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August 8, 2016 | Fearmongering

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 last thing you should be doing these days is sitting on cash, buying gold, loading up on GICs or visiting doomer web sites (except this one, naturally). While the world has not shortage of problems, nutjobs, opportunistic politicians and public stupidity, there are solid reasons to get invested and stay that way.

If your advisor’s telling you stocks are too expensive, bonds are not worth holding, preferreds and REITs might suffer from a Canadian rate cut and this is the time to hide under a rock, get a new guy. This year has already given two stunning opportunities to get invested – the commodity crash in February and the Brexit surprise in June. Markets and portfolio survived both and have gone on reward those who jumped in, or held on and ignored the volatility.

So far this year, Bay Street is ahead 13.42%, Wall Street is up 6.5%, REITs have returned 17% and preferreds are in the black by about 18%. Even a lowly bond ETF has gained 3% since the year began (compared with a six-month GIC is yielding 0.35%, or one-tenth the return. Moreover, GIC interest is 100% taxable, while the ETF gain is only 50% taxable, unless held in a TFSA, where there is zilch tax).

A balanced portfolio is up about 5% over the last seven months, and there and solid reasons to stay invested.

For example, the current odds of Hillary Clinton becoming the next US president, as opposed to that lunatic demagogue, are currently 84%. Markets like Democrats more than Republicans. Investors are apoplectic about Trump. By comparison, Clinton – despite all her warts and baggage – is a known commodity who won’t be a giant distraction from what matters, which is helping companies make money inside a growing economy, with rising equity markets.

As far as the financial guys go, Trump’s toast. Big market rally in November.

While the Canadian economy slumps, the US continues to move ahead with over 500,000 new jobs created in the last two months. The doomsters, Trumpians and bullion-lickers hate this, which is why they come here to spread their sauce of despair. They refute the government stats, tell you America’s in recession and the world will collapse in a debt soufflé with your paper money worthless. Yawn.

The slow, steady, relentless recovery to the south of us continues. That economy should grow by 2% this year, commodity values will sawtooth higher, interest rates nudge judiciously higher, corporate profits finish 2016 strongly and equity markets hold on to record levels. Those who moan about US debt levels fail to mention the budget deficit has cratered to lows not seen in a decade. Consistent and sustained growth, even lacklustre, is enough to easily service debt – most of which never will be repaid.

And what about central banks? Far from being the manipulative villains that gold nuts hate, these guys have largely co-ordinated monetary policy around the world since the 2008-9 disaster, fighting the forces of deflation and waning consumer demand with cheap money and oodles of stimulus. The main reason 2010 did not end up looking like 1932 was monetary policy – and the fact central banks from Washington to Beijing, London and Ottawa were singing from the same music.

After trillions spent, there’s no way these dudes are going to blow it now. US interest rates will crawl upwards as economic expansion dictates, while sad places in need of more stimulus (like Britain and Canada) will probably get it. There were many lessons learned in the 2008 credit crisis, with one of the biggest being the forever need for integrated global finances. This is what makes events like Brexit and populists like Trump memorable, and irrelevant.

What financial markets have done this year, despite the UK vote, terrorism, the commodity price collapse, China fears, US politics and glacial growth, is not because of central bank pumping or investor ignorance. It reflects the fact the world’s biggest economy is expanding, technology is rampant, global GDP is growing and we’ve never in history has a more concerted or coordinated effort to stay on the road.

Back in February when oil was twenty-seven bucks and market swooning I tried to talk a guy out of turning his whole half-million-dollar balanced portfolio (then down 3%) into cash. I lost. Four weeks later he was begging to have all the trades done again, because things looked better and prices rising. That little emotional burp cost him tens of thousands of dollars. All because he follows a blog written by a wimp – who’s once again telling people to go to cash.

Moral: the world is not ending. Unless, of course, you live in Vancouver.

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August 8th, 2016

Posted In: The Greater Fool

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