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Markets must digest flood of data

The U.S. statistics-generating machine is working overtime to get economic data out early in a holiday-shortened week.

Although share prices have bounced off the six-year lows reached last week, recessionary fears are reflected in the depressed bond yields, as evidenced by the Canadian government two-year falling to a mere 1.77 per cent.

Today's flood of data includes durable goods orders, initial jobless claims, personal spending, new-home sales, the University of Michigan's consumer sentiment survey and the weekly oil and natural gas reports. U.S. markets are closed tomorrow for Thanksgiving.

HOW WILL MARKETS REACT?

"In my view what has happened is that fundamentals have been discounted [in equities]," said David Baskin, the president of Baskin Financial Services Inc., a boutique investment counsel firm. The swings in the share prices have led to ridiculous changes in valuations, he said. "Traders are in control of the market, not investors."

Baskin Financial advises clients with a minimum of $500,000 and recently it started a balanced fund and an equity fund requiring a minimum investment of $150,000.

"The market shifts on a daily basis don't tell you anything about the companies," Mr. Baskin said. "They only tell you about market momentum."

On the equity side, the client base has been shaken by the collapse in prices, Mr. Baskin said. "The pressure is to raise cash by selling equities," he said. "Only 10 per cent of the clients want to buy. We want to do the best job we can for our clients, but it's their money if psychologically they are not prepared to take the risk."

Nevertheless, Mr. Baskin said he has been cautiously buying blue chips such as Bank of Nova Scotia, National Bank of Canada and Royal Bank of Canada along with other dividend-paying equities such as TransCanada Corp., Power Corp., Rogers Communications Inc. and telecom companies.

On the bond side of the portfolios they hold securities with less than two-year maturities. "We are not believers in the deflation scenario," he said. "If anything we see the risk of inflation being higher two to three years from now."

And what is Mr. Baskin watching for a turnaround? "I think the key for me is credit conditions loosening up. I want to see corporate borrowing rates at reasonable spreads; lower Libor rates; and higher yields on U.S. Treasuries."

© 2007 The Globe and Mail. All rights reserved.

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