Managed Money Reporter Newsletter — Issue 265, September/October 2011

Editors: Carl Spiess & Allan McGlade

Featured Articles

Must markets fall in the fall?

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA

The 3rd quarter of 2011 was terrible for equity markets around the world. And the TSX is off over 13% year to date, and 20% from the April highs. We are in bear market territory by definition. The only thing that really went up in the last 3 months has been the daily volatility index. Moves of up or down several hundred points or several percent have become all too common.

CBOE Volatility Index
CBOE VIX index - Volatility was the only thing rising in Q3 2011, Source:

So what to do? Historically October has often been a lousy month for markets, but all through fall 2010 we saw rising markets, so it can be a mistake to sit on the sidelines. And periods of increased volatility have also regularly preceded market rebounds. (See this article from Bloomberg: VIX Index Has Biggest Quarterly Gain Ever to Above 40)

Here is the Q3 report and outlook from Scotia economics. It includes an interesting discussion about the strong cash positions of some of the big corporations that make up the S&P 500. Many of the best performing companies are using their strong cash flows to increase dividends or (like Warren Buffett's Berkshire Hathaway) perform share buybacks. There is also a detailed commentary about the limited exposure that Canadian banks have to the European banks and companies that are making daily headlines.

Our volatility note from August ( is still good reading. Clearly the situation in Europe is unsettling. But it can make little sense when the shares of companies in North America that have no sales in Europe, have captive markets here and are growing their earnings and dividends, then rise and fall 5% in a day based on some news headline out of Greece.

Also, this article from Edgepoint provides a pretty good summary of the concept of the disconnect between European headlines and the real value of operating businesses.

While the global economic situation looks precarious, it is important to take a look back at all the improvement we have seen to global living standards over the last 50 years. An historian once wrote, 'On what principle is it that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?' That was English historian Thomas Babington Macaulay in 1830, before the industrial revolution had really had much effect on living standards and stock markets gave us the ability to profit from economic growth.

As always, we are here to help you make sense of all this. If you would like a personal review of your accounts and suggestions for the best way to position your investments during these volatile times and the coming months, please contact us.


An exciting new retirement income option from Manulife

Manulife is launching a new product named Manulife PensionBuilder that will provide guaranteed income for life. It has some of the best features of annuities, and other features of the flexible but complicated Income Plus GMWB product. Guaranteed Minimum Withdrawal Benefit (GWMB) plans were launched in Canada 5 years ago, and have become quite popular with over 20 Billion in new investments.

Manulife PensionBuilder combines the benefits of annuities and Income Plus

Look for more information in the coming months, including a special offer of a 6% bonus for new plans set up before December 31, 2011. The bonuses continue at 5% in subsequent years until you begin taking income. In today's environment, a 5% guaranteed income growth rate looks very attractive. For details see these links from Manulife:

Other good information from Manulife can be found at:

Other Guaranteed income sites of interest include:


Canada Savings Bonds On Sale Now

We can help you with a variety of guaranteed investments in your account(s). Canada Savings bonds are on sale until November 1st.

Canada Savings Bonds are now available

Canada Savings Bonds Series 128 effective 1 Nov. 2011 will yield 0.50%. The best comparable one year cashable GICs from our list of 9 GIC issuers is yielding 1.4%.

Canada Premium Bonds Series 78 effective 1 Nov. 2011 will yield and annual compound rate of 1.19% if held for 3 years, specifically:

Year 1: 1.00%
Year 2: 1.20%
Year 3: 1.40%

Comparable 3 year GICs at time of writing (Oct 3) are yielding 2.1% and are covered to $100,000 through CDIC insurance.

CSBs can still be attractive for clients with very large amounts to invest, or who feel the most comfortable with a Government of Canada guarantee. Please contact us if you would like to review or invest in these guaranteed investment alternatives for in your account(s) or see the Canada Savings Bond newsletter or website for more details:


New Scotia Online Experience

Scotia Online is a great way to see your ScotiaMcLeod account and go paperless. For Scotiabank customers, you also get a consolidated view of all your banking and credit services. We're excited to be launching a new more modern version of Scotia Online with more options for you to customize the information that is important to you. Look for it soon and let us know what you think.

See the video at:

Or the brochure:

If you haven't yet signed up for online access and/or would like to go paperless, please go to:


Investment Team News

We are pleased to announce that Debbie Ann Espiritu has added a new member to the team. Angelyn Grace Espiritu will be keeping Debbie busy over the next year and we look forward to Debbie's return next fall after her maternity leave is done.

We are also excited that Nicole Keeler and Christopher Kelly have both recently passed their licensing program and certification exam for insurance and are now eligible to write the Provincial LLQP exam to obtain their life insurance licences.


Recommended Link of the Month

Warren BuffettI recently watched the entire Aug 15th Charlie Rose interview with Warren Buffett. It is well worth watching to find out how businesses in America are doing and where the idea of the Buffett Millionaire tax came from.

Warren Buffett discusses his New York Times Op-Ed piece 'Stop Coddling the Super-Rich' which calls on Congress to increase taxes on the Super-Rich like himself. There is a new Sept 30th interview posted too. Well worth watching.



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F.  416.863.7479

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