The Source: Bill Tynkaluk, vice-chairman, Leon Frazer & Associates in Toronto.
The Idea: Take advantage of any stock market rallies to sell 10 per cent to 15 per cent of your equity portfolio.
"Normally, I'm a great bull, but not right now," Mr. Tynkaluk said in an interview.
Three things concern him.
One is the U.S. debt situation, which is "becoming almost unbearable." Total debt as a percentage of gross domestic product is high and rising.
Two, the unemployment situation is not going to get much better, especially in the United States, he says, because so many high-paying jobs have been exported to Asia and Mexico.
Three, "the consumer has to rebuild his balance sheet." People are starting to pay down debt and build some savings, but "it's going to take another year, year and a half," before they start spending again.
Add to that a disastrous housing market south of the border and a rapidly weakening one in Canada and the outlook is far from promising.
"I've talked to real estate people. They say houses were selling like hotcakes two or three months ago, but things have slowed right down." The federal government tightened some rules on mortgages and banks have been getting a lot tougher about lending, he notes.
As well, people are rushing to put their houses up for sale before the new harmonized sales tax kicks in. "I think there are too many houses for sale."
While he would put off buying for now, Mr. Tynkaluk still likes some utilities, such as Fortis, Enbridge and BCE, which is yielding more than 5 per cent.
"I'm not buying any growth stocks at this stage."
As for commodities, "the only one I really like is gold because I think the U.S. dollar is going to weaken." He favours Goldcorp Barrick and gold royalty company Franco-Nevada
He advises shunning base metals because of slowing demand from China.
While the Canadian stock market is in better shape than U.S. markets, "it's difficult for the Canadian market to move up if the U.S. market is not doing anything."
Longer term, he is much more optimistic. "Nine to 15 months from now, once we get straightened out, the Canadian market will be hell bent for leather."
The Big Risk: The risk to his equity-trimming strategy is that everybody forgets about the problems and the slowdown and buys stocks, fuelling a big rise in the market, he allows. Still, taking a little bit off the table won't prevent you from participating if the market rises.
The Payoff: "You'll be able to sleep at night. Your portfolio will be in good shape, you've taken some money off the table, and if it's a reasonable portfolio with good income and not too many base metals, it shouldn't collapse" even if the broader market tumbles.
Why Listen to Bill Tynkaluk? He's been in the business since 1956, and in every bear market, "the early '60s, '70s, '80s, 2000, it's the same old story." He admits he called the market wrong last year, when he expected the big rally early in the year to peter out and stock prices to test their lows. "It didn't happen."
Over the longer term, Mr. Tynkaluk and Leon Frazer & Associates have a solid record of making money for their clients.
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