July 4th, 2012

The European Union staggers towards a plan that will keep it together and solvent, as Germany positions itself to be the guardian of their finances.

Stock markets have been lurching up and down, but mainly down as this historic saga plays out and June is ending on a positive note.

However, YTD 2012 the TSX is down approximately 6%.

Income and Yield focused investments remain the best place to be, although they also have been mildly bruised.

The S&P 500 is trading in the range of 9 to 10 X P/E multiple, making many of us think it is a bargain.  The U.S. economy seems to be on a comeback with GDP growth hovering close to 2% and housing starts are improving.

An interesting by product of inexpensive natural gas is the reduced input cost for North American manufacturers, and this has resulted in some repatriating of factories from Asia to America.  A recent report produced by Front St. Capital has shown that China used to enjoy a 35% cost advantage vs North America and that has now been reduced to 20%.

The Canadian stock market has suffered lately mainly because global growth expectations have been moved downwards, with the assumption there will be less demand for our energy and commodities.  China’s growth for example has moved from low double digits to 8.5%, compared to Canada and U.S. in the 2% range.

I suggest this is a temporary blip, and Canada’s resource based industries will return to favour in the near future.

You may recall that over the past few years we have been strong supporters of Income for Life offered by Manulife, and Sunwise Elite Plus offered by Sunlife.  Recently Sunlife withdrew this product from the market completely, and Manulife made significant changes to their product which makes it much less attractive.

We are happy for everyone who is in these programs as you are “Grandfathered”.

Our investment strategy continues to be “get paid to wait” and we look forward to more positive sentiment and certainty in the markets which will allow us to allocate some capital to equities.  Now is premature in my opinion.  We are expecting a more positive environment after the U.S. elections even though the European challenges are likely to still be with us.

While we wait, we expect 6% to 8% income from our investments with a low level of volatility.  To earn more than T Bill returns which are 1% or less, we have to endure some volatility.

An apt expression is:  “You can have anything you want, but you can’t have everything!”

Here are the investment strategies we continue to focus on:

Income Oriented by using Barometer High Income, Middlefield Income Plus, Sentry Canadian Income and Dynamic Strategic Yield.

Platinum Investment Program to provide you with a self funding pension plan that can provide an extra $1 Million in a retirement portfolio.

Equity Investments with the most conservative managers who pay more attention to downside protection than potential gain.

I know there is demand for Flow Through Shares to satisfy tax reduction strategies by year end, yet there is nothing of quality available now in my opinion.  We are certain there will be product available in late August and through September.

Also, there has been a void created in the guaranteed investment space caused by Manulife and Sunlife.  We are working on finding an alternate product.

Macquarie has advised us that in the next month or two clients will be able to access all their Investment Portfolio Statements and trade confirmations on line.  Over the years we have had many requests to stop sending so much paper, and we now may finally be able to do so.  Once this on line access is up and running we will advise you how to do so.

We appreciate you trusting us to manage your investment portfolios, and are at your service if you have any questions or need help.  If you have interest in any of the investment ideas or strategies described in this letter please send us a note or call us.

On behalf of our team, I wish you a wonderful, safe and healthy summer.

 

Best Regards,

 

Fred Banwell