September 7, 2010 Market Update
Click here to see the Empire Performance Update to the end of August.
Above is the performance of Empire's Funds to the end of August. You can see that our move to safety about 6 months ago has not paid huge dividends but is up 2.2% and 2.6% in the past six months. Reasonable return and very little risk.
And the million dollar question is, what do I anticipate will happen going forward. As I have written last month, the equity markets are all trending lower with the exception being Canada. The TSX saw a very good rebound in July and August, and is currently just over 12,000. Not bad for a resource based index. The broad index in the US, the S&P 500, is trading below both its 100 day and 200 day moving average. Generally understood to be a negative signal.
In Canada we also see the beginnings of what happened in the US two years ago. Existing home sales have declined 36% from their recent high. Single family housing starts have dropped 29% and residential building permits have slid 15%. There has been a recent drop in home prices of 5%. These are all country wide averages. There will be specific markets in the country where the declines are much higher, particularly Vancouver, Toronto and Calgary and Edmonton. The July 10 issue of the Edmonton Journal stated that total building permits for Calgary for the month of May were down 68.2% from May of 2009 and down 39% from April. Edmonton's May permits were down 36.4% from the previous month. We will recall that in the recent major decline in the US it was the housing sector that lead the way.
Then we can also look at the unemployment rate. In Canada the rate edged up from 7.9 to 8% in July. The percentage of Canadians unemployed for more then six months is 22.5. The real unemployment rate in Canada according to the web site HRM Guide was 12%.
And of course, the song I have been singing for a while now, is the song about debt. I just read a short piece somewhere that an economist was recommending that the Europeans give up trying to bail out Greece and that they should rather encourage them to revert to their own currency and then either default or devalue their currency. Of course now that I am writing this down I can not find my source back, but I thought it was an interesting suggestion. Only because it suggests that Greece's austerity program is not working and will not work. According to some information available on the web, the debt to GDP ratio in Great Britain is about 82% . The total debt of Greece is about 110% of GDP, of Italy about 120% and in the US of A about 94% of GDP. And the rate in Japan is over 200%. And yesterday President Obama announced a further 50 billion dollars of infrastructure spending. Spending that will have to be borrowed. Today he announced a tax break for R&D spending. Another futile attempt to borrow his way out of trouble. Now, to be fair, these two initiatives have not been approved by congress and it is doubtful that they will pass in the short term. But, you get the point. Borrow more and more money to stimulate an economy that has an unemployment rate in the double digits will not succeed.
The equity markets in my estimation will continue to unwind. Defense remains the best offense.
And very soon we will see that all areas of the markets will sell off. Just as they did in 2008 and 2009. And that will include gold, silver and oil. And of course our dollar will get beat up as well.
So invest very conservatively. And tell your friends to be careful if they are still in the equity markets. Or perhaps suggest that they give us a call to get a different perspective.