Gerry Coleman's market commentary. Coleman is one of Canada's most sucessful fund managers.
Market comments There will be recession in the U.S – it hasn't happened yet, but I'd be surprised if the third quarter didn't have moderately negative growth. The market is already discounting a U.S. recession and global slowdown – it's built into current prices. The market usually bottoms six months before a recession ends. So, if the recession ends in'09, then the market should bottom before that. There will be continued short-term volatility – prices are going to keep bouncing around. Interest rates There's been a crisis of confidence, and when that happens people buy U.S. Treasury bills. They don't care about return; they just want to own them. As a result, short-term interest rates have been pushed down to 1%-2%. Rates will probably start to rebound once a sense of normalcy returns, which will hurt government bond returns going forward. U.S. financial markets A crisis of confidence is gripping the U.S. There's lot's of finger pointing going on and most of the fingers are pointing at Wall St. Wall St. was a big part of this, but it didn't create the housing mess on its own. Brokerage firms were a big part of it, so were deposit-taking banks, insurance companies, stock brokers, real estate brokers and regulatory agencies, such as the SEC. The regulatory agencies are overseen by government, so the government is also to blame. That's changing, now there will be severe regulations put into place. I think people will feel better after the House of Representatives passes the rescue package, but it shouldn't be viewed as a panacea because there are still other things that need to be done. Crisis will end We are in the midst of a full-fledged financial crisis in confidence. Panics are temporary and usually end because: – prices become low enough that buyers move in and start to reverse the trend – government initiatives are introduced – and we're getting that now – central banks usually take action – so I wouldn't be surprised if the Fed cut the discount rate soon. Two kinds of market losses There are two ways to lose money in the stock market – permanent loss of capital and temporary loss of capital. Permanent loss of capital takes place when you invest in low-quality, speculative securities because when they go down, they never come back. When high-quality companies like well-capitalized banks, insurance companies, oil and gas companies like Suncor and EnCana, mineral companies like BHP Billiton and Rio Tinto, gold companies like Barrick and Goldcorp, and others like General Electric and Microsoft go down, it's a temporary loss of capital. When I see prices of those companies coming down, I'm convinced it's a temporary loss of capital and an opportunity. Opportunities There are some good opportunities that haven't been seen in a very long time. Liquidity is allowing us to take advantage of weakening prices. I've been buying selectively across all sectors because stocks have come down indiscriminately. The way you profit is to take advantage of the irrationality and invest in high-quality companies when people are selling indiscriminately. This is a great opportunity if you're a long term investor with a time horizon of three or four years; it's an opportunity to be picking up high-quality companies at very reasonable prices. Disclaimer: This commentary is provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities.