The current issue of Canadian Business is just now hitting newsstands, and it contains an investing special for those wondering what to do with their money through these dodgy times. I did a feature for that package on when we might expect a recovery, and youll have to pick up the print version to read that (though, Ill post a link here to the online version once its posted). But when I finished up that piece, I realized I wasnt able to get in all the interesting points I collected through my reporting. Heres a rundown of some of the good ideas that got left on the cutting room floor:
Theme 1: The corporate bond market has overcorrected.
More than one fund manager suggested that the market for corporate debt has swung too far as a result of the flight too safety (which saw money flow from many markets, including the corporate debt market, into short-term government debt markets). The outflow of money has left the corporate bond market priced for a default rate of 30%. That is, the market expects 30% of the corporations issuing debt to go under. But as one manager suggests, If its true we have way larger issues than markets. His point was that this was a sign of an overcorrection, and that made corporate debt a buy. CB editor Joe Chidley recently pointed out that the most recent debt offering from TD comes with an extremely healthy 10% coupon attached. Thats a lot to pay to borrow money, but for those doing the lending it looks like a heck of an offer.
Theme 2: Asia will recover first.
Another theme mentioned by more than one manager was the idea that China is going to recover faster than the U.S. from this downturn. The thinking was that the Chinese government has more room to manouevre in terms of budget space available for stimulus spending than the U.S. has, and that means China is going to roar back to life before the U.S. does. Were going to have to forget about the U.S. consumer for a while. But get ready for the rise of the Asian consumer, said one manager. Better yet for Canada, if there is an earlier recovery in Asia, thats going to be good for the resource-heavy Canadian market.
Theme 3: Were not going back to where we were.
Another idea that seemed to get mentioned by just about everyone I talked to over the last couple of weeks was the notion that when a recovery comes were NOT going to go back to where we were. The boomers will be saving for retirement. There wont be such easy credit around. And that means consumers will consume less and corporate earnings arent going to be what they were. Were not looking through rose coloured glasses. No doubt the U.S. has gone through real a grinder of a recession. And its probably going to get worse before it gets better, even in Canada, said another manager. But once we get through thisI think it will be different. Were not going back to the way things were.