peter long ba, r.f.p., cfp, csa 2010 the year of the “comeback” prepared by: peter s. long ba,...
TRANSCRIPT
Peter Long BA, R.F.P., CFP, CSA
2010The year of the “Comeback”
Prepared by: Peter S. Long BA, CFP, R.F.P., CSADate: February 20th 2010
Peter Long BA, R.F.P., CFP, CSA
Peter Long BA, R.F.P., CFP, CSA
Peter Long BA, R.F.P., CFP, CSA
First the good news
We made it!
Congratulations…IF
You stayed the course
You reduced your payments
You added back to your RRIF
You cut back on your spending
Reworked your plans
And…you even bought!!!
Good for you – give yourself a pat on the back
Peter Long BA, R.F.P., CFP, CSA
Agenda
Quick Review of 2008-9
What to anticipate for 2010 The economy The markets Opportunities
Lessons Leaned
Three things to put on your “TO DO” list
Product/Asset Allocation
Q and A
Peter Long BA, R.F.P., CFP, CSA
When planning your retirement…safety pays.
• Simplify• Allocate• Focus• Execute• Transparency• Ywhy?
Peter Long BA, R.F.P., CFP, CSA
S - Simplify
_____________________________________________________________________________________________________________________________
BEGINNING END
Peter Long BA, R.F.P., CFP, CSA
S - Simplify
Retirement age How Long How Much Rate of return Inflation and taxation
BEGINNING
Peter Long BA, R.F.P., CFP, CSA
2010 “to-do” list
• Budget
• Time is on our side – patience
• Diversification really does work
• Focus on income/dividends
• Evaluate risk/reward profile and stay the course
Peter Long BA, R.F.P., CFP, CSA
Economic Topics
• Economy-Earnings
• Housing
• Interest Rates
• Jobs
• USA
• BRIC
Peter Long BA, R.F.P., CFP, CSA
The “Real” Agenda
Peter Long BA, R.F.P., CFP, CSA
Money CAN buy happiness
Lessons Learned - # 1
Peter Long BA, R.F.P., CFP, CSA
Money CAN buy Love… Cost of love…$27,000 per inch
Lessons Learned - # 2
6 ft.
5 ft. 2 in.
$270,000
Peter Long BA, R.F.P., CFP, CSA
Back to Lessons One and Lessons Learned
• Money can buy happiness…however, it isn’t the amount of money earned
• It is the amount of money left over after actual expenses
• Studies show the person with $4,500 of monthly income and $3,800 of expenses is actually happier than than a person with $10,000 of monthly income and $10,000 of expenses
Peter Long BA, R.F.P., CFP, CSA
Recession lesson• Wealthier investors (investment assets of
$250,000 or more) were asked questions about their retirement and budgets.
• 56% felt their concept of retirement changed – more emphasis on core values (families and friends)
• 33% felt they may have to scale back• 43% spent less on personal luxuries• 21% gave less to charity• 51% when asked if they could re-plan their
retirement mentioned they would focus more on life goals than income
Peter Long BA, R.F.P., CFP, CSA
• Bank of Canada signals intention to keep interest rates at record lows until June 2010
• But warns Canadians that household debt levels are too high
• Real estate markets red hot all across the country – bubble talk abounds
• C$ set to rise above parity once again
Canada: 2010 will be an interesting year
Peter Long BA, R.F.P., CFP, CSA
Be vigilant on household debt, Carney warns
Household Debt, % of Personal Disp. Income
Source: Federal Reserve, Statistics Canada, PH&N
50
60
70
80
90
100
110
120
130
140
150
61 65 69 73 77 81 85 89 93 97 01 05 09
%
*Canadian data includes unincorporated business
Growth in Household Net Worth
-20
-15
-10
-5
0
5
10
15
20
90 92 94 96 98 00 02 04 06 08
Year-
over-
year
% c
hang
e
Peter Long BA, R.F.P., CFP, CSA
Peter Long BA, R.F.P., CFP, CSA
Peter Long BA, R.F.P., CFP, CSA
8,988(Dec 31)
13,833(Dec 31)
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08
2008 at-a-Glance: Key Events
Sources: Datastream, as at Dec. 31, 2008; total returns, local currency, Financial crisis visual: BBC News
Global CreditCrunch Heightens
Triple Trouble(Dec bailout)
Global Financial Crisis Heightened
Emergency Economic Stabilization Act (Oct 3)
Europe Follows (Oct 12)
S&P/TSX Composite Index (as at December 31, 2008)
U.S. Sales Plummet/Prices Down
TSX at “New Highs” 15,073
(June 18 driven by resources)
Gold Hits$1,011/oz
(Mar 17)
$713/oz(‘08 low, Oct 24)
Crude Hits$147/bbl
(July 11)
$31/bbl(‘08 low, Dec 22)
USElection
Economic Update
Fed rate as low as
(Dec 16)
0%0%
Fed & BOC Slash Rates
Developed Countriesconfirm Recession
(Q4-08)
Rescuescome with
. . . future costs
Peter Long BA, R.F.P., CFP, CSA
8,988
11,746
Source for stimulus, green-shoots and ‘too much too fast’ visuals: The Economist, 2009
New low for this TSX Bear
7,567
(Mar 9)
Green-shoots appearing
Federal Reserve sees economy
stabilizing
(Apr 29)
Fed rate as lowas 0% – 0.25%
(Dec-08 to YTD-09)
Crude hits$73/bbl(Jun 11)
$35/bbl(Feb 18)
Gold surpasses $1,000/oz.
Quantitative easing
concerns
(Sep 14)
New descriptivefor the times
"Surgical Bankruptcy"
BOC ratecut to 0.25%
(Apr 21)More stimulus at home & abroad
+35.0%YTD total return
Too much . . . too fast?
Sustainable earnings & revenue growth evidence needed
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
Financial crisisone year later
(Sep 15)
2009 at-a-Glance: Key EventsS&P/TSX Composite Index
8,694
7,479
(-12%)
(+35%)
Peter Long BA, R.F.P., CFP, CSA
Negative Positive
Peter Long BA, R.F.P., CFP, CSA
Peter Long BA, R.F.P., CFP, CSA
2009
Peter Long BA, R.F.P., CFP, CSA
TechWreck
Peter Long BA, R.F.P., CFP, CSA
Predicting the winner is difficult
Canadian Bonds: DEX Universe Bond Total Return Index Global Equities: MSCI World Index ($Cdn) Canadian Large Cap: S&P/TSX Total Return Index Foreign Equities: MSCI EAFE Index ($Cdn) Canadian Small Cap: BMO Nesbitt Burns Cdn Small Cap Index US Large Cap: S&P 500 Total Return Index ($Cdn) Emerging Markets: MSCI Emerging Markets Free Index ($Cdn) US Small Cap: Russell 2000 Index ($Cdn)
Source: Globe HySales, as at December 2008
Peter Long BA, R.F.P., CFP, CSA
Predicting the winner is difficult
Canadian Bonds: DEX Universe Bond Total Return Index Global Equities: MSCI World Index ($Cdn) Canadian Large Cap: S&P/TSX Total Return Index Foreign Equities: MSCI EAFE Index ($Cdn) Canadian Small Cap: BMO Nesbitt Burns Cdn Small Cap Index US Large Cap: S&P 500 Total Return Index ($Cdn) Emerging Markets: MSCI Emerging Markets Free Index ($Cdn) US Small Cap: Russell 2000 Index ($Cdn)
Source: Globe HySales, as at December 2008
Peter Long BA, R.F.P., CFP, CSA
4th
To Do
• Focus on income
• Interest
• Dividends
• Capital gains
• Return of capital
Peter Long BA, R.F.P., CFP, CSA
5th
To Do
• Evaluate your risk/reward and stay focused and on course
Peter Long BA, R.F.P., CFP, CSA
What research indicates about how we perceive loss/gain
The pain of a loss significantly exceeds the pleasure of an “equivalent” gain
Source: AIMR, 1995; Sanford C. Bernstein and Co., based on Amos Tversky and Daniel Kahneman, “Rational Choice and the Framing of Decisions,”The Journal of Business, No. 4 (1986)
Loss Aversion
Loss
Pleasure
Gain
Pain
Small Pleasure
Big Pain}
{
Peter Long BA, R.F.P., CFP, CSA
Economics
•Economy-Earnings
•Housing
•Interest Rates
•Jobs
•USA
•BRIC
Peter Long BA, R.F.P., CFP, CSA32
RESTORING CONFIDENCE
“The economy
and earnings”
Peter Long BA, R.F.P., CFP, CSA
P/E ratio – Earns $1 Stock sells for $14 = P/E ratio of 14X earnings
Peter Long BA, R.F.P., CFP, CSA
2 scenario’s a) stock comes down b) earnings go up
Peter Long BA, R.F.P., CFP, CSA
Profit MarginsThe recovery begins, drawing strength from prior cost-cutting.
Peter Long BA, R.F.P., CFP, CSA
EarningsThe recovery begins, drawing strength from prior cost-cutting.
Peter Long BA, R.F.P., CFP, CSA
Better earnings ahead
• Credit is available
• Jobs are being created
• Inventories are being replenished
• Strong demand for resources
Peter Long BA, R.F.P., CFP, CSA38
RESTORING CONFIDENCE
“Housing”
Peter Long BA, R.F.P., CFP, CSA
Canadian consumer asks: what recession?
Existing Home Sales
-40
-30
-20
-10
0
10
20
30
Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10
Year-
over-
year
% c
hange
Source: Can. Real Estate Assoc., National Assoc. of Realtors
Retail Sales ChangeOct. 2008 - Oct. 2009
-10
-8
-6
-4
-2
0
2
4
AL
SK
CanadaBC ON MB
PEI QC NB NS NL
Year-
over-
year
% c
hange
Source: Statistics Canada
Peter Long BA, R.F.P., CFP, CSA
U.S. Housing Rebound Ahead?
Housing affordability at historically high levels (top left).
Existing home sales show signs of recovery as bargain hunters search through the housing market rubble.
Sales volumes are increasing in almost every state, but prices remain weak.
Mortgage rates need to stay low for a sustainable recovery to take hold.
Source: Thomson Datastream
Peter Long BA, R.F.P., CFP, CSA
Canadian housing market has held up remarkably well through this recession. Although sales volumes are still trailing peak levels.
High Canadian dollar precludes BofC from raising rates too soon.
Canadian Housing Strength
Source: Bloomberg, August 25, 2009
Source: NBFG Economy & Strategy, CREA
Peter Long BA, R.F.P., CFP, CSA42
RESTORING CONFIDENCE
“Interest rates”
Peter Long BA, R.F.P., CFP, CSA
Interest Rates
• Bank of Canada is leaving rates low ¼%
• While economy recovery is underway-it still has much to do with stimulus which they do not want to take away too early
• While stronger, the economy is still operating below capacity
• Confident of low inflation - 2011
Peter Long BA, R.F.P., CFP, CSA44
RESTORING CONFIDENCE
“Jobs”
Peter Long BA, R.F.P., CFP, CSA
Employment is the Key
The rate of growth for the unemployed (bottom left) is slowing.
Unfortunately the people who are unemployed are finding it increasingly difficult to find new employment (top left).
In order for the U.S. economy to remain stable, it must create 150k positive new jobs per month.
Source: Thomson Datastream
Peter Long BA, R.F.P., CFP, CSA
Labour market improving but still fragile
250
300
350
400
450
500
550
600
650
700
2006 2007 2008 2009
Thousa
nds,
4 w
eek a
vera
ge
Initial claims for unemployment insurance
4-week average
Source: U.S. Dept. of Labor
U.S. Labour Market
-800
-600
-400
-200
0
200
400
2007 2008 2009 2010
Thousa
nds
3
4
5
6
7
8
9
10
11Monthly net new jobs (left)Unemployment rate (right)
Source: Bureau of Labor Statistics
Unemployment Insurance Claims
Peter Long BA, R.F.P., CFP, CSA47
RESTORING CONFIDENCE
“USA”
Peter Long BA, R.F.P., CFP, CSA
The U.S. faces an enormous fiscal challengeUS Federal Government Revenue & Spending
1600
1800
2000
2200
2400
2600
2800
3000
3200
3400
3600
98 99 00 01 02 03 04 05 06 07 08 09 10
US
$ b
illio
ns
Receipts
Outlays
-1.5% of GDP
-4.1%+1.9% of GDP
Source: US Bureau of Economic Analysis
-9.3% of GDP
of GDP
U.S. Federal Revenues & Spending, % of GDP
10
15
20
25
30
35
40
45
50
199820082018202820382048205820682078
%
Total revenues
Total spending
Source: CBO June 2009 Projection, Extended Baseline Scenario
Peter Long BA, R.F.P., CFP, CSA49
RESTORING CONFIDENCE
“BRIC”
Peter Long BA, R.F.P., CFP, CSA
Tale of two countriesRemember our test?
• USA• Population (mm) 307• Life expect (yr) 78• GDP/Person $46,000• Savings rate 4.6%• Internet users 74%
• Car ownership 87%
• China• 1,338• 73• $3,155• 49.9%• 13%• 6%
Peter Long BA, R.F.P., CFP, CSA
Tale of two countries
• USA• Population (mm) 307• Life expect (yr) 78• GDP/Person $46,000• Savings rate 4.6%• Internet users 74%
• Car ownership 87%
• China• 1,338• 73• $3,155• 49.9% -goes down• 13% -goes up to 25%
• 6% -goes up to 15%Result: Internet usage hits 110% of USA population Car ownership hits 40,000,000
Money for investment floods equities
Peter Long BA, R.F.P., CFP, CSA52
Why “Every Person You Meet With A 5 Year Horizon” Should Have A Proper Allocation To Commodities/Natural Resource Funds
Source: Ned Davis Research, Based On Returns Since 1975
Peter Long BA, R.F.P., CFP, CSA
What companies might benefit?
• Record of consistent earnings
• Good return on equity with little debt
• Honest capable management
• Simple business with barrier to entry
Peter Long BA, R.F.P., CFP, CSA
Three companies
• Procter and Gamble
• Johnson and Johnson
• Coke
Peter Long BA, R.F.P., CFP, CSA
• Tide• Old Spice• Secret• Cover Girl• Always• Head and Shoulders• Herbal Essences• Pantene Pro-V• Miss Clairol• Camay• Gain• Ivory Snow• Bounty• Charmin• Puffs• Scope• Pampers• Iams• Eukanuba
• Ivory• Olay• Zest• Noxzema• Febreze• Cascade• Dawn• Bounce• Downy• Mr. Clean• Swiffer• Cheer• Pringles• Vicks• Crest• Pepto-Bismol• Metamucil• Fixodent
Peter Long BA, R.F.P., CFP, CSA
• Listerine
• Rembrandt
• Plax
• Reach
• Aveeno Baby
• Penaten
• Tylenol
• Ractine
• Motrin
• Splenda
• Carefree
• Shower to Shower
• Tucks
• Band-Aid
• Bengay
• Polysporin
• Caladryl
• Nicoderm
• Nicorette
• Benylin
• Visine
• Lactaide
• Sinutab
• Rogaine
• Monistat
• Purell
Peter Long BA, R.F.P., CFP, CSA
Coke – 3,000 different Products
• Crush• Bicardi Mixers• Barq’s• Diet Coke• Cherry Coke• Vanilla Coke• Canada Dry• A & W root beer• Dasani• Dannon
• Eight O’Clock• Fanta• Five Alive• Mello Yello• Minute Maid• Nestea• Powerade• Sprite• Schweppes
Peter Long BA, R.F.P., CFP, CSA
Conclusions
• Good growth in 2010 – 3-4%
• A double dip recession is unlikely
• Labour market turn-around
• Interest rates to remain low
• Cyclical recovery is underway
• Asia will be main driver in recovery
• Oil demand to go back to 86 (mm) per day
• Housing to stabilize
Peter Long BA, R.F.P., CFP, CSA
How to get ready for 2010