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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

January 25, 2017 | Too Much?

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.

When the Dow hit 10,000 at the turn of the century I was busy building a live, streaming mobile TV station in the back of a truck sitting in a parking lot in downtown Toronto. Sticking out the top was a fat antenna thingy aimed at the top of the CN Tower which sent out signal skyward in a shocking new way – wireless!

In the truck were three surreal employees I expected to (a) broadcast continuous business and financial news for eight hours a day, (b) feed the meter, (c) man the mini-digital cameras and audio feed, (d) manage the wireless broadcasting equipment, (e) keep the power plugs stuck in the adjacent poll outside and (f) find stuff to talk about, including rolling up the back door, corralling passers-by and inviting important Bay Street honchos to come down and crawl through the cab into the studio.

What I was doing, the Globe said at the time, “Is just like CNN. But cheap.”

This, kids, was the dot-com era. Anything went. It was euphoric, unbridled, iconoclastic and bold. The old ways of doing things – making money, creating companies, doing business, getting rich & famous – were kaput. The online world was here, changing everything at once, making tomorrow utterly unpredictable.

Investors bought it hard. Nortel dominated the Canadian stock exchange. Dot-com millionaires on skateboards were everywhere. A few people had heard of something called “Google” and one week after launching my web TV venture execs from the country’s biggest communications company were buying me steak and goblets of red wine at the King Eddy.

Well, as you know, things didn’t go so well after that Y2K excess. Tech stocks plunged, making investors wonder why they ever bought into companies with insane valuations and no profits. The Nasdaq lost 80% of its value. Nortel flamed and died. Then we woke up to Nine Eleven and a recession.

So, in hindsight, the Dow at ten grand was a symbol of nothing that endured. My cutting-edge mobile studio migrated into a bricks-and-mortar operation and started turning out TV shows for the traditional networks. So boring. The last time I saw the sexed-up, wireless cube van it was being sold to a reno contractor. Sigh.

Well here we are again. The Dow at 20,000 – seventeen years, and one giant credit crisis later. This time investors have been pouring in, post-Trump. The market’s gained about 7% since the November 8th election, and the dude today celebrated the milestone with (of course) a Tweet. Once again there’s the sense we’re in a new age, graduating from deflation and decline into inflation and testosterone, with the new US president being the bold iconoclast who millions expect will quickly make them wealthier. One day it’s ripping up trade deals. The next it’s building a $10 billion wall.

Markets assumed when a billionaire businessman becomes president he’ll be pro-business, favouring CEOs, cutting corporate taxes, reducing regulations, tossing out lefty concerns like health care or the environment, stimulating demand through taxes and tariffs and celebrating more profits and non-stop growth. So, they went up. Fast. Hard. And if Trump does in fact slash business taxes by more than half, bottom lines will swell like a pubescent gland, and the stock market will look cheap again.

So is the Dow at 20,000 scary? Especially when other markets – Bay Street, the S&P 500 and Nasdaq – are also at record highs?

Maybe a little – because this marks a 200% gain for stocks since the winter of 2009 – but not a lot – because corporate valuations are only moderately elevated. The milestone is just that. A marker. More psychological than anything else, grabbing headlines and probably reminding a lot of people who kept their money in a brain-dead GIC at the fruit place for the past few years that it was a lame decision.

Anyway, I asked my fancy portfolio manager partner, Ryan Lewenza, for his technical analysis take on the day’s big event. He suddenly looked very aroused, ran to his office and dove into the research files. Ryan analyzed the six- and 12-month returns after the Dow had hit 10,000 in 1999 as well as other key markers. “In every case the Dow was up after hitting these milestones, and on average rose 8.1% and 18.3% in the 6 and 12 months after hitting these important levels,” he said. “So just because the Dow hit this important milestone of 20,000, we should not expect a near-term peak in the bull market, and in fact, if history is prologue we should expect further gains.”

Here’s his summary:

So why has this happened? All Trump?

Far from it, actually. The new president’s rally certainly helped push the index ahead, but that came after many record highs during the final months and years of the Obama reign. The key factors are bigger than either leader. Like global and US growth which is now accelerating and evident in manufacturing data, GDP numbers and lending indices. Meanwhile corporate profits in the US have revived – we’re now in a second positive quarter of earnings growth, even without a tax cut or regulatory overhaul. Despite the growth, inflation is low enough still that central bankers around the globe have kept rates cheap and liquidity flowing. Yeah, the Fed will hike twice this year, but this is still a gradual, gentle slope higher.

“In sum,” Ryan says, “don’t fear the Dow hitting 20,000. Rather rejoice as it’s proof that things are getting better and that this bull market should continue in the months ahead.”

Of course, don’t be a cowboy. Picking a few stocks, having an all-equity portfolio, or putting all your chips on America is gambling, not investing. Always be balanced, diversified, prudent, almost boring. Things can always get worse.

You have no idea what it feels like seeing your awesome mobile studio delivering drywall.

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January 25th, 2017

Posted In: The Greater Fool

One Comment

  • Avatar Holly Hallston says:

    Wasn’t Turner the guy who told all of us that the stock market loved Clinton and a Trump election would certainly crash it? So now the Trump rally is all because Obummer did such a great job throwing everybody out of work here. Everybody, that is, except government employees. Fact is Bush turned the money tap on with the Fed because of the 2008 debacle, as everyone already knows, penalizing his own party for that in the Nov elections. Now, what exactly was it that Obummer did?

    And let’s get real here; there is no such thing as investing. Selling stocks is just a company’s way of offloading their capitalization and risk to whatever sap is willing to pay, in effect making every “investor” a gambler. Once they’ve done that they “reward” themselves with absurdly cheap stock options to bleed money from the gamblers when the price is up and justify it as a “performance” bonus. Doesn’t anybody in Canuckistan remember how fast the crooks at Nortel were offloading their $3 options when the stock was north of $200 and within a year it was delisted. Hello !!

    Balanced portfolio? That’s code for playing the pass line or high/low on the craps table. Putting all your chips on the USA is risky? And putting one chip on the T2 communist regime’s fiscal management skill is not? In a world were every “socialist” government is sooooooooo flat broke that they are all discussing how they will eliminate currency and make every individual a card carrying Rollerball tax slave, putting money in any place where a keystroke can instantaneously eliminate it is risky. Invest in yourselves before anything else people.

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