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The Vancouver Sun
December 29, 2003

Expect the unexpected in 2004, analysts say
Economic forecasts say things should get better -- or worse

By Michael Kane

Howard Dean will win the U.S. presidency in 2004 and eliminate the military, says contrarian investment guru Benj Gallander.

Dean will then trigger an unparalleled economic boom by redistributing the military budget and giving $30,000 each to the poorest 10 percent of the population.

In Canada, the government will outlaw marriage, citing the dismal failure rate.

"While harming the marriage industry, overall bliss increases, particularly amongst bridesmaids avoiding hideous, expensive frocks," says Gallander, Toronto-based president of the Contra the Heard investment letter.

While divorce lawyers launch a trillion-dollar class-action suit against the government, marijuana is legalized with the feds opening government cafes.

"Taxes collected soar, the government debt disappears, violent crime plummets and prisons close for lack of inmates," Gallander says. "Under-utilized police forces proclaim jaywalking a menace to Canadian society.

"The U.S., citing the war on drugs, declares war on Canada, backtracking after realizing they have no army. Instead, President Dean visits Vancouver on a fact-finding mission. He is constantly grinning."

Gallander is one of Canada's more fearless forecasters. The more conventional variety anticipate continuing low interest rates in 2004, a robust housing market, an election year boost for both the Canadian and U.S. economies, and a rebound in mutual fund investing with the emphasis on corporate social responsibility.

Then again, interest rates will start to inch up by mid-year, we'll dig ourselves ever deeper into personal debt and many will forget the lessons of the past three years and invest recklessly.

Is the glass half full or half empty? Smart Money invited a random cross-section of financial soothsayers to identify trends likely to impact personal finances in the coming year.

Economist Sherry Cooper says Canada will finally shake off the vestiges of SARS, mad cow disease and the Eastern blackout. She didn't mention B.C.'s forest fires.

"Canadians will celebrate the new energy in Ottawa, the increased buying power of the dollar, and the first truly global commodity boom in roughly a decade," says Cooper of BMO Financial Group. "Looks like 2004 will be a very good year."

Maybe.

Expect the unexpected in 2004, cautions Gordon Pape, best-selling financial author and commentator. After all, that's what the 21st century has delivered so far.

Just when it seemed stocks would rise forever, 2000 brought the start of the bear market. Then 2001 gave us the horror of Sept. 11, 2002, delivered an unexpected bull market in gold, and 2003 saw the loonie soar to heights not seen in years.

"Why should 2004 be any different?" Pape asks. "Logic suggests stock prices will rise, bonds will weaken, interest rates will move up and the loonie will stabilize. But don't bet the house on anything. Stay alert and be flexible."

Talking of betting the house, Simon Fraser University researcher Morley Lipsett says next year will see the collision of three inexorable forces -- -- the steeply rising cost per square foot of new condos and other dwellings, IKEA's focus on furnishings for smaller and smaller spaces, and the public penchant for big-box retailers, Costco in particular.

"Our living spaces will contain less and less room for comfort, will be furnished with convertible beds, baths, counters and cabinets, and our carts full of purchases will increasingly have to be stashed in the back of our SUVs which, by next November, will need to be replaced by all-wheel drive mobile storage pickup trucks with extended cab/bed/toilet units."

Lipsett is not the only crystal ball gazer fretting about rampant consumerism.

Self-confessed shopaholic Wayne Nygren, president of the Credit Union Central of British Columbia, says his personal spending habits will help boost retail sales by 5.5 percent next year. He has postponed retirement because his wife says she doesn't want twice the husband and half the money.

"In reality, increased consumer confidence means increased spending, and much of that spending happens on credit cards," says Angie Mohr, author of the 101 series of small business guides published by North Vancouver's Self-Counsel Press.

"We are now into our second generation of unabashed consumerism and our quest for newer and more expensive lifestyle aids will continue throughout the new year, leaving a ragged swath of bankruptcy, stress, illness and family break-ups in its wake. The only good use for a credit card is to scrape the ice off your car windshield or jimmy a lock."

Depressed? Psychologist and financial author Jason Roth says people are motivated to change only when the pain of not changing becomes great enough.

"Individual and familial stress notwithstanding, this coming year will be more of the same as marketing gurus encourage us to quicken the pace of our materialistic treadmill. Our capacity to rationalize and deny will allow us to persist, even as we work ever harder to pay for ever more stuff.

"Must the definition of economic security require ever-increasing expenditures and profits, even at the cost of our emotional, physical and environmental health?"

No, says Deb Abbey, president and CEO of Vancouver-based Real Assets Investment Management Inc.

"In 2003, it seemed almost trendy for consumers to shop for the cheapest, sweatshop-produced, instantly disposable items they could find," Abbey says.

"In 2004, more consumers will use their money power to shape the kind of world they want to live in. They'll eat organic bananas, sip Fair Trade coffee and buy eco-certified wood products."

Abbey says investor cynicism with the corporate sector will be replaced by a more constructive attitude.

"They'll look for companies that demonstrate appropriate management of ethical, social and environmental risks. "

Dave Mowat, CEO of VanCity Credit Union, likes the glass-is-half-full approach to 2004.

"The strong housing market and the low interest rate environment looks to continue well into the year," he says.

"For those who have been sweating over the low deposit rates, we don't anticipate a big change in the short term, but take heart -- we expect that investors will be revisiting mutual funds, particularly low-risk options, as the markets begin to rebound."

Chris Catliff, president and CEO of North Shore Credit Union, says the happy folks in his crystal ball will be paying down their personal debt, buying the TSX index on a dividend re-investment plan, avoiding the U.S. dollar and investing in single family homes.

"Real-estate prices will rise at least another five to 10 percent in this market next year, but with a 75-per-cent mortgage, the return on your down payment is still 15 to 30 percent in a single year," Catliff says. "Not bad."

Don't count on those kinds of returns from equity mutual funds, says Roger Mortimer, senior portfolio manager for AIM mutual funds.

"Over the last 15 months, the TSX is up 15 percent. That is quite a run and probably not the template for 2004," Mortimer says. "Interest rates are low and they are going to stay that way."

The reality of low rates in 2004 will be reflected in modest returns from bonds, leaving income-oriented investors with two options, says Tom Bradley, president and CEO of Vancouver's Phillips, Hager & North Investment Management.

"They can either scale back their return expectations and prepare to live on less income, or they can attempt to maintain a higher level of investment income by taking on more risk. For most people, a little of both is probably advisable."

Our thanks for low rates should go to U.S. Federal Reserve Board chairman Alan Greenspan whose "suicidal monetary policy will ensure that the U.S. dollar will over time become totally worthless," says Marc Faber, a Hong Kong-based investment guru.

"This will be good for oil, gold, silver and all currencies of resource-based economies such as Canada, Australia and New Zealand."

More people will be adjusting their portfolios over the coming year to meet their real risk tolerance, which they discovered over the last three years was a little less than they thought, says fee-only financial planner David Christianson, of Winnipeg's Wellington West Total Wealth Management.

"This is an optimistic prediction, mainly aimed at people who have wise advisers," Christianson says. "Unfortunately, many other investors will get caught up in the bull that is flying everywhere when the market rises, and they will jump back in with too many feet at the wrong time, after the market has risen an inordinate amount."

Individual investors will continue to mistrust the asset management industry, predicts Howard Atkinson, author of The New Investment Frontier II: A Guide to Exchange Traded Funds for Canadians.

"Ongoing media focus, heightened regulatory scrutiny and possible large, class-action lawsuits will keep this subject on the front pages," Atkinson says. "Investment services providers and advisory firms that are transparent, possess true integrity and, most important of all, offer real value for money, will see their assets and market share soar as empowered investors flock to them."

Uncertainty is the only certainty when it comes to the future of financial markets and the global economy, says Wealth Logic author Moshe Milevsky, an associate professor of finance at York University.

"The key to coping with persistent volatility is to deliberately lose sight of the trees and focus on the forest," he says.

"Remember that it is virtually impossible to accurately predict whether interest rates will increase, or remain low, or whether the stock market will go up or down -- likely both -- or whether your house will be worth more in December 2004 compared to December 2003.

"So make sure to place your bets on all sides of the financial table and you will cheer regardless of how the wheel comes to rest."

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