2010
The year of the
“Comeback”
Prepared by: Peter S. Long BA, CFP, R.F.P., CSA
Date:
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
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!!!
We made it!
Peter Long BA, R.F.P., CFP, CSA
Good for you – give yourself a pat on the
back
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.
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Simplify
Allocate
Focus
Execute
Transparency
Ywhy?
Peter Long BA, R.F.P., CFP, CSA
S - Simplify
BEGINNING
END
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_________________________
Peter Long BA, R.F.P., CFP, CSA
S - Simplify
BEGINNING
 Retirement age
 How Long
 How Much
 Rate of return
 Inflation and taxation
Peter Long BA, R.F.P., CFP, CSA
2010 “to-do” list
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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
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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
Lessons Learned - # 1
Money CAN buy happiness
Peter Long BA, R.F.P., CFP, CSA
Lessons Learned - # 2
Money CAN buy Love…
Cost of love…$27,000 per inch
6 ft.
$270,000
5 ft. 2 in.
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
$250,000 or more) were asked questions about
their retirement and budgets.
• 56% felt their concept of retirement changed –
more emphasis on core values (families and
friends)
• 33% felt they may have to scale back
• 43% spent less on personal luxuries
• 21% gave less to charity
• 51% when asked if they could re-plan their
retirement mentioned they would focus more on
life goals than income
Peter Long BA, R.F.P., CFP, CSA
Canada: 2010 will be an
interesting year
•
Bank of Canada signals intention to keep interest rates at
record lows until June 2010
• But warns Canadians that
household debt levels are too high
•
Real estate markets red hot all across the country – bubble talk
abounds
•
C$ set to rise above parity once again
Peter Long BA, R.F.P., CFP, CSA
Be vigilant on household debt,
Carney warns
Household Debt, % of Personal Disp. Income Growth in Household Net Worth
150
20
Year-over-year % change
140
130
120
110
%
100
90
80
15
10
5
0
-5
-10
70
-15
60
*Canadian data includes unincorporated business
50
61 65 69 73 77 81 85 89 93 97 01 05 09
-20
90 92 94 96 98 00 02 04 06 08
Source: Federal Reserve, Statistics Canada, PH&N
Peter Long BA, R.F.P., CFP, CSA
Peter Long BA, R.F.P., CFP, CSA
Peter Long BA, R.F.P., CFP, CSA
2008 at-a-Glance: Key Events
S&P/TSX Composite Index (as at December 31, 2008)
U.S. Sales Plummet/
Prices Down
Gold Hits
$1,011/oz
(Mar 17)
TSX at “New Highs”
15,073
Crude Hits
$147/bbl
(June 18 driven by resources)
(July 11)
Developed Countries
confirm Recession
US
Election
$713/oz
Economic
Update
$31/bbl
(‘08 low, Oct 24)
(‘08 low, Dec 22)
(Q4-08)
13,833
Fed rate as low as
0%
(Dec 31)
(Dec 16)
Global Financial Crisis Heightened
Fed & BOC Slash Rates
Rescues
come with
Global Credit
Crunch Heightens
Triple Trouble
(Dec bailout)
. . . future costs
8,988
Emergency Economic
Stabilization Act (Oct 3)
(Dec 31)
Europe Follows (Oct 12)
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Sources: Datastream, as at Dec. 31, 2008; total returns, local currency, Financial crisis visual: BBC News
Peter Long BA, R.F.P., CFP, CSA
Oct-08
Nov-08
Dec-08
2009 at-a-Glance: Key Events
S&P/TSX Composite Index
8,694
Green-shoots
appearing
(Dec-08 to YTD-09)
Too much . . . too fast?
Sustainable
earnings &
revenue growth
evidence needed
New descriptive
for the times
Fed rate as low
as 0% – 0.25%
(+35%)
11,746
+35.0%
"Surgical Bankruptcy"
YTD total return
Gold surpasses
$1,000/oz.
New low for
this TSX Bear
7,567
Federal Reserve
sees economy
stabilizing
8,988
Crude hits
$73/bbl
Quantitative easing
concerns
(Jun 11)
(Sep 15)
BOC rate
cut to 0.25%
(Mar 9)
Financial crisis
one year later
(Sep 14)
$35/bbl
(-12%)
(Apr 29)
More stimulus at home & abroad
(Feb 18)
(Apr 21)
7,479
Jan-09
Feb-09
Peter Long BA, R.F.P., CFP, CSA
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Source for stimulus, green-shoots and ‘too much too fast’ visuals: The Economist, 2009
Negative
Peter Long BA, R.F.P., CFP, CSA
Positive
Peter Long BA, R.F.P., CFP, CSA
2009
Peter Long BA, R.F.P., CFP, CSA
Tech
Wreck
Peter Long BA, R.F.P., CFP, CSA
Predicting the winner is difficult
Canadian Bonds: DEX Universe Bond Total Return Index
Canadian Large Cap: S&P/TSX Total Return Index
Canadian Small Cap: BMO Nesbitt Burns Cdn Small Cap Index
Emerging Markets: MSCI Emerging Markets Free Index ($Cdn)
Source: Globe HySales, as at December 2008
Peter Long BA, R.F.P., CFP, CSA
Global Equities: MSCI World Index ($Cdn)
Foreign Equities: MSCI EAFE Index ($Cdn)
US Large Cap: S&P 500 Total Return Index ($Cdn)
US Small Cap: Russell 2000 Index ($Cdn)
Predicting the winner is difficult
Canadian Bonds: DEX Universe Bond Total Return Index
Canadian Large Cap: S&P/TSX Total Return Index
Canadian Small Cap: BMO Nesbitt Burns Cdn Small Cap Index
Emerging Markets: MSCI Emerging Markets Free Index ($Cdn)
Source: Globe HySales, as at December 2008
Peter Long BA, R.F.P., CFP, CSA
Global Equities: MSCI World Index ($Cdn)
Foreign Equities: MSCI EAFE Index ($Cdn)
US Large Cap: S&P 500 Total Return Index ($Cdn)
US Small Cap: Russell 2000 Index ($Cdn)
4th
To Do
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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
Loss Aversion
Pleasure
Small
Pleasure
Loss
{
}
Gain
Big
Pain
Pain
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)
Peter Long BA, R.F.P., CFP, CSA
Economics
•Economy-Earnings
•Housing
•Interest Rates
•Jobs
•USA
•BRIC
Peter Long BA, R.F.P., CFP, CSA
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 Margins
The recovery begins, drawing strength from prior cost-cutting.
Peter Long BA, R.F.P., CFP, CSA
Earnings
The recovery begins, drawing strength from prior cost-cutting.
Peter Long BA, R.F.P., CFP, CSA
Better earnings ahead
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Credit is available
Jobs are being created
Inventories are being replenished
Strong demand for resources
Peter Long BA, R.F.P., CFP, CSA
RESTORING
CONFIDENCE
“Housing”
Peter Long BA, R.F.P., CFP, CSA
Canadian consumer asks: what
recession?
Existing Home Sales
Retail Sales Change
Oct. 2008 - Oct. 2009
20
10
0
-10
-20
4
Year-over-year % change
Year-over-year % change
30
2
0
BC ON MB
Canada
-2
PEIQC NB NS NL
SK
-4
-6
-30
-8
-40
Jan 05Jan 06Jan 07Jan 08Jan 09Jan 10
Source: Can. Real Estate Assoc.,
National Assoc. of Realtors
Peter Long BA, R.F.P., CFP, CSA
-10
AL
Source: Statistics Canada
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 Strength
Source: NBFG Economy & Strategy, CREA
 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.
Source: Bloomberg, August 25, 2009
Peter Long BA, R.F.P., CFP, CSA
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, CSA
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
700
650
600
U.S. Labour Market
400
11
Monthly net new jobs (left)
Initial claims for unemployment insurance
Unemployment rate (right) 10
4-week average
200
9
550
Thousands
Thousands, 4 week average
Unemployment Insurance Claims
500
0
8
7
-200
450
400
6
-400
5
350
-600
300
250
2006
2007
2008
Source: U.S. Dept. of Labor
Peter Long BA, R.F.P., CFP, CSA
2009
-800
2007
4
2008
2009
3
2010
Source: Bureau of Labor Statistics
RESTORING
CONFIDENCE
“USA”
Peter Long BA, R.F.P., CFP, CSA
The U.S. faces an enormous fiscal
challenge
US Federal Government Revenue & Spending
3600
50
3400
3000
45
Receipts
40
Outlays
-1.5%
of GDP
2800
-9.3%
of GDP
2600
2400
2200
+1.9%
of GDP
2000
Total spending
30
25
-4.1%
of GDP
1800
1600
98 99 00 01 02 03 04 05 06 07 08 09 10
Source: US Bureau of Economic Analysis
Peter Long BA, R.F.P., CFP, CSA
Total revenues
35
%
US$ billions
3200
U.S. Federal Revenues & Spending, % of G
20
15
10
1998 2008 2018 2028 2038 2048 2058 2068 2078
Source: CBO June 2009 Projection,
Extended Baseline Scenario
RESTORING
CONFIDENCE
“BRIC”
Peter Long BA, R.F.P., CFP, CSA
Tale of two countries
Remember our test?
• USA
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Population (mm)
Life expect (yr)
GDP/Person
Savings rate
Internet users
Car ownership
Peter Long BA, R.F.P., CFP, CSA
• China
307
78
$46,000
4.6%
74%
87%
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1,338
73
$3,155
49.9%
13%
6%
Tale of two countries
• USA
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Population (mm)
Life expect (yr)
GDP/Person
Savings rate
Internet users
Car ownership
• China
307
78
$46,000
4.6%
74%
87%
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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, CSA
Why “Every Person You Meet With A 5 Year Horizon”
Should Have A Proper Allocation To Commodities/Natural
Resource Funds
Peter Long BA, R.F.P., CFP, CSA
Source: Ned Davis Research, Based On Returns Since 1975
What companies might benefit?
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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
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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
Peter Long BA, R.F.P., CFP, CSA
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Ivory
Olay
Zest
Noxzema
Febreze
Cascade
Dawn
Bounce
Downy
Mr. Clean
Swiffer
Cheer
Pringles
Vicks
Crest
Pepto-Bismol
Metamucil
Fixodent
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Listerine
Rembrandt
Plax
Reach
Aveeno Baby
Penaten
Tylenol
Ractine
Motrin
Splenda
Carefree
Shower to Shower
Tucks
Peter Long BA, R.F.P., CFP, CSA
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Band-Aid
Bengay
Polysporin
Caladryl
Nicoderm
Nicorette
Benylin
Visine
Lactaide
Sinutab
Rogaine
Monistat
Purell
Coke – 3,000 different Products
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Crush
Bicardi Mixers
Barq’s
Diet Coke
Cherry Coke
Vanilla Coke
Canada Dry
A & W root beer
Dasani
Dannon
Peter Long BA, R.F.P., CFP, CSA
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Eight O’Clock
Fanta
Five Alive
Mello Yello
Minute Maid
Nestea
Powerade
Sprite
Schweppes
Conclusions
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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
Peter Long BA, R.F.P., CFP, CSA