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By John Heinzl
The Globe and Mail
Report on Business
Wednesday, May 17, 2006 |
Money may not buy happiness. But losing money is a surefire way to make people miserable, as anyone with cash tied up on the Toronto Stock Exchange can attest.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “Management of risk is really apropos at this time. If you're fine with 90-per-cent equities, if you can stand that risk, then by all means carry on. But I suggest that many investors can't stand that level of risk.”
As the malaise that has gripped Canadian stocks continued yesterday -- the S&P/TSX composite index slipped 2.31 points for its fifth loss in a row -- one could almost hear sentiment shifting.
Whereas a few months ago, hardly anyone questioned the China-commodities growth story that propelled the S&P/TSX to record highs, a growing number of analysts and investors are now counselling caution -- including some who were betting on commodities when others were still counting their losses from the tech bubble.
Marc Faber, Hong Kong-based publisher of The Gloom, Boom and Doom Report and author of the prescient 2002 book, Tomorrow's Gold: Asia's Age of Discovery, was among the earliest to call the bull market in commodities. We recall hearing him speak a few years ago, when he extolled the virtues of coffee, sugar and other commodities, bets that seemed slightly mad at the time but which would have rewarded investors nicely.
But yesterday, he urged investors to take some chips off the table. "Commodity markets, and many stock markets, could be down 20 per cent, 30 per cent over the next three to six months," he told Bloomberg. While markets often correct and then climb to new highs, "I think this is something more severe," he said.
Whether Mr. Faber will be right again remains to be seen, but he's far from the only money manager raising the yellow flag.
Adrian Mastracci, a financial planner and president of KCM Wealth Management Inc. in Vancouver, recommends investors take a hard look at the asset mix in their portfolios and trim equity exposure to about 65 per cent, while raising the cash and fixed-income components.
"Management of risk is really apropos at this time," he said. "If you're fine with 90-per-cent equities, if you can stand that risk, then by all means carry on. But I suggest that many investors can't stand that level of risk."
For those who believe the commodity boom is losing steam, solid dividend-paying stocks such as pipelines, power producers and telecom companies offer a degree of safety, said Elvis Picardo, research analyst and chief market strategist.
He is less fond of banks, however, citing a possible deterioration in the credit cycle. "If we have a global downturn in the housing sector, banks could be hit by that," he said.
After the huge run-up in commodities, the important thing is to start thinking defensively, he said.
"The big story has been global growth and demand from China and India and so on. But . . . what happens if that growth slows down? People are not paying enough attention to those risks."
For all the warnings about commodity markets becoming overstretched, however, the folks pushing metals prices higher are showing remarkable resilience.
In London, silver, gold and copper all rose more than 2 per cent, recovering some of the ground lost in Monday's mauling.
Cracks in housing foundation?
The U.S. housing market was showing more cracks yesterday as housing starts fell 7.4 per cent in April. It was the third drop in a row and brought starts to their lowest level since November, 2004.
It also surprised some economists who had expected starts to remain virtually flat with the previous month.
The slump is more proof that the growing inventory of new homes on the market is starting to cut into construction activity at a time when rising mortgage rates are dampening demand. Shares of home builders sank on the news, with Pulte Homes down 2.3 per cent, KB Home 1 per cent, Toll Brothers 1.1 per cent and Beazer Homes 1.8 per cent.
Some economists predict even uglier numbers in the months ahead.
"For the moment the market is correcting, not collapsing. That will come," said Ian Shepherdson, chief U.S. economist with High Frequency Economics.
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