By Jonathan Chevreau National Post FP Investing Section Tuesday, August 12, 2004

There's a certain rhythm to this job of commenting on things financial. For years, I've had a running joke with a broker who accuses me of calling only when the stock market is tanking.

After last week's haircut, I called him up for his usual calming wisdom. In the past, it was typically an upbeat "We're having a sale!"

So I was taken aback when the conversation began: "There's reason for being concerned and you've never heard me say that before."

Indeed I hadn't, which prompted me to call up several other advisors I respect.

This contact at a big bank brokerage has concerns both about fundamentals and technicals. His firm fears the bull market we've been in since 2003 may not be long term. "It may still have legs, but technical indicators on the Nasdaq show it may be rolling over."

Along with the tech-heavy Nasdaq, the Dow industrials, transports and S&P 500 have also fallen below their 200-day moving averages, says Vancouver advisor Hans Merkelbach. That's "a bearish sign." He says stocks have held up remarkably well in 2004, considering his belief we're still mired in a "secular bear market ... We have a long way to go."

He's no more optimistic about the bond market, expecting a rout if the Fed hikes rates to the 4% or 4.5% he believes they must eventually reach.

Another Vancouver advisor, Jim Rogers, does not believe the bear has re-emerged from his lair. He views the current doldrums as "a stall. The economic fundamentals in Canada remain strong. It's primarily geopolitical events that are holding the market back from advancing at its long run 8% to 10 % historical rates."

Financial author Stephen Gadsden says we're in for a "ricochet market" the next two years. North American stocks will stay in a tight trading range. Nimble traders may make money, but indexers and buy-and-holders may not.

Gadsden -- formerly an advisor with Assante Corp. -- suggests investors "strip out equities until your mutual fund portfolio is about 70% fixed income. Then hold tight." His recommendations include energy and gold funds, low-fee bond funds, GGOF Monthly High Income II, TD Real Return Bond and Cundill Value.

Nate Mechanic, advisor with Toronto-based RBC Investments, agrees it's a stock pickers' market. He suggests investors rely on bottom-up, value-oriented managers such as Peter Cundill, Irwin Michael and some at Dynamic and Trimark.

Andy Filipiuk at National Bank Financial is more bearish, pointing to gurus such as Richard Russell and John Mauldin. This week, Russell's Dow Theory Letters stated flatly: "Get out of the way! The bear has returned." Russell says the smart money has been selling and market tops have been forming all year.

Filipiuk says the U.S. market is critical, but it's getting harder to find asset classes uncorrelated with it.

"The stock market has done nothing for six years," Filipiuk says. "The charts look like hell. The job numbers are a disaster. If ever there were a time to jump out, it's now."

Cash is "underrated," he adds. "People think it does nothing, but they will profit as the market goes down."

Due to an accommodating U.S. federal reserve, stocks have not reached the bargain levels you'd expect at the end of a true bear market. Mauldin says 80% of the rise in U.S. stock prices from 1982 to 1999 was due not to earnings growth but to expansion of price-earning ratios. They soared to 32 in 2000 and have since retrenched to 22, based on 12-month trailing earnings for the S&P500. But in bear markets, P/Es can fall below the mean to low single digits. Russell cites 5.4 in 1949, 7.5 in 1974 and 6.8 in 1980.

Profits are at a record high (albeit from recession lows) but will moderate, Mauldin says. "Choose your stocks carefully. This is not a time for index investing."

Investors should underweight U.S. equities, says deep-value investor Jeremy Grantham, who sees more upside in emerging markets.

Martin Kosterman, advisor with Toronto-based Fiscal Agents, agrees indexes won't do well. "There's no magic bullet out there. We're still suffering a hangover effect from the last three or four years." He likes well-known global equity funds from AGF, Mackenzie (Cundill, Ivy), Templeton and Trimark. He also also likes Europe and emerging markets.

The advisor mentioned at the outset is optimistic about the four-year presidential cycle and demographic trends for the rest of the decade. As the Boomers retire, they will invest and spend, while the echo boom will ramp up spending as they graduate and start families. This could be "incredibly bullish from 2006 and beyond. You want to be there," he says. "It could be a brand new secular long-term bull market, but there's a rocky road to get there."

In assessing short-term equity losses, investors should consider how the whole portfolio is behaving, says Adrian Mastracci, of Vancouver-based KCM Wealth Management Inc. Stocks, bonds, cash, income trusts and other asset classes seldom move in the same direction at the same time. "Investing is not about making wholesale changes as markets fluctuate one way or another," Mastracci says.

Another Toronto advisor who can't be quoted still believes in managed money. "Same same same. I don't call the markets. Focus on the long term, avoid the noise and market timing, stick with a plan and your asset mix and rebalance periodically. Change the plan only when the personal situation or objectives change."

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.