WHY U.S. MARKETS RALLIED

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  U.S. stock markets rallied strongly last week following the re-election of President George W. Bush. Regardless of what Canadians may have thought of the outcome (and all the polls showed that we overwhelmingly favoured Senator John Kerry), it’s clear that American investors were pleased at the outcome. There are several reasons for this.

* A clear decision. Heading into the election, the U.S. was traumatized over the idea of a repeat of 2000 when the impasse in Florida finally had to be resolved in the Supreme Court. Although Bush was a clear winner in the popular vote this time around, it could have indeed happened again had Ohio been any closer. It wasn’t, and Americans breathed a huge sigh of relief.

* No change in direction. The markets hate uncertainty. Had Kerry been elected, there would have been a period of several months in which analysts and economists tried to figure out where the new Administration would go and what impact it might have on stock prices and interest rates. Whatever you may think of President Bush, he is consistent in his policies, rightly or wrongly. So Wall Street anticipates no surprises.

* Tax cuts to stand. Kerry had promised to roll back some of the Bush tax cuts, in particular those that benefit Americans with income in excess of $200,000. That would not sit well with investors. With Bush headed for another four years and the Republicans in firm control of Congress, the tax cuts are secure. The battle, if there is one, will be over the President’s determination to make them permanent. As things now stand, they expire in 2009.

* Corporate-friendly policies. The Bush Administration has been buddy-buddy with big business and that relationship is not going to change. The President has taken a lot of flak for this from special interest groups ranging from environmentalists to trade unions, but the markets have no problem at all with his stance.

* No blatant protectionism. The Kerry-Edwards ticket took the most protectionist positions we’ve seen in years. Outsourcing, NAFTA, and even Toronto garbage exports all became Democratic targets during the campaign. Had Kerry been elected, Ottawa would have had its hands full. More to the point as far as Wall Street is concerned, a Kerry Administration might have thrown up trade barriers which could have exacerbated what is already a weakening economic climate. It was notable that Federal Reserve Board Chairman Alan Greenspan warned against exactly that on several occasions during the summer.

When you take all this into account, it’s not a surprise that U.S. markets responded to the election result with their best gains of the year. What remains to be seen is how long that can be sustained.

IRWIN MICHAEL SCORES AGAIN WITH 107% GAIN

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   Members of our Internet Wealth Builder newsletter have just scored another big profit thanks to contributing editor Irwin Michael, founder and president of the ABC Funds. In the issue of Nov. 8, he advised selling positions in Building Materials Holding Corporation at US$28.94. The stock trades on Nasdaq under the symbol BMHC.

Irwin originally recommended BMHC in February 2002 at US$14, so this sale gives IWB members a profit of 107%, not including dividends.

Another stock recommended by Irwin in October is also doing very well. Decoma International (TSX: DEC.A, NDQ: DECA) is a spin-off from Magna International and was priced at $10.18 when he picked it. Shortly thereafter, Magna announced plans to privatize the company by buying all outstanding shares. The stock promptly jumped in price and was trading at $13.16 on Wednesday, up 29% in a little more than a month.

Irwin currently has a Buy recommendation on General Motors (NYSE: GM) which he notes is trading at a 21% discount to book value and pays a US$2 a year dividend for a yield of 5%.

Irwin Michael’s column appears monthly in the Internet Wealth Builder, which is published weekly (44 times a year) and distributed by e-mail. For membership information go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=503

ARE WRAP ACCOUNTS A GOOD IDEA?

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  Many financial advisors are recommending wrap accounts to their clients. These invest your money in various professionally-managed “pools”, according to your risk profile. You are charged a fee for the service, usually a percentage of the amount invested.

Several people have written to ask if they are a good idea. They may be in some cases, but we have concerns about their transparency and we suggest that you ask some tough questions before investing.

To read more, check out this week’s Question and Answer page at http://www.buildingwealth.ca/qa.cfm where you will also find information about RRIFs, investing for children, poorly-performing mutual funds, and more. As always, you are invited to send in your own financial question for consideration.

PERSPECTIVE ON CHINA

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  The markets were shocked by the recent decision of the People’s Bank of China to raise interest rates in an effort to put a brake on the country’s runaway growth. What does it all mean for the future, and specifically for Canadian companies that export to this burgeoning nation?

Veteran money manager Tom Slee has taken a close look at the latest events across the Pacific and offers his insightful commentary into the strengths and weaknesses of the world’s emerging economic giant. Read the full story at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2044

CIBC FUNDS REPORT PUBLISHED

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  We have just published an in-depth Special Report on the CIBC family of mutual funds, which includes ratings and in-depth analysis on 42 of the bank’s offerings.

As most readers know, we are no longer producing our annual Guide to Mutual Funds (the 2004 edition was the last). Instead, we are preparing focused reports on major fund companies that provide the same type of candid guidance that made the book a best-seller for 15 years.

If you have any investments in the CIBC funds, you’ll find this Special Report to be invaluable. It will enable you to do a complete review of your portfolio to determine whether your money is invested in the most effective way, and to make changes where appropriate.

The cost for the electronic edition is only $19.95 plus tax. There is also a print edition available for $29.95 plus tax. For details go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=508

Our previously-published Special Report on RBC (Royal Bank) Funds is also still available at http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=497

HOW DSCS WORK

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  Even though we’ve warned against them, the majority of people who buy load mutual funds continue to choose the deferred sales charge (DSC) purchase option. If you’re in that group, how well do you understand what you’re buying? If you’re like one of our readers, not very well at all!

If you want the inside scoop on how back-end loads really operate, check out our article on the subject at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2045 – some of our findings will likely surprise you.

QUIZMAS TIME!

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  No, that’s not a misprint. Quizmas is the title of my new book, which has just been published by Penguin Canada. For a change, this one has nothing to do with money. Instead, it’s a collection of Christmas memories and trivia, with more than 700 multiple-choice questions for both children and grown-ups to test your knowledge of the holiday season.

The book is designed to provide fun for the entire family – and you’ll probably learn a lot about Christmas and other seasonal holidays that you never knew before. For example:

• Which organization tracks the progress of Santa on radar every Christmas Eve? • How old was Virginia when she wrote to a newspaper editor to ask if Santa Claus was real? • What is a manger? • What was the first musical instrument on which “Silent Night” was played? • What colour is the horse in “Jingle Bells”? • What inspired the name “Boxing Day”? • Only one of the gospels tells the story of the Three Wise Men. Which one is it?

We’ve been playing Quizmas at our house for years, and everyone looks forward to it – it’s become part of our holiday tradition. I wrote the book with the help of my daughter Deborah because I think other families will enjoy playing it too.

The book has a suggested retail price of $16 but we’re offering it for only $12.80 plus shipping and taxes. Buy extra copies as gifts and if your order exceeds $39 before tax, the shipping is free. For details, go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=500

We have also created a new Quizmas website where you can test yourself on some of the questions, read an excerpt from the book, and send in your personal Christmas memories. You’ll find it at www.quizmas.net

Want to win a free copy of the book? Enter Penguin’s Quizmas Contest – there’s a new prize winner every week. You’ll find this week’s question at http://www.penguin.ca/static/cs/cn/0/contests/nov04quizmascontest.html - it’s a lot of fun, so don’t miss out.

That wraps it up for this month. We’ll see you again in December. Remember that you’re invited to forward a copy of this issue of Investing Today to your friends or anyone you think might be interested. If you have received this copy from someone and would like to be on our regular distribution list, go to http://www.buildingwealth.ca/InvestingToday/Newsletter.cfm to sign up.