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January 17, 2016 | Drama Queens

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


The coveted Organics Award here at GreaterFool is going this year to Andrew Roberts, credit chief guy at Royal Bank of Scotland, and the dude who single-handedly last week cured millions of people of their constipation. When Andy wrote a headline-grabbing note saying “sell everything except bonds!” you could hear loos flushing from Edinburgh to Oakville as investors suddenly cleared the pipes, then dialed their financial guys.

“I want to go to cash,” Linda told me hours later, her voice rising a note or two every minute, “immediately. This has never happened before – oil, the losses, what’s coming – I can’t take it.”

First let’s talk about the next few days. On the weekend the US forgave Iran for being a dickhead state and lifted economic sanctions, meaning the world’s fourth-largest oil producer is back in business. The extra supply will help overwhelm demand and lead to a further decline in the price of crude, although the Iranian thing is already somewhat built in to valuations. Nonetheless, oil will fall more.

So on Wednesday, given our oil-dependent economy and the mess Canadian markets are in, the central bank will probably drop its rate, and diddle the dollar more (although forex markets have been anticipating this). Meanwhile Monday is a US holiday, so Tuesday will be a heavy trading day on North American markets after all the butt-covering selling on Friday. In short, it’ll be a perfect week to take your dog to Cuba.

But what of all the doomer talk, and Andy Roberts’ perfectly-timed appeal to base emotion? Well, he’s wrong. And reckless. The best course of action is to do ziltch, not sell anything that might have declined, nor bury your cash in frozen hole in the backyard – where inflation and bacteria will eat it.

By the way, Linda’s like most folks alive today. Zero perspective and a thin grasp of history. People like to think they live in unchartered waters, that this time it’s different, and nothing in the past comes close to our experience. What drivel. Recent market declines don’t even come close to making it into the top 20 one-day hit list. Oil was at $10 a barrel in the late 1990s and the world motored ahead with nice stock market gains. More to the point, there’s no reason to think more risk exists now than in 2011, when stocks crashed 20% and we all survived. What a load of drama queens we’ve become.

Look, even Canadian perma-bear David Madani believes things are overdone. “We think investors are over-reacting and expect oil and other commodity prices to recover some lost ground later this year,” he told clients over the weekend. “Accordingly, we expect the Canadian dollar to end this year higher than it began.” His target for eleven months from now is 75 cents.

Regarding our market, now down 13% since this time last year and swimming in negativity, any bounce in oil will likely have a dramatic impact. Energy stocks have been pounded, money has been fleeing and Chicken Littles like Linda have been cashing out their mutual funds and ETFs at the bottom of the curve. It’s a classic pattern. History tells us what will happen in a world that still runs on oil, where we don’t all own Teslas or run our houses off solar panels.

Then there’s stimulus, most decidedly coming. First the Bank of Canada will cut its rate, taking it close to zero and goosing stocks. Second, the Libs in Ottawa are close to announcing a fat-deficit, mega-spending program which will rustle the loins of the bond market and inject tens of billions into the economy building stuff. Whether you believe this is the role of government or not doesn’t matter. It’s coming, baby.

“Fiscal policy will play a more active role,” adds Madani. “Everything we have seen from the Liberal federal government indicate that they are willing to run larger budget deficits to support a flagging economy.”

By the way, Scotiabank economists had this to say the other day about Canadian banks: “In our view this is the best buying opportunity in the space since February 2009 and we would be aggressively buying the group. We expect a significant rally in bank stocks as the market gets greater clarity on the Canadian economy as it adjust once again to the commodity cycle.”

Hmmm. And she wants to go to cash, when those banks are paying 0.6% interest? Brilliant.


The argument for thinking RBS published an idiot report builds when you look at the US. There is no recession coming. Not even close. No indication US consumers are rolling over, paying debt instead of buying things – as always happens before a recession takes hold. In fact, more vehicles rolled off dealer lots in 2015 than any other year on record. Preceding every recent US recession car sales went negative for at least eight months, while this time there has not been even one.

In December US airplanes were at near capacity. Consumer confidence levels are at eight-year highs. Last month 292,000 new jobs were created, and more than three million in the past year. The US unemployment has halved since 2010. The federal deficit is at a nine-year low. Bond spreads are at a post-2008 low.

Sure, there are problems. China’s apparently run by idiots. The US Fed will raise rates again in 2016, and corporate earnings will be struggling over the next couple of quarters. But the US economy is 70%-based on consumer spending, and because of cheap gas and lots more jobs, people are feeling pretty cool right now.

So what to do?

Nothing. Especially if you have a balanced portfolio with the kind of asset mix this blog has suggested. It’s already shielded you from the losses most fellow beavers are experiencing, and is well positioned for the eventual snapback.

Stop looking at your portfolio every hour, every day or even every week. It’s irrelevant to your life unless you need the cash later this month. Selling everything, as the RBS chief numbnuts suggested, ensures you lock in temporary losses making them permanent. The financial guys will love it, of course, since they make money on transactions, but it’s an utterly dumb move for most investors. Remember that 73% of the time markets give an annual gain. If you have a balanced portfolio, the odds rise to 90%.

This is not a 10% moment. Even if the Chinese mess up. If Trump gets elected. If oil goes to twenty bucks. If Adele releases another single. Life will carry on, until that day when human nature changes and people stop being motivated by fear or greed.

Now go do something useful.

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January 17th, 2016

Posted In: The Greater Fool


  • Avatar Puzzled says:

    Garth is still at it. “Real estate is going to crash” about 7 years ago and 50% lower than it is now, to i never said that, “Real Estate is going to melt slowly”>NOT, to “I told to invest in the market” but after the fact “not the TSX” to who knows what next. He is an amusing writer and little else. Certainly not a predictor of future events unless one uses several lifetimes. He is an excellent writer of twisting his past predictions to keep his groupies tucked solidly in their basements.

  • Avatar Mark says:

    @Puzzled,,Totally in agreement.

  • Avatar Michael says:

    I am not a Garth Fan boy but what predictions have you accurately predicted? He is going to be right about housing….at some point.

  • Avatar glen says:

    i use garth as a REVERSE predictor.its made me money for yrs

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