Prior to joining Northern, Mr. Picardo was chief market strategist and research analyst at Global Securities in Vancouver for over seven years. International experience in diverse financial disciplines, including treasury management and foreign exchange in India and Hong Kong, has enabled him to develop a global investment perspective.Mr. Picardo was awarded the Chartered Financial Analyst designation in 1998, and the Canadian Investment Manager (CIM) designation in 1996. Mr. Picardo is a member of the CFA Institute and CFA Vancouver Society.
Me: Mr. Picardo, what are your views regarding the recent Fed decision to cut the discount window rate by 50 basis points?
Mr. Picardo: Credit and equity markets have stabilized following the Fed's move, so it has worked in the short-term to boost sentiment and control the crisis. The longer-term effects of this move cannot be gauged at present. Investors are now looking to the Fed's next meeting on September 18, and my view is that the Fed may most probably cut the fed funds rate by 25 basis points. A 50 basis-point reduction, as some market-watchers have suggested, is unlikely in my opinion, as inflation is still at the upper end of the Fed's comfort zone.
Me: From your last appearance on BNN, I noticed that your recommended gold stocks like Barrick and Goldcorp (would you still recommend them?) – what is your explanation for the sell off in gold spot prices amidst this volatility in equity markets and credit crisis that should have ideally resulted in higher prices for gold?
Mr. Picardo: There are a number of reasons why gold sold off last week -
1. Gold is no longer the safe-haven of choice during periods of market turmoil. 2. During last-week's sell-off, investors flocked to US Treasuries, as a result of which the US dollar strengthened against major currencies including the euro. Gold has a close correlation with the euro, and it moved lower as the euro declined. 3. The selling was indiscriminate across various sectors, and with sentiment so negative, gold could not escape the broad sell-off in commodities.
I still like the quality gold names like Barrick (ABX: TSX, ABX:NYSE) and Goldcorp G:TSX, GG:NYSE), because my view is that gold may be poised to move higher while the Canadian dollar loses steam, a combination that should help earnings at Canadian gold companies.
Me: What are your views regarding the Canadian equity markets, are we currently in the midst of a normal correction (10%) on our way to new highs or has the bull market ended?
Mr. Picardo: This is a much-needed correction that was required to bring a semblance of sanity back to the markets. This bull market has run on for more than four years, so the recent volatility does make one wonder if we may be at the tail-end of this great run. Certainly one of the key drivers of the market in recent months - M&A activity - is unlikely to be a potent force for the rest of this year, given that the cheap money that was fuelling this boom is no longer available in abundance. My feeling is that we may have seen the highs on the TSX for this year.
Me: What are you recommending to your clients in terms of portfolio allocation?
Mr. Picardo: Previous declines of this magnitude have invariably proved to be great buying opportunities during this 4-year+ bull run, but I would suggest it's a little different this time. If the recent volatility is giving an investor sleepless nights, my advice would be to use rallies to trim speculative positions - in other words, sell the rallies, rather than buy the dips. We continue to advocate a defensive tilt to portfolios, and sectors that we think should withstand the turmoil include pipelines and utilities, telecom, healthcare and gold.
Me: Lastly, can you give me you’re favorite stock that you think has the best risk to reward ratio for the next 12 months (and 2 reasons as to why investors should buy it)?
Mr. Picardo: While I cannot give specific stock recommendations, two stocks that look particularly attractive from a reward-risk perspective are Telus (T: TSX) and Goldcorp (G:TSX, GG:NYSE).
Thank you Mr. Picardo!
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