Beware the DOW

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  Until recently, it's been a refuge for harried investors in these troubled times. While the Nasdaq crumbled and the S&P 500 slumped into bear market territory, the Dow remained as solid as the Rock of Gibralter, a beacon of hope amidst the storm.

The other day I was reviewing the performance of various index funds over the 12 months to the end of February. In almost every case they were in negative territory, with the Nasdaq funds of course being the most badly battered. The only exceptions were index funds based on the Dow Jones Industrial Average. The healthy gains they showed over the period stood out in sharp contrast to the results of the funds based on Nasdaq, the S&P 500, the Wilshire 5000, the TSE 300, and the S&P/TSE 60.

But now even the Dow has succumbed to investor pessimism. As of the end of last week, the DJIA was off 18.9% from its high of last year. Technically, that means it is not yet officially in bear market territory – that requires a drop of 20% or more. But only a late afternoon rally on Thursday and a good performance on Friday kept it from slipping below the line.

The Dow had another strong day on Monday, with a big rise of almost 183 points. That has led to a lot of speculation that the worst is over. I'm not so sure.

During RRSP season, I gave a number of seminars across the country. My message was the same at all of them:

1) Don't expect a quick rebound in the Nasdaq. 2) Beware of weakness in the broader markets.

We've now seen these forecasts become reality, and I don't believe the process is complete. The Dow is not in bear country but there's a good chance that it will be soon. Remember that Nasdaq rallied back strongly after its initial slump in the early spring of 2000, leading many investors to believe that the slump was only temporary. As it turned out, that was not the case. Historically, bear markets have three down legs. The Nasdaq is now in stage three. The Dow, however, is only in stage one. If you are a short-term investor you may want to take advantage of the current rebound to lighten your positions. Then watch for the buying opportunities that will materialize in the coming weeks.

Adapted from the March 26 edition of the Internet Wealth Builder, a weekly e-mail financial newsletter edited and published by Gordon Pape. For membership information:

http://www.gordonpape.com/newsletter/iwbnl.cfm

Scam Commentaries Hit Home

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  I recently did two CBC commentaries on financial scams in Canada. If you missed them and would like to read the transcripts, they're available at http://www.gordonpape.com/cbcradio/Main.cfm

Click on the items for the weeks of March 20 and 27.

The commentaries have resulted in several e-mails to me from scam victims. Here's one example:

My roommate bought a car from a gentleman and while discussing the transaction he asked if she was looking for part-time work. She replied yes and he said that he had a side business/hobby of purchasing cars and reselling them. These cars are bought either in Kelowna or Edmonton and then driven to Calgary for re-sale. He asked if she would be interested in driving vehicles back from either of the two sites and if she knew anyone else who would be interested in the same.

He informed her and subsequently three others plus myself (that we know about) that we would need to be bonded and would need to supply him with some information. Not knowing any better we all supplied him with our Drivers Lic. #, SIN #, Health Card # and $105 to pay for the bonding.

As you may have guessed, he took all of this information and has not been heard from again. My roommate went to his residence, where she bought the car and he has vacated the premises. His forwarding address is a mailbox # and the company he says he worked for cannot be found.

Our concern is not about the $105; it is about the information that he has on us including the highly personal SIN #.

I know that you are unable to help me but I thought I would let you know about another scam going that is not technology based like the Nigerian Scam letter. - I.Y.

Moral – there are a lot of con artists out there. Be careful!

New Mutual Funds Update - Preview Article

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  The April edition of Mutual Funds Update will be published in a few days. Here's a preview of one of the stories:

A FUND FOR SNOWBIRDS. In January we added the excellent Clarington Canadian Income Fund to the MFU Recommended List for investors looking for a combination of steady income, safety and tax advantages.

Now the company has added a companion fund that will combine these benefits with a fourth that is increasingly important to many people – currency protection.

The Clarington Global Income Fund is run in the same way as the original Canadian Income Fund, with Peter Marshall of Seamark Asset Management calling the shots here as well. Like the Canadian fund, monthly distributions are $0.08 a unit. That's not guaranteed but the Canadian fund has been able to maintain that level since it was launched on Jan. 1, 1997.

The new Global Fund will invest primarily in foreign stocks and bonds with a heavy emphasis on U.S. issues. That means most of the currency exposure will be in American dollars. As with the Canadian Income Fund, a portion of the annual distributions will be received on a tax-deferred basis.

Most of Peter Marshall's work is in managing pension money and he brings the same conservative approach to this fund. Safety of capital is of prime importance and securities are selected with that goal in mind.

The techniques used to generate the high tax-advantaged cash flow are somewhat complex – Clarington describes them as the equivalent of "an internal systematic withdrawal plan". But they obviously work, as the Canadian Income Fund has demonstrated.

This fund should be of special interest to snowbirds who are in higher tax brackets. Clarington offers the option to take the distributions in U.S. dollars at the current conversion rate, so the fund is a useful way to generate monthly cash flow for covering expenses while you're outside Canada.

The new fund is eligible for RRSPs and RRIFs as foreign content, but the tax advantages will be lost in case.

Other topics in the April issue include: Why Japanese funds should be avoided at this time Diamonds in the Dust - Funds that are doing well in these rough markets Recommended List Update – Balanced, Income and Bond funds are the stars High Income Funds Buck the Trend – Big gains in a category most people are unaware of Index Funds and the Bear – Why index funds are not the best place to be right now Ratings Upgrades – Trimark and Harbour looking good

To subscribe to the electronic edition of MFU: CLICK HERE

Question of the Week – Big loss in RRSP

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  A reader writes that she lost $17,500 in her RRSP in a penny stock and wants to know what to do about it. Check out my reply in our Q & A Pages

Click on Big Losses in RRSP.

Six Steps to $1 Million – Book excerpt posted

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  We've posted an excerpt from my forthcoming book Six Steps to $1 Million on the Web site. If you'd like to read it: http://www.gordonpape.com/BookEx.cfm?bkex=BookEx3

You can still order a prepublication copy of the book at 25% off.6 STEPS TO $1 MILLION

That's it for this issue of Investing Today. See you again soon.

Best regards,

Gordon Pape