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Why market scare stories are everywhere, an infrastructure stock buy, and boosting bond returns

Halloween costumes are displayed at a shop in New York, October 25, 2011.


I could have written a Halloween-style market scare story but I didn't.

Let's back up for a second first. In the lead-up to Hurricane Irma hitting the Florida coast, a Fox reporter was doing live 'people in the street' interviews under the all-caps banner 'Florida braces for hurricane Irma.'

He picked the wrong Floridian. The interviewee provided chapter and verse, including accurate longitude and latitude data, as to why the hurricane presented very little danger to the community. The reporters' deflated reaction and the quick camera cut away made it clear the goal behind the interviews was not to provide personal perspectives, but to hype the potential disaster. A reasonable person might wonder why Fox isn't presenting the pertinent facts themselves instead of relying on random passersby.

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My own 'help or hype' dilemma arose from an interesting research report from Citi credit strategist Matt King, one of my favourite analysts. Mr. King outlined why he believes the reversal or imminent decline in monetary stimulus by the word's most important central banks – the Fed, the Bank of Japan and the European Central Bank – will cause significant declines in the riskiest equity and bond sectors.

One chart in the Citi report, showing that performance in the MSCI World index was highly correlated with central bank asset purchases was particularly dramatic and worrisome for investors (I posted it on Twitter here). It would have been a simple process for me to re-create the chart, write a column under a "Investors: Brace for a correction" headline, and then count up all the online page hits.

But Mr. King's perspective, while fascinating, is wildly out of consensus. The vast majority of economists and strategists, even a few within Citi, believe that the asset sales expected to be announced by U.S. Federal Reserve Chairwoman Janet Yellen on Wednesday, will cause market reaction in the mild-to-nonexistent range. For this reason, I decided the scare story was unwarranted.

It's not my intention to burden readers with my problems with this, or get a pat on the back for being all sober and reasonable. If we do get significant central bank-related market volatility in the next few months, you can bet I'll be quoting Matt King research and lifting his charts every week.

Investors should remember though, that all of us are susceptible to dramatic market forecasts – the reason they get more attention from the media is because they get more attention from readers. And even if I believe Mr. King is a great strategist (and I do), I have to keep in mind that 'interesting' does not correlate with 'right.'

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Brookfield Infrastructure Partners LP. When this company announced last week that it was raising $1-billion (U.S.) through an equity offering, its units fell more than 4 per cent on the news, snuffing out a promising rally that had begun a month earlier. Investors may have pouted about this setback (full disclosure: David Berman is an investor and he pouted like a toddler). But a deeper look at Brookfield's extensive track record for issuing new equity reveals why this latest offering is actually good news in the longer term: The company has a track record of making good use of the additional cash. David Berman explains.

Roots Corp. There's a strong sense of déjà vu in reading the Roots Corp. initial public offering prospectus. A distinctly Canadian clothing company that calls itself a "lifestyle brand" that says it's "successfully exporting our heritage globally," with strong domestic sales and opportunities for U.S. and international expansion. It reads a lot like the Canada Goose stock-offering materials from March. And Roots would likely be pleased to replicate Goose's flight, as the shares are up 50 per cent in the six months since its debut. David Milstead looks at what to expect from the Roots IPO.

Martinrea International Inc. Shares of auto parts companies are gaining price momentum with three stocks from this industry on the positive breakouts list on the charts – Magna International Inc., Linamar Corp., and Martinrea International Inc. Last quarter, Martinrea reported record earnings and management believes its solid operational results will continue to improve. The share price is up 30 per cent so far this year, and the consensus target price implies there is another 30 per cent upside potential. Jennifer Dowty explains.

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The Rundown

How investors can make - and lose - money when a stock is added to the TSX composite

When one of your stocks is added to a benchmark index, you might get a thrill: Trading volumes spike as index funds catch up with the changes, and share prices tend to rally on the spike in demand. Sadly, the thrill doesn't last. Three names were added to the S&P/TSX composite index on Monday – Brookfield Infrastructure Partners LP, Spin Master Corp. and Trican Well Service Ltd. – and all three saw trading volumes spike on Friday, the last day of trading before the changes kicked in. David Berman explains.

Status quo on embedded commissions not an option, OSC chair says

The debate on whether regulators should ban the use of embedded commissions continues to rattle the investment community and the chair of the Ontario Securities Commission says the status quo is not an option. During a roundtable discussion held in Toronto on Monday afternoon, Maureen Jensen, chair and chief executive of the OSC, was quick to address the audience that no decision has been made by the Canadian Securities Administrators on pursuing an outright ban on embedded commission. But as part of the process, regulators needed to explore a variety of alternatives that may, individually or in combination, address the CSA's concerns and lessen the risk of potential negative consequences a ban could bring. Clare O'Hara tells us more.

Bonds and ETFs: What you need to know to boost your returns

The outlook for bonds in 2017 started out blah at best and got worse. Years of speculation about higher interest rates gave way to a rapid-fire pair of rate increases in July and September. Higher rates are bad for bonds, but there's no sign of any concern about this in the world of bond ETFs. In fact, exchange-traded fund sales numbers for the year through Aug. 31 show bonds have by far been the most in-demand category of exchange-traded fund. The months and years ahead could indeed be harsh for bonds. But the recent interest in bond ETFs points a way forward for investors. Continue to hold bonds to stay diversified, and consider doing it by using bond ETFs instead of individual bond issues. Rob Carrick explains.

Gotcha! Spotting the traps in our back-to-school investing quiz

Thanks to everyone who took Investor Clinic's seventh annual back-to-school investing and money quiz. If you missed last week's quiz, you can still take it here. As promised, John Heinzl explains some of the more challenging questions. Based on the feedback he received from readers, some of the traps he laid were extremely effective.

Gordon Pape: It's time to get smarter about your pension options

Defined-benefit (DB) pension plans are gradually going the way of the dodo, unless you are fortunate enough to work for a government. Companies in the private sector are opting out of these expensive programs, replacing them with less costly defined-contribution (DC) plans. Why is this important? Because a growing number of Canadians are being asked to take charge of managing their retirement savings, although most of them do not have a clue how to go about it. The odds are that a lot of them are going to end up in serious financial trouble when the time comes to stop work. Gordon Pape explains what you may not know about some of your pension fund investments.

Don't be pressured into taking risk in your RRIF

A recently retired couple wants to add some safety to the husband's RRIF account. Their adviser thinks that's a bad idea. The wife recently e-mailed to get an opinion on this impasse. "How should we respond?" she asks. The answer is simple: Insist on safety. Rob Carrick explains why.

These brokers are best at keeping their clients satisfied

Desjardins Online Brokerage has taken top spot in a new customer satisfaction ranking. But if you're looking for the optimum do-it-yourself investing experience, check out Qtrade Investor. Qtrade took second spot in the customer satisfaction survey by J.D. Power, and it's a top player in comprehensive rankings of Canada's online brokerage firms. Rob Carrick takes a look at the rankings.


Tuesday's Insider Report: Companies insiders are buying and selling

Monday's Insider Report: Companies insiders are buying and selling

Why waiting for a pullback can be a risky investment strategy

Insiders buying as Alimentation Couche-Tard fuels up for growth

The Globe's stars and dogs for the week

Number Crunchers

Sixteen Canadian companies that make shareholders a priority

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Compiled by Gillian Livingston

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