Serving western Canada's sheet metal industry

By: Glenn Ayrton

As I write this article, the third quarter has ended in what continues to be an eventful year for stock markets and the economy.

In September 2008 we saw the weekend that shook the foundations of Wall Street and the global financial system— Lehman Brothers collapsed, Merrill Lynch vanished as an independent entity, and AIG was taken over by the U.S. government.

Here I will briefly summarize where we’ve been this year, where we are today, and the forecast for the period ahead.

In early March 2009 fear was widespread and stocks responded by hitting the lowest levels in years. Since then, there is a growing consensus that we’ll return to economic growth in the second half of this year. As a result, we’ve had a strong recovery in the markets—from their bottom in the beginning of March, stock markets are up substantially, retracing a good portion of losses since last fall.

The second quarter of 2009, from March to June, was especially strong—since 1956 the Canadian market has only had three quarters that rose more than this one.

Here are some lessons from the past 12 months:

Before the market collapse of last year, the market was characterized by rampant optimism and the Canadian market hit a new high in June 2008.

By contrast, in March 2009 the market was overwhelmed by pessimism.

Today, the market is somewhere between these two extremes and generally investors are extremely nervous. The good news is there are still excellent opportunities for investors who are prepared for short term volatility. I am reassured by the best market minds that most are still finding good value—not to the extent that they did earlier this year, but still well ahead of what they would have seen a year ago.

The outlook going forward Beyond the issues facing the global economy, there are many underlying positives that give cause for optimism if we look out two and three years and beyond.

There are things happening under the surface, like the positive impact of technology and the recovering US housing market that will drive economic growth and should subsequently drive growth in stock prices. No one can predict market movements in the immediate period ahead—all we can do is understand how much short term volatility we can handle, adjust our portfolios accordingly, and stay focused on our ultimate destination.

Direction of portfolios While stocks posted justifiable gains from March lows when it became apparent that a global financial meltdown had been averted, I fear the last part of the surge may be pricing in a level of economic growth greater than what might materialize. Accordingly, the investment managers I work with have shifted a portion of assets to non-cyclical holdings and have established a small cash position so that opportunities may be seized should they arise. Given the current uncertainty and volatility, the managers are continuing to focus on higher quality companies in stock and bond portfolios.

Please contact Glenn Ayrton at ClearWealth Advisors with any questions you have and to find out how we help successful independent contractors optimize their wealth at 604.687.6808 or <ayrton@clearwealth.ca>. If you have a suggestion for a financial topic that you would like me to address in a future issue of The Trowel, please email your suggestion to <ayrton@clearwealth.ca>. GA