TSX Going Below 12500?

Once again I feel the urge to stick my neck out a little and make a stock market forecast.

Patterns in a few stock market (price and volume) charts suggest that the drop in the stock market, the one that started back in late July 2007, may continue, and that the current rally is just a correction in a longer term downward trend. If true, it means we will see the TSX Comp go below 12500 before the index recovers from this correction.

The pattern is present in the TSX Comp Index. Bank stocks like BMO, RY and TD also show a pattern of decreasing volume. This pattern is very pronounced in the chart for BMO.

The key information is that the current rally over the last 8 trading days is being made on decreasing volume. Decreasing volume is consistent with a "correction" or pause in an overriding longer term trend.

The decrease in volume means that the volume of buyers is diminishing each day. If the crowd of buyers continues to shrink, to the point where the sellers outnumber the buyers, the prices will begin to drop (basic law of supply and demand at work here).

What value does this forecast have? If your a "buy and holder"...continue to be patient. If your trying to time the market and buy low, there may be better bargains ahead.

Don't Listen!

The media is making a big deal over the current stock market correction. A few thoughts.

1. This drop is normal for the stock market. Three steps forward and two steps back.
2. For every seller there is a buyer.
3. The panic sellers are referred to as "weak hands" in the investment literature.
4. Take a longer term view. The TSX Index drop so far is well within "normal limits". Check the previous drops on the chart. The DJIA Index is similar.
5. If it wasn't the US Credit Crunch it would be some other excuse for the sell off.
6. The "strong hands"...those who are buying now have the right idea.

I'm not checking the balances of my investment accounts. How about you?

TSX Index Funds On Sale Today - 10 % Off!

Because the index always comes back after a decline, S&P TSX Index Funds are on sale today for a discount of at least 10 percent minus any fees. Over the last few weeks, after reaching a peak of 14,646 in July, the TSX Index has now dropped back to near 13,300 today. In the future, when this index recovers back up to the previous 14,646 level, this will be an increase of 1,346 points or 10 percent (1.1 * 13,300 = 14,630).

If market history teaches us anything...it is that the index will recover those points at some point in the future. It may take 2 months, 6 months, a year or longer but it will occur. Need, greed and fear guarantee it. The probabilities favour a shorter time frame for recovery.

We can't know when the low is reached, there may in fact be a much better sale price later on...in any event a net profit of perhaps 9.5 percent is available today for anyone who has the courage and funds to buy the dip.

This approach is not valid for individual stocks or for narrowly focused "stock picker" type mutual funds. Only the index fund comes with this 10 % guarantee.

When the 10 % increase occurs a number of stocks in the index will increase more than 10 % but we can't know which stocks they will be. More importantly, some stocks in the index will continue the downward trend or increase less than the 10 percent. Some stocks may never recover. An index fund guarantees average market performance in return for giving up the opportunity for "stock picking".

If I buy more index fund today I must accept the possibility that the index can go lower, perhaps much lower before I see my 9.5 percent profit at some time in the future. Part of the price I pay is having to live with the discomfort of watching my investment drop in the short term.

Planning For Retirement Study - Are Canadians Saving Enough? University of Waterloo

The on-line report does not contain all the calculation or data details.

Some key points include:

They used data from Stats Canada.

A two senior Canadian household, in 2003, spent $43,717 on food, shelter, clothing, transportation, health care, energy and taxes.

Two thirds of Canadians are not saving enough to retire at age 65.

Assuming one starts at age 40, the required savings rates for a $40,000 income household, for age 65 retirement are 14-20% for one person and 30 % or more for a couple. These savings include the increases in home equity, in some form.

CPP is in excellent financial shape for the next 75 years.

They dealt with home ownership equity by assuming the home was sold at retirement and converted to an indexed annuity so home ownership could be viewed as retirement income (If I understand this correctly).

Income sources included Old Age Security, CPP or QPP, Workplace Pension Plan and other savings such as RRSP and money from home ownership equity.

My initial questions/thoughts:
How good is the $43,717 number?
One car or two?
Newer or older cars? This makes a big difference.
Any vacations included?
How did they obtain the cost of shelter for households that own a home? If it was just total income, then the cost of shelter would only be operating and maintenance costs.
I'm very skeptical about the two-thirds of people not saving enough for retirement.
By their definition...How many retired people don't have enough for retirement now?
No mention of government income over and above OAS and CPP such as supplements.

The home ownership component is the part that I find difficult to fathom. It is a large component and one must be sure to make a valid comparison between the $43,717 spending in 2003 and the required retirement income that translates into a required savings rate. This was a big part of our savings for retirement. The $43,717 per year for a couple, seems to be in-the-ball-park, especially if a couple owns their own home.

Okanogan Trip

We spent a week visiting relatives in the Okanogan Valley... quite a contrast to the East Coast of Vancouver Island. A hot and dry desert country and a different kind of beauty.

A lot of traffic in places like Kelowna. A lot of beach eye-candy there near the August long weekend...not that I ever enjoy that sort of thing. Everything is booked for the long weekend and rates are the highest of the year.

To have your pick of hotels in Kelowna it costs at least $200 per night. Trying to save a few bucks we stayed a few nights at a Super 8 Motel for about $110 per night. This included a help-yourself continental breakfast. We booked weeks in advance and got the senior’s rate for a room poolside. Part of the price we paid was having to wear earplugs to block the traffic noise. Not the best way to save a buck!

We also spent a few nights at a B&B in Summerland. That was excellent value at $125 per night with a nice view of the lake and no traffic noise. Lots of California Quail (photo) around and we were lucky enough to see a coyote during one of our early morning walks.

ps...ferry was $63 each way for the car and two adults.

Boating Pics

A "Midden" on the shore of Sandy Island Marine Park near Comox. A Midden is a collection of shells left on the shoreline at the site of an old First Nations Village. They ate a lot of clams, oysters, and so on, and the discarded shells remain to this day. The shells sound quite crunchy under foot when you walk up the beach.

The old and the new at anchor in Tribune Bay on Hornby Island. An expensive motor yacht and a replica of a "Tall Ship". The Tall Ship was full of teenagers. A beautiful beach at Tribune Bay.

On Summer Break

I haven't quit this blog...just taking a break. Its hard to find the time and motivation to post during the summer. That's a good thing when your retired. Winter will be back soon enough.

So far this summer we have spent several weeks out on the sailboat. A nice change - a very simple life. There is something nice about dropping anchor in a beautiful place and watching the world go by. Leisurely breakfasts on quiet sunny mornings. Doing all the dishes by hand. Electric lights on a 12 volt battery. Water is heated on an alcohol stove. Its really basic camping. Waterfront all the way. Other boaters you meet are generally friendly.

Going to and from shore for a hike or just exploring the shoreline in the dinghy. Mostly by rowing but sometimes using the small outboard when its too far to row. Visiting islands we haven't been to before. So far this summer we have been to places with interesting names like; Secret Cove, Smuggler's Cove, Jedidia Island, and Pirates Cove. You can find more info on the net. Some of them are Marine Parks. Even the busy harbour of Naniamo made for an interesting change of pace.

We had one large school of Dolphins over-take our boat, dive under just in time to avoid a collision then surface again a head of us. A fantastic site to see and hear. They are extremely fast and make a large splash each time they surface and dive under again.

At other times when we get out in a strong wind...things are quite different. The boat is readied for a rough ride with all loose breakables on the floor of the cabin. At these times you really know your alive. As the boat moves up and down in very large waves from the side, you feel it in the pit of your stomach like being on an elevator. We don't do a lot of that.

When were out on the boat we don't spend a lot of money. Perhaps less than we would staying at home. Not that boating is cheap in any sense of the word. There's moorage, insurance and maintenance. Perhaps $3,000 per year averaged over 5-10 years. Basic sailboats equipped for over-night trips start at about $15,000 and go up from there. Many of the boats we anchor close to are over $75,000.