Ian Nakamoto is the Director of Research at MacDougall, MacDougall, & MacTier. His experience in the investment business spans 25 years. He started his career as an analyst covering Canadian and United States companies, before becoming a portfolio manager. He has been a portfolio manager with 2 mutual fund companies, one large insurance company, an investment management company specializing in pension funds, and a trust company. Ian became Director of Research at MacDougall, MacDougall, & MacTier in September 2003. Ian has an MBA from McMaster University and is a Chartered Financial Analyst (CFA).
Me: What are your views/predictions regarding the upcoming Bank of Canada meeting on September 5th and the Federal Reserve meeting on September 18th?
Mr. Nakamoto: In regards to the first question, at the upcoming Bank of Canada meeting it is very likely they will maintain their current interest rate until the credit markets stabilize. Prior to this credit market disruption they were going to raise interest rates as they felt there were still inflationary pressures in the economy. If the credit markets stabilize and have little or no spill-over into the real economy they will likely resume their tightening bias (but too early to tell if credit market disruptions are having an affect on the real economy).
As for the Federal Reserve it is very likely they will lower interest rates, especially given Mr. Bernanke's speech on Friday (August 31, 2007).
Me: Can you highlight your views regarding equity markets in the US and Canada - are we headed into a recession/bear market or are using the current sell off to accumulate positions in your favorite stocks?
Mr. Nakamoto: I think the equity markets will do well going forward. The basic drivers of earnings, dividend increases and solid balance sheets are still intact, though the rate of earnings and dividend growth is slowing, provided the credit market disruption does not spill into the real economy the stock market looks good to buy for a 12 month horizon. In general the stock market rises after the Federal Reserve cuts interest rates. In 2000 this did not happen as the initial rally in stocks did not last as the technology bust had a large impact on the general economy and caused earnings to drop significantly. In addition the P/E ratio was still very high in the mid 20's.. This time around P/E is much lower (around 15 to 16 times) and there is no sign earnings will drop. Also interest rates in 2001 versus now was much higher, meaning with high interest rates there was less incentive to buy equities. Today with lower interest rates more incentive to look elsewhere for returns. In terms of areas that tend to do well it is financials. Also the cyclicals do well.
Me: What is your outlook for commodities (base metals, precious metals, oil and gas)?
Mr. Nakamoto: Commodities still look good. I like them on a secular basis...meaning for several years. These bull/bear markets in commodities tend to last decades. For 20 years until 2003 commodity prices were very poor. So we are in the fourth year of a good commodity market...there can be times if we hit an economic soft patch commodities weaken, but in general they should do well. You have heard the stories about the rising economies of India and China, I am a believer in this story; meaning rising economies of these two heavily populated countries is good for commodities.
Me: Lastly Mr. Nakamoto, I was wondering if you could please summarize in a few sentences, why gold stocks also corrected (to almost the same extent) along with other stocks during this recent credit crisis sell off – aren’t gold stocks supposed to be a safe haven during market turmoil?
Mr. Nakamoto: First gold stocks and gold do not act the same. Gold stocks are first and foremost stocks, meaning factors related to the stock market (currently the issues surrounding the credit markets) overwhelm gold prices. You can see it in the energy stocks also...oil prices strong, but oil shares until today have been weak. Gold will get going when the Federal Reserve cuts interest rates. There is an inverse relationship between gold prices and the US dollar, with a cut in interest rates there is less appeal to hold on to the US dollar and go for other higher yielding interest rate countries such as Canada. Gold has been a safe haven in economic times, gold stocks less so.
Thank You Mr. Nakamoto!
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