John Stephenson is senior vice president and portfolio manager at First Assets Investment Management Inc. His talk is called Booms, Busts and Bailouts.
You need to see the big picture. There is one island in Greece where nearly everyone is claiming to be blind to be eligible for 500Euros a month payment. Everyone jokes about it. This is corruption in Greece.
The current real worry is not Greece, but Spain. Spain was well managed by the government, but had a housing crisis. Their housing prices probably will fall some 50% more. Banks are a problem in Spain.
Italy is a worry and the economy will probably contract 7% this year. Currently hope is winning the day in Europe, but the problems are not solved and will not be solved soon.
The US fiscal cliff is a worry. This cliff involves cancelling the Bush tax cuts, the Obama tax cuts and getting $1B more in savings. This could cut US GDP 1 1/2% to 4 1/2%. This is the difference between growth and recession.
So far this year the S&P is up 16% on low volume. S&P is still cheap at P/E of 12 to 13, but it is not real cheap.
Canada is underperforming the US because of commodities. There is a decreased use of commodities. China is decreasing their use of commodities and its economy is slowing.
The Purchasing Managers' Index (PMI) is showing that the world economy is slowing down. For information on this index, see Wikipedia.
South East Asia will be the future success. The Canadian star has risen. Merkel (Chancellor of Germany) came to Canada to see Stephen Harper and then went home. (She did not stop here on the way to or from the Washington.)
We will have volatility and will need cash when stocks go cheap. We need to invest in dividend paying stocks. We need stocks that are very conservative and very solid.
Bond market bull will go on for a few more years. There are problems in the government sectors. Government bonds are not good to buy. Only buy corporate bonds.
Commodities are good investments, but not as good a dividend paying stocks. We should have pipelines, utilities and REITs. Utilities are regulated and make money in good times and bad times.
Real Estate prices in the US are moving up. The Toronto and Vancouver condo markets have gone wild. There are 189 condo buildings under construction in Toronto and only 89 under construction in New York. Real Estate is going to fall in Canada by 10 to 20%, especially in the condo market.
Stephen said he has started to buy banks again because they are cheap. Gold is going to higher. Canada is on its way to being an oil superpower. Price for oil is going to be around $80 to $90 a barrel.
Saud Arabia is growing at twice the rate that China is growing. The King of Saud Arabia has one more brother and then there are 7,000 princes who will be vying for power.
We have lots of natural gas. Canada is in the best shape of the all countries in the OECD. Fracking has changed the production of gas. With fracking we get 50% of the reserves in the 1st year and then 15% each following year. We used to get 10% of the reserves each year.
There will be other pipelines to the east besides gateway. Gateway has only a 50-50 chance of getting done. Keystone pipeline will get done. The southern part is being built. We are just not building the part across the border.
Germany is not big enough to bail out Europe. There is a cultural divide between Europe north and south. Germany (with Austria, Luxemburg etc.) is fiscally responsible. Greece, Italy, not so much. In the southern countries they think you are stupid to not to cheat on your tax return.
Stock recommendations would be TransCanada (TSX-TRP) and Enbridge (TSX-ENB).
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.