Jaime Carrasco is director and associate portfolio manager at Bank of Nova Scotia. His focus is resource and utilities stocks and REITs.
DH Corp (DH.TO)
DH Corp is a conservative dividend payer working in a boring needed industry.
Fairfax India Holdings (FIH_u.TO)
Participation in the financial sector of the Asian economy through the one country that is doing well in the area, it's high in cash looking for acquisitions and in U.S. dollars. Good solid management.
Capstone Infrastructure (CSE.TO)
High yielding green biased energy utility.
Past Picks: August 8, 2014
Yamana Gold (YRI.TO)
Then: $9.47; Now: $2.63; -72.23%; Total return: -71.70%
Sociedad Quimica y Minera (SQM.N)
Then: $27.76; Now: $13.06; -52.95%; Total return: -51.83%
Tim Hortons *Returns as of December 12, 2014*
Now known as - Restaurant Brands International (QSR.TO)
Then: $68.40; 12/12/2014: $98.00; +43.28%; Total return: +44.44%
Total Return Average: -26.36%
I believe that the global economy is at a crossroads because the financial system can no longer manage the high levels of government debt, and rational investors better start taking proactive action to protect and benefit from this coming debt unwinding. The Chinese use the symbols for crisis and opportunity to write the word danger.
The danger to investors is the current level of complacency and lack of understanding of the debt markets, and their effects upon asset classes. The crisis, as Greece is demonstrating, is the economic consequences once these policies stop working and their positive effects reverse with devastating results. The opportunity lies in the power of understanding the effects of these policies upon asset classes so that one can benefit from their eventual and necessary unwinding.
Currently, our portfolios are sitting on much higher levels of cash, as many of the stop losses we had in place hit in June. These have reduced our participation in some sectors including interest sensitive sectors such as pipelines, utilities, and REITS. We are still underweight the energy sector, equally weighted between low cost Canadian content through producers and royalty companies, and foreign multinationals. The energy sector has begun to look attractive as North American inventory levels seem to have plateaued, and I will be looking to add more Canadian content if this trend holds but remain cautious.
I am still holding my U.S. investments in healthcare and high tech as well as a broad market vehicle, but preparing for a rough fall if the global economy continues to slow down. The global economy has been slowing down, with China in the lead and Europe and Japan not far behind, resulting in declining Global Purchasing Managers Index. This reality will not be good for the U.S. economy, which is still dependent on global growth, and working against the current due to a strong U.S. dollar; both factors will curtail the ability of the FED to raise rates in September. If this trend continues and the FED is not able to raise rates it will signal a worsening situation and a loss of trust in the FEDs ability to manage the economy, a situation that is already becoming apparent in China Europe and Japan, and being signaled by the action of the Transport Index in the U.S. I will wait on my current U.S. based holdings and see what the future holds for the U.S. economy.
We are still holding an allocation in the precious metals sector as insurance against economic, political, and financial distress. Correct me if I'm wrong, but I think globally things are getting worse, and that most rational investors should see that trend by now. In view of the recent decline in the price of gold and silver, I will be reallocating some cash to bring my allocations back to their respective percentage of the portfolio. This simple portfolio management rule, forces us to do the right thing when emotion kicks in. Furthermore, I get comfort adding to this sector for two reasons; stock picking and lack ownership by most investors.
Unlike many of the companies in this sector which are struggling to survive in this low cost environment, I am happy to report that our precious metals companies are faring well because of low cost of production, good management, and geographically safe deposit in the Americas. These qualities have meant that due to positive cash flows. These companies have been able to acquire many more projects through this period, strengthen their balance sheets, and are ready to greatly benefit when we are through this very tough period. Lastly, the lack of ownership of this sector by investors and complacency as to the true state of global affairs is also a great contrarian indicator.
Rational investors will come to the realization that they should have some participation in this sector as insurance. Ray Dalio, Founder of Bridgwater Ass. and one of Wall Street's most influential money managers agrees as he recently advised that, "If you don't own gold, you know neither history nor economics". Throughout history there are many time periods where economies have gotten into real trouble and gold has been the safe haven. History will certainly repeat itself and therefore gold should always be a component of every investor's portfolio.
Gold is money and not a commodity, because it's the only thing that withstands the test of time. All the base metals mined by the Romans has long rusted away and is gone, in contrast much of the gold they mined is still around.