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August 5, 2016 | Puffed up

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.




It’s been a few years now since you were handed some advice: don’t bet against America, lighten up on your maple, diversify into US$, cuz the beavs are losing it.

Hope you listened. When our dollar was worth an actual dollar and US real estate was unloved and unsold, the message was clear: go, and buy. This gift shall not pass this way again. Hope you listened to that, too.

Of course, most people didn’t, won’t and never will. Over 70% of investors have 100% of their stuff in Canadian securities, while most of the middle class has made a huge, leveraged bet on a single fixed asset. Meanwhile, not a day passes when this pathetic blog isn’t overrun with puffed-up little patriots dissing the US, claiming it’s about to sink into a debt-infused recession and everybody there is unemployed, on food stamps, or out buying ammo.

Sure, there’s a lot in the world for us to worry about. But America isn’t on that list. Not even the stock market makes it. Anyone who hasn’t been fully invested this year in a balanced and globally diversified portfolio has a fool, or a wimp, for an advisor. The S&P has gained 6.8% this year, Bay Street is ahead more than 12%, with REITs and preferreds and even bonds clocking in gains.

Now look what the latest data is telling us.

The US turned out 255,000 new jobs last month, with another 292,000 created in June. This keeps the unemployment rate at 4.9%, which is now considered full employment, or the ‘natural rate’ of unemployment (some people just don’t want to work, or can’t). The jobless rate there has collapsed by 50% since the recession. Better yet, people are earning more – finally. The year/year increase in hourly earnings is 2.6%, while the economy as a whole is projected to growth this year by 2%.

Now, compare that to us. First, sit down. It’s bad.

In June we lost, net, less than a thousand jobs (while the States added 292,000). Last month it was a disaster – 31,200 fewer people working. Worse, 71,400 full-time paycheques were wiped out, with 40,200 of them replaced with part-time jobs. Less pay, fewer benefits, reduced security, more stress.

As a result, the Canadian dollar lost about a cent. Ouch. Combine that with the hostile, foreigner-go-away tax just adopted by BC, and you can imagine where our country’s image is headed. Oh yeah, we’re also facing a record trade deficit.

Investors were okay, however, as equity markets roared ahead – in the US because more jobs and higher wages mean more consumer spending and corporate profits, and in Canada because things are getting so bad the central bank will probably have to cut rates and throw money around. The real losers are likely to be those who have shoved all of their net worth into inflated houses, in the midst of an economy which is shedding jobs and going backwards.

If you think a quarter-point cut in the Bank of Canada rate will save housing, think again. We’ve hit a debt wall, and five-year mortgages at 2.5% or less are unlikely to trail lower. Even so, look at the wobbly markets chronicled here during Misery Week. The narrative is clear.

Well, the canyon between the US and Canada continues to yawn like that between the 1% and the rest. Our economy is shrinking. Theirs is growing. We are losing serious jobs. They’re creating them. Cheap commodities hurt us. They help Americans. We’re heading for recession. They’re not. Our dollar is whacked. The greenback’s ascending. True, they have Hillary and Trump. We have Rona and Justin. And Notley, Clark and Wynne.

The best defence is a volatile world, living in a vulnerable nation, is to not have all your eggs in one basket. The growth portion of your balanced portfolio (60%) should be two-thirds non-maple. You should supplement the growth with real estate investment trusts, and ensure you have exposure to large, medium and small-cap companies through broad-based ETFs. Don’t shun fixed-income just because rates are low, since having some bonds (Canada, provincials and corporate) will lower volatility and also add value when stocks drop. Meanwhile preferreds pump out a 5% dividend and hand over a tax credit.

Time and again the doomers and pantywaists have been proven wrong. The real risk is running out of money, not losing it. Especially for women. Nesting is toxic, too. But I’ll never win that argument.

And now, another new guy!

Blog dogs got to nibble on Ryan Lewenza last Saturday, a know-it-all portfolio manager with Turner Investments who is still nursing his wounds six days later after becoming a GreaterFool guest blogger. Now my other partner, also a buttoned-down, fancy Bay Street dude and portfolio manager, Doug Rowat, is about to make the ultimate sacrifice. His inaugural piece will appear here tomorrow, as this pathetic blog fulfills its promise to operate seven days a week. May God be with him.

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August 5th, 2016

Posted In: The Greater Fool

One Comment

  • Avatar holly halston says:

    Bravo Garth, totally agree. As the rest of the world melts down, the go too safety deposit box is the US market. When you have the biggest, most liquid economy and markets it’s the place to park cash when things get unsettled. Until the next up cycle in the world economy, that’s the way it’ll be. Like it or not, it is what it is.

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