Investment Trends

No question, financial stock prices are looking very attractive.  A number of analysts are already suggesting investors should be acquiring shares.  Many deep value fund managers have started picking away at financials and even some of the home builders. 

But is it time for your portfolio?  It depends on your investment strategy and more importantly the time horizon you are prepared for.

If you follow financial news at all, you've probably heard of the decoupling theory.  If you're not familiar with this terminology, it's the theory emerging markets like India and China are now so economically strong due to diversified markets for goods and strengthening domestic spending, these emerging economies can better withstand serious slowdowns in US growth rates today than they could in years past.

Inflation in China is now at a 10 year high.  The stock market and real estate has been booming.  How concerned should investors be?

Even though energy and food prices are not included in core inflation numbers, it's difficult to imagine high priced oil not eventually bleeding into the prices of a range of different products that are included in core inflation.

For example a gold mine in Canada recently announce the closure of one of its mines, even with gold prices about $800 per ounce.  The reasons for the closure included high labour and fuel costs as well as a high Canadian dollar.  Clearly inflation is crawling into the overall economy.

Yet financial experts seem divided on what oil at $100 a barrel means to the world economy.  In the following article Portfoliopedia.com presesents two predictions of future economic conditions.

Big oil returns have been slow compared to the block buster returns investors saw in 2006.  A recent article in the Economist suggests why: governments around the world want a bigger piece of the prize.  What should an investor do?  Considering buying BRIC.  What's BRIC stand for?  Brazil, Russia, India and China.

The US dollar has fallen sharply in recent months against every major currency including the Canadian dollar, the Pound the Euro and even the Chinese Yuan (peg to the US dollar switched to a basket of currencies in July).  Some analysts argue now is the perfect time to buy into US securities helped by an under valued US dollar.

No doubt a lower US dollar will increase exports and help shrink the trade deficit, but is this really the best time to start buying?  I doubt it.

Attached is an extract from a speech made by Dr Y V Reddy, governor, Reserve Bank of India concerning the economic performance of India over the past 60 years, as well as the potential for growth over the next 20.

Recent purchases by major Canadian banks include:

• Scotiabank purchase of 18% of Dundee Wealth, including Dundee Bank
• TD purchases New Jersey's Commerce Bancorp Inc for $8.5 billion TD builds U.S. profile with $8.5 billion deal [thestar.com]
• Royal Bank will pay $2.2 billion for RBTT Financial Holdings of Trinidad and Tobago Canadian Banks Poised to Buy More Abroad With Dollar  [Bloomberg.com]

With all the recent credit crunch problems, why are Canadian banks buying now in the financial sector?

Nearly a year ago (October 31, 2006), Canada's finance minister Jim Flaherty announced tax changes for Income Trusts.  The Canadian Department of Finance felt trust structures were costing the government hundreds of millions in lost tax revenue each year.  The proposed tax changes effectively raised tax rates to match corporate tax rates for all new trusts.  All existing trusts will avoid the new tax rules until 2011. 

The immediate effect was a short, sharp fall in unit prices across the income trust sector.  The sector has been making it's way back from last year lows, but what future is there for a sector that will effectively disappear in 2011?