Jordan Wealth Management Group - ScotiaMcLeod Truro

Since the last time…

Anyone notice that with the news in the past two weeks about Enbridge Pipeline’s leaking pipes – the Americans are quite worried about their oil inventory levels decreasing ahead of the winter heating months. This same two weeks, the complaints about our tar sands seem to have abated. Any connection there?  At least when dealing with Canada for oil – you don’t have to deal with dictators, or those supporting terrorism.

Looking at the markets this past month; if you played the odds, so far you would have been on the wrong side of the bet. The month of September is only half done; but so far, most markets are strongly up for the month; where the odds over the past 20 years have been that September has only shown gains on average 30% of the time.

Those calling for a double dip in the economy are still waiting – one major ingredient for a second recession is missing – the levels of inventory on businesses shelves is not inordinately high relative to the level of sales they are experiencing – unlike the situation at the beginning of the last recession. Notwithstanding the continued pessimism out there regarding housing prices and unemployment; there still is growth – just not as much or as fast as people want. If we do get better than expected growth – then that will be very good for the cyclical side of the Canadian market – especially the oils.

The headlines this week are all about Basel III – the guidelines for how much capital banks around the world will be required to back the loans that they make. The guidelines agreed upon were sufficiently weak that most Canadian and US banks are in compliance and will thus not have to raise a bunch of capital quickly. European banks, meanwhile have been given longer than expected to address their problems. Thus, banks have been showing strength of late on anticipation of dividend increases after a two year hiatus.

A trend I see and hear everywhere lately when it comes to stocks is “show me the money”, or in other words, what is the dividend? How much does that company pay while I am waiting for my (hopeful) capital gains down the road? Witness bellwether NASDAQ tech stock Cisco today announcing their first ever dividend starting in 2011. This is no accident – they want their stock to be in demand by an increasing number of investors.
 
There is a note of caution about dividend paying stocks you should also remember – there are some people that will only buy a stock because the dividend is greater than they can get on say, a 5-year GIC. The GIC is at 3% and the stock offers 3.5 or 4% - great. But if rates were to go up to 5% on a 5 year GIC (remember those days?), then the company had better have the earnings growth or ability to increase it’s dividend as well to stay competitive – or else that company’s stock will likely fall. We are no where near that situation at present – deflation, not inflation is still the prevailing concern – but be ready to act when things change.

In the meantime, I continue to focus on buying the dips when they come on specific companies, or the markets as a whole; and cautiously buying corporate debt with not too long of a maturity to take advantage of higher rates and dividend tax credits where applicable to offset the lousy interest rates otherwise available. The next year is still apt to tempt everyone’s patience, and periodically your resolve. Hang in there!