- the source for market opinions


October 25, 2018 | Criminal

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.

Almost five years ago Jesse Colombo, a high-falutin’ financial analyst and Houston-based financial advisor wrote a scary piece for Forbes Magazine. “These 23 charts prove that stocks are heading for a devastating crash,” the ominous headline read.

Then it got worse.

“Following the bull market pattern of the past five years, the U.S. stock market continues to climb to new highs while shaking off all reasons for pessimism as well as the warnings of skeptics. Stock market bulls are becoming increasingly brazen as they drive the market to nosebleed heights, which is convincing a greater number of people into believing in the economic recovery. Unfortunately, the public is being fooled because the U.S. stock market and economy is experiencing another classic central bank-driven bubble that will end in a calamity, erasing of trillions dollars of wealth.”

This guru said 'trillions' would be erased


The Dow, when Scary Jesse penned that, was at 17,000. Today – even after the recent crappy sessions – it sits around 25,000. So listening to him might have cost you a 44% return on the US equity portion of your portfolio. It was bad advice. Classic Chicken Little. ‘Things have to go down just because they went up’. In fact, it’s almost always been bad advice to sell, hide, retreat, cower, shelter and try to time the market. Especially in a storm.

Or in 2008. As we know, the three-year period surrounding the Great Financial Crisis were the worst experienced in a lifetime – since back in 1929. The Toronto stock market, for example, lost 55% of its value and those with stock-only portfolios waited seven years to get their money back. That was bad. But not as withering as the early-Nineties collapse in Toronto real estate. Then it took 14 years for average prices to recover.

In any case, equities always regain their value faster than housing, since the stock market is a proxy for the entire economy. Moreover, any investor with a balanced portfolio (40% fixed income, 60% growthy ETFs) in 2008-10, did okay. The assets lost 20% in the mess, recovered in just 12 months then added 17% the next year. People who panicked and sold in the gale lost a fifth of their money. Those who ignored the media experts, other little chicks and blog mecroeconomists, ended up making 5% annually during that time – the worst crisis in a generation. Not bad.

Now, let’s review the last 10 years, including the 2008-9 mash up.

What the market's delivered over 10 years


Five years ago the doomers said stocks were grossly inflated by central bank largess – quantitative easing. When that punchbowl is taken away, they forecast, equities will fold. They didn’t. Trump came along and the party continued, this time bolstered by tax cuts, protectionism, corporate profits, jobs and consumer spending.  Now, nine Fed increases later, the stimulus is being withdrawn and the doomers say higher rates and more debt will crash investors.

In fact, any one day there are a dozen irrefutable reasons why things are about to collapse. Trade wars with China. Romping government deficits. Surging bond yields. Political polarization. Trump. Putin. The crazy bearded Saudi guy. Venezuela. Our wobbling housing market. Or a recession – because it’s time one blew in.

Many people expecting their portfolios to go up every single month they’re invested are upset with 2018. No wonder. Markets have corrected globally after two boffo years in which balanced portfolios made a 20% gain. By Christmas they likely won’t have made much – maybe a GIC rate of return. But they also get to hang on to the ground already gained. That’s how investing works – fluctuations, but we know that more than 70% of the time markets advance in any given year. Hence the wisdom of the old adage that it’s not timing the market, but time in the market that delivers results.

But how about today? Would Jesse still be quivering? Actually, he is. Poor guy. Get him a blankie. Just wrote this: “We believe that the current bull market/bubble is going to end badly, but we respect and follow the market’s trend in the short-term.” Well, if he has spent the last half-decade telling his clients to sit on their hands, like a bunch of other misguided advisors, he failed them. And he should know better.

For the first time in almost a decade, the global economy has been expanding smartly. Corporate profits, especially in North America, are outsized. GDP growth, inflation, consumer spending are all channeling higher. The Canadian jobless rate is the best in a generation while America is at full employment – the most robust numbers in 50 years. Trump continues to throw gas on the fire, so protectionism and trade wars will endure. So will rising rates, knocking back real estate and doing what they’re supposed to – cool the heat.

As my technical buddy Ryan the portfolio manager adds: “We’ve broken the 50 and 200 day MAs (moving averages) but the S&P 500 remains in a great long-term upward channel. Technically markets are oversold, approaching support levels and seasonality turns positive in November so I’m expecting a stabilization over the next few weeks then hopefully a rally into year end.”

Anyone fretting about falling markets needs to remember we’ve been at record highs in New York for most of the year. Just thumb up a few inches and gaze once again at that 10-year chart. Will it look like that in another ten? Yeah, probably.

So, either stop obsessing over your portfolio, or stop investing. Life’s too short. Ask your dog.

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October 25th, 2018

Posted In: The Greater Fool

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