Popular again

Where to invest is a problem, not just for the average individual but also for our pension fund manager.

Hence, it is important for nearly all as we directly or indirectly have an interest in the management of pension funds. Everyone participates in on way or another in the Canada Pension Plan (CPP) management.

Periodically its performance has been satisfactory, but other times results have been dismal. It has invested outside of Canada, a contentious move given our need for capital investment. Then too, it has placed funds in projects of dubious merit.

Perhaps the CPP board should continue to invest in Canada, but nowadays.

Managers shun that course of action, a questionable approach. In this era pension fund managers have decided that bonds were not good vehicles as inflation triggered by government deficits and money printing will erode the capital value of bonds over the long term.

However, experts have misjudged our current situation.

Conventional wisdom implied that we should shun bonds, hopeful for higher returns from common stocks and should be fearful of the current policy of restricting the availability of cheap credit. That may turn out to be true, but for those who look at the economy, those concerns appear to be misplaced.

Clearly, the economies worldwide have improved more than this columnist believed likely. The public seems to have short memories, so the same mistakes that took place on the previous decade are occurring again. Speculators are buying real estate at prices that make the potential returns unsatisfactory, way below average.

Nevertheless, speculators are anxious to follow momentum and get aboard a trend, almost regardless of its merits. Common stocks are at a level unsupported by longer-term  prospects.

Instead of looking at a ten-year perspective, many gamblers believe that the market has further upside potential. Meanwhile, they are shunning bonds.

Bonds have done surprisingly well, contrary to almost all experts. Disappointing employment numbers and capital spending plans undermined the current incorrect trend that assumed that the stronger economy would turn investors to common stocks away from bonds.

All but forgotten is the fragile nature of the present economic upswing.

Automobile sales are partially fuelled by low interest rates on loans and by the extended period now permitted on payments, as much as seven years.

According to the universal opinion, the Canadian real estate market is the world’s most expensive. Too, there is an absence of any austerity program to curtail entitlements and governments spending that distort the economy.

Investors should realize that those fundamentals will change expectations. Then bonds could become popular again and change into a favoured investment.

Now, however, the above views are completely rejected by the major body of “experts”.



Bruce Whitestone