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September 12, 2016 | The Upset

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.


Mr. Market taketh, and Mr. Market giveth. On Friday the Dow plunged (with Bay Street following) only to see a 240-point recovery on Monday. Talk late last week of interest rates stiffening like a teenager in heat suddenly turned into waffling. Meanwhile Hillary Clinton’s stumble on the weekend, plus news she was ill (and the campaign hushed it), sent a chill through markets.

“I wanna see that woman on TV on a StairMaster,” said an analyst I hang with. “Or else we’re all a little closer to being screwed.”

So, risk is on again. At least more than last month. Most financial guys still believe the Fed will raise interest rates by the end of the year, and most Canadian bankers think the bond market will follow. So, it’s fair to say five-year, fixed-rate home loans won’t stay at this insane level for long. That poses housing risk.

As far as financial assets go, higher bond yields (and lower prices) will turn preferred shares into winners, and stock markets have already priced in a few moves by the Fed at the end of 2016 and into 2017. It’s only people born since 1990 who think the cost of money can never rise. Kids. Sheesh.

The unknown (larger) factors are central bank fatigue and Trumpism. Either of those could whack stocks, just like Brexit. Last week exchanges tanked when it appeared stimulus spending in Europe might be contained, and when odds of an early Fed hike spiked. This has happened before, when US central bankers said they’d cut back on their massive bond-buying program causing Wall Street to panic. In the end, the Fed did just what it threatened, and markets got over it. The same will be true when rates inch up.

As for President Trump, more problematic. It’s also uncharted. There’s never been a person less politically qualified or experienced to be in charge of the globe’s biggest economy than this guy. He is inconsistent, opportunistic and divisive. His appeal is profound to a broad swath of people who feel disenfranchised and disillusioned, and mourn a dying middle class. The solutions are simple. Not enough jobs? Rip trade deals. Afraid? Ban Muslims. Too many immigrants? Build a wall. Add in celebrity status, a deep vein of independence plus a penchant for social media, and Trump’s a contender.

His opponent, to the dismay of others, has been unable to stop the barbarian on the right as she was the commie on the left. She’s weaved and dodged on issues she should just own (like the emails) and now her health’s on the table. Already 90% of people find her untrustworthy, so trying to cover up a bout of pneumonia just feeds the meme.

In short, the US election has legs. So what should you do?

First just sit and watch for a while. Markets are usually pretty good predictors. In fact if we see down numbers from August to the end of Halloween then there’s an 86% change Trump will win (according to past campaigns). On the other hand, if the market generally rises during this period, the odds of the incumbent party retaining control are 82%.

So far, a Clinton win has been assumed.

The S&P 500 is up 5.6% this year, and ahead 12.5% over the past twelve months. We saw new record highs just a few days ago. As Bloomberg reported: “It’s already priced into the market that Hillary Clinton is going to be president so right now anything that changes that narrative is going to give the market a pause to consider what that would mean.”

So will the 9/11 ceremony stumble on Sunday turn into another Clinton political morass? Maybe. But then, Donald Trump could as easily blow himself up. Or keel over. Never before have two 70-somethings gone through this grueling exercise.

In short, a lot may be about to happen. The next three months could bring far more volatility or, if the Street is right, a significant year-end rally. What should you do?

Trying to time the markets isn’t investing. It’s gambling. You have no more idea of what’s going to take place than anyone else. So don’t even try. Going to cash is also a nebulous idea, since you might end up buying into a rising tide. Research also shows when markets tank, people sitting on cash stay sitting instead of investing, emotionally unable to do what others are not. Of all motivators, fear is the greatest.

This is why having a balanced and diversified portfolio is the best strategy for almost all investors. With a sane mix of safe things and growth assets, a broad diversification among asset classes and across several regions, you dampen volatility and take the bite out of any bear. For example, after the Brexit surprise equity markets plunged 6%, while a balanced portfolio lost about 1% – and quickly recovered. In 2008-9, when the TSX crated 55% and took seven years to repair, a balanced portfolio fell 20% and regained it all in a year.

Market timing doesn’t work. Period. It’s a myth. Any stock-jockey advisor who tells you to rush into cash, then let him flip equities for market-beating performance is playing you.

President Trump? May Allah help us. Meanwhile help yourself. Be cool.

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September 12th, 2016

Posted In: The Greater Fool

One Comment

  • Avatar Holly Hallston says:

    Your a Clinton proselyte? For real? A woman who got canned from her first job in DC because her boss stated unequivocally that she was a pathological liar. A person who, along with her pervert husband, has been involved in dubious illegal activities since the gun running days in Mena Arkansas? A duo who have a trail of dozens of bodies littered on their corrupt path to power and sleazy accumulation of wealth? A person whose first go too line of any question that might peg her is a categorical lie? This is the person you hang your hope of a hat on because protecting your stash is paramount over any semblance of morality? Man, you don’t understand anything about Americans and you sure “ain’t no cowboy”. Ends up your just some greasy fat cat with who types in his skivvies while wearing alligator boots. England is still there after all the negative mega hype about instant collapse with an exit vote and they’ll be much better off for it in the long run. We’ll still be here after Trump trounces that crook and her pervert sidekick in November and the US will be better off for that. Boots don’t make the man Garth; turns out you’re a real weenie.

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