I could probably copy and paste from a former week. No matter what the high-powered Bay Street types tell you, the market moves slowly. It’s always shifting, like waves in the ocean, but the underlying currents move slowly. The stock market appears inclined to rise. It’s outperforming bonds, certainly. In fact, over the past 10 months, stocks have risen 14.6% while bonds have fallen 1.9%. You might think that means stocks are expensive, but I would disagree. Because investor sentiment shifts slowly, I think the fast money has been flowing from bonds to stocks and the slow money is set to follow. There will likely be at least a few more weeks of outperformance to come.

Another reason to avoid bonds is that interest rates have are low. In fact, a real return bond yields only 0.6%, which is what you would expect to earn on a traditional government bond at 2.5% if inflation is averages 1.9% in future. The posted rate on the 5-year conventional mortgage has also fallen for the first week in quite a while (from 5.24% to 5.14%). There is apparently a policy-based explanation, but all it means to me is that my house price is rising.

European stocks (XIN) still show the best momentum of the asset classes that I track. American small caps (IWM) remain a close second. I own both of these, XIN in my CDN$ accounts and IWM in my USD$ account. They’ve done very well for me.

Market Outlook March 18, 2013

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