All posts by Jonathan Chevreau

Weekly Wrap: The Market’s near-death experience, magazine reverse indicators, the options of frugality

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screen shot 2015-08-27 at 9.14.03 amThe 1,000+ point drop in the Dow Jones Industrial Average Monday morning will long be remembered by investors but, unless you sold everything at market prices in a panic that morning, those that just sat it out (or meditated, as we suggested that morning) were fine by week’s end. You can find a nice recap of the market’s near-death experience in this WSJ article, complete with charts:   U.S. stock swings don’t shake investors.

Still, the scary start to the week was enough for one magazine to create the cover shown to the left. In what some bulls interpreted as a “reverse indicator,” the current cover story of  Bloomberg Businessweek features not just one but several bears on its cover.

In a commentary on that phenomenon, Business Insider’s Myles Udland noted that the market often does the opposite of what magazine cover indicators may be suggesting, which would make a bear cover bullish. Remember, Business Week famously proclaimed The Death of Equities in a cover in 1979, triggering a multi-year bull run.

China & other submerging markets

Mid-week rallies aside, one reason for the continued bearishness is China and other Emerging(“Submerging?”) Markets. One of Bloomberg BusinessWeek’s accompanying stories was entitled Will the Next Recession be Made in China? It noted that after Monday morning’s 1,000 point-plus drop, all markets seemed to be correlated: that “the world suddenly seemed like a very small place.” Continue Reading…

Another bad day on markets — try Meditation

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41KxcsypMRL._SX356_BO1,204,203,200_Panicky stock markets in China are spreading to Asia and the rest of the world today. Over the weekend my Twitter feed provided links to various stories arguing the case against panic but clearly there’s extreme anxiety in the air and investors are going to do what they’re going to do.

At the Wall Street Journal, Jason Zweig described five things investors shouldn’t do right now. The New York Times advised Take some deep breaths and don’t do a thing. Here in Canada, the Globe & Mail’s Rob Carrick took a similar stance: Relax, a stock market pullback was overdue.

Deep breaths, relaxing? Sounds a bit like meditation. And that might be as valuable a thing to try right now than a belated attempt to lock the stock market barn after the horse has already escaped.

Here’s a review I did for the FP four years ago of the book illustrated to the left:  The Mindful Investor, Maria Gonzalez. The advice then was that the next time the markets crash, try to calm your mind with meditation. For a video interview I conducted with the author then, click on Mindfulness over Market Matters.

On page 152, the book specifically mentions how to deal with a stock market correction through a relaxation technique. “Once you feel calmer and more stable, you’ll be be better able to listen and make good decisions, ones that aren’t based on panic and fear.”

Of course, the more you watch the carnage through the media and web, the harder this is going to be. You might want to reread Steve Lowrie’s Hub post: Stop reacting to market noise.

Vanguard:  Consider doing nothing at all

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Weekly Wrap: Dow Theory sell signal?, Electoral goodies for homeowners, will Robos make your dreams come true?

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Mark Hulbert, Marketwatch.com

Influential investment newsletter ranker and market analyst Mark Hulbert says the Dow Theory just flashed a Sell Signal as Thursday’s swooning stock markets closed.

Two of three conditions for a “sell” signal were already in place before this week’s meltdown: the Dow Jones Industrial Average and the Dow Jones Transportation Average both must experience a significant correction from their joint new highs; then in any significant rally attempt following that correction, one or both  Dow averages must fail to rise above their pre-correction highs. As Hulbert notes, the first two conditions were met earlier this year: after sharp declines in January, the Dow Transports were not able to join the Dow Industrials in rising to new highs.

The third condition is that both averages must then drop below their respective correction lows. Hulbert says the “third and final hurdle of a Dow Theory ‘sell’ signal was generated at Thursday’s close when it broke under the low identified in step 1, which was 17,164.95.”

However, Hulbert says not all followers of the Dow Theory are throwing in the towel just yet, at least until the action in the broader S&P500 index confirms the negative action of the far narrower Dow indexes. Hulbert says Jack Schannep, editor of TheDowTheory.com, “acknowledges the original version of the Dow Theory has indeed emitted a ‘sell’ signal” but Schanne’s modified theory that focuses on the S&P500 as well as the Dow averages won’t generate a “Sell” signal until the S&P 500 closes below its January closing level of 1992.67. Even after Thursday’s carnage, the S&P500 was still 2.2% above its January low. Something to watch in Friday’s action: if that occurs, you can expect some pretty gruesome reading in this weekend’s financial pages.

It’s probably a good time to talk to your financial advisor but before taking drastic action of any nature, you might want to go back and read Steve Lowrie’s Hub posts that began each of the last three weeks, such as Stop reacting to Market Noise or Stop feeding on Junk Media.

The commodities sell-off

About the only thing that wasn’t headed south this week is gold, which has been in the doldrums for ages, along with oil and most other commodities. This week’s The Economist has a good summary of the dire situation of the commodities market: The Sell-off in Commodities: Goodbye to all that. It warns “the latest leg down in crude prices may not yet have run its course.”

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Weekly Wrap: ORPP gets flak, investors watch weights, the worst form of debt

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Ontario premier Kathleen Wynne (Twitter.com)

First an apology that there was no weekly wrap last weekend because of a long weekend I took up in cottage country. Summer is fast fading!

This week the big macroeconomic story was China’s devaluation and the consequent negative impact on global markets. Probably the least confusing and most insightful analysis of this story was in The Economist, titled The Devaluation of the Yuan: The Battle of Midpoint.

On the retirement front in this country, the controversial story was the Ontario Government’s unveiling of the details of the much-loathed ORPP, or Ontario Retirement Pension Plan. This appears to becoming an election issue as the animosity between Stephen Harper and Ontario premier Kathleen Wynne heats up. We did weigh in with a recap on the Hub, which you can find here.

Note the references to two studies that came out hours before the official ORPP announcement, providing a little grist for the mill for both fans and foes of the plan. My own take on this will be in an upcoming Motley Fool blog but the main critiques of the ORPP — and there were many — are summarized below.

10 reasons ORPP should be T-ORPP-EDOED

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Ontario Retirement Pension Plan to roll out from 2017 to 2020

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Minister Robb with Ontario Premier Kathleen Wynne, Northern Development and Mines Minister Michael Gravelle, HOM Tony Negus and Consul General/Senior Trade and Investment Commissioner Portia Maier.
Ontario premier Kathleen Wynne (Wikipedia)

The National Post today reports the Ontario Government has revealed more detail today about its oft-criticized Ontario Retirement Pension Plan or ORPP. As it reported in a later update, staff at the province’s bigger employers will have to start paying into the plan by 2017, with a full rollout by 2020.

Employers will be exempt only if they already offer a mandatory Registered Pension Plan that Ontario deems comparable to the ORPP.

In 2022, Ontario residents who are 65 or older can start drawing benefits from the ORPP. Full-time or part-time workers  can  start contributing at 18 and continue until they turn 70.

While Premier Wynne has not released cost estimates of the program, the Post reported the plan will collect 1.9% of a workers’ income up to $90,000 from both employers and employees to a total of 3.8%, or a combined total of $3,420 a year

Meanwhile, proponents and critics of the plan got a little more ammunition from two different retirement reports produced by the Fraser Institute and the Mowat Centre.

Released Tuesday, the Fraser Institute report is titled Lessons for Ontario and Canada from Forced Retirement Savings Mandates in Australia. It suggests that if Canada really needs more “forced” retirement savings, Ontario should look for global examples that could be alternatives to its current plans for the ORPP. For example, it should look at Australia’s “superannuation” program, a contribution-based scheme to which both employers and employees must contribute. Australia’s system of “individual accounts” provide more flexibility and choice than, for example, the Canada Pension Plan (CPP.)

Like the CPP, the ORPP is a “collective” pension plan that pay out defined benefits over a lifetime. The paper by the Mowat Centre (titled Lower Risk, Higher Reward: Renewing Canada’s Retirement Income System) says the Australian plan has had “mixed” success because as a Defined Contribution plan it doesn’t guarantee a set income for life, as does the CPP and DB pensions in general.

Middle-to-upper income earners may need more help

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