Thursday, September 23, 2010

This is blah blah!

September turned out a lot less disastrous than many expected but it is not very exciting; A truly blah blah market. That is the Ken Fisher principle at work for you. But there is not a lot of news either, other than that Guru opinion has shifted away from the double dip. I hope October will be similar, with only minor ups and downs.

In the meantime, the economy will continue to improve at a snail's pace. But having a snail's pace improvement and fair to cheaply priced stocks may make November and December markets behave better yet again with a decent rally fuelled by bargain hunters. The Basel agreement is now mostly out of the way and, especially Canadian Banks are expected to increase their dividends in the coming quarters. What will happen if they don't? Another buying opportunity for banks in April or May, I would guess.

Real Estate in Calgary is reaching valuations that maybe interesting for investors. I just bought a 2-bedroom apartment unit in NW Calgary at a cap rate above 4%. With a slow real estate winter ahead and people scared by rising interest rates, investment grade properties may be reaching bottom. I expect the best appreciation of 2011 will be in the spring. So consider buying between now and March 2011 because these low real estate prices won't last.

Don't hurry, it is not that prices are likely to rocket up, but even a 3% appreciation with 25% down represents an ROI of 12%. I suspect that once the economy gains more tracktion, both oil and ,to a lesser degree, gas prices will increase. This in turn will fuel Calgary and Edmonton real estate and in a few years time you may be longingly look back on the missed opportunities of 2010 and 2011.

It is now nearly a toss-up whether to take a variable rate mortgage versus a 3 or 5 year fixed mortgage. If you fear rampant inflation and thus high interest past 2012, than this is the time to lock in your variable rate and, with new financing, going for a 5 year fixed mortgage should be seriously considered.

If you have high cash levels in brokerage accounts or money market funds, consider 1 year GICs that are cashable on short notice without penalty (yielding 1%) or opening a 1% interest bearing no-fee account at ING. Also, short term corporate debt with maturities below 2 years is an option or short term corporate ETFs bought through your discount broker (yield 2-5%). Consider the tax effect though. Interest bearing investments are best held in RRSPs and TFSAs, while dividend paying short term or floating rate preferds are best for taxable accounts.

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