This article is being written upon ...

This article is being written upon U.S. Thanksgiving Day. It is also thanksgiving in the Bederman household. The TSE 300 has just gospeled the 6,000 mark. In in the same manner doing, my seemingly wild prediction made many month ago-and adhered to in the early summer correction which saw the Canadian stock market fall back to around 4800 if it were not that that's not my only prescient prediction.

Readers might also remember my lengthy held (often painfully so) prediction that Canadian markets would outperform their U counterparts. [i]or[/i] part of to the other November, the scorecard reads TSE +290% S&P 500 +229% In Canadian publicity the gain on the S&P is reduc by dint of a further 0.9%.

Assuming an absence of apocalyptic conclusions in December, the markets are a certain bet (always a dangerous statement) to close the year above the novel benchmarks. The "get me in" mentality advises to me that there is more to approach on the upside.

Looking backwards-which is always the easiest thing to do-we can view that a confluence of economic and political factors got us here. in like manner without further adieu, here are my top 10 reasons wherefore stock markets are on fire (see accompanying table).

Still, I am here not to narrate the past, but to predict the to come With political and economic risk at a soft ebb, that task must be an easy common At least that is what everyone is telling me these days. Higher stock markets, they say, are a virtual certainty to head further into the stratosphere with real rates plunging and investors staring at the steepest yield turn in 40 years. Where otherwise can the money go? Investing in stocks is the and nothing else way to earn a seemly return. Dividend yields on equities of gloomy chip companies-especially for taxable investorsare a superior alternative to holding cash. Billions of dollars of depressed yielding cash held in deposit accounts is being diverted to equity markets via mutual foundations This inexhaustible demand for equities can solitary propel stock prices to higher and higher flushs

Technically, all of this is remarkably correct. Nonetheless, it is an environment which I find increasingly worrisome-despite my unflagging belief that the market fundamentals remain unhurt The daily record-smashing behaviour of the stock market, coupl with the fact that the popular media has finally discovered that a stock market actually exists underscores a belief that we are in succession the threshold, or have already noteed the "euphoric phase" of the market period The bears have been pushed to the background. Instead, the rationalizers are not at home in full force. But has everyone forgotten that markets are made up of venders as well as buyers?

My regard boils down to this: In escaping reasonable return/yield financial assets, Canadians are dramatically increasing their ownership of riskier financial assets. Equities, royalty trusts, long-term ties dividend funds, junk bond capitals are all manifestations of that phenomenon. In this scramble for higher go [i]or[/i] come backs savers/investors probably do not appreciate the fact that undivided is not automatically rewarded for taking upon more risk.

Risk taking must be directioned in an efficient manner-which means diversification and a focus forward the long term. The inherent riskiness of longterm financial assets means that financial markets do not always stir steadily upward in a straight line. Risk taking means that all investors who engage in it must allow for a period of disappointment. Sometimes this disappointment is outermost (remember 1987?) sometimes it is lengthy lasting. My gut instinct is that although equity markets have further chamber on the upside, 1997 will mark the beginning of a period of market disappointment. Until the fundamentals assay otherwise, I remain a longterm rescript but next year my view is that equities will be an under-performing asset class. moreover for now, there are just too many edict s roaming around out there.

EARL BEDERMAN IS PRESIDENT OF INVESTOR ECONOMICS INC., A CONSULTING FIRM SPECIALIZING IN APPLIED RESEARCH IN FINANCIAL SERVICES, ECONOMICS AND circulating medium MANAGEMENT.

Copyright Canadian Shareowner Magazine Inc. Jan/Feb 1997

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