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November 23, 2016 | Lessons

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 Friday before Trump, the Dow sat at 17,888. Market-timers had just taken their own assets and those of their clients into cash positions. They anticipated a storm.

This week, Wednesday, the Dow closed at 19,083. That’s an increase of 6.7% in 11 trading days since the election. In other words, a whole year’s worth of advance in less than a fortnight. We all know the reasons. The goofy billionaire has promised massive spending, big tax cuts, plus whatever-it-takes policies to grow the US economy, all coated in anti-trade protectionism.

So, the stock-pickers blew it. Again. Because market timing doesn’t work. Especially now.

Equally creamed were those who believed a Trump win would trash the US dollar (it just soared to the highest level in a decade), or send billions in worried money into safe havens like gold. The yellow metal, in fact, has turned into a wealth trap. Look  what happened since the Trumpster won.


So while stocks added 6.7% since the vote, gold has shed $150 an ounce, or about 11%. Ouch. In fact bullion’s down 37% since hitting its recent high six years ago. Yuge disaster.

Meanwhile, US Treasury yields have just jumped a little more – to a 16-month high – and prices declined further. The historic unwinding of the bond market is now in its third week, a fact which has already pushed some Canadian banks to goose their mortgage rates. At the same time, Bay Streeters are tightening credit by the hour, preparing for what comes next. You’ll have some more news on that shortly, according to my pinstriped luncheon date today.

If the Fed doesn’t start normalizing interest rates again on December 14th, markets will be shocked, since the odds are now 100%. As mentioned earlier this week, 2017 will bring another two moves. The next change by the Bank of Canada will be up, not down, and likely come within 12 months. Of course, by then mortgages will have increased several times.

There’s more. US consumer confidence is shooting through the roof. The latest survey shows the deplorables to be the most hopeful they’ve been in an entire decade. Now 37% of households expect their personal finances to improve in 2017 with higher wages and more jobs. Speaking of which, the American unemployment rate is solidly below 5% and approaching the point at which economists declare full employment.

This week came news that orders for durable goods have coursed higher, unexpectedly. Prices for copper, tin, aluminum and zinc continue to rise on the expectation of increased demand as $500 billion is spent on American infrastructure. While gold sinks, lead is ascending – now at the highest level in half a decade.

Well, there are lessons here.

First, never bet against America. You’ll lose. For a few years this blog has been urging you to maintain a heavier weighting in US and international growth assets, and less in maple. In fact, it should be 2-to-1. Of the 60% growth component in a 60/40 balanced portfolio, keep the beaver stuff to about 17%.

Second, never listen to the simpletons and alarmist bullion-lickers who espouse holding precious metals. Especially in the physical form. This has been a consistently losing strategy for years, a pattern is likely to continue. These metals are rocks paying neither interest nor dividends, are highly volatile and emotional, and won’t protect a single pimple on your butt if there were to be an economic crisis. You live in dollars. Collect them instead. And hoard kibble.

Third, get ready for higher rates. Consistently higher. Relentlessly high. No spike, but instead a steady drumbeat of elevated money costs that almost everybody you know never expected. Since Canadian households are among the most indebted in the world – and carry a much higher burden than American families – you can imagine what this might do to real estate over a period of time.

Fourth, (this bears repeating) anyone who thinks they can foretell market moves, ‘add alpha’ to a client’s portfolio by diddling with daily weightings or day-trade their way to wealth, is a fool. I’ve seen seasoned advisors sit on giant piles of cash all the way through a bull market, instead of remaining fully invested in wisely diversified portfolios. It’s why balance works. When crap happens, volatility’s reduced. When the sun shines, up she goes. Because you never know when the best (or worst) days will occur, staying invested is the only logical approach. To think otherwise is to be an egoist or a con.

Lots to learn from a Trump. Not the man, but the event. He may become the worst leader of our times. But he turned the page.

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November 23rd, 2016

Posted In: The Greater Fool

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