money's good but I don't know if I'd want to get paid for being wrong all the time. It can't be good for the self-esteem.

Then I think, perhaps 2005 was an anomoly, a fluke, so I'm willing to give them another chance so here's a listing of predictions for 2006. Again the sampling is arbitrary based on face time in the media:

Abby Joseph Cohen
Goldman Sachs
S&P 500: 1400
Bullish on IT

Edward Keon
Prudential Securities
S&P500: 1,560

Thomas McMannus
Bank of America
1,335

Myles Zyblock
RBC Securities
S&P 1,330

Me you ask? My prediction remains the same....I have no idea. All I know is that stocks will go up and stocks will go down. Stocks of companies with good products and ideas that manage their capital effectively and sell for a discount (because it is out of favour or nobody likes their industry) will always do well. I will be posting my general market outlooks later this week so stay tuned...

AKR

Figuring Out Interest Rates: Don't Sweat The Small Stuff

2005-12-18T20:51:00.000-05:00

One of my mantras of investing is not to spend too much time trying to figure out where interest rates are going. To time exactly when rates will exactly peak or bottom is simply impossible. Now that doesn't mean you should not be mindful of what Central Bank's around the world are doing with monetary policy. The beauty of being an investor is that you don't have spend time obsessing over every word by Greenspan et al. Instead you can look at the economy from a big picture perpsective to gain a long term perspective of where rates are going.

So where are rates going? Short term rates have been going up over the past several years and they are likely to keep going up until the economy slows down. Despite high inflation in basic commodities, the US and Canadian economies have motored on nicely, so rising rates which are a normal event should continue to edge up. Many experts have called for this trend to continue into the early part of 2006 before pausing and coming down. As I said timing exactly when rates peak or bottom out is a fools game. History has shown that when Central Banks embark on a program of raising or lowering rates, they overdo it and raise rates too high causing the economy to into a recession or lower rates too much, thus sparking inflation. Short term rates are trending up and I expect to the Fed to continue tightening well past from what experts are calling for and I have no idea when they will stop, except when they do stop, the US economy will likely be slowing. It wouldn't surprise me to!
see the Fed Funds rate over 5%.

Now long term rates is another issue. Normally in a growing economy, the long side should be rising, however yields, especially in the US have remained low. Greenspan and many others have been perplexed by this. Essentially a lot of money has been finding it's way into the Long Treasuries which has been essentially financing the US's monumental current account deficit. This has been the coventional explanation and it has merit. There have been other theories. One that I find interesting is from Pimco's Bill Gross. He contends that companies around the world are flush with cash. They are looking for projects that can generate high returns on capital but they are struggling to find any because of the China factor. Right now there isn't much incentive for a company in Germany to build a factory in Munich when it could be done more cheaply in Shanghai depite the fact that money is cheap right now. Instead they are plowing their excess cash in US bonds, thus pushing prices up a!
nd keeping yields down. The question is how long can this continue?

Where does that leave us? Well if short-term rates are going up and long-term rates stay low, we're looking at a flat to inverted yield curve and that leads to a slow down. If companies and hedge funds start pulling out of US bonds then yields will rise higher, the greenback will tank and things get even weirder. As I said, there's no point trying to time when this adjustment could occur, but I think it will occur at some level and investors should build their portfolio accordingly to deal with this trend. Fixed income investments should be at the short side of the curve but slowly diversified to the longer side over 2006. As the US dollar falls, high quality American companies will be on sale so long term equity opportinities will present themselves. Make a list of companies and wait for them to come to you.

AKR

Dancing With Stars - Investing Style

2005-12-11T19:04:00.000-05:00

As an investor, one of my great beefs about the investing industry is the lack of quality thoughful evaluation of a firm's financial performance primarily because analysts spend less time evaluating and more time becoming sound boxes for the companies they are measuring. The dance that has withstood the test of time is the quarterly earnings lambada. You've seen it. Company X announces it will expect to make $0.50/share next quarter. Company X always takes the lead in this 2-step. Next Analyst Y will take this new found morsel of info and throw it into the myriad of sophisticated financial models and spreadsheet that are of course proprietary and developed by physicists at NASA and a summer student and come up with an estimate of (drum roll) $0.50 !! What a coincidence! Add to this, Anayst X's colleagues have taken the same morsel of info and entered it into their financial models and guess what...they also come up with $0.50/share also! Next in the ritual comes the actual!
quarterly report by the company and they will likely report that they made $0.51/share. The firm will announce new guidance and the analysts will work overtime to match the same guidance and the insanity continues and I haven't even talked about the accounting dance ritual tha runs parallel to all this. Seriously, how stupid do these dance partners think we are? I wondered what was the inspiration of that guy who made March of the Penguins and clearly it was the bobbing and weaving of these characters.

Finally others are seeing the idiocy of this ritual. Recently Tom Donohue, the President of the US Chamber of Commerce in a speach to analysts in New York called for the end quarterly earning guidance by companies. Mr. Donohue stated there should greater emphasis on long-term strategic guidance instead of short-term metrics. In other words, focussing on business drivers not aribitrary numbers. The impact of this focus has been the sacrfice of value at the alter of short-term performance.

Of course the analysts won't like it as they'll actually have to read financial statements (not just First Call reports) instead of having it spoon-fed by the Mother Ship. The bookies like First Call and IBIS would cry foul as it would render their business irrelevant.

Hey, I'm not saying firms should shut up and not give any information. I'm saying cut out this superficial nonsense and tell us truly how business is, how you see your business evolving and most importantly, how you are managing the shareholders capital.

If this were to happen, Investors would benefit. Over and over investors are told by the Cartel to invest for the long-run yet undertake evaluations of investment opportunities with short-run arguments. Getting rid of quarterly guidance would at least recalibrate this inconsistency and put an end to this badly produced reality show.

AKR

End of Big Pharma?

2005-12-04T18:38:00.000-05:00

An interesting article in the Globe and Mail caught my eye a few weeks ago. It painted a gloomy picture for big Pharma companies like Pfizer, Merck, Glaxco and others. Analysts estimate almost $80 billion worth of patents will expire over the next several years, some including the top selling Lipitor cholesterol drug by Pfizer. As these patents come due, the sector has of late not come up with any blockbuster type products. Then there are the lawsuits that many feel will be a major distraction for big pharma. When you read this, you'd think it's a repeat of the telecom sector in early 2000.

Now I'm not a doctor and I really am no authoritative expert in pharmaceuticals or biotechnology, but I know a few things. First, we're getting older and we will be needing drugs and products, that is not going away. Despite pending patent expiries, I can't see Lipitor sales for Pfizer going to zero overnight. Second, the pharmas are sitting on a mountain of cash and will put it to work if they cannot develop products in-house. If they can't, they will likely jack up their dividend or return capital. Third, whenever you see an aricle or media focus that predicts impending doom for sector, it usually signals a bottom and more likely will begin an uptrend. So when I see these articles, I sit up and take note. Health care stocks have been dreck the last few years despite strong wealth creation. The classic opportunity to buy high quality companies in unpopular sectors at a significant discount is in place as medium to long term investment.

End of Big Pharma? I doubt it. It's more like a break or a time-out. In the long term, I expect health care and drug companies to lead the market.

As disclosure, I have been slowly accumilating Pfizer and smaller companies like Aeterna Zentaris in my personal portfolio.

AKR