Market Outlook September 12, 2011

Bond rates are once again lower. They really can’t go much lower, but the Bank of Canada doesn’t consider it likely that they will raise rates in the near future. This is great news for anyone with debt. This is the second-best time to clean up one’s balance sheet, before rates begin to rise. (The best time, of course, was before 2008.) The next year will go by relatively quickly, so the question should be: how much lower can I bring my debt over the coming year? And it seems that finance ministers in developed nations, including ours, are saying the same thing. Some countries need “austerity measures” and I’m glad Canada’s not one of them. It should be a wakeup call, however, to ensure that our spending is either well within our means, or focused on investments that will make our future quality of life better.

Here we are, approaching the middle of September, and its reputation for being a difficult month for the markets has held. The last week was negative for the stock market and if there’s any good news, it’s that volatility is slightly lower. Between stocks and bonds, bonds still look like the favourable investment. But given what I said about bond above, I still prefer gold (IGT). Its momentum is better than any of the other asset classes I’ve been watching. It is also likely to help an investor weather the volatility usually present in September and October. That’s where my money remains, for the moment.

My fair value estimate of the market hasn’t budged, but the market level has dropped. The P/E of the market index is just 15.56 and the dividend yield of the market as a whole is 2.71%. These numbers are very attractive, and someone with greater courage than I may be willing to invest at these levels, simply holding tight through any continued volatility. There’s a real chance that the market level will be higher before I am comfortable that stocks have positive momentum again.